What an eventful year! We made strong progress financially, setting new records for revenue and Adusted EBITDA, which grew 21% and 35%, respectively, over the prior fiscal year. Please take a few minutes to review the financial data in this annual report. It tells a remarkable story of our evolution from a technology and products company to one that has the skills and resources to create greater economic value through the services enabled by our technology. We are pleased with the financial metrics, but in many ways our future is better understood by placing those results in the context of the exciting events playing out in our markets around the world.
In little over a decade, the role of broadband connectivity has evolved dramatically. Connectivity is increasingly a necessity – more than just convenience or entertainment. People expect it, and things need it to function. The meaning is evolving quickly too. Naturally we expect (require) faster transmission and quicker response. But there are new dimensions in play. The roles of different forms of broadband networks are evolving quickly. Access networks (think last mile cable or telco) are still very important, but the interfaces between access and long-haul networks are commanding more attention. Why does that streaming video keep buffering on a fiber optic network? Wireless is hugely important, and is enabling increasingly sophisticated and powerful mobile devices. But licensed mobile wireless service provides a smaller and smaller proportion of the data we consume. Wi-Fi is growing really, really fast and consumers increasingly expect it to be available everywhere, with high service quality, and often free or at least very affordable. There is now way more focus on privacy and security. But privacy from whom? Are we more concerned with hackers, foreign state sponsored cybercrime, our own governments, or the seemingly omniscient cloud services that want to understand and anticipate our every movement? Leave now for your appointment, traffic is slow. Most likely it's all of the above. What do we mean by security and privacy? Who do we trust? What does trust mean?
What will shape the future of connectivity? One line of thinking would argue that pretty much all the cards are on the table; all factors are in play. According to this argument, business models are pretty clear, and scale matters the most. The biggest, the richest, and the most politically connected will win. They will buy competitors, subscribers, spectrum, rights of way, content, and a handful of other ingredients that everyone knows are the keys to success. What matters is branding, bundling, and buzz. Or is it consolidation, convergence, and content? The winner doesn't need to invent the future, so much as to package it.
But then a couple dozen people create a viral new messaging app worth almost $20 billion and where does that fit In? In terms of corporate maneuvering we've seen:
- Proposed consolidation among wireless, wired, and satellite TV
- Wireless targeting in-flight Wi-Fi
- In-flight Wi-Fi targeting in-flight entertainment
- In-flight entertainment targeting in-flight Wi-Fi
- Wireless targeting video distribution
- Video distribution targeting wireless
- Cable TV buying spectrum to compete with wireless, then selling it and building Wi-Fi instead
- "Wi-Fi-first" wireless companies
- Consolidation among cable TV operators
- Even more proposals for wireless consolidation
- Internet companies competing with transmission companies for spectrum and fiber networks
- Virtually every boundary among content creation and forms of distribution being blurred or erased
- Internet companies experimenting with satellites, drones, and balloons for connectivity
I can't help it. It reminds me of a scene in Ghostbusters – "Disasters of biblical proportions… Fire and brimstone coming from the skies… Cats and dogs living together… Mass hysteria."
These developments pretty much put to rest the argument that all cards are on the table. While branding, bundling, and buzz may be enough for the largest incumbent service providers to prosper, we think the future of connectivity is still being invented. Of course packaging, bundling, and marketing matter. But the dimensions of value for connectivity service are still changing – and fast – and there is a lot of potential to disrupt markets. No one knows exactly how this will happen, and our crystal ball is not necessarily better than anyone else’s. Other things, though, are quite clear.
A critical, fundamental technology problem is providing enormous amounts of bandwidth in hard-to-reach places at economical costs. It's the same problem for in-flight connectivity, processing huge volumes of real-time data for energy exploration, providing super-fast broadband for hard-to-reach homes or businesses, or connecting the coming low cost smartphones for the last few billion people in the current economic order.
The best way to derive value from inventing these new technologies is to integrate them into services that end users want. Often that means creating new paths to market to circumvent incumbents that merely want to preserve the status – quo whatever that is. It takes time, but it's worth it. We're learning that every day through our consumer Exede® Internet and Exede In The Air services.
ViaSat is unique among connectivity service providers in that we are so highly vertically integrated. We've built a valuable business out of solving technology problems. We can, and do, invent whatever hardware or software technologies are needed to make dramatic improvements in bandwidth delivery, security, and trust – primarily, but not exclusively, over satellite. That can be a big advantage over providers that compete only by buying standard technologies from others.
Our innovations are having real impact. Imitation isn't just flattery – it's one of the most common technology business strategies, as we learned with ViaSat-1. In fiscal year 2014 we fought hard, and invested $25 million, to prove that we did invent the technology behind ViaSat-1 and that Space Systems/Loral (SS/L) breached our contract and infringed our patents. It was expensive and time consuming. There is still more work to do in defending our innovations, but our initial jury award indicates the value of these technologies, and surfaced the facts behind SS/L's misappropriation of our intellectual property.
ViaSat-1 services demonstrate the economic value of more efficiently delivered bandwidth. We're motivated to do even more. In fiscal year 2014 we increased R&D spending by an incremental $25 million to create more competitive advantages through coming generations of satellites and network equipment. The launch of ViaSat-2 is planned for 2016, and successive generations can be substantially better in multiple dimensions. The value of such technology is only being made more clear by the flurry of transactions in our markets.
We're excited by the market trends. New entrants and consolidation mean our markets are getting bigger and more valuable. We believe the technology we have, and are creating, will help us capture a worthwhile portion of that value. Today we're not only making progress in satellite transmission, but in infrastructure security, mobile device security, streaming media, and interactive web services. We're working with the world's largest smartphone maker to secure government and enterprise devices. We're creating new standards for infrastructure security with one of America's largest and technologically-savvy electric utilities. We're already delivering on-demand streaming media to mobile devices in flight and intend to make that even more accessible. All these technologies are converging – must converge – and we believe we have unique opportunities to lead the way. It's fun and challenging and potentially very rewarding. What more could we want?
As always we'd like to sincerely thank our employees, shareholders, and business suppliers and partners for giving us these opportunities. We aim to make the best of them!
Chairman of the Board and Chief Executive Officer
Fiscal Year 2014 In Review
Customer Growth for High Performance Systems and Services
- Reached 641,000 total subscribers for our satellite Internet services; over 500,000 on ViaSat-1.
- Deliveries of Ka-band broadband terminals over two million, including one million second-generation terminals.
- Launched Exede In The Air in-flight Internet – JetBlue Fly-Fi™ ‐ with positive media and passenger reviews and flight data showing from three to ten times the passenger participation per plane compared to publicly-disclosed usage figures for other in-flight Wi-Fi offerings.
- Mobile high-speed service to more than 3,000 platforms.
Widespread Acclaim for our Technology
- Bronze Edison Award from the internationally renowned Edison Universe organization for Exede Internet in the IT/Computing category.
- CONNECT Most Innovative New Product Awards finalist in the Aerospace and Security Technologies category for Exede In The Air.
- Innovator Award from Arthur C. Clarke Foundation to CEO Mark Dankberg.
- World Technology Award in the Communications Technology category by The World Technology Network out of a group of 33 nominated companies for innovation in creating the high-capacity satellite system, featuring ViaSat-1.
- North American Ka-band Technology Leadership Award from Frost & Sullivan for demonstrating outstanding achievement and superior performance in areas such as leadership, technological innovation, customer service, and strategic product development.
Moving Ahead to More Innovation and Market Disruption
- Began construction of ViaSat-2 with the intent to achieve an unparalleled mix of capacity and coverage.
- Launched Exede Voice, becoming the first satellite Internet service provider to offer U.S. residential VoIP telephone service.
- Created Exede Evolution, the first satellite Internet service plan to feature unlimited, full-speed access for email and web pages.
- Integrated defense-grade cyber and information security technologies into Samsung KNOX™-enabled mobile devices to provide a secure, enterprise mobile service.
- Fostering creativity and imagination as Founding Partner of the first and only Arthur C. Clarke Center for Human Imagination at UCSD.
- Provided Farmers Insurance Open organizer Century Club of San Diego with course-wide tournament operations networking and patron Wi-Fi services, a new application for ViaSat Exede Enterprise satellite services.
- Added two premium classes of Yonder© high-speed Internet service for business aviation – Yonder Premium and Yonder VIP – to enhance data rates, quality of service, network operations, and field engineering.
- Acquired LonoCloud Inc., a company with expertise in cloud networking software that will be integrated with the ViaSat Broadband System.
- Agreed to extend Exede In The Air in-flight Internet services to Europe with launch customer EL AL on Boeing 737s between Tel Aviv and Europe.
- ViaSat Ka-band airborne satellite terminals will become a factory line-fit option on Boeing commercial aircraft.
- Expanded our ability to deliver satellite services and Internet access with the acquisition of NetNearU Corp., an expert in network management systems and software for Wi-Fi and other Internet access networks.
Satellite Broadband Differently
The satellite industry had lagged terrestrial networks in improving bandwidth economics for almost two decades. Our ViaSat-1 design was a major leap forward. The gain in bandwidth economics sparked rapid growth for our services businesses. We believe the new technologies we're developing will enable satellite to compete even more effectively.
Our Company for Growth
Over the years, we assembled and integrated the breadth of technologies needed to drive satellite bandwidth economics. Now we are doing the same with the network services skills that enable us to uniquely capture that value through disruptive offerings in a broad range of markets.
A New System with Constant Innovation
Our investments in technology and talent have landed us in a unique position. We can engineer the new state of the art in technology, build what we invent, acquire customers, and provide them with ever-improving services.
Quality Services that Customers Desire
We believe that satellite doesn't need to be the last resort for Internet and broadband services. We believe that, with imagination and creativity, we can find ways to provide more value to our target market than alternative terrestrial technologies.
Awareness, Visibility, and Security
“Information superiority” is a cornerstone of US defense strategy – and space resources are an essential element of that strategy. Our satellite architectures support higher speeds, more platforms, and much more data than any other. We're working with government customers to make their missions more effective and economical than ever.
The Transformation Worldwide
Having proven the value of superior bandwidth economics in North America, we're helping others to offer the transformational services that our technologies enable. Building relationships with international partners that want our new bandwidth value proposition will enable all of us to benefit from a more valuable global network with an enduring competitive edge.
The Game with Exede Services
We reinvented satellite Internet. But we're not done. Faster speeds and more bandwidth will increase our addressable markets for residential, enterprise, and mobile services. Live streaming, over-the-top, video on demand – they're all literally changing the definitions of entertainment and connectivity. We can be a leader in those transformations.
Our More Networked World
The “Internet of Things” promises convenience and efficiency by networking every electronic device and processor. But with connectedness comes vulnerability, to hackers inside and outside organizations. We bring visibility and security to these networks, providing the means to isolate and defeat cyber threats.