ViaSat, Inc.

and I will be your conference operator today. At this time, I would like to welcome everyone to the QT2026 FISAT Earnings 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. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. And to withdraw your question, press star one again. Now I would like to turn the call over to Lisa Karan. Please go ahead.

Thank you, Mark. 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 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 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 filing and 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.

Thanks, Lisa. 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 and referencing the slides we posted on our website earlier this afternoon for more details. Our second quarter fiscal year 2026 performance and the imminent launch of Viasat 3 Flight 2 reflect the meaningful progress we're making against our highest priorities and commitment to building value for our employees, customers, and shareholders. We're especially pleased with our awards growth and cash performance as we balance investing for future growth while reducing capital intensity. For Q2 FY26, our net loss of $61 million improved from a net loss of $138 million in the second quarter of FY2025 and was primarily due to favorable service revenue mix, lower depreciation and amortization, and lower SG&A expenses. Revenue grew 2% year-over-year, led by 3% growth in the defense and advanced technology segment, and a 1% year-over-year increase in the communication services segment. Adjusted EBITDA increased by 3% year-over-year, as better-than-expected adjusted EBITDA growth in communication services was partially offset by an expected year-over-year decline in the DAT segment. We were hopeful to have already had the launch of Biosat-3 Flight 2 by today, but the United Launch Alliance Atlas rocket carrying the Flight 2 mission was scrubbed last night due to an issue with an Atlas booster liquid oxygen tank vent valve. ULA is evaluating it and is now aiming to launch in a week. The launch of Biosat-3 Flight 2 will be a very meaningful milestone for the company. An incredible amount of dedication went into preparing the satellite for launch, and I really appreciate the efforts of our entire team. We remain focused on getting both Flight 2 and Flight 3 into service as reflected in the accompanying satellite roadmap. As a reminder, each of the new Biosat-3 satellites is designed to enable more bandwidth capacity than our entire existing fleet, with the unique flexibility to aim that bandwidth exactly where needed. Creating opportunities to grow in each of our franchise businesses and to accelerate growth and drive meaningful free cash flow contributions in communication services. Our debt segment outlook is promising as backlog increase to a record of $1.2 billion up 31% year over year and up 14% sequentially the long term growth trajectory is supported by several attractive secular growth drivers. including increased reliance on space-based assets for national security purposes, both domestically and internationally, which creates a growing set of global opportunities for the commercial space industry, especially for dual-use capable systems. Increased demand for highly resilient communications integrating both terrestrial and satellite and multi-domain operations that require seamless interoperability, as well as growing demand for digitized military infrastructure to support highly computationally intensive, autonomous, cloud-centric, and AI decisions while simultaneously defending against increasingly sophisticated cyber threats. There's also the growing global recognition of the importance of sovereign control over those space systems. And finally, there's the increased integration of commercial and defense dual-use technologies together with the rise of non-terrestrial network connectivity, including direct-to-device mobile services. Not surprisingly, we're seeing a significant uptake in interest for commercial mobile space networks that enable these direct-to-consumer device non-terrestrial network connectivities. Given some of the market transactions we're seeing in this space and our own coordination agreement, with AST and Legato seems there's a greater appreciation of the value that we can create with our mobile satellite spectrum. The announcement we made in September regarding our intention to form equities with Space 42 and potentially other operators is an example of how we believe we can continue to build on the value of our large coordinated and highly strategic global position in mobile satellite services while managing and reducing capital intensity and creating meaningful competitive advantages. As I mentioned last quarter, we're continuing to opportunistically strengthen our capital structure via cash flow improvements, addressing debt maturities, and conducting ongoing portfolio reviews. The strategic review committee of our board of directors continues to evaluate our capital allocation portfolio priorities, including the potential merits of separating our government commercial businesses within a competitive environment of government commercial dual use and vertical integration opportunities. We're focused on building shareholder value and reinforcing our competitive positions, and we see accelerating, deleveraging, and collapsing debt silos and thinking critically about our portfolio as important components to that. We believe the overall strong start to our first half is an important proof point as we compete not only for business success and outcomes, but also for investor confidence and capital. Once again, we recognize there's challenges, but we're playing to win. So with that, I'll hand it to Gary.

Thanks, Mark. Thanks, and good afternoon to everyone joining us on the call. And, of course, a special thank you to the Viasat team for all the hard work that went into producing these results. I recently celebrated my one-year anniversary here and have been reflecting back on the progress the team's made during that time. We laid down three key priorities for our financial journey that by now you know well. Build our franchises and earnings power, generate and grow free cash flow, and set a path to a value-maximizing long-term capital structure. I'm really proud of what the teams have accomplished in the past year and very excited for all the opportunities that lie ahead of us. Our franchises are developing, and we've seen strong growth in aviation, government, SATCOM, and DAP, while we continue to win new awards that leave us with a backlog to underpin future growth in these areas. The teams have done a nice job stabilizing our maritime revenue base and creating growth opportunities. With the development and market acceptance of a new multi-orbit solution that's, at the same time, a great solution for our customers now and great development of a key future-facing capability. We know we still have work in front of us on the fixed broadband business, And the capacity Flight 2 will provide supplies the bandwidth to enable progress there. Free cash flow is an even bigger highlight. On a trailing 12-month basis, we generated 147 million of it. And we've achieved positive free cash flow for three quarters in a row. As we get beyond the CapEx folds related to the completion of Viasat 3, we see continued cash generation that will be the fuel we need to reduce leverage, optimize our capital structure, and invest with discipline for the future. As a result of the first two, we're better positioned to optimize our capital structure. We'll be opportunistic given market conditions, but focus on achieving a desired end state that targets a leverage ratio three times net debt or lower, where marginal borrowing costs tend to flatten and equity valuations are maximized. Our desired end state will also include a collapse of our debt silos. During the second quarter, the U.S. Bankruptcy Court approved Legato's restructuring plan, including our agreement with Legato and AST. Following the receipt of the first $16 million quarterly payment in September and last week's $420 million lump sum payments subsequent to the end of the second quarter, we intend to take the first step soon and repay the remaining $300 million under the original Inmarsat Term 1b facility. This move will save about $23 million in cash interest payments annually. I'd like to thank the Viasat team again for delivering and making these things a reality. I'm proud to have been part of the journey thus far and excited for the great work we still got in front of us. Now let's turn to the second quarter. We generated revenue of $1.1 billion, up 2%. Adjusted EBITDA reached $385 million, up 3%, and drove a 34% adjusted EBITDA margin. Cash flow from operations was $282 million, up 18%, with CapEx at $214 million, resulting in free cash flow of $69 million in the quarter. The first half was a good start to our fiscal year, and there's still work ahead as we focus on achieving our full-year target and exiting the year well-positioned for growth. We're committed to delivering long-term value and confident in our strategy as we drive it forward. Before we dive into more detailed results, let me clarify that all my statements in this section will reference the second quarter of fiscal 26 and the prior year period comparable to second quarter of fiscal 25. Awards were $1.5 billion, up 17%, led by communication services, including a large international dual-use satellite wind serving Australia, New Zealand, and key maritime zones. Backlog was $3.9 billion, up about $140 million, despite the sale of our energy system integration business last year, which reduced backlog by $106 million. Revenue was $1.1 billion, up approximately 2%, reflecting growth in both DAT and communication services. Net loss was $61 million, an improvement of $76 million principally due to favorable service mix, lower depreciation and amortization, and reduced SG&A. Adjusted EBITDA was $385 million. The 3% increase was driven by strong operating performance in aviation, government, SATCOM, and InfoSec and cyber, tempered by fixed services and other space and mission systems. Free cash flow remains a critical focus area, and we generated 69 million of it this quarter, despite heavier cash interest payments, bringing our year-to-date free cash flow total almost 130 million. Operating cash flow grew 18% year-over-year. We're laser-focused on driving the sustained and growing free cash flow in the years ahead, and using it to retire debt is the best way to reduce the capital base in our business, driving returns higher. Reflecting strong free cash generation, We ended the quarter at approximately three and a half times, traveling 12 months adjusted EBITDA, a slight year-over-year and sequential improvement. Now let's turn to some segment highlights. In communication services, awards of $1.03 billion increased 35% driven by government SATCOM, aviation, and maritime. Revenue was $837 million, up 1%. Growth in aviation and government SATCOM was moderated by the sale of our energy system integration business in the prior year, along with and expected declines in fixed broadband. Aviation revenue grew 15%, led by an 11% increase in commercial aircraft in service, combined with higher average revenue per aircraft. With continued growth in our installed base, up more than 425 aircraft in the last 12 months, and with 2Q our strongest order of install since the fourth quarter of fiscal 24, we did see our backlog decline slightly to about 1,470 aircraft. We feel good about how we're competing, Our awards and wins were in line with our expectations, but the time to contract can vary widely from airline to airline. Aircraft are included in our backlog after they're contracted, and some of our deals take time to get to formal contracts. We've lined a site to backlog stability and or growth ahead, despite continued growth of the installed aircraft base. Our government SATCOM revenue grew 9%, reflecting strong growth with U.S. and international governments. Maritime revenue declined 3% as vessels and service were down slightly. Nexus wave orders were strong and installations were up 40% sequentially, paced by vessel availability. With a much larger base of yet-to-be-installed orders, we're focused on installations and expect the installed base to grow faster over the next few quarters. Non-safety standalone L-band offerings continue to migrate to multi-band, multi-overd solution, like our nexus wave offering we expect l-band will continue to be an important component of those solutions our revenue base and maritime is relatively stable and will grow as our nexus wave installed base grows we expect year-over-year growth in maritime to resume by year end fixed services and other revenue was down 16 as u.s fixed broadband subscribers continued to decline as expected we ended the quarter with 150 000 subscribers and an average revenue per user of $113. These revenue impacts, along with a higher mix of service revenue and good cost control, drove communication services adjusted EBITDA to 337 million, up 6%. Turning to defense and advanced technologies, awards of 467 million declined 9% due to a difficult comparison in space emission systems. SMS awards remained healthy but were extraordinary in the prior year. with a number of large multi-year projects awarded. Excluding SMS, DAT awards grew yearly. More importantly, the book-to-bill on DAT was 1.5 times overall and greater than 1.1 times for each of our DAT business lines. We continue to see exciting growth ahead across the segment. Revenue was $304 million, up 3%, driven by growth in InfoSecond Cyber that was tempered by tactical networking. InfoSecond Cyber product revenues were up 14%, driven by high assurance encryption products. We're pleased with growth prospects in this arena supported by healthy backlog, strong secular drivers and exciting opportunities to innovate. Space and mission system revenues were down a percent year over year due to lower development funding for certain programs. Mark talked about how SMS is a promising growth area for us with strong secular drivers. We specialize in working through complexity and building cutting edge capabilities for our customers and we're excited for the future opportunity in this area. This quarter reflects some of the lumpiness from early development of innovative technology. As the market shifts to address need for more sovereign, dual-use, and government purpose-built satellite communication systems, we believe SMS will generate the growing returns we've seen in other areas of our portfolio, similar to encryption and trellisware. Tactical networking revenues, including trellisware, were down 7%, partially reflecting lower IP licensing revenue in this quarter. The defense and advanced technologies adjusted EBITDA was 48 million, down 9 million despite good growth from InfoSec and cyber, reflecting declines in SMS, as well as higher segment research and development investments, supporting future growth, along with declines in tactical networking. Overall, the quarter's results were good, and we're on track to achieve what we set out to this year. We drove growth in both of our segments, controlled costs, and drove strong cash generation after making efficient investments in innovation for future growth. Our Biasat-3 Flight 2 is imminent, and we made good progress on our Flight 3 satellite. Let's move on now to our outlook. We continue to expect fiscal 26 revenue to be up low single digits year-over-year, with flattish year-over-year adjusted EBITDA, and expect continued variability quarter-to-quarter. We're pleased with the second quarter and focused on delivering not just the numbers for the year, but the business outcomes that are critical drivers of stronger performance in the years ahead. We've provided additional segment level detail in the outlook section of our shareholder letter and slide. Let me take a moment to talk to the government shutdown. We're watching the US government work through the budget and continue to see broad support for national defense priorities. The strength of our awards and backlog reflects the growing importance of our technologies and innovations. to tie in nicely to key secular trends in defense, including space, communications, and security. Over time, we don't envision major impact to results. However, based on what we understand now, we estimate the shutdown in the third quarter may delay data wards of up to 100 million and impact that by up to 20 million. We'll also need to watch the magnitude and duration of impact to flights in the U.S. system. That picture is just emerging as you see in the news today. But based on current information, we don't see material impacts to the year. Three Qs likely to see some impact. Our focus on cash flow remains, as does our focus on increasing the capital efficiency of our business. We continue to expect cash from operations to grow double digits for the year. We expect capital expenditures for the year to be about $1.2 billion, breaking down as follows. $200 million is capitalized interest. $500 million is maintenance capital spending. About 100 million is success-based, 250 million is related to the completion of Biosat 3, and the remainder we're investing in new products and capabilities. Approximately 400 million of this overall spend will occur within MRSAT. On prior calls, I've indicated we expect to spend 250 million of CapEx on items that are both large and close in time to the launch of our Biosat 3 satellites in fiscal 26. In the first half, we spent 50 of this 250 million. and expect to spend the remaining $200 million in the second half. Given the much larger spend rate for those items, we expect negative free cash flow in the second half. We'll provide updates tracking our spending of the remaining $200 million in upcoming quarters. Once beyond those payments, we expect to return to free cash generation and have guided to positive free cash flow for fiscal 27. For clarity, our free cash flow guidance does not include the anticipated free cash flow benefit from the legato lump sum payment. but it does include the benefit of recurring quarterly payments we expect to receive. During the quarter, we moved $175 million in cash from Inmarsat to Biasat. As noted previously, we expect the total funds we'll move over time to be $400 to $500 million, including the $175 million just referenced. Our teams are working actively on our five-year plan as we always do at this time of year. A critical focus of that exercise will be continuing to drive for the intersection of growth, innovation, capital efficiency, and returns. We're looking at all areas of our portfolio and capital structure for value-accretive opportunities. In closing, in the fiscal year, we're working to deliver our commitments and to position our franchises for sustained and profitable growth and free cash flow with easing capital requirements following the deployment of our second and third BISAT-3 satellites. We're determined to close out the year strong and well-positioned for the future. With that, I'll turn it back to Mark.

Thanks, Gary. So we think there's a lot to be excited about, including the forthcoming launch of FISA 3 Flight 2 and the progress to launch on Flight 3. We're building momentum with multi-orbit solutions across businesses that are very attractive for our customers, and we're being disciplined with costs and CapEx, which is building the foundation for strong cash generation. We believe there's tremendous value in our franchises as a leader in satellite infrastructure and connectivity, in flight connectivity, and critical military and government communication and defense solutions. So with that, let's open it up for questions, please.

We will now begin the question and answer session. If you would like to ask a question at this time, simply press star followed by the number one on your telephone keypad. And our first question comes from the line of Brent Panter with Raymond James. Brent, please go ahead.

Hey, good afternoon, everyone. Thanks for taking the question. Appreciate the comments on the split and some interesting comments there regarding government commercial dual use and vertical integration opportunities, as well as the debt silos. So can you just update us, what inning are we in in terms of evaluating the that possibility, and maybe you could just elaborate on those comments regarding vertical integration and the debt side of things.

Okay. I'm not sure if I'm going to give an inning, but we are working on them. We're always evaluating these options, I'd say, continuously. It's not like there's going to be an end date to that. And then just in terms of when we talk about vertical integration and dual use, you can see examples of that both domestically and internationally in space systems, increasing reliance on space systems. But the issue is those systems are expensive, and it's hard for a lot of countries to just carve that much money completely out of their economy. So One clear example of this might be, for instance, what Europe's doing with Iris Squared, where clearly a national security system needs to also be able to carry its weight commercially and economically. So we see that as a really good opportunity for us. We're benefiting from that, and we're just weighing the benefits of that compared to any potential benefits of a spinoff And they're not mutually exclusive. There may be ways in which we connect the two to preserve the competitive advantages while also creating what potentially might be more attractive investment vehicles. That's the tradeoff that we're doing with respect to the spin.

Okay. Okay, that's helpful. And then spectrum value, you all talked about it. and it's clearly getting a lot of attention right now given some of the activity in the industry. Just focusing on your international spectrum, can you all remind us what exactly you own in terms of megahertz and priority rights? And given some of the existing businesses on that spectrum as well as now the JV with Space 42, How open are you all to alternative ways to monetize that spectrum and maximize the NPV there?

Okay. Yeah, in terms of what we have in spectrum, in our ITU positions are public and pretty well, you know, pretty well defined. You know, the big attraction we think in our spectrum position is that it's global. And the amount of spectrum that we have is substantially higher on a global basis than pretty much any other company. I think that the spectrum is put to very good use now. I think in critical services, both maritime and aviation, as well as land mobile, I think that those services are going to improve. They're important to almost every nation on Earth, and so we do have really well-coordinated access to virtually everywhere in the world, which is also a unique situation. What we're looking at is a combination of evolving those services to fulfill the demands of the aviation industry and the maritime industry, while also being able to support the network standards that enable the you know, this large potential direct-to-device market. What we do think is a lot of the applications that are going to drive these uses, which include things like, you know, vehicular autonomy, aeronautical autonomy, maritime autonomy, more edge-based AI applications, that all those things are going to leverage both terrestrial, mobility were available as well as space. So what we're doing is we're just constantly evaluating the two main forms of how the company can derive value from it. One is by continuing to operate and invest in the infrastructure required to use those assets versus what the current value might be to others who who might be able to use those assets as well, where we may be able to either work with them or coordinate with them in a way that also builds value. Those are the tradeoffs that we do. I think we've been, you know, responsible, steward of it. We just completed one transaction that we thought was in the best interest, and that actually had been in the works for quite a long time. So I think we're going to be open-minded and even-handed, but always mindful of the public interest obligations that come along with that spectrum and making sure that we fulfill those obligations and we're continuing to use the spectrum in the best way for both us and our public interest obligations.

Okay. Appreciate all the detail there. And then final question for me on the topic of Equitus. Can you all just talk a little bit more about that project and who you view as the ideal customer that this is going to be most appealing to? And realize it's early, but any conversations you've had with other potential partners or customers? And then Would also appreciate any details you can give in terms of economics, CapEx, and how we should think about that.

Okay. You know, the main purposes of equities are really to help bring modern infrastructure to the spectrum, you know, to spectrum allocations that are either satellite-specific or could also be used for the supplemental satellite spectrum allocations as well. Kind of the thing that's really influencing these direct-to-device, that is being able to make connections to cell phones, are the power levels and the gains in the space segment that enable closing those links. And so they're Those are generally done by global constellations, but there are a number of operators that are otherwise only regional. And so the notion of having shared infrastructure is a very natural way to be able to extend, you know, to make that infrastructure available to regional players who otherwise would only be able to make use of that infrastructure a small fraction of its time. So there are multiple benefits that equities can deliver. One is that operators would only essentially pay for the services that they can use in their region, and they wouldn't be paying for dead time over other places. that by having a cooperative there, those infrastructure costs are shared. There's additional benefits that can be gained for operators who choose to coordinate their spectrum with others in a way that aggregates that spectrum and just takes advantage of new information, theoretic, Shannon capacity terms that would mean that adding, treating the spectrum as an aggregated block is the most cost-effective way to increase capacity and reduce airtime costs. So we are in discussions with a number of regional operators in addition to Space 42, which is they have a very large region, two-thirds of the world, but there are other regional operators who are really interested in having sovereignty in their area at an economical cost. One of the partners that we're working with already that we've discussed in the past is Europe. We're working with the European Space Agency to help them have a sovereign component to a global constellation That would be far more economical than what they might otherwise do on a standalone basis. I think that's a good example. There are others, but we're not going to name those now.

Okay. And anything you can help us out with in terms of sizing CapEx there?

No, I think we'll do that as we get more definition on the program. there are still a lot of variables in the way it's structured and how we work with partners. So at this point, it'd be premature to give detail on that.

Just to punctuate on Mark's point, you know, we keep talking about capital efficiency. You know, remember, at least as I looked at the world, you know, the concept of shared infrastructure is a big idea on that front.

Okay. Great. Thanks, guys. Appreciate it.

And your next question comes from the line of Sebastiano Petty with JP Morgan. Sebastiano, please go ahead.

Hi, thanks for taking the question. Just to maybe follow up on one of the questions there, Mark, as we think about your global portfolio, I think in the Space 42 announcement it said that you'd be capable of supporting well over 100 megahertz of harmonized MSS spectrum. Is that true? accurate as it pertains to Viasat global harmonized spectrum?

I think the 100 megahertz refers to the combination of what Viasat and Space 42 have together. Got it. Got it.

Helpful. And staying on the Equitas Space 42, as you go down that path, you know, I think, and you kind of prepare yourself for, you know, service launch, right, targeted within you know, three years. I mean, when should we, you kind of alluded to it in an earlier question here, when should we begin to hear more about partners within partnerships with MVNOs, perhaps additional investors kind of coming on board, you know, maybe some of the milestones that we should be anticipating, you know, prospectively over the next couple of quarters and years here.

Well, I think the thing you said at the end is right. It's going to be over the next couple of quarters and years, uh, We still have work to do with Space 42, but we're making good progress on that to provide the definition and the, you know, the transactions that either additional customers or investors would make with equities that are necessary to form that. But, you know, we're seeing a lot of interest, and I think, I think now you're starting to see others start to talk about the benefits of shared infrastructure as well. I think that it's pretty evident that that makes a lot of sense. The devil's really in the details, and that's what we've been working on for quite a while, so that we can provide really all of the details needed for real transactions, both by other users of the system, let's say other operators who would participate in the system, investors who would invest in the system, and then MNOs or others who would be users of the system to make it clear what this means in detail to each of those constituents. And I think we're making good progress there, but that'll be the next step, is to get all the definitization of each of those points.

That's helpful. Thank you, Mark. And then I guess one last one, I guess, Gary. notwithstanding the government shutdown and what that might all mean from an awards perspective and, you know, revenue and EBITDA impact. But just as we think about the business overall, right, I think one of the things that, in particular, I think some folks struggle with is just, you know, the backlog growth, right, and the awards quarter on quarter are pretty impressive and, you know, continue to be, Continue to grow at a very healthy rate. I mean, I think you called that. I may have missed the data awards, but, you know, CS awards up 35% quarter on quarter. Any kind of help thinking about how that, you know, backlog, you know, as that grows over time, maybe the cadence of backlog recognition. I know we kind of talk book to bill, but is there any other kind of metrics above and beyond the book to bill ratios that we have, you know, historically, you know, focused on in the business as we kind of think about your ability to monetize that

you uh trying to think of the right way to uh address that uh i think you know we we highlight the metrics that we think are relevant for how we're you know how we're seeding the future um i think what you're going to see is and and you know i should also go back and reference some of the things that we set out to accomplish this year if you remember we said this wasn't really about the numbers It was about, you know, some of the outcomes that we set out to achieve. That was continued growth in aviation, government SATCOM. We wanted to see a stabilization and a return to growth of our maritime business. And then the other one was to make sure that we had access to the capacity of flight two so we could address some of the declines that we've been seeing pretty consistently in our fixed broadband business. And, you know, as I look at the year, when I say we're making good progress, it's largely on those fronts. We're not tracking the specific numbers. So, you know, I'm feeling good about our ability to turn the efforts that we've made this year into growth for the future. And we certainly have the backlog to underpin it. And the capacity is coming. You know, the capacity that we need in some arenas is coming very shortly with Flight 2.

Thank you both. Thanks.

And your next question comes from the line of Mike Crawford with B Reilly Securities. Mike, please go ahead.

Thank you. First, on that, that seems to be the commercial embodiment of something you talked about or advocated for quite some time. But is that something that's going to take a year or two to get off the ground? Because, say, an EO...

sensor in low earth orbit would have to have an antenna pointing up to uh geo and then it would that signal get bounced back down to uh you know a gateway into the edge of your ground segment i'm sorry i'm sorry mike could i miss the the very first part which system are you referring to halo net oh yeah yeah okay yeah so the the halo net you know we're aiming at several different markets one of them One of the early ones that we're getting into is launch telemetry, as an example, where we can really, what we're looking to do is deal with space relay as a whole. So that includes things like launch telemetry. It also, one of the options that we talked about originally was, think of it as sensor data or other data that would be relayed from LEO to GEO and back to ground stations really to help reduce latency for Earth sensing, Earth observation. And we've also been dealing with that a little bit through shared sensor infrastructure. Another one that we got within Marsat is relaying less relaying the sensor data itself and more relaying the tasking and command and control for those satellites, which is also important in terms of getting timely data. There are other components that we're also looking to get to, which are other forms of kind of space vehicles that are relayed through government assets now. that where those government assets are either bottlenecked or actually going away. So it's kind of each of those markets, and they have somewhat different communications paths depending on what the application is. Did that address what your question was?

Yeah. I mean, you've also talked about you know, offering to say earth observation companies and the ability to, you know, not have to wait to pass over a gate. Yeah. And instead you could get data out to the edge much more quickly. So I have another question, Mark. You have these great cryptographic and encryption franchises. How, how does the advent of quantum computing affect those?

So the very first application is in what people are calling quantum-resistant cryptography. One of the main applications of quantum computing is factoring numbers which would be used to attack existing cryptographic systems. So one of the highest priority objectives in cryptography in any uh secure infrastructure is making them quantum resistant so that that's driving a big refresh in uh secure systems you know especially in the us but globally as well the um you know i think the other thing is going to be the the other thing that's really driving the growth in our crypto business is is basically the use of data centers, right? Things that are so computationally intensive that they can't be done anywhere else. So that's driving, you know, I mean, think of AI as being one of those. There's other big data applications. And, you know, when you think of quantum computing, that's another form of dealing with very computationally intensive applications. algorithms that will be done in data centers. All this stuff is driving demand for data center cryptos. And also, on the user side, it's driving demand for cryptos that have kind of the networking flexibility to get to the right data centers that have either the computational resources and or the you know, the raw data to work with, as well as the speeds that are needed, as well as the, you know, basically the quantum resistance, as well as other cybersecurity threats that are also evolving along with the quantum threat. So it's just, it's driving, I mean, think of, there's a bunch of drivers that are causing both modernization of the cryptos, increased speed, and then the other thing that becomes really important, data centers, of course, is getting low power, low footprint within the data centers just because of the really rapid increase in aggregate speeds that are going into those data centers. I'd say those are the main drivers.

Thank you. And then just one last quick one from me is, how are you accounting for the $420 million cash received on Halloween and the $100 million of additional cash you're going to get on March 31st?

um do you want to take hey i can take this for you this sean i think um gary kind of summarized up the you know how we see the cash coming in i think if you look at the earnings we don't expect it to be a large impact to ebitda so most of the lump sum proceeds are going to go to deferred revenue and they're going to get recognized over the life of the of the contract the interest portion will come in, and that will come into interest income, which obviously is EBITDA neutral.

We're still finalizing the details. You should see a chunk of that as well in operating cash flow when you see the next set of financial statements.

And we'll give you guys more details on that in Q3.

Okay. So you're going to recognize $520 million of deferred revenue over 80 years?

There's a good portion will go to deferred revenue, but we'll also have a portion that will go to interest income.

Okay, thank you. Thanks, Mike.

And your next question comes from the line of Ryan Kuntz with Needham and Company. Ryan, please go ahead.

Great, thanks for the question. I wanted to ask about the communication services backlog there and obviously Flight 2 going up and the capacity. How should we think about pent-up demand and timing? I know it's about six months from launch to service, but You know, what percentage of that backlog in comp services would you say is dependent on F2?

Actually, you're not going to see that necessarily come out of backlog. I mean, for instance, growth in consumer, right? That wouldn't be a, that's not a backlog item for us. You know, we have pretty good ways of estimating what that growth will be as a function of service plans and pricing. Likewise, for instance, one of the things that we're seeing in aviation is more bandwidth consumption for greater, through greater penetration, or additional service plans again that would just show up as air time uh it will it'll be a recurring it'll be recurring revenue but it's not going to come out of backlog either same thing in maritime as we're seeing increased use there so it's really going to be reflected in arpa or or plane counts you what you will see is things like ships and airplanes being converted But that's not going to directly relate to all of the revenue growth that's driven from it. There's a lot of usage.

It's continued growth of the franchises that we keep talking about. Aircraft, vessels, residential subscribers, etc.

Sure. So you've got the relationships in place. It'll show up as more usage. But you haven't per se booked, committed...

revenue to in backlog for that capacity to come on you just believe that yeah but what we do have as an example would be think of when airlines work with us they've got ideas of what those service plans will will be we can infer from that what the penetration rates would be what airtime consumption would be what what airtime pricing models would make sense and then also When we do monetizations, there is, you know, as an example, that will – those types of subscriber statistics might drive advertising or promotional revenue, but it's all kind of – it's sort of baked into what the service relationships are with those customers.

Makes sense. Thank you. And another one, if I could sneak it in, just in terms of – The aviation environment there, I mean, any updated thoughts on how you see that evolving? Obviously, it seems like changes happen every quarter, so I'd love your thoughts on that, Mark.

Yeah, I think, you know, so the main trends you can see is greater penetration of the airlines, including different types of airlines, a greater emphasis on being able to go free to support streaming, driving higher penetration, But, you know, some of the consequences, I can tell you some of the consequences that we've been anticipating and I think are going to play out is as you get all those effects, this issue about what happens in high-demand locations is going to be more and more evident. You know, that is the effects that we've been seeing for quite a while in major hub airports, combinations of airports and seaports. You'll see that. The other thing I think is going to be really interesting, one of the reasons that we've been working on the business models that we are is that the free Wi-Fi in an aero environment is sort of a mixed blessing. On the one hand, passengers like it, but if every airline has the same free service, then they all have extra costs and nobody has a competitive advantage. So one of the things that we've been really working with the airlines on is how do you get competitive advantage and differentiation as well as just free Wi-Fi? And I think those are going to become important. And that's the various monetization techniques that we're using and developing I think will be increasingly important. in an environment where every airline kind of is recognizing the need to connect virtually all the passengers with really high-quality Wi-Fi.

Great stuff. Really appreciate that, guys. Thank you. Thanks.

And your next question comes from the line of Colin Canfield with CatTor. Colin, please go ahead.

Hey, thank you for getting the question. As we think about the building blocks on buy-side shares, we just want to run the following concept by you. In terms of kind of like headlines that are out there, right, we have $50 of share value in the DAT unlock. And then we have the organic SACCOM business, which just according to kind of the most recent close, investors are getting for free. So as we think about the precedent transaction of SpaceX Echo Star and the roughly $20 billion of value for, we'll call it 75 megahertz of that span, how do we think about Viasat's 75 megahertz of S-band in that concept, right? And then within that, is it fair to characterize that deal as comparable? A, B, does the company have a preference of cash versus equity? And C, kind of how does the management team think about the arbitrage opportunity of carrying something like that on the balance sheet? So complex question, but basically, How do you think about spectrum and what's your preference on terms?

You know, I think if you look at what's happened in the terrestrial market, you have these same issues about how do you value spectrum. And I think, you know, the main ways are, you know, do we have the – can we – bring it to market in the most modern and useful ways, complying with our public interest obligations, and then develop value from that. That's one. Another one would be, can somebody else do that better? And is there a way in which we can reach coordination agreements or some other way to do that because somebody else can do it better than we can? And then the other way you look at spectrum is, what are your options? You know, for instance, in in the terrestrial world, one of the ways people can look at alternatives to spectrum in terms of service economics or performance is through node splitting. In space, there's equivalence to node splitting, right, as well, based on sort of how you do beamforming and how big your satellites are. Those are the factors that go into it. I think that We're really focused on the fundamentals of how does it deliver value to the end users and how do you do that in a way that is consistent with the interests of the regulators that allocate the spectrum. We have to deal with all those issues. we just, it's just hard to break it down into purely transactional methods, you know, just say, well, hey, can we, how would we, how would we structure a transaction that might be just similar to some other transactions when the environments around them are maybe so different that you just can't do it that way? So I think we're not going to speculate on different transactions so much as focus on how do we The one thing that we can really focus on is how can we use the spectrum that we've been allocated in ways that comport with the license obligations and deliver value to customers and shareholders. That's the way we're most looking at it. And then if there's other opportunities that present themselves that are better for shareholders, we'll certainly consider those.

Got it. Got it. And then maybe turning over to defense bookings, as you think about the environment, appreciating the healthy performance on probably a US side. But as you think of like the continent in Europe, how are you kind of seeing the demand signals materialize? Because I think one of the kind of pieces that the market's kind of working through now is whether or not the IRS timetable matches up to national security risks. And you can argue that some of the awards we've seen today suggest is probably an accelerated interest for kind of new constellation build or new capabilities. So maybe, just maybe like parse out the incremental government demand that you're seeing beyond just the U.S. side and how you expect that to unfold over a multi-year period. Thank you.

Okay, yeah, I think if I were to talk about sort of national security in general, I think that the things that we're really seeing, there's kind of two, and two of them, one of them by far Definitely, really, it's high priority, and you're seeing this in Iris Squared, is sovereignty, is that countries don't want to depend on individual or other foreign corporations or foreign countries for essential national security. So I think then what that's driving them to is, okay, I don't necessarily need to have my own Leo or whatever it is. What I need to do is get the effects of that those deliver in a way that I have sovereignty over it. And the effects that they generally need are things like I might need small terminals, I might need terminals that can be deployed rapidly, that don't become targets rapidly, that resist jamming or other countermeasures, that are cyber secure. I think there's this list of requirements that you're seeing that are playing out, let's say, with Ukraine being kind of the example of what people might expect from a countermeasures perspective and what they need in order to defend themselves in a modern tactical environment. Then the question becomes, okay, how do I get those things and still have sovereignty? And some of that may come through infrastructure sharing in certain ways, and others that may come from You can certainly achieve pretty much any of the effects I described with the right geosystems as well. And you could achieve them to different extents, even with existing systems. So those are the conversations that we're having now. Really, how do I get the effects? And then how do I have control over those? Those are, I'd say, the two biggest issues.

Okay, I appreciate the call. Thank you.

And your next question comes from the line of Edison Yu with Deutsche Bank. Edison, please go ahead.

Thank you, and happy Friday. I wanted to come back to the spectrum. I believe you have quite a bit of S-band in Europe, and I'm wondering if you can clarify the... the future intention with that. And if I'm not mistaken, some of it or all of it comes up for renewal in 2027. And so curious on what you plan to do about that. Do you think it will get all back and how you see that situation?

Okay. So yeah, the S-band spectrum in Europe, the history is that it derived from a particular program We are one of the holders of a spectrum grant through the Inmarsat acquisition. There is an ongoing process in the European Union to determine how to allocate that spectrum post-2027. We've submitted applications, an application to do that. They're going through a process. You know, we think that we, as an operator, have fulfilled the commitments that MRSAT made. We, through our acquisition of MRSAT, made when it was first allocated. And in our application, I think we're making a strong case for why we would still be a good steward of that spectrum, both in terms of what we would do with ground systems, what we do in space, and what we would do with user terminals. And I think that's where it currently stands. And the European Union will allocate not only our portion of the spectrum, but the additional portions of the spectrum sometime in the next year or two.

Understood. I appreciate that. Wanted to come back on F2 and F3. Is there any way to dimension, let's say you're fully up in service, how much of a growth bump or sales bump, whatever, that you will get once those two are fully operational?

Boy, so one of the ways to think about it, just this is at a very top level, It roughly, those two satellites together would kind of triple the amount of bandwidth that we would have. And if, you know, now how we monetize that depends on what the mix of services are, where that, you know, where that service is, where those services are. And, you know, the other thing that we're really sensitive to, because we've been, you know, one of the leaders in providing service level agreements is, you know, where those services, where the demands are for those services. I think we've been doing a good job of fulfilling the service commitments that we make. And so we have to look at where the bottlenecks might be. But we have a lot, you know, we have a lot of runway to grow given those two satellites. And then we also have, you know, because, you know, We're still going to apply F2 in the Americas, F3 in Asia Pacific. We have three additional Inmarsat satellites, GX789, that we can deploy in the EMEA region that will give us the capacity we need in the high demand areas there. We also have bandwidth coming that we've already contracted for from third parties as well as from LEO systems as well. And then the The counter, you know, sort of the counterweight that every one that provides the types of services we have to do, that we do, has to account for is the per capita growth in bandwidth demand for each of our customers. All I can tell you is that those are the forces that are at play. When we provide guidance, we try to fake those into what our outlook is, and we try to provide guidance some visibility into the growth of each of the different areas. But that's, I mean, those are the forces that will determine how we turn all that bandwidth into revenue. Right now, we see a lot of opportunity in those regions, among especially the mobility services. And those are the ones that I think where we compete the best, where we're adding the most value, And then we're using things like fixed services as kind of a buffer to make sure that we're using all the bandwidth. But over time, we're gradually migrating it to these higher value services.

Much appreciated. Thanks. There's no further questions at this time. I will now turn the call back over to Mark Vandenberg.

We're closing remarks. Mark?

Mark Vandenberg So just want to remind people that we remain very committed to building a solid foundation for accelerated and sustained growth, capital efficiency, and cash generation. You know, our future growth outlook is underpinned by a large installed base in the number of our markets, strong secular drivers, across our different vertical applications and a diversified portfolio. We operate across one of the largest plots of mobile satellite spectrum in the world. We've been a very responsible user of that spectrum since in Marsat's inception over 45 years ago. We're dedicated to providing and evolving the vital services that our commercial and government customers need around the world. And we believe this drives meaningful upside value, including to our associated with our spectrum position, and we've got a comprehensive plan to reinforce our competitive positions, drive returns, and enhance shareholder value. So thanks, everybody, for your participation in this call, and we'll look forward to talking again next quarter.

That concludes today's call. You may now disconnect.