ViaSat, Inc.

Welcome to Viasat's FY24 First Quarter Earnings Conference Call. Your host for today's call is Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.

Good, thanks. Good afternoon, everybody, and thanks for joining our call today. With me, the Black Guru, Gil Rappin, our President, Sean Duffy, our Chief Financial Officer, and Robert Blair, our General Counsel. So before we start, Robert will give a St. Harvard disclosure.

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

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

So the first quarter results were very good.

The Inmarsat acquisition closed in May and contributed one month to our first quarter results. Year-over-year consolidated continuing revenue grew 36% to $780 million, and adjusted EBITDA grew 87% to $183 million, with good performance across the FISAT standalone revenues grew 12% and adjusted EBITDA grew 13% year-over-year. New awards and backlog are good, and momentum has continued into the second quarter, especially in in-flight connectivity. 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 tail end sale back in January. And we're making good progress on the integration and are on track to achieve our overall synergy goals and aiming to improve on those. Also, I'd like to mention that Andy Suquati, who's a formerly Inmarsat's chairman, and Rajiv Suri, who is their Inmarsat's CDO, joined the Inmarsat Board of Directors and we're looking forward to their contributions. So I'll start with a little more color on the Viasat-3 America situation and our response. 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-3 Flight 1. Since then, we've been working with the antenna supplier and the satellite manufacturer to more fully assess the situation for the first flight and the implications for flight two. 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 flight one performance. FY 2025 will be affected by the performance of flight one and the timing of the corrective actions on flight two But given current information, we believe we will continue to grow in fiscal year 25 as well, but not to the same extent we would have without the anomaly. While 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. I'll give some additional color on the background of the antenna. that a manufacturer is a major aerospace supplier with a decades-long history of successful space deployments. The antenna is from a product line with a history of 100% successful deployments on a number of missions, including five on Inmarsat satellites. The Flight 1 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, and that satellite is unaffected by the Flight 1 anomaly. Flight 1 satellite is insured, and insurance is already placed on Flight 2. Inmarsat's prior standalone outlook had no dependence on PISAT-3, of course, and we still do expect to capture We've got four main work streams underway. One 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 two. We have a plan to collect additional data and incorporate that into the deployment fault analysis. We also expect to have more information to report regarding corrective actions for flight two and an update to the launch schedule next as it is. Initial end-to-end measurements with the effective antenna indicate the rest of the satellite, including the innovative payload and ground infrastructure built by Biosat, are operating as expected or better. We have a plan for additional measurements that we expect 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 provide an update on that Next quarter also. Third is to assess the potential of improving the antenna deployment on Flight 1. 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 fourth is to mitigate the effects of the Flight 1 anomaly on our global mobility business, especially via optimizations of our existing fleet optionality in the near and longer term orbital locations of each of the 5SAT-3 satellites, and additional third-party capacity as required. These plans are already well underway, and we're confident we can continue to support our global mobility customers as we do today and going forward. U.S. fixed broadband today represents about 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. Importantly, for BISAT-3 Flight 2 and Flight 3, our tests and measurements to date lend increased confidence to those parts of the BISAT-3 system that are where the new innovations are. The launch schedule of Flight 3 is unaffected, and we'll provide an update on Flight 2, inclusive of corrective actions, as I mentioned, next quarter. The InMarsat acquisition expands our in-orbit KA-band fleet to a total of 13 KA-band satellites, including Flight 1 and an I-6 Flight 2 satellite, which was launched earlier this year and is undergoing orbit raising. We have eight more KA-band satellites under construction, with five of those planned for launch before the end of calendar year 25. 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. 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.

Thanks, Mark.

Some brief color on the financials. Q1 revenue was $780 million. This was up 36% compared to the revenue from continuing operations of $575 million in Q1 of FY23. The result includes MRSAP's one-month revenue contribution from the acquisition date of approximately $134 million. We estimate that the combined Biostat and Amersat revenue for the quarter, including the pre-acquisition period, would have been about $1 billion and $46 million, an increase of about 11% year-over-year as both companies achieved double-digit revenue growth. Net loss totaled $77 million for the Q1, above the $40 million net loss in the year-ago period. Due primarily to the non-recurring acquisition rebate expenses, higher intangible amortization, and higher interest expense. Adjusted EBITDA for the quarter was $183 million, an increase of 87% year-over-year from continuing operations. Q1 FY24 adjusted EBITDA included a one-month impact from MRSAT of approximately $72 million. We estimate that the combined buy MSAT and MRSAT adjusted EBITDA for the full quarter, including the pre-acquisition period, would have been approximately $331 million, an increase of about 9% year-over-year. So a little more color on Emersat. For the June quarter, we estimate revenues around $400 million and adjusted EBITDA about $220 million, about a third of which is included in our consolidated results for the quarter. Emersat's revenue mix for the 12 months ended March 31st was 36% from government customers 34% maritime, 22% business and commercial aviation, and 8% enterprise and other. That's a high-quality, diverse revenue base, which fits well with BISAP's business and our growth objectives in the mobility and government markets. MRSAT's contribution has and will continue to be folded into our existing segments as follows. Government results will be included in our government system segment. and will be the individual largest revenue component in that segment, led by recurring sat commons and service revenues. MRSAT 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 network segment will be focused on equipment sales as it is today, with no meaningful contribution from MRSAT. And you can find more complete review of our results in the shareholder letter we posted today. We ended the quarter with over $2.1 billion of cash in short-term investments. We expect to maintain additional liquidity for a time, given tight credit markets, our maturity schedule, the 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 Immersat transaction, approximately $1.35 billion, is currently held by the issuing bank. 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, Guru.

Great. Thanks, Sean. I will cover three key topics. One, double-click on overall operational performance. Two, talk about our new combined company and exciting possibilities it opens up for us. And three, the combined outlook. Now, as you just heard from Sean, financial results in Q1 were excellent, with healthy year-over-year growth across the businesses. Government systems had another quarter of strong demand for our information assurance products, especially including our high-speed data center version. During the quarter, we earned an additional Type 1 certification for our next-generation ground-to-space encryption product. During the quarter, we signed $187 million Australian dollars contract with Southern Positioning and Augmentation Network to support improved satellite-based positioning and accuracy. And in satellite services, U.S. 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 crew, 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 1,600 aircraft. Momentum has continued at a pace to date in Q2, including additional new airlines and additional aircraft for existing customers. Inmarsat achieved 11% growth year-on-year growth in fleet express vessels. We are excited about having greater diversity in scaled market outlets in global mobile broadband. In this quarter, we announced Fleet Reach Coastal LTE service, which is designed to augment uninterrupted high-speed broadband to merchant, offshore, energy, and fishing customers when sailing near the coast or docked in port. Commercial IMC 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 FY24 and FY25 outlooks. 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 so excited about the possibilities open to us 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. This strategy is focused on the best and fastest growing markets, including aviation, government mobility services, maritime, land mobile, and enterprise. Second, Inmarsat brings global KA and LBAN 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 directed device opportunities. Third, Inmarsat's well-established business greatly enhances our global distribution. The combined company has a large install base of existing customers across a broader portfolio of markets and products that will provide greater overall resilience to our financial performance. This is also a compelling financial combination. We both have strong businesses today, but together we're enhancing our future free cash flow that's supported by an estimated $1.5 billion in synergies on a post-tax NPV basis. Now 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 such as government, aviation, and maritime. In terms of cost efficiencies, we are focused on achieving and accelerating our targeted cost synergies. In FY25, we expect to achieve about half of the forecasted $80 million in annual cost synergies. CapEx synergies remain a key lever for value creation as well. We are targeting $110 million annually a few years out. Now, behind the actual numbers, we are integrating capabilities with an eye to being the best of the best from the perspectives of people, business processes, and our partner and supplier ecosystem. I should add here that culturally, we have already seen the two companies are a great fit, and that's very important. We recently formalized our Go Forward leadership team. It's focused on scale, capturing the benefits of our technology, and furthering 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. And 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 how that informs our diligent approach to integration. 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 forma view of both for FY2023. A simple view of expected FY2024 adjusted EBITDA can be approximated by adding YSAT standalone prior expectations of high single-digit to low double-digit growth for full-year FY2024 adjusted EBITDA from continuing operations to approximately 10 months of Inmarsat contributions. which we expect will grow slightly throughout the fiscal year. 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 YSAT 3F1 anomaly, especially by the fixed broadband business where growth will be delayed. That's currently about 13% of our revenue, and we anticipate growth in the 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. 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 adjust to EBITDA in FY24 and FY25 while creating a powerful global mobility and government leader.

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

Thank you, and if you would like to ask a question, please press star 1 on your telephone keypad. The first question comes from Simon Flannery, Morgan Stanley.

Great. Thank you very much, and thanks for all of the information. It sounds like you haven't yet determined 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 million? What's the hurdles you have to go through to get that? And what would your mitigation strategy be? I think you've talked before about perhaps repositioning F2. And what about ordering an F4 satellite? How much would that cost? What sort of timeframe would you put around that?

Hey, Simon, this is Shawn. I can take your first question on the insurance. I mean, clearly we're still, it's really, really early in the process. You know, we had a lot of success in the timing of our prior collections on BioSat 2, you know, but I think that, you know, it's hard to speculate when that would happen right now. But, you know, I think that we, you know, things are early in the process to make a speculation around timing.

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

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

The we don't want to put out any any. Assessments or statements of what we think the capacity will or won't be including going down to zero without having without having more facts. And I think we have. We do have plans that cover. Kind of all the things that you asked, but obviously you know what we would do As an example, what we'll do for a 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. We don't really want to speculate, but we do have... you know, 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, you know, 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, you know, forks in the road, we're not going to go through a fork in the road without having the data that supports it.

Understood. And you've already called out the impact on the consumer broadband business. What happens to the IFC business? Sounds like that's still growing rapidly. Are you going to have to, you know, work with the airlines to mitigate some of the, you know, their demand if they bring the planes on? Or do you think you can handle the backlog as it comes on without the new satellite?

So we can handle the backlog, you know, at least for some period of time. But we can handle all the backlog that we have. Not all of it depends on this particular satellite. But 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 forth. And we also mentioned we have a lot more additional maneuvering routes. Using some of the MR sites, 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. And that will be completely fine for our mobility businesses, actually for an indefinite period. But certainly for the period of time it will take us to figure that out.

Great. Thanks, Dr. Mark. Thanks, Friday.

Next up, we'll hear from Mike Crawford, B. Reilly Security.

Thank you.

If the Biosat-3 America's 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?

Okay, yes.

Yes, that is a possibility. I think that, you know, from our perspective, we will move satellites in a way that gives us the best shot at serving, you know, 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. What we are trying to do is we're trying to work through the financial scenarios that 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.

Just maybe one more on that front, if you don't mind. So the APAC satellites configure differently with the different antennas. So pretty much that one, I would imagine, is going up over APAC regardless. And then you've also been developing your Viasat 4 payload. So wouldn't it make sense to maybe take some of those features to have like a Viasat 3.1 come up over Americas eventually after...

these Flight 2 and Flight 3 satellites?

Yes. Okay. So just to be clear, any of the satellites can operate effectively in any of the orbital locations. So that does give us more flexibility. There is additional operational flexibility that's built into the Flight 3 satellite. 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 we make the decisions. On the VISAG-4, there are some significant improvements there that we could use as the foundation for a replacement satellite, but again, what we do there will depend a lot 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, and it'll be a lot more clear. And I know everybody wants to know quickly, but knowing that there's no consequences to us taking another couple, three months to get good measurements and then making those decisions.

Okay, thank you. That makes sense. And then just a completely unrelated quick question. With that $4.8 billion of unawarded IDIQ that's not in your government system's backlog, I know where in the past you've had a single award contract, you've been able to realize most of that, but can you break down How much of that might be single award versus multi-award where you're competing against others?

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 split there. But you're right about that, is that some of those IDIQ contracts, a fair number of them are for, you know, they're a broad range of services, but they're pretty well contemplated services. or products that are unique to us. Others are more like for the broad agency announcements. There are multiple bidders, and the allocation of the awards are less certain. But I don't think we can give you a good breakdown of that right now on this call.

Okay. Well, thank you, Mark. Thanks, Mike.

The next question is from Chris Quilty, Quilty Space.

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

Oh, boy. It's hard to tie some of these macro trends. We will know more. There's generally a lot of activity right around the end of the government fiscal year, so that'll give us more insight. But some of the things that we're doing are For instance, one of the growth areas that we highlighted this quarter, and it came up better than we expected, was for high-speed data center 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 had occurs in classified levels, of course, that's going to drive the demand for the types of products that we provide. And so some of those things, besides just the way the budget is determined, our customers decide to use their budget. And in things like these information assurance appliances, we have a lot more maneuvering room, right? 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, with a lot more of our government revenues and recurring services revenue. And those are much more predictable than 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. Does that get to what you're asking about?

Yeah, 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 bias at.

We're yeah, 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 across there, but we're getting. Yeah, 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 or Technology equipment across those customer bases. Those are the things we're looking at I don't think we have we and we have identified You know what these revenue synergy opportunities in the government area as well as in the aviation industry area and starting to the maritime area. But we're not going to give any specifics yet. I think we'll be able to comment more on specific values in the next couple quarters or so.

Gotcha. 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.

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 in, we show them, here's the service level agreement that we can deliver, and here's why, how we know we can deliver that. And so, we're going through the, you know, 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 3 scenario. And they're, you know, they, yes, their, you know, their initial question is, okay, can you still serve The planes that we have in the routes that we have going forward and and so far you know that's gone. I'd say quite well because we do have the resources to deal with the customers that we have. 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. Those were 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, you know, for going into the second quarter, a large amount of which is since we did disclose the anomaly on Viasat, on flight one, our order flow has still been really good. 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 the two different businesses, the Biosat's business. The legacy Biasat portion was heavily North American-oriented, and we have plenty of resources to serve that. We've been able to demonstrate that to customers, whether they're new line-fit aircraft or retrofits. And then the Inmarsat order book tended to be more international, but none of their service level agreements depended on Biasat 3. And so both of those are still proceeding.

So 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 Biosat 3 launch or I think it's the GX7, the next Inmarsat. But short of that, I mean, it's best-case scenario a year or depending on the strategy, three 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, you know, at a year to two years out, it's just not worth trying to scale in that business?

No. The short answer to that is no. The things that we've been emphasizing, I think our airline customers do understand more than, you know, 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 that's what we're doing, is we're able, we are, you know, we have the route maps. Of course, you know, we take into account that the routes aren't 100% deterministic. They take different routes depending on whether they schedule issues at times. So when we build a demand map, from that, and then we work on supply. And for supply, one of the good things, if you think of it as this way, is that if the real problem is reinforcing the areas with the highest demand, then 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 additional schedule delays, is we do have agreements with partner operators to reinforce both North America, you know, in some of the ocean crossing routes and in the other high-demand areas. So we already had some of those agreements. We'll probably, you know, execute those. And then we have our other tools. And I wouldn't... The one thing I wouldn't say is what we're talking about financially, what's our outlook without flight one? It's not the same as saying we won't have flight one. 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 the capacity will be until we get more hard data. We'll be able to do that in November.

Gotcha. On that note, I guess maybe I 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.

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

The next question comes from Rick Prentice, Raymond James.

Yeah, good afternoon, everybody. Obviously, it's been a busy earnings day, earnings season. It seems like we've heard them here this last week. A couple questions, if I could. Obviously, I'll echo Chris's comments, but maybe not use some four-letter words, but just say clearly disappointing the anomaly and 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 timeframes? We assume we want to make sure everything's good, but when should we expect flight two would be going up?

Yeah, 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, the spacecraft manufacturers participating. So we are still collecting and analyzing data get to the root cause we think we will have more insight into the corrective actions based on our root cause analysis probably by next quarter those corrective actions will that that's what will determine help help us determine when the launch date is for the next satellite and it's a 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, and there's no basis to choose any one time frame or another without the data from the root cause analysis, which is underway. next quarter. It was pretty close to being able to launch when we had this antenna anomaly. So probably the corrective actions for the antenna will be the main factor in determining when the new launch date is.

Okay. And I remember, or maybe remind us previously, the path to positive free cash flow was going to be certain, was it six months after flight two was up or what was kind of the previous thought of when pre-capsule positive was going to be?

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

Right. Okay. And excuse me, if you've already provided, but did you provide some CapEx guidance? I know you, You had VIA as that was separate, you had MRSAT, you had to bring them all together, you had to figure out what the arrangements were going to be. But how should we think about CapEx over the next, this fiscal year, next fiscal year at least?

So on the CapEx side, I think, you know, first, yeah, we have only one month this quarter. So you need to think about, you know, having a full set of three months for MRSAT for the, you know, 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, you know, $1.3, $1.4 billion to kind of close out for both companies for the next kind of nine months. And then if you think about next year, I would say you could see that, you know, coming down a bit, you know, year over year relative to this year.

Okay. EchoStar, a 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 5G networks. So if you could maybe expound on that.

I'm going to pass on the first question about acquiring them. I tried. Yeah. So on the directed device part, we have talked about that. We are optimistic about that. We are working it from a number of different perspectives, including how we evolve the business from using LVAN 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. We think that 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 smartwatches the types of devices that people are putting in that directed 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, I could, You look at a normal sat phone, that's not a big device, but the antenna, the satellite antenna on that device can be as much as five to ten times better than a conventional cell phone. So that creates opportunities. And what we're looking to do as this directed device business matures, we want to be able to still use the space system assets we have and all the capital we really familiar with. So, yeah, the short answer is we think it's a really big opportunity. I think, you know, when you get into the details, and 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 both the assets, resources, and technology we have will help us be successful there. And I also don't think, you know, 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, you know, that I think operators that can work within those standards, deliver space systems that work well with them, ground technology that uses them. I think all that stuff will play into, you know, It being a big sector, not just one individual operator.

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

Thank you, Rick.

You too.

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

Thanks. I wanted to ask about the core maritime business in Marsat, and obviously that's been a long-time legacy strength of theirs. and ask about the competitive environment, if that's changing at all. It seems to me there's lower barriers to entry from the LEOs and Starlink, and 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.

Yes. So I think, yeah, the maritime space is changing. I think a lot of that is because the entry barriers are low. But the thing, you know, this is actually a big part of what we're doing across the mobility businesses as part of what we think makes the mobility businesses 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. 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. The big problem is not connecting an individual plane in flight. It's providing a predictable level of service in the places where the airlines congregate, which is especially hubs. 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 systems, especially early on. And now a lot of that are things like leisure air, leisure boats, where you're dealing with an individual where connectivity is nice to have, but it's not operationally important to the mission of those ships. So 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 the LEO systems There's a real opportunity for us to both improve our services and to make them more enduring. And that's where we're focused. It's a different segment of the maritime business. Sure, that's really helpful. Thanks, Mark. Meanwhile, Inmarsat has maritime customers across multiple segments. I think that's the one where we have the best opportunity to show what we can do. Got it. Thank you. Thanks, Brian.

Our last question today comes from Louie DePalma, William Blair.

Mark, Guru, Sean, and Peter, good afternoon.

Hey, Louie. Hey, Louie.

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's KA band services?

I think unlike others, I don't think we're going to go into great depth about what we're doing in specific defense communications. 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. 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.

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?

Okay, so Inmarsat, each has had – had relationship with Legato for quite a while, but in different domains. The InmarkSats relationship was really around the 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. Not on their own, but we're in discussions with Legato about how best to proceed on both of those fronts. Some of that depends on decisions that Legato makes as well as choices that we make. So it's a little early to tell. You know, they've expressed, I think one of the things that Legato has expressed is interest in the long-term satellite business, you know, more than they have in the past. And so that's a basis for further discussions. But it's just too early for us to comment on what the outcome of those discussions will be.

One piece, Mark, to add. This is Guru, I would say. we have excluded Legato from our financial models. So any payments or return spectrum would be an upside. So we've not included that in our models. Yeah, thanks.

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

Great. And one final one for 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?

Okay.

So it's a little bit of a nuanced problem. So think of it as one of the ways to start with, and we can build on this, is that both fleet and 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... Yeah, it's a little bit of a nuance for part of our fleet, but basically that we can make... And you've seen this, for instance, within Marsat, where Marsat has used third-party satellites We've used third-party satellites, and what that speaks to is just the ability to adapt the networks to other satellites. 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 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, they're not, you know, other than one special case, they're not really onboard process satellites. Satellites are just repeaters. So there is, from a basic interoperability perspective, we can run, you know, our network and MNARSAT can run their network over third-party satellites, including last piece is to be able to use both of them at exactly the same place at exactly the same time. While we can do that in some cases, not all. That's the last piece. Does that get to what you're asking about? Does that cover the question you're asking?

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 ISAT-3. And I was wondering if the Inmarsat capacity over North America can be one of those sources of capacity and For the aircraft that are being line fit now, have you already done the work to make the antenna interoperable with both networks?

Yes. So there are a couple of nuances that apply to specific airplanes, depending on the age of those airplanes. Not so much the airplane as 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 Inmarsat's deploying. 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. Think of it as going back to the answer that I gave before to Chris Quilby. When we want to add airplanes to our service or our customers want to improve the service level agreement to our service, it doesn't mean that we need bandwidth everywhere. We need it in the places where we can forecast what the demand will be. And so we can draw on the InMarsat fleet to solve a lot of that problem for us.

Excellent. Yes, that's exactly what I was looking for. Thanks, Mark, and Guru, Sean, and Peter.

Take care.

And good luck with the Viasat 3 investigation.

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

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

Okay, good. Thanks. So thanks again for joining us this afternoon. I would like to leave you with three important takeaways. So one, we had a really good first quarter, strong financial performance. A lot of that 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 BISAT 1. That's not the same. Just to be clear, that's not the same as a prediction about BISAT 3, BISAT 1. That's not the same as a prediction of what the BISAT 3, BISAT 1 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 synergy opportunities that we're executing on, and we like building a diverse and resilient financial profile. And it does bring strong cash flow potential with it. So with that, I look forward to updating you on our progress next quarter. And I'll hand it back to the operator. Thanks.

Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect. Music Music Thank you. Thank you for watching. Thank you. Welcome to Biasat's FY24 First Quarter Earnings Conference Call. Your host for today's call is Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.

Good, thanks. Good afternoon, everybody, and thanks for joining our call today. With me, the Black Guru, Gaurabin, 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.

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

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

So the first quarter results were very good.

The Inmarsat acquisition closed in May and contributed one month to our first quarter results. Year-over-year consolidated continuing revenue grew 36% to $780 million, and adjusted EBITDA grew 87% to $183 million, with good performance across the FISAT standalone revenues grew 12% and adjusted EBITDA grew 13% year-over-year. New awards and backlog are good, and momentum has continued into the second quarter, especially in in-flight connectivity. 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 tail end sale back in January. And we're making good progress on the integration and are on track to achieve our overall synergy goals and aiming to improve on those. Also, I'd like to mention that Andy Sukhavati, who's a formerly Inmarsat's chairman, and Rajiv Suri, who is their Inmarsat's CDO, joined the Inmarsat Board of Directors and we're looking forward to their contributions. So I'll start with a little more color on the Biosat-3 America situation and our response. 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 Biosat-3 Flight 1. Since then, we've been working with the antenna supplier and the satellite manufacturer to more fully assess the situation for the first flight and the implications for flight two. 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 flight one performance. FY 2025 will be affected by the performance of flight one and the timing of the corrective actions on flight two But given current information, we believe we will continue to grow in fiscal year 25 as well, but not to the same extent we would have without the anomaly. While we're making steady progress, we expect that analyses that are underway to provide more definitive insight and will provide updates when we have more information, which we currently estimate will be when we report earnings next quarter. I'll give some additional color on the background of the antenna. that a manufacturer is a major aerospace supplier with a decades-long history of successful space deployments. The antenna is from a product line with a history of 100% successful deployments on a number of missions, including five on Inmarsat satellites. The Flight 1 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, and that satellite is unaffected by the Flight 1 anomaly. Flight 1 satellite is insured, and insurance is already placed on Flight 2. In Marsat's prior standalone outlook had no dependence on PISAT 3, of course, and we still do expect to capture revenue We've got four main work streams underway. One 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 two. We have a plan to collect additional data and incorporate that into the deployment fault analysis. We also expect to have more information to report regarding corrective actions for flight two and an update to the launch schedule next quarter. as it is. Initial end-to-end measurements with the effective antenna indicate the rest of the satellite, including the innovative payload and ground infrastructure built by BIOSAT, are operating as expected or better. We have a plan for additional measurements that we expect 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 provide an update on that Next quarter also. Third is to assess the potential of improving the antenna deployment on Flight 1. 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 fourth is to mitigate the effects of the Flight 1 anomaly on our global mobility business, especially via optimizations of our existing fleet. optionality in the near and longer-term orbital locations of each of the VICEF-3 satellites, and additional third-party capacity as required. These plans are already well underway, and we're confident we can continue to support our global mobility customers as we do today and going forward. U.S. fixed broadband today represents about 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. Importantly, for BISAT-3 Flight 2 and Flight 3, our tests and measurements to date lend increased confidence to those parts of the BISAT-3 system that are where the new innovations are. The launch schedule of Flight 3 is unaffected, and we'll provide an update on Flight 2, inclusive of corrective actions, as I mentioned, next quarter. The InMarsat acquisition expands our in-orbit KA-band fleet to a total of 13 KA-band satellites, including Flight 1 and an I-6 Flight 2 satellite, which was launched earlier this year and is undergoing orbit raising. We have eight more KA-band satellites under construction, with five of those planned for launch before the end of calendar year 25. 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. 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.

Thanks, Mark.

Some brief color on the financials. Q1 revenue was $780 million. This was up 36% compared to the revenue from continuing operations of $575 million in Q1 of FY23. The results include MRSAP's one-month revenue contribution from the acquisition date of approximately $134 million. We estimate that the combined Biosat and Amersat revenue for the quarter, including the pre-acquisition period, would have been about $1 billion and $46 million, an increase of about 11% year-over-year as both companies achieved double-digit revenue growth. Net loss totaled $77 million for the Q1, above the $40 million net loss in the year-ago period. Due primarily to the non-recurring acquisition-related expenses, higher intangible amortization, and higher interest expense. Adjusted EBITDA for the quarter was 183 million, an increase of 87% year-over-year from continuing operations. Q1 FY24 adjusted EBITDA included a one-month impact from MRSAT of approximately 72 million. We estimate that the combined buy MSAT and MRSAT adjusted EBITDA for the full quarter, including the pre-acquisition period, would have been approximately $331 million, an increase of about 9% year-over-year. So a little more color on Emersat. For the June quarter, we estimate revenues around $400 million and adjusted EBITDA about $220 million, about a third of which is included in our consolidated results for the quarter. Emersat's revenue mix for the 12 months ended March 31st was 36% from government customers 34% maritime, 22% business and commercial aviation, and 8% enterprise and other. That's a high-quality diverse revenue base, which fits well with BISAP's business and our growth objectives in the mobility and government markets. MRSAT's contribution has and will continue to be folded into our existing segments as follows. Government results will be included in our government system segments. and will be the individual largest revenue component in that segment, led by recurring SAT comments and service revenues. MRSAT 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 network segment will be focused on equipment sales as it is today, with no meaningful contribution from MRSAT. And you can find more complete review of our results in the shareholder letter we posted today. We ended the quarter with over $2.1 billion of cash in short-term investments. We expect to maintain additional liquidity for a time, given tight credit markets, our maturity schedule, the 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 Immersat transaction, approximately $1.35 billion, is currently held by the issuing bank. 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, Guru.

Great. Thanks, Sean. I will cover three key topics. One, double-click on overall operational performance. Two, talk about our new combined company and exciting possibilities it opens up for us. And three, the combined outlook. Now, as you just heard from Sean, financial results in Q1 were excellent, with healthy year-over-year growth across the businesses. Government systems had another quarter of strong demand for our information assurance products, especially including our high-speed data center version. During the quarter, we earned an additional Type 1 certification for our next-generation ground-to-space encryption product. During the product quarter, we signed $187 million Australian dollars contract with Southern Positioning and Augmentation Network to support improved satellite-based positioning and accuracy. And in satellite services, U.S. 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 crew, 18% year-on-year. on a combined basis to 3,230 aircraft. Passenger usage also increased driving up revenue for aircraft. And our quarter end contracted backlog in commercial IFC stands at approximately 1,600 aircraft. Momentum has continued at a pace to date in Q2, including additional new airlines and additional aircraft for existing customers. Inmarsat achieved 11 percent growth year-on-year growth in fleet express vessels. We're excited about having greater diversity in scaled market outlets in global mobile broadband. In this quarter, we announced fleet reach coastal LTE service, which is designed to augment uninterrupted high-speed broadband to merchant, offshore, energy, and fishing customers when sailing near the coast or docked in port. Covershell 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 FY24 and FY25 outlooks. 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 so 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. This strategy is focused on the best and fastest growing markets, including aviation, government mobility services, maritime, land mobile, and enterprise. Inmarsat brings global KA and LBAN coverage with a robust satellite launch roadmap that both augments coverage and adds resilience and redundancy. We are excited by future upside from valuable LBAN spectrum assets, including the IoT and directed device opportunities. Third, Inmarsat's well-established business greatly enhances our global distributions. The combined company has a large install base of existing customers across a broader portfolio of markets and products that will provide greater overall resilience to our financial performance. This is also a compelling financial combination. We both have strong businesses today, but together we're enhancing our future free cash flow that's supported by an estimated $1.5 billion in synergies on a post-tax NPV basis. Now, 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 scale cost effectively. In terms of revenue, we're already seeing revenue synergies take form across key business units such as government, aviation, and maritime. In terms of cost efficiencies, we are focused on achieving and accelerating our targeted cost synergies. In FY25, we expect to achieve about half of the forecasted $80 million in annual cost synergies. CapEx synergies remain a key lever for value creation as well. We are targeting $110 million 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 the perspectives of people, business processes, and our partner and supplier ecosystem. I should add here that culturally, We've already seen the two companies are a great fit, and that's very important. We recently formalized our go-forward leadership team. It's focused on scale, capturing the benefits of our technology, and furthering, 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, and 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 how that informs our diligent approach to integration. 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 forma view of both for FY2023. A simple view of expected FY2024 adjusted EBITDA can be approximated by adding YSAT standalone prior expectations of high single-digit to low double-digit growth for full-year FY2024 adjusted EBITDA from continuing operations to approximately 10 months of Inmarsat contributions. which we expect will grow slightly throughout the fiscal year. 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 YSAT 3 F1 anomaly, especially by the fixed broadband business where growth will be delayed. That's currently about 13% of our revenue, and we anticipate growth in the 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. 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 are just ready to die in FY24 and FY25 while creating a powerful global mobility and government leader.

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

Thank you, and if you would like to ask a question, please press star 1 on your telephone keypad. The first question comes from Simon Flannery, Morgan Stanley.

Great. Thank you very much, and thanks for all of the information. It sounds like you haven't yet determined 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 million? What's the hurdles you have to go through to get that? And what would your mitigation strategy be? I think you've talked before about perhaps repositioning F2. And what about ordering an F4 satellite? How much would that cost? What sort of timeframe would you put around that?

Hey, Simon, this is Shawn. I can take your first question on the insurance. I mean, clearly we're still, it's really, really early in the process. You know, we had a lot of success in the timing of our prior collections on BioSat 2, you know, but I think that, you know, it's hard to speculate when that would happen right now. But, you know, I think that we, you know, things are early in the process to make a speculation around timing.

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

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

The we don't want to put out any any. Assessments or statements of what we think the capacity will or won't be, including going down to zero without having without having more facts. And I think we have. We do have plans that cover. Kind of all the things that you asked, but obviously you know what we would do As an example, what we'll do for a 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. I don't really want to speculate, but we do have... you know, 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, you know, 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, you know, forks in the road, we're not going to go through a fork in the road without having the data that supports it.

Understood. And you've already called out the impact on the consumer broadband business. What happens to the IFC business? Sounds like that's still growing rapidly. Are you going to have to work with the airlines to mitigate some of the, you know, their demand as they bring the planes on? Or do you think you can handle the backlog as it comes on without the new satellite?

So we can handle the backlog, you know, at least for some period of time. But we can handle all the backlog that we have. Not all of it depends on this particular satellite. But 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 forth. And we also mentioned we have a lot more additional maneuvering routes. using some of the MRSAT, 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. And that will be completely fine for our mobility businesses, actually for an indefinite period, but certainly for the period of time it will take us to figure that out.

Great. Thanks, Dr. Mark.

Next up, we'll hear from Mike Crawford, B. Reilly Security.

Thank you.

If the Biosat-3 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?

Okay, yes. Yes, that is a possibility.

I think that, you know, from our perspective, we will move satellites in a way that gives us the best shot at serving, you know, 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. What we are trying to do is we're trying to work through the financial scenarios that 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.

Oh, just maybe one more on that front, if you don't mind. So the APAC satellites configure differently with the different antennas. So pretty much that one, I would imagine, is going up over APAC regardless. And then you've also been developing your Viasat 4 payload. So wouldn't it make sense to maybe take some of those features to have like a Viasat 3.1 come up over America's eventually after

these Flight 2 and Flight 3 satellites?

Yes. Okay. So just to be clear, any of the satellites can operate effectively in any of the orbital locations. So that does give us more flexibility. There is additional operational flexibility that's built into the Flight 3 satellite. 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 we make the decisions. On the Biosat 4, there are some significant improvements there that we could use as the foundation for a replacement satellite. But again, what we do there will depend a lot 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. And it'll be a lot more clear. And I know everybody wants to know quickly, but knowing that there's no consequences to us taking another couple, three months to get good measurements and then making those decisions.

Okay, thank you. That makes sense. And then just a completely unrelated quick question. With that $4.8 billion of unawarded IDIQ that's not in your government system's backlog, I know where in the past you've had a single award contract, you've been able to realize most of that, but can you break down How much of that might be single award versus multi-award where you're competing against others?

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 split there, but you're right about that, is that some of those IDIQ contracts, a fair number of them are for, you know, they're a broad range of services, but they're pretty well contemplated services. for products that are unique to us. Others are more like for the broad agency announcements. There are multiple bidders, and the allocation of the awards are less certain. But I don't think we can give you a good breakdown of that right now on this call.

Okay. Well, thank you, Mark. Thanks, Mike.

The next question is from Chris Quilty, Quilty Space.

Great. So the guy from Quopi 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 flow. You know, just at the high level, as you look out over the next 12 months in that business line, you know, what are the things that you think of as the, you know, the worry case of continuing resolution to, you know, Upside scenarios that overall when we think about the outlook there.

Boy, it's hard to tie some of these macro trends. We will know more, you know, but there's generally a lot of activity, you know, right around the end of the government fiscal year. So that'll give us more insight. But some of the things that we're doing are. For instance, one of the growth areas that we highlighted this quarter, and it came up better than we expected, was for high-speed data center 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 is occurs in classified levels, of course, that's going to drive the demand for the types of products that we provide. And so some of those things, besides just the way the budget is determined, one of the factors will be how our customers decide to use their budget. And in things like these information assurance appliances, we have a lot more maneuvering, right? 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, is a lot more of our government revenues and recurring services revenue. And those are much more predictable than, 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. Does that get to what you're asking about?

Yeah, 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 bias at?

We're yeah, 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 across there, but we're getting yeah, 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 or 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 industry. area and starting to the maritime area. But we're not going to give any specifics yet. I think we'll be able to comment more on specific values in the next couple quarters or so.

Gotcha. 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.

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 in, we show them, here's the service level agreement that we can deliver, and here's why, how we know we can deliver that. And so we're going through the, you know, 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 3 scenario. And they're, you know, they, yes, their, you know, 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, you know, that's gone, I'd say, quite well because we do have the resources to deal with the customers that we have. 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... Those were 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, you know, going into the second quarter, a large amount of which is since we did disclose the anomaly on Biosat on Flight 1 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 the two different businesses, the Viasat business, the legacy Viasat portion, was heavily North American-oriented, and we have plenty of resources to serve that. We've been able to demonstrate that to customers, whether they're new line-fit aircraft or retrofits. And then the NMARSAT order book tended to be more international, but none of their service level agreements depended on BIAS Act III. And so both of those are still proceeding.

So 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 Biosat 3 launch or I think it's the GX7, the next Inmarsat. But short of that, I mean, it's best case scenario a year or depending on the strategy, three 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, you know, at a year to two years out, it's just not worth trying to scale in that business?

No. The short answer to that is no. The things that we've been emphasizing, I think our airline customers do understand more than, you know, 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 that's what we're doing, is we're able, we are, you know, we have the route maps. Of course, you know, we take into account that the routes aren't 100% deterministic. They take different routes depending on whether the schedule issues at times. So when we build a demand map, from that, and then we work on supply. And for supply, one of the good things, if you think of it as this way, is that if the real problem is reinforcing the areas with the highest demand, then 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 additional schedule delays, is we do have agreements with partner operators to reinforce both North America, you know, in some of the ocean crossing routes and in the other high-demand areas. So we already had some of those agreements. We'll probably, you know, execute those. And then we have our other tools. And I wouldn't... The one thing I wouldn't say is what we're talking about financially, what's our outlook without flight one? It's not the same as saying we won't have flight one. 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 the capacity will be until we get more hard data. We'll be able to do that in November.

Gotcha. On that note, I guess maybe I 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.

Thanks. I appreciate that. But we're working through it.

The next question comes from Rick Prentice, Raymond James.

Yeah, good afternoon, everybody. Obviously, it's been a busy earnings day, earnings season. It seems like we've lived a year of this last week. A couple questions, if I could. Obviously, I'll echo Chris's comments, but maybe not use some four-letter words, but just say clearly disappointing the anomaly and 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 timeframes? We assume we want to make sure everything's good, but when should we expect flight two would be going up?

Yeah, 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, the spacecraft manufacturers participating. So we are still collecting and analyzing data get to the root cause, we think we will have more insight into the corrective actions based on our root cause analysis probably by next quarter. Those corrective actions, that's what will help us determine when the launch date is for the next satellite. 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, and there's no basis to choose any one time frame or another without the data from the root cause analysis, which is underway. next quarter. It was, you know, it was pretty close to being able to launch when we had this antenna anomaly. So probably the corrective actions for the antenna will be the main factor in determining when the new launch date is.

Okay. And I remember, or maybe remind us previously, the path to positive free cash flow was going to be certain, was it six months after flight two was up or what was kind of the previous thought of when pre-capsule positive was going to be?

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

Right. Okay. And excuse me if you've already provided, but did you provide some CapEx guidance? I know You had VIA as that was separate. You had MRSAT. You had to bring them all together. You had to figure out what the arrangements were going to be. But how should we think about CapEx over this fiscal year and next fiscal year at least?

So on the CapEx side, I think first, yeah, we have only one month this quarter. So you need to think about having a full set of three months for MRSAT 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, you know, $1.3, $1.4 billion to kind of close out for both companies for the next kind of nine months. And then if you think about next year, I would say you could see that, you know, coming down a bit, you know, year over year relative to this year.

Okay. EchoStar, a 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 5G networks. So if you could maybe expound on that.

I'm going to pass on the first question about acquiring them. I tried. Yeah. So on the directed device part, we have talked about that. We are optimistic about that. We're working it from a number of different perspectives, including how we evolve the business from using LVAN 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. We think that 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 smartwatches the types of devices that people are putting in that directed 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, you know, still, I mean, I could, You look at a normal sat phone, that's not a big device, but the antenna, the satellite antenna on that device can be as much as five to ten times better than a conventional cell phone. So that creates opportunities. And what we're looking to do as this directed device business matures, we want to be able to still use the space system assets we have and all the capital we you get into the details, and we do think it's going to play out over several years, but we think the end state is really, really attractive, and we think that both the assets, resources, and 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, you know, that I think operators that can work within those standards deliver space systems that work well with them, ground technology that uses them. I think all that stuff will play into, you know, it being a big sector, not just a win for one individual operator.

Okay. Makes sense. Well, stay tuned. Everyone stay well.

Thank you, Rick.

You too.

We'll go to Ryan Koontz, Needham & Company.

Thanks. I wanted to ask about the core maritime business in Marsat, and obviously that's been a long-time legacy strength of theirs, and ask about the competitive environment, if that's changing at all. It 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.

Yes. So I think, yeah, the maritime space is changing. I think a lot of that is because the entry barriers are low. But the thing, you know, this is actually a big part of what we're doing across the mobility businesses as part of what we've is if you look at it from the perspective of where geographically where is the demand and then what type of what type of service are different segments of the maritime market looking for that that's where the opportunity is by because the big issue is you know we we have spoken over and over on the in-flight space that the real problem The real problem for airlines especially, these are enterprise users who need to provide a predictable level of service. The big problem is not connecting an individual plane in flight. It's providing a predictable level of service in 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 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 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 the LEO systems. There's a real opportunity for us to both improve our services and to make them more enduring. And that's where we're focused. So it's a different segment of the maritime business. Sure, that's really helpful. Thanks, Mark. I mean, while MRSAT 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. Got it. Thank you. Thanks, Ryan.

Our last question today comes from Louis de Palma, William Blair.

Mark, Guru, 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 Ukraine 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?

I think unlike I don't think we're going to go into great depth about what we're doing in specific defense communications. 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. 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.

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?

Okay, so Biosat and Inmarsat, each has had a relationship with Legato for quite a while, but in different domains. The InmarkSat's relationship was really around the 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 with it. not on their own, but we're discussing, we're in discussions with Legato about how best to proceed on both of those fronts. And some of that depends on decisions that Legato makes as well as choices that we make. So it's a little early to tell. They've expressed, I think one of the things that Legato has expressed is interest in the long-term satellite business, you know, more than they had in the past. And so that's a basis for further discussions. But it's just too early for us to comment on what the outcome of those discussions will be.

The one piece, Mark, to add, Louis, this is Guru. I would say we have excluded Lagarde

acquisition. Thanks.

Great. And one final one for 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?

Okay, so it's a little bit of a nuanced problem. So think of it as one of the ways to start with, and we can build on this, is that both fleets 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 news for part of our fleet but basically that uh we can make and you can and you've seen this for instance within marsat where marsat has used third-party satellites we've used third-party satellites and what that speaks to is just the ability to adapt the networks to other satellites 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 This because they're not on they're not you know other than one One special case they're not really on board process satellites satellites are just repeaters. So I there is, from a basic interoperability perspective, we can run, you know, our network and MNARSAT can run their network over third-party satellites, including each other's, or including different parts of each other's as we need to. The last piece is to be able to do pretty much exact, you know, use both of them at exactly the same place at exactly the same time. And while we can do that, some cases, not all. That's the last piece. Does that get to what you're asking about? Does that cover what you're asking?

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 ISAT-3. And I was wondering if the Inmarsat capacity over North America can be one of those sources of capacity. And for the aircraft that are being line fit now, have you already done the work to make the antenna interoperable with both networks?

Yeah, so there are a couple of nuances that apply to specific airplanes, you know, depending on the age of those airplanes. Not so much the airplane as 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 we're deploying. 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 before to Chris Quigley, you know, when we want to add airplanes to our service or our customers want to improve the service level agreement to our service, It doesn't mean that we need bandwidth everywhere. We need it in the places where we can forecast what the demand will be. And so we can draw on the InMarsat fleet to solve a lot of that problem for us.

Excellent. Yes, that's exactly what I was looking for. Thanks, Mark and Guru, Sean, and Peter. Take care. And good luck with the Viasat 3 investigation.

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

Thanks, 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.

OK, good. Thanks. So thanks again for joining us this afternoon. I would like to leave you with three important takeaways. So one, we had a really good first quarter, strong financial performance. A lot of that 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 buyout one. That's not the same. Just to be clear, that's not the same as a prediction about what I mean, 5SAT-3, 5.1. That's not the same as a prediction of what the 5SAT-3, 5.1 satellite will do. And then, you know, 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 materials synergy opportunities that we're executing on, and we like building a diverse and resilient financial profile. And it does bring strong cash flow potential with it. So with that, I look forward to updating you on our progress next quarter. And I'll hand it back to the operator. Thanks.

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