VSAT - NASDAQ

My name is Jordan, and I'll be your conference facilitator this afternoon. At this time, I'd like to welcome everyone to Viasat's Third Quarter Fiscal Year 2026 Earning Results Conference Call. [Operator Instructions] I'd now like to turn the call over to Ms. Lisa Curran, SVP of Investor Relations. Ms. Curran, you may begin the conference.

Thank you, Jordan. 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 Q3 Fiscal year 2016 (sic) [ 2026 ] 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.

That, and thanks for joining us today. I'm Mark Dankberg, CEO and Chairman of Viasat. With me, along with Lisa, we have Gary Chase, our Chief Financial Officer. As always, we encourage reading the shareholder letter and referencing the slides we posted on our website earlier this afternoon for more details. I'm going to cover 3 areas. First, an update on some of our recent results and accomplishments. Secondly, the impacts of those accomplishments and near-term operational objectives on our outlook; and third, an overview of macro market factors and our strategy that helps illuminate our mid- and longer-term approach to continuing to enhance shareholder value. FY '26 revenue and EBITDA performance is consistent with our expectations and plans entering the year. Cash generation has been better than planned, driven by efficient cash conversion, targeted strategic transactions and capital and operational spending efficiencies while still investing for our future. And that yielded corresponding improvements in our leverage ratio, showing substantial progress toward our target leverage ratio of below 3.0. We have 3 key focus areas to drive revenue growth in FY '27 and into FY '28: ViaSat-3, multi-orbit and what some refer to as new frontier defense tech. For ViaSat-3, Flight 2 launched in early November has completed initial deployments and is about 34 days away from being on station. Final deployments commence quickly after that, and we anticipate services commencing by May. Despite delays, we believe it still represents the state-of-the-art in space spot beam technology, which is the foundation of our broadband satellites. Flight 3 is undergoing final integration and is anticipated to launch on a Falcon Heavy shortly after Flight 2 final deployments are complete, pending a specific launch date from SpaceX with estimated service entry by late summer. As a reminder, each of Flight 2 and Flight 3 is expected to support more bandwidth capacity than our entire existing fleet and support key growth initiatives in aviation, maritime and government SATCOM businesses. That is for all our mobility users. They also introduce important new functional capabilities, including new forms of resilience for our U.S. and international government customers as well as for commercial mobility users, particularly in and around geopolitical or other hotspots. Flight 2 and Flight 3 are also anticipated to support material improvements in our fixed services businesses. On multi-orbit, we continue to make good progress on demonstrating the customer benefits of multi-orbit broadband networks as compared to either geosynchronous or non-geosynchronous only systems through rapid growth of our maritime NexusWave service. Favorable customer perception of multi-orbit networks, including by those who are comparing them to LEO only networks is a key competitive factor for mobile broadband customers. We are investing in next-generation multi-orbit user terminals and additional sources of LEO bandwidth for our aero and government customers and expect those terminals to be available as new Ka-band LEO systems enter service. Most of our existing in-flight connectivity, aeronautical terminals are also capable of operating with Ka-band LEOs. On the new defense tech front, there's significant changes in modern warfare trends that are behind the growth in our DAT segment and government SATCOM business. Many of those are in very early stages of development and deployment. Key themes where we have very strong competitive positions include the role of space in collecting, evaluating and distributing targeting information in real time, the role of space, cybersecurity and multimedia transmission networks for highly distributed autonomous vehicles, updates to information in cybersecurity required by AI-enabled adversaries with access to quantum computing resources, routine targeting of commercial telecom infrastructure networks on land, undersea and in space and the consequent effects on both military and commercial traffic, and the role of dual-use space systems in augmenting sovereign systems and extending resilience to critical commercial platforms. All those themes, combined with our assets, technology and commercial and government customer base are helping us compete very effectively in these rapidly evolving critical markets. So moving to the strategic theme, we can frame our ongoing strategic initiatives into 2 pillars that are intended to be mutually reinforcing. First, ongoing capital allocation and strategic initiatives that are aimed squarely at unlocking shareholder value and then second, positioning ourselves to deliver clearly differentiated value to targeted segments of the fastest-growing space and defense markets with a sharp focus on capital efficiency. So I'll start with capital structure. We have consistently identified cash generation and reducing leverage as top financial objectives. This year via positive cash from operations plus proceeds from the Ligado transaction and smaller divestitures, we have reduced net leverage substantially. In the very near term, additional Ligado proceeds plus another divestiture will drive further progress toward our target of under 3.0 net leverage. We are free cash flow positive for the trailing 12 months and are taking actions to continue to reduce capital spending and growing EBITDA to further improve positive free cash flow in fiscal '27. We've also committed to sustained reductions in capital intensity in the business while simultaneously enhancing our reputation for reliable cutting-edge innovation and customer value. Here, there's 2 elements to that. Defining a common small, multi-orbit and multi-band individual satellite architecture that can be adapted to either broadband, KA or mobile L and S frequencies and either LEO or GEO orbits. It's enabled by a very innovative, extremely flexible and powerful space-based phased array payload architecture with little to no mechanical deployments. The point is to add network capacity and capability in small dollar increments and in the right places at the right time. We're also working closely with ecosystem partners as cofounders of a developing new shared space infrastructure entity that enables us to reduce capital costs for targeted business segments. The objective is to acquire our portion of that capacity at very attractive unit costs while delivering industry-leading performance at sustained or enhanced financial margins. This Equatys mobile satellite services partnership with Space42 is expected to leverage technical innovation, application of the terrestrial shared tower business model to space and emerging 3GPP interoperable nonterrestrial network standards. Importantly, the shared tower model allows us to deploy and retain our scarce licensed spectrum resources even more cost effectively while continuing to serve vital public interest missions like maritime and aeronautical safety. A high-power L-band network, combined with 3GPP NTN capable 5G modem chips makes literally billions of phones, wearables, IoT devices, autos and autonomous land, sea and air vehicles able to use our network whenever and wherever terrestrial 5G service is even momentarily unavailable and they can see the sky. That's the enormous attraction of updating our L-band to support those standards. Stay tuned for further updates on Equatys in the near future. We've previously referenced our Board's strategic review committee that with the help of independent financial advisers is guiding our capital allocation and portfolio priorities. We continue to evaluate a range of strategic options up to and including separating our government and commercial businesses, intended to build shareholder value and ensure competitive positioning in attractive target markets. That includes assessing the value of our portfolio of assets and resources, key dependencies, including the entry into service of ViaSat-3 Flight 2 and 3, macro secular trends in our target markets, and the effects of achieving delevering targets and ongoing free cash flow generation. Second pillar is to position ViaSat to compete effectively in the most attractive, fastest-growing sectors of the space economy. The recently issued 12th edition of NovaSpace's Space Economy Report shows the global space economy significant growth trajectory, expanding from $626 billion in 2025 to $1 trillion by 2034. Recent events and transactions underscore that macro geopolitical, economic and technology forces are being driven by sovereign control of critical space and ground infrastructure assets, including communications, sensing and compute, dual commercial and national security uses, cooperative and coalition capabilities, the nonterrestrial network D2D augmentation of terrestrial networks for national security and commercial applications, vulnerabilities of terrestrial telecom infrastructure in contested geographies and resilience to space and ground cyber and physical threats. While many companies are scrambling to vertically integrate, ViaSat is arguably one of an extremely short list of companies that has the ingredients needed to offer state-of-the-art technology, broadband and mobility applications and resilience, along with the business model supporting national and regional sovereign interests and the security credentials needed to even have access to the products. That theme underpins much of our rapid growth in our DAT and government SATCOM businesses as well as creating new commercial growth opportunities. We also have the detailed understanding needed to help craft policy and technology solutions to warrant continued access to the spectrum and orbital resources needed for the world to participate in the rapidly evolving and emerging space economy. We note that many of the issues governing access to both orbits and spectrum are emerging as linchpins to doing so, and all of that implies for national security interests, whether economic, physical or digital security. The pending European Space Act and European Digital Network Acts reflect rising awareness of these factors and the policy responses. The U.S. government is also investing substantially in multiple orbits to enhance resilience for critical strategic and tactical national security communications. So in summary, our financial results are evidence of our ability to execute with cash flow and net leverage improvements as key proof points. Near-term operational targets for bringing ViaSat-3 Flight 2 and 3 into service, along with multi-orbit and new defense technology and additional cash collections from strategic transactions can help us reach our target for ongoing free cash flow and net leverage ratios. We have specific and actionable longer-term plans intended to reduce capital intensity and improve return on invested capital while simultaneously improving strategic focus and differentiated competitive positioning in very attractive growth markets that are all squarely aimed at driving shareholder returns. So with that, I'll turn it over to Gary for more information and our third quarter financial results and insight into our outlook for the fourth quarter and FY '26 as a whole.

Thank you, Mark, and good afternoon, everyone joining us on the call. As always, a special thanks to the ViaSat team for the hard work to produce the results we're about to discuss. Our financial mantra remains to build our franchises and earnings power, generate and grow free cash flow and delever and set a path to a value maximizing long-term capital structure. You can see the progress our team has made against these key priorities, but we have more opportunities ahead, and we need to keep executing well, especially in the coming quarters as we bring our new satellites into service. Additional and higher-performing capacity with ViaSat-3 will increase our capabilities and help us continue to grow and achieve our goals. Thus far, the year is playing out largely as we expected, and we remain focused on delivering the fourth quarter and positioning ourselves for faster growth in fiscal '27. We're committed to delivering long-term value and confident in the strategic direction Mark just outlined. Now let's turn to the third quarter of fiscal '26. We generated revenue of $1.2 billion, adjusted EBITDA of $387 million and a 33% adjusted EBITDA margin. Cash flow from operations was $727 million or $307 million, excluding the lump sum payment from Ligado, with CapEx of $283 million, resulting in free cash flow of $444 million or $24 million, excluding the lump sum payment in the quarter. As I begin our discussion of both consolidated and segment results, I'll note that all my statements will reference the third quarter of fiscal '26 compared to the prior year period, the third quarter of fiscal '25. Awards were $1 billion, down 10%, but can be lumpy and the trailing 12 months has been solid with growth of 4%, including DAT, which is up double digits. DAT maritime and government SATCOM have been key drivers of the trailing 12-month growth. Backlog was about $4 billion, a record for us, up about 12% or $430 million, in large part due to strong awards in the second quarter reflecting secular drivers, especially within government SATCOM and DAT, where we expect continued momentum in awards of backlog. Revenue was $1.2 billion, up approximately 3%, reflecting growth in both DAT and communication services. Net income was $25 million, an improvement of $183 million, principally due to higher interest income recognized during the quarter on the deferral of Ligado's quarterly fees, which we received as part of the lump sum payment. Adjusted EBITDA was $387 million, down 2%, primarily reflecting $10 million of incremental R&D investments related to growth initiatives as well as impact from the government shutdown. Capital expenditures rose to $283 million, up 12% as we invested in the completion of our ViaSat-3 system. During the quarter, we spent about $80 million on ViaSat-3, bringing our year-to-date total to approximately $130 million. We generated $440 million of positive free cash flow or $24 million, excluding the lump sum Ligado payment despite incremental CapEx related to ViaSat-3 completion. Trailing 12-month free cash flow is in excess of $200 million. We're focused on growing free cash flow in the years ahead and using it to retire debt as the best way to reduce our capital base, driving returns higher. During the quarter, we entered into an agreement to divest our minority interest in Navarino, a maritime distribution partner. Navarino's results have flowed through the equity and income line item on our income statement. Transaction is expected to close in March of this year, subject to regulatory approval, and we'll provide more details upon closing. Finally, reflecting strong cash generation and Ligado payment, we ended the quarter with net debt to trailing 12-month adjusted EBITDA of 3.25x. This is a year-over-year and sequential decline and a substantial change from where we were a year ago at this time at about 3.7x levered. Now let's turn to some segment highlights. Communication Services awards of $671 million declined 11%. Reflecting lower aviation awards, effects of the government shutdown, fixed services and other awards. Maritime awards grew 25%. Revenue was $825 million, up 1%, while solid growth in aviation and government SATCOM was moderated by declines primarily in residential fixed broadband and maritime. Aviation revenue grew 15%, led by a 9% increase in commercial aircraft in service, combined with higher average revenue per aircraft as our customer base migrates to higher value offerings. Aviation awards were less than expected during the quarter, with continued growth in our installed base, combined with updated indications from customers on their future plans, our commercial aircraft installation backlog declined sequentially. We now anticipate that approximately 1,100 additional commercial aircraft will be put into service with our IFC systems under existing customer agreements. The aircraft we no longer expect to install on our IFC systems were to be run on legacy Inmarsat platforms. The team continues to win new business, and we have hundreds of incremental aircraft working through the contracting process and expect to see materialize in our backlog over the coming quarters. We're excited for what Flight 2 service entry will do for our Aviation business and believe its successful deployment will be a catalyst to drive new orders, accelerate contracting and expand ARPU with existing customers through higher value service offerings. Our government SATCOM revenue grew 4%, reflecting good growth with the U.S. and international governments. We're well positioned to take advantage of strong secular drivers in defense and expect strong growth to continue. Maritime revenue declined 3% as vessels in service were down. NexusWave orders are strong, and installations were up another 33% sequentially while continuing to be paced by vessel availability. As of quarter end, we've received a very positive cumulative total of NexusWave orders of more than 2,600 vessels with about 65% of those yet to be installed. We're taking actions to accelerate our install rates and still expect slight year-over-year growth in Maritime to resume by fiscal year-end with a higher NexusWave installed base driving higher ARPUs. Fixed services and other revenue was down 20% as U.S. fixed broadband subscribers continue to decline as expected. We ended the quarter with 143,000 subscribers and $112 in average revenue per user. We faced significant headwinds on fixed broadband due to bandwidth constraints in the U.S. for several years. We anticipate that ViaSat-3's Flight 2 entry into service beginning in the first quarter of fiscal '27 will allow us to improve our service offerings and increase gross additions. Communication Services adjusted EBITDA was $319 million, down 3%, primarily driven by higher investments in R&D. Turning to Defense & Advanced Technologies performance during the quarter. Awards of $300 million declined 8% due to impact from the government shutdown. As I mentioned earlier, trailing 12-month period has been a strong one for data awards, up 11% year-over-year. That revenue was $332 million, up 9%, driven by strong backlog and growth in Infosec and cyber defense and tactical networking. Infosec and Cyber product revenues were up 8%, driven by high assurance encryption products. An additional consequence of the government shutdown on the fall was a certification delay for our new space reprogrammable crypto product, a new market for us and a good example of synergy between our space and encryption businesses. Space & Mission Systems revenues were flat as we ramp up a number of programs. SMS has strong secular drivers supported by a large backlog. While quarterly growth rates can vary, we continue to expect SMS to grow nicely on a full year basis. Tactical networking revenues were up 20% year-over-year, reflecting strong growth in Tactical Communications and TrellisWare growth in the quarter. Defense & Advanced Technologies adjusted EBITDA was $68 million, up 7% compared to the third quarter of fiscal '25 driven by the revenue growth I just mentioned, offset by higher segment research and development investments supporting future growth in areas seeing strong secular trends where we're well positioned competitively such as Golden Dome and high assurance communications. We estimate the government shutdown impacted third quarter EBITDA by about $10 million and expect a similar impact in the fourth quarter. Overall, third quarter results were good, and we're on track to achieve what we set out to this year. We've realized growth in both segments, invested in our future and drove cash generation. ViaSat-3 Flight 2 continues orbit raising and the launch of Flight 3 is expected next quarter shortly after Flight 2's deployment is complete. We expect the capabilities of these satellites to catalyze future unit and ARPU growth in our government and commercial franchises and begin turning the tide in our residential business. Let's move on to our outlook. We continue to expect fiscal '26 revenue up low single digits with flat adjusted EBITDA. We're pleased with the third quarter, especially our progress on free cash flow and in terms of how we're positioning for future growth. Deployment and service entries for ViaSat-3 is an exciting catalyst for that growth. We provided additional segment level detail in the outlook section of our shareholder letter and slides. While our leverage ratio has improved substantially, our focus on delevering remains as well as our intense focus on free cash flow generation. During the quarter, we spent about $80 million of CapEx related to the completion of ViaSat-3, bringing the year-to-date total of $130 million. For the full year, we expect to spend just over $200 million of this amount with another $40 million or so to spend in the first quarter of fiscal '27. The timing of these expenses is hard to pinpoint and may shift a bit between the fourth quarter and the first quarter of fiscal '27. We will keep reporting to you on the remaining spend as we incur it. Overall, fiscal '26 CapEx is now expected to be $100 million to $200 million lower than prior guidance in the range of $1 billion to $1.1 billion, with about $350 million of that in the Inmarsat silo. We now expect positive free cash flow for fiscal '26, fiscal '27 and beyond, while continuing to invest in growth in our very attractive market franchise. For clarity, our free cash flow guidance does not include free cash flow benefits from Ligado lump sum payments as they're nonrecurring. It does, however, include the benefit of ongoing quarterly payments that we expect to receive. Of the $1 billion to $1.1 billion of CapEx we project for the year, approximate breakdowns are as follows: about $200 million is capitalized interest, $450 million is maintenance, $200 million for ViaSat-3 completion, $75 million success based, and the remaining $150 million is for growth. We're investing in capabilities to serve next-generation defense demand, satellite programs other than ViaSat-3 capabilities and customer equipment that will help us better serve commercial and government customers with new higher-value offerings in the future that leverage ViaSat-3 and multi-orbit capabilities. We've talked a lot about our financial mantra of building franchises generating cash flow and reducing debt. We want to minimize our cost of capital. But you just heard Mark describe how we're putting the bulk of our energy and investment into ensuring that our future returns exceed that cost of capital. Our focus on the growth of our franchises will drive returns higher, while cash generation will enable deleveraging that reduces our capital base, all driving our ROIC higher. Let me now speak quickly to the financial impacts of our Equatys venture. Our L-band spectrum and existing MSS franchise are valuable assets, and we're investing wisely to develop them in ways that enhance existing services while meeting new market opportunities. We're taking a capital-efficient approach that is entirely consistent with our financial mantra, growing franchises, growing cash flow, deleveraging and improving returns on capital. Negotiations around the formation of Equatys are ongoing, and we won't bring them into the public. But we can say our plans to develop our L-band franchise are entirely consistent with the financial objectives we keep repeating, increasing cash flow, reducing debt and investing wisely for the future. One housekeeping note. Subsequent to quarter end, we moved $175 million in cash from Inmarsat to Viasat. As previously discussed, we expect the total amount of funds will move over time to be $400 million to $500 million. Thus far, we've moved $350 million, including the $175 million just referenced. So in closing, in fiscal '26, we're working to deliver our commitments and position our franchises for sustained and profitable growth and free cash flow with easing capital requirements following the deployment of our ViaSat-3 satellites. Team Viasat is determined to close out the year strong and well positioned for the future. With that, I'd like to hand the call back to Mark.

Okay. Thanks, Gary. And with that, we would like to open it up for questions.

Your first question comes from the line of Rick Prentiss, Raymond James.

A couple of questions. First, on the all-important Flight 2, Flight 3 launches and in services. It looks like maybe a little bit of a delay on Flight 2, saying now May versus early '26. And then Flight 3 will go up, hopefully launch shortly after Flight 2 in service. How fast can Flight 3 get into service? Are there differences given the rocket you're using as far as how fast that can get in service?

Yes. Yes. The Flight 3 will probably have more like a 2-month orbit raise as opposed to more like 100 days for Flight 2. So that will get -- that's kind of the dominant factor that orbit raise in terms of time from launch to in-service.

Great. And as we think about the strategic review you all are going through, obviously, this is not something you take lightly or that you would do without careful review. It's a long process not necessarily a quick process, obviously. But it seems like, as I read through the comments in the letter and I listened to you on the call, we want to see Flight 2 and Flight 3 successfully go in service. You want to see macro market conditions of the segment. You want to see achieving delevering and free cash flow generation. It sure looks like the tick points are starting to come along where that decision process and any external gating factors that might affect it are kind of getting knocked down. Is that the right way to think about this that kind of opens up the aperture of when you might do something?

Yes. I think you've got the factors right. Those are the things that we're looking for, and they'll all go into the mix of what we decide to do and when and how, if anything. I just want to be sure that we're evaluating, and we're going to look at online. And you got the factors just right.

Okay. Okay. Makes sense. And the progress goes along there? And then kind of the wacky question then is and there's been a lot of stuff going on in space, what are your thoughts about data centers in space and AI with space? Just trying to think -- as you think about you want to target fast-growing segments and profitable segments of space, where do those fit in your calculus?

Okay. Yes. So on the data center side, I think that the entire premise really hinges on power generation in space. That's the ultimate. That's what -- the ultimate test will be is, does it ever make sense that you can generate power more cost effectively in space than you can get it anywhere in boundaries, so I think that -- and that's an open question. I think that along the way there, and this is what I think other people have identified as well, kind of the two of the big swingers there are going to be how efficiently can you generate power in space from solar cells and then how efficiently can you dissipate the heat from all that power off-board satellites. Those -- so from our perspective, the work in those areas is really helpful because it improves the productivity communication satellites as well. I think there's another aspect that does get some coverage, but probably not as much as it should, which is what is the orbital debris mitigation plan or sustainability factors associated with the amount of mass that's required for those data centers and the surface area for those data centers? And does that provide a gate or does that create a gate or a limit to the amount of power you can generate at least in near earth orbit. From our perspective, we don't have any plans to be in the data center business. Everybody does note that if you want to be in the data center business in space, you're going to need a lot of communication capability to and from that. And so those -- that part we're certainly interested in. And we're certainly interested in partnering with others that might want to actually put the compute storage resources in space.

It is. And so when you think about fast-growing segments that you'd be interested in that would fit kind of your capital intensity and your free cash flow generation that Gary was talking about, what should we think are kind of at the top 1, 2, 3, 4, 5 segments that you think make great addressable markets for what you guys bring as far as competitive advantages?

The 2 areas I think if you look at it from a technology perspective, think of it as the broadband sector, which is kind of Ka-band and higher frequencies that are being used for broadband communications. We see that there has been, for the last 10 years, lots of demand growth as unit prices come down, get more speed, more volume per unit cost. And those markets have grown. We still think there's quite a bit of growth in there and that we can certainly compete really well in that space. And then -- there's the whole trade-off between fixed and mobile uses. The mobile uses, certainly, we see lots of growth in those parts. And especially given what's expected to be a substantial increase in autonomous mobile platforms. The other area from a technical perspective is going to be the L-band or the low band, people refer to them as mid-bands. And that market right now, if you look at analysts -- a range of analyst estimates, that could be one of the single largest markets in the satellite communications space. Within those 2 categories, within the broadband market in the L-band market, we really see number of vertical markets in the broadband market, certainly, mobile platforms is one of the biggest and most interesting and within that market, the government applications of that is really a big opportunity. And one of the big trends we highlighted there, we think, is going to be sovereign ownership, that is international and domestic applications. So that's going to be operating those networks, designing the network, building the networks, but a lot of them, we think, ultimately, will end up under control of individual countries as opposed to outsourced to private enterprises when those countries are so -- going to be so dependent on those -- that type of communications for national security. There's also the other thing, we see coming in the mobility market is that just as a kind of consequence of some of the geopolitical conflict around the world, there's large parts of the earth that are just closed off to access to navigation and communication services. And we think those services that shipowners, airplane operators use, they're going to want to be able to navigate and communicate through those, not just -- not necessarily over individual hotspots, but in the surrounding areas that often are intended. So we see big opportunities that are kind of a mix of commercial and government in that broadband mobility area. And the big difference between the L-band mobility area and the broadband areas, think about L-band will have higher unit airtime costs or lower speeds just because there's way less spectrum to work with. But the antenna that you can use for that is going to be really small, very small omnidirectional. That's like conventional cell phone, IT devices, watches. And in the history of satellite communications one of the main barriers to growth has just been having people with terminals capable of working with your satellites. And so the big thing that's happening in this D2D NTN interoperable network space, well, there are going to be literally billions of devices that are connected, and as long as you can do the handovers quickly and well, we think as long as there's interoperability between the terrestrial and satellite domains, well, that's going to be a big market. So those are -- and that's going to be for consumer use, enterprise use, it's going to be on autonomous vehicles. There's going to be some question about how quickly each of those markets develop. But ultimately, just like in terrestrial, having spectrum that works with those devices is going to be approved requisite to being able to participate where we feel that we've put ourselves in a good position as one of the very few operators that really has access to both the broadband, microwave frequencies and the mid-band L-band frequencies and can deliver that continuum of service. So that's -- in a nutshell, that's where we really aimed at with our satellite services.

Norway in a nutshell, that was satellite in a nutshell. I appreciate that. And good to have a spectrum and good to have satellites about to come in service.

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

I guess, Mark, related to your response there to Rick's last question, just thinking about -- in the past, you've talked about a tower model as it pertains to direct to device. I mean, can you perhaps maybe elaborate on that? I guess, what gives you confidence that we'll see 2 plus 3 D2D players that can perhaps emerge over time, particularly without the requisite spectrum that's out there, right? I guess that's kind of my first question. I think maybe the sovereign angle probably answer part of that. And then relatedly, I guess, to your -- to the end of the prepared remarks there, just kind of thinking about Equatys in the L-band spectrum, or just your overall spectrum ownership. I guess I understand growing the value of the franchise, but we're also at a point in time now where perhaps spectrum might be a little bit -- satellite spectrum is in vogue and very hot right now. And so just the considerations there of -- is it about controlling your own destiny and maintaining option value long term?

Okay. Yes. So for the first question, one is there is a fair amount of satellite spectrum that has been allocated to mobile satellite services and has been for like 40 years. And those satellites serve real and valuable functions for people that don't have access otherwise and/or depend on the weather resilience of those frequencies compared to the microwave stuff. So Ka and Ku band is great for 100 megabit or plus higher speeds. That's a really nice feature. But the fact that it is highly attenuated in storms is a big issue for maritime as an example, and for some other users as well. So the spectrum has been allocated. There are multiple players that have it. Often, countries who use it for national security purposes or who worry about having literally millions of people in their country with devices that can completely bypass their terrestrial infrastructure are going to and have been asserting their requirement that operators in those countries to comply with national telecommunications regulatory laws. So we think that, that's just -- that there are good reasons for that. They're not technical reasons. They are more national security sovereignty reasons and other safety reasons. So we think that those are just going to be requirements to play in the market at a large scale in many parts of the world. So we -- one of the reasons we're interested in Inmarsat in the first place was it was formed as an international organization to solve some of these issues around mobile satellite services and the need for that. And it still has -- and we still have really good relationships with a lot of countries around the world where we can work through these problems as we evolve the capabilities. And so that is one part of the issue about why we think there will be multiple players. The first part of your question is related to some extent, which is the issue about high count. So I think it's not always well understood that the thing that creates the potential of communicating with an off-the-shelf terrestrial cell phone is increasing the power levels that are allowed for mobile satellite service. And this -- we're talking about power levels on the surface of the earth. That doesn't really matter what altitude you're generating them from. The big issue, one of the issues that always has been an issue and issue in basically all wireless spectrum uses is how high of a power can 1 operator reach or radiate at without interfering with neighboring frequencies. And so that has been one of the main issues that's probably going to work more in the U.S. than others, and there, a lot of focus has been on through satellite emissions that can interfere with terrestrial cellular. Of course, anybody that wants to do it from satellite at these power levels is also going to have to coordinate with other satellite operators. So that's one of the things that we've been really focused on. And just to be clear, the 3GPP standards, which is what the chip designers and the handset designers are working towards the infrastructure. Everybody's working to call out these higher power levels that would be required. With higher power levels required for the broadband services versus the narrowband services that are already in service and that we are participating in service for right now. So I mean these are kind of the same fundamental issues that all satellite operators had to deal with for decades. They're not going away. I think there are solutions to them. We know what our constraints are in terms of interfering with neighboring operators, and we are designing our network in a way that it both achieves what's required in the 3GPP standards and does not interfere with neighboring users. And that is an artifact both of our system design and who our neighbors are. So that's how we're doing it. We think we have good spectrum for that purpose. And we think we understand the issue as well and are addressing it.

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

Wanted to ask about the IFC and you announced this new next-gen terminal with Telesat. Maybe you could expand on what's attractive about their Lightspeed Constellation for you, Mark and how that differentiates from other opportunities out there?

Okay. What we're looking to do with Telesat is basically recreate what's been working in the maritime space in a multi-orbit system. And in the maritime space, there's a lot more room onboard ships and it's easy to put on multiple antennas. And so for what we -- for the NexusWave service, which has grown and has had really good market reception. And we're getting good adoption and financial results over time. And it's been in use for about a year. So we've got good field results. I mean that's -- we're using a Ka-band broadband service, which uses our GEO satellites plus Ku band LEO. And we do have 2 different antennas. With our new aero services, we'll have a new single antenna that can operate both LEO and GEO simultaneously, effectively. So we'll do there, just what we're doing in the maritime space, we're -- essentially, we're using the GEO satellites to provide the bulk of the bandwidth and LEO satellites to manage traffic that is latency sensitive. So what you get is you get the cost benefits of GEO, which not all GEO satellites are the same. We've been really focused on putting bandwidth where there's demand at very low cost per bit and being able to move it around to follow these mobile platforms, all that stuff works well. The big thing we're going to do in aero is instead of having 2 antennas, we have 1 antenna that can do both LEO and GEO, at the same time, we route -- primarily route the latency-sensitive traffic -- excuse me, over LEO. And the vast majority of the traffic tends to be video, which is not latency sensitive at all, very well suited for GEO. So that's the basic principle behind that. I think that the last Telesat is that they expect to start to be launching their LEO satellites by the end of next year. And so that's when we'll be able to offer that service. The other point I'd make is even our existing Ka-band aero terminals are capable of operating with LEO. They're just not capable of doing both at the same time.

Helpful. And then maybe kind of big picture question about once you get F2 and F3 in service here, it sounds like your third quarter time frame. What's the time frame from which you really start to see a revenue inflection time for that comp services business to turn around? Are we talking about a couple of quarters? Or how should we think about that on a modeling basis?

I think -- so we've had steady growth in pretty much everything except for residential has been a headwind for us. Maritime as we've seen slight downturn, but we're expecting that based primarily on the NexusWave service to be back to growth again by this quarter. So we think we'll see good continued growth in those services plus growth in the government services. On the residential side, we're not going to give the projection right now, but it will probably take a few quarters for us to get terminals out in the field and to see that first, what we're going to be aiming for is that we slow the rate of decline, and then we think we'll level off and be able to grow that business a bit.

Mark had said in the past has referred to it as being paced by the demand. And we have a lot of opportunities on the unit side as well as continue to upgrade some of the service offerings like you're seeing in aviation.

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

Back to the evaluation you're doing on your government assets. Like could you just walk through some potential scenarios of how you would manage these key dependencies of satellite assets, if you were to separate, say, that business from the rest of Viasat?

No. I mean you're on the right track in terms of the issues that we need to resolve, right? And so that is part of what we're going through both from a capital structure perspective, from a technology perspective, prospective potential licensing or other cost agreements, that's what we're going through. And those would be the factors that it's -- we're not going to speculate. I think at this point, there's just too many ways to go about it. We're not -- I think we're trying to make sure we do a really thorough evaluation and it may evolve over time. We'll be able to speak more about it after we've gotten through these gates. But the whole thing is -- so we are very focused on shareholder value. We're not going to dismiss things that will drive shareholder value and -- but we also -- we're going to make sure that whatever we end up with has a -- we think has a good competitive position in the growth markets, and then can get -- the shareholders can get the benefit of those things.

And just one final question from me. Just given this global refresh driven by quantum resistant cryptography and your historical leadership position in information security, protecting data in movement and at rest, are you seeing your position today as competitively the same or stronger or may perhaps threatened by emerging competitors?

We're seeing good growth in that business. We think we're -- how I'd put it is I think that our competitive position is probably improved a little because of the urgency of the problem and the market size has improved a lot because of the urgency of the problem. So we're pretty bullish about that area.

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

Wanted to actually come back to your comments about the space data centers. Let's assume that on the energy side, efficiency side and everything that kind of gets sorted out, do you think spectrum is or becomes a limitation and I ask in the context of there was an announcement by Borge and TerraWave, and they seem to be using or wanting to use very high frequencies, Q-band, V-band and doing like optical from MEO to ground. So just wondering if spectrum then becomes some type of constraint.

Yes. So I think you're already seeing a migration to higher RF bands. So from Ku to Ka, now V-band is coming more into play. E-band will probably come into play as well. So that opens up more spectrum. Ultimately, I think the number of people have talked about optical links from space to ground. And one of the benefits of optical links is it's very easy for -- to support large numbers of different operators, each with large numbers of satellites without interfering with each other that it's going to -- at some point, if there is to be a big market for data centers in space, optical space to ground links, it's got to be a significant part of it.

Okay. And separate topic. I know you're working in the pipeline on a sort of micro or mini GEO satellite. Wondering any updates on that? And is that something you think could become kind of more prevalent in the future?

Yes. Yes. I think basically, our -- one of the points I would make is we've -- I think we've been holding our own and competing pretty well without having any new broadband satellites, while competitors have launched thousands and thousands of satellites. We've really been working -- been able to deliver competitive performance and pricing without having a lot of new bandwidth in the space. We're going to get a lot of new bandwidth and space this year. I think that's going to help our business a lot. But we know that given the market growth and the consumption growth, that we're going to want follow-ons, and we're going to want to follow on some specific areas. So the strategy that we're working on, and I think we'll be able to disclose more of this over the course of this year, once we get through getting the other satellites in service is to come up with satellites that cost a small fraction than what the current ones do, but have even better unit productivity, so that's what's going to allow us, we think, to maintain and improve our competitive position in the satellite broadband space. And so we have -- we're not going to end up with large multi-hundred million dollar single investments that are where we have big exposure for large capital buys. What we'd like to do is to have much, much smaller satellites that are much less expensive, that have kind of sort of pretty comparable capacity and we can put wherever the hotspots are. And then I think that's going to drive -- one of the things we keep talking about is how do we drive down capital intensity, that's a big component of it and that will drive a return on capital, which is clearly the way that we're going to deliver more shareholder value.

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

Mark, maybe just quickly on the back on the strategic review, I'll try one here. A large defense prime just a few weeks ago announced a planned IPO, one of its businesses with the U.S. government as an equity investor. Curious if you see any particular merits or attractive elements in this sort of structure as you think through the optionality around that business?

That's an interesting one. Okay. I think -- yes. Look, I think that part of that is going to be around the priorities of individual governments. And I think that right now, the U.S. government seems to be taking an interest and providing some benefits to what otherwise had been purely private enterprises. So if those -- to the extent that those are available and improved competitive position and shareholder value, that's an interesting thing to do. There are maybe more instances of that internationally. And so being able to do so internationally would also be a benefit. So I'd tell you that those are examples of things that we might look at when we consider some of these more fundamental strategic capital structures.

Great. That's great color. And maybe just quickly, Gary, and I might have missed it. I was hoping just for a little more color on the revised CapEx outlook and specifically whether the new guidance reflects more of a push out of some of the planned investment into '27 or just trying to understand if it's timing related?

Yes. Generally not. We did note there was $40 million that we expect to continue into fiscal '27 from the ViaSat-3 spend that we've been talking about. Beyond that, the rest of it really is efficiency driven, and we've had a big focus here on making sure that we're efficient with our capital. It has not at all been about cutting or reducing and everybody has embraced it. I think we've done a nice job of it. So other than that $40 million I described a minute ago, it's real efficiency gain.

That concludes the question-and-answer session. I'd like to turn the call back to Mark for closing remarks.

Okay. So we appreciate everybody joining us for the past hour and all the questions and look forward to speaking again next quarter.