ViaSat, Inc.

Hello and welcome to Biosat'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.

Okay, thanks. Good afternoon, everybody. Thanks for joining us for our call today. We released our shareholder letter shortly after the market closed this afternoon, and it's still available on our website. We'll be referring to it on this call. So joining me on the call today are Guru Gaurapan, 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.

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-K and Form 10-Q. Copies are available from the SEC or from our website. Back to you, Mark. Thanks, Howard.

Okay, so to start, I'll briefly try to recap some of the business and financial highlights, and I'd also like to introduce our new president, Guru Garappan, and then we'll open it up to questions. So for us, the biggest highlight is that our BISAT-3 Americas satellite has arrived at its orbital location, and it's beginning its final deployments. Once that's done, we can complete in-orbit testing, and we can start bringing up the network. We're aiming 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 businesses. 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 then an Asia Pacific satellite to get almost complete global coverage. The Asia Pacific satellite's now in integration and test at Boeing, 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 now anticipate closing the Inmarsat transaction this month. We've received approval in the UK and have only two more steps to go. We believe the transaction will be accretive to adjusted EBITDA and free cash flow on a per share basis and can help both companies provide better services to our customers at lower cost. Both Vyafat and Inmarsat have continued to grow our global mobile businesses in the 18 months since we reached agreement. NMARSAT just reported their most recent results, and you can find them on their website. And we also continue to expect that together we can bring more important innovations and growth to their L-band business as well, especially in the rapidly evolving Internet of Things and direct-to-device markets. Early in our fourth quarter, we did close the sale of our Link16 TDL business for $1.9 billion. $1.9 billion. That increased our liquidity 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 right-size the company to the new run rate, which reduces annual run rate operating costs by about $40 million. 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 $2.8 million and $2.6 billion, respectively. Adjusted EBITDA from continuing operations was $501 million, and with three quarters of TDL results prior to the Q4 sale, total adjusted EBITDA was $583 million for the year. Q4 results on a continuing basis were good and provide momentum going into fiscal 24. Q4 revenue from continuing operations grew 10% year-over-year to $666 million, and adjusted EBITDA from continued operations was $124 million, which was up 21% year-over-year. In government systems, the certification of key products, some cryptographic products, cleared pent-up demand that had 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. 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 technology and business models to transform 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. That includes not only our own business areas, but the very complimentary 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 Gorak, who joins us as president. And we really want to thank Rick Baldrige, our vice chairman, for all he's done for us in his operating roles. 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 as CEO of the former media division. that includes Yahoo, AOL, Huffington Post, TechCrunch, and other media brands. He's a very accomplished leader with experience in integrating large technology operations, operating scaled internet platforms, and creating powerful global partnerships. So if I may, would you like to introduce yourself?

Sure, please do. Thank you, Mark, and thanks to all So I'm thrilled to have joined Viasat, a company, as you all know, with a 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 career to fostering global connectivity and interactivity across key tech consumer and B2B products, I am 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 3 American satellite, the first step in placing more than $2 billion of assets into service. The three satellite constellation is expected to increase the scale of our network more than eight times the complexity. with the flexibility to move capacity to high-demand locations all while expanding our coverage globally. 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 as 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 wane, The deal is expected to double our free cash flow per share compared to standalone YSN. I'm also personally very excited about the potential for growth in L-band IoT, that is Internet of Things, and directed 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 a record quarter with growth across all of their businesses. 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 five 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 Biofact, I am eager to collaborate with Mark, Rick, Sean, Robert, and our entire team to do just that, because the opportunities here are extraordinary.

So with that, we'll open it up to questions.

Thank you. Ladies and gentlemen, if you have a question, please press star 1 on your telephone keypad. If you wish to withdraw your question, simply press star 1 again. And your first question comes from the line of Rick Prentice with Raymond James. Please go ahead.

Thanks. Good afternoon, everybody. Hey, Rick. Good to see the finish line's getting close here for the MRSAT 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?

Hey, Rick. This is Shawn. So, you know, I think, hey, there's a lot of moving parts. I mean, things are, you know, 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 secure that package back when we sign the transaction. And have all the elements of that deal that reflect the market at the time. And our intentions are to execute on those economics.

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

You know, those aren't public, but I think obviously they're more favorable than we are today.

Sure. I can't remember it. Following that line, guru first, welcome. I should have said that first. Okay. Help us understand, you mentioned a couple times about how you've done a lot of integration with technology items. As you look at this integration of Viasat and MRSAT, help us understand what your top priorities are going to be there, what's the timeline like, and could there be any segment reporting changes?

Okay, so 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, you know, we're really open on 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. You know, what we really are aiming to do is to get the best of both. And it's going to take, you know, I think that's one of our main priorities is if you look at the kind of go-to-market differences between the companies, Biosat has 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 other hand, Inmarsat's margins are very, very 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 ones. Just to be clear, we place great value on the distribution relationships that Inmarsat has. We expect to continue them. We may be able to augment some of the the ways in which we deliver services to our distribution partners. But in other cases, like connectivity, we provide a greater range of services than 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 two networks. One of the real attractions of the combination of ISAT and NMARSAT is that we both operate cave and networks. 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. allow us to extend some of the services that we've done so successfully in the U.S. to work on a global basis. So I'd say those are probably the top two priorities. And then the next one is 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 K-band markets using some of those same technologies, which are to increase the speed, to increase the amount of bandwidth that we can offer, and drive down airtime prices. We're really excited about the opportunity.

And Mark, if I can add, and Rick, thanks for the comment earlier. What I would say on top of it, when you think about integration, we have a very good plan in place, you know, as and when the deal gets closed. And a lot of focus is if you look at performance of individual companies, as Mark said, there are things that are working well, and we want to make sure we don't miss a beat on those things, including these are the latest results from Inmarsat for the last quarter. So we want to make sure we maintain that, and then these incremental things that Mark talked to, we at least have a good thinking and plan in place to start executing on.

And finally, before we wrap up on that third opportunity, L-band, is there opportunity for S-band as well in this directed device category? And how long does this business take to take off the directed device, and what do you need to have in place besides just the spectrum?

So, yeah, the opportunity, I think, for direct devices is really going to be driven by the capability. When we talk about direct device, a lot of times what people are referring to are devices that are primarily intended to operate on terrestrial networks, but that can also work directly on satellite networks. And so the big opportunities are especially there for those frequencies that are easy to integrate into those terrestrial devices And that includes both L and S band. And there are different approaches to it. One of the things that we think is a big advantage of being able to do that with dedicated licensed 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 address geographic locations, many geographic locations that are within the coverage areas of terrestrial networks, but just get poor service for a variety of reasons. Poor placements of cell towers, shadowing, all those kinds of things. That's, to me, one of the big attractions of using licensed MSS spectrum. One of the things that's going to be a challenge in the rate it grows 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. But on the other hand, one of the really attractive things about us and Inmarsat and both having existing L-band 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 make our services available and attractive to the terrestrial devices will also expand the market for the existing dedicated MSS devices, and we can provide much better services. That's what our objective is, and we see that not as a market for us.

Great. Appreciate it. It will stay well. Thank you.

Your next question comes from the line of Simon Flannery with Morgan Stanley. Please go ahead.

Great. Thank you very much. Good evening, and Guru, good to connect with you again. Could we talk about IFC for a minute? First, any color on the backlog sounds like you've been continuing to win there. 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 constellations? Is that something that they are exploring or they really prefer the geosolution for now?

Okay. So one, our input In-flight business has been really, really good. We've got a backlog of over 1,300 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 air. to the airlines, which is kind of the simplest way to put it is, like, you know, three, four years ago, if you wanted to impress an airline, you know, with your capabilities on in-flight connectivity, you'd fly an airplane around and show them a speed of 100 megabits or 200 megabits, and they'd go, hey, that looks fast and that's good. 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 as well. It's that geographic concentration of demand that I think is really going to be the most challenging issue. 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, yeah, of course, they're open to Leo, Gio, whatever, you know, whatever will allow them to deliver the services that their passengers want, you know, affordably. I think that's what they're going to be open to. help us do that.

Simon, sorry, great to reconnect. The other point I would just say, what Mark said, 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 the customers as well. So that speaks to our core product and technology.

Right. And then on the consumer broadband, you've been constrained on capacity for several years now. What do you think the TAM is? Is it 5% of U.S. households? We've obviously seen Starlink make some strides there. How does your product stack up against that as we have to commercialize ISAT-3? Sure.

Yeah, I think, you know, and if you define the addressable market 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 than what they can get from a terrestrial option. That's how you define it. So don't think of it as generally, the hurdle for doing that has continued to rise, but if you can deliver 25, 50, 100 megabits per second, and you can deliver sufficient bandwidth to allow people to to meet their screening needs, that's going to be competitive in probably what today is roughly 10 to 15 million homes. What we're anticipating is that, say, by five years to the end of the decade, that may go down to 5 to 7 million homes if the infrastructure builds out. That's currently contemplated as it comes to fruition. So, that's kind of both where we are and where we think the market's heading. And then we think that that, you know, our objectives are really to capture a reasonable, I'd say a reasonably modest portion of that growth for its broadband. Yes, that market is a reasonably conservative moderate version share of that market.

Male Speaker 1 Great. All right, thanks.

As a reminder, if you have a question, it is star 1 on your telephone keypad. Your next question comes from the line of Mike Crawford with B. Riley. Please go ahead.

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 two weeks from now?

Yeah, you know, Mike, Deshaun, so I think the way I look at it is, you know, as I said, still lots of moving parts, but You know, I think we've had some really good milestones, and we're trying to, you know, close within our expected timeframes. But, again, I agree. There's lots of moving parts.

So there was not an end of May component?

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

Okay, thank you. And then changing topics, in the FCC's NPRM for single network feature with supplemental coverage and space, and your comments, Viasat's argument for a technology-neutral approach that enables GSO systems, in addition to non-geostationary systems, to participate and direct to handset connectivity. And so the rules aren't proposed there that way. 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?

Okay. That's a little complicated. 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. and globally, to both demonstrate that and to bring those services to market. But it is a little bit of a complicated regulatory environment. 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 the amount of demand there will be over oceans or unpopulated areas is not nearly as great as it will be 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 thickness black spots. 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 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 still but does vice not retain the capability and or desire to consider being a merchant satellite manufacturer?

Okay, so two things. One 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 that are interesting to restful radio customers. So we are continuing to work on that. And that's one of the attractions of this L-band directed device market is that it does open some that are outside the link 16 area. So, yep, so we are still working those.

And just to answer to that, does the trellis where waveform fit into all this?

It certainly could. That's possible.

Okay, thank you. Thanks, Mike.

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

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

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