Viasat Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 9 speakers on the call.

Operator

Good day, everyone. Welcome to ViaSat's FY 24 Second Quarter Earnings Conference Call. Your host for today is Mark Denkberg, Chairman and CEO. You may proceed, Mr. Denkberg.

Speaker 1

Thanks. Good afternoon, everybody, and thanks for joining us today. So with me, I've got, Guru Gowrapin, our President Sean Duffy, our Chief Financial Officer and Robert Blair, our General Counsel. So, Robert, could you please start us with our Safe Harbor disclosure?

Speaker 2

Sure, 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 and CEO of the SEC filings, including our most recent reports on Forms 10 ks and 10 Q. Copies are available from the SEC or from our and CEO of

Speaker 1

the Board. Okay. Thanks. So we encourage reading the shareholder letter that we posted to our website earlier this and CEO. I'll start with an overview of the main points and then we'll allow time for questions.

Speaker 1

Our main objective today is to bring you up to date, organize some information and provide clarity on our plans. So I'll start with a quick update on performance in the quarter, which was really good. Overall, up well into double digits on revenue and adjusted EBITDA on a combined operating basis. I'll give an update on the status of the 2 satellite anomalies, I'll lay out the financial implications of putting those behind us and describe the go forward plan. And then I'll give a quick reminder of our overall strategy And why we're well positioned for growth, primarily in the $108,000,000,000 market for commercial and government global mobility.

Speaker 1

So and after that, Guru will go into more depth on the quarter with business highlights and financial results, give a little bit more color on the Inmarsat integration and give an update on our fiscal year 2024 and 2025 growth outlook. Just for context at the beginning, we have a good track record of identifying and building profitable and enduring positions in a succession of specific somewhat esoteric market segments, Including against much larger competitors. We think the sale of the tactical data links business earlier this year to a leading aerospace and defense company for About $2,000,000,000 it's indicative of our ability to build long term value while also transforming target market segments. We've been targeting global mobile broadband for over a decade and we've had a big impact on the commercial in flight connectivity market in the U. S.

Speaker 1

We aim to leverage our technology and domain knowledge and the extensive operational data that we've accumulated along with Enlargat's heritage to lead specific segments of this rapidly growing market for commercial and government global mobile. We can do it by focusing on quantitative performance metrics that are critical to our customers and bringing together the assets, skills and ecosystems needed Chairman. Our financial performance in the Q2 demonstrates strength in Global Mobility. And CEO. Our operating financial results were good across the business both at ViaSat and with legacy in MarSat.

Speaker 1

Excluding the one time benefit of a legal settlement, operating revenue was up 16% year over year on a combined basis. And then excluding that one time mitigation benefit and the satellite impairment charges operating adjusted EBITDA was up 20%. Our Aviation business continues steady growth. Our customers' fleet of planes is up to 3,350 and still growing. Passenger engagement is growing and we've got a robust pipeline of new orders.

Speaker 1

Information assurance products for secure government data centers and antenna systems are also growing very well. Chairman. Maritime is growing modestly and we see opportunities to build momentum there. Our outlook is also quite good. We anticipate continued growth in revenue and adjusted EBITDA during fiscal year 2024 and fiscal year 2025 and CEO of the company.

Speaker 1

So going to the satellite anomalies, those on ViaSat-three, Flight 1 and Inmarsat VI by 2 this summer were 2 totally different events. There were setbacks, but we have plans to deal with each. The I-six F2 will result in a total write off. A claim for about $349,000,000 will be submitted to insurers shortly. I-six F2's near term contribution to revenue was expected to be small.

Speaker 1

Chairman. It was part of a longer term planned evolution of Inmarsat's redundant global L band coverage to a newer generation of satellites. We have a provision in our updated capital budget to replace that mission of ISV-six F2 in a timely manner. ViaSat-three Flight 1 is impaired and as we disclosed recently, we expect it will have less than 10% of nominal total and Company. We expect to file an insurance claim this calendar year for about $421,000,000 The anomaly affected what's called a FeederLink antenna.

Speaker 1

The rest of the satellite has operated nominally or better to date. Chairman. Our focus has been on characterizing the affected antenna, so we can compensate for the anomaly optimally. We've made a lot of progress there. The satellite system is software defined on the ground, which gives us a lot more tools that we can use.

Speaker 1

We can use them to optimize available throughput for global mobility, especially by dynamically steering coverage beams on moving airplanes and ships and to the busiest airports, seaports or Chairman. We also can effectively increase the capacity of our other satellites in our fleet for global mobility and CEO of ViaSat-3s including Flight 1. Our fixed U. S. Business and CEO.

Speaker 1

So it depends more on the volume of bandwidth than on dynamic beam steering, so we expect it will decline until we launch and physician the next ViaSat-three. We expect to grow in fiscal 2024 and fiscal 2025 nonetheless, driven by the backlog and outlook in Global Mobility and Government. ViaSat-three, Flight 3 has a launch contract now for the Q4 of calendar 2024 about a year from now. Either ViaSat-three, ViaSat-two or ViaSat-three would replace Chairman. Flight 1 over the Americas and then Flight 1 would be relocated.

Speaker 1

Report on the Flight 1 and CEO. Antenna root cause and then the corrective actions for Flight 2 from the antenna manufacturer is Chairman. The Flight 2 satellite is awaiting corrective actions to be effective in the antenna and then integration with the completed spacecraft. So we'll give an update on that schedule next quarter. The other satellite update is that we don't anticipate of Investor Relations.

Speaker 1

And we've written down that asset. It was designed prior to the Advarsat acquisition and CEO of the company. Given the timing on the ViaSat-3s and our focus on mobility, Chairman. Its need date is farther out than originally planned, so deferring capital investment now saves several 100 of 1,000,000 of dollars in the near term. It accelerates our free cash flow generation and it improves profitability.

Speaker 1

We expect that key technology work that was performed on ViaSat-four will apply to a future broadband of the satellite that will deliver better returns in mobility applications. The end result is a write off of the of 3 satellite assets of about $900,000,000 net of insurance. The schedule for Flight 1 member The build schedule for Flight 1 was much longer than Flight 2 or Flight 3 due to both COVID issues and learning curve. So its cost was higher than the others. The bulk of the write off is due to ViaSat-three fifty one, I-six fifty two, of $350,000,000 of capitalized interest.

Speaker 1

So I'll just briefly touch on our strategy before we go to Guru. And just to be sure, our strategy is to lead specific government, commercial, global mobility market segments and CEO of the company. And Chairman. Connectivity is directly coupled to operational needs or wants and where customers are motivated to understand and measure Chairman. They need for their missions, overall the times and places their platforms travel.

Speaker 1

So that means measuring the times and places where connectivity is most stressed, of those congestion hotspots that can undermine achieving their operational purposes. We can attract and serve those customers by meeting specific, of Granular Service Level Commitments and then giving them the data and insights they need to optimize their own financial performance. We think that describes a large and growing portion of the global mobile market. Our success in in flight connectivity is the outcome of applying that strategy over a journey of discovery that we've taken with our airline customers. 1st, quantifying the demand elasticity and value creation for different forms of in flight Wi Fi service offerings and then measuring highly concentrated demand at peak times at of Busy Airports that comes with high passenger engagement and where other services haven't really performed reliably.

Speaker 1

And Company. And finally, as good connectivity becomes more widely available across airlines and routes, it becomes critical to and CEO. So we can apply these points to multiple market segments. Once a few customers understand the and Company. The significance of connectivity measurements over entire routes and the hotspot challenges and then translate that into competitive advantage tends to drive change across entire market segments.

Speaker 1

The dynamic global coverage and beam steering of the ViaSat-three constellation even with and Impaired Pipeline as well as the capabilities of the upcoming GX789 series support our strategy. So this continues to resonate with customers and it's resulting in new business globally, including some examples this quarter such as of Korean Air, Malaysian Airlines, Atlantic Offshore, Porter Airlines and with the U. S. Space Force and more. The other important element of our strategy is to better leverage Inmarsat's global L band leadership.

Speaker 1

Helland is very well suited to low cost, highly reliable, weather resilient coverage for emergency voice and operational data and there's growing opportunity to integrate both satellite and terrestrial coverage for Internet of Things and mainstream Chair. There's already substantial overlap in the customer base between our broadband and L band markets and there's good opportunity to further differentiate of our integrated service offerings. So our near term growth outlook is good and longer term is even more exciting. As part of our comprehensive review upon closing the Enlarg acquisition, we're refining our strategy to make sure we're focused on the right market segments and Refining Value Propositions that resonate with customers. And as we complete and deploy the capital investments to take those value propositions global that we generate the cash flow we're aiming for.

Speaker 1

We're planning an Investor Day in March of 2024 where we'll go into more depth on the analytics and the customer journeys describing that underpin our approach. So now, I'll hand it over to Gurud, who will talk about our Q2.

Speaker 3

Great. Thanks, Mark. I will cover 3 key topics today: our Q2 financial performance, Chair, Integration and Transformation and an update on our combined outlook. We are executing on our strategy and delivered a strong of core financial and operational performance during Q2. Core revenue and adjusted EBITDA both grew by double digits year over year, driven by our government, aviation and maritime businesses.

Speaker 3

Legacy Inmarsat and ViaSat both performed well with strong contributions. Some of the key highlights from the quarter include and CEO. Government Systems had another quarter of strong demand for our information assurance encryption products, which drove product revenue up 50% year over year. And during the quarter, we were awarded a proliferated LEO satellite based services contract by the U. S.

Speaker 3

Space Force as part of their of $900,000,000 IDIQ program. Services will be comprised of our current and future satellite constellation capabilities as well as a partner LEO MEO Networks to deliver integrated multi orbit solutions that may include space relay services. Of the United States. Next, U. K.

Speaker 3

National Cybersecurity Center evaluated our next generation data test cryptography solid state drive for Top Secret Classification, which was successful and we are only hardware encrypted, SSD using the industry of Interface and FormFactor to attain this status. Recent trends in satellite services continued with strong growth in commercial IFC, which ended the quarter with 3,350 aircraft in service, up 19% and CEO of the company's business and 1600 aircraft in backlog. And CEO. U. S.

Speaker 3

Fixed broadband revenue declined as fewer residential subscribers were partially offset by higher ARPU. We continue to reallocate bandwidth to support our rapid IFC growth. In addition, we announced several commercial air customer updates. And CEO. As Mark mentioned earlier, Malaysia Airlines' selection of our IFP solution for its new Boeing 7378 aircraft, of Korean Air's selection of our IFC solution for its upcoming Airbus A321neo aircraft and Additional orders for both IFE and IFC solutions on Porter Airlines' new Embraer E195 E2 aircraft.

Speaker 3

Maritime revenue continued modest growth. Total Ka band mobility platforms, which includes vessels and aircraft, grew to over of 19,000 up about 2% sequentially. Finally, awards for the quarter were up 15% and CEO of the company. Year over year to $1,000,000,000 backlog was $3,600,000,000 atquarterend. We have a couple of one off items in Q2.

Speaker 3

In the Commercial Networks segment, we recognized a non recurring benefit to product revenue of of $95,000,000 and adjusted EBITDA benefit of $86,000,000 as a result of litigation settlement. In the prior year period, we recorded revenue of $56,000,000 and adjusted EBITDA of $51,000,000 related to the same litigation. We also announced $900,000,000 of net asset impairment charges, primarily related to the previously announced satellite anomalies, which includes approximately $350,000,000 of capitalized interest. Now some color on the financials. Q2 FY twenty twenty four revenue was $1,200,000,000 This was up 85% compared to revenue from continuing operations of of $664,000,000 in Q2 FY 2023.

Speaker 3

Excluding the non recurring litigation benefit from both years and including Inmarsat in both years, Q2 2024 revenue was up 16% year over year. Net loss totaled $767,000,000 for fiscal Q2, which increased from $48,000,000 net loss in the year ago period, primarily due to net asset impairment charges related to satellite anomalies. Adjusted EBITDA for the quarter was $486,000,000 an increase of 2 10% year over year from continuing operations. Excluding the non recurring litigation benefit from both years asset impairment charges and including Chairman. In Marsat in both years, Q2 FY 2024, adjusted EBITDA was up 20% year over year.

Speaker 3

Sequentially, net leverage decreased to approximately 3.7 times estimated combined last 12 months of adjusted EBITDA as of Q2 FY 2024, which is a 0.2 times sequential improvement and substantially favorable to the plan at the time the Inmarsat acquisition was announced. We have significant financial flexibility with more than of $3,000,000,000 of liquidity, including approximately $2,000,000,000 of cash and cash equivalents on our balance sheet at quarter end and no near term maturities. And we have a fully funded path to positive free cash flow. In addition to our solid results, we were also proud to be recognized by the U. S.

Speaker 3

Government at this year's G20 Summit for our work to help close the gender digital divide and bring Internet access to women in remote areas of the world. You can find a more complete review of our results in the shareholder letter that we posted today. And CEO. Overall, as you heard from Mark as well, which this was an excellent quarter for ViaSat. Now moving to the next and is ahead of the plan bringing greater certainty that we will deliver and exceed our synergy goals for the Inmarsat acquisition.

Speaker 3

Last week, we took the required labor actions to achieve annual operating expense savings of approximately 100,000,000 and CEO of the company's financial performance, which positions the company for improved profitability going forward. This time line represents a multiyear acceleration relative to our targets. Separately, The benefit to capital expenditures was included in our FY 2025 guidance of $1,400,000,000 to $1,500,000,000 announced last month. We expect to incur $45,000,000 of one time costs related to these actions. As financial discipline remains a top priority, we are working every opportunity to improve our cost structure and operational efficiency, including taking a closer look at our 3rd party procurement spend, more disciplined capital expenditure and benchmarking to accelerate the timing and magnitude of free cash flow.

Speaker 3

Now transitioning to outlook. I'll wrap up with a high level summary of our financial outlook. We are excluding satellite impairment charges and the non recurring benefit from the litigation settlement announced today from our guidance. For FY 2024, we expect revenue growth in the high single digit percentages over of FY 2023 for the combined company, with revenue growing to a range of $4,100,000,000 to 4,250,000,000 For FY 2024, we expect adjusted EBITDA growth in the mid single digit percentages over FY 2023 for the combined company. We expect FY 2024 adjusted EBITDA to grow to a range of $1,250,000,000 to 1,300,000,000 In FY 2025, we continue to expect both revenue and adjusted EBITDA to grow.

Speaker 3

FY 2024 capital expenditures are expected to be approximately $1,700,000,000 then and CEO. Decline in FY 2025 to a range of $1,400,000,000 to $1,500,000,000 inclusive of a placeholder for the potential funding of an I6F2 replacement. Capital expenditure guidance does not include the expected of $770,000,000 benefit from insurance recoveries. Note that we include capitalized interest in our CapEx guidance. Our path to positive free cash flow in the first half of calendar year twenty twenty five is driven by sourcing growth from our large and growing markets, which includes government, aviation and maritime Chairman.

Speaker 3

Realization of our sizable backlog, meaningful cost rationalization and a disciplined CapEx spending, which benefits from the natural decline as we launch our satellites. We are driving cost structure improvements with synergies, of the company's financial performance. And the magnitude of free cash flow is expected to increase meaningfully as we place ViaSat-three F2 and F3 satellites into service. So there you have it. While we've had unfortunate satellite setbacks, we have a very good hand and we are optimizing and growing the strong assets we have.

Speaker 3

Our operational performance in Q2 was excellent and we are on track to achieve very material synergy value and CEO of the company to grow revenue and adjusted EBITDA in FY 2024 and FY 2025, while of the company, creating a powerful global mobility and government business. And to be clear, our FY 'twenty five growth is based on a full of Investor Relations and Company. With that, I will pass it back to Mark.

Speaker 1

Okay. Thanks, Guru. And with that, I think we'll Open it up for questions.

Operator

Thank you. We'll take the first question from Phil Cusick, JPMorgan.

Speaker 4

Hi, thank you. I guess a Couple if I can. First, was the decision to move away from the ViaSat-four and focus on mobility, the statement on the viability of home broadband from satellite or is that more of a just timing and capital needs? And then second, can you talk about the plans For the cash on the balance sheet and the insurance proceeds coming in, there's some debt at a discount. Does it make sense to pick off that?

Speaker 4

Or do You want to have this cash on the balance sheet for long term. Thank you.

Speaker 1

Okay. Yes. First on the ViaSat-four, Chairman. We have been targeting the mobility broadband market For about as long as we've been since we launched 5thousand 1. And it's because the Customers value the services better.

Speaker 1

We're not dealing with or competing with government subsidies. And the other thing now that's really Especially in our experience in Inflight and the data that we have from Inmarsat in the maritime business Chairman. Dealing with that mobility factor and concentration of demand, it's a really hard and tricky No problem. We think we're really well suited to do that. And whereas the original design of ISAT 4 that we started Really was about large bulk amounts of bandwidth at low cost.

Speaker 1

What we're really going to be leveraging Global coverage and the ability to put that demand in the same patterns as the customers usage requires. So we feel like we can do better in that we've got 7 other KA band satellites That will be launched over about the next 3 years. So we felt that made complete economic sense to focus on those mobility markets and then bring a new broadband mobility satellite to market following those later on at the end of the decade.

Speaker 5

Hey, Phil, I can hit your question on the cash on balance sheet. So I think a couple of things. One, just want to given the credit markets want to stay in a very good liquid position and keep that liquidity and agility in the on the balance sheet. I think if you think about the net carry given The investments we've been able to make and net of the tax impacts of the interest expense and the benefits we get there, it's just It's not as painful to carry that flexibility and so that's kind of a guidepost for us right now.

Speaker 1

Thank you.

Operator

Next up, we'll hear from Mike Crawford, B. Riley Securities.

Speaker 2

Thank you. In commercial networks, you have this Cisco settlement off of the sold Chairman. Jerry award that you won against Acacia when its co founder stole some coding structure and emailed it to their employees. But So now you've got 2 settlements in them, but also there's this ongoing licensing and royalty Requirement that I guess is going to improve ongoing commercial network EBITDA. Is there any way you can quantify What that might be or how long that might last?

Speaker 5

Hey, Mike. Yes, we do have some ongoing benefits from of the agreement, but the terms of the agreement are confidential. So we can't really give you the details there. We have included the benefits we expect in the outlook though.

Speaker 2

Okay. Thank you, Sean. And then regarding the status of, I guess the ViaSat-three F2 and F3 satellites. So is there you're waiting to Attach the final reflector component. Like how is there a way you can quantify the and Company.

Speaker 2

Timing of some of these steps, so we know when potentially that could be at launch, let's say, if you got it all Chairman. Clear to move ahead, say next week.

Speaker 1

Okay. The schedule for integration of The reflector once it's delivered to Boeing is pretty clear that the thing that we're going to get more information on next week is What that lead time will be for the reflector delivery. We have a I think we have a very good understanding of what step The deployment process failed and how to avoid that and CEO. And then there's potentially even additional measures that we could use to back those up. That's what we'll find out and we'll have that discussion.

Speaker 1

We'll think it'd be better to get the data before we speculate. For Flight 3, Flight 3 has been on the same schedule for quite a long time. We I think since the last time we reported, we executed a launch contract for and That's for the Q4, which was really driven by launch vehicle availability, launch window availability. So that one I think is that one we're pretty confident in. Then the issue will just be if it turns out that The 2 satellites end up being very close together.

Speaker 1

We'll figure out how to prioritize How to prioritize them or the extent to which we could do them both at the same time, if that was the case.

Speaker 2

Okay. Thank you, Mark. And then just maybe 2 really quick ones. You mentioned of Space Force Mobility Services. Is that something that's new and is that something that would be show up in government systems or satellite services?

Speaker 1

Chairman. That would show up in Government Systems and it's yes, it is new. It's new for us and it's A little bit unique to our networking services, our capability, more of networking technology and our services both.

Speaker 2

Okay. Thank you. And then the last one is just did I hear correctly that the IP from ViaSat-four even though Chairman. He was supposed to give you some kind of 7 fold increase in capacity versus say a ViaSat-three that there's no way to Put any of those innovations in any of these next 7 Ka band satellites that are launching, but it would First, we would see what would be in the mobility satellite after that. Is that what I heard?

Speaker 1

Yes. So the I mean the Chairman. 7 satellites that are under construction are all in very well, at least the ViaSat-3s and the GX-ten are pretty close to completion. The GX-seven, eight and nine are also already they're well underway. So those techniques will go into The next generation broadband one.

Speaker 1

And the main thing that we're really focused on is getting very large field of view in this dynamic We're proving not just the raw capacity, But the capacity that we deliver overlaid on top of the demand distributions that we're seeing in these mobility markets, We spent some time discussing on our shareholder presentation in September, but those The deal that match those patterns is really, really valuable. And so that we think that's a better metric for value creation.

Speaker 2

Okay. Thank you very much.

Speaker 1

Thanks, Mike.

Speaker 5

Next up,

Operator

we have a question from Ric Prentiss, Raymond James.

Speaker 6

Thanks. Good afternoon, everybody.

Speaker 3

Hi, Mark.

Speaker 6

Busy afternoon, but first, appreciate Chairman. The guidance kind of clarity, helping us understand growth rates, but also dollars that really helps us. And there's a lot of moving pieces here obviously. Chairman. One question, Drew, I think I heard you say that the fiscal 'twenty four revenue guidance would Exclude let me just ask the question this way.

Speaker 6

Does the revenue guidance include or exclude Chairman. The litigation and the revenue.

Speaker 1

Go ahead, Sean. Yes.

Speaker 5

That excludes the nonrecurring part of that,

Speaker 1

The growth percentage, yes.

Speaker 3

Yes. The range and the growth percentage. Yes.

Speaker 5

Of That excludes the effect of the non recurring for Acacia.

Speaker 6

Okay. So the dollars Yes, go ahead.

Speaker 5

Yes, I was going to say, Rick, and just one thing to clarify, in the dollars, Yes,

Speaker 6

whereas the percentage are apples to apples 12 month, 12 month.

Speaker 5

For Trend. Yes.

Speaker 6

Right, exactly. Okay, good, good. Yes, because in the shareholder letter, I picked up that the EBITDA was excluding the litigation And so the revenue is excluded as well. Okay, cool. On growth in fiscal 2025, Is there any way to tease out kind of a zip code?

Speaker 6

Are we talking low single digit, mid single digit, high single digit teens? What should we think about what does grow revenue and EBITDA in fiscal 2025 mean? And that would be, I think, a 12 month over 12 month comparison also.

Speaker 3

Chairman. Yes, Rick, we are not commenting on that at this point.

Speaker 1

I think we are Okay, next quarter. Next quarter, we'll It will be closer to it. We'll be on a given a better range.

Speaker 6

Okay. Okay. That helps a lot. And then, piggybacking on Phil's question a little bit there. I mean, for a long time, heck, even when I was in the industry, I used to think of satellite, the best use of bandwidth, the best Thanks for your buck was to go after these better margin areas.

Speaker 6

We call it the game, government, aviation, maritime and enterprise. As you think about how you're running the business, is there a different way than just lumping a lot of stuff into satellite services That might be more informed to help us understand the businesses or how you manage the business both in financials and on metrics, Because it does feel to me like the government aviation, maritime and enterprise are probably the better segments to go after, but it's hard from the outside really modeling it and understanding it.

Speaker 5

Yes. So I think, Rick, if I'm understanding your question, it's just how are we thinking about things looking forward with this segment. And I think one thing you can see the service growth in our government business. So I do think you get some insights there. But I think the way that We look at the business going forward.

Speaker 5

I think that's something we're going to continue to think about as the business evolves.

Speaker 6

And last one for me is, as we think about again zip code thought, fiscal 'twenty six seems a long way away and appreciate The thought of what happens from fiscal 2024 to 2025 on CapEx. We get the question a lot about what is maintenance CapEx versus kind of the growth CapEx as you put satellites up there. So anyway you can kind of help us start thinking about what an ongoing maintenance level is For the business and then also what 26 directionally might be in total CapEx?

Speaker 5

Rick, I think the best way to think about that is just what we've talked about is As we get the satellites into service, we're going to continue to see the CapEx tick downward. And so that's what we would expect from 25 to 26 as well. Our maintenance CapEx is or I should maybe a better way to say it is our satellite CapEx is the dominant part of our Capital Spend. And so as we finish off on those fleets, that's how you're driving that efficiency downward going forward.

Speaker 1

I can add a little bit. The maintenance CapEx, Think about that. The dominant factor is the per capita subscriber bandwidth consumption, Right. Net of ARPU gains. So that is most evident in the consumer markets.

Speaker 1

In these mobility markets, it's still present and things like when you think of in flight connectivity and Activity in passenger video consumption, you'll see some of those same effects, but not to the same extent that you'll see them in residential. So that's those are Chairman. And if you look at kind of our history, having been in the satellite services business for like for over 10 years. One of the things we've been able to do is still get greater productivity out of our satellites, Largely from migrating a lot of the bandwidth from residential to mobility. And then the other thing that we've done in general really well is improve the yield of the satellite.

Speaker 1

That is the of Gigabits per megabuck investment in the satellites or the satellite utility by better matching supply and demand. So you have to kind of look at all those factors to end up teething out maintenance CapEx from growth CapEx. We've been able to drive growth from our CapEx, I think to a pretty high degree and I think we'll do Even better on a go forward basis with the emphasis on mobility.

Speaker 3

Yes. One other point I would add, Rick, is If you look at what I mentioned on CapEx, you said FY 2024, dollars 1,700,000,000 and the range for $25,000,000,000 to 1,500,000,000 and CEO. And then as you know, big set number of satellites are getting done in the next few years as you heard from Mark. So we do expect FY 'twenty six To come down as we launch these satellites. So from a broader guidance perspective.

Speaker 3

On an absolute dollar basis.

Speaker 6

Yes. Okay. And we look forward to the Investor Day coming up in March as well.

Speaker 1

Yes. Yes, we will. Thanks, Rick.

Speaker 6

Thanks, everybody.

Operator

The next question comes from Chris Quilty, Quilty Space.

Speaker 6

Investor Day in Carlsbad or New York?

Speaker 1

Chairman.

Speaker 6

Okay. Carlsbad's nicer, but New York's easier to get to. Question for you. The number of aircraft net adds looked a little light in the quarter. Is that primarily just seasonal or and can you give us a thought of kind of what to expect on a go forward net add rate either in the back half of the year or going into next year?

Speaker 6

And then a broader question on the IFC, just what's the general pipeline looking like now in terms of aircraft or For airlines that are new to IFC still coming on board, is it a strong pipeline? Has there been weakness The interest rates or fuel prices or just general temperament of the market.

Speaker 1

Okay. On the first part, I'd say there are 2 pretty I mean, if you just look from a macro perspective, there have been 2 kind of drags on installs From the airline's perspective, one is the delivery rates of new aircraft, which Just been kind of behind schedule from both of the major OEMs. So when and We've done well on new line fit contracts. And so the line fit, Chairman. I mean, if you just look at the OEMs delivery issues and that you can kind of your Gage, how that would be allocated among the different airlines, some of them are big customers as far as.

Speaker 1

And the other one has been just the fill factor on existing flights, which has kind of still sort of discourage the airlines from We'll slow down some of the retrofits on the existing fleet. And I think there's some of that is seasonal. So on the one hand, when Sean mentioned seasonality before for the in flight space, Chairman. That part is good for us because more passengers and it's driven more demand and it's been good for revenue, but it has slowed down installs Okay. Backlog is still really strong.

Speaker 1

And we'd say that the Chairman. The pipeline of new airlines is good. I think that Chairman. Kind of way to put it is that the U. S.

Speaker 1

Market has been Probably the most forward leaning on in flight connectivity. I think that it's also becoming clear Chairman. That there's monetization strategies, right? That it's not just it doesn't have to be just an expense for the airlines. And so that is really drawing in a lot of interest from airlines that maybe were on the sidelines before.

Speaker 1

And if they can both get the amenity Chairman. And figure out how to better monetize it. That's a good combination. I think that is spreading more globally.

Speaker 6

Understand. Clarification, the CapEx guidance for next year, did you say the 1.4 to 1.5 Includes a possible provision for a I6 replacement?

Speaker 3

Yes, that's correct.

Speaker 6

Okay. And timing wise, I guess you've got 2 modern L band satellites, of the i6 F1 and the Alpha bus, the i4s are 17 years old. If you get an order in next year On that satellite, we're looking at 3 years. Does that leave enough time wise Coverage on the L band capacity given the age of the legacy satellites?

Speaker 1

Yes.

Speaker 6

Running good on fuel?

Speaker 1

Yes. We also have Besides the existing fleet, we also or Inmars had, I think, right around the time of the acquisition, announced a fleet of 3 I-eight satellites that will be arriving kind of in that same timeframe, maybe a little bit earlier.

Speaker 6

And how much capacity would those have because those are small geos?

Speaker 1

We're having good reporting the capacity on the L band satellites. But the thing that we are focused on is We talk about next generation L band. The big thing is increasing those the capacity of those satellites dramatically. The IHs were really aimed at extending the existing Chairman of the basically the Safety and Emergency Services. And so that's good.

Speaker 1

I think in terms of shoring up the existing fleet, Part of our CapEx budget on a go forward basis and part of what we're talking about in ecosystem building Chairman. Just to really modernize that whole fleet. And we'll talk about that separately when we're ready.

Speaker 6

Got you. And final question, I mean, as you're moving away from the ViaSat-four and the sort of massive capacity towards satellites that are more agile mobility capable. Chairman. Does that mean it's more likely that you'll buy something off the shelf from Thales, so 1, Thales, Alenia Space or Airbus that have Chairman. Software defined satellites that they've already fielded or is it something that you're likely to do internally because of some Design capability that you have internally.

Speaker 1

At the time that we do it, we will definitely look at what's available off the shelf For sure. But we haven't seen so far we haven't been seeing things off the shelf that have the capability of the technology We're doing on ViaSat-three or we're doing on ViaSat-four. So we're going to do a comparison. One of the things we also We'll be able to do by holding off a few years as we do we will be able to do some Chairman. When I say risk reduction, schedule risk as well as budget risk reduction.

Speaker 1

So We intended to go a lot better in terms of schedule and budget on the following ones. And then also there's some Really interesting technologies that we can test that can also reduce costs and improve productivity. Chairman. Those are the things that we're looking at, but there are some so far ViaSat-three, absent Chairman. Anomaly, everything has worked well and 4 was just an enhancement of that.

Speaker 1

So that technology, that's Something that we can draw on, if things play out the way we expect.

Speaker 6

Got you. And Bartley, did you say whether the EMEA satellite was going to Americas and the Pacific Bird to EMEA or have you decided Yes.

Speaker 1

We have options on both. We're really focused on meeting the needs of our mobility customers and that's how we're going to prioritize them.

Speaker 6

Okay, great. Thank you very much.

Operator

Chairman. Edison Yu from Deutsche Bank has the next question.

Speaker 7

Hey, thank you very much for taking our questions. First, as you kind of peel away at Inmarsat, do you have any updated thoughts maybe on the various pieces and Company. That may not be strategically important, especially on the L band side. I'm just curious, any thoughts there?

Speaker 1

No. I mean, we are really we are very interested in L band. I think that Inmarsat has applied L band into some variety of very different markets. There's U. S.

Speaker 1

Defense, there's international government applications. There's really interesting voice and data applications, and there are the safety Chairman. What we see is, our long term objective really is to grow with the of Direct to Device Market in the IoT market. And I would say IoT is really going to be the shared terrestrial and mobile, These devices that can operate off both terrestrial and mobile. We're aiming to be able to bring some of those to market soon.

Speaker 1

And then We do think that things that we do to the satellites to enable that can really kind of boost the Existing Mobile Satellite Services market substantially. So we're really interested in the services, the whole range of services That Inmarsat performs now. We think that's a good foundation for somebody who wants to go in for anyone who wants to go into these kind of direct to device of

Speaker 7

Barclays. Understood. And you mentioned D2D and I think you've kind of alluded to some potential paths Do we have any kind of updated thoughts about D2D going forward maybe on the

Speaker 1

Not yet. We are working on some and I expect that we'll have More to talk about next quarter, but we're not going to say more about it today.

Speaker 7

Got it. And then just one last one of IFC. So I think there were some announcements from 1 of Inmarsat's customers, Qatar Airways and StarLink. Chairman. And there was a little bit of confusion, I think, at least from our end or on the public end.

Speaker 7

Can you maybe just go over exactly what is What kind of happened there with StarLink? Is it a they like shift that over or what exactly is going on?

Speaker 1

Well, I think probably best to ask I don't think we want to speak we don't want to speak for them on this.

Speaker 7

Okay. Thank you.

Speaker 3

Thanks, Erickson.

Operator

Next question comes from Louie DiPalma, William Blair.

Speaker 8

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

Speaker 1

Chairman.

Speaker 8

What percentage of revenue will of the residential fixed broadband B by the end of fiscal 2024 as it seems that you're deemphasizing it.

Speaker 5

Yes, Lou, I can jump in here. So I think what we've talked about in the past, right, is that part of our business with Chairman. The combined with Emerson and so forth is less than 15%. And as we continue to prioritize our bandwidth and Chairman. Work with our is supporting the growth in our IFC business, you'd expect that to continue to just go downward.

Speaker 8

Okay. Thanks, Sean. Have you disclosed who the Chairman. 3rd ViaSat-three launch contract is with? And also for that launch, I think you said in the 4th of the calendar quarter of 2024.

Speaker 8

Have you been able to procure insurance for that launch?

Speaker 1

On the launch provider, we will put out a press release. I mean, generally, we want to cooperate with the launch providers just to Make sure that they approve the release for it. So we'll do that in the near future on the insurance.

Speaker 5

Yes, I can jump in there. So, on the 2nd satellite, that insurance is already done, just as a reminder, Lillian, and we're Starting to work on the next one and I think that that's kind of in process, but we're good to have the second one all wrapped up.

Speaker 1

And then just to add on to that. I mean, the insurance The insurers tend to be very detail oriented. So the review that we're going to have next week With the antenna manufacturer, even though it's a different satellite, that's a different antenna manufacturer for Flight 3 than Flight Two insurers tend to be they're really interested in the details. And so I think that having those details available will help them

Speaker 8

Chairman. Great. And as it relates to the Fiscal 20 25 CapEx guidance, is it a good estimate to assume that The I-six replacement satellite would cost around $400,000,000 So if you don't I'd like to go ahead with that, that you could just subtract it from the $1,400,000,000 to $1,500,000,000 number as What could be your CapEx for fiscal 2025?

Speaker 1

No, for fiscal 2025, what was in the budget would be the portion of Placing that mission that would have been spent in that fiscal year.

Speaker 8

Okay. Do you have an estimate on what that would be?

Speaker 1

No. We're not going to do that yet. We are evaluating multiple options and we're aiming to Simplify it. So again, we're not we are going to make sure that we make the right decision. We're not ready yet.

Speaker 1

And so it just would be premature to give us to give a dollar value for that.

Speaker 8

Okay. And one final one, as it relates to direct to device, it seems That Inmarsat was previously partnering with Skylo and they've established your chip partnerships with Samsung's Chip Arm and MediaTek. Have you continued Those partnerships such that you would in effect be the direct to device partner for Skylo's Chairman.

Speaker 1

Yes. I mean, I think you're going to see kind of ecosystems evolve around the direct device and they're going to include your device makers and chip makers, spectrum holders, of satellite operators and others. And the ones that you described are all attractive and members of those ecosystems. And I think as we've mentioned before, we think Inmarsat has got a really interesting role to play, especially in There will be different generations of standards. The current one, which is the narrowband IoT, Chairman.

Speaker 1

Next, non terrestrial network. I think you'll see those come to market soon, like Chairman. Within quarters. And yes, there's definitely a role for us to play there.

Speaker 8

Excellent. Thanks, Mark, and thanks, everyone.

Speaker 1

Thanks, Louie.

Operator

And I'll hand the conference back to our speakers for any additional or closing remarks.

Speaker 1

Okay. So, thanks everybody for joining us this afternoon. Just want to remind you of a few important takeaways from the quarter. We felt the results were really good, generated 16% year over year revenue growth and 20% year over year adjusted EBITDA growth on like for We're doing well on the Inmarside integration program. We're kind of ahead of schedule and ahead of budget so far.

Speaker 1

We've got a we think we have a clear and good value proposition on global mobility that's built on meaningful and granular service level commitments even in the most challenging places and times. That's resonated with customers, especially in the very competitive of U. S. In Flight Market and we think the same kinds of analytics insights and bringing confidence to global markets of Aviation, Maritime and Government. I think that's going to work for us.

Speaker 1

We're confident our business will continue to grow revenue and adjusted EBITDA in of fiscal year 2020 2025. We'll give more additional guidance on that next quarter for FY 2025. And we're aiming to become free cash flow positive in the first half of calendar year twenty twenty five, has taken a lot of the steps that we think we're going to need to get there and we think we'll get meaningful and sustainable free cash flow during fiscal 2026. So with that, I look forward to updating you all on our continued progress next quarter. And I'll hand it back to the operator now.

Operator

Thank you. And once again, everyone, that does conclude today's conference. Thank you all for your participation. You may now disconnect.

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Earnings Conference Call
Viasat Q2 2024
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