Earnings Call Transcript - VSAT Q3 2023

Mark Dankberg, Chairman and CEO

Okay, thanks. Thanks for joining us today. We released our shareholder letter shortly after market close and it's available on our website and we will be referring to that on this call. Joining me today on the call are Rick Baldridge, our Vice Chairman; Kevin Harkenrider, our Chief Operating Officer; our Chief Financial Officer, Shawn Duffy, Robert Blair, our General Counsel; and Paul Froelich from Corporate Development; and Peter Lopez from Investor Relations. So, let's have Robert provide our Safe Harbor disclosure for the start.

Robert Blair, General Counsel

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.

Mark Dankberg, Chairman and CEO

Thank you, Robert. I'll begin with a brief overview and then move on to questions. The key point today is that construction and testing of the ViaSat-3 Americas satellite is complete. We are scheduled to launch on April 8, following two NASA International Space Station missions that have been delayed by one to two weeks due to the crew return mission for cosmonauts. Launching this satellite will help us tackle our immediate issue of bandwidth constraints. In the U.S., this has led to a reduction in our residential business in order to support the strong growth we have experienced in inflight connectivity. The ViaSat-3 will serve currently congested areas and allow us to introduce new plans with faster speeds, more bandwidth, and enhanced value. It will also support our existing customers in the Americas, contribute to our growth in Brazil and Mexico, and enable us to explore additional geographic and vertical markets. We are confident it will drive growth. The satellite is expected to reach its orbital position a couple of weeks after the launch, and we aim to start initial paid services shortly thereafter, scaling up during the summer. The ViaSat-3 EMEA satellite is set to launch in September, providing important coverage for our mobility businesses and capacity for various other markets. It is anticipated to help us achieve positive free cash flow. The Asia-Pacific satellite is also on track. Overall, new orders have increased year-over-year, and we are making significant advancements in inflight connectivity. An example of this is Delta Airlines' recent announcement to offer free Wi-Fi on their entire fleet. We have worked closely with them to understand the growth in demand and ensure we can provide the expected service quality at scale. Currently, we have around 3,000 flights per day offering free Wi-Fi through Delta and JetBlue, and this number continues to rise. Additionally, we are still serving numerous other airlines, including those in major U.S. cities. We see strong opportunities for collaboration with airline partners to enhance passenger engagement with Wi-Fi in cost-effective ways that align with their business models and brands. In the third quarter, we shipped about 240 inflight terminals for commercial air and brought around 160 planes into service, marking a 17% year-over-year growth. New orders from both new and existing customers have been robust, and we have over 1,200 additional planes on order. Our airline customers are experiencing delays in new aircraft deliveries, estimated at about 50 to 60 by the end of our fiscal 2023. Nonetheless, we anticipate that deliveries and installations will increase sequentially in the fourth quarter. We have also been equipping Sichuan Airlines in China, as both the U.S. and China represent the largest domestic air travel markets. We believe servicing international routes to and from China with our partners will be crucial for many global airlines and Chinese international carriers. Another significant point today is the closure of the sale of our TDL business shortly after the third quarter. We expect to receive about $1.8 billion in cash, which will significantly strengthen our balance sheet, along with a gain from the sale exceeding $1.5 billion. Considering this gain, FY ‘23 will be a highly profitable year for us. The sale allows us to focus on our satellite services businesses, where we see much greater growth potential. As previously mentioned, we are undergoing some rightsizing due to the sale, which is in progress. Regarding Inmarsat, we are currently waiting for regulatory approvals from the UK and the European community to finalize the transaction. We anticipate having insights into the regulators' current perspectives this quarter. The shareholder letter includes our financial data for the third quarter of fiscal 2023 and year-to-date. The results fell short of our expectations for the year, largely because of significant delays in launching the first ViaSat-3 satellite compared to our initial schedule. We have faced other supply chain challenges affecting product costs and delivery timelines, delayed aircraft deliveries to customers, and ongoing certification issues for encryption products, which are not unique to us. However, the demand for our products and services remains strong, and we have achieved good year-over-year performance in orders. Thanks to the gain from TDL, we will report our highest earnings for the fiscal year by a considerable margin. We plan to kick off fiscal year 2024 with the launch of the first ViaSat-3, and we are excited about the outlook moving forward, as detailed in the shareholder letter. Now, we will open the floor to questions.

Operator, Operator

The floor is now open for your questions. Our first question comes from Ric Prentiss from Raymond James. Please proceed.

Ric Prentiss, Analyst

Thanks. Good afternoon, everybody.

Mark Dankberg, Chairman and CEO

Hey, Ric.

Ric Prentiss, Analyst

Hi. I appreciate the shareholder letter. I have two questions. First, Mark, you mentioned the upcoming launch of the first ViaSat-3 over the Americas. I’m glad we have a launch date. How long do you expect it will take to meet the pent-up demand mentioned in your letter? And when should we begin considering the need for ViaSat-4?

Mark Dankberg, Chairman and CEO

The way we've operated in the past, which has been effective, is by initially filling our capacity and then evolving our customer mix towards higher-yielding clients. This is similar to what we are doing now. We've discussed a hierarchy of value and services, particularly with challenging service areas like government, maritime, and in-flight. Typically, we have filled the satellite capacity two to three years after launch, and then we refine our subscriber base over a couple of years. Regarding our approach to ViaSat-4, we are currently focused on ensuring the technology meets our performance expectations while keeping to a more predictable schedule, but we are using the same platform. The timing for that will be adjusted based on our current satellites' cash flow and our demand assessment, so we are not providing a specific timeline at this point.

Ric Prentiss, Analyst

Okay. Also in the shareholder letter, interesting comment about direct to device and that Inmarsat obviously has L-band spectrum that you're interested in. Can you maybe high level kind of obviously, the deal is not closed, but can you, from a high level, tell us, how do you feel that, that directed device satellite to smartphone is going to come to pass? There's a carrier model in the marketplace. There's handset models in the marketplace or coming into the marketplace, and then a chip backed one. So, how do you see this market kind of materializing? And do you all need to have a LEO type platform? Or how would that work? So, just high-level thoughts on direct-to-device thoughts.

Mark Dankberg, Chairman and CEO

We are focused on the direct-to-device market, which many believe could serve a large audience, albeit with likely lower average revenue per user. However, we see that the developments in both space and ground networks necessary for this market will also significantly improve the mobile satellite services market. This will lead to faster speeds, increased bandwidth, and lower airtime costs, benefiting operators with access to mobile satellite services spectrum. Key uncertainties regarding the direct-to-satellite or direct-to-handset market include the speeds achievable for each phone, the number of devices that can be supported in a given area, the pricing for airtime, and whether the service will extend beyond emergency use. Much of this hinges on the same factors influencing the broadband market, particularly the need for a strong density of bandwidth in high-demand areas. Interestingly, the demand in the handset market may be even more geographically concentrated than in broadband. We have been examining both GEO and LEO design architectures as viable options for service delivery, as we believe both can provide comparable services. Cooperation among spectrum holders will likely be necessary. Our concerns extend to sustainability in low Earth orbit, particularly regarding the size and mass of proposed satellites for this service, as we are uncertain if these proposals are on the right path. We aim to offer services that go beyond mere emergency solutions and can be scaled for a large customer base. This summarizes our current perspective.

Ric Prentiss, Analyst

Great. I appreciate, and we'll stay tuned as we access market and home.

Mark Dankberg, Chairman and CEO

Thanks, Ric.

Operator, Operator

Our next question is from the line of Phil Cusick from JPMorgan. Please proceed.

Nikhil Aluru, Analyst

Hi, this is Nik on for Phil. Thanks for taking the question. I'm wondering if you could provide an update on how churn is trending in fixed broadband? And how any increased competition may be playing into that? As well as what the strategy would be to return to fixed broadband growth once ViaSat-3 launches just given the competitive intensity? Thank you.

Mark Dankberg, Chairman and CEO

We haven't detailed churn by specific markets. However, I can share that recently our churn has decreased. Some of the churn we experienced was likely related to the COVID period when many people signed contracts and relied heavily on home broadband. Since many of those contracts have ended, our churn has stabilized. We anticipate increased competition in our targeted markets, which are estimated to have around 10 to 15 million homes suitable for satellite broadband. The main challenge will be offering a strong value proposition in terms of speed, volume, and price. Additionally, streaming is becoming increasingly important. While streaming doesn't demand high speed, it does require substantial bandwidth, which can be challenging for most satellite and terrestrial wireless services to provide unlimited access. We believe we will be very competitive in this area. ViaSat-3 will enhance our speed, bandwidth, and pricing, and we expect this improvement will help us reduce churn further.

Operator, Operator

Our next question comes from the line of Landon Park from Morgan Stanley. Please proceed.

Landon Park, Analyst

Thank you. Mark, did you get cut off there? Did you have anything else that you want to add under that?

Mark Dankberg, Chairman and CEO

No, no. I think the last thing I said was that we expect churn to continue to improve with the new plans that we can offer. That was the last thing I said. I don't think I cut off or not.

Landon Park, Analyst

Thank you, Mark. I have a question about Delta's launch of their free Wi-Fi product with you as the partner. They aim to have a global rollout by the end of 2024. What are the prospects for you to retrofit their international fleet or regional jets? Additionally, could you provide a general overview of how your IFC contracts are structured in terms of fixed versus variable components? How should we expect ARPA to trend, what are the current ARPA levels, and how might those evolve in the free Wi-Fi model?

Mark Dankberg, Chairman and CEO

We have a strong partnership with Delta, who supports our role as their in-flight Wi-Fi provider, particularly for their global wide-body fleet. They are looking for consistent service across all their aircraft, and we are confident that the ViaSat-3 system will enable us to deliver this on a global scale within their desired timeframe. Regarding our business models, we customize our service offerings to align with what each airline's brand wants and their approach to in-flight connectivity for passengers. These models can differ based on the type of aircraft and routes, and while there are fixed and variable components, the variable aspects depend on the specific airline's strategy for planning routes. Therefore, it's challenging to provide exact figures. However, our overall revenue per aircraft is reflective of industry standards for full-service models, and while we won’t disclose specific average revenue per plane, it is comparable to what other industry participants in similar arrangements experience.

Landon Park, Analyst

What kind of upside can you see under a free Wi-Fi model in terms of percent increases as that model matures?

Mark Dankberg, Chairman and CEO

I'm not going to specify a percentage increase. However, what we are experiencing and anticipate is similar to what we've observed in other contexts where in-flight Wi-Fi has been implemented. Passenger engagement rates can increase from the 5% or 10% range to around 30% to 40% quite readily. Therefore, I believe there will be significantly more adoption. This is one of the factors that enhances our appeal, given our capacity to support this growth. However, we will not provide specific figures regarding how this might impact revenue per plane.

Landon Park, Analyst

Understood. And then just one follow-up for Shawn on some of the financial guidance laid out in the letter. Can you maybe just bridge for me how you're getting to the 4.0 leverage target for fiscal 2024 versus the 2.0 pro forma?

Shawn Duffy, CFO

Sure. I think there are a couple of aspects to consider. Firstly, as we anticipate our EBITDA for next year, it's important to adjust it considering the absence of the TDL business. We expect growth across our operations, but that factor is significant. From a capital perspective, this year was around $1.2 billion, slightly more. Next year, we expect it to remain roughly the same or decline a little, but the composition will change substantially as there will be an increased focus on success-based capital expenditures for CPE compared to the satellite projects coming up. If you project that forward based on our pro forma debt following the TDL sale, that's how we arrive at that figure.

Landon Park, Analyst

And so what's the underlying cash burn that's implied by that for fiscal 2024?

Shawn Duffy, CFO

If you look at the EBITDA in relation to the capital expenditures, I won't disclose the total cash burn, but you can figure that out.

Landon Park, Analyst

Okay. Understood. And then just so I make sure I'm understanding for fiscal 2023, the mid-single-digit guidance from last quarter is now flat, correct? So, what is the is the annual EBITDA number going to be in the low 500s on a continued operations basis?

Shawn Duffy, CFO

I think what we mentioned is that for next year, we expect EBITDA to grow in the low double digits year-over-year.

Landon Park, Analyst

Sorry, I was asking about the base of fiscal 2023.

Shawn Duffy, CFO

Right. So, for 2023, what we said is you could think of it to 2022 on a continuing operations basis to be about flat to the prior year.

Landon Park, Analyst

And that was about, what, around $500 million in fiscal 2022, right a little less?

Shawn Duffy, CFO

It was a little shy to that.

Operator, Operator

Our next question comes from the line of Mike Crawford from B. Riley Securities. Please proceed.

Mike Crawford, Analyst

Thank you. Can you tell us what, if any, changes there are in the timeline with the UK's Competition and Markets Authority Phase 2 review, when you expect that decision? And how soon after that presuming it's favorable, you could close Inmarsat?

Robert Blair, General Counsel

Hey Mike, this is Robert Blair. So, the timing for the CMA is the end of March is when we would expect them and what they've indicated to us is their plan to be wrapped up if it's favorable, then we should be able to close theoretically shortly thereafter as long as the European Commission and along the same timeline. But that could drag out potentially further after the CMA. So, it really depends on how quickly the European Commission would finish their review if the CMA is done and approved at the end of March. But as soon as both of those processes are done, we would expect to be able to close pretty quickly after that.

Mike Crawford, Analyst

Thank you. Can you share your potential satellite launch timeline? Is there any similar information available regarding Inmarsat?

Mark Dankberg, Chairman and CEO

I think they don't want to share information that is mostly available on their website. They are launching one of their satellites along with six others this month, but their follow-on satellites are likely a couple of years behind, and there seems to be a gap for their I79 satellites.

Operator, Operator

Our next question comes from the line of Caleb Henry from Quilty Analytics. Please proceed.

Caleb Henry, Analyst

Hey guys. I have a question about the Link 16 business. I'm just curious if there is any opportunity for ViaSat to provide state-based Link 16 now that the sale is completed, or did that opportunity disappear with the sale?

Mark Dankberg, Chairman and CEO

The Link 16 specific businesses were included in the sale. However, we have space contracts that encompass a wide range of communications, waveforms, and data links. Link 16 can be incorporated as one of those waveforms in a multi-waveform space system. As part of the sale, we are supplying a module to Inmarsat that will enable them to use Link 16. Therefore, we will have common hardware for that application.

Caleb Henry, Analyst

Okay. Does that mean there's still an opportunity for ViaSat to participate in the space development agencies constellation? I know that's supposed to use Link 16? And then do you still have the satellite that you're building with Blue Canyon or is that something that was sold as well?

Mark Dankberg, Chairman and CEO

So, the existing contract that we had for XVI and FDA payloads did go with that business.

Operator, Operator

Our next question comes from the line of Ryan Koontz from Needham & Company. Please proceed.

Ryan Koontz, Analyst

Thanks for the question. Mark, thinking about how the IFC business scales here, apart from adding all the tremendous increase in capacity from ViaSat-3. What kind of key parts of the business do you think need to scale to address the global opportunity in terms of infrastructure, channel, support, those sorts of things as you think about taking that business global? Thanks.

Mark Dankberg, Chairman and CEO

One of the positive aspects of our efforts with ViaSat-3 is that we have established effective business models for the markets where we are already performing well, particularly in the residential and rural sectors. We have created models that make it straightforward to add more bandwidth. This also applies to in-flight connectivity, where we already have customers in regions such as Australia, Asia-Pacific, Latin America, Europe, and the Middle East, supported by our full-service model. The exciting part about deploying ViaSat-3 globally is that we can seamlessly integrate into these existing models, especially for in-flight connectivity, as it is primarily a direct business with airlines for us. Our robust sales team is well-positioned to engage with airlines worldwide, and we have the necessary support infrastructure to enhance our offerings.

Ryan Koontz, Analyst

Got it. That's great. And just a quick question about the letter about your reallocation of capacity into IFC. How should investors think about the timeframe that it takes you to truly kind of reallocate it? Are we talking months, quarters to reallocate that capacity and move it into a particular new application?

Mark Dankberg, Chairman and CEO

Okay. No, that's a good question. So, as the airline business has grown, the main thing that we've done very carefully and purposely is to understand what the traffic demand will be on a geographic basis and then also be able to gauge not only where the airplanes are the seats are going to be, when, but also to match the expected bandwidth demand on each plane in each airline. So, that we have the sufficient bandwidth that is scaled to the demand on those planes. And that, when we do it, what we've had to do. I mean, I think it's a choice that it's a choice that we made deliberately. And I think it's going to be good for the company, definitely been good for our IFC customers. I think it was weakest for shareholders is to plan ahead. And what we've done is we've used natural churn on the residential business that frees up bandwidth in places where we may need it. And those places where we won't need it for IFC, then we can replace those customers with new customers. When we get ViaSat-3, problems could be way easier as we'll have a lot of bandwidth everywhere, and we'll just be able to add customers on both in-flight connectivity and in airlines and a few other businesses within the US that we think we can start and grow as well. But think of it as the reallocation process is really something we only have to go through when we're full, right? When we have to allocate bandwidth because we don't have enough to serve all the demand we could see in all the markets that we address, right? It's really a question of making choices about what we choose to serve, given all the demand that we see.

Ryan Koontz, Analyst

It does. Thanks Mark. That’s all I have.

Operator, Operator

Our next question comes from the line of Louie DiPalma from William Blair. Please proceed.

Louie DiPalma, Analyst

Mark, Rick, Shawn, Robert and Peter, good afternoon.

Mark Dankberg, Chairman and CEO

Hey Louie.

Louie DiPalma, Analyst

Following up on Landon's question. does ViaSat have a product/antenna to provide IFC on regional jet aircraft, such as CRJ700s and ERJ175s? I know that you provide connectivity for JetBlue's larger ERJ190s, but do you have a smaller antenna for the smaller regional jet aircraft?

Mark Dankberg, Chairman and CEO

Right now, well, a lot of it really depends on the operating model of the airline and the exact type of aircraft that they have. But I think from a commercial business, probably the E190 is the smallest that we currently have at any kind of scale.

Louie DiPalma, Analyst

Okay. Are you ruling yourself out then for Delta's regional jets?

Mark Dankberg, Chairman and CEO

No, no. I think we have airline products that we're developing that will go down to smaller planes. We certainly do that. We sort of smaller aircraft with that our business gets or others. It's really a question of coming up with something that amounts well and economically for the specific types that our customers want. And so we are working on more fuselage now did antennas for those smaller class of aircraft.

Louie DiPalma, Analyst

Sounds good. And for the government encryption business, has ViaSat received the product certifications that were previously delayed? And are you out of the woods there?

Mark Dankberg, Chairman and CEO

The government has not been issuing certifications for a range of products due to their known reasons. However, there is customer demand for many of our products. They have evaluated that demand in relation to their certification guidelines and have informed us that they expect to issue those certifications later this month. That's all we can share.

Louie DiPalma, Analyst

Thanks. Great. And One for Shawn, how should we think about the customer premise equipment, CapEx and OpEx costs for ViaSat-3 residential customers when you deploy the new terminals?

Shawn Duffy, CFO

Okay. I believe we should consider the customer premise equipment in a few parts. Similar to previous years at the beginning, the costs are a bit higher due to the brand-new equipment. As turnover occurs, we see a referral pool which helps reduce costs over time. The capital expenditures next year are expected to increase significantly, about three times what they are this year, indicating substantial investments in that area. Regarding operating expenses, we will certainly feel the impact of advertising upfront as we prepare for the service launch and market our new plans, which will be reflected in the initial EBITDA margins. Additionally, as we look to next year, we anticipate full operational expenses for ViaSat-3 on the ground. This year, those costs scaled to around $50 million, and next year we will bear the full impact along with scaling our revenues. We will continue expanding in EMEA and APAC, and you can expect the overall expenditure for that to increase by about 85%. These are some of the key components of our capital and operating expenses.

Louie DiPalma, Analyst

Sounds good. And is there any type of like a benchmark in terms of like for every customer, should there be like $200 of CapEx associated with the customer premise equipment or any other type of round numbers there?

Mark Dankberg, Chairman and CEO

We've typically observed that when we launch a new generation of satellites, the costs tend to be around $800. This figure varies based on a combination of advertising, commissions, and equipment installation among other factors. It is unlikely to change significantly, as the cost mix will depend on demand and our capabilities in each region. Initially, it might be slightly different, particularly in China.

Shawn Duffy, CFO

Beginning with the advertising, I think.

Mark Dankberg, Chairman and CEO

And then it can come down $100 to $200 as it matures.

Shawn Duffy, CFO

Yes. And we get that refer pool as well.

Louie DiPalma, Analyst

Okay. And as it relates to the ViaSat-3 EMEA launch that is targeted for September. I mean you mentioned how it's with United Launch Alliance. Is that what their new Vulcan Centaur rocket?

Mark Dankberg, Chairman and CEO

No, that's an Atlas launch. It will be at or their last Atlas launches.

Louie DiPalma, Analyst

Okay. And one final question. This is a bit more speculative, but following up on Ric's question as it relates to satellite direct to device. Would it be possible for you to partner with SpaceX in the future, you used to have an antagonistic relationship with Inmarsat, but now you are merging with them, so things moved over. But is there a scenario in which you could lease a portion of Inmarsat L-band spectrum to SpaceX and partner with them for a direct to handset effort? Or are you committed to like launching and operating your own constellation in a vertically integrated manner?

Mark Dankberg, Chairman and CEO

That's a great question. Generally, much of our value lies in the space systems we can create. Ultimately, when considering any potential partnership, it would primarily be an economic discussion regarding the nature of the collaboration and the resources or capabilities provided by each party. We are open to partnering with anyone. We've demonstrated that we can deliver significant value in space architectures, which goes beyond simply collecting lease fees for spectrum, for instance. We never rule anything out.

Louie DiPalma, Analyst

Yes, thanks. That’s all that I have. Thanks everyone.

Mark Dankberg, Chairman and CEO

Thanks Louie.

Operator, Operator

Our final question comes from the line of Landon Park from Morgan Stanley. Please proceed.

Landon Park, Analyst

Thanks for taking a follow-up. Just a quick question on the TDL prices: are you planning to use that to reduce any debt or keep it as a buffer? Are you still considering drawing on your Inmarsat financing at the close of that transaction, or is this serving as a replacement in some way?

Shawn Duffy, CFO

Hey Landon, this is Shawn. We have definitely accessed the proceeds from our revolver. Given the current state of the credit markets and looking towards 2025, maintaining a bit of extra liquidity seems prudent. Regarding the transaction, it provides us with considerable flexibility, but we haven't made any firm commitments at this point.

Landon Park, Analyst

Is there any reason you wouldn't want to tack that financing given the attractive rates that have struck at?

Shawn Duffy, CFO

Yes, I mean I definitely think that we look at the transaction and look at the full-on lens of the capital structure. And I agree with you that where we are today is in a good position there, but we need to take that into consideration overall. But our intention is to be able to be sure we're in a good position with the right capital structure for the financing of the transaction.

Landon Park, Analyst

Understood. And then just one for you, Mark, as well. On the ViaSat-3, as we look forward to that, you guys in the letter talked a lot about the enhanced flexibility of that satellite capabilities. When we think about the gross capacity of the ViaSat-1 and 2, can you comment on what the utilization rate on that gross capacity has ended up being now that those assets are stabilized and what that can look like for ViaSat-3 asset?

Mark Dankberg, Chairman and CEO

That's a great question and quite complex. You've likely noticed that cable companies and others in residential services have busy hour demand curves. Typically, these show that usage is very high from around 6:00 p.m. to midnight, then drops significantly overnight, with a slight peak in the morning and lower demand during the day. This is a common pattern for residential users with similar applications. In terms of in-flight services, if you take a look at geographic usage for airlines like Delta, American, and United, you'll see similarly high demand around hub airports when many planes and passengers are present. Outside of these peak times, usage is generally lower, though it doesn’t completely stop due to varying airline schedules. The key challenge is that if the capacity isn't flexible or if satellites can only cover fixed areas, utilization reflects the demand specific to those regions. However, the advantage of ViaSat-3 is that it enables us to redistribute bandwidth to other areas as needed. This flexibility is unique, allowing for adjusted coverage based on demand and time zone variations. We’re also exploring similar strategies for other mobile markets such as land, marine, and others. We believe this capability will lead to notable improvements in utilization in high-demand areas. From a capital efficiency perspective, demand—whether on the ground or in the air—depends significantly on your customer base and your space systems. Congestion often occurs in specific hotspots. By moving bandwidth where it's needed, we can serve these hotspots more effectively than other systems. It's a complex optimization challenge, but we anticipate considerable economic benefits from it. I hope this addresses your question.

Landon Park, Analyst

It certainly provides insight. I would appreciate it if you could give more details.

Mark Dankberg, Chairman and CEO

Number, do you want a number?

Landon Park, Analyst

But when you say it's a meaningful increase I mean what is ViaSat-2 at today? I mean I assume you guys have a sense of what the utilization on that satellite.

Mark Dankberg, Chairman and CEO

It really varies by location, so it's difficult to provide a clear answer.

Landon Park, Analyst

I'm curious about the 240 gigs of gross capacity. You provision capacity for users and the beams on the satellite are essentially fixed. How much of that gross capacity is provisioned? You mentioned you don't have capacity limitations, so are you nearing that 70% utilization?

Mark Dankberg, Chairman and CEO

The issue we face is encountering provisioning limitations in certain areas. Previously, our in-flight growth was largely driven by residential users. As we added in-flight users, we needed to provision for peak demand across both markets. This is a complex task requires accurate forecasting and management. I believe our provisioning levels are strong, and we are efficient in meeting the service level agreements we outlined. It's a statistical process, and we are close to optimal provisioning when not reallocating bandwidth. With ViaSat-2, we had some opportunities for dynamic scheduling, and we implement some of that. ViaSat-3 enhances this capability significantly. One key metric to consider is the ratio of peak demand to average demand in specific locations or on certain airplanes. These peak-to-average ratios can be quite high, particularly in mobility markets, where they can exceed 10 to 1. This illustrates the potential we have in critical areas.

Landon Park, Analyst

Understood. Thanks for all the color Mark.

Operator, Operator

That does conclude today's questions. I would now like to turn the call over to Mark Dankberg for closing remarks.

Mark Dankberg, Chairman and CEO

Okay. Thanks. So, just in summary, going back to reemphasize the significance of putting that first as a satellite and with having a launch date now in early April just about two months away. And with the Europe, Middle East, Africa, while it's not that far behind. The bandwidth coverage and flexibility it provides really addresses our most immediate growth issues and I think the last question kind of helps emphasize that. And then with the sale of our TDL products business, we've got a lot of financial moving room, the over $1.5 billion gain on that sale will actually make our fiscal 2023 our most profitable year ever, and we think it's indicative of the value we're building in each of our businesses. We continue to believe combining the complementary nature of our businesses, skills, and resources with Inmarsat will be good for the companies, our people, our customers, the UK space business, and for our shareholders. So, thanks a lot for joining us this afternoon. Please don't hesitate to contact Peter or anyone on our team if you have any further questions on our results or other topics. And with that, I'll hand it back to the operator.

Operator, Operator

This concludes today's call. You may now disconnect.