ViaSat, Inc.

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ViaSat, Inc.

6155 El Camino Real
Carlsbad, California 92009-1699
U.S.A.
Telephone: (760) 476-2200
Fax: (760) 929-3941
Website:http://www.viasatcom

Public Company
Incorporated: 1986
Employees: 700
Sales: $195.6 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: VSAT
NAIC: 334220 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing

ViaSat, Inc. provides high-technology networking and signal processing equipment and services for broadband digital satellite and other wireless communications. In fiscal 2002, defense-related contracts accounted for about two-thirds of the company’s business, with commercial contracts accounting for the remaining third.

Company Origins

ViaSat, Inc. was founded in 1986 by Mark Dankberg, Mark Miller, and Steve Hart. All three were former executives at M/A-COM Linkabit, a San Diego-based manufacturer of satellite telecommunications equipment. They formed ViaSat for the purpose of obtaining contracts from defense companies that were bidding on satellite programs. ViaSat provided engineering and proposal support for these companies. If a company won a defense contract as a result of ViaSat’s work, then ViaSat became a subcontractor on the project. After ViaSat received two such contracts, it gained venture capital funding in the amount of $300,000 from Southern California Ventures. Dankberg became ViaSat’s chairman and CEO, and Miller and Hart shared chief technical officer (CTO) duties, with Hart later becoming vice-president of engineering.

ViaSat’s business model combined consulting with manufacturing. Although the company began by providing consulting and other support services for defense companies, its work was aimed at developing products to manufacture. Its first breakthrough was the development and manufacture of specialized test equipment, which allowed the testing of sophisticated airborne radio equipment without expensive flight exercises. ViaSat proved its ability to design and manufacture test equipment, and the company began a string of profitable years beginning with its second year in business.

Extending Its Product Range in the 1990s

Although ViaSat remained focused on developing core satellite communications technology, the company extended its product range throughout the 1990s. In 1990 it introduced its VTS-3000 test system. In 1991 the UHF DAMA (Demand Assigned Multiple Access) network control system debuted. That was followed in 1992 by the UHF DAMA modem. ViaSat’s DAMA products were used in UHF satellite communications and consisted of modems, terminals, and network control systems.

During much of the 1990s ViaSat primarily served the defense industry. In 1996 it won a $10.9 million contract to provide DAMA network control stations for the U.S. Air Force’s Milsatcom Program. One of the company’s most popular products was known as the Manpack. The Manpack was a backpack-sized device that soldiers carried with them, providing a direct satellite voice and data link. Manpack let thousands of soldiers use one satellite at the same time, an improvement over older systems.

ViaSat went public in December 1996, offering some $20 million worth of stock to the public. After the initial public offering (IPO) ViaSat’s three founders owned 28 percent of the company. Its venture capital backers held 20 percent, after cashing out one quarter of their holdings. For its fiscal year ending March 31, 1997, ViaSat reported earnings of $3.2 million on revenue of $47.7 million.

By 1997 ViaSat had about 300 employees, about half of them engineers. ViaSat attracted talented engineers by offering them stock in the company. In its first ten years ViaSat raised about $500,000 by selling equity in the company to its employees. This compensation arrangement kept ViaSat’s employee turnover at a low rate of about 1 percent per year. In November 1997 Forbes magazine named ViaSat one of the “200 Best Small Companies in America.”

From 1997 to 2002 ViaSat’s revenue continued to grow each year. For fiscal 1998, ViaSat reported revenue of $64.2 million and net income of $5.3 million. The company gradually expanded its business from defense to commercial customers. It also went after more international business. In 1998 it signed a long-term contract with Sweden’s Telia AB to provide DAMA satellite networking. Stockholm-based Telia was a leading provider of telecommunications-based information services in the Scandinavian and Baltic regions of northeastern Europe. ViaSat agreed to provide Telia with its StarWire system, starting with a pilot system valued at slightly less than $500,000. ViaSat’s StarWire products employed DAMA technology to provide broadband data, video, and voice services via satellite to remote areas that lacked a ground-based communications infrastructure. StarWire also incorporated PCMA (Paired Carrier Multiple Access) technology, which simultaneously transmitted both directions of a satellite circuit through one channel. If the StarWire system tested out, then Telia agreed to purchase terminals directly from ViaSat and set up services for its customers. The agreement with Telia represented ViaSat’s first entry into Europe. At the time ViaSat also had contracts with companies in India, Africa, the Middle East, and Asia.

ViaSat’s revenue rose to $71.5 million for 1999, and net income rose to $6.3 million. In April the company announced that it had signed a contract worth $30 million with the U.S. Navy for its UHF DAMA satellite equipment. The “indefinite delivery/indefinite quantity” contract called for the Navy to purchase up to $30 million worth of the satellite equipment over the next three years. In June ViaSat won a $6 million contract with Star Cruises, which was based in Malaysia.

Midway through fiscal 2000, ViaSat’s market capitalization was about $147.3 million. In October 1999 ViaSat gained a $36.3 million contract with environmental consulting firm Science Applications International Corp. to build a high-speed broadband data network that would allow workers in remote locations to communicate with their offices. In February 2000 ViaSat secured a five-year, $13 million contract with Raytheon to supply it with UHF DAMA modem modules.

For 2000, ViaSat reported revenue of $75.9 million and net income of $7.9 million. Although ViaSat was gradually making a shift into more commercial contracting, about 85 percent of the company’s revenue came from defense-related contracts. During fiscal 2000 ViaSat’s workforce grew to about 400 employees, and the company consolidated its operations in a new 180,000-square-foot complex in Carlsbad, California. At the end of fiscal 2000 ViaSat also had an $88 million sales backlog, nearly double the $45 million backlog at the end of the previous fiscal year.

Growth Through Acquisitions: 2000-02

In January 2000 ViaSat announced that it would acquire the satellite networking business of Scientific-Atlanta, Inc. Since the deal would not close until April 2000, it did not affect ViaSat’s fiscal 2000 financial results. ViaSat intended the acquisition to expand its sales in commercial markets and establish the company as a key supplier of ground infrastructure equipment for satellite broadband and space-imaging networks. Specific product lines acquired in the deal included broadband satellite network gateways, data transactions, telephony, mobile asset tracking, automated meter reading, remote monitoring, and space imaging. Established competitors in this market space included Hughes Electronics Corp. and Gilat Satellite Networks Ltd. When ViaSat completed the acquisition in April, it paid about $64.4 million for Scientific-Atlanta’s satellite networking business, which continued to operate out of Norcross, Georgia, near Atlanta, as ViaSat Satellite Networks. John Restivo, former director of systems engineering at Scientific-Atlanta, was hired as ViaSat Satellite Networks’ vice-president and general manager.

ViaSat began including the results of its newly acquired satellite network business in fiscal 2001. ViaSat financed its acquisition of Scientific-Atlanta’s satellite networking business by issuing 2.3 million shares at $30 a share in April. The acquisition boosted ViaSat’s stock price as investors drove it up from around $10 a share in 1999 to around $87 a share in 2000. By mid-2000 ViaSat’s market capitalization was about $520 million. After its first quarter ending June 30, 2000, ViaSat’s order backlog had grown to $165 million. In July ViaSat joined the S&P SmallCap 600 Index. In August ViaSat announced that it would be the majority owner of a new company, TrellisWare Technologies Inc., that would focus on patented digital processing technology.

Later in 2000 ViaSat signed a contract with Astrolink International LLC to supply it with more than $100 million worth of terminals that would carry business data over Astrolink’s planned satellite system. The initial contract called for $30 million to develop and manufacture service provider gateways for Astrolink. A new contract in January 2001 increased the amount of business to $80 million, and ViaSat believed that it would eventually supply more than $100 million worth of terminals to Astrolink. Astrolink was a joint venture between Liberty Media, Lockheed Martin Global Telecommunications, Telespazio SpA (an Italian telecommunications firm), and TRW Inc. It planned to begin offering broadband services in 2003. ViaSat also agreed to purchase Astrolink satellite services and resell them to its customers.

Company Perspectives:

ViaSat is a rapidly growing high technology company specializing in digital, wireless communications. Our rapid growth has gained us international recognition. Prior to our public offering we were named to The INC. 500 list of fastest growing private companies three times. More recently our performance has earned a listing on Business Week’s “100 Best Small Corporations” and Forbes magazine’s “200 Best Small Companies in America.”

In March 2001 ViaSat gained another contract with a commercial satellite communications company, Denver-based WildBlue Communications Inc. The initial contract with WildBlue called for ViaSat to produce $16 million worth of satellite modems. For 2001, ViaSat’s revenue more than doubled to $164.4 million, due in part to results from its new satellite networking business. Net income rose to $10.3 million. During fiscal 2001 ViaSat gained $239 million in contracts, compared with $119 million in contracts during fiscal 2000. The sales backlog at the end of fiscal 2001 was $236 million.

ViaSat continued to pursue commercial contracts in fiscal 2002. In May 2001 ViaSat announced that it would develop and manufacture the receiver/transmitter subsystem necessary to provide broadband Internet access in Boeing’s airplanes. Boeing was planning to bring broadband Internet access to airline passengers in 2002 under a service called Connexion by Boeing. In June ViaSat signed a second contract worth about $17 million with WildBlue Communications. It called for ViaSat to supply satellite modem termination systems for six WildBlue gateways. The systems would manage traffic for each subscriber’s satellite terminal.

In July 2001 ViaSat announced its second major acquisition since going public. Lockheed Martin Global Telecommunications (LMGT) agreed to sell its Linkway and LinkStar broadband satellite network terminal business to ViaSat for an undisclosed amount. The business units acquired by ViaSat were part of the former Comsat Laboratories, which became part of LMGT in 2000 when Lockheed Martin acquired Comsat Corp. They became the new Comsat Laboratories Division of ViaSat and were based in Clarksburg, Maryland. About 70 employees transferred to ViaSat as a result of the acquisition.

ViaSat continued to market the satellite networking products developed by Comsat Laboratories under the Linkway and LinkStar brands. Linkway was a broadband, multi-protocol networking, hubless VSAT (very small aperture terminal) system that supported the integration of a variety of applications into one network. ViaSat offered a Linkway family of three terminals. LinkStar was a two-way broadband VSAT system for service providers, ISPs (Internet service providers), and corporate networks. It provided more efficiency and higher data rates than other TDMA (time division multiple access) systems. In September 2001 ViaSat announced that it would supply LinkStar terminals to Eutelsat, a major European satellite operator.

ViaSat experienced a setback in November 2001 when Astrolink International LLC canceled its two contracts with ViaSat. The contracts represented about 10 to 15 percent of ViaSat’s recent revenue and accounted for nearly $113 million of ViaSat’s $253 million order backlog. As a result, ViaSat was forced to reassign key personnel and reduce its workforce by 50 employees. After the layoffs ViaSat had about 700 employees, including 400 at its Carlsbad headquarters.

ViaSat also experienced a decline in its stock price during the second half of 2001. Its stock price fell from around $20 in August to around $13 at the end of November 2001. The company’s market capitalization fell from $448.9 million to $297.9 million. The company had a strong balance sheet, though, with virtually no debt and more than $169 million in assets.

Meanwhile, ViaSat and Loral Skynet, a unit of Loral Space and Communications, established a joint venture called Immeon Networks LLC to develop and market a satellite bandwidth-on-demand service. ViaSat provided Immeon with service and equipment, network operations and maintenance, installation, integration services, and field support, while Loral Skynet provided bandwidth capacity, planning, and support. Immeon Networks was set up to service the United States and portions of Canada and the Caribbean. It began with about 20 employees and offices in Carlsbad and Norcross. The Immeon system, which utilized technology developed by ViaSat’s Comsat Laboratories Division, was designed for companies with variable bandwidth usage needs. Among the users of Immeon systems was ABC News, which used the Immeon system to improve its voice and data communications for onsite news gathering.

ViaSat’s next major acquisition took place in early 2002 when it bought US Monolithics for about $30 million. US Monolithics designed high-frequency integrated subsystems that transmitted and received satellite signals. Based in the Phoenix, Arizona, suburb of Chandler, US Monolithics was a fabless chipmaker with about 40 employees. It utilized gallium arsenide in its integrated circuits and contracted with chip fabricators to manufacture its products. Its products included low-cost millimeter-wave power amplifier components and transceiver equipment. To pay for the acquisition, ViaSat issued two million shares of common stock at $14.50 per share.

For 2002, ViaSat reported revenue of $195.6 million and net income of $2.2 million. ViaSat began to experience quarterly losses starting with the fourth quarter of fiscal 2002 and continuing into the next two quarters of fiscal 2003. Although the company continued to win defense and commercial contracts, it announced toward the end of 2002 that its business focus was shifting back to defense contracts, which accounted for about two-thirds of its business in fiscal 2002. The company expected that it would have more stable, predictable growth with most of its business going to defense work.

Key Dates:

1986:: ViaSat, Inc. is founded by Mark Dankberg, Mark Miller, and Steve Hart.
1996:: ViaSat has its initial public offering (IPO) in December.
1997:: The company is named one of Forbes magazine’s “200 Best Small Companies in America.”
2000:: ViaSat acquires the satellite network business of Scientific-Atlanta Inc. for about $65 million and establishes its Satellite Networks Division.
2001:: ViaSat acquires the satellite network terminal business of Lockheed Martin Global Telecommunications and forms its Comsat Laboratories Division.
2002:: ViaSat acquires US Monolithics for $30 million.

Principal Subsidiaries

Immeon Networks LLC; TrellisWare Technologies, Inc.; US Monolithics.

Principal Divisions

Comsat Laboratories; Satellite Ground Systems; Satellite Networks.

Principal Competitors

Comtech Telecommunications Corporation; EMS Technologies, Inc.; Hughes Electronics Corporation; Gilat Satellite Networks Ltd.; Motorola, Inc; Nera ASA; NEC Corporation.