Q3 2021 ViaSat Inc Earnings Call

[music].

Welcome to the Viasat FY 'twenty, one third quarter earnings conference call.

Your host for today's call is break ball of major President and CEO. You May proceed Mr Ball Beach.

Okay. Thanks for joining us today.

We've tweaked a little bit response system and the customer input.

Adjusted the timing of our call. So that it will have a little bit more time to.

The views of our shareholder letter and prepare for the Q&A session.

And at least our shareholder letter earlier today, and hopefully you've had a little time of.

Today's call will primarily consist of Q&A, but first let's have Robert Blair provide our safe Harbor disclosure. Thanks.

Thanks, Rick.

As you noted the discussion will contain forward looking statements. This is a reminder, and factors could cause actual results to differ materially additional information concerning the factors is contained in our SEC filings and cleaner. Our most recent reports on form 10-K and form 10-Q copies are available from the SEC and from our website.

And thank you Rick.

Yes, Robert and Hello, everyone. Thanks for joining us on the call today and.

In addition to Robert Scott and Mark Thanks, Rick our executive Chairman.

Our CFO, Shawn Duffy and Paul Froelich from our corporate development and.

Investor Relations teams.

And you said, we're going to have the start of a little bit different today with our Q&A.

And some inbound questions from investors in advance so.

And in addition to the questions from Analyst day as usual, we will review some of the investor questions to the extent of having already been covered in the Q&A.

And we thank those investors for submitting the questions.

So forgetting the Q&A will do just a very quick highlights from the letter.

First on another really solid quarter from performance was continued are really.

The really strong EBITDA growth throughout the fiscal year 'twenty, one and factory, we anticipate the full year will be.

Another record for the company on the EBITDA and operating cash flow from the.

Performance drivers from him pretty consistent with what we've been seeing through the pandemic the fix.

And I'd like service results for excellent driven by strong demand and.

And Mark and Brad.

Our government franchise performance was solid.

But it has been impacted by the logistics issues associated with Covid and we've talked about before this is pretty much expected and and Rick.

It reflects some of the inherent lumpiness, we usually see and.

Several categories and and awards overall, and so really good about our outlook on the government and so we've had.

Big order backlog and really good first half of orders and.

Our backlog is growing and still growing and that area.

Which helps underpin our confidence and the future.

IFC remains impacted by the travel volume, but we did see a sequential pick up in the quarter.

And we've had strong.

And really strong quarter and our commercial numbers.

We generated.

2220, $4 million and operating cash flow and the quarter and over $700 million on trailing 12 months basis.

Net debt was flat and our leverage ratio decline.

And by our continued growth and EBITDA.

Book to Bill is positive and backlog grew to $2 4 billion not counting over $3 billion on awarded.

Indefinite delivery indefinite quantity contract side, the IQ contracts and the government business.

The numbers aside during the quarter and the early here and the new year, we have announced some important execution milestones and wins.

The agreement to purchase the remainder of our API business and.

And Europe.

From our joint venture over there, which we think helps us.

The established a good market position.

And the helps reduce the risks and our fixed broadband business as we prepare for Viasat three.

The announced the acquisition of Rick net.

Which we've been looking at for a while and then helps jumpstarting the growth into several key remote enterprise sectors ahead of our Viasat three launch on.

New IFC win with Delta is pretty exciting and it's an entry point with.

The major new really high class of customer.

And the new distribution partnership and the Sky Brasil.

Completing the rollout of our fixed broadband offering and south America's largest market.

So these develops all the.

Underlying our focus on execution ahead of Viasat three as we grow our global footprint and kind of build out and diverse set of.

Of existing and new markets.

Speaking of Viasat, three and we continue.

The really good progress on the program and.

We're moving closer to the delivery of the first payload.

The record the Covid spike as seen in the quarter.

Especially on our Arizona, where payload facilities located.

However.

Those things haven't really worked on our favor.

And cause some intermittent work delays, both internally and with our supply chain.

Here and the recent quarter, mostly internally.

And Thats. Unfortunately moved our first launch into the first quarter of 2022.

And Boeing will be highly per schedule of efficiencies to make up for as much of that and as possible and the growing months. We had some progress that performed ahead of our schedule.

And the Covid stuff non impacted I think.

The improvement in our schedule.

And we really remain excited about the big picture.

The answer Viasat three program.

The open up the company for our shareholders.

The.

The.

Performance on the satellite business for well over 95% complete with just a.

Couple of remaining things to get done and we shouldn't be done.

Here and a few weeks and for the delivery of Boeing.

So with that we will get let's.

Start to the first question.

Thank you.

As a quick reminder to ask the question you would need the press Star then one on your telephone to withdraw your question. Please press the pound key.

Our first question comes from the line of Phil Cusick with Jpmorgan. Your line is now open.

Hi, guys. Thanks, a lot.

And your shareholder letter last quarter, you highlighted the strong government backlog.

To drive sequential revenue growth and.

The year and now were talking more about friction with the administration, how should we think about that and the past under.

The administration changes you've seen a sequential decline from December to March, but nothing thats outside of your normal year.

Since you are calling this out should we be looking for something stronger.

No.

And I don't think so Phil.

We're seeing.

Kind of some of the same trends.

I think.

And.

Without the Covid thing.

It would have been.

Quite outstanding.

That's why we say, it's just a little bit.

Been impacted by the Covid stuff and we're seeing that we're seeing.

An example would be.

People can't Covid has impacted people from actually showing up and doing the live with us and testing.

That's an example, where that test milestone is required for us to actually ship and new set of products and things like that that we're seeing that are unusual but the rest of the business cycle is pretty similar so.

And I think the only reason why we wanted pointed out as per said such a great order flow and.

And so it's not going to that of order flow was not going to create and unusually high level of sales through didn't true the.

On December quarter or through the March quarter, So nothing really outside of the normal.

And is there any kind of product cycle and your government sales or is this relative to the same amount of products and and.

And any sort of ins and outs quarter to quarter is more driven by kind of the <unk>.

Guarantees and and.

Procurement than it is and what Youre shipping.

And I think Thats I think Thats a fair statement.

And we don't have we haven't seen any weaknesses and.

Any of our specific business areas.

On the government side, so I think Thats a fair statement the.

The U K.

The administrative transition is just more on <unk>.

Normal course for what happens during.

The transition from one of administration and other that we anticipate.

Okay, and one more if I can margins and <unk>.

Net services and commercial networks continue to trend really well can.

Can you unpack some of the underlying trends in those segments and theres been a lot of upside to margins and lately, how should we be thinking about that going forward.

On the on the.

Satellite services side. This was what we've seen every single time, Viasat, one and <unk> two.

We have some upfront costs that we experience as we.

Launched those new satellites and when we cross that line of covering those costs of the margins have expanded.

The last couple of times and Thats whats happened here on both the tumor.

The covered all of the costs of the incremental margin and if you look at the year over year.

It is actually of over 100% of the more and more revenue flow through.

And then the margin then.

The revenue increase so yes.

We've had.

A little delay and Viasat three and so what we've done is we've been able to reduce cost and that area and generate cash operating cash so.

That's sort of normal trend that we've seen one of them.

On the commercial networks piece, it's a little bit different.

And there were nearing the.

Getting ready to ship our payloads, we had a bunch of R&D driving the margins and that business down during the development cycle and those are facing off.

The right Shawn and looking for that.

Yeah, So net R&D sort of bounce back up or is this a good line for awhile.

So I would say that when you and I think we kind of come down to that as debt.

And from a percentage of revenue been around and 5% of revenue.

Thanks Mark.

Great. Thanks, guys.

Thank you. Thank you.

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

Hey, good morning, and good afternoon, depending where you are at.

Good morning, Rick.

Hey couple of questions.

First as you manage capacity with the advice that twofold, the up and getting good margins as Paul pointed out.

And you're managing capacity, but youre also starting to earmark some of them for the in flight connectivity ramp how should we think about the trend for broadband net adds and versus how much capacity you need and what kind of pacing should we be thinking of that in flight connectivity order flow.

We've.

And some additional orders subsequent to the quarter pretty good orders from existing customers. So we're starting to see.

Turning to see that come back the.

And the airlines are way more and control of that and were.

Obviously, a follower of that.

So we have some models from high and low and.

And mid and models.

I think it's going to be.

I don't think Youll see on lots of input until a lot of increase until.

We get past the certain point just in terms of vaccinations and.

And that but we're seeing that we're seeing that come back for sure.

And I.

And I think on the consumer residential.

Broadband side, Mark you might want to chime in here, but I think we are.

You saw a little bit of.

We're not seeing we're not seeing the slowdown of demand.

And as people upgrade.

Choosing the upgrade services and expect that to actually slow a little bit as well and so we're making trades for a higher and upgraded the plans for subscribers from some of those areas, while preserving capacity and all of those markets for IFC growth. So.

We will make the trade will probably see.

Slight reductions and.

And subscribers for a little while we've got some.

<unk> got some ideas and things were per try and the could offset that but I wouldn't want to.

And what do you guys to.

With that and your models here in the near term with some ideas of improvement.

But for right now and I think we expect some continued slight decline and subs.

Okay, and the Viasat three a slipping out so calendar year of first quarter 'twenty two how fast can you get that and service and then remind us and it's still like a six month lag sort of the <unk> and how about <unk>.

Yeah.

Yes.

The first one is going to be probably the longest cycle of.

Of launch two and service because we've got a very very complicated.

Overall system and we've got to go through pretty thorough and testing.

We will launch with a minimum amount of subs for a while and the test, but it'll be it'll be several months.

Before we have a real full launch of of.

On that satellite after Gibson.

We expect of pretty.

Sure.

The whole time to get into orbit. After we launch versus what we had lost on very short.

So.

Bill on the order of.

From the quarter of 30 days type thing, but we're ready to go so.

That helps that overall periods. So it will be launched and the service faster than we were launched on corvid last time as what we expect and.

And then the second.

I don't on order of.

Of five or six months behind the first one.

That's what we're expecting and the third one maybe a little closer than it was before on the second one.

Mark do you want to.

Chime in there at all.

And I think you covered.

Most of it.

And I would say Rick mentioned at the beginning of a.

We're trying to do things sort of covered schedule and those areas, where we can use the integration and test.

And advance which is what we're doing now gives us opportunity to bring on that schedule.

Okay.

Okay, and then one bigger picture question I got to tell you probably the top question, we get and you guys probably are too is the whole Leo question, Spacex Starlink and <unk> got now ASC and science out there talking with close the <unk> of options now over so quiet periods and thank God plainly and what can you share with us as far as your view of the <unk>.

Trustable market the competitive landscape and.

What the future kind of it looks like and I know, it's the big picture question, but we get it a lot.

Uh huh.

Okay.

Well, one part of again.

Part of it can be really quickly is that he asked and AA S&P thing is as the direct to mobile it's not a.

And the competitive service tool to what we're doing and we don't see.

See that is impacting us.

Okay.

And we just put that on the side for a second.

On the on the <unk>.

And.

And the art off.

We anticipate a trend where there is more build out and the market more due to more due to our the off then too.

And the other satellite competition, but you didn't with one thing with Argos and there's still a lot and that's to be determined because.

And if theres a lot of concern that.

A lot of the.

Or are there a lot of the money was one.

And technologies that are unproven and may not be able to meet the obligations that the associated with them. So theres still some.

Some steps to go before of those things are finalized and.

I think from our perspective to the extent that they are awarded to it and don't fulfill their.

And they are obligations that certainly creates more.

This concludes the bigger market for us.

On the other hand, there are.

The one thing I would say is.

We have had a service offering and thats been positioned relative to the market. The way the market has been and the way. It is now but we're not we have a lot of maneuvering room in terms of how we do go to market and.

There are many people that have terrestrial services that are not happy with them and.

One way or another whether it's Ron.

The ability to support and certain types of application.

Or the service that goes along with them.

We believe we can compete so the way.

The things I would say is current.

The expectations or plans for service.

Or in the low single digit percentage.

And of the U S market and in those markets, we go into and so on.

On the long run.

We don't see those.

The those types of addressable markets changing for us that much as a result of these things the way we go about those markets that might be the the service plan. The specific service plans, we have the specific price points or the.

The way we go about it certainly could evolve and I think you'll see that evolve.

But it's Rick.

The complete sense for us to do that and responds to changes in the market as they unfold over.

The pretty long period of time three to five years.

So that's kind of what our view and spoke.

We see that will evolve.

And we are.

And we've evolved from where we started.

Great. Thank you Chris.

Does that did that okay.

Yes.

And Mark made a really good point their debt.

I think it shouldnt be lost is the reason why we have been.

And after higher <unk>.

And the hiring all of the services, we have limited capacity and we of demand more demand for capacity and so thats. What we did so one thing is.

And if the situation the different that one of a different tactic and so people shouldn't just expect or just kind of go after hierarchy of things all the time and we're going to do what makes sense.

Right, Yeah, and one and one.

On the thing.

And one other thing I would add is right now we're in the very intense capital spending.

And campaign relative to lot of revenue and earnings. So so optimizing for cash flow. It makes a lot of songs, we don't expect to be and the same position.

And the Viasat three launch of that creates more of maneuvering room as well.

Yes.

Great. Thanks, guys.

Thank you. Our next question comes from the line of Louis Dipalma with William Blair. Your line is now open.

Yeah.

Great and Rick and Shawn good afternoon.

Net.

And also the good afternoon to the EU.

Mark.

As well.

And.

Thanks, Kevin.

Just wondering.

You announced the <unk>.

The Delta when.

And for the economics of.

The hardware installation for delta or the.

Those economics similar to the economics for your other recent customer wins.

Wins.

In flight connectivity.

I mean, you could assume that.

The other words, if what you are asking for as did we.

Are we selling hardware to them and then try and services yes.

And we don't go into the details of every customer, but the answer would be yes.

It's fairly representative of our offerings are each offerings unique but of that the overall thing you should assume yes.

Yeah.

Great that is that is helpful and.

On the same.

And in flight connectivity topic and.

The update in terms of the total number of aircraft.

Under contract that you have now if you include the Delta.

Delta planes and you also mentioned subsequent to the end of the quarter of that.

One other orders from your existing customers I was just wondering if you guys.

Yes.

And your total number of aircraft under contract yes.

And yes through the end of the quarter it was sort of little over 1000 and backlog.

Great and can assume.

Because of some of it's grown a little bit and said.

Yes.

And we of about 500 now sort of the total on the contract would be close to 2500.

Great. Thanks, Thanks, Mark and Rick and.

And now it's I'm wondering do you updated thought on.

And on what free Wifi could mean for average annual revenue per.

The aircraft relative.

And what your current average annual Eric.

<unk> annual revenue per aircraft is from your existing base and I know this is.

Our future catalysts, but investors are wondering what net could be the implications post COVID-19.

As airlines switched to a free Wifi model.

Hum.

I would say.

The the way to think about it is that.

The variable the variable revenue that we get really is going to be related to the the number of passengers that use it and and the types of activities at the use and the way the airlines choose to to deal with that and.

And a lot of that discussion goes to the airlines, but the just the general trend and we've seen this trend anyway is that.

If you put a really good Wi Fi service on engagement tends to go up and that tends to drive additional revenue and one form or another but the exact amounts will vary depending on the airline and the type of service they choose to present and the other types of.

Partnerships that debt.

And we create and to engage passengers.

Hard to be specific but the general trend is up.

Yes.

Thanks, Mark and.

All of them.

A question related to your government business and you have referenced that you have $3 billion.

And <unk>.

Government <unk> defense, IDI cues and I know that $3 billion I think it represents the ceiling value and I was wondering based on your conversations how.

How much of that ceiling value do you expect to convert debt.

Actual task orders and contracts over the next several years.

So there is there is.

The let's say and that.

The past performance does not guarantee future performance I'll start with that but we've had.

We've had our history is essentially we consume the.

The the ceilings of the idea of IQ contracts.

Very rarely do we not so kind of we're expecting that that doesn't guarantee that's going to happen because they're a little bit unique and there are different than each other but we've had a really good history of selling those.

Like I said.

And to the future, but that's kind of what we expect.

Thanks, Rick and one last one on Mark.

Talked about the.

The intense capex cycle of that Youre going through right now as it relates to Viasat three.

And I was wondering can you give us an update in terms of how much of.

The Viasat three capex use.

Completed and how much remains.

Yes sure. Thank you Jason.

And right now.

And we're over halfway and entering the program. So you can think of that.

And now over $1 billion and behind it.

And.

And we're pretty far along that and and.

On the other thing.

Kind of put around that if you look at our liquidity position today and on Shawn.

Operating cash and Paul.

$100 million lost and you cant debt.

And it really good position, we're basically fully funded.

To finish the build out.

Great and.

For Capex this quarter hypothetically.

Hypothetically.

Are you to break out what the Capex would have been and this quarter.

There was no viasat three and other words what is the capex.

That you incurred this quarter related.

The other portion of that.

And your business, whether it's the customer premise equipment or maintenance Capex are you able to break that out.

Yeah, and I think.

And the best way and maybe look at that range, just kind of look and our Tam.

GAAP cash flow that we had and if we hadn't taken on.

Taken our viasat three and out of that.

The free cash flow for that same tallgrass period of would've been about $275 million.

And that's probably the best way to kind of think of that.

Yes that makes sense.

Yes, that's the way out looking for thanks Shawn.

And thanks, everybody.

And everything that.

Alright, Thanks Luke.

Thank you. Our next question comes from the line of Mike Crawford with B Riley Securities. Your line is now open.

Thank you with the Viasat three constellation and the Terabits per second of capacity of the three satellites and I'm thinking of going to increase your total bandwidth you have to sell of about eight fold and.

And what.

And would be some rough.

Proclamations of what that.

And selling those pits and mean to revenue and EBITDA sort of.

And for Viasat today, and we're looking at a little over 2 billion revenue and around 500 million of EBITDA today.

Okay.

Go ahead Mark.

Yeah. So.

The.

It creates a lot of opportunity right went on one of the things that we've said in the past is that.

Part of the way the way that we've been successful and repeating is that we get these productivity gains right. So we will have.

Eight times, the bandwidth and a lot of that wireless and many times the cost of debt.

Good and quite so far maybe double the cost of the level of the Capex that we've spent so far so.

We will end up offering a fair amount of the productivity gains to our customers.

And that will vary.

Depending on the market and the way that.

And we bring the bandwidth to market the terms of the contract and what the support that goes with them.

And so.

And it's very difficult to give to give an answer but just to just the.

One of the things that I would throw out there is no ballpark if we gave.

Yes.

The substantial productivity improvements, we can still increase on revenue pretty significantly and and I don't really one of them.

It's not per are meaningful to put out of single number but it's good.

You can just look at.

Whats happened over the last eight or nine years, where.

Bandwidth consumption is bandwidth.

Bandwidth consumption has grown by.

Close to the factor of <unk> 10 per capita consumption over about the last 11 or 12 years.

So.

And we need to be prepared for that pace of growth over the next decade, and as well and actually.

We look at that as an opportunity not a problem because that's that's.

And that's what as long as our productivity.

Activity improves faster than other options and we compete really well.

And then just depends on what you know what goes on and the market.

How do we deal with it.

Not I don't think we want to put out any specific numbers. The one thing I would say is back and are.

In September when we did our annual.

Our annual shareholders meeting, we did put out of it like a five year forecast which showed.

In aggregate, we think we can around double revenue of over five years.

And so that gives you that will give you a sense of.

One of sort of what how that put on to the extent that some of Thats satellites.

And on services not all of its add on services.

You did give a breakout of that you can kind of get and implicit view of.

What we think.

How are we Inc.

We're going to apply the bandwidth and what that means for revenue growth, that's probably the best weighted.

Current pronounced.

Okay. Thank you Mark and then.

It seems.

Under that construct that after the Viasat three EMEA of satellite starts the load.

And that's around the time, when you flip and so you're generating positive free cash flow, even if you build and the other satellite every year and maintain this.

The capex.

Our regimen.

Around the somewhat south.

Of the $1 billion of year can you remind us what.

Types of capacity, we might see and Viasat four and Viasat five types of the satellites that you're currently contemplating.

Yes.

That's a really good point I think that the.

The point that the.

Yes.

Per capita consumption is going to continue to grow. It means you have to half of plant do you want to maintain competitiveness and just the price your service offerings on the go forward basis, you have to continue to improve productivity. So we've talked about viasat four a couple of times over the last few quarters and we are.

Working on the detailed design of that and.

What we think is somewhere in the range of $6 seven terabits of what's possible there.

Theres still trade offs associated with that but that's kind of of the range. So think of it and maybe a factor.

By this alright plus.

Improvement relative to the Viasat three.

The next generation.

So a little bit harder thing Paul.

Clarity on it but we think like.

And this is on.

Past that for those type of design work, that's where we are now on Viasat pie and that's based more on <unk>.

Conceptual stuff, but we think there is another factor too that can be gained at least beyond that.

So altogether that means.

Got it and I can order of magnitude of.

And productivity gains in front of us that we're working on.

Okay. Thank you and then.

And Mike one of the questions one of the points I just don't want to go unnoticed.

Youre right.

And the after we launched the second went over the EMEA.

And two to three quarters after that and we think we'll go free cash flow positive and.

The company, we expect to stay there after that so I think it's a really important point.

Regardless of our build out unless we do something completely different debt our.

The rollout.

Okay. Thank you Rick and then last question is yes.

Yes.

Hey.

The constellation.

And let's say 2000 and satellites.

Was circumcised navigating the below the 550 kilometers like star range.

How many of those of any given point in time would be over the U S. And then how many.

Of those of the visible from one point out of the ground lifestyle over Chicago O'hare Airport.

Okay.

And so.

The answer the.

The exact answer that question depends on the Orbitz selection.

What.

Starlink and Amazon and uptime, and not everybody has done and not all of their satellites all of this but basically the tied to and.

And the Orbitz and the way that they don't cover.

How do I say don't cover the poll spend more of the time over.

On the middle of attitudes were the U S. As we think of it is.

6% and 8% of the satellites will be over the U S.

And would be within sight of the U S, but that even that depends a lot on.

Specifications of the ground terminals because.

The fact that the.

Satellites are inside of the U S doesn't necessarily mean that the ground terminals are inside of the satellites.

And can do that with the latency specs that they have sort of there's a little bit just from some.

Complications there and then just the fact that through over the the U S doesn't mean that the all over.

And they're all over places and the U S, where there's demand and that's the other factor and then Paul one of them.

To your question about the play cycle here.

Uh huh.

So there are regulations.

Around what's called.

EPS of <unk>, which is equivalent power of flex AMC and the whole point of that is to prevent.

Non geo satellites from putting on them.

And the power into a specific location that could exceed that could cause interference to geosynchronous satellites.

And with that.

The answer to how much of of bandwidth they could bring to a particular place depends on the specifics of that but it definitely puts of bound on the amount of bandwidth that go into small book and ship and the.

Kind of the.

The specific answer again, it depends on the Orbitz and the look angles of the satellites, but with a couple of thousand you can think of it on the order of 10 ish satellites that could be and site particular place and the U S but that.

Not all of them they may not all be usable for a variety of reasons, depending on some of the specifications.

Okay. Thank you much.

Okay.

Thanks, Mike.

Thank you. Our next question comes from the line of Chris Quilty with Quilty analytics. Your line is now open.

Thank you I wanted to follow up first on Delta and I know with America, and you guys had a crazy fast rollout of antennas.

Two of the aircrafts should we expect that type of installation or will this one be more gradual.

It'll be a little more and SaaS, though.

Hey.

They want to get these are the ones we've identified outfitted.

And quickly so we won't have the.

Same level of and remember we had quite a few more aircraft initially awarded by American and that we do here.

And so the rollout was very very rare.

Rapid.

And we'll go as fast as Delta once the Gulf of won't be quite as fast, but it will be definitely a pretty big increase from where we are.

Okay, and I guess part of that is.

Of the 300, plus aircraft and what is new aircraft versus retrofits and presumably they've got new aircrafts that are parks that are easy have you kind of given the breakdown of what you expect the penetration to be of new versus retro.

We haven't.

Sure.

And when we have that.

I'm not sure that we've got that cleared with delta or lease.

Okay.

And final question on Delta somebody kind of knocked around it but the on.

ARPA.

For the aircraft given that this is going to be and all you can eat plan is it going to overall impact your.

Our reported revenue per aircraft and substantially from what Youre well, okay. The right now of that revenue per aircraft is down because of Covid, but.

If you compare it on sort of a nominal reg.

Regular basis is it in the same ballpark of what you've been generating historically.

Fair.

Mark said earlier it depends on.

What type of third party deals are done on either side and depends on how fast.

If they go free and how fast and there's a lot.

A lot of factors and there so the other.

And the thing is the airlines are very sensitive to us talking about ARPA and.

So as opposed to kind of more competitors in the past the half.

Single point businesses of the only way they kept the investors happy was focused on the ARPA and this is part of our satellite services business sort of blend that.

I think our goal is to work with the airlines and a way that going either go and free or Havent really high penetration and high.

The passenger engagement is a good thing for them and is worth the b the.

Either and way that generate additional revenue for the airlines or something that makes us.

And the very positive deal but.

But.

Yes.

Kevin.

Okay, that's significantly and I got it.

And I guess on that same note you guys had historically provided the.

Backlog and I didn't see it in the <unk>.

Shareholder letter I guess, either that or the consumer <unk> are those numbers you intend to give on a go forward basis.

Things are changing pretty fast, we're going on especially with the onboarding of of.

And the European business, that's definitely on the lower ARPA and kind of where we are currently and the U S, bringing Brazil on.

And so we're trying and we're working through.

The best disclose those things.

And we've said from many times for instance.

To your previous question, we think satellite services revenue and EBITDA is going to grow next year and that's going to be a blend of things is as in flight connectivity comes back and also said kind of and I expect our residential broadband and the U S to the brine somewhat slightly.

Things are changing pretty rapidly and.

Yes.

Just like we did this last time, we were really focused on subscribers.

Describing and grow that much of our approved grew a lot we will make whatever changes makes sense. So that the overall economics are and we're getting the most out of and we think we can get so.

And we're sorting through what type of disclosures, we are going to have and the future.

Okay, because that was a question I was going to ask the Shawn is once you take on the European business Youre going to bring on.

A slug of subscribers and obviously, a very different <unk> and how are you going to report that and so.

And hopefully when you start the new fiscal year Youll have an entire and Lee new set of aligned metrics and possibly with rig net hold it and has a different business segment or something that we can follow on and go forward basis.

I think thats the thats.

That's a good.

I think that timing is appropriate.

Chris Okay.

So one question on the commercial networks business you guys have been really strong in the antenna business kind of a boring large diameter of business, what's going on there.

Okay.

And another actually.

Just really really good.

New business quarter and that business and.

It's.

Just so we do.

It's usually through.

Another prime but we do.

And a reasonable amount of government business and that segment too and so that's helped contribute to future growth there.

And and we have some very very good opportunities in front of us as well.

So.

The continues to just be a good growth area for us with.

With.

Very little.

The invested capital.

And keep in mind, that's fair and that is where we report the product.

And the airlines as well.

Okay.

But the language in the.

The last Q or maybe it was in your letter here talk specifically about some of the large diameter of stuff and I thought it was said the earth.

Earth observation customers.

Yes, yes.

Alright, so that and so.

Yes.

And that's one of the things that's driving interest in the space is besides communication as Earth observation I'd and.

Generally.

That's kind of the way you get really really high throughput on these are the observation satellites is by having large operators on the ground right because you want the satellites themselves to be inexpensive and.

Mike and the communications space.

Have way more terminals and you have satellites and this case you're on.

And at times, you have more satellites and the effort of terminals. So.

It's a really it's a really really interesting field I think theres lots of opportunity there and.

And I think we've got a leadership position of that so that's part of what's driving the.

The results there on both.

On the commercial and the government side and.

And.

There's more to it than just the large apertures as well and there'll be.

And it's more stuff that we're working on and we have.

And also a shared service initiatives thats doing really well.

Paul real time and I.

I think that this notion of.

The real time access to.

Earth observation data is going to be a growing and phenomenon as well.

Okay.

Speaking of little antennas.

And when you look at the Viasat three rollout and the.

You don't call them gateways, you call them something else now.

Satellite access nodes, the sands and okay.

When do you begin the rollout of that infrastructure in anticipation of Viasat two and.

And does that show is the significant capex of movement and anyway.

Yes.

Alex This is Rick so we've already started and so.

As you can imagine and the first thing you have to do is located both points make sure you have fiber they are good fiber brought there.

The good power and.

Good leases.

Executed.

Jeff.

Of all the regulatory approvals for each one of those side some of theirs of process to go through here.

Well into that process here and the U S and we're actually well into the process in Europe and the.

And begun that in the Asia Pacific region. So.

And so we've already begun to incur expenses associated with that and.

And front of including fiber leases and that in addition, we actually have some of our gateways up and running and we're.

And we're running.

Doing some tests.

Various elements of the Viasat three network over some of our existing satellites and preparation like Mark talked earlier to the extent that we can do sort of concurrent integration and testing we can help to accelerate those things later. So we're currently doing some of that today. So we're well on our way here for the rollout of <unk>.

The three we've begun to incur expenses.

And the low millions of dollars per quarter, and that and thats going to increase quarter by quarter as we prepare for Viasat three.

Got you and the final question on commercial networks for Shawn.

I mean, the the margins in that business and improve by like 30 points since the beginning of the year and I'm just I know you've said the R&D is going to flatten out.

And internal R&D, so that element, we kind of know but.

And the modeling that on a go forward basis, I mean can you drive that business too and actual profit on.

On a go forward as you begin to ship all of the mobility antennas and all of these ground equipment or is it still should we still model that is the loss leader.

Yeah. So a couple of things first of all of the loss leaders of the good examples.

And that's all of it.

Great.

Yeah.

Okay. Thanks, Paul.

And.

And Youre looking at right one is the <unk>.

And that's about where again on the endpoint.

And.

Terminal deliveries for the <unk>.

And as Rick was talking about on the Gulf of programmable check of CLSA.

That'll help that segment.

Thank our R&D is hitting kind of of baseline rate index.

The data absolutely grow.

And I think we would expect improvement and on a year.

On the basis.

Look into next year.

And we're going to continue to investing.

Got it and if I can ask one final question.

The.

On the consumer business.

You know most of your growth your incremental growth and subscribers has been in Latin America and Brazil.

And I know.

Sky Brazilians talking Youre looking at expansion into other parts of South America, what do you have for capacity in the region right now.

Either you know on satellites were in terms of incremental subs that you think you can grow and the region.

Before viasat three hits the market.

It's going to be limited.

And working with obviously.

With the Brazilians and satellite down there today and.

Mexico and Central America, we were working on Viasat two.

And all the way down a little bit and Columbia, although weigh down on the drove the top part of South America, but.

Yes.

Reasonably limited until we've got Viasat three.

For the Americas on board.

Plus the other thing is we have to a portion of that bandwidth among all of the different markets that we have some sort of implied customers will have.

Remote enterprise customers as we get Rick net.

So we just have to allocate the bandwidth.

And a situation, where there's a lot more demand and there is supply.

Very good thank you.

Thanks, Chris.

Thank you. Our next question comes from the line of the one with Jefferies. Your line is now open.

So on your line is now open.

I'm just happy you sitting here talking to myself on mute sorry, Mark.

And.

And I think it happens on a.

And so I was my first question is.

On <unk>.

Could you.

Would you be willing to tell us back in early 2017.

When you were putting the investment case together the Viasat three.

And Viasat three.

Yeah.

What your target.

So the point of which that sounds like came on line.

And then.

Where are you today on.

On the sub count.

So net.

So one is.

And as I said, it's a dynamic marketplace and it would be kind of presumptuous of me very presumption of interest.

And.

The subscriber number.

And we're more focused on is can we.

How much revenue can we get in total and how much and.

And the <unk>.

And on that revenue and does it justify the capital expense and.

And so one of the things one of the things we keep working on is having multiple markets and then just.

The Scott sort of what's going on in South America, where because we have multiple markets. The aggregate demand for bandwidth is greater than the supply which is that's the good thing.

And that's what we want and so that's just what we're doing and in.

In Europe too through the government work through the.

The remote enterprise stuff that we can do with the mid net through the in flight connectivity market.

And so on.

A lot of those markets are doing quite a bit better than what we would have projected back in 2017. As an example, that's the situation. We're trying to create so the short answer is we don't have of subscriber we don't have a residential subscriber target and we will die.

<unk> set one and the context of all of the demand all of these different services and that's based on.

And how we've done things.

Okay, but just to push on that.

The success of balance that.

And I was having wildblue there.

Ahead of it.

And.

The.

Of the event.

Yes.

To have.

As many of did you kind of talk.

I didn't know it doesn't feel like you didn't have a subscribe the number in mind.

But that's fine.

No.

Let me.

Oh, Okay, well, let me just I just wanted to go back on the <unk>.

History on the Wildblue Wildblue really got us was <unk>.

Distribution.

Back office.

And it enabled us to do retail and while we.

Once we had that retail.

The one of the main reasons, we did the acquisition was because we wanted to rejigger the number of the.

The way that we went to market based on the things that we've learned about the market from having the wildblue and experience and so remember with the Viasat one.

And I go by memory here, a little bit growth.

And they had like 10 times the bandwidth.

And it up with two to three times of subscribers and.

And three ish times the revenue.

The margins were much much better because of the productivity and the satellite so the thing of the things I'd say, we'll apply to Europe as well.

And we're looking these are the things that we're doing now and we will do with with the case that and.

And the capability we have dinner is.

The all the back off of step is more complicated the sports steps more complicated because of the diversity of countries and languages. So we're going the other tests that we're gonna be on we also need to make sure. We have the distribution and support channels, we want and place and we will be able to do a lot more experiments regarding the service offering.

And the way, we bring those to market and.

And so we will get we expect to get the same types of knowledge and experience and the information through this as we did with Wildblue and the U S.

Starting from the different place debt.

It still doesn't make sense it doesn't make sense. So we have a.

Our subscriber target number.

The way I would describe it as we're going to do it and in the context of all of the demand.

For all of the services.

Okay and then.

So just it sounds like you are going to be building out what it is.

So we're going to get by working with the.

The you're going to be doing that yourself.

There are aspects of the customer journey that you weren't going to do but you are going to have to build that out now.

Well that was our original no that was our plan I mean, if you look at the the reason for doing the joint venture with Eutelsat was that we were going to lead the retail part of it.

And.

The big Blue.

And we're working with okay.

And you'd also have at the time, they would have been a component of that but there's other ways to achieve that as well we don't look at that as the decisive issue.

And do you have any mechanism to prevent I would say I wouldn't say it is a matter of fact, we.

And we have been investing in this the entire customer journey side.

And so this is a good way to put that to work and ahead of the Viasat three launch and and.

And so to me. This is a really good way to put our own tools in place, which we've already begun to do that.

Couple of those markets, Spain is one and.

And kind of Norway as in other so.

I think this is just a really good opportunity for us to get those things in place prior to the Viasat three launch.

And Rick is that we would.

Hum.

<unk>, two when you say buying and big Blue.

Should accelerate and improve momentum around.

Thanks, Paul and Europe.

No no I think that.

We've been we've been developing and.

The customer journey tool set that's far more digital.

And being able to roll that out and for instance, and some markets debt.

Sure.

The limited capacity in Europe on on.

Okay, Seth but ahead of Viasat three.

The launch where it's got a bit of big launch.

As a much safer way to begin the process and in a way that we can.

Rapidly roll things out and learn and iterate.

And do you have the subset of <unk> Paul.

And with.

Epi.

Is there a mechanism.

Paul you talked about taking them from you.

Can I ask the HTS comes on line.

And can you give us a little hard to hear you.

And I understand.

Yes, sorry, forgive me and I'll come a bit kind of the defense and.

D and find the think correct.

With the purchase of <unk>.

You know and completely set of subscribers and by the way it would be really useful to know how many subscribers.

The subscribers.

Our legacy wholesale so big Blue.

And I'm wondering with the big Blue now firmly embedded with Eutelsat to connect the HTS.

Do you have a mechanism to keep hold of the subscribers and.

Stop Big Blue.

Great and then at some point and the future.

On to connect the HTS.

And like a noncompete something like that.

And there are there are elements and our agreement.

<unk> set the deal with on.

And what Youre talking about specifically.

We talked about a little bit of it and the way we announced the deal but the other there are more of embedded elements of the deal with that specifically.

So yes, we have we have.

We have a structure.

The.

I'm sure we'll be imperfect deals.

And with.

And any type of poaching of those subscribers.

We also have economic remedies that deal with those types of things so.

And honestly.

It's a component of this it is by far not the most important thing.

Well the.

And I'd say the.

By far the most important aspect of that is getting a running start provides the at three of the accelerated ramp into a region, where we think the demand is going to exceed the supply of of.

And our capacity over there.

And I would not interpret the Suez.

I would not interpret this as us battling with somebody else to keep subscribers on comparable plans.

The the real but the battle here is going to be what what types of service plans can you offer and or how do you distribute the in light of the pricing of those plans and how much demand is there and.

And actually the other really big thing is going to be what's the trajectory of your future supply of bandwidth because that is the big influence on on the types of services you can offer so.

This is kind of a set of initial conditions and to Rick's point, there is economic consideration thats baked into the the agreement that deals with the issue that you said, but it's not the main event at all.

It's a satellite.

And then final question sticking with the same topic what is the.

What is the all going to be for the go to market strategy, you're going to look like just what's the latest thinking that please.

What is the go to market strategy and Youre talking about on the residential side.

Yeah, Yeah, that's right.

Yeah. So remember of residential is only one component.

Basically what we're going to end up doing is we are going to decline.

Very different service plans and I think we'll be able to deliver.

And more consistent quality of service for the plans that we do have.

And and.

We will come up with.

<unk> and <unk> and terminal strategies that are consistent with those.

And it's a little bit premature to say what those are.

Because we want more experience and the market and this is whats.

And it gives us the opportunity to do that but it will be clearly the European market is very diverse more smoothed and the U S market and there won't be a single point.

Solution that we apply all across the continent.

And it's been the Berry by by market and one of the things that we're getting better and better at in the United States and were.

And the same things too to Europe, as well as really.

Marketing on a more localized basis.

And because we can because we can deliver and different types of services and different price points into different specific market sub segments.

Pretty easily with our system.

So I think we're going to be.

Giles is the last thing we're going to Charles is till the people that we compete again exactly what we're going to do right now.

Yes.

Appropriate.

Yep fair enough alright, thanks, Thank you very much.

Okay.

Thank you. Our next question comes from the line of Matthew Bouley with Barclays. Your line is now open.

Yes, good morning, and good afternoon.

If I could start with the question on.

The government side, so as you pointed out and we've been used to it is the volatile segment, but the trajectory has been very positive from for the last many years.

And I was trying to per share, we could frame a little bit from from our side and on the yellow.

And those side what is the potential markets.

Putting out her.

And I don't know is it the markets, where you expect to gain market share from other players is it just new application of new services that are developing but.

If you could frame and any way.

Big is the opportunity there that would be super helpful.

One thing again.

And I will guarantee the SaaS performance equal you bet.

Yes.

35.

Kevin Hart of years of.

Really really good consistent growth and we've only grown maybe knock on a couple of those years and.

And it really is by going and consistently going into new and.

And bigger markets and environments.

Moving from tier two tier one and moving to tier zero and some of those applications.

And we've.

Been able to develop and rapidly deploy.

The products that are around the programs of record and of.

And Thats really helped our growth we're working on the things security and and.

And secure tactical communications and <unk>.

And things that are absolutely critical to actually accomplishing and what the warfighter needs.

That market is expanding globally through.

True joint one four of fighter concepts. So just from a positioning standpoint of needs. Thank Rick.

And really really good.

Markets, So security and tactical Comms and strategic.

Uh huh.

<unk> networks and integrate.

The <unk> radio and the Satcom networks, and and multiple satellites and the same network. So.

And the cloud really is just.

Very coming into play on that which we think only strengthens what we're bringing so.

We really like this government communications market.

It's been a good one and I think the viasat three constellation and fully enabling further growth not just in the global satcom piece, but on the other pieces that we bring.

Yes.

Okay.

And the other but the other.

And then just another way to think about it is.

And what's driving the growth and the defense business is very similar to what's driving growth and commercial businesses we choose.

And what used to be just voice communication now the same.

Imagery and computer computer.

And there's more things computerized the one of the ways to look at our growth is can we get satellite antennas on more platforms than than we used to and that's that's happening for sure you can see.

We've announced and lots of different platform wins, whether the ground or helicopter or different types of aircraft and then the other and the amount of data that those platforms GAAP and then the other dimension that Rick described as well and it used to be.

Acceptable just to encrypt the link.

And clip the communications link now you've kind of worry about.

Trust and cyber security. So that's another component of our growth and then the other thing the third and.

The.

And the terrestrial radio links whether it's tactical data links and others. So those of the three big thrust SAR satellite cyber Tech.

Tactical radios and game.

And moving a lot more data those are really big picture teams that we have competitive position.

Thank you that's helpful.

And then I had the follow up question the on the commentary on thinking about.

The us hub for the trial.

Heard correctly you were talking about.

The capacity of five to seven terabytes per second and I wasn't entirely clear if you were talking about.

One single this hub for which could seem like the.

The material leap, obviously, we're talking about a couple of three satellites plus.

And this kind of capacity.

And that's per satellite and one individual satellite.

So and then we can have multiples of those satellites.

Okay.

That's what makes economic sense.

But yes. It is a big leap day, and I think that one of the things that.

Everybody needs to take into consideration when they look at all of these different.

Approaches to broadband from spaces is how each of these things compare relative to the others and.

And it just throw out one other thing which is that when youre doing geosynchronous satellites.

Very straight forward to increase frequency reuse and increased capacity on individuals' satellites without affecting either power other satellites or anybody else's satellites and the Geo arc.

One of the big issues with non geosynchronous is that everything every non geosynchronous satellites.

And with every other non geosynchronous satellite and whether your own or somebody else's and so that's what one of the things Thats really important and those filings is understanding.

What.

I'm expecting them they include and their filing and the way that that spectrum can interfere with other system. That's one of the biggest issues that's going on now and these non geosynchronous once it's very very difficult to increase your capacity without impinging on some other filings.

So anyway, what we think is not only do we have a productivity advantage now, but that will be able to expand and productivity advantage over time.

Great and.

To follow up on that.

The question left with us before but obviously I think a lot of investors.

A question Mark and just industry, where does the capex range and because of technology changes you have to adapt to current looking to lower your costs increase the market potential, but thats always has to be balance against free cash flow.

And some point right and.

The.

The way you think about it.

Is it as you expressed it before which is really from once.

<unk> is behind us and gain scale.

The objective is not to be free cash flow negative anymore, and then you seem to have enough scale to continue to invest as you should.

That's right, yes, so yes, yes, that's the answer and just to be clear and you sort.

He pointed this out of the Viasat four thing our customers don't care, how much capex, we've spent or how many satellites we have with the carriers how much bandwidth. We have so if we can if we can the way you manage your capex is to get as much bandwidth as possible per capex dollar debt.

And that is the entire point of what we're doing and Viasat four is a really good example of that.

Excellent.

And if I may ask just a last one just on the on the airline side. So so I hear you.

And people talking more and more about the free Wi Fi I didn't fully understand if in the case of Delta that was going to be the offering but in any case that seems to be the big discussion.

Wifi and airlines at the same time, you look at the industry and <unk>.

Obviously the suffering.

Back on its feet, but it's kind of take some time. So I'm wondering how realistic is it to assume that all the ex all the all the airlines and Thats part of it are going to offer free Wi Fi and the next few years when you have so many.

Headwinds to price is up too.

Working assumption when you when you model.

First of all the notions of what we should state that in no way did we say today the delta is going free or anybody else's go and three we're not stating what the airlines are going to do.

Yes, definitely yes, yes totally up here and then and the other point is really and.

A lot of ways all of this is up to the passengers but is it the passengers.

Express a preference for airlines that have free Wi Fi and.

On the airline and some airlines have free Wi Fi and Kim <unk>.

Leverage that preference.

Way, that's more profitable that's what will cause that's what will drive.

And the adoption of free Wi Fi Alright, that's what's really the issue and we've worked with airlines that have been able to do that and and.

To do it in a way that's economically profitable for them.

I'd say, it's a tricky thing to do and it will evolve.

Airlines compete with each other.

So.

Going to take on.

Our lead from what the Airlines do.

What we think is we're learning a lot and that we can.

Offer suggestions to the airlines that will help them drive passenger engagement and lower cost to themselves or even in a way that drives enhanced revenue.

But.

Okay.

And where you can.

And the point is.

Way, we've been able to do that is through the same argument that I. Just described the floor, which is high productivity, which means that we can give them a lot of bandwidth and value.

And those of the ambiance and now we have to see how the market responds.

But if you're an airline and you don't have a choice because your provider actually can't provide the capacity to enable that that's on.

Not a good position to be on.

Right yes.

Yes.

Yes makes a lot of and thank you guys very helpful.

Thanks Matthew.

The last question.

For this and then Paul May have.

And my last question.

Our last question comes from the line of Simon Flannery with Morgan Stanley. Your line is now open.

Thanks for fitting me in and if I can continue on the IFC, obviously nice to see the Delta win could you just talk about the opportunities that you see out there in the medium term to continue to take share and that business and then expanding aviation.

And to think you've talked in prior earnings calls about the opportunity with government and the military to do more on this front and also I think you had an announcement about some new antennas on the business aviation side. So any color about the kind of of the opportunities there too to grow into that Tom. Thanks.

Yes.

And we're having.

And we've talked a little bit before about.

A little bit surprising, but the amount of discussions we're having globally didn't really decrease during the pandemic I mean, some of the actions people who are willing to take immediately and there was a part of and that obviously.

But a lot of ongoing discussions and as.

Debt business.

Pause last year.

On the.

The point of time at which Viasat three is going to come on globally gets a little closer so the people are making.

Decisions to buy airplanes, all of them closer into the time, and which will have global coverage. So that is helping the discussion so I think thats where.

The.

And that's where a lot of the growth will come from us and international.

<unk>.

Over the next few years so.

And we know kind of the most of the growth of the airline industry is going to come and some of the international markets. So being there with global coverage is going to be a really important factor for us and <unk>.

Lot of that is it really just taking share and it's connecting new aircrafts that have never been connected and some of these are lines that theyre ordering and and the growth of aircraft that will be ordered and some of those new emerging markets and.

A couple of things, we're doing and as we're continuing to make real progress and you mentioned one there was an announcement out about our demonstration of our phased array antenna on a business jet.

And we're.

We continue to invest and new technologies that will hopefully allow for shorter installation cycles lower cost better.

I mean, all of those things and we share of those roadmaps with our.

With our.

Airline partners and potential new airlines so.

Just kind.

10 years of lead investments in this area I think.

And a way that enables not only not only on it because right now we have airplanes flying on our satellites and lease satellite capacity. So allows for roaming and the other networks that's it on.

And for NASDAQ.

The offer.

Yes.

The other thing.

And to that is we've been very successful and the North American market.

And that's been our best market, partly because that's where we had the most coverage the starwood, but it's also the.

And that's also on the market where.

Penetration is the highest more planes have Wi Fi and that market the domestic U S market than any other market and I think that the airlines have become the most knowledgeable about the role that in flight connectivity plays and their overall competitive strategy and then the other and the other things.

I had mentioned is that.

And the times when we don't win when were not successful and the market, it's usually because.

Somebody discounted equipment into the installed dangle some offer that they weren't able to fulfill because as Rick mentioned before they didn't have enough bandwidth to really scale the offer.

And so I think that the fact that we've been very successful and the North American market.

Is.

It was going to be is going to help us and these international markets, where the airlines.

And less experience about the rule of in flight connectivity in their overall value proposition.

And I think I think people are noticing that so I'd say, we're really optimistic on a lot of growth is going to come and that Asia Pacific market and the thing Thats really notable about that is debt.

And so much of the travel routes are over oceans and.

So that's where the viasat three value proposition is really important because that will give us much more bandwidth over oceans and anybody else and.

I think that's what's that's what creates optionality for the airlines.

And so literally optimistic about the growth prospects and so far of the responses that we're getting back from the market.

Are supporting that.

Thank you.

Okay.

Paul.

And if there is no other questions I think I think Paul the.

Most of the questions that we have from.

And investors were actually covered in today's conversation so.

And.

Thanks, everybody from coming in and if you guys have some feedback.

On this format providing the.

Letter a little early and given some time or any type of other timing feedback do you want to have and future reach out to Paul.

Paul Froelich on our end or just the <unk>.

We would we will take your comments and et cetera into consideration.

So thanks again everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Okay.

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