Viasat Inc (VSAT) 2020 Q4 法說會逐字稿

Welcome to Viasat's FY '20 Fourth Quarter Earnings Conference Call. Your host for today's call is going to be Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.

Okay. Thanks. Good afternoon, everybody, and welcome to our earnings call for our full year fiscal 2020 and fourth quarter results. So I'm Mark Dankberg, Chairman and CEO. And also on the call are Rick Baldridge, our President and Chief Operating Officer; Shawn Duffy, our CFO; Robert Blair, General Counsel; Bruce Dirks, our Treasurer; and Paul Froelich in Corporate Development.

And as you may have seen in the press release announcing this call, this quarter we're introducing a new format for quarterly earnings, where the financial results and business discussion and other special topics that we normally would have covered in opening remarks and slides are now contained in our shareholder letter that's on our website. So this should allow us to use the bulk of the time on this call for more in-depth Q&A.

And before we start, Robert will 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.

With that said, I'll turn it back to Mark.

Thanks, Robert. So as our letter described, we finished up fiscal year 2020 with record results, and we've taken some additional steps to make sure that we've got a secure financial position going forward. Unfortunately, this is against a really terrible backdrop of this ongoing global pandemic. I'm not going to spend too much time reviewing what was in the letter so that we can get to Q&A, but I would like to highlight a few key points.

So we set revenue, operating cash flow and adjusted EBITDA records for fiscal 2020. We ended with our balance sheet in solid shape and slightly lower leverage than we had at the end of the third quarter. Our diverse portfolio of vertically integrated service and product offerings across multiple markets have so far largely insulated us from the negative business aspects of the pandemic, with our in-flight connectivity business being the only one materially negatively affected.

While it's hard to predict the future impact of the ongoing crisis, we contain -- continue towards our goal of shipping the first ViaSat-3 payload later this fall. But the pandemic does increase schedule risk in the form of supply chain and health-related disruptions.

We have taken cost reduction measures earlier this quarter to address the downturn in Commercial In-Flight Connectivity. We've been through other global financial crises before. We understand the importance of financial discipline and the potential for strong companies to emerge even stronger. We want maneuvering room to do so this time, and we'll continue to act appropriately as the situation evolves. While we don't expect those cost actions to fully compensate for the downturn in In-Flight Connectivity, we do anticipate stability and growth opportunities in our fiscal '21, and at this point, better growth opportunities and adjusted EBITDA and in revenue.

So that's it for opening remarks, and we'll be happy to take questions.

(Operator Instructions) And our first question comes from Philip Cusick from JPMorgan.

Mark, can you hear me?

Yes. I can, Philip.

Great. Maybe start with the cost cutting that you discussed in the letter. What was done late in the quarter or early in the first quarter of this year? And how should that impact projects or spending going forward?

Yes, Phil. This is Rick Baldridge. We did a whole series of things. So we -- in general, we had a layoff of -- a reduction in force of a little over 300 employees. We are going through a series of additional furloughs in areas that are impacted near term from -- just from a work schedule standpoint. We froze salaries for a large part of the population, except for a group of people making under a certain dollar threshold for the year. We've froze hiring in general. We never totally freeze it, because there's some people that we've got still -- that we still have to effect. And then we took action in all series of other overhead expenses that we felt like we could avoid or delay here in the near term. But in aggregate, it was over $100 million of cost reductions in the year.

Okay. And any sort of major...

Just on the second part of your question is the main area is in In-Flight Connectivity and support. Those are the main areas. And because of the downturn there, there's just a lot less demand for work in that area, and that's the dominant area where you'd see cost reductions.

We also saw COVID -- assets functions.

And then second if I can.

Go ahead.

Should we think about any projects that are being put to the side aside from the Aero business?

Not really. No. And as a matter of fact...

What we're trying to do is, we think there's opportunities for additional new projects.

I assume one of those is the LEO constellation. Can you dig more into the sort of likelihood or time frame of information of finding out if you're going to start spending that money and sort of range for us what that LEO constellation might look like?

Okay. So the first step is, we have already filed for NGSO constellation at MEO. So basically, what our filing does now is it just lowers the orbit from MEO to LEO. We had a purpose in mind for the MEO, but the biggest factor in wanting to lower the altitude is really the amount of funding that the FCC is aiming at low latency specifications. So they put a particular threshold on it, which was 100 milliseconds. And if you -- one of the things that we've been following closely is what the rules are for bidding for those subsidies.

And just as a reminder, we had participated in what was called the CAF-II, the Connect America Fund subsidies. So we had really good understanding of how they work and what the implications for -- of those rules, including the low latency rules. So quite a while ago, we had started looking at what would be involved in lowering the altitude of the license how we were just recently granted. So that -- it does involve more satellites than we would have used in MEO. But the satellites are a lot smaller and less expensive than they otherwise would be. But the main attraction is that -- and things are evolving, but assuming that the FCC does allow LEO to be eligible in the Phase 2 part of the rural digital opportunity fund, the opportunity for funding is far in excess of the increase in what the constellation would cost. So that's the main reasoning behind it. The main point I'd make is that we're early in the process. It's -- the first step is to file the amendment that we did. That would allow us to use the spectrum that we're already granted at a lower altitude.

Phil, I guess just to add a little bit more color. We spend a lot of time looking at trade-off on service economics, on bandwidth economics for all these different applications that we participate in. And we put some of this stuff in the latter, and I'd be happy to go into more depth if you have questions around what's in the letter. But the upside of it all is that the thing that really -- the thing that scales in driving bandwidth costs down are network and payloads, with payloads being part of the network.

And so what we have been working on and what we've made really good progress on it, that's the reason for our filing, is basically a way to get a lot more capacity through lower-orbit satellites than anybody has done before. And that's really what the point is. And we think that having -- there are quite a few reasons. But having fewer satellites with a lot more bandwidth per satellite, we believe, is a lot more economical than doing the opposite, that is more satellites with less bandwidth -- with less throughput. And so we're able to make really good progress on that kind of the economic underpinning that makes it worth filing for.

Okay. Is it fair to say that if you didn't get a pretty substantial amount of funding from the government, you wouldn't be building out -- you wouldn't be planning to build the LEO satellite constellation?

The funding is certainly the most -- that's the most obvious attraction to it. I wouldn't say that there aren't others, but that's a really big chunk.

And our next question comes from Rich Valera from Needham & Company.

Just a follow-up on the commentary on the cost cuts. It sounded like you're making -- and I wanted to make sure I was clear on that, $100 million of annualized cost cuts, but that's not going to fully offset the impact of the lower IFC revenue. Is that correct? I just wanted to make sure I understood the magnitude of both the cost cuts and how much impact you're expecting from the lower IFC flights?

Yes. It's really just over the next year would amount to that, Rich, but it's not -- doesn't all go forward because these are -- some of these are temporary, right? So things like salary freezes won't go in perpetuity. So it's not -- you can't project that all out in the future. Certainly, the headcount reductions that we made should carry on. But at some point in time, they have to staff the business that we have. So -- and yes, what we said earlier was our cost cuts did not completely offset the impact that we're seeing in the IFC, the impact that we anticipate in the IFC business outlook.

Got it. And presumably, that's a blend of both service and fewer terminal sales. Is that correct?

Yes. Correct. Yes.

Got it. Got it. And then you mentioned, I think, that you had some success in shifting bandwidth from IFC applications to consumer. Can you just talk about that, how seamless that is? And is it -- can you kind of do that 1 for 1? Just wondering how efficient that is? And does that change at all your thoughts on the fill -- the timing of the fill of the satellite as you look towards the VS-3 launch?

Well, yes, we can apply bandwidth and we share bandwidth. The -- so yes, so we're doing some of that. We're keeping an eye on the In-Flight market, so we can respond to that. I mean there's -- one of the things that sort of enabled it is the fact that there is some amount of churn in the residential. So you can anticipate how much bandwidth would free up and where. So that -- all that stuff goes into our forecasting so we can bias the mix of applications a little more to those that have more demand now. There's not much more to it than that.

Got it. And then the ARPU was pretty impressive. Wondering if you could give any color on kind of what drove the strong ARPU and how we should think about that going forward? Is it sustainable? Or is there potentially even upside from these levels?

Well -- okay. So there's multiple factors that have gone into the growth of ARPU. Some of it is shift from -- we've talked about in the past, shift from wholesale to retail. Some of it is migration from customers that have had older plans to the newer plans. And some of it's just churn in on the older customers, replacing them with customers that have chosen the higher value plans. We're not yet at the top of ARPU. But growth rate in ARPU will be lower this year than it was last year because we've done a lot of the migrations that have contributed to the growth in the ARPU. But another factor -- one of the things we talked about a pretty fair amount is that bandwidth is really the dominant issue in providing residential broadband service. And this -- the current environment is definitely showing that because we've got a lot more people doing work from home or school from home.

So there's a lot more high-bandwidth applications. And then the other thing, which I think is going to be very significant factor going forward is steady migration from broadcast TV to over-the-top broadband video. So we are seeing, even among the relatively recent base of subscribers we have, more interest in the higher bandwidth plans. That is the plan to have more bandwidth usage allowed. And so that's probably an added increment to ARPU this quarter -- well, starting kind of in the current first quarter than we had, say, a year ago.

And the other thing is when it comes to -- for instance, I think one of the things we have mentioned is that -- one of the things we're seeing now are people who really didn't have broadband or a fixed broadband service at home because they had access to broadband network. And let's say they used just a mobile service at home, people like that are running out of bandwidth. They can't -- there's not enough bandwidth to support their needs at home. So they're much more interested in app services like ours that have more bandwidth per dollar. So I think that those things in the near term will probably tend to drive ARPU. I think what we've said before -- one of the things to get ViaSat-3 is we not expect ARPU to continue to rise because we'd be aiming at a wider segment of the market.

And our next question comes from Simon Flannery from Morgan Stanley.

Great. And thanks for all the information in the shareholder letter, very helpful. On ViaSat-3 and COVID, can you just talk about have you actually had delays so far? Or are you just being cautious about the steps? And maybe you can just think about where the challenges are. Do you think you still have a shot of making that mid-2021 timing? Or is it likely to slip later? And then maybe, Shawn, you can help us with some color as we think through the CapEx and margin implications as we run-up to the Viasat-3 launch and beyond?

Yes. I think we're being cautious. We've had a lot of challenges in -- just in performing because working on the payload requires both us and our subcontractors to have people working together. So we've been, I think, pretty resourceful on that, and it held up pretty well. Not perfect, but pretty well. But it's -- there's going to be challenges. And as time goes on, we'll probably run into more people that get exposed to the virus, and that we'll have to work around. Do you want to add anything, Rick, to that?

I think we have one critical sub that was down for 2 weeks as a result of impact in their facility. But other than that, they've just been minor.

Yes. So -- and Simon, I think as far as the CapEx, so you'll know that kind of FY '20 was a little bit lighter than what we were anticipating in. So when I think about that for next year, I kind of plan on that uptick that we thought was going to happen in this year happen into next year. So I think that's a backdrop on the CapEx. And then when you look out, and I think, as Rick point out, which was clear in the shareholder letter and we talked about it. We think we're going to be able to stay comfortable within our target ranges on the leverage side. Creep up a little bit with the normal satellite in the cycles of the satellite but well within the target range here.

Great. And then just one follow-up. There's been a number of the players in the industry have been under financial duress during the last couple of months. Do you think this might going to lead to a realignment in the industry from a consolidation perspective, both through the satellite operators and the kind of the third-party providers, et cetera? And any opportunities for you to take part in that?

Yes. So they're certainly paying attention. I think that -- I think if you look in any type of players that have been under the most duress are pretty different business models than we do. And I think one of the things that's really been surfaced is that there's really not a line -- complete line of interest between, for instance, a satellite operator and these distributors, the companies that provide the value-added services to end customers such as governments or airlines or maritime or oil and gas or whatever, that there's -- clearly there's just contention over margins and strategic value. And so I think that our vertically integrated model is just -- it's just more straightforward. It was hard to develop. We've invested a lot in it over the years. I think it's working well, but it allows us to basically be totally aligned and focused on our customers. And there's not a lot of assets out there that are built around that business model, so that makes it tricky for us to be able to find things that we would go after.

I think the things that we're mostly after would be specialized skills or specialized market access that would help with our model. The other thing that we're been really focused on is this bandwidth value proposition. And there aren't a ton of assets out there that have the same type of productivity as ours. Our assets can be repriced in the market. And so that's one of the things we're going to look at. But even with the repricing, it's not clear that they'll come very close to what we can do.

But those are the things that we'll look at. I think we've been, in general, a lot more focused on attracting customers than in sort of maneuvering around competitors. And so it's not clear that it won't really impact our trajectory that much. But I do think the industries will consolidate, and I think we'll come out with a stronger strategic position. That's what we're focused on.

And our next question comes from Ric Prentiss with Raymond James.

I hope you, employees and families are all okay during this difficult time. A couple of questions, if I could. First, can you remind us of what that target leverage zone is that you would creep up to? And I think you called out in the shareholder letter, which again, appreciate that new item. The timing of the government contracts may be slipping into not early fiscal '21. Does that mean kind of more middle of the -- or fall, winter?

Okay. So to start up on the leverage question, I think what we typically said is kind of in the 3.5 to 4 range. So around the 4 range, I think, is kind of that upper level. And then as far as the government contracts, what we're just seeing is kind of delays. It's administrative delays. It's not losses. We're not seeing business contraction. Things are moving to the right within usual like weeks, not months, so kind of it's in that range.

Yes. On the government, I'd say a fair amount of the government bureaucracy is having a trickier time adapting to work from home than commercial customers are. So that has to do with security. So it has to do with -- a lot has to do with security and the specific machines that people can use to do their jobs. So that, I would say, the things that will help that along will be better processed and remote security and/or better or just more people being able to work from the facilities. I think those are kind of the 2 things that would help work through that administrative backlog.

Okay. Should still be able to ship than catching up because you probably have built some of the stuff. It really is more just on the receipt side of it, it sounds like.

No. There's lots of -- there you need to have government approvals at shipment time. And again, those can be a little tricky to get to. I think people are doing the best they can. It's just unexpected, and there's really no precedent for it. So I think that's what we -- customer are working through. But there's some issues on both topics, both the final acceptance and the final order issuance.

Okay. And you talked a little bit about the RDOF auctions coming up. First, can you remind us of how much CAF-II funding subsidy you were winners for and when that might start being received? And a second question related would be any concern on what competition for more fiber deeper into the network might mean, either from RDOF or future infrastructure build maybe coming out of COVID-19?

Okay. Okay. So on the RDOF, there's -- current plan is $16.4 billion in Phase 1 and about $4 billion in Phase 2. The -- not that time in CAF-II, not all of the funds were awarded. So we would expect that some of the funds would likely flip from Phase 1 to Phase 2. Could be a fairly meaningful number. Also, the dynamics on RDOF, I think, will be different than they are on we're on CAF-II. Because it could be more satellite competition, and that might end up basically, meaning some areas aren't afforded.

The fiber doesn't -- didn't go that deep into the CAF-II auction. We don't expect it to go that deeply into the RDOF auction. It's kind of in the 20%, 25-ish percent for the CAF-II that used a disproportionate amount of the subsidy. One of the things that we look at and we take into account all the time is basically kind of overlap of our subscriber base and our prospective subscriber base and how that evolves with these subsidized areas. And it's not super -- of course, there's some correlation to it, but it's not super impactful. And mostly, we don't compete with fiber. I think the fiber -- the growth in fiber is, let's say, for about 6 million, if it were 25%, it'd be about 1.5 million homes. Both for the rest of the stuff, we feel like we can compete with pretty effectively.

And our next question comes from Mike Crawford from B. Riley.

So Mark, just as FCC subsidies could make LEO business case tenable, can we look at the OneWeb constellation is being tenable if you consider the initial equity holders is basically subsidizing, whoever is going to pick up the pieces and build out the rest of that constellation?

Okay. So one is, I don't think I would go so far as to say that an FCC subsidy would make a constellation in general tenable. The -- if you're -- I'm just going to -- I mean if you're drawing up -- if you're investing $10 billion in a constellation, getting $1 billion or $2 billion is probably not going to be decisive in making that economically good. But if you know what the locations are, what the range of subsidies are, and you can design a system that's really kind of explicitly aimed at that, I think you have a way better shot of being able to do that.

OneWeb, the big issue with OneWeb in the context of the subsidy like this is it doesn't have anywhere near enough total bandwidth over the U.S. to have a meaningful impact on that, while the -- well, while the low latency or laser requirements are hard, the bandwidth demands that are associated with RDOF are very -- those are much harder. And so I think bandwidth is going to turn out to be the most valuable metric, and that's why we focused on that. So you got -- these systems are just involve a lot of trade-offs. And we don't see other systems that have the right balance of trade-offs that we could achieve with this particular constellation.

Okay. And then related to LEO constellation viability would be cost of ground equipment and particularly flat panel antennas. So do you see that as a hurdle that through brute force will be overcome over time? Or is that still just proven to be too elusive?

It's not going to be overcome through brute force. That's for sure. It's challenging, but that is -- this whole notion of a flexible beam forming is at the core of what we've been working on for a decade. So I think we can do it. And we can -- I think that we have some pretty big advantages in ground terminals at the user side and in the gateway side, and that those things are going to end up having a big impact on the economics. So I just want to -- because if you look at the chart that we've said, they're not -- it doesn't overcome the issues of flight time and the fact that you just can't -- you can't cluster non-GEO synchronous satellites over any particular territory. You've got to deal with the orbital dynamics issues. But I think that we're really strong in all the ground elements, and I'm quite confident that we can deal with the user terminal part.

Okay. Then if Viasat were to get some subsidy and build out a small LEO constellation, then that presumably would delay your shift into generating positive free cash flow above the investment that you've been making into basically ViaSat-3 constellation. So I think previously, you said, once the first 2 ViaSat-3 satellites start to load up, and then that's when you shift into positive free cash flow and never look back. Is that still the case? Or when do you think Viasat hits that threshold?

Okay. Good point. Thanks for asking that question because I'm sure it's on a lot of people's mind. So no, it does not change. We have said, oh, you looked at -- that's the way we've -- the way we're make money is by putting bandwidth in space and then monetize. And so we have had a plan for building additional satellites beyond ViaSat-3, talk about ViaSat-4. This particular constellation doesn't need to be in service until 2026. And so we're looking at, like you said, being able to reach free cash flow positive with the second satellite in orbit, which would be much sooner.

But, in fact, with -- so that'll be much sooner than the time frame for deploying this constellation. So that -- so the answer is well we're -- we understand the reasoning behind getting to free cash flow positive, and we're embracing it. So -- but that doesn't mean that we're just going to launch 3 satellites and stop. No. We're looking at whatever it is that drives incremental returns. And being able to compete in an environment where that amount of subsidy may be available makes for a really attractive return. So that would be one of the ways that we look at allocating capital beyond the first ViaSat-3 satellites.

Okay. And then final quick question, just relates to launch window. So assuming you can overcome your supply chain challenges and get the payload in and then the integrators can get that to SpaceX or whoever is going to do your first launch. Is that window getting jammed up by delays in 2020? Or do you think that, that will be unraveled by the time you're ready to go next year?

So we've been working with our launch provider, and we have a primary one and a backup. And we've been working with them to make sure that we've got a launch window that fits with the completion data of the satellite. And so we're in good shape. We've got multiple -- we've got maneuvering room if we do get delayed as a result of this pandemic. No, we have already worked through that issue.

And our next question comes from Chris Quilty from Quilty Analytics.

A question on the IFC market. And maybe it's a little bit generic, but how are you thinking about the market and its recovery? And sort of what actions are you seeing by customers in terms of their ability or willingness to install new aircraft? Have they just signaled to you that, hey, we're on hold for the next several months. Is there the possibility of the actual aircraft getting retired that are currently installed? And when do you think they'll get back to a more normal rhythm of installing aircraft?

Okay. So it's very difficult to generalize among the different carriers because they have different strategic orientations that are -- and it's somewhat just the randomness of the timing of this relative to what their own business cycles were, about what situation they're in, in their near-term versus long-term focus. But what I would say, in general, for the carriers that we're working with, there -- it's like there -- it's a 2-front issue. It's -- front number one is just to make sure that they survive through the pandemic and that they keep their workforce and their assets intact and their customers, their customer value propositions and communicate with customers.

And so one part of it, so near-term issues. But the other part on the better -- best carriers is, what's going to be like on the other side? And what's the role of connectivity in that? And so what we are seeing among the airlines that we've been working with our existing customers and new ones is absolutely continued interest in In-Flight Connectivity, probably expanded interest in it. I would say that there's a lot of discussion about what the shape of recovery will be. I think that most of the carriers are probably looking to retire older, less efficient aircraft.

And so I think you will see retirement, fleet retirements, and you've seen some of those announced already, as an example. From our perspective, we have tended to capture newer planes. And so I think that we'll see fewer retirements than some of the other in-flight providers will see. As an example, well the MAX, there's not really been a lot of discussion about the MAX grounding, but the MAX is one of the newer -- the most fuel-efficient planes out there. That comes back. That's good for us. 787s also.

So I think we're little bit disproportionately tilted towards the newer planes. So I think we'll see probably a little fewer retirements. But the other thing that's come and plays out, if there are planes that are grounded and may not return to service that quickly, that's a great opportunity to upgrade or install In-Flight Connectivity at effectively lower cost than it would be if all those planes are in use. And that's not lost on the carriers as well. So that's a pretty good -- that's a good opportunity for us. Did that cover most of the points in here...

Yes. I mean it does, I mean with so many aircraft parked, this would be a great time to install aircraft. But given their first priority of preserving cash, I'm assuming not much of that is happening. But I guess the question is, do you see the long-term profitability of the aircraft of the airlines? If they're restricted in the number of passengers and the load factors they can achieve that profitability overall is hurt, where are they going to cut? I mean are they going to reduce their investments in In-Flight Connectivity as a service offered to customers? And is that a concern?

Okay. So I think that question number one is I don't think -- we don't see airlines, in general, looking at In-Flight Connectivity as a money loser. That may be, but that's not what their intent is. I think what their intent is, is to use that to -- as a money maker. And the way they would make money is either through better fill factors, better ticket pricing, better yield in variable pricing. I think that there are different strategies. I think those are not yet proven.

I think that one of the things that we've been saying, and I think it is catching on is that for airlines, they're not really going to monetize In-Flight Connectivity unless everybody can use it, and unless engagement is high. And the things that drive high engagement, they're often high bandwidth. And so that's our -- that's been our competitive mantra for years. And I think that airlines -- that there are definitely airlines that are looking at how, say, look at that more seriously, how do they integrate that into their business model?

And can we help them with that? And I think that we can. And so that's one of the things that happens, and we've seen this in past times of that when money is really tight, people are generally more receptive to new business models, and we generally have pretty creative business models. And so I think that the idea that we could work with the airlines to help them improve their business model through higher passenger engagement of high-bandwidth activities, that -- I think that's getting more traction now because of the limitations on the budgets and the fact that they've got the opportunity to install. Now whether we can pull that across the finish line with a number of carriers, we'll see over the next few months. But the opportunities are clearly there.

That's good. And a question for Shawn. I mean have you seen any issues with bad debt?

Yes. I would say that we did have a bit of pressure point in the infrastructure side of the business. I think people recently felt one was bankruptcy. So we had a small amount, very small amount in the way we partnered with them there. Don't expect to see a lot more.

Great. And a final question here. I hate to ask the LEO thing because it's kind of nonrelevant in the near term. But is there a regulatory precedent that you can cite of changing from a MEO to a LEO? I mean I know SpaceX, for example, has done some filings to change the altitude of their satellite, and they're fighting Amazon and others with what are relatively minor altitude changes. I can't recall an example, and I just don't know what the regulatory precedent would be for that kind of a shift. And this is a Ka-band system, correct?

Okay. Yes. Our filing is Ka-b. The -- I don't -- I definitely don't want to go into a lot of detail on that. But our filings are public. You can see them so you can read the filings and you can understand what our arguments are. But basically, the filings are primarily spectrum filings. And the burden -- the main burden is to show that the constellation, as modified, would not cause any more interference to other constellations that would have been generated by the original filing. That's really what the test is.

And that's the test that SpaceX and others have gone through when they've adjusted their altitudes. And there's bunch of data in our filings that show that, that's actually the case that we -- in some cases, we'd actually cause less interference, even with more satellites of a lower altitude. And all the -- and the reasons why are explained in the filings, and there's charts and graphs that support the arguments. But that's basically the gist of it. The altitude shift itself isn't the issue. It's the -- basically the compliance with the spectrum license.

And our final question comes from Louie DiPalma with William Blair.

There have been a couple of questions about CapEx and leverage. Should we still expect CapEx for the next 3 years of fiscal 2021, 2022 and 2023 to be in the $900 million to $1 billion range?

Yes. I think those ranges is okay, right? You're talking into the sixth part of the Viasat results from a milestone perspective with their subcontractors.

Okay. And Shawn, should it fall by like around 40% or so, like following the build-out of the Viasat-3 APAC? Is that the type of CapEx that you're expecting?

I think what I would say is absent follow-on satellite investments and things that we may do in the portfolio, it's obviously, bringing down the satellite investment stack has a significant drop-off, yes.

Okay. And...

And well this sentiment is making us -- just don't think about CapEx as a fixed variable, and everything else is varying, right? It's -- we're going to treat everything here holistically. So...

Whether spend has followed. Oh, yes.

We have levers on spending on CapEx, on operating expenses, and we have variables in our revenue and earnings. So we're going to treat it all as a system. But what Shawn just described is correct based on our assessment of what the situation is now.

Got you. And related to the government division, Mark, for any delays that may happen for government procurements in the near term, should we expect an elevated second half of the year? Or do you expect some of the orders that you previously anticipated for fiscal 2021 to shift into fiscal 2022?

No. I think -- the point we've been trying to make is that it seems right now -- it's always hard to predict the future. Right now, all of the sort of the thesis that we've had that have worked to grow our government business, they're all in place. Things are going well. I think that's what we're trying to communicate. The main thing is that the execution of certain orders and the execution of acceptance on certain products is going to be slow until either people can work from the office or they can adapt a little bit better to work from home.

That's really what the issue is. We do think that, that will be resolved by the second half of this fiscal year. And so that would account for some slippage. I mean basically think of some revenue and earnings that would shift from the first half to the second half. But overall, things are -- on the government side are good. I mean it seems to be overall, business as usual, with good opportunities. We did talk about that $1 billion IDIQ that we just -- one that was really good substantiation as well. But we do have some of these customers that are inhibited by the work from home.

Sounds good. And related to the $1 billion IDIQ for the MIDS JTRS, I think during the quarter, BAE Systems, they announced the acquisition of Raytheon's Airborne Tactical Radios and Rockwell Collins GPS assets. Do these 2 acquisitions have any impact on your business? I know you compete with BAE Systems through their data link solutions joint venture.

Yes. For late '16, BAE's business is pretty much expressed through DLS for that. They have, I would say, on the edges, there was some -- in the old Rockwell ARC-210 and Variant business, there was some overlapping in our old UHF business. That's probably the only main area. And they captured our contenders with the old Magnavox, Fort Wayne businesses that they kept the ARC-210s. So the -- from a BAE perspective, that would be -- it would be the parts of Raytheon Fort Wayne. And there's a little bit of overlap there, but it's not substantial.

Okay. And final one for me. You announced an In-Flight Connectivity contract win for American Airlines' new Boeing 787s. Do you have anything brewing with Delta that you're able to disclose? Or did you have anything brewing prior to the pandemic?

We're not going to comment on that. One thing I think we can bring up that we haven't mentioned otherwise is that our backlog of airplanes has grown from -- including from some new customers. So we can't announce anything. The customer is going out. But when they're ready, they'll announce what they are. We are still winning business. But we can't comment in time any particular airline.

I'm showing no further questions. I would now like to turn the call back to Mr. Dankberg.

Okay. So thanks, really appreciate everybody taking the time. Hopefully, we have spent more of it on your questions. And if anybody has feedback or would like to give us feedback on the side on our new format, we'd really appreciate that. Other than that, I look forward to speaking again next quarter. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.