Viasat, Inc. (NASDAQ:VSAT) Q2 2023 Earnings Call Transcript

Viasat, Inc. (NASDAQ:VSAT) Q2 2023 Earnings Call Transcript November 8, 2022

Viasat, Inc. misses on earnings expectations. Reported EPS is $-0.64 EPS, expectations were $0.31.

Operator: 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.

Mark Dankberg: Thanks, and thanks, everybody, for joining us today. We released our shareholder letter shortly after market close and is available on our website. We will be referring to that on this call. Joining me today on the call are Rick Baldridge, our Vice Chairman; Kevin Harkernweider, our Chief Operating Officer; our Chief Financial Officer, Shawn Duffy, Robert Blair, our General Counsel; and Paul Promit from Corporate Development; and Peter Opes from Investor Relations. So first have Robert provide our safe harbor discussion.

Robert Blair: 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.

Mark Dankberg: Okay. Thanks. So I will briefly just touch on some of the main points we just in the letter before we take questions. So first, progress on the completion of the first ViaSat-3 satellite has been really good, and it is close to plan since last quarter. It is completed and has its functional environmental and deployment tests. The deployment test use higher technic devices. So the remaining tasks now are to inspect those, the deployable and restore the satellite to launch configuration. We expect the satellite will be ready for shipment to the launch site in December. Though schedules for some U.S. national priority launches that are contending for Falcon Heavy facilities have shifted since our previous conference call.

So at this point, we can’t give a specific on to window other than first quarter of Cal-23 but we are targeting the early part of the quarter. And we are working with SpaceX to add as soon as possible. Financial results for the quarter were consistent with the outlook we have described during our last call. Also, as we previously reported, we executed an agreement to sell our Link 16 tactical data link business to L3 Harris for $1.96 billion in cash. The letter in our filings reflect separating those TDL results from our continuing operations. The total second quarter revenue was $745 million, up 6% year-over-year, that is 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 activity activating more of the ViaSat-3 ground infrastructure in advance of the launch, constraints on available U.S. bandwidth on residential, including ongoing reallocation in connectivity in anticipation of a very substantial additional airplanes coming into service in the second half of this fiscal year and some impacts of supply chain stock shortages on component pricing and the resulting product margin impact. Total new orders were excellent 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 have consumed over about $400 million of that IDIQ order book on a year-over-year basis.

Our fiscal year 2023 outlook is revised ultimate reflecting the cumulative effect of the ViaSat-3 launch days, combined with the infrastructure network activations, delays to some portions of new aircraft activations due to those delayed deliveries to the airline customers that avail with constraints on residential broadband and some supply chain impacts. We do anticipate very good growth in the second half of the fiscal year in 5 connectivity claims and service as we described last quarter. That is going to be driven by retrofits and line fits and we also have growth in IFC terminal shipments and dominant growth. Our stand-alone 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, Link 16 sales expected to result in about $1.8 billion of net cash proceeds, which will substantially reduce debt and leverage on stand-alone basis and post the Inmarsat transaction. The U.K. Competition and Markets Authority, or CMA, review the Marta transaction has entered Phase I they publish 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 is a strong case that substantial competition will be sustained on a go-forward basis, and the process can still be completed within the original time line.

So with that, we will open it up for your questions.

Operator: Richard Prentiss with Raymond James. Your line is open.

Q&A Session

Richard Prentiss: A couple of questions. Two housekeeping ones first. On the 2023 fiscal guidance, does that include the onetime benefits. It looks like it is in there – for commercial networks, I assume that is in there for all the type items.

Shawn Duffy: Rich, this is Shawn. So yes, our guidance is included the Q2 results for Acacia.

Richard Prentiss: Okay. Second kind of housekeeping one is previously, you bought also free cash flow policy timing shortly after a couple of quarters after the (Ph) launched. Has the change in supply chain and information costs, et cetera, change any of your thoughts about when you turn free cash flow positive?

Shawn Duffy: Rick, I think I would think of it as around the same timing with respect to how it is pegged to the EMEA satellite. We have said before that we need to get the satellite up and scale. And once we do that, that kind of use the turning point. So it is very similar.

Richard Prentiss: Okay. And then more a theoretical long-term question. We have 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 or without Inmarsat looking at L-band, San urban services versus 5G just. What is happening in that part of the space?

Mark Dankberg: Okay. So we do think it is a really, really interesting application for satellite. Obviously, to the extent that you can provide connectivity and interesting services, which are likely going to go beyond SOS to include things like messaging, mail, probably web browsing, maybe a few others. So you can provide interesting services and you can do it to modify phones. I mean it is a really, really attractive. The things that interest us about it are, one, just respond to your breakdown of with and without Inmarsat. Number one is it is a very challenging connectivity technical problem. We think that it really plays to our strength in terms of high-capacity connectivity from space and in this case, to highly disadvantaged user devices.

We also think that what is going to be needed is to do that in some way that is sustainable in space, given all of the increased focus on those issues recently. And I think that is one area in which we are already doing work where we think we can partner with other holders of spectrum on that opportunity. And the other one is with the MR transaction will be one of the largest holders of global mobile spectrum. And there are some really big advantages in terms of serving that market with life and MSS spectrum as compared to trying to reuse terrestrial spectrum. So that is the other way in which we are aiming to participate. And the combination of having the spectrum and having the technology I think is going to make us – it is going to create really good opportunities for us.

Richard Prentiss: Great. And then how should we think about the time frame of when this becomes real and meaningful?

Mark Dankberg: Well, so I think that what you are already seeing with Globalstar and Apple is that – let’s say we put it in two buckets. One bucket is can it be done at all. And I think we are going to see, yes, it can be done. It can be done. The issue is really going to be what kind of links you can create reliably to devices with antennas, better like smartphones or other smart devices. So the real issue that is going to be scale. And scale is going to mean speed and the number of simultaneous users because that is going to have a big impact on the types of services you can bring to market and doing it at higher speeds and greater scale, it is going to require new space systems to do that. And so that is for pretty much anybody is going to be I would say two to three years out at least.

Richard Prentiss: Great. That is very helpful. Thanks Mark.

Operator: Landon Park with Morgan Stanley. Your line is open.

Landon Park: 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. And 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?

Mark Dankberg: Okay. So I will give you opinions here. One is the issue on the licensed MSS spectrum versus resin terrestrial spectrum, the reason the terrestrial spectrum is going to be very complicated in most markets because of the way of the way that the terrestrial spectrum is allocated, where you have different carriers sometimes in different countries, very close together. And it is going to be hard, especially if operators are making exclusive deals with a carrier, for instance, in a region where that is going to require that another carriers that want 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 and avoiding interference with terrestrial is it becomes a real problem.

And just to jump to the other one is the real issue when it comes to connecting those types of devices is the power propensity that you can make on the ground. And once you can make power propensity is just a measure of how much power made from your satellite to the ground. So if you start from higher up, you need to start with more power or more antenna. But at the end, if you have the same power on the ground, it doesn’t matter what altitude it comes from. So there is opportunities for both GEO and (Ph) systems. We are looking at both. I think they both can deliver similar functional performance to the handsets. And then it is 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 within satellite services in general.

What we think is that these markets will be geographically very concentrated because it is almost certainly going to be overland. And also you are going to have this funny situation where a lot of the demand is near metro areas. Even though those aren’t very rural, there is just so many homes near metro area is that there is going to be a lot of demand there. And if you want things like emergency services and times of disaster or something, you are going to 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 2 different forms of spectrum.

Landon Park: On the stock Services segment, the revenue was down a decent bit sequentially. Can you just maybe unpack that for me and on the broader IFC business, how are you guys thinking about business aviation at this point we have seen some announcements recently from Starlink. So just wondering how you think that you can scale in that market with the ViaSat-3? And then just one last one for Shawn. On the fiscal 2025 guide, I just want to 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.

Mark Dankberg: Okay. Just on the second one, that is 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 or FY 2025. That is where you get the two to one. And on the second one, so there – from a perspective, probably the main driver on services – there is a couple of drivers on service. One is we still are expecting really strong growth in commercial aircraft in service this fiscal year. There have been delays that we see in the second half, strong activations there. The second half is has a much higher proportion of retrofits, so we don’t have the aircraft delivery issues and then also some of the aircraft deliveries that were delayed will come in the second half.

But because of all that growth, we have to clear spectrum. I mean, we have a clear bandwidth on our satellites in advance of the growth in the F5 stuff. And that is a little bit behind that. So that is one issue. We do 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. So that is one. We do see more incursion from terrestrial wireless. And there is more an staring for sure as well, but what we are doing is we are going to be emphasizing especially with ViaSat-3, but in the rents, we are 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, that we will be launching – we have been doing beta tests.

And I think probably early the next quarter, we will probably start offering more of that. That is one. And I think now it is looking like the speeds that we are offering are going to be really competitive. And we think that will – especially for those people that do out streaming, I think our volume consumption will be very competitive. So I think that I would say depending on when ViaSat-3 comes into service, that is when I think you will start to see that residential business come back. And the in-flight business is, we think, is a great struggling and navigation time. And then the other thing just on the margins and the EBITDA is we are getting hit by those infrastructure, the ground segment cost because as we get really close to launching with satellite, we are activating more and more of that ground network infrastructure.

It is expensive because it is intended to offer hundreds of gigabits to a terabyte of capacity.

Landon Park: Highlights about business aviation as well. How are you thinking of that kind of opportunity longer term. Business aviation longer term?

Mark Dankberg: Business Aviation. Yes, this is aviation. That we really started with Ka-band in earnest. No, over probably in the last year or so, we had a focus on distribution with OEMs and then increasing our distribution, and that is been working. So it is growing pretty fast, both in terms of we want to migrate people from lease bandwidth to our own Ka-bandwidth. So the number of KA terminals is growing as a proportion of our total terminals. But the number of KAs terminals is growing pretty well. And I think that the amount of bandwidth that we can offer in the SPs is looking very, very competitive. Yes, we still think that is a completely fine market for us.

Landon Park: – out today?

Shawn Duffy: And then Amanda, this is Shawn. I have one quick thing to that. Just keep in mind that even though we move the satellite timing a little bit. We are not taking our foot off the gas with respect to the ground. We want to be ready. So all of those ramp-ups this year up in the tune of $50 plus million.

Landon Park: That is on an annualized basis, Sean, in the year.

Shawn Duffy: Yes. Annualized.

Landon Park: Mark, are you able to say how many BA tails you guys have between Canadian to you today and on the commercial IFC, you guys have targeted 2,400 aircraft previously, is it still that?

Mark Dankberg: Yes. The commercial target is – what we gave last quarter was 2,400 by the end of the year. Commercial business aviation is low hundreds. I don’t – try to be evasive. I think it is low hundreds. We don’t have a split for you right now on KA versus cap. It is getting to be majority, I think.

Landon Park: Great. Really appreciate you taking the questions.

Operator: Mike Crawford with B. Riley Securities. Your line is open.

Michael Crawford: Thank you. So Inmarsat just received a nice $410 million Blue Force Tracking extension award. Can you talk at all about any changes between your planned installation build, assuming that you are able to consummate this transaction?

Mark Dankberg: Yes. So what sort of 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 I6 They have launched one. There is another one lunch coming up in about a year. I think those are their newest LV satellites. I think they will probably be planning more replenishments for L-band satellites. But what we think is that there is an opportunity, which is what we have been doing in the broadband sense — in the broadband market, which is probably bore sophisticated satellites that a much, much greater value in terms of available bandwidth per capita dollar. And what we see with the I would say the direct to handset market being a little bit of an extreme – we think there is quite a bit of elasticity for mobile satellite demand with lower airtime pricing.

So that is going to be our main focus. I think you will see a substantial improvement in kind of bandwidth delivered from MSS per airtime dollar. And I think that is going to pay off in government, maritime, aviation and in these new markets as well.

Michael Crawford: Okay, thank you. And I think related – could you say like kind of percent complete of investment CapEx that you have put into say, ViaSat-3 EMEA, ViaSat-3 APAC and GS-4, those three satellites?

Shawn Duffy: Yes, Mike. So the way we kind of look at it is across the Bostock as a whole. At the end of Q2, we are probably 74-ish percent complete right around there.

Michael Crawford: That is not biased that on ViaSat-3 but is that including the first four satellite, which I think you started to invest in.

Shawn Duffy: That is excluding that. And yes, we are making some investments in some traction there. We are metering it at this point, but yes, there are some spend there as well.

Michael Crawford: Okay. And right now, it is just one of those satellites that you have started or more of that R&D investment that would be applicable to similar other ViaSat-4 class satellites.

Mark Dankberg: Two parts. We have a satellite. We have a construction contract for the satellite and the other – but the main driver that we have been working on is the Payload, which we will do and the payload is a more highly integrated version of ViaSat-3 also should be quite a bit easier to manufacture, assemble and integrate. So we have one of those under – that started. I would say most of the expenses so far have been in the payload. And as Shawn said, we are going to be — we are just managing the CapEx spend rate to achieve our overall balance sheet and growth from JetPay. And so that right now, it is floating a little bit, but ad Shawn, you know the target launch date do you want to add

Shawn Duffy: No, I think we should talk about that a little in the future call, right? But we are making progress.

Michael Crawford: Okay. I have two other quick questions. One, can you remind us of the time period covered for the case of verdict and then how much time and counting has accumulated where Cisco willfully continues to infringe on your.

Robert Blair: Mike, this is Rob Blair. So the first case went through sales made through 2019. So the damages were through 2019. So any damages that were after that time frame for their use of our intellectual property would be for any time on the products that were an issue in that case, both January 1, 2020 forward and would continue to this day any sales they made on those products. So we have an additional case that relates to their use of intellectual property on different products that is just getting started. So following the appeal, it is just getting restarted. So that case is at its onset.

Michael Crawford: Okay. And that period that ended through 2019, when did that period start?

Robert Blair: I don’t recall when the agreement started, I want to say about 2014 or 2015.

Mark Dankberg: We can’t draw a direct line though. So you can’t just say, well, that time period represents the same amount of – you can’t take the due time periods and just draw a linear line in terms of product deliveries.

Michael Crawford: Okay. Well, I certainly wouldn’t want to be in their position. And then final question, you talked about resolution of transient supply chain and certification bioscan is that happening do you expect that to happen or what can you further add regarding that?

Mark Dankberg: The supply chain issues are a little bit like whack-a-mole. They tend to surface fairly suddenly. The kind of the main way we have been dealing. Dealing with them is resorting to spot markets to fill in any gaps. And I think we have done reasonably well, but I think overall, our situation is not much different than others that depend on – especially for us, it is more often in – I was going to say more often in high-end semiconductors, but that is not really the case. We are going to have shortages of commodity components that just show up as well. In the cases where we can, we are basically paying the higher spot market prices and delivering that for our customers. And so that is the other failure mode that we will see is some higher COGS for some of the products we are shipping. I think it is hard to declare an end to it.

Michael Crawford: Okay. Thanks very much.

Operator: Ryan Koontz with Needleman Company. Your line is open.

Ryan Koontz: Thanks for the question. Just a quick follow-up on your IFC commentary there. And how should we think about your share opportunity moving forward beyond this fiscal year, it sounds like you are really executing well there and onboarding new customers and planes. And at what point do you think that the commercial business starts to saturate a bit in the U.S. and talk briefly about the international opportunity for you it would be great. Thank you.

Mark Dankberg: Okay. The IFC market it is very dynamic. I think that the airlines – go ahead, but the airlines are trying to respond to what they perceive is what their passengers want. And they are the different airlines are testing different things. And in some cases, but they are really looking – think of it as what the really first passenger satisfaction. They are 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, giving connectivity away. There is lots of different strategies. I think U.S. is a market that is pretty well connected on the ground and airline competition is pretty fierce. So I think that market is ahead of most I think there is going to be good growth in total number of planes connected to grow.

There is long-term growth in a number of claims. And I think we are going to compete well. I think what we have tended to do well is kind of try to help the airlines to come up with ways to use IFC that hit kind of with their overall market – go-to-market strategies and how — and we are also pretty flexible in the ways in which we will offer the in-flight connectivity. We don’t have a single mode there. And in our willingness to integrate with in-flight entertainment part. And that is a funny situation because by far the highest – the greatest use of bandwidth and in connectivity is for entertainment. So the airlines are resonating with that as well. But I think that there is – most of the analysts expect the market’s going to grow pretty substantially in the next seven years, and I think we will compete well based on the types of services that we can offer.

And I think the other thing that we have been that we have been pushing on a lot is that the airline have a measure of service availability, right, service reliability. Some of that would call service level agreement that is important. And I will give you — one example is one way to tell how the impact connectivity is working is you pick some planes fly 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 is speed to each passenger gas. And that is the one that we have really been focused on because I think, ultimately, with passengers really wanted – they want – whatever it is that they are doing to work well, they are less concerned about what the speed is to the airplane, they are more concerned about being able to do whatever their objective is kind of throughout the flight.

And that seems to be resonates, so far so good.

Ryan Koontz: Super interesting. And just a quick follow-up on the streaming technology you talked about. Is this like a CDN software stack you have licensed, you are going to productize as part of the offering or how should we think about that new development, if you can talk at all about it.

Mark Dankberg: Can’t too much. But the basic idea is — which is — I think is getting — there is some standards around this, which is really to push CDN out even further to the edge. Some of that more for the content can be delivered directly to end users. And the real trick there is doing that economically. And that is the part that goes beyond the standard saves is using the standards to accomplish that goal. And to the extent that, that is done well, it is a big, big multiplier to the usage that is available to subscribers that are streaming content users. That is but 80% of all the bandwidth that is delivered over consumer broadband network. So there is a big opportunity in there.

Ryan Koontz: Sounds really great. Look forward to gear Mark. Thanks for the insights, I appreciate it.

Operator: Chris Quailty with Quailty Analytics. Your line is open.

Christopher Quilty: Thanks. I just wanted to follow up to Southwest, is that still scheduled for Q3 rollout? And should we expect – I think when you guys initially launched on American, you went from like a dozen aircraft to over 100 a quarter the following quarter. Is that the sort of ramp we should be expecting?

Mark Dankberg: So Southwest right now, our agreement with them is for their new aircraft deliveries. So the pace is going to be metered by deliveries of those things go. So that will be steady. And I think it is up to 700-ish total that is covered by that agreement. So it is good for us. What we would like to do is offer them a service that is so attractive that they want to outfit their whole fleet. What they have said is right now, their plan is to work with a new boot to improve the service on their existing fleet. So our immediate target is to do a really good job on these new planes. But for other airlines, we do have a mix of retrofits and new plane deliveries. And I think in the next couple of quarters will see a big ramp because of the number of retrofits we have.

Christopher Quilty: Got you. As the ViaSat-3 coverage expands and you probably move from more narrowband to widebody, are there any product developments that are needed to make that transition or is it pretty seamless to go after the larger aircraft?

Mark Dankberg: So it is pretty seamless to go after the larger aircraft. We have outfit wide bodies already with KA and Ka/Ku, and we do now have some transatlantic widebodies in service as well. So I think we are well prepared for that.

Christopher Quilty: Great. Final question. This was just a little bit subjective and you have talked about the supply chain issues, and it sounds like sort of a whack-a-mole type issue. That said, I mean, you have heard of force you throw out a number, is the supply chain issue back to 80% of where it was pre-pandemic or 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? Does that keep paring them quarter after quarter now?

Kevin Harkernweider: Chris, this is Kevin Harkernweider. 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 got to get 100% of them in. So instead of having 10 short, two short, it is 80% better, but you still can’t deliver. But in general, as the market in terms of demand worldwide decline for integrated circuits, we are benefiting from it. So Q4 will be better than Q3. I can expect that trend to continue in the global macroeconomic sits. But to look at it from merely quantitative means like you are – it is hard because it depends on the product or some may be pervasive across tire product line.

Mark Dankberg: The other thing though – Keven, you can talk about this. But one of the things we have certainly seen is brokers or orders, they are a pretty significant contributor to these supply chain issues. And what they do is bad for the manufacturers and it is bad for us. So I think one of the things you will see happening near the end of this is that all of a sudden, there is not going to be any market for brokers and then a lot of parts shortages will get solved pretty quickly. And I think we are getting closer to that. But a lot of it is driving the brokers out of the market.

Christopher Quilty: I think you probably know that the orders are backed by the trial lawyers.

Operator: Louis DiPalma with William Blair. Your line is open.

Louie DiPalma: Mark, Rick, Shawn and Peter good afternoon. What is the time line for the U.K. CMA Phase II investigation? And what is the expected new timing for the close of the Inmarsat merger if the investigation goes in your favor?

Mark Dankberg: Yes. So the Phase II it has a basic period, which would be completed by March 30. It can be extended if need be, but it is intended to close by March 30. What we had said when we announced the transaction was 12 to 18-months, which would be in May. So that is kind of what our expectation was. So we are working to get it done within that time frame, that March 30 time frame.

Kevin Harkernweider: There is an opportunity Louie, that they could not go the entire Phase II period. So there is a couple of milestones in there. We are going to talk to them next week to give our kind of view of this thing getting started. Since there is some another milestone in December and a couple early in next year. So I think we will know more by January and February.

Louie DiPalma: Great. And previously, when you announced the Inmarsat merger, I think you were targeting a pro forma net leverage of on the deal close. And now you are divesting on L3 Harris and you just provided a new potential timing for the close. So I was wondering what the new co forma or pro forma net leverage should look like?

Shawn Duffy: Louie, it is Shawn. So I think what we told you guys is if you kind of have both deals together, we would expect the pro forma leverage to be about 70 basis points improved to what it was on just Inmarsat alone.

Louie DiPalma: Okay. SO 4.3 times, is that -.

Shawn Duffy: I think that is yes, we had originally set that back. So that is to get our month.

Louie DiPalma: Great. And for Mark, it seems that many of the big 4 U.S. airlines are moving forward with free WiFi 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 WiFi may look something to the effect of $1 to $2 per passenger as a cost to the airlines. Do you still think that range is appropriate? And how do you think about how 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?

Mark Dankberg: Okay. Okay. So just to review, I think one of the things that we have said in the past, is that the revenue – the total revenue opportunity was in the range of $1 to $2 per boarded passenger. And that is a little bit different than the price that we would charge the airline or a third party because different passengers different passengers may use the Internet in different ways under different terms. These are not representative any particular airline. But airlines may decide that certain classes of passengers like business class, premium economy might get the Internet for free or they might do it for certain classes of frequent flyers or as we have done in the past, we have had sponsorship deals with entertainment or streaming companies, and we are doing more of those things.

So I think that the kind of the revenue opportunity is in that ballpark, $1 to $2. And some of that revenue may end up being shared with BMS an example, or in some sense, netting against what their expenses might otherwise be. But I think that, that $1 to $2 of revenue per board in passenger, that is a good target. It is not where we are at yet, but it is a good target. Does that help on that?

Louie DiPalma: Yes, as that makes sense. Another question, do you view any other defense assets as nonstrategic or along those lines, are you satisfied with your liquidity following the divestiture of L3 Harris and the close of the Inmarsat deal or the more steps need to be taken to improve the leverage and liquidity?

Mark Dankberg: Well, so we don’t plan any other divestitures. I think the main thing we are doing to improve our leverage and liquidities we want to drive up our earnings by performing low in the markets that we are going after. I think that is the main thing. In terms of the kind of the synergies that we get in our business, the Link 16 business was and still is, it is a little bit complicated because it is a data link. And other participants in the data link market have synergies with other data links. So L3 Harris in particular, is very strong in some particular data lags by what is called common data link. So other participants in that ecosystem had synergies that we didn’t – obviously, we are still doing well there. We have been winning the words.

But long term, it was a investment stream that didn’t really leverage the rest of what we are doing. So we are 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 base business. So we are not planning any divestiture there. I don’t take any of this as specific guidance about what we will or won’t do. 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.

Louie DiPalma: Great. And then the following on the smartphone line of questions, you addressed this a little bit, but Inmarsat has 68 megahertz of global L-band spectrum rights, which is significantly more bandwidth than Iridium and global star 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. So I was wondering if you can elaborate like what do you mean by partnership with that L-band spectrum.

Mark Dankberg: Okay. So 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 have. We anticipated that there would be an opportunity in the direct to handset market, and we are 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 have done in ground-based beam forming for Sky Terra, we still work. We work close very closely with Ligado on the use of their existing satellite. And then you look at the technology that went into ViaSat-3, there is a lot of opportunity there as well. And some of those technologies that we did, they are applicable to non-geo as well.

And so combining some of our technology with the things that Inmarsat has been working on for Orchestra, those are really good opportunities for us. We do think that in the long run that, that market is – there is going to be a lot of price elasticity in that market, having lots of spectrum and the right technology is really the way to drive cost down and to address a bigger market. So I think that opportunity seems to be playing out as well better than we hoped with when we announced the transaction.

Louie DiPalma: Got you. And final one, is ViaSat-4 supposed to be a MEO has a medium earth orbit on the satellite you have you said what Orbit is supposed to be in?

Mark Dankberg: So ViaSat-4, just to recap, what we expect the ViaSat-4 is a seven terabit per second GEO satellite that would be Americas-focused and would be really give us a lot more really good economics, we are really good bandwidth we think super competitive in those markets for land-mobile arrow, residential business, all those markets. We do have a filing for a small MEO constellation, which we are working on as well. That is not going to be in the multi-res range. But I think we are going to get and we should have an opportunity to get good value out of that as well.

Louie DiPalma: Sound good. That is it for me. Thanks everyone.

Mark Dankberg: Okay. Thanks, Louie. I think that is our last question. Just give a quick summary. Satellite disruption is pretty close to done, but not work alone schedule with SpaceX for the first quarter. That delay and supply chain issues for us and for the airlines, is impacting our outlook a little bit, as we described in the letter in the near-term. Long-term things still seem real good. Our awards were really, really strong. We are very happy with that. I think the TDL transaction is progressing and that will greatly improve our balance sheet, reduce debt, group leverage and liquidity. And I think we have got a good approach to working the U.K. CMA approval for the Inmarsat transaction. So thanks a lot, everybody, for joining us, and we look forward to speaking again next quarter.

Operator: This concludes today’s call. Thank you for your participation. You may now disconnect.