Welcome to Viasat's FY 'twenty one First Quarter Earnings Conference Call. Your host for today's call is Mark Denckberg, Chairman and CEO. You may proceed, Mr. Denckberg.
Okay. Thanks very much. So we published our shareholder letter last night that described our first quarter results and most of the detail that we'll discuss is in there. I wanted to make a few quick points before we go ahead and take questions. So overall, the results came in better than what we had expected looking at things from the March.
Adjusted EBITDA grew about 8% on on revenue, though, just slightly lower despite all the headwinds that we had from the COVID situation on especially on our commercial in flight connectivity business. We've got, I think, very good diversity in our business base, and that was really what helped us have such strong results. Government business did really well. Fixed broadband showed very significant demand and that helped the results there along with our cost management. In flight connectivity business was actually probably a little worse than what we had expected in that first quarter, but we're still able to grow adjusted EBITDA.
And overall, our new contract awards were really strong, which built up confidence for the rest of this year. That kind of leads into our second theme here, second main point, which is opportunity for us. We have a lot of opportunities in our government segment. We talked about very strong demand, lots of proposal activity and value. We see opportunities for our aeronautical business to grow out of the low point of first quarter.
And our international businesses, we expect to be able to start expanding after some delays that we encountered and our partners encountered during the first quarter, again, due to the COVID pandemic. The last point I want to make is just that we're making good progress on our BioSat-three satellite program. So the COVID pandemic is definitely creating some issues for us to overcome, but we've got we've continued to make good progress. We're at the point in the program where the payload integration is coming together. So we're testing larger and larger subsets of the payload, and we're making really good progress on those milestones.
We were aiming for being able to ship that payload at around the time that we report next quarter. It doesn't look like we'll have shipped it by then, but we'll be close enough to have a more definitive date that we can report when we report earnings next quarter. So with that, we'll be happy to take questions now.
Just quickly before we take questions, I'll just give you our Safe Harbor disclosure. As you know, this discussion will contain forward looking statements. This is a reminder that factors could cause actual results to differ materially. Additional information concerning these factors is contained in our SEC filings, including our most recent reports on Form 10 ks and Form 10 Q. Copies are available from the SEC or from our website.
Now, questions.
And your first question is from Philip Cusick with JPMorgan.
Hey, thanks for getting up early, Mark. I wonder if we can start with government. Last quarter, you had some delays from getting signings. What's the status of getting things signed off on at this point?
I think the two the things that we highlighted last quarter, the biggest issues were on direct government prime contracts, especially ones that involve security or classification. The two main issues were, in some cases, just being able to get the contract signed off and the other was acceptance of products that required security. And I would say, kind of went as we expected and it's better, but not gone, is kind of the way I'd put it.
And how does that play into I noted in your shareholder letter this morning, you say that government systems momentum will build in the back half of the year. Do you anticipate those signing issues needing to be cleaned up for that? Or is that despite the signing issues?
I think things continue on the trajectory that they're on. That's consistent with our outlook for that segment. The other good thing is that the backlog that we've got is really good. I mean we had this good awards quarter. So we've got backlog going in.
So we always have in each quarter a fair amount of product orders that go against the IDIQ contracts that we have. So it's not like it's everything is all locked up. But based on the way things are going, the outlook seems good for us to continue to build revenue and earnings through the year as we usually have in that business.
Okay. That's helpful. And then it sounds like ViaSat-three timing getting pushed out a little bit. You mentioned some scheduling pressure and shipping a little bit later. Should we look at that still being launched in calendar twenty twenty one?
That's what we're aiming for. I think like we said before, shipping the payload back to Boeing is a really big milestone because then from there on the rest of the program is really pretty straightforward as a 07/2002 production program for them. And I think the last thing that we said was that we were aiming for around the middle of the year. So I'd say we're certainly aiming to have a launch next year. But we'll I think we feel a lot more comfortable giving the specifics next quarter because at that point, we'll have we'll be quite close to being able to ship that payload back to Boeing.
Sounds good. And then last one, if I can. The equity raise, 175,000,000 very recently. Can you help us understand, number one, why you wanted to raise equity? And number two, the timing seems a little bit strange.
Post the quarter, pre earnings release, why do it then? Thank you.
Okay. So the equity raise was with two investors, Intercorp and Outpost. And really, it was kind of catalyzed by our relationship with Intercorp, who we see as a really helpful partner in our international expansion. And so we had been working on it for quite a while, probably a few months. And it came together at the time that it did.
I would say the overall market environments are very dynamic. And so we just figured that it would be better to execute the deal when it was ready as opposed to waiting even weeks just because markets are so volatile. That's what explained the timing once we put the deal together. Outpost expressed interest in participating in that same deal. I would say in addition It wasn't an outbound.
I think that's the key.
That's fair. Yes. And then I would say that the just in terms of why, I mean, it's a volatile environment that we're in. We see a bunch of opportunity. And I think that having additional equity base gives us more maneuvering room to deal with that to deal with the opportunities that are coming along.
And can't never can say anything until things are done, but there are definitely opportunities out there where I think this will be helpful. And if they come to fruition, I think people will understand sort of what it was that we're the kinds of things that we're looking for.
Understood. Thanks very much.
Thank you, Phil.
Your next question is from Rick Prentiss with Raymond James.
Great. Yes, good early morning. Hope you guys are doing okay, your families and employees as well in COVID-nineteen. Sounds like business obviously doing well.
Thank you, Randy. Thank you.
Question, want to follow-up
on Phil's question there then. Mark, you mentioned there's opportunities out there. The shareholder letter talked about potential strategic growth opportunities in evaluating success based investments. Can you elaborate a little bit on that about what's interesting out there? What you might want or what you might need in the array of your diversified portfolio?
It's hard to give specifics. I think we have a pretty good track record of doing strategic transactions that generally they're kind of tuck in type things that help us either with specific elements of technology or in specific market segments or possibly in specific geographic areas. And that's those are in general the kinds of things that we would look at. There would be in general things that would be helpful to either defense to broadband services, possibly some things that we might do in the aeronautical thing. And then also there's also some potential opportunities to make interesting value propositions in some of our markets that could be enabled by some of these potential transactions.
I'd say that's kind of the theme that we're looking at.
Okay. And obviously, a lot of discussion with the RDOF, the Rural Digital Opportunity Fund, you talked about it some last quarter. Other satellite operators have started talking about it as well. Can you update us as far as where you think satellite providers can play in the RDOF given the latency requirements? But then also Mark, if you could expand it more broadly into what's happening in the competitive universe.
A lot of incoming calls about fiber moving deeper into the marketplace and also all the speculation on the new LEOs as far as what they'll be as far as a competitive dynamic, particularly versus your businesses?
Okay. Those are all good and fair questions, Rick. The RDOF program has reached the point where no potential participant can make any comments on RDOF whatsoever. So we're taking that very seriously. Unfortunately, I'm off the path on pretty much everything you ask.
And how about the new LEOs as far as what competitive threat they might pose?
Well, I'd say that the LEOs are kind of evolving the way that we expected. I don't think it's I don't think anybody should be surprised that the Amazon Kuiper system got FCC approval. I think that's going to that's clearly going to complicate the LEO situation because just from an orbital dynamics perspective, it's going to get crowded in that region of space. And those are things that I think were addressed to a little extent in the FCC's notice approving. There's still some work to do.
But I think that the main themes that we've been saying all along on LEO is that the cost of useful bandwidth is going to be quite a bit higher than it will be for our GEO satellites. And so we think that's a pretty strong advantage for us in most of the markets that we're in. We'll also have lots of coverage, especially in the ocean areas, probably before the LEO systems do. So we're comfortable with our situation. I think it will bring growth to the market.
I think it will expand the market. And we've been anticipating, as we've done each time we launch new satellites, that we'll be able to improve the amount of bandwidth that we can deliver to our customers in each of those markets as we launch our satellites. So I think that's kind of I don't think anything's changed in the last quarter relative to those major points.
Maybe when you can elaborate a little deeper since I hit a couple of tough subjects. Obviously, and government doing quite strong. Where are you at as far as maybe moving your product beyond like special forces into mainline forces in that backlog and the opportunity set for the government business?
I'd say we're continuing to make good progress there. I think that's one of the underlying reasons that our business has been growing kind of so steadily for such a long time. The basic theme is the one that you've said, which is to get into kind of the first responders, early adopters in a lot of these markets and then have that example be something that some of the more the mainline forces can see and also adopt. And it takes work because one of the other themes that we've described a fair amount in our government business is that a lot of our business is not in what are called programs of record. It's really showing operational capabilities that are so important or valuable that our customer base is figuring out how to allocate money to acquire that stuff.
And so the main area some of the examples that we've given are being able to first get into special forces, tactical air controllers with things like handheld Link 16 to be able to get, we'll call it small tactical terminal again for Link 16 onto rotary wing platforms. More recently, we've been getting on more rotary wing platforms for satellite broadband. And in each case, it's generally some part of the special forces of each service that are adopting these things first. And we see that continuing to go. Usually, they'll start small and they just continue to grow.
There's not often like a major event that occurs. What you'll see is kind of a major event was getting on a particular platform for a particular application with a particular user group. That's generally how these things start and then they expand. I would say the other thing that's going on is we are seeing I think this big theme of overall, I'd say, pivot to Asia Pacific or more focus on dealing with near peer kind of the way that it's framed as near peer competitors is shifting a lot of the priorities in DoD and that's also creating really good opportunities for us. Some of those are bigger opportunities, but they also often generally start with some form of study or technical prototyping or demonstration and those go well and they'll blossom into larger programs.
And if we make progress on those, we may bring some of those out over the next few quarters.
Okay, great. Good to get your nose under the tent. And again, wish you all well and your family and employees stay safe in these crazy times.
Thank you very much, Rick. You too.
Your next question is from Simon Flannery with Morgan Stanley.
Great. Thank you very much. Good morning. Mark, I wonder if you could talk a little bit more about IFC. What have you been seeing in the last several months in terms of the ramp up in that?
It seems like you've got a few more planes flying perhaps than the industry overall. Is that continuing to build through the third quarter? And what about the pipeline? There's been a lot of focus about Delta's plans to go free WiFi and other potential opportunities in the pipeline. Is that all on hold given COVID and their kind of financial environment for the industry overall?
But any color there would be great.
Okay. So this is obviously like the most challenging time ever for our commercial airline customers. And progression out of the bottom of the market is happening. It's happening slowly, but it's happening steadily. I think what for instance, one of the first things that we've seen, you can see this a little bit from our report is that the proportion of planes that are flying is a lot higher than the proportion of passengers that are on those planes.
And that's really the biggest issue for the airlines to deal with. Just from some statistics are, I think, when we looked at it, if you use TSA checks as a metric, we saw those down 90%, say, in May, about 80% in June and 75% in July. So things are coming back. Think as the planes fill up a little more, I think you'll see more planes coming back into service. And then you'll see a little bit of back and forth on that.
That's hopefully the way things will go. The airlines themselves have I mean, it's just we have great empathy for them just because of the issues that they're dealing with. But I would say that the attention that they're paying to in flight connectivity is significant. I mean, I think if anything, they're seeing this as probably even more important than it was before that people want to be connected while they're flying. Clearly, we're a cost input for the airlines.
And so we've had a lot of discussions with them about helping them through this time. But I'd say all those discussions have been constructive and are centered around how do they and we improve the offerings, make it more available and maybe expand the ways that it's offered. So I think we're making progress on that. And then the last part, which is both the other part, I would say, becoming more evident as one of the points that we made in there is that because in our letters, because we've been on newer planes, we're probably dealing with a lot fewer retirements than some of the other IFC providers, which I think is going to help us coming out of that situation. Then to the last part, which is activity among airlines that either don't have it yet or we're going to expand their service, expand their fleet or expand the markets where they offer service.
And potentially in the Delta case where airlines are talking about switching service providers, we are still seeing really robust activity. And we have a lot of virtual meetings now, hopefully, but lots of virtual meetings with airlines. And I'd say optimistic, but anything that we describe will be on a schedule that's convenient for our airline customers. That's how we'll hopefully be able to announce things. But the other point that we made in the shareholder letter is that of the orders that we already had entering into the pandemic, pretty much all of those are still intact, and we still expect to deploy them once the market picks up again.
Great. And then turning to the consumer broadband, a very valuable product in a time like this. How are you how's your capacity availability to continue to satisfy demand there? Are you pushing up against the limits of ViaSat-two? Or do you think there's still room to continue to add subscribers?
Well, the basic theme is what we've seen before, which is that the demand tends to be concentrated in high demand areas. And certainly, that's where we and I think that's what's happening in the industry is that in the places where there was high demand, now there's a lot more demand. And there's also more demand in the lower demand areas, but not the same as in the high demand areas. So we are supply constrained in meeting the demand. I mean that's been a factor.
I think that's from our perspective, that's a good sign going into launch of ViaSat-three is that we'll be able to offer plans to more people and a lot more attractive plans as we get more bandwidth. I think also though, we do have room for growth in what are the lower demand areas in The U. S. And we certainly have room for growth internationally. And so that's in the time interval between now and when we have ViaSat-three in service.
Those will be the main areas that we're going to look for growth. And we'll do that on the international side by being able to engage some of our distribution partners who have been mostly had been kind of temporarily sort of founded or constrained because of the virus, but are now kind of you're seeing in The U. S. Is that people are kind of determined to open up their economies. So I think we'll see some on the international side.
And I think we'll come up with some new plans and programs in the lower demand areas that will help us grow there. But in the overall, our long term trend is going to be improving the service. And so as the demand has increased, we talked about demand increasing in two forms. One is the subscribers already have using more bandwidth and then lots of people with lower end services switching to services that can offer higher speeds and higher bandwidth, that is creating some stress for us in the highest demand areas. So one of the things we're going to be focused on is maintaining service quality.
We're one the things we talked about last quarter, we're pretty excited about it, being in the top 10 in that U. S. News report for ISPs and we'd like to preserve and build on that reputation. And so the demand that you're seeing now is definitely making that a little bit harder.
Understood. Thanks, Mark.
Thank you, Simon.
Your next question is from Rich Valera with Needham and Company.
Hey, this is Chad T. V. Bow on for Rich Valera. I was just wondering in terms of the recent equity rates, if you could give us any more color around potential business opportunities in Latin America that could arise from it?
Okay. Well, so we mentioned Intercorp has a strategic partner And so that is we're looking to expand our relationship with them. And that will help us with service distribution in a number of markets and also in some of the specific services that we can bring to those markets. And that I think it's a little less that we needed funding in order to do it and a little more that we really value the strategic relationship and the skills and resources that Intercorp brings to those markets.
And so the I wouldn't necessarily draw a connection between that and investment into Latin America. Would more talk think about it in terms of kind of what we
think is a strategic relationship with
a really strong partner in that region and then giving us more flexibility and maneuvering room for strategic opportunities or overall globally across the businesses and across geographies.
Great. Thank you.
Thanks.
Your next question comes from Matthew Robilliard with Barclays.
Yes, good morning. And also thank you for making that call early. It makes a difference when calling from Europe. So thanks for that.
Our pleasure.
I had a question about ARPU on the satellite service. Obviously, very impressive progression this quarter. And what I was trying to understand is how much is linked to some of your consumers topping up on their existing plan? Are other consumers actually moving up the ladder on the plans and taking bigger packages? What I'm really trying to understand is how sustainable that increase in the ARPU is.
Is it just a spike because of the current situation? Or do you think this is more structural?
Okay. So one of the main reasons okay. So when there's been ongoing reasons in the growth of ARPU over the last two years that we've talked about in the past, which is generally a higher proportion of retail subscribers, a lower proportion of wholesale subscribers and then also the fact that we've aimed our services at kind of higher value, higher bandwidth plans. But in the last quarter, there was an additional ingredient, which is the upgrades that you mentioned. And the way that our plans work, we tend to kind of minimize a top up in terms of purchasing additional gigabytes during the course of a month and more having plans that have higher speed and more bandwidth allocation.
And that's the trend that happened. Don't expect that ARPU is going to continue to rise the way it is, has been. There will be I think there will be just a number of dynamics that are going to affect ARPU. One is we are especially as we go into ViaSat-three era, we expect that will in general offer service plans at lower price points than we do now. So I think we expect over the longer term ARPU to come down.
The other thing is that we expect that our international business will continue to grow and that will have a mitigating impact on our total ARPU in the fixed broadband business. And then also, we'll be expanding our WiFi hotspot sites And that has a little bit of a funny impact on ARPU. The individual users spend much, much less money per month, but there tend to be a lot of them per site. And so that's when you put all that stuff into the mix, our revenue per site, which is kind of the way that we're starting to look at as we get this mix of sites. Revenue per site, I don't think going to move that dramatically in either direction.
It might trend up a little bit or it might trend down a little bit just depending on the mix of growth in each of those categories over the next few quarters.
Thanks. And just following up on the mechanics of the upgrade. So if I'm a consumer and I'm on a package, say, Liberty 25 or something like that, and I want to move up, is it quite easy? I mean, there's no constraint even though I may have been on okay. And conversely to come down, is that as easy or
We give customers the ability to go up or down.
Great. And then actually following up on one of points in emerging markets, have you seen any noticeable pickup in volumes or in programs by governments that realize the importance of broadband connectivity in these times in some of the emerging markets where you operate?
Okay. We've definitely seen the issue of government interest in making broadband more universally available, but definitely seeing that in The U. S. At both at every level, whether it's federal, state, local municipalities and counties at every level, there's interest in that. So I'd say strong demand there.
Internationally, I would say the same theme, maybe not with quite the same intensity, especially domestically as we've gone to much more school from home and work from home, that's really spiked that interest because interest in fairness, universal education, equality of opportunity. Those have been strong themes in The U. S. I think we'll see similar themes internationally, but we're probably not as embedded in those markets to be able to discern them as quickly or to get the inbounds as quickly as we have in The U. S.
I think that we will see them. I mean, as an example, in Brazil, One of the main premises for our biggest program there was to reach rural schools and rural communities. So I think we will see it. I think as we become more embedded in those markets that will be more of a factor for us. But the notion of universal connectivity, I would say, is getting more and more attention on a global basis.
That's great. Thank you very much.
Sure. Thank you.
Your next question is from Mike Crawford with B. Riley.
Thanks. Mike, were gross fixed broadband adds around 67,000 in the quarter?
I'm sorry. Did you ask if gross adds were that or net? Yes. You mean net adds?
No. Gross adds were
all you mean net adds?
The net adds were 9,000. I was wondering what the gross
I would say churn has been relatively constant, slightly improving for us. And so for the net adds to go up by that amount, then you saw kind of a corresponding improvement in gross adds.
Right. So I was kind of wondering, I know that churn has been improving, especially as you have a better fit customer with these higher value plans. Was just wondering if I could sneak in what around where churn is?
You're pretty close, Mike.
I mean, it's it's we've kind of
moved away from trying to get all these the actual gross and net adds in this space are becoming less and less an indicator of where our business is going,
especially after we talk about we're
adding enterprise customers, we're adding some of these other community Internet sites. And so they all differ from So right now, we don't have blended ARPU, but we will in the future probably. So we're trying to figure out
how to give
you guys some indicator where that's going. It's probably not the current gross in net add numbers that are going be critical.
Okay. Thanks, Rick. And then
switching
gears, with your hybrid adaptive network concept that that gives, you know, more roaming flexibility to to, particularly government customers. Is there, a chance you could get, pre buys or or pre commitment on ViaSat three network before you actually launch ViaSat-three from the commitment from the DoD to purchase capacity?
Well, I'd say yes and no. I mean, the way we have to look into the the way the government business works. It's difficult for the government to make multiyear commitments. So but in general, what you see is that when we go when we get on let's say, we get on to new platforms, aero platforms or even with a lot of the ground based terminals that we provide, the main reason often for our customers to acquire that equipment is to get the services that go along with that. And so the form that those usually come in are basically, they're either firm contracts with options or they can acquire service under these IDIQ contracts.
So you wouldn't necessarily see us make an announcement that says, X organization has purchased this amount of bandwidth over a five year period. But what you will see is, we'll get a contract for a six or seven year period with a base year and a number of option years. And that's the form that, that happened that occurs. So they're not exactly take contracts because they may or may not execute the option years, but our experience has been that once they take those contracts that it's really been quite predictable after that. So that is the mechanism.
The other point that I'd make which goes along with this is that most defense activities take place outside of the Continental U. S. Or U. S. Territories.
And so the fact that we have ViaSat-three coverage and that we have these global partnerships with other satellite operators means that one of the attractions is being able to use that bandwidth wherever those forces may be. And in some cases, roam everywhere globally. In other cases, they're more likely to be geographically predictable. And then the other part, I'd say that actually a good thing for us is that kind of all I'd say, almost all and you're seeing this, let's say, going to all is that one of the big benefits of our terminals are that they work on not only our assets or other commercial assets, but they work on the government's organic assets as well. So generally, they'll bake that into their plans as well as how what that access they expect to have or need on government systems like WGS and what they'll use on the commercial ones.
But I do think that things play out well kind of on the path around that we'll have a pretty good amount of business lined up by the time these global satellites are launched, but it will be in the form that I described. Does that help?
Yes, yes. Thank you. And then just since you mentioned the global coverage, so I mean, we're going to get some form of LEO networks globally, which then also can be used as part of such a, like, it's a hybrid adaptive network concept for DOD customer. But what about the repercussions of of potential, let's say, aggression in that space where I mean, how hard for someone for I think it would take a pretty sophisticated nation state to try to say directly target say a geostationary satellite, you know, far up and not moving around. But if you had if there was a how many people would have the ability to say go in and mess up, a whole orbital, a low Earth orbiting region and what would be the repercussions or something like that?
Okay. So I think the area that you're touching on is really so one phrase that the DoD uses for that now is resilience. And there's actually there's an acronym that's surfacing or becoming more common in in DoD for describing a situation where they'll talk about having primary communications and then alternative and contingency and emergency communications and so on different levels and they try to attribute different levels of resilience to those. So the notion of actually attacking assets in space, that's pretty high on the scale. But that's absolutely one of the concerns in the most extreme cases.
And I would say that the DOD assessments of different forms of assets are it's evolving because you're seeing that is one of the things we read about in the news every day, which is, as an example, especially recently, people are talking about using directed energy weapons against low earth orbit satellites as an example, which brings the cost, so it brings the economic cost down. Obviously, there could be some enormous geopolitical consequences of taking actions like that. So that's where that goes into the more extreme space, attacking geosynchronous assets, much more difficult. And there are targets that are much more valuable than commercial assets in that space. But I think that the main theme and you mentioned it at the beginning with our hybrid adaptive network is that the main theme across this is resilience, is being able to access a broad range of networks.
And one of the things that we've been pulling together is being able to show defense customers and we just did had a very good well attended demonstration on this topic was that using a single network, any platforms could switch pretty seamlessly among a broad array of commercial and government assets in geosynchronous orbit, which are difficult to target. And so that's I think that's a really attractive value proposition, especially when that can be done with terminals that are already highly proliferated throughout the force. So that's one of the main themes that we're working with. And I think that you'll see satellite operators from each orbital regime being interested in participating in something like that to the extent that you can get access to non geosynchronous orbits on terminals that work well with both the government assets and the other commercial assets. That's kind of more of the current theme.
Okay. Thank you very much.
Thanks, Mike.
Next question is from Chris Quilty with Quilty Analytics.
Thanks Mark. Had a question on the backlog. I mean in the old days it was two thirds mids. Can you give us a sense of kind of what it looks like nowadays in terms of the mix and along those lines in the quarter, I mean phenomenal orders.
Was that somewhat unexpected?
Were these the government has been trying to accelerate orders in this difficult time? Or were most of these kind of on the schedule that you were expecting?
Okay. First, one of the points I always make, we want to make it in both the good quarters and the bad quarters, is that orders are lumpy in DoD. And so I'd say the things that we the contracts that we received are all pretty much things that we've been working on. I mean, there's no bluebirds or things that jumped out. And it was a good awards quarter for us.
I think that we have one of the points I would make and we did before, I just want to reiterate, is that proposal activities for us, in terms of quantity and value, are hot. So I think that's a good thing. You're not going to get more orders than you submit proposals for. In terms of the makeup of the backlog, it's more it's definitely not two thirds, Mitch. It's more it's a much more diverse space than that.
So the just the Link sixteen business itself has become a lot more diverse. So we have now multiple products within that. And MIDS is a proportion of our total Tactical Data Links has actually gone down a little bit because of the diversity of products in there. And then the other areas that I think are growing for us in general, and I'm not intending to describe them as I'm not intending to describe the instantaneous makeup of the backlog today, but I can tell you in general the things that are that do get into backlog to some extent and are helping. One is the information assurance appliances, especially as the government goes more and more to cloud services.
That's an area that we're strong in. And then the satellite broadband part has been really good for us. It's a very diverse space, more and more platforms. One of the things that we've talked about a couple of quarters ago was how our defense mobile broadband services business is as big as or bigger than the commercial aero one. And now, obviously, it's at a run rate, it's substantially bigger than the commercial aero is.
And then the area that is a good growth area for us is integration of satellite and terrestrial tactical networks and being able to merge those two together is something that's really interesting to a lot of our customers. And so that's been one of our fastest growing product areas.
Okay. On that point, what launch did you sneak that Link 16 small sat into orbit? And can you talk about real interesting networking opportunity there, but how does it play in currently to the thinking that DARPA or I guess more specifically SDA has in terms of the information layers?
Okay. First thing is we do have our first small sat in orbit. It is not Building 16 satellite. It was for a different mission that we can't describe the mission, but it was our first prime smallsat and it completed well over a year ago, but only was recently launched. And I think our customer is really pleased with the performance of it.
And I think that creates additional opportunity for us in that particular market space. So the Lake-sixteen satellite is probably maybe I'll show you a year ish away from launch, I expect. The Going to DARPA and FDA, there are so there's one area of interest in small sats in general. One of the things FDA has talked about is the notion of a kind of a transport layer, which would work with a number of different sensors, systems and targeting systems to provide transport among sensors and shooters and think of that as kind of a generic layer. And so what you've seen from them is where there's multiple programs and they're not necessarily totally coordinated among themselves.
So you've seen programs like Flackjack, where they're looking at sort of a bus that they could reuse for multiple missions. And now you're seeing interest in specific types of payloads. One of the main things that one of the main points I would make is that the communication systems and the transmission systems that they're talking about, and these aren't necessarily what you would consider to be just plain old broadband systems. They're not necessarily looking for broadband pipes. They're looking for specific connections among certain types of sensors and targeting or communication networks.
That's definitely an interesting area. Right now, I would say it's more in the research and proof of concept phase. But the other areas for us that we're really interested in is you're seeing more and more interest among a variety of government organizations interested in mission specific small saps. And there's lots of different missions that are out there. Some of them would sort of shore up or replace or make more resilient systems that we've had for quite a while that are viewed to be more vulnerable to either physical or electronic countermeasures.
Some of them just with more individual satellites, can we have a greater presence and get more timely information. And so that's really the market that we're looking at. And a lot of that will come from kind of a good familiarity with the missions of the different organizations that are going to be involved. It's less going to be kind of a single universal system that gets applied to all these things. Does help clarify that at all?
That does. And maybe just a quick clarification. Who, if you can remind us, is funding the current work on that Link 16 satellite?
That was the Air Force Research Lab.
Okay. Final question on the IFC market. Guess I'll just be blunt here, which is Global Eagle is for sale, Global Gogo's CA business can be bought. Everything else is a mess. If we woke up one day and there's a press release that Viasat acquired something in that IFC sector, again, generically without responding to individual companies.
Why would it make sense? We can judge on price paid, whatnot, but the pluses and minuses in terms of industry consolidation here.
Okay. So I think I'm going to say things that I think we've repeated before. The value proposition that we're offering is to be able to provide connectivity to everybody on a plane and basically to allow everybody on the plane to do whatever they want on the Internet. And it's really difficult to do using the terminals that are on a lot of the planes that some of the competitors have. There's just not the space segment resources available to be able to fulfill that value proposition.
And that's especially true given the high peak to average demand that a lot of these fleets see when they have hub airports or destinations that attract a lot of flights multiple times a day. So for us to acquire assets that don't align with that value proposition is probably not something that we'll do unless it's somehow part of a strategy that an airline wants us to use for transitioning or something like that. But I would say right now, we feel like we're in a pretty good position. Our business base is diverse. The airlines have confidence that we'll be there to serve them.
We've got a really good reputation for reliability. I think one of the other things that you've seen is that other terminals or installations have had reliability problems independent of bandwidth availability. And the airlines are they're just generally very concerned about reliability and quality. So I think it plays well for us. We don't I mean, certainly don't want to come across as overcompetent, I think we have a good value proposition that people respect.
I think it's in demand and we're seeing continued opportunity. So that's the more likely path that you'll see us take over the next few quarters and years. Now the other thing I would say is there are going to be opportunities to present maybe some unique and new value propositions for us that we're working on and that could help us grow as well.
Understand. And I think you're partially talking about the amount of Ku capacity that exists and will be coming online in the next three years, which is pretty limited outside of LEO. You also have talked in the past about the potential of using a dual band antenna as a way to in the interim sort of expand your airline coverage. Is that still a focus for you? Are we getting close enough to the launch of the ViaSat-three satellites that you're just pretty committed to staying on a pure Ka path?
No. So we have we've okay. Yes. So yes, all of your observations are correct. In terms of the availability of Ku bandwidth in general.
We have shipped and we have flying dual band KaKu in commercial air now. We did only have it on government, but now we're fit on again on the newer line bodies. So that's good. I think that there could be opportunities in KaKu. I think one of the things that we're also pretty focused on are building lower cost, lower profile antennas that are more agile and will bring not only all of the Ka band global satellites in, but we'll bring in some of these non geosynchronous satellites as well.
And we've already done that with existing antennas. Some of the new terminal products that we're working on, we'll do that to a greater extent and bring in more non geosynchronous systems as well. So we are doing those things. I think the general theme that I responded to in the to Mike Crawford's question about the government and adaptive network that would let us move among local satellites. I think that's a theme that you'll see play out in commercial markets as well because as the number of participants grows, the peak to average demands increase and the number of places where they occur increase.
And so being able to access multiple orbital systems is a really valuable aspect of what we do. And having the agreements with those operators is good. I think the airlines appreciate it just in the same way that the government do. I think they're a little bit less concerned about typical or cabin threats, but they are certainly sensitive to congestion and availability and reliability of the satellites. All those factors still carry over into the commercial market.
Very good. Appreciate it.
Thanks, Chris.
And we'll take one more call. And that caller is Louie DiPalma of William Blair.
Mark, Rick, Sean and Bruce, good morning. Can you hear me?
Yes, we can. Good morning.
I hope all is well in Carlsbad.
So far, so good. Thanks.
Great. SES appears to be moving ahead with their mPOWER constellation with Boeing and a plan to target the U. S. Department of Defense. Can you discuss your partnership with SES for the terminals for that constellation?
You and SES seem to be on fairly friendly terms relative to the other competitors. And was SES related to your bookings in the Satellite Systems Group this quarter?
Okay. One, so we're not going to announce any we're not going to give any more detail on backlog. One of the things on so just on mPOWER, one is we absolutely expect that they're going to deploy that system. I think that the satellites will make sense that Boeing knows how to build them and they'll have to deploy them. I think that there's I think it's very interesting non geosynchronous system.
It's got just like any other, it's got its own strengths and weaknesses. We have worked with SEI and we've worked with them on O3D for quite We've done demonstrations where for defense customers in particular, where they've been able to switch among geosynchronous and non geosynchronous satellites. I think that our customers like some of the features of their non GEO system and they like being able to access they absolutely like having access to multiple different systems through common terminal hardware. So all those things are true.
I think that SCS, partly because of their experience with O3B appreciates the value of being able to deliver services through a broad range of terminals, right? So from their perspective, having terminals in the market that can access their system is a plus. I think from our perspective, to the extent that a partner that we cooperate with can deliver a service to a customer that's in some cases better than what we could do in some particular location or under certain particular conditions, that's a good thing for us and for our customers. I think that our focus is really on quantity of bandwidth. We'll have probably ViaSat-three a little broader coverage than Empower will in terms of geography.
But Empower might be able to because of just because of the way it operates, might be able to bring higher peak speeds to bear for specific platforms, for instance, in a particular area and being able to help do that is good. One of the things that going back to your other questions is one of things we announced quite a while ago was the relationship with FES for phased array terminals for And so that program has progressed really well. I think we don't talk about our phased array business as much as other people do, but I think we're probably the leader in low cost, high performance phased arrays at Ka band now, and we may expand that into KU as well. But certainly, that's one of the things that we're working with both FCS and other customers as well is to be able to get those phased array terminals out there that will work better with these non geosynchronous systems. So there's opportunity for us there.
And I hope I think we do have a
good relationship with SES and hope to preserve that.
Sounds good. And also during the quarter, you announced a partnership to bid on the Skynet wrap services contract. Do you anticipate that Skynet in the future will like utilize ViaSat-three as part of a multi satellite commercial government owned architecture?
Yes. Okay. So yes, we do a lot of business with The UK defense the Ministry of Defense. We do look at kind of our defense business, main focus is The U. S.
Next focus is what's called the Five Eyes, which includes The UK and interoperability among all the Five Eyes is certainly a high priority and then we go also with NATO. NATO. I would say Skynet itself has a long history. I think The UK is working on trying to figure out is there a way to transition from the current system to a broader to a system that's got, I'd say, more capability probably ties in more space assets and it comes to a more comprehensive program than what they've had in the past. I think fairly recently, really finally went ahead on kind of interim next generation that's what's been anticipated for quite a while.
But we think we're on a good team that's a good contender for the long term program that they envision, but it will probably be a little while before that long term program comes to fruition. Yes, I think the short answer is yes, I think that in their vision of a long term program, it would go beyond just a dedicated Skynet space asset. And I think that's one of the things that we bring to our team.
Sounds good. Thanks, Mark.
Thanks, Oliver.
And I will now turn the call back to Mark Dankberg for closing remarks.
Okay. So a lot of questions. Thanks a lot.
Really appreciate everybody's interest and everybody joining us so early in the morning that we needed to do, and we'll look forward to speaking again next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.