Viasat Inc (VSAT) Q2 2027 Earnings Call Transcript

Thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the VIAFET Second Quarter 2027 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. I would now like to turn the call over to Lisa Curran, Chief Enterprise and Strategy Officer. Lisa, please go ahead.

Thank you, Tiffany. We will present certain non-GAAP financial measures on today's call. Information required by the SEC relating to these non-GAAP financial measures is available in our Q2, Fiscal Year 27, shareholder letter on the Investor Relations section of our website. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. We will also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, and actual results might differ materially from any forward-looking statements that we make today. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings and annual report on Form 10-K. These forward-looking statements speak only as of the date they are made, and we do not assume any obligation to update any forward-looking statements. With that, I'll turn it over to Mark Dainford, Chairman and CEO.

Good afternoon, and thanks for joining us today. I'm Mark Tanker, CEO and Chairman of ISAT. With me are Lisa Kern, our Chief Enterprise and Strategy Officer, and Gary Chase, our Chief Financial Officer. As always, we encourage you to review our shareholder letter and presentation materials for more detail. I'll focus mostly on three areas today. Progress on our strategic priorities. The successful deployment and early impact of our Biosat-3 satellites and how they play into our business and government and commercial applications and the momentum in our government and technology businesses and the defense and advanced technology segment in particular and how that fits with our portfolio. Last quarter, we discussed how growing demand for resilient communications, secure networking, cybersecurity, mission systems, and space-enabled infrastructure was creating attractive long-term opportunities. We also discussed how global geopolitical uncertainty is blurring the boundaries of government and commercial space capabilities and can advantage vertically integrated players that span both. Recent global events underscore the need for satellite users to have multiple trusted options for accessing space with robustness to a range of threats, countermeasures, or just arbitrary operating changes. With that backdrop, we see more emphasis on creating alternatives and competition in satellite networks translating to more growth opportunities for Piasat. Our 40-year track record of innovation and trusted performance is an asset. We see evidence our technology investments, network assets, and position in both commercial and national security markets are landing key growth opportunities. That's driving our DAT segment where awards, backlog, and customer demand continue to build. Both Viasat 3, Flight 2, and 3 are in service, performing as expected, and being integrated into commercial and government services. We now have opportunities to prove unique and valuable capabilities, like countermeasures resilience and really small user terminals. At the same time, competition is increasing in many commercial markets, consistent with our expectations and reflected in our planning. Nevertheless, we're entering a period of very significant growth in new contract awards and revenue. Lower capital intensity, sustained free cash flow, and somewhat greater financial flexibility. These points help illustrate our commitment to sustained value creation through differentiated strategy and focused execution. Furthermore, as part of our strategic review, we continue to assess how best to optimize our portfolio, enhance shareholder value, improve capital efficiency, and position to capture attractive growth opportunities. While our review remains ongoing, our decision framework is still based on achieving strategic goals, disciplined capital allocation, and meaningful long-term shareholder value. Meanwhile, second quarter results were solid and within our targets. For fiscal 27, we now expect more than $225 million of free cash flow, while managing capital expenditures to about $850 to $900 million. We expect total new contract awards to be strong, yielding an attractive book to bill, and a backlog setting us up for sustained revenue growth. Gary will give more detail on the outlook, but I'll give some context. While we've revised some commercial aviation assumptions and taken a more conservative view of in-flight connectivity backlog, our broader investment thesis is unchanged, supported by growth in DAT and government stat-com services, including aviation. We continue to see growing demand in important, attractive markets, increasing evidence. That our technology investments are creating value and meaningful opportunities to improve cash generation as capital intensity declines. As communications and space infrastructure become absolutely critical to governments, enterprises, and national security, customers are looking for trusted partners. Both commercial and government customers value resilience, competition, and optionality. The main growth theme this quarter, as expected, is the continued momentum in DAT. DAT Q2 revenue grew about 20% year-over-year, with strong demand for secure communications, cybersecurity, tactical networking, resilient space architectures, and mission systems. We are effectively moving upmarket from providing components or modules to mission systems, including delivery and operation of space vehicles. For the full year, we expect DAT mid-teens or better revenue growth with a sustained multi-year revenue growth outlook driven by firm backlog, an inventory of IDIQ contract vehicles, and a very attractive new business pipeline. Awards remain a leading indicator of growth. In addition to government DAT technology awards, our confidence is growing in significant potential commercial and international space technology awards that represent both near-term revenue and longer-term enhanced competitiveness in our communications services businesses. In the second quarter, DAT earned about $420 million of firm awards. And our current fiscal year 27 plan anticipates about $2 billion of awards compared to $1.6 billion last year. Our confidence is not just from the amount of backlog, it's also the strategic value of the program. Increasingly, we're seeing and winning integrated mission outcomes more than standalone products. That aligns with our strengths in space systems, tactical terrestrial and space networks, cyber mission integration, and culminating in service delivery, both in the commercial and government sectors. As I mentioned, both BISAT-3 Flight 2 and 3 are in service. We're adding more bandwidth capacity through the ground network and expanding customer applications and migrating more user terminals onto those satellites. Customers on Viasat 3 are measuring pretty dramatic and impressive improvements in speeds and user experience. The per-user bandwidth consumption measure that correlates pretty well to customer experience is comparable to that claim for VIO services. We believe that Viasat 3 can help shape industry sentiment and benefit our business results. Through both revenue generation and operating economics, while creating opportunities in both government and commercial markets. AERA, our multi-orbit aviation service, continues to represent a very attractive growth opportunity. Multiple airlines are evaluating AERA deployments. In particular, estimated integrated in-flight connectivity and in-flight entertainment still only about one-third penetrated. And we see considerable interest in more choice among airlines, as well as in other satellite service segments as well. We're also building confidence in our approach to integrate connectivity and entertainment in ways that help airlines optimize and benefit from passenger engagement. We're also making progress on substantially growing our L and S-band mobile satellite services addressable market, Building around interoperable... 3GPP, 5G, and 6G non-terrestrial networking standards that enable the highly anticipated direct-to-device services market. Our approach enables us to bring unique value propositions to direct-to-device as well as to other large evolving or new and emerging mobile satellite services markets that build on our existing government and commercial business space. Advancing this strategy, in September, we executed a binding agreement with Space42 to establish Equitus, the first standards-based shared mobile satellite network infrastructure company. Overall, we're focused on reducing capital intensity. Over the last several years, we've invested heavily in FISAT-3 infrastructure, Spectrum, advanced security, and networking platforms. Those investments required substantial capital, but they also created the foundations of the growth stage we're entering now. We're just beginning to realize the benefits, including having a funded bandwidth for both government and commercial services. As a result, we're transitioning from a period of significant infrastructure investment into one more focused on monetization, utilization, debt reduction, and returns. We're further refining state-of-the-art BISAT-3 technology and converting it into funded turnkey satellite programs that can drive near-term government and commercial revenue and can help contain ongoing capital investments that grow our differentiated, dual-use, vertically integrated portfolio. Basically, we believe the capital-intensive BISAT-3 phase is behind us. That offers more strategic flexibility. Each new opportunity is considered in terms of returns, cash generation, and alignment with shareholder interests. Most opportunities build on the unique complement of assets we already have, including global spectrum access, orbital and ground infrastructure, technology, and customer relationships. Our approach is straightforward. Remain strategically engaged through a market-attractiveness lens. Invest selectively. Maintain disciplined return thresholds and partner where appropriate. We're not speculating. We're pursuing opportunities we believe can create durable value while maintaining our focus on free cash flow, capital discipline, and shareholder alignment. So with that, I'll turn it over to Gary for more information on our second quarter financial results and our outlook for FIFCO 27.

Thank you, Mark. Thanks to everyone joining us today. And special thanks, as always, to Team Biasat for the dedication and hard work you put into producing these results. We're now halfway through the fiscal year, and overall, we're pleased with how the year is shaping up. This quarter story is straightforward with communication services facing near-term pressure, while momentum across defense and advanced technologies accelerates. As a result of this segment, mixed impact, award timing, and growth investments, we now anticipate approximately flat full-year EBITDA. Our revenue outlook reflects strong awards activity and growing backlog in key markets, and we're seeing improving free cash flow. Our efforts center on the three strategic pillars of our financial framework, building our franchises, generating cash, and reducing our leverage. Those pillars drive how we allocate capital, evaluate investments, and create long-term shareholder value. We'll discuss our two key results and outlook for the year using that lens. Let me start with the quarter and note that all statements following in this section will refer to the second quarter of fiscal 27 compared to the prior year period, the second quarter of fiscal 26. For context, I'll illuminate two items impacting year-over-year EBITDA comparison. First, we continue to invest in innovation reflected in elevated R&D, which is up $18 million. These investments support growth opportunities, including PTSD, direct-to-device, phase-ray antennas for multi-orbit aviation, and next-generation geo-satellites. Second, as noted last quarter, we completed the sale of our equity interest in Navarino in the fourth quarter of 26, and Navarino contributed $4 million of adjusted EBITDA to communication services in the prior year period. On a combined basis, these items impact year-over-year EBITDA comparisons by $22 million. Company-wide awards for the quarter were about $1.1 billion, down 24%. Awards were unusually high, elevated by, in the prior year of fiscal quarter, elevated by, among other things, our $234 million South Pan Award. We're encouraged by the quality of opportunities we're winning and the strength we're seeing across our pipeline. Stepping out of some of the temporal factors that drive quarterly awards, we can see that fiscal 27 will be a very good one for awards, topping our exceptional year in fiscal 26. The award and backlog trends we're seeing today continue to reinforce confidence in our long-term growth outlook. Backlog was $4.2 billion, an increase of 7% with growth in both segments, but led by 20% growth at DAT. Revenue was $1.2 billion, up 3%, with a 3% decline in communication services and 20% growth in DAT. Net loss was $129 million, a $68 million decline compared to the prior year period. This decline primarily related to an increased provision for income taxes, higher R&D, and higher stock-based compensation expense, which is an artifact of the share price rising and the only expense you'll ever hear me say I'd like to see going up. We're also seeing increased depreciation in interest expense moving from capital expenditures to the P&L as a result of Biasat 3 service entry. Adjusted EBITDA was $370 million, down 4%, impacted by the above noted factors. Free cash flow is solid as we generated $78 million, up 14%, driven by operating cash flow of $285 million, up 1%, and capital expenditures of $207 million, down 3%. Our net debt relative to trailing address the EVA dial was approximately 3.2 times, a 0.3 times improvement versus the prior year. Now let me turn to some segment highlights. In communication services, awards of $717 million declined 30%, excluding the South Pan Awards. Communication services awards declined 10%, reflecting a decline in maritime and fixed services and others. Revenue was $815 million, down 3%. Growth in aviation and government SATCOM was offset by declines in residential fixed broadband and maritime. Aviation revenue grew 8%, ending with approximately 4,490 commercial aircraft in service, a slight decline sequentially. On a year-over-year basis, aircraft in service increased 6% with average revenue per aircraft up 3%. Our in-flight connectivity backlog at quarter end was about 660 commercial aircraft and includes aircraft awarded in the quarter, offset by installations and removals from backlog based on recent customer announcements. We continue to focus on what matters most, the quality of our airline relationships, the growth of our installed base, and the long-term service revenue opportunity those aircraft represent. Long-term demand fundamentals remain strong, and in the second half, we expect continued new installations and awards. Government SATCOM revenue grew 4% on increased usage from U.S. and international governments. Maritime revenue declined 8% as vessels and service were down. We ended the quarter with 1,990 Hierarpu Nexus Wave vessels in service and continue to work on increasing our installation rate. Our quarter-end outstanding order book exceeded 1,500 vessels, and positive trends continued through October with an additional 120 installations and 140 orders. Fixed services and other revenue was down 23% as U.S. fixed broadband survivors continued to decline during the seasonally high-churned summer months as we awaited via Sat-3 Flight 2. We ended the quarter with 100,000 subscribers and $111 average revenue per user. Following the successful deployment and residential service launch of Viasat 3 Flight 2 in early October, we initiated targeted plans to take advantage of Flight 2, which is capable of delivering vastly improved customer experiences. Our plan is to leverage improved performance to stabilize the business over the next few quarters. Communication services adjusted EBITDA was $294 million, down 13%, primarily driven by the decline in fixed services and other and maritime, including the Navarino sale and the increased R&D spending mentioned earlier. Turning to defense and advanced technologies performance for the quarter. As noted previously, we expected the year to be back-end loaded. In the second half, we expect to see conversion of our substantial DAT awards and backlog into accelerated revenue, EBITDA, and free cash flow growth. Importantly, this momentum is evident and significant across all DAT business lines. Our DAT summit awards of $421 million declined 10%, reflecting a decline in advanced technologies and other, partially offset by good growth in space and mission systems. Year-to-date awards are up 6%, and we expect full-year awards to be up significantly. DAT revenue was $365 million, up 20%, driven by InfoSec and cyber defense and tactical networking. InfoSec and cyber product revenues increased 27%, driven by new encryption development programs, base encryption products, and higher mojo deliveries. We continue to expect strong growth in InfoSec and cyber for the fiscal year. Space Emission Systems revenues increased 4% and included initial design activity on the PTSG program and the migration of a key product from development to production. We continue to expect substantially improved growth in Space Emission Systems in fiscal 27 and beyond, reflective of our strong backlog and growing demand for resilient space architectures and national security missions. Tactical networking revenues were up 31% year-over-year, with Tactical Communications products and Trellisware both benefiting from strong sales to international customers. Product growth within Tactical Communications was led by satellite network control systems and modems. We expect increasing growth in Tactical Networking as it continues to be an important platform as military customers modernize to support increasingly distributed and data-intensive operations. Adjusted EBITDA was $76 million, up 57%, or $28 million, primarily driven by tactical networking and space and mission systems with some offset from R&D. As we continue to invest in cyber capabilities, mission networking, resilient space missions, secure communications, and advanced networking architectures, our addressable markets are expanding, and we're positioned to compete for increasingly strategic and valuable programs. Now, let's turn to our outlook. Overall, our performance of the first half of fiscal 27 has been tracking with expectations. Looking ahead, we anticipate a meaningful acceleration during the second half, driven by the accelerated conversion of our backlog and awards. We continue to expect total revenue to grow mid-single digits. Our communications services segment is expectively flattish, while we expect debt growth in the mid-to-high teens. We now expect our adjusted EBITDA for Fiscal 27 to be about flat year-over-year. Our ongoing commitment to capital discipline has resulted in a reduction in our expected Fiscal 27 spend. We now expect consolidated Fiscal 27 CapEx between $850 and $900 million. Our CapEx is expected to break down as follows. Maintenance of between $3 and $350 million. Capitalized interest of more than $170 million. Via Sat-3 spend of $75 million, most of which was incurred in Q1, success base of about $100 million, and about $2 to $250 million for growth CapEx, which is in addition to the increased investments in R&D that are also driving future growth through innovation. MRSat CapEx is expected to be $250 to $300 million and is included within the consolidated CapEx range I just mentioned. Our free cash flow expectations have improved as well. We now expect free cash flow of more than $225 million for the fiscal year. We remain committed to investing in attractive growth opportunities, but we're doing so through the lens of long-term returns and free cash flow. Now let's turn to our segments, beginning with communication services. Within aviation, we expect revenue growth for the remainder of the year, driven by ARPA expansion, with the trend of slight sequential declines in aircraft counts continuing. We expect maritime vessels and service to decline modestly compared to fiscal 26, but expect significant growth in the nexus wave and salt base that offers customers more value and drives higher average revenue. We expect a moderation of the declines in our fixed broadband business with Biasat 3 Flight 2 entering service as we begin a multi-quarter path towards stabilization. We expect another year of growth within governments.com. We're excited about the service entry of Viasat 3 Flights 2 and 3. They're already making a big difference for our customers. Special thanks to all our teams that have made Viasat 3 a reality. But we have more work to do, and our focus is now on bringing the capacity and capabilities it offers to provide superior customer outcomes and maximize the long-term value of our investment. Turning to that, we expect to build on our strong first-half financial performance with a stronger second-half. Our teams continue to demonstrate outstanding execution and meeting the demands of our customer base. Our operational performance, continued innovation, and growing backlog have established a solid foundation for robust multi-year growth. We continue to expect strong awards, revenue, and EBITDA growth as we capture opportunities across the fastest-growing markets we serve. Now let me give some flavor beyond the current year on the heels of some recent announcements. We now expect aviation revenue to decline in Fiscal 28 from levels achieved in Fiscal 27. We're evaluating the trajectory of that decline and have begun mapping appropriate cost mitigation. At the same time, we're evaluating substantial growth opportunities elsewhere in the portfolio as part of our long-range planning process. We'll provide more details when appropriate, but we're confident in our ability to continue generating meaningful free cash flow while investing in growth opportunities across both segments. In conclusion, this quarter reflects progress along our financial roadmap. While we recognize there's hard work ahead, we also have a lot to be confident about. Our priorities are clear, improve returns on capital through franchise and earnings growth while generating positive free cash flow to repay debt and continue reducing net leverage. The VIAFAP team is fully dedicated to executing our strategic priorities and delivering on our commitments for the fiscal year and over the long term. We have exceptional assets, talented people, and opportunities that we believe remain underappreciated. Our job is to convert those advantages into stronger earnings, cash flow, and returns for shareholders, and that is exactly what we're focused on doing. I look forward to getting this important work done with my Viasac colleagues, and with that, I am going to call back to Mark.

Thanks, Gary. I'll summarize with these three key takeaways. First, our own technology and a rapidly growing base of customer-funded development contract awards in networking cyber and space technologies are translating into stronger awards, backlog, and growth opportunities in both government and commercial markets, and becoming an increasingly important driver of IASAT's overall financial performance and lower capital intensity. Second, the successful completion of the Biosat 3 Deployment Program marks the transition from infrastructure build-out to monetization, competitive customer experiences, and cash generation. Third, our growing revenue, improving capital efficiency, and lower capital expenditures are supporting free cash flow growth and continued deleveraging. We know we're in a very dynamic, competitive, and geopolitical environment. We also believe Biosat is entering a fundamentally different phase, characterized by expanding growth opportunities, lower capital intensity, and increasing financial and strategic optionality. We're maintaining our strategic review committee to regularly assess our opportunities and ensure we're aligned in pursuit of customer outcomes and increasing shareholder value. Thanks for your continued trust in our team.

So with that, let's open it up to questions.

As a reminder, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one again. We kindly ask that you limit your questions to one and one follow-up for today's call. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Brent Pinter with Raymond James. Your line is open.

Hey, everyone. Thanks for taking the questions. First one for me, Can you talk about what you're seeing in the aviation market today, and particularly how that's changed in the past one or two quarters, given that outlook you just laid out, Gary? And then have F2 and F3 changed the tenor of your conversations at all with airlines now that you can offer a lot more capacity?

Yeah, okay. Thanks, Brent. You know, let me put a little more... Color behind, you know, some of what I articulated a few minutes back. You know, bottom line, we are going to see impacts from the announcements you were referencing. We've also got a lot of opportunities that are going to help us manage through those. To put those in perspective, they will ultimately, these announcements will ultimately affect 15 to 20 percent of our aviation revenue. And just to clarify, that's 15 to 20 percent of aviation revenue. We make several points on that, and we can see if there are follow-ups first. We don't expect any abrupt impact from it. I think that those are impacts that will take place over time, and we're working now to better understand what that timing is. Second, I'll remind you that we still have a good-sized backlog that we're continuing to install. And, you know, as I noted, we are continuing to see interest in adding service. So we expect to be bringing new orders in that will help grow both that backlog and then ultimately the installed base. And we need to think about that in terms of timing as well. We also, and we were doing this anyway, we're really assessing some mitigating actions that we think on the cost side. We're really working hard to deliver, you know, as Mark calls it, non-bandwidth cost, and we want to make sure that we're doing everything we can to manage those appropriately in light of these announcements, but also it's something, action we were taking to be more competitive for the long term anyway. And I'll just remind you what I think is really the key point. You know, what you've heard in the prepared remarks and what you see in all the results, all the award activity, there are a lot of opportunities that are coming down the pipe. And we've got to take all of that and really balance those out. As it happens, we are entering a time of year. Every December, we do a long-range plan, a long-range financial plan. That we bring to our board, and it spawns a lot of discussion, and we're going to be bringing all those factors together. I think what you've seen in terms of existing performance and what Mark was talking about just a second ago as he was nearing the end there on the continued progress and being more capital efficient, we're really confident. That we're going to be able to continue generating meaningful cash flow. It's a little early for us to, you know, think to what P&L impacts there may be, but we're really confident we can get at least that far, and we're going to be working hard to, you know, drive the best long-term outcomes we can. Did you want to?

Yeah, and just in terms of what it means, I think we were the ones that originally drove the market towards free for all the passengers. We see that that is definitely the direction in which it's going. I think there's that. We've been waiting for Biasat 3, really, to be able to perfect that. So that is happening, and we've been very encouraged with the quality of the service that our customers have reported. So they're really happy with it. I think one of the things we mentioned before is one of the ways you can tell people like it is just how much bandwidth they use. So bandwidth consumption. You know, it's like double to triple depending on different flights. That's a really good sign that people are using it. So I think that in terms of being positioned for future growth in the business, we think that... Getting BASAT-3 is in service. That was a really big step. The next remaining step that is not that far away is being able to provide hybrid services. That's multi-orbit. That's coming. We're already doing that in the maritime space, and so that's going to help as well. And the other point we'd make is... You know, our government aviation business is still growing. It's multi-orbit, multi-band. That works really well. Just to be clear, we think we're going to compete well in the long run because we don't see the market changing. The one thing I think that we are also doing, and I think we're pretty well ahead on this, is this integration of in-flight entertainment and connectivity. Even when you put connectivity on, entertainment is a big part of that. So, I think that's one of the areas that we see that we're pretty well differentiated.

Okay. Appreciate all the color there. And then, just a clarification, the letter talks about maintaining the strategic review committee. So, I just want to make sure I'm understanding correctly that the strategic review is still active. And then, is the strategic review related to Spectrum or the DAT segment, or is it all of the above?

Okay, yes. You know, the purpose of the strategic review committee is to make sure that we're doing everything we can to deliver value to shareholders. That's what the focus is. And we have been looking at a variety of strategic options. You know, one of the things that does seem to be true is that the value of our assets, when you think of, you can think of slicing them and dicing them in different ways. You've mentioned a couple of them, but the value of the underlying assets seems to be appreciating. That's one. So that part is consistent with what some of the, one of the. Purposes of what the committee is evaluating. And then I would say, if anything, the range of options that we have to benefit from those options is probably growing. So those are the things that we're doing, and absolutely, we're maintaining that view.

Great. Thank you.

Your next question comes from the line of Tim Horan with Oppenheimer. Your line is open.

Thanks, guys. A lot of moving parts on the communications services side. You were down a little bit this quarter, you know, year over year and sequentially. Can, you know, the version three here, can that reverse that? You know, I know there's a lot of moving parts, but do you think comm services, well, can we get some color what happened in the quarter? And, you know, is this enough that you can grow comm services low to mid, you know, single digits over time? And when can we expect that to happen? Thanks.

Yeah, the short answer is we do expect to grow communication services over time, and you're seeing, kind of, think of it as, Gary covered four different elements of that. The government parts of communication services, aviation, maritime, and fixed. You know, we've been battling headwinds. The biggest headwinds have been fixed, and that's really, that was just, there was nothing to do. I would note that the residential consumer market is very volatile, and it's a contested market in the U.S., which is where most of our business is. So, just to Gary's point before, We have opportunities to generate cash from the business. That's where the focus is, is to improve, you know, stabilize. The words that we use are stabilize and improve cash flow there. On the maritime side, Gary also mentioned one of our main objectives there is to increase the installation rate, that is to get platforms in service we've had. Good orders have been strong on the service, but we're continuing to increase the installation rates, but that is one of the focus areas there. On the aviation side, we've got a market that's about a third penetrated overall, and... We, yeah, we still see growth there. There are things that we're doing to do that. Government sat-com side, there's a couple of things that are tailwinds for us. One of the things that Viasat 3 brings with us is the ability to serve the government, what's called military, K-A bands. That is a valuable thing for both U.S. and allies, and that's. So we have some tailwinds there. I think in the overall, you know, our first objective is just to overall return the portfolio to growth. The main thing that we've been focused on, we kind of described it, we have described it since we've been in the business as yield management, that is understanding the unit economics of each of those services and getting the best returns that we can out of those in aggregate.

And do you think we're in a position to start to grow, you know, for the next fiscal year or just, you know, any color on the timing with the new satellites?

I think, as Gary said, we're going through our review, our strategic review process. We'll typically talk about each of our fiscal years right near the beginning of them, and that would be the appropriate time to come up with a forecast.

What we were just talking about is going to be a part of that. So we'll provide more color when we're through that exercise.

Thank you.

Your next question comes from the line of Brian Koontz with Needham & Company. Your line is open.

Great, thanks. I wanted to ask about DAT and the space and mission systems segment there. Can you maybe, you know, remind us of your outlook there and also frame that up against the broader space ecosystem, kind of how you generally fit there, what your roles are versus so many other new private players coming along? Thank you. Okay.

Got it. Okay. So on the mission systems portion, well, that overall has... We think we really like our portfolio there. If you divide it into three main parts, which is the tactical networking part, the encryption and security part, and then the space and mission systems part, each of those has its own growth areas. The tactical radio, tactical networking part, lots of emphasis in the government on combining multiple different transmission systems into a single sort of seamless service. We've been in that business for quite a while. I think we have a really strong position there. The demand for that is only increasing as the level of countermeasures that are being seen. Applied to individual transmission systems is only growing. So that's a good business. The encryption business is really kind of, think of. One of the most, not the only, but one of the most fundamental drivers is everybody acknowledges the need for post-quantum computing security. So that is a big, not the only driver, but that is a big forcing function for encryption, very high leverage, really strong position for us. You're going to see that continue to grow right now. We're in kind of a mix of development and certification phase and production phase. You'll see over the next couple of years more and more of that portfolio switching to production, which is really good business for us. On the space and mission systems side, there's been a lot of focus on LEO broadband. One of the main areas is maintaining our geosynchronous, you know, the... Assets, a whole bunch of U.S. government missions that are uniquely supported in geosynchronous markets. So that ranges from tactical to strategic. And also recently, one of the things we've been expecting and very excited about was announced today is an award for what's called Nexus, which is a replenishment or replacement for the NASA TDRS. So, relay. And there's a good article that was published on that. The underlying forcing function is there. There's a number of very important, both civil and government, civil and defense missions supported by those satellites. They're very expensive. NASA does not intend to replace them and is looking for competitive, low-cost commercial alternatives to fulfill those missions. So today, you know, they announced a $460 million award for an initial two satellites, but there's over time. There's a pretty big and enduring opportunity there. That goes really well with our PTSG award, which is really intended to modernize. Help build more resilience into the wideband gap pillar, yes, fleets that are for tactical, organically owned tactical fleets that are in some ways meaningfully more resilient than LEO systems. The idea is not that it's instead of, it's both. So, that... You can take, you know, I'm going to go back to the Biosat III. Biosat III demonstrated some extremely valuable and state-of-the-art beamforming phased array in space technology. We did the payload part. What we're now getting into, and this is really good to get this through funded contracts, is the complete satellites using much, much less expensive underlying bus technology. So that, and that's one of the things we're aiming at when we talk about reducing capital intensity, is it basically takes things that we either had to fund through capital programs or RFD, now we can develop technology, build production capability, and so just in terms of... Numbers, what Gary mentioned is we see currently about a $2 billion target for FY27 awards in DAT. That is, I'd say, confidence level on that is very high. I think there's upside opportunities there, and one of the things that's still pending are some commercial opportunities. Again, where we would be funded for developing complete spacecraft, not just at broadband frequencies, but also in the mobile satellite services frequencies as well. So all these things taken together, I think we are pretty uniquely qualified for these applications, given the payload expertise that we've demonstrated. And I think you're going to see more. More pretty interesting announcements on the government side, taking advantage of the capabilities, the very unique capabilities Biasat-3 has. So, anyway, you get the idea. That's an area that we're definitely excited about.

That's really great. Very thorough, Mark. Really appreciate it. Thank you.

Your next question comes from the line of Edison U with Deutsche Bank. Your line is open.

Great. Thank you for taking our questions, as always. We noticed this week that there was a new incentive program filed, and it lays out a variety of targets. Could you perhaps elaborate a bit more on how the committee came up with some of these targets, and how should we think about your vision in achieving some of those?

Okay. The first thing I've got to say is that's done by our Comp Committee. I'm on the board, but I'm recused from participating in the Comp Committee. I think that the Comp Committee's My clear objective was just to very clearly align the company's direction and efforts with shareholders, and that's what's set out in that plan. I think that we have multiple avenues to create value. We've talked about some of them. We kind of feel like... As I mentioned before, I think the board agrees is that we're seeing evidence that we have assets that are appreciating in value. We have multiple ways to capture value on that for shareholders. And so the plan itself is not prescriptive. It gives us a number of paths to do it and sets out the timeline that the board's timeline and targets that we... That the board is trying to motivate, incentivize management to achieve.

Understood. Understood. And then, you know, we saw the news about Terastar, and I guess we're curious, you know, what was the, maybe you can provide a little context on signing the MOU, and are there other types of similar engagements going on to that?

Yes, but the MOU at Terastar... It relates to the mobile satellite service bands, L-bands and S-bands, and especially to the direct-to-device applications for it, but also to the more traditional mobile satellite services applications, including national security applications. And what we think is Terastar in Canada, are advanced and representative of what the opportunity is here. So in Canada, Canadian national operators have allocations in Canada in the S-Band. They would like to use that for both commercial and national security purposes. But if they, and just going back to the direct-to-device market, in order to do that, you pretty much need to use low-Earth orbit for that part, for the direct-to-device part of the mission in order to get the power levels to close links to ordinary handheld mobile devices. The issue that Canada has, and many other areas are facing the same, which is that if they did it purely... With their own sovereign constellation, the only place they could use it is over Canada, because that's the only place where they have spectrum allocations. Obviously, that's a big headwind to getting economic utility out of it. So what we're describing in the MOU is an interoperability and a cooperation agreement between a Canadian constellation and equities to share. So that if the... If the Canadians were to use capacity on equities, when equities are over Canada, they can get far more utility, much more utility than they would out of their own constellation, and it would serve their market way better from both a national security perspective and a commercial perspective. And then, on the other hand, the equities users, which include us, Would benefit from having the use of the Canadian satellites when they're over areas outside of Canada where we would like more bandwidth. So instead of us having to capitalize a very large fleet, we can trade. We can exchange some of our bandwidth in their market. They can exchange their bandwidth in ours. That's the underlying premise. Thank you. It provides standards for that, for the interoperability mechanisms to do that, which leverage commercial open standards, 3GPP, 5G, and 6G, and also provides satellite control operation mechanisms to facilitate those. We are seeing quite a bit of interest from other countries and regions around the world that have exactly the same problem. One of the big opportunities that we've talked about in the past is with Europe. In Europe, one of the things that is A little advance relative to Canada is they see the same opportunity. They also would like to have European technology participate in that, and we've been awarded a number of meaningful European space agency contracts to not only facilitate those types of interoperability, but also create European... Industrial capability so that Europe would have greater flexibility in how they build and operate their own constellation. That's another example, but I can tell you there are other examples of places that have national or regional spectrum would like to have a Leo constellation, But see the economic end. Functional advantages of interoperating, not just with us, but with each other. That is, each of the sovereign countries can trade with each other through the standards and the control mechanisms that we're describing. So we think it's a big opportunity. As we're saying, kind of the next big step, and we'll provide more information when that happens, is when the... We complete all of the regulatory approvals required to form the entity, Equitus, and then the first big step will be for Equitus to place a prime contract for its initial consultation. Those are the next big steps.

Thank you.

Your next question comes from the line of Justin Lang with Morgan Stanley. Your line is open.

Yeah, hi. Thanks for taking the questions. Mark, at DAT, you mentioned moving up market from components to full of space vehicles even. So, curious if you could just expand on that a little bit and whether that journey requires more investment to realize or changes the margin trajectory that we've seen at DAT going forward. Thanks.

Yeah, one of the things that we have done in a couple of our different divisions is to do advanced work for government customers on satellite payloads, mostly on subsystems, modules, or comp. So one example that we've talked about in the past is satellite process. So, we've done, for instance, there's some government constellations that use radio frequency cross-links that we developed. They're very cost-effective. They provide more than sufficient bandwidth, and they fit well for the ranges, distances that are required for some of these applications. We've also done commercial crossings. For instance, we did the radio frequency crossings on the Iridian constellation. So those are fairly sophisticated. Started with components, modules, subsystems. The biggest, by far, the biggest payload project we undertook was the VISA-3 payload system. That is, I mean, it's... The highest power commercial satellites ever done, greatest amount of thermal dissipation ever done, by far the greatest amount of beamforming capability ever done. So, with that, that's established a lot of credibility for us, doing complete payload systems, and now it's getting to the point where those payloads, really that payload is sort of dominates some of these applications, the complexity and the functional capability and the cost So we've been partnering with... Small bus manufacturers, you know, for instance, on the PTSD program, we partnered with Rocket Lab, who provided us with a low-cost bus, but we did the payload. So now we're getting to the point where we have a number of opportunities, some of them working with the same customers who used to work with us on the components, modules, and subsystems to develop complete satellites. I think we've... We've earned a lot of credibility delivered on those, but also from a functional capability perspective for any of these satellites that benefit from very high frequency content or also from beamforming, I think we're very competitive. I think we're seeing the outcomes of that now. Plus, the other part of it, which I don't want to... I don't want people to underestimate is a lot of times the contracts that we're getting are for not only to design and manufacture the satellites, but it's to operate them as well. So if you look at the assets that we have... Global assets in satellite ground operations, underlying ground network, the ground capabilities that we built and also demonstrated on Viasat 3, those are getting a lot of attention as well. So we're very, very cost effective when it comes to the operating part, which is part of the purpose of these programs that we're participating in.

Got it. That's super helpful. And then maybe just one back on equitus and this idea of bringing on new partners. Curious how you think about potentially accommodating maybe a larger scale partner that would seek a significant or even controlling stake in the JV and how you generally would think about that possibility. Thanks.

So, one of the points that we're making with Equitus is that it's a new company. It doesn't exist only for the benefit of Viasat and Space 42, which are the founders. It is intended to be a neutral, you know. trusted entity that multiple partners can participate in. So the main, you know, right now, we're the first levels of interest for sure are these countries or regions that want a Leo system, but You know, don't have the capital, and it makes no sense for them to build an entire Leo constellation only for their country or region. So the notion of shared infrastructure makes a lot of sense to those users. Some of them may be, you know, they can participate in this constellation in multiple ways. One is by buying or subscribing to capacity from Equitas when it's over their region. Another one is by being a trading partner that is launching their own satellites. trading capacity into equities and its users, which is a good thing from our perspective, but it's done in this open and trusted, interoperable way. And then the other thing that they may do that some are expressing interest in is becoming equity investors in equities. That is because it represents a good opportunity for infrastructure-like returns from its user base, and then also there's a good opportunity to grow the constellation substantially as we grow more of these applications and the DDD market itself grows. So, what we've done is we've come up with the governance, interoperability, technical, all of the infrastructure needs for that.

Yes, we are live. Justin Lang is the question at the moment. His line is open. Mark, the floor is yours.

Yeah. Justin, can you tell us where you left us?

Yeah, I think I caught it. So I think you laid it out well on what type of partners you're looking to attract to equities. But if I just could sneak one really quick one in. Sorry, this is splitting hairs, Mark. But just the commentary coming back on the Strategic Review Committee, was that intended to suggest like a bit of a shift and what the committee has been tasked with up until now. Is that the sort of subtle implication there?

No, I'd say it's just to reinforce the role of the committee, and also the purpose of the plan is to put some numbers behind it as well.

Got it. Thank you.

Your next question comes from the line of James Ratzer with New Street Research. Your line is open.

Yes, thank you very much indeed for taking the question. So, Mark, my kind of question really, I mean, I suppose, followed on from that last one there from Justin, which is a little bit more color around equities. Would love to get your kind of latest. Thinking on, you know, what the timetable might be for potentially announcing any new future equity partner to come into Equitus, and are you able at this stage to share kind of anything more around kind of the operational business plan? You know, when do you think the first launches might take place? How are you thinking about the costs? Per satellite and per launch for Equitus. And if you're unable to answer those questions now, you know, on the kind of operational business plan, what should we think of as the timetable when you would be able to make those announcements? Thanks very much.

Okay, yeah, I think that what we're intending to do is to... We provide additional disclosures as we achieve milestones that make them, you know, make them clear and certain. So the very first milestone I've mentioned a couple of times is that we're forming a new entity. That entity needs certain regulatory approvals. We're not quite, not completely done with those approvals. We expect to be You know, not too distant future. I'm not going to make any predictions. But I think once we have those, the first thing that we'll announce is We'll address kind of one of the main questions people are asking us is, what's the underlying technical solution? What does that mean in terms of satellites, capability, schedule for delivery of the service? So those things will be determined. It's all set up. We just need to have the entity exist and the initial funding for the entity. So I'd say stay tuned, and And we'll provide that update. And then from there, you know, That'll answer some of your first questions, I think some of the most important ones. And then we'll be able to, once we've been able to say that, get more of a sense of what the interest is from third-party investors.

Do you think, Mark, is that something maybe is Q1 calendar next year too early, or is that the kind of right timeframe for that?

So, it's taken a little while to do these. I think we'd rather just do it. I think it's getting close enough to where we just say, hey, let us just do it. I think it'll become pretty clear.

Got it. Okay, thanks so much.

That concludes our question-and-answer session for today. I will now turn the call back over to Mark Dinkberg for closing remarks.

Okay, so covered a lot of ground in our call. I think there are a few things that we'd like just to remind everybody of, you know, first of all, that... We've got a strong portfolio. We think we're going to get good growth. We're very focused on cash and monetization, and we believe that our peak CapEx phase is behind us. We've got monetization opportunity in front of us. We've also got a set of contracts that will help with our overall approach. Lowering the capital intensity of the business, and there's quite a bit that I think will There's a lot of information that will become available over the next couple of quarters, and finally, you know, we've gotten a lot of questions around the Strategic Review Committee. We want to reinforce that our board and management are totally aligned in terms of creation of shareholder value, and we think we're putting more... We have some hard data behind that with the compensation plan that the Board put together. So thanks again and look forward to speaking next time we have some updates on some of these events that are going on. Thanks.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.