VSAT - NASDAQ

Good day everyone and welcome to Viasat's FY '24 Second Quarter Earnings Conference Call. Your host for today is Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.

Thanks. Good afternoon, everybody. Thanks for joining us today. So with me, I've got Guru Graben, our President, Shawn Duffy, our Chief Financial Officer; and Robert Blair, our General Counsel. So, Robert could you please start us with our safe harbor disclosure.

Sure 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 10-Q. Copies are available from the SEC or from our website. Back to you, Mark.

Okay. Thanks. So we encourage reading the shareholder letter that we posted on our website earlier this afternoon for more details. I'll start with an overview of the main points, and then we'll have time for questions. Our main objective today is to bring you up-to-date, organize some information and provide clarity on our plans. So I'll start with a quick update on performance in the quarter, which was really good. Overall, up well into double digits on revenue and adjusted EBITDA on a combined operating basis. I'll give an update on the status of the two satellite anomalies. They have the financial implications of putting those behind us and describe the go forward plan. And then, I'll give a quick reminder of our overall strategy and why we're well positioned for growth, primarily in the $108 billion market for commercial and government global mobility. So after that, Guru will go into more depth on the quarter with business highlights and financial results give a little bit more color on the Inmarsat integration and give an update on our fiscal year '24 and '25 growth outlook. Just for context at the beginning, we have a good track record of identifying and building profitable and enduring positions in a succession of specific, somewhat esoteric market segments, including against much larger competitors. And we think the sale of the tactical data links business earlier this year to a leading aerospace and defense company for about $2 billion, it's indicative of our ability to build long-term value, while also transforming target market segments. We've been targeting global mobile broadband for over a decade, and we've had a big impact on the commercial in flight connectivity market in the U.S. We aim to leverage our technology and domain knowledge and the extensive operational data that we've accumulated, along with Inmarsat heritage to lead specific segments of this rapidly growing market for commercial and government global mobile. We can do it by focusing on quantitative performance metrics that are critical to our customers and bringing together the asset skills and ecosystems needed to win on those metrics. Our financial performance in the second quarter demonstrates strength in global mobility. Core operating financial results were good across the business, both at Viasat and with legacy Inmarsat. Excluding the onetime benefit of a legal settlement, operating revenue was up 16%, year-over-year on a combined basis. And then excluding that onetime mitigation benefit in the satellite impairment charges, operating adjusted EBITDA was up 20%. Our aviation business continues steady growth. Our customers' fleet of planes is up to 3,350 and still growing, passenger engagement is growing, and we've got a robust pipeline of new orders. Information assurance products for secure government data centers and antenna systems are also growing very well. Maritime is growing modestly and we see opportunities to build momentum there. Our outlook is also quite good. We anticipate continued growth in revenue and adjusted EBITDA during fiscal year '24 and fiscal year '25, and to reach free cash flow positive in the first half of calendar '25. So go up to the satellite anomalies, those, on ViaSat-3 Flight 1, and Inmarsat 6, Flight 2 this summer were two totally different events. And they were setbacks, but we have plans to deal with each. Now I6F2 will result in a total write-off. A claim for about $349 million will be submitted to insurers shortly. I6F2's near-term contribution to revenue was expected to be small. It was part of a longer term planned evolution of Inmarsat's redundant global l band coverage to a newer generation of satellites. We have a provision in our updated capital budget to replace that mission of I6F2 in a timely manner. ViaSat-3 Flight 1 is impaired. And as we disclosed recently, we expect it will have less than 10% of nominal total throughput. We expect to file an insurance claim this calendar year for about $421 million. The anomaly affected what's called the feeder link antenna. The rest of the satellite has operated nominally or better to date. Our focus has been on characterizing the affected antenna so we can compensate for the anomaly optimally. We've made a lot of progress there. The satellite system is, software defined on the ground, which gives us a lot more tools that we can use. We can use them to optimize available throughput for global mobility, especially by dynamically steering coverage beams on moving airplanes and ships, and to the busiest airports, seaports, or wherever there's instantaneous demand is greatest. We also can effectively increase the capacity of our other satellites in our fleet for global mobility by the way we use each of the ViaSat-3s including Flight 1. Our fixed U.S. business though depends more on the volume of bandwidth than on dynamic beam steering, so we expect it will decline until we launch and position the next ViaSat-3. We expect to grow in fiscal 2024 and fiscal 2025 nonetheless, driven by the backlog and outlook in global mobility and government. ViaSat-3 Flight 3 has a launch contract now for the fourth quarter of calendar '24, about a year from now. Either ViaSat-3 Flight 2 or Flight 3 would replace Flight 1 over the Americas, and then Flight 1 would be relocated. Report on the Flight 1 antenna root cause, and then the corrective actions for Flight 2 from the antenna manufacturer is planned for next week. The Flight 2 satellite is awaiting corrective actions to the effect of the antenna and then integration with the completed spacecraft. So, we'll give an update on that schedule next quarter. The other satellite update is that we don't anticipate additional material investment in ViaSat-4, and we've written down that asset. It was designed prior to the Inmarsat acquisition when fixed services were a higher priority. Given the timing on the ViaSat-3s and our focus on mobility, its need date is farther out than originally planned, so deferring capital investment now saves several 100 to 1,000,000 of dollars in the near-term and accelerates our free cash flow generation, and it improves profitability. We expect that key technology work that was performed on ViaSat-4 will apply to a future broadband satellite flight that'll deliver better returns in mobility applications. The end result is a write-off of the three satellite assets of about $900 million net of insurance. The schedule for Flight 1, remember the build schedule for Flight 1 was much longer than for Flight 2 or 3 due to both COVID issues and learning curve. So its cost was higher than the others. The bulk of the write-off is due to flight ViaSat-351, ViaSat-652, about $350 million of capitalized interest. So just I just briefly touched on our strategy before we go to Guru. And just to me, be sure. Our strategy is to lead specific government, commercial, global mobility market segments that have common characteristics that drive value creation for our customers and for us. So, we're looking for broadband customers whose connectivity is directly coupled to operational needs or wants and where customers are motivated to understand and measure the quality of connectivity that they need for those purposes. And we're looking for customers that want contractual assurance they get the connectivity activity they need for their missions over all the times and places their platforms travel. So that means measuring the times and places where connectivity is most stressed those congestion hot spots that can undermine achieving their operational purposes. We can attract and serve those customers by meeting specific, granular service level commitments, and then giving them the data and insight they need to optimize their own financial performance. We think that describes a large and growing portion of the global mobile market, our success in flight connectivity, the outcome of applying that strategy over a journey of discovery and we take in with our airline customers. There is quantifying the demand elasticity and value creation for different forms of in flight Wi-Fi service offerings and then measuring highly concentrated demand at peak times at busy airports that comes with high passenger engagement and where other services haven't really performed reliably. And then finally, as good connectivity becomes more widely available across airlines and routes, it becomes critical to each airline to both differentiate their brand and their value propositions from other airlines while also capturing the value that's created by that connectivity. So, we can apply these points to multiple market segments. Once a few 100s customers understand the significance of connectivity measurements over entire routes and the hotspot challenges and then translate that into competitive advantage that tends to drive change across entire market segments. The dynamic global coverage and beam steering of the ViaSat-3 constellation even with an impaired Flight 1 as well as the capabilities of the upcoming GX789 series support our strategy. So this continues to resonate with customers and it's resulting in new business globally, including some examples this quarter such as Korean Air, Malaysian Airlines, Atlantic Offshore, Porter Airlines, and with the U.S. Space Force, and more. The other important element of our strategy is to better leverage Inmarsat's global L-band leadership. L-band is very well suited to low cost, highly reliable, weather resilient coverage for emergency voice and operational data, and there's growing opportunity to integrate both satellite and terrestrial coverage for Internet of Things and mainstream mobile devices. There's already substantial overlap in the customer base between our broadband and L-band markets, and there's good opportunity to further differentiate our integrated service offerings. So our near-term growth outlook is good, and longer term's even more exciting. As part of our comprehensive review upon closing the Inmarsat acquisition, we're refining our strategy to make sure we're focused on the right market segments and refining value propositions that resonate with customers. And as we complete and deploy the capital investments to take those value propositions global that we generate the cash flow we're aiming for. We're planning an investor day in March of 2024 where we'll go into more depth on the analytics and the customer journeys, describing that underpin our approach. So now, hand it over to Guru, who'll talk about our second quarter.

Great. Thanks Mark. I will cover three key topics today, our Q3 financial performance, integration and transformation and an update on our combined outlook. We are executing on our strategy and delivered a strong core financial and operational performance during Q2. Core revenue and adjusted EBITDA both grew by double-digits year-over-year driven by our government, aviation and maritime businesses. Legacy Inmarsat and Viasat both performed well with strong contributions. Some of the key highlights from the quarter include, Garmin Systems had another quarter of strong demand for our information assurance encryption products, which drove product revenue up 50% year-over-year. And during the quarter, we were awarded a proliferated LEO satellite based services contract by the U.S. Space Force as part of their 900 million IDIQ program. Services will be comprised of our current and future satellite constellation capabilities as well as the partner LEO MEO Networks to deliver integrated multi orbit solutions that may include space relay services. Next, UK National Cybersecurity Center evaluated our next generation data test cryptography solid state drive for top secret classification, which was successful and we are only hardware encrypted SSD using the industry standard interface and form factor to attain the status. Recent trends in satellite services continued with strong growth in commercial IFC which ended the quarter with 3,350 aircraft in service, up 19% year-over-year on a combined basis and 1,600 aircraft in backlog. U.S. fixed broadband revenue declined as fewer residential subscribers were partially offset by higher ARPU. We continue to reallocate bandwidth to support our rapid IFC growth. In addition, we announced several commercial air customer updates as Mark mentioned earlier, Malaysia Airlines selection of our IFP solution for its new Boeing 7378 aircraft, Korean Air's selection of our IFC solution for its upcoming Airbus A321neo aircraft and Additional orders for both IFE and IFC solutions on Porter Airlines' new Embraer E195-E2 aircraft. Maritime revenue continued modest growth. The total KA band mobility platforms which include vessels and aircraft grew to over 19,000 up about 2% sequentially. Finally, awards for the quarter were up 15% Year-over-year to $1 billion backlog was $3.6 billion at quarter end. We have a couple of one off items in Q2. In the commercial network segment, we recognized a non recurring benefit to product revenue of $95 million and adjusted EBITDA benefit of $86 million as a result of litigation settlement. In the prior year period, we recorded revenue of $56 million and adjusted EBITDA of $51 million related to the same litigation. We also announced $900 million of net asset impairment charges primarily related to the previously announced satellite anomalies which includes approximately $350 million of capitalized interest. Now some color on the financials. Q2 FY 2024 revenue was $1.2 billion. This was up 85% compared to revenue from continuing operations of $664 million in Q2 FY 2023. Excluding the nonrecurring litigation benefit from both years and including Inmarsat in both years Q2 2024 revenue was up 16% year-over-year. Net loss totaled $767 million for fiscal Q2 which increased from $48 million net loss in the year ago period primarily due to net asset impairment charges related to satellite anomalies. Adjusted EBITDA for the quarter was $486 million, an increase of 210% year over year from continuing operations. Excluding the nonrecurring litigation benefit from both years asset impairment charges and including Inmarsat in both years, Q2 FY 2024 adjusted EBITDA was up 20% year over year. Sequentially, net leverage decreased to approximately 3.7 times estimated combined last 12 months adjusted EBITDA as of Q2 FY 2024, which is a 0.2 times sequential improvement and substantially favorable to the plan at the time the Inmarsat acquisition was announced. We have significant financial flexibility with more than 3 billion of liquidity, including approximately 2 billion of cash and cash equivalents on our balance sheet at quarter end and no near-term maturities. And we have a fully funded path to positive free cash flow. In addition to our solid results, we were also proud to be recognized by the U.S. government at this year's G20 Summit for our work to help close the gender digital divide and bring internet access to women in remote areas of the world. You can find a more complete review of our results in the shareholder letter that we posted today. Overall, as you heard from Mark as well, which this was an excellent quarter for Viasat. Now moving to the next topic which is integration and transformation. Our integration of Inmarsat and the transformation of our combined organization is going well and is ahead of the plan bringing greater certainty that we will deliver and exceed our synergy goals for the Inmarsat acquisition. Last week, we took the required labor actions to achieve annual operating expense savings of approximately 100 million beginning fiscal year 2025 which positions the Company for improved profitability going forward. This timeline represents a multiyear acceleration relative to our targets. Separately, the benefit to capital expenditures was included in our FY 2025 guidance of 1.4 billion to 1.5 billion announced last month. We expect to incur 45 million of onetime costs related to these actions. As financial discipline remains a top priority, we are working every opportunity to improve our cost structure and operational efficiency, including taking a closer look at our third-party procurement spend, more disciplined capital expenditure and benchmarking to accelerate the timing and magnitude of free cash flow. Now transitioning to outlook. I'll wrap up with a high level summary of our financial outlook. We're excluding satellite impairment charges and the nonrecurring benefit from the litigation settlement announced today from our guidance. For FY 2024, we expect revenue growth in the high-single-digit percentages over FY 2023 for the combined company with revenue growing to a range of 4.1 billion to 4.25 billion. For FY 2024, we expect adjusted EBITDA growth in the mid-single-digit percentages over FY 2023 for the combined company. We expect FY 2024 adjusted EBITDA to grow to a range of 1.25 billion to 1.3 billion. In FY 2025, we continue to expect both revenue and adjusted EBITDA to grow. FY 2024 capital expenditures are expected to be approximately 1.7 billion then decline in FY 2025 to a range of 1.4 billion to 1.5 billion inclusive of a placeholder for the potential funding of an I6F2 replacement. Capital expenditure guidance does not include the expected 770 million benefit from insurance recoveries. Note that we include capitalized interest in our CapEx guidance. Our path to positive free cash flow in the first half of calendar year 2025 is driven by sourcing growth from our large and growing markets which includes government, aviation and maritime Realizing realization of our sizable backlog, meaningful cost rationalization and a disciplined CapEx spending which benefits from the natural decline as we launch our satellites. We are driving cost structure improvements with synergies, scale and benchmarking. And the magnitude of free cash flow is expected to increase meaningfully as we place ViaSat-3F and F3 3 satellites into service. So there you have it. While we've had unfortunate satellite setbacks, we have a very good hand and we are optimizing and growing the strong assets we have. Our operational performance in Q2 was excellent and we are on track to achieve very material synergy value then expect the combined company to grow revenue and adjusted EBITDA in FY 2024 and FY 2025 while creating a powerful global mobility and government business. And to be clear, our FY25 growth is based on a full 12 months of Inmarsat in FY24. With that, I'll pass it back to Mark.

[Operator Instructions] We'll take the first question from Phil Cusick, JPMorgan.

Hi, thank you. I guess a couple if I can. First, was the decision to move away from the ViaSat-4 and focus on mobility, a statement on the viability of home broadband from satellite or is that more of a just timing and capital needs? And then second, can you talk about the plans For the cash on the balance sheet and the insurance proceeds coming in, there's some debt at a discount, does it make sense to pick off that or do you want to have this cash on the balance sheet for a long time?

Okay. Yes. First on the ViaSat-4, we have been targeting the mobility broadband market for, well, for about as long as we've been in you know, since we launched ViaSat-1. And, you know, it was because the Customers value the services better. We're not dealing with or competing with government subsidies. And the other thing now that that's really come to light, especially, you know, in our experience in flight and the data that we have from Inmarsat in the maritime business Is that that you know, dealing with that mobility factor, and concentration of demand is a is a really hard and tricky problem. We think we're really well suited to do that. And whereas the original design of ViaSat-4 that we started really was about large bulk amounts of bandwidth at low cost. What we're really going to be leveraging is its global coverage and the ability to put that demand, in the same patterns as the customers’ usage requires. So, we feel like we can do better, and that we've got 7 other Ka-band satellites that will be launched over about the next three years. So we felt it made complete economic sense to focus on those, the mobility markets, and then bring, a new broadband mobility satellite to market following those later on at the end of the decade.

I can hit your question on the cash, on the balance sheet. So I think a couple of things. One, just one -- given the credit markets, want to stay in a very good liquid position and keep that liquidity and agility on the balance sheet. I think if you think about the net carry given the investments we've been able to make and net of the tax impacts of the interest expense. And the benefits we get there, it's not as painful to carry that flexibility. And so, that's kind of, a guidepost for us right now.

Next up, we'll hear from Mike Crawford, B. Riley Securities.

In commercial networks, you have this Cisco settlement off of the sold jury award that you won against Acacia when its cofounder install some coding structure and email that to their employees. But so now you've got two settlements, but also there's this ongoing licensing and royalty requirement that I guess is going to improve ongoing commercial network EBITDA. Is there any way you can quantify what that might be or how long that might last?

Yes, Mike. We do have some ongoing benefits from the agreement, but the terms of the agreement are confidential. So we can't really give you the details there. We have included the benefits we expect in the outlook though.

Thank you, Shawn. And then, regarding, the status of, I guess, the ViaSat-3, F2 and F3 satellites. So is there you're waiting to attach the final reflector component? Like, how is there a way you can quantify the timing some of these steps so we know when potentially that could be at launch, let's say, if you got it all clear to move ahead say, next week?

The schedule for integration of the reflector once it's delivered to Boeing is pretty clear. That's the thing that we're going to get more information on next week is what that lead time will be for the reflector delivery. We have a, I think we have a very good understanding of what step in the deployment process, failed, and how to avoid that, on the next deployment. And then, there's a there's potentially even additional measures that we could use to back those up. That's what we'll find out, and we'll have that discussion. I think it'd be better to get the data before we speculate. The Flight 3 has been on the same schedule for quite a long time. I think since the last time we reported, we executed a launch contract and that's for the Q4, which was really driven by launch vehicle availability launch window availability. So that one, I think, that one, we're pretty confident in. Then the issue will just be, if it turns out that the two satellites end up being very close together, to figure out how to prioritize or the extent to which we could do them both at the same time if that was the case.

And then just maybe two really quick ones. You mentioned Space Force mobility services. Is that something that's new and is that something that would be show up in government systems or satellite services?

That would show up in government systems and it's, yes. It is new. It's new for us, and it's, a little bit unique to our networking services, more of networking technology and our services, both.

And then the last one, just, did I hear correctly that the IP from ViaSat-4, even though it was supposed to give you some kind of sevenfold increase in capacity versus say a ViaSat-3, there's no way to put any of those innovations in any of these next 7 Ka-band satellites that are launching, but it would, first we would see what would be in the mobility satellite after that, is that what I heard?

Yes. So, I mean, the seven satellites that are under construction are all in very, well, at least the ViaSat-3and the GX10s are pretty close to completion. The GX7, 8, 9 are also already they're well underway. So, they don't go, those techniques will go into the next generation broadband one. And the main thing that we're really focused on is getting very large field of view in this dynamic beam hopping and improving not just the raw capacity, but the capacity that we deliver overlaid on top of the demand distributions that we're seeing in these mobility markets, which are we spent, some time discussing on our shareholder presentation in September, but those, being able to match those patterns is really, really valuable. And so that I think we think that's a better metric for value creation.

Next up, we have a question from Ric Prentiss, Raymond James.

First, appreciate the guidance kind of clarity helping us understand growth rates, but also dollars that really helped us. So there's a lot of moving pieces here obviously. One question on Guru, I think I heard you say that the fiscal '24 revenue guidance would exclude let me just ask the question this way. Does the revenue guidance include or exclude the litigation and the revenue?

Go ahead, Shawn.

Yes. That excludes the non-recurring part of that, Rick.

The growth percentage.

Yes.

And the range and the growth percentage.

Yes. That excludes the effect of the nonrecurring litigation. Yes, I was going to say, Ric, and just one thing to clarify, in the dollars, only include 10 months of Inmarsat.

Whereas the percentage are apples to apples, 12 month, 12 month?

For a trend, yes.

Right, exactly. Okay, good. Yes, because in the shareholder letter, I picked up that the EBITDA was excluding the litigation and so the revenues excluded us. On growth in fiscal '25, is there any way to tease out kind of a zip code? Are we talking low-single-digit, mid-single-digit, high-single-digit teams? What should we think about, what does grow revenue and EBITDA in fiscal 2025 mean? And that would be, I think, a 12-month over 12-month comparison also?

Yes, Ric, we are not commenting on that at this point. I think we are looking at next quarter. I think next quarter will give you more clarity. It'll be closer. We'll be closer to it and we'll be on a given better range.

That helps a lot. And then piggybacking on first question a little bit there, I mean for a long time, heck even when I was in the industry, I used to think of satellite, the best use of bandwidth, the best staying for your buck was to go after these better margin areas, we call it the game, government, aviation, maritime and enterprise. As you think about how you're running the business. Is there a different way than just lumping a lot of stuff into satellite services that might be more informed to help us understand the businesses or how you manage the business both in financials and on metrics, because it does feel to me like the government, aviation, maritime, and enterprise are probably the better segments to go after, but it's hard from the outside really modeling it and understanding it.

Yes. So, I think, Rich, if I'm understanding your question, it's just how are we thinking about things looking forward with this segment. And I think one thing, you can see the service growth in our government business, so, I do think you get some insights there. But I think the way that, we look at the business going forward. I think that's something we're going to continue to think about as the business evolves.

And last one from me is. As we think about the zip code thought, fiscal 2016 seems a long way away and appreciate the thought of what happens from fiscal '24 to '25 on CapEx. We get the question a lot about what is maintenance CapEx versus kind of the growth CapEx as you put satellites up there. So anyway you can kind of help us start thinking about what an ongoing maintenance level is for the business and then also, what '26 directionally might be in total CapEx?

Ric, I think the best way to think about that is just what we've talked about is as we get the satellites into service. We're going to continue to see the CapEx tick downward. And so, that's what we would back from '25 to '26 as well. Our maintenance CapEx or I should maybe a better way to say it is, our satellite CapEx is the dominant part of our capital spend. And so as we finish off on those fleets, that's how you're driving that efficiency downward going forward.

I can add a little bit. The maintenance CapEx, think about that. The dominant factor is the per capita subscriber bandwidth consumption, net of ARPU gains. So that is most evident in the consumer markets. In these mobility markets, it's still present and things like when you think of, in flight connectivity and passenger video consumption, you'll see some of those same effects, but not to the same extent that you'll see them in residential. So, those are part and if you look at kind of our history, having been in the satellite services business for over 10 years. One of the things we we've been able to do is still get greater productivity out of our satellites largely from migrating a lot of the bandwidth from mobility, from residential to mobility. And then the other thing that we've done in general really well is improve the yield of the satellite. That is the gigabits per megabyte investment in the satellites or the satellite utility by better matching supply and demand. So you have to kind of look at all those factors to end up teasing out maintenance CapEx from growth CapEx, but we've been able to drive growth from our CapEx, I think to a pretty high degree, and I think we'll do even better, on a go forward basis with the emphasis on mobility.

Yes. I think one other point I would add, Ric is, if you look at what I mentioned on CapEx, you said FY24, 1.7 billion and the range for '25, 1.4 to 1.5. And then as you know, big set number of satellites are getting done in the next few years as you heard from Mark. So we do expect FY26 to come down as we launch these satellites so from a broader guidance perspective.

I mean on an absolute dollar perspective.

Yes.

Okay. And we look forward to the Investor Day coming up at March as well?

Yes. We will.

The next question comes from Chris Quilty, Quilty Space.

Investor Day in Carlsbad or New York?

New York.

Okay. Carlsbad is nicer, but New York is easier to get to. Question for you, the number of aircraft net adds looked a little light in the quarter. Is that primarily just seasonal or timing? And can you give us the thought of kind of what to expect on a go forward net add rate, either in the back half of the year or going into next year? And then a broader question on the IFC, just what's the general pipeline looking like now in terms of aircraft or airlines that are new to IFC still coming on board. Is it a strong pipeline? Has there been weakness because of interest rates or fuel prices or just general temperament of the market?

Okay. On the first part, I'd say there are two, I mean, if you just look from a macro perspective, there have been two kind of drags on installs, from the airline's perspective. One is the delivery rates of new aircraft, which have been kind of behind schedule from both of the major OEMs. And we've done well on new lines fit contracts. And so the line fit, the line fit, which is driven by aircraft deliveries, that's lower than lower. I mean, if you just look at the OEM's delivery issues and that you can kind of gauge how that would be allocated among the different airlines, some of whom are big customers of ours. And the other one has been, just the fill factor on existing flights, which has kind of, still sort of discourage the airlines from we're slowed down some of the retrofits on the existing fleet. And I think there's some of that is seasonal. So on the one hand, when Shawn mentioned seasonality before for the invite space, if that part's good for us because, more passengers and it's driven more demand, and it's been good for revenue, but it has slowed down installs a little bit. The backlog's still, really strong. And we'd say that the pipeline of new airlines is good. I think that the kind of way to put it is that the U.S. market has been probably the most forward leaning on in flight connectivity. I think that it's also becoming clear that there's monetization strategies, right. That it's not just, and it doesn't have to be just an expense for the airlines. And so that is really drawing in a lot of interest from airlines that maybe were on the sidelines before. And if they can both get the amenity and figure out how to better monetize it. That's a good combination. And I think that is spreading more globally.

Clarification, the CapEx guidance for next year, did you say the 1.4 to 1.5 includes a possible provision for an I6 replacement?

Yes, that's correct.

And timing wise, I guess, you've got two modern L-band satellites, the I6F1 and the Alpha Bus, The I4s or 17 years old. If you get an order in next year on that satellite, we're looking at three years. Does that leave enough time wise coverage on the L-band capacity given the age of the legacy satellites?

Yes.

Running good on fuel?

Yes. And you know we also have, besides, I mean, besides the existing fleet, we also remarks had, I think, right around the time of the acquisition, announced a fleet of 3I8 satellites that'll be arriving kind of in that same time frame, maybe a little bit earlier.

And how much capacity would those have because those are small GEOs?

We're having good reporting the capacity on the L-band satellites. But the thing that we are focused on is, when we talk about next generation L-band, the big thing is increasing the capacity of those satellites dramatically. The I8s were really aimed at extending the existing safety, basically, the safety and emergency services. And so that's good, I think, in terms of, shoring up the existing fleet. But part of our CapEx budget on a go forward basis and part of what we're talking about in ecosystem building is to really modernize that whole fleet. And we'll talk about that separately when we're ready.

And final question, I mean, as you're moving away from the I4 and -- sorry ViaSat-4 and the sort of massive capacity toward satellites that are more agile mobility capable. Does that mean it's more likely that you'll buy something off-the-shelf from Thales Alenia Space or Airbus that have Software defined satellites that they've already fielded or is it something that you're likely to do internally because of some design capability that you have internally?

At the time that we do it, we will definitely look at what's available off-the-shelf for sure. But we haven't seen so far or we haven't been seeing things off-the-shelf that have the capability of the technology that we're doing on ViaSat-3 or we're doing on 4. So we're going to do a comparison. One of the things we also will be able to do by holding off a few years is we do we will be able to do some risk reduction. But when I say risk reduction, schedule risk as well as budget risk, reduction. So we intended to go a lot better in terms of scheduling budget, on the following ones. And then also, there's some really interesting technologies that we can test, that that can also reduce cost and improve productivity. So those are the things that we're looking at, but there's some -- so far, on ViaSat-3 absent that anomaly, everything's worked well. And four was just an enhance the app, so that technology, that's something that we can draw on, if things play out the way we expect.

Currently, did you say whether the EMEA satellite was going to Americas and the Pacific Bird to EMEA, or have you decided that yet?

Yes. We have options on both, and, yes, we're really focused on meeting the needs of our mobility customers, and that's how we're going to prioritize them.

Edison Yu from Deutsche Bank has the next question.

First, as you kind of peel away at Inmarsat, do you have any updated thoughts maybe on the various pieces that may not be strategically important, especially on the l band side, now just curious, any thoughts there?

No. I mean, we are really we are very interested in the L-band. I think that Inmarsat has applied L-band into some variety of very different market, so there's U.S. defense, there's international government applications, there's really interesting voice and data applications, and there'll be safety ones. What we see is, if our long-term objective really is to grow with the direct to device market and the IoT market. And when I say IoT, it's really going to be the shared terrestrial and mobile, these devices that can operate off both terrestrial and mobile. We're aiming to, to be able to bring some of those to market soon, and then, we do think that the things that we do to the satellites to enable that and really, kind of boost the existing mobile satellite services market substantially. So we're really interested in the services. Oh, the whole range of services that Inmarsat performance now. We think that's a good foundation, for somebody who wants to go in you know, for anybody who wants to go into these, kind of direct to device markets.

Understand. And you mentioned, D2D, and I think you've kind of alluded to some potential, paths into, getting in there. Do we have any kind of updated thoughts about D2D going forward, maybe on the using that extra L-band?

Not yet. We're work we are working on some, and I expect that we'll have more to talk about next quarter, but we're not going to say more about it today.

Got it. And then just one last one on IFC. So, I think there were some announcements from one of Inmarsat's customers, Qatar Airways and Starlink. And there was a little bit confusion, I think, at least from our end or on the public end. Can you maybe just go over exactly what kind of happened there with Starlink, is it, did they, like, ship that over or what exactly is going on?

Well, I think, probably best to ask them. I don't think we want to speak. We don't want to speak for them on this.

Next question comes from Louie DiPalma, William Blair.

What percentage of revenue will the residential fixed broadband be by the end of fiscal 2024 as it seems that you're deemphasizing it?

So, I think what we've talked about in past, is that part of our business with the combined with Emerson and so forth is less than 15%, and as we continue to prioritize our bandwidth and work with our supporting the growth in our IFC business. You'd expect that to continue to go downward.

Have you disclosed who the third ViaSat-3 launch contract is with? And also for that, launch, I think you said in the fourth calendar quarter of 2024. Have you been able to procure insurance for that launch?

On the launch provider, we will put out a press release. I mean, generally, we want to cooperate with the launch providers. Just to make sure that they approve the release, for it. So we'll do that, in the near future on the insurance.

Yes, I can jump in there. So, on the second satellite that insurance is already done, just as a reminder, Louie. And we're starting to work on the next one. And I think that that's kind of in process, but we're good to have the second one all wrapped up.

And then just to add on to that. I mean, the insurance, the insurers tend to be very detail oriented. So, the review that we're going to have next week with the antenna manufacturer even though it's a different satellite, that's a different antenna manufacturer for Flight 3 than Flight 2, insurers tend to be -- they're really interested in the details, and so I think that having those details available will help them understand and what happened and it'll help us with that place in the insurance.

And as it relates to the fiscal '25 CapEx guidance, is it a good estimate to assume that the I6 replacement satellite would cost around $400 million. So if you don't, I'd like to go ahead with that that you could just subtract it from the 1.4 billion to 1.5 billion number of and what could be your CapEx for fiscal '25?

No. For fiscal '25, what was in the budget would be the portion of replacing that mission that would have been spent in that fiscal year.

Okay. Do you have an estimate on what that would be?

No. We're not going to do that yet. We are evaluating multiple options, and we're aiming to simplify it. So, again, we're not -- we are going to make sure that we make the right decision. We're not ready yet. And so, it just would be premature to give us to give a dollar value for that.

Okay. And one final one. As it relates to, direct to device, it seems that Inmarsat was previously partnering with Skylo and they've established chip partnerships with Samsung's Chip Arm and MediaTek. Have you continued those partnerships such that you would in effect be the direct to device partner for Skylo's in the future initiatives?

Yes. I mean, I think you're going to see kind of ecosystems evolve around the direct to device. And they're going to include the device makers and chip makers, spectrum holders, satellite operators, and others. And the ones that you described are all attractive, members of those ecosystems. And I think, as we've mentioned before, we think Inmarsat got a really interesting role to play, especially in, their same role to play, especially in there will be different generations of standards. The current one, which is the narrowband IoT, next you know, non terrestrial network. I think you'll see those come to market soon, like, within quarters. And yes, there's definitely a role for us to play there.

[Operator Instructions] And I'll hand the conference back to our speakers for any additional or closing remarks.

Okay. So, thanks everybody for joining us this afternoon. Just want to remind you of a few important takeaways from the quarter. We felt the results were really good, generated 16% year-over-year revenue growth and 20% year-over-year adjusted EBITDA growth on like for like basis. We're doing well on the Inmarsat integration program. We're kind of ahead of schedule and had a budget so far. We've got a -- we think we have a clear and good value proposition on global mobility that's built on meaningful and granular service level commitments even in the most challenging places and times. That's resonated with customers, especially in the very competitive U.S. in flight market, and we think the same kinds of analytics insights and bringing confidence to global markets in aviation, maritime and government, we think that's going to work for us. We're confident our business will continue to grow revenue and adjusted EBITDA in fiscal year '24 and '25. We'll give more additional guidance on that, next quarter for FY25. And we're aiming to become free cash flow positive in the first half of calendar year '25. I've taken a lot of the steps that we think we're going to need get there, and we think we'll get meaningful and sustainable free cash flow during fiscal '26. So with that, I look forward to updating you all, on our continued progress next quarter. And I'll hand it back to the operator now.