ViaSat, Inc.

Hello, and welcome to VICE's fiscal year 2022 first quarter earnings conference call. Your host for today's call is Rick Baldrige, President and CEO. You may proceed, Mr. Baldrige.

Okay, thanks. Thanks, everybody, for joining us today. We released our shareholder letter earlier today before the market opened, and we hope you guys have had time to We'll go into Q&A. But first, Robert, can you provide the safe harbor?

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

Okay. Thanks, Rob. In addition to Robert joining me on the call, Mark Dankberg, our Executive Chairman. Our CFO, Sean Duffy. Paul Froelich from Corporate Development, and Peter Lopez from Investor Relations. Just a couple comments before we jump into the Q&A. We had another great quarter. We generated record revenue, record adjusted EBITDA, and we kind of built on the momentum that we finished our last fiscal year with. Revenue grew 25% year-over-year to $665 million, and adjusted EBITDA grew at more than twice that rate, up 52%. You know, that part of that's reflecting last year when the quarter was one of its hardest hit or first hit by commercial error. HBR segments delivered strong year-over-year revenue growth. In satellite services, year-over-year double-digit organic revenue growth was driven mainly by the improvement in our in-flight connectivity business, which was, as we've mentioned, severely impacted last year by COVID. We continue to see sequential quarterly improvements as passengers return to air travel, but we're still well below pre-pandemic business levels. Our fixed broadband revenue continues to grow organically as well, both year over year and sequentially, as we continue to see strong demand in the market. Strong closed early in the quarter. Government systems had good revenue in EBITDA performance, up 4% and 6% year-over-year. A 22% year-over-year increase in service revenue was the main driver, while tactical data links, cybersecurity, and mobile broadband product lines also contributed. We expect continued growth in the segment. to another large IDIQ, $120 million of backlog with that IDIQ went in the period. our recorded loss in that segment. A lot of this was from the ramp-up of IFC terminals, shipments that kind of has restarted, and we had another strong contribution from our ground antenna systems division, which is driven by all the new space demand. In addition to the really good financial results, we completed several key execution milestones. We closed on the Rignet and the EBI, our European expansion into new and adjacent vertical markets, such as energy and maritime, and new geographical markets, particularly in the Maya region. Now, both expand our global operational and customer-facing capabilities to support the Biosat-3 global constellation as we try to launch services in those geographies. Regarding the Biosat-3 constellation, the payload of our first satellite, the Biosat-3, for the Americas is has been a Boeing for two months now for integration with the bus module and final environmental testing. We began installing IFC equipment on the first aircraft of our new customer, Delta Airlines, with whom we have over 550 aircraft under contract. We expect the install rate to continue to accelerate over the next few quarters, and by this weekend, we'll have about 80 aircraft installed. I think key proof points, we remain confident in our bill of deliver on our five-year financial targets that we communicated last year. To that end, as you see in our letter, we also introduced revenue and adjusted EBITDA guidance this time to give you a picture of the near-term ramp towards that five-year That operator will go to questions.

Thank you. Ladies and gentlemen, to ask the question, you will need to press star then one on your telephone. To withdraw your question, press the pound key. Again, to withdraw your question, press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Philip Cusick. With JP Morgan, your line is open.

Thank you. This is Sebastiano on for Phil. The fixed broadband versus mobility and other fixed broadband breakout in the letter was very helpful. Wondering if you could perhaps provide some more incremental color just on the domestic broadband trends. What are you seeing in terms of subscribers and ARPU? I mean, results are... were stronger than we had anticipated. I just want to see if you can maybe delve a little deeper into some of the underlying trends, and what, if any, indication or impact are you seeing from, you know, Space Starlink's launch and ramp?

Okay, Mark. You know, the dominant issue for us over the next few quarters in U.S. broadband is just going to be supply. You know, we've pretty much sold out the sidelines that we have over the U.S. So the main trend we're seeing is high demand for more bandwidth, and a lot of that's being absorbed by customers that are upgrading to plans that provide more bandwidth. So we're seeing probably a few thousand, holding that steady to up. But then the other factor that's entering into it is all these other markets that we're developing in advance of ISAT 3 and the return of the in-flight connectivity. So that is causing us to basically allocate our bandwidth in the ways that both pave the way for the fastest growth in the new businesses and and deliver the revenue and earnings growth that we're counting on to finance the new system. So those are kind of the factors that are in play. In terms of overall demand, you know, overall demand is really high. And, yeah, of course, we can, you know, we have tools where we can see that Starlink is serving people in the market, but the overall demand is far greater than the

material. I think at the last call we indicated that we had expected a decline in subscribers in the U.S. market over there until Bison 3 comes online. But in general, we think the revenue will be about flat year over year in that residential broadband segment.

That's helpful. And perhaps if you could I guess haven't been any headlines subsequent to the potential divestiture of a portion of the government business. So anything there? I mean, how should we be thinking about that? Obviously, trends in LINK-16 business and some of your other verticals remain strong. So anything we should be thinking about as it pertains to potential monetization of a portion of your government business?

No. Well, if there was, we wouldn't say anything about it here, but But we like, I mean, the business is growing. And so we see continued very high demand and good growth in that segment. So I think we're positioned strongly. You saw in the note, we're going to hear pretty soon we will launch our first Leo that has Link16 on it. And so that new space element of Link16 business is a growth area. But in general, we've You know, whether it's acquisitions or divestitures, we wouldn't make any comments on it here.

Fair. And maybe I'll ask one for Sean. Just how should we think about the CapEx run rate for the remainder of the year? Obviously, you called out about leverage ticking higher through the rest of the year. So just overall CapEx expectations within fiscal 22 would be great. Thanks again, Jack.

Yeah, no problem. So I think what we talked about last quarter was on average, kind of targeting that $300 million per quarter kind of mark. We were a little lighter this quarter, but it starts to ramp through the year as we get closer to launch. So that's still a good number.

Thank you. Our next question comes from the line of Rick Prentice with Raymond James. Your line is open.

Hey, everybody. Hey, a couple questions. Again, appreciate that near-term guidance on the long-term path. One quick housekeeping one. I assume Rignet is not in the fixed U.S. fixed broadband percent then. That is just truly U.S. fixed broadband?

That's correct. I should let Sean answer that.

Good answer. That's correct.

Okay. And when we think about that near-term guidance of revenue, average annual revenue growth of approximately 20% and average annual EBITDA growth in the mid-teens, obviously this fiscal year you get 11 months worth of benefit of the two acquisitions. How should we think about what ex-M&A growth might look like over that period? You did call out how much M&A was helping in the quarter.

Yeah, so I think when we gave you that guidance, we kind of looked at all ends, but if you Last quarter, we talked about the kind of adders that we expected this year for Rignet and EBI, and that was notionally about $40 million on the EBITDA line.

Okay, and it looks like Rignet does split between satellite services and product or commercial networks.

Yeah, there's about 90% that shows up in the certified and about 10% related to some of about 10% that shows up over in commercial.

Sure, okay, that makes sense. And then when we think about from the letter, you mentioned recalibration of metrics reported. Can you help us understand what you're thinking about, how you're reporting, and what you might add to what you're telling us or what you might take away from what you're telling us?

Sure, yeah. So, you know, right now what we're seeing is a lot of demand across, multiple vertical and geographic markets. So that's residential enterprise, in-flight connectivity, general aviation, land mobile, government, maritime energy. So we've got all these different markets and we've got to figure out how to allocate that across them. And clearly there's way more demand than we can serve with the resources that we have for the next few quarters when you aggregate it across all those markets.

And we were

really like having a broad, robust, and resilient base of markets. We don't want to be overexposed to any one geographic market or any one vertical market. So, you know, what we're trying to do is say, look, here's what our focus is, is we want to earn revenue, earnings, and cash flow in line with our capital planning and our leverage objectives. And we also want to build momentum for the increased economic productivity, the coverage we'll get, the total bandwidth we'll have, and the geographic flexibility that we'll have with BISAT-3. And we want that to increase our revenue and earnings diversity and resilience and robustness. So those are our objectives. And what we're looking to do is, one is, we know that people are trying to use some of these other metrics to forecast what our growth will be. that we're going to get in revenue and adjusted EBITDA. And we also will continue to give this metric that shows the diversification of our business, which is, you know, here's the U.S., which has been, you know, especially during COVID, it was very U.S. residential-centric. And now you can see we're back on track to get that diversification. So we'll give you that. And then we're still looking at ways to refine those metrics that take into account all these markets, and capture them holistically. And we'll probably introduce some other metrics over the next year, probably the next year or so, certainly by the time we have Biosat 3 in service.

Okay, makes sense. And the one thing I don't hear a lot about, probably because it's such low bandwidth, is Internet of Things. Other companies are looking at IoT opportunities. Should we assume that's not as high a priority given a good problem to have? You've got way more demand than supply right now.

Yeah, so a lot of people define IoT But there actually are some really interesting IoT businesses that we're working on, especially with the addition of BrickNet that are broadband applications. Those are, you know, they're basically, think of them as the recurring revenue is And there are some, a lot of those you might imagine are things that are, say, video intensive. Those types of IoT applications are bandwidth intensive. So are things in monitoring certain industrial processes, drilling, mining, things like that. So those are absolutely in the near-term opportunity set for us.

You can also think of things that need to be, need the cloud compute to be able to to have AI elements back to how you control elements. And so those things are very data intensive.

Yeah. But we will, right now, we're just including all that in our enterprise segment. That's because they're all enterprise applications.

Okay. Thanks, Rick. Thanks, Mark. Thanks, Sean. Stay well. Thanks, Rick.

Thank you. Our next question comes from the line of Matthew Robillette with Barclays. Your line is open.

Yes, good morning, good afternoon. Thank you all. I had a question first with regards to the guidance. Obviously, it's great that you give more clarity, but I guess we always want a bit more. And I was wondering what is the launch schedule that you have assumed in the guidance in terms of the satellite in order to deliver that growth? That was my first question.

Yeah, well, it hasn't changed. Obviously, those things can move around a little bit, but it hasn't changed since we gave it before. We had talked about roughly a nine-month schedule from the time we delivered the satellite to Boeing until the time they would ship it. Obviously, there's multiple X, and then you add a month or two to that for launch preparation, and then a couple, three months for testing once it gets on orbit. But right now, we don't have a real reason to change the schedule we've given, but we might. Something could happen in the interim. It's just too early since we gave it a anything different than what we've said before right now.

Okay, so that's still Q1 2022 calendar kind of.

Q1, Q2, Q1, Q2 timeframe in that, you know, I'd say, you know, just given the schedule things, more likely Q2. Yeah, yeah.

Thank you. Dennis, I had a second question about CapEx, and obviously you've given indications over the years. And, you know, because phasing can be different from what we assume at some point in time, it's always difficult to hit it right on our side. But I just wanted to confirm that the kind of numbers you had given initially about the cost of the constellation were basically on track. And what I have noted down is like $550 million per 5SR3 satellite, plus maybe $150 million for ground. So that was the plan for Viasat 3. I just want to confirm that was still more or less what you guys had in mind. And whether or not you're already spending something on Viasat 4, that is something that we should wait a little bit to start to incorporate in our estimates.

Yeah, so I think there are a couple things. You know, we've talked about what the full cost is for the full constellation and the ranges there that have been about, I'll say, $2.3 billion or so for all three satellites. And so we're continuing to make progress.

I'd say coming out of this quarter... That has launch and insurance, ground, and the satellite set.

Yeah, and the initial ground. So we need to make sure that you've got all that into your numbers. The other thing is we're about... Right now, 60%, maybe a little bit more, complete on that funding. So you can kind of get a notion of what's left of the flow over the next couple of years.

Okay.

And on Viasat 4, sorry, maybe I missed it in your answer. Is there anything already being spent that is relevant?

We're doing some early funding. initial efforts there. We're still scoping out, you know, what that ultimately looks like. But there's some real small spending, if not significant.

We have started work on that. But let's wrap it up.

Great. And maybe a last question. So I think it was yesterday that there was an article based on speed tests done by UCLA, which is respectable. as far as I can say. And it shows that some of the speeds on Starlink are reaching 100 megabits, while you guys and you and others are more around 20 megabits. I realize this is not apples to apples. You are full capacity. You're trying to manage that as well as you can. And there's obviously a different mix in your customer base. But I just was curious to hear from you what you thought about those numbers, if that is in line with what you're expecting and how maybe we can start to think about what you could deliver with Viasat-3. I guess it's, again, it's always a mix between volume, speed, R-proof.

Yeah, so one is, yes, it is a mix of all those things. But the most obvious thing on those speed test measurements is that we offer service plans with different speeds. So the vast majority of our customers are on plans with 12 or 25 megabit per second speeds. But we have tens of thousands of customers with 50 or 100 megabit speeds. And the speed that we deliver on those plans are above 100 megabits. Both of the 100 megabits plans, they're above 100 megabits per second. And that would be the apples to apples comparison And the thing I would emphasize is that, yeah, even with the number of subscribers that we have and our satellites being effectively full, we do meet the speeds that we advertise. So that includes the 50 and 100 megabits. So that would be a more relevant comparison of us versus anything And the same is true, you know, if you look at that article that you're referencing, what it does is it's not just for us. It's for all service providers that provide multiple speeds. They just provide the average across all their different service tiers and compare that to Starlink, which has only one service tier. So that's really the part that I think people should pay the most attention to. Yeah.

Thank you.

Our next question comes from the line of Simon Flannery with Morgan Stanley. Your line is open.

Great. Thank you very much. I wanted to talk about Leo's a little bit. You talked about the LINK-16 Leo going up. What is the process for the testing of that and potentially for a larger order following that? And then I think in the past you've talked about if there was government funding, a domestic LEO kind of broadband product might be interesting to you. We've obviously got the broadband bill or the infrastructure bill working its way through Congress with significant funding for broadband. So I wondered if you had any thoughts on that and how that might apply to Viasat as well. Thanks.

Okay. So first on the Link 16 LEO, there is – definitely interest in USDOD to extend the range of Lake 16, which is, it's a line of sight network, and it has terrestrial relays, but you still have a fairly limited average area of any particular network. The data that is on Lake 16 is really, really valuable for a number of applications, including in applications that are well beyond the range of each network. So that's what's, I mean fundamentally that's what's driving DoD interest in Link16. There are, I'd say a few different initiatives, all of which we're involved in, to provide Link16 in space. So how, you know, What the ultimate manifestation of that is will depend a little bit on which organizations end up having the lead on it. Right now, we have an Air Force program. There's a Space Force program as well that we're involved in for Link-16 in space. There are, we believe, there's still a bunch of additional work to be done on networking, ground, or terminal interoperability with space, what the functionality of the space is, how it integrates with other data links. So overall, we see it as a really, really interesting and potentially really big opportunity, but it's a little bit early to be more specific about how programmatically how it will turn out. Also, I think the other thing that we really like about it is that there's opportunities for us, especially given what's going on now, to work with a lot of the customer organizations that we do work with in order to help shape that program. And that's, you know, in Link16, that's really been one of the reasons we've been so successful is our ability to kind of work with end users and anticipate what their needs are. That's how we develop most of our Link16 product line is through that type of a good similar opportunity in space. On the commercial LEO front, we have a filing that we've done for a KA band non-geosynchronous orbit system where we've proposed to lower the altitudes from MEO to LEO in order to deliver latency that's in the sub-100 millisecond range. So that, we're still You know, it's still pending approval from the FCC. I'd also say we're doing additional work on LEOs. We're doing work on LEO business models. You know, we've done a ton of work on space sustainability, which is really, I think, is going to be a very big factor in how the entire LEO market develops, especially given filings for close to 100,000 new LEOs in the last decade. few, couple quarters. So I'd say just stay tuned for that. I think we'll come up, we're going to continue to evolve our plans. We also want to work with other NGSO partners to the extent that we can. Leo is an area where, to a large extent, we may rather work with others than just own everything. I think, ultimately, is still the way things are going to turn out.

Thanks, Mark.

Our next question comes from the line of Mike Crawford with B Raleigh Security. Your line is open.

Thank you. Further toward the proliferation of all of these sensory satellite constellations going up that are just collecting Um, just ever increasing amounts of data. Is there been any more progress on talking to anyone about using 5.3 is sort of like a backhaul network where they could upload the data into up, up to geo and then down back down to earth to get the data into the hands of the people that want it more quickly.

Yeah.

And that would require, what, just them pointing an antenna to you? That's the main requirement there?

Yeah, think of it as the way things work now primarily. There's really two modes. The dominant mode now is that satellites have ground-pointing radios that send the data they collect to Earth stations that are distributed systems. One of the main issues is that there are no ground earth stations in sight in a lot of places where we're trying to collect information, especially over oceans and other areas. And so people are interested in getting that data back sooner. So we're involved in a number ways to do that, one of which is what you just mentioned, which is satellites could have an additional upward-pointing radio that relays stuff pretty much immediately upon, anywhere in the world, they can relay data back if they use a geosynchronous satellite as kind of a relay node. And there are a number of government and some civilian satellites that do just that already. It's very, very expensive when you use government and civilian satellites, like NASA or government satellites to do that. And it can be far, far less expensive with a satellite like Biosat 3. So we're working with both government and commercial operators who are interested in doing that. The other thing that we're doing as well is people are interested in doing sort of a similar thing, relaying among other NGSO satellites. And that's another area that we've been really successful in. So, for instance, on the Iridium network, we've built all their inter-satellite links, and we have a number of government programs on those inter-satellite links as well. So that would allow people to relay control or data information at altitudes lower than geosynchronous. And then the other thing that we're doing, which just ties into the same thing, is we're specially building a number of really large ground earth stations, which would allow these sensing satellites to transmit much higher volumes of data without having to make the satellites bigger and more powerful from a transmission perspective. So basically, think of it as three different The other part is how do I do that as quickly as possible from when I collect that data to get it back to the ground.

Okay. Thank you, Mark. And then the final question for me just relates to TPE. So companies have invested billions of dollars in trying to make phased array or flat panel antennas that are low cost and easy for consumers to install and get their data or their broadband and Is that still something you envision being able to offer with Viasat 3, and if so, how soon? And would that just be with your own technology, or are you looking at others as well?

Okay, so, you know, the face arrays are valuable when you have to constantly report similar to that for a non-geosynchronous constellation. You call that moving platforms and moving terminals, or moving satellites and moving terminals. We're working on all of those modes. We recently did a flight test of a small phased array antenna on a business jet. We think mobility platforms are probably the first place that we would apply is what makes that possible. So we're working on all those. Yeah, sure, certainly we'll have those out in the VISA 3 timeframe.

In addition to that, I mean, one of the things on the residential stuff, you can do self-install. It doesn't have to be a phased array and other low-cost things. We're working on those as well.

Okay. Thank you, Rick and Mark. Thanks, Mike.

Thank you. Our next question comes from the line of . Your line is open.

Hi, guys. I had a question about the Viasat's role in the recent $950 million IDIQ contracts. I think there's 27 different companies on that. Can you share what exactly Viasat's role is amongst that group and perhaps of the $950 million Do you have a percentage you think is up for Viasat to claim?

That's our piece. That value isn't distributed among everybody. That's the IDIQ contract for Viasat. And the task orders will evolve. I mean, task orders will evolve from studies to specific, you know, contractual tasks. And there's a lot of things in there that – that we could do over the window, but that's not a shared value.

But what we do on that is, it is an area that we've done for 30 years, which is simulations for multiple aircraft. We have been the primary developer and provider of It's hard to estimate what the total value is. For communication. Yeah, communication. Simulators, primarily. Communications and other... Things that mess with communications. And we've done that for... One of the major markets is...

Those are certainly near-term test scores.

Okay. Just a clarification from something you said earlier. I wasn't sure if I heard right. Did you say that BIOS Act 3 will have three months of testing once it's launched?

You know, I said it would have two to three months. I mean, it could be four. We're hoping for it to be sooner. This is a very, very complicated network. We will give more updates as we get closer to that, but we'd love for it to be two. It could be four.

And then just a question on the real-time Earth network. You were just talking about various solutions for ground connectivity. How many of those antennas or gateway stations have you completed at this point? And can you remind us how many you're deploying globally?

We've been working with this space for a long time. So it's a bunch of the new space platforms that Mark was talking about and very, very, very large antennas in the market right now. We have multiple programs going simultaneously right now.

There's two different elements to this. One is us providing antennas to customers that purchase those antennas and use them only for their own networks. We also have a service where we will either use antennas that we own or that partners own and sell time on those antennas to multiple systems as a service. There are others that do a similar service, but the services can be differentiated in a number of ways, by the size of antennas, by where they're located, what RF bands they operate in. So, you know, what we've been oriented towards are more of the emerging markets, which are the higher frequency bands, and placing those antennas in places where we think are well-suited to those applications. But our main effort right now is not on owning a whole bunch of antennas, but on building a partner network for that. I'm not going to give an answer right now on the number of antennas. I don't know what it is exactly. It's not enormous, but what matters a lot is the capacity, the placement of those antennas, and also what we think is the way the market emerges in which antennas and RF bands will turn out to be the most important. and what we're really oriented is towards where we think the market is going, which is the higher bands and higher speeds.

All right.

Thank you.

Thank you. Our next question comes from the line of Ryan Coons with Needleman Company. Your line is open. Hi.

Thanks for the question. I want to ask you about your supply chain and if you're seeing much of an impact from the semiconductor shortages impacts on your terminals, costs, deliverables, that sort of thing?

Thanks. Really, for deliveries today, we have seen very little impact, but we're starting to see the impact across the business, mainly in longer lead items that we have. We will have it. It's not... I'd say the good news during the window where it had the biggest impact on everybody, we have less deliveries in that cycle and pretty good inventory. We actually have pretty good inventory built on the government side, and so we haven't seen much today, but we have forecast in our outlook additional impact for delays.

That's helpful. Thanks very much.

Thank you. Our next question comes from the line of Gil Thorn with Jefferies. Your line is open.

Thank you. One of my favorite pronunciations is my name. Pervert. Pervert. For some reason, Americans just can't, like, you guys can't get the name. Anyway, I want to come back to the question of leadership. and Leo's mobility application rather than the discussion about the program. And this is a question prompted by two substantive developments in the past few weeks and months. One is Starlink in active discussions with several airlines and predicting that 90% of ISD traffic will be over LEOs within 10 years, which is a big departure, I think, from what anyone else has been saying. And then, obviously, with orchestra and having a multi-layered network with different instructions. So it would just be interesting to hear some high-level comments about what you think about LEO interoperability. OK.

It's not super surprising that an operator that has only LEOs would say that 90% of the market will go to LEO operators. There are some really difficult challenges with doing mobility with especially low-flying LEO satellites that have very small beams. We've kind of seen this in other NGSO systems where Global coverage might mean I can be anywhere, but I can't be everywhere. I have, especially if you think about some of the problems that are around hub airports, where you have large numbers of airplanes that disperse in all directions or lots of different directions. Those are really hard problems for Leo satellites with very small beams. Unless you have very, very large numbers of satellites, and that's where I think this whole issue is out. sustainability, how many satellites can be supported and how those should be allocated is going to turn out to be a very big factor in that. What we do think is that a hybrid approach or a multi-orbit approach, which you're seeing, I'd say more operators kind of come to the conclusion that multi-orbit hybrid makes complete sense. That's one of the things we've been saying. I think that's a lot more likely long-term solution. And going to the Inmarsat orchestra thing, could you bake terrestrial into that? It's possible, certainly for terrestrial mobile or land mobile or in view of land. Maybe you could. I think there's some challenges with that at scale, but it's possible. What we would say is that having more tools in your toolkit to deliver a comprehensive service is good. And remember, those comprehensive services are going to include not just Internet access, but probably media entertainment, other forms of communications as well. Does that answer your question? I just have one thing.

We still think the dimension of value that we have have been successful at, then that is the right one. That's delivering a lot of bandwidth in an area where there's high demand. And that's the problem.

I mean, bandwidth is the dominant value. We think it's the dominant value proposition. And the thing we've been the most focused on, and I still think we're absolutely on the right track, is most bandwidth in the right place for the lowest capital cost.

Remember, GoGo was a very low that we compete against. I mean, it's lower latency than a LEO, and that wasn't the right dimension of value.

Depending on your balance of probability, do you see yourself allocating capital into LEO for mobility in the medium term? Sounds like no. I mean, there's obviously the link 16. I avoid this reason, but

I said we're interested in NGSO. We're interested in hybrid networks. We have discussions going on with NGSO providers about cooperating, so that's one way to fulfill it. We've been pretty clear, and I think all I have to do is look at research from Cisco or Sandbine or others that The low latency component of total broadband traffic is not a very big fraction of the total. So we can certainly enter the market using third-party networks. Whether it makes sense for us to own, just to get owner economics, or because we can greatly improve the productivity compared to others, those are things that we're still looking at. But a lot of it will depend on You know, when somebody can bring these things to market at scale and we get a firm pricing on them, that will have an influence on whether or not we invest capital in it.

And our confidence that they're going to be there if we're counting on them as part of our network. Yeah.

Understood. Thank you. Thanks, Josh.

Thank you. Ladies and gentlemen, we have time for one more caller. And that call is from Lloyd DePalmo with William Blair. Your line is open.

Rick, Mark, and Sean, good afternoon. Many of the defense tech providers like Booz Allen, Parsons, Mantec, and Mercury Systems are seeing funding and program delays. Are you seeing this as well, even though your government division grew nicely during the quarter?

We talked about it last year where we had seen some impact of both COVID and administration changes in terms of delays, but not really. I mean, I'd say it's not back to normal, but we've seen a lot of water flow in that business segment.

Sounds good. And for Mark, as it relates to sustainability, space sustainability, do you think that there's a limit to the number of satellites that can ultimately go into LEO in order to keep everything sustainable and prevent collisions? And do you expect regulators to eventually like pause or even stop granting licenses because there's going to be so much traffic up there?

Yes. So the answer is yes, there's a limit to what can go in LEO. It's a little bit complicated because it's not only the number of satellites. It depends on things like the cross-sectional area of those satellites or what orbits they're in, how those orbits may overlap or intersect, what the mass of the satellites are. So I don't want to oversimplify it, but yes, there's limits. The FCC is when it comes to the U.S. has said three times in proposed rulemakings or other proceedings that yes, there's a limit to the number of objects that can be in lit. So I think it's only a question of time before people start calculating what those limits are. I'd also refer you to research that others that study that was done by MITRE that calculated for the number, you know, for satellites that are, let's say, have the same characteristics as Starlink in a roughly 600 kilometer orbit. You know, it's like low tens of thousands of satellites before debris starts growing without bounds and you can't even maintain that many satellites in orbit. because of the collision probabilities and likelihood. So it's a real issue. It's not just us that are saying it. I think we've been doing a lot of work to help compile and sort of correlate of other people's inputs as well. But that is where things are headed. I think that the main issue, one of the things that we're Europe when the European Union is talking about having a constellation and in other administrations as well is if there's a bounded number of satellites or think of satellites with given characteristics how should that number be allocated among different countries and then what tools do countries have to help assert what their rights are and That is, I think, a rapidly evolving situation, but I think where it's headed is where you're saying, which is that there will be limits to what can be put in orbit, very, very similar to what's been done with orbital spots at geosynchronous.

The other thing I would just add, we want to make it really clear, we're not against LEOs. We're for a responsible approach to all orbits in space. back to underscore what Mark said.

That makes sense. And one last one. For Sean, you discussed how you have $600 million in liquidity. Is that $600 million enough to fully fund the build-out of Viasat 3, or do we either need to raise more capital either from the debt markets, or, you know, as part of a potential divestiture?

Yeah, so I think if you look at our performance, you know, our operating performance in the cash generation, and what we see is the trajectory of that as well, that plus the liquidity, we're in a really good position to fund out the bias effort. That's kind of consistent to what we told you guys last quarter.

It might take a different form other than just using revolvers, but...

Yeah, absolutely. We want to make sure our cost of capital makes sense.

Sounds good. Thanks, everyone.

Thank you, Lynn.

Thank you. Ladies and gentlemen, that concludes our Q&A session. I would now like to turn the call back over to management for closing remarks.

Okay, thank you, Operator. Together with Mark and the rest of our team, thank you for joining us this afternoon. We had a strong quarter to start off the year. and our operating momentum is really positive. Hopefully you heard that we're confident in our outlook, including achieving both near-term financial targets and our longer-term financial targets. We're really excited to bring BISET III's capabilities to market. Our leadership team and our employees are diligently focused on executing to our plan. We want to say thank you to them. They've been working really hard through this pandemic and today. Don't hesitate to contact Peter or the rest of our team, Sean or Paul, if you guys have any other questions on our results or our topics today, and we look forward to updating you on our continued progress next quarter. So with that, I'll hand it back to the operator. Thanks.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.