Welcome to ViaSat's Fiscal Year 2012 Third Quarter Earnings Conference Call. Your host for today's call is Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.

Thanks. So good afternoon, everybody, and welcome to ViaSat's Earnings Conference Call for our third quarter of fiscal year 2012. I'm Mark Dankberg, Chairman and CEO, and I have with me here, Rick Baldridge, our President and Chief Operating Officer; Ron Wangerin, our Vice President and Chief Financial Officer; and Keven Lippert, our General Counsel. Before we start, Keven will provide our Safe Harbor disclosure.

Thanks, Mark. As you know, this discussion will contain forward-looking statements. This is a reminder that factors could cause actual results to differ materially. Additional information concerning these factors is contained in our SEC filings, including our most recent reports on Form 10-K and Form 10-Q. Copies are available from the SEC or from our website. Thanks.

Okay, thanks, Keven. So we'll be referring to slides that are available over the web. Let's start with some highlights and the top level financial summary for third quarter and year-to-date for fiscal year '12, and after that, Ron will discuss our financial results in more detail. Then I'll provide an update on our business segments, and finally, I'll update our outlook for the fiscal year and summarize things. And then we'll take questions. So the main event for us over the next few quarters will be the growth in our Broadband Satellite Services segment over ViaSat-1. After a lot of thought and deliberation, we decided to rebrand our consumer service as Exede by ViaSat and we introduced the new services at the Consumer Electronics Show in Las Vegas. We're really pleased with the feedback we got there and we'll go into that in more depth later in the call. We also announced distribution agreements with the National Rural Telecom Cooperative and DISH that will make create some momentum in wholesale. And we've been really busy lighting up the 20 ViaSat-1 fiber teleport gateways pretty much nonstop since we took control of the satellite in December. We're about 75% of the way through that and expect to have it complete by the end of this month. We'll also provide information on subscriber acquisition next quarter once the system's fully lit up. We're pleased with initial responses and dealer and distributor engagement, including DISH, which began activating subscribers last week. We're very happy with system performance as we continue to add coverage and dealers on a daily basis. While the 6 month or so delay in the satellite launch has weighed on bottom line performance, our product segments in aggregate have been growing in revenues, new orders, backlog and earnings for the third quarter and fiscal year '12 year-to-date. Our Commercial Networks business continues to show strong year-over-year revenue growth driven by a solid backlog of new projects. The Commercial Networks segment provides a technical foundation for our own broadband services and those of our key customer partners, so they have been very focused on network deployments over the last few months. And we feel that's gone well. In the next few quarters, that segment will also be continuing investments in developing, testing and deploying new Ka-band technology for the in-flight broadband market and portable applications, including satellite news gathering. Finally, there are some international Ka-band network competitions that should be determined in Australia, the Middle East and in the Americas. Our Government Systems segment is still growing revenue on a year-to-year -- year-over-year basis, but more slowly than we had planned. Orders remain strong, yielding a book-to-bill just over 110%, but revenue growth is not quite as fast as we are aiming for so we continue to build backlog. Our mix in Government is evolving more towards services as a result of very strong growth in mobile broadband, especially aviation. Financial results for the segment are solid. Plus there are some bright spots in the MIDS JTRS, Tactical Data Links market that creates optimism in renewed growth piece of our business. This next chart illustrates some key financial metrics for the third quarter and fiscal year-to-date compared to the same periods last year. This data was also in our earnings release. Overall, results are pretty much generally in line with our plans. We continue to have positive new order flow in the quarter and year-to-date, and that helps with visibility as we get ready for our next fiscal year. At this point, our forecast suggests close to $1 billion in new awards in this current fiscal year, which would be a record for us. Revenue is up year-over-year, reflecting the stronger awards and growth in mobile broadband and other service-related revenues. Adjusted EBITDA, however, continues to be impacted primarily by the effects of the ViaSat-1 satellite launch delay. And Ron will talk about that in more detail later. So with that, Ron will go into our financials in greater depth now.

Thanks, Mark. We'll start with segments then go into further P&L discussions, the balance sheet and then cash flows. Last quarter, we began presenting segment revenues split between product and service, and we feel it provides better insight into our shifting business mix. In addition, the reconciliation for segment adjusted EBITDA was included in our earnings press release filed earlier on Form 8-K. As Mark mentioned earlier, overall, our operating results were about as we expected and consistent with our prior communications. Government segment revenues were down about 3% for the quarter year-over-year, primarily from lower Tactical Data Link and information assurance product revenues, partly offset by higher managed broadband network revenues to military customers. Given the U.S. government timing of their budget and their various amounts, our product revenues have been pretty lumpy, increasing and decreasing with the amount and timing of these awards. So despite our quarterly revenue being lower for the third quarter, this lumpiness has contributed to higher year-over-year to date sales of about 1%. One thing we have seen though is a continual increase in our service revenues and we expect it to continue as we look out over the next year. Our operating earnings improved for the quarter and year-to-date from better program performance, a greater mix of higher-margin programs and lower research and development costs. In the Commercial segment, our sales growth is principally from antenna systems and consumer broadband product sales, as well as satellite payload technology development programs. The revenue growth in the first 3 quarters is consistent with our total year communications. Our operating loss and adjusted EBITDA for the quarter and year-to-date reflect the production cost startup effects of the SurfBeam 2 product line, higher selling costs related to a number of large international opportunities we are pursuing, as well as continued investments in advanced networking and antenna technologies. In Satellite Services, revenues are down for the quarter and year-to-date year-over-year, principally from lower wholesale subscriber sales, partly offset by higher sales of our mobile broadband service. The lower wholesale subscriber revenues, an artifact of ViaSat-1's delayed launch in our distribution channels, reducing their sales and marketing of the existing service in anticipation of our new services provided by ViaSat-1. These results were consistent with our communications in our last several calls. Also consistent with our prior communications, we've incurred over $23 million of costs related to fiber backhaul, gateway side costs and our data center that were tied to the original launch date. This has contributed to lower earnings and adjusted EBITDA. But now that the satellite is in service, we expect operating earnings to decline substantially over the next 2 quarters as depreciation from the satellite and gateways and the incremental selling costs will outpace the incremental revenue from new subscribers. Given our ramp projections, we expect this to turn around in about 3 quarters from now. As we look at the rest of the P&L, for the third quarter and year-to-date, the other notable items include research and development expenses are down, reflecting a shift in our engineering resources over the same period last year. The difference in other income year-to-date is due to capitalized interest effects. Beginning in our fiscal fourth quarter this year, now that the satellite is in service, we expect interest expense to increase substantially as our asset subject to capitalized interest will be much less. For example, we expect interest expense to be approximately $6.5 million this quarter. Regarding income taxes, there's a significant difference in income taxes year-over-year. In the third quarter of last fiscal year, the federal R&D credit was retroactively extended, resulting in a 4-quarter catch-up effect in the one quarter. This impacted both the third quarter and year-to-date income amounts, as noted in fiscal 2011. This year, the federal R&D credit is in effect for only the first 3 quarters. And the significance of our benefit that we derive from the federal R&D credit, combined with a potential for near 0 pretax income for the fiscal year and the sensitivity of small change in expected pretax income can have on our tax rate, has caused us to shift from the annual effective rate method to the actual effective rate for recording income taxes. And all this resulted in a benefit for the quarter and year-to-date. Turning to the balance sheet. Overall, our balance sheet metrics are strong with good liquidity and low leverage. We continue to make good progress in receivables and days sales outstanding continues to be near record lows. We also made progress in inventory this quarter, whereby several products experienced inventory reductions. However, this was offset by planned inventory builds to seed the dealer network pipeline in advance of the Exede service launch in January. There's also a gross up in the balance sheet reflected in other current assets and current accrued liabilities of $20 million. This is related to the WildBlue shareholder rights action lawsuit which was settled in the quarter, and it was paid subsequent to quarter end. The ViaSat portion was only $500,000 and we're indemnified by the previous WildBlue shareholders for the rest. The only other significant change in liabilities is the increase in other long-term liabilities, which was associated with our estimate of the in-orbit incentive payments we expect to pay to Loral based on future performance of ViaSat-1. Now that ViaSat-1 has been placed into service, I wanted to update you on our expected amounts for depreciation. The satellite, which includes launch, insurance and capitalized interest, is approximately $363 million. And the gateways and other capitalized assets in total are about $120 million, with a weighted average life of approximately 7.5 years. At quarter end, we had almost $142 million available on our line of credit. We believe our line provides added flexibility to achieve operating objectives. Turning to cash flows. Cash flows from operations for the quarter were consistent with our expectations as we made progress in working capital. Cash used in investing activities for the third quarter demonstrates how the cash costs of the ViaSat-1 project are starting to wind down. We continue to invest in customer premise equipment for our retail satellite service, and are completing various back-office initiatives in support of the new Exede service. Also, to support our growing global mobility broadband business, we are investing in additional network infrastructure and equipment. Since the most significant ViaSat-1 satellite project payments are behind us, cash flows for the next couple of quarters will be primarily influenced by the ramp of our Exede service launch, the retail wholesale subscriber mix and the timing of when we start construction of our next satellite. Our cash flow generation from operations and borrowing availability provide sufficient flexibility to support the various elements of this strategy. Now I'll turn it back over to Mark, who will talk about our business segments in more detail.

Okay, thanks, Ron. So I'll go over some of the key points in our businesses now. Last quarter, we talked here about some thoughts on our conceptual approach to defining new service plans for ViaSat-1. And last month, at the Consumer Electronics Show, we introduced the specifics for the plans that we called Exede by ViaSat. In the ViaSat-1 coverage areas, we offer Exede 12 with downstream speeds of up to 12 megabits a second and upstreams up to 3 megabits. We offer data plans with volumes of 7.5, 15 or 25 gigabytes per month at price points of about $50, $80 and $130 a month, respectively. With these new plans, even though lowest-priced new service is almost 10x better than the best in the legacy WildBlue plans, and there's a very compelling 25x increase in speed at the $50 price point. So we felt that rebranding was the best way to distinguish these new services from the old and to help clearly delineate subscriber satisfaction with the new services. And that's similar to what we believe Verizon did when they came out with the FiOS brand relative to their DSL products. In the places that ViaSat-1 does not cover, we're offering Exede 5 on our other 2 satellites using a similar structure, but with downstream speeds of up to 5 megabits a second. We will essentially retire the WildBlue brand name by reserving its use for the existing legacy service plans. These plans are structured very similarly to 3G or 4G mobile wireless plans. We believe the rapid growth in smartphones and tablets is helping users understand why volume-delineated plans make sense to help operators maintain speed and responsiveness over wireless access networks that have limited amount of spectrum regulated by the FCC. Like other wireless companies, we also provide calculator-like tools that will help users understand their bandwidth needs and will also provide the option of buying more bandwidth if desired. The structure of the plans also helps users make simple comparisons in bandwidth volume offered by Exede, relative to using a mobile wireless service for fixed home use. We understand that some users will want more bandwidth, especially for video consumption, and we're working on plans, pricing and technology that will help deliver that on attractive terms. Those improvements will come over the course of the next year or so. So we thought the Consumer Electronics Show in Las Vegas last month was a great venue to introduce the new Exede service plans. We provided live over-the-air demonstrations in an exhibit area, in the Outdoor Central Plaza area, using the new networking system over the legacy satellites. So even though that meant the demonstrations actually had a little bit slower upstream speeds than we can achieve at ViaSat-1, we felt they were very successful. We got to spend a lot of time with journalists, bloggers, television networks, distributors, investors, industry and financial analysts, public interest groups and even some House incentive staffers. We were keenly interested in the impressions the new service plans created and how people would describe it. We were really pleased to see very positive initial impressions online, on the air and in print. And we'll show you some of those highlights in a minute. DISH also announced a new very attractive bundle of video plus our 12 megabit per second Exede broadband at CES at an introductory price of $79.99 a month. We're pleased with our DISH distribution agreement and especially with the opportunities associated with that bundled offering. Plus DISH began signing up subscribers for Exede last week, an important accomplishment validating substantial information technology integration efforts both companies went through to support the new plans and features of the new service. Since the legacy WildBlue plans are being phased out, DIRECTV will no longer resell those. We continue to work with DIRECTV towards an updated distribution agreement for the Exede by ViaSat plans that best suit DIRECTV. In the meantime, they'll refer their satellite broadband inquiries to ViaSat. We also previewed our first 2 key additional commercial application for ViaSat-1. In-flight Wi-Fi in a satellite news gathering service using a very small inexpensive portable terminal. Again, we were pleased to see favorable first impressions of the in-flight Wi-Fi service compared to existing Ku-band satellite or air-to-ground wireless alternatives. And initial reaction to the small portable terminal were also very positive. We're aiming to introduce both services by the end of calendar year '12. This slide shows a short compilation of some of our favorite media quotes about initial impressions of the Exede 12 broadband service. People pretty much universally found the user experience to be really fast and very responsive. Lots of people made favorable comparisons to terrestrial performance over DSL and even cable modems. Our demonstrations included web browsing, streaming video, video conferences and Voice-over-IP phone calls. We had lots of comments about how our acceleration technology overcame latency, and the sheer speed of the service made streaming video very quick and as smooth as broadcast TV. You can find the complete articles from these and others yourself online. Obviously, this is just the first engagement in a long campaign to reposition satellite broadband as a better choice for broadband access for un- and under-served Internet users. There's still a lot of skeptics that think satellite is somehow intrinsically bad no matter how much speed or bandwidth that we offer. But our experience at CES and the early responses we've seen from our first customers make us optimistic that the service really is surprisingly good. Ultimately, we think that's going to be the source of value, and we're being very deliberate in establishing and preserving those first impressions as we roll out the service. Word-of-mouth and third-party reviews will carry more credibility than most anything we say ourselves. One of our favorite quotes is in the bottom right. It's the title of an article by -- on Ars Technica called How ViaSat's Exede Makes Satellite Broadband Not Suck. And that pretty much captures both how much we've already accomplished and the challenges we still have ahead of us. So as I mentioned upfront, it's too early to report on the effects of the new Exede services on subscriber metrics. Things are changing really fast on a daily basis in terms of geographic coverage, dealer showrooms, dealer training, installation capacity, advertising and promotions and subscriber activation rates. Feedback from pretty much every perspective has been very positive. New subscribers and dealers seem pleased with the speeds and responsiveness. We'll be able to provide some initial insights on these metrics next quarter. Meanwhile, one thing is sure. We've definitely turned around right away and our subscriber base has grown. So our Commercial Networks segment continues to see strong revenue growth, up almost 40% in the third quarter and over 30% on a year-to-date basis compared to prior year. As we discussed last time, growth is largely driven by new projects and programs as well as initial sales of terminals for the new Ka-band services. We do anticipate continued revenue growth. This segment is also where we account for most of our commercial technology investments, including those that we ultimately target for contributing to broadband services revenue. Those technology investments include ongoing improvements to our Ka-band consumer broadband platform; mobile broadband, including in-flight Wi-Fi; portable terminals and applications, including satellite news gathering; plus new Ka-band space technologies. These technology investments have led to operating losses in this segment. Future revenue growth and profitability would be driven by capturing more network and product sales for Ka-band infrastructure, selling more consumer terminals and mobile and portable broadband terminals. The evolving mix of wholesale versus retail distribution in the United States for Exede will also affect the results for this segment. We do see some near-term opportunities for Ka-band networks on international satellites. We believe the successful launch of ViaSat-1, the successful launch of Eutelsat's KA-SAT and the very favorable initial reactions to the Exede service all help to establish us as the best choice for Ka-band broadband networks in terms of technology and economies of scale. We're also continuing to make progress towards starting a ViaSat-2 spacecraft, still aiming at a contract in the first half of this year. The pace of growth in Government Systems revenue has been a little frustrating, but we are still achieving growth, which is still noteworthy in the current DoD budget environment. We think that reflects well on the market segments we target and our competitive position within those segments. Year-over-year, operating earnings are up about 60% in the third quarter and 54% year-to-date, reflecting improved program performance and the mix of business. Year-to-date revenue is up about 1%. Year-to-date orders are up about 3% and the book-to-bill is about 110%, so we're continuing to add to our backlog. More traditional products businesses, including the High Assurance Internet Protocol Encryption, network encryption products and the MIDS and Joint Tactical Radio System products, have contracted significantly this fiscal year, mostly due to program delays that are attributable to DoD budget issues. But as the chart on this page indicates, our business mix is evolving due to growth in mobile broadband services. Services revenue exceeded 20% of total Government segment revenues this quarter compared to less than 4% just 2 years ago. We continue to serve more aircraft, more organizations, more simultaneous missions, more mission types and more geographic areas. And we've also received key initial contracts for Ka-band terminal equipment and services. We're aiming to use Ka-band to provide significantly higher levels of performance, improvements in simultaneous missions and to offer a compelling alternative to the steady increases in Ku-band transponder pricing that the U.S. government has been absorbing for the last several years. We continue to make steady progress in testing for our Blue Force Tracking 2 product and expect volume production to start this quarter. Finally, one of the targets we've had for several years is to expand our addressable market to serve platforms and functional capabilities that had been targeted by the larger, far more expensive Joint Tactical Radio System programs of record. The severe DoD budget crunches are slowly but surely having the anticipated effects, and there are opportunities to use our terminal variance on platforms that at one time were targeted for other Joint Tactical Radio System radios. We are seeing initial orders there. And that coupled with our long-delayed, but seemingly imminent MIDS and Joint Tactical Radio System development contracts, creates a potential for that business unit to turn around and grow beyond its prior peaks. So with that, this slide on our outlook is similar to what we showed last quarter. It's been adjusted to reflect our current estimates for fiscal 2012, which is the first arrow on the box and our expectations for next fiscal year. Adjusted EBITDA for fiscal year '12 appears as if it will be slightly lower on a year-over-year basis, reflecting the satellite delay and the current outlook for product revenues and associated earnings in the Government segment. The program award delays are constraining growth in fiscal year '12 compared to our outlook last period. That will also affect our GAAP and non-GAAP net income. Overall trends for new orders and revenues remain as before. The outlook for fiscal '13 remains consistent but with greater confidence given the successful launch of ViaSat-1 and strong order flow. Okay. So to summarize the highlights from the presentation, we're really pleased with the Exede introduction we did at the Consumer Electronics Show last month. It provided confidence we're on the right track with the new service definitions and that we can, in fact, transform the perception of satellite broadband. We also concluded new distribution agreements with both the National Rural Telecommunications Cooperative and with DISH, and they're both just now starting to sign up customers under those agreements. Meanwhile, we've been working nonstop to roll out the Exede 12 plans under the complete ViaSat-1 coverage area and Exede 5 under our older satellites in the ViaSat-1 coverage gaps. We should have that completed this month, setting the stage for nationwide dealer installation fulfillment and advertising and promotions in the next quarter, and then that mean we should really be able to hit our stride in gross ads probably starting in the second quarter of fiscal '13. We're seeing good revenue growth in commercial satellite networks, driven so far by new projects and programs. Wholesale distribution of Exede in the U.S. will start to kick in this quarter and next. This segment has been focused on setting the stage for growth in the services business. Ongoing technology investments in Ka-band consumer platforms, mobile and portable broadband in Ka-band space technology are largely accounted for in this segment and will continue to affect operating earnings for the next year. Key international Ka-band opportunities could foster more growth and improved operating results. Government business is actually growing, which is noteworthy in the current environment. It's not turning into revenue quite as fast as we expected, but orders continue to accumulate in backlog, and financial performance is much better than it was last year. Government mobile broadband is growing fast and overcoming contractions in the legacy product businesses, including the network encryptors and Link 16 MIDS and Joint Tactical Radio System. The budget pressures on the large Joint Tactical Radio System programs of record are creating openings for renewed growth in our MIDS and JTRS area. Overall, those budget pressures could create a more receptive competitive environment for us in several market areas. So that covers our prepared remarks, and at this point, we'd be happy to take questions.

[Operator Instructions] Our first questioner in queue is Ronald Epstein with Bank of America Merrill Lynch.

It's actually Elizabeth, in for Ron. Just a couple of questions for you. One, I think you just talked about the tax rate for the year, but did you say what you thought it would actually be for the end of the fiscal year, so for the full fiscal year?

No. Our taxes are a little bit odd given the expected pretax income being pretty close to 0 and then these large R&D benefits that we're entitled to. So it will be a large negative rate of some sort, but it's a small variation when you have small pretax that can really cause a big, I guess, change in the effective rate.

Okay. So it will be less than negative 55%, I think, you'd talked about before, or more negative rather?

Yes, it will be more negative. I mean, if we're looking at around -- say, our pretax number was close to 0 and then we'll have a large benefit there, then the rate could be significant. So right now we're looking at around probably a benefit in the $10 million range for the year.

Okay. And then of the 3 plans you have, right, the 7.5, the 15 and the 25-gig per month, what do you expect the distribution to be between the 3? So do you expect it to be 1/3, 1/3, 1/3 or for 50% of the customers to take the 15-gig per month plan? What are you thinking there?

We thought and think long term that it would be skewed heavily towards the $50 range. But from the -- initially, we're getting, I'd say, more participation in the higher level plans than we might have thought. But I think over time, we think it will be skewed towards the $50 plan. We think that's going to be really attractive.

Okay. And then just one final question. What kind of a ramp are you seeing on ViaSat-1? So for January, for example, how many subs did you add?

It's just too early to tell. I mean, we had like 2 weeks of orders, less of installations, and every day, the number of installers was changing. So it's just not meaningful. We're not going to talk about this January number.

It's really because we opened the service up today in less than 7% of our coverage area, so it's just not meaningful.

Next questioner in queue is Mike Crawford with B. Riley & Co.

Regarding the direct dealer channel, do you view this as more of a rebuild given how dormant this was in some of the most attractive markets where WildBlue had been sold out to capacity? Or is this something that you think you can just plug right back in and get up to speed really quickly?

No, it's a good point. It's a lot more like a recharge because I'd say the old plans, one is, they were old, and then the other is because we were in sort of this month-by-month and quarter-by-quarter waiting period for the new services, that the old ones were or largely being phased out. So unlike, for instance, when we launched ViaSat -- when we launched WildBlue-1 to add Anik F2, it was pretty much just a step and repeat on exactly what we are already doing. This is pretty much all brand new and so that's part of what's going on now.

Okay. And then with the opportunity to offer Yonder Mobile data to Government customers using Ka-band, including your partner's capacity in ViaSat-1, when can we see that type of traffic on ViaSat-1? And then when that happens, would you report that as Satellite Services revenue? Or would that be Government Systems revenue?

Okay. So there are several things in there. We are -- what we're aiming to do first is get our users -- let's say, I'm talking about the Government users engaged in Ka-band. And we're doing that really in 2 places, one primarily in the Middle East and then also in the U.S. And in the Middle East, we can use a combination of Ka-band capacity we've leased from others and actually government bandwidth. In the U.S., we can use capacity that we own here in the U.S. or that we lease from EchoStar actually. And that's kind of the first thing. I think that to the extent they show up as government private network revenues, we're reporting those in our Government segment. To the extent that it's just government users on the Yonder public network, that would fold into our Satellite Services segment.

Okay. And then on these international Ka-band competitions, so I mean, Australia has been going on for a while. I don't think you consider yourselves to be a front-runner for that one. Can you handicap these other Middle East and Americas opportunities, when you might hear and what you think the chances might be?

We think that they're all constructed to be as competitive as they can be. We think we're as competitive as anybody else. And some of them will be determined -- I think we'll know a lot over the next quarter or so, probably on all of them.

Okay. And then the last question relates to your now already deferred IP and breach of contract complaint against SSL. Is there a way that this action could somehow affect the timing of Jupiter launch?

Okay. So we're not really going to comment on the specifics of the case. We have IP issues with Space Systems/Loral, that's who our issue's with. We talked about that on prior earnings calls. And we feel pretty strongly about the value of our ViaSat-1 system design work and we're going to work to protect it. And that's about all we can comment on at this point.

Next questioner in queue is Rich Valera with Needham.

Just wondering if you could give us the number of subscribers at the end of the December quarter.

About 385,000.

So that was flat basically quarter-over-quarter?

Yes.

And then it sounds like you actually did add some -- I know you don't want to talk about the number, but you've added some net in the first month of the year.

Yes, we're growing, we're definitely growing. It's just we just -- you want to do sort of normalize not just the absolute numbers, but you want to sort of normalize it to what's going on. And things are moving so fast, it's just hard to do. So we don't want to confuse things, but we will say we're growing, we're definitely growing.

No, fair enough. And then just wanted to revisit some, I think, rough targets we've talked about for the Commercial and Government businesses before. One point I think we'd talked about maybe 10% Government growth. And clearly, there's been delays, which would suggest something less than that. I was wondering if sort of flattish would be a better number for this fiscal year for Government. And then likewise on commercial, I think we had talked about at one point that may be approaching 50 and I would think again that's probably something less than that, but just wanted to get a sense of where you might calibrate those 2 rates at this point.

I think that's a pretty good guess, Rich. I think you've got a pretty good handle on -- plus or minus or so.

Okay. And you mentioned the depreciation that you'll be adding or I guess start recognizing effective with the launch for the satellite in the gateways, and it sounds like it's about $64 million of annual depreciation. So should we expect all of that to hit the service COGS line and pretty much all hit of that amount in the March quarter?

It will hit in the COGS line, and your figure's pretty close on an annual basis, yes. The other thing for the modeling is the effect on interest expense that will be flowing through the other income line that I pointed out earlier.

Right, right. So you gave an interest expense number. I think you said it was at $6.5 million, Ron?

Yes, that's what we expect it to be this quarter.

Should we expect much of a change from that in the June quarter?

It depends on how our -- the timing of when our next satellite procurement goes and the costs that are associated with that as we start to make payments on that.

Okay, that's helpful. And then just wondering, Mark, if you'd be willing to say anything more on your DIRECTV relationship. You mentioned, I guess, you're sort of in discussions with them. Is there anything more you can add to the potential of them kind of signing up on a more formal basis?

The only thing I'd say is we've talked in the past about just sort of how to cast the plans and how to package the bandwidth that we're doing. And we've had, I'd say, different responses from different distributors. Things went fast with DISH because, obviously, they're going to -- they're investing in broadband and they want to -- they were just really motivated to move quickly. I think things are proceeding pretty steadily with DIRECTV. We have a lot of issues to work through with them just in terms of how we package and how we basically make it best suit them. I think we have a good relationship with them. I think we never want to take anything for granted, but I think things are sort of proceeding.

Perfect. And I wonder at this point if you'd be willing to hazard, a guess, on CapEx for fiscal '13 or I'm sure that's somewhat dependent on your -- what happens with ViaSat-2, but is there anything you'd be willing to say at this point?

I really think it's too early to tell. I mean, the 2 primary drivers for next year are going to be the retail wholesale mix on the ads and the related CPE investments. And then once the satellite manufacturing contract is concluded and we begin that, that will be the other big driver. But it's I think -- because the timing and variability of those 2 things is -- it's a little early to really put out a good number there.

We'd just say it, Ron, when we could probably [indiscernible] what we have planned under our debt [indiscernible].

Yes, I mean, definitely yes on that. It's based upon how we see things going our -- we believe we have sufficient access to capital under our debt agreements right now.

Okay, that's fair. And I just -- I think you talked a fair bit about the GAAP tax rate for the quarter and the year. Wondering if you could comment, Ron, on the non-GAAP tax rate. It looks like you were kind of a very low single-digit non-GAAP tax rate this quarter. Should we think of something similar for the fourth quarter for a non-GAAP tax rate?

Yes.

Next questioner in queue is Yair Reiner with Oppenheimer.

So I was wondering if you can give us a little more color on the agreement that you signed with DISH and if you expect them to be of more or less similar size a year from now, let's say, as they happen historically.

So I mean, the big issue with DISH is going to be that their affiliate, EchoStar, is expected to launch their Jupiter satellite in the summer, and then sometime shortly after that, we'll make that available with DISH. And I think what DISH has said is they'd like to have a DISH broadband service that they can fulfill either with ViaSat or with the EchoStar use. So that's about what we know now. I mean, what we'd expect is over time that they'll probably show a preference for fulfilling on the Jupiter satellite. But I think it's going to depend on the plans that they make, the wholesale deals that they have, the performance of the plans, the uptake rates in different geographic areas. It's just hard to predict what it will turn out to be. I don't think -- I don't -- now what I'm going to bet is that we'll be more business with them in the next 6 months, then we will do once they launch Jupiter. So I'm not quite sure how things will evolve after they launch Jupiter.

Great. And then I also wanted to ask you, now that you've kind of reconfigured also the Exede 5 plan, what do you expect your total capacity in terms of users to be with ViaSat-1 with older 2 satellites?

Nothing's really changed since the last time. What we think is we could -- assuming that we own the user's satellites for consumer broadband that we didn't really set aside or have capacity that was consumed by these other applications, which are good applications, it was just for broadband. We think that the capacity of ViaSat-1 is in the 1 million, 1.5 million-ish range depending on bandwidth consumption and mix of plans. And the capacity of the older 2 satellites is in the low hundreds of thousands.

Got it. And just to be clear, the Exede 5 plan is going to be priced like the Exede 12?

Yes, yes.

Our next questioner in queue is Chris Quilty with Raymond James.

Was hoping you could perhaps give some guidance around what you think the direct-to-wholesale mix might be on, say, the 12-month basis after the service launches.

Boy, it's -- we've said it's sort of unknowable. Basically what we wanted to do, and I think we have done, is we want to be prepared to have it be heavily retail weighted so that we can go to market, we can basically achieve our objectives even if a large part of that was retail. But so far, things are -- we ended up getting good wholesale distribution agreements and we think that our wholesale partners are really engaged. And if that's the case, then actually we could end up being skewed much more towards wholesale. So that's one of the things. It's just too early to tell. I don't know how else to answer, it's just too early to tell. It's one of the things we're going to talk about next quarter.

Okay. And could you help us perhaps -- I mean, the SG&A impact on the wholesale side is pretty straightforward. It's basically a fixed cost around the contract. On the retail side of the business, we know from Hughes, which ran a large retail business, that they were incurring about $100 million a year of equipment CapEx associated with the subsidies to the customers when they were doing about 200,000 gross ads per year. Is it fair to assume with the current pricing plan and model that you guys have that that's a reasonable metric that yours would be somewhere similar on the retail side?

Yes, it's a similar number, Chris.

Okay. And the other part of the SG&A equation being, how do we look at the subscriber acquisition costs for retail specifically to model the growth in the SG&A spending? Is it best to back out a couple hundred dollar subsidy on the equipment and assume it's, say, $600 a sub on the gross side?

Yes, I think that's a fair estimate. I mean, what we end up incurring is, and I would tell you that it's -- there's components that hit SG&A and then there's components that are up in cost of services. When you look at the equipment side of it, it's -- we defer around, give or take, between $500, $600 for -- on, I'll call it net, that gets amortized over a subscriber life, which is about 4 years. And then there are some selling costs that do get expensed when we do acquire the subscriber and that can range depending upon the particular commission plan that we have set out. And those will hit SG&A when we acquire the subscriber.

Okay. And also, when you mentioned, I think, Mark, that the older satellite, the WildBlue and Anik F2, when you said low hundreds, is that low one hundred thousands or couple hundred thousand?

About 100,000 is allowed.

Yes, it's going to be at least more like the second number.

Okay. So more like 150,000 to 250,000?

No, low hundreds of thousands.

Got it. And was the forecast, I mean, the 1 million to 1.5 million subs, I -- in the long ago past, you had talked about 2 million to 2.5 million. Is this looking at the way the plan's going to roll out now with the 12 megabit per second service? Is there less capacity? Or is this just more fine tuning of the forecast?

No, I don't think we've ever said 2 million to 2.5 million. I think, basically, the unknowable aspect of the sort of the peak subscriber capacity is really bandwidth usage. That's the way I'd describe it for us to maintain the service levels that we want. And there will be different factors in there depending on who buys the plans and why and how they use them. And we have -- I think part of the way we constructed the plans is to manage the risk that the service deteriorates. And that's why we're pretty confident that we can maintain service quality kind of like it is now even with 1 million subscribers. And depending on how things play out, that could turn out to be more. It could be 1.5 million conceivably, it could get close to 2 million, but that really depends on bandwidth, the bandwidth usage statistics.

Sort of quite a while, Chris, we've been kind of -- when we're in dialogues with most of the people we talked to, we've been guiding towards 1 million subs for multiple quarters now.

Okay. And with respect to ViaSat-2, I mean, you've suggested in the past that 140 megabits per second for ViaSat-1 -- was a second-generation satellite we might see improvements on ViaSat-2. Is that still on track?

Yes, that's what we're aiming for.

Next questioner in queue is Tim Quillin with Stephens Inc.

I just want to make sure I have the incremental depreciation right, but the $120 million in gateways would be depreciated over 7.5 years. I think you said, Ron, in the -- the $360 million in satellite costs is depreciated over 15 years. Is that right?

We haven't really given a number on the satellite yet. We'll give that next quarter. But it's depending -- it's somewhere in that range and you end up with around, give or take, $7.5 million, $8 million a quarter for the 2.

Okay. So taking my protractor to, I think, it's Slide 16 in the presentation where you do your arrows on what you think is going to happen here over the next couple of years. With the non-GAAP net income down in fiscal '12 but then up in fiscal '13, if my protracting skills are correct. Does that imply that the contribution income on the Exede service will more than offset that incremental depreciation and as well as the capitalized interest. Is that the right way to think about it?

Yes.

Next questioner in queue is Matt Robison with Wunderlich.

You talked about interest expense of $6.5 million. Does that include the amortization for the portion that's already been capitalized?

No, that's in depreciation.

Okay, okay. So that doesn't come under other income?

No.

Okay. Is that about an additional $500,000 a quarter or so?

I haven't computed what the actual, but it would be.

You mentioned the interest could change as early as the June quarter for ViaSat-2. Does that mean you could be kicking that off as early as now for the current quarter?

Well, go ahead.

No, we just said we're aiming to have that going in the first half of this calendar year, which would be the first quarter of next year.

Okay. You talked about Government growth in '13. Should we be thinking about that bouncing back in the high single-digit percentages again? [indiscernible]

So I would say single digits.

What's that?

I would say more mid- single digits.

Okay. And with that, is there some variability to it with the implications of ViaSat-1?

I think the issue is that from all forecasts we see, the government budget's going down. We think that we're bucking that trend, but we're pretty reluctant to say anything above roughly flat year-over-year on government revenues. It could be higher than that, but they're still -- and doing the order flow we've had and what we expect in Q4, we could beat that, but it's way too early to call anything better than that.

Fair enough. Have you seen some bits of announcements from Eutelsat lately? Have you seen any acceleration of KA-SAT in terms of your equipment sales?

I mean, it's better than it was and they're -- they've brought in some new people. I think they're working in multiple alternatives, so we see a lot of energy on the Eutelsat side to try to stimulate growth. So we still hope -- it's still fairly small.

There has been some indications that DIRECTV is adapting to your new branding strategy. How long before we should expect something more deliberate from them as we've seen from EchoStar or DISH?

We can't really -- can't put a date on it, I mean, it's really up to them. I mean, the main thing I'd say is there is -- the form factor and the packaging of the plans is different and that requires some integration of IT efforts. So once we could reach some understanding with them about what the form packaging will be, there will be some delay while that gets worked, assuming that we can continue to work things through with them.

And on your claim against Loral, when should we expect that to start becoming significant to SG&A?

I'm sorry, can you repeat it?

For the Loral claim that you filed last Wednesday, when should we expect the legal expenses associated with that to start to ramp?

This quarter.

Okay. Is that kind of like $1 million a quarter sort of a deal or more than that?

Certainly, it could be more. It just depends on the pace.

But that's not a bad number to increment with?

Right, that's not a bad number to start with, but dependent upon what transpires in the near term. It could be a little bit more. It depends on how quickly things progress.

Now they had a -- they did an 8-K on Friday saying that you guys have gotten into discussions, which I guess implied there was a response on their part, which slows your pace. Is that the right assessment? Or is it more just their own investor relation language?

Well, since they were the ones -- it's Keven. They put that out there but, at this point, we really can't comment. I think that what we can say is, we are at and are fully prepared to go to litigation on this. So that's kind of how we're proceeding, and if something happens in the interim, then something happens interim.

And so if you're thinking about ramping up ViaSat-2 in the June quarter at some point, I guess that kind of implies you've got another vendor teed up. Is that the right assumption to make?

That seems like a good assumption.

And it looks like we have time for one final questioner. Our final question in queue comes from Ken Herbert with Wedbush.

You talked about the 2 additional applications with the news media, et cetera, that you're selling for the service. What should we expect over the next few quarters in terms of other potential announcements? Is this something that you're going to be -- you see as an aggressive part of the ramp or something that's more in the background? How should we think about the new applications that might come about here?

Okay, so that's a good question. We tend to think of them in different time scales. For the next year or 2, the way we expect to get the return on investment that we plan with the satellite is through the consumer broadband service. So that's really -- that's what's going to be the real near-term driver of value. What we think on these other applications, although they will ramp slowly, we think 3, 4, 5 years out from now could be pretty significant businesses, which certainly would help us make good business cases for additional satellites in additional markets. So that's what we're trying to do. We're really looking at this as the near-term opportunity to get those things going and to start a ramp, which ultimately will look good on its own. But right now, really a lot of the focus is on the consumer broadband.

Okay. So if I understand correctly, consumer broadband, clearly the focus, but don't be surprised if other stuff continues to come out as you identify opportunities or whether it could be a good fit.

Yes, I mean, those businesses can be pretty substantial. I mean, they could justify -- let's say, the 2 combined could certainly justify satellites in their own right, but it's not going to happen overnight. So we think we'd want to get those things going now, so that years from now we'll be able to look at them in the same way we look at consumer today.

Okay, great. And just finally, can you give a quick update on Blue Force Tracking 2 and where that stands? You highlighted, I think, that you're looking in the fourth quarter here for production to start to ramp, but can you give an update on that?

Main thing's I'd say is, we've been going through a number of qualification tests and functional performance tests, and those have gone well. I think the system performs well, I think, in exercises. The users definitely can perceive the benefits of it and that those are primarily in the update rate chosen. That was the big thing that this provides, so you can know where assets are from seconds ago instead of 10 or 15 minutes ago. And that obviously provides the beneficial effect that people wanted. And then other than that, the only other thing I'd say is that our program performance is pretty much on or better than what we had planned. And so we think it's going to be a good program once it starts ramping in productions.

And now I would like to turn the program back over to Mr. Dankberg for any closing remarks.

Okay. Well, thanks. We really appreciate everybody's patience and interest. We're excited to be off to the races and we'll have a lot more to talk about next quarter. Thanks again for dialing in.

Thank you, gentlemen. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful day. Attendees, you may disconnect at this time.