ViaSat, Inc.

Hello, and welcome to the Viasat Fiscal Year 24 Third Quarter Earnings Conference Call. Your host for today's call is Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.

Thanks. Good afternoon, everybody, and thanks for joining us today. So with me, I've got Guru Gaurapan, our President, Sean Duffy, our Chief Financial Officer, and Robert Blair, our General Counsel. First, we'll have Robert provide our 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. Thanks.

Okay. So, we encourage reading the shareholder better that we posted on our website earlier this afternoon for more details. And we'll give an overview of the main points, and then we'll allow plenty of time for questions. I'll start with a quick overview of our results and status on our satellite fleet. And then Guru will go into more depth on the quarter, our three main priorities as described in that letter, including the Inmarsat integration, and update our outlook. Our financial results for the third quarter were good. Revenue of $1.1 billion was up 73% year-over-year compared to revenue from VISA continuing operations last year. Inmarsat's contribution was about $443 million, up 12% year-over-year on a standalone basis. Combined growth was 8% year-over-year. Adjusted EBITDA for the third quarter was $383 million, up 214% relative to adjusted EBITDA from continuing operations last year.

Inmarsat's contribution was $260 million up about 17% last year. Combined adjusted EBITDA grew about 11% year-over-year.

Awards were also very good at $1.2 billion for the third quarter resulting in $3.7 billion in backlog And government systems also has about $6.4 billion of unawarded indefinite delivery, indefinite quantity, or IDIQ, potential contract value. You can tell from our results we're continuing to grow and win business in our core target market segments, including selected enterprise and government mobility services. We continue to compete well with customers that value four main attributes. An expansive view of connectivity that integrates not just reliable, measurable, and affordable speed and bandwidth, but also includes hardware, software, and service products that are tailored to optimize those customers' unique requirements. And also where we bring scale, not only in bandwidth and coverage, but also in operational support and or partnerships that add value in key verticals and in important geographic regions. Three is where we've earned trust of similar customers and partners through years and decades of performance and technology innovation. And finally, those customers recognize our history of identifying, applying, and evolving both the right business models and technology for our target markets. I'll cover a few business highlights, including applying our existing infrastructure to new seamless non-terrestrial network. industry standard services through partnerships with Skylo and Legato, expanding our hybrid in-flight connectivity network agreement in Europe with Deutsche Telekom, scaled up government cybersecurity production, and winning and expanding some key government satellite services and new technology programs. We continue to deliver leading in-flight connectivity service quality metrics supporting our airline customers' initiatives to increase passenger engagement, and offering scalable free Wi-Fi with high-quality performance metrics, even at the busiest airports, and now preparing for increased geographic coverage on important routes, such as from the continental U.S. to Hawaii. And next, I'll give a quick update on our satellite network, starting with progress on VICEAT-3 Flight 1. We've completed in-orbit testing and taken over operation. Flight 1 performance, other than the effect of the antenna, is nominal or better. We're configuring now for operational service and integrating, analyzing, and measuring performance. Based on results to date, we're targeting commercial in-flight connectivity service in the first quarter of fiscal 25. We've already demonstrated peak downstream performance data rates into consumer terminals in the 200 to 300 megabit per second range. The bandwidth allocation features of ISAT-3, such as optimizing delivery to hotspots dynamically across the service area in real time, support our productivity initiatives. The Flight 1 antenna root cause investigation was completed in the third quarter. Based on its findings, we're implementing corrective actions on the F2. on the F-2 antenna. The F-2 satellite is otherwise complete. The antenna, with corrective actions, is expected to be completed, thoroughly tested, and delivered this calendar year, and F-2 is expected to be launched in the first half of calendar 25. The VASAT-3 F-3 satellite remains unaffected, and we expect it to launch late this calendar year. We also have GX10A and B, which are hosted payloads on polar satellites, and they completed their thermal vacuum testing and are expected to launch together mid-calendar year 2024 this year. They'll improve coverage and performance for polar government and commercial routes. By next summer of calendar 25, we expect to have those four new satellites in our constellation to scale mobility services. Additionally, the GX7, 8, and 9 satellites are being built by Airbus and are expected to be completed beginning early calendar 26 for additional geographic coverage and peak demand depth. Those highly flexible satellites will further improve our ability to optimize capacity and deliver high-quality, reliable services to our mobility customers. So with that, I'll hand it over to Guru to cover our third quarter results in more depth.

Great thanks mark i'll cover three key topics Q3 financial performance integration and transformation and an update on our combined outlook. We are executing on our strategy and delivered strong core financial and operational performance during Q3. Core revenue and adjusted EBITDA both grew year-over-year by 8% and 11%, respectively, driven by our mobility and government businesses. Some of the key highlights from the quarter include government systems had another quarter of strong demand for our information assurance, high-speed network encryption products, and tactical SATCOM products, which drove product revenue up 55% year-over-year. During the quarter, we supported the U.S. Air Force in a major exercise called Mobility Guardian 2023. WIAS had provided interoperable communications through next-generation hardware and software products and systems to ensure robust and resilient connectivity. Our government business also had a fantastic quarter of awards, which were up more than 50% sequentially. While we can see lumpiness quarter to quarter in the business, the backlog is over 3.7 billion, adding confidence to our outlook. Recent trends in satellite services continued with strong growth in commercial IFC, ending the quarter with 3,500 aircraft in service, up over 17% year over year on a combined basis with over 1,400 aircraft in backlog. U.S. fixed broadband revenue declined as fewer residential subscribers were partially offset by higher ARPU. We continue to reallocate bandwidth to support our rapid IFC growth. Subsequent to Quadrant, we expanded our relationship with Lufthansa Group, adding over 150 aircraft on our hybrid EAN network alongside their existing KA satellite fleet. It's a great example of the integrated network solutions enabled by adding Inmarsat, and the teams are working together really well. We also began launching in partnership with Skylo Technologies and Legado, the world's first global direct-to-device network-enabling mobile network operators, device makers, and chipset manufacturers to take 3GPP Release 17 compliant products to market for the first time with non-terrestrial network satellite service within our global L-band network coverage. And finally, on the list of highlights, our new business momentum is robust. We are winning in the large and growing mobility and government markets. Our government business has very unique solutions that enable critical operations for the US government and others. It is bolstered by IP that uniquely address these complex ecosystems that are evolving fast and where security and resiliency are at the forefront. Some key indicators are government product growth at 55% year-over-year, IFC installations 17% year-over-year, total awards at $1.2 billion, backlog of $3.7 billion, and unawarded IDIQ value of $6.4 billion. Now, some more color on the financials. Third quarter 2024 revenue was $1.1 billion. This was up 73% compared to revenue from continuing operations of $651 million in Q3 FY 2023. Including Inmarsat in both years, Q3 2024 revenue was up 8% year-over-year driven by strong growth in government systems products and IFC service. Net loss totaled 124 million for Q3, up from 47 million net loss in the year-ago period, primarily due to increased interest expense associated with the Inmarsat acquisition and the non-recurring Inmarsat acquisition-related charges. Adjusted EBITDA for the quarter was $383 million, an increase of 214% year-over-year from continuing operations. Including in MARSAT in both years, Q3 FY 2024, adjusted EBITDA was up 11% year-over-year as good cost management leverage or top-line growth. Sequentially, net leverage increased 0.1 times to approximately 3.8 times estimated combined LTM adjusted EBITDA as of Q3 FY 2024, substantially favorable to plan at the time the Inmarsat acquisition was announced. We have significant financial flexibility with approximately $3 billion of liquidity, including $1.7 billion of cash, cash equivalents, and short-term investments on our balance sheet at quarter end and no near-term funded maturities. Importantly, we have a fully funded path to positive free cash flow. Finally, insurance recovery claims of $770 million are proceeding. Claims for YSAT 3F1 and I6F2 were filed before calendar year-end. We expect to receive proceeds over the next few quarters. Subsequent to quarter-end, we have received more than $200 million to date, with the majority anticipated to arrive in fiscal 2025. Overall, this was another strong quarter for YSAT. As Mark mentioned earlier, I will touch on three priorities we discussed in our letter, mainly around integration and transformation. First, building operational momentum and financial performance of our core business. operational momentum is reflected in the financials i just covered aviation continues to be our fastest growing area with good progress in aircraft served and passenger engagement and in the scope of services we deliver that help our customers use connectivity to benefit their unique business models we are proud of our reputation for predictable reliable and measurable service quality Our new order pipeline remains robust. Our services businesses also benefit from an innovation and an innovative and differentiated portfolio of hardware and application software products. Our second priority is leveraging the Inmarsat integration to achieve operating capital and revenue synergies to reduce costs and expand the scale and scope of our products and services. We took a big step in Q2, integrating space and ground infrastructure operations, go-to-market engineering and supporting teams. Reducing people resources is really painful, but necessary to sustain our growth and achieve the financial metrics we expect. We expect about 100 million annual cash savings by startup FY 2025, better than the 80 million target when the acquisition was announced. and sooner by about two years we're also integrating our global networks and support to further improve service quality scale and resilience and to achieve the capital synergies to drive positive free cash flow the third priority is sustaining mobility business growth while advancing the inflection to positive free cash flow Our strategy is to measure and drive asset productivity by best matching bandwidth delivery to our target customers, geographic and peak time demand needs, especially in the world's mobility hotspots such as major airports and maritime ports. We are leveraging our extensive global operating data and applying machine learning techniques to dynamically optimize our existing satellite fleet. as well as our forthcoming seven KA band satellites under construction and third-party assets. We're also using unique technologies to enhance video streaming quality and efficiency, a dominant factor driving bandwidth usage growth. Our revised capital budgets reflect the opportunity we have to scale productivity cost savings while simultaneously driving further measurable increases in service quality. Now, moving to the next topic on outlook. We exclude, in terms of outlook, we exclude satellite impairment charges and the non-recurring benefit from the litigation settlement announced last quarter from our guidance. For FY 2024, we expect revenue growth in the high single-digit percentages over FY 2023 for the combined company in a range of $4.1 billion to $4.25 billion. For FY 2024, we expect adjusted EBITDA growth in the mid-single-digit percentages over FY 2023 for the combined company. We are now expecting adjusted EBITDA in the top half of our previous range, $1.275 billion to $1.3 billion, with continued growth in FY 2025 in both revenue and adjusted EBITDA. Capital expenditures are expected at approximately $1.7 billion in the current satellites under construction. In Q3, our investments in our satellite network projects and success-based capex which both drive growth where over two-thirds of our total capital spend as compared to less than one-third associated with other maintenance and general capex activities. In FY 2025, we expect capex to decline to a range of $1.4 billion to $1.5 billion, inclusive of a placeholder for the potential funding of an I-6 F-2 replacement. Capital expenditure guidance does not include the expected $770 million benefit from insurance recoveries. So on a net basis, our planned growth spending fits well within our capital structure and liquidity framework. Note that we include capitalized interest in our CapEx guidance, which is approximately $200 million per year. We are working on reducing leverage and optimizing our balance sheet, and that is closely tied to our capital investment plan post-merger and taking advantage of the capital synergy opportunities we mentioned earlier. Before wrapping up, I have two important updates to share. We felt it was time to scale our investor relations program given our nearly doubling in size post-merger, so I'm happy to announce that Lisa Curran has joined our team as VP of investor relations. Lisa brings a unique breadth and depth of experience across sectors and leading companies through growth transformations. And I'm sure Pete Lopez will facilitate introductions with all of you over the coming weeks. We've talked with a number of you about our plans for a YSAT Investor Day and listened to your feedback on multiple fronts. We've heard you and we will instead focus more immediately on enhancing our reporting disclosures and investor outreach, including giving more insight on our growth businesses. We look forward to getting more of your feedback. We are aware that we are competing for your capital every day. We have conviction in our path ahead, and we want you to match our confidence. We expect to provide an update on our next earnings call. Now, our path to positive free cash flow in the first half of calendar year 2025 is driven by sourcing growth from our large and growing markets, including mobility and government. ongoing execution on our sizable backlog, meaningful cost rationalization, and prioritized capex spending, which benefits from the natural decline as we launch our satellites. We are driving cost structure improvements with synergies, scale, and benchmarking. Our operational performance in Q3 was very good, and we are on track to achieve substantial synergy value and expect the combined company to grow revenue and adjusted EBITDA in FY24 and FY25. And to be clear, our FY25 growth is based on a full 12 months of Inmarsat in FY24. With that, I'll pass it back to Mark. Okay. Thanks, Guru.

And at this point, we'll be happy to take some questions.

Thank you. If you have a question, please press star one on your telephone keypad. If you wish to withdraw your question, simply press star one again. Your first question comes from the line of Rick Prentice with Raymond James. Your line is open.

Thanks. Good afternoon. And first, thoughts are with you, your employees and families with all that rain and weather you've had out there. So I hope everyone's okay.

Thanks, Rick.

On the business side of things, appreciate the update on the Flight 2. Sounds like first half, Calendar 25, and the Flight 3 actually before that, kind of late 4Q, Calendar 24. So is there any more ground network or any more investment that needs to kind of occur as we kind of think through that? And have you gotten the insurance yet for the Flight 3? And then I'll come in with another question.

Okay, on the capital investments, I think where we are is about, we're about 85% through the total capital investment plan that we had when we started the VICE Act III program, so about 15% to go, and that includes both the remaining space and initial ground segment.

I think you have that.

Yeah, so we're still working on that. We filed claims. Things are looking good, but I think you'd expect that probably be in FY25.

Part of the process for insuring the third fight is going over the status of fight one, and we'll do that through the questions and responses with the insurers now that we filed our claims.

And then, Guru, you kind of pointed out a little bit that you're looking at how best to use the bandwidth that you're bringing to bear with all these new birds, both on the Viasat side and the MRSAT side. Can you help us from a high level maybe understand how much capacity should we be thinking that you're bringing into the marketplaces? And then as you think about what we call game, government, aviation, maritime enterprise, but then also rural consumer, how should we think about that capacity where you might want to apply it and what those growth profiles look like, and I'll make it an even more complicated question, help us understand the competitive dynamics in those silos of who you feel you're most pressed against.

Okay. Okay, so there's a lot in there. A lot there, yeah.

Yeah. Well, so the first part is, and one of the things we emphasized early on when we were first entering the business was the performance of each individual satellite. And now, given the size of our fleet and the fact that we have multiple satellites covering individual places, one of the main things that we're now working on is using each incremental satellite to effectively increase the capacity of the whole fleet more than what you would get from just that first satellite. And that comes from the way that we operate the fleet as a whole. Think of it this way. The basic idea is that if you look at satellite coverage, just like cellular coverage, in each beam of any satellite, there are areas right in the middle of the beam that are the most efficient and there are places at the edges of beams that are less efficient. Since all of those patterns don't line up on all the satellites, one of the things that we can do is reallocate the way we think about allocations of user terminals to satellites by doing that in the most efficient way possible. And that is much easier to do with mobility terminals than it is with fixed, because mobility terminals are already able to be handed off from satellite to satellite at any time. The other thing which goes to the part about competitive dynamics is that one of the things that we've talked about and you can measure pretty easily is that the high demand markets have very high ratios of peak demand to average demand. So think about You know, airports especially, a big airport with a lot of connecting flights, three or four times a day may have ten times the demand that it has on the average at those peak times. So our more recent satellites that have dynamic, you know, bandwidth steering or more dynamic bandwidth steering than we've had in the past have an additional benefit of dynamic being able to move those beams around among the different places that have those high peak demands. And the other thing is, you know, we have plenty of data on the differences in those peak times. So for instance, the peak demands in Atlanta aren't necessarily the same as they are in Chicago, Dallas, Houston, or other hub airports. So we can then optimize our bandwidth to match those patterns. the main, the biggest overall trends in these mobility markets are really increasing both the amount of bandwidth that individual passengers use and then the number of passengers that are engaged in using Wi-Fi. So that's kind of a change that we've really catalyzed. And the way we kind of explain it to airlines is, You don't really get any credit from passengers for having Wi-Fi if they don't use it, right? So the big challenge has been how do you scale up the engagement without having bottlenecks at these hub airports? And we think that's a really, that's a big dynamic that is playing out first in the U.S. and is expanding internationally. There are similar challenges similar effects going on in maritime markets and the way they're manifested in maritime markets depends a lot on the type of ship whether it's you know whether it's a leisure ship or you know think of it as a personal ship or or an enterprise ship and if it's an enterprise ship is its main function moving people or is it moving cargo as an example so what we're doing is is working on each of those areas and then you can imagine you also have to work on you know the combination of those areas because a lot of the big airport cities are also major maritime ports and so those are the dynamics basically what we're what we're working on is that match of supply and demand we can do that in two ways one way is to is to optimize the fleet using some of the techniques that I talked about at the beginning. And the other one is to be really thoughtful about the customers that we choose to serve so that we can deliver those, you know, the performance that they're counting on. Does that cover those points that you had?

Yeah. And so it sounds like you feel good about the amount of bandwidth you're bringing to bear and the ability to time it at the right time of market. time of day, sorry, and geographic market and try and convince people just to be using this stuff, you know, kind of spur demand.

Yep, it's all of those. And, you know, we've been, you know, refining our ability to do this for years. It was kind of our original go-to-market value proposition in the invite space in the U.S. We have years' worth of data. The data is constantly evolving, but we've got our fingers on that. And then we also are augmenting that with industry-based data that helps us deal with, you know, perturbations to those scheduled users and for those types of vessels or planes that aren't scheduled. So you have to combine all that stuff. But we feel like that's the direction that service providers are going to need to go to to deliver the certainty that those enterprise and government customers want.

Great. Thanks, Mark. Thanks, Rick.

Your next question comes from the line of Michiel Aluru with JP Morgan. Your line is open.

Hi, thank you. If I could ask a question on IFC. You guys mentioned the 1400 plane backlog. Can you help us think about how quickly you're able to activate those and what the pacing might look like as they come online? And then more higher level in IFC, you know, Mark, you touched on the go-to-market. maybe if you could give us some color on what the competitive intensity has looked like. Is there anything that you feel like you need to change potentially around pricing or promotion in the IFC business to maintain this kind of growth that you've been run rating at? Thank you.

Okay. Sure. So the rate of deployment is – it is –

A little bit. It's a little bit unpredictable. The main factors, one of the biggest factors is the delivery rate of new aircraft. The delivery rate of new aircraft from the OEMs, especially Boeing and Airbus, they have a lot of demand, and there's been supply constraints, including on some of their major components. We've ranged from 200 or 300 to in some quarters we've done as many as 500, but we're looking at going from currently around 3,500 to probably around 4,200 or so by the end of next fiscal year. So that would be a little over a year from now. I think that's a reasonable assessment based on current new delivery rates and how those delivery rates affect our customers retrofits. If they don't have new planes, that sometimes slows the rate at which they'll take existing planes out of service for retrofits.

I think that's a pretty reasonable estimate. And then on your other question about what the growth drivers are, I'd say for us, kind of the

Biggest, let's say, I'm going to talk about a few things. One is, you know, the in-flight connectivity business tends to be, it's regional carriers have, you know, they have different ways of approaching their customer base than, say, global long-haul carriers, and then Some of the premium carriers generally are driven really by revenue per seat mile compared to very low-cost carriers or low-cost carriers that can be driven by cost. So I think that it's not really a good idea. I mean, it's not the way we approach it. We don't really approach it as a one-size-fits-all market. What we do see is kind of a dominant theme, which probably will play out over the next few years, and it's happening on a quarter-by-quarter basis, is that some of the competitive dynamics that we first saw in the U.S. market are starting to spread internationally. That is, especially this notion that the airlines don't really get any cash credit from their passengers if they don't use the connectivity system so so really think of it as the main trends are increasing passenger engagement and then to increase passenger engagement you generally need to uh to offer them something that they want and more and more that some that's it that includes video so that that drives bandwidth demand the uh and then the big issues really are When that happens, how do those airlines have confidence that you can deliver? That's what has led to having, you know, sort of well-defined service level agreements that we and the airline can measure. And then the other ingredient that we've been increasingly successful at is helping the airlines monetize that engagement. Different airlines have different strategies for monetizing it. But if they don't monetize it and they just add more costs, that doesn't work for a lot of airlines. So the idea of building the increasing supply of bandwidth and the increasing engagement into a business model, that works for each airline. That's one of the main things that we've been focused on. And one of the areas that we're going to aim to try to provide investors with more visibility on.

Got it. Thank you. Sure. Thanks.

Your next question comes from the line of Mike Crawford with B Reilly. Your line is open.

Thank you. A couple questions regarding LBAN. First, can you elaborate on your three geostationary smallsat LBAN satellites that you're developing and whether that may contain some of the discontinued VI-SAT-4 IP?

No.

The L-band satellites, those three new L-band satellites were started by Inmarsat prior to the merger being completed. They do have some pretty innovative bus features. very low you know low-cost geosynchronous satellites which are are interesting for a variety of reasons but they're not based on on a visat3 ip those three aren't and those might launch in 2026 yes i think they're going to intended to be in service in by by 2027. the part of it is uh is They will have reasonably long orbit-raising time, so we've got to work through the launch and the orbit-raising and bringing into service missions. But those are ballpark correct at this point.

Okay, thanks, Mark. And then separately on LBAN, could you just elaborate more what you, Skylo, and Legato each are bringing to the table on this MTN directive device? service and whether that requires a special device, such as like a formerly bullet phone or a cat phone, or this would be to any iPhone or Android phone?

Okay. Yeah.

So what is happening in the device market is, you know, expanded interest in this integration of terrestrial and satellite networks. And satellite networks are often referred to as NTN or non-terrestrial networks. And you have to think of motivations of different parties here. But the device makers, and think of it as device makers, mobile network operators, over-the-top companies that provide services, data services to smartphones as well, or other devices, and then also think about it from the user's perspective. So the device makers are really looking to integrate a next generation of modem chips. That's what's standardized in this 3GPP standard. There's also some specifications around satellite frequency bands, L-band being one of the most prominent, for delivering these services. And then the device makers are working to seamlessly integrate this handoff from terrestrial cellular networks to satellite service. So that's the general theme, what you'll see. And what you'll probably see are initially some functions that are remote, basically remote emergency or remote location type services. And then also just remote coming now will be remote messaging and communication services that are built into devices. The idea would be if you have a device that benefits from cellular connectivity that you would use the satellite connectivity to extend that range and what we think is also fill in black spots in coverage. Some part of it, and this is to be determined, but some part of the market is in people that you know are far away, often deserts or mountain ranges where there wasn't and probably won't ever be cellular coverage, but a lot of devices are disconnected just even though they're near uh astral cellular coverage but in a dead spot or a black spot or sure shadowed by a mountain or hillside or some similar things like that so one of the big things going on in the industry is whether you want to serve those people with existing turret cellular terrestrial frequencies that are allocated to satellite or and this is the part that we're aiming for and we think makes a lot of sense, is if you can augment terrestrial cellular with licensed satellite spectrum, that will fill in all these black spots and you don't have to take, you, the carrier, doesn't have to take any existing spectrum out of service. They don't have to take terrestrial spectrum and dedicate it to satellite use. 3GPP standards are about is enabling that capability. We think ultimately that's the way to both get scale and make the services more attractive. So now Skylo has put together kind of a network and back office solution that lets us start delivering those services pretty much right away. We're doing tests with some really interesting devices. We're working with Legato to help scale what we can do in the U.S. And we, VICE, have worked with Glicato for years. They're kind of the most advanced L-band ground-based beamforming satellite. We helped develop that, and we also helped them operate it. And then with NMARSAT, we can extend that globally across all the rest of our fleet. So that's what's going on now. I'd say the main things you'll see kind of in the near future are device makers that choose those chips that have the satellite and TN capability starting to talk about their products and bring them to market probably later this year.

A couple quick clarification points, Mike. One, this is, as Mark said, it's still a market discovery and development mode, and we don't have any incremental capex associated with this deal, just for clarity.

Yes, and right now, you know, we think this will start slowly. Ultimately, we think it'll build, but as Guru said, you know, I think market discovery is a good way to describe it.

Okay, thank you. Just one final question, more on the financials, just given the quarter-to-quarter variability in your gross margins for products and services, what was in the mix to cause that variance this quarter, and how should we be thinking about that in, say, the March quarter and also next year regarding gross margin on products and services revenue?

Hey, Sean. So I think if you think about this quarter, there's a couple unique things. One is we had a little bit of favorability on the mix in our government business, and so that yielded a little bit improved margins. On the service side, we also had a kind of a contract negotiation that we were able to resolve with a customer. And so that had some favorability as well. So those are things I would say that I'm not expecting to keep going into the next quarter. And then also we get a little bit of benefits from the acquisition accounting and the flow through of that. And that's going to start to meter down as well.

All right. Thank you, Sean. Thanks, Mike.

Your next question comes from the line of Ryan Koontz with Needham & Company. Your line is open.

Thanks. I appreciate your commentary, Mark, about the major long-haul versus regionals there and different strategies. Maybe please take a step back. Can you maybe characterize kind of how you view those markets and your kind of targeted Western markets of where we are in penetration for long-haul and regionals? at number one and second question is that you've talked before about you know wholesale partnerships to fill bandwidth needs is that still on the table of looking a relationship with other providers to fill any gaps you might have with the change in plan for f1 thank you okay sure yeah the you know I'd say that if you want to see what the future

Let's see what the future of in-flight is.

One is if you look at the regional, that would be like the U.S. market. Looking at the U.S. as a domestic market compared to international flights to and from the U.S., that's a good proxy. I'd say on the domestic mainline fleets are typically single-aisle planes, maybe a couple hundred, you know, And some, there's a mix of seat-back entertainments and no screens. So the thing, I'd say pretty fair, very high penetration of those are many flights where we'll serve well over 200 devices at peak times. And I'd say we're serving both entertainment and connectivity options And one of the main themes is going to be greater integration between those, sort of reflecting what people do at home. If they're watching entertainment and still communicating with friends or social media or other things on their devices. In the long-haul business, the long-haul market has been I'd say it's a little bit behind, and that has been because the planes have a lot more people, so high engagement, high bandwidth means higher capacity links, and so that's an area that I think we're going to do well in, but we're really within Marsat and the new Viasat 3 satellites really entering that now, and we're working with our customers to bring similar experiences to the – to those large, twin-aisle, long-haul aircraft as have been in, say, the U.S. domestic market or intra-big domestic markets in other parts of the world like Australia, Europe, Brazil, some of the other markets that we've been in. Also, you're going to see, because seatbacks are such an important part of that, I think that's where you'll also see a lot of innovation in combining the entertainment and connectivity parts. You know, the The part that's still really to be penetrated is the low-cost carriers because their focus on cost per seat mile really is a big cost. So building up these monetization strategies, I think, is going to be a big factor in the low-cost carriers, both on the regional domestic fleets and on the long haul. Does that give you some sense of

what those dynamics are yeah when you talk about um complimentary uh uh revenue there you think everything things like advertising in in places like that where you can kind of boost revenue per per seat or what what sort of monetization schemes are there yeah so that well one of the tricks is is really you know the whole purpose of this is to increase passenger engagement and then basically think of

Inflight connectivity is an amenity, like other amenities, and it's got to carry its weight for those airlines. So the idea is come up with monetization strategies that help overall net with passenger engagement. Advertising is one mechanism, but there's quite a few others that we've been testing with other airlines. And some of them involve promotions with interesting online services or destination-driven things. There's just a very broad range of monetization opportunities. And I think our approach, and I think we've been fortunate here in working with some really savvy airlines that have different approaches to it, I think one of the things you're going to see pretty much by definition is if every airline does the same thing, then no airlines have a competitive advantage. So a lot of this is really around how they brand and monetize their operations in general and the partners that they use, which often are associated with their root structure and the values that their brand conveys. I think we'll I think we'll give a little more detail on this, but I think it's one of the biggest opportunities in invite connectivity.

That's really great. Thank you for sharing that. And any comments on the kind of wholesale needs you might have with other site operators?

Third party, yeah. Especially, you know, one of the main ways in which we've been working with third parties is on international markets where you have, kind of flag carriers, and it doesn't have to be a flag carrier, but basically local regional carriers. And then you also have regional satellite operators that are often tied to their regional governments and their ambitions in space. And one of the things that we've been able to do is work with those partners. I think you can see more of this Think of it as a partnership roaming wholesale basis where they can bring their space assets into service for their needs, and they can also address international flights where their own carriers go global and where other global carriers go to their regions. We think that's a really interesting formula that also helps deal with this issue of reinforcing those hotspots. And it's also very extensible into the maritime industry. So those are themes that really underpin a lot of these wholesale agreements or third-party partner agreements that we mentioned.

That's really interesting. Thanks, Mark, for that commentary. Appreciate it. Thanks, Ryan.

Your next question comes from the line of Chris Quilty with Quilty Space. Your line is open.

Hi, thanks, everybody. Real quick first, a question for Sean. I'm assuming the CapEx figures exclude capitalized interest?

Yeah, so to clarify, and thanks for asking, Chris, so the number that we gave you for both this year and next year do include that capitalized interest, which was about $200 million.

Oh, okay, good. That's even better then. Great. Second follow-up question on the I-8 satellites. Apparently they've got electric propulsion, but that doesn't prevent you from doing a direct injection if you want them to get to orbit quicker. Is that correct?

Correct, yeah. We will do a launch mission that's really based on when we need them in service, the services they'll provide, and the overall economics and tradeoffs of that. But, right, we have and can... shorten the orbit racing time by choosing the launch vehicle. And we're going to keep that option open.

Gotcha. And the I6 F2, I think I got that right, is that fairly standard? I mean, you're not going out on a limb and doing something major different with that replacement. Is it more of an off-the-shelf replacement from an existing bus or the existing vendor? or do you see this as an opportunity to look to add new technology into that satellite?

Okay. So there were some specific missions for Inmarsat that were combined on that satellite. The I-6 satellites, as an example, combined both L-band and K-band payloads. So given where we are with the combined company and our other assets, what we're really looking for is just the L-band portion of that payload. And that is, it's, you know, I wouldn't call it commodity, but it's, we could, there's several different Inmarsat and other L-band satellites that we could use as the basis for that. Right now, we're really just looking at Our overall L-band fleet and our overall L-band needs and a migration strategy that's around the safety services that are supported by our fleet, the aviation services which are expanding and supported by our fleet in making a decision on the best way to fulfill what that satellite was going to do. And we'll report on that, but we did think it was prudent to include a placeholder in FY25 for the cost that we would incur with the replacement.

Gotcha. Final question, and it's a little open-ended, but R&D. We very rarely talk about R&D as a line in the income statement or about specific projects, but when you look at the combination of the two companies, there's a lot of two companies, there's a lot of things you can do in terms of product. I think of terminals and gateways and modems and different things that need to be harmonized between the two. Are there any anticipated step-ups associated with R&D investments? Forget the government stuff, which is funded R&D, or do you just see sort of regular way investment consistent with what the two companies had been doing individually, or is there a period of time here where you need to spend more to get some of the products and services to market quickly?

Right now, one of the main themes is, as Guru described, it's really operational synergies with R&D being an important component of that. So one example of that is we have two different networking systems and we're in the process of converging, and that's in our R&D plan. We also have you know, a number of these improvements that we described that let our networks operate more efficiently. But the overall, you know, our overall R&D spend we think is going to stay in a rough range of around 3.5% to 4%. And some, you know, we're basically aiming two big themes. One is synergies, and then the other is productivity improvements and And then think of it as service enhancements, a lot of which go around these missions that we describe, you know, that our customers are doing. That would be like for invite connectivity that, you know, think of it as the synthesis of the connectivity and the entertainment portions. There's similar but different types of R&D activities that we're doing for applications on the government side in the maritime space.

Okay. Awesome. Thanks, everybody. Thanks, Chris.

Your next question comes from the line of Edison Yu with Deutsche Bank. Your line is open.

Hey, everyone. Thanks for taking our questions. First, just housekeeping. Did I hear correctly about the analyst say that it is being pushed out? Is that what you were trying to communicate?

Yeah, hi, Edison. This is Guru. Yeah, so I'll just say two things. One, we've had interactions with many of you, and we've had feedback on disclosures and overall reporting. And we've been taking that feedback and working through that. So our focus is really addressing some of the key questions that we are getting in. And we'll address that in the next earnings, which means we are not going to do the investor day that we had originally thought of in March. And we are in parallel thinking to what a new investor day would look like. So we'll come back to you when we have an update there. But we didn't want to delay key questions that we're getting around disclosures and overall reporting, which we'll address in the next earnings call.

Understood. Understood. Thanks. Just a couple on the business. Just curious on the cash flow, there were a couple of discrete items called out as a headwind. Any way you can kind of quantify what those were and do those kind of headwinds go away sequentially?

Yeah, this is Shawn. Yeah, I think that, you know, one of the things to keep in mind is in Q3 we had kind of a lift in, you know, cash flow requirements related to the tax payments. that we needed to do for the TDL transaction. And we had a little bit also over on the UK side. So when I think about it kind of Q3 to Q4, you know, I think I would, you know, we'll have our interest payments in that quarter. Maybe that's about 33 million. You could see our working capital requirements probably around the 50-ish million or so and isolated there. But I don't think we don't have any material tax payments. coming into Q4, so that's a good way to think about it.

All right, great. Thanks for that. And then last question, just on the cost, I realize we boosted the savings potential to $100 million, pulled that forward two years. Are we looking at trying to maybe take out more? Obviously, you had some more time to dig into the MR stat piece. Should we think about potentially some upside to that $100 million as we move forward?

Yeah, Edison, I would say so. If you look at what we talked about on the 100 million and starting at 525, a lot of the focus there was on headcount and bringing the two teams together from go-to-market all the way through technology. So we feel really good with that. Now, what we're focused on right now is non-headcount related, which you think about procurement and supply chain and some of the external spend that we do. We are now doing our analysis and working through that. So we do expect opportunities there in terms of savings, but we haven't quantified those yet. We're working through that.

And Edison, if I can add one, just one light point, just keeping in mind that, you know, in Q3 alongside the risk that we announced with, you know, as we were right sizing on the people, we saw some of those payments come in this quarter too. So that elevated Q3 a little bit as well.

That is it. Great. Thank you.

That is all the time we have for questions. I will turn the call back to Mark Dankberg for closing remarks.

Okay. So, thanks a lot, everybody, for joining us. I would like to leave you with just a few important takeaways from the third quarter. One is that the results were good. We generated 8 percent year-over-year revenue growth and 11 percent year-over-year adjusted EBITDA growth. We're winning new business in our targeted growth markets. I think, you know, hopefully you can get a sense of the competitive environment that we're in and the way that we are targeting specific enterprise and government mobility markets. The Inmarsat integration program is ahead of schedule and ahead of budget, and we are balancing growth, innovation, and profitability. So with that, look forward to updating you all on our continued progress next quarter. And with that, I hand it back to the operator.

Thank you. This does conclude today's conference call. We thank you for joining. You may now disconnect your lines.