Welcome to Viasat's Fiscal Year 2022 Third 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 everybody. We released our Shareholder Letter earlier today before the market opened and we hope you’ve had a chance to take a look at that. Joining me today on the call is Mark Dankberg, our Executive Chairman; Shawn Duffy, our CFO; Robert Blair, our General Counsel; Paul Froelich, from Corporate Development; and Peter Lopez from Investor Relations. Today's call will consist of some brief opening remarks and then we'll go into Q&A. First let's have Robert provide us some Safe Harbor.

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 reports on Forms 10-K and 10-Q. Copies are available from the SEC or from our website. With that, back to you, Rick.

Thank you, Robert. If you haven't had a chance to review the letter, you'll see that our business continues to perform strongly across the board. Today, we'll discuss some details regarding the ViaSat-3 schedule and provide an update on the Inmarsat transaction. We've addressed many of the questions raised in the letter and hope to clarify any remaining inquiries shortly. Let me start with some key highlights from the quarter. Revenue increased by $144 million year-over-year to an all-time high of $720 million, and adjusted EBITDA also reached a new peak of $163 million, maintaining our momentum from previous quarters. We experienced year-over-year growth in every segment. In Satellite Services, we saw a 40% increase in revenue, largely driven by the performance of our IFC business as aircraft return to service and new clients like Delta come on board, along with contributions from the RigNet and EBI acquisitions. Fixed broadband revenue remained stable as we continue reallocating bandwidth to our growing mobility business, with 37% of Satellite Services revenue coming from mobility this quarter. International and other revenue highlight the growing diversity of our operations, with the greatest growth potential expected in these areas, leading to further diversification in our Satellite Services portfolio. Government Systems demonstrated solid revenue growth, with service revenues up 5% and total revenue increased by 2% year-over-year. While we observed robust performance from tactical SATCOM radios and tactical data links, there have been longer-than-expected delays in the certification processing required before delivering some security assurance products. Besides the $956 million backlog, we have IDIQ contracts with almost $4 billion of potential unawarded value not included in our backlog numbers. Commercial Networks also performed well, with revenues climbing 55% year-over-year. This rise was largely fueled by increased IFC terminal shipments and another strong contribution from our ground antenna systems division and RigNet product revenue. We believe our IFC orders and antenna systems backlog will continue to lead to positive results in this segment. Regarding our announced acquisition of Inmarsat, we've been focused on preparing the necessary filings and are making good progress on several fronts. We've completed the loan amendments for Viasat's $700 million revolver as well as Inmarsat's credit facility and term loan. We're advancing well on the regulatory front in both the US and UK and have submitted initial filings to the US Department of Justice and SEC, with more to follow in the upcoming weeks. Inmarsat is delivering strong financial and operational outcomes, aligning with our expectations. Additional details can be found on page 8 of the shareholder letter. I also want to remind you to look out for our transaction proxy, which we expect to issue soon. We're enthusiastic about the transaction, and so are our customers. Several airlines have contacted us to learn more about it, particularly how it will enhance our ability to serve both existing and future clients. We believe our commitment to global growth has played a significant role in recent business activities and new orders for long-range aircraft. In our last call, we indicated that we expect to close the transaction within nine to 18 months from the signing date, and we still believe that's a reasonable estimate, ideally by the end of this calendar year. Regarding the ViaSat-3 constellation, the launch of ViaSat-3 Americas is now anticipated for late summer due to some minor delays in our supply chain. We've been navigating through limited availability of certain critical skilled workers. Significant progress has been made in alpha testing our space-ground system integration using one of our own satellites. We're working to utilize this to manage on-orbit testing, aiming to begin initial services by the end of the calendar year, which aligns with our previous statements. We do not anticipate this will materially affect our financial outlook. The payload modules for ViaSat-3 EMEA have made substantial progress in our Tempe facility; benefiting from our experiences from Flight 1 Americas, we are now 95% complete, with the payload units already installed. We are in the final stages before shipping them to Boeing for bus integration. We expect our insights from the payload-bus integration will enhance the schedule for Flight 2 at Boeing, and we continue to target a launch about six months after Flight 1. Looking ahead, our overall company outlook remains robust. We believe we are on track to meet our standalone financial targets, including an average annual adjusted EBITDA growth in the mid-teens for FY 2022-2023 compared to FY 2021, as previously stated. Additionally, we are optimistic about more than doubling adjusted EBITDA by FY 2025 relative to FY 2020 on a standalone basis. While we are excited about the Inmarsat acquisition and ViaSat-3 development, our strong operational and financial results show that our teams are diligently focusing on effective execution. The same can be said for Inmarsat, given their strong performance. Now, we will open the floor for questions.

Our first question comes from Ric Prentiss of Raymond James. Your line is open.

Hello. Hey, everybody.

Hi, Ric.

Happy New Year, I guess officially.

Happy New Year.

Yeah. A couple of questions for you guys. First, obviously ViaSat-3 is slipping a little bit 3B about six months till after the first 3A. How should we think about magnitude of costs that you need to put in for ground and other operating expenses before the revenues start generating and what kind of pacing there might be as far as cost or revenues in the satellite launches?

Hey, Ric. This is Shawn. We're beginning to incur some of those costs now, but we've been trying to manage them alongside the launch. You might consider this quarter to see around $5 million in expenses. As we approach the launch, those costs will start to increase. A reasonable estimate for the annual rate before we go into service would be about $35 million.

$35 million on an annual basis?

Yes. So, kind of ramp up to that.

So, makes sense. And obviously, it's about a year from now that you get into service hopefully a little sooner. How are you guys feeling about maintaining flat revenue on the US consumer broadband side, given the demand from in-flight connectivity or should we expect some declines in the revenues on consumer broadband as we look into the future?

Hi Ric, it's Mark. So far, we have observed that the growth in ARPU has largely kept pace, and in some instances, has even outperformed the decline in subscribers. This seems to align with trends in the industry. We anticipate this to be the general trend as we move towards entering the market in the US.

Okay. And we saw some announcements. It looks like on the competitive front space like Starlink is starting to pivot to some more business enterprise with $500 plans, $2500 CPE costs. How are you thinking about the competitive dynamics out there as far as your ability to grow with ViaSat-3 is in the air?

Well, a few things. One it's a very big market. We have seen so far sort of I'd say de minimis and immaterial impact in the overall markets, due to space to where you can see that they're out there. But one of the points that we've made, and I think that this is turning out to be true is that the better the services, the more value you can offer as a function of price, the bigger the market is. And so what's happening is you've seen the market. We're seeing the market grow, and I think we're still getting a share of that market that's sufficient for our growth targets. The other point I would say is, if you look at what we're doing on the enterprise side, we tend to be a lot more vertically integrated into each specific market where there's quite a bit of value add besides just providing a broadband pipe. And we think that's really a good fit for us. So the types of plans that they're describing will be interesting, but we don't really see them having any impact on our forward-looking outlook.

Great. Thanks everyone. Stay well.

Thank you. Our next question comes from Landon Park of Morgan Stanley. Please go ahead.

Thank you. Hello, everyone. A couple of questions, so could you talk about your conversations that you've had with the UK government over the last couple of weeks and maybe some of your takeaways from those? And what type of concessions or agreements you guys are thinking about as part of the deal?

Yeah. So when we announced the deal, we were actually ready to go a little earlier and they asked us to delay it. They had worked out what we call undertakings with the previous private equity group that had taken this thing private. And I'd say, the discussions we've had are fairly consistent with those types of things. There's not quite frankly, the plans that we have in the UK in my view are quite a bit more favorable to the UK than what's going on and we're more vertically integrated. We'll bring more R&D. I think the types of people we hired will be more technical people. So I think, we just have a really positive story. We have been in the UK for over 10 years. We have data security products over there that we provide today that actually provides most of the data security across their MOD. We've previously announced a satellite operation center investment in the UK prior to this deal even getting signed. And so we have a very good story and they seem to be pretty receptive.

And is the deal going to be subject to the new national security oversight law that recently went into place?

It is yes. So we expect a full review across the board on all. That's what we expected going in.

So moving on to the broadband business. There's been some news that Facebook is going to be sort of winding down some of their – or I think most of their international Wi-Fi Express business. They had partnered with you in Mexico. Could you maybe just talk about any impacts that might have on you? And maybe just a broader update on that international Wi-Fi program you guys have been running? And what type of returns you've been able to see out of that business?

I'm sorry, I missed the very first sentence about the company that you mentioned.

Facebook.

On the international front regarding fixed services, we have two main initiatives. One is direct residential broadband that we are implementing in several countries since our acquisition in Europe, along with our joint venture with Eutelsat. The other aspect you are referring to involves what we call community Internet or shared Internet services. We are providing this in various ways, with the common element being the delivery of bandwidth via satellite to a central point, which is then distributed to end users. We're utilizing multiple methods for this distribution, including land connections, wireless, and unlicensed Wi-Fi, and we believe each method has its own advantages in different situations. Currently, all three delivery methods are showing growth and are appealing under various circumstances. Regarding the Facebook initiative specifically, we are collaborating with them on the transition, and we do not anticipate any impact from that.

Yes, and if you recall, our efforts with Facebook have primarily focused on understanding how to deliver our services and measuring their effectiveness. I believe this collaboration has been advantageous for both companies.

Great. And the last question for me is about the commercial network side. Can you discuss some of the managed services that you expect to increase in that business over the next couple of years? Also, what does the margin profile look like for some of these services, and what are the prospects for getting that segment closer to breakeven?

Okay. So, on the communications network side, I'm going to explain that a bit more. From a managed services perspective, the key focus has been on what we refer to as real-time earth. This is a shared network services business mainly for Earth observation data downlinks. Is that what you're asking about?

Yeah, that is what I'm referring to.

That's still a relatively small business, but it's growing steadily. Currently, we are primarily collaborating with third-party partners. We partnered with indigenous people in Australia and recently did one in Ghana, with more opportunities on the horizon. Additionally, the main businesses in our communication network have significantly contributed to our growth by building some of the most capable full-motion ground antenna systems. The value of a large antenna lies in its efficiency in receiving high-speed data, which is essential for high-resolution sensor data. Moreover, these systems are highly effective for the new generation of small satellites, allowing us to focus more on the sensing aspect rather than requiring extensive power sophistication from the space path. We are also working on integrating the LEO to GEO relay, a unique mission that the ViaSat-3 constellation can support due to its global coverage and high capacity. Although these are smaller businesses, they have good margins, and we anticipate that as they scale, those margins will improve. Regarding the overall EBITDA, the primary factor dragging it down is our internal payload designs for the Viasat satellite series and extending those capabilities to third-party satellites. This proactive approach is beneficial, but it leads us to expense the R&D rather than capitalize it, which is the main reason for the negative EBITDA in this business.

Yes, Landon, this is Shawn. Just to add it right? We – most of our R&D, we centralize in that segment, right? It benefits across the segment which have most inflows there. So outside of that it's a nicely profitable segment for us.

No, I was just trying to understand if on a reported basis, if there was a path over the next three years or so to get it closer to breakeven?

Yes. I mean I think we're – I think we'll see improvements in that. We're going to continue to have good momentum in ISE and delivery of terminals there but we're going to continue to invest as well for NextGen and things that we think are very valuable in commercial applications as well as government.

And R&D at 5% of revenues is still a good quarter...

Yes. This quarter we were about 5.2%. So 5%, 5.5% somewhere between or a good estimate.

Great. Thanks, everyone for the call.

Thanks, Landon.

Thank you. Our next question comes from Mathieu Robillard of Barclays. Your line is open.

Hi. Good afternoon and thank you very much. I have three questions, please. The first one relates to the Inmarsat acquisition. You were mentioning in your scripted remarks that you've engaged with clients and clients are asking about what this could mean and what kind of services maybe you can provide. Could you give us a little bit more color in terms of what is their interest focused on in a combined Inmarsat Viasat proposition?

Sure. Yes. So the main things that we've been focused on – and these are I'd say these are common among a lot of the mobility businesses. Number one is, there's an issue about bandwidth density, which is how do you avoid congestion in your network so that our mobility customers get – had a reliable service even when they go into busy airports or hubs. And one of the things we showed, we thought was one of the most important slides in our presentation about the Inmarsat acquisition was just the density of demand for commercial air and commercial air is relatively easy to show because it's scheduled airlines. But similar situations occur in things like general aviation, maritime and other – and even in land mobile applications. So that – one of the things that's really been an important factor for Viasat's growth has been our ability to deal with that, especially in the US, which is the largest domestic market for air travel. And if you look at the large airlines that we serve in the large airport cities I think we've been able to demonstrate our ability to keep ahead of that issue. So that's one. The another one that I think people are really interested in and especially in maritime and in some of the intercontinental aviation is the hybrid services between Ku-band and L-Band and being able to provide that continuity of service even under the worst weather conditions, which is where when you think of airline safety or maritime safety, where a lot of the most stressful situations are associated with bad weather. So that's being able to bundle those things into attractive systems is a really good thing. And then the other, which has been kind of the main thing that airlines have been looking to ViaSat-4 that we believe Inmarsat really accelerates is redundant global coverage. And so we'll get there faster and we'll have multiple satellites and sort of those long haul international routes. I'd say, those are some of the main topics that customers have come to us to discuss first.

If I could follow up, is that also a conversation you're having with governments that may require more capacity?

One of the key areas that has proven valuable for us, as well as for Inmarsat, is our work with government applications. A major challenge with these applications is that governments often do not know where their needs will arise. They can anticipate demands, but those needs can emerge anywhere in the world. Additionally, there is often a significant concentration of demand in relatively small geographic areas. Our ability to address these challenges, along with the unique advantages we offer, such as the potential of ViaSat-3 to deliver superior uplink speeds from platforms—which outperform many of the newer NGSO systems—makes our combined resources and capabilities very attractive.

Thank you. If I continue on the government and specifically service revenues, which kind of links a bit to what we just discussed. I realize service revenues and bandwidth demand for you today in Government Services is a small part of your revenues, but I was wondering if you see any increase in demand recently obviously, slightly more tense geopolitical situation? And whether in the past you've seen big increases in demand linked to any deterioration on that front?

Yes, I believe that all satellite operators typically experience higher demand for government bandwidth during global conflicts. If we have bandwidth available in the necessary locations, we can effectively provide support. Recently, there have been threats of conflict, but they haven’t materialized. At this moment, we are mainly receiving inquiries about planning and contingency measures. As we have expanded our capabilities, we are better positioned to offer support. Overall, while demand has decreased in some areas, it’s likely to shift to new locations if it does change.

Overall, the services portion of our government revenue has been growing over the last few years.

Yes. I think we've talked about that being in the 20% to 25% range of total services Government Systems revenue.

Great. Thanks. And if I finish with one question on the US broadband market. So you do mention in your press release that the number of subscribers has come down a bit but that's kind of voluntary to some extent as you want to use more capacity in IFC. But I had a broader question concerning the market and the competition there, because some of the telecom players are pushing a lot more it seems FWA solutions, as a way to increase their revenues. And I was wondering if you saw that as potentially a new source of competition a reduction of your potential addressable market in the US? Thank you.

No, we don't believe fixed wireless has significantly impacted the satellite broadband market in the US. Other elements are more influential, such as cable edge-outs and new fiber builds. Additionally, the usage of mobile service plans as a substitute for broadband varies with economic conditions and other factors, especially when people are in office settings with broadband access. These are the primary influences we see shaping the market. Over the next few years, we have conducted a thorough microanalysis region by region and expect fixed wireless to take some market share, but it won't eliminate the market. We anticipate modest growth in subscriber numbers in the US between now and around 2025.

Great. Thank you very much.

Thank you.

Thank you. Our next question comes from Chris Quilty of Quilty Analytics. Your line is open.

Thanks. I had a question about the forgotten acquisition maybe with RigNet. We haven't talked about it in a lot of detail but can you give us maybe a status update now that you've had it a couple of quarters under your belt of what you're seeing in that business in terms of both business operations integration cost reductions and I guess putting Inmarsat aside for a moment because there's a lot of changes that could come. But like what plans do you have now for that business in terms of growing it and migrating it with the ViaSat-3 services?

The integration between the two groups has proceeded very well. We saw some initial cost reductions at the beginning, and we've been focused on bringing together our global operations. We have begun the initial deployment of Ka-band in certain rigs that were previously leasing capacity, but this is still at an early stage with just some trials starting. This is a significant advantage as it enhances performance and improves the cost structure over time, which we expect to get better as we start launching the ViaSat-3 satellites, where the real growth potential lies. The Intelie portion of the business has exceeded expectations with a strong team and an effective platform. They continue to secure new business, and there are additional applications across Viasat where this group can contribute. Overall, I would say things are proceeding as anticipated so far.

Got you. And a question on the Ka-band rollout on the rigs. There was probably some reason in the past why RigNet was hesitant to use Inmarsat as the backup but have you determined what the backup path will be there for those systems?

So, yes, one of the things we're not doing is disclosing our execution strategy to the competition. So, one of the things we're doing in these trials is demonstrating what's capable. And so our view is that you give a whole bunch of people a whole much more bandwidth and charge them a lot less is you create things that they would have done had they been able to do and work. And so we're able to do that in areas where we have a footprint right now which is limited. As those satellites roll out and then with Inmarsat, we won't be limited to that. And so we'll be able to do that across the board. So, the real opportunity here is growing the type of services we deliver to all these platforms.

Understand. Different question. Mark, you mentioned cross-links. I assume you were referring to RF and not optical cross-links?

Yes. Correct.

Okay. Can you name any of the programs where you're targeting business because I'm not aware of any off hand at least unclassified?

The largest commercial project we have is Iridium, where we completed all the onboard cross-links. Iridium is our cross-linked system. So far, most of our projects have been government programs, including several new multi-satellite government initiatives that we have been funded for. I believe we will enter production for those satellites as well. The cross-links we are working on typically operate in the Ka-band or at significantly higher frequencies, offering greater capacity. An intriguing area where we are gaining traction is in LEO to GEO cross-links, which is a unique capability. The major benefit of this is that with a high-capacity global system like ViaSat-3, we can integrate the LEO cross-links into the global coverage features of ViaSat-3. This presents a very interesting opportunity, and we are seeing good progress on both the government and commercial fronts.

Got you. And the sort of high-profile government name is that perhaps a new effort with a generic sounding dumb name and very high volume where the primary focus is on optical?

There is definitely a role for optical technology. The primary advantage of RF crosslinks is notable, especially in the gigabit range, whereas optical crosslinks excel in the 10 gigabit range and beyond. If gigabit speeds are valuable, optical has significant benefits such as lower power consumption and reduced need for platform stability, which allows for easier network adjustments to create efficient connections and build packet networks. While there’s considerable emphasis on laser crosslinks, the optical market is intriguing, and I believe we hold a strong competitive position in the RF domain.

Because I didn't ask Shawn any questions, I'm going to follow up with one financial question which is, when you were mentioning with Rick earlier the ground equipment costs are those capitalized costs now, or are those costs that you are expensing?

Chris, what I was trying to capture for you guys is how the OpEx will ramp ahead of the service launch that's not the CapEx.

Okay. And you're not, again not able to capitalize any of the ground equipment R&D and build out until the satellite is operational?

No. It's part of the full project profile that we've given you guys which includes the satellite, the launch, the insurance, all the initial ground. That stuff is capitalized. It's just the operating when you line it up essentially that gets expensed.

Equivalent power and fiber optics and rent and all of those types of expenses.

Great. And I know you haven't given out a specific number. But then do you use the term gateway or no? What the name you use for your...

Gateways.

Yes. Okay. What percent of those are installed now? And do you light them up and keep them lit up until ViaSat-3 is launched, or do you kind of light them up and turn them off just to test them?

So we probably have close to half of the initial set of sites in the US.

Coming over the next few months.

Yes. Somewhere in that range is what will happen. One of the things Rick mentioned is that things are going well on space ground testing. We're able to test a lot of the integration using the new ground network in one of our existing satellites. We think that's a lot of functionality. So what we are doing is we're lighting up some of them along the way to increase the scope of that testing. But the bulk of them will be activated very close to the launch or post launch.

And final question for Shawn. I think the last number you gave was $2.3 billion for the ViaSat-3 program just a clarification. Does that include capitalized interest or not?

That is without the capitalized interest about that range.

Okay. Perfect. Thank you.

Thanks Chris.

Thank you. Our next question comes from Louie DiPalma of William Blair. Your line is open.

Good afternoon, Rick, Mark and Shawn.

Good afternoon.

I was wondering, does the U.K. government have any interest in investing in the Viasat Inmarsat combination in the same way that they invested $500 million into OneWeb?

We haven't had that discussion. I think, OneWeb was having those discussions. I'd say that's the big difference is, they were looking for investors. I don't think the U.K. government is probably interested in investing in a public company.

Okay. That makes sense. And switching to ViaSat-3, I was wondering what is your degree of confidence that you will have ViaSat-3 services commencing for either consumer broadband or aviation this year?

I would say pretty good. I mean, we have a plan that does that, but there's uncertainties along the way. I wish we could be certain, but we can't be certain. I think, we have a plan. But if you look at sort of the main thing that caused the launch schedule, it was the lack of availability of specific people who have been able to forecast that three months ago things looked like COVID stuff was going away and life was coming back to normal. So I wish I could tell you we are certain that we have a plan. Generally, we've been pretty good at executing plans when the assumptions behind them hold true.

Okay. Thanks. Thanks, Mark. And for the customer premise equipment and the terminals associated with the ViaSat-3 system, how will the economics be different for new customers that want to use the ViaSat-3 system versus existing customers that are currently on ViaSat-1 or ViaSat-2 that are looking to upgrade? And the reason I'm asking is a lot has been made about how like SpaceX with Starlink takes a pretty hefty loss on their terminals. And I'm wondering, like how does that loss compare to the economics for your geostationary type terminals?

Okay. Regarding ViaSat-3, the overall economics are expected to align with what we observed with ViaSat-1. Essentially, the customer lifetime value in relation to customer acquisition cost tends to be around three times. This is grounded in a strong understanding of customer acquisition costs, churn rates, and ongoing customer support. We also have initiatives planned that could lower costs and enhance this ratio. Moreover, an important factor that often goes unnoticed by investors is the amortized airtime costs, which are crucial for providing attractive services profitably. It's important to view bandwidth and satellite space as inventory. Currently, regardless of whether we’re talking about GEO or LEO, if bandwidth is insufficient and more customers are added, or existing customers consume more bandwidth, service speeds decrease. For example, LEO services are experiencing speed reductions even if we don’t add new customers. When we launch systems with significant improvements in airtime economics, we typically value bandwidth at the lesser of cost or market value. This approach allows us to offer similar services on ViaSat-3 as on our older satellites without the need for customers to switch satellites or acquire new customer premise equipment for these new services. This strategy helps us maintain the desired ratio of lifetime value to customer acquisition costs.

Yes. Great. Thanks, Mark. Thanks, Rick.

Sure.

That’s it.

Thanks, Louie.

Thank you. Our next question comes from Ryan Koontz of Needham & Company. Your line is open.

Thanks for the question. On the Delta IFC business it sounds like that's really humming here. When do you expect that to peak on the commercial side as you kind of penetrate the fleet there? Any outlook on timeline?

We are just over halfway through completing the current backlog with Delta, and we are still in the process of ramping up. Additionally, there is a significant amount of other activity happening in the commercial air marketplace.

So a fraction of our new planes on order that we described in the letter is less than half of what Delta has.

Well, it's a little over half. Yes, and we don’t expect it to stop. There's a lot of new interest.

Got it. And just a housekeeping question here on the acquisition expense popping up in the quarter there. Do you expect that to stay pretty steady into the close of the deal and kind of ramp post integration of Inmarsat?

No, initially we had significant expenses. We continue to spend money, particularly on legal costs associated with regulatory filings. However, these expenses are not as high as they were in the December quarter.

Okay. That’s it.

Thanks, Ryan. Thank you for your questions. I want to express my gratitude to the operator and everyone here, including Mark and the team. We appreciate you taking the time to join us. I hope you found the letter informative, and your ongoing feedback helps us improve for future discussions. Our operational momentum remains strong, and we are enthusiastic about the capabilities and opportunities that Inmarsat will offer. They have a solid team and have performed exceptionally well. Meanwhile, we are dedicated to our own execution. Our leadership and employees are committed to executing our plan. Please feel free to reach out to Peter with any feedback or questions you may have. We look forward to continuing our discussions. Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect.