Welcome to Viasat's fiscal year 2023 second quarter earnings conference call. Your host for today's call is Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.
Thanks. Thanks everybody for joining us today. We released our shareholder letter shortly after market close, and it's available on our website. We'll be referring to that on this call. Joining me today on the call are Rick Baldridge, our Vice Chairman, Kevin Harkenrider, our Chief Operating Officer, our Chief Financial Officer, Shawn Duffy, Robert Blair, our General Counsel, and Paul Froelich from Corporate Development, and Peter Lopez from Investor Relations. First we'll have Robert provide our safe harbor disclosure.
Thanks, Mark. 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-K and Form 10-Q. Copies are available from the SEC or from our website. Back to you, Mark.
Okay, thanks. I'll briefly just touch on some of the main points we discussed in the letter before we take questions. First, progress on the completion of the first ViaSat-3 satellite has been really good, and it's close to plan since last quarter. It's completed and passed its functional, environmental, and deployment tests. The deployment tests use pyrotechnic devices, so the remaining tasks now are to inspect the deployables and restore the satellite to launch configuration. We expect the satellite will be ready for shipment to the launch site in December. The launch schedules for some U.S. national priority launches that are contending for Falcon Heavy facilities have shifted since our previous conference call.
At this point, we can't give a specific launch window other than first quarter of calendar 2023, but we're targeting the earlier part of the quarter, and we're working with SpaceX to launch as soon as possible. Financial results for the quarter were consistent with the outlook we described during our last call. Also, as we previously reported, we executed an agreement to sell our Link 16 Tactical Data Links business to L3Harris for $1.96 billion in cash. The line items in our filings reflect separating those TDL results from our continuing operations.
The total, second quarter revenue was $745 million, 6% year-over-year, net aided by the previously reported Acacia payment and 5% growth in, overall services revenues, with product shipments impacted by delayed deliveries of some new planes to some of our airline customers and supply chain and certification delays for some government products.
Adjusted EBITDA grew 21% year-over-year to $188 million, aided by the Acacia payment and very good growth in IFC services, with headwinds from activating more of the ViaSat-3 ground infrastructure in advance of the launch, constraints on available U.S. bandwidth on residential, including the ongoing reallocations to in-flight connectivity in anticipation of very substantial additional airplanes coming into service in the second half of this fiscal year, and some impacts of supply chain spot shortages on component pricing and the resulting product margin impacts. Total new orders were excellent in the quarter at over $1.1 billion. Backlog remains strong, as does our book of delivery orders and options and potential IDIQ value, even though we've consumed over about $400 million of that IDIQ order book on a year-over-year basis.
Our fiscal year 2023 outlook is revised down somewhat, reflecting the cumulative effect of the ViaSat-3 launch delays, combined with the infrastructure network activations delays to some portions of new aircraft activations due to those delayed deliveries to the airline customers. There's some bandwidth constraints on residential broadband and some supply chain impacts. We do anticipate very good growth in the second half of the fiscal year in flight connectivity planes and service, as we described last quarter. That's gonna be driven by retrofits and line fits and we'll also have growth in IFC terminal shipments and government growth. Our standalone estimate of doubling adjusted EBITDA by fiscal year 2025 relative to fiscal year 2020, including adjusting for the Link 16 sale, remains intact.
As we previously described, the Link 16 sale is expected to result in about $1.8 billion of net cash proceeds, which will substantially reduce debt and leverage on both a standalone basis and post the Inmarsat transaction. The U.K. Competition and Markets Authority, or CMA review of the Inmarsat transaction has entered phase II. They've published their findings from phase I, which had a kind of striking dismissal of all the other competitors in aviation connectivity. Our first steps are to meet with the new panel that was formed for phase II and provide more facts on the nature of both incumbent and new entrant competition. We believe there's a strong case that substantial competition will be sustained on a go-forward basis, and the process can still be completed within the original timeline. With that, we'll open it up for questions.
Certainly. At this time, if you'd like to ask a question, please press star one on your telephone keypad. Ric Prentiss with Raymond James, your line is open.
Thanks. Good afternoon, everybody.
Hi, Ric.
Hey. A couple questions. Two housekeeping ones first. On the 2023 fiscal guidance, does that include the one-time benefits? It looks like it's in there for commercial networks. I assume it's in there for all the type items.
Hey, Ric. This is Shawn. Yeah, our guidance is inclusive of the Q2 results for Acacia.
Okay. Second kind of housekeeping one is previously you had been also thinking, free cash flow positive timing, shortly after, a couple quarters after the ViaSat-3 EMEA launch. Has the change in supply chain and inflation costs, et cetera, changed any of your thoughts about when you turn free cash flow positive?
You know, Ric, I think I would think of it as around the same timing with respect to how it pegs to the ViaSat-3 EMEA. We've said before that, you know, we need to get the satellite up and scaled, and once we do that kind of is the turning point. It's very similar.
Okay. A more theoretical long-term question. We've seen a lot of discussion and announcements and events around satellite/smartphone communications. Can you share with us kind of your thoughts about how Viasat would play in that arena with or without Inmarsat looking at L-band, S-band, and narrow band services versus 5G? Just kind of your thought on what's happening in that part of the space.
Okay. One, we do think it's a really, really interesting application for satellite. You know, obviously, to the extent that you can provide connectivity and, you know, interesting services, which are, you know, likely gonna go beyond SOS to include things like, messaging, mail, probably web browsing, maybe a few others. As long as you can provide interesting services, and you can do it to unmodified phones, I mean, that's a really, really attractive market. The things that interest us about it are, one, and I don't need to just respond to your breakdown of with and without Inmarsat. Number one is it's a very challenging connectivity technical problem. We think that it really plays to our strengths in terms of high-capacity connectivity from space, and in this case, to highly disadvantaged user devices.
We also think that what's gonna be needed is to do that in some sustain you know, some way that is sustainable in space, given all of the increased focus on those issues recently. I think that's one area in which we're already doing work, where we think we can partner with other holders of spectrum on that opportunity. The other one is, you know, with the Inmarsat transaction, we'll be one of the largest holders of global mobile spectrum. There, there's some really big advantages in terms of serving that market with licensed MSS spectrum as compared to trying to reuse terrestrial spectrum. That's the other way in which we, you know, we're aiming to participate.
You know, the combination of having the spectrum and having the technology, I think, is gonna make us, you know, it's gonna create really good opportunities for us.
Great. How should we think about the timeframe of when this becomes real and meaningful?
I think that, you know, what you're already seeing with Globalstar and Apple is that. Let's say if you put it in two buckets. One bucket is, can it be done at all? I think we're gonna see, yes, it can be done. It can be done. The issue is really gonna be what kind of links you can create reliably to, you know, to devices with antennas that are like smartphones or other smart devices. The real issue then is gonna be scale. Scale is gonna mean speed and the number of simultaneous users because that's gonna have a big impact on the types of services you can bring to market.
Doing it at higher speeds and greater scale, it's gonna require new space systems to do that. That, for pretty much anybody, is gonna be, boy, I would say two to three years out, you know, at least.
Great. That's very helpful. Thanks, Mark. I really appreciate it.
Thanks, Ric.
Landon Park with Morgan Stanley, your line is open.
Hello. Thanks for taking the questions, everyone. Maybe just following up on Mark on your satellite smartphone comments. Can you maybe unpack your view in terms of the benefits of the MSS spectrum versus reauthorizing terrestrial spectrum? You know, on this type of service, do you think it is practical that it can be done from GEO, or would this require a different orbit from an investment standpoint?
Okay. I'll give you opinions here. One is the issue on the licensed MSS spectrum versus unlicensed terrestrial spectrum. The reason the terrestrial spectrum is gonna be very complicated in most markets because of the way that terrestrial spectrum is allocated, where you'll have different carriers, sometimes in different countries, very close together. It's going to be hard, especially if operators are making exclusive deals with a carrier, for instance, in a region. Well, that's gonna require that another carrier that wants to have the same service has to have a different space system use its spectrum. And as that kind of plays out, the opportunities and the complexity in avoiding interference with terrestrial, it becomes a real problem.
Just to jump to the other one, you know, the real issue when it comes to connecting those types of devices is the power flux density that you can make on the ground. The power flux density is just a measure of how much power made it from your satellite to the ground. Okay? If you start from higher up, you need to start with more power or more antenna gain. At the end, if you have the same power on the ground, it doesn't matter what altitude it comes from. There, you know, there's opportunities for both GEO and LEO systems. We're looking at both. I think they both can deliver similar functional performance to the handsets.
Then it's really just a question of economics, of what does it cost you to deliver a certain amount of power to those areas that have the greatest demand, which is kind of the main issue that everybody deals with in satellite services in general. We, you know, what we think is that these markets will be geographically very concentrated just because it's almost all certainly gonna be over land. Also, you're gonna have this funny situation where a lot of the demand is near metro areas. Even though those aren't very rural, there's just so many phones near metro areas that there's gonna be a lot of demand there. If you want, you know, things like emergency services in times of disaster or something, you're gonna need a lot of capacity to connect a lot of phones.
I think those are kind of the technical issues, and I think those are the ways some of the pluses and minuses of LEOs and GEOs and the two different forms of spectrum.
Thanks for that, Mark. On the Sat Services segment, you know, the revenue is down, you know, a decent bit sequentially. Can you just maybe unpack that for me? You know, on the broader IFC business, how are you guys thinking about business aviation, you know, at this point? You know, we've seen some announcements recently from Starlink. So just wondering how you think that you can scale in that market with the ViaSat-3s. Then just one last one for Shawn. On the fiscal 2025 guide, I just wanna make sure I'm understanding. Are you confirming it as if you had TDL still in fiscal 2025, or are you saying even without TDL you will hit those targets? I wasn't entirely clear.
Yeah, just on the second one, that's pretty simple. If you took our FY 2020 results and you excluded the TDL contribution to that adjusted EBITDA, and then you compare that to-
Understood.
To our FY 2025, that's where you'd get the two to one.
Yeah.
Okay.
Thanks, Shawn.
Yeah. On the second one, from a revenue perspective, probably the main driver on services. Well, there's a couple drivers on services. One is we still are expecting really strong growth in commercial aircraft in service this fiscal year. You know, there's been delays, but we see in the second half strong activations. In the second half has a much higher proportion of retrofits, so we don't have the aircraft delivery issues. Then also some of the aircraft deliveries that were delayed will come in that second half. Because of all that growth, we have to clear spectrum.
I mean, we have to clear bandwidth on our satellites in advance of the growth in the in-flight stuff, and that's a little bit behind now. That's one issue. You know, we still have some headwinds in residential broadband. Partly the economy as a whole and inflation, I think is putting more pressure on higher ARPU broadband services. That's one. You know, we do see more incursion from terrestrial wireless and there is more. Starlink's a factor for sure as well. You know, what we're doing is, we are going to be emphasizing, especially with ViaSat-3, but in the run-up to ViaSat-3. We're going to start being able to offer plans that offer a lot more bandwidth for specific streaming services.
We have one really exciting partner in that we'll be launching. I think we've been doing beta tests, and I think probably early, you know, early in the next quarter, we'll probably start offering more of that. That's one. I think we're, you know, I think now it's looking like the speeds that we're offering are gonna be really competitive. We think that will, especially for those people that do a lot of streaming, I think our volume consumption will be very competitive. I think that I would say the, you know, the depending on when ViaSat-3 comes into service, that's when I think you'll start to see that residential business come back. The in-flight business is, we think, is gonna grow really strongly in that interim time.
Then the other thing just on the margins and the EBITDA is, you know, we are getting hit by those infrastructure, the ground segment costs. Because as we get really close to launching the satellite, we're activating more and more of that ground network infrastructure. It's expensive because it's intended to offer, you know, hundreds of gigabits to a terabit of capacity.
I'll ask about business aviation, as well. How you're thinking about that opportunity longer term. Business aviation, longer term.
Oh, business aviation. Yeah, business aviation, you know, that we really started with Ka-band in earnest. You know, over, you know, probably in the last year or so, we had a focus on distribution with OEMs and then increasing our distribution and that's been working. It's growing. It's growing pretty fast, both in terms of we wanna migrate people from leased bandwidth to our own Ka bandwidth. The number of Ka terminals is growing as a proportion of our total terminals, but the number of Ka terminals is growing pretty well. I think that the amount of bandwidth that we can offer and the speeds is looking very, very competitive. We're you know. Yeah, we still think that's a completely fine market for us.
Hey, Landon-
How many tails do you have today?
Hey, Landon, this is Shawn. I just need to add one quick thing to that. Just keep in mind that even though we've kind of moved the, you know, satellite timing a little bit, we're not taking our foot off the gas with respect to the ground. We wanna be ready. You know, all of those ramp-up costs this year are to the tune of $50+ million.
And, uh-
Was that on an annualized basis, Shawn, or?
Yes.
In the year.
That's annual. This year.
Mark, are you able to say how many BA tails you guys have between Ka-band and Ku-band today? On the commercial IFC, you guys had targeted 2,400 aircraft previously.
Yeah. On the commercial-
Is it still that?
Yes. The commercial target is what we gave last quarter, 2,400 by the end of the year. Commercial business aviation is low hundreds. Not trying to be evasive, I think it's low hundreds.
Great.
200-300 in that range. Look, we don't have a split for you right now on Ka-band versus Ku-band. It's.
That's fine.
I think it's getting to be majority Ka, I think.
Great. Really appreciate you taking the questions.
Sure. Thank you.
Mike Crawford with B. Riley Securities, your line is open.
Inmarsat just received a nice $410 million Blue Force Tracking extension award. Can you talk at all about any changes between your planned constellation build, assuming that you're able to consummate this transaction?
Yeah. You know, one of the things we still need more information on is the exact status of the payment schedules for the satellites that Inmarsat has on order for L-band. The main ones are the Inmarsat-6 satellites. They've launched one. There's another one launch coming up in about a year, I think. Those are their newest L-band satellites. I think they will probably be planning more replenishments for L-band satellites. What we think is that there's an opportunity, which is what we've been doing in the broadband sense, in the broadband market. Which is probably more sophisticated satellites that represent a much greater value in terms of available bandwidth per dollar, you know, capital dollar.
What we see with the, let's say the direct-to-handset market being a little bit of an extreme is that we think there's quite a bit of elasticity for mobile satellite demand with lower airtime pricing. That's gonna be our main focus. I think you'll see a substantial improvement in kind of bandwidth delivered from MSS. I think that's gonna pay off in government, maritime, aviation, and in a lot of these new markets as well.
Okay, thank you. I think related, could you say, like, kind of percent complete of investment, CapEx that you've put into, say, ViaSat-3 EMEA, ViaSat-3 APAC, and ViaSat-4, those three satellites?
Yeah, Mike. As the way we kind of look at it is across the ViaSat-3 stack as a whole. By the end of Q2, we're probably, you know, 74%-ish complete, right around there.
That's on ViaSat-3 spend, but is that including the first ViaSat-4 satellite, which I think you've started to invest in?
That's excluding that. Yes, we are making some investments and some traction there. You know, we're metering it at this point, but yeah, there are some spend there as well.
Okay. Right now it's just one of those satellites that you've started or more of that's a R&D investment that would be applicable to similar other Viasat four class satellites.
Two parts. We have a satellite. We have a construction contract for the satellite. The main driver that we've been working on is the payload, which we'll do. The payload is a more highly integrated version of ViaSat-3. Also should be quite a bit easier to manufacture, assemble, and integrate. We have one of those under way, you know, that started. I'd say most of the expenses so far have been in the payload part. As Shawn says, you know, we're just managing the CapEx spend rate to achieve our overall balance sheet and growth objectives. That, you know, right now it's floating a little bit, but it's kind of.
You, Shawn, you know the target launch date or what? What do you wanna add?
I think we should talk about that a little in a future call, right?
Okay. Yeah. We'll get it closer.
I think that we are making progress.
Okay, thank you. I have two other quick questions. One, can you remind us of the time period covered for the Acacia verdict? Then how much time and counting has accumulated where Cisco willfully continues to infringe on your IP?
Hey, Mike, this is Robert Blair. The first case went through sales made through 2019, so those damages were through 2019. Any damages that were after that timeframe for their use of our intellectual property would be for any time on the products that were at issue in that case from, you know, January first, 2020 forward, and would continue to this day, any sales they made on those products. We have an additional case that relates to their use of intellectual property on different products that is just getting started. Following the appeal, it's just getting restarted. That case is at its onset.
Okay. Thank you. That period that ended through 2019, when did that period start?
I don't recall when the agreement started. I wanna say about 2014 or 2015.
You can't draw a direct line, though, Mike. You can't just say, well, that time period represents the same amount of stuff. You can't take the two time periods and just draw a linear line in terms of product deliveries.
Okay. Well, I certainly wouldn't want to be in their position. Final question is, you talked about resolution of transient supply chain and certification bottleneck. Is that happening or you expect that to happen or what can you further add regarding that?
Supply chain issues are a little bit like whack-a-mole. They tend to surface fairly suddenly. The main way we've been dealing with them is resorting to spot markets to fill in any gaps. Boy, I think we've done reasonably well, but I think overall our situation is not much different than others that depend on, especially. Well, for us, it's more often in, I was gonna say more often in high-end semiconductors, but that's not really the case. We can have shortages of commodity components that just show up as well.
In the cases where we can, we're basically paying higher—you know, paying the higher spot market prices and delivering stuff for our customers. That's the other failure mode that we'll see is some higher COGS for some of the products we're shipping. I think it's hard to declare an end to it.
Okay. Thanks very much.
Thanks, Mike.
Ryan Koontz with Needham & Company, your line is open.
Hi. Thanks for the question. Just a quick follow-up on your IFC commentary there and you know, how should we think about your share opportunity moving forward, you know, beyond this fiscal year? You know, it sounds like you're really executing well there and onboarding new customers and planes. At what point do you think that the commercial business starts to saturate a bit in the U.S.? Talk briefly about the international opportunity for you. Be great. Thank you.
Okay. You know, the IFC market is very dynamic. I think that, you know, the airlines the way I'd put it is the airlines are trying to respond to what they perceive is what their passengers want. They're you know, lots of different airlines are testing different things. In some cases, you know, Think of it as what they're really looking for is passenger satisfaction. They're trying to figure out if they do that by curating onboard content, by giving them a meal or a better meal, or making connectivity available or giving connectivity away. There's just lots of different strategies. I think U.S. is a market that's pretty well, you know, pretty well connected on the ground, and airline competition is pretty fierce. It's I think that market is ahead of most.
I think there's gonna be good growth in total number of planes connected. There's long-term growth in number of planes. You know, I think we're gonna compete well. I think what we've tended to do well is kind of try to help the airlines come up with ways to use IFC that fit kind of with their overall market, go-to-market strategies. You know, we're also pretty flexible in the ways in which we'll offer the in-flight connectivity. We don't have a single mode there. In our willingness to integrate with the in-flight entertainment part. You know, that's a funny situation because by far, the highest, you know, the greatest use of bandwidth in in-flight connectivity is for entertainment.
The airlines are wrestling with that as well. You know, I think that most of the analysts expect the market's gonna grow pretty substantially in the next seven years, and I think we'll compete well, you know, based on the types of services that we can offer. You know, I think the other thing that we've been pushing on a lot is that the airlines have a measure of service availability, right? Service reliability, something we call service level agreement. That's important.
I'm gonna give you one example. You know, one way to tell how the in-flight connectivity is working is, well, you pick some plane that's flying somewhere, and you do a speed test on it and see what the fastest speed you can get to the airplane is. Another way would be, well, you have an airplane full of people, and what you look at is what speed each passenger gets. That's the one that we've really been focused on because I think ultimately, what the passengers really want is they want their whatever it is that they're doing to work well. They're less concerned about the top what the speed is to the airplane.
They're more concerned about being able to do whatever their objective is kind of throughout the flight. That seems to be resonating. So far, so good.
Super interesting. Thanks for that, Mark. Just a quick follow-up on the streaming technology you talked about. Is this like a CDN software stack you've licensed, you're gonna productize as part of the offering? Or how should we think about that new development, if you can talk at all about it?
Can't say too much. The basic idea is getting. There's some standards around this, which is really to push CDNs out even farther to the edge so that more of the content can be delivered directly to end users. The real trick there is doing that economically. That's the part that goes beyond what the standard says. It's using the standards to accomplish that goal. To the extent that that is done well, it's a big multiplier to the usage that's available to subscribers that are, you know, streaming content users. That's, you know, what 80% of all the bandwidth that's delivered over consumer broadband networks.
There, there's a big opportunity in there.
Yeah. Sounds really great. Look forward to hearing more. Thanks for the insights. Appreciate it.
Great. Thanks, Ryan.
Chris Quilty with Quilty Analytics, your line is open.
Thanks. Just wanted to follow up. Southwest, is that still scheduled for a Q3 rollout? Should we expect, I think when you guys initially launched on American, you went from like, you know, a dozen aircraft to over a hundred, a quarter, you know, the following quarter. Is that the sort of ramp we should be expecting?
Southwest right now, our agreement with them is for their new aircraft deliveries. That's going to be. You know, the pace is going to be metered by the deliveries of those planes from Boeing. That won't see-- it'll be steady, and I think, you know, there's-- I think it's up to 700-ish total that's covered by that agreement. It's good for us. What we'd like to do, you know, is offer them a service that's so attractive that they wanna outfit their whole fleet. You know, what they've said is, right now their plan is to work with Anuvu to improve the service on their existing fleet. Our immediate target is to do a really good job on these new planes.
You know, for other airlines, we do have a mix of retrofits and new plane deliveries. I think in the next couple quarters, we'll see a big ramp because of the number of retrofits we have.
Gotcha. You know, as the ViaSat-3 coverage expands, and you probably move from more narrowband to widebody, are there any, you know, product developments that are needed to make that transition, or is it pretty seamless to go after the larger aircraft?
No. It's pretty seamless to go after the larger aircraft. We have outfitted wide bodies already with Ka and Ka/Ku, and we do now have some transatlantic wide bodies in service as well. I think we're well prepared for that.
Great. Final question. This one is just a little bit subjective, and you've talked about the supply chain issues, and it sounds like sort of a whack-a-mole type issue. That said, I mean, if I were to force you to throw out a number, is the supply chain issue back to 80% of where it was pre-pandemic or, you know, some number like that? And I guess the more important question is, are you seeing forward progress, or are we stalling out in terms of some of these supply chain issues? Because I keep hearing them quarter after quarter now.
Chris, this is Kevin Harkenrider. Overall, the number of supply chain issues are declining. There are fewer this quarter than the last quarter. Unfortunately, when you have a component shortage, you gotta get 100% of them in. If instead of having 10 short, you have two short, it's 80% better, but you still can't deliver. In general, as the market, in terms of demand worldwide decline for integrated circuits, we are benefiting from it. Q4 will be better than Q3. I can expect that trend to continue in the global macroeconomic sense. To look at it from merely quantitative means like you are, it's hard because it depends on the product, as some may be pervasive across, you know, entire product line.
Right.
The other thing, Kevin, you can talk about this, but one of the things we've certainly seen is, you know, brokers or hoarders are.
Yeah.
They are a pretty significant contributor to these supply chain issues. What they do is bad for the manufacturers, and it's bad for us. I think one of the things you'll see happening near the end of this is that all of a sudden there's not gonna be any market for brokers, and then a lot of parts shortages will get solved pretty quickly. I think we're getting closer to that, but a lot of it is driving the brokers out of the market.
Great. I think you probably know it, but I think the hoarders are backed by the trial lawyers, so.
Louie DiPalma with William Blair, your line is open.
Mark, Rick, Shawn, and Peter, good afternoon.
Hi, Louie.
What is the timeline for the U.K. CMA phase II investigation? What's the expected new timing for the close of the Inmarsat merger if the investigation goes in your favor?
Yeah. The phase II has it has a basic period, which would be completed by March 30th. It can be extended, if need be, but it's intended to close by March 30th. What we had said, when we announced the transaction was 12- 18 months, which would be in May that would be done. That was. That's kind of what our expectation was. You know, we're working to get it done within that timeframe, that March 30 timeframe.
There's an opportunity, Louis, that they could not go the entire phase II period. There's a couple milestones in there. We go to talk to them next week to give our kind of view of this thing getting started. There's another milestone in December and a couple early in next year. I think we'll know more by January, February.
Great. Previously, when you announced the Inmarsat merger, I think you were targeting a pro forma net leverage of 5x on the deal close. Now you are divesting L3Harris, and you just provided a new potential timing for the close. I was wondering what the new pro forma net leverage should look like.
Hey, Louie, Shawn. I think what we told you guys is if you kind of have
Both deals together, we'd expect the pro forma leverage to be about 70 basis points improved to what it was on just Inmarsat alone.
Okay. 4.3x ? Is that right?
I think that's. Yeah. We had originally said that, 5x. So that's a good estimate.
Great. For Mark or Rick, it seems that many of the big four U.S. airlines are moving forward with free Wi-Fi, though it may be contingent upon the activation of your ViaSat-3 satellite. A few years ago, Mark, you conjectured that the economics of free Wi-Fi may look something to the effect of $1-$2 per passenger as a cost to the airlines. Do you still think that range is appropriate? How do you think about how, like, certain, like, third parties, such as T-Mobile or others like Amazon may want to subsidize that cost for marketing purposes or to benefit their own subscriber base?
Just to review, I think one of the things that we had said in the past is that the total revenue opportunity was in the range of $1-$2 per boarded passenger. That's a little bit different than the price that we would charge the airline or a third party, because different passengers may use the internet in different ways under different terms, right? These are not representative of any particular airline, but airlines may decide that certain classes of passengers, like business class or premium economy, might get the internet for free, or they might do it for certain classes of frequent flyers.
As we've done in the past, we've had sponsorship deals with entertainment or streaming companies, and we're doing more of those things. I think that the kind of the revenue opportunity is in that ballpark, $1-$2. Some of that revenue may end up being shared with the airline, as an example, or in some sense netting out against what their expenses might otherwise be. I think that $1-$2 of revenue per boarded passenger, that's a good target. It's not where we're at yet, but it's a good target.
Great.
Does that help? Did I help on that?
Yeah, that was. That makes sense. Another question. Do you view any other defense assets as non-strategic? Along those lines, are you satisfied with your liquidity following the divestiture of L3Harris and the close of the Inmarsat deal, or do more steps need to be taken to improve the leverage and liquidity?
We don't plan any other divestitures. I think that the main thing we're doing to improve our leverage and liquidity is we wanna drive up our earnings by you know performing well in the markets that we're going after. I think that's the main thing. In terms of the synergies that we get in our business, you know the Link 16 business was and still is a little bit complicated because it's a data link and other participants in the data link market have synergies with other data links. L3Harris in particular is very strong in some particular data links like what's called Common Data Link.
Other participants in that ecosystem had synergies that we didn't, which, you know, obviously we're still doing well and we've been winning awards. Long term, it, you know, it was a investment stream that didn't really leverage the rest of what we're doing. We're now becoming more satellite centric. The one other area we have on the government side is really cryptography and cyber, but those are very, very relevant to the space business. We don't see. You know, we're not planning any divestiture there. I, you know, I don't take any of this as specific guidance about what we will or won't do.
Yeah.
I'm just going through this thought process about how we thought about the TDL business and whether or not those same dynamics apply to others of our existing businesses.
Great.
Okay.
Following on the smartphone line of questions, you addressed this a little bit, but Inmarsat has 68 MHz of global L-band spectrum rights, which is significantly more bandwidth than Iridium and Globalstar combined, and both of those satellite operators are pursuing smartphone partnerships. What greater capabilities does Inmarsat or potentially you and Inmarsat have with that excess spectrum? In the answer to one of the questions, you mentioned potential partnerships. I was wondering if you can elaborate, like what do you mean by partnerships with that L-band spectrum?
Okay. You know, basically, one of the things is when we did our analysis around the Inmarsat acquisition, it was based on the existing business portfolios that we each had. You know, we anticipated that there would be an opportunity in the direct-to-handset market, and we're still really interested in that. I think that the combination of the spectrum that Inmarsat has and the technology that we have is. When I talk about the technology that we have, you look at what we've done in ground-based beam forming for, you know, SkyTerra. We still work, you know, very closely with Ligado on the use of their existing satellite.
Then you look at the technology that went into ViaSat-3, there's a lot of opportunity there as well. Some of those technologies that we did, you know, they're applicable to non-GEO as well. Combining some of our technology with the things that Inmarsat's been working on for ORCHESTRA, those are really good opportunities for us. We do think that in the long run, that market is, you know, there's gonna be a lot of price elasticity in that market, having lots of spectrum and the right technology is really the way to drive costs down and to address a bigger market. I think that, you know, that opportunity seems to be playing out as well or better than we hoped it would when we announced the transaction.
Gotcha. Final one is ViaSat-4 supposed to be a MEO, as in a medium Earth orbit, satellite? Or have you said what orbit it's supposed to be in?
ViaSat-4, just to recap, what we expect with ViaSat-4 is a 7 Tbps GEO satellite that would be Americas-focused and would be, you know, really give us a lot more really good economics, really good bandwidth. We think super competitive in those markets for, you know, land mobile, aero, residential, business, all of those markets. We do have a filing for a small MEO constellation, which we're working on as well. That's not gonna be in the multi-terabits range, but I think we're gonna get, and we should have an opportunity to get good value out of that as well.
Sounds good. That's it for me. Thanks, everyone.
Okay. Thanks, Louis. I think that's our last question. Just give a quick summary. You know, satellite construction's pretty close to done, but, you know, we've got to work the launch schedule with SpaceX for the first quarter. You know, the delay, that delay and the hurricane issues for us and for the airlines, it's, it is impacting our outlook a little bit, as we described in the, in the letter in the near term. The long term, you know, things still seem really good. Our awards were really, really strong. We're very happy with that. I think the TDL transaction is progressing, and that will greatly improve our balance sheet, reduce debt, improve leverage and liquidity. I think we've got a good approach to working the U.K. CMA approval for the Inmarsat transaction.
Thanks a lot, everybody, for joining us, and look forward to speaking again next quarter.
This concludes today's call. Thank you for your participation. You may now disconnect.