ViaSat, Inc.

My name is Dustin, and I will be your conference facilitator this afternoon. This time, I would like to welcome everyone to Viasat's first quarter fiscal year 2026 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. I would now like to turn the call over to Ms. Lisa Curran, Vice President of Investor Relations. Ms. Curran? You may begin your conference.

Thanks, Justin. 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 Q1 fiscal year 26 shareholder letter on the investor relations 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 law, 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 an annual report on Form 10-K. These forward-looking statements speak only as of the date 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 Dankberg, Chairman and CEO.

Good afternoon, and thanks for joining us today.

With me, along with Lisa, we have Gary Chase, our Chief Financial Officer, and Sean Duffy, our Chief Accounting Officer. As always, we encourage reading the shareholder letter we posted on our website and referencing the slides we also posted earlier this afternoon for more details. Our first quarter fiscal year 2026 results yielded a bit stronger than expected year-over-year revenue and adjusted EBITDA growth. Our first quarter performance reflected healthy market demand in our most important business lines, more than offsetting lower IP rise levels. intellectual property, licensing revenue, and expected pressures in fixed broadband businesses, as well as a good cash generation. For Q1 fiscal 2026, we had a net loss of $56 million compared to a net loss of $33 million in the first quarter of fiscal 2025. and that was primarily due to improved operating performance that was offset by an increase in depreciation and amortization and a higher income tax provision. Revenue grew 4% year-over-year, driven largely from double-digit growth in the defense and advanced technology segment, which reflected the strength and diversity of our unique technology portfolio, strong market positions, and attractive secular drivers. Adjusted EBITDA increased by 1% year-over-year, primarily from double-digit adjusted EBITDA growth in information security and cyber defense, partially offset by lower intellectual property licensing revenue and declines in maritime. One of our highest priorities remains getting Flights 2 and 3 of the Viasat 3 series into service, and our progress is reflected in the updated accompanying satellite roadmap. Each of the new Viasat-3 satellites is designed to enable more bandwidth capacity than our entire existing fleet, creating opportunities to grow in each of our franchise businesses. For Flight 2, we completed implementation and testing of the corrective actions for the deployable reflectors and have begun the process of final flight installations and closeouts. We've also completed ground operations and defined launch campaign schedules and launch day operational plans with our launch partners. We expect to ship Flight 2 to the launch site by the end of next month, which would be September of 2025. For Flight 3, we also completed testing of the deployable reflectors and began the process of preparing the spacecraft for mechanical environmental testing. We continue to monitor the launch manifest and range priorities for our launch vehicles and our Cape Canaveral. As previously shared, As we achieve satellite integration and test milestones on the spacecraft, we reduce the magnitude of the bring-into-service schedule risk, but of course, that doesn't eliminate schedule risks extrinsic to our own spacecraft or launch campaign. We've slightly adjusted the in-service state roadmap to better reflect various potential schedule uncertainties post-shipment for flight three. ISAT 3.1 services continue to scale steadily with more than 60,000 flights occurred to date while fulfilling high-performance service level agreements delivering fast and free Wi-Fi. We've pioneered many of these services and business models and are continuing to win in our target markets, leveraging a combination of our existing and planned fleet with our third-party bandwidth partners. We also continue to advocate and support an open architecture standards-based approach to non-terrestrial network, or NTN, roaming and interoperability with terrestrials using a significantly more cost-effective aggregation, coordinated mobile satellite spectrum. Our approach is designed to leverage the 5G ecosystem, which can substantially reduce capital and operating costs for Viasat and other operating partners, and should reduce costs for consumers and help drive broader non-terrestrial network adoption. The strong start to first quarter is affirming our ability to position fiscal 2026 as a launch year. We are focused on continuing to more thoroughly optimize the integration of Biosat and Inmarsat resources and establish the growth opportunities and associated earnings power of our franchises to yield attractive cash conversion. We see opportunities to sustain and enhance durable competitive positions while simultaneously reducing capital intensity. We're balancing investing for growth in target markets while continuing to opportunistically strengthen our capital structure via cash flow improvements, addressing debt maturities, and ongoing portfolio reviews, all intended to help de-lever our balance sheet. We're determined to exit fiscal 2026 with a solid foundation for accelerated and sustained growth and cash generation. We have a comprehensive plan to reinforce our competitive positions, portfolio value, and drive returns and shareholder value. Fiscal 26 is the year to reposition for growth. As I said before, there will be challenges, but we're playing to win.

With that, I'll hand it over to Gary.

Thanks, Mark, and good afternoon to everyone joining us on the call. I want to start by thanking the Viasat team for all the hard work that went into delivering our fiscal 26 first quarter results. Last time we were together, I noted that we were starting the year facing some headwinds that we're working to address. OEM aircraft delivery rates continue to recover slowly. In addition, airline partners have increased the number of grounded aircraft as they manage new macro uncertainties. And U.S. fixed broadband remains pressured until we bring Biosat 3 Flight 2 into service. During the quarter, while benefiting from a bit of timing, we also absorbed lower IP licensing revenue from Prelosware. The sale of our energy systems integration business, higher Biosat 3 ground build-out-related OPEX, adverse foreign exchange impacts, and elevated legal costs related to Legato. In the first quarter, despite these headwinds, we generated revenue of $1.17 billion and adjusted EBITDA reached $408 million, up 1% year-over-year for a 35% adjusted EBITDA margin. Growth in the face of these headwinds is a testament to the commitment of our teams to deliver for our customers. I'm pleased we're off to a good start, but we need to stay focused to deliver on the year. You all know fiscal 26 is an important one for us as we position the business for higher earnings power in the years ahead. We're expecting to add substantially to our capacity base with two 5SAT-3 satellites and judiciously adding third-party capacity, continuing to grow our aviation, government, SATCOM, and DAT franchises, return our maritime business to growth with Nexus Wave, and expect our fixed broadband business will bottom out with the capacity 5SAT-3 Flight 2 is expected to bring. Executing on these opportunities will drive the three key pillars of our financial journey. First, building our franchises. increasing earnings power while investing in our future with discipline. Second, generating sustained and growing free cash flow, which is the best means of achieving our third objective, which is reducing the leverage that's pressuring our debt and equity prices. Our teams focus on execution in fiscal 26, targeting a sustained turning point on all three of these fronts, leading us into an exciting fiscal 27 and beyond. Mark spoke to the progress we're making on Biasat-3 and the other ways in which we're building our capacity. Let me highlight just a few examples of how we're building the backlog we need to monetize that capacity and grow profitably. The TAM Group selected Biasat to Mars service on wide-body long-haul aircraft. This transformative next-generation connectivity service will utilize a multi-orbital network of GEO and LEO satellites, ensuring a high-speed, high-resiliency, low-latency Internet connection with global coverage. In addition to benefiting passengers, IFAT Amar will optimize operations with real-time communication between crew and ground teams, data transmission for predictive aircraft maintenance, and route optimization via cockpit connectivity. Our maritime product, Nexus Wave, surpassed 1,000 orders since introduction for the fully managed high-speed bonded connectivity service. In the first quarter of 26, we installed 190 vessels, more than double the rate of the prior quarter. Service has gained momentum in its first six months on the market with global customers adopting Nexus Wave for their fleet. Our teams are now working to satisfy that demand and continue to steadily increase installation rates. So we exit the year with a substantial Nexus Wave installed base. We received InfoSec and Cyber Defense awards of $224 million this quarter, an increase of 225% year-over-year, and a book-to-bill 2.2 times in this business area. Awards reflect sustained strength and demand for various high-assurance encryption products from customers to meet network and data center security needs, especially as more benefits are realized through data fusion and AI. Now let's turn to the financial results for the first quarter. All of my statements will reference the first quarter of fiscal 26 and the prior year period, the first quarter of fiscal 25. Awards were $1.2 billion, led by our DAT segments. Net loss was $56 million, an increase of $24 million from the prior year period, principally due to an increase in depreciation and amortization and higher income tax provision. Adjusted EBITDA was $408 million, a 1% increase year-over-year driven by InfoSec and cyber defense and aviation, partially offset by maritime and lower IP-related revenue in tactical networking and advanced technology and others. Free cash flow is a critical focus area for us. We generated $60 million of positive free cash flow this quarter, bringing our trailing 12-month tally to a positive $88 million, with another quarter of double-digit growth in operating cash flow and a double-digit decline in CapEx. Continue working to find ways to improve operating cash flows and lower the capital intensity of our businesses. We're laser-focused on driving a sustained and growing free cash flow in the years ahead. Finally, net leverage was flat year-over-year, reflecting strong free cash flow generation, and ended the quarter approximately 3.6 times, trailing 12 months to just see the dot. Now let's turn to some segment highlights. In the first quarter of fiscal 26, communications services revenue was $827 million, flat with the prior year period reflecting growth in aviation and government SATCOM, offset by the sale of our energy system integration business, along with expected declines in maritime, and U.S. fixed broadband. Aviation grew 14%, led by a 9% year-over-year increase in commercial aircraft and service, combined with higher average revenue for aircraft. With continued growth in our installed base, we did see our backlog decline slightly on a sequential basis to about 1,580 aircraft, down from 1,600. Our government SATCOM revenue grew 4% year-over-year, primarily reflecting maritime services for U.S. government satellite services. Maritime revenue declined 5% year-over-year as vessels and service were down. Non-safety standalone L-band offerings continue to migrate to multi-band, multi-orbit solutions like our Nexus Wave offering. Our maritime business grew 3% sequentially, and we continue to expect a return year-over-year growth in maritime by the end of fiscal 26. Fixed services and other revenue was down 13% year-over-year as U.S. fixed broadband subscribers continued to decline. We ended the quarter with 172,000 subscribers and $115 average revenue per user. These revenue impacts, along with lower segment R&D, drove communication services segment adjusted EBITDA to $322 million, up 5% year-over-year. Turning to defense and advanced technologies performance during the quarter, our defense and advanced technology segment awards of $428 million increased 22% versus the prior period, led by Infosec and Cyber Defense. Revenue was $344 million, up 15% compared to $300 million in Q1 fiscal 25. Driven by growth in Infosec and Cyber Defense, base and mission systems partially offset by lower IP-related revenue. Infosec and Cyber Defense product revenues were up 84% year-over-year, driven by high assurance encryption products. Base and mission systems revenues were up year-over-year 20%, driven by antenna systems. Tactical networking revenues, including trellisware, were down year-over-year by 4%, driven by lower IP-related revenue. As a reminder, in the first quarter of fiscal 25, trellisware benefited from a large order for upgraded licenses across radios already deployed by U.S. and allied forces for a $25 million revenue uplift in the prior year period. Advanced technology and other revenues were down $9 million year-over-year, driven by lower IP-related revenue from our forward error correction technology used in optical networking. First quarter 26, TAT adjusted its cost with $87 million, down $9 million compared to the first quarter of fiscal 25, reflecting less high-margin IP-related revenue flow-through, excluding the approximately $25 million impact of lower IP-related from trellisware, adjusted EBITDA would have increased year-over-year. Overall, the first quarter was a good start to fiscal 26 with a balance of growth, cash generation, and efficient investment in our future. We saw strength in DAT and aviation, exciting new program wins, and very strong awards for DAT. We generated positive free cash flow while both our BISAP-free satellites continued to progress, all of which positions us well for the future. Let me now move on to our outlook. Continue to expect fiscal 26 revenue to be up low single digits year over year, with flattest year over year adjusted EBITDA growth. And we do expect some variability quarter to quarter. We're pleased to have started the year with modest growth in our first quarter. We remain focused on delivering not just the numbers, but the business outcomes that tee up stronger performance in the years ahead. We've provided additional segment level detail in the outlook section of our shareholder letter and slides. Our focus on cash flow remains. as does our focus on reducing the capital intensity of our business. And we now expect capital expenditures for the year to be about $1.2 billion, including $250 million for the completion of the BISAT 3 constellation and approximately $400 million for NMARSAT. $1.2 billion is an improvement of $100 million from our guidance last quarter. We continue to believe sustainable, positive free cash flow inflection will occur in the second half of our fiscal year as we get beyond the elevated capex relative to the related to the development of our Biosat 3 space and ground networks. Guidance does not include the anticipated impact from Legato's settlement payment. See the related press release for additional details. Post the bankruptcy court confirmation hearing of reorganization, we can finalize financial implications. Before closing, I wanted to touch on our framework for reducing the leverage that's impacting our debt and equity prices. Our goal is to improve our cost of capital while maintaining flexibility. Our first priority will be to repay our $300 million MRSAT 2026 term loan fee. That will reduce our cash interest expense and drive incremental free cash flow, which in turn can be used to further pay down debt. That's the virtuous cycle we're determined to initiate. Generating free cash flow and using it to retire debt is the best way to reduce the capital base in our business and drive returns higher. After addressing the MR-SAT term loan B, we'll turn our attention towards achieving our desired long-term capital structure, which we know will start with a long-term leverage ratio below three times EBITDA. While we'll be opportunistic given market conditions, we'll also be purposely working to achieve a value-maximizing end-state revised SAT in our shareholders. In closing, our first quarter fiscal 26 operational performance was good. We're capturing our share of large and growing markets and remain focused on improving operational and capital productivity. Fiscal 26 remains on track with a number of important catalysts ahead. We continue to leverage our backlog, earnings, power growth, and our aviation, government, SATCOM, and DAT franchises. We plan to accelerate the rollout of Nexus Wave and deploy Viasat-3 flights 2 and 3, which will help to reverse downward trends in maritime and U.S. fixed broadband. Fiscal 26, we are working to deliver our commitments and position our franchises for sustained and profitable growth and free cash flow, with easing capital requirements following the deployment of our Viasat 3 constellation. I'm thankful and excited to be part of the Viasat team as we work together to realize all the opportunities ahead. With that, let me turn the call back to Mark.

Thanks, Gary. Before opening the line for questions, I'll briefly address last week's letter from Carinade Capital Management. BiFab consistently engages in dialogue with its shareholders and welcomes constructive input aimed at driving intrinsic shareholder value. We are focused on strengthening our franchise's earnings power, delivering sustainable, compelling operating and free cash flow, and reducing leverage while we continue our previously announced an active review of our portfolio. We believe there's tremendous value in our franchise's assets as a leader in satellite infrastructure and connectivity, in-flight connectivity, and critical military and government communication. Our businesses are well-positioned to compete globally. The board and management team are carefully evaluating Carinade's ideas. We look forward to continuing constructive and collaborative dialogue with all our stakeholders, including Carinade.

So with that, Dustin, let's please open it up for questions. Thank you.

If you would like to ask a question, please press star and the number one on your telephone keypad. Also, if you'd like to withdraw your question, please press star one again. We'll be opening up the floor of question and answers. And the first question comes from the line of Louis DePalma from William Blair.

The line's open. Great. Thanks. Mark, Gary, Lisa, and Peter, good afternoon. Hi. Motorola Solutions, which is one of the companies that I cover, they recently announced a deal to acquire Silvis Technologies for $5 billion. And many investors were wondering, and I was wondering as well, how does Trellisware compare with mobile ad hoc networking and tactical networking peers, and what are the major industry dynamics for Trellisware's growth, and do those overlap with what's been taking place with Sylvus?

Okay, so that's a broad question. I can tell you both of them are in the mobile ad hoc mesh. networking space, which you described, which is basically a way for relatively large numbers of terminals to communicate with each other. And in some self-forming architecture, the Sylvus approach, our understanding is it's mostly Wi-Fi based, whereas the Travis Ware system is based on a proprietary network. networking way for them, specifically designed for ad hoc mesh networking. You know, we can't really comment that much on what, you know, what Sylvus' valuation is, what drives their value. I think for Trellisware, the main operating mode has been licensing. Trellisware also sells hardware that implements their networking methods. But the main growth driver for trellisware has been that the U.S. government and a number of allies have adopted the trellisware waveforms as standards for their radio communications. So that's really been what the driver is for growth as the U.S. and those organizations and allies, especially those that want to interoperate with the U.S., have been acquiring radios that are capable of running the Travis Square waveform, and then the original equipment manufacturer for those radios includes Travis Square. So those are some of the differences. I think there's other differences in terms of applications and and distribution. There's clearly differences in Motorola's markets compared to the markets of U.S. government suppliers. We think, you know, clearly, you know, Charlesburg is on a good growth trajectory. It's been very widely adopted for basically for individual soldiers or small teams of soldiers and for vehicles and aircraft. There are a number of additional markets that Charles Square is both attracted to and where their technology would be really, really interesting. And so we see really good growth potential with Charles Square. But, you know, I'd say... we're not really the ones to make a direct head-to-head comparison between them.

Great. That makes a ton of sense. And related to that, you talked about the further growth prospects in terms of trellisware and the waveform being used for other platforms. Could it also be used for aerial platforms and weapon systems in terms of Internet of Things and on drones as well?

Yes, it can. Those weren't really the initial focus for Trellisware. A lot of what Trellisware has done, it's been really successful, have been in especially U.S. Army programs of record, where they were aimed at specific functional capabilities, mostly in the areas that I described, that is individual soldiers, teams of soldiers, or platforms, which included airborne platforms, air and land vehicles. But we've had a lot of success in those markets, and the waveform is also good, You could see extensions to unmanned aerial vehicles, unmanned land vehicles, areas like that, where we think a lot of the same features that have made the waveform successful for these radio applications would also be beneficial. But the distribution strategy for trellisware has so far really been based on government standards. That is, they want all these radios to interoperate. There's less... I'd say there's been less focus on standardization in some of these new emerging markets. And so it doesn't mean that there won't be. I think to the extent that there is, there's opportunity there. But it's just been kind of... The market's developed in different ways. And so far, we've not been as focused on it.

Great. Thanks. And you, for the broader defense and advanced technologies segment, you announced very strong bookings. And I think you highlighted certain large awards for cybersecurity and I believe it was encryption. What is the general penetration of your next generation encryption products? And is there... a large upgrade cycle going on?

Yes. So first of all, there is definitely a large upgrade cycle going on. We've talked about that, which really has to do, I mean, the fundamentals of it are making national security encryption systems robust to quantum computing. That is a big driver. And so that is been accelerating sales. or encryption products due to that refresh. But the other, then we're kind of in two different, think of it as two different domains. One of the domains that we have really good market share in and has been growing fast is the data center side. So think of that as secure cloud data centers. Our devices are used for inter-data center communications like which is really important for things like fusing different sources of information that comes into different data centers. So the more and more work that's been done on fusion of different sensor data is really driving demand. The other really big thing is the use of AI in cloud computing centers, which means that there's lots of inbound inquiries and probably more data sources that'll be combined. So those things are, think of it as the market's growing, the data center market is clearly growing, the market for type 1 secure data centers is growing, and so the things that are really discriminating those products are, number one, having security certifications, which that's a big discriminating feature, and then the other one is building in the next generation equipment, the next generation encryption standards. So we received awards on there. That's another discriminator for us. And then finally, the last big one is given the volume of information, higher and higher speeds. So those represent more value for the users. They also save on power, data center space. All those things are key drivers. This is one that we've been working on for a long time. We think that kind of the secular drivers are about as strong as they've ever been, if not stronger, in that particular market. The other market is kind of the tactical part of it, which would be, think of it as less the cloud center side, but the users who want access to those cloud centers, either to put data into them or also to pull data out. That is either raw data or data that's been used. All this is really, think of it as there's been a lot of talk about kill chain, kill chain involving sensor to shooter. So you've got demand side on the sensor side, demand side on the shooter side, and more and more of that's going through data centers. So we aren't yet the leading provider for the tactical user side, but given the refreshes that are going on, We see lots of good opportunity to gain market share there as well.

Yeah, we also cover Palantir, which is they've experienced rapid growth with their Maven smart system, and that seems to be related to this sensor to shooter. And there's also a program with the Army for tactical intelligence targeting access node with Palantir. And that seems to also be related, at least as you describe it. So as these software platforms that connect to AI systems get rolled out, would adoption of your encryption services continue to increase?

Yes. I mean, we think that's really what the driver is. And what Palantir does, does often is they combine data from disparate sources in effective ways. And that's a good example of why there's more sensor data coming in and then that more of the decisions that are being made are coming out of these data centers. And so we think there's a big opportunity on both the data center side and on the tactical user side And there are very few companies that have the certifications and the skills for these markets. We think it's a good growth business. It's one that we've been grooming for a while.

Excellent. That's it for me. I know those are a lot of defense-related questions, but... It's very interesting business given everything that's happening geopolitically. So thank you, Mark, and thanks, everybody.

Thanks, Lily. Thanks, Lily.

Thank you. Our next question comes from the line of Rick Prentice from Raymond James. The line's open.

Excellent. Thanks. Good afternoon, everybody. Rick. Rick. I want to take a shot at a question. We are seeing a lot of spin codes in our coverage zone. I know you can't talk specifically, but philosophically, can you kind of tee up for us the pros and cons as companies think about separating their businesses? Obviously, something might be growthier, something might need different capital, something might need different leverage, but is there any philosophical framework you can help us understand at Viasat?

Okay, yeah, so we'll talk about a couple things. One is, you know, one of the lenses that we use when we look at our portfolio of businesses that we've talked about a fair amount is synergy. And that is, you know, are there really benefits for keeping two businesses under the same roof? And generally, you know, what we're seeing is space capabilities are being integrated more and more into businesses. into a number of different systems, both commercially and government-wise. So that's one example. And some of these areas, sometimes the synergies increase, sometimes they decrease. One area where there was decreasing synergy and we acted was on the tactical data links area where there was quite a bit of new work going on in there. we had chosen to invest in other areas, and it made sense to divest it. I'll give you an example of a couple areas that are converging. One is some of the work we just talked about, about encryption, which is really about cybersecurity and space, where, you know, it's become more and more evident that, especially for large constellations, one of the The single failure modes common to an entire constellation is cybersecurity. And so one of the elements of our crypto business that deals with the intersection of cyber and space, that's one where there could be an example of increasing synergy. But another lens besides the synergy lens that we use is the one that you mentioned, which is the capital needs of each of our businesses. One of the things is that our satellite services businesses have historically been very capital-intensive, whereas the product businesses and our government businesses have been capital-wide. One of the things that we are working on, and we've talked about a number of times, is reducing the capital intensity of our satellite services businesses to try to make the two maybe have more common capital needs. And as we're, as we, you know, evaluate how well we can do there, that'll be a factor in how we think about spin-offs. But those are two of the lenses that we've used in the past and have talked about.

Great. Speaking of capital efficiency and capital intensity, one of the other satellite operators who has pretty meaningful S-band spectrum around the globe and some AWS for patches up spectrum wise, terrestrially kind of surprised a bunch of people last week throwing out a $5 billion peak funding for a, an NTN D to D Leo throw as many acronyms out there, I guess, as I can, but help us understand, you know, as the cusp of positive free cashflow and that focuses Gary was talking about free cashflow generation, help us understand you guys have a span to, where you see that market going and how it might be more effective for you to compete in that marketplace.

Yeah, okay. So what is, I can tell you, it doesn't strike us that a $5 billion capital investment is consistent with reducing the capital intensity of our business. So that's not, I can tell you, that's not what we're looking at. I mean, what we are looking at is that we have a strong presence in L-band and S-band. We see big opportunities for evolving our existing L-band mobile satellite services businesses where we have strong positions in especially aviation safety, maritime safety, and there are unique benefits to L and S-band, especially for small platforms in those environments, and especially as there's going to be a growth of unmanned vehicles air, land, and sea. Those are all really good target markets. One of the things that we have been talking about and we've been working with other operators on is a concept that's been very successful in the terrestrial world, which is to create shared infrastructure among multiple operators. Think about it. We talked about this before. In the terrestrial world, it's Satellite operators that see a large market have decided that there's no point in trying to distinguish their business by steel and concrete towers or utilitarian fiber networks. So there's opportunities to do the same thing in satellite. Traditionally, you know, all of the mobile satellite services operators have all looked at each other as arch enemies. I think that now there's an opportunity to come up, especially as that business grows becomes more focused on open architecture and standards, the 3GPP standards, there just doesn't seem to be a reason that each operator has to have space infrastructure that's unique to their space segment and that one of the things that we have is really good technology for building wide band systems that can serve multiple operators and still be able to do all the beamforming work that's needed to get the D2D powers, you know, power flux density you need on the ground, sensitivities you need in space. So that's what we're working towards. And our objective is really, A, to be able to build a system at much substantially lower costs than the $5 billion number that you mentioned, and then also to be able to share that infrastructure among multiple operators, which would further reduce the capital investments required by each individual operator. We think that's good for us. We think it's good for other operators. We've got interest from other operators who see the same benefits that we do, and that's what we're working towards.

You know me. I've been a big proponent of the tower model, the shared infrastructure model. It's smart for the operators. It's smart for Wall Street not to overcapitalize stuff. So that's encouraging to hear. That's one for me is a real quick and easy one. Assuming Legato makes it through the BK part, which we think it will, where will that actually get booked? What line item should we be thinking of? That's where the Legato payments would come into.

Yeah, I agree. I think it's early, Rick, for us to, you know, make that determination, you know, assuming that we're in that position, we'll, you know, we'll update all the financial implications as we, you know, as we get through the end of it if we do.

Okay. Thanks, guys. Have a good evening. Thank you. Thank you.

Our next question comes from the line of Edison Yu from Deutsche Bank. The line's open.

Hi, thank you. Good afternoon, everyone. And I wanted to follow up on the previous question about philosophy and kind of your philosophy, Mark, for value creation. If we look at just DAT, I think you would agree, and many investors would agree, it's clearly undervalued. Do you think that is more a perception issue or a more structural issue? And I mean this in the context of perception being you're obviously delivering very good growth, lots of backlog, and eventually that value will be realized within the current structure. Or do you think it's naturally, I guess, going to be constrained by the current situation? Any thoughts you have about that would be great.

Well, okay. So we're in the operating business. We're not in the investing business. So it's a little bit hard for us to read the minds of investors and how they interpret it. I mean, for us, it's pretty, I think the thing that we're really focused on is increasing the present value of future cash flows. I mean, that is kind of the foundation for equity and debt capitalization. I think that We've got some challenges due to the delay in some of the satellite programs, especially that's increased the amount of debt and inhibited our cash flow and increased our capital spending. So right now, the thing that we're really, really the most focused on is for each of our businesses, first of all, is just doing what I just described, which is increasing the present value of future cash flows. That's really based on the competitiveness. I'd say we acknowledge that there's a packaging element to that as well. Can we organize that into investable bites for debt and equity holders? And that's kind of, I think, when we talk about our portfolio review, things that we're looking at in our portfolio review are the Synergy element I mentioned before, the capital intensity of each of the businesses. And then there's another consideration, which is what is the value proposition for investors? And so we are looking at that as part of our portfolio review.

Understood. Understood. And then just a more, I guess, strategic question. I'm sure you've seen there's a lot of excitement around Golden Dome and what DAT could potentially do Do you have some initial thoughts on what kind of role bias that might play?

Yes, we do. I mean, I don't know that I'm going to – yes, we do. The short answer is yes, we do. Some of it has to do – think of it as there's a sensing portion of it. There's certainly a strong cryptographic component to it, all the stuff that we talked about, data centers, fusion, kill chain, all that stuff. It's all got to be automated in real time in very complex systems. So there's definitely an element for us in that. And we think there's some really interesting opportunities for us in ground networks and space infrastructure. Those would be, I'd say those are just some of the top level areas that we have involvement. Another area that we've talked about as well both in the context of commercial and government applications, is hybrid networking. And hybrid networking, one form of that being multi-orbit satellite communications. So for Golden Dome, there's definitely a number of applications that are going to use multiple and diverse communications. And then another area that is combining both line-of-sight terrestrial communications space communications, we have opportunities there as well. Those are, I'd say, those are some of the, you know, most obvious areas where I think we'll be involved.

If I could sneak in just a financial one for Gary, it seemed like the margin, even the performance in comm services was very strong, both on a quarter-to-quarter and year-over-year basis, if you just look at the revenue, right, it was flattish, but actually it went up a lot. Do you have any sense, can you give us a sense what drove that, and were they one-time items?

Yeah, well, some of it is, Edison, we referenced just in terms of a little bit of timing benefit. We did have good business mix in the quarter, both if you look in terms of product versus service revenue, and actually... excuse me, even within the communications services segment. You know, for example, we just had, you know, a really, you know, favorable mix of aviation terminal deliveries is the way the timing played out for us during the quarter. So those are the things that you see that drove the leverage you just described.

Great. Thank you. Thanks, Coach. Thank you.

Our next question comes from the line of Sebastiano Petti from JP Morgan. The line is open.

Hi, thank you for taking the question. I guess just kind of following up on Rick's question there, or just, you know, thought process in terms of the direct-to-device. I mean, Mark, it sounds like, you know, a shared infrastructure model and, you know, maximizing value for, you know, and you believe is not through a a big CapEx program, like a $5 billion program, but through shared infrastructure. But given all the competition in the space, I mean, does that, you know, I guess, how do you think about the puts and takes on why a shared infrastructure might work versus maybe against some of the go-to-loan LEO constellations and other direct-to-device kind of satellite?

Sure, yeah. Yeah. No, that's a good question. On the direct-to-device thing, one of the things that people are, paying a lot of attention to are the data rates that you can deliver to off-the-shelf devices. And so if you look at how do you get, and think of that as just like broadband, it's really what is the total capacity of your constellation, especially when you're delivering service into these off-the-shelf mobile phones, as an example. So that is, think of that the discriminating, one of the main discriminating features of that is you need more power on the ground in order to get those devices. So one of the things, you know, one of the things that I think everybody's coming to realize is that a, a constellation that doesn't have high power flux densities on the ground, isn't going to work in the D to D environment, not for the broadband speeds, the 5G new radio functions that people want. So, uh, That's part of what's driving interest in a low Earth orbit component to these systems. But the issue is if you want to get high capacity, that is throughput, you've got to go back to the physics, which is, you know, that Shannon capacity. And what that tells you is that capacity grows linearly with spectrum, but only like the log power. So it's not super surprising. that the contenders with the least or no spectrum are building systems with the highest power, but that the operators that have spectrum are looking to aggregate spectrum, that is, if they can share their spectrum with others, that that's a far, far more efficient way to develop and to increase capacity. So that's the principle. It's like And think of it as like when you talk about the log of power, that means you need like, you know, like it's like multiple. I don't want to speculate. Depending on the amount of spectrum you have relative to, say, a 5 megahertz chunk, you can get order of magnitude advantage in capacity at the same power by having spectrum. So the people that have spectrum, so what we're really trying to do is work with the other spectrum holders show them how we can use 5G networking tools to aggregate spectrum, and it's a huge competitive advantage. So that's really what's underlying all this. And then the other thing is one of the big issues, one of the big regulatory issues has been the interference that those very high levels of satellite power create on not only other satellite services, but other terrestrial networks as well. That's one of the most contentious issues on these reuse of terrestrial spectrum. So by judiciously combining spectrum or using the spectrum portfolio that spectrum holders have now, you can get really good services into devices much more economically. That's the principle. And when you go through this with some other spectrum holders, they're seeing it, it makes sense. So I think we're not done with that, but we're getting, you know, we're working on it. And I think it's a, A, I think it makes a lot of sense from a physics perspective, from an economics perspective, but it's also hugely capital efficient in a very capital intensive industry.

That's helpful, Molly. And one quick follow up, again, on maybe

just the legato and the settlement. I think, is there any update in terms of the timeline of the, you know, court approval on the bankruptcy court approval with legato? And just thinking about, you know, if there could be any slippage from the announced timeline and the payments that you announced in the July press release. Thank you.

Yeah, there could be. There definitely can be slippage from the July press release. That's why we've conditioned our, you know, we've conditioned all the information we've provided on, approval by the bankruptcy court. And so that's still in process. And when it's, you know, when it's complete, we'll provide an update.

Thank you so much. Thank you.

Our next question comes from the line of Colin Cantile from Canada Fitzgerald. The line's open.

Thank you for the question.

Maybe focusing on kind of just like going with the philosophy approach, in terms of like tech participation in the conversations with spectrum holders, you just maybe talk about how kind of the mega TMT giants are shaping the conversation, both with respect to kind of like appetite for providing capital is one bucket. The second bucket is kind of, you know, we'll call it shared spectrum support, cooperation on that. and then the third bucket of potential restrictions, right, and the concept that they provide a blank check up front for capability, and that's a wholly owned capacity. So maybe if you could kind of flesh out those three dynamics with respect to the conversations with other spectrum holders, that would be super helpful.

Thank you. I just want to make sure the three things being –

Yeah, it's cash spectrum and restrictions, basically like the back end of what we'll call funded constellations and one of your peers having 85% of capacity restrictions, stuff like that.

Okay, so, well, I'm going to go back to the Towers analogy. What happened in the Towers business is that it became evident that, you know, think of it as a Towers company, that works with multiple different spectrum holders really is pretty much insulated from a lot of the competitive factors that define competition among each of the carriers. Their business is not dependent on the split of market share among those or even the device refresh cycles. It's really like a utility play. We're going to provide you know, we're going to pride towers and fiber infrastructure. So one of the things to do here is that you can see that if multiple spectrum holders participate, that there's an opportunity to bring in capital, third-party capital, that's really less sensitive to the performance of any individual spectrum holder and more sensitive to the demand of the market as a whole. So So that's one of those things. And then basically, if you think of different businesses, you can think of the space infrastructure business, especially if it's a utility, as being capital intensive. But if it's less susceptible to the competition among individual carriers and more sensitive to the demand in the market as a whole, then it can have less risk. and that can merit that can be attractive to infrastructure type investors and that sort of relieves the spectrum holders from having to capitalize the things themselves and confuse this sort of low infrastructure investment that can be a utility like thing with the services that they offer so that basically is what the That's kind of what the value proposition is. On the terrestrial side, we think we can create a similar value proposition on the space side. The key to doing that among the spectrum holders is that they just want to be assured that the infrastructure company is treating all spectrum holders fairly, that there's no competitive advantage. And so attributable, one, that disadvantages the others relative to owning their own infrastructure. And that's really a governance issue, and that's one of the main things that we're working on, on an infrastructure-based, a utility-like infrastructure. Does that cover the points that you're asking about, or is there another one that I'm missing?

It does in the kind of concept of the, we'll call it the large third-party infrastructure organizer. And so I think that that kind of data point is one I definitely want to hone in on. Maybe if you can kind of talk about kind of, maybe not select the three-bucket concept, but assuming that there is a large infrastructure called quarterback in play or organizer in play, maybe just discuss kind of a high-level way that that participant thinks about price especially in light of the EchoStar announcement. So I think one of the concepts that folks had kind of honed in on is the idea that EchoStar could peel away or potentially lease out or sell S-band holdings, right? And that it was kind of a spectrum amalgamation play. But now that they're going off your constellation, I think maybe it's fair to assume that there's kind of like a price accretion dynamic or there's an increased scarcity around YSF S-band and L-band holdings. So maybe... just talking to a high-level, less the three buckets, but maybe the price sensitivity of, we'll call it the large undisclosed coordinator.

Okay. So, I mean, in order for D2D to work, you've got to make a sufficient power flux density on the ground. That's a big thing. What that power flux density needs to be in order to deliver certain speeds into handsets depends a lot on how much spectrum you have. So... One of the big advantages of the approach that we're doing is we have a technical approach that covers a large amount of spectrum. The incremental cost of spectrum compared to other components in this isn't necessarily that high. So we can get a lot of economic benefits by covering large amounts of spectrum that does pressure some of the beam forming elements. That's one of the things that we're really, really good at. So I think when you're thinking about any particular system, you got to think about two things. One is, we always talk about in the broadband space, we always talk about the productivity of our satellite infrastructure. That is like, think about how many gigabits per second of throughput do we get per megabuck of capital investment. So one is you need a really good, you need high productivity on it. And then the other part is how you finance it and how you divide up the capital investment among others. So I think just based on what we're seeing from others, I think our technical approach is very productive. And then I think we're amplifying the benefits of that by being able to cover enough spectrum to share that among multiple spectrum holders. And I think the other thing that we're trying to highlight here, which has become kind of evident, is Especially in the D2D space, there are multiple industry participants besides just spectrum holders that would like to see a lot of spectrum efficiently applied to this to drive costs down, to enable services on automobiles, UAVs. So there's actually a pretty fair amount of industry interest in creating the type of shared infrastructure that we're describing, because not only does it reduce capital intensity, but it reduces costs. If we reduce capital intensity, the airtime costs should be a lot more attractive than kind of the kinds of numbers, things that are being picked around now. I mean, that's what you need to get the 5G new radio type services. So we think that the thing that we're doing makes a lot of sense from a business logic perspective. And one of the key parts of it, though, is having technology that's really focused on that particular uh constellation uh mission purpose and it's different than what we've seen from anybody else you know i mean the architecture is different and so technical solutions are different and we think we've got one that makes a lot of sense got it got it thank you last one maybe just like is there a sense of timing where we might get

incremental color on kind of an organizational announcement of this effort?

I don't want to comment on that yet, but it's not way off in the future. I think it wouldn't be appropriate to comment on that yet.

No worries. I appreciate the color. This has been super helpful. Thank you. Thanks. Thank you.

Our last question comes from the line of Ryan Cools from Needham & Co.

Thanks for squeezing me in. I was going to ask you about the competitive landscape in commercial IFC, Mark, but that's maybe a little too blue sky for the end, so maybe I'll just make it a layup here. If we look at your fixed broadband revenues we saw in inflection to growth after a couple years of steady decline, I wonder if you can unpack that and maybe explain what's going on there. Is this kind of a revenue optimization among your existing subs? Are we seeing Starlink capacity exhaust, maybe less aggressive pricing? What's going on in fixed? Thank you.

Yeah, we're not seeing that in fixed broadband, so not entirely clear what you're after there. But were you referring to sequential growth in maritime? Is that what you were referring to? Yeah, I thought, I apologize. I heard fixed broadband.

Yeah, on the maritime side, it's really, you know, the Nexus wave, the hybrid geo system, it's growing pretty fast. And it's, you know, we're getting, one of the things we talked about a few weeks ago is 1,000 ships under contract. The install rate's been ramping up. the average revenue per vessel is significantly higher because we're delivering way, way more bandwidth. And whereas the existing base was really geared towards operational applications only, this current one is geared towards operational applications plus crew services and some additional services. So it's that it's really the growth rate of The sequential growth rate and nexus wave is what's driving the sequential growth in maritime. And like we said, we think that is going to lead to year-over-year growth by the end of the year.

And recall, that's one of the critical business outcomes that we've been focused on for what we call the importance of the year. We obviously have a lot of confidence given what Mark's described. The first step in that journey was the sequential growth we saw this quarter, so. Feeling really good about how that's playing out. Hats off to our teams for making that a reality.

And you've got confidence in the performance there with the OneWeb partnership?

Yeah, I think we have. I mean, one of the things we've been really focused on is understanding geographic distribution of demand. We have a good understanding of what both the benefits and the constraints are for OneWeb. But when we augment that OneWeb with what we have, in GEO and what's coming in GEO, we've got a good runway for growth there.

That's helpful. Thanks so much. Thank you. That concludes our question and answer session. That also concludes this call.

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