Viasat Inc (VSAT) 2015 Q3 法說會逐字稿

Welcome to ViaSat's FY15 third-quarter earnings conference call. Your host for today's conference is Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.

Thanks. Good afternoon, and welcome to ViaSat's earnings call for our third quarter of FY15. I'm Mark Dankberg, Chairman and CEO. And I've got here with us Rick Baldridge, our President and Chief Operating Officer; Shawn Duffy, our Chief Financial Officer; and Keven Lippert, General Counsel. Before we start, Keven will do our Safe Harbor disclosure.

Thanks, Mark. As you know, this discussion will contain forward-looking statements. This is a reminder that certain 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. We will be using slides that are available over the web. I'll start with some highlights and a top-level overview, and then Shawn will discuss the segment-level financial results. I'll give some additional details and color, and we'll summarize our outlook, and then we'll take questions.

Our earnings grew significantly this quarter. Adjusted EBITDA for the third quarter was $86 million, up 51% over the same quarter last year. Earnings were driven by steady gains in the Exede band services segment, and very good margins in the government business. Total revenue grew slightly, and we received $313 million in new orders, and ended the quarter with a healthy backlog of about $1 billion.

We added 18,000 net subscribers on the Exede consumer service, and that leads to 675,000 in total. And over 580,000 of those are on Via Satellite.

In our commercial air business, we added 68 new airplanes into service. That plus steady gains in the consumer ARPU yielded 26% increase in revenues on a year-over-year basis. The combination of top-line growth and favorable services metrics resulted in an increase in year-over-year adjusted EBITDA of 107% for that segment.

Government segment is still doing well, despite a macro sector contraction. Revenue was down slightly from the second quarter, and about 7% year over year. But new orders are still strong at $142 million, and that brings our overall book-to-bill for the Government segment this year about 1.3 to 1. We believe our revenue will grow as we absorb these new awards. Adjusted EBITDA was higher, both year over year and sequentially for Government, due to the better overall margins. Now I'll turn it over to Shawn, and she will quickly review the financials in more detail.

Thanks, Mark. Overall, we were quite pleased with our FY15 third-quarter financial results. Revenue for the quarter was up slightly compared to the prior period, with strong growth across both our consumer and mobile broadband offerings, and our Satellite Services segment. Which more than offset declines in Government Systems and Commercial Networks.

Satellite Services revenue growth was multi-faceted. Our total consumer subscriber base grew, average revenue per sub was up, and we're generating more revenues in the mobility market across commercial air, general business aviation and maritime, with total platform served increasing, alongside a growing revenue per unit.

Within Government Systems, lower BFT revenues were partially offset by mountain strength across a number of products and services, including additional military Wi-Fi revenues from newly acquired NetNearU. Mark will provide some further details on the Government segment in a few slides.

The Commercial Networks segment, booked lower NBN Co revenues, as we continue winding down the initial development program activities, and lower consumer terminal revenues. Those were offset by strong results from our Antenna Systems Group, and the ramping up on our Canadian network program for Xplornet.

Turning to earnings, our third-quarter adjusted EBITDA was $86 million, reflecting strong year-over-year growth of 51%. The scale of our Satellite Service segment now representing 36% of our revenue base, is certainly a large factor in our year-over-year performance. However, both absolute EBITDA and EBITDA margins grew across all three segments compared to the same period last year.

Satellite Services adjusted EBITDA was up 107%, a function of the organic subscriber growth, coupled with improved marginal unit economics. As well as year-over-year reduction in legal fees, plus our current-quarter license revenue.

In Government Systems, an increased level of higher-margin service revenues and lower R&D spending contributed to the strong EBITDA performance. Following Commercial Networks, EBITDA margin gains were due to lower R&D spend this quarter and a year-over-year shift in cost mix to a higher non-cash cost base, such as amortization and depreciation expense.

Now let's look at our year-to-date results. Overall year-to-date revenues were up slightly compared to the prior period. The strength of Satellite Services segment largely offset reductions in Government Systems and Commercial Networks. As we discussed in prior calls, lower revenues from our successful BFT program was the primary inhibitor of Government Systems revenue growth. While the wind-down of the initial phase of our NBN co-project in Australia impacted results of the Commercial Networks segment side.

And in spite of softer top-line performance, these businesses remain very healthy, as we have booked over $1 billion of new awards during the last nine months of FY15. And we're sitting on almost $1 billion of backlog, which is $90 million higher than we started the year. So it puts us in a pretty good position as we look forward, particularly in our Government segment.

Our year-to-date earnings trends are very similar to Q3. We hit a record $256 million in adjusted EBITDA already, an increase of 56% compared to the same period last year. Government Systems and Satellite Services saw significant improvements.

In Government Systems, we saw improvements in data link product contribution margins, coupled with growth in our service space toward government mobility and military Wi-Fi services through NetNearU. Following Satellite Services, subscriber and ARPU expansion, the ramping of our commercial air business, and our high operating leverage, were the main drivers of that segment EBITDA growth. Even excluding the non-recurring $40 million second-quarter impact from the legal settlement, our year-to-date adjusted EBITDA would be $260 million, which is an impressive 32% increase year over year.

We talked about our top-line revenue and EBITDA performance on the previous slide. On this slide I will highlight some of the factors that drove net income and EPS. Interest expense for the period was about $1.5 million lower than the prior period, due to higher capital position of interest costs associated with ViaSat-2.

In taxes, even though we had positive pretax income for the quarter, we ended up posting a $3.4 million income tax benefit, due to the effects of the Q3 reinstatement of the federal R&D tax credit through to December 31, 2014. All-in, generating a $0.17 per share Q3 benefit. Keep in mind that due to the mechanics of the effective tax rate method, our fourth quarter will reflect a portion of the FY15 credits generated during the nine months ended December 2014. So you should anticipate our Q4 income tax rates to be a bit lower than the statutory rates, somewhere in the 20% to 25% range, even though the legislation has expired again.

Overall, we achieved positive net income of $14.8 million or $0.31 per share on a GAAP basis, and $23.9 million or $0.49 per share on a non-GAAP basis. As we did last in quarter, I'll also be providing some details on the relationships between our adjusted EBITDA and our non-GAAP income metrics, as well as the related earnings-per-share results. Let's turn to the next slide.

Following the strong adjusted EBITDA performance, our year-to-date cash flow from operations grew significantly versus the prior-year period, doubling to $271 million. In fact, we've already surpassed cash-generation levels for all of FY14. And that's even before taking into account all the payments we have received to-date from the Q2 legal settlement.

Our year-to-date investments also grew, by $86 million year over year, as a result of the $56 million acquisition of NetNearU in the first quarter and a $60 million increase in capital expenditures on ViaSat-2. Partially offset by lower CapEx in other areas, including CPE and installation costs, which were $18 million lower than the prior period. So our free cash flow -- cash flow from operations, less capital expenditures -- improved by approximately $50 million for this nine-month period compared to the same period last year.

Our overall liquidity position is very good. With strong end-of-quarter receipts, we closed Q3 with $98 million in cash and $225 million of credit line availability. As you can see from the chart on the right, our net leverage continued its downward trend, ending at 2.3 times trailing 12-months adjusted EBITDA, which was also a three-year low. Once we close on the Ex-Im bank loan commitment that we discussed last quarter, which we're anticipating in our Q4, we will have over $500 million of additional liquidity at a very attractive cost of capital. With that, I'll turn it back to you, Mark.

Okay, thanks, Shawn. The top left chart on this page shows growth in subscribers and segment EBITDA for the last ten quarters in Satellite Services. EBITDA this quarter was up 107% year over year, and 35% on a sequential basis. The chart excludes the non-recurring impact of the SSL settlement from our second-quarter. EBITDA is growing much faster than subscriber count, due to scale effects, operational improvements, refinements in service plans that have been driving ARPU, and growth in our in-flight Wi-Fi.

The top right chart shows gross adds for the quarter, last quarter, and then the year-ago quarter. Changes in gross adds reflect a number of factors, including seasonality, sales filtering effects, variations in advertising and promotional spend, demand for new service plans, capacity availability, and changes distribution of fulfillment channels. Net adds in the third quarter were a little higher than the second quarter, mostly due to better churn, which averaged about 2.6% per month for the quarter over the entire subscriber base. Churn can still vary quarter to quarter, due to differing effects in different distribution channels.

The lower left chart shows blended consumer ARPU on a year-over-year and quarter-over-quarter basis. A decline in a non-recurring revenue component in this quarter led to total consumer ARPU being sequentially essentially flat. But recurring consumer revenue is still trending up, and we believe ARPU will continue to grow on a go-forward basis.

Retail ARPU continues to grow, due to a favorable mix of higher-value, higher-bandwidth plans, a higher proportion of retail subscribers in total, and attachment rates for our VoIP telephony service. We believe we're making good and steady progress on retail distribution fulfillment, product refinements, and cost-effective marketing and promotional strategies. And that progress is reflected in the growth in margins. We also believe this progress will carry over into launch of ViaSat-2.

But in the mid-term, capacity constraints will begin to affect our subscriber growth, and seasonal effects will also influence quarterly variations. Still, we believe we can use our operational skills, our growth in, in-flight Wi-Fi, and new product introductions to continue to grow, exceed EBITDA, faster than net subscribers.

The chart on the lower right shows we grew in-service commercial aircraft by 68 planes. Mid-December was the one-year anniversary of the Exede In The Air service, and adoption and usage by passengers has been satisfying. We're seeing average take rates 4 times out of our nearest competitors, and take rates approaching 40% on flights over three hours. And the data use-per-passenger has more than doubled over the one-year period.

The orange bar on the chart shows airborne terminals that are delivered but not yet activated. And that gives the sense of backlog that can be expected to be converted into in-service aircraft in the next few quarters. Also, as I mentioned last call, we've received significant orders for government airborne terminals for use on the Exede satellite network. And that further drive solid service revenue growth, once we install those.

The next chart is a reprint of an info-graphic from a travel website called Routehappy.com, as well as a quote from an article by Bloomberg Business about the Routehappy findings. And this is important on several levels. First thing, it reinforces multiple other indications that our in-flight Wi-Fi service is the world's best. Second, it shows a meaningful shift in the way people think about in-flight Wi-Fi.

Until our Exede In The Air with JetBlue, availability of in-flight Wi-Fi was pretty much a binary yes or no thing. Either a flight had Wi-Fi or not. Everyone pretty much took for granted that in-flight Wi-Fi was kind of slow, independent of the price point. Airlines were focused on just checking the box to say they had Wi-Fi. Actual usage by passengers for other systems was and remains quite low, in the 6% to 7% range on average, even when surveys say that connectivity is the single in-flight amenity most wanted by passengers.

But here, you can see attitudes are definitely changing. Now we're seeing increasing attention paid to the quality of the Wi-Fi by the airlines. In-flight Wi-Fi is more and more seen as more than just ancillary revenue. More airlines are asking questions about how the best Wi-Fi could be monetized and integrated into a holistic brand strategy. It's not yet totally clear what those monetization strategies are, but as in most things Internet and mobile, economic value tends to follow user engagement.

Finally there's another implicit but extremely important observation here. So far, to-date, the dominant mode of in-flight Wi-Fi is terrestrial wireless. It's also known as ATG, or air-to-ground. One of the most common and persistent criticisms about satellite Internet is that it has high latency. There's a common misperception that latency is a dominant technical measure of performance for broadband. Here you've got third-party ranking, because Exede by satellite is better than terrestrial wireless, and in Bloomberg's words, offers speeds similar to those found at home and work, even though the latency is higher.

We believe that the dominant measures of technical performance for broadband really are speed and bandwidth. Yes, latency is important, but for the vast majority of Internet traffic, speed and bandwidth are what's decisive. This helps capture our technology strategy in a nutshell. We are and have been extremely focused on technology that delivers the most speed and bandwidth value per dollar for our target markets, whether on the ground or in the air.

We know wireless will get better, and of course, there's been a lot of recent attention on lower-orbit satellites that have lower latency than geosynchronous ones. But we're really confident that our technology strategy will remain the most cost-effective at delivering high speeds and more bandwidth to users in the most valuable geographic locations than either of those others. As long as the underlying demand for bandwidth keeps growing -- and there is plenty of evidence that, that will continue to be the case -- we think we can use this approach to create competitive advantage and economic value.

One more slide on this in-flight Wi-Fi that has a very interesting illustration of how in-flight Wi-Fi may come to be differentiated and integrated into those airline strategies. Routehappy.com is kind of a mash-up of airline price and schedule data you can find on a place like KAYAK or Hipmunk, plus amenity data that you might see on something like SeatGuru.

Routehappy combines attributes like aircraft type, seat-width and [pitch], availability of AC power plugs, video entertainment and Wi-Fi availability, including the quality of that, into happiness rating to help influence passengers' perceptions of value. We expect that the relative rating of different attributes will vary, depending on empirical data. And of course, individual passengers can use the detailed information to select flights based on whatever their own priorities are.

What's exciting to see is, Wi-Fi quality ranked on a flight-by-flight basis for specific groups. We believe that over time, rankings like this will help accelerate the ability there are to use Wi-Fi. Not just for ancillary revenue, but to drive market share in general, and on specific groups and in specific market segments. It's totally consistent with how we're working to try to help JetBlue. We believe we can help partner airlines with meaningful competitive advantage through even better Wi-Fi services, to include even more and better streaming entertainment choices, and innovative methods to monetize those advantages.

Fundamentally, as I mentioned, we see bandwidth economics as the enabling technology. Next year's ViaSat-2 satellite will be a big step forward compared to ViaSat-1, in both bandwidth economics and geographic coverage. There aren't any other Ku or Ka bandwidth satellites systems coming that have bandwidth economics even close to ViaSat-2.

And as we've discussed in the past, we're also investing in new payload technologies that go well-beyond that. This is still a rapidly evolving competitive environment, and there's a lot of technology confusion out there. But we think the fog will lift, and that our opportunities will continue to expand to capture more airlines and aircraft over the next year or so.

Our Government business reflects a mix of different trends across multiple products and services. On a year-over-year basis, we are seeing declines due to draw-downs of US ground forces in the Middle East, especially related to Blue Force Tracking and some components of mobile broadband connectivity. But we're also seeing very good recent growth in other product and service areas, including information assurance and cyber-security, parts of tactical data links, mobile broadband applications -- that are for the broader DoD market, and from NetNearU's Wi-Fi services.

So for this year, we've seen revenue decline about 9% in Government on a year-over-year, year-to-date basis. Awards have been very strong, though, with a year-to-date book-to-bill over 1.3 to 1. We believe the book-to-bill is a meaningful predictor of revenue growth for that segment.

Meanwhile, adjusted EBITDA for the third quarter grew both year over year and sequentially, due to improving margins. We believe our Government segment performance is strong relative to peers of equal or greater size in our market segments. And we like our competitive positions in markets that we think are poised for growth.

One note is, during the third quarter we completed testing on a new infrastructure security system for electric utilities, working with Southern California Edison. SCE is one of the most technically advanced utilities, and the thought leader on cyber-security. The new system is being deployed this calendar year, and represents one of the areas we believe we have a unique technology position in, an exciting growth area. We think we've got good growth opportunities going forward for both revenue and earnings in our Government segment, even though quarterly results can still show significant variation, due to timing on individual programs and on new awards.

So overall, Q3 was a good quarter for (technical difficulty) main drivers were Exede Satellite Services margin and Government segment margin gains. Exede margins are showing the cumulative effects of a number of factors we've been working on, including subscriber growth, increasing ARPU due to higher portion of retail subscribers, higher-value service plans, lower attachment rates, declining churn, operational cost improvements and scale effects.

Going forward, we still anticipate some seasonal variations in demand, as well as bandwidth constraints in high-demand geographic areas. But we believe the positives will outweigh the challenges and offer the opportunity for continued growth in EBITDA and EBITDA margins.

We also anticipate that our Exede Satellite Services segment will benefit from continued deployment of in-flight Wi-Fi, as well as new opportunities to increase usage. Government EBITDA to improve, due to margin improvements on slightly lower revenues. Book-to-bill on a year-to-date basis for the Government segment is good, and we think that's a meaningful indicator of future growth.

Government awards, revenues and margins will fluctuate on a quarter-to-quarter basis, depending on timing mix and discretionary spending. But we think we can sustain or improve historical margins with a greater proportion of services businesses, and that there's good opportunities for sustained growth in earnings in that segment.

Last quarter, we suggested a target of about $340 million for FY15 EBITDA, including about $40 million of non-recurring EBITDA benefit, due to the SSL litigation settlement. And we still believe this is a good target for this year. We also suggested that we could sustain our historical trend of about 20% annual compounded EBITDA growth rate going forward, excluding the non-recurring settlement portion from this year's results, and we still think that's a reasonable outlook. That concludes our prepared remarks, and at this point, we'd be happy to take questions.

(Operator Instructions)

Michael Flock of Bank of America.

Hi, guys. Thank you for taking the question. Maybe a couple, if you could. Some more color on your expectation for the shape of net adds in this coming calendar year, maybe some more commentary on the seasonality?

Second, more thoughts on some of the growth add share that you're seeing in the satellite broadband space? And then finally, any update on expectations for VSAT-2, and how that's going to add to gross-add growth over time? Or how you're thinking about that?

This is Rick, Michael. On the first one, I think that we don't have any reason to think that the shape is going to change, that the [eighth turns out] March, April and May are the toughest months, have been the toughest three months now for a while. So we expect that. We'll tweak our advertising spend in that accordingly, and around that cycle, because we don't want to just waste money.

So far, we're still finding markets where we can grow. The new Freedom plans have helped, and it creates some demand in some of the markets that we weren't selling as well, last year. So, we continue to play around with a couple of those things. I'll let Mark answer the second part.

On the ViaSat-2 part, one of the things we mentioned before is that, using the lower-demand areas of ViaSat-1, we're test-marketing plans that are -- basically have a lot more bandwidth. So we have these Freedom plans, we have plans that also have higher-volume limits. We've said in the past, we think volume limits are the main inhibitor to demand.

So with ViaSat-2, we think we're going to be able to improve the plans pretty significantly, and be able to put what we think will be our best plans in highest-demand markets. And that should let us get gross add rates that are higher than what we achieved on ViaSat-1, even in the peak periods.

That's the level of detail we've put out so far. As we get closer, we'll be able to give more explicit guidance, I think.

And, do you have any thoughts or comments on how you're thinking about your gross add share? I don't know if I heard that in the answer. Just in your gross add share of the satellite broadband subscribers coming online? And how that moves going forward? I think last quarter, we heard about some relatively full-spot beams at one of your competitors. Maybe you thought you were taking more gross add share. If that's still an issue? Any commentary there?

If you look at -- one of the things about our service is that our subscriber base is very highly retail-oriented. I think EchoStar has become a lot more wholesale-oriented. And so it's a little bit hard to make direct comparisons.

And we're actually -- we said this the past. What we're most focused on is figuring out what the market for satellite broadband can be. A lot of that has to do with how it compares to terrestrial. And that's really been the area that we're most focused on, is how we compare to terrestrial.

Last quarter we talked about the chart that FCC Chairman Wheeler showed that showed availability of zero, one, two or three sources of broadband for different speed ranges. And, I think that kind of perspective is more what we use to determine our service plans, our technology offer and our pricing, things like that.

I think, Mike -- this is Rick again. I don't think we're going to view our success quarter to quarter at how we shift share between us and EchoStar. What we're trying to do is, A, make sure that we're generating the kind of EBITDA growth that we thought we could get. The proof is in the pudding. And that's been happening. And the other one is, get ready for ViaSat-2.

Thank you for the time, guys. I really appreciate it.

Okay.

Matt Robinson of Wunderlich.

Thanks for taking the question. I'm hoping to get a better understanding of how the revenue for the in-flight Wi-Fi comes in. It looks like it was flat, maybe down a little bit sequentially. How do we see those additional planes come into your P&L?

I don't know how you calculated that. We book the equipment --

I was just subtracting out the 6.9 from the satellite revenue, and then trying to do the arithmetic with the adds in subscribers. Maybe you can correct me and explain?

Well, it wasn't down. The real issue is, timing of retail subs and subscriber subs, when they come in, is going to dictate the revenues in those quarters. Same thing on the aircraft, when they go into service. But they both -- revenue from both of them grew in the period.

And also, when we deliver the equipment, if we're selling the equipment, we book those equipment sales into our Commercial Networks business. And then we book the service portion in the Satellite Services segment.

How do you get the revenue from the services? Just on revenue sharing with the airlines?

We are looking at a variety of different metrics, but basically we get paid based on usage. So depending on the number of passengers that use it, or the volume of bandwidth that's used, that's how we get paid.

And, I thought we were looking for an uptick in R&D. I recall mention of using the award from the litigation to fund some more R&D. It didn't seem to happen in the third quarter. When should we expect to see that?

That is exactly what we said we were going to do, is that we were going to draw some of that settlement recurring revenue into R&D, which we are doing. One thing Shawn mentioned though, is that we have some programs that have been funded R&D, that are now becoming revenue recognition, especially the Canadian portion of ViaSat-2. So you're seeing those two effects. You're just seeing the net of those two effects.

All right. Thanks a lot.

Chris Quilty of Raymond James.

Thanks, gentlemen. Just a question on the retail business, given the capacity constraints. Is it unreasonable to think that net adds should probably stay in this level -- call it 25,000, 30,000 -- on a go-forward basis until ViaSat-2 comes online?

Net adds, I think, the last couple quarters have been like 15,000 and 18,000. And I'd say, in general, maybe in the 15,000 to 20,000-ish range is a good range. But it's going to vary quarter over quarter, and it's a little bit hard to tell because there's a variety of effects. But we don't expect it to spike, and we don't expect it to go way down, other than for if we have seasonal effects.

Okay. And did you see any tangible impact from the Freedom plans in the quarter?

Yes, we talked about those. Freedom plans are offered in a small number of beams. Demand for them has been good, and people seem willing to pay a higher price for a lot more bandwidth. And so we think that's a good sign. But because of the limitation in the number of beams we offer, it's a little hard to discern that from the total of numbers.

Okay. And, you had mentioned you think there's still some upside on the ARPUs. Is it primarily Freedom plans? Or is it adding ancillary services, VoIP, or security, or other things that will move the ARPU up? Or is it simply people moving to higher bandwidth plans -- higher data-cap plans? Excuse me.

Pretty much all of the things that you said, except that we're not selling home security. We are getting people choosing higher-value plans, people trading up to higher bandwidth, higher-value plans, VoIP. And also, in general, as the customer base shifts to be more retail, that's also driving total ARPU.

Okay. And on the government business, can you tell us what the revenue contribution -- maybe revenue and ARPU was from the NetNearU in the quarter? And a clarification -- that goes in the government service side, correct?

Yes. The NetNearU definitely goes into government, and they are primarily services. We talked about the year-over-year growth coming from NetNearU was about $7 million.

Okay. So pretty consistent with what you saw last quarter?

Yes.

And, when you launched the Exede service for government -- and that's entirely new if I'm correct -- would those revenues go in government service, or would they go in Satellite Service?

When you said when we launched the Exede service for government --?

I think doing it on ViaSat-1 will be relatively new.

The service on ViaSat-1. So the real issue would be they will roam in and out of the high-capacity footprint. And we will book that service in government services.

Okay. And final question. On the government services, you mentioned a contract renewal -- I think it was $28 million -- in the government services. Was that consistent with the legacy contract, an increase, decrease? About the same?

That one was for a specific customer, and it was down somewhat from last year.

Okay. And probably fair to assume related to areas of operation?

Yes, one of the things that we talked about is that we're -- one of the things we think is good is we're migrating our government mobile broadband services from being geographically specific to more DoD-wide, and probably more global.

Okay, thank you.

Yes.

Mike Crawford of B. Riley.

Thank you. On government VIP aircraft, I understand those planes will roam in and out of your high-capacity footprint. Do you have any sense of what percent of the time they're in, say, a ViaSat-1-covered region today, as well as with Ka-SAT, where they're in a more of a high-throughput region?

If you look at government satellite -- commercial satellite use in total, there's three regions that represent about 85% of all the usage in the US, North America, Europe and Middle East. And for time period, Middle East was the highest. US was second. We have roaming agreements for Europe and the US.

And as a lot of these airplanes come online, we'll have ViaSat-2, which covers the ocean. So we'll -- to the extent that these aircraft -- we think they overall represent -- will have representative use compared to the government as a whole. We thought most of it will come under these Ka-band satellites that we either have, or we have roaming agreements.

Mark, is there anything you can share relative to the revenue potential per aircraft?

Not yet. It's good. The government spends -- they have a program for a small number of VIP aircraft, a lot smaller than what we expect to get, that runs about $50 million-ish a year. That's not our contract, but that's an existing contract. That's for less than 20 aircraft. We're not sure we're going to do exactly the same as that, but it's illustrative of what the value of the business could be.

Okay, thank you. And then on the -- what you've done with the SkyTerra-1 satellite, where you're demonstrating throughput to something that would work on a car, is that some type of service you're looking to bring to market in the near future?

Yes. We are working with, now, LightSquared, which has that satellite, and then also, with other partners in other parts of the world, to try to get higher-speed services that could go on mobile platforms. And these are -- we're looking at what that niche is, but we have funding from customers to develop products for that. So right now, we're testing it out.

Would that be more for fleet management applications?

Yes, that's one example. There's definitely a lot of interest in fleet stuff. And don't think of it, yet, as connected cars, but think of it more as enterprise business, fleet management, things like that.

Or M2M-type stuff.

Yes. It's a little bit of -- I think one way to view it is, it's a little bit faster, commercialized version of Blue Force Tracking, is essentially what that is.

Also, it's a bit of a repeat, so final question for me is, if you look at the FCC's new definition of broadband as being 25-megabit-per-second, how does that relate to capacity of a system, say of ViaSat-2, if you were to provide, say, that level of service? And I know there's a lot of variables here.

Given all the other things you want to do with the satellite, how many consumer broadband subscribers do you think you could support, providing that level of service? Compared with, say, someone using a system that worked a lot more like ViaSat-1?

ViaSat-2 -- the main thing we've said is, it's got double the bandwidth economics. If we offer the same plans, we could get probably at least twice as many subscribers. The main thing I'd say is, especially over this last year, we've learned that there is definitely more demand, even at higher price points, for higher-bandwidth, higher-speed plans. And we haven't upped the speeds yet on ViaSat-1. We think that we can, that it's capable of supporting those speeds.

So right now, we're just looking at the economics of optimizing revenue and earnings, given the resources that we have. But with ViaSat-2, we'll certainly be able to offer those kinds of speeds. What we're trying to figure out is, what are the right price points and what are the right service plan definitions.

And it's probably a little early to comment on that. I don't want to get into the same thing where people are trying to match us against some arbitrary target, when what we're really trying to do is maximize total economic value. So I'm not going to give a specific number on subscribers.

All right. Thank you.

Thanks, Mike.

Chris Quilty of Raymond James.

Thanks. Wanted to follow up on the dual-band Ka-Ku antenna that you're going to introduce, I think you said, later in your fiscal year. Can you remind us, is that going to use your Yonder network and the ArcLight modem on the Ku side? Or are you designing something that's more Ku agnostic, where you could use an iDirect modem and use some of the existing infrastructure that's out there?

Yes, some of those things are to be determined. One of the things that we've been suggesting to our customers, especially government customers, is this concept of best-available network, which we think is really driven by the satellite economics. In most cases, we think we'll be able to use our ArcLight network. We have an existing global ArcLight network. The ArcLight waveform that we developed is very bandwidth-efficient. At Ku-band, there's a lot of infrastructure for it. So we think that's sort of the dominant mode.

But the antenna itself can support other waveforms and other networks. And if we can deliver services to our customers using third-party modems, then sure, we could do that. We don't see a lot of demand for it yet, but we certainly can do it if our customers want.

Okay. And on the Yonder network, I think your network map shows that it's pretty global in terms of footprint you have now. Is it sufficiently robust to handle multiple airlines or a volume of government customers? Or is there a significant ramp in transponders that you're going to have to bring onto the network in order to support it?

I'm just thinking, some of the companies that do this for a living, like the Panasonics of the world, are probably spending $50 million a year in transponder capacity. Are you mostly already there in terms of absorbing those costs? Or do we have a lot of incremental costs to come online?

I think we've done a very good job, in general, of matching our transponder spending to our revenue, which is sort of a trick there. The thing I would say differentiates us, relative to others, is that what we have the ability to bring online either through ourselves -- ViaSat-2 is an example -- or through partners.

We're working on more arrangements like this all the time. And we expect to be able to talk about some of those over the next year or so, to bring much more cost-effective bandwidth into play than what other people are committing to. What we don't want to do is commit large amounts of money for long periods of time at transponder prices that will become, I think, obsolete fairly soon.

Okay. And one question for Shawn regarding the Ex-Im loan. Is the ViaSat-2 going to somehow be put in an overseas shell corporation or something in order to qualify for Ex-Im, which is supposed to be export-related?

Basically, I think we touched on this a little bit last quarter. We're a pretty global operation. We have quite a few international subsidiaries. If you recall, we have a subsidiary already over in UK that we acquired a couple of years ago. Our slot that we're going to have coming through the UK, the launch and operation licensing won't be in a UK entity, so we're going to be primarily holding the satellite there.

And, we're going to be serving multiple geographic footprints with the coverage map that we have. I think we noted before, we talked about a lot the Xplornet program, which is a Canadian customer, and we're going to have other international and geographical-spread customers as well.

I think we cover over 30 countries -- over 40 countries with this satellite.

Okay. Is the Xplornet relationship similar to how you structured it with the ViaSat-1 satellite, or different?

No, it's different. ViaSat-1 -- we had an arrangement with Loral Space & Communications, which was the parent of SSL. And they essentially acquired bandwidth from us as an equal partner at construction. In this one, we acquired the satellite, and we made a services and equipment deal with Xplornet.

So more traditional.

Yes, you could say that, I guess.

Okay. All right, thank you.

Thanks, Chris.

Mike Crawford of B. Riley.

Thank you, again. Can you talk about the probabilities of ViaSat getting involved in some of these proposed small satellite networking projects? As well as what challenges there might be to seeing these things come to fruition?

Okay. One is, we have worked on most every LEO and MEO satellite system in existence so far. We did on the original Meridian system. We did out-of-the-ground infrastructure on the next Meridian system. We're doing payload electronics on O3b, which was a Ka-band, broadband system. We did a lot of the network infrastructure and user terminals.

So I think there's a pretty decent chance that we'll get involved as a module subsystem supplier to new LEO systems. I think we're pretty vertically integrated, and we feel that we have good technology there. And we're interested in doing that. We're also interested in all new technology, and we may be interested in being a partner in some other way.

But the thing we're more focused on for ourselves is this issue I described, which is delivering speed and bandwidth to subscribers. We're still trying to figure out why a LEO network would be better than what we're doing now. We've invested a bunch in the GEO stuff. We have really good metrics for what we can achieve. We think we'll be bringing that to market in a timeframe that's probably sooner than the LEO systems will. And so far, customer acceptance seems to be really high for the bandwidth and speed value propositions.

So, to the extent we make our own investments, we're going to probably do those in the technologies where we think we can get the greatest economic return. So far, that looks like what we're doing with our own payload stuff.

And the main problem you're seeing is how to get the bandwidth on target where you want it?

There's not a lot of public information about these others. We've done a bunch of work ourselves, and so far, we haven't seen things that's inconsistent with that. But basically, you're going to end up with highly integrated -- in order to do, whether it's LEOs or GEOs, you're going to end up with highly integrated satellite payloads, which are a lot more integrated than what you see in current-generation technology. And in general, what we think is -- if you just look at efficiency measures, that satellites that have more payload are going to be more efficient than satellites with little payload.

There's a question about whether making hundreds or thousands of satellites is a feature or a bug. One way you could represent it is a feature -- I'm going to make a lot of them and so I'll make them cheap. Another way you can look at it is -- boy, if I want to have a reasonable ground terminal, I need hundreds or thousands in order to have reasonable look angles to the satellite. And so now I'll try to make lemonade out of lemons. Which is, I've got to have all these satellites, so let me figure out some way to do that effectively.

So there's that issue, and then there's also the issue of the geographic distribution of the bandwidth. And those are hard economic problems, and dependent on whether or not the technology works. So we're pretty focused on metrics that have worked for a long period of time and seem to be reflective of customer demand. And to the extent that we can do better than that with other technologies, we're open to that.

Okay, thank you. And then the final question would be, any progress report or change in probability on securing some kind of partial payload or other deal with a ViaSat-2 type of architecture for someone partnering with you?

I would say there's been a lot of activity around ViaSat-2 partnerships for other parts of the world. We're happy about that. Obviously the deals are big. You looking at $0.5 billion-class investments, and so I think they take some work. We'll see if any of them actually make economic sense for all parties. I think we'll know a lot more this calendar year about what the prospects are for that.

Okay, thank you.

Thanks, Mike.

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Mark Dankberg for any closing remarks.

Okay. Well, thanks a lot, everybody, for your time and interest, and we'll look forward to speaking to you next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This is concludes today's program, and you may all disconnect. Have a great day, everyone.