VSAT - NASDAQ

Thank you for standing by. My name is Meg and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2025 Viasat Earnings Conference Call. [Operator Instructions] Thank you. And now, I would like to turn the call over to Lisa Curran, Vice President, Investor Relations. Please go ahead.

Thanks, Meg. We will present certain non-GAAP financial measures on today’s call. Information required by the SEC relating to these non-GAAP financial measures is available in our Q2 fiscal year ‘25 shareholder letter on the Investor Relations section of our website. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. We will also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties and actual results might differ materially from any forward-looking statements that we make today. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings, including our annual report on Form 10-K. These forward-looking statements speak only as of the date they are made, and we do not assume any obligation to update any forward-looking statements. With that, I’ll turn it over to Mark Dankberg, Chairman and CEO.

Good afternoon and thanks for joining us today. With me, along with Lisa, we have Guru Gowrappan, our President; Gary Chase, our CFO; and Shawn Duffy, our Chief Accounting Officer. We encourage reading the shareholder letter and referencing the slides we posted on our website earlier this afternoon for more details. I’ll give a quick overview of the shareholder letter, Guru will briefly cover operations, and Gary will cover our financial results and highlights in our growth outlook, and then we’ll take questions. Our second quarter fiscal year 2025 results were better than expected in terms of revenue and adjusted EBITDA growth, as described in the shareholder letter and slides. We also continue to take actions to strengthen our capital structure, including an upsized refinancing of nearly $2 billion of 2026 secured notes. New contract awards in the second quarter were a new record at about $1.3 billion and were led by Defense and Advanced Technologies, which doubled year-over-year awards led by cybersecurity, ground systems and space and mission systems and by aviation connectivity services. Our recent teach-in highlighted the attractive growth potential and durable competitive advantages in key technologies such as next-generation breeze-based optical technology, mission-specific phased array terminals, space-based cybersecurity and others. Our Q2 defense and advanced technology, or DAT awards reinforce that we are on the right track, including the U.S. government program, international government opportunities in certain commercial markets. One of the unifying themes among our customers is access to diverse set of orbit spectrum and constellations and avoiding overdependence on single individual systems. Of course, we understand the intensity of competition in some of the core businesses that makes the size, competitive positioning and growth prospects of these DAT opportunities, especially [indiscernible]. We are open-minded about the best ways to capitalize on these opportunities and are actively evaluating alternatives, while those businesses are both delivering growth and increasing their potential. We are also very pleased to have Gary Chase join us as our new CFO. Gary’s leadership experience in strategic, operational and financial planning will augment our focus on cash conversion, return on capital, converting to a more balanced capital structure and operating financial profile. Gary will provide additional experienced financial leadership in the areas we highlighted last quarter, including identifying, evaluating and executing the best alternatives to realize the value embedded business portfolio, leading detail business operations, financial reviews to ensure we’re at peak operational productivity levels with corresponding margin performance and leading detailed capital allocation reviews to ensure we’re optimizing return on capital in the near and long term. The main point is we’re exploring additional financial and capital structure perspective. We’re also continuing to drive down capital intensity by augmenting our own satellites through both tactical and strategic third-party agreements. We’re in advanced discussions with Telesat to buy Ka-band LEO [indiscernible] by leveraging our own fleet and its unique capabilities, existing national operator partnerships and unique coverage and/or capabilities of additional third-party satellites and calculations, we can both ensure our customers are getting the performance with coverage they need and more explicitly measure and drive improved returns on capital. Our satellite operator partners are often national-based Campion, key countries and geographic regions, and they’re seeking a robust global space ecosystem to support their own national security and sovereignty. We’re working with both GSO and NGSO systems, Gary will provide more color on capital spending in his remarks. Other key corporate initiatives include evolving the L-band to create value for the millions of people that depend on its use for safety and connectivity, the air, sea and on land. We have a very significant opportunity to also concurrently greatly expand our addressable market through these evolved services and by leveraging the non-terrestrial network and [indiscernible] to the high standards and open architecture, enabling multigen satellites. We see multiple avenues to create value for our shareholders, customers and partners can continue to work with high-minded mobile satellite service operators through the Mobile [indiscernible] Association. And last, but certainly not least, we’re focused on getting our satellites under construction into service. We’ve already accumulated substantial in-flight connectivity, operational performance experience with ViaSat-3 F1 that reinforces the value of its dynamic beam-forming technology to apply all its bandwidth in the most important places, especially for mobility applications. It’s clear that being able to effectively dedicated teams to airplanes drives performance. We continue to work on and make progress on our satellite road map. Now touching on the business areas. Expected declines in fixed broadband remain our single biggest headwind, but that headwind is decelerating. We’re seeing increased global enterprise fixed opportunities, and we’ll report on those as they mature. We’re seeing declines in maritime revenue, primarily in prior generation L-band fleet broadband, and that’s been going on for several years. The fleet broadband declines were meaningful, but also decelerating. Ka-band broadband maritime or Fleet Xpress is experiencing much more modest component in revenue while largely retaining net vessel count. The multi-orbit, multi-band [indiscernible] wave product is now in beta trials and doing well and already leading to full-scale deployments for some initial customers. We already have an order pipeline of over 100 customers, representing about 3,500 vessels. About 1/3 of those are new customers, offering a good opportunity to increase net vessels. We’ll continue to update the maritime outlet based on market data and installation rates, but our overall confidence is building. Longer term, we see further maritime addressable market opportunities with Evolve L-band. Commercial and Business Aviation are growing well. New OEM aircraft delivery constraints are our bottleneck to active tail count and the Boeing strike added to that issue. We’ve been working through the near-term capacity challenges associated with the ViaSat-3 F1 antenna anomaly and are making steady progress with network reconfigurations and expansion to serve our customers and expected growth. We’ve already been doing multi-orbit government aviation and are definitizing extending multi-multi band to all our aviation verticals. We believe that multi-orbit, combined with our existing and planned own and partner satellite fleet will be very, very competitive. U.S. and international government are also growing well with opportunities for both technology and services businesses. Key themes for us includes multi-orbit, open banned integration and management, product and technology solutions, advanced platform-specific phased array antennas, space-based cyber, next-generation Laserlink and space payload technologies. We see accelerating growth here, obviously reinforced by the exceptional second quarter awards. Gary will provide more color on the financial aspects of many of these points in his portion. With that, I’ll hand it over to Guru.

Thank you, Mark. I’m going to provide a brief organizational and operational update and then introduce a new member of our executive team. Wi-Fi teams are focused fostering collaboration and operating as one to deliver results while continuing to sharpen our execution rigor. This is core to how we show up and execute for our customers and products, which in turn drives value creation. Our quarterly highlights only scratch to surface, but show the good momentum we are building. We know there’s a lot of work to be done and progress is being made as we continue to put our customers first. We continue to align our internal organizational structure in support of our strategic goals and to take advantage of our scale to improve operational efficiency. We are making great progress across the company to leverage our strength across departments and ensure a cohesive technology strategy that supports our growth and innovation. Nexus Wave is an excellent example of this. Our operating model fostered the collaboration and cross-function problem solving necessary to develop and bring to market an industry-first offering like Nexus Way. Mark mentioned that it’s off to a very good start with an order pipeline already at 3,500 vessels. In the near term, primarily in our indirect channel, third-party companion offerings created incremental ARPU pressure on flattish FX vessel count this quarter. We are refining our channel strategy for indirect. We expect NEXUS Wave will enable a return to net vessel growth and ARPU expansion in Maritime. But the near term is offset primarily by reductions in legacy fleet broadband some declines in indirect FX ARPU and modest FX net vessel count production. As we continue to navigate the dynamic landscape of our industry, we will remain adaptable and responsive to our businesses needs. This means continuously improving our structure, processes and strategies to ensure they are optimized for success. Our goal is to create an agile and efficient organization that can quickly leverage opportunities and challenges to drive growth and enhance value capture. Now I would like to introduce a new member of our executive leadership team, Gary Chase, who joins us as Chief Financial Officer. Gary Chase joined Viasat after more than 12 years with Delta Airlines in various senior financial roles, most recently serving as Senior Vice President of Operational Finance. We are excited to have Gary’s depth of experience and track record of execution in financial planning and analysis, strategic planning, corporate development, operational finance, capital structure management and cost efficiency improvement. Prior to joining Delta, Gary was and equity research analyst at Barclays Capital, having covered the airline and transportation industries. Now I would like to hand it over to Gary.

Thank you, Guru. Well, I’m excited to join Viasat at such an important time in the company’s history. I have a tremendous amount of respect for Viasat’s businesses and global mission of delivering safety and connectivity to customers in the air at sea on land. I’m grateful for the support I’ve gotten from the whole Viasat team in my early days, but especially our finance team led by Shawn, and I may well need some of that support during the Q&A. As a team, we look forward to partnering with Mark, Guru and the rest of the leadership group to further advance the finance function and its support for Viasat’s strategic initiatives, especially shareholder value creation. I’m going to cover two topics: financial performance and outlook. But before I get there, let me thank all of my Viasat colleagues for the hard work that led to these results. All of the comparisons in the second quarter discussion that follows exclude the nonrecurring catch-up contribution from the litigation settlement in the second quarter of fiscal ‘24, which benefited revenue by $95 million and adjusted EBITDA by $86 million. Looking now at second quarter fiscal ‘25 financial results. Awards were a record, up 25% year-over-year. Our Defense and Advanced Technologies segment and Aviation Connectivity Services led to growth. Revenue was $1.12 billion, down 1% compared to $1.13 billion in last year’s second quarter, reflecting declines in fixed broadband and maritime within communication services. Partially offset by strong growth in aviation and tactical networking products in our Defense and Advanced Technologies segment. Net loss of $138 million improved from the net loss of $767 million a year ago, which was primarily due to the impairment charge related to our satellite program. Adjusted EBITDA was $375 million, a decline of 6% year-over-year. As noted in last year’s shareholder letter, the second quarter of fiscal ‘24 benefited by $18 million from the resolution of the Euro broadband infrastructure or EDI contingent consideration agreement. Excluding that benefit, adjusted EBITDA was down less than 2% year-over-year, with the declines in our Communications Services segment, partially offset by continued strong growth in Defense and Advanced Technologies. Capital expenditures declined 37% year-over-year to $229 million, decreasing primarily due to lower satellite expenditures related to shifts, to future quarters of certain space and ground infrastructure payments. As a reminder, capital expenditures can be lumpy from quarter-to-quarter. The lower CapEx helped us generate approximately $10 million of positive free cash flow during the quarter, which while transitory is indicative of the free cash flow opportunities ahead as we leverage the Viasat-3 fleet and augment our capacity and network performance with third-party bandwidth. During the quarter, we also collected approximately $120 million of satellite insurance proceeds. We’ve received more than 90% of the $770 million of insurance claims we anticipate by the end of the fiscal year. Please note that the collection of insurance proceeds are recorded in cash flow from investing, but have no impact on our free cash flow calculation, which is defined as cash from operations, less purchases of property, equipment and satellites. In September, we issued $1.98 billion of Inmarsat-29 notes. The amount of the oversubscribed offering was increased from the initial size of $1.25 billion. We received the cash from the issuance prior to quarter end, but had also repurchased $257 million in principal amount of 2025 notes in open market transactions during the quarter at a small discount to par. So quarter end cash and cash equivalents was $3.5 billion, gross debt was $9.1 billion, and net debt was $5.5 billion. Subsequent to quarter end, on October 1, we used the net proceeds from the issuance of the Inmarsat-29 note together with cash on hand to redeem all of the outstanding Inmarsat-26 notes. After adjusting for the redemption of the Inmarsat-26 notes, pro forma cash and cash equivalents was $1.6 billion gross debt, $7.1 billion and net debt the same $5.5 billion. Adjusting for the refinancing transaction, our annual cash interest expense is expected to be approximately $560 million, partially offset by interest income on our cash balances. Finally, net leverage was slightly lower year-over-year and slightly up sequentially as expected at approximately 3.6x trailing adjusted EBITDA as of the second quarter. Now let’s take a closer look at our segment performance during the quarter, starting with Communication Services. Aviation continues to compete very well in the market and on new business in the quarter with both existing and new customers. In addition to the prior ongoing OEM delays, there were aircraft delivery delays related to the Boeing strike. Still, commercial IFC ended the quarter with 3,820 aircraft in service, up about 14% year-over-year and drove contracted backlog to more than 1,500 aircraft, despite sequential and double-digit year-over-year growth in our active count. While we’re confident in the FY ‘25 growth outlook and trajectory for Aviation, results continue to be affected by delivery delays, including the incremental effects of the just settled Boeing strike. During the quarter, we expanded our partnership with Azul to equip new line-fit Airbus A330-900 neos with in-flight Wi-Fi and our ad-supported streaming services using our advertising platform. U.S. fixed broadband revenue declined as expected, driven by fewer residential subscribers. We continue to allocate capacity towards meeting the growing demand for higher-value commercial IFC and aviation businesses. Our government SATCOM business unit grew service revenue 6% year-over-year, as strong demand for diversified satellite connectivity remained a top budget priority. Within Maritime, as Guru and Mark talked about, Nexus Wave results thus far are above expectations and the strong interest in service level selection we’re seeing in our direct channel is promising. Communications Services revenue was $826 million, down 2% year-over-year, reflecting the anticipated decline in U.S. fixed broadband services and by maritime partially offset by strong growth in aviation and government.com. Those revenue impacts yielded adjusted EBITDA of $318 million, down 9% year-over-year. Excluding the $18 million EDI benefit from the prior year quarter, adjusted EBITDA was down 4% year-over-year. Now turning to Defense & Advanced Technologies performance during the quarter. Our DAT segment had an excellent quarter of awards. Our book-to-bill ratio was 1.7x in the quarter. Awards of $510 million more than doubled versus $241 million in the prior year period. Information security and cyber defense, won awards totaling just over $200 million for encryption products, largely reflecting continued growth in data center demand driven by geographic expansion and growing data-intensive AI applications. Space & Mission Systems received awards of approximately $150 million related to multifunction phased array antennas and payload technology, including 3 space optics and antenna systems infrastructure with support services. I want to highlight an award from the U.S. Air Force Research Laboratory under the Defense experimentation using commercial space Internet program to develop electronically spirit antennas for tactical, resilient communications using commercial satellite connectivity across various frequencies and multiple orbits. We’re excited about the potential for an expanding role in secure multi-orbit, multi-band connectivity. Defense and Advanced Technologies revenue was $296 million, up 4% compared to $284 million a year ago. Strength was primarily driven by tactical networking and the strong IP licensing revenue just mentioned. Similar to last quarter, TrellisWare within the tactical networking business line, benefited by a larger bulk order for product upgrade licenses across already deployed U.S. and allied forces radios. This generated an additional EBITDA uplift of approximately $15 million in Q2 versus anticipated levels. Product upgrades to already fielded units can be lumpy and are difficult to predict quarter-to-quarter. So we project future new shipment license revenues at lower levels than we saw in the quarter. As a reminder, the unevenness of growth can often be driven by customer budget cycles. PAT adjusted EBITDA was $57 million, up 13% compared to $50 million in the second quarter of fiscal ‘24, reflecting the positive impact of the TrellisWare licenses. Overall, we continue to make progress against our fiscal ‘25 plan. In our second quarter, we generated good operating performance, particularly in Aviation and Tactical Networking. We had record awards with focus on Aviation, Information Security, Tactical Networking and Space and Mission Systems. Capital expenditures came in lower than expected, and we successfully refinanced our ‘26 maturities, improving our financial flexibility significantly. Moving on to the fiscal ‘25 outlook. We are halfway through the year and are maintaining our outlook, reflecting solid first half results in our Aviation and Defense order books, confidence in our competitive position within our markets, our backlog and record quarterly awards, but also headwinds from OEM-related delays of aircraft deliveries, including the impact of the [indiscernible] Boeing strike. We continue to expect revenue to be flat to up slightly year-over-year, with year-over-year adjusted EBITDA growth in the mid-single digits. We’ve also provided additional segment level detail in the outlook section of our shareholder letter and slides. For comparison purposes, we also excluded the catch-up portion of benefit from the litigation settlement in fiscal ‘24 results. Therefore, our guidance is based on fiscal ‘24 revenue of $4.47 billion and adjusted EBITDA of $1.488 billion. We now expect capital expenditures in fiscal ‘25 to decline further to a range of $1.3 billion to $1.4 billion, including capitalized interest of approximately $200 million per year, which will decline in future years as we continue placing satellites into service. We continue to expect investments in our satellite network and success-based CapEx to exceed two-thirds of our total capital spend with less than third associated with other maintenance and general CapEx activities. We are focused on reducing total capital expenditures, including the maintenance portion, and this will be a key focus of our planning and reporting processes going forward. Now looking ahead to fiscal ‘26, we continue to expect year-over-year revenue and adjusted EBITDA growth. Our 2-year CapEx number remains net neutral. So cash flow through the end of fiscal ‘26 is unchanged. We’re also in the midst of our annual multiyear strategic planning process, and we want to complete that work before providing any more granular guidance on the quarterly progression for fiscal ‘26. Our strategic planning cycle goes beyond creating a financial outlook. It addresses our operational priorities, capital spending, competitive positioning and portfolio optionality. We are very focused on developing a financial profile that unlocks greater value in both our government and commercial services businesses. We’re continuing to work on each of the areas Mark mentioned earlier in the call to enhance strategic optionality, improve cash flow and optimize return on capital. In closing, second quarter operational performance was quite good, capturing our share of large and growing markets, and we’re focused on improving operational and capital productivity. We’re strengthening our capital structure, and we have a long runway of opportunities ahead. With that, I’d like to hand the call back over to Mark.

Thanks, Gary. So at this point, we will be happy to take questions.

Thank you. [Operator Instructions] Your first question comes from the line of Edison Yu of Deutsche Bank. Your line is now open.

Hi, good afternoon. Thank you for taking our questions. First, I want to start with on the first page of the shareholder letter, I mean, as mentioned several times you’re evaluating all these I guess, proposals ideas on the structure, capital structure, financial structure. You had this teach-in. I don’t know that long ago about the assets in DAT. Can you perhaps comment on if you’ve gotten external strategic or financial interest in some of these assets? And if there has been, have there been any sort of structural reasons as to why no sort of transaction has occurred?

Okay. So one is it’s actually not unusual for us to get inquiries all the time on a number of our assets. So that part is not unusual. I think – and there’s no specific structural blocks – roadblocks or bottlenecks to any transaction. But what we really – the main thing we’re trying to say is we’re just trying to be prudent and no [indiscernible] about the best pal to work with IRS. And one of the things that we are assessing is working on what the valuation is for them. And fortunately, one of the good things is a lot of those government assets, especially they’ve just been improving a lot recently. We anticipated some of that. It’s good to see it came to fruition and one thing we’re doing just trying to factor that in to how we work with them. But there’s no – I think that the point of being open-minded is just to say exactly that, that we’re open minded.

Understood. Understood. And then just a follow-up on the L-band side. Can you perhaps give us a sense of how you’re thinking about that landscape? And obviously, we’ve got quite a few efforts from a lot of players now on D2D. You have a lot of L-bands. And so is the – I guess, is there a vision that you may monetize some of that? Would you keep it all yourselves? Would you do both? How do you sort of think about just maximizing the value potential there?

Okay. Yes. So the first thing is what we’re most focused on are the things that we can do ourselves and with partners. And that one of the things that we did in that area, which we think is a good step is forming the mobile satellite operators, the Mobile Satellite Services Association. And the theory behind that, which we’ve talked about, and I’ve talked about it in public addresses is that what we expect is that the capacity, airtime costs, speeds that can be delivered to terrestrial cellphones through these non-terrestrial networks or what’s called directed device is really going to be dependent on the amount of spectrum that’s available there. And the main thing that we’ve been working on is promoting, identifying and promoting both the open standards, which are primarily the 3GPP standards around first narrowband IoT and then the 5G new radio, combined with an open architecture system and then extending the concepts that have worked well in terrestrial mobile networks, which is to have multi-tenant infrastructure. So that part I think we’re making progress on it. I think the other things that are becoming evident there’s another approach that people are pursuing, which is to reuse terrestrial spectrum. I think that the – I think what the bottlenecks are and really is a terrestrial network, a net terrestrial spectrum is primarily impact on other terrestrial spectrum through – there’s a lot of discussion around what’s called out-of-band emissions constraints, and the amount of spectrum. And so what we think is happening is I think there’s become more awareness about the value of capital licensed MSS spectrum in this space. And so I think that’s good for us. Certainly, I don’t think that creates options for people that are good – that have spectrum. We have we have uses for our spectrum that are really, really important and valuable. And we’ve said multiple times, we don’t intend at all to diminish the application of that. But what we are looking at are ways to augment our augment space systems in a way that preserves brings on the existing services but also creates opportunity for these NTN and DTD services. And I think other MS holders are looking at similar strategies for theirs. And all that would be enhanced by this concept of open multi-new infrastructure. I think in the main – I think that one of the things that is good for us is you can see there’s been a lot more discussion and a lot of speculation recently about the value of such MSS spectrum, how it might be applied. I think we’re looking to do it in a way that is open architecture, mostly nonexclusive in a way that just makes a service available to terrestrial partners. And we’ve gotten really good feedback on that. I think it’s going to take us a few more quarters to be able to solidify that. The other thing that we’re aiming to do with these multi-tenant infrastructure approach is to be able to do that and still achieve our objective of consistently declining CapEx budgets. And that’s – I think that that’s – again, that’s one of the things that terrestrial carriers have been able to do through multi-tenant shared infrastructure as well. So we kind of feel like all else just coming together.

Great. Appreciate it.

Your next question comes from the line of Ric Prentiss of Raymond James. Please go ahead.

Hi, good afternoon, everybody.

Hi, Ric.

Welcome, Gary. Look forward to working with you. A couple of questions on my side. I want to probe a little further – on the actively evaluating alternatives topic, can you give us kind of what stage you’re at? Have you hired bankers for the different areas? And when you mentioned that while those businesses are both delivering growth and increasing potential, are you talking about core and DAT there? But first question is on the actively evaluating and kind of what stage and where we’re at?

So as I said, right now, we’re just considering and evaluating alternative architectures. Those structures are going to be influenced a pretty fair amount pie what’s going on in the business. And we were anticipating a pretty strong quarter that was going to help set the direction for these businesses, and we got it. So I think that’s helpful. There’s quite a – one of the things we mentioned is – what we like about these businesses is they’re pretty differentiated. They’re very core to both the U.S. government and international governments, use of space for national security and sovereignty, we think they’re really valuable. So we’re not – I think the – the point is we just want people to know that we’re being open-minded as opposed to extend [indiscernible] and about how we work with them. And we’re going to – we are certainly aware that if you look at, say, a reasonable sum of the parts, valuation would be, maybe we’re not getting full value for those. So that’s what’s causing us to think about other alternatives. But we don’t – I would say we have not made any decisions that those businesses are – we think are going to continue to grow. So we’re just going to be shareholder focused. That’s the main thing.

Somewhat early stage then also just recognizing the sum of the parts and one in good quarters and then home let people know you’re interested in hearing that.

In multiple ways. Yes.

Sure. Makes sense. And Gary, I think you mentioned that you’re in the midst of a multiyear plan before getting granular on quarterly information in fiscal ‘26. Is that an allusion to kind of the timing of positive free cash flow, given one there’s some CapEx slip, but there could also be some other items out there?

Yes. Well, first, Ric, let’s – I just want to make sure we don’t bury the lead on the idea that the outlook is unchanged as we look across the 2 years, we did move $100 million of CapEx from fiscal ‘25 into fiscal ‘26. And we do want the benefit of that process before we get more granular on how the timing looks. Additionally, because we think it’s going to be a good opportunity to continue looking at how we optimize our spend. And let me just add a little bit of color to that for things that we see as customer critical we really want to challenge and see if we can accelerate some of those to drive contribution sooner for things that don’t fall into that bucket, we want to challenge both the level of spend and the timing. When we can move things out we really get two sources of value: first, time value of money, which I obviously don’t need to explain to anybody on the call. But a lot of time, the spend also has what I know is an operating tail, which means as we construct the operating expenses start to spool up, too. And that’s nonproductive operating expense while we’re building it. So – as we go through this process, we just want to give ourselves the opportunity to, a, get better information on how things are going to play out. but also an opportunity to just go back and revisit those assumptions for the opportunities I just described.

Okay. And last one for me is on the Aviation side and flight connectivity. Big debate out there, airlines seem to be choosing sites and technology or Orbits. How should we think about LEOs versus GEO and the competitive dynamic in commercial aviation?

Okay. I think from an airline perspective and the airlines, we’re dealing with a – I don’t think they think of orbits first. I think what they think of is what’s the business model going to be? And when we first entered the business and our first customers offered free service to passengers, including streaming. The – I think one of the things that a lot of the airlines realized pretty quickly was if every airline ended up paying for free Internet service then every airline would have additional expenses and no airline would have any competitive advantage relative to what they had now. So I think that the main thing that the airlines have been focused on is a business model and that business model has to be in the context not only of what they’re doing, but what is the field doing as well. And so the main thing that we’ve been hearing with airlines is, okay, how do we – what are the opportunities to differentiate. Almost none of the airlines expect that the way they differentiate is going to be – is going to last 5 years or 10 years, they’re really looking at how they differentiate in on some continuous basis. And then low latency, which is the main advantage of LEO is a good thing. It’s one of the reasons that we’re – we’re adding a lot of latency to our maritime service. We talked working with live speed to do the same thing for Ka-band. I think that then the issue is really going to be differentiation. And also, I can tell you the other thing that’s really become more and more evident, especially for us, I think in terms of numbers of planes that we have, but it’s becoming more and more evident is people just expect it to work. And so the real focus becomes on the 1% or 2% of the time that it doesn’t. I tell you that’s where a lot of the focus is. And that can be for quite a variety of reasons, especially as you scale up. So I think those are kind of the things that we’re having – the conversations we’re having with airlines are. And a lot of them, I think more of the – if you think of market segmentation, I think it’s going to be less around LEO versus GEO and more about business model. Integration with entertainment was – what are the rules of entertainment and connectivity. What are the monetization strategies there? Are there things that are done to help monetize kind of friction to the rate. Those are – I can tell you, those are the real – the main issues. I think that everybody is dealing with in this space, including – I think that what we’re seeing is less and less focus on test the pipe and more and more are these issues of integration and monetization. Assuming that the pipe is good. I just – it’s just sort of taking the pipe for branded part.

Okay, thanks. Have a good day.

Sure. Thanks, Ric.

Your next question comes from the line of Sebastiano Petti of JPMorgan. Please go ahead.

Hi, thanks for taking the question. I guess maybe perhaps just following up on Rick’s question and to your comments, Mark. Now with UIL choosing their pony in the race or deciding to go free, I mean how does that now permeate through the ecosystem, right? Obviously, one of your original partners, pull those kind of been on that path for a while Delta has discussed it. But this seems like a topic that we’ve discussed across commercial aviation IFC for the last couple of years. And so what are the next steps from here, perhaps maybe the best way to put it in light of the UAL announcement? And then thinking about – do you see – what is the feasibility or the inclination perhaps and some sort of hybrid LEO-GEO in-flight connectivity solutions similar to what you’re doing with Nexus Wave and Maritime. Is that something that could make sense over time? Why or why not? Thank you.

Okay. And just could you – when you said what are the best steps in light of the UAL announcement? Are you talking about...

Yes. I mean, ecosystem-wide UIL has not made their decision to be a partner with StarLink and kind of – I think where do you see the chessboard, how do you see the chessboard perhaps playing out from here? Potential next steps or additional – how does the – how do strategies evolve from here in your point of view – from an airline level?

Yes. I think the – so the number one – I’d say, how do the ingredients have been evident over the last 10 years, right? So the number one – I think the number one issue for a lot of airlines, is monetization. That is like what they don’t want to see is a substantial new expense without some value associated with it. So well – and the way to put it is, I’m just going to give you an example is that – one answer was when free Wi-Fi was first introduced at scale, it was, hey, I gratifying that airline. And so maybe they could get a premium in ticket prices, right? So the measure might have been a revenue per passenger seat mile. As an example that, that might be an example of a way that it was monetized. But if multiple lines have free, then it’s hard to get a premium on ticket price as an example. So then people are looking for other ways to differentiate. And I think that, that is a big part of what’s going on now is understanding the different ways to differentiate and how to capture those. And they’re quite – if you just think about what you see when you fly in different airlines, you’ll see everything from advertisements to promotions by telecom carriers, promotions by content providers. There’s – there are different tiers of service, could be free texting, could be complete free Internet – the Internet with or without streaming. I think that what people are – what the airlines are looking for are what are the ways to monetize. Who – what data is available. It’s – that’s what it’s turning into from our perspective. And I think that you’re also seeing different airlines to take different strategies about how much of those things they want to do in-house, how much of them they outsource, and whether or not have seatback displays, whether there are seatbacks with connectivity and entertainment. I would say that when we started – and we were the first to do free and to include streaming. It was really just about what is the capability of the Internet service. What has become more about now is what is the monetization and differentiation strategy. And so we’ve ended up adding quite a lot of software engineering capability, integration with entertainment, integration with third-parties in order to those features. And I can tell you that – and it’s not there is no known destination because as things become successful, other airlines imitate them, whether they do them themselves or they have third-parties do them. So, that is most of the discussion that we have. And I just – I think it’s – certainly, you can have a good – going back to the LEO part, LEO was really good for low latency and fast responsiveness. Only a portion of the bandwidth used involves that. And I would say that from the airlines perspective, that’s one way to differentiate, but the monetization way is another. And from our perspective, what we are seeing is that it’s definitely possible to integrate LEO and GEO or any multiple – any different orbits in a way that create effect – the same effect for passengers. So, the thing – and just to put things in perspective, the thing we have a ton of data about usage, the thing that has – that often turns out to be a bottleneck on usage is when large numbers of planes are in the same area. And that’s the place where GEO really shines. The fact that the vast majority of bandwidth consumed is on streaming made and that streaming is not latency sensitive, that’s what creates economic incentives around combining LEO and GEO. So, those are the things we are doing. I can tell you that among our customers, there is a lot of enthusiasm for that. And the first place we brought it to – we brought it to market is in maritime. And I think the effects that we are creating for customers are, they really can’t tell the difference between that and our LEO solution. I think the place they will be able to tell the difference is in the very high demand areas, which are usually ports, for maritime or airports or airlines and sometimes those overlap. So, this is – part of what we have been saying for quite a while, I think that we are seeing that bear out now that the – some of the like OneWeb is at least in initial services. I think we will see the same thing with high speed as well and we are going to – what we are aiming for is to integrate the two. And we think that there is a way to integrate them, that’s better than either one on its own. That’s what we are aiming for. Sebi, does that answer your question?

Yes. Appreciate it. Thank you, Mark.

Your next question comes from the line of Simon Flannery of Morgan Stanley. Please go ahead.

Thanks a lot. Good afternoon. I was wondering if you could just update us on any new developments on the ViaSat-3 F2 and F3 SE, the commercial timing is unchanged? Any more details around launch timing or any other milestones that you have and also where you think you are going to deploy the capacity going forward. And then just following up on the UAL question, could you help us size the potential exposure and the timing? It sounds like United is keen to move aircraft onto the new system quite quickly. So, we could love to get on how you see that going given the contracts you have with United? Thanks.

Okay. Good morning, just – okay. On the new satellites, the reason we put that roadmap in the way we did is because the in-service tape is really what drives our ability to monetize the satellites. The – those are unchanged now. It really – as we go through this, there is actually, a lot of works involved in holding to those schedules and working with our suppliers. So, there is work going on. Some of those – and this is the reason that we have focused on the in-service dates is that there are opportunities to – if some things go faster, we can benefit from that, if some things go slower, we have the opportunity to try to accelerate other parts of the program, maybe at an additional expense or additional resources. But so far, we have been able to hold to the in-service state. And I think that’s the – like, that’s how we are thinking about it. I think that’s a good way for investors and customers to think about it as well. The – but we are making good progress on the main for – going back to your other questions. F2, the main things that we have been doing, we got, we did, I talked about this before, very extensive analysis what the failure anomaly mode was on F1, come up with two main mitigation approaches. One is a way to prevent the failure mode from recurring at all. And the other one is to beef up the structure in a way that even if that failure would were to occur, the structure would still deploy effectively nominally. So, the main things that we have seen that have been good, have been the implementation of those corrective actions. So, that’s the main thing. The spacecraft itself is basically all done and in storage, just waiting for the reflectors to be installed. F3 is currently is getting close to the same situation we are anticipating for the reflectors to be installed. The main plan that we have discussed is to put Flight2 over the Americas and Flight3 over Asia Pacific, okay. And then on the UA – on the United, we are not going – I think that we would refer people to United for their plans on deploying Starlink. They have said that they are going to go through an evaluation process to get there. It would be inappropriate for us to comment on that. We do – we are continuing to grow airplanes in service that we had previously given a target of about 4,200 commercial aircrafts in service at the end of this fiscal year. We should be – it will be very close now. We had substantial margin before. But given the ongoing delivery delays compounded by the strike, it’s going to be close, but we think we are going to be there. We still see – and we have about 1,500-ish planes in backlog beyond that. So, we are going to continue to grow. We have factored in inputs from United into our forecast, but it would be inappropriate for us to describe what that is for us. But what we see ongoing growth at a good – for the next several years. Did I cover all of your questions?

Yes. Thank you.

Thanks Simon.

Your next question comes from the line of Mike Crawford of B. Riley Securities. Please go ahead.

Thank you. Just continuing on the when we can expect in-service Flight3 and Flight2 for ViaSat-3. Just I appreciate the pictures you have provided us in August to now with this report today on the ViaSat satellite roadmap. But when would be the earliest that Flight3, these satellites each could go in service at this point?

Well, what we have said is mid to late-2025 for Flight3 and late-2025 for Flight2. And that’s I think right now, we are not. Yes, that’s a good range for us to give at this point.

I guess I am a little confused on that because from the picture, it looks like Flight2 is further along its final ground test stage, but ViaSat-3 is going to catch up and pass it?

Yes. So, Flight2, it has to do with the launch vehicle and the specific mission. Flight2 has a longer orbit raising time than Flight3.

Okay. And then, Mark, after ViaSat-3, you are talking now today about maybe some multi-tenant infrastructure. I think when you and I talked a couple of months ago, you were talking about maybe just simpler, faster to build satellites, maybe even proliferated GEO? Is there any to diffuse risk and enable more agility? Is that all part and parcel of what you are thinking, or have thoughts evolved more?

No, those are – okay, those are two different approaches, and there are for two different purposes. The area where we are getting good interest in the multi-tenant environment is in the D2D mobile application. And that’s really because of the standards and the open architecture that’s available. So, if you look at the – and again, it’s these 3GPP standards that are – we think are going to be really a lot of the foundation of these non-terrestrial networks. So, the approach that multiple – and just to be clear, I mean right now, if you look at the forecast, there is – there are good opportunities and existing opportunities for mobile satellite services that are not 3GPP standard. But the 3GPP standard modes, because the market is of those that can use those is so large, that’s what’s expected to dominate. So, what we have described is essentially a satellite architecture and that can work multi-orbit that allows – think of it as just to use the types of services that are in now, I remember Iridium has its own satellite with total infrastructure, tone handset, it’s own way where Globalstar has its own, Inmarsat has its own, AI [ph] has its own, but when you go to these 3GPP standards, you should end up with devices that could work on the RF bands of each of them, and they also – if they are using the same standards and the same network architecture, you could make any of those devices work on any of those constellations. At which point, if the market is as big as what it looks like, it would make sense, just like it did in terrestrial for operators to share infrastructure that would allow much more – it should have a better return on capital for everybody. So, that’s where we are getting traction on that one. And we have come up with some pretty creative and innovative space and ground designs that allow operators to do both the existing MSS services and to improve those MSS services, much higher speeds, lower cost airtime and then also to add the D2D modes to it. So, that’s what we are doing kind of think of that in the mobile satellite bands. In the broadband space, the point that you raised that we have been working towards is can we get – and think of it as some fraction of the throughput and functional capability of a ViaSat-3 satellite had an equivalent fraction of the capital cost. And one of the things that we have seen, even though I think we do think that ViaSat-3 satellites are going to do what they are intended to do. The first one, just once you have clearly mechanical deployment issues works just the way it’s supposed to. It’s pretty clear that the large satellite manufacturers, it’s something that has struggled. It’s exotic to build these. They are kind of what they call exclusive technology. So, what we have been looking at are much simpler technologies that would let us do more like what you are describing which is a proliferated GEO approach. And that is – I think that there are others that are looking at low-cost GEO. The thing that’s unique about what we are trying to do is to get much, much higher capacity and much, much higher economic yield per capital dollar for those. What we are finding is quite a few other satellite operators that are very interested in the same things. So, that’s what we are doing is we are exploring with them technical approaches and the economics of them and that’s the second approach that you described in GEO that we are working towards. And then the other point I would make is – which really goes to the question that was asked before is can we do that in a way that gives us these hybrid LEO and GEO architectures that allows us to compete with the peers [ph], but in a way that’s really well suited for mobility.

Okay. Thank you. And I have a last – I think I know the answer, but the last question is, with I think five-fold increase in bids are going to be able to deploy once you launch these two ViaSat-3 satellites. Is there any change in your belief that you will be able to deploy these ample demand for you to deliver mainly in services and bandwidth to customers with this capacity you are bringing online?

There is a lot of demand. And I think one of the ways you can tell that is even these LEOs that have put out really big numbers about what they are going to deliver, don’t deliver that all the time, right. They struggle to get to reach the peak speeds all of the time or in the highest demand basis. So, we see a very large amount of demand. That capacity is one of the – is one of the ways to differentiate. There is a little bit of diminishing returns. If you do need how much high definition do you really need on an airplane, but right now, it’s lots of people who are streaming on an airplane and airport that there is a ton of demand in those situations.

Alright. Thank you very much.

Your next question comes from the line of…

Go ahead. sorry.

Yes. The next question comes from the line of Chris Quilty of Quilty Space. Please go ahead.

Thank you. Mark, so I just want to follow-up, you did mention when you were talking, I think about directed device about a concept of a multi-tenant satellites, which is that part of what you were just discussing in the strategy, which I thought was more focused on the SATCOM side of the business rather than direct-to-device, or do you see those two as kind of one and the same?

So, the multi-tenant, just to be clear, think of – so when we talk about multi-tenant simple way to think about it, think of it like cell towers that are multi-tenant, right. And they are designed to cover the entire range of spectrum and to support the – whatever the network generations are and the backhaul that are required to support those. People have done multi-tenant satellites before, think of like condos apps in the GEO environment, and you can have multipurpose, I mean even Iridium did condos apps, with ADS-B, for instance, in MSS. So, the thing – so we are trying to make a distinction between in the direct-to-device space is really business model as well as the technology. In the GEO space, things might do – might look a little more like condo-sats with shared satellites, but don’t really go to the same extent as the direct-to-device would because it’s going to be so dominated by these 5G standards.

Okay. And for that, I will call it the condo-sat business model, where are you in terms of customer outreach and basically building a pipeline on that? And likewise, on the flip side, I think that’s a bit of a distinct supply chain I would think from what you currently source? And what sort of hurdles, if any, are you seeing in that effort?

No, I would say the best example, some of the best examples of that really revolve more around network standards than technology. And so we have done this pretty successfully for quite a long time with partners in Asia Pacific and in Latin America. We have several more already in the works where we would share networking features and pretty much on demand design basis, where they can support their national needs, but really work with us for getting access to different verticals or for global roaming. And we are finding more – we actually have quite a few of those types of arrangements in the works, using existing satellites, some of them ours, some them of them are others.

Got it. And hopefully, rule, just quickies. I will just be direct. Did you remove any United aircraft from your previous order backlog? If not, can you give us a sense of what sort of exposure you have given the announcement with United on the 1,000 aircraft that they are sending over to Starlink?

No. Okay. So, we are not going to – it would be a presumption of us to do that. I think you should – I think people should talk to United about what their plans are for each of the services that they have. What I can tell you is we will bake those into our forecast, our understanding of them. We are not going to break them out separately, but the forecast that we give for airplane count will reflect not just United, but all of our airline customers plans.

Got it.

Sorry, Chris, we are starting to run long. So, I think you had your more than one and follow-up question. So, May, can you go ahead and move to the last questioner please?

Yes. Sure. So, we have one last question from Ryan Koontz. Your line is now open.

Great. Thanks. I will keep it quick here. You talked about decelerating broadband headwinds. I am not sure your numbers in services really reflects that in fixed and other in the quarter. I wonder if you can maybe unpack your thoughts there on – is there a declining competitive threat on fixed that you are feeling from LEO?

Fixed, the main things are, the main ingredients there, and it’s been the same thing as one is moving bandwidth from fixed applications into aviation. The other one, which is sort of an industry-wide issue for everybody is that growing per user bandwidth demand requirements. So, if we have – if we are not adding bandwidth from our satellites, then we are probably going to go down, and we have shown this effect before is that as user bandwidth expands, then the number of subscribers you can support those down for the same amount of bandwidth. So, those are the two things. I think from a year-over-year perspective, the dollar amount on the fixed decline – is decelerating.

Got it. So, you are saying it’s part of your plan to move bandwidth anyway towards mobile and IFC. So, the impact is less, even though it stands out as a double-digit decline in total…?

I mean some of the bandwidth that was contributing to fixed revenues now contributing to mobile revenue or government revenue.

Got it. Alright. Thanks…

Thanks Ryan.

That concludes our Q&A session. I will now turn the conference back over to Mark Dankberg, CEO, for the closing remarks.

Okay. Well, thanks very much everybody for participating in our call and for taking out in a little bit of excess. We appreciate all the interest and we look forward to speaking again next quarter. Thanks.