ViaSat, Inc.

please stand by. Your program is about to begin. My name is Jordan, and I'll be your conference facilitator this afternoon. At this time, I'd like to welcome everyone to Viasat's third quarter fiscal year 2026 earning results conference call. All lines have been placed on mute to prevent any background noise. After the speakers are marked, there will be a question and answer session. I'd now like to turn the call over to Ms. Lisa Curran. SVP of Investor Relations. Ms. Curran, you may begin the conference.

Thank you, Jordan. 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 Q3 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 FCC filings 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.

Mark Dankberg That's him, and thanks for joining us today. I'm Mark Dankberg, CEO and Chairman of Viasat. With me, along with Lisa, we have Gary Chase, our Chief Financial Officer. As always, we encourage reading the shareholder letter and referencing the slides we posted on our website earlier this afternoon for more details. I'm going to cover three areas. First, an update on some of our recent results and accomplishments. Second, the impacts of those accomplishments and near-term operational objectives on our outlook. And third, an overview of macro market factors in our strategy That helps eliminate our mid- and longer-term approach to continuing to enhance shareholder value. FY26 revenue and EBITDA performance is consistent with our expectations and plans entering the year. Cash generation has been better than planned, driven by efficient cash conversion, targeted strategic transactions, and capital and operational spending efficiencies, while still investing for our future. And that yielded corresponding improvements in our leverage ratio, showing substantial progress toward our target leverage ratio of below 3.0. We have three key focus areas to drive revenue growth in FY27 and into FY28. Biosat-3, multi-orbit, and what some refer to as new frontier defense tech. For Biosat-3, Flight 2 launched in early November. has completed initial deployments, and is about 34 days away from being on station. Final deployments commence quickly after that, and we anticipate services commencing by May. Despite delays, we believe it still represents the state-of-the-art in space spot beam technology, which is the foundation of all broadband satellites. Flight 3 is undergoing final integration and is anticipated to launch at a Falcon Heavy, shortly after flight two final deployments are complete, pending a specific launch date from SpaceX with estimated service entry by late summer. As a reminder, each of flight two and flight three is expected to support more bandwidth capacity than our entire existing fleet and support key growth initiatives in aviation, maritime, and government SATCOM businesses. That is for all our mobility users. They also introduce important new functional capabilities, including new forms of resilience for our U.S. and international government customers, as well as for commercial mobility users, particularly in and around geopolitical or other hotspots. FIKE II and FIKE III are also anticipated to support material improvements in our fixed services businesses. On multi-orbit, we continue to make good progress on demonstrating the customer benefits of multi-orbit broadband networks as compared to either geosynchronous or non-geosynchronous only systems through rapid growth of our maritime Nexus Wave service. Favorable customer perception of multi-orbit networks, including by those who are comparing them to LEO-only networks, is a key competitive factor for mobile broadband customers. We are investing in next-generation multi-orbit user terminals and additional sources of LEO bandwidth for our aero and government customers and expect those terminals to be available as new KA-Band LEO systems enter service. Most of our existing in-flight connectivity aeronautical terminals are also capable of operating with KA-Band LEOs. New defense tech sprint, there's significant changes in modern warfare trends that are behind the growth in our DAT segment and government SATCOM business. Many of those are in very early stages of development and deployment. Key themes where we have very strong competitive positions include the role of space in collecting, evaluating, and distributing targeting information in real time, the role of space, cybersecurity, and multimedia transmission networks, for highly distributed autonomous vehicles, updates to information and cybersecurity required by AI-enabled adversaries with access to quantum computing resources, routine targeting of commercial telecom infrastructure networks on land, undersea, and in space, and the consequent effects on both military and commercial traffic, and the role of dual-use space systems in augmenting sovereign systems and extending resilience to critical commercial platforms. All those themes combined with our assets, technology, and commercial and government customer base are helping us compete very effectively in these rapidly evolving critical markets. So, moving to the strategic theme, we can frame our ongoing strategic initiatives into two pillars that are intended to be mutually reinforcing. First, ongoing capital allocation and strategic initiatives that are aimed squarely at unlocking shareholder value, and then second, positioning ourselves to deliver clearly differentiated value to targeted segments of the fastest-growing space and defense markets with a sharp focus on capital efficiency. So I'll start with capital structure. We have consistently identified cash generation and reducing leverage as top financial objectives. This year, via positive cash from operations plus proceeds from the Logado transaction and smaller divestitures, we have reduced net leverage substantially. In the very near term, additional Logado proceeds plus another divestiture will drive further progress toward our target of under 3.0 net leverage. We are free cash flow positive for the trailing 12 months and are taking actions to continue to reduce capital spending and growing EBITDA to further improve positive free cash flow in fiscal 27. We've also committed to sustained reductions in capital intensity in the business while simultaneously enhancing our reputation for revival, cutting-edge innovation, and customer value. Here, there's two elements to that. defining a common small multi-orbit and multi-band individual satellite architecture that can be adapted to either broadband, AA, or mobile LNS frequencies, and either LEO or GEO orbits. It's enabled by a very innovative, extremely flexible and powerful space-based phased array payload architecture with little to no mechanical deployments. The point is to add network capacity and capability in small dollar increments and in the right places at the right time. We're also working closely with ecosystem partners as co-founders of a developing new shared space infrastructure entity that enables us to reduce capital costs for targeted business segments. The objective is to acquire our portions of that capacity at very attractive unit costs while delivering industry-leading performance at sustained or enhanced financial margins. This Equitas Mobile Satellite Services partnership with Space 42 is expected to leverage technical innovation, application of the terrestrial shared tower business model to space, and emerging 3GPP interoperable non-terrestrial network standards. Importantly, the shared tower model allows us to deploy and retain our scarce licensed spectrum resources even more cost-effectively while continuing to serve vital public interest missions like maritime and aeronautical safety. A high-powered L-band network combined with 3GPP NTN-capable 5G modem chips makes literally billions of phones, wearables, IFT devices, autos, and autonomous land, sea, and air vehicles able to use our network whenever and wherever terrestrial 5G service is even momentarily unavailable and they can see the sky. That's the enormous attraction of updating our LBAN to support those standards. Stay tuned for further updates on equities in the near future. We've previously referenced our board's strategic review committee that with the help of independent financial advisors is guiding our capital allocation and portfolio priorities. We continue to evaluate a range of strategic options up to and including separating our government and commercial businesses. intended to build shareholder value and ensure competitive positioning in attractive target markets. That includes assessing the value of our portfolio of assets and resources, key dependencies, including the entry into service, devised at three, flights two and three, macro secular trends in our target markets, and the effects of achieving de-levering targets and ongoing free cash flow generation. The second pillar is to position Biosat to compete effectively in the most attractive, fastest-growing sectors of the space economy. The recently issued 12th edition of NovaSpace's space economy report shows the global space economy's significant growth trajectory, expanding from $626 billion in 2025 to $1 trillion by 2034. Recent events. and transactions underscore that macro geopolitical, economic, and technology forces are being driven by sovereign control of critical space and ground infrastructure assets, including communications, sensing, and compute, dual commercial and national security uses, cooperative and coalition capabilities, the non-terrestrial network D2D augmentation of terrestrial networks for national security and commercial applications, vulnerabilities of terrestrial telecom infrastructure and contested geographies, and resilience to space and ground cyber and physical threats. While many companies are scrambling to vertically integrate, BISAT is arguably one of an extremely short list of companies that has the ingredients needed to offer state-of-the-art technology, broadband, and mobility applications and resilience along with the business model supporting national and regional sovereign interests, and the security credentials needed to even have access to the products. That theme underpins much of our rapid growth in our DAT and government sat-com businesses, as well as creating new commercial growth opportunities. We also have the detailed understanding needed to help craft policy and technology solutions to warrant continued access to the spectrum and orbital resources needed for the world to participate in the rapidly evolving and emerging space economy. We note that many of the issues governing access to both orbits and spectrum are emerging as linchpins to doing so, and all that implies for national security interests, whether economic, physical, or digital security. The pending European Space Act and European Digital Network Acts reflect rising awareness of these factors and the policy responses. The U.S. government is also investing substantially in multiple orbits to enhance resilience for critical strategic and tactical national security communications. So, in summary, our financial results are evidence of our ability to execute with cash flow and net leverage improvements as key proof points. Near-term operational targets for bringing 5.3, 5.2, and 3 into service, along with multi-orbit and new defense technology, and additional cash collections of specific transactions can help us reach our target for ongoing free cash flow and net leverage ratios. We have specific and actionable longer-term plans intended to reduce capital intensity and improve return on invested capital, while simultaneously improving strategic focus and differentiated competitive positioning in very attractive growth markets that are all squarely aimed at driving shareholder returns. So, with that, I'll turn it over to Gary for more information on our third quarter financial results and insight into our outlook for the fourth quarter and FY26 as a whole.

Thank you, Mark. Good afternoon, everyone joining us on the call. As always, a special thanks to the Viasat team for the hard work that produced the results we're about to discuss. Our financial mantra remains, build our franchises and earnings power, generate and grow through cash flow, and de-lever and set a path to a value-maximizing long-term capital structure. You can see the progress our team's made against these key priorities, but we have more opportunities ahead, and we need to keep executing well, especially in the coming quarters as we bring our new satellites into service. Additional and higher performing capacity with Viasat 3, will increase our capabilities, and help us continue to grow and achieve our goals. Thus far, the year is playing out largely as we expected, and we remain focused on delivering the fourth quarter and positioning ourselves for faster growth in fiscal 27. We're committed to delivering long-term value and confident in the strategic direction marked just out by it. Now let's turn to the third quarter of fiscal 26. We generated revenue of $1.2 billion, adjusted EBITDA of $387 million, and a 33% adjusted EBITDA margin. Cash flow from operations was $727 million, or $307 million, excluding the lump sum payment from Legato, with capex of $283 million, resulting in free cash flow of $444 million, or $24 million, excluding the lump sum payment per quarter. As I begin our discussion of both consolidated and segment results, I'll note that all my statements will reference the third quarter of fiscal 26, compared to the prior year period, the third quarter of fiscal 25. Awards were $1 billion, down 10%, but can be lumpy, and the trailing 12 months has been solid, with growth of 4%, including DAT, which is up double digits. DAT, Maritime, and Governments.com have been key drivers of the trailing 12-month growth. Backlog was about $4 billion, a record for us, up about 12% or $430 million, in large part due to strong awards in the second quarter, reflecting secular drivers, especially within Governments.com and DAT, where we expect continued momentum and awards at backlog. Revenue was $1.2 billion, up approximately 3%, reflecting growth in both DAT and communication services. Net income was $25 million, an improvement of $183 million, principally due to higher interest income recognized during the quarter on the deferral of Legato's quarterly fees, which were received as part of the lump sum payment. Adjusted EBITDA was $387 million, down 2%, primarily reflecting $10 million of incremental R&D investments related to growth initiatives, as well as impact from the government shutdown. Capital expenditures rose to $283 million, up 12%, as we invested in the completion of our Biosat 3 system. During the quarter, we spent about $80 million on Biosat 3, bringing our year-to-date total to approximately $130 million. We generated $440 million of positive free cash flow, or $24 million excluding lump-sum legato payments, despite incremental capex related to Biosat 3 completion. Trailing 12-month free cash flow is in excess of $200 million. We're focused on growing free cash flow in the years ahead, and using it to retire debt is the best way to reduce our capital base, driving returns higher. During the quarter, we entered into an agreement to divest our minority interest in Navarino, a maritime distribution partner. Navarino's results have flowed to the equity and income line item on our income statement. Transactions expected to close in March of this year, subject to regulatory approval, and we'll provide more details upon closing. Finally, reflecting strong cash generation and legato payment, we ended the quarter with net debt to trailing 12-month adjusted EBITDA of 3.25 times, a year-over-year and sequential decline, and a substantial change from where we were a year ago at this time at about 3.7 times levered. Now let's turn to some segment highlights. Communication services awards of $671 million declined 11%, reflecting lower aviation awards, effects of the government shutdowns, fixed services, and other awards. Maritime awards grew 25%. Revenue was $825 million, up 1%. Solid growth in aviation and government SATCOM was moderated by declines, primarily in residential fixed broadband and maritime. Aviation revenue grew 15%, led by a 9% increase in commercial aircraft in service, combined with higher average revenue for aircraft as our customer base migrates to higher value offerings. Aviation awards were less than expected during the quarter. With continued growth in our installed base, Combined with updated indications from customers of their future plans, our commercial aircraft installation backlog declined sequentially. We now anticipate that approximately 1,100 additional commercial aircraft will be put into service with our IFC systems under existing customer agreements. The aircraft we no longer expect to install on our IFC systems were to be run on legacy and MARSAT platforms. The team continues to win new business, and we have hundreds of incremental aircraft working through the contracting process and expect to see materialized in our backlog over the coming quarters. We're excited for what Flight 2 Service Century will do for our aviation business and believe its successful deployment will be a catalyst to drive new orders, accelerate contracting, and expand ARPA with existing customers through higher value service offerings. Our government SATCOM revenue grew 4%, reflecting good growth with U.S. and international governments. were well positioned to take advantage of strong secular drivers in defense and expect strong growth to continue. Maritime revenue declined 3% as vessels in service were down. Nexus wave orders strong, and installations were up another 33% sequentially while continuing to be paced by vessel availability. As of quarter end, we've received a very positive cumulative total of Nexus wave orders of more than 2,600 vessels, with about 65% of those yet to be installed. We're taking actions to accelerate our install rates and still expect slight year-over-year growth in maritime to resume by fiscal year-end with a higher Nexus Wave installed base driving higher ARPUs. Fixed services and other revenue was down 20% as U.S. fixed broadband subscribers continued to decline as expected. We ended the quarter with 143,000 subscribers and 112 in average revenue per user. We face significant headwinds on fixed broadband due to bandwidth constraints in the U.S. for several years. We anticipate that Biostat 3's Flight 2 entry into service beginning in the first quarter of fiscal 27 will allow us to improve our service offerings and increase gross addition. Communication services adjusted EBITDA was 319 million, down 3%, primarily driven by higher investments in R&D. Turning to defense and advanced technologies performance during the quarter, Awards of $300 million declined 8% due to impact from the government shutdown. As I mentioned earlier, the trailing 12-month period has been a strong one for DAT awards, up 11% year over year. DAT revenue was $332 million, up 9%, driven by strong backlog and growth in InfoSec and cyber defense and tactical networking. InfoSec and cyber product revenues were up 8%, driven by high assurance encryption products. An additional consequence of the government shutdown in the fall was a certification delay for a new space reprogrammable crypto product, a new market for us, and a good example of synergy between our space and encryption businesses. Space emissions systems revenues were flat as we ramped up a number of programs. SMS has strong secular drivers supported by a large backlog. While quarterly growth rates can vary, we continue to expect SMS to grow nicely on a full-year basis. Tactical networking revenues were up 20% year-over-year, reflecting strong growth in tactical communications and trellisware growth in the quarter. Defense and advanced technologies adjusted EBITDA with $68 million, up 7% compared to the third quarter of fiscal 25, driven by the revenue growth I just mentioned, offset by higher segment research and development investments, supporting future growth in areas seeing strong specular trends where we're well-positioned competitively. such as Golden Dome and High Assurance Communications. We estimate the government shutdown impacted third quarter EBITDA by about 10 million and expect a similar impact in the fourth quarter. Overall, third quarter results were good, and we're on track to achieve what we set out to this year. We've realized growth in both segments, invested in our future, and drove cash generation. BISAP 3 Flight 2 continues over-raising in the launch. Flight 3 is expected next quarter shortly after Flight 2's deployment is complete. We expect the capabilities of these satellites to catalyze future unit and ARPA growth in our government and commercial franchises and begin turning the tide in our residential business. Let's move on to our outlook. We continue to expect fiscal 26 revenue of low single digits with flat adjusted EBITDA. We're pleased with the third quarter, especially our progress on free cash flow. and in terms of how we're positioning for future growth. Deployment and service entries for Viasat 3 is an exciting catalyst for that growth. We've provided additional segment-level detail in the outlook section of our shareholder letter and slides. While our leverage ratio has improved substantially, our focus on de-levering remains, as well as our intense focus on free cash flow generation. During the quarter, we spent about $80 million of CapEx related to the completion of Viasat 3, bringing the year-to-date total of $130 million. For the full year, we expect to spend just over 200 million of this amount, with another 40 or so to spend in the first quarter of fiscal 27. The timing of these expenses is hard to pinpoint and may shift a bit between the fourth quarter and the first quarter of fiscal 27. We will keep reporting to you on the remaining spend as we incur it. Overall, fiscal 26 CapEx is now expected to be 100 to 200 million lower than prior guidance in the range of 1 to 1.1 billion, with about 350 million of that in the MRSAT silo. We now expect positive free cash flow for fiscal 26, fiscal 27, and beyond, while continuing to invest in growth in our very attractive market franchises. For clarity, our free cash flow guidance does not include free cash flow benefits from legato lump sum payments as they're non-recurring. It does, however, include the benefit of ongoing quarterly payments that we expect to receive. Of the 1 to 1.1 billion at CapEx we project for the year, approximate breakdowns are as follows. About 200 is capitalized interest, 450 is maintenance, 200 for Biosat 3 completion, 75 success-based, and the remaining 150 is for growth. We're investing in capabilities to serve next-generation defense demand, satellite programs other than Biosat 3, capabilities and customer equipment that will help us better serve commercial and government customers with new, higher value offerings in the future that leverage Biasat 3 and multi-orbit capabilities. We've talked a lot about our financial mantra of building franchises, generating cash flow, and reducing debt. We want to minimize our cost of capital, but you just heard Mark describe how we're putting the bulk of our energy and investment into ensuring that our future returns exceed that cost of capital. Our focus on the growth of our franchises will drive returns higher, while cash generation will enable deleveraging that reduces our capital base, all driving our ROIC higher. Let me now speak quickly to the financial impacts of our equities venture. Our LVAN spectrum and existing MSS franchise are valuable assets, and we're investing wisely to develop them in ways that enhance existing services while meeting new market opportunities. We're taking a capital-efficient approach that is entirely consistent with our financial mantra, growing franchises, growing franchises, cash flow, deleveraging, and improving returns on capital. Negotiations around the formation of equities are ongoing, and we won't bring them into the public. But we can say our plans to develop our LBAN franchise are entirely consistent with the financial objectives we keep repeating, increasing cash flow, reducing debt, and investing wisely for the future. One housekeeping note, subsequent to quarter end, we moved $175 million in cash from Inmarsat to Biasat. As previously discussed, we expect the total amount of funds we'll move over time to be $400 million to $500 million. Thus far, we've moved $350 million, including the $175 million just referenced. So in closing, in fiscal 26, we're 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 Biosat-3 satellites. Team BISAC is determined to close out the year strong and well-positioned for the future. With that, I'd like to hand the call back to Mark.

Okay.

Thanks, Gary. And with that, I'd like to open it up for questions.

Your first question comes from the line of Rick from Raymond James. Your line is live.

Sorry.

Hey, can you hear me okay?

Yes.

Okay. Sorry. Several earnings tonight, so I'm trying to not overlap on the sound. Sorry about that. Yeah. Hey, a couple questions. First, on the all-important Flight 2, Flight 3 launches and services, it looks like maybe a little bit of a delay on Flight 2, saying now May versus early 26th. and then Flight 3 will go up, hopefully launch shortly after Flight 2 in service. How fast can Flight 3 get into service? Are there differences given the rocket you're using as far as how fast that can get in service?

Yes. Yeah. The Flight 3 will probably have more like a two-month orbit raise as opposed to more like 100 days for Flight 2. So that will get it. That's kind of the dominant factors that were raised in terms of time from launch to in-service.

Great. And as we think about the strategic review you all are going through, obviously, this is not something you take lightly or that you would do without careful review. It's a long process, not necessarily a quick process, obviously. But it seems like, as I read through the comments in the letter and I listen to you on the call, You want to see flight two and flight three successfully go in service. You want to see macro market conditions of the segments. You want to see achieving de-levering and free cash flow generation. Boy, it sure looks like the tick points are starting to come along where that decision process and any external gating factors that might affect it are kind of getting knocked down. Is that the right way to think about this, that kind of opens up the aperture of when you might do something?

Yeah, I think you've got the factors right. Those are the things that we're looking for, and they'll all go into the mix of what we decide to do and when and how, if anything. I just want to be sure that we're evaluating and we're going to look at. All right. And you got the factors just right.

Okay. Okay. Makes sense, and the progress goes along there. And then kind of the wacky question then is, and there's been a lot of stuff going on in space, what are your thoughts about data centers in space and AI with space? Just trying to think, as you think about you want to target fast-growing segments and profitable segments of space, where do those fit in your calculus?

Okay. Yeah. So on the data center side, I think that the – the entire premise really hinges on power generation in space. That's the ultimate, that's what the ultimate test will be, is does it, will it ever make sense that you can generate power more cost-effectively in space than you can get it anywhere on Earth? So, I think that, and that's an open question, I think that Along the way there, and this is what I think other people have identified as well, kind of the two of the big swingers there are going to be how efficiently can you generate power in space from solar cells, and then how efficiently can you dissipate the heat from all that power off board the satellites. So from our perspective, Work in those areas is really helpful because it improves the productivity of communication satellites as well. I think there's another aspect that does get some coverage, but probably not as much as it should, which is what is the orbital, you know, debris mitigation plan or sustainability factors associated with the amount of mass that's required for those data centers in the surface area. for those data centers, and does that provide a gate or does that create a gate or a limit to the amount of power you can generate, at least in near-Earth orbits? From our perspective, we don't have any plans to be in the data center business. You know, everybody does note that if you want to be in the data center business in space, you're going to need a lot of communication capability to and from that. And so that part we're certainly interested in, and we're certainly interested in partnering with others that might want to actually put the compute storage resources in space. Great.

It is. And so when you think about fast-growing segments that you'd be interested in that would fit kind of your capital intensity and your free cash flow generation that Gary was talking about, what should we think are kind of the top – one, two, three, four, five segments that you think make great addressable markets for what you guys bring as far as competitive advantages?

The two areas, if you look at it from a technology perspective, think of it as the broadband sector, which is kind of K-band and higher frequencies that are being used for broadband communications. We see that there has been, for the Last 10 years, you know, lots of demand growth as unit prices come down, get more speed, more volume, per unit cost, and those markets have grown. We still think there's quite a bit of growth in there and that we can certainly compete really well in that space. And then there's, you know, the whole tradeoff between fixed and mobile uses. The mobile uses, certainly, you see lots of growth in those parts, and especially given what's expected to be a substantial increase in autonomous mobile platforms. The other area, from a technical perspective, is going to be the L-band or the low band. People refer to them as mid-bands. And that market, right now, if you look at a range of analyst estimates, that could be one of the single largest markets. in the satellite communications space. Within those two categories, within the broadband market and the L-band market, we really see a number of vertical markets. In the broadband market, certainly mobile platforms is one of the biggest and most interesting. And within that market, government applications is really a big opportunity. and one of the big trends we highlighted there we think is going to be sovereign ownership that is international and domestic applications so that's going to be operating those networks designing the network building the networks but a lot of them we think ultimately will end up under control of individual countries as opposed to outsourced to private enterprises when those countries are going to be so dependent on that type of communications for national security. Also, the other thing we see coming in the mobility market is that just as a consequence of some of the geopolitical conflict around the world, there's large parts of the earth that are just closed off to access to navigation and communication services, and we think those services that ship owners, airplane operators, they're going to want to be able to navigate and communicate through those, not necessarily over individual hotspots, but in the surrounding areas that often are contended. We see big opportunities that are kind of a mix of commercial and government in that broadband mobility area. And the big difference between the L-band mobility area and the broadband area is think about L-band will have higher unit airtime costs, probably lower speeds just because there's way less spectrum to work with. But the antennas that you can use for that are going to be really small, very small, omnidirectional. That's like conventional cell phones, IoT devices, watches. And, you know, in the history of satellite communications, One of the main barriers to growth has just been having people with terminals capable of working with your satellites. And so the big thing that's happening in this deep D2D NPN, non-terrestrial network space, is, boy, there are going to be literally billions of devices that are connected. And as long as you can do the handovers quickly and well, we think that as long as there's interoperability between the terrestrial and satellite domains, well, that's going to be a big market. And that's going to be for consumer use, enterprise use. It's going to be on autonomous vehicles. There's going to be some question about how quickly each of those markets develop. But ultimately, just like in terrestrial, having spectrum that works with those devices is going to be a prerequisite to being able to participate where we feel that we've put ourselves in a good position as one of the very few operators that really has access to both the broadband microwave frequencies and the mid-band, L-band frequencies, and can deliver that continuum of service. So that's, you know, in a nutshell, that's what we're really aimed at with our satellite services.

As a Norway in a nutshell, that was satellite in a nutshell. I appreciate that. And good to have Spectrum and good to have satellites about to come in service. All right. Thanks, guys.

Your next question comes from the line of Sebastiano Petty from J.P. Morgan. Your line is live.

Hi. Thank you for taking the question. I guess, Mark, related to your response to Rick's last question, just thinking about in the past you've talked about a tower model as it pertains to directed device. I mean, can you perhaps maybe elaborate on that? I guess, what gives you confidence that we'll see, you know, two plus three D2D players that can perhaps emerge over time, particularly without the, you know, requisite, you know, spectrum that's out there, right? I guess that's kind of my first question. I think maybe the sovereign angle probably answers part of that. And then relatedly, I guess, to the end of the prepared remarks there, just kind of thinking about equities and the L-band spectrum or just your overall spectrum ownership. I guess, you know, I understand growing the value of the franchises, but we're also at a point in time now where perhaps spectrum might be a little bit, you know, satellite spectrum is in vogue and very hot right now. And so just the considerations there of, you know, is it about controlling your own destiny and maintaining option value long term? Thank you.

Okay. So for the first question, one is there is a fair amount of satellite spectrum that has been allocated to mobile satellite services and has been for like 40 years. And those satellites serve real and valuable functions for for people that don't have access otherwise and, you know, or depend on the weather resilience of those frequencies compared to the microwave stuff. So, you know, KU-BAM is great for, you know, 100 megabit or plus higher speeds. That's a really nice feature. But the fact that it is highly attenuated in storms is a big issue for maritime as an example and for some other users as well. there are you know the spectrum has been allocated there are multiple players that have it often countries who use it for national security purposes or who worry about you know having you know literally millions of people in their countries with devices that can completely bypass their terrestrial infrastructure are going to and have been asserting their requirement that operators in those countries comply with national telecommunications regulatory laws. So we think that there are good reasons for that. They're not technical reasons. They're more national security sovereignty reasons and other safety reasons. So We think that those are just going to be requirements to play in the market at a large scale in many parts of the world. So we, one of the reasons we're interested in Inmarsat in the first place was, you know, it was formed as an international organization to solve some of these issues around mobile satellite services and the need for that. And we still have really good relationships with a lot of countries around the world where we can work through these problems as we evolve the capabilities. And so that is one part of the issue about why we think there will be multiple players. The first part of your question is related to some extent, which is the issue about high power. So... I think it's not always well understood that the thing that creates the potential of communicating with an office-shelf terrestrial cell phone is increasing the power levels that are allowed for mobile satellite service. And we're talking about power levels on the surface of the Earth. It doesn't really matter what altitude you're generating them from. You know, the big issue, one of the issues that always has been an issue, an issue in basically all wireless spectrum uses is how high of a power can one operator reach or radiate at without interfering with neighboring frequencies. And so that has been one of the main issues. That's probably been worked more in the U.S. than others, and a lot of focus has been on to satellite emissions that can interfere with terrestrial cellular of course anybody that wants to do it uh from satellite at these power levels is also going to have to coordinate with other satellite operators right that so that's one of the things that we've been really focused on and uh just to be clear The 3GPP standards, which is what the chip designers and handset designers are working towards the infrastructure, everybody's working, do call out these higher power levels that would be required, with higher power levels required for the broadband services versus the narrowband services that are already in service and that we're participating in service for right now. So, I mean, these are... kind of the same fundamental issues that all satellite operators had to deal with for decades. They're not going away. I think there are solutions to them. We know what our constraints are in terms of interfering with neighboring operators, and we are designing our network in a way that it both achieves what's required in the 3GPP standards and does not interfere with neighboring users. And that is an artifact of our system design and who our neighbors are. So that's how we're doing it. We think we have a good spectrum for that purpose, and we think we understand the issues well and are addressing them.

Thank you, Mark, for being here. The next question comes from the line of Ryan Kuntz from Need Animal Company. Your line is live.

I wanted to ask about the IFC, and you announced this new next-gen terminal with Telesat. Maybe you could expand on what's attractive about their Lightspeed constellation for you, Mark, and how that, you know, differentiates from other opportunities out there.

Okay. Yeah, thanks. What we're looking to do with Telesat is basically recreate what's been working in the maritime space in a multi-orbit system. In the maritime space, there's a lot more room on board ships, and it's easy to put on multiple antennas. And so for the Nexus Wave service, which has grown, has had really good market reception, and we're getting good good adoption and financial results on and uh it's been in use for about a year uh so we've got good good field results i mean the that's we're using a ka band broadband service which uses our geo satellites plus ku band leo and we do that with two different antennas with uh with our new aero services we'll have a a new single antenna that can operate both at LEO and GEO simultaneously effectively. So we'll do there just what we're doing in the maritime space. Essentially, we're using the GEO satellites to provide the bulk of the bandwidth and LEO satellites to manage traffic that is latency sensitive. So what you get This is you get the cost benefits of geo, which not all geo satellites are the same. We've been really focused on putting bandwidth where there's demand at very low cost per bit and being able to move it around to follow these mobile platforms. All that stuff works well. The big thing we're going to do in Aero is instead of having two antennas, we'll have one antenna. That can do both LEO and GEO. At the same time, we primarily route the latency-sensitive traffic, excuse me, over LEO. And, you know, the vast majority of the traffic tends to be video, which is not latency-sensitive at all, very well suited for GEO. So that's the basic principle behind that. I think that... The last tell us that it said is that they expect to start to be launching their LEO satellites by the end of next year. And so that's when we'll be able to offer that service. The other point I would make is even our existing CABE and aero terminals are capable of operating with the LEO. They're just not capable of doing both at the same time. I see. Awful.

And then maybe kind of big-picture question about once you get F2 and F3 in service here, it sounds like a third-quarter time frame. What's the time frame from which you really start to see a revenue inflection, time for that comm services business to turn around? Are we talking about a couple quarters, or how should we think about that on a modeling basis?

I think – so we've had steady growth in – Pretty much everything except for residential has been a headwind for us. Maritime, we've seen slight downturn, but we're expecting that based primarily on the Nexus Wave service to be back to growth again by this quarter. So we think we'll see. you know, good continued growth in those services plus growth in the government services. On the residential side, you know, we're not going to give the projection right now, but it'll probably take a few quarters for us to get terminals out in the field and to see that, you know, at first what we're going to be aiming for is that we slow the rate of decline, and then we think we'll level up and be able to grow that business a little bit.

Mark had said in the past he's referred to it as, you know, being paced by the demand. And we have a lot of opportunities, you know, on the unit side as well as, you know, continuing to upgrade some of the service offerings like you're seeing in aviation. Right. Thank you.

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

Thank you. Back to the evaluation you're doing on your government assets, could you just walk through some potential scenarios of how you would manage these, quote, key dependencies of satellite assets if you were to separate, say, the debt business from the rest of ISAT?

No. No. i think i mean you're on the right you're on the right track uh you know in terms of the issues that we need to resolve right and so that is that is part of what we're going through both from a capital structure perspective from a technology perspective part you know perspective potential licensing or other class agreements that that's what we're going through and uh those would be the factors that we're not going to speculate. I think at this point there's just too many ways to go about it. We're not, I think we're trying to make sure we do a really thorough evaluation and it may evolve over time. We'll be able to speak more about it after we've gotten through these gates. But the whole thing is we are very focused on shareholder value. We're not going to dismiss things that will drive shareholder value. But we also, you know, we're going to make sure that whatever we end up with has a, that we think has a good competitive position in the growth markets and then can get the shareholders can get the benefit of those things.

Okay. Thank you, Mark. And just one final question from me. Just, you know, given this, This global refresh driven by quantum-resistant cryptography and your historical leadership position, information security, protecting data on the movement at rest, are you seeing your position today as competitively the same or stronger or may perhaps threaten by emerging competitors? Yes.

You know, we're seeing good growth in that business. We think we're – the way I put it is I think that our competitive position has probably improved a little because of the urgency of the problem, and the market size has improved a lot because of the urgency of the problem. So we're pretty bullish about that area.

Okay, great. Thank you very much.

Your next question comes from the line of Eberson Yu from Deutsche Bank. Your line is live.

Hey, thanks for taking our questions. I wanted to actually come back to your comments about the space data centers. Let's assume that on the energy side, efficiency side and everything, that kind of gets sorted out. Do you think spectrum is or becomes a limitation? And I ask that in the context of There was an announcement by Blue Origin around TeraWave, and they seem to be using or wanting to use very high frequencies, Q-band, V-band, and doing like an optical from Neo to ground. So just wondering if spectrum then becomes some type of constraint.

Yes. So I think you're already seeing a migration to higher RF bands. So, you know, from KU to KA. Now V-band is, you know, coming more into play. E-band will probably come into play as well. So that opens up more spectrum. Ultimately, I think the number of people have talked about optical links from space to ground. And, you know, one of the benefits of optical links is it's very easy to support large numbers of different operators, each with large numbers of satellites without interfering with each other, that it's going to, you know, at some point, if there is to be a big market for data centers and space obstacles, you know, space to ground links has got to be a significant part of it.

Okay. And separate topic, I know you're working – in the pipeline on a sort of micro or mini geosatellite. Wondering any updates on that, and is that something you think could become kind of more prevalent in the future?

Yes. Yeah, I think, you know, basically one of the points I would make is, you know, I think we've been holding our own and competing pretty well without having any new broadband satellites, you know, while competitors have launched thousands and thousands of satellites, we've really been working up, been able to deliver competitive performance and pricing without having a lot of new bandwidth in space. We're going to get a lot of new bandwidth in space this year. I think that's going to help our business a lot. So we know that given the market growth and the consumption growth that we're we're going to want follow-ons, and we're going to want follow-ons in specific areas. So the strategy that we're working on, and I think we'll be able to disclose more of this over the course of this year, once we get through getting the other satellites in service, is to come up with satellites that cost a small fraction of what the current ones do, but have even better unit productivity. So that's what's going to allow us, we think, to maintain and improve our competitive position in the satellite broadband space. And so we have, you know, we're not going to end up with large, you know, multi-hundred million dollar single investments that are, you know, where we have big exposure for large capital bites. What we'd like to do is have much, much smaller satellites that are much less expensive, that have pretty comparable capacity, and we can put wherever the hot spots are. And I think that's going to drive. One of the things we keep talking about is how do we drive down capital intensity? That's a big component of it, and that will drive a return on capital, which is clearly the way that we're going to deliver more shareholder value.

Great. Thank you.

Thanks, Anderson.

Your next question comes from the line of Justin Lang from Morgan Stanley. Your line is live.

Hi, great. Thanks for speaking to me in here. Mark, maybe just quickly back on the strategic review, I'll try one here. You know, a large defense prime just a few weeks ago announced a planned IPO of one of its businesses with the U.S. government as an equity investor. Curious if you see any particular merits or attractive elements in this sort of structure as you think through the the optionality around that business.

Wow, that's an interesting one. Okay. You know, I think, yeah, look, I think that part of that's going to be around the priorities of individual governments. And I think that right now the U.S. government seems to be taking an interest in and providing some benefits to what otherwise had been purely private enterprises. So if those, you know, to the extent that those are available in a competitive position and shareholder value, that's an interesting thing to do. There are maybe more instances of that internationally, and so being able to do so internationally would also be a benefit. I'd say that those are examples of things that we might look at when we consider some of these more fundamental strategic capital structures.

Great. That's great, Kelly. And maybe just quickly, Kerry, and I might have missed it, just for a little more color on the revised CapEx outlook and specifically whether the new guidance reflects more of a push-out of some of the planned investment into 27 or just trying to understand if it's timing-related. Thanks.

Yeah, generally not. We did note there was $40 million that we expect to continue into fiscal 27 from the Viasat 3 spend that we've been talking about. Beyond that, the rest of it really is efficiency-driven. And, you know, we've had a big focus here on making sure that we're efficient with our capital. It has not at all been about cutting or reducing capital. And everybody has embraced it. I think we've done a nice job of it. So other than that $40 million I described a minute ago, you know, it's real efficiency gain. Got it. Thank you both.

That concludes the question and answer session. I'd like to turn the call back to Mark for closing remarks.

Okay. We appreciate everybody joining us for this past hour and all the questions and look forward to speaking again next quarter.

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