Earnings Call Transcript - VSAT Q1 2026

Operator, Operator

My name is Dustin, and I will be your conference facilitator this afternoon. I would like to welcome everyone to Viasat's First Quarter Fiscal Year 2026 Earnings Results Conference Call. I would now like to turn the call over to Ms. Lisa Curran, Vice President of Investor Relations. Ms. Curran, you may begin your conference.

Lisa Curran, Vice President of Investor Relations

Thanks, Dustin. 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 Q1 fiscal year '26 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 Dankberg, Chairman and CEO.

Mark D. Dankberg, Chairman and CEO

Good afternoon, and thanks for joining us today. With me, along with Lisa, we have Gary Chase, our Chief Financial Officer; and Shawn Duffy, our Chief Accounting Officer. As always, we encourage reading the shareholder letter we posted on our website and referencing the slides we also posted earlier this afternoon for more details. Our first quarter fiscal year 2026 results yielded a bit stronger-than-expected year-over-year revenue and adjusted EBITDA growth. Our first quarter performance reflected healthy market demand in our most important business lines, more than offsetting lower IP, intellectual property licensing revenue and expected pressures in fixed broadband businesses, as well as good cash generation. For Q1 fiscal 2026, we had a net loss of $56 million compared to a net loss of $33 million in the first quarter of fiscal 2025, and that was primarily due to improved operating performance that was offset by an increase in depreciation and amortization and a higher income tax provision. Revenue grew 4% year-over-year, driven largely from double-digit growth in the Defense and Advanced Technologies segment, which reflected the strength and diversity of our unique technology portfolio, strong market positions and attractive secular drivers. Adjusted EBITDA increased by 1% year-over-year, primarily from double-digit adjusted EBITDA growth in information security and cyber defense, partially offset by lower intellectual property licensing revenue and declines in maritime. One of our highest priorities remains getting Flights 2 and 3 of the ViaSat-3 series into service, and our progress is reflected in the updated accompanying satellite roadmap. Each of the new ViaSat-3 satellites is designed to enable more bandwidth capacity than our entire existing fleet, creating opportunities to grow in each of our franchise businesses. For Flight 2, we completed implementation and testing of the corrective actions for the deployable reflectors and have begun the process of final flight installations and closeouts. We've also completed ground operations and defined launch campaign schedules and launch day operational plans with our launch partners. We expect to ship Flight 2 to the launch site by the end of next month, which would be September of 2025. For Flight 3, we also completed testing of the deployable reflectors and began the process of preparing the spacecraft for mechanical environmental testing. We continue to monitor the launch manifest and range priorities for our launch vehicles at Cape Canaveral. As previously shared, as we achieve satellite integration and test milestones on the spacecraft, we reduced the magnitude of the bring into service schedule risk, but of course, that doesn't eliminate schedule risks extrinsic to our own spacecraft or launch campaign. We've slightly adjusted the in-service date roadmap to better reflect various potential schedule uncertainties post-shipment for Flight 3. ViaSat-3 Flight 1 services continue to scale steadily with more than 60,000 flights occurring to date while fulfilling high-performance service level agreements delivering fast and free Wi-Fi. We've pioneered many of these services and business models and are continuing to win in our target markets, leveraging a combination of our existing and planned fleet with our third-party bandwidth partners. We also continue to advocate and support an open architecture, standards-based approach to non-terrestrial network or NTN roaming and interoperability with terrestrial using significantly more cost-effective aggregation, coordinated mobile satellite spectrum. Our approach is designed to leverage the 5G ecosystem, which can substantially reduce capital and operating costs for Viasat and other operating partners and should reduce costs for consumers and help drive broader non-terrestrial network adoption. The strong start to the first quarter is affirming our ability to position fiscal 2026 as a launch year. We are focused on continuing to more thoroughly optimize the integration of Viasat and Inmarsat resources and establish the growth opportunities and associated earnings power of our franchises to yield attractive cash conversion. We see opportunities to sustain and enhance durable competitive positions while simultaneously reducing capital intensity. We're balancing investing for growth in target markets while continuing to opportunistically strengthen our capital structure via cash flow improvements, addressing debt maturities and ongoing portfolio reviews, all intended to help delever our balance sheet. We are determined to exit fiscal 2026 with a solid foundation for accelerated and sustained growth and cash generation. We have a comprehensive plan to reinforce our competitive positions, unlock portfolio value, and drive returns and shareholder value. Fiscal '26 is the year to reposition for growth. As I said before, there will be challenges, but we're playing to win. With that, I'll hand it over to Gary.

Garrett L. Chase, Chief Financial Officer

Thanks, Mark, and good afternoon to everyone joining us on the call. I want to start by thanking the Viasat team for all the hard work that went into delivering our fiscal '26 first-quarter results. Last time we were together, I noted that we were starting the year facing some headwinds that we're working to address. OEM aircraft delivery rates continue to recover slowly. In addition, airline partners have increased the number of grounded aircraft as they manage through macro uncertainties. And U.S. fixed broadband remains pressured until we bring ViaSat-3 Flight 2 into service. During the quarter, while benefiting from a bit of timing, we also observed lower IP licensing revenue from TrellisWare, the sale of our Energy Systems Integration business, higher ViaSat-3 ground build-out-related OpEx, adverse foreign exchange impacts and elevated legal costs related to Ligado. In the first quarter, despite these headwinds, we generated revenue of $1.17 billion, and adjusted EBITDA reached $408 million, up 1% year-over-year for a 35% adjusted EBITDA margin. Growth in the face of these headwinds is a testament to the commitment of our teams to deliver for our customers. I'm pleased we're off to a good start, but we need to stay focused to deliver on the year. You all know fiscal '26 is an important one for us as we position the business for higher earnings power in the years ahead. We're expecting to add substantially to our capacity base with 2 ViaSat-3 satellites and judiciously adding third-party capacity, continuing to grow our aviation, government SATCOM and DAT franchises, return our maritime business to growth with NexusWave and expect our fixed broadband business will bottom out with the capacity ViaSat-3 Flight 2 is expected to bring. Executing on these opportunities will drive the 3 key pillars of our financial journey. First, building our franchise, increasing earnings power while investing in our future with discipline. Second, generating sustained and growing free cash flow, which is the best means of achieving our third objective, which is reducing the leverage that's pressuring our debt and equity prices. Our team's focus on execution in fiscal '26, targeting a sustained turning point on all 3 of these fronts, leading us into an exciting fiscal '27 and beyond. Mark spoke to the progress we're making on ViaSat-3 and the other ways in which we're building our capacity. Let me highlight just a few examples of how we're building the backlog we need to monetize that capacity and grow profitably. LATAM Group selected Viasat Amara service on wide-body long-haul aircraft. This transformative next-generation connectivity service will utilize a multi-orbital network of GEO and LEO satellites, ensuring a high-speed, high-resiliency, low-latency internet connection with global coverage. In addition to benefiting passengers, Viasat Amara will optimize operations with real-time communication between crew and ground teams, data transmission for predictive aircraft maintenance and route optimization via cockpit connectivity. Our maritime product NexusWave surpassed 1,000 orders since introduction for the fully managed high-speed bonded connectivity service. In the first quarter of '26, we installed 190 vessels, more than double the rate of the prior quarter. The service has gained momentum in its first 6 months on the market with global customers adopting NexusWave for their fleet. Our teams are now working to satisfy that demand and continue to steadily increase installation rates. So we exit the year with a substantial NexusWave installed base. We received info sec and cyber defense awards of $224 million this quarter, an increase of 225% year-over-year and a book-to-bill of 2.2x in this business area. Awards reflect sustained strength in demand for various high-assurance encryption products from customers to meet network and data center security needs, especially as more benefits are realized through data fusion and AI. Now let's turn to the financial results for the first quarter. All of my statements will reference the first quarter of fiscal '26 and the prior year period, the first quarter of fiscal '25. Awards were $1.2 billion, led by our DAT segment. Net loss was $56 million, an increase of $24 million from the prior year period, principally due to an increase in depreciation and amortization and a higher income tax provision. Adjusted EBITDA was $408 million, a 1% increase year-over-year, driven by info sec and cyber defense and aviation, partially offset by maritime and lower IP-related revenue in tactical networking and advanced technology and other. Free cash flow is a critical focus area for us. We generated $60 million of positive free cash flow this quarter, bringing our trailing 12-month tally to a positive $88 million with another quarter of double-digit growth in operating cash flow and a double-digit decline in CapEx, continuing to work to find ways to improve operating cash flows and lower the capital intensity of our businesses. We're laser-focused on driving a sustained and growing free cash flow in the years ahead. Finally, net leverage was flat year-over-year, reflecting strong free cash flow generation and ended the quarter at approximately 3.6x trailing 12 months adjusted EBITDA. Now let's turn to some segment highlights. In the first quarter of fiscal '26, Communications Services revenue was $827 million, flat with the prior year period, reflecting growth in aviation and government SATCOM, offset by the sale of our Energy Systems Integration business, along with expected declines in maritime and U.S. fixed broadband. Aviation grew 14%, led by a 9% year-over-year increase in commercial aircraft in service, combined with higher average revenue per aircraft. With continued growth in our installed base, we did see our backlog decline slightly on a sequential basis to about 1,580 aircraft, down from 1,600. Our government SATCOM revenue grew 4% year-over-year, primarily reflecting maritime services for U.S. government satellite services. Maritime revenue declined 5% year-over-year as vessels and service were down. Non-safety stand-alone L-band offerings continue to migrate to multi-band, multi-orbit solutions like our NexusWave offering. Our maritime business grew 3% sequentially, and we continue to expect to return to year-over-year growth in maritime by the end of fiscal '26. Fixed services and other revenue was down 13% year-over-year as U.S. fixed broadband subscribers continue to decline. We ended the quarter with 172,000 subscribers and $115 average revenue per user. These revenue impacts, along with lower segment R&D, drove the Communication Services segment adjusted EBITDA to $322 million, up 5% year-over-year. Turning to Defense and Advanced Technologies performance during the quarter, our Defense and Advanced Technologies segment awards of $428 million increased 22% versus the prior period led by info sec and cyber defense. Revenue was $344 million, up 15% compared to $300 million in Q1 fiscal '25, driven by growth in info sec and cyber defense, space and mission systems, partially offset by lower IP-related revenue. Info sec and cyber defense product revenues were up 84% year-over-year, driven by high-assurance encryption products. Space and mission systems revenues were up year-over-year 20%, driven by antenna systems. Tactical networking revenues, including TrellisWare, were down year-over-year by 4%, driven by lower IP-related revenue. As a reminder, in the first quarter of fiscal '25, TrellisWare benefited from a large order for upgraded licenses across radios already deployed by U.S. and allied forces for a $25 million revenue uplift in the prior year period. Advanced technology and other revenues were down $9 million year-over-year, driven by lower IP-related revenue from our forward error correction technology used in optical networking. First quarter '26 DAT adjusted EBITDA was $87 million, down $9 million compared to the first quarter of fiscal '25, reflecting less high-margin IP-related revenue flow-through. Excluding the approximately $25 million impact of lower IP-related from TrellisWare, adjusted EBITDA would have increased year-over-year. Overall, the first quarter was a good start to fiscal '26 with a balance of growth, cash generation, and efficient investment in our future. We saw strength in DAT and aviation, exciting new program wins and very strong awards for DAT. We generated positive free cash flow, while both our ViaSat-3 satellites continue to progress, all of which positions us well for the future. Let me now move on to our outlook. We continue to expect fiscal '26 revenue to be up low single digits year-over-year with flattish year-over-year adjusted EBITDA growth, and we do expect some variability quarter-to-quarter. We're pleased to have started the year with modest growth in our first quarter. We remain focused on delivering not just the numbers, but the business outcomes that tee up stronger performance in the years ahead. We provided additional segment-level detail in the outlook section of our shareholder letter and slides. Our focus on cash flow remains as does our focus on reducing the capital intensity of our business. And we now expect capital expenditures for the year to be about $1.2 billion, including $250 million for the completion of the ViaSat-3 constellation and approximately $400 million for Inmarsat. $1.2 billion is an improvement of $100 million from our guidance last quarter. We continue to believe sustainable positive free cash flow inflection will occur in the second half of our fiscal year as we get beyond the elevated CapEx related to the development of our ViaSat-3 space and ground networks. Guidance does not include the anticipated impact from Ligado settlement payment. See the related press release for additional details. Post the bankruptcy court confirmation hearing of reorganization, we can finalize the financial implications. Before closing, I want to touch on our framework for reducing the leverage that's impacting our debt and equity prices. Our goal is to improve our cost of capital while maintaining flexibility. Our first priority will be to repay our $300 million Inmarsat 2026 term loan B. That will reduce our cash interest expense and drive incremental free cash flow, which, in turn, can be used to further pay down debt. That's the virtuous cycle we're determined to initiate. Generating free cash flow and using it to retire debt is the best way to reduce the capital base in our business and drive returns higher. After addressing the Inmarsat term loan B, we'll turn our attention towards achieving our desired long-term capital structure, which we know will start with a long-term leverage ratio below 3x EBITDA. While we'll be opportunistic given market conditions, we'll also be purposely working to achieve a value maximizing end state for Viasat and our shareholders. In closing, our first quarter fiscal '26 operational performance is good. We're capturing our share of large and growing markets and remain focused on improving operational and capital productivity. Fiscal '26 remains on track with a number of important catalysts ahead. We continue to leverage our backlog earnings power growth in our aviation, government SATCOM, and DAT franchises. We plan to accelerate the rollout of NexusWave and deploy ViaSat-3 Flights 2 and 3, which will help to reverse downward trends in maritime and U.S. fixed broadband. Fiscal '26, we are working to deliver our commitments and position our franchises for sustained and profitable growth and free cash flow with easing capital requirements following the deployment of our ViaSat-3 constellation. I'm thankful and excited to be part of the Viasat team as we work together to realize all the opportunities ahead. With that, let me turn the call back to Mark.

Mark D. Dankberg, Chairman and CEO

Thanks, Gary. Before opening the line for questions, I'll briefly address last week's letter from Carronade Capital Management. Viasat consistently engages in dialogue with its shareholders and welcomes constructive input aimed at driving intrinsic shareholder value. We are focused on strengthening our franchises' earnings power, delivering sustainable, compelling operating and free cash flow, and reducing leverage while we continue our previously announced active review of our portfolio. We believe there is tremendous value in our franchises' assets as a leader in satellite infrastructure and connectivity, in-flight connectivity, and critical military and government communication. Our businesses are well positioned to compete globally. The Board and management team are carefully evaluating Carronade's ideas. We look forward to continuing constructive and collaborative dialogue with all our stakeholders, including Carronade. So with that, Dustin, let's please open it up for questions.

Operator, Operator

And the first question comes from the line of Louie DiPalma from William Blair.

Michael Louie D DiPalma, Analyst

Motorola Solutions, which is one of the companies that I cover, they recently announced a deal to acquire Silvus Technologies for $5 billion. Many investors were wondering, and I was wondering as well, how does TrellisWare compare with mobile ad hoc networking and tactical networking peers? And what are the major industry dynamics for TrellisWare's growth? And do those overlap with what's been taking place with Silvus?

Mark D. Dankberg, Chairman and CEO

Okay. So that's a broad question. I can tell you both of them are in the mobile ad hoc mesh networking space, which you described, which is basically a way for relatively large numbers of terminals to communicate with each other in some self-forming architecture. The Silvus approach, our understanding is it's mostly Wi-Fi-based, whereas the TrellisWare system is based on a proprietary networking waveform specifically designed for ad hoc mesh networking. We can't really comment that much on what Silvus' valuation is, or what drives their value. I think for TrellisWare, the main operating mode has been licensing. TrellisWare also sells hardware that implements their networking. But the main growth driver for TrellisWare has been the U.S. government and a number of allies have adopted the TrellisWare waveforms as standards for their radio communications. So that's really what the driver is for growth as the U.S. and those allies, especially those that want to interoperate with the U.S., have been acquiring radios that are capable of running the TrellisWare waveform, and then the original equipment manufacturer for those radios includes TrellisWare. So those are some of the differences. There's other differences in terms of applications and distribution. There are clearly differences in Motorola's market compared to the markets of U.S. government suppliers. We think, clearly, TrellisWare is on a good growth trajectory. It's been very widely adopted for basically for individual soldiers or small teams of soldiers and for vehicles and aircraft. There are a number of additional markets that TrellisWare is both attracted to and where their technology would be really interesting. So we see really good growth potential with TrellisWare. But I'd say we're not really the ones to make a direct head-to-head comparison between them.

Michael Louie D DiPalma, Analyst

Great. That makes a ton of sense. And related to that, you talked about the further growth prospects in terms of TrellisWare and the waveform being used for other platforms. Could it also be used for aerial platforms and weapon systems in terms of Internet of Things and on drones as well?

Mark D. Dankberg, Chairman and CEO

Yes, it can. Initially, TrellisWare's focus was not on that area. Much of TrellisWare's success has come from U.S. Army programs where the emphasis was on specific capabilities, particularly for individual soldiers, soldier teams, and various platforms, including airborne and land vehicles. We have achieved considerable success in those markets, and the waveform has proven effective. There are potential applications for unmanned aerial vehicles and unmanned land vehicles, where we believe many features that have made the waveform successful for radio applications would also be advantageous. However, TrellisWare's distribution strategy has mainly been driven by government standards requiring radio interoperability. There has been less emphasis on standardization in some of the emerging markets. This doesn't mean that opportunities won't arise, but the market has evolved differently, and we have not concentrated on it as much so far.

Michael Louie D DiPalma, Analyst

Great. For the broader Defense and Advanced Technologies segment, you announced very strong bookings. You highlighted certain large awards for cybersecurity, particularly in encryption. What is the general penetration of your next-generation encryption products? And is there a large upgrade cycle currently happening?

Mark D. Dankberg, Chairman and CEO

Yes. First of all, there is a significant upgrade cycle happening, which mainly involves enhancing national security encryption systems to withstand quantum computing. This is driving an increase in sales for encryption products due to the need for refresh. We are essentially looking at two different areas. One area where we have a strong market share and rapid growth is data centers, specifically secure cloud data centers. Our devices facilitate communication between data centers, which is crucial for integrating various data sources. The work focused on merging sensor data is boosting demand. Additionally, the application of AI in cloud computing is generating numerous inquiries and will likely lead to the integration of more data sources. Overall, the data center market is clearly expanding, particularly for type 1 secure data centers. The key factors that set our products apart include having security certifications and incorporating next-generation encryption standards, for which we have received recognition. Finally, the increasing volume of data necessitates higher speeds, adding value for users while also conserving power and data center space. These are essential drivers. We have been progressing in this area for a long time and believe the fundamental growth drivers in this market are stronger than ever. The other market we focus on is more tactical, involving users who need access to cloud centers for inputting or extracting data, whether raw or processed. There has been ample discussion around the sensor-to-shooter kill chain, highlighting demand on both sides. Although we are not yet a leading provider in the tactical user segment, we see significant opportunities to increase our market share due to the ongoing refresh cycles.

Michael Louie D DiPalma, Analyst

Yes. We also cover Palantir, which has experienced rapid growth with their Maven Smart System, closely tied to the sensor-to-shooter concept. Additionally, there is a program with the army focused on a tactical intelligence targeting access node involving both Palantir and Anduril, which seems related as you described. As these software platforms that integrate with AI systems are deployed, will the adoption of your encryption services continue to rise?

Mark D. Dankberg, Chairman and CEO

Yes. I mean, we think that's really what the driver is. And what Palantir does often is they combine data from disparate sources in effective ways. And that's a good example of why there's more sensor data coming in, and then that more of the decisions that are being made are coming out of these data centers. And so we think there's a big opportunity on both the data center side and on the tactical user side. And there are very few companies that have the certifications and the skills for these markets. We think it's a good growth business. It's one that we've been grooming for a while.

Richard Hamilton Prentiss, Analyst

I want to take a shot at a question. We are seeing a lot of SpinCos in our coverage zone. I know you can't talk specifically, but philosophically, can you kind of tee up for us the pros and cons as companies think about separating their businesses? Obviously, something might be growth here, something might need different capital, something might need different leverage. But is there any philosophical framework you can help us understand at Viasat?

Mark D. Dankberg, Chairman and CEO

Sure. I want to highlight a couple of points. One lens we consider when evaluating our portfolio of businesses is the potential benefits of keeping two businesses together. We've noted that space capabilities are increasingly integrated across various systems for both commercial and government purposes. In some areas, synergies are growing, while in others, they are diminishing. For instance, we observed a decline in synergy in the tactical datalinks sector, where significant new work was emerging. We chose to invest in other segments, making divesting from that area a sensible decision. When discussing convergence, one example is the ongoing work we are doing in encryption, which relates to cybersecurity and space. It's becoming clearer that cybersecurity poses a significant single point of failure for large constellations. This intersection between cybersecurity and our crypto business shows where synergies could be improving. Another perspective we consider is the capital needs of our different businesses. Historically, our Satellite Services have been very capital intensive, while our product and government sectors are more capital-light. We are actively working to decrease the capital intensity of our Satellite Services to align their capital needs more closely with those of our other businesses. As we assess our progress in this area, it will influence our thoughts on potential spin-offs. These are two frameworks we've previously discussed.

Richard Hamilton Prentiss, Analyst

Great. Speaking of capital efficiency and capital intensity, one of the other satellite operators who have pretty meaningful S-band spectrum around the globe and some AWS-4 matches up spectrum-wise, terrestrially, kind of surprised a bunch of people last week throwing out a $5 billion peak funding for an NTN, D2D, LEO, I'll throw as many acronyms out there, I guess, as I can. But help us understand, as the cusp of positive free cash flow and that focus, as Gary was talking about free cash flow generation, help us understand, you guys have S-band too, where you see that market going and how it might be more effective for you to compete in that marketplace?

Mark D. Dankberg, Chairman and CEO

Yes, we believe that a $5 billion capital investment does not align with our goal of reducing the capital intensity of our business. Our focus is on leveraging our strong presence in L-band and S-band, particularly in expanding our existing L-band mobile satellite services, where we excel in areas like aviation and maritime safety. The unique advantages of L- and S-band for small platforms in these sectors, especially with the anticipated rise of unmanned vehicles across air, land, and sea, represent promising target markets. We have also been discussing the potential for shared infrastructure among multiple operators, a concept that has proven effective in the terrestrial domain. In that environment, satellite operators in sizable markets have realized the inefficiency of competing over steel, concrete towers, or utilitarian fiber networks. This creates similar opportunities within the satellite sector. Traditionally, mobile satellite service providers viewed each other as competitors; however, there is now the potential for collaboration, particularly as the industry shifts towards open architecture and standards like the 3GPP standards. There’s no reason for each operator to maintain unique space infrastructure for their segment. We possess effective technology for constructing wideband systems that can support multiple operators while carrying out the necessary beam-forming tasks. Our goal is to develop a system at a significantly lower cost than the $5 billion figure mentioned, and we aim to share this infrastructure among operators to further lower the capital burden on each. We believe this approach is beneficial for us and for other operators as well. Interest from other operators who recognize these advantages is growing, and that's a key part of our strategy moving forward.

Richard Hamilton Prentiss, Analyst

Great. You know me, I've been a big proponent of the tower model, the shared infrastructure model. It's smart for the operators, it's smart for Wall Street, not to overcapitalize stuff. So that's encouraging to hear. Last one for me is a real quick and easy one. Assuming Ligado makes it through the BK, which we think it will, where will that actually get booked? What line item should we be thinking of that's where the Ligado payments would come into?

Garrett L. Chase, Chief Financial Officer

Yes. I think it's early, Ric, for us to make that determination. Assuming that we're in that position, we'll update all the financial implications as we get through the end of it if we do.

Xin Yu, Analyst

I wanted to follow up on the previous question about philosophy and kind of your philosophy, Mark, for value creation. If you look at just DAT, I think you would agree and many investors agree, it's not clearly undervalued. Do you think that is more a perception issue or more structural? And I mean this in the context of perception being you're obviously delivering very good growth, lots of backlog and eventually, that value will be realized within the current structure? Or do you think it's naturally, I guess, going to be constrained by the current situation? Any thoughts you have about that would be great.

Mark D. Dankberg, Chairman and CEO

We operate as a business focused on operations rather than investing, making it challenging to gauge investor sentiment. Our primary goal is to enhance the present value of future cash flows, which is essential for our equity and debt structure. However, we are facing difficulties due to delays in satellite programs, which have increased our debt, affected our cash flow, and raised our capital expenditures. Currently, our main focus across all our businesses is to achieve this enhancement of future cash flows, relying on our competitive positions. We also consider how to package these opportunities into appealing options for our debt and equity investors. In our portfolio review, we are examining factors such as synergy, capital intensity of various businesses, and the overall value proposition for investors.

Xin Yu, Analyst

Understood. Understood. And then just a more, I guess, strategic question. I'm sure you've seen there's a lot of excitement around Golden Dome and what DAT could potentially do. Do you have some initial thoughts on what kind of role Viasat might play?

Mark D. Dankberg, Chairman and CEO

Yes, we do have some initial thoughts on that. The short answer is yes, we do see opportunities. Part of it involves a sensing component and a strong cryptographic aspect. We need to automate everything in real-time across very complex systems, including data centers, fusion, and kill chain. We believe there are interesting prospects in ground networks and space infrastructure, which are among the primary areas where we are involved. We’ve also discussed hybrid networking in relation to both commercial and government applications, particularly multi-orbit satellite communications. For Golden Dome, a variety of applications will utilize multiple and diverse communication methods. Additionally, we see potential in combining line-of-sight terrestrial communications with space communications. These areas stand out as some of the most apparent where we expect to engage.

Garrett L. Chase, Chief Financial Officer

The margin and EBITDA performance in communication services was very strong, both quarter-over-quarter and year-over-year. If you look at the revenue, it was relatively flat, but EBITDA increased significantly. Can you share what drove that? Were there any one-time items? Yes. Well, some of it is, Edison, we referenced just in terms of a little bit of timing benefit. We did have good business mix in the quarter, both if you look in terms of product versus service revenue and actually even within the Communications Services segment. For example, we just had a really favorable mix of aviation terminal deliveries as the way the timing played out for us during the quarter. So those are the things that you see that drove the leverage you just described.

Sebastiano Carmine Petti, Analyst

Following up on Ric's question about the direct-to-device approach, Mark, it seems like you believe that a shared infrastructure model is the best way to maximize value, rather than pursuing a large capital expenditure program like a $5 billion initiative. However, with the increasing competition in the market, how do you view the advantages and disadvantages of shared infrastructure compared to the independently operated LEO constellations and other direct-to-device satellite companies?

Mark D. Dankberg, Chairman and CEO

That's a great question. Regarding the direct-to-device aspect, many are focused on the data rates that can be provided to standard devices. If we think of it like broadband, it's about the total capacity of your satellite constellation, particularly when it comes to providing service to standard mobile phones. One key factor is that achieving this requires more power on the ground for those devices to connect. It's become clear that a constellation without high power flux densities will struggle in the direct-to-device environment, especially for the broadband speeds and 5G functionalities that users desire. This is driving interest in low-earth orbit systems. However, to achieve high capacity, we must return to the physics known as the Shannon capacity, which indicates that capacity increases linearly with spectrum and logarithmically with power. It's not surprising that those with limited or no spectrum are creating high-power systems, while those with spectrum seek to combine their resources. Sharing spectrum is a much more efficient way to enhance capacity. The logarithmic relationship with power suggests that having more spectrum can significantly boost capacity at the same power level. Our goal is to collaborate with other spectrum holders, demonstrating how 5G networking tools can be used to aggregate spectrum, providing a substantial competitive edge. One significant issue involves regulatory concerns about interference from high-power satellites affecting other satellite services and terrestrial networks. This concern is critical in discussions about sharing terrestrial spectrum. By wisely combining or leveraging the existing spectrum portfolios, we can deliver services to devices more economically. We've noticed that other spectrum holders understand and appreciate this approach, and while we're not finished with these discussions, we're making progress. This strategy makes sense from both a physics and economic standpoint, and it's also highly capital efficient in an industry that demands significant capital investment.

Sebastiano Carmine Petti, Analyst

That's helpful, Mark. I have a quick follow-up regarding Ligado and the settlement. Is there any update on the timeline for court approval, specifically regarding the bankruptcy court approval with Ligado? Additionally, could there be any delay from the announced timeline and the payments mentioned in the July press release?

Mark D. Dankberg, Chairman and CEO

Yes, there could be slippage from the July press release. That's why we've conditioned all the information we've provided on approval by the bankruptcy court. So that's still in process. When it's complete, we'll provide an update.

Colin Michael Canfield, Analyst

Could you elaborate on how the major TMT companies are influencing discussions with spectrum holders? Specifically, I’m interested in their willingness to invest capital, their collaboration on shared spectrum support, and any potential limitations they might impose, especially in terms of providing upfront funding for capabilities that would be fully owned. If you could clarify these three aspects regarding your interactions with other spectrum holders, I would greatly appreciate it.

Mark D. Dankberg, Chairman and CEO

I just want to make sure that you can address the three things being...

Colin Michael Canfield, Analyst

Cash spectrum and restrictions, basically, like the back end of, we'll call it, funded constellations and one of your peers having 85% of capacity restrictions and stuff like that.

Mark D. Dankberg, Chairman and CEO

Okay, so I'm going to revisit the analogy of towers. In the towers business, it's clear that a company dealing with various spectrum holders is largely insulated from the competitive factors that typically impact each carrier. Their operations aren't reliant on market share distribution or device refresh cycles; instead, they function more like a utility by providing tower and fiber infrastructure. If several spectrum holders get involved, it creates an opportunity to attract capital from third parties that is less influenced by any single spectrum holder's performance and more by overall market demand. This model can be seen in capital-intensive industries like space infrastructure, which, while being less vulnerable to competition among carriers, is more aligned with market demand, reducing risks. This setup can appeal to infrastructure investors, relieving spectrum holders of the burden of funding their own infrastructure and distinguishing this utility-like investment from the services they provide. On the terrestrial side, we aim to establish a similar value proposition in the space sector. For spectrum holders, a key concern is ensuring that the infrastructure company treats all parties equitably without giving any one holder a competitive edge over the others in managing their infrastructure. This is fundamentally a governance issue, and it remains a primary focus as we develop this utility-like infrastructure. Does this address your questions, or is there something else I'm overlooking?

Colin Michael Canfield, Analyst

It relates to the concept of a large third-party infrastructure organizer. I think it's important to focus on that data point. Could you discuss how this organizer thinks about pricing, especially in light of the EchoStar announcement? One idea that people have focused on is that EchoStar might divest or lease S-band holdings, aiming for a spectrum amalgamation. With their move towards a constellation, there seems to be a price increase dynamic reflecting the scarcity of Viasat's S-band and L-band holdings. Instead of outlining three buckets, could you speak more generally about pricing sensitivity from the perspective of this large undisclosed coordinator?

Mark D. Dankberg, Chairman and CEO

In order for D2D to be effective, it is essential to generate sufficient power flux density on the ground, which is a significant factor. The required power flux density to deliver specific speeds to handsets heavily relies on the amount of spectrum available. A major advantage of our approach is the ability to cover a large spectrum range. The incremental cost of obtaining spectrum compared to other components is relatively low, allowing us to gain substantial economic benefits by encompassing a broad spectrum, even if it puts some pressure on the beam-forming elements. When evaluating any system, two main aspects need to be considered: first, the productivity of our satellite infrastructure, which can be viewed in terms of the throughput in gigabits per second per capital investment. High productivity is essential. Secondly, it is important to think about financing and how to allocate that capital investment among various stakeholders. Based on what we're observing from others, our technical method is highly productive, and we enhance the advantages of this approach by covering ample spectrum that can be shared among multiple spectrum holders. It has also become clear that in the D2D sector, there are various industry players, in addition to spectrum holders, who are eager to see large amounts of spectrum utilized efficiently to lower costs and enable services for automobiles and UAVs. There is notable industry interest in developing the shared infrastructure we are discussing, as it not only lessens capital intensity but also reduces costs. Lowering capital intensity should lead to significantly more appealing airtime costs compared to existing estimates. This is crucial for achieving 5G new radio type services. We believe our approach makes solid business sense, and a key component is having technology that is specifically designed for this constellation mission and purpose, which differs from what competitors have offered. Our architecture and technical solutions are unique, and we are confident that we have developed an effective strategy.

Colin Michael Canfield, Analyst

Got it. And lastly, is there a timeframe in which we might receive more information about the organizational announcement related to this initiative?

Mark D. Dankberg, Chairman and CEO

I don't want to comment on that yet, but it's not way up in the future, but I think it wouldn't be appropriate to comment on that yet.

Ryan Boyer Koontz, Analyst

I was going to ask you about the competitive landscape in IFC, commercial IFC, Mark, but that's maybe a little too blue sky for the end. So maybe I'll just make it a lay up here. If we look at your fixed broadband revenues, we saw an inflection to grow after a couple of years of steady decline. I'm wondering if you can unpack that and maybe explain what's going on there. Is this kind of revenue optimization among your existing subs? Are we seeing Starlink capacity exhaust? Maybe less aggressive pricing? What's going on in fixed?

Garrett L. Chase, Chief Financial Officer

Yes. We're not observing that in fixed broadband, so it's not entirely clear what you mean. Were you asking about sequential growth in maritime? I apologize; I thought you were referring to fixed broadband.

Mark D. Dankberg, Chairman and CEO

On the maritime side, the NexusWave, our hybrid LEO/GEO system, is experiencing rapid growth. We previously mentioned reaching 1,000 ships under contract, and the installation rate is increasing. The average revenue per vessel has risen significantly due to the much higher bandwidth we are providing. While the previous system primarily focused on operational applications, the current setup also caters to crew services and additional offerings. The sequential growth rate of NexusWave is what is driving the sequential growth in the maritime sector, and we believe this will result in year-over-year growth by the end of the year.

Garrett L. Chase, Chief Financial Officer

And recall, that's one of the critical business outcomes that we've been focused on for what we call the importance of the year. We obviously have a lot of confidence given what Mark has described, the first step in that journey was the sequential growth we saw this quarter. So feeling really good about how that's playing out and hats off to our teams for making that a reality.

Operator, Operator

Thank you. That concludes our question-and-answer session. That also concludes this call. Thank you all for joining. You may now disconnect.