Welcome to ViaSat’s FY 2021 Fourth Quarter Earnings Conference Call. Your host for today’s call is Rick Baldridge, President and CEO. You may proceed, Mr. Baldridge. Okay. Thanks for joining us today. We released our Shareholder Letter earlier today before the market opened and hope you have all had a little time to review that. On today’s call, we’ll do a little bit of just brief opening remarks and spend the rest of the time on Q&A. But first, let’s have Robert provide our Safe Harbor disclosure.

Thanks, Rick. As you know, this discussion will contain forward-looking statements. This is a reminder that factors could cause actual results to differ materially. Additional information concerning these factors is contained in our SEC filings, including our most recent report on Form 10-K and Form 10-Q. Copies are available from the SEC or from our website. With that said, back to you, Rick.

Okay. Thanks, Robert, and hello, everybody and welcome to our fourth quarter and year-end call. In addition to Robert, joining from the call today is Mark Dankberg, our Executive Chairman; our CFO, Shawn Duffy; Paul Froelich from our Corporate Development and Investor Relations team; and new addition Peter Lopez who just joined us focusing on Investor Relations right now. So before getting to the Q&A, we’ll cover a few highlights. First thing to note is, we’re really proud of what we achieved in our fiscal year 2021 performance, especially in light of all the challenges, I’m sure a lot of companies had associated with COVID-19 that obviously hit us right from the beginning. A combination of our diversified business mix, early and very decisive cost actions and prioritization throughout the year, alongside the really hard work and adaptability of our employees allowed us to achieve really stellar financial results for the year, including records for adjusted EBITDA, operating cash flow over $700 million and record awards. We finished the year on a strong note with a fourth quarter that is stronger than normal with a 23% year-over-year growth in Q4 adjusted EBITDA. Our business segments are performing well with really strong momentum going into 2022. In Satellite Services, we saw strong demand with stable churn and record ARPU in our fixed consumer services. Our IFC business was severely impacted by COVID for the whole year. We’ve seen some steady improvements each quarter since the beginning, but we’re still well below the level of pre-pandemic business. The trend continues towards normal travel patterns, with consumers leading business travelers in that area. Government Systems had good revenue and EBITDA performance, especially in light of the COVID challenges created by the pandemic. And we had another year of over $1 billion in awards, marking the third year in a row for that milestone in government business and adding to our backlog. Commercial Networks had a strong performance in our antenna systems business, which partially offset the COVID-related impact and IFC mobile terminal shipments. But beyond the numbers, we achieved other really important execution milestones and wins that are worth noting. One is completing payload integration for the first of the three ViaSat-3 payloads. The one that’s going to go over the Americas at our Tempe, Arizona facility, and we’re currently preparing the first payload for shipment to Boeing, which is imminent. Our targeted launch date of early calendar 2022 remains on track. We added Delta Air Lines as a new and very important customer in our IFC business, now with over 530 aircraft under contract. If you saw the press release we sent out today, we added another 230 aircraft to what we already had. We commenced installations with another new customer, KLM Royal Dutch Airlines. And we kept our eye on long-term strategies and opportunity sets with the acquisition of RigNet and the other half of our European joint venture, which we closed them on the same day. These achievements reflect our continued focus on execution. We had ViaSat-3, as we grow our global footprint and expand into new geographies and new vertical markets. We also support our long-term financial targets. Despite the challenges from COVID-19, we believe we’ve kept ViaSat on track to double revenue and more than double EBITDA by FY 2025. We’re still targeting turning free cash flow positive two to three quarters after the launch of our second ViaSat-3 satellite. So with that, let’s go ahead and jump into the first question, operator.

Thank you, sir. Our first question is from Ric Prentiss with Raymond James. Your line is open.

Hi, good morning. Good afternoon, everyone.

Good morning.

Couple of questions. First question, I just want to talk on the schedule. You mentioned that the ViaSat-3 over the Americas is on track for a calendar year 2022 launch. Any issues with COVID-19 supply chains or construction? And can you lay out kind of the thoughts on when the 3D over EMEA and 3C over APAC are on track for launching and in-service?

Well, I mean, I can’t predict that there won’t be any other COVID impacts. It has definitely hit us pretty hard this last year on that payload. But generally speaking, we were pretty well coordinated on the supply chain; most everything’s in place for that first one. Boeing, I’ll let those guys speak for themselves, but we’ve got a lot of confidence. They understand the schedule; the bus is ready. So, we don’t expect anything but if anything happens, it will be minor. The second payload, as we’ve said before, is about six months behind the first one. The only thing that’s happened here is the third payload right now, which used to be a year behind the second one, is now more like a six- to nine-month range behind the second one. It’s moved up, so that’s the current schedule.

Great. And how long until the satellites are in orbit? How long should we think about in-service versus launch dates?

Well, I don’t think we’ve officially announced our launch providers for each one of them, and it varies by launch provider. So, we’ll give you a better idea as we get a little bit closer to the launch in terms of timing, because each one has a different orbit raising profile. The test after we get on orbit is probably about the same, and that’s probably a little longer for the first one than it is for the second and third ones.

Makes sense. Obviously, a big year for government with a billion in awards. When you think about those awards and the bidding, how many of those contracts are you going in on like a solo bid? How many are you joint bidding with someone else, and who are your bigger partners or competitors regarding those awards?

Well, in most cases, we’re the prime contractor. So, we do partner with other companies where it makes sense. For example, we have a partnership on an Australian business contract, and we do work with Harris where we are a supplier to them. Most of our awards, we’re the prime. Many of them are competitive, so we compete against other significant players as well as joint ventures like Data Link Solutions, which is between BAE and Rockwell. In many cases, small tactical terminals, we’re competing against alternative solutions or ways to do it, but we’re the only ones with that specific product. So, with the non-development item, we invested our own money and developed that. It really competes with the old piece of the old JTRS and the filled airborne maritime and fixed terminal that didn’t make it through the JTRS profile—that’s really where that terminal competes. And nobody else has handheld Link 16 products like ours, the BATS-D. So, in a lot of these cases, we’re the sole source product out there and we’re the prime contractor. If I can go into F-16 or F-18, we're not the ultimate source, but they’re procuring from us.

Makes sense. And last one for me, Rick. You called out the acquisitions you made with RigNet and the European JV. How should we think about what that means in terms of additive revenue and added EBITDA once you fold them into your systems, now that you’ve had them for almost a month?

Yes, hey Ric, I can jump in on that. I probably think about combined top line contributing around $230 million next year, and on the EBITDA line, about $40 million.

Okay. And that’s for like 11 months on.

Around that, yes.

The other thing to think about is, this year, there are synergies in each one of these transactions, but there’s also implementation costs and integration costs of getting them in kind of the way we’re looking at, which will pretty much offset each other in the first fiscal year.

Right. And then, are they going to go into Satellite Services or is there some mix between the different segments that you report?

The majority of that is going to go into Satellite Services. There’s a bit on the product side from RigNet that will go over into Commercial. If you think of it, it’s less than around 10% to 15% of that number.

Perfect. Thanks. I appreciate you guys.

Thanks, Ric.

Our next question is from Simon Flannery with Morgan Stanley. Your line is open.

Great. Thank you so much. In the Shareholder Letter, you talked about a significant growth opportunity in recurring service revenues as the ViaSat-3 constellation enters service. Could you give us a little bit more insight into what your visibility is on that opportunity? So, in terms of sales conversations or traffic, how do we think about that ramp in recurring service revenue as the three satellites come online and how much of that is in backlog or pretty firmly planned at this point?

So Simon, we’re not unlike a lot of the fixed satellite service companies that sell their bandwidth out and get contracts before they launch. Mostly, we don’t do that. It’s not that we don’t do some of that—we’ve done that, for instance, with XCI in Canada, but we don’t generally sell a lot of our capacity before launch. This comes from getting consumer subscribers and small business subscribers and in-flight connectivity and platform markets in that space—ground vehicles, maritime—it's signing up those subscribers as we go. We're most cases direct, and as we get outside the U.S., there will be areas where we make some wholesale deals, and those might be areas where we sell some capacity. These satellites are built to meet demand in the marketplace, so they’re parts where we see demand and where we think we can increase market share by bringing significant improvements over existing solutions. I’m not going to mention the other operators, but they may pre-sell two-thirds of their satellite before they ever launched it, but that’s not what we do.

On the other hand, one thing we do have is about 2,500 government contracts, so a lot of those are fairly predictable. That’s where we’re looking to capture revenue, and that helps us forecast growth.

Yes, that makes sense. I guess, part of it is, you do have a backlog of IFC and you added to that today with Delta. What’s sort of the timeline for seeing those planes coming online?

I think we’ll deliver over 400 of those aircraft over the next 12 months.

Yes.

Yes, something like that with the Delta aircraft.

Okay, and then the balance year after?

Yes.

Great. And perhaps any color on, we heard many of our companies talking about things getting a lot better in March and continuing to improve. We see the latest TSA data. So, is it fair to say that activity in IFC is continuing to accelerate through this current quarter from the levels of Q1?

Yes. I’ve mentioned that in my opening remarks there; we’re definitely seeing month-to-month increases in the number of aircraft that are actually in service and the number of passengers that are flying. But most of it is in the consumer sector. They’re seeing a very slow return of business travelers right now.

Right. Rick, are you seeing more evidence that consumers are starting to have higher take rates to use more bandwidth than maybe in the past?

We’re seeing similar take rates to what we’ve seen before. Just remember that business travelers travel for leisure also. So, it’s just because they’re not traveling for business doesn’t mean they’re not conducting business while traveling.

Yes. Okay. Great. Many thanks.

Okay.

Our next question is from the line of Phil Cusick with JPMorgan. Your line is open.

Hey guys, thanks. With the payload of the first ViaSat-3 shipping soon, and the next two getting toward completion, remind us how we should think about CapEx in the next year?

Sure. I’ll take that one. A couple of things; one is to remember that, this year we had a little bit of our capital shift, just trying to not overlap against the one schedule. I think that’s one thing to keep in mind. And then, we’re in that last year before launch. So the capital in 2022, I think about a quarterly rate around $300 million, but it’s going to start to ramp up on the back end—that’s probably a good range.

Okay. And then second, if you can talk about the sales headwinds you’ve seen in the government and defense business over the last year, and are those easing? Can we start seeing that business really take off?

No, most of them were related to simple physical things. People couldn’t get access to some of the networks that they needed to utilize, to review and issue contracts or accept contracts or those types of things. Given what’s happened, and given that the CDC has now come out and a lot of people have been vaccinated, they’re saying that if you have been fully vaccinated and have had the adequate time, then you don’t need those precautions. So, we would expect that things are returning to normal over the next few months. That’s certainly the remainder of the year. We’re seeing quite a bit of awards, obviously; we’ve got over a billion, but it was definitely more difficult than in previous periods.

Right. That’s just logistics of signing contracts down there. I know it’s been a big headwind, but it seems like not quite normal yet, but getting toward normal in the next few months?

I think that’s a good characterization.

And is there a real backlog of things that need to be signed and are sort of ready to go, that we can see picking up, whether it’s this quarter or next quarter, or is that going to be more gradual?

The government reports are always pretty lumpy. I would expect that’s going to continue. If you look at this year, we have really good front-end orders in that area. Just there was some contract timing, so those things were ready to go. I think we’ll see it continue to be lumpy.

Okay. And then last one, there was a headline recently that you may consider splitting the business or selling a business; you aren’t getting the multiple for the defense business in the market that you deserve. Can you help us think about anything you can do on how that makes sense or what the synergies are of having the government and civilian businesses under a single roof? Thank you.

Yes. There are significant synergies in having both the government and commercial companies in multiple different form factors. One is that government is a complicated user of these types of broadband services because they will have concentrated demand in certain areas. They don’t move around and look. If you want to fulfill your contracts, you have to have bandwidth available in all the places where they might need it. If they are a large fraction of the total amount of bandwidth that you’re handling, the utilization of that can be really low, but you have a very large base of commercial business. It’s a lot easier to blend that government contract and still get really good efficient use of your resources. So that’s one of the sources of synergy. You’ve seen that over and over in the government contracts that we already have, which are the ones that primarily use our own bandwidth. With ViaSat-3, we’ll see the same effects when we go live. The other area that’s really important is that especially if you look at the way networks are evolving, government satellite networks are often an augmentation of terrestrial networks. So having this useful terrestrial tactical networks along with satellite networks gives us an opportunity to optimize both. It’s a good way for us to compete more effectively in the antennas market than someone who has access to only one of those capabilities. We find significant value in that combination.

Only, the other thing I would add there is, there have been times when we’ve had a lot of credit for our government business and times when we don’t seem to get it. I think those periods are transitory. I don’t like it, but I think it’s transitory.

Okay. Thanks, guys.

We have a strong advantage in the antennas market due to our combined capabilities, which allows us to compete more effectively than those with just one of those capabilities. This combination brings us significant value. There have been times when our government business has received much recognition, and other times when it hasn’t. I believe these fluctuations are temporary, though I don’t particularly like them. Thank you.

Okay. We’ll take one more call—one more question.

Thank you, sir. Our last question is from the line of Chris Quilty with Quilty Analytics. Your line is open.

Thanks. I wanted to follow up on just a couple of commentary or couple of points that were in the commentary. One of them indicated that the margins in the services business will likely be pressured towards the back end of the year, as you start to roll out some of the costs associated with ViaSat-3. Shawn, should we expect that mostly around the fourth quarter, or should we see the margins pressed down before then?

Yes. When I think about the curve with those startup costs coming on for ViaSat-3, they tend to scale or ramp as we bring up the network. They trickle in earlier and, yes, you’re right; they will get a little heavier on the backend.

So, they’ve already started, like they’ve already started. I think Shawn described it exactly right—it’s a ramp. So, the fourth quarter will be the biggest quarter by far, and it certainly accelerates in that timeframe. As we get closer to launching the satellites and getting them up and running, we can’t wait until the last minute to start; we’ve already started. We’re putting satellite access nodes in, running tests, lining some of the fiber rings up that will ramp as we go throughout the year. But the fourth quarter will definitely be way heavier than the other quarters.

Understand it. And I think also at the start of COVID, you had a layoff of a couple hundred people on the IFC side. Presumably, you’re going to be bringing back some of those people as the business scales. Does that also play into the margin compression?

No, I don’t think so. Just because one area that gets hit, that’s not the only area. I’d say well over half the employees that left were administrative functions. We preserved the people in the operating space as much as possible. Appropriately, it was more like 70%. So, the add-back into those areas will definitely lag the business. The plan would be to maintain as much efficiency as possible. We won't be adding employees, but we’re definitely hiring.

That’s good to know. On the government side, the STA has made some pretty favorable comments around the role that Link 16 will eventually play in the Space Force's proliferated LEO. Can you give us an update on where you’re at in that program in terms of timing or other new developments?

Different developments; it’s interesting in general. The Department of Defense brings a different perspective. From the STA standpoint, looking forward is really driven by transmission capabilities that can be used throughout multiple applications. You’ve seen with them incorporating teams into that; there’s recognition of the demand for Link 16 connectivity and especially for new applications of Link 16—long-haul, over-the-horizon, or short links communications. We’re working with both sides of that; there's definitely opportunities for innovation on the application side where space connectivity is more than just a relay or one element in a broader portfolio. It’s to be determined, but it is interesting, especially with the rapid growth in numbers of participants and applications.

I wanted you to give me a number.

No.

I’m just being honest. Okay. So, let me ask one final question, which is the government services revenue, I think was a record at $80 million in the quarter. You had commentary around that being a big driver once ViaSat-3 comes online. I guess my question is, I think most of what you do today is Ku-band ArcLight. Do you need a new contract vehicle or new hardware to migrate aircraft from legacy Ku-band ArcLight network onto new ViaSat-3 KA?

No. Many of the programs that we won over the last couple of years explicitly contemplate migration to KA. Most of those contracts include hardware components, some include hardware upgrades as well. So, I’d say that the groundwork has been laid for that transition in our customer base.

Got it. And Mark, I assume you’re calling in on an Inmarsat or Intelsat network because you got a bad connection. It’s not a ViaSat-3 call.

Not to talk about that.

No problem.

And I guess that was the last call. So thanks everybody for joining. We appreciate it. Again, we’re definitely proud of our people and the performance this year. I think a lot higher than that may have been obvious to everybody—it was really a tough year, and the team did a fantastic job. We’re seeing things accelerate, so we look at a growth year in our fiscal year 2022, and we’re really confident in achieving the outlook and getting these satellites launched. So, we’ll see you next quarter.

Ladies and gentlemen, this concludes today’s conference call. Thank you for joining. You may now disconnect. Have a great day and be safe.