Q2 2025 Viasat Inc Earnings Call
Thank you for standing by. My name is Meg and I will be a conference operator today. At this time I would like to welcome everyone to the second quarter 2025 Ziya Sad Ernings conference call.
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Alphair Dispeakers and Marks, there will be a question and answer session.
If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. And if you would like to enjoy a question, press star one again.
Speaker Change: Thank you. And now, I would like to turn the call over to Lisa Curran, Vice President Investor Relations. Please go ahead.
Speaker Change: and many more. Thank you. Thank you.
Lisa Curran: Thanks, Meg. We will present certain non-GAAP financial measures on today's call. Information required by the SEC relating to these non-GAAP financial measures is available in our Q2 Fiscal Year 25 Spareholder Letter on the Investor Relations section of our website.
Lisa Curran: During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance.
Lisa Curran: We will also make forward-looking statements within the meaning of the federal securities law, including statements regarding events or developments that we expect or anticipate will or may occur in the future.
Lisa Curran: 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.
Lisa Curran: Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings, including our annual report on Form 10-K.
Lisa Curran: 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.
Mark Dankberg: Good afternoon and thanks for joining us today. With me, along with Lisa, we have Guru Gowrappan, our President, Harry Chase, our CFO, and Sean Duffy, our Chief Accounting Officer.
Lisa Curran: We encourage reading the shareholder letter and referencing the slides we posted on our website earlier this afternoon for more details.
Lisa Curran: I'll give a quick overview of the shareholder letter. Guru will briefly cover operations and Gary will cover our financial results and highlights in our growth outlook and then we'll take questions.
Lisa Curran: Our second quarter fiscal year 2025 results were better than expected in terms of revenue and adjusted EBITDA growth as described in the shareholder letter and slides.
Lisa Curran: We also continue to take actions to strengthen our capital structure, including an upsized refinancing of nearly $2 billion of 2026 secured notes.
Lisa Curran: New contract awards in the second quarter were a new record at about $1.3 billion and were led by Defense and Advanced Technologies, which doubled year-over-year awards led by Cybersecurity, Ground Systems, and Space and Mission Systems, and by Aviation Connectivity Services.
Lisa Curran: Our recent teach-in highlighted the attractive growth potential and durable competitive advantages in key technologies such as next-generation free-space optical technology, mission-specific phased array terminals, space-based cybersecurity, and others.
Lisa Curran: Our Q2 Defense and Advanced Technology, or DAT, awards reinforce that we're on the right track, including the U.S. government program, international government opportunities, and certain commercial markets.
Lisa Curran: One of the unifying themes among our customers is access to a diverse set of orbits, spectrum and constellations, and avoiding over-dependence on single individual systems.
Lisa Curran: Of course, we understand the intensity of competition in some of the core businesses. That makes the size, competitive positioning, and growth prospects of these DAT opportunities especially exciting.
Lisa Curran: We're open-minded about the best ways to capitalize on these opportunities and are actively evaluating alternatives.
Lisa Curran: All those businesses are both delivering growth and increasing their potential.
Lisa Curran: will augment our focus on cash conversion, return on capital, converting to a more balanced capital structure, and operating financial profile.
Speaker Change: Gary will provide additional experience financial leadership on the areas we highlighted last quarter.
Speaker Change: including identifying, evaluating, and executing the best alternatives to realize the value embedded in a business portfolio, leading detailed business operations, financial reviews to ensure we're at peak operational productivity levels with corresponding margin performance,
Lisa Curran: and Leading Detailed Capital Application Reviews to Ensure We're Optimizing Return on Capital in the Near and Long Term.
Lisa Curran: The main point is we're exploring additional financial and capital structure perspectives.
Lisa Curran: We're also continuing to drive down capital intensity by augmenting our own satellites through both tactical and strategic third-party agreements.
Lisa Curran: We're in advanced discussions with Telesat to buy CAVE and LEOCABAT. By leveraging our own fleet and its unique capabilities, existing national operator partnerships, and unique coverage and or capabilities of additional third-party satellites and constellations, we can both ensure our customers are getting the performance and coverage they need, and more explicitly, measure and drive improved returns on capital.
Lisa Curran: Our satellite operator partners are often national space champions of key countries and geographic regions, and they're seeking a robust global space ecosystem to support their own national security and sovereignty.
Lisa Curran: We're working with both GSO and NGSO systems. Gary will provide more color on capital spending in his remarks.
Lisa Curran: Other key corporate initiatives include evolving LBAN to create value for the millions of people that depend on its use for safety and time activities in the air, at sea, and on land.
Lisa Curran: We have a very significant opportunity to also concurrently, greatly expand our addressable market through these evolved services, and by leveraging the non-terrestrial network and the direct-to-device standards and open architecture, enabling multi-tenant satellites.
Lisa Curran: We see multiple avenues to create value for our shareholders, customers, and partners, and continue to work with like-minded mobile satellite service operators through the Mobile Satellite Services Association.
Lisa Curran: And last, but certainly not least.
Lisa Curran: will focus on getting our satellites under construction into service.
Lisa Curran: We've already accumulated substantial in-flight connectivity operational performance experience with ISAT-3 Flight 1 that reinforces the value of its dynamic beamforming technology to apply all its bandwidth in the most important places.
Lisa Curran: Thank you all for joining us, especially for mobility applications.
Lisa Curran: And now touching on the business areas.
Lisa Curran: Expected declines in fixed broadband remain our single biggest headwind, but that headwind is decelerating.
Lisa Curran: We're seeing increased global enterprise fixed opportunities, and we'll report on those as they mature.
Lisa Curran: We're seeing declines in maritime revenue, primarily in prior generation L-band fleet broadband, and that's been going on for several years. The fleet broadband declines are meaningful, but also decelerating.
Speaker Change: K.A. Broadband Maritime.
Lisa Curran: or Fleet Express is experiencing much more modest deployment and revenue while largely retaining net vessel count.
Lisa Curran: The multi-orbit, multi-band NexusWave product is now in beta trials and doing well and already leading to full-scale deployments for some initial customers.
Lisa Curran: We already have an order pipeline of over 100 customers, representing about 3,500 vessels.
Lisa Curran: We'll continue to update the Maritime Outlook based on market data and installation rates, but our overall confidence is building.
Lisa Curran: Longer term, we see further maritime addressable market opportunities with evolved hillbays.
Lisa Curran: Commercial and business aviation are growing well. New OEM aircraft delivery constraints are a bottleneck to active tail count, and the Boeing strike added to that issue.
Lisa Curran: We've been working through the near-term capacity challenges associated with the Biosat-3 Flight 1 antenna anomaly and are making steady progress with network reconfigurations and expansion to serve our customers and expected growth.
Lisa Curran: We've already been doing multi-orbit government aviation and are definitizing extending multi-orbit multiband to all our aviation verticals.
Lisa Curran: We believe that multi-orbit combined with our existing and planned own and partner satellite fleet will be very, very competitive.
Lisa Curran: U.S. and international government are also growing well, with opportunities for both technology and service businesses.
Lisa Curran: Key themes for us include multi-orbit, multi-band integration and management, product and technology solutions, advanced platform-specific phased array antennas, space-based cyber, next-generation laser link, and space payload technologies.
Lisa Curran: We see accelerating growth here, obviously reinforced by the exceptional second quarter awards.
Lisa Curran: Gary will provide more color on the financial aspect of many of these points in his portion.
Speaker Change: With that, I'll hand it over to you, Bruce.
Bruce: Thank you, Mark. I'm going to provide a brief organizational and operational update and then introduce a new member of our executive team.
Lisa Curran: Wi-Fi teams are focused, fostering collaboration, and operating as one to deliver results while continuing to sharpen our execution rigor.
Lisa Curran: This is core to how we show up and execute for our customers and partners, which in turn drives value creation.
Lisa Curran: Our quarterly highlights only scratch the surface but show the good momentum we are building.
Lisa Curran: We know there's a lot of work to be done and progress is being made as we continue to put our customers first.
Lisa Curran: We continue to align our internal organizational structure in support of our strategic goals and to take advantage of our scale to improve operational efficiency.
Lisa Curran: We are making great progress across the company to leverage our strengths across departments and ensure a cohesive technology strategy that supports our growth and innovation.
Lisa Curran: Nexus Wave is an excellent example of this. Our operating model fosters the collaboration and cross-functional problem-solving necessary to develop and bring to market an industry-first offering like Nexus Wave.
Speaker Change: Mark mentioned that it's off to a very good start with an order pipeline already at 3,500 vessels.
Speaker Change: In the near term, primarily in our indirect channel, third-party companion offerings created incremental ARPU pressure on slavish FX Russell count this quarter.
Lisa Curran: We are refining our channel strategy for indirect. We expect Nexus Wave will enable a return to net vessel growth and ARPU expansion in maritime. But the near term is offset primarily by reductions in legacy fleet broadband, some declines in indirect FX ARPU, and modest FX net vessel count reduction.
Lisa Curran: This means continuously improving our structure, processes, and strategies to ensure they are optimized for success. Our goal is to create an agile and efficient organization that can quickly leverage opportunities and challenges to drive growth and enhance value capture.
Lisa Curran: Now, I would like to introduce a new member of our Executive Leadership Team, Gary Chase, who joins us as Chief Financial Officer.
Lisa Curran: Gary Chase joined YSAT after more than 12 years with Delta Airlines in various senior financial roles, most recently serving as Senior Vice President of Operational Finance.
Lisa Curran: We are excited to have Gary's depth of experience and track record of execution in Financial Planning and Analysis, Strategic Planning, Corporate Development, Operational Finance, Capital Structure Management, and Cost Efficiency Improvement.
Lisa Curran: Prior to joining Delta, Gary Walsh, an equity research analyst at Barclays Capital, having covered the airline and transportation industries.
Speaker Change: Now, I would like to hand it over to Gary.
Gary Walsh: Thank you, Guru. Well, I'm excited to join Viasat at such an important time in the company's history.
Gary Walsh: I have a tremendous amount of respect for Biosafe's businesses and global mission of delivering safety and connectivity to customers in the air, at sea, and on land.
Gary Walsh: I'm grateful for the support I've gotten from the whole Viasat team in my early days, but especially our finance team, led by Sean. And I may well need some of that support during the Q&A.
Gary Walsh: As a team, we look forward to partnering with Mark, Guru, and the rest of the leadership group to further advance the finance function and its support for Viasat strategic initiatives, especially shareholder value creation.
Lisa Curran: But before I get there, let me thank all of my Viasat colleagues for the hard work that led to these results.
Lisa Curran: All of the comparisons in the second quarter discussion that follows exclude the non-recurring catch-up contribution from the litigation settlement in the second quarter of fiscal 24, which benefited revenue by $95 million and adjusted EBITDA by $86 million.
Lisa Curran: Looking now at second quarter fiscal 25 financial results.
Lisa Curran: Awards were a record, up 25% year over year. Our Defense and Advanced Technologies segment in Aviation Connectivity Services led the growth.
Lisa Curran: Revenue was $1.12 billion down 1% compared to $1.13 billion in last year's second quarter reflecting declines in fixed broadband and maritime within communication services.
Lisa Curran: Partially offset by strong growth in aviation and tactical networking products in our defense and advanced technologies segment.
Lisa Curran: Net loss of $138 million improved from the net loss of $767 million a year ago, which was primarily due to the impairment charge related to our satellite program.
Lisa Curran: Adjusted EBITDA was $375 million, a decline of 6% year-over-year.
Lisa Curran: As noted in last year's shareholder letter, the second quarter of fiscal 24 benefited by $18 million from the resolution of the Euro Broadband Infrastructure, or EBI, Contingent Consideration Agreement.
Lisa Curran: Excluding that benefit, adjusted EBITDA was down less than 2% year-over-year with the declines in our communications services segment partially offset by continued strong growth in defense and advanced technologies.
Lisa Curran: Capital expenditures declined 37% year-over-year to $229 million, decreasing primarily due to lower satellite expenditures related to shifts to future quarters of certain space and ground infrastructure payments.
Lisa Curran: As a reminder, capital expenditures can be lumpy from quarter to quarter.
Lisa Curran: The lower CapEx helped us generate approximately 10 million of positive free cash flow during the quarter, which, while transitory, is indicative of the free cash flow opportunities ahead as we leverage the BISAP3 fleet and augment our capacity and network performance with third-party bandwidth.
Lisa Curran: During the quarter, we also collected approximately $120 million of satellite insurance proceeds.
Lisa Curran: We've received more than 90% of the $770 million of insurance claims we anticipate by the end of the fiscal year.
Lisa Curran: Please note that the collection of insurance proceeds are recorded in cash flow from investing, but have no impact on our free cash flow calculation, which is defined as cash from operations, less purchases of property, equipment, and satellites.
Lisa Curran: In September, we issued 1.98 billion of NMARSTAT-29 notes.
Lisa Curran: The amount of the oversubscribed offering was increased from the initial size of $1.25
Lisa Curran: We received the cash from the issuance prior to quarter end, but had also repurchased $257 million in principal amount of $20.25 million in open market transactions during the quarter at a small discount to par.
Lisa Curran: So, quarter-end cash and cash equivalents was $3.5 billion, gross debt was $9.1 billion, and net debt was $5.5 billion.
Lisa Curran: Subsequent to Quarter End on October 1st, we used the net proceeds from the issuance of the NMARSAT 29 notes, together with cash on hand, to redeem all of the outstanding NMARSAT 26 notes.
Lisa Curran: After adjusting for the redemption of the Inmarsat-26 nodes, GoForma cash and cash equivalents was $1.6 billion, gross debt $7.1 billion, and net debt the same $5.5 billion.
Lisa Curran: Adjusting for the refinancing transaction, our annual cash interest expense is expected to be approximately $560 million, partially offset by interest income on our cash balances.
Lisa Curran: Finally, net leverage was slightly lower year over year and slightly up sequentially as expected at approximately 3.6 times trailing adjusted EBITDA as of the second quarter.
Lisa Curran: Now, let's take a closer look at our segment performance during the quarter, starting with Communication Services.
Lisa Curran: Aviation continues to compete very well in the market and one new business in the quarter with both existing and new customers.
Lisa Curran: In addition to the prior ongoing OEM delays, there were aircraft delivery delays related to the Boeing strike.
Lisa Curran: Still, commercial ISD ended the quarter with 3,820 aircraft in service, up about 14% year-over-year, and drove contracted backlog to more than 1,500 aircraft, despite sequential and double-digit year-over-year growth in our active count.
Lisa Curran: While we are confident in the FY25 growth outlook and trajectory for aviation, results continue to be affected by delivery delays, including the incremental effects of the just-settled Boeing strike.
Lisa Curran: During the quarter, we expanded our partnership with Azul to equip new LineFit Airbus A330-900neos with in-flight Wi-Fi and our ad-supported streaming services using our advertising platform.
Lisa Curran: U.S. fixed broadband revenue declined as expected, driven by fewer residential subscribers. We continue to allocate capacity towards meeting the growing demand for higher-value commercial IFC and aviation businesses.
Lisa Curran: Our government's SATCOM business unit grew service revenue 6% year-over-year. A strong demand for diversified satellite connectivity remained a top budget priority.
Speaker Change: Within Maritime, as Guru and Mark talked about, Nexus Wave results thus far are above expectations and the strong interest in service-level selection we're seeing in our direct channel is promising.
Lisa Curran: Communication Services Revenue was $826 million, down 2% year-over-year, reflecting the anticipated decline in U.S.
Lisa Curran: and by Maritime, and partially offset by strong growth in aviation and government.com.
Lisa Curran: Those revenue impacts yielded adjusted EBITDA of $318 million, down 9% year-over-year.
Speaker Change: Thank you. Thank you.
Speaker Change: excluding the 18 million dollar EBI benefit from the prior quarter adjusted EBITDA was down 4% year-over-year.
Lisa Curran: Now turning to defense and advanced technologies performance during this quarter.
Lisa Curran: Our DAT segment had an excellent quarter of awards. Our book-to-bill ratio was 1.7 times in the quarter. Awards of $510 million more than double versus $241 in the prior year period.
Lisa Curran: Information Security and Cyber Defense won awards totaling just over 200 million for encryption products largely reflecting continued growth in data center demand driven by geographic expansion and growing data-intensive AI applications.
Lisa Curran: Space and Mission Systems received awards of approximately $150 million related to multi-function phase array antennas and payload technology including free space optics and antenna systems infrastructure with support services.
Lisa Curran: to develop electronically speared antennas for tactical, resilient communications using commercial satellite connectivity across various frequencies and multiple orbits.
Lisa Curran: We're excited about the potential for an expanding role in secure multi-orbit, multi-band connectivity.
Lisa Curran: Defense and Advanced Technologies revenue was $296 million, up 4% compared to $284 million a year ago.
Lisa Curran: Strength was primarily driven by tactical networking and the strong IP licensing revenue just mentioned.
Lisa Curran: Similar to last quarter, Trellisware, within the Tactical Networking business line, benefited by a larger bulk order for product upgrade licenses across already deployed U.S. and Allied Forces radios.
Lisa Curran: This generated an additional EBITDA uplift of approximately $15 million in Q2 versus anticipated levels.
Lisa Curran: Product upgrades to already fielded units can be lumpy and are difficult to predict quarter-to-quarter, so we project future new shipment license revenues at lower levels than we saw in the quarter.
Lisa Curran: As a reminder, the unevenness of growth can often be driven by customer budget cycles.
Lisa Curran: DAT adjusted EBITDA was $57 million up 13% compared to $50 million in the second quarter of fiscal 24 reflecting the positive impact of the trellis ware licenses.
Lisa Curran: Overall, we continue to make progress against our Fiscal 25 plan.
Lisa Curran: In our second quarter, we generated good operating performance, particularly in aviation and tactical networking.
Lisa Curran: We had record awards with focus on aviation, information security, tactical networking, and space and mission systems.
Lisa Curran: Capital expenditures came in lower than expected and we successfully refinanced our 26 maturities, improving our financial flexibility significantly.
Lisa Curran: Thank you.
Lisa Curran: Moving on to the Fiscal 25 Outlook.
Lisa Curran: confidence in our competitive position within our markets, our backlog, and record quarterly awards, but also headwinds from OEM-related delays of aircraft deliveries, including the impact of the just-settled Boeing strike.
Lisa Curran: We continue to expect revenue to be flat to up slightly year-over-year, with year-over-year adjusted EBITDA growth in the mid-single digit.
Lisa Curran: We've also provided additional segment-level detail in the Outlook section of our shareholder letter and slides. For comparison purposes, we also included the catch-up portion of benefit from the litigation settlement in Fiscal 24 results.
Lisa Curran: Therefore, our guidance is based on fiscal 24 revenue of $4.47 billion and adjusted EBITDA of $1.488 billion.
Lisa Curran: We now expect capital expenditures in Cisco 25 to decline further to a range of $1.3 billion to $1.4 billion, including capitalized interest of approximately $200 million per year, which will decline in future years as we continue placing satellites into service.
Lisa Curran: We continue to expect investments in our satellite network and success-based CapEx to exceed two-thirds of our total capital spend with less than a third associated with other maintenance and general CapEx activities.
Lisa Curran: We are focused on reducing total capital expenditures, including the maintenance portions, and this will be a key focus of our planning and reporting processes going forward.
Lisa Curran: Now, looking ahead to Fiscal 26, we continue to expect year-over-year revenue and adjust EBITDA growth.
Lisa Curran: Our two-year CapEx number remains net neutral, so cash flow through the end of Fiscal 26 is unchanged.
Lisa Curran: We're also in the midst of our annual multi-year strategic planning process, and we want to complete that work before providing any more granular guidance on the quarterly progression for Fiscal 26.
Lisa Curran: Our strategic planning cycle goes beyond creating a financial outlook.
Lisa Curran: It addresses our operational priorities, capital spending, competitive positioning, and portfolio optionality.
Lisa Curran: We're very focused on developing a financial profile that unlocks greater value in both our government and commercial services businesses.
Speaker Change: We are continuing to work on each of the areas Mark mentioned earlier in the call to enhance strategic optionality, improve cash flow, and optimize return on capital.
Lisa Curran: In closing, second quarter operational performance was quite good, capturing our share of large and growing markets, and we're focused on improving operational and capital productivity. We're strengthening our capital structure, and we have a long runway of opportunities ahead. With that, I'd like to hand the call back over to Mark.
Mark Dankberg: Thanks, Gary. So at this point, I'll be happy to take questions.
Lisa Curran: and many more. Thank you. Thank you.
Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Speaker Change: And if you would like to withdraw your question, simply press star 1 again.
Speaker Change: If you are called upon to ask a question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Lisa Curran: Again, please press star 1 to join the queue.
Speaker Change: Your first question comes from the line of Edison Yu of Deutsche Bank. Your line is now open.
Edison Yu: Hi, good afternoon. Thank you for taking our questions. Now, first I want to start with, on the first page of the shareholder letter,
Speaker Change: I guess propose those ideas on the structure, temporal structure, financial structure.
Speaker Change: We had this teach-in not that long ago about the assets in DAT. Can you perhaps comment on if you've gotten external, strategic, or financial interest in some of these assets, and if there has been, have there been any sort of structural reasons as to why no sort of transaction has occurred?
Speaker Change: Thank you. Thank you.
Speaker Change: Okay, so one is, it's actually not unusual for us to get inquiries all the time on a number of our assets.
Speaker Change: So that that part is not unusual. I think and there's no
Speaker Change: specific structural
Speaker Change: blocks, you know, roadblocks or bottlenecks, too.
Speaker Change: to any transaction, but what we're really, the main thing we're trying to say is we're just trying to be prudent and open-minded about the best way to work with our assets.
Speaker Change: And, you know, one of the things that we are assessing is just, you know, working on what the valuation is for them.
Speaker Change: Fortunately, one of the good things is a lot of those government assets are still there.
Speaker Change: and others, especially they've just been improving a lot recently.
Speaker Change: It anticipated some of that. It's good to see it come to fruition, and one of the things we're doing is just trying to factor that in to how we work with them, but there's no... I think that the point of being open-minded is just to say exactly that, that we're open-minded.
Speaker Change: I understand, understood.
Speaker Change: And then just a follow-up on the L-band side, can you perhaps give us a sense of how you're thinking about that landscape? And obviously, we've got quite a few efforts from a lot of players now on D2D. You have a lot of L-band. And so, I guess, is there a vision that...
Speaker Change: You may monetize some of that. Would you keep it all yourselves? Would you do both? How do you sort of think about just maximizing the value potential there?
Speaker Change: Okay, yeah, so the first thing is what we're most focused on are the things that we can do ourselves and with partners, and that...
Speaker Change: One of the things that we did in that area, which we think is a good step, is forming the Mobile Satellite Operators, you know, the Mobile Satellite Services Association.
Speaker Change: And the theory behind that, which we've talked about,
Speaker Change: addresses is that what we expect is that the
Speaker Change: capacity, airtime costs, speeds that can be delivered.
Speaker Change: is identifying and promoting both the open standards, which are primarily the 3GPP standards around first narrowband IoT and then the 5G and radio, combined with an open architecture system.
Speaker Change: and then kind of extending the concepts that have worked well in terrestrial mobile networks, which is to have multi-tenant infrastructure. So, that part...
Speaker Change: I think we're making progress on it.
Speaker Change: There's another approach that people are pursuing, which is to reuse terrestrial spectrum. I think that the...
Speaker Change: I think that what the bottlenecks are, and we as a terrestrial network,
Speaker Change: A net terrestrial spectrum has primarily impact on other terrestrial spectrum through there's a lot of discussion around what's called out-of-band emissions constraints and the amount of spectrum. And so what we think is happening is I think there's
Speaker Change: become more awareness about the value of having a licensed MSS spectrum in this space. And so, I think that's good for us. You know, certainly, I think that creates options for people that have spectrum.
Speaker Change: Augment Space Systems in a way that preserves, brings along the existing services, but also creates opportunity for these NTN and D2D services.
Speaker Change: and I think other MSS holders are looking at similar.
Speaker Change: strategies for theirs and and all that all that would be enhanced by this concept of open multi-network infrastructure.
Speaker Change: I think that one of the things that is good for us is, you can see there's been a lot more discussion and a lot of speculation recently about
Speaker Change: about the value of such MSS spectrum, how it might be applied. I think we're looking to do it in a way that is open architecture, mostly non-exclusive, in a way that just makes a service available to terrestrial partners.
Speaker Change: And we've gotten really good feedback on that.
Speaker Change: I think it's going to take us a few more quarters to be able to solidify that. The other thing that we're aiming to do with these multi-tenant infrastructure approaches is to be able to do that and still achieve our objectives of consistently declining.
Speaker Change: CapEx budgets. And that's, you know, I think that that's, again, that's one of the things that terrestrial carriers have been able to do through multi-tenant shared infrastructure as well. So we kind of feel like all that stuff's coming together.
Speaker Change: Great. Appreciate it.
Speaker Change: Go to the Table.
Speaker Change: Your next question comes from the line of Rick Prentice of Raymond James. Please go ahead.
Rick Prentice: Good afternoon, everybody.
Speaker Change: Eric.
Speaker Change: Welcome, Gary. Look forward to working with you.
Speaker Change: A couple of questions.
Speaker Change: A couple of questions on my side I want to probe a little further. On the actively evaluating alternatives topic, can you let us know kind of what stage you're at? Have you hired bankers for the different areas? And when you mentioned that while those businesses are both delivering growth and increasing potential, are you talking about core and DAT there? But first question is on the actively evaluating and kind of what stage and where we're at.
Speaker Change: So, as I said, right now, we're just considering and evaluating alternative architectures. Those structures are going to be influenced a pretty fair amount by what's going on in the businesses. And we were anticipating a pretty strong quarter that was going to help set the direction for these businesses.
Speaker Change: And we got it. So I think that that's helpful. There's quite a, you know, one of the things we mentioned there's we like about these business businesses is they're pretty differentiated. They're very core to
Speaker Change: both U.S. government and international government's use of space for national security and sovereignty. We think they're really valuable.
Speaker Change: So we're not, I think that the...
Speaker Change: The point is, we're just...
Speaker Change: We want people to know that we're being open-minded as opposed to fixed in parochial about how we how we work with them
Speaker Change: And we're going to, you know, we are
Speaker Change: Certainly aware that if you look at say of reasonable some of the parts valuation would be maybe you know we're not we're not getting full value for those so that's what's causing us to think about other alternatives but we don't I would say we have not made any decisions there those businesses are [inaudible]
Speaker Change: We think they're going to continue to grow, so we're just going to be shareholder-focused.
Speaker Change: That's the main thing.
Speaker Change: Sounds somewhat early stage then also, just recognizing the sum of the parts and wanting good quarters, and then let people know you're interested in hearing that.
Speaker Change: and a couple of co-authors. Sure. Makes sense. And, Gary, I think you mentioned that you were in the midst of a multi-year plan, before getting granular on...
Speaker Change: coordinating information in fiscal 26. Is that an allusion to kind of the timing of positive free cash flow given one there's been some capex slip but there could also be some some other items out there?
Gary Walsh: Yeah, well, first Rick, I just want to make sure we don't bury the lead on, you know, the idea that the outlook is unchanged as we look across the two years.
Speaker Change: We did move $100 million of CapEx from Fiscal 25 into Fiscal 26.
Speaker Change: and we do want the benefit of that process before we get more granular on how the timing looks.
Speaker Change: Additionally, because we think it's going to be a good opportunity to continue looking at how we optimize our spend.
Speaker Change: And, you know, let me just add a little bit of color to that.
Speaker Change: For things that we see as customer critical, you know, we really want to challenge and see if we can accelerate some of those to drive contributions sooner. For things that don't fall into that bucket, we want to challenge both the level of spend and the timing. When we can move things out, we really get two sources of value. First,
Speaker Change: The operating expenses start to spool up, too. And, you know, that's non-productive operating expense while we're building it. So, as we go through this process, we just want to give ourselves the opportunity to, A, get better information on how things are going to play out.
Speaker Change: but also an opportunity to just go back and revisit those assumptions for the opportunities I just described.
Edison Yu: The last one for me is on the aviation side and flight connectivity. Big debate out there. Airlines seem to be choosing sides in technology or orbits. How should we think about LEOs versus GEO and the competitive dynamic in commercial aviation?
Edison Yu: Thank you. Bye-bye.
Speaker Change: Okay, I think from an airline's perspective, and the airlines we're dealing with, I don't think they think of orbits first. I think what they think of is, well, what's the business model going to be? And when we first entered the business,
Edison Yu: and our first customers offered free service to...
Edison Yu: Then every airline would have additional expenses and no airline would have any competitive advantage relative to what they had now.
Speaker Change: So, I think that the main thing that the airlines...
Speaker Change: have been focused on is a business model, and that business model has to be in the context not only of what they're doing, but what is the field doing as well. And so the main thing that we've been hearing with airlines is
Speaker Change: is, okay, how do we, what are the opportunities to differentiate?
Speaker Change: almost none of the airlines expect that the way they differentiate is going to be is going to last five years or ten years. They're really looking at how they differentiate in on some continuous basis.
Speaker Change: and then and there you know.
Speaker Change: Low latency, which is the main advantage of Leo, is a good thing. It's one of the reasons, you know, that we're we're adding low latency
Speaker Change: to our Maritime Service. We're working with Lightspeed to do the same thing for K-A-Band.
Speaker Change: I think that then the issue is really going to be differentiation and also, I can tell you the other thing that's really become more and more evident, especially
Speaker Change: You know, for us, I think in terms of numbers of planes that we have, what's becoming more and more evident is...
Speaker Change: the 1% or 2% of the time that it doesn't.
Speaker Change: I tell you, that's where a lot of the focus is, and that can be for quite a variety of reasons, especially as you scale up. So I think those are kind of the things that
Speaker Change: we're having, the conversations we're having with airlines are, and a lot of them, I think, more of the...
Speaker Change: if you think of market segmentation.
Speaker Change: I think it's going to be less around Leo versus Geo and more about business model integration with Entertainment, what are the roles of entertainment and connectivity? What are the monetization strategies there? Are there things that are done to help monetize? What kind of friction do they create? Those are, I can tell you, those are the real, the main issues I think that everybody's dealing with in this space including, you know, I think that, you know, what we're seeing is less and less
Speaker Change: focus on just the pipe and more and more on these issues.
Speaker Change: of Integration and Monetization.
Speaker Change: Assuming that the pipe is good. I just, you know, that's just sort of taking the pipe for granted part.
Speaker Change: Thanks. Have a good day.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Sebastiano Petty of J.P. Morgan. Please go ahead.
Speaker Change: David Schmolke, David Schmolke, David Schmolke
Speaker Change: Thanks for taking the question. I guess maybe perhaps just following up on Rick's question and to your comments, Mark,
Speaker Change: Now, with UAL, you know, choosing their, you know, pony in the race, you know, or, you know, deciding to go free, I mean, how does that now, you know, permeate, you know, through the ecosystem, right? Obviously, one of your original partners JetBlue has kind of been on that path for a while, Delta has, you know, discussed it, but, you know, this seems like a topic that we've discussed across commercial aviation, IFC, for the last couple years, and so
Speaker Change: what are the next steps from here perhaps maybe the best step best way to put it in light of the UAL announcement and then thinking about
Speaker Change: Thank you. Thank you.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Do you see, you know, what is the feasibility or the inclination, perhaps, in some sort of, you know, a hybrid, you know, LEO-GEO in-flight connectivity solution similar to what you're doing with NexusWave and Maritime? Is that something that, you know, could make sense over time? Why or why not? Thank you.
Speaker Change: Okay, yeah and just could you, when you said what are the best steps in light of the UAL announcement, are you talking about other airlines or...
Speaker Change: Yeah, I mean, ecosystem-wide, if UAL has not made their decision to partner with Starlink and kind of go, you know, I think, where do you see, you know, the chessboard, how do you see the chessboard perhaps playing out from here? Potential next steps or additional, how does this, how do strategies evolve from here in your point of view?
Speaker Change: from an airline level.
Speaker Change: Yeah, I think the, so the number one...
Speaker Change: I'd say a lot of the ingredients have been evident over the last 10 years. All right, so the number one issue for a lot of airlines
Speaker Change: is monetization, right? It's like what they don't want to see is a substantial new expense without some value associated with it, right?
Speaker Change: Well, again, the way to put it is...
Speaker Change: Thank you.
Speaker Change: I'm just going to give you an example. One answer was when free Wi-Fi was first introduced at scale, it was, hey, I'd rather fly on that airline, and so maybe they could get a freemium in ticket prices, right, so that the measure might have been revenue per passenger seat mile as an example, that that might be
Speaker Change: an example of a way that it was monetized. But if multiple airlines have free, then it's hard to get a premium on ticket price. That's an example.
Speaker Change: So then people are looking for other ways to differentiate.
Speaker Change: And I think that that is a big part of what's going on now, is understanding the different ways to differentiate and how to capture those.
Speaker Change: And they're quite, you know, if you just think about what you see when you fly on different airlines, you'll see everything from...
Speaker Change: Advertisements to Promotions by
Speaker Change: by telecom carriers, promotions by content providers. There are different tiers of service, could be free texting, could be free
Speaker Change: Complete free internet, be internet with or without streaming.
Speaker Change: I think that what people are, what the airlines are looking for are what are the ways to monetize, who, what data is available, it's just...
Speaker Change: It's that's what it's turning into from from our perspective. And I think that you're also seeing
Speaker Change: Thank you. Thank you.
Speaker Change: different airlines take different strategies about how much of those things they want to do in-house, how much of them they outsource, and whether or not they have seatback displays, whether they're all seatbacks with connectivity and entertainment. I would say that the
Speaker Change: What is the monetization and differentiation strategy? And so we've ended up...
Speaker Change: adding quite a lot of software engineering capability, integration with entertainment, integration with third parties in order to do those features. And I can tell you that and it's not
Speaker Change: There's no known destination, because as things become successful, other airlines imitate them, whether they do them themselves or they have third parties do them. So that is most of the discussion that we have.
Speaker Change: And I just, I think it's...
Speaker Change: only a portion of the bandwidth used involves that, and I would say that, from the airline's perspective, that's one way to differentiate, but the monetization way is another.
Speaker Change: And from our perspective, what we're seeing is that it's definitely possible to integrate LEO and GEO.
Speaker Change: or any, you know, any multiple, any different orbits in a way that creates effect, you know, the same effect for passengers.
Speaker Change: So the thing, you know, and just to put things in perspective, you know, the thing we have a ton of data about usage
Speaker Change: The thing that often turns out to be a bottleneck on usage is when large numbers of planes are in the same area. And that's the place where GEO really shines, the fact that
Speaker Change: and that streaming is not latency sensitive, that's what creates economic incentives around combining Leo and Geo.
Speaker Change: So those those are the things we're doing. I can tell you that among our customers there's a lot of enthusiasm for that and the first place we brought it to
Speaker Change: So we brought it to market, it's in Maritime.
Speaker Change: And I think the effects that we're creating for customers are they really can't tell the difference between that and an all-Leo solution. I think the place they will be able to tell the difference is in a very high-demand area.
Speaker Change: and others, which are usually ports for maritime or airports for airlines, and sometimes those are what happen.
Speaker Change: So, you know, this is part of what we've been saying for quite a while. I think that we're seeing that bear out now that the, you know, some of the, like, OneWeb
Speaker Change: is in initial services. I think we'll see the same thing with lightspeed as well, and what we're aiming for is to integrate the two. We think that there is a way to integrate them that's better than either one on its own.
Speaker Change: That's what we're aiming for.
Speaker Change: Does that answer your question?
Speaker Change: Yep. Appreciate it. Thank you, Mark.
Speaker Change: Your next question comes from the line of Simon Flannery of Morgan Stanley. Please go ahead.
Simon Flannery: Thank you very much. Thank you.
Simon Flannery: Thanks a lot. Good afternoon. I was wondering if you could just update us on any new
Speaker Change: where you think you're going to deploy the capacity going forward. And then just following up on the UAL question, could you help us size the potential exposure?
Speaker Change: And the timing, it sounds like United is keen to move aircraft onto the new system quite quickly. So we'd love to get how you see that going, given the contracts you have with United. Thanks.
Speaker Change: Okay.
Speaker Change: Okay, on the new satellites, the reason we put the roadmap in the way we did is because the in-service date is really what drives our ability to monetize the satellites.
Speaker Change: That, those are unchanged now, it really, as we go through this.
Speaker Change: There is actually a lot of work involved in holding to those schedules and working with our suppliers So there is work going on some of those you within that and this is the reason that we've
Speaker Change: focused on the in-service states, is that there are opportunities...
Speaker Change: If some things go faster, we can benefit from that. If some things go slower, we have the opportunity to try to accelerate.
Speaker Change: other parts of the program, maybe at an additional expense or at additional resources, but so far we've been able to hold to the in-service states, and I think that's how we're thinking about it. I think that's a good way for investors and customers to think about it as well.
Speaker Change: But we are making good progress on them. The main, you know, for going back to your other questions,
Speaker Change: fight to the main things that we were doing, you know.
Speaker Change: we talked about this before, very extensive analysis of what the failure anomaly mode was on flight one.
Speaker Change: come up with two main mitigation approaches. One is a way to prevent the
Speaker Change: the failure mode from occurring at all, and the other one is to beef up the structure in a way that even if that failure mode were to occur, the structure would still deploy not, you know, effectively nominally.
Speaker Change: So, the main things that we've seen that have been good have been the implementation of those directive actions. So, that's the main thing. The spacecraft itself is...
Speaker Change: basically all all done and in storage just waiting for the reflectors to be to be installed. Flight three is getting close to the same situation we were just waiting
Speaker Change: for the reflectors to be installed. The main plan that we've discussed is to put flight two over the Americas and flight three over Asia Pacific.
Speaker Change: Okay, and then on the UA, on the United thing, we're not going, well, I think that, uh,
Speaker Change: We would refer people to United for their plans on deploying Starlink.
Speaker Change: They have said that they're going to go through an evaluation process.
Speaker Change: to get there. It would be inappropriate for us to comment on that.
Speaker Change: We are continuing to grow airplanes in service. We had previously given a target of about 4,200 commercial aircraft in service at the end of this fiscal year. It will be very close now. We had a substantial margin before.
Speaker Change: ongoing delivery delays compounded by the strike. It's going to be close, but we think we're going to be there.
Speaker Change: We still see, and we have about 1,500-ish planes in backlog beyond that.
Speaker Change: So, we're going to continue to grow. We have factored in.
Speaker Change: inputs from United into our forecast, but it would be inappropriate for us to describe what that is for us. But we see ongoing growth at a good level for the next several years.
Speaker Change: Thanks Mark.
Speaker Change: Keep your courage up, all you pastors.
Speaker Change: Yes, thank you.
Speaker Change: Thanks, everybody. Thanks, everybody.
Speaker Change: Your next question comes from the line of Mike Crawford of PRID Securities. Please go ahead.
Mike Crawford: Thank you. Just continuing on the when we can expect in-service at flight 3 and flight 2 for VISAT-3, just
Mike Crawford: I appreciate the pictures you've provided us in August and now with this report today on the Biosat Satellite Roadmap. But when would be the earliest that Flight 3, these satellites, each could go in service at this point?
Speaker Change: Well, you know, what we've said is mid to late 2025 for Flight 3 and late 2025 for Flight 2. And that's, you know, I think right now we're not.
Speaker Change: Yes, that's about, I think that's a good range for us to get at this point.
Speaker Change: Yeah, I guess I'm a little confused on that because, you know, from the picture it looks like Flight 2 is further along, you know, at final ground test stage, but FISAT-F3 is going to catch up and pass it.
Speaker Change: Flight 2 has to do with the launch vehicle and the specific mission. Flight 2 has a longer orbit-raising time than Flight 3.
Speaker Change: Okay.
Speaker Change: Fireside 3. You're talking now today about maybe some multi-tenant infrastructure.
Speaker Change: I think when you and I
Speaker Change: talked a couple months ago. You were talking about maybe just simpler, faster to build satellites, maybe even proliferated geo. Is there any to diffuse risk and enable more agility? Is that?
Speaker Change: All part and parcel of what you're thinking or have thoughts evolved more?
Speaker Change: Okay, those are two different approaches and therefore two different purposes. The area where we're getting...
Speaker Change: Good interest in the multi-tenant environment is in the D2D, the mobile application.
Speaker Change: and that's really because of the standards and the open architecture that's available. So if you look at the, and again it's these 3GPP standards.
Speaker Change: that are we think are going to be
Speaker Change: really a lot of the foundation of these non-terrestrial networks.
Speaker Change: So the approach that multiple, and just to be clear, I mean, right now, if you look at the forecast...
Speaker Change: Thank you.
Speaker Change: Cheers.
Speaker Change: So, what we've described is essentially a satellite architecture.
Speaker Change: and that can work multi-orbit that allows, think of it as
Speaker Change: just to use the types of services that are in now. Remember, Iridium has its own satellite, its own infrastructure, its own handsets, its own waveform.
Speaker Change: Globalstar has its own, Inbarsat has its own, Vriah has its own. But when you go to these 3GPP standards, you should end up with devices.
Speaker Change: that could work.
Speaker Change: on the RF bands of each of them, and they also...
Speaker Change: If they are all using the same standards and the same network architecture, you could make any of those devices.
Speaker Change: work on any of those constellations, at which point, if the market's as big as what it looks like, it would make sense, just like it did in terrestrial, for operators to share infrastructure. It would allow much more, it should allow better return on capital for everybody.
Speaker Change: So that's where we're getting traction on that one, and we've come up with some pretty creative and innovative.
Speaker Change: space and ground designs that allow operators
Speaker Change: to do both the existing MSS services and to improve those MSS services, much higher speeds, lower cost airtime, and then also to have the D-to-D modes to it.
Speaker Change: So that that's what we're doing. That's what we're doing. Kind of think of that in the mobile satellite bands.
Speaker Change: Let's think of it as.
Speaker Change: Some fraction of the function of the throughput and functional capability of ISAT-3 satellite had an equivalent fraction of the capital cost.
Speaker Change: And, you know, one of the things that we've seen, even though, you know, I think we do think that the Viasat-3 satellites are going to do what, you know, what they're intended to do, the first one, just once you account for the mechanical deployment issues, works just the way it's supposed to.
Speaker Change: It's pretty clear that.
Speaker Change: The large satellite manufacturers are, you know, it's something of a struggle to, it's exotic to build these, they're kind of like what they call exotic or exquisite technologies. So what we've been looking at are much simpler technologies.
Speaker Change: that would let us do more like what you're describing, which is a proliferated geo approach.
Speaker Change: And that is it.
Speaker Change: I think that there are others that are looking at low-cost geo. The thing that's unique about what we're trying to do is to get much, much higher capacity and much, much higher economic yield per capital dollar for those. What we're finding is quite a few
Speaker Change: other satellite operators that are very interested in the same things. So that's what we're doing is we're we're exploring with them technical approaches and the economics of them and that's well that's the second approach that you described in GEO that we're working towards.
Speaker Change: And then the other point I would take is, which really goes to the question that was asked before, is
Speaker Change: can we do that in a way that gives us these hybrid...
Speaker Change: Leo and Geoarchitectures at Avastus.
Speaker Change: to compete with the PureLeos, but in a way that's really well suited for mobility.
Speaker Change: With the, I think, five-fold increase in bits you're going to be able to deploy once you launch these two Viasat-3 satellites, is there any change in your belief that you will be able to deploy these with ample demand for you to, you know, deliver managed services and bandwidth to customers with this capacity you're bringing online?
Speaker Change: There is a lot of demand, and I think one of the ways you can tell that is, you know, even these Leos that have put out really big numbers.
Speaker Change: about what they're going to deliver, don't deliver that all the time, right? Or they...
Speaker Change: struggle to get to reach the peak speeds all the time or in the highest demand places.
Speaker Change: So, we see a very large amount of demand, and capacity is one of the ways to differentiate. There's a little bit of diminishing returns. Do you need...
Speaker Change: You know it.
Speaker Change: How much high definition do you really need on an airplane? For right now, if lots of people are streaming on an airplane at an airport, there's a ton of demand in those situations.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: All right, thank you very much.
Speaker Change: Your next question comes from the line of...
Speaker Change: Go ahead, Nick, sorry.
Speaker Change: Yep, the next question comes from the line of Chris Kulty of Kulty Space. Please go ahead.
Chris Kulty: Thank you. Mark, I just want to follow up.
Chris Kulty: You did mention when you were talking, I think, about direct-to-device about a concept of a
Speaker Change: which is that
Speaker Change: You've got a one in the same?
Speaker Change: So the multi-tenant, just to be clear, think of...
Speaker Change: So when we talk about multi-tenant, a simple way to think about it is think of it like cell towers that are multi-tenant, right? They're designed to cover the entire range of spectrum and to support, you know, whatever the network generations are and the backhaul that are required to support those.
Speaker Change: People have done multi-tenant satellites before, think of like condo sats in the geo environment and you can have multi-purpose, I mean even Iridium did condo sats with ADS-V for instance in MSS.
Speaker Change: So, we're trying to make a distinction between, in the direct-to-device space, is really business model as well as the technology.
Speaker Change: In the geospace, things might look a little more like condo sats or shared satellites but don't really go to the same extent as the directed device would because it's going to be so dominated by these 5G standards.
Speaker Change: Okay, and for that
Speaker Change: I'll call it the condo set, you know, business model. Where are you in terms of customer outreach and
Speaker Change: you know, basically building a pipeline on that.
Speaker Change: and, you know, likewise on the flip side.
Speaker Change: I think that's a bit of a distinct supply chain, I would think, from what you currently source.
Speaker Change: you know, what sort of hurdles, if any, are you
Speaker Change: are you seeing in that effort?
Speaker Change: No, I would say the best, you know, the best example, some of the best examples of that really revolve more around network standards than technology, and so we've done this pretty successfully for quite a long time.
Speaker Change: with partners in Asia-Pacific and in Latin America. We have several more already in the works where we would share networking features and pretty much on a demand-assigned basis where they can support their national needs, but really work with us for getting access to different verticals or for global roaming.
Speaker Change: And we're finding more, we actually have quite a few of those types of arrangements in the works, using existing satellites, some of them are ours, some of them are others.
Speaker Change: Gotcha. And some hopefully real just quickies. I'll just be direct. Did you remove any United aircraft from, you know, your previous order backlog? If not, you know, can you give us a sense of what sort of exposure you have?
Speaker Change: given the announcement with
Speaker Change: United on the thousand aircraft that they're.
Speaker Change: sending over to start.
Speaker Change: No, okay, so we're not going to... It would be presumptuous of us to do that. I think you should...
Speaker Change: services that they have. What I can tell you is we will bake those into our forecast, our understanding of them. We're not going to break them out separately, but the forecast that we give for airplane count will reflect
Speaker Change: Not just United, but all of our airline customers' plans.
Speaker Change: Sorry, Chris, we're starting to run long, so I think you've had your more-than-one and follow-up questions. So, Meg, can you go ahead and move to the last questioner, please?
Speaker Change: Transcription by ESO. Translation by —
Meg: Yep, sure. So we have one last question from Ryan Coons. Your line is now open.
Speaker Change: and from Leo. Okay.
Speaker Change: Fixed, the main things are, the main ingredients there, and it's been the same thing, is one is moving bandwidth from fixed applications into aviation. The other one, which is.
Speaker Change: Sort of an industry-wide issue for everybody is the growing per-user bandwidth demand requirements. So if we're not adding bandwidth.
Speaker Change: from our satellites, then we're probably going to go down. We've shown this effect before.
Speaker Change: Mark Dankberg, Kumara Gowrappan, Robert Blair, Lisa Curran
Speaker Change: So those are the two things I think from a year from a year-over-year perspective the dollar amount on the fixed
Speaker Change: The decline is decelerating.
Speaker Change: Got it. So you're saying it's part of your plan to move bandwidth anyway toward mobile and IFC, so the impact is less, even though it stands out as a double-digit decliner.
Speaker Change: I mean some of some of the bandwidth that was contributing to fixed revenues now contributing to mobile revenue in government revenue
Speaker Change: Got it. All right. Thanks.
Speaker Change: Thanks for having me. Thanks.
Speaker Change: That concludes our Q&A session. I will now turn the conference back over to Mark Dankberg, CEO, for the closing remarks.
Mark Dankberg: Okay. Well, thanks very much, everybody, for participating in our call and for sticking around a little bit extra. We appreciate all the interest and we'll look forward to speaking again next quarter. Thanks.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.