Viasat Q4 2023 Earnings Call Transcript

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May 17, 2023

There are 9 speakers on the call.

Operator

Welcome to ViaSat's Q4 Fiscal Year 2023 Earnings Conference Call. Your host for today's call is Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.

Speaker 1

Okay. Thanks. Good afternoon, everybody. Thanks for joining us for our call today. We released our shareholder letter shortly after market close this afternoon and it's still available on our website.

Speaker 1

We'll be referring to it on this call. So joining me on the call today are Guru Garavan, our new President Kevin Harkenreiter, our COO Sean Duffy, our Chief Financial Officer Robert Blair, our General Counsel and Paul Froelich from Corporate Development and Peter Lopez from Investor Relations as well. So before we start, Robert will provide our Safe Harbor guidance.

Speaker 2

Thanks, Mark. As you know, this discussion will contain forward looking statements. This is a reminder that factors could cause actual results to differ materially. Additional information concerning these factors is contained in our SEC filings, including our most recent reports on Form 10 ks and Form 10 Q. Copies are available from the SEC or from

Speaker 1

our website. Thank you, Mark. Thanks, Howard. Okay. So to start, I'll briefly try to recap some of the business and financial highlights And also I'd like to introduce our new President, Guru Guravan, and then we'll open up for questions.

Speaker 1

So For us, the biggest highlight is that our ViaSat-three Americas satellite has arrived at its orbital location And it's beginning its final deployments. With that's done, we can complete in orbit testing and we can start bringing up the network. Graining to be in service around mid summer, and that's going to greatly expand our coverage and provide bandwidth to grow all of our satellite services It's been an enormous undertaking by our whole team and I want to thank everybody for their commitment and dedication. We've got just a few more steps to go for this first one with the Europe, Middle East, Africa satellite launching later this calendar year and Indonesia Pacific satellites to get almost complete global coverage. Native Pacific satellites now in final integration and test at Boeing.

Speaker 1

We We believe the combination of virtually global coverage, the amount of useful bandwidth per capital dollar invested And the ability to dynamically move that bandwidth to the places with the greatest demand are unique to the size of these satellites And will prove to be especially valuable in the global mobile markets. We And now anticipate closing the Inmarsat transaction this month. We've received approval in the UK and have only 2 more steps to go. We believe the transaction will be accretive to adjusted EBITDA and free cash flow on a per share basis It can help both companies provide better services to our customers at lower costs. Both ViaSat and Inmarsat have continued to grow our global mobile businesses In the 18 months since we reached agreement, Enmarks had just reported their most recent results and you can find them on their website.

Speaker 1

And we also continue to expect that together we can bring more important innovations and growth to their L Bank business Especially in the rapidly evolving Internet of Things and direct to device markets. Early in our Q4, we did close the sale of our Link 16 TDL business for $1,900,000,000 That increased our And significantly reduced our leverage on a standalone basis as well as prospectively on a combined basis within our set. Post close, we did quickly rightsize the company to the new run rate, which reduces annual run rate operating costs by about $40,000,000 We presented our financial performance in the letter in terms of continuing operations that excludes the Link 16 PDL business in prior periods and also our total results of operations, including Link 16 TDL in the periods that we owned it. Continuing operations provides context for results on a go forward basis. We achieved new records in awards and revenue from continuing operations for fiscal year 2023 at $2,800,000,000 $2,600,000,000 respectively.

Speaker 1

Adjusted EBITDA from continuing operations This was $501,000,000 and with 3 quarters of TDL results prior to the Q4 sale, Total adjusted EBITDA was $583,000,000 for the year. Q4 results on a continuing basis were good And provide momentum going into fiscal 2024. Q4 revenue from continuing operations grew 10% year over year to $666,000,000 And adjusted EBITDA from continued operations was $124,000,000 which was up 21% year over year. In government systems, the certification of key products, some cryptographic products cleared Heads up demand that has been accruing and that drove significant year over year revenue growth in the quarter. We grew our commercial, In flight connectivity in service fleet to 2,230 aircraft.

Speaker 1

We added Etihad Airways as a new airline partner And we expanded our Delta Airlines free Wi Fi initiative. We continued market testing and analysis of new ViaSat 3 era fixed broadband plans offering significantly higher speeds and more bandwidth per subscriber. We've been working and investing in a very capital intensive phase for several years to develop and deploy Dankberg. Technology and business models transformed from a strong regional player into a leading global satellite services operator. Now we can see tangible evidence of the pieces coming together and the opportunity to generate real free cash flow returns from those investments.

Speaker 1

That includes not only our own business areas, but the very complementary people, resources and assets from Inmarsat. Given all those elements, now we need to execute and scale. And to that end, I'd like to briefly introduce a new member of our leadership team, Guru Gilrant, who joins us as President. And we really want to thank Rick Baldridge, our Vice Chairman for all he's done for us in his With Guru here, Rick will continue to support special projects and will remain on our Board as Vice Chairman. Guru's previous position was at Verizon Media's CEO of the former Media Division that included Yahoo!

Speaker 1

AOL, Huffington Post, TechCrunch and other media brands. He is a very accomplished leader with experience in integrating large technology operations, operating scaled Internet platforms and creating powerful global partnerships. So, good morning, Jack. Can you introduce yourself? Sure.

Speaker 3

Thank you, Mark. And thanks to all of you joining us today On my first earnings call for ViaSat. So I'm thrilled to have joined ViaSat, a company, as you all know, with Rich history of success and innovation, our foundational technology advantage, which has delivered healthy growth over time, And we are poised for an incredible exciting future as we continue as a team. Having dedicated my carrier to fostering Global connectivity and interactivity across key tech consumer and B2B products, including telecommunications, I'm now embarking on my biggest mission yet. Moreover, as you know, I've joined ViaSat at an inflection point With the launch of our ViaSat-three Americas satellite, the first step in placing more than $2,000,000,000 of assets into service, The 3 satellite constellation is expected to increase the scale of our network more than 8 times the combined bandwidth of ViaSat-1 and ViaSat-two with the flexibility to move capacity to high demand locations, all while expanding our coverage globally.

Speaker 3

And it's also important to me that space sustainability is a priority here. We intend to grow our network where our customers are, Delivering the services they want and need in a globally inclusive and environmentally sustainable manner and all through Technology Innovation. Finally, the closing of Inmarsat acquisition will be great for all our stakeholders It will accelerate our global expansion and our growth in mobility and government, areas that are well suited for our products and solutions. Inmarsat's legacy will also help us achieve our goals for global inclusive growth and space sustainability. And as our CapEx cycles reign, the deal is expected to double our free cash flow per share compared to standalone ViaSat.

Speaker 3

I'm also personally very excited about the potential for growth in L band IoT that is Internet of Things and Direct to Device as it has the potential to enormously expand the number of individual customers and B2B relationships we can achieve collectively. And as Mark said earlier, I do want to congratulate the team, Rajiv, Tony and the entire team at InmarSat for

Speaker 1

a record quarter With growth across all of their businesses.

Speaker 3

Now having been in the business of making impactful and rewarding connections For customers, I am humbled to be on this endeavor alongside this incredible team. And throughout my career, I've always focused on 5 key areas: Employment Culture Technology Innovation and Products Customers and Partners Society and shareholders. And I believe with hard work and relentless execution, coupled with humility and teamwork That we can build a bright future for all our stakeholders. And our goal is to drive excellent financial performance while maximizing our impact on the world. And here at ViaSat, I am eager to collaborate with Mark, Rick, Sean, Robert and our entire team to do just that because the opportunities here And with that, I'll hand it back over to you, Mark.

Speaker 1

Thanks, Gary. So thanks and welcome to ISAT. So with that, we'll open it up for questions.

Operator

Thank you. And your first question comes from the line of Ric Prentiss with Raymond James. Please go ahead.

Speaker 4

Thanks. Good afternoon, everybody. Good to see the finish line is getting closer for the Inmarsat deal. Can you update us as far as what's happening with the Debt package, what are the terms? Are there any changes to that as you get closer to being able to close the transaction?

Speaker 5

Hey, Rick, this is Shawn. So I think there's a lot there's still a lot of moving parts. I Things are looking really good as we get up to the as you said to the finish line here. I think, the way we look at it is we We shared that package back when we signed the transaction and have all the The elements of that deal that reflects market at the time. And our intentions are to execute on those economics.

Speaker 5

So I think that's the best way to shape it out.

Speaker 4

Okay. And can you just remind us what the terms were in that package That was obviously a different moment in time, it would be great. But just remind us what the terms were.

Speaker 5

We didn't those aren't public, Greg, but Yes. I think obviously they're more favorable than we are today.

Speaker 4

Sure. Probably why I can't remember it. The following line, Guru first welcome, I should have said that first. Help us understand, you mentioned a Mentioned a couple of times about how you've done a lot of integration with technology items. As you look at this integration of ViaSat and Inmarsat, Help us understand what your top priorities are going to be there?

Speaker 4

What's the timeline like? And could there be any segment reporting changes?

Speaker 1

Okay. So on the on what our top priorities are, One is, we're as we said, really intending to grow in the global mobile markets, which are the we're really open from a broadband basis. There are markets in which we both participate and those are government, commercial in flight, business jets And maritime markets are the main ones. What we really are aiming to do is to get the best of both And it's going to take I think that's one of our main priorities is if you look at The kind of go to market differences between the company's biosynthesis tended to be primarily direct sales That requires more technical support, delivers lower margins, gives us a little more control of the customer experience. On the On the other hand, Inmarsat's margins are very, very good.

Speaker 1

They tend to be primarily wholesale. They have an existing global network. And there are attributes of each company's business models and service delivery Techniques that we think we want to combine. And so that's one of our most important Just to be clear, we have we placed great value on the distribution relationships that Inmarsat has. We expect to We may be able to augment some of the ways in which we deliver services to our distribution partners.

Speaker 1

But in other cases, by connectivity, we provide a greater range of services Dankberg. And then some of their distribution partners do. So that issue of kind of capture the best of both is high on our list. Another one that we really want to emphasize is integrating the 2 networks. One of the real tractions Of the combination of ViaSat and Inmarsat is that we both operate KVN Networks.

Speaker 1

And so There's some really important synergy opportunities by being able to make Over time, the platforms that we support work across each of the networks. So that obviously with the Inmarsat network will be instantly global even before we get the ViaSat The next 2 ViaSat-three satellites, but with the ViaSat-three satellites, our depth and coverage will be much, much And I think that will allow us to extend some of the services that we've done so successfully in the U. S. On it Dankberg. To work on a global basis.

Speaker 1

So those are I'd say those are probably the top two priorities. And then the next one To really apply some of the technologies that we've been developing here at ViaSat Into the L band markets, because ultimately what we see is a lot of opportunity in the L band markets. If we can Do some of the same things that we've done in the Ka band markets, using some of those same technologies, which are to increase the speeds, increase the amount of bandwidth that we can And drive down airtime prices, we're really excited about the opportunities there. So I'd say those are kind of our top three priorities.

Speaker 3

And Mark, if I can add. And Rick, thanks for the Comment earlier on what I would say on top of it, when you think about integration, we have a very good plan in place as and when the deal gets Dankberg.

Speaker 6

And a lot of focus is if

Speaker 3

you look at performance of individual companies, as Mark said, there are things that are working well And we want to

Speaker 1

make sure we don't miss a beat on those things, including these are the

Speaker 3

latest results from Inmarsat for the last quarter. So we want to make sure we maintain that. Then these incremental things as Mark talked to, we at least have a good thinking and plan in place to start

Speaker 7

And finally, for me to

Speaker 4

wrap up on that third opportunity, L band. Is there opportunity for S band as well in this direct to device category? And how long does this business take To take off the direct to device and what do you need to have in place besides just the spectrum?

Speaker 1

The opportunity I think for direct devices is really going to be driven by the When we talk to direct the device, a lot of times what people are referring to are devices that are primarily intended to operate on terrestrial networks, but they can also Work directly on satellite networks. And so the big opportunities are especially there for those frequencies Danker. That are easy to integrate into those terrestrial devices and that includes both L and S band. Dankberg. And there are different approaches to it.

Speaker 1

One of the things that we think Is a big advantage of being able to do that with dedicated license MSS spectrum is that, That spectrum won't interfere with the terrestrial frequencies that those devices operate on. And we think that that will allow us to

Speaker 3

Dankberg.

Speaker 1

Dankberg. Within the coverage areas of terrestrial networks, but just get poor service for a variety of reasons, Core placements of cell towers shadowing on those kinds of things. That's to me one of the big attractions of using license, MSS spectrum. One of the things that's going to be a challenge in the rate of growth is that these are new capabilities for those devices. So the market can't scale any faster than the market for serving those devices can't scale faster than those devices get in the market.

Speaker 1

But on the other hand, one of the really attractive things about us and Inmarsat and both having existing Domain MSS Businesses is that we can evolve that without having a big ramp up period. That's one of our objectives is we think that the same techniques that will Our services available and attractive to the terrestrial devices will also Danker. And we can provide much better services.

Speaker 3

That's what our

Speaker 1

We see that not as a it's not going to be an instant thing, but we think it's a really attractive growth market for us.

Speaker 4

Dankberg. Great. Appreciate it. Everyone stay well. Thanks,

Operator

from the line of Simon Flannery with Morgan Stanley. Please go ahead.

Speaker 8

Great. Thank you very much. Good evening and good to Danker. Could we talk about IFC for a minute? First, any color on the backlog?

Speaker 8

Sounds like you've been continuing to win So what's the outlook in terms of adding additional aircraft and growing volume on those aircrafts? And What are you seeing in terms of the competitive landscape, the openness of the airlines to consider some of these LEO Congratulations. Is that something that they are exploring or they really prefer the GEO solution for now?

Speaker 1

Okay. So, 1, our Inphi business has been really, really good. No, we've got a backlog of over 1300 planes. So even though we've been Installing at a high rate, we've been winning at an even higher rate, which is great. I think that The reason we've been successful are the things that we've been highlighting To the airlines, which is kind of the simplest way to put it is like 3, 4 years ago, If you want to impress an airline with your capabilities on in flight connectivity, You fly an airplane around and show them a speed of 100 megabits or 200 megabits and they go, hey, that looks fast That's good.

Speaker 1

I think what the airlines have really come to appreciate is what's really hard is serving the peak demands at the busiest airports, Especially those airports that have not only airline traffic, but are on port cities and maritime traffic, there are other traffic It's that geographic concentration of demand that I think is really going to be the most challenging From our perspective, what we're hearing from the airlines is they want a good solution That offers their passengers not only the connectivity, but connectivity is Pretty closely intertwined with their entertainment options, both live and stored entertainment. And Yes, of course, they're open to LEO, GEO, whatever will allow them to deliver The services that their passengers want, affordably, I think that's what they're going to be open to. So we're going to make sure that we're competitive there. That's what's driving us. And I think this in March transaction is going to really help us do that.

Speaker 3

Danker. Simon, sorry, great to reconnect. The other point I would just say what Mark is saying, in the end, Great products win. I think what we have is a much superior experience in products. That's why the backlog and how we've been winning to customers as well.

Speaker 3

So Dankberg. That speaks to our core product and technology.

Speaker 8

Great. And then on the consumer broadband, you've been constrained on Fascinated for several years now. What do you think the TAM is? Is it 5% of U. S.

Speaker 8

Households? Dankberg. We've obviously seen StarLink make some strides there. How does your product stack up against that as we have to Commercialize ViaSat-three.

Speaker 1

Sure. Yes. I think and if it's if you define the addressable market Dankberg. For satellite broadband broadly to be those homes where we can we, the satellite industry Can deliver a service that is, I'd say, better You know that what they can get from a terrestrial option, that's how you define it. So don't think of it as generally the The hurdle for doing that has continued to rise.

Speaker 1

But if you can deliver 25, 50, 100 megabits per second and you can deliver sufficient Bandwidth to allow people to meet their screening needs, that's going to be competitive in Probably what today is roughly 10,000,000 to 15,000,000 homes. What we're anticipating is that Danker. By 5 years to the end of the decade, that may go down to 5,000,000 to 7,000,000 homes with if the infrastructure build out that's currently Contemplated is it comes to fruition. So that's kind of both where we are and where we think the market's And then we think that that our objectives are really to capture a reasonable I'd say a reasonably modest A portion of that growth for its broadband. Yes, that market is a reasonably conservative moderate version Share of that market.

Speaker 8

Great. All right. Thanks.

Speaker 1

Thanks,

Operator

Dankberg. Your next question comes from the line of Mike Crawford with B. Riley. Please go ahead.

Speaker 7

Thank you. Just to return to the first question About the debt, I thought there was some public disclosure that you had that Agreement was in place through the end of May. Is that but you would Potentially need to renegotiate in something if the close extended past 2 weeks from now?

Speaker 5

Yes. Mike, this is Sean. So I think the way I look at it is, as I said, it's still lots Danker. Moving parts, but I think we've had some really good milestones and We're trying to close within our expected timeframes, but again, I agree, there's lots of moving parts.

Speaker 7

So there was not an end of May component?

Speaker 5

This financing did have a timeframe to it, absolutely. So it stretched a bit Certainly beyond the original spa day. So I think it's right around that time period is a good time.

Speaker 7

Okay. Thank you. And then, changing topics. In the FCC's NPRM for Single network future with supplemental collaboration space and your comments, ViaSat's arguments for a technology neutral approach that Enables GSO systems in addition to non geostationary systems to I'll participate in direct to handset connectivity. And so the rules aren't proposed there that way.

Speaker 7

Do you care To handicap the likelihood that the FCC is going to include GSO by the time we get a final report in order here.

Speaker 1

Okay. That's a little complicated. But one thing is, There's no restriction on the devices that can be used with geosynchronous networks, So if the geosynchronous networks are capable of closing those links with the service level, The availability and the price points that customers want, then they're going to be completely fine. And there's already work underway, both in the U. S.

Speaker 1

And globally to both demonstrate that and Dankberg. And to bring those services to market. Well, it is it's a little bit of a complicated regulatory In environment, what we think and we think this is and we've kind of said this through both broadband markets as well as the narrowband Director of Device Markets is that we think that the solution is going to end up being a combination of Geosynchronous and non geosynchronous satellites. One of the biggest issues In this direct to device market is going to be the geographic concentration of demand, because especially in the direct to device market, The amount of demand there will be over oceans or in unpopulated areas is not nearly as great as it will be Dankberg. In the population centers, especially in an environment where you can use dedicated license spectrum And conserve those populated areas that have all those kind of thick in this black spots.

Speaker 1

So I think it's a dynamic area, But we don't see any reason that it's going to be exclusive to any particular orbit.

Speaker 7

Okay. Thank you, Mark. And then just one separate last question for me is, previously you were building a test Beyond line of sight satellite that used Link 16 and I think that went with the Link 16 Phil, but does Viasat retain the capability and or desire to consider being a merchant Satellite manufacturer.

Speaker 1

Okay. So 2 things. 1 is the contracts That we had for Link 16 in space did go with the TDL sale. We still have Working relationships around Link 16 with L3 Harris, but there's also other Tactical Link programs other than Link 16 in and around L band Dankberg. That are interesting to terrestrial radio customers.

Speaker 1

So we are continuing to work Dankberg. And that's one of the attractions of the cell band direct to device market Dankberg. That does open some really unique defense opportunities that are outside of the Link 16 area. So, yes, so we are still working those.

Speaker 7

And just to answer to that, just the Trellis, where waveforms fit into all this?

Speaker 1

It certainly could. That's possible.

Speaker 4

Okay. Thank you.

Speaker 1

Thanks Mike.

Operator

And there are no further questions at this time. I will turn the call back to Mark Dankberg.

Speaker 1

Okay. Well, thanks very much everybody for joining us this time and we'll look forward to speaking with you again next quarter.

Operator

This concludes today's conference call. Thank you for joining. You may now disconnect your lines.

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