VSAT - NASDAQ

Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 2026 Viasat Earnings Conference Call. [Operator Instructions] Now I would like to turn the call over to Lisa Curran. Please go ahead.

Thank you, Mark. 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 '26 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 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.

Thanks, Lisa. 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 second quarter fiscal year 2026 performance and the imminent launch of ViaSat-3 Flight 2 reflect the meaningful progress we're making against our highest priorities and commitment to building value for our employees, customers and shareholders. We're especially pleased with our awards growth and cash performance, as we balance investing for future growth while reducing capital intensity. For Q2 FY '26, our net loss of $61 million improved from a net loss of $138 million in the second quarter of FY 2025, and was primarily due to favorable service revenue mix, lower depreciation and amortization and lower SG&A expenses. Revenue grew 2% year-over-year, led by a 3% growth in the Defense and Advanced Technologies segment and a 1% year-over-year increase in the Communications Services segment. Adjusted EBITDA increased by 3% year-over-year, as better-than-expected adjusted EBITDA growth in Communication Services was partially offset by an expected year-over-year decline in the DAT segment. We were hopeful to have already had launched ViaSat-3 Flight 2 by today, but the United Launch Alliance Atlas rocket carrying the Flight 2 mission was scrubbed last night due to an issue with an Atlas booster liquid oxygen tank vent valve. ULA is evaluating it and is now aiming to launch in a week. The launch of ViaSat-3 Flight 2 will be a very meaningful milestone for the company, An incredible amount of dedication went into preparing the satellite for launch, and I really appreciate the efforts of our entire team. We remain focused on getting both Flight 2 and Flight 3 into service as reflected in the accompanying satellite road map. As a reminder, each of the new ViaSat-3 satellites is designed to enable more bandwidth capacity than our entire existing fleet, with the unique flexibility to aim that bandwidth exactly where needed, creating opportunities to grow in each of our franchise businesses and to accelerate growth and drive meaningful free cash flow contributions in Communication Services. Our DAT segment outlook is promising, as backlog increased to a record of $1.2 billion, up 31% year-over-year and up 14% sequentially. The long-term growth trajectory is supported by several attractive secular growth drivers, including increased reliance on space-based assets for national security purposes, both domestically and internationally, which creates a growing set of global opportunities for the commercial space industry especially for dual-use capable systems. Increased demand for highly resilient communications, integrating both terrestrial and satellite and multi-domain operations that require seamless interoperability as well as growing demand for digitized military infrastructure to support highly computationally intensive, autonomous, cloud-centric and AI decisions while simultaneously defending against increasingly sophisticated cyber threats. There's also the growing global recognition of the importance of sovereign control over those space systems; and finally, there's the increased integration of commercial and defense dual-use technologies together with the rise of nonterrestrial network connectivity, including direct-to-device mobile services. Not surprisingly, we're seeing a significant uptick in interest for commercial and mobile space networks that enable direct-to-consumer device nonterrestrial network connectivities. Given some of the market transactions we're seeing in this space and our own coordination agreement with AST and Ligado, seems there's a greater appreciation of the value that we can create with our mobile satellite spectrum. The announcement we made in September regarding our intention to form Equitus with Space 42 and potentially other operators is an example of how we believe we can continue to build on the value of our large, coordinated and highly strategic global position in mobile satellite services, while managing and reducing capital intensity and creating meaningful competitive advantages. As I mentioned last quarter, we're continuing to opportunistically strengthen our capital structure, be it cash flow improvements, addressing debt maturities and conducting ongoing portfolio reviews. The Strategic Review Committee of our Board of Directors continues to evaluate our capital allocation portfolio priorities, including the potential merits of separating our government commercial businesses within a competitive environment of government commercial dual-use and vertical integration opportunities. We're focused on building shareholder value and reinforcing our competitive positions, and we see accelerating deleveraging and collapsing debt silence and thinking critically about our portfolio as important components to that. We believe the overall strong start to our first half is an important proof point, as we compete not only for business success and outcomes but also for investor confidence and capital. Once again, we recognize there's challenges, but we're planning to win. So with that, I'll hand it to Gary.

Thanks, Mark. Thanks, and good afternoon to everyone joining us on the call, and of course, a special thank you to the Viasat team for all the hard work that went into producing these results. I recently celebrated my 1-year anniversary here and have been reflecting back on the progress the team has made during that time. We laid down 3 key priorities for our financial journey that by now you know well: Build our franchises and earnings power, generate and grow free cash flow and set a path to a value-maximizing long-term capital structure. I'm really proud of what the teams have accomplished in the past year and very excited for all the opportunities that lie ahead of us. Our franchises are developing, and we've seen strong growth in aviation, government SATCOM and DAT, while we continue to win new awards that leave us with a backlog to underpin future growth in these areas. The teams have done a nice job stabilizing our maritime revenue base and creating growth opportunities with the development and market acceptance of a new multi-orbit solution that's at the same time, a great solution for our customers now and great development of a key future-facing capability. We know we still have work in front of us on the fixed broadband business, and the capacity Flight 2 will provide supplies the bandwidth to enable progress there. Free cash flow is an even bigger highlight. On a trailing 12-month basis, we generated $147 million of it, and we've achieved positive free cash flow for 3 quarters in a row. As we get beyond the CapEx goals related to the completion of ViaSat-3, we see continued cash generation that will be the fuel we need to reduce leverage, optimize our capital structure and invest with discipline for the future. As a result of the first 2, we're better positioned to optimize our capital structure. We'll be opportunistic given market conditions but focused on achieving a desired end state that targets a leverage ratio 3x net debt adjusted EBITDA or lower, where marginal borrowing costs tend to flatten and equity valuations are maximized. Our desired end state will also include a collapse of our debt silos. During the second quarter, the U.S. Bankruptcy Court approved Ligado's restructuring plan, including our agreement with Ligado and AST. Following the receipt of the first $16 million quarterly payment in September and last week's $420 million lump sum payments subsequent to the end of the second quarter, we intend to take the first step soon and repay the remaining $300 million under the original Inmarsat term loan B facility. This move will save about $23 million in cash interest payments annually. I'd like to thank the Viasat team again for delivering and making these things a reality. I'm proud to have been part of the journey thus far and excited for the great work we still got in front of us. Now let's turn to the second quarter. We generated revenue of $1.1 billion, up 2%, adjusted EBITDA reached $385 million, up 3%; and drove a 34% adjusted EBITDA margin. Cash flow from operations was $282 million, up 18%, with CapEx of $214 million, resulting in free cash flow of $69 million in the quarter. The first half was a good start to our fiscal year and there's still work ahead, as we focus on achieving our full year target and exiting the year well positioned for growth. We're committed to delivering long-term value and confident in our strategy, as we drive it forward. Before we dive into more detailed results, let me clarify that all my statements in this section will reference second quarter of fiscal '26 and the prior year period comparable to the second quarter of fiscal '25. Awards were $1.5 billion, up 17%, led by Communication Services, including a large international dual-use satellite win serving Australia, New

Thanks, Gary. So we think there's a lot to be excited about, including the forthcoming launch of ViaSat-3 Flight 2 and the progress to launch on Flight 3. We're building momentum with multi-orbit solutions across businesses that are very attractive for our customers, and we're being disciplined with costs and CapEx, which is building the foundation for strong cash generation. We believe there is tremendous value in our franchises as a leader in satellite infrastructure and connectivity, in-flight connectivity and critical military and government communication and defense solutions. So with that, let's open it up for questions, please.

[Operator Instructions] Our first question comes from the line of Brent Penter with Raymond James.

I appreciate the comments on the split and some interesting comments there regarding government commercial dual-use and vertical integration opportunities as well as the debt silos. So can you just update us what inning are we in, in terms of evaluating that possibility? And maybe you could just elaborate on those comments regarding vertical integration and the debt side of things.

Okay. I'm not sure I'm going to give an inning, but we are working and we're always evaluating these options, I'd say, continuously. It's not like there's going to be an end date to that. And then just in terms of the vertical -- when we talk about vertical integration and dual-use, you can see examples of that, both domestically and internationally in space systems, increasing reliance on space systems. But the issue is those systems are expensive, and it's hard for a lot of countries to just carve that much money completely out of their economy. So I mean one clear example of this might be, for instance, what Europe is doing with IRIS², where clearly, national security system needs to also be able to carry its weight commercially and economically. So we see that as a really good opportunity for us. We're benefiting from that. And we're just weighing the benefits of that compared to any potential benefits of a spin-off and they're not mutually exclusive. There may be ways in which we connect the two to preserve the competitive advantages while also creating what potentially might be more attractive investment vehicles. That's the trade-off that we're doing with respect to the spin.

Okay. Okay. That's helpful. And then spectrum value, you all talked about it and it's clearly getting a lot of attention right now given some of the activity in the industry. Just focusing on your international spectrum, can you all remind us what exactly you own in terms of megahertz and priority rights. And given some of the existing businesses on that spectrum as well as now the JV with Space 42. How open are you all to alternative ways to monetize that spectrum and maximize the NPV there?

Okay. In terms of what we have in spectrum, in our ITU positions are public and pretty well defined. The big attraction we think in our spectrum position is that it's global, and the amount of spectrum that we have is substantially higher on a global basis than pretty much any other company. I think that the spectrum is put to very good use now, I think, in critical services both maritime and aviation as well as land mobile. I think that those services are going to -- they're important to almost every nation on earth, and so we do have really well-coordinated access to virtually everywhere in the world, which is also a unique situation. What we're looking at is a combination of evolving those services to fulfill the demands of the aviation industry and the maritime industry, while also being able to support the network standards that enable this large potential direct-to-device market. What we do think is a lot of the applications that are going to drive these uses, which include things like vehicular autonomy, aeronautical autonomy, maritime autonomy, more edge-based AI applications that all those things are going to leverage both terrestrial mobility where available as well as space. So what we're doing is we're just constantly evaluating the two main forms of how the company can drive value from it. One is by continuing to operate and invest in the infrastructure required to use those assets versus what the current value might be to others who might be able to use those assets as well where we may be able to either work with them or coordinate with them in a way that also builds value. So those are the trade-offs that we do. I think we've been responsible steward of it. We just completed one transaction that we thought was in the best interest and that actually had been in the works for quite a long time. So I think we're going to be open-minded and even-handed, but always mindful of the public interest obligations that come along with that spectrum and making sure that we fulfill those obligations, and we're continuing to use the spectrum in the best way for both us and our public interest obligations.

Okay. I appreciate all the detail there. And then final question for me on the topic of Equitus. Can you all just talk a little bit more about that project? And who you view as the ideal customer that this is going to be most appealing to? And I realize it's early, but any conversations you've had with other potential partners or customers? And then I would also appreciate any details you can give in terms of economics, CapEx and how we should think about that?

Okay. The main purposes of Equitus are really to help bring modern infrastructure to the spectrum allocations that are either satellite specific or could also be used for the supplemental satellite spectrum allocations as well. The thing that's really influencing these direct to device that is being able to make connections to cell phones at the power levels and the gains in the space segment that enabled closing those links. And so those are generally done by global constellations, but there are a number of operators that are otherwise only regional. And so the notion of having shared infrastructure is a very natural way to be able to extend, to make that infrastructure available to regional players who otherwise would only be able to make use of that infrastructure a small fraction of its time. So there are multiple benefits that Equitus can deliver. One is that operators would only essentially pay for the services that they can use in their region and they wouldn't be paying for dead time over other places that by having a cooperative there, those infrastructure costs are shared. There's additional benefits that can be gained for operators who choose to coordinate their spectrum with others in a way that aggregate that spectrum and just takes advantage of information, theoretic, Shannon capacity terms that would that mean that adding -- treating the spectrum as an aggregated block is the most cost-effective way to increase capacity and reduce airtime costs. So some of the -- so we are in discussions with a number of regional operators in addition to Space42, which is to have a very large region, 2/3 of the world, but there are other regional operators who are really interested in having sovereignty in their area at an economical cost. One of the partners that we're working with already that we've discussed in the past is Europe. We were working with the European Space Agency to help them have a sovereign component to a global constellation that is -- that would be far more economical than what they might otherwise do on a stand-alone basis. I think that's a good example. There are others, but we're not going to name those now.

Okay. And anything you can help us out with in terms of sizing CapEx there?

No. I think we're going to -- we'll do that as we get more definition on the program. There are still a lot of variables in the way it's structured and how we work with partners. So at this point, it would be premature to give detail on that.

Just to punctuate to Mark's point, we keep talking about capital efficiency. Remember the -- at least as I look at the world, the concept of shared infrastructure is a big idea on that front.

Your next question comes from the line of Sebastiano Petti with JPMorgan.

Just to maybe follow up on one of the questions there. Mark, as we think about your global portfolio, I think in the Space42 announcement, it said that you'd be able to -- capable of supporting well over 100 megahertz of harmonized MSS spectrum. Is that accurate as it pertains to Viasat global harmonized spectrum?

I think the 100 megahertz refers to the combination of what Viasat and Space42 have together that was underpinning.

Okay. Got it. Helpful. And then staying on the Equitus Space42, as you go down that path, I think -- and you kind of prepare yourself for service launch, right, targeted within 3 years, I mean when should we -- you kind of alluded to it in an earlier question here, when should we begin to hear more about partners with -- partnerships with MVNOs, perhaps additional investors kind of coming on board, maybe some of the milestones that we should be anticipating prospectively over the next couple of quarters and months -- years here?

Well, I think the thing you said at the end is right. It's going to be over the next couple of quarters and years. We still have work to do with Space42, but we're making good progress on that to provide the definition and the transactions that either additional customers or investors would make with Equitus, but are necessary to form that. But we're seeing a lot of interest. And I think now you're starting to see others start to talk about the benefits of shared infrastructure as well that -- I think that, that -- it's pretty evident that, that makes a lot of sense. The devil is really in the details and that's what we've been working on for quite a while, so that we can provide really all of the details needed for real transactions, both by other users of the system -- let's say, other operators who would participate in the system, investors who would invest in the system and then MVNOs or others who would be users of the system to make it clear what this means in detail to each of those constituents. And I think we're making good progress there, but that will be the next step is to get out of the definitization of each of those points.

That's helpful. And then I guess one last one. I guess, Gary, notwithstanding the government shutdown and what that might all mean from an awards perspective and revenue and EBITDA impact. But just as we think about the business overall, right, I think one of the things that, in particular, I think some folks struggle with is just the backlog growth, right, and the awards quarter-on-quarter pretty impressive and continue to be -- continue to grow at a very healthy rate, I mean, I think you called it -- I may have missed the data awards, but CS awards up 35% quarter-on-quarter. Any kind of help thinking about how that backlog -- as that grows over time, maybe the cadence of backlog recognition. I know we kind of talked book-to-bill, but is there any other kind of metrics above and beyond the book-to-bill ratios that we have historically focused on in the business as we kind of think about your ability to monetize that?

I'm trying to think of the right way to address that. I think we highlight the metrics that we think are relevant for how we're seeding the future. I think what you're going to see is -- and I should also go back and reference some of the things that we set out to accomplish this year. If you remember, we said this wasn't really about the numbers, it was about some of the outcomes that we set out to achieve, that was continued growth in Aviation, Government SATCOM. We wanted to see a stabilization and a return to growth of our Maritime business. And then the other one was to make sure that we had access to the capacity of Flight 2, so we could address some of the declines that we've been seeing pretty consistently in our fixed broadband business. And as I look at the year, when I say we're making good progress, it's largely on those fronts. We're not tracking the specific numbers. So I'm feeling good about our ability to turn the efforts that we've made this year and to growth for the future. And we certainly have the backlog to underpin it, and the capacity is coming we -- the capacity that we need in some arenas is coming very shortly with Flight 2.

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

First, on HaloNet, that seems to be the commercial environment as something you talked about and advocated for quite some time. But is that something that's going to take a year or 2 you get off the ground because say, Leo sensor and low earth orbit would have to have in that center pointing it up to GEO and then it would signal get bounced back down to a gateway into the edge via your growth segment?

I'm sorry, Mike, I missed the very first part, which system are you referring to?

HaloNet.

Okay. Yes. So the HaloNet we're aiming at several different markets. One of them -- one of the early ones that we're getting into is launch telemetry as an example, where we can -- really, what we're looking to do is deal with the space relay as a whole. So that includes things like launch telemetry, it also -- one of the options that we talked about originally was think of it as sensor -- say, sensor data or other data that would be relayed from LEO to GEO and back to ground stations really to help reduce latency for earth-sensing, earth observation. And we've also been dealing with that a little bit through shared sensor infrastructure. Another one that we got with Inmarsat is less relaying the sensor data itself and more relaying the tasking and command and control for those satellites, which is also important in terms of getting timely data. There are other components that we're also looking to get to, which are other forms of kind of space vehicles that are relayed through government assets now that one of those government assets are either bottlenecked or going -- or actually going away. So it's kind of each of those markets, and they have somewhat different communications paths depending on what the application is. Did that address what your question was?

Yes. I mean you've also talked about offering to say earth observation companies and the ability to not have to wait to pass over -- yes, and instead you could get data out to the edge much more quickly. So I have another question, Mark. You have this great cryptographic and encryption franchise, how does the advent of quantum computing affect those?

So the very first application is in what people are calling quantum-resistant cryptography. One of the main applications of quantum computing is factoring numbers, which would be used to attack existing cryptographic systems. So one of the highest priority objectives in any secured infrastructure is making them quantum-resistant. So that's driving a big refresh in secure systems especially in the U.S., but globally as well. The -- I think the other thing is going to be -- the other thing that's really driving the growth in our crypto business is basically the use of data centers, right? The things that are so computationally intensive that they can't be done anywhere else. So that's driving -- I mean think of AI as being one of those. There's other big data applications. And when you think of quantum computing, that's another form of dealing with very computationally intensive algorithms that will be done in data centers. All this stuff is driving demand for data center cryptos. And also on the user side, it's driving demand for cryptos that have kind of the networking flexibility to get to the right data centers, that have either the computational resources and/or the raw data to work with as well as the speeds that are needed as well as the -- basically the quantum resistance as well as other cybersecurity threats that are also evolving along with the quantum threat. So it's just -- it's driving -- I mean, think of there's a bunch of drivers that are causing both modernization of the cryptos, increased speed. And then the other thing that becomes really important data center, of course, is getting low power, low footprint within the data centers just because of the really rapid increase in aggregate speeds that are going into those data centers. I'd say those are the main drivers.

And then just one last quick one for me is how are you accounting for the $420 million cash received on Halloween and the $100 million of additional cash you're going to get on March 31?

Do you want to take it, Shawn?

I can take this for you. This is Shawn. I think Gary kind of summarized up the -- how we see the cash coming in. I think if you look at the earnings, we don't expect it to be a large impact to EBITDA. So most of the lump sum proceeds are going to go to deferred revenue, and they're going to get recognized over the life of the contract. The interest portion will come in, and that will come into interest income, which obviously is EBITDA neutral.

We're still finalizing the details. You should see a chunk of that as well in operating cash flow when you see the next set of financial statements.

Yes. And we'll give you guys more details on that in Q3.

Okay. So you're going to recognize $520 million of deferred revenue over 80 years?

There's a good portion will go to deferred revenue, but we'll also have a portion that will go to interest income.

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

I wanted to ask about the communication services backlog there, and obviously, Flight 2 going up and the capacity. How should we think about pent-up demand and timing? I know it's about 6 months from launch to service. But what percentage of that backlog in comp services would you say is dependent on F2?

Actually, you're not going to see that necessarily come out of backlog. I mean for instance, growth in consumer, right, that wouldn't be -- that's not a backlog item for us. We have pretty good ways of estimating what that growth will be as a functional service plans and pricing. Likewise, for instance, one of the things that we're seeing in aviation is more bandwidth consumption through greater penetration or additional service plans. Again, that would just show up as air time. It will be recurring revenue, but it's not going to come out of backlog either. Same thing in Maritime, as we're seeing increased use there. So it's really going to be reflected in ARPA or plane counts. You will see is things like ships and airplanes being converted, but that's not going to directly relate to all of the revenue growth that's driven from it.

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[indiscernible] availability itself is continued growth of the franchises that we keep talking about, aircraft, vessels, residential subscribers, et cetera.

Sure. So you've got the relationships in place. It will show up as more usage, but you haven't per say booked committed revenue in backlog for that capacity to come on, you just believe that it is there.

Yes. But what we do have, as an example, would be think of when airlines work with the safe ideas of what those service plans will be, we can infer from that what the penetration rates would be, what airtime consumption would be, what airtime pricing models would make sense. And then also, when we do monetizations, there is -- as an example, that will -- those types of subscriber statistics might drive advertising and promotional revenue, but it's all kind of -- it's sort of baked into what the service relationships are with those customers.

Makes sense. And another if I could just sneak it in. Just in terms of the aviation environment there. I mean, any updated thoughts on how you see that evolving? Obviously, it seems like changes happen every quarter. So I would love your thoughts on that, Mark.

Yes. I think so the main trends you can see is greater penetration of the airlines, including different types of airlines. A greater emphasis on being able to go fee-free to support streaming, driving higher penetration. But some of the consequences -- I can tell you some of the consequences that we've been anticipating, and I think are going to be -- are going to play out is as you get all those effects, this issue about what happens in high-demand locations is going to be more and more evident. That is the effects that we've been seeing for quite a while in major hub airports, combinations of airports and seaports, you'll see that. The other thing, I think, is going to be really interesting, one of the reasons that we've been working on the business models that we are is that the free WiFi in an aero environment is sort of a mixed blessing. On the one hand, passengers like it. But if every airline has the same free service, then they all have extra costs and nobody has a competitive advantage. So one of the things that we've been really working with the airlines on is how do you get competitive advantage as well -- and differentiation as well as just free WiFi. And I think those are going to become important. And that's -- the various monetization techniques that we're using and developing, I think, will be increasingly important in an environment where every airline kind of is recognizing the need to connect virtually all the passengers with really high-quality WiFi.

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

As we think about the building blocks on Viasat shares, we just sort of run the following concept by you in terms of kind of like headlines that are out there, right, you have $50 of share value in the DAT unlock and then we have the organic SATCOM business, which just according to kind of the most recent investors are getting for free. So as we think about the precedent transaction of SpaceX EchoStar, and the roughly $20 billion of value for, we'll call it, 75 megahertz of S-band. How do we think about ViaSat's 75 megahertz of S-band in that concept, right? And then within that, is it fair to characterize that deal is comparable, a; b, does the company have a preference of cash versus equity and c, kind of how does the management team think about the arbitrage opportunity of carrying something like that on the balance sheet? So a complex question, but basically, how do you think about spectrum and what's your preference on terms?

Right. I think if you look at what's happened in the terrestrial market, you have these same issues about how do you value spectrum? And I think the main ways are do we have the -- can we bring it to market in the most modern and useful ways complying with our public interest obligations and then develop value from that? That's one. Another one would be, can somebody else do that better and is there a way in which we can reach coordination agreements or some other way to do that because somebody else can do it better than we can? And then the other way you look at spectrum is what are your options, for instance, in the terrestrial world, one of the ways people can look at alternatives to spectrum in terms of service economics or performance is through node splitting. In the space, there's equivalence to the node splitting, right, as well based on sort of how you do beam-forming and how big your satellites are. Those are the factors that go into it. I think that we're really focused on the fundamentals of how does it deliver value to the end users? And how do you do that in a way that is consistent with the interest of the regulators that allocate the spectrum? We have to deal with all of those issues. And I -- we just -- it's just hard to break it down into purely transactional methods just say, well, hey, can we -- how would we structure a transaction that might be dissimilar to some other transactions when the environments around them are may be so different that you just can't do it that way. So I think we're not going to speculate on different transactions so much is focused on. How do we -- the one thing that we can really focus on is how can we use the spectrum that we've been allocated in ways that are comport with the license obligations and deliver value to customers and shareholders. That's the way we're most looking at it. And then if there's other opportunities that present themselves that are more -- that are better for shareholders, we'll certainly consider those.

Got it. Got it. And then maybe turning over to defense bookings. As we think about the environment, appreciate the healthy performance on probably the U.S. side. But as you think of like the continent in Europe, how are you kind of seeing the demand signals to materialize? Because I think what are the kind of pieces that the market's kind of working through now is whether or not the IRIS timetable matches up to national security risks. And you can argue that some of the awards you've seen today suggest there's probably an accelerated interest for kind of new constellation build or new capabilities. So maybe -- just maybe parse out the incremental government demand that you're seeing beyond just the U.S. side and how you expect that to unfold over a multiyear period?

Okay. Yes, I think -- if I were to talk about sort of national security in general, I think that the things that we're really seeing, there's kind of two of them, one of them by definitely really high -- it's high priority and you're seeing this in IRIS² is sovereignty is that countries don't want to depend on individual or other foreign corporations or foreign countries for essential national security. So I think then what that's driving them to is, okay, I don't necessarily need to have my own LEO or whatever it is. What I need to do is get the effects that those deliver in a way that I have sovereign over it and the effects that they generally need are things like I might need small terminals, I might need terminals that can be deployed rapidly, that don't become targets rapidly, that resist jamming or other countermeasures, that are cyber-secure. I think there's this list of requirements that you're seeing that are playing out, let's say, with Ukraine being kind of the example of what people might expect from a countermeasure perspective and what they need in order to defend themselves in a modern tactical environment. Then the question becomes, okay, how do I get those things and still have sovereignty? And some of that may come through infrastructure sharing in certain ways and others that may come from -- you can certainly achieve pretty much any of the effects I described with the right GEO systems as well. And you could achieve them to different extents even with existing systems. So that -- those are the conversations that we're having now. It's really how do I get the effects? And then how do I have control over those? Those are, I'd say, the two biggest issues.

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

Happy Friday! I wanted to come back to the spectrum. I believe you have quite a bit of spend in Europe. And I'm wondering if you can clarify the future intention with that? And if I'm not mistaken, some of it or all that comes up for renewal in 2027 and so curious on what you plan to do about that? Do you think you'll get all back and how you see that situation?

Okay. So yes, the S-band spectrum in Europe, the history is that it derives from a particular program. We are one of the holders of spectrum grant through the Inmarsat acquisition. There is an ongoing process in the European union to determine how to allocate that spectrum post 2027. We've submitted applications -- an application to do that. They're going through a process. We think that we, as an operator, have both build the commitments that Inmarsat made -- we, through our acquisition of Inmarsat made when it was first allocated. And in our application, I think we're making a strong case for why we can still -- we would still be a good steward of that spectrum, both in terms of what we would do with ground systems, what we do in space and what we would do with user terminals. And I think that's where it currently stands and the European Union will allocate not only our portion of the spectrum, but the additional portions of the spectrum sometime in the next year or two.

Understood. I appreciate that. I wanted to come back on F2 and F3. Is there any way to dimension, let's say, you're fully up in service, how much of a growth bump or sales bump, whatever, that you'll get once those two are fully operational?

Well, so -- I mean one of the ways to think about it, just this is at a very top level, it roughly -- those two satellites together would kind of triple the amount of bandwidth that we would have. And -- if -- how you monetize that depends on what the mix of services are, where those services are. And the other thing that we're really sensitive to because we've been one of the leaders in providing service level agreements is where are those services, where the demands are for those services? I think we've been doing a good job of fulfilling the service commitments that we make. And so you have to look at where the bottlenecks might be. But we have a lot of runway to grow given those 2 satellites. And then we also have -- because we're still -- we're going to buy F2 in the Americas, F3 in Asia Pacific, we have 3 additional Inmarsat satellites GX789 that we are going to deploy in the EMEA region that will give us the capacity we need in the high-demand areas there. We also have bandwidth coming that we've already contracted for from third parties as well as from LEO systems as well. And then the counter -- the sort of the counterweight that everyone that provides the types of services we have to do -- that we do has to account for is the per capita growth in bandwidth demand for each of our customers. All I can tell you is that those are the forces that are at play. When we provide guidance, we try to bake those into what our outlook is, and we try to provide some visibility into the growth of each of the different areas. But that's -- I mean those are the forces that will determine how we turn all that bandwidth into revenue. Right now, we see a lot of opportunity in those regions among especially the mobility services. And those are the ones I think where we compete the best, where we're adding the most value and then we're using things like fixed services as kind of buffer to make sure that we're using all the bandwidth. But over time, we're gradually migrating it to these higher-value services.

There is no further questions at this time. I will now turn the call back over to Mark Dankberg for closing remarks. Mark?

So just want to remind people that we remain very committed to building a solid foundation for accelerated and sustained growth, capital efficiency and cash generation. Our future growth outlook is underpinned by large installed base in a number of our markets, strong secular drivers across our different vertical applications and a diversified portfolio. We operate across one of the largest blocks of mobile satellite spectrum in the world. We've been a very responsible user of that spectrum since Inmarsat's inception over 45 years ago. We're dedicated to providing and evolving the vital services that our commercial and government customers need around the world. And we believe this drives meaningful upside value, including to associated with our spectrum position, and we've got a comprehensive plan to reinforce our competitive positions, drive returns and enhance shareholder value. So thanks, everybody, for your participation in this call, and we look forward to talking again next quarter.