ViaSat, Inc.

Thank you for standing by. My name is Meg and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter, 2025 AvayaSat earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press the star one again. Thank you. And now I would like to turn the call over to Lisa Curran, vice president investor relation. Please go ahead.

Thanks Meg. We will present certain non-GAAP financial measures on today's call. Information required by the SEC relating to these non-GAAP financial measures is available in our Q2 fiscal year 25 and we will also submit a fairholder letter on the investor relation section of our website. During the presentation, we will describe certain of the more significant factors that impacted year over year performance. We will also make forward looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward looking statements are subject to a number of risks and uncertainties and actual results might differ materially from any forward looking statements that we make today. Information regarding these factors that may cause actual results to differ materially from these forward looking statements is available in our SEC filings, including our annual report on form 10K. These forward looking statements speak only as of the day they are made and we do not assume any obligation to update any forward looking statements. With that, I'll turn it over to Mark Dengberg, chairman and CEO.

Good afternoon and thanks for joining us today. With me, along with Lisa, we have Guru

Barapin, our president, Gary Chase, our CFO, and Sean Duffy, our chief accounting officer. We encourage reading the shareholder letter and referencing the slides we posted on our website earlier this afternoon for more details. I'll give a quick overview of the shareholder letter. Guru will briefly cover operations and Gary will cover our financial results and highlights and our growth outlook, and then we'll take a quick look at the results and answer any questions. Our second quarter fiscal year 2025 results were better than expected in terms of revenue and adjusted EBITDA growth, as described in the shareholder letter and slides. We also continue to take actions to strengthen our capital structure, including an upsized refinancing of nearly $2 billion of 2026 secured notes. New contract awards in the second quarter were a new record at about 1.3 billion and were led by defense and advanced technologies, which doubled -over-year awards led by cybersecurity, ground systems, and space and mission systems, and by aviation connectivity services. Our recent teaching highlighted the attractive growth potential and durable competitive advantages in key technologies, such as next generation free space optical technology, mission specific -to-ray terminals, space-based cybersecurity, and others. Our Q2 defense and advanced technology, or DAF, awards reinforced that we're on the right track, including the US government program, international government opportunities, and certain commercial markets. One of the unifying themes among our customers is access to a diverse set of orbit, spectrum, and constellations, and avoiding over-dependence on single individual systems. Of course, we understand the intensity of competition in some of the core businesses. That makes the size, competitive positioning, and growth prospects of these DAF opportunities especially exciting. We're open-minded about the best ways to capitalize on these opportunities, and are actively evaluating alternatives. All those businesses are both delivering growth and increasing their potential. We're also very pleased to have Gary Trace join us as our new CFO. Gary's leadership experience in strategic, operational, and financial planning will augment our focus on cash conversion, return on capital, converging to a more balanced capital structure, and operating financial profile. Gary will provide additional experience financial leadership on the areas we highlighted last quarter, including identifying, evaluating, and executing the best alternatives to realize a value-embedded business portfolio, leading detailed business operations, financial reviews, to ensure we're at peak operational productivity levels with corresponding margin performance, and leading detailed capital allocation reviews to ensure we're optimizing return on capital in the near and long term. The main point is we're exploring additional financial and capital structure perspectives. We're also continuing to drive down capital intensity by augmenting our own satellites through both tactical and strategic third-party agreements. We're in advanced discussions with Telesat by K-band Leo Cabath. By leveraging our own fleet and its unique capabilities, existing national operator partnerships, and unique coverage and or capabilities of additional third-party satellites and constellations, we can both ensure our customers are getting the performance and coverage they need, and more explicitly measure and drive improved returns on capital. Our satellite operator partners are often national space champions of key countries and geographic regions, and they're seeking a robust global space ecosystem to support their own national security and sovereignty. We're working with both GSO and NGSO systems. Gary will provide more color on capital spending in his remarks. Other key corporate initiatives include evolving L-band to create value for the millions of people that depend on its use for safety and time activity in the air, at sea, and on land. We have a very significant opportunity to also concurrently greatly expand our addressable market through these evolved services, and by leveraging the non-terrestrial network and the -to-defy standards and open architecture enabling multi-tenant satellites. We see multiple avenues to create value for our shareholders, customers, and partners, and continue to work with like-minded mobile satellite service operators through the Mobile Satellite Services Association. And last, but certainly not least, we're focused on getting our satellites under construction into service. We've already accumulated substantial in-flight connectivity operational performance experience with ISAT3.1 that reinforces the value of its dynamic beamforming technology to apply all its bandwidth in the most important places, especially for mobility applications. It's clear that being able to effectively dedicate beams to airplanes drives performance. We continue to work on and make progress on our satellite roadmap. Now, touching on the business areas, expected declines in fixed broadband remain our single biggest headwind, but that headwind is decelerating. We're seeing increased global enterprise fixed opportunities and we'll report on those as they mature. We're seeing declines in maritime revenue, primarily in prior generation L-band fleet broadband, and that's been going on for several years. The fleet broadband declines are meaningful, but also decelerating. KA broadband maritime, or fleet express, is experiencing much more modest declines in revenue, while largely retaining net vessel count. The multi-orbit, multi-band Nexus Wave product is now in beta trials and doing well and already leading full-scale deployments for some initial customers. We already have an order pipeline of over 100 customers representing about 3,500 vessels. About a third of those are new customers, offering a good opportunity to increase net vessels. We'll continue to update the maritime outlook based on market data and installation rates, but our overall confidence is building. On return, we see further maritime addressable market opportunities with the volume to L-band. Commercial and business aviation are growing well. New OEM aircraft delivery constraints are a bottleneck to active tail count and the Boeing strike added to that issue. We've been working through the near-term capacity challenges associated with the Biosat 3 Flight 1 antenna anomaly and are making steady progress with network reconfigurations and expansion to serve our customers and expected growth. We've already been doing multi-orbit government aviation and are definetizing extending multi-orbit and multi-band to all our aviation verticals. We believe that multi-orbit, combined with our existing and planned own and partner satellite fleet will be very, very competitive. US and international government are also growing well with opportunities for both technology and service businesses. Key themes for us include multi-orbit, multi-band integration and management, product and technology solutions, advanced platform-specific phased array antennas, space-based cyber, next generation laser link, and space payload technologies. We see accelerating growth here, obviously reinforced by the exceptional second quarter awards. Gary will provide more color on the financial aspects

of many of these points in his portion. With that, I'll hand it over to the group. Thank you, Mark. I'm going to provide a brief organizational

and operational update and then introduce a new member of our executive team. WISI teams are focused, fostering collaboration and operating as one to deliver results while continuing to sharpen our execution rigor. This is core to how we show up and execute for our customers and partners, which in turn drives value creation. Our quarterly highlights only scratch the surface but show the good momentum we are building. We know there's a lot of work to be done and progress is being made as we continue to put our customers first. We continue to align our internal organizational structure in support of our strategic goals and to take advantage of our scale to improve operational efficiency. We're making great progress at trustee company to leverage our strengths at trust department and ensure a cohesive technology strategy that supports our growth and innovation. NexusWave is an excellent example of this. Our operating model fostered the collaboration and cross-functional problem solving necessary to develop and bring to market an industry first offering like NexusWave. Mark mentioned that it's off to a very good start with an order pipeline already at 3,500 vessels. In the near term, primarily in our indirect channel, third-party companion offerings created incremental ARPU pressure on flat-ish FX vessel count this quarter. We are refining our channel strategy for indirect. We expect NexusWave will enable a return to net vessel growth and ARPU expansion in maritime. But the near term is offset primarily by reductions in legacy, fleet broadband, some declines in indirect FX ARPU and modest FX net vessel count production. As we continue to navigate the dynamic landscape of our industry, we will remain adaptable and responsive to our business's needs. This means continuously improving our structure, processes and strategies to ensure they are optimized for success. Our goal is to create an agile and efficient organization that can quickly leverage opportunities and challenges to drive growth and enhance value capture. Now, I would like to introduce a new member of our executive leadership team, Gary Chase, who joins us as Chief Financial Officer. Gary Chase joined Wiresat after more than 12 years with Delta Airlines in various senior financial roles, most recently serving as Senior Vice President of Operational Finance. We are excited to have Gary's depth of experience and track record of execution in financial planning and analysis, strategic planning, corporate development, operational finance, capital structure management and cost efficiency improvement. Prior to joining Delta, Gary was an equity research analyst at Barclays Capital, having covered the airline and transportation industries.

Now, I would like to hand it over to Gary.

Thank you, Guru. Well, I'm excited to join Wiresat at such an important time in the company's history. I have a tremendous amount of respect for Wiresat businesses and global mission of delivering safety and connectivity to customers in the air, at sea and on land. I'm grateful for the support I've gotten from the whole Wiresat team in my early days, but especially our finance team led by Sean, and I may well need some of that support during the Q&A. As a team, we look forward to partnering with Mark, Guru and the rest of the leadership group to further advance the finance function and its support for Wiresat strategic initiatives, especially shareholder value creation. I'm gonna cover two topics, financial performance and outlook, but before I get there, let me thank all of my Wiresat colleagues for the hard work that led to these results. All of the comparisons in the second quarter discussion that follows exclude the non-recurring catch-up contribution from the litigation settlement in the second quarter of fiscal 24, which benefited revenue by 95 million and adjusted EBITDA by 86 million. Looking now at second quarter fiscal 25 financial results, awards were a record of 25% year over year. Our defense and advanced technologies segment in aviation connectivity services led the growth. Revenue was 1.12 billion, down 1%, compared to 1.13 billion in last year's second quarter, reflecting declines in fixed broadband and maritime within communication services, partially offset by strong growth in aviation and tactical networking products in our defense and advanced technology segment. Net loss of 138 million improved from the net loss of 767 million a year ago, which was primarily due to the impairment charge related to our satellite program. Adjusted EBITDA was 375 million, a decline of 6% year over year. As noted in last year's shareholder letter, the second quarter of fiscal 24 benefited by 18 million from the resolution of the Euro Broadband Infrastructure, or EBI, contingent consideration agreement. Excluding that benefit, adjusted EBITDA was down less than 2% year over year, with the declines in our communication services segment partially offset by continued strong growth in defense and advanced technologies. Capital expenditures declined 37% year over year to 229 million, decreasing primarily due to lower satellite expenditures related to shifts to future quarters of certain space and ground infrastructure payments. As a reminder, capital expenditures can be lumpy from quarter to quarter. The lower capex helped us generate approximately 10 million in a positive free cash flow during the quarter, which, while transitory, is indicative of the free cash flow opportunities ahead as we leverage the BISAP 3 fleet and augment our capacity and network performance with third-party bandwidth. During the quarter, we also collected approximately 120 million of satellite insurance proceeds. We've received more than 90% of the 770 million of insurance claims we anticipate by the end of the fiscal year. Please note that the collection of insurance proceeds are recorded in cash flow from investing, but have no impact on our free cash flow calculation, which is defined as cash from operations, less purchases of property, equipment, and satellites. In September, we issued 1.98 billion of InmarStat 29 notes. The amount of the oversubscribed offering was increased from the initial size of 1.25 billion. We received the cash from the issuance prior to quarter end, but had also repurchased 257 million in principal amount of 20.25 notes in open market transactions during the quarter at a small discount to par. So quarter end cash and cash equivalents was 3.5 billion, gross debt was 9.1 billion, and net debt was 5.5 billion. Subsequent to quarter end, on October 1st, we used the net proceeds from the issuance of the InmarStat 29 notes together with cash on hand to redeem all of the outstanding InmarStat 26 notes. After adjusting for the redemption of the InmarStat 26 notes, pro forma cash and cash equivalents was 1.6 billion, gross debt 7.1 billion, and net debt the same 5.5 billion. Adjusting for the refinancing transaction, our annual cash interest expense is expected to be approximately 560 million, partially offset by interest income on our cash balances. Finally, net leverage was slightly lower year over year and slightly up sequentially as expected at approximately 3.6 times trailing adjusted EBITDA as of the second quarter. Now let's take a closer look at our second performance during the quarter, starting with communication services. Aviation continues to compete very well in the market and one new business in the quarter with both existing and new customers. In addition to the prior ongoing OEM delays, there were aircraft delivery delays related to the Boeing strike. Still, commercial IFC ended the quarter with 3,820 aircraft in service, up about 14% year over year, and drove contracted backlog to more than 1,500 aircraft, despite sequential and double digit year over year growth in our active count. While we're confident in the FY25 growth outlook and trajectory for aviation, results continue to be affected by delivery delays, including the incremental effects of the just settled Boeing strike. During the quarter, we expanded our partnership with Azul to equip new line-fit Airbus A33900 Neos with in-flight Wi-Fi and our ad-supported streaming services using our advertising platform. U.S. fixed broadband revenue declined as expected, driven by fewer residential subscribers. We continue to allocate capacity towards meeting the growing demand for higher value commercial IFC and aviation businesses. Our government's SATCOM business unit grew service revenue 6% year over year, a strong demand for diversified satellite connectivity remained a top budget priority. Within maritime, as Guru and Mark talked about, Nexus Wave results thus far are above expectations, and the strong interest in service level selection we're seeing in our direct channel is promising. Communication services revenue was 826 million, down 2% year over year, reflecting the anticipated decline in U.S. fixed broadband services and by maritime, and partially offset by strong growth in aviation and government SATCOM. Those revenue impacts yielded adjusted EBITDA of 318 million, down 9% year over year. Excluding the $18 million EBI benefit from the prior year quarter, adjusted EBITDA was down 4% year over year. Now turning to defense and advanced technologies performance during the quarter. Our DAT segment had an excellent quarter of awards. Our book to bill ratio was 1.7 times in the quarter. Awards of 510 million more than doubled versus 241 in the prior year period. Information security and cyber defense won awards totaling just over 200 million for encryption products, largely reflecting continued growth and data center demand, driven by geographic expansion and growing data intensive AI applications. Space and mission systems received awards of approximately 150 million related to multi-function phase array antennas and payload technology, including free space optics and antenna systems infrastructure with support services. I want to highlight an award from the US Air Force Research Laboratory under the defense experimentation using commercial space internet program to develop electronically-speared antennas for tactical resilient communications using commercial satellite connectivity across various frequencies and multiple orbits. We're excited about the potential for an expanding role in secure multi-orbit, multi-band connectivity. Defense and advanced technologies revenue was 296 million, up 4% compared to 284 million a year ago. Strength was primarily driven by tactical networking and the strong IP licensing revenue just mentioned. Similar to last quarter, Trellisware within the tactical networking business line benefited by a larger bulk order of product upgrade licenses across already deployed US and allied forces radios. This generated an additional EBITDA uplift of approximately 15 million in Q2 versus anticipated levels. Product upgrades to already fielded units can be lumpy and are difficult to predict quarter to quarter. So we project future new shipment license revenues at lower levels than we saw in the quarter. As a reminder, the unevenness of growth can often be driven by customer budget cycles. DAT adjusted EBITDA was 57 million, up 13% compared to 50 million in the second quarter of fiscal 24, reflecting the positive impact of the Trellisware licenses. Overall, we continue to make progress against our fiscal 25 plan. In our second quarter, we generated good operating performance, particularly in aviation and tactical networking. We had record awards with focus on aviation, information security, tactical networking, and space and mission systems. Capital expenditures came in lower than expected, and we successfully refinanced our 26 maturities, improving our financial flexibility significantly. Moving on to the fiscal 25 outlooks. We're halfway through the year and are maintaining our outlook, reflecting solid first half results in our aviation and defense order books, confidence in our competitive position within our market, our backlog, and record quarterly award, but also headwinds from OEM-related delays of aircraft deliveries, including the impact of the just settled Boeing strike. We continue to expect revenue to be flat to up slightly year over year, with year over year adjusted EBITDA growth in the mid single digits. We've also provided additional segment level detail in the outlook section of our shareholder letter and slides. For comparison purposes, we also excluded the catch up portion of benefit from the litigation settlement and fiscal 24 results. Therefore, our guidance is based on fiscal 24 revenue of 4.47 billion and adjusted EBITDA of 1.488 billion. We now expect capital expenditures in fiscal 25 to decline further to a range of 1.3 billion to 1.4 billion, including capitalized interest of approximately 200 million per year, which will decline in future years as we continue placing satellites into service. We continue to expect investments in our satellite network and success-based capex to exceed two thirds of our total capital spend with less than a third associated with other maintenance and general capex activities. We're focused on reducing total capital expenditures, including the maintenance portions, and this will be a key focus of our planning and reporting processes going forward.

Now,

looking ahead to fiscal 26, we continue to expect year over year revenue and adjusted EBITDA growth. Our two-year capex number remains net neutral, so cash flow through the end of fiscal 26 is unchanged. We're also in the midst of our annual multi-year strategic planning process, and we want to complete that work before providing any more granular guidance on the quarterly progression for fiscal 26. Our strategic planning cycle goes beyond creating a financial outlook. It addresses our operational priorities, capital spending, competitive positioning, and portfolio optionality. We're very focused on developing a financial profile that unlocks greater value in both our government and commercial services businesses. We're continuing to work on each of the areas Mark mentioned earlier in the call to enhance strategic optionality, improve cash flow, and optimize return on capital. In closing, second quarter operational performance was quite good, capturing our share of large and growing markets, and we're focused on improving operational and capital productivity. We're strengthening our capital structure, and we have a long runway of opportunities ahead. With that, I'd like to

hand the call back over to Mark. Thanks, Gary. So at this point, I would be happy to take questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, simply press star one again. If you are called upon to ask question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star one to join the queue. Your first question comes from the line of Edison Yu of Deutsche Bank. Your line is now open.

Hi, good afternoon. Thank you for taking our questions. First, I want to start with, on the first page of the shareholder letter, and it was mentioned several times, you're evaluating all these proposals, ideas on the structure, capital structure, financial structure. You had this teach-in not that long ago about the assets in the AT. Can you perhaps comment on if you've gotten external, strategic or financial interest in some of these assets? And if there has been, have there been any sort of structural reasons as to why no sort of transaction has occurred?

Okay,

so one is, it's actually not unusual for us to get inquiries all the time on a number of our assets. So that part's not unusual.

I think,

and there's no

specific

structural blocks, roadblocks or bottlenecks to any transaction, but the main thing we're trying to say is we're just trying to be prudent and open-minded about the best way to work with our assets. And one of the things that we are assessing is just working on what the valuation is for them. And fortunately, one of the good things is a lot of those government assets, especially they've just been improving a lot recently. It anticipated some of that. It's good to see it come to fruition. And one of the things we're doing is just trying to factor that into how we work with them. But there's no, I think that

the point of being open-minded is just to say exactly that, that we're open-minded. Understood, understood.

And then just a follow-up on the L-band side, can you perhaps give us a sense of how you're thinking about that landscape? And obviously we've got quite a few efforts from a lot of players now on D2D. You have a lot of L-bands. And so I guess is there a vision that you may monetize some of that? Would you keep it all yourselves? Would you do both? How do you sort of think about just maximizing the value potential there?

Okay,

yeah, so the first thing is what we're most focused on are the things that we can do ourselves and with partners. And that was one of the things that we did in that area, which we think is a good step is forming the Mobile Satellite Operators, the Mobile Satellite Services Association. And the theory behind that, which we've talked about and I've talked about it in publics, addresses is that what we expect is that the capacity, airtime costs, speeds that can be delivered to terrestrial cell phones through these non-terrestrial networks or what's called directed device is really gonna be dependent on the amount of spectrum that's available there. And the main thing that we've been working on is promoting, identifying and promoting both the open standards, which are primarily the 3GPP standards around first narrowband IoT and then the 5G and radio combined with an open architecture system and then extending the concepts that have worked well in terrestrial mobile networks, which is to have multi-tenant infrastructure. So that part, I think we're making progress on it. I think the other things that are becoming evident, there's another approach that people are pursuing, which is to reuse terrestrial spectrum. I think that the, I think that what the bottlenecks are in reuse of terrestrial network, a net terrestrial spectrum is primarily impact other terrestrial spectrum through, there's a lot of discussion around what's called out of band emissions constraints and the amount of spectrum. And so what we think is happening is I think there's become more awareness about the value of licensed MSS spectrum in this space. And so I think that's good for us. Certainly I think that creates options for people that have spectrum. We have uses for our spectrum that are really, really important and valuable. And we've said multiple times, we don't intend at all to diminish the application of that. But what we are looking at are ways to augment our augmented space systems in a way that reserves, brings along the existing services, but also creates opportunity for these NTN and D2D services. And I think other MSS holders are looking at similar strategies for theirs. And all that would be enhanced by this concept of open multi network infrastructure. I think in the main, but I think that one of the things that is good for us is, you can see there's been a lot more discussion and a lot of speculation recently about the value of such MSS spectrum, how it might be applied. I think we're looking to do it in a way that is open architecture, mostly non-exclusive, in a way that just makes the service available to terrestrial partners. And we've gotten really good feedback on that. I think it's gonna take us a few more quarters to be able to solidify that. The other thing that we're aiming to do with these multi-tenant infrastructure approaches is to be able to do that and still achieve our objectives of consistently declining capex budgets. And that's, I think that that's, again, that's one of the things that terrestrial carriers have been able to do through multi-tenant shared infrastructure

as well. So we kind of feel like all that stuff's coming together.

Great, appreciate it. Thank you.

Your next question comes from the line of Rick Prentice of Raymond James. Please go ahead.

Hey, good afternoon, everybody. Hi, Rick. Hey, and welcome, Gary.

Look forward to working with you. Couple questions. Yeah, couple questions on my side. I wanna probe a little further. On the actively evaluating alternatives topic, can you let us know kind of what stage you're at? Have you hired bankers for the different areas? And when you mentioned that while those businesses are both delivering growth and increasing potential, are you talking about core and DAT there? But first question is on the actively evaluating and kind of what stage and where we're at.

So, Rick, as I said, right now, we're

just considering and evaluating alternative architectures. Those structures are gonna be influenced a pretty fair amount by what's going on in the businesses. And we were anticipating a pretty strong order that was gonna help set the direction for these businesses. And we got it. So I think that's helpful. There's quite a, you know, one of the things we mentioned we like about these businesses is they're pretty differentiated. They're very core to both US government and international government's use of space for national security and sovereignty. We think they're really valuable. So we're not, I think the

point

is we just want people to know that being open-minded as opposed to fixed and parochial about how we work with them. And we're gonna, you know, we are certainly aware that if you look at, say, what a reasonable sum of the parts valuation would be, maybe, you know, we're not getting full value for those. So that's what's causing us to think about other alternatives. But we don't, I would say we have not made any decisions. Those businesses are, we think are gonna continue to grow. So we're just gonna be shareholder-focused. That's the main thing.

Sounds somewhat early-stage, then, also, just recognizing the sum of the parts and wanting good quarters and then kind of let people know you're interested in hearing that.

In multiple ways, yes.

Sure, makes sense. And, Gary, I think you mentioned that you're in the midst of a multi-year plan before getting granular on quarterly information and fiscal 26. Is that an allusion to kind of the timing of positive free cash flow? Given one, there's been some capex split, but there could also be some other items out there.

Yeah, well, first, Rick, let's just want to make sure we don't bury the lead on, you know, the idea that the outlook is unchanged as we look across the two years. We did move 100 million of capex from fiscal 25 into fiscal 26, and we do want the benefit of that process before we get more granular on how the timing looks. You know, additionally, because we think it's gonna be a good opportunity to continue looking at how we optimize our spend. And, you know, let me just add a little bit of color to that. For things that we see as customer critical, you know, we really want to challenge and see if we can accelerate some of those to drive contributions sooner. For things that don't fall into that bucket, we want to challenge both the level of spend and the timing. When we can move things out, we really get two sources of value first. Time value of money, which I obviously don't need to explain to anybody on the call, but a lot of time to spend also has what I know is an operating tail, which means as we construct, the operating expenses start to spool up too. And, you know, that's nonproductive operating expense while we're building it. So as we go through this process, we just want to give ourselves the opportunity to, A, get better information on how things are gonna play out, but also an opportunity to just go back and revisit those assumptions for the opportunities I just described.

Okay. The last one for me is on the aviation side and flight connectivity. Big debate out there. Airlines seem to be choosing sides in technology or orbits. How should we think about LEOs versus GEO and the competitive dynamic in commercial aviation?

Okay. I think from an airline's

perspective and the airlines we're dealing with, I don't think they think of orbits first. I think what they think of is, what's the business model gonna be? And when we first entered the business and our first customers offered free service to passengers, including streaming, I think one of the things that a lot of the airlines realized pretty quickly was if every airline ended up paying for free internet service, then every airline would have additional expenses and no airline would have any competitive advantage relative to what they had now. So I think that the main thing that the airlines have been focused on is a business model that, and that business model has to be in the context not only of what they're doing, but what is the field doing as well. And so the main thing that we've been hearing with airlines is, okay, what are the opportunities to differentiate? Almost none of the airlines expect that the way they differentiate is going to be, is gonna last five years or 10 years. They're really looking at how they differentiate on some continuous basis. And low latency, which is the main advantage of LEO, is a good thing. It's one of the reasons that we're adding low latency to our maritime service. We're working with Lightspeed to do the same thing for Ka-Band. I think that then the issue is really gonna be differentiation. And also, I can tell you the other thing that's really become more and more evident, especially for us, I think in terms of numbers of planes that we have, what's becoming more and more evident is people just expect it to work. And so the real focus becomes on the 1% or 2% of the time that it doesn't. I tell you, that's where a lot of the focus is. And that can be for quite a variety of reasons, especially as you scale up.

So I

think those are kind of the things that we're having, that the conversations we're having with airlines are. And a lot of them, I think more of the, if you think of market segmentation, I think it's gonna be less around LEO versus GEO and more about business model, integration with entertainment, what are the roles of entertainment and connectivity, what are the monetization strategies there, are there things that are done to help monetize, what kind of friction do they create? I can tell you those are the real, the main issues, I think, that everybody's dealing with in this space, including, I think that what we're seeing is less and less focus on just the pipe and more and more on these issues of integration and monetization.

Assuming that the pipe is good, that's just sort of taking the pipe for granted part. Thanks. Have a good day. Sure. Thanks,

Rick. Your next question comes from the line of Sebastiano Petty of JP Morgan. Please go ahead.

Thanks for taking the question. I guess maybe perhaps just following up on Rick's question and to your comments, Mark, with UIL choosing their pony in the race or deciding to go free, how does that now permeate through the ecosystem? Obviously, one of your original partners, JP, has kind of been on that path for a while. Delta has discussed it. But this seems like a topic that we've discussed across commercial aviation, IFC, for the last couple of years. What are the next steps from here? Perhaps maybe the best way to put it in light of the UIL announcement. And then thinking about, do you see what is the feasibility or the inclination perhaps in some sort of hybrid, you know, Leo-Geo inflight connectivity solution similar to what you're doing with Nexus Wave and Maritime? Is that something that could make sense over time, why or why not? Thank you.

Okay. Yeah. And just, could you, when you said what are the best steps in light of the UIL announcement, are you talking about other paths or other airlines? Next steps.

Yeah, I mean, ecosystem-wide, if UIL has not made their decision to partner with Starlink and kind of go, you know, I think where do you see the chessboard perhaps playing out from here? Potential next steps or additional, how do strategies evolve from here in your point of view?

From an airline level? Yeah, I think the, so the

number one, I'd say a lot of the ingredients have been evident over the last 10 years. So the number one issue for a lot of airlines is monetization. It's like what they don't want to see is a substantial new expense without some value associated with it. So, well, and the way to put it is that, I'm just going to give you an example, is that one answer was when free Wi-Fi was first introduced at scale, it was, yeah, I'd rather fly in that airline. And so maybe they could get a premium in ticket prices, right, so that the measure might have been revenue per passenger seat mile. As an example, that that might be an example of a way that it was monetized. But if multiple airlines have three, then it's hard to get a premium on ticket price, as an example. So then people are looking for other ways to differentiate. And I think that that is a big part of what's going on now is understanding the different ways to differentiate and how to capture those. And they're quite, you know, just think about what you see when you fly on different airlines. You'll see everything from advertisements to promotions by telecom carriers, promotions by content providers. There are different tiers of service. Could be free texting, could be complete free Internet, could be Internet with or without streaming. I think that what people are what the airlines are looking for are what are the ways to monetize

who

what data is available. It's just it's that's what it's turning into from from our perspective. And I think that you're also seeing different airlines take different strategies about how much of those things they want to do in house, how much of them they outsource, how much and whether or not they have

seatback

displays, whether they're all seatbacks with connectivity and entertainment. I would say that when we started and we were the first to do free and to include streaming, you know, it was really just about what is the capability of Internet service. What has become about more about now is what what is the monetization and differentiation strategy? And so we've ended up. Adding quite a lot of software engineering capability, integration with entertainment, integration with third parties in order to do those features. And I can tell you that that and it's not there's no known destination because as things become successful, other airlines imitate them, whether they do them themselves or they have third parties do them. So that

that

is most of the discussion that we have. And I just I think it's. You know, certainly you can have a good, you know, going back to the Leo Park, Leo is really good for low latency and fast responsiveness. Only a portion of the bandwidth used involves that. And I would say that from the airlines perspective, that's one way to differentiate. But the monetization way is another. Then from our perspective, what we what we're seeing is that it's definitely possible to integrate Leo and Geo or any, you know, any multiple any different orbits in a way that creates effect. You know, the same effect for passengers. So the thing, you know, and just to put things in perspective, you know, the thing we have a ton of data about usage, the thing that has, you know, that often turns out to be a bottleneck on usage is when large numbers of planes are in the same area. And that's that's the place where Geo really shines. The fact that the vast majority of bandwidth consumed is on streaming made and that streaming is not latency sensitive. That's what creates economic incentives around combining Leo and Geo. So those those are the things we're doing. I can tell you that among our customers, there's a lot of enthusiasm for that. And the first place we brought it to, you know, we brought it to market is in is in maritime. And I think the effects that we're creating for customers are they really can't tell the difference between that and an all Leo solution. I think the place they will be able to tell the difference is in in the very high demand areas, which are usually ports for maritime or airports for airlines. And sometimes those over. So this is part of what we've been saying for quite a while. I think that we're seeing that bear out now that the, you know, some of the like one web is in initial services. I think we'll see the same thing with flight speed as well. And what we're going to what we're aiming for is to integrate the two. We think that there is a way to integrate them. That's better than either one on its own. That's what we're aiming for.

To make that answer your question.

Yep, appreciate it. Thank you.

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

Thanks a lot. Good afternoon. I was wondering if you could just update us on any new developments on the three F2 and F3. I see the commercial timing is unchanged. Any more details around launch timing or any other milestones that you've hit and also where you think you're going to deploy the capacity going forward. And then just following up on the question, could you help us size the potential exposure and the timing? It sounds like United is keen to move aircraft onto the new system quite quickly. So we'd love to get how you see that going given the contracts you have with United. Thanks.

Okay.

On the new satellites, the reason we put the roadmap in the way we did is because the in-service date is really what drives our ability to monetize the satellites. So those are unchanged now. Really, as we go through this, there is actually a lot of work involved in holding to those schedules and working with our suppliers. So there is work going on. Some of those, and this is the reason that we've focused on the in-service dates, is that there are opportunities. If some things go faster, we can benefit from that. If some things go slower, we have the opportunity to try to accelerate other parts of the program, maybe at an additional expense or additional resources. But so far, we've been able to hold to the in-service dates. And I think that's how we're thinking about it. I think that's a good way for investors and customers to think about it as well. But we are making good progress on

them.

The main, going back to your other questions, fight to the main things that we've been doing. We did talk about this before, a very extensive analysis of what the failure anomaly mode was on Flight 1, come up with two main mitigation approaches. One is a way to prevent the failure mode from occurring at all. And the other one is to beef up the structure in a way that even if that failure mode were to occur, the structure would still deploy effectively nominally. So the main things that we've seen that have been good have been the implementation of those directive actions. So that's the main thing. The spacecraft itself is basically all done and in storage just waiting for the reflectors to be installed. Flight 3 is getting close to the same situation where we're just waiting for the reflectors to be installed. The main plan that we've discussed is to put Flight 2 over the Americas and Flight 3 over Asia Pacific.

And then on

the United thing, we're not going

to, I think that we

would refer people to United for their plans on deploying Starlink. They have said that they're going to go through an evaluation process to get there. It would be inappropriate for us to comment on that. We are continuing to grow airplanes in service. We had previously given a target of about 4,200 commercial aircraft in service at the end of this fiscal year. We should be, you know, it will be very close now. We had substantial margin before, but given the ongoing delivery delays compounded by the strike, it's going to be close, but we think we're going to be there. We still see, and we have about ,500-ish planes in backlog beyond that. So we're going to continue to grow. We have factored in inputs from United into our forecast, but it would be inappropriate for us to describe what that is for us. But we see ongoing growth

at a good clip for the next several years.

Thanks,

Mark.

Did that cover all your questions? Yes, thank you. Thanks,

Tanya. Your next question comes from the line of Mike Crawford of B-Ridey Securities. Please go ahead.

Thank you. Just continuing on the when we can expect in service, Flight 3 and Flight 2 for BISAT 3. I appreciate the pictures you've provided us in August and now with this report today on the BISAT satellite roadmap. But when would be the earliest that Flight 3, these satellites, each could go in service at this point?

What we've said is mid to late 2025 for Flight 3 and late 2025 for Flight 2. And that's, I think right now we're not, that's a good range for us to get at this point.

Yeah, I guess I'm a little confused on that because, you know, from the picture it looks like Flight 2 is further along, you know, its final ground test stage. But BISAT 3 is going to catch up and pass it.

Yeah, so Flight

2,

it has to do with the launch vehicle and the specific mission. Flight

2

has a

longer orbit raising time than Flight 3. Okay. Thank you. And then Mark,

after BISAT 3, you're talking now today about maybe some multi-tenant infrastructure. I think when you and I talked a couple of months ago, you were talking about maybe just simpler, faster to build satellites, maybe even proliferated geo. Is there any to diffuse risk and enable more agility? Is that all part and parcel of what you're thinking or have thoughts evolve more?

No, those are, okay, those are two different approaches and they're for two different purposes. The area where we're getting good interest in the multi-tenant environment is in the D2D, the mobile application. And that's really because of the standards and the open architecture that's available. So if you look at the, and again, it's these three GPP standards that we think are going to be really a lot of the foundation of these non-terrestrial networks. So the approach that multiple, and just to be clear, I mean right now, if you look at the forecasts, there are good opportunities and existing opportunities for mobile satellite services that are not 3GPP standard. But the 3GPP standard modes, because the market is, the phones that can use those are so large, that's what's expected to dominate. So what we've described is essentially a satellite architecture that can work multi-orbit that allows, think of it as just to use the types of services that are in now. So remember, Iridium has its own satellite, its own infrastructure, its own handsets, its own wave, GlobalStar has its own, Inbarsat has its own, Thria has its own. When you go to these 3GPP standards, you should end up with devices that could work on the RF bands of each of them. And they also, if they are using the same standards and the same network architecture, you could make any of those devices work on any of those constellations, at which point, if the market is as big as what it looks like, it would make sense just like it did in terrestrial for operators to share infrastructure. It would allow much more, it should allow better return on capital for everybody. So that's where we're getting traction on that one. And we've come up with some pretty creative and innovative space and ground designs that allow operators to do both the existing MSS services and to improve those MSS services, much higher speeds, lower cost of airtime, and then also to have the D2D modes to it. So that's what we're doing. That's what we're doing. The other question that you raised that we have been working towards is, can we get, think of it as some fraction of the throughput and functional capability of a ViSat-3 satellite at an equivalent fraction of a capital cost? And one of the things that we've seen, even though I think we do think that the ViSat-3 satellites are going to do what they're intended to do, the first one, just once you account for the mechanical deployment issues works just the way it's supposed to, it's pretty clear that the large satellite manufacturers, it's something of a struggle. It's exotic to build these, they're kind of like what they call exotic or squizy technology. So what we've been looking at are much simpler technologies that would let us do more like what you're describing, which is a proliferated geo approach. And that is, I think there are others that are looking at low cost geo. The thing that's unique about what we're trying to do is to get much, much higher capacity and much, much higher economic yield per capital dollar for those. What we're finding is quite a few other satellite operators that are very interested in the same things. So that's what we're doing is we're exploring with them technical approaches and the economics of them. And that's the second approach that you described in geo that we're working towards. And then the other point I'd make is, which really goes to the question that was asked before, is can we do that in a way that gives us these hybrid, Leo and geo architectures that allows us to compete with the pure Leos, but in a way that's really well suited for mobility?

Okay, thank you. And I have a last question. I think I know the answer, but the last question is, with the, I think, fivefold increase in bits you're going to be able to deploy once you launch these two ViOSAT-3 satellites, is there any change in your belief that you will be able to deploy this as ample demand for you to deliver managed services and bandwidth to customers with this capacity you're bringing online?

There is a lot of demand. And I think one of the ways you can tell that is even these Leos that have put out really big numbers about what they're going to deliver don't deliver that all the time, right? Or they struggle to reach the peak speeds all the time or in the highest demand places. So we see a very large amount of demand. That capacity is one of the ways to differentiate. There's a little bit of diminishing returns. Do you need, how much high definition do you really need on an airplane? For right now, there's lots of people who are streaming on an airplane at an airport. There's a ton of demand in those situations.

All right. Thank you very much.

Your next question comes from the line of…

Go ahead, Nick.

Sorry. Yep. The next question comes from the line of Chris Cote of Cote Space. Please go ahead.

Thank you. Mark, I just want to follow up. You did mention when you were talking, I think, about -to-Device, you talked about a concept of a multi-tenant satellite, which is that part of what you were just discussing in the strategy, which I thought was more focused on the SATCOM side of the business rather than -to-Device, or do you see those two as kind of one and the same?

So the multi-tenant, just to be clear, think of…

So when we talk about multi-tenant, a simple way to think about it is think of cell towers that are multi-tenant, right? They're designed to cover the entire range of spectrum and to support whatever the network generations are and the backhaul that are required to support those. People have done multi-tenant satellites before. Think of like condosats in the geo environment, and you can have multipurpose, I mean, even Iridium did condosats with ADS-V, for instance, and MSS. So we're trying to make a distinction between, in the -to-Device space, is really business model as well as the technology. In the geo space, things might look a little more like condosats or shared satellites, but don't really go to the same extent as the -to-Device would because it's going to be so dominated by these 5G standards.

Okay. And for that, I'll call it the condosat business model. Where are you in terms of customer outreach and basically building a pipeline on that? And likewise, on the flip side, I think that's a bit of a distinct supply chain, I would think, from what you currently source and what sort of hurdles, if any, are you seeing in that effort?

No, I would say the best examples, some of the best examples of that really revolve more around network standards than technology. And so we've done this pretty successfully for quite a long time with partners in Asia Pacific and in Latin America. We have several more already in the works where we would share networking features pretty much on a demand-assigned basis where they can support their national needs but really work with us for getting access to different verticals or for global roaming. And we're finding more. We actually have quite a few of those types of arrangements in the works using existing satellites. Some of them are ours. Some of them are others.

Gotcha. And hopefully, we'll roll just quickies. I'll just be direct. Did you remove any United aircraft from your previous order backlog? If not, can you give us a sense of what sort of exposure you have given the announcement with United on the 1,000 aircraft that they're sending over to Starlink?

No, okay. So we're not going to – it would be presumptuous of us to do that. I think people should talk to United about what their plans are for each of the services that they have. What I can tell you is we will bake those into our forecast, our understanding of them. We're not going to break them out separately, but the forecast that we give for airplane count will reflect

not

just United but all of our airline customers' plans. Gotcha.

Sorry, Chris. We're running – we're starting to run long, so I think you've had your more than one follow-up question. So, Meg, can you go ahead and move to the last questioner, please?

Yep, sure. So we have one last question from Ryan Coons. Your line is now open.

Great, thanks. I'll keep it quick here. You talked about decelerating broadband headwinds. I'm not sure your numbers in services really reflects that in fixed and other in the quarter. I wonder if you can maybe unpack your thoughts there on – is there a declining competitive threat on fixed that you're feeling from Leo? Okay,

so I'm

just – you know,

fixed, the main things are – the main ingredients there – and it's been the same thing as one is moving bandwidth from fixed applications into aviation. The other one, which is sort of an industry-wide issue for everybody, is the growing per-user bandwidth demand requirements. So if we have a – if we're not adding bandwidth from our satellites, then we're probably going to go down. And we've shown this effect before, is that as user bandwidth expands, then the number of subscribers you can support goes down for the same amount of bandwidth. So those are the two things. I think from a -over-year perspective, the dollar amount on the fixed decline is decelerating.

Got it. So you're saying it's part of your plan to move bandwidth anyway toward mobile and IFC, so the impact is less, even though it stands out as a double-ditioned deciler? I mean,

some of the bandwidth that was contributing to fixed revenue is now contributing to mobile revenue and government revenue. Got it. All

right. Thanks. I'll wrap it up. Thanks, Mark.

That concludes our Q&A session. I will now turn the conference back over to Mark Dinkberg, CEO, for the closing remarks.

Okay. Well, thanks very much, everybody, for participating in our call and for sticking around in a little bit excess. We appreciate all the interest and we look forward to speaking again next quarter.

Thanks. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.