Viasat Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 10 speakers on the call.

Operator

Welcome to ViaSat's FY 'twenty four First Quarter Earnings Conference Call. Your host for today's call is Mark Dinkberg, Chairman and CEO. You may proceed, Mr. Dinkberg.

Speaker 1

Thanks. Good afternoon, everybody, and thanks for joining on our call today. With me are back to Ruukaravan, our President Sean Duffy, our Chief Financial Officer and Robert Blair, our General Counsel. So before we start, Robert will give a safe harbor disclosure.

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

Speaker 2

Back to you, Mark.

Speaker 1

Okay. Thanks. So we encourage everybody to read the shareholder letter that we posted on our website earlier this afternoon. It will have a lot more detail. We'll give an overview of the main points upfront and then we'll allow plenty of time for questions.

Speaker 1

So the Q1 results were very good. The Inmarsat acquisition closed in May and contributed 1 month to our Q1 results. Year over year consolidated continuing revenue grew 36 $780,000,000 and adjusted EBITDA grew 87 percent to $183,000,000 Good performance across the business. ViaSat standalone revenues grew 12% and adjusted EBITDA grew 13% year over year. New awards and backlog are good and momentum has continued into the 2nd quarter, especially in in flight connectivity.

Speaker 1

On a go forward basis, we'll refer to consolidated and segment results for the combined company and adjust for continuing operations as appropriate. Post merger, we're starting with a stronger than anticipated balance sheet and even stronger than what we expected when we closed the Tactical Tailings sale back in January. And we're making good progress on the integration and are on track to achieve our overall of Energy goals and aiming to improve on those. Also, I'd like to mention that Andy Sukhwati is formerly Inmarsat's Chairman and Rajiv Suri, who is their and Marsat's CEO joins the ViaSat Board of Directors and we're looking forward to their contributions. So start with a little more color on the ViaSat-three Americas situation and our response.

Speaker 1

And then Sean and Guru will add Some color on financial results, operations and our outlook, and then we'll go to the questions. So last month, we reported an anomaly with a deployable antenna on ViaSat-three Flight 1. Since then, we've been working with the antenna supplier and the satellite manufacturer more fully assess the situation for the first flight and the implications for Flight 2. I'll discuss contingency plans in a minute. But given those plans, I wanted to point out that we do not currently anticipate That fiscal year 2024 financial results will be significantly affected by 51 performance.

Speaker 1

FY 2025 will be affected by the performance of Flight 1 and the timing of the corrective actions on Flight 2. Given current information, we believe we will continue to grow in fiscal year 2025 as well, but not to the same extent we would have without the anomaly. Well, we're making steady progress. We expect that analyses that are underway to provide more definitive insight And we'll provide updates when we have more information, which we currently estimate will be when we report earnings next quarter. So I'll give some additional color on the background of the antenna.

Speaker 1

The manufacturer is a major aerospace supplier of a decade long history of successful space deployments. The antennas from a product line with a history of 100% successful deployment on a number of missions, including 5 on Inmarsat satellites. The 51 Antenna was both partially and fully deployed with nominal results Several times during manufacturing and testing. The Flight 2 satellite uses the same antenna, but the Flight 3 uses a Completely different design from a different manufacturer. Net satellite is unaffected by the flight 1 anomaly.

Speaker 1

Flight 1 satellite is insured and insurance is already placed on Flight 2. Inmarsat's Prior standalone outlook had no dependence on ViaSat-three of course, and we still do expect to capture revenue synergies with the ViaSat-three fleet. So we've got 4 main work streams underway. 1 is to work with the antenna manufacturer and our satellite supplier to determine the root cause of the reflector anomaly and the appropriate corrective actions for Flight 2. We have a plan to collect additional data and incorporate that into the deployment fault analysis.

Speaker 1

We also expect more information to report Regarding corrective actions from like 2 and an update on schedule next quarter. 2nd is to assess the performance of the satellite with the antenna Initial end to end measurements with the effect of the antenna indicate the rest of the satellite, including the innovative payload and ground Speck will give us more definitive data on the throughput of the satellite, including the effects of the anomaly and the potential operational mitigations, and we're targeting to drive an estimate on that next quarter also. 3rd is to assess the The outcome of this will depend on the results of the first two work streams. And again, we expect to provide an update next quarter. And then 4th is to mitigate the effects of the 51 anomaly on our global mobility of the business, especially via optimizations of our existing fleet, optionality in the near and longer term orbital locations of each of the ViaSat-three of Satellites and additional third party capacity as required.

Speaker 1

These plans are already well underway and we're confident we Our global mobility customers as we do today and going forward. U. S. Fixed broadband today represents 13% of revenue and that business will be the one that's primarily affected by the anomaly. We'll be better able to assess that impact next quarter also.

Speaker 1

Importantly, for ViaSat-three flight 2 and flight 3, our tests and measurements to date and increased confidence to those parts of the ViaSat-three system that are where the new innovations are. The launch schedule of Flight 3 is unaffected and we'll provide an update on the Flight 2 inclusive of corrective actions, as I mentioned, next quarter. The Inmars acquisition expands our in orbit Ka band fleet to a total of 13 Ka band satellites, including Flight 1 and an I-six flight 2 satellite, which was launched earlier this year and is undergoing corporate raising. We've made more Ka band satellites under construction with 5 of those planned for launch before the end of calendar year 2025. So we have a greater diversity of On Orbit Technologies and as we've previously discussed an opportunity to substantially improve the capacity of our On Orbit fleet via ground network technology and optimizations.

Speaker 1

That was one of our objectives with the acquisition And we believe we'll show the benefits associated with that through our resilience and growth in both the near and long term timeframes. So with that, Sean will go into some of the financials.

Speaker 3

Thanks, Mark. Some brief color on the financials. Q1 revenue was $780,000,000 This was up 36% compared to the revenue from continuing operations of $575,000,000 in Q1 of FY 2023. The results include Imersat's 1 month revenue contribution from the acquisition date of approximately $134,000,000 We estimate that the combined ViaSat and Hammersat revenue for the quarter, including the pre acquisition period would have been about $1,046,000,000 an increase of about 11% year over year Both companies achieved double digit revenue growth. Net loss totaled $77,000,000 for the Q1, above the $40,000,000 net loss in the year ago period due primarily to the non recurring acquisition related expenses, higher intangible amortization and higher interest expense.

Speaker 3

Adjusted EBITDA for the quarter was 183,000,000 an increase of 87% year over year from continuing operations. Q1 FY twenty twenty four adjusted EBITDA included a 1 month impact from IMRSAT of approximately $72,000,000 We estimate that the combined CyMSAT and Emerstat adjusted EBITDA for the full quarter, including the pre acquisition period would have been approximately $331,000,000 an increase of about 9% year over year. So a little more color on Amazat. For the June quarter, we estimate revenues around 400,000,000 and adjusted EBITDA about $220,000,000 about a third of which is included in our consolidated results for the quarter. Somerset's revenue mix for the 12 months ended March 31 was 36% from government customers, 34% in maritime, 22% Business and Commercial Aviation and 8% Enterprise and Other.

Speaker 3

That's a high quality diverse revenue base, which fits well with Biasat's business and our growth objectives in the mobility and government market. Emersat's contribution has and continue will continue to be folded into our existing segments as follows: Government results will be included in our Government Systems segment and will be the individual largest revenue component in that segment led by Turning back on into service revenues. Inmersibles Maritime, Aviation and Enterprise revenues will be included in our satellite service segment And as a result, mobility revenues will make up a strong majority of that segment's performance. And our Commercial Networks segment will be focused on equipment sales as it is today with no meaningful contribution from Imersat. And you can find more complete review of our results in the shareholder letter we posted today.

Speaker 3

We ended the quarter with over 2 of cash and short term investments. We expect to maintain additional liquidity for a time given tight credit markets, our maturity schedule, of low rates on our outstanding debt and higher rates of return on the cash we hold in order to preserve the company's financial flexibility. And we expect growth and the realization of synergies will improve our cash flow from operations over time. And one last item. The debt we issued related to the financing of our numerous transactions, approximately $1,350,000,000 is currently held by the issuing bank.

Speaker 3

We'll provide marketing support for them when and if they choose to go to market. But as a reminder, the interest rates on the debt are already set based on the original financing commitments from 2021 and will not be impacted by the transaction. So with that, I'll pass it to you, Dhirub.

Speaker 2

Great. Thanks, Sean. I will cover 3 key topics. 1, double click on overall operational performance 2, talk about our new combined company and exciting possibilities It opens up for us and trading combined outlook. Now as you just heard from Sean, financial results in Q1 were excellent with healthy Year over year growth across the businesses.

Speaker 2

Government Systems had another quarter of strong demand for our information assurance products, especially including our high speed data center version. And during the quarter, we earned an additional Type 1 certification for our next generation of the Aerospace Encryption Product. During the quarter, we signed AUD 187,000,000 contract with Southern Positioning and augmentation network to support improved satellite based positioning and accuracy. And in satellite services, U. S.

Speaker 2

Fixed broadband revenue declined Due to fewer residential subscribers, partially offset by higher R2 as we continue to reallocate bandwidth to rapid IFC growth and update to new service plans. In Commercial IFC, in service aircraft grew 18% year on year on a combined basis to 3,230 aircraft. Passenger usage also increased driving up revenue per aircraft. And our quarter end contracted backlog in Commercial IFC stands at approximately 1600 aircraft. Momentum has continued at a pace to date in Q2, including additional new airlines and additional aircraft for existing customers.

Speaker 2

InMART had achieved 11% year on year growth in Clean Express vessels. We're excited about Having greater diversity and scale market outlets in global mobile broadband. In this quarter, we announced FleetReach Coastal LTE service, and sailing near the coast for docked in port. Commercial IFC equipment deliveries continue to be a strength this quarter and are reported in our commercial segment. Terminal deliveries are a good leading indicator of commercial IFC service growth and support our of FY 2024 and FY 2025 Outlooks.

Speaker 2

So overall, this was an excellent quarter with the closing of the acquisition, Strong financial performance and an important step forward. Now to the combined company. I would like to start by reminding everyone why we are Excited about the possibilities open to us as a combined company, and then I'll provide an update on where we are with the integration. Let's review why this transaction is so compelling strategically. First, it accelerates our global mobility and government strategy.

Speaker 2

This strategy is focused on the best and fastest growing markets, including aviation, government mobility services, maritime, land mobile and enterprise. 2nd, Inmarsat brings global Ka and L band coverage with a robust satellite launch roadmap that both augments coverage and adds resilience and redundancy. We are excited by future upside from valuable L band spectrum assets, including the IoT and Director Device opportunities. 3rd, Inmarsat's well established business greatly enhances our Global Distribution. The combined company has a large installed base of existing customers across a broader portfolio of markets and products that will provide Greater overall resilience to our financial performance.

Speaker 2

This is also a compelling financial combination. We both have strong businesses today, but together, We are enhancing our future free cash flow that's supported by an estimated $1,500,000,000 in synergies on a post tax NPV basis. We intend to be aggressive considering all options open to us as we build a business that focuses on markets where we can win and scales cost effectively. In terms of revenue, we're already seeing revenue synergies take form across key business units of the company's government, aviation and maritime. In terms of cost efficiencies, we are focused on achieving and accelerating our targeted cost synergies.

Speaker 2

In FY 2025, we expect to achieve about half of the forecasted $80,000,000 in annual cost synergies. CapEx synergies remain a key lever for value creation as well. We are targeting $110,000,000 annually a few years up. Now behind the actual numbers, we are integrating capabilities with an eye to being the best of the best from Directors of people, business processes and our partner and supplier ecosystem. I should add here that culturally, We've already seen the 2 companies are a great fit, and that's very important.

Speaker 2

We recently formalized our go forward leadership team. Focused on scale, capturing the benefits of our technology and further enhancing the measurable value we deliver for our customers. We are committed to delivering a successfully integrated operating model, while continuing to maintain momentum and delivering value to our customers and shareholders. We are excited by the many opportunities ahead. We think it is important to spend this time to communicate how we view the significance of this combination and and how that informs our diligent approach to integration.

Speaker 2

Now moving to combined outlook. I'll wrap up with a high level summary of our financial outlook. There is more on this in the shareholder letter as well. For FY 2024, we expect revenue growth in the high single digit percentages for the combined companies relative to pro form a view of both for FY 2023. A simple view of expected FY 2024 adjusted EBITDA can be approximated by adding YSAT standalone prior expectations of high single digit to low double digit growth for full year FY 2024 adjusted EBITDA from continuing operations to approximately 10 months of Inmarsat contributions, which we expect will grow slightly throughout the fiscal year.

Speaker 2

We expect growth in revenue and adjusted EBITDA for FY 2025, including assuming a full year contribution from Inmarsat for FY 2024. Our expectations are supported by our healthy backlog and strong orders. We do anticipate that FY 2025 growth rate will be affected by the ViaSat-three F1 anomaly, especially by the fixed broadband business where growth will be delayed. But that's currently about 13% of our revenue and we anticipate growth in rest of the business as it is not directly affected And that is 87% of our business. Our positive free cash flow inflection point is targeted to occur in the second half of calendar 2025.

Speaker 2

Lastly, our plan is to hold an Investor Day before the end of our fiscal year, so we can share more details of our plans with you. So there you have it. We had a strong operational performance in Q1. We are on track to deliver very material synergy value And we expect the combined company to grow revenue and adjusted EBITDA in FY 2024 and FY 2025 while creating a powerful global mobility and government leader.

Speaker 1

Thanks, So with that, we'll be happy to take questions.

Operator

The first question comes from Simon Flannery, Morgan Stanley.

Speaker 4

Great. Thank you very much and thanks for all of the information. It sounds like you haven't yet determined whether it's whether the Flight 1 is a total loss or not. Maybe we can just Assume if the worst happens, what would be the timing of collecting the $420,000,000 What's the hurdles you have to go through to get that? And what would your mitigation strategy be?

Speaker 4

I think you've talked before about perhaps repositioning F2. And what about ordering And F4 satellite, how much would that cost? What sort of timeframe would you put around that?

Speaker 3

Hey, Simon. This is Sean. I can take your first question on the insurance. I mean, clearly, we're still it's really, really early in the process. We had a lot of success in the timing of our prior collections on BioThats too, but I think that It's hard to speculate when that would happen right now.

Speaker 3

But I think that things are It's early in the process to make a speculation around timing.

Speaker 4

And was that about 18 months or something like that before?

Speaker 3

Yes, I think it was a little shorter of that, to be honest. It was a little inside of around the 12 ish mark.

Speaker 5

Okay.

Speaker 1

And then In terms of some of the other questions that you asked, we don't want to put out any Assessments or statements of what we think the capacity will or won't be including going down to 0 Without having more facts. And I think we have we do have plans that cover All the things that you asked, but obviously, what we would do for a As an example, what we'll do for replacement satellite depends a lot on what the performance of this one is. And we expect to be able to take measurements on that. As I mentioned, we have been able to get end to end measurements through the satellite. So That's where we're starting from is to quantify those.

Speaker 1

I don't really want to speculate, but we do have Plans that range from what we would do if we got very little or no capacity to what we would do If it turns out to be more closer to what we originally expected. And I think We won't so some of those to the extent that some of the plans involve forks in the road, we're not going through a fork in the road without having the data that's forcing.

Speaker 2

Understood. And you've already called

Speaker 4

out the impact on the consumer broadband business. What happens to the IFC Sea business, sounds like that's still growing rapidly. Are you going to have to work with the airlines to mitigate some of Their demand is to bring the planes on, but do you think you can handle the backlog as it comes on without the new satellite?

Speaker 1

So we can handle the backlog at least for some period of time, We can handle all the backlog that we have. Not all of it depends On this particular satellite, the main thing we've been doing to handle our backlog so far is transferring business, transferring Bandwidth from the fixed applications to the mobility business. So we have that Going forward, and we also mentioned we have additional now we have a lot more additional maneuvering room using some of the MRF SAT fleet. We have the potential to Relocate satellites. But we're not going to make premature judgments on what we need to do until we get The data that supports it.

Speaker 1

And we're that will be completely fine for our mobility businesses, Actually, for the period, but certainly for the period of time, it will take us to figure that out.

Speaker 4

Great. Thanks a

Speaker 1

lot, Mark. Thanks, Hunter.

Operator

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

Speaker 6

Thank you. If The ViaSat-three Americas Flight 1 is a total loss. Isn't it likely that the satellite that you've been Expecting to put up over Europe that it would make most sense to put it over North America first until you could get Another satellite up and then you can move that satellite over to its European or EMEA slot?

Speaker 1

Okay. Yes, that is a possibility. I think that from our perspective, we will move satellites In a way that gives us the best shot at serving our customers, all of our customers' demands. So we have the flexibility to do that. It would be premature to jump to an operational scenario That assumes that the satellite has no utility.

Speaker 1

The what we are trying to do is we're trying to work through the financial Take that into account. But that's different than what the operational scenarios would be because we have more time to work on those And so we'll get the data for it and then we'll make decisions.

Speaker 6

Just maybe one more on that front, if you don't mind. So the APAC satellites configured differently with the different antennas. So pretty much that one, I I would imagine it's going up over APAC regardless. And then you've also been developing your ViaSat For payload, so wouldn't it make sense to maybe take some of those features to have like AvayaSat 3.1 come up over Americas eventually after the Flight 2 and Flight 3 satellites.

Speaker 1

Yes. Okay. So just to be clear, any of the satellites can operate effectively in any of the orbital locations. That gives us that does give us more flexibility. There was there is additional operational That's built into the Flight 3 satellite.

Speaker 1

That works in Asia Pacific, but it also works in other areas. But I don't want to imply that we've made any decisions on that because we want to get the data before On the ViaSat-four, there are some significant improvements That we could use as the foundation for replacement satellite. But again, what we do there will on what we measure and analyze in the near term. And I think that's the main thing I would Encourage investors to think through is that we're going to make a sound methodical Decision with real data. We'll be able to get the data.

Speaker 1

It'll be a lot more clear. And I know everybody wants to know quickly, But knowing there's no consequences to us taking another couple of 3 months To get good measurements and then making those decisions.

Speaker 6

Okay. Thank you. That makes sense. And then just a completely unrelated quick question. With that $4,800,000,000 of unwarded IDIQ that's not in your government systems backlog, I know Where in the past you've had a single award contract, you've been able to realize most of that.

Speaker 6

But is there can you break down How much of that might be single award versus multi award where you're competing against others?

Speaker 1

No, there's a diversity of those. I don't think maybe we might get back to you on a little bit more of a But you're right about that is that some of those IDIQ contracts, a fair number of them are for There are broad range of services, but they're pretty well contemplated services or products that we would that are unique to us. Others are more Like more like with a broad agency announcement, there are multiple bidders and allocation of the awards are Less certain. But I don't think it'd be I don't think we can give you a good breakdown of that right now on this call.

Speaker 6

Okay. Well, thank you, Mike.

Speaker 1

Thanks, Mike.

Operator

The next question is from Chris Quilty, Quilty Space.

Speaker 7

Great. So the guy from Quilpi Space is going to go against Form. I actually got a question about the government business, Which is, I mean, good numbers here on the quarter and good order Just at the high level, as you look out over the next 12 months in that business line, what are the things that you think of as the worry case continuing resolution to upside scenarios that overall when we think about the outlook there.

Speaker 1

Boy, it's hard to tie some of these macro Trends, we will know more there's definitely a lot of activity right around the end of the government fiscal year. So that'll give us For Insight, but some of the things that we're doing are for instance, like one of the growth areas that we highlighted This quarter and it came up better than we expected was for high speed data center The crypto appliances. And there, one of the things you can look at is just How much interest there is in AI and big data processing and for government applications if that Occurs in classified levels, of course, that's going to drive some of the some of drive the demand for the types of products That we provide. And So some of those things besides just the way the budget To determine one of the factors will be how our customers decide to use their budget. And in things like these information assurance We have a lot more maneuvering, right?

Speaker 1

I mean, because they can make decisions. The other thing is that we do have a lot and this is part of what we're aiming for, there's a lot more of our government revenues and recurring Services revenue and those are much more predictable than say individual contracts This timing might be affected by some of the budget realities. And that was one of our objectives is We like those types of revenues, which can change over several years, but are less subject to some of these Kind of more short term budget nuances. Is that something you're asking about?

Speaker 7

Yes. And just a quick follow on to that. Have you now identified what sort of synergies you see between the Inmarsat Government side and on the ViaSat?

Speaker 1

Yes, I'd say we Because of the nature of some of the contracts we have, it takes a little while for us to get the details across there. Yes, we're getting more and more exposure to that. And obviously, there's a bunch of Similar there's a bunch of we have similar applications for similar but different customers And opportunities to extend things like geographic coverage areas or types of services For technology equipment across those customer bases, those are the things we're looking at. I don't think we have and we have identified these revenue synergy opportunities In the government area as well as in the aviation area and starting to in the maritime area. But it's We're not going to give any specifics yet.

Speaker 1

I think we'll be able to comment more on specific values in the next couple of quarters or so.

Speaker 7

Got you. And if I can totally switch gears, the IFC business, you've had tons of customer wins, Both domestically here, some big international deals, some of which I'm assuming were predicated on capacity that those customers were expecting. Are there any new customers? Southwest is a big win. I don't know how far they are in that process That you're feeling pushback from those customers around how you're going to transition and provide the capacity needed.

Speaker 1

So the approach that we've been taking in the Aviation business, which has been very successful For us is to provide very specific service level agreements that are end to end for their route system. So when we take on new customers, we look at their plane fleet, their routes, We look at the airports that they're serving and we show them, here's the service level of agreement that we can deliver and here's why, how we know We can deliver that. And so we're going through the I think that kind of what is happening is we're going through All those details again with our customers in light of the ViaSat-three scenario. And Yes, their initial question is, okay, can you still serve the planes that we have In the routes that we have going forward. And so far, that's gone, I'd say, quite well Because we do have the resources to deal with the customers that we have.

Speaker 1

We may have in some cases, we may end up with Slightly different or somewhat different service level agreements for some routes or some portions of some routes. And those are going through with specific customers. But overall, I'd say that The qualitative reception has been really good because it's based on the approach that we've used. They understand the benefit Of having a larger fleet. And then the other thing that we did kind of mention is going into the second quarter, A large amount of which is since we did disclose the anomaly on ViaSat on Flight 1, our order flow still is really good.

Speaker 1

And that order flow includes both new airlines in different geographic regions as well as existing airlines Taking placing orders for new aircraft as well. And the large majority and think of it as If you think about it as 2 different businesses, the ViaSat of business. The legacy ViaSat portion was heavily North American oriented and we have plenty of resources to serve that. We've Demonstrate that to customers whether they're new line fit aircraft or retrofits. And then on the Inmarsat, OrderWeb tended to be more international, but didn't none of their service level agreements depended on ViaSat-three.

Speaker 1

And so Both of those are still proceeding.

Speaker 7

So if the it's pretty clear given where Most of your customers' orders are that the next new capacity has to go to North America, Whether that's the next ViaSat-three launch or I think it's the GX-seven, the next Inmarsat. But Short of that, I mean, it's best case scenario a year or depending on the strategy, 3 years if you build something new. Would you if you have to burn down and you've been burning down a lot of the consumer subs, do you hit a point where At a year to 2 years out, it's just not worth trying to scale in that business?

Speaker 1

No. The short answer to that is no. The things that we've been emphasizing, I think that our airline We do understand more than I mean to a great extent because they're so logistics focused. What really matters is not just the amount of bandwidth we have, but where we have it. And so those that's what we're doing is we're able we are We have the route maps.

Speaker 1

Of course, we take into account that the routes aren't 100% deterministic. They take different routes depending on whether the schedule issues at times. So what we build a demand map From that and then we work on supply and for supply, one of the good things if think of it as this way is That if the real problem is reinforcing the areas with the highest demand, And when we add multiple satellites across the fleet, that gives us a lot of maneuvering room for reinforcing the high demand areas. What we are doing and we had already we mentioned this before, we'd already done partly because there were concerns about With additional schedule delays as we do have agreements with partner operators to reinforce both North America, In some of the ocean crossing routes and in other the other high demand areas. So we already had some of those agreements.

Speaker 1

We'll probably execute those and then we have our other tools. And I wouldn't The one thing I wouldn't tell you is what we're talking about financially, what's our outlook Without pipeline, it's not the same as saying we won't have pipeline. So I think, Again, the fact that we can communicate through it is helpful, but I don't want to make Any assertions about what capacity will be until we get more hard data, we'll be able to do that in November.

Speaker 7

Got you. On that note, I guess maybe I'd say my condolences. It just Sucks. You guys have worked hard at this, been innovative and to have that kind of binary outcome on a component just it sucks.

Speaker 1

Thanks. We appreciate that, but we're working through it.

Operator

The next question comes from Ric Prentiss, Raymond James.

Speaker 8

Yes. Good afternoon, everybody.

Speaker 1

Hi, Rick. Hi, Mitch.

Speaker 8

Obviously, it's been a busy earnings day, earnings season. It seems like we've built them here this last week. A couple of questions, if I could. Obviously, I'll echo Chris' comments, but maybe not use some four letter words, but just say clearly disappointing the And Ami, I'm glad you're working through it. I might have missed this, but did you talk about the review process of what this is doing to Flight 2's timeframe?

Speaker 8

We assume we want to make sure everything's good, but when should we expect Flight 2 would be going up?

Speaker 1

Yes. So one of the work streams that I did mention is we are really the antenna manufacturer is the most knowledgeable. They're the ones that are leading the root cause analysis. We're participating, spacecraft manufacturers participating. So we are still collecting and analyzing data To get to the root cause, we think we will have more insight into the corrective actions based on our root When the launch date is for the next satellite and it's good again, we shouldn't speculate on what they will be, But I'm sure you can imagine that the corrective actions can range from benign to more complex.

Speaker 1

And there's no Basis to choose one any one time frame or another without the data from the root cause analysis, which is It's underway. There's a schedule for it and we'll be able to report more about the time frame of Flight 2 launch Next quarter. It was pretty close to being able to launch when we had this antenna anomaly.

Speaker 5

So

Speaker 1

probably the corrective actions for the antenna will be the main factor in determining when the new launch date is.

Speaker 8

Okay. And I remember or maybe remind us previously the path to positive free cash flow I was going to be certain was it 6 months after Flight 2 was up or what was kind of the previous thought of when free cash flow positive was going to be?

Speaker 3

Hey, Rick, this is Sean. So I think what we had earlier was kind of in that spring flush early of 2025. So we're still shooting to be in 2025, but probably in the back half.

Speaker 7

Right. Okay.

Speaker 8

And excuse me if you've already provided, but did you provide some CapEx guidance? I know you had ViaSat with separate, you had Inmarsat, you had to bring them all together, you had to figure out what The arrangements we're going to be, but how should we think about CapEx over the next this fiscal year or next fiscal year at least?

Speaker 3

So on the CapEx side, I think first, yes, we have only 1 month this quarter. So you need to think about having the whole 3 months for Emersat for the rest of each of the quarters of this year. So probably a good way to think about the rest of this year is that it's $1,300,000,000 $1,400,000,000 to kind of close out for both companies for the next kind of 9 months. And then if you think about next year, I would say, you could see that coming down a bit year over year relative to this year.

Speaker 8

Okay. And obviously, one of the big events in our universe was the DISH buying EchoStar, couple of questions there. Is that an asset you would have been interested in or were shown? And part of what they talked to on the DISH EchoStar call was The excitement about both direct to device, but also private 5 gs network. So if you could maybe expound on that.

Speaker 1

I'm going to pass on the first question about acquiring them. I think

Speaker 7

I tried.

Speaker 1

Yes. So on the direct to device part, We have talked about that. We do we are optimistic about that. We are we're working it From a number of different perspectives, including how we evolve the business From really using L band for specialized satellite devices. We don't think that goes away, but what do we need to do to our systems to really make the direct to device business scale.

Speaker 1

We think that's a it's both an interesting technical Problem and one that we think we're really well suited to deal with. And then the other implication, the other thing that I think People should keep in mind is in order to be able to close good to provide good service To off the shelf cell phones or smart watches or the types of devices that people are putting in that direct to device category, You'll need a lot more throughput effective throughput from the satellites, which will also Greatly, we think, enhance the demand for more specialized mobile satellite services because we'll be able to deliver a lot higher speeds And more bandwidth into still very small terminals, but with antennas that are still I mean like You look at a normal sat phone, that's not a big device, but the antenna the satellite antenna on that device is can be as much as 5 to 10 times better than a conventional cell phone. So that creates opportunities. And what we're looking to do As this direct to device business matures, we want to be able to still use the space system assets We have all the capital we invest to monetize that through these other markets that we're really familiar with.

Speaker 1

So Yes. The short answer is we think it's a really big opportunity. I think and then you get into the details We do think it's going to play out over several years, but we think the end date is really, really attractive and we think That the both the assets, resources, technology we have will help us be successful there. And I also don't think I mean personally, I know people want to always position these things as Sort of winner take all. I think that in order for the business to really be scalable, there's going to be an opportunity for certain types of standards That will I think operators that can work within those standards Deliver space systems that work well with them, ground technology that uses them.

Speaker 1

I think all that stuff will play into It being a big sector, not just a win for 1 individual operator.

Speaker 8

Okay. Makes sense. We'll stay tuned. Everyone stay well.

Speaker 1

Thank you, Rick.

Operator

We'll go to Ryan Kuntz, Needham and Company.

Speaker 1

Thanks. I wanted to ask about

Speaker 9

the core maritime business at Inmarsat and obviously that's been a long time And ask about the competitive environment, if that's changing at all. Seems to me there's lower barriers to entry from the Leos and StarLink, I hear about some progress from them in the maritime area. So any insights you can share in that space would be great? Appreciate it.

Speaker 1

Yes. So I think the maritime space is changing. I think a lot of that is because the entry barriers are low. The thing and this is actually a big part of what we're doing across the mobility businesses and part of what we think Makes the mobility business interesting is if you look at it from the perspective of where Geographically, where is the demand? And then what type of service are different segments of the maritime Market looking for that's where the opportunity is by because the big issue is we have Spoken over and over on the in flight space that the real problem For airlines especially, these are enterprise users who need to provide a predictable level of service.

Speaker 1

The big problem is not connecting an individual plane in flight. It's providing a predictable level of service The places where the airlines congregate, which is especially hubs, right, so the airport hubs. So what we are seeing in the maritime space is unsurprisingly congestion In major ports, where the places where people are trying These LEO systems, especially early on. And now a lot of that are things like leisure boats where you're Dealing with an individual that may use a ship sporadically or occasionally and where Connectivity is nice to have, but it's not operationally important to the mission of those ships. So that those areas are the areas where ships are looking for end to end Service level agreements at a predictable level and where you're already seeing congestion On some of these on the LEO systems, there's a real opportunity for us to both improve our services and to make them more enduring.

Speaker 1

And that's where we're focused. It's a different segment of the maritime business. Mark, that's in meanwhile Inmarsat has maritime customers across multiple segments. That's the segment that really has been the one that they've grown on the most. And I think that's the one where we have the best opportunity to show what we can do.

Speaker 1

Got

Speaker 9

it. Thank you.

Speaker 1

Thanks, Ryan.

Operator

Our last question today comes from Louis DiPalma, William Blair.

Speaker 5

Mark, Grew, Sean and Peter, good afternoon. On the government defense side, there's been a lot of publicity regarding how the Ukraine war and Geopolitical tension in Asia has triggered robust demand for StarLink As a backup or even a primary source of defense connectivity, has the Ukraine war also led to A surge in demand for Inmarsat Ka band services?

Speaker 1

I think, like others, I don't think we're going to go into great depth about what we're doing Specific Defense Communications. I can you just read the newspapers and one of the things you can see Is that there's concern on multiple fronts about being Overly dependent on single sources of connectivity for various reasons. And so I think A number of satellite operators are seeing demand. Different operators Are somewhat uniquely positioned to serve different elements of that demand. So you could put us in that group.

Speaker 5

Great. And along different lines, Mark, Legato was Recently in the news regarding potential restructuring, can you discuss the status of your and Inmarsat's relationship with Legato, and is there the potential that Legato could begin again making large payments to Inmarsat?

Speaker 1

Okay. So ViaSat and Inmarsat, each have had relationships with Elgato for quite a while, But in different domains, the Inmarsat relationship was really around Spectrum and our relationship has been more around operational performance using their satellite. And I think what we're trying to do is bring those two things together. It's really going to be up to Legato to determine How they want to proceed, I mean, not on their own, but we're discussing with we're in discussions with Legado about how best to proceed on both of those fronts. And it's some of that depends on decisions that Ligado makes as well as Choices that we make.

Speaker 1

So it's a little early to tell. They've expressed I think one of the things that Lucado has expressed is interest in the long term satellite business, More than they have in the past. And so that's a basis for further discussions. It's just too early for us to comment on what the outcome of those discussions are.

Speaker 2

The one piece, Mark, to add. Louis, this is Guru. I would say we have Excluded Legado from our financial models. So any payments or return spectrum would be an upside. So we've not included that in

Speaker 1

our Yes. Thanks very much. That's been our position all along since we announced the acquisition. Thanks.

Speaker 5

Great. And one final one Mark, what is the process to make, existing Viasat in flight connectivity systems For your North American airline customers interoperable with the Inmarsat Network that also has coverage over North America.

Speaker 1

Okay. It's a little bit of a nuanced problem. Either so think of it as one of the ways to start with and we can build on this is that So we can support both either network pretty straightforwardly. So think of it as the There's a little bit of a nuance for part of our fleet and it becomes a little more that's a little bit of a new part of our fleet. But basically that We can make and you've seen this, for instance, within Marsat, where Marsat has used 3rd party satellites, We view 3rd party satellites and what that speaks to is just the ability to adapt the networks to other satellites.

Speaker 1

For some of the specific satellites, but not all, It's a little more complicated to do both networks at the same time in exactly the same place, But not, but there's lots of places where we can do that as well. So think of I mean, the simplest way to think about it is that the Because they're not on other than one special case, they're not really onboard process satellites. Satellites are just for Peters. So there is from a basic interoperability perspective, We can run our network and then our tech can run their network over 3rd party satellites including each other's We're including different parts of each other as we need to. The last piece is to be able to do Maybe not exactly if you use both of them at exactly the same place at exactly the same time.

Speaker 1

And while we can do that, some Casey, not all. That's the last piece. Does that get to what you're asking about? Does that cover

Speaker 5

Yes. Mark, for your existing North American customers such as JetBlue, United, American Airlines, Delta, you've discussed how you need to add A certain amount of capacity to make up for the loss of ViaSat-three. And I was wondering if the Inmarsat capacity over North America can be one of those sources of capacity and like for the aircraft that are being line fit Now, have you already done the work to make the antenna interoperable with both networks?

Speaker 1

Yes. So there are a couple of nuances that apply to specific airplanes, Depending on the age of those airplanes, we have not so much the airplane, the equipment that's on the airplane. So there are What I'm going to describe isn't true across the board, but it's largely true and it's especially more true for the newer equipment that we're deploying And the newer satellites, that's it. But yes, the short answer is we already have there's already Inmarsat Capacity centered over the Americas that covers North and South America and the oceans to the East and West. So and then think of it as going back to the answer that I gave to the floor to Chris Klobke.

Speaker 1

When we want to add airplanes to our service or our customers want to improve the service level agreement To our service, doesn't mean that we need bandwidth everywhere. We need it in the places where we can forecast what the demand would be. And so we can draw on the Inmarsat fleet to solve a lot of that problem for us.

Speaker 5

Excellent. That makes sense. Yes, that's exactly what I was looking for. Thanks Mark and Guru, Sean and Peter. Take care.

Speaker 1

Thank you.

Speaker 5

Thanks, Simon. And good luck with the ViaSat-three and Investigation.

Speaker 1

Thank you. Appreciate that. We'll give an update in the next quarter.

Operator

With everyone that does conclude our question and answer session. I'd like to hand the call back to Mr. Mark Dankberg for any additional or closing remarks.

Speaker 1

Okay. Thanks again for joining us this afternoon. I would like to leave you with 3 important takeaways. So one, we had a really good Q1, strong financial performance. Out of that, it was just based on The specific businesses that we're in and the backlog that we had, we expect to continue to grow revenue and adjusted EBITDA both this year and next year, Even if we make a very conservative assumption about no contribution from ViaSat-one, that's not the same.

Speaker 1

To be clear, that's not the same as a prediction about what I mean about ViaSat-three fifty one. That's not the same as a prediction of what the ViaSat-three fifty one satellite will do. And then we do have a great long term opportunity to create a lot of value. We can build on market leading positions in these Growing Global Mobility and Government Services Markets for both broadband and the mobile device market. We've got material The opportunities that we're executing on and we like building a diverse and resilient financial profile.

Speaker 1

And it does bring strong free cash flow potential with it. So with that, look forward to updating you on our progress next quarter. And I'll hand you back to the operator. Thanks.

Operator

Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.

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Earnings Conference Call
Viasat Q1 2024
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