Viasat Inc Q1 FY2024 Earnings Call

Thanks. Good afternoon, everybody. Thanks for joining us for our call today. With me, Guru Graben, our President, Shawn Duffy, our Chief Financial Officer; and Robert Blair, our General Counsel. So before we start, Robert will give a safe harbor disclosure.

Thanks, Mark. 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 Form 10-K and Form 10-Q. Copies are available from the SEC or from our website. Back to you, Mark.

Okay. Thanks. So we encourage everybody to read the shareholder letter that we posted on our website earlier this afternoon. It will have a lot more detail. We'll give an overview of the main points upfront, and then we'll have plenty of time for questions. So the first quarter results were very good. The Inmarsat acquisition closed in May and contributed one month to our first quarter results. Year-over-year consolidated continuing revenue grew 36% to $780 million and adjusted EBITDA grew 87% to $183 million, with good performance across the business. Viasat's standalone revenues grew 12% and adjusted EBITDA grew 13% year-over-year. New awards and backlog were good, and momentum has continued into the second quarter, especially in connectivity. On a go-forward basis, we'll refer to consolidated and segment results for the combined company and adjust for continuing operations that are appropriate. Post-merger, we're starting with a stronger-than-anticipated balance sheet and even stronger than what we expected when we closed the acquisition back in January. And we're making good progress on the integration and are on track to achieve our overall synergy goals, aiming to improve on those. Also, I'd like to mention that Andrew Sukawaty, who is formerly Inmarsat's Chairman, and Rajeev Suri, who is the Inmarsat's CEO, joined the Viasat Board of Directors, and we're looking forward to their contributions. So I'll start with a little more color on the ViaSat-3 Americas situation and our response. Then Shawn and Guru will add some color on financial results, operations and our outlook, and then we'll go to the questions. Last month, we reported an anomaly with a deployable antenna on ViaSat-3 Flight 1. Since then, we've been working with the antenna supplier and the satellite manufacturer to more fully assess the situation for the first flight and the implications for Flight 2. I'll discuss contingency plans in a minute. But given those plans, I wanted to point out that we do not currently anticipate that fiscal year 2024 financial results will be significantly affected by Flight 1 performance. FY 2025 will be affected by the performance of Flight 1 and the timing of the corrective actions on Flight 2. But given current information, we believe we will continue to grow in fiscal year '25 as well, but not to the same extent we would have without the anomaly. While we're making steady progress, we expect that analyses that are underway to provide more definitive insight and we'll provide updates when we have more information, which we currently estimate will be when we report earnings next quarter. So I'll give some additional color on the background of the antenna. The manufacturer is a major aerospace supplier for the decade allowing successful space deployments. The antennas come from a product line with a history of 100% successful deployments on a number of missions, including five on Inmarsat satellites. The Flight 1 antenna was both partially and fully deployed with nominal results several times during manufacturing and testing. The Flight 2 satellite uses the same antenna, but the Flight 3 uses a completely different design from a different manufacturer, and that satellite is unaffected by the flight anomaly. The Flight 1 satellite is insured, and insurance is already placed on Flight 2. Inmarsat's heads, prior stand-alone outlook had no dependence on ViaSat-3, of course, and we still do expect to capture revenue synergies with the ViaSat-3 fleet. So we've got four main work streams underway. One is to work with the antenna manufacturer and our satellite supplier to determine the root cause of the reflector anomaly and the appropriate corrective actions for Flight 2. We have a plan to collect additional data and incorporate that into the deployment fault analysis. We also expect to have more information to report regarding corrective actions from Flight 2 and an update on the schedule next quarter. Second is to assess the performance of the satellite with the antenna as it is. Initial end-to-end measurements with the effective antenna indicate the rest of the satellite, including the innovative payload and ground infrastructure built by ViaSat are operating as expected or better. We have a plan for additional measurements that we expect will give us more definitive data on the throughput of the satellite, including the effects of the anomaly and the potential operational mitigations, and we're targeting to act on that next quarter also. Third is to assess the potential of improving the antenna deployment on Flight 1. The outcome of this will depend on the results of the first two work streams. And again, we expect to provide an update next quarter. And then fourth is to mitigate the effects of the Flight 1 anomaly on our global mobility business, especially via optimizations of our existing fleet, optionality in the near and longer-term orbital locations of each of the ViaSat-3 satellites, and additional third-party capacity as required. These plans are already well underway, and we're confident we can continue to support our global mobility customers as we do today and going forward. U.S. fixed broadband today represents about 13% of revenue; that business will be the ones primarily affected by the anomaly. We'll be better able to assess that impact next quarter also. Importantly, for ViaSat-3 Flight 2 and Flight 3, our tests and measurements to date have increased confidence in those parts of the ViaSat-3 system that are where the new innovations are. Long schedule of Flight 3 is unaffected, and we'll provide an update on Slide 2, inclusive of corrective actions, as I mentioned, next quarter. The Inmarsat acquisition expands our in-orbit Ka-band fleet to a total of 13 Ka-band satellites, including Flight 1 and an i6 Flight 2 satellite, which was launched earlier this year and is undergoing operation. We made more Ka-band satellites under construction with five of those planned for launch before the end of calendar year '25. So we have a greater diversity of on-orbit technologies. And as we've previously discussed, an opportunity to substantially improve the capacity of our on-orbit fleet via ground network technology and optimizations. That was one of our objectives with the acquisition, and we believe we will show the benefits associated with that through our resilience and growth in both the near and long-term time frames. So with that, Shawn will go into some of the financial.

Thanks, Mark. Some brief color on the financials. Q1 revenue was $780 million. This was up 36% compared to the revenue from continuing operations of $575 million in Q1 of FY 2023. The results include Inmarsat's one-month revenue contribution from the acquisition date of approximately $134 million. We estimate that the combined Viasat and Inmarsat revenue for the quarter, including the pre-acquisition period, would have been about $1.046 billion, an increase of about 11% year-over-year as both companies achieved double-digit revenue growth. Net loss totaled $77 million for Q1, above the $40 million net loss in the year-ago period, due primarily to the non-recurring acquisition-related expenses, higher intangible amortization and higher interest expense. Adjusted EBITDA for the quarter was $183 million, an increase of 87% year-over-year from continuing operations. Q1 FY 2024 adjusted EBITDA included a one-month impact from Inmarsat of approximately $72 million. We estimate that the combined Viasat and Inmarsat adjusted EBITDA for the full quarter, including the pre-acquisition period, would have been approximately $331 million, an increase of about 9% year-over-year. So, a little more color on Inmarsat. For the June quarter, we estimate revenues around $400 million and adjusted EBITDA about $220 million, about a third of which is included in our consolidated results for the quarter. Inmarsat's revenue mix for the 12 months ended March 31 was 36% from government customers, 34% in maritime, 22% business in commercial aviation and 8% enterprise and other. That's a high-quality diverse revenue base, which fits well with Viasat's business and our growth objectives in the mobility and government markets. Inmarsat's contribution has and will continue to be folded into our existing segments as follows. Government results will be included in our Government Systems segment and will be the individual largest revenue component in that segment, led by recurring Inmarsat Government services revenue. Inmarsat Maritime, Aviation and Enterprise revenues will be included in our Satellite Services segment. And as a result, mobility revenues will make up a strong majority of that segment's performance. Our Commercial Networks segment will be focused on equipment sales as it is today, with no meaningful contribution from Inmarsat. You can find a more complete review of our results in the shareholder letter we posted today. We ended the quarter with over $2.1 billion of cash and short-term investments. We expect to maintain additional liquidity for our client, given tight credit markets, our mature schedule, the low rates on our outstanding debt and higher rates of return on the cash we hold in order to preserve the company's financial flexibility. We expect growth and the realization of synergies will improve our cash flow from operations over time. On the last item, the debt we issued related to the financing of our Inmarsat transaction, approximately $1.35 billion is currently held by the issuing bank. We'll provide marketing support for them when and if they choose to go to market. But as a reminder, the interest rates on the debt are already set based on the original financing commitments from 2021 and will not be impacted by the transaction. So, with that, I'll pass to you Guru.

Great. Thanks Shawn. I will cover three key topics; one, double-click on overall operational performance; two, talk about our new combined company and exciting possibilities it opens up for us; and three, combined outlook. Now, as you just heard from Shawn, financial results in Q1 were excellent with healthy year-over-year growth across the businesses. Government Systems had another quarter of strong demand for our information assurance products, especially including our high-speed data center order in. During the quarter, we earned an additional Type-1 certification for our next-generation ground to space intrusion product. During the quarter, we signed an AUD 187 million contract with Southern Positioning Augmentation Network to support improved satellite-based positioning and accuracy. In Satellite Services, U.S. fixed broadband revenue declined due to fewer residential subscribers, partially offset by higher ARPU as we continue to reallocate bandwidth to rapid IFC growth and update to new service plans. In Commercial, IFC and service aircraft grew 18% year-on-year on a combined basis to 3,230 aircraft. Passenger usage also increased driving revenue per aircraft. At our quarter end, contracted backlog in commercial IFC stands at approximately 1,600 aircraft. Momentum has continued at a pace to date in Q2, including additional new airlines and additional aircraft for existing customers. Inmarsat had achieved 11% year-on-year growth in clean express levels. We're excited about having greater diversity and scale market outlets in global mobile broadband. In this quarter, we announced Fleet Reach coastal LTE service, which is designed to augment uninterrupted high-speed broadband to merchant, offshore, energy, and fishing customers when sailing near the coast or docked in port. Commercial IFC equipment deliveries continued to be a strength this quarter and are reported in our commercial segment. Terminal deliveries are a good leading indicator of commercial IFC service growth and support our FY 2024 and FY 2025 outlooks. So, overall, this was an excellent quarter with the closing of the acquisition, strong financial performance, and an important step forward. Now, to the combined company. I would like to start by reminding everyone why we are so excited about the possibilities open to us as a combined company, and then I'll provide an update on where we are with the integration. Let's review why this transaction is so compelling strategically. First, it accelerates our global mobility and government strategy. This strategy is focused on the best and fastest-growing markets, including aviation, mobility services, maritime, land mobile, and enterprise. Second, Inmarsat brings global Ka- and L-band coverage with a robust satellite launch roadmap that both augments coverage and adds resilience and redundancy. We are excited by future upside from valuable L-band spectrum assets, including the IoT and direct-to-device opportunities. Third, Inmarsat's well-established business greatly enhances our global distribution. The combined company has a large installed base of existing customers across a broader portfolio of markets and products that will provide greater overall resilience to our financial performance. This is also a compelling financial combination. We both have strong businesses today, but together, we are enhancing our future free cash flow that's supported by an estimated $1.5 billion in synergies on a post-tax and PV basis. Now we intend to be aggressive considering all options open to us as we build the business that focuses on markets where we can win and scale cost effectively. In terms of revenue, we are already seeing revenue synergies take from across key business units such as government, aviation, and maritime. In terms of cost efficiencies, we are focused on achieving and accelerating our targeted cost synergies. In FY 2025, we expect to achieve about half of the forecasted $80 million in annual cost synergies. CapEx synergies remain a key lever for value creation as well. We are targeting $110 million annually a few years out. Now behind the actual numbers, we are integrating capabilities with an eye to being the best of the best from the perspectives of people, business processes, and our partner and supplier ecosystem. I should add here that culturally, we have already seen that the two companies are a great fit, and that's very important. We recently formalized our go-forward leadership team. It's focused on scale, capturing the benefits of our technology and further enhancing the measurable value we deliver for our customers. We are committed to delivering a successfully integrated operating model while continuing to maintain momentum and delivering value to our customers and shareholders, and we are excited by the many opportunities ahead. We think it's important to spend this time to communicate how we view the significance of this combination and how that informs our diligent approach to integration. Now moving to combined outlook. I'll wrap up with a high-level summary of our financial outlook. There is more on this in the shareholder letter as well. For FY 2024, we expect revenue growth in the high single-digit percentages for the combined companies relative to the pro forma view of both for FY 2023. A simple view of expected FY 2024 adjusted EBITDA can be approximated by adding Viasat's stand-alone prior expectations of high single-digit to low double-digit growth for full year FY 2024 adjusted EBITDA from continuing operations to approximately 10 months of Inmarsat contributions, which we expect will grow slightly throughout the fiscal year. We expect growth in revenue and adjusted EBITDA for FY 2025, including assuming a full year contribution from Inmarsat for FY 2024. Our expectations are supported by our healthy backlog and strong orders. We do anticipate that the FY 2025 growth rate will be affected by the ViaSat-3 Flight 1 anomaly, especially by the fixed broadband business, where growth will be delayed. But that's currently about 13% of our revenue, and we anticipate growth in the rest of the business as it is not directly affected, and that is 87% of our business. Our positive free cash flow inflection point is targeted to occur in the second half of the calendar year 2025. Lastly, our plan is to hold an Investor Day before the end of our fiscal year, so we can share more details of our plans with you. So there you have it. We had a strong operational performance in Q1. We are on track to deliver very material synergy value, and we expect the combined company to grow revenue and adjusted EBITDA in FY 2024 and FY 2025 while creating a powerful global mobility and government leader.

Good. Thanks. So with that, we'll be happy to take questions.

Thank you. The first question comes from Simon Flannery, Morgan Stanley.

Great. Thank you very much. Thanks for all of the information. It sounds like you haven't yet determined whether Flight 1 is a total loss or not. Maybe we can just assume if the worst happens, what would be the timing of collecting the $420 million, what's the hurdles you have to go through to get that? And what would your mitigation strategy be? I think you've talked before about perhaps repositioning two and what about ordering an F4 satellite, how much would that cost? What sort of time frame would you put around that?

Hey, Simon, this is Shawn. I can take your first question on the insurance. I mean, clearly, it's really early in the process. We had a lot of success in the timing of our prior collections. But I think that it's hard to speculate when we know what happened right now. But I think that things are early in the process to make infatuation around timing.

And was that about 18 months, something like that before?

I think it was a little shorter than that, to be honest. It was just around the 12-ish mark.

Regarding the other questions you raised, we prefer not to make any assessments or statements about the potential capacity, including scenarios with zero capacity, until we have more information. We have plans that address your inquiries, but the approach to a replacement satellite will heavily depend on the current satellite's performance. We anticipate gathering measurements on that. So, our starting point is to quantify those. While I prefer not to speculate, our plans range from scenarios of minimal or no capacity to situations where capacity aligns closer to our initial expectations. Additionally, we will not make decisions involving significant changes without supporting data.

Understood. And you've already called out the impact on the consumer broadband business. What happens to the IFC business? Sounds like that's still growing rapidly. Are you going to have to work with the airlines to mitigate some of their demand as to bring the planes on? Do you think you can handle the backlog as it comes on without the new satellite?

We can manage the backlog for some time, and we can address all of it. Not everything is reliant on this specific satellite. To manage our backlog, we've been reallocating business and bandwidth from fixed applications to the mobility sector. This approach will continue moving forward. Additionally, we have significant flexibility thanks to some Inmarsat capabilities, including the possibility of relocating satellites. However, we won't rush into decisions until we gather the necessary data. This strategy will be sufficient for our mobility business for an indefinite time, especially while we figure this out.

Great. Thank you, Mark.

Thanks, Simon.

Next up will be from Mike Crawford, B. Riley Securities.

Thank you. If the ViaSat-3 Americas Flight 1 is a total loss, isn't it likely that the satellite that you've been expecting to put up over Europe would take most time to support over North America first, until you could get another satellite up and then you could move that satellite over to its European or EMEA slot?

Okay. Yes, that is a possibility. I think that from our perspective, we will move satellites in a way that gives us the best shot at serving our customers, all of our customers' demands. So we have the flexibility to do that. It would be premature to jump to an operational scenario that assumes that the satellite has no utility. What we are trying to do is we're trying to work through the financial scenarios that take that into account. But that's different than what the operational scenarios would be because we have more time to work on those. And so we'll get the data for it. Then we'll make decisions.

Okay. One just maybe one more on that front, if you don't mind. The APAC satellites configure differently with a different antenna. So pretty much that one, I would imagine, is going up over APAC regardless. And then, you've also been developing your ViaSat-4 payload. So wouldn't it make sense to maybe take some of those features to have like a ViaSat-3.1 come up over the Americas eventually after the Flight 2 and Flight 3 satellites?

Yes, to clarify, all satellites can function well in various locations, which provides us with greater flexibility. The Flight 3 satellite has additional operational flexibility designed for the Asia Pacific region, but it is also applicable elsewhere. However, I don't want to suggest that we have made any definitive choices yet; we intend to gather data before finalizing any decisions. The ViaSat-4 has significant enhancements that could serve as a base for a replacement satellite. Again, our actions will depend on the data we collect and analyze soon. I encourage investors to understand that we will make a careful, systematic decision based on solid data. While we appreciate the urgency, there are no drawbacks to taking a couple of extra months to obtain accurate measurements before making decisions.

Okay. Thank you. That makes sense. And then just a completely unrelated quick question. With that $4.8 billion of unwanted IDIQ that's not in your government systems backlog, I know where in the past, you've had a single award contract, you've been able to realize most of that. But can you break down how much of that might be single award versus multi-award where you're competing against others?

No, there's a diversity of Syntel. We might provide more details on the split later. You're correct that some of those IDIQ contracts cover a wide range of services, but they are generally well-defined and unique. Others, like those for the broad agency announcement, have multiple bidders, making the allocation of awards less certain. However, I can't provide a detailed breakdown of that during this call.

Okay. Well, thank you, Mark.

Thanks, Mike.

The next question is from Chris Quilty, Quilty Space.

Great. So the guy from copy space is going to go against form. I actually got a question about the government business, which is, I mean, good numbers here on the quarter and good order flow. Just at a high level, as you look out over the next 12 months in that business line, what are the things that you think of as the worry case of continuing resolution to upside scenarios that overall, when we think about the outlook there?

It's challenging to connect to some of these macro trends. We will have more clarity soon, especially since there tends to be a lot of activity around the end of the government fiscal year. This should provide us with better insights. One of the growth areas we highlighted this quarter, which exceeded our expectations, is high-speed data center crypto appliances. The interest in AI and big data processing is significant, and if government applications are utilized at classified levels, that will certainly increase demand for our products. Additionally, factors beyond the budget determination will influence how our customers allocate their budgets. We have more flexibility with information assurance appliances since clients can make their own decisions. We are also working towards increasing our government revenues and recurring services revenue, which tend to be more predictable than individual contracts, as their timing can be influenced by budget realities.

Yeah. And just a quick follow-on to that. Have you now identified what sort of synergies you see between the Inmarsat government side and on the ViaSat?

I would say that due to the nature of some of our contracts, it takes time for us to convey the details. However, we are gaining more exposure to that. We have various applications for similar but distinct customers and opportunities to enhance aspects like geographic coverage areas or types of services and technology equipment across those customer bases. These are the areas we are exploring. We have identified revenue synergy opportunities in the government sector, as well as in aviation, and we are beginning to see them in maritime too. However, we won't provide any specifics at this point. I anticipate we will be able to share more details on specific values in the next couple of quarters.

Got you. And if I can totally switch gears, the IFC business, you've had tons of customer wins both domestically here, some big international deals, some of which I'm assuming we're predicated on capacity that those customers were expecting. Are there any new customers? Southwest is a big win. I don't know how far they are in that process. Are you feeling pushback from those customers around how you're going to transition and provide the capacity needed?

Our strategy in the aviation sector has been very effective, focusing on delivering comprehensive service-level agreements tailored to each customer's route system. When onboarding new clients, we evaluate their fleet, routes, and the airports they serve, providing them with clear service level agreements that we are confident in fulfilling. Currently, we are reviewing these agreements with our clients considering the ViaSat-3 situation. Their primary concern has been whether we can continue servicing their current planes and routes, and so far, the response has been positive because we have the necessary resources to support our existing customers. There may be some variations in service level agreements for certain routes or segments, which we are addressing with specific customers. Overall, the feedback has been encouraging due to our well-established approach. They recognize the advantages of our expanded fleet. Additionally, since the disclosure of the ViaSat-1 anomaly, our order book has remained strong, featuring both new airlines from various regions and existing airlines ordering new aircraft. The majority of our business has been focused on the North American market, where we have ample resources to meet customer needs, whether for new aircraft or retrofitting. Meanwhile, our Inmarsat orders are more international in scope, and their service level agreements do not rely on ViaSat-3, so both areas are progressing well.

It's pretty clear that given where most of your customers' orders are, the next new capacity needs to go to North America, whether that involves the next ViaSat-3 months or the next Inmarsat, GX7. Absent that, in the best-case scenario, it could take a year or potentially up to three years if something new is built. If you continue to reduce and have already reduced a significant number of consumer subscribers, do you think there will come a point in one to two years where it simply won't be worth it to try to scale that business?

No. The short answer to that is no. Our airline customers understand this well because they are focused on logistics. What truly matters is not only the amount of bandwidth we have but also its geographical distribution. We have a route map, keeping in mind that the routes can vary based on scheduling issues. We create a demand map and work on the supply side. One advantage is that if the primary challenge is reinforcing areas with high demand, adding multiple satellites across our fleet allows us to better support those areas. We have already made agreements with partner operators to enhance service in North America, certain ocean-crossing routes, and other high-demand regions. We plan to execute these agreements and use our additional resources. I cannot discuss our financial outlook or pipeline at this moment. I believe our ability to communicate is encouraging, but I don't want to make any assumptions about capacity until we have more concrete data, which we will have in November.

Got you. On that note, I guess maybe I say my condolences; it just sucks. You guys have worked hard at this, been innovative, and to have that kind of binary outcome on a component just, it sucks.

Thanks. I appreciate that. But we're working through it.

The next question comes from Ric Prentiss, Raymond James.

Yes. Good afternoon, everybody.

Hi, Ric.

Hi, Ric.

It's been a busy earnings day and earnings season. It feels like we've reached the end of the year this past week. I have a couple of questions. I agree with Chris' comments, although I won't use strong language to express how disappointing this is; it's certainly an anomaly. Perhaps you're addressing it. I may have missed this, but did you discuss the review process and how it's affecting the timeline for Flight 2? I would assume you want to ensure everything is in good shape. When can we expect Flight 2 to be launched?

Yes. One of the work streams I mentioned involves gathering feedback from the antenna manufacturer, who is our most knowledgeable resource. They are leading the root cause analysis, and we are all participating, including the spacecraft manufacturer. We are still connecting and analyzing data to identify the root cause. We anticipate having more insight into the corrective actions from our root cause analysis by the next quarter. These corrective actions will help us determine the launch date for the next satellite. While we cannot speculate on the specifics of these actions, we recognize they could vary in complexity. We cannot specify a timeline without the data from the ongoing root cause analysis. There is a schedule for this work, and we will provide more information about the launch timeframe for Flight 2 in the next quarter. The launch was almost ready when we encountered this antenna anomaly, so the timing of the new launch date will depend on the manufacturer's actions regarding the antenna.

Okay. And I remember or maybe remind us previously, the path to positive free cash flow was going to be certain, was it six months after Flight 2 was up, or what was kind of the previous thought of when free cash flow positive was going to be?

Hi, Ric. This is Shawn. So I think what we had earlier was kind of in that spring early 2025. So we're still shooting to be in 2025, but probably in the back half.

Got it. Have you provided any guidance on capital expenditures? I understand Viasat was separate and you had to integrate Inmarsat and determine the arrangements. How should we approach the capital expenditures for this fiscal year and the next?

So on the CapEx side, I think first, yes, we have only one month this quarter. You need to think about having a full set of three months for Inmarsat for the rest of each of the quarters of this year. So probably a good way to think about the rest of this year is it's $1.3 billion, $1.4 billion to kind of close out for both companies for the next kind of nine months. Then if you think about next year, I would say, we could see that coming down a bit year-over-year relative to this year.

Okay. And obviously, one of the big events in our universe was the DISH buying EchoStar. A couple of questions there. Is that an asset you would have been interested in or were shown? And part of what they talked to on the DISH EchoStar call was the excitement about both direct-to-device but also private 5G network. So if you could maybe expand on that.

I'm going to skip the first question about acquiring. Regarding the direct-to-device aspect, we have discussed it and are optimistic about it. We are approaching it from various angles, including how we can advance our business using L-band for specialized satellite devices, which we believe will continue to exist. However, we need to enhance our systems to effectively scale the direct-to-device business. We see it as both a challenging technical issue and one for which we are well-prepared. Additionally, to provide quality service to off-the-shelf cell phones, smart watches, and similar devices in the direct-to-device category, we believe we require significantly increased effective throughput from satellites. This, in turn, could boost demand for more specialized mobile satellite services, allowing us to deliver higher speeds and more bandwidth to relatively small terminals equipped with antennas. For example, while a typical satellite phone isn't large, its satellite antenna can outperform a conventional cell phone by five to ten times. This presents new opportunities. As the direct-to-device business evolves, we aim to utilize our existing space system assets and the capital we've invested to tap into other markets where we have expertise. In summary, we consider this a substantial opportunity and believe it will develop over several years. The end result appears very promising, and we are confident that our assets, resources, and technology will contribute to our success. I also believe that while some may view these developments as winner-take-all scenarios, a scalable business will require certain standards that enable operators to deliver space systems compatible with existing ground technology. All of these elements will contribute to a thriving sector, rather than just success for one individual operator.

Okay. Makes sense. We'll stay tuned. Everyone stay well.

Thank you, Rick.

We'll go to Ryan Koontz, Needham & Company.

Thanks. I wanted to ask about the core maritime business at Inmarsat. And obviously, that's been a long-time legacy strength of theirs, and I ask about the competitive environment, if that's changing at all. It seems to me there's lower barriers to entry from the LEOs and Starlink. I hear about some progress from them in the maritime area. So any insights you can share in that space would be great. Appreciate it.

I believe the maritime industry is evolving, primarily due to lower entry barriers. A significant aspect of our strategy across the mobility sectors is understanding the geographical demand and the type of services various segments of the maritime market require. This is where we see opportunities. The main challenge we've discussed regarding in-flight services is that airlines need to ensure a consistent level of service, especially in congested areas like airports. Similarly, in the maritime sector, we are witnessing congestion in major ports as well. There are many leisure boats where individuals use their vessels infrequently, and while connectivity is beneficial, it’s not crucial for their operations. Thus, we can offer reliable end-to-end service agreements, especially in these crowded areas, presenting an opportunity for us to enhance and sustain our services. Inmarsat has established a customer base across various maritime segments, but we see significant potential in this specific area for showcasing our capabilities.

Definitely helpful. Thanks, Mark.

Thanks, Ryan.

Our last question today comes from Louie DiPalma, William Blair.

Mark, Chris and Shawn and Peter, good afternoon.

Hi Louie.

Good afternoon, Louie.

Hi Louie.

On the government defense side, there's been a lot of publicity regarding how the Ukraine war and geopolitical tension in Asia has triggered a robust demand for Starlink as a backup or even a primary source of defense connectivity. Has the Ukraine war also led to a surge in demand for Inmarsat's Ka-band services?

I think, unlike others, I don't think we're going to go into great depth about what we're doing in specific defense communications. You just read the newspapers and one of the things you can see is there is concern on multiple fronts about being overly dependent on single sources of connectivity for various reasons. So I think a number of satellite operators are seeing demand; different operators are somewhat uniquely positioned to serve different elements of that demand. So you could put us in that.

Great. And along different lines. Mark, Ligado was recently in the news regarding potential restructuring. Can you discuss the status of your and Inmarsat's relationship with Ligado? And is there the potential that Ligado could begin again making large payments to Inmarsat?

ViaSat and Inmarsat have had a relationship with Ligado for some time, but in different areas. Inmarsat's connection has focused on spectrum, while ours has centered on enhancing operational performance through their satellite. We aim to integrate these two aspects. Ultimately, Ligado will decide how they want to move forward. We are currently in discussions with them about the best way to advance both areas. Some elements will depend on Ligado's decisions and our own choices. It’s still early to assess the situation. Ligado has shown increased interest in the long-term satellite business compared to previous times, which provides a foundation for ongoing discussions. However, it’s too soon to comment on the potential outcomes of those talks.

The one piece, Mark, to add it, Louie, this is Guru. I would say, we have excluded Ligado from our financial models. So repayments or return spectrum would be an upside. So we've not included that in our models.

Yes. Thank you so much. That's been our position all along since we announced the acquisition. Thanks.

Great. And one final one for Mark, what is the process to make existing Viasat in-flight connectivity systems for your like North American airline customers interoperable with the Inmarsat network that also has coverage over North America?

It's a somewhat complex issue. One way to approach it is that we can adequately support both networks. There are some nuances with certain parts of our fleet, especially the newer components. Essentially, we can adapt, similar to how Inmarsat utilizes third-party satellites, which we also do. This highlights our ability to modify the networks to accommodate specific satellites, although it's not feasible for all of them. Operating both networks simultaneously is more challenging. However, there are several instances where we can achieve this. The simplest way to understand it is that, except for one exception, these satellites are primarily repeaters and not onboard processing satellites. From an interoperability standpoint, we can operate our network and Inmarsat's network on third-party satellites, which may include parts of each other's networks when needed. The final aspect is our capacity to use both networks at the exact same location and time. While we can do that in certain scenarios, it doesn’t apply universally. Does this address your question?

Yes. For your current North American customers such as JetBlue, United, American Airlines, and Delta, you've mentioned the need to increase capacity to compensate for the loss of ViaSat-3. I was curious if the Inmarsat capacity in North America could serve as one of those sources. Additionally, for the aircraft that are currently being set up, have you already ensured that the antenna can work with both networks?

Yes. There are a few details that apply to specific airplanes, which depend on their age rather than the airline or the equipment on the airplane. What I'm about to describe isn't universally applicable, but it's mostly the case. This is especially true for the newer equipment we are deploying and the newer satellites. To answer your question, we already have capacity centered over the Americas that covers both North and South America as well as the oceans to the east and west. Referring back to my response to Chris Quilty, when we need to add airplanes to our service or when our customers want to enhance their service level agreement, it doesn't mean we require bandwidth everywhere; we only need it in areas where we can anticipate demand. That way, we can utilize the Inmarsat fleet to address much of that demand.

Excellent. That makes sense. Yeah, that's exactly what I was looking for. Thanks, Mark, and Guru, Shawn and Peter, take care. And good luck with the ViaSat-3 investigation.

Thank you. I appreciate that. We'll give an update on that next quarter.

That does conclude our question-and-answer session. I'd like to hand the call back to Mr. Mark Dankberg for any additional or closing remarks.

Okay, good. Thanks. So again, thanks again for joining us this afternoon. I would like to leave you with three important takeaways. So one, we had a really good first quarter, strong financial performance, a lot of that is based on the specific businesses that we're in and the backlog that we had. We expect to continue to grow revenue and adjusted EBITDA for this year and next year, even if we made a very conservative assumption about no contribution from ViaSat-1. It's not the same, just to be clear, that's not the same as a prediction about what the ViaSat-351 will do. And then we do have a great long-term opportunity to create a lot of value. We can build on market-leading positions in these growing global mobility and government services markets for both broadband and the mobile device market. We've got material synergy opportunities that we're executing on, and we like building a diverse, resilient financial profile, and it does bring strong cash flow potential with it. So with that, we look forward to updating you on our progress next quarter. And I'll hand it back to the operator. Thanks.

Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.