Welcome to ViaSat's FY 'twenty one Fourth Quarter Earnings Conference Call. Your host for today's call is Rick Baldridge, President and CEO. You may proceed, Mr. Baldridge.
Okay. Thanks for joining us today. We released our shareholder letter earlier today before the market opened and Hope you have all had a little time to review that. On today's call, we'll do a little bit of just brief opening remarks and spend the rest of the time on Q and A. But first, let's have Robert provide our Safe Harbor disclosure.
Thanks, Rick. 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 Forms 10 ks and 10 Q. Copies are available from the SEC or from our website.
With that said, back to you, Rick.
Okay. Thanks, Robert, And hello, everybody, and welcome to our 4th quarter year end call. In addition to Robert joining Us on the call today is Mark Dankberg, our Executive Chairman our CFO, Sean Duffy Paul Froelich from Corporate Development Investor Relations team and a new addition here, Peter Lopez, that's joined us that's focusing on IR Investor Relations right now. So before getting to Q and A, we'll just go cover a few highlights. First thing to note is we're really, really proud of what we achieved in our fiscal year 2021 Performance, especially in the light of all the challenges that I'm sure a lot of companies had, but Associated with COVID-nineteen and obviously hit us right from the beginning.
A combination of our diversified business mix An early and very decisive cost actions and then prioritization along the year Alongside the really hard work and adaptability, flexibility of our employees allowed us to achieved really stellar financial results for the year, including records for adjusted EBITDA, operating cash flow Over $700,000,000 and record awards. We finished the year on a strong note with 4th quarter, that is stronger than normal, 23% year over year growth in Q4 adjusted EBITDA. Our business segments are performing well with really strong momentum going into 2022. In satellite services, we saw Strong demand with stable churn and record ARPU for fixed consumer services. Our IFC business was severely impacted by COVID We've seen some steady improvements each quarter since the beginning, but we're still well below the level of pre pandemic The trend continues towards normal travel patterns, but with the consumers leading business travelers in that area.
Government Systems had good revenue and EBITDA performance, especially in light of the pyramid challenges created by the pandemic. And we had another year of over $1,000,000,000 in awards making the marking the 3rd year in a row for that milestone in our government business and add that added to our backlog. Commercial Networks had a strong performance year in our antenna systems business specifically, partially offsetting the COVID related impact in IFC mobile terminal shipments. But beyond the numbers, We achieved other really, really important execution milestones and wins that are worth noting. 1 is the first one is completing a payload integration of the First of the 3 ViaSat-three payloads, the one that's going to go over the Americas at our Tempe, Arizona facility.
We're currently preparing the 1st payload for shipment to Boeing, which is imminent. Our target launch date of early calendar 2022 Remains on track. We added Delta Airlines as a new important customer in our IFC business. Now with over 530 aircraft under contract, again, saw the press release we sent out today that added another 230 aircraft to what we already had. We commenced installations in another new customer KLM for Royal Dutch Airlines.
And we kept our eye on long term strategies and opportunity sets With the acquisition of RigNet and the other half of our European joint venture, we closed them actually on the same day. These achievements reflect our continued focus on execution ahead of ViaSat-three as we grow our global footprint and expand into new geographies And new vertical markets. It also support our long term financial targets. Despite the challenges of COVID-nineteen, We believe we've kept ViaSat on track to double revenue and more than double EBITDA by FY 2025. We're still targeting turning free cash flow positive 2 to 3 quarters after the launch of our second ViaSat-three satellite.
So with that, let's go ahead and jump into the first questions.
Operator? Thank you, sir. Our first question is from Ric Prentiss with Raymond James. Your line is open.
Thanks. Good morning. Good afternoon, everyone.
Good morning.
Hey, couple of questions. First question, just want to talk on the schedule. You mentioned that ViaSat-3A over the Americas on track For calendar year 2020 2 early launch, any issues with COVID-nineteen supply chains, construction stuff? And can you lay out kind of the thoughts then on when the 3B over EMEA and 3C over APAC are on track for launching and in service?
Well, I mean, I can't predict that there won't be any other COVID impacts. I mean, that's It has definitely hit us pretty hard this last year on that payload. But generally speaking, we're pretty well coordinated. The Supply chain, most of everything is there for that first one. Boeing, Those guys speak for themselves, but we've got a lot of confidence.
They understand the schedule, the buses is ready. So we don't expect anything, but anything could happen. The 2nd payload, as we've said before, is about 6 months behind the first one. The only thing that's happened here is the 3rd payload right now, which used to be a year behind the second one, Is more like in the 6 to 9 month range behind the second one. It's moved up.
So that's the current schedule.
Great. And how long to rise them into orbit? How long should we think about in service versus launch dates?
Well, I think we've officially announced our launch providers for each one of them, And it varies by launch provider. So I will give you a better idea As we get a little bit closer to the launch, in terms of because each one has a different orbit raising profile. Test After we get on orbit, it's probably about the same and that's probably a little longer for the first one than it is for the second and third one.
Makes sense. Obviously, big year for government, dollars 1,000,000,000 in awards. When you think about those awards and the bidding, How many of those contracts are you guys going in on like a solo bid? How many are you joint bidding with someone else? And who are your bigger partners or your competitors as we think about those awards that you Keep putting up on the board.
Well, in most cases, we're the prime. So we do partner with other people. Obviously, we had a partnership on an Australian Ben with Northrop, we've so we'll partner where it makes sense. We've done we do work with Harris on our MIDS Product, they're in that case a supplier to us. We provide components to them too and other so But most of our awards, we're prime, a lot of them are competitive.
So we're competing against others, big prime as well as other. So obviously the best thing is we compete with BAE and we compete with the joint venture So that's competitive on every cycle. Small tactical terminal, we don't we're not really competing. We're competing in any case with potentially an alternative solution or an alternative way to do it. But we're the only ones with that product.
So we that was a non development item. We invested our own money And develop that. So we're and it's it really was competitive with the old A piece of the old JTRS, the airborne, maritime and fixed terminal that didn't make it through the JTRS profile. That's really what where that terminal competes in. We don't nobody else has a handheld Link 16 product like ours, the Baxd.
So in a lot of these cases, it's the sole source product that's out there and And we're the prime contractor. We'd like to go into an F-eighteen, so we're not the ultimate source, but they're procuring this from us.
Makes sense. And last one for me. Rick, you called out the acquisitions that you made in April 30, I think it was, The RigNet and the European JV. How should we think about what that means as far as additive revenue and added EBITDA Once you've folded into your systems, now you've had them for going on just about a month now.
Sean? Yes.
Hey, Rick, I can jump in on that. I probably think of them combined, top lines maybe next year contributing another $230,000,000 or so. And on the EBITDA line, maybe about $40,000,000
Okay. And that's for like 11 months then?
Around there,
yes. The other thing to think about is, this year, there are synergies in each one of these transactions, but there's also implementation costs So, and the integration costs of getting them into account, the way we're looking at it pretty much offset each other's 1st fiscal year.
Right, right. And are they going to go into SaaS Services or is there some mix between the different segments that you guys
The majority of it's going to go into SaaS Services. There's a bit on the product side from RigNet that will go over into commercial. You could think of it as less than or around 10% to 15% of that number.
Perfect. Thanks. Appreciate it. You guys all stay well.
Thanks, Fred.
Our next question is from Simon Flannery with Morgan Stanley. Your line is open.
Great. Thank you so much. In the shareholder letter, you talked about a significant Growth opportunity in recurring service revenues as the ViaSat Constellation 3 and Constellation enters service. Could you give us a little bit more color about where you what your visibility is on that opportunity? In terms of sales conversations or traffic, you're not going to be moving across.
But how do we think about that ramp in recurring service revenue as the 3 satellites come on and how much of that is sort of in backlog or pretty firmly circled at this point?
So Simon, we're not unlike a lot of the fixed satellite service guys that sell their bandwidth out and give contracts Before they launch, I think you know we don't do that. Mostly, I mean, it's not that we don't do some of that. We've done that, for instance, With XCI in Canada was an example previously at Telesat before we've done some of that stuff with, but I mean I don't know Telesat, but other operators, but this comes from Getting consumer subscribers and getting small business subscribers and aero winning In flight connectivity and platform markets in that space, ground vehicles, maritime, it's signing up those Subscribers as we go, we're we in most cases are direct. As when we get outside of the U. S, there will be areas We make some wholesale deals and there might be areas where we sell some capacity, but there's These satellites are they're built to what we see as a demand In the marketplace.
So it really starts with a marked area, where we see demand and where we think we can increase The market share by bringing something that's quite a bit better than this one's been there before. So it's not like I'm not going to mention the other operators, but they may pre sell 2 thirds of their satellite before they ever launch. That's not what we do.
Yes. So
On the other hand, the only thing though is we have 2,500 aircraft that are signed up. We have government contracts. So a lot of those are certainly predictable. That's what we're looking to do is to capture source of revenue that are applicable and that helps us forecast what our growth will be.
Yes, that makes sense. And I guess part of it, you do have a backlog of IFC and you added to that today with Delta. What sort of timeline do you think you will see those planes coming online?
I think, so what we deliver about a little over 400 of those aircraft over the next 12 months. Yes, something like that of the Delta Aircraft.
Okay. And then the balance the year after? Yes. Great. And perhaps any color on we heard many of our companies talking about things got a lot better in March And then continue to improve and we see the latest TSA data.
So is it fair to say that activity in IFC is Continuing to accelerate through the current quarter from the levels of Q1.
Yes. I kind of I identified that in my opening remarks. There definitely we're seeing month to month increase And the number of aircraft that are actually in service and the number of passengers that are flying. But most of it is in consumer. We they're not they're seeing a very slow return business travelers right now.
Great. Are you seeing more evidence that consumers are starting to have higher take rates or use more bandwidth than maybe in the past?
We're seeing similar take rates than what we have seen. Just if you think of a percentage of Passengers, remember that business people travel for leisure also. So just because they're not traveling for business doesn't They're not doing business while they're traveling.
Yes. Okay, great. Many thanks.
Okay.
Our next question is from the line of Phil Cusick with JPMorgan. Your line is
Hi, guys. Thanks. With the payload of the first ViaSat-three shipping soon and the next 2 getting toward completion, Remind us how we should think about CapEx in the next year?
Sure. I can take that one. So a couple of things. One is to remember that This year, I would say we had a little bit of our capital shift to right, just trying to purposely map that up against the launch schedule. So I think that's one thing to keep in mind.
And then we're in that last year before launch. So the capital in 2022, I would think of it as a quarterly rate around $300,000,000 but it's going to start to tee up on the back half. That's probably a good range.
Okay.
Okay. And then second, if you can talk about the sales headwinds you've seen In the government and defense business over the last year and are those easing that we can start seeing that business really take off?
They were Most of them were related to, I mean, like simple physical things people couldn't get access to Some of the networks that they needed to utilize to review and issue contracts or to accept contracts or Those types of things. And given what's happened and given that the CDC has now come out and A lot of people have been vaccinated and now they're saying that if you have been fully vaccinated and It depends on the adequate time that you don't have those precautions. So we would expect that things are returning Normal over the next few months and certainly the remainder of the year. We're seeing we still see quite a bit of awards obviously, we got over 1,000,000,000 But it was more difficult than in previous periods for sure.
Right. That's just logistics of signing contracts and getting there. I know it's been a big headwind, but it seems Not quite normal yet, but getting toward normal in the next few months?
I think that's a good characterization.
And is there a real Backlog of things that need to be signed and are sort of ready to go that we see picking up whether it's this quarter or next quarter or is that going to be more gradual?
The pivot boards are always pretty lumpy. I would expect that's going to continue. So if you look at this year, we had Really good front end orders in that area because just there was some contract timing, those things were ready to go. And so I think we'll see it continue to be lumpy.
Okay. And then last one, there was a headline recently that you may consider splitting the business or selling the business. Pretty clearly you aren't getting the multiple for the defense business in the market that you deserve. Can you help us think about anything you can do on how that makes sense or what the synergies Are of having the government and civilian businesses under a single roof? Thank you.
Sure. Yes. We think there's significant synergies in having those to government and the commercial. But Multiple different form factors. One is the government is A complicated user of these types of broadband services because they will have concentrated demand in certain areas that will move around.
And what you have to think about is if you want to fulfill your contracts, you have to have bandwidth available in all the places where they might need it. And if they are a large fraction of the total amount of ammo that you're doing, The utilization yes, the utilization of that can be really low. But you have a very large base of commercial business And it's a lot easier to blend that government contract and still get really good efficient use of your resources. That's one of the sources of obscenity, and we've seen that over and over in the Governor CapEx that we already have, which are the ones that use our own bandwidth, primarily in the Americas, but that's exactly With my statuary, we'll get the same effects on a more global basis. The other area that's really important is that From should we look at the way that networks are evolving, government satellite networks are often An augmentation of what's done terrestrially.
So having this really interesting blend of the Important terrestrial tactical networks plus autonomous satellite networks that are used alongside those gives us an opportunity So again, it's a really good way for us to compete more effectively in the defense market than someone who doesn't have access To a combination of broadband capabilities and organic scale, we think that we do. So we find we're going to have anything in the market.
The only other thing I would add there is There have been times when we've had a lot of credit for our government business, and there's times when we seems like we don't get it. And I think those are transitory. And I don't like it when it's like this, but I think it's transitory.
Okay. Thanks guys.
Our next question is from the line of Mike Crawford with B. Riley Securities. Your line is open.
Thank you. On Satellite services side, we saw that you got the landing rights in Nigeria. What about progress in other regions Where we should be looking for continued extension of your landing rights globally.
Yes. Mark, you want
to talk about that? So right now, what we're doing on a global basis A lot of times we're using our partner bandwidth in journey markets. And so that The example in Nigeria is one where we set up the specific network for that. I think that you'll see us getting the banning rights In those areas in more areas as we get our own coverage in those areas. That's probably the main Zach, I'll try that.
So that will be Americas will be the 1st place because we can do some of that with ViaSat-two and also some of the partner with ViaSat-three is coming. Also, we're not always going to make announcements around the pending rights. It will really depend on the specific market.
Okay. Thank you. And then on the commercial networks, so is Can you talk about for this current fiscal 2022, how much of that would be like antennas to OneWeb and others versus Say, satellite payloads and IFs or satellite equipment for your own Users of broadband this year and then how that's going to shift over the next couple of years once ViaSat-three starts to Dominate a little bit more.
Yes. 1 of the biggest areas where we had a really strong awards last year and we see this continuing is in full motion antennas, which are essentially bound segment For different forms of Earth observation satellites. So when it's about new space, I think space does work. A fair amount of it is in communications and a lot of it is in things that relate to earth So there's a lot more demand for the ground networks for that. And so some of that is Some of our custom orders that we've received for those types of products.
Another area that's Well, it's well what's been growing pretty well are components that are used in space systems. That's government, but there's opportunities for both government and commercial in there as Those are the 2 fastest growing parts of the commercial networks. In this coming year, In plant connectivity equipment, synergy and connectivity contributed to that, the growth there as well.
I think overall, Mike, over the next 2 years, Mark's right, but that's from an external standpoint, you can look at that. Over the next 2 years, I'd say well over half of it is ViaSat-three related payloads and ground segment Employment, that's going to occur through that segment, just from a cost standpoint.
Okay. Thank you. And then just a couple more. One, back to RigNet. You said the Integration costs are going to kind of offset synergies this year, but can you quantify Beth, for this year.
Yes. So I think what I would think about, as you look longer out, There are some further opportunities, bandwidth and so forth as we get to ViaSat-three constellation. On the near term, it's really going to be what I would associate with All the traditional public company costs, those kind of elements in G and A.
It's probably in the In the $10,000,000 to $15,000,000 range.
Yes, that's a good range.
Mike.
Okay. Thanks. And then last question from me. If you just looked at your data links business, which I think would be mostly, if not all, in government systems like What is the order of magnitude of revenue generated from that business today and profitability compared with Government Systems as a whole, in case that was one that was could potentially be carved out.
Well, I mean, that's hypothetical. So I think that we're not right now that's on plan. We have an integrated business that, like Mark said, that utilizes All of that stuff. So we've talked before about roughly having something pretty close to a third In that kind of area, a third to a little bit higher in that area and then our services business And our cybersecurity stuff and then satellite like modems and That kind of stuff in the rest of the area. So it's split kind of like that, but really don't disclose Okay.
We'll take why don't we take one more And yes, one more call. One more question.
Thank you, sir. Our last question is from the line of Chris Quilty with Quilty Analytics. Your line is open.
Thanks. I wanted to follow-up on just a couple of commentary A couple of points that were in the commentary. One of them indicated that the margins in the services This will likely be pressured towards the back end of the year as you start to roll out some of the costs associated with ViaSat-three. Sean, should we expect that mostly around the Q4? Or should we see the margins pressuring down before then?
Yes. What I would think about it, Chris, is those costs that the startup costs coming on for ViaSat-three, What they tend to do is scale or ramp as we bring up the network. And so they kind of trickle in earlier and then get yes, you're right, get a little bit You're on the back end.
So they've already started. Frank, they've already started. And it's yes, I think Sean described it exactly right. It's like a ramp. And so the Q4 will be the biggest quarter by far.
And certainly it accelerates in that timeframe As we get closer to launching the satellite and again, that's up and going, but we can't wait till the last second to start. And we've already started and we've got land and we're putting satellite access nodes in, we're running tests, We're lighting some of the fiber rings up, and that will just ramp as we go throughout the year. But 4th quarter will be Definitely way heavier than the other quarters.
Understand. And I think also at the start of COVID, You had a layoff of a couple of 100 people on the IFC side. Presumably, you're going to be bringing back some of those people also as the business scales and so does that also play into the margin compression?
No, I mean, I don't think So we never just because one area you can see it, that's not the only area. I'd say well over half the employees That were that left were in administrative functions. If we try to preserve the people that are actually in the Operating space as much as possible. And it was well around, I think it was more like 70%. So that add back in those areas will definitely lack the business.
And The plan would be to as we go forward to get as efficient as we can. But we will be adding employees. We're definitely hiring.
That's good to know. On the government side, the SDA has made some pretty Favorable comments around the role that Link 16 will eventually play in the Space Force's whole proliferated, Leo. Can you kind of give us an update on where you're at in that program in terms of timing or other new developments?
Staying in other developments around the banks team is The question is
Yes, specifically the Link 16 LEO effort and how that might be fit into the FDA's plans.
Yes. So just on the end of the 16 In general, I think different as usual, different parts of the DoD have a different perspective on it. From the FDA perspective, what they're looking for is really to try kind of fundamental transmission capability, Which can be used through multiple applications. And what you're seeing with them incorporating which team is This is a recognition of the demand that there is for Link 16 connectivity and especially for new applications of Link 16 that are We're all over the horizon as opposed to short range communications. But there's other Organizations that are more Link 16 either side also see specific applications as opposed to just having to be part of the kind of the Transition portfolio.
So we're working with, I would say, both sides of that. And there's definitely Opportunities for innovation on the application side, where the space conflict can be more than just because we're We're doing just one element on the broader portfolio. And so a lot of that is still To be determined, I think one of the things that's really interesting about how we've talked about in the past, there's a real rapid growth And a number of new F-four participants like a team. And those include things like sensors and weapons and As well as Ben and Nicole Aircraft. So having a broad array of participants creates New interesting applications for each of participants in there.
And that's what I think is going to drive wavelength 16 hubs in space. Yes.
I wanted to give me a number. I'm just being honest. Okay. So let me ask one final question, which is, the government Services revenue, I think was a record at $80,000,000 in the quarter. And you also had some commentary around That being a big driver once ViaSat-three comes online.
And I guess my question is, I think most of the stuff that you do today Is Ku Band ArcLight. Do you need a new contract vehicle or new hardware To migrate aircraft from legacy Ku band arc light network on to new ViaSat-three high throughput Ka.
No. I would say a lot of the programs that we've won over the last few years, especially maybe even a little bit farther than I think
we are
going to recognize that the way the global capability that that brings. So all those contracts Most of those contracts explicitly contemplate migration to Avan. Some already include the Our conference is that some of them could have been required where that was anticipated to buy a game in as well. So I'd say The road is well paid for that for the business customer base that we have.
Got it. And Mark, I assume you're like calling in on a inmarsat or RentalSat network because you got a bad connection. It's not a ViaSat-three call.
Sorry about that.
No problem.
I'm not going to name names.
All right, thank you.
Thanks, Chris. And I guess that was the last call. So thanks Everybody for joining. We appreciate it. Again, we had I'm definitely proud of our people and the performance this year.
I think the Her role was a lot higher than what may have been obvious to everybody. It was really, really tough year, but the team did a fantastic job. And We're things are accelerating. So we're we look at a growth year in our fiscal year 2022. And we're really confident in both achieving the outlook and getting these satellite slots.
So We'll see you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you.