VSAT - NASDAQ

Hello, and welcome to the Viasat Fiscal Year '24 Third Quarter Earnings Conference Call. Your host for today's call is Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.

Thanks. Good afternoon, everybody, and thanks for joining us today. So with me, I've got Guru Gowrappan, our President; Shawn Duffy, our Chief Financial Officer; and Robert Blair, our General Counsel. So first, I'll have Robert 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 Forms 10-K and 10-Q. Copies are available from the SEC or from our website. Back to you, Mark.

Thanks. Okay. So we encourage reading the shareholder letter that we posted on our website earlier this afternoon for more details. And we'll give an overview of the main points, and then we'll allow plenty of time for questions. I'll start with a quick overview of our results and status on our satellite fleet and then Guru will go into more depth on the quarter. Our 3 main priorities, as described in that letter, including the Inmarsat integration, and update our outlook. Our financial results for the third quarter were good. Revenue of $1.1 billion, was up 73% year-over-year compared to revenue from Viasat continuing operations last year. Inmarsat's contribution was about $443 million, up 12% year-over-year on a standalone basis. Combined growth was 8% year-over-year. Our adjusted EBITDA for the third quarter was $383 million, up 214% relative to adjusted EBITDA from continuing operations last year. Inmarsat's contribution was $260 million, up about 17% last year. Combined adjusted EBITDA grew about 11% year-over-year. Awards were also very good at $1.2 billion for the third quarter, resulting in $3.7 billion in backlog, and Government Systems also has about $6.4 billion of unawarded Indefinite Delivery/Indefinite Quantity, or IDIQ, potential contract value. from our results, we're continuing to grow and win business in our core target market segments, including selected enterprise and government mobility services. We continue to compete with our customers that value 4 main attributes. An expansive view of connectivity that integrates not just reliable, measurable and affordable speed and bandwidth, but also includes hardware, software and service products that are tailored to optimize those customers' unique requirements. And also where we bring scale, not only in bandwidth and coverage but also in operational support and/or partnerships that add value in key verticals and in important geographic regions. Three is where we earn trust of similar customers and partners through years and decades of performance and technology innovation; and finally, those customers recognize our history of identifying, applying and evolving both the right business models and technology for our target markets. I'll cover a few business highlights, including applying our existing infrastructure to new seamless nonterrestrial network, industry standard services through partnerships with Skylo and Ligado, expanding our hybrid in-flight connectivity network agreement in Europe with Deutsche Telekom, scaled up government cybersecurity production and winning and expanding some key government satellite services and new technology programs. We continue to deliver leading in-flight connectivity service quality metrics, supporting our airline customers' initiatives to increase passenger engagement and offering scalable free WiFi with high-quality performance metrics, even at the busiest airports and now preparing for increased geographic coverage on important routes, such as from the continental U.S. to Hawaii. And next, I'll give a quick update on our satellite network, starting with progress on ViaSat-3 Flight 1. We've completed in-orbit testing and taken over operation, Flight 1 performance other than the affected antenna is nominal or better. We're configuring now for operational service and integrating, analyzing and measuring performance. Based on results to date, we're targeting commercial in-flight connectivity service in the first quarter of fiscal '25. We've already demonstrated peak downstream data rates into consumer terminals in the 200 to 300 megabit per second range. The bandwidth allocation features of ViaSat-3, such as optimizing delivery to hotspots dynamically across the service area in real time support our product -- productivity initiatives. The Flight 1 antenna root cause investigation was completed in the third quarter. Based on its findings, we're implementing corrective actions on the F2 antenna. The F2 satellite is otherwise complete. The antenna with corrective actions is expected to be completed, thoroughly tested and delivered this calendar year, and F2 is expected to be launched in the first half of calendar '25. The ViaSat-3 F3 remains unaffected, and we expect it to launch late this calendar year. We also have GX-10a and b, which are hosted payloads on polar satellites, and they completed their thermal vacuum testing and are expected to launch together mid-calendar year 2024 this year. They will improve coverage and performance for polar government and commercial routes. By next summer of calendar '25, we expect to have those 4 new satellites in our constellation to scale mobility services. Additionally, the GX-7, 8 and 9 satellites are being built by Airbus and are expected to be completed beginning early calendar '26 for additional geographic coverage and peak demand depth. Those highly flexible satellites will further improve our ability to optimize capacity and deliver high-quality, reliable services to our mobility customers. So with that, I'll hand it over to Guru to cover our third quarter results in more depth.

Great. Thanks, Mark. I'll cover 3 key topics: Q3 financial performance, integration and transformation and an update on our combined outlook. We are executing on our strategy and delivered strong core financial and operational performance during Q3. Core revenue and adjusted EBITDA, both grew year-over-year by 8% and 11%, respectively, driven by our mobility and government businesses. Some of the key highlights from the quarter include: Government Systems had another quarter of strong demand for our information assurance, high-speed network encryption products and tactical SATCOM products, which drove product revenue up 55% year-over-year. During the quarter, we supported the U.S. Air Force in a major exercise called Mobility Guardian 2023. Viasat provided interoperable communications through next-generation hardware and software products and systems to ensure robust and resilient connectivity. Our government business also had a fantastic quarter of awards, which were up more than 50% sequentially. While we can see lumpiness quarter-to-quarter in the business, the backlog is over $3.7 billion, adding confidence to our outlook. Recent trends in Satellite Services continued with strong growth in commercial IFC, ending the quarter with 3,500 aircraft in service, up over 17% year-over-year on a combined basis with over 1,400 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. Subsequent to quarter end, we expanded our relationship with Lufthansa Group, adding over 150 aircraft on our hybrid EAN network alongside their existing Ka satellite fleet. It's a great example of the integrated network solutions enabled by adding Inmarsat and the teams are working together really well. We also began launching in partnership with Skylo Technologies and Ligado, the world's first global direct-to-device network-enabling mobile network operators devicemakers and chipset manufacturers to take 3GPP Release-17 compliant products to market for the first time with nonterrestrial network satellite service within our global L-band network coverage. And finally, on the list of highlights, our new business momentum is robust. We are winning in the large and growing mobility and government markets. Our government business has very unique solutions that enable critical operations for the U.S. government and others. It is bolstered by IP that uniquely address these complex ecosystems that are evolving fast and where security and resiliency are at the forefront. Some key indicators are government product growth at 55% year-over-year, IFC installations 17% year-over-year, total awards at $1.2 billion, backlog of $3.7 billion and unawarded IDIQ value of $6.4 billion. Now some more color on the financials. Third quarter 2024 revenue was $1.1 billion. This was up 73% compared to revenue from continuing operations of $651 million in Q3 FY 2023, including Inmarsat in both years, Q3 2024 revenue was up 8% year-over-year, driven by strong growth in Government Systems products and IFC service. Net loss totaled $124 million for Q3, up from $47 million net loss in the year-ago period, primarily due to increased interest expense associated with the Inmarsat acquisition and the nonrecurring Inmarsat acquisition-related charges. Adjusted EBITDA for the quarter was $383 million, an increase of 214% year-over-year from continuing operations, including Inmarsat in both years, Q3 FY 2024, adjusted EBITDA was up 11% year-over-year as good cost management leveraged our top line growth. Sequentially, net leverage increased 0.1x to approximately 3.8x estimated combined LTM adjusted EBITDA as of Q3 FY 2024, substantially favorable to plan at the time the Inmarsat acquisition was announced. We have significant financial flexibility with approximately $3 billion of liquidity, including $1.7 billion of cash, cash equivalents and short-term investments on our balance sheet at quarter end and no near-term funded maturities. Importantly, we have a fully funded path to positive free cash flow. Finally, insurance recovery claims of $770 million are proceeding. Claims for ViaSat-3 F1 and I6 F2 were filed before calendar year-end. We expect to receive proceeds over the next few quarters. Subsequent to quarter end, we have received more than $200 million to date, with the majority anticipated to arrive in fiscal 2025. Overall, this was another strong quarter for Viasat. As Mark mentioned earlier, I will touch on 3 priorities we discussed in our letter, mainly around integration and transformation. First, building operational momentum and financial performance of our core business. Operational momentum is reflected in the financials I just covered. Aviation continues to be our fastest-growing area with good progress in aircraft served and passenger engagement and in the scope of services we deliver that help our customers use connectivity to benefit their unique business models. We are proud of our reputation for predictable, reliable and measurable service quality. Our new order pipeline remains robust. Our service -- services businesses also benefit from an innovation and an innovative and differentiated portfolio of hardware and application software products. Our second priority is leveraging the Inmarsat integration to achieve operating capital and revenue synergies to reduce costs and expand the scale and scope of our products and services. We took a big step in Q2, integrating space and ground infrastructure, operations, go-to-market, engineering and supporting teams, reducing people resources is really painful, but necessary to sustain our growth and achieve the financial metrics we expect. We expect about $100 million annual cash savings by start-up FY 2025, better than the $80 million target when the acquisition was announced and sooner by about 2 years. We're also integrating our global networks and support to further improve service quality, scale and resilience and to achieve the capital synergies to drive positive free cash flow. The third priority is sustaining mobility business growth while advancing the inflection to positive free cash flow. Our strategy is to measure and drive asset productivity by best matching bandwidth delivery to our target customers, geographic and peak time demand needs, especially in the world's mobility hotspots such as major airports and maritime ports. We are leveraging our extensive global operating data and applying machine learning techniques to dynamically optimize our existing satellite fleet as well as our forthcoming 7 Ka-band satellites under construction and third-party assets. We're also using unique technologies to enhance video streaming quality and efficiency, a dominant factor driving bandwidth usage growth. Our revised capital budgets reflect the opportunity we have to scale productivity, cost savings, while simultaneously driving further measurable increases in service quality. Now moving to the next topic on outlook. We exclude -- in terms of outlook, we exclude satellite impairment charges and the nonrecurring benefit from the litigation settlement announced last quarter from our guidance. For FY 2024, we expect revenue growth in the high single-digit percentages over FY 2023 for the combined company in 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 are now expecting adjusted EBITDA in the top half of our previous range, $1.275 billion to $1.3 billion with continued growth in FY 2025 in both revenue and adjusted EBITDA. Capital expenditures are expected at approximately $1.7 billion in the current -- our current satellites under construction. In Q3, our investments in our satellite network projects and success-based CapEx, which both drive growth, where over 2/3 of our total capital spend as compared to less than 1/3 associated with other maintenance and general CapEx activities. In FY 2025, we expect CapEx to decline to a range of $1.4 billion to $1.5 billion, inclusive of a placeholder for the potential funding of an I6 F2 replacement. Capital expenditure guidance does not include the expected $770 million benefit from insurance recoveries. So on a net basis, our planned growth spending fits well within our capital structure and liquidity framework. Note that we include capitalized interest in our CapEx guidance, which is approximately $200 million per year. We are working on reducing leverage and optimizing our balance sheet and that is closely tied to our capital investment plan, post-merger and taking advantage of the capital synergy opportunities we mentioned earlier. Before wrapping up, I have two important updates to share. We felt it was time to scale our Investor Relations program, given our nearly doubling in size post-merger. So I'm happy to announce that Lisa Curran has joined our team as VP of Investor Relations. Lisa brings a unique breadth and depth of experience across sectors and leading companies through growth transformations. And I'm sure Peter -- Pete Lopez will facilitate introductions with all of you over the coming weeks. We've talked with a number of you about our plans for a Viasat Investor Day and listen to your feedback on multiple fronts. We've heard you and we will instead focus more immediately on enhancing our reporting disclosures and investor outreach, including giving more insight on our growth businesses. We look forward to getting more of your feedback. We are aware that we are competing for your capital every day, we have conviction in our path ahead, and we want you to match our confidence. We expect to provide an update on our next earnings call. Now 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, including mobility and government. Ongoing execution on our sizable backlog, meaningful cost rationalization and prioritize CapEx spending, which benefits from the natural decline as we launch our satellites. We are driving cost structure improvements with synergies, scale and benchmarking. Our operational performance in Q3 was very good, and we are on track to achieve substantial synergy value and expect the combined company to grow revenue and adjusted EBITDA in FY '24 and FY '25. And to be clear, our FY '25 growth is based on a full 12 months of Inmarsat in FY '24. With that, I'll pass it back to Mark.

Okay. Thanks, Guru. And at this point, we'll be happy to take some questions.

[Operator Instructions]. Your first question comes from the line of Ric Prentiss with Raymond James.

First thoughts are with you, your employees and families with all that rain, weather you've had out there. So I hope everyone is okay. On the business side of things, I appreciate the update on the Flight 2. It sounds like first half calendar '25 and the Flight 3 actually before that kind of late 4Q calendar '24, help us -- so is there any more ground network or any more investment that needs to kind of occur as we kind of think through that? And have you gotten any insurance yet for the Flight 3? And then I'll come in with another question.

Okay. On the capital investments, I think where we are is about -- we're about 85% through the total capital investment plan that we had when we started the ViaSat-3 program. So about 15% to go, and that includes both the remaining space and ground -- initial ground segment.

And then insurance for Flight 3...

Yes I think you have that -- yes, so we're still working on that. We filed claims. Things are looking good, but I think you'd expect that probably be in FY '25.

Yes, part of the process for insuring the third flight is going over the status of Flight 1. And we'll do that through questions and responses with the insurers now that we filed our claim.

Okay. And then, Guru, you kind of pointed out a little bit that you're looking at how best to use the bandwidth that you're bringing to bear with all these new birds, both on the Viasat side and the Inmarsat side. Can you help us from a high level maybe understand how much capacity should we be thinking that you're bringing into the marketplaces? And then as you think about what we call GAME, government, aviation, maritime, enterprise, but then also rural consumer, how should we think about that capacity where you might want to apply it and what those growth profiles look like -- I'm making it a more complicated question, help us understand the competitive dynamics in those silos of who you feel you're most pressed against?

Okay. Okay. So there's a lot in there.

A lot there, yes.

Well, so the first part is -- and one of the things we emphasized early on when we were first entering the business was the performance of each individual satellite. And now given the size of our fleet and the fact that we have multiple satellites covering individual places, one of the main things that we are now working on is using each incremental satellite to effectively increase the capacity of the whole fleet more than what you would get from just that first satellite, and that comes from the way that we operate the fleet as a whole. So I mean, so the -- think of it this way, the basic idea is that if you look at satellite coverage, just like cellular coverage in each beam of any satellite, the areas right in the middle of the beam that are really -- that are the most efficient, and there are places at the edges of beams that are less efficient. So the fact -- since all of those patterns don't line up on all the satellites, one of the things that we can do is reallocate the way we think about allocations of user terminals to satellites by doing that in the most efficient way possible. And that is much easier to do with mobility terminals than it is with fixed because mobility terminals are already able to be handed off from satellite to satellite at any time. The other thing, which goes to the part about competitive dynamics, is that one of the things that we always talk about and you can measure pretty easily is that the high demand markets have very high ratios of peak demand to average demand. So think about airports, especially a big airport with a lot of connecting flights, 3 or 4 times a day, it might have 10x the demand that it has on the average at those peak times. So our more recent satellites that have dynamic bandwidth steering or more dynamic bandwidth steering than we've had in the past have an additional benefit of being able to move those beams around among the different places that have those high peak demands. And the other thing is we have plenty of data on the differences in those peak times. So for instance, the peak demands in Atlanta aren't necessarily the same as they are in Chicago, Dallas, Houston or other hub airports. So we can then optimize our bandwidth to match those patterns. The main -- the biggest overall trends in these mobility markets are really increasing both the amount of bandwidth that individual passengers use and then a number of passengers that are engaged in using WiFi. So that's kind of the change that we've really catalyzed. And it's -- I mean the way we kind of explain it to airlines is you don't really get any credit from passengers for having WiFi if they don't use it, right. So the big challenge has been how do you scale up the engagement without having bottlenecks at these hub airports. And we think that's a really -- that's a big dynamic that is playing out first in the U.S. and is expanding internationally. There are similar effects going on in maritime markets in the way they're manifested in maritime markets depends a lot on the type of ship, whether it's a leisure ship or think of it as a personal ship or enterprise ship. And if it's an enterprise ship, is its main function moving people? Or is it moving cargo. As an example, so what we're doing is, is working on each of those areas and then you can imagine you also have to work on the combination of those areas because a lot of the big airport are also major maritime ports. And so those are the dynamics. Basically, what we're working on is that match of supply and demand, we can do that in two ways. One way is to optimize the fleet using some of the techniques that I talked about at the beginning. And the other one is to be really thoughtful about the customers that we choose to serve so that we can deliver those -- the performance that they're counting on. Does that cover those points that you had?

Yes. And it sounds like you feel good about the amount of bandwidth you're bringing to bear and the ability to -- the time at the right time of market -- time of day, sorry, and geographic market and try and convince people, you should be using this stuff to kind of spur demand.

Yes, it's all of those. And we've been refining our ability to do this for years. It was those kind of our original go-to-market value proposition in the in-flight space in the U.S. We have years worth of data. The data is constantly evolving, but we've got our fingers on that. And then we also are augmenting that with industry-based data that helps us deal with perturbations to those scheduled users and for those types of vessels or planes that aren't scheduled. So you have to combine all that stuff. But we feel like that's the direction that service providers are going to need to go to deliver the certainty at those enterprise and government customers want.

Your next question comes from the line of Nikhil Aluru with JPMorgan.

If I could ask a question on IFC, you guys mentioned the 1,400 plane backlog. Can you help us think about how quickly that you're able to activate those and what the pacing might look like as they come online? And then more higher level on IFC, Mark, you touched on the go-to-market. Maybe if you could give us some color on what the competitive intensity has looked like? Is there anything that you feel like you need to change potentially around pricing or promotion in the IFC business to maintain this kind of growth that you've been run rating at?

Okay. Sure. So the rate of deployment is -- it is a little bit unpredictable. The main factors -- one of the biggest factors is the delivery rate of new aircraft from OEMs, especially Boeing and Airbus. They have a lot of -- so they have a lot of demand, and there's been supply constraints, including some of their major components. We've ranged from 200 or 300. In some quarters, we've done as many as 500. But we're looking at going from currently around 3,500 to probably around 4,200 or so by the end of next fiscal year. So that would be a little over a year from now. But that -- and then that -- I think that's a reasonable assessment based on current new delivery rates and how those delivery rates affect our customers' retrofits. If they don't have new planes that sometimes slows the rate at which they'll take existing planes out of service for retrofits. I think that's a pretty reasonable estimate. And then on the -- your other question about what the growth drivers are? I'd say -- for us, kind of the biggest -- so let's say, I'm going to talk about a few things. One is the in-flight connectivity business tends to be [indiscernible] regional carriers have -- they have different ways of approaching their customer base than, say, global long-haul carriers. And then some of the premium carriers generally are driven really by revenue per seat mile compared to very low-cost carriers or low-cost carriers that can be driven by CASK. So the -- I think that it's not really a good idea. So I mean it's not the way we approach it. We don't really approach it as a one-size-fits-all market. What we do see is kind of a dominant theme, which probably will play out over the next few years, and it's happening on a quarter-by-quarter basis is that some of the competitive dynamics that we first saw in the U.S. market are starting to spread internationally. That is especially this notion that the airlines don't really get any credit from their passengers if they don't use the connectivity system. So really think of it as the main trends are increasing passenger engagement. And then to increase passenger engagement, you generally need to offer them something that they want and more and more of that something -- that includes video. So that drives bandwidth demand. The -- and then the big issues really are when that happens, how do those airlines have confidence that you can deliver? That's what has led to having us sort of well-defined service level agreements that we and the airline can measure. And then the other ingredient that we've been increasingly successful at is helping the airlines monetize that engagement. Different airlines have different strategies for monetizing it. But if they don't monetize it and they just add more costs, that doesn't work for a lot of airlines. So the idea of building the increasing supply of bandwidth and the increasing engagement into a business model that works for each airline. That's one of the main things that we've been focused on. And one of the areas that we're going to aim to try to provide investors with more visibility on.

Your next question comes from the line of Mike Crawford with B. Riley.

A couple of questions regarding the L-band. First, can you elaborate on your 3 geostationary smallsat L-band satellites that you're developing and whether that may contain some of the discontinued ViaSat-4 IP?

No. The L-band satellites -- those 3 new L-band satellites were started by Inmarsat prior to the merger being completed. They do have some pretty innovative bus features. They're very low-cost geosynchronous satellites, which are interesting for a variety of reasons, but they're not based on ViaSat-3 IP. Those 3 aren't.

And those might launch in 2026?

Yes. I think they're going to -- intended to be in service in by the -- by 2027. Part of it is they will have reasonably orbit raising time. So we've got to work through the launch and the orbit raising and bringing into service mission, but those are ballpark correct at this point.

Okay. And then separately on L-band, could you just elaborate more of what you, Skylo and Ligado, each are bringing to the table on this NTN direct-to-device service and whether that requires a special device such as like a formerly Bullitt phone or a TAT phone that -- or would this would be to any iPhone or Android phone?

Okay. Yes. So what is happening in the device market is expanded interest in this integration of terrestrial and satellite networks. And satellite networks are often referred to as NTN or nonterrestrial networks. The -- you have to think of motivations of different parties here. But the device makers -- and think of it as device makers, mobile network operators, over-the-top companies that provide services -- data services to smartphones as well. And then -- or other devices. And then also think about it from the user's perspective. So the device makers are really looking to integrate a next generation of modem chips. That's what's standardized in this 3GPP standard. There's also some specifications around satellite frequency bands. L-band being one of the most prominent for delivering these services. And then the devicemakers are working to seamlessly integrate this handoff from terrestrial cellular networks to satellite service. And that is -- so that's the general theme what you'll see. And what you'll probably see are initially some functions that are for remote -- basically remote emergency or remote location type services. And then also just remote coming now will be remote messaging and communication services that are built into devices. The idea would be if you have a device that benefits from cellular connectivity that you would use the satellite connectivity to extend that range and what we think is also fill in black spots in coverage. Some part of -- and this is to be determined, but some part of the market is in people that you know are far away, often deserts or mountain ranges where there wasn't and probably won't ever be cellular coverage. But a lot of devices are disconnected just even though they are near terrestrial cellular coverage, but in a dead spot or a black spot or shadowed by a mountain or hill side or similar things like that. So one of the big things going on in the industry is whether you want to serve those people with existing cellular terrestrial frequencies that are allocated to satellite, or -- and this is the part that we're aiming for, and we think makes a lot of sense is if you can augment terrestrial cellular with licensed satellite spectrum that will fill in all these black spots, and you don't have to take -- you, the carrier doesn't have to take any existing spectrum out of service. They have to take terrestrial spectrum and dedicate it to satellite use. That's -- so that is -- that's what these 3GPP standards are about is enabling that capability. We think, ultimately, that's the way to both get scale and make the services more attractive. So now Skylo has put together kind of a network and back office solution that lets us start delivering those services pretty much right away. We're doing tests with some really interesting devices. We're working with Ligado to help scale what we can do in the U.S. And worked with Ligado for years. They have a very -- they've kind of the most advanced L-band, ground-based beam forming satellite. We helped develop that, and we also help them operate it. And then with Inmarsat, we can extend that globally across all the rest of our fleet. So that's what's going on now. I'd say the main thing you'll see kind of the near future are device makers that choose those chips that have the satellite NTN capability starting to talk about their products and bring them to market probably later this year.

A couple of quick clarification points, Mike. One, this is, as Mark said, it's still in market discovery and development mode, and we don't have any incremental CapEx associated with this deal, just for clarity.

And right now, we think this will start slowly. Ultimately, we think it will build, as Guru said. I think market discovery is a good way to describe it.

Okay. Just one final question, more on the financials. Just given the quarter-to-quarter variability in your gross margins for products and services, how -- what was in the mix to cause that variance this quarter? And how should we be thinking about that and say, the March quarter and also next year is regarding gross margin on products and services revenue?

Mike, it's Shawn. So I think if you think about this quarter, there's a couple of unique things. One is we had a little bit of favorability on the mix in our government business. And so that yielded a little bit improved margins. And on the service side, we also had -- we had a kind of a contract negotiation that we were able to resolve with the customer and so that had some favorability as well. So those are things I would say that I'm not expecting to keep going into the next quarter. And then also, we get a little bit of benefit from the acquisition accounting and the flow-through of that, and that's going to start to meter down as well.

Your next question comes from the line of Ryan Koontz with Needham & Company.

Appreciate your commentary, Mark, about the major long-haul versus regionals there and different strategies. Maybe if we take step back, can you maybe characterize kind of how you view those markets in your kind of targeted western markets of where we are in penetration for long haul and regionals? Number one. And second question is that you've talked before about wholesale partnerships to fill bandwidth needs. Is that still on the table of looking a relationship with other providers to fill any gaps you might have with the change in plan for F1?

Okay. Sure. Yes, I'd say that if you want to see what the future of in-flight is, one is, if you look at the region -- I don't like regional, that would be like the U.S. market. Looking at the U.S. as a domestic market compared to international flights to and from the U.S., that's a good proxy I'd say. On the domestic part, the domestic mainline fleets are typically single-aisle planes, maybe a couple of hundred on the range of a couple of hundred passengers. And some, there's a mix of seat-back entertainments and no screens. So you're seeing, I'd say, a pretty fair -- very high penetration of those or many flights where we'll serve well over 200 devices at peak times. And I'd say we're serving both entertainment and connectivity options. And one of the main themes is going to be greater integration between those sort of reflecting what people do, but -- at home, well first they're watching entertainment and still doing -- communicating with friends or social media or other things on their devices. In the long-haul business, that -- the long-haul market has been, I'd say, it's a little bit behind. And that has been because the planes have a lot more people. So high engagement, high bandwidth, means higher capacity of links. And so that's an area that I think we're going to do well in, but we're really with Inmarsat and the new ViaSat-3 satellites, really entering that now, and we're working with our customers to bring similar experiences to the -- to those large twin-aisle long-haul aircraft, as have been in the, say, the U.S. domestic market or intra big domestic markets in other parts of the world, like Australia, Europe, Brazil, some of the other markets that we've been in. Also, you're going to see -- because seatbacks are such an important part of that, I think that's where you'll also see a lot of innovation in combining the entertainment and connectivity parts. The part that's still really to be penetrated is the low-cost carriers because their focus on cost per seat mile really is -- it's a big . So building up these monetization strategies, I think, is going to be a big factor in the low-cost carriers, both on the regional domestic fleets and on the long haul. Does that give you some sense of what those dynamics are?

Yes. When you talk about complementary revenue that you -- things like advertising in places like that where you can kind of boost revenue per seat? Or what sort of other monetization schemes are there?

Yes. So the -- well, one of the tricks is really the whole purpose of this is to increase passenger engagement and then basically think of in-flight connectivity is an amenity like other amenities and it's got to carry its weight for those airlines, right. So the idea is come up with monetization strategies that are -- that help overall with passenger engagement. Advertising is one mechanism, but there's quite a few others that we've been testing with other airlines. And some of them involve promotions with interesting online services or destination-driven things. There's just a very broad range of monetization opportunities. And I think our approach -- and I think we've been fortunate here in working with some really savvy airlines that have different approaches to it. I think one of the things you're going to see pretty much by definition is if every airline does the same thing, then no airlines have a competitive advantage. So a lot of this is really around how they brand and monetize their operations in general and the partners that they use, which often are associated with their root structure and their -- the values that their brand conveys. And I think we'll give a little more detail on this, but it's -- I think it's one of the biggest opportunities in in-flight connectivity.

That's really great. And any comments on the kind of wholesale needs you might have with other sat operators?

Third-party? Yes. Especially, one of the main ways in which we've been working with third parties is on international markets where you have kind of flag carriers, and there doesn't have to be a flag carrier, but basically local regional carriers and then you also have regional satellite operators that are often tied to their regional governments and their ambitions in space. And one of the things that we've been able to do is work with those partners. I think you can see more of this on a -- think of it as a partnership, roaming wholesale basis where they can bring their space assets into service for their needs, and they can also address international flights where their own carriers go global and where other global carriers go to their regions. And that -- we think that's a really interesting formula that also helps deal with this issue of reinforcing those hotspots. And it's also very extensible into the maritime industry. So those are themes that really underpin a lot of these wholesale agreements or third-party partner agreements that we mentioned.

Your next question comes from the line of Chris Quilty with Quilty Space.

Real quick first, a question for Shawn. I'm assuming the CapEx figures exclude capitalized interest?

Yes. So thanks for asking, Chris. So the number that we gave you for both this year and next year do include that capitalized interest, which was about $200 million.

Okay. Good. That's even better then. Great. Second follow-up question on the I-8 satellites. Apparently, they've got electric propulsion, but that doesn't prevent you from doing a direct injection if you want them to get to orbit quicker. Is that correct?

Correct. Yes. We will do a launch mission that's really based on when we need them in service, the services they'll provide in the overall economics and trade-offs of that. But -- right. We can -- we have and can shorten the orbit raising time by choosing the launch vehicle. And we're going to keep that option open.

Got you. And the I6 F2, I think I got that right, is that fairly standard? I mean, you're not going out on a limb and doing something major different with that replacement and it's more of an off-the-shelf replacement from an existing or the existing vendor? Or do you see this as an opportunity to look to add new technology into that satellite?

Okay. So there were some specific missions for Inmarsat that were combined on that satellite. The I6 satellites, as an example, combined both L-band and Ka-band payloads. So given where we are with the combined company and our other assets, what we're really looking for is just the L-band portion of that payload. So -- and that is -- it's -- I wouldn't call it commodity. But it's -- we could -- there's several different Inmarsat and other L-band satellites that we could use as the basis for that. Right now, we're really just looking at our overall L-band fleet and our overall L-band needs and a migration strategy that's around the safety services that are supported by our fleet, the aviation services which are expanding and supported by our fleet in making the decision on the best way to fulfill what that was -- what that satellite was going to do. And we'll report on that, but we did think it was prudent to include a placeholder in FY '25 for the cost that we would incur with the replacement.

Got you. Final question, and it's a little open-ended, but R&D like we very rarely talk about R&D as a line in the income statement more about specific projects. But when you look at the combination of the 2 company, there's a lot of -- 2 companies, there's a lot of things you can do in terms of products, I think of terminals and gateways and modems and different things that need to be harmonized between the two. Are there any anticipated step-ups associated with R&D investments, forget the government stuff, which is funded R&D? Or do you just see sort of regular way investment consistent with what the 2 companies had been doing individually? Or is there a period of time here where you need to spend more to get some of the products and services to market quickly?

Right now, the main -- one of the main themes, as Guru described, it's really operational synergies with R&D being an important component of that. So one example of that is we have 2 different networking systems, and we're in the process of converging and that's in our R&D plan. We also have a number of these improvements that we described that our networks operating more efficiently. But the overall -- our overall R&D spend, we think, is going to stay in rough range of around 3.5% to 4%. And some -- we're basically aiming two big themes. One is synergies and then the other is productivity improvements and then think of it as service enhancements, a lot of which go around these missions that we described that our customers are doing. That would be like for in-flight connectivity, that's -- the -- think of it as a synthesis of the connectivity and the entertainment portions. There's similar but different types of R&D activities that we're doing for applications on the government side in the maritime space. But those are the main [indiscernible] drivers.

Your next question comes from the line of Edison Yu with Deutsche Bank.

First, just housekeeping. Did I hear correctly about the Analyst Day that it is being pushed out? Is that what you were trying to communicate?

This is Guru. Yes, so I'll just say two things. One, we've had interactions with many of you, and we've had feedback on disclosures and overall reporting, and we've been taking that feedback and working through that. So our focus is really addressing some of the key questions that we are getting in, and we'll address that in the next earnings, which means we are not going to do the Investor Day that we had originally thought of in March, and we are in parallel thinking to what a new Investor Day would look like. So we'll come back to you when we have an update there. But we didn't want to delay key questions that we're getting around disclosures and overall reporting, which we'll address in the next earnings call.

Understand, understand. Just a couple on the business. Just curious on the cash flow. There were a couple of discrete items called out as a headwind. Any way you can kind of quantify what those were? And do those kind of headwinds go away sequentially?

Yes, Edison, this is Shawn. Yes, I think that one of the things to keep in mind is, in Q3, we had kind of a lift in -- our cash flow requirements related to the tax payments that we needed to do for the TDL transaction, and we had a little bit also over on the U.K. side. So when I think about it, kind of Q3 to Q4, I think I would -- we'll have our interest payments in that quarter, maybe that's about $33 million. You could see our working capital requirement, probably around the $50-ish million or so in isolated there. But I don't think we don't have any material tax payments coming into Q4. So that's a good way to think about it.

All right, great. And then last question, just on the cost. I realized we boosted the savings potential to $100 million for 2 years. Are we looking at trying to maybe take more? Obviously, you had some more time to dig into the Inmarsat piece. Should we think about potentially some upside to that $100 million as we move forward?

Edison, I would say, so if you look at what we talked about on the $100 million starting FY '25, a lot of the focus there was on headcount and bringing the 2 teams together from go-to-market all the way through technology. So we feel really good with that. Now what we are focused on right now is non-headcount related, which you think about procurement and supply chain and some of the external spend that we do, we are now doing our analysis and working through that. So we do expect opportunities there in terms of savings, but we haven't quantified those yet. We're working through that.

And Edison, if I can add one -- just one my point. Just keeping in mind that in Q3, alongside the risk that we announced with -- as we were rightsizing on the people, we saw some of those payments from in this quarter 2. So that elevated Q3 a little bit as well.

That is all the time we have for questions. I will turn the call back to Mark Dankberg for closing remarks.

Okay. So thanks a lot, everybody, for joining us. I would like to leave you with just a few important takeaways from third quarter. One is that the results were good. We generated 8% year-over-year revenue growth and 11% year-over-year adjusted EBITDA growth. We're winning new business in our targeted growth markets. I think, hopefully, you can get a sense of the competitive environment that we're in, in the way that we are targeting specific enterprise in government and mobility markets. The Inmarsat integration program is ahead of schedule and ahead of budget. And we are balancing growth, innovation and profitability. So with that, I look forward to updating you all on our continued progress next quarter. And with that, I'll hand it back to the operator.