VSAT - NASDAQ

Please stand by. Your program is about to begin. My name is Franz, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Viasat's Fourth Quarter and Fiscal Year 2025 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Ms. Lisa Curran, Vice President of Investor Relations. Ms. Curran, you may begin your conference.

Thanks, Franz. 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 Q4 fiscal year 2025 shareholder letter and today's conference call slides that are available 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 and 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 Gary Chase, our Chief Financial Officer; and Shawn Duffy, our Chief Accounting Officer. As always, we encourage reading the shareholder letter and referencing the slides we posted on our website earlier this afternoon for more details. Our fiscal 2025 was a pivotal year, creating foundation for multi-year accelerated growth and sustained cash flow through increased earnings and decreasing capital intensity. We're pleased with our operational performance and very appreciative of the accomplishments of our team towards our strategic goals that we set for the year. We met or beat our guidance metrics, achieved record new contract awards growth, made significant progress on our capital structure, integrated the first ViaSat-3 Flight 1 into our global network, demonstrating the expected benefits to user experience and network efficiency. We completed critical milestones on our satellite roadmap, earned an inspiring reception to the new multi-orbit NexusWave maritime broadband service, introduced several network optimization innovations, delivering substantial efficiency and user experience gains. We reached new win-win third-party network agreements, including using LEO capacity to reduce latency for all mobility users, while also enhancing capital efficiency, and we made organizational changes to further improve speed, agility, and greater structural optionality. We enhanced financial transparency with new reporting segments and accompanying disclosures. We're also bringing major innovations to our unique and valuable spectrum rights in the mobile satellite services market segment at L-band and the new MSS service capabilities that they enable for our customers, working with the Mobile Satellite Services Association or MSSA, we're laying the foundation for an open architecture standards-based ecosystem for non-terrestrial networks or NTN extensions to the 5G and 6G networks of the future. Existing and emerging 3GPP standards foster interoperability for consumer mobile devices between terrestrial and a single individual satellite network. The MSSA's framework builds on those standards, enabling choice, scale, and substantially lower costs by creating an approach to NTN interoperability with and among all of the participating space networks. That approach, as adopted by Space and terrestrial ecosystem participants means mobile phones, cars, drones and virtually any standards compliant device can use a much more cost-effective aggregation coordinated satellite spectrum globally versus depending on a single capricious constellation. Viasat is focused on three major L-band business objectives. First is substantially reducing capital and operating costs for mobile satellite services, non-terrestrial network open architecture, and standards-based space systems. Second, supporting, transitioning and evolving our critical government, maritime, and aeronautical safety services to the enhanced capabilities they'll need in the fully connected autonomous unmanned AI future by leveraging those next-generation space assets. And third, transitioning our nascent global direct-to-device NTN business from the existing narrowband Internet-of-Things, emergency and messaging standards to the emerging 5G new radio services market as new chips and devices enter and penetrate the market over the next few years. I'll give a little color on a few key important topics before Gary goes into more detail on the financial and operational results. Of course, one of our highest priorities is getting, ViaSat-3 Flight 2 and 3 into service and we've been maintaining status on our satellite roadmap. For Flight 2, the critical path has been corrective actions and testing the reflectors, and integrating with the rest of the spacecraft. We are still planning to shift the spacecraft to launch site this summer. We've adjusted the in-service date in the roadmap to better reflect various potential schedule uncertainties after we ship it. The F3's scheduled critical path goes through antenna subsystem integration and -- but that uses a different manufacturing design, not requiring any corrective actions. Our ViaSat-3 Flight 1 usage has been scaling steadily, and we have really good results there. Even with the antenna anomaly, we have almost 2,000 planes that are served by that ViaSat-3 Flight 1 satellite, tens of thousands of cumulative flights, and hundreds more every day. We commissioned a survey to compare our service on Hawaii routes, which is what that satellite is serving in particular, so we can benchmark user experience against the LEO competition. The results are very favorable and shown on Page 10 of our online slides. They support our view that competition is primarily about delivering measurably reviable and consistent free Wi-Fi, while also providing a single interface for airlines to help manage, monetize, and integrate all their passenger entertainment and connectivity services. We've been a leader in innovating, delivering, and measuring those services and are increasingly confident that the combination of our existing and planned satellite fleet with our third-party partners will compete very well in our target markets. Of course, we can still improve by judiciously integrating more LEO networks to both further optimize latency-sensitive traffic and improve economics, while meeting industry-leading service quality and reliability metrics. NexusWave, the multi-orbit maritime service is already off to a good start. The terms of our Telesat Lightspeed agreement, blended with our existing and forthcoming owned and third-party fleets, and our existing and planned user terminals and network capabilities can improve user experiences and extend market access for all our mobility customers, enhance our competitive position, and reduce capital intensity. Finally, we can't comment much on ongoing court proceedings related to the Ligado bankruptcy. As you may know, Ligado voluntarily dismissed its lawsuit against Inmarsat when faced with our motion to dismiss, while Ligado subsequently refiled a similar case in New York, our position remains that Ligado's case has no legal merit and is replete with unfounded allegations of fact that are directly contradicted by Ligado's sworn statements to other courts, including the Bankruptcy Court. We'll continue to vigorously pursue our claims in the bankruptcy and defend against Ligado's meritless lawsuit. Until then, any future cash payments from Ligado have been excluded from our financial outlook, and they remain as upside. We exit fiscal 2025 stronger than when we entered, as you can see by our healthy backlog, growing operating cash flow, moderating capital expenses, and continued awards growth in key businesses. And we believe that growth is durable. It's supported by market proof points in our accompanying earnings presentation, including American Airlines selecting us to scale to free WiFi, several very successful free WiFi domestic trials, new global airline awards and third-party survey data showing ViaSat-3 delivering world-class passenger in-flight WiFi experience and satisfaction on ViaSat-3 Flight 1 flights between Hawaii and the US. Looking ahead, we know success in fiscal 2026 is more than just getting members. It's about accelerating growth and securing our future. We've got a comprehensive plan for reducing capital intensity, generating sustainable, compelling operating and free cash flow, reinforcing our competitive position, unlocking portfolio value and driving returns and shareholder value. As we wrap up fiscal 2025, fiscal 2026 is a year to position for growth. We know there will be challenges, but we're playing to win. So now, Gary will go into more depth on financial and operating results.

Thank you, Mark, and good afternoon, everyone, joining us on the call. Before I start, let me thank the ViaSat team for the hard work that created solid results for the year. Thank you for delivering for our customers and owners. Let me start by recapping our top financial priorities. First, build our franchise's earnings power and customer lifetime value, which leads to sustained and growing free cash flow, that's a function of profitable growth and disciplined investment in our future. Sustained free cash flow then allows us to reduce the leverage that's pressuring our debt-equity prices. Paying down debt is our top priority for capital allocation. Now, let me briefly recap the fourth quarter and fiscal 2025 results. The team delivered solid results for the quarter and the year and met our full-year plan. In the fourth quarter, we delivered revenue of $1.15 billion, GAAP net income of $246 million loss, and adjusted EBITDA of $375 million for a 32.7% adjusted EBITDA margin. Adjusted EBITDA included a $6 million foreign exchange loss and $18 million of non-cash write-offs. Excluding these items, margins would have been about 2 points higher. The charges resulted primarily from efficiencies integrating the ViaSat and Inmarsat networks, and helped reduce cap spending in the years ahead. Mark noted our push to take further advantage of such opportunities, and I'll speak to their future impacts in my remarks on the outlook. We also produced about $50 million of free cash flow, our biggest focus, with solid double-digit growth in operating cash flow and lower CapEx than our last guidance with no impact on next year's expected spend. In the last two quarters, we've reduced combined fiscal 2025 and 2026 CapEx by close to $300 million. Awards were solid at $1.2 billion, including European Space Agency's Moonlight program, expanded scope with Etihad Airways and multiple NexusWave awards as highlights. We took a $160 million write-down in our Communication Services segment related to the exit of certain EMEA ground network assets and related contracts, as we continued integration of legacy networks. In Communication Services, revenue declined 4%, primarily driven by the decline in fixed services and other end-product revenue, partially offset by strength in government satcom and aviation service revenue. Our commercial aviation Asian business showed continued growth in the quarter within service aircraft of 4,030, up 10% despite slower deliveries and backlog of 1,600, up 18%. That backlog underpins our growth outlook for this business over the next few years. Business aviation and service aircraft were more than 2,000, up 12% year-over-year. Maritime revenue was down 8% as we expected to trough in the fourth quarter. We're making progress scaling NexusWave installs and ended the quarter with more than 100 ships in active service and orders for nearly 500 more. In government satcom, we had revenue growth of 16%. Our US fixed broadband revenue continued to be challenged with capacity constraint. Fixed services and other revenue was down 19% year-over-year. Our debt business continues to enjoy great momentum with revenue up 11% for the quarter and 17% for the year, including the $95 million one-time revenue impact of last year's legal settlement. Our Info Sec and Cyber business is the largest franchise in our DAT segment. Fourth quarter product revenue was $97 million, up 8%. Awards more than doubled, driven by favorable secular trends, product cycles, and whitespace product launches. For fiscal year 2025, we delivered revenue of $4.5 billion, a GAAP net loss of $575 million, adjusted EBITDA of $1.55 billion for a 34.2% adjusted EBITDA margin. Adjusted EBITDA grew 4% over the $1.488 million prior year base referenced in the supplemental information section of our investor website. Growth of 4% in the face of almost $200 million of revenue declines in our fixed services and other business area is a testament to the diversity and resiliency of our overall business portfolio. Turning to our fiscal 2026 outlook. We expect modest revenue growth with flattish adjusted EBITDA, which we expect will be plus or minus 1% from the $1.547 million delivered in fiscal 2025. To put more context around flattish, let me delineate some of the items we'll be overcoming this year. We'll incur about $60 million of additional third-party bandwidth expense versus the prior year to meet customer needs in the present and future. We'll face $30 million of additional operating costs, $80 million in total to ready our ViaSat-3 ground network for the service entry of Flights 2 and 3. Recall as well that fiscal 2025 benefited from very-high and lucrative royalty revenues, and we do not expect these revenues to continue at the rates we realized in fiscal 2025. Offsetting these items are growth in our aviation, government satcom, and DAT franchises, along with about $40 million reduced operating costs from our fiscal 2025 voluntary retirement program. While we continue to expect top-line growth, double-digit cash flow growth, and free-cash flow inflection, our adjusted EBITDA guidance is slightly reduced from prior and the reason is that fiscal 2026 has begun with headwinds in our aviation business from continued OEM delivery delays and increases in aircraft out-of-service as our customers face declines in traffic levels. Our annualized exposure to current tariffs was relatively minor at $25 million, but we've already been affected by a portion of that amount. Where we fall in the guidance range will depend largely on how the remainder of the year progresses on these macro fronts. Regardless of how much or little impact we face from the macro headwinds, we expect to deliver on some critical outcomes that help our fiscal 2026 results, but more importantly, position us for higher-growth levels in the years ahead. Meaningful growth in our capacity with the launches of Flights 2 and 3 of our ViaSat-3 constellation and targeted integration of third-party capacity. Continued growth in our aviation, government satcom, and DAT franchises, a return to growth in our maritime business, and a bottoming out of our fixed services franchise with capacity ViaSat-3 Flight 2 is expected to bring. We started the year facing risk to our EBITDA outlook, but our confidence in achieving sustained free-cash flow generation by the second half remains high. The business momentum we create during the year, combined with reduced capital requirements following the launch of ViaSat-3 position us for meaningful free-cash flow growth in the years beyond fiscal 2026. During fiscal 2026, we'll maintain our focus on capital efficiency in reducing the capital intensity of our business model. And have confidence our CapEx for the year will be about $1.3 billion, inclusive of $250 million for the completion of the ViaSat-3 constellation. Our cash focus hasn't been limited to EBITDA and CapEx. Fiscal 2025, we generated more than $900 million of operating cash flow, more than 30% growth from fiscal 2024. Our teams are sharpening their focus on key elements from our working capital, and when combined with less severance and restructuring-related charges, we expect operating cash flow growth to again be solidly in the double digits during fiscal 2026. The additional steps we're taking to streamline our organization and take better advantage of integration and other portfolio opportunities will make us more nimble and competitive, while driving growth and expanding margin. Our focus for this process will be in accessing more network synergies to better share capacity that will reduce future CapEx better leveraging our combined scale to drive sourcing and non-labor savings, rationalizing our spend with third-party staffing contractors, and simplifying our work processes so we can operate with high velocity, take advantage of normal attrition rates to boost operating leverage. The fiscal 2026 impact will be negligible, but we see the sum of these opportunities boosting margins by an incremental 200 basis points or more over a three-year horizon. Now let me add a little flavor on how we see our businesses developing through the year. We expect fiscal 2026 will see continued growth in both our aviation sub-segments despite the macro headwinds noted. The team has been working to deliver improving customer experiences and the integration of third-party capacity through the year to support even higher service levels as our demand continues to grow. We continue to develop Amara, our next-generation IFC multi-network solution and multi-orbit roadmap that will deliver the best customer experiences for the future. Amara will leverage the unique experiences and economics that a blend of LEO and GEO capacity can deliver, including network redundancy and guaranteed quality of experience, flexible business models, and industry-leading digital offerings. As Mark mentioned, we signed a multi-year agreement with Telesat for LEO capacity, and we're hard at work developing a proprietary electronically steered antenna terminal, ViaSat Aera that will seamlessly integrate capacity from multiple bands and orbits to deliver superior experiences. In government satcom, we should see sustained higher levels of activity and margin expansion on a higher-margin business mix, including the use of the valuable steerable beams we have on our GX fleet. While much of our business is in backlog for fiscal 2026, recent new awards and renewals are encouraging the future. NexusWave product performance has been strong, and the services are performing well. I'm proud of the Maritime team for their work in developing a multi-orbit solution that will meet growing customer needs for the future. We plan to increase the rate of installations and expect to drive slight sequential growth in maritime revenue in the first quarter of fiscal 2026. Year-over-year growth is expected late in the fiscal year. In fixed broadband, Flight 2 will be pivotal to turning the tide, but we're not waiting. In advance, we're testing new offerings in targeting areas where we have available capacity, which is helping to stabilize gross adds and reduce churn. Continued subscriber pressure is expected in fiscal 2026, but with Flight 2 service entry, we expect this business to stabilize by year-end with an ability to grow beyond the year. In GAAP, we expect another year of double-digit growth in revenues driven by information security and space emissions systems. We're competing for the next-generation encryption market, where we'll leverage our current capabilities along with new technologies to provide high assurance encryption from the tactical edge and cloud connectivity, while looking to expand into space. During fiscal 2026, we expect growth in our Info Sec and Cyber business to meaningfully outpace overall DAT segment revenue growth. We expect more normalized levels of royalty revenues at TrellisWare in fiscal 2026. And as a result, GAAP-adjusted EBITDA growth we expect will be less than revenue growth. Absent the TrellisWare impact, DAT margins would be improving. I'll turn now to how we're thinking about addressing our debt. Our two-step plan is to begin using available cash to redeem near-term maturities and then to leverage the momentum we built during fiscal 2026 to address our longer-term debt structure. Any potential proceeds from our strategic review or Ligado will be prioritized for debt repayment, which may accelerate our process. At quarter end, we carried available cash of $1.6 billion at the consolidated level. We've begun using that liquidity to early redeem some of our outstanding debt. Following quarter end, we redeemed the remainder of our 2025 notes for $443 million. During fiscal 2026 with confidence in sustained cash flow generation by year-end, we expect to pay down the remainder of the Inmarsat term-loan B of about $300 million from available cash. With the business momentum we expect to build in fiscal 2026, we'll be well-positioned to grow our earnings and free cash flow in the years ahead. As we exit the fiscal year, we'll begin work to address our longer-term maturities and expect to have a variety of compelling options to do so. As we get closer to the end of the fiscal year, we'll provide some additional direction as to our objectives and intent. As part of managing through this transitory period of elevated capital spending, primarily within the ViaSat silo, and as we approach sustained free cash flow, we expect upstream of approximately $400 million to $500 million of cash from our Inmarsat debt silo up to the ViaSat level. We want to be transparent about the total quantum expected, but this process should play out over time, beginning most likely in the next quarter or so. In conclusion, I hope you now understand why I'm so excited for the opportunities ahead of us in fiscal 2026. Key outcomes for the year will be modest revenue growth, flattish adjusted EBITDA, and free-cash flow inflection later in the year, but those outcomes mask a much more meaningful transformation in our business. We look to emerge from fiscal 2026 with substantially more capacity to deliver for our customers in the years ahead. We expect continued growth in key parts of our business and trends in some of the areas that have been weighing on near-term results to bottom or return to growth. The positioning of our franchises for sustained and profitable growth in combination with easing capital requirements following the launch of ViaSat-3, lead us to expect rising free cash flow in the years ahead. Against that backdrop, we'll look to begin refinancing and optimizing our debt structure for the future. I'm excited to be part of the ViaSat team as we work to realize all our opportunities in fiscal 2026. And with that, operator, I'll turn the call back to you to begin the Q&A.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Sebastiano Petti with J.P. Morgan. Your line is open.

Hi, thank you for taking the question, and thanks for all the color there at a segment level, super helpful. I was wondering if you could update us, I don't know if you touched upon in your prepared remarks, but any update on the process, the strategic review process for the Defense and Advanced Technologies segment? I think it's something you guys have alluded to in subsequent quarters, wanted to know, if any update there on how you guys are thinking about that? Is that process still ongoing? Perhaps any update on timing would be super helpful? And then I guess just in regards to the satellite launch for F2, I guess what gives you confidence in early 2026 at this point? And is part of the softer perhaps EBITDA, you did touch upon getting additional ground network costs in part of the softer EBITDA guide than previous -- than previously anticipated a function of just having to wear more of those ground network costs before getting kind of any revenue benefit from there? That would be super helpful if you can comment? Thank you.

Okay. Sure. Thanks. I'll take your questions in order. On the defense and strategic review, that is still underway. Things -- the way I put it is, that business is doing really well. So we're constantly assessing what we think the value of that of each part of those businesses are relative to what our effective -- our expectations are of their future cash flows. And I think they're evolving favorably. We are also at the same time looking at ways in which some of the things that fall out of that evaluation that are things that we can do to enhance their value and their competitiveness, we're doing those at the same time. But the review is still underway. And I think you should just look for us to make any statements if there's any material change in how we're thinking about that. The second part on Flight 2 schedule. The -- remember, a lot of what's been going on over the last couple of years has really been about understanding the source of the anomaly and the corrective action process. That's where a lot of the uncertainty has been. We're reaching the conclusion of that. The -- that entire reflector sub-assembly will be delivered to both spacecraft prime fairly soon. And then there has been a lot more straightforward and we're going through processes that we already did on Flight 1. In terms of spacecraft integration, we're still on track to deliver the satellite -- the completed satellite to the launch site this summer as we expected before. And well, right now, with our focus having been on delivering the satellite, we're also looking at what the activities will be post-delivery, there's a variety of activities in there, some of which you are kind of beyond our control. So we felt it was prudent just to update investors and let them know that there was some probability that it could fall into early calendar 2026. The other thing that we'd remind you of is that, part of the reason that we use satellite in-service in the -- in our roadmap is that's really what defines how it's going to affect our financial outlook and there's really no material change to our financial outlook as a result of that slip. For the third point, on the EBITDA, I'll let Gary address that one.

Yes. Sebastiano, we'd actually previewed that number I think a quarter prior. So there's no impact from the ground network costs you were referencing. That was not a driver in the guidance.

Yes. Thanks, everybody.

Your next question comes from the line comes from the line of Ric Prentiss with Raymond James. Your line is open.

Thanks. Good afternoon, everybody. Couple of questions. Can you hear me okay?

Yes.

Okay. Great. First question, obviously, you can't talk a lot about Ligado, but is there some timeline you can at least actually kind of lay out for us of what we should be watching on the timeline of Ligado? Is there any way to put some goalposts around what the magnitude might be? And I think, Gary, you mentioned if there were proceeds, it would most likely go towards delevering? And then I've got a follow-up.

Okay. We are -- we are participating in a litigation. One of the main things that we would refer investors to and analysts as well is just to look through the public record that's in the docket, and you can get a little bit of sense of how things are progressing. Just in terms of what's at stake and what was upside for us is, it's also part of the public record that you have that the amount of cash that we're owed is in excess of $500 million, and that according to the bankruptcy plan, the entity intends to consummate the transaction that's based on. So those are the things that we're working towards. But it's hard -- it's very difficult for us to comment any further than that at this point.

And anything as far as magnitude?

Well, the main thing I'd say is just -- I think the thing to keep in mind is what the amount that we're owed, which is a matter right now is a matter of public record. So that's it's something to -- it's just a way to frame the problem.

Yes. Okay.

Thanks, Ric.

Thanks. Yes. And Gary, you mentioned proceeds might go to delevering. Is there kind of a target zone of where you'd like to see leverage get to over the next couple of years, given Ligado, given potential unlocking of portfolio value?

Well, yes. Let's start with lower, which is what we're working on urgent. I think we've done the research on this, and I think as is consistent with a lot of asset-intensive businesses, when you get to around 3 times, that's where two things start to happen. That's where, first of all, your cost of debt capital starts to flatten out and where equity value is maximized. So clearly, that is an initial resting point, we're working at least to get there. And I think once we get there, we'll see what we want to do next. What you see from us though is, again, we're acting today, we're not necessarily trying to be scientific about it. We're working as hard as we can to drive free cash flow, which is the best way for us to get there.

Okay. And last one for me. Obviously, airlines are looking at solutions for in-flight connectivity, particularly free WiFi. We've been hearing from some of the airlines that the ViaSat solution for the narrow-body is really good. Starlink in as well, but there's some debate on the wide-body. Have you heard anything similar from the airline customers of where Starlink might have a solution that they feel is more competitive in a wide-body versus narrow-body, but just kind of update a little bit there? I know you posted something with the presentation today, but something we've just been hearing from airlines is narrow-body versus wide-body and LEO versus GEO.

Yes. The -- okay, so it's a good question. We -- one of the things that we have really been emphasizing with our airline customers are quantitative metrics of performance for all their flights. And those metrics can vary depending on routes, and they can vary depending on the -- or think of it as we'll think with wide-bodies as the number of people on-board, which leads to the number of users. So we've been pretty focused on -- and actually we re-record and we can sort those metrics multiple ways by route, by fleet type, and by wide-body versus narrow-body. So I think that -- I think it's a fair question. I tell you our data is that right now that for wide bodies and narrow bodies, our performance is very close, okay, narrow bodies, little bit easier. But the -- if you look at the thresholds that are most knowledgeable customers have set, where we're meeting those thresholds for both types of planes. The other thing that I bring up here and we talk a little bit about, well, we mentioned some of the survey results that we got for ViaSat-3 Flight 1. And one of the one of the really good things about ViaSat-3 architecture is that we have beams that follow each plane individually. So the amount of bandwidth that we can put into those beams is there, is certainly sufficient to serve the largest widebodies with free offering. And so that's -- we've given -- we have some of our global customers that are already flying on ViaSat-3 with widebody, they're seeing those results. I can tell you the customers that we're working with are very pleased with our results with ViaSat-3s. One of the points that we like to make is that not all gigabits or not all terabits are the same. So those -- you get lots of points for the gigabits that happen to be right over the -- right on the planes that are being served. That's the whole point of what we're doing with our new satellites.

Great. That's helpful. Thanks, Mark.

Thanks, Ric.

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

Hey, thank you. First question, Mark, maybe a longer-term one. You mentioned in the prepared remarks, you are playing to win. And I'm wondering what exactly does that really mean if we think about two, three, four years from now, what ViaSat looks like? Is that purely financial? Is it may be getting back some of these market-share and ICE maritime, what does that look exactly to you winning?

Well, so the big thing that we're looking for is growth, right? We're looking -- winning is growth, okay, for us. I think that what the markets that we're focused on still have a lot of growth in them. We've had very strong market shares in both commercial aviation and maritime. Those are tough benchmarks to try to improve on as those markets grow. So we're really focused on growth. I think we'll do well in market share. But the big thing -- I think the big thing that we'd like to communicate is it's becoming more and more evident that this is really an economic competition, right, that we can deliver the levels of service that people want. And you think about how that -- that's part of what we're talking about measuring the Hawaii routes, which is interesting because as we bring more bandwidth to market, it's -- we will have lots of bandwidth to apply to our customers, especially in these mobility markets. That's our main emphasis, which includes government, aviation, maritime. And we expect to extend that into land mobile. And then -- so then the big -- the way the competition actually plays out is, once you're in an environment where you have an unlimited free WiFi for your customers, really the main issue then is who runs out of bandwidth. You just don't -- you don't -- as long as you don't run out of bandwidth, customers are really happy. But one of the things that we have emphasized for quite a few years is understanding what those geographic and temporal patterns are of demand. And that's what we're intending to serve. That's going to let us compete really effectively. The other part of it is, once you know what kind of the market pricing is in these markets, whether it's like per boarded passenger, per ship, you can work backwards and figure out what it takes to be able to serve those price points at a profit. And so that's one of the things that we've been really focused on as well is having sufficient bandwidth every place and being able to be able to blend our own bandwidth with third-party bandwidth, match the utilization between supply and demand to compete. So that's part of the playing to win. The last part of it, that is, I think really important is, one of the distinctions in the way we do free for airlines versus the way some others do, is that we give the airlines discretion about how to do that. We provide all the platforms that really give them control over the experience. And so you'll see, as an example, in the growth that we have for American Airlines, they want to be able to provide those incentives to their best customers, right? And the airlines get advantages by having those customers be members of their frequent flier program, for instance. So we give them the tools to manage all their communication and their connectivity, and their entertainment in a way that helps them that basically monetize them and to come out with a better overall economic solution in an environment where the passengers still get free WiFi. So those are -- and that's really an example of non-price value. It's right. That's a way that we're really helping the airlines to do that. We have very similar strategies in the way we work with our maritime customers, government. Well, I know it's a long answer, but I just wanted to give you a sense of both what it means for us to win and that we feel we have a path to being able to do that as we complete some of the items that we've been working on for quite a while there.

Understood. I appreciate the comprehensive response. A follow-up on the L-band, obviously, you have a lot of it. And you've articulated earlier on your desire to get more involved in an even way D2D. But I think you would probably agree that the providers or the D2D, people are trying to do D2D competitors is already pretty crowded, and many of them have much lower cost of capital, while at the same time spectrum, albeit is very scarce. So what kind of conditions would you need to see to maybe try to monetize the actual spectrum itself as opposed to trying to utilize it for service?

Okay. So there's a lot in there. Here's what we'd do. One is, from our perspective, one of the good things is, we have a pretty significant existing business base in L-band with mobile satellite services. One of the -- I think one of -- I think, it's becoming more clear that having licensed satellite spectrum is really valuable and it's kind of -- it's essential in performing the public safety missions that we do. And you look at boy, right now, lots of emphasis on aeronautical safety. That's one of our important missions, more and more emphasis on maritime safety, certainly national security applications, all those things benefit from licensed satellite spectrum. It's also clear that there can be crossover benefits into these D2D markets with that as well. But one of the points I want to make is that because of the public service obligations that we have -- the public interest obligations that we have, which we take seriously, though being able to evolve those to what their future requirements is, we think it's important, we're undertaking that. I think it's a good foundation from which to expand our markets into the other ones. In terms of how you differentiate going to market, and one of the main points that we've made and I mean, I'd say one of the main points that we've learned in talking to mobile network operators, automotive manufacturers, all of the big users of what's likely to be a non-terrestrial network component to 5G, they want standards based open architecture solutions so that they don't get locked into a single choice. And so one of the main things that we've been doing is to basically to turn this into a -- in a competitive environment that's more than who has the most money at any instant at time. What we're really trying to do is address the customers' needs for or desires for those open architecture standards-based solutions. And that's one of the -- that is the main reason we helped form the Mobile Satellite Services Association to create the standards that not only allow a terrestrial network to operate with a particular satellite network. But to do it with all of them, right, and that they can roam among all those maintain that choice. So I think that the ingredients that we're bringing, and I just want to want to add one more component that we've talked about there, which has been very important in the terrestrial environment. I think is a big equalizer when it comes to the capital environment is that of having shared infrastructure, which you see like just the way the terrestrial market evolved, is that each individual carrier annotation doesn't have to fund all the capital -- all of the capital itself, that shared capital helps reduce capital intensity and allows us to compete. So what I would say is big three ingredients we talk about is serving our public interest through these aeronautical, maritime, and national security requirements, helping to facilitate this open architecture standards based environment, and then reducing capital intensity through shared infrastructure. So I think that we're getting really good feedback, but that's a good message to some of the biggest users and customers for the D2D environment.

Thank you very much.

Thank you for the question.

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

Hi, this is Matt on for Ryan. Thank you for the question. Your 2026 outlook is calling for double-digit strong growth in both the Information Security and Cyber defense and the space Emission Systems businesses. Could you maybe just provide some color on what the underlying growth drivers are for those particular business segments?

Yes, sure. The -- in the -- see, you mentioned three -- so space and mission systems, encryption, and what -- I'm sorry, what was the third one? Those two [Multiple Speakers] Okay. Yes. Okay. Yes. So I'll address each of them. So the encryption business, one of the -- I think one of the ways that the problem is being framed is quantum-resistant encryption, right? And that's sort of -- that's contained within the US Department of Defense Next Generation encryption initiative. So, again, the big issue here is carrying over a very large installed base, mission-critical equipment, and migrating that to the next-generation equipment through a refresh cycle. But one of the things that we've talked about and we're starting to see is, there is -- there is a use -- use by date or an expiration date for the current generation of equipment. So there is right now a big focus on refreshing that base as quickly as possible, because there is exposure even, I mean for -- as we speak of, I would say, security issues that are associated with quantum computing. So there's a lot of emphasis on that. So that is a big driver. And then the other thing that is also a good tailwind for us and one where we've been quite successful is, it's become quite evident that if you look at these very large constellations that cyber security is -- it is a single mode of failure that affects the entire constellation. So there is a big focus on cybersecurity for space, and that is an area that we have a very strong position in. The second one on the Space Emission systems, there's a number of things, and you can see some of the programs we've been successful on in this is, it's not just satellite services that people are looking for in space, but there's definitely need for technology insertions. And so we've been really quite successful in mission -- some missions include replacing some of the NASA services for space relay, that's an area that we've gotten off to a good start. There's issue -- there's initiatives on standardization of optical intersatellite links. We've been very successful in a number of situations with high-bandwidth radio-frequency, intersatellite links. There's also some specific missions that can't be served by -- I'd say more than commercial dual-use satellites. We've been successful in those areas as well. One of the areas we're pretty excited about on the international front is working with the European Space Agency on the lunar app -- lunar relay communications applications as the Moonlight program. And then there are also some unique opportunities for us and for other operators that we're participating with for national security applications of some of the bands that -- that we can use for dual-use applications, including L-band. So that's kind of run-down to some of the drivers for us.

Great. Thank you for the color. That's it from me.

Thanks, Ryan.

Your next question comes from the line of Colin Canfield with Cantor Fitzgerald. Your line is open.

Hey, thanks for the question. Maybe focusing on introduction of new geostationary satellites. Could you just kind of walk us through how we should think about the kind of revenue addition of ViaSat-3, F2 and F3 in 2027? And maybe just walk us through kind of how you think about the moving pieces of volume versus pricing growth? And then just again walking that all back to the multi-year EBITDA margin expansion of 200 bps on margin. So it seems like if you think about like assuming a relatively flat volume versus price outcome and a little bit of EBITDA. It feels like low-single-digit is the right earnings growth number for 2027, but maybe walk us through kind of how you think about that?

I think I'm going to address the question about the 200 basis points around how we're thinking about it. Across a variety of things that we've seen, we've had the conviction that we've got more to go, we've got more opportunity to go through the integration. And when you think about the magnitude of opportunities that we've got in front of us, the importance of the year, in order to maximize those opportunities, we think we really need to move towards more clarity, simplicity, being nimble. And we've had in a couple of instances, I mean, first, you saw some of the ways in which we're looking at managing integration to reduce capital needs for the future. We've also had some scrums internally on some tough problems that we've worked through. And it's led us to believe that we can operate like that much more routinely. And we've engaged some outsiders to help us think through what the magnitude of opportunity would be, and we're really comfortable that and across that two or three year time horizon, we'll be able to achieve numbers that would have us -- would have us in that range in terms of additional margin contribution.

Okay. Then just in terms of the ramp, one thing just to put in perspective is each of the Flight 2 and Flight 3, each alone have more bandwidth, more capacity than all the rest of our existing fleet put together. So it's a -- those are big increases in capacity for us. And then the really big things about those two satellites, really nothing else like them on the market, and their ability to see -- kind of each of them can see a third of the world and has the ability to put bandwidth right in the places where they're -- where the demand is. So the way that we've grow -- first of all, two things, right? I think one is, how is demand growing? We're winning more platforms. And as you can see as things like aviation market goes free or in the maritime market, use becomes the dominant use as opposed to operational use. The amount of bandwidth required per platform is growing substantially. And also what we are seeing is they were delivering a lot more service. There's improved productivity from the customers' perspective, but just like in the terrestrial world, you're seeing our average revenue per platform grow over that time, right? That's how we come out ahead. Think of it as the real competition is not so much who has the most total bandwidth, who has the most bandwidth in the right place at the right time. And you can see -- I mean, look, everybody knows Starlink is the one that's trying to lead these markets, but you just look at their own maps that they have on their website and they'll tell you that they have bandwidth purchase in a number of places. And some of those places are really important transportation hubs for maritime and for aviation. So the big thing for us is, we're growing demand through more platforms, more bandwidth per platform, and then we have the flexibility to aim all that capacity right on the platforms that need it at the times that they need it. I think that's a pretty simple formula, but it's actually -- I think it's a little differentiated in the market.

Got it. Got it. And that's -- appreciate that color. One thing I just want to make sure we understand in terms of clarity, so like in terms of contracted. So like we think of these coming online in 2026. And in terms of the full kind of contracted revenue increments from F2 and F3, is there a fair way to think about the contracted additions of revenue growth versus base -- straight numbers?

Yes, so think of it as -- well, we're not like the traditional satellite operators that usually would talk about was buying a new satellite, here's our backlog commitments or the commitments we have on a transponder-by-transponder basis for this amount of utilization. So the way our business really works is what you want to look at is, how many platforms we have, what the usage and revenue is for platform, and think of it as we bring more bandwidth to market, we're constantly growing the number of platforms and as we go to -- as we get more applications per platform, those drive revenue per platform and that's really the way in which we fill it up. So where we are -- think of it as what's really important is to look at those trend lines. And clearly, what you can see -- if there's one thing that should be evident from what Starlink is doing is that when you decrease the unit cost of bandwidth, the market's grown very substantially, right? That's what that -- and that was our premise as well. So we've been a little bit handcuffed or handicapped as we're waiting for these satellites to come out, but that's really going to unlock that for us. I think we've been addressing it effectively in the meantime through adding third-party bandwidth. We're continuing to do that with both LEO and GEO bandwidth. But we've got -- a lot of that CapEx is behind us, right? So that's what the opportunity is, that we're getting through this both in CapEx, but we're getting a lot of inventory, and that's what's going to help drive the cash flow. The big part of what you heard Gary's discussion about. That's what we're focused on.

Got it. Got it. And just -- I never do ask a third question. Maybe walk us through the free cash flow building blocks for 2027? It seems like the fair way to think about just taking the numbers that you've given us, if we assume like 30% of OCF growth and the CapEx number you've given us, I guess as to maybe $100 million to $200 million of burn in 2026. And then with the tailwind, so the number you gave us on ViaSat-3 stepping down to $250 million, and at some level of margins and working capital, maybe roughly $300 million total. So is it fair to assume that we can be looking at like a low-single-digit hundreds of millions of dollars opportunity for free cash flow in 2027? By that math, not getting you to sign on for guidance, but just making sure our math is correct?

Well, we're not necessarily going to validate your math or your guidance, but you clearly are educated on what some of the right building blocks are. One of the things that we have been really focused on and you've seen it in Mark's prepared remarks, is mine, it's about the magnitude of opportunity and the underlying meaning of what we're setting out to accomplish in fiscal 2026 to position ourselves for a lot of growth beyond that, right? So I think you all know how to think through some of those factors in terms of what they might look like on the EBITDA line. As Mark just said, we're going to have a big lump of CapEx in ViaSat-3 behind us. And one of the things you've seen, we didn't talk about it on this call was more of a focus last time. The team here has had a tremendous amount of focus on CapEx even in the here and now. And we're all driving towards this goal of reducing the capital intensity of the business. It's resulted in almost $300 million less CapEx over the course of fiscal 2025 and 2026 from where we started several quarters ago. We're going to continue with that focus, the teams are getting trained on working capital. So, the things that you're talking about are in line with the kinds of trends that we expect to see, EBITDA growth, focus on things like net working capital, being really disciplined with our capital spending. Those are things that you should expect to continue to see.

Got it. Appreciate the color.

Your next question comes from the line of Louie DiPalma with William Blair. Your line is open.

Good afternoon. Following up on the prior question. And based on what you conveyed with approximately $250 million in ViaSat-3 CapEx this year is $1 billion a good benchmark for fiscal 2027 CapEx? And would that include $200 million of capitalized interest?

Again, we're not going to give guidance on where we'll land in fiscal 2027 just yet. Factually, this year, what your numbers were, we didn't have the $250 million of CapEx around the closure of the ViaSat-3 system that we'll have next in this current fiscal year, fiscal 2026. The spending was around $1 billion in total and there was about $200 million of capitalized interest in that number. So bear in mind, the capitalized interest is something that we do think will trend down a bit. But we still have satellites under construction. So that's not something that's going to disappear from the capital line.

Right. Thanks. And secondly, what provides confidence that maritime will inflect in late fiscal 2026? Is there continued upsell from your L-band customers? And are you also taking share from like Ku-band maritime competitors?

Okay. So the first thing, what's providing confidence is we've been -- we went through beta trials, we've gone into production. We have a very attractive backlog. It's growing fast even while the installation rates are growing on what we're calling, NexusWave, which is a multi-band one. So right now, what we're really looking at and we're still early days, but I'd say that the orders, the rate of which we've gotten orders, the size of the pipeline, the rate of installs, the existing backlog, all of those are pointing to kind of the sequence of events that we talked about last quarter, which is we should see net vessels stabilize and grow. Then we'll see the revenue come from those vessels and we'll get on the revenue side, one of the big things that we've talked about and I think everybody has talked about is the increased usage onboard ships going from not just operational but to crew use. So that's really driving -- think of it as an inflow of revenue into the maritime business, which NexusWave is really our first opportunity to capitalize on, right, and to provide that integrated service. So we're seeing good growth in revenue per ship, given the service plans that our customers are adopting. So I think now where that's coming from, it's pretty clear that conventional Ku-band isn't -- doesn't have -- just like in aviation, you're going to see as the demand for vessel increases, and then you look at the patterns about where those vessels aggregate, that's not -- there's really not a lot of future in that we think. And so we do think that's one of the ways in which we'll be able to compete really effectively. We -- it's still complicated. I think the thing that is really encouraging about what we're doing now is most of our growth is coming directly -- in our direct sales to fleets. And one of the good things there is, it's really a way for us to be close to the customer, and you just understand what the pull-through is for the parts of our business that go through distribution. But one of the things that we're working with is, we're working with some of our indirect distributors to be able to have them understand what's going on and to be able to make win-win deals, and have them come along with us. That's also on our list. That's another way. I think that we're starting to see some progress, and we'll see sustained growth. So on the -- we're talking about kind of going up sequentially in the first half of Q1, Q2, but we should get later in the year -- we should start showing year-over-year revenue growth in maritime. I think that's going to be a really good proof point for what we were talking about is how we can compete these markets. Did that cover all the...

You did. Definitely, definitely, Mark. And one final one, do you expect to play a role in Golden Dome?

Yes. Yes. I think that -- I mean, the big thing there is the government is not going to outsource. They are not going to outsource everything in that, right? At the end, there's going to be a very substantial component across a whole range of technologies that includes cybersecurity, sensor fusion, cloud communications, a lot -- there's going to be a lot of business across a number of disciplines. A lot of that's going to be in technology, not just services, and we're well-positioned across those areas. So we're seeing opportunity there as well.

Excellent. Thanks, everyone.

Thanks, Louie.

Your next question comes from the line of Justin Lang with Morgan Stanley. Your line is open.

Yes. Hi, Mark and Gary. Thanks for taking the questions. I'll try to be quick here. Just one on government satcom. I think you mentioned good visibility from the backlog. The business was a nice grower in 2025. And I guess the question is, do you see that growth sort of repeating here in 2026 or should it taper a bit just given tougher comps? Just sort of curious how much would offset government satcom is to communication services this year, given some of the early aviation pressures you noted and the dynamics playing out in maritime and fixed broadband, which I think you outlined clearly? So thanks.

Yes, we expect the growth to taper, but we do think it will be up slightly so -- and at sustained much higher levels of activity. This is a nice margin part of the portfolio. So it will be a big contributor to this year.

Okay, great. And then just a quick housekeeping, Gary, maybe I missed it, but you mentioned leverage to tick-up, I think here modestly in 2026, you got flattish EBITDA and you got the second half free cash flow inflection. So I guess, how should I square that with the sort of delevering priority you laid out?

While the delevering is something that we've got to build, we do need to get through this year and achieve those outcomes that we described. We think once we get beyond this fiscal year and some of the impact of that ViaSat-3 CapEx, we'll be on a much different path in terms of the direction that we're heading. Over the course of this year, we do think that amounts to a slight uptick in that EBITDA over -- or net-debt over EBITDA.

Okay, great. Thank you.

Thank you. I'm not showing any further questions in the queue. I would now like to turn the call over to Mark for closing remarks.

Okay. Thank you. So we've covered a lot of ground, got a lot of good questions. I think I'd just like to just kind of rattle off some of the main themes that we think are really important that we're trying to communicate this quarter. One is, we're making good progress. We're steady progress. We're on the Flight 2 and Flight 3 of ViaSat-3. And we've got really good data that we think demonstrates the effectiveness of that architecture, and the way that we use it on Flight 1, even though Flight 1 is certainly impaired, it demonstrates the way that we're going to use the satellites. And I think it also helps demonstrate that not all gigabits or all terabits are the same. You only get points for that bandwidth that is in the place that you need it when you need it. That's -- I think that on these mobility markets is a really important thing to remember. We're seeing -- we're already seeing good results from that in aviation, and we're having opportunities in government. Maritime, we're off to a really good start on the multi-orbit NexusWave service. L-band, I think we're making progress starting in the D2D space, but really focused on these next-generation safety services in aviation, maritime and international security components, and then being able to apply these principles that we described for an open architecture, standards based on the value of dedicated satellite spectrum. And then bringing that to market in ways that allow us to reduce capital intensity through multi-tenant shared infrastructure, same as what's happened in the terrestrial space. So that is one of the ways in which we're looking to make sure that we can continued to drive-up cash flow through reduced capital intensity. So we're pretty proud of things are still in flux, but for FY 2025, we had record revenue, record EBITDA, record awards. We see good opportunities for growth and operating cash flow that Gary has gone through a lot of detail on how we're going to use that to better and to improve our capital structure. Even this year, we had two quarters of positive free cash flow. Next year, our objective is to exit the year with that sustained positive free cash flow. We've talked about a flattish FY 2026. It is -- there's some challenges in the macro-environment. Gary spoke about impact of tariffs, also the issue about OEM deliveries in aviation. That's kind of a macro that we're dealing with, but we feel we're well-positioned for growth. We think it is becoming more clear that we can thrive and win in the markets we're targeting. Last thing I just want to say is, there's a lot of work obviously behind all things we're talking about. I want to thank all of our employees and teams for the work that they're doing. So thanks again for participating in our call. We'll speak again next quarter.