Welcome to ViaSat's Fiscal Year 2016 First Quarter Earnings Conference Call. Your host for today's call is Mark Dankberg, Chairman and CEO. You may proceed Mr. Dankberg.

Okay. Thanks. So this is Mark Dankberg, and I've got with me today Rick Baldridge, our President and Chief Operating Officer; Shawn Duffy, our Chief Financial Officer; Keven Lippert, our General Counsel. And before we start Keven will give 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, our Form 10-K and Form 10-Q. Copies are available from the SEC or from our website. With that said back to you, Mark.

Okay thanks. So as usual we'll be referring to slides that are available over the web. And I'll start with some highlights and a top-level overview. And after that Shawn will go into more detail on the consolidated and segment level financial results. Then I'll come back for some additional color. And finally I'll summarize our outlook. And we'll take questions. So before we get into the details I did want to make one point for context. And as our ViaSat-1 satellite is filling up, one of the questions we get from investors is, what happens between now and when ViaSat-2 goes into service? And is our growth going to flatten? And we think our growth outlook for this fiscal year 2016 and next year fiscal year 2017 is really good. And we've got an opportunity to continue to grow our adjusted EBITDA at about our 20% historical average through that integral, using the bandwidth resources that we have now. And so one of our objectives for the call is to give more insight into our thinking about how we do that. The main drivers are to manage our bandwidth wisely and grow our average revenue per user by earning premium prices with a good quality service. And growing our commercial and government aero broadband businesses on those same principles that we think are gaining momentum from the cumulative effects of investments we've made over the last few years. And we think that all these factors are also the best way to grow value in the long run. And that's especially true when ViaSat-2 goes up and into service. So with that overall first quarter results were good. Company wide revenues were up 8% from last year – same period last year. And adjusted EBITDA was up almost 30%. Satellite…

Thanks, Mark. Slide 5 shows revenue and adjusted EBITDA performance for the first quarter of fiscal year 2016 compared to the same period a year earlier. Strong revenue increases in our Satellite Services and Government Systems segments more than offset declines in Commercial Networks, resulting in overall revenue growth of 8%. A key point worth noting this quarter surrounds our revenue mix. Q1 FY 2016 was a tipping point for us with our service revenues reaching $176 million, outpacing our product revenues at $168 million. This shift has been long in the making. And as we look out to this year and next, we expect to see this be the leading driver of our adjusted EBITDA performance. Our Satellite Service top lines were driven by higher average subscribers year over year, coupled with higher ARPUs. Plus additional growth in our commercial airfare – air Wi-Fi service revenues, which is becoming a more meaningful contributor to our Satellite Services segment overall results. Our Government Systems segment revenues also continue to grow, up year over year by over 24%, with lifted sales in our satellite communications systems and tactical data link product lines. Our acquisition of NetNearU in the late first quarter of fiscal 2015 also made year-over-year contributions, with a full quarter of revenues included in this period, as well as organic growth in our Wi-Fi hotspot footprint and related recurring revenue base. In Commercial Networks, we continue to wind down activities on the NBN Co program. Plus, our Q1 overall R&D was up nearly $6 million. We've talked about, in prior quarters, reinvesting a portion of our overall FY 2016 top line growth in R&D this year, expanding technologies in mobile broadband solutions, next-generation consumer broadband, and next-generation satellite payload technologies, all key areas fueling our current and our long-term…

Okay. Thanks, Shawn. And so the point of this next slide is to touch on sort of what we mean by providing a high quality service and how that relates to our addressable market. So what we're showing here are customer satisfaction survey data from a leading consumer research magazine with the major fiber, telco, cable, and satellite broadband Internet service providers for the last six years. So their data for 2014, last year, was just recently published. And each of the ISPs is rated for categories of value, reliability, speed, their phone support ,and in home support of traffic flow (15:17). And then the survey data in each category is combined into an overall customer survey rating value. Then to help simplify the results we took the averages of that customer survey rating value for the leading cable and DSL Internet providers and put each of those into a single line. Then we used FIOS to represent fiber-to-the-home and U-Verse for fiber-to-the-node. So obviously different people would weigh the different category rankings differently, just like different people would weigh safety or reliability or fuel efficiency and other factors in buying a car differently. The broadband space is even more complicated, because most people can only chose from a very limited number of ISPs in their local area. But when you look at the chart, obviously the most striking thing about it is that we have increased our satisfaction rating over this time in what looks like a really challenging macro environment for ISPs of all types. The improvement in our rating directly corresponds to the introduction of ViaSat-1. And our overall rating is now middle of the pack for the average of DSL and cable. And if you look at the individual data you'd actually find eight DSL or…

Thank you. Our first question comes from the line of Tim Quillin of Stephens Inc. Your line is open.

Hi, good afternoon.

Hey, Tim.

Could you give us an update on the launch window for ViaSat-1? And do you see any impact from the accident that SpaceX had? And are you considering any alternative launch partners?

Okay. Yeah. So the – I think the main information came from SpaceX themselves, and they put out a release describing their understanding of the accident, the failure they had on the – their last Falcon 9 launch. And what they then – the fix was. And basically does reinforce our sort of confidence in SpaceX. And the main points where they had thousands of point of telemetry data. I think they had very good insight into what the failure mode was. They had a lot of – in their release, they talked about less than 1 second from the time that they started having a problem to when they stopped getting telemetry. Good understanding of it. They believe – what they said is, they expect to be back in service with Falcon 9 this fall. And to be caught up in Falcon 9 launches by the end of this year. So our launch is pretty much scheduled for last quarter of next year. That's when we'd expect it. There are a couple more things that have to occur along the way. That'll give us much more insight into that. And those are really things that are more specific to the [Falcon] Heavy than to the Falcon 9 incident that they just had. So they've got a newer, higher thrust version of the Falcon 9 engine that'll be going up this year, and their first Heavy launch early next year. I think what – so I think what we believe is, that they have a good shot at fitting in that launch window. We're – definitely we're monitoring the situation. We're considering alternatives. I don't really want to go into what they are. But we are considering alternatives. But right now, we still think that's – that SpaceX is by far the most likely way that we'll go up.

Okay. That's a great recap. And then, Mark, could you give us also a little update on the development of ViaSat-3? What are the milestones we should be looking for? And considering how you're thinking about the effective bandwidth increase that you might pick up with ViaSat-3, is there any thought to launching multiple satellites simultaneously? Thank you.

Okay. So you can tell, from the discussion we had, we're really focused on the bandwidth economics, where we've been doing a lot of work on the payload design and the system design for ViaSat-3. And I think we said last quarter that this year, we would give – by the end of this year, we'd give some more guidance on what – when we think we can do a ViaSat-3. Whether we would do another ViaSat-2 variant as our next satellite for the American market. And I think that we'll kind of hold to that schedule. We're – I'd say we're optimistic about ViaSat-3, but we're not quite done yet. And then the – on the second part of your question about launching multiple satellites at once, the – all the work that we're doing says that we get the greatest efficiency by maximizing the fraction of the launch that goes to payload, and the fraction of the spacecraft that goes to payload. So right now our – we can see is the best way to do that – and the best way looks really, really attractive – best way to do that is with big satellites like we've been doing with – ViaSat-1 was pretty big, ViaSat-2 is a little bigger, ViaSat-3 will be a little bigger still. But the improvement in capacity is far greater than the growth in the payload mass. So we're getting a lot of efficiency in the payload electronics, and that's going to be our approach for the near term.

Tim, were you taking about that? Or were you talking about covering different geography?

Yeah, Rick. I was talking about – yeah. Thank you. I was talking about different – launching multiple satellites to cover the entire world.

Okay. Yeah. So we are still very interested in global expansion. And we are working on I'd say plans for each region of the world that would get there. But probably another quarter or so before we'd have more guidance on that, more insight into that.

Okay. Thank you very much.

Thanks.

Our next question comes from the line of Rich Valera of Needham & Company. Your line is open. Richard F. Valera - Needham & Co. LLC: Thanks. Good afternoon guys. Mark, just wanted to clarify when you thought the launch window could be for ViaSat-2? Did you say the calendar fourth quarter of 2016? And if so then what would the sort of in-service target date be if in fact they could make that window?

Calendar fourth quarter of 2016 is right. That's what we think now. And the in-service date will depend a little bit on the orbit raising time and the test time for the satellite. So typically it'd be somewhere – I mean for that way we're – this satellite is constructed probably 4 months to 6 months after launch in that range. Richard F. Valera - Needham & Co. LLC: Okay. Got it. Perfect. And then your churn seemed to drop pretty significantly quarter over quarter, at least from what I could infer from the numbers. I think below your kind of nominally targeted sort of 2.5%-ish. And I'm wondering if there was anything unusually favorable in the quarter? And how we should think about churn as we look forward?

Yeah. We're making progress in – there's two elements obviously, involuntary and voluntary churn. So over the last year we've been obviously working on both of them. But we've seen good improvement in the involuntary churn in the recent months. So that's where most of it's coming from recently. So I think we continue to try to work on this. One of the best way in our view to help the churn element, other than getting people that can't pay on involuntary side, is continue to improve our service quality. And so that's why we're really hyper focused on offering plans that are better – better and better plans. Richard F. Valera - Needham & Co. LLC: So I – maybe just try again. I mean do you think that this churn is sustainable? Do you think you have sort of given what you've learned maybe a somewhat structurally lower churn than you've had over the past couple years?

Well there's – it's a balancing act. There's countervailing forces. One is I think we're definitely getting better at customer selection and qualification. So that part I think we'll – you'll see steady improvement. On the voluntary churn I think we're also getting better at the way we manage the service. But one of the things you can see from that customer satisfaction chart we put up there is that people's expectations are constantly increasing. And so we're – that's the counterbalancing point. It's a little bit challenging to deal with that. As you can see from all the ISPs everybody got a problem with that. For us because we're trying to compete, all of our customers have a choice, which is little different than a lot of the ISPs in there that are monopoly providers in their markets for – at least for the speeds that they provide. So that's the balancing act for us. And I think we're getting better at it, but it's going to be a little bit of challenge. Richard F. Valera - Needham & Co. LLC: That's great. And I think last quarter you talked about after – I didn't think you expected many net subs this quarter, which was pretty consistent with your expectations. But I think you talked about maybe having 10k to 15k sort of net adds per quarter in the back half of the year. Is that still in line with your thinking?

It could be. We'll have to see. The – it's not as cut and dried for us, partly because we have this different mix of plans. And the other thing is we're expecting in the next couple quarters pretty significant growth in aero traffic, especially with this streaming. So we're just constantly assessing how many people we should add to beams. And I think we mentioned during this call that probably the single biggest factor affecting the rate at which we add subscribers is the way we decide which beams we can add subscribers to. Richard F. Valera - Needham & Co. LLC: Sure.

And that's where uncertainty really is. I think that – the good thing is, it's if we don't add them on the consumer side, a big part of the reason will be because we've got demand on aero side, which is just as good for us if not better. So I think – yeah. Richard F. Valera - Needham & Co. LLC: Actually from a monetization standpoint you think you – a meg of bandwidth on the aero side, it sounds like you're saying is actually maybe a little better from you economically than the equivalent meg on the fixed consumer side?

Yes, it is. And part of it has to do with this over wrap that I described. The fact that they're out of phase from a peak daily hour perspective. So they're not 100% out of phase. But you think about it, when we bring consumers on, all of their peak load aligns with the consumers that are on there. Whereas with the aircraft only a portion of their peak load aligns with the consumers. So to the extent that there's demand on the aero side, whether it's commercial or government, what it tends to do is it gives us better overall bandwidth utilization. Now so that's an economic factor. But we want to serve demand, we want to work through our consumer distributors. So we're consistently working on understanding sort of the mix of plans. We're constantly making sort of improvements to our network to optimize performance. And those are the factors that go into it. I just think from – I think it's fair to say that when we think about it, each month and each day, what we're thinking about is economic performance, not just subscriber adds. And that's the main point that I'd make. And it's little bit unpredictable. Richard F. Valera - Needham & Co. LLC: Right. That's great color, Mark, appreciate it. Thank you.

Our next question comes from the line of Mike Crawford of B. Riley & Co. Your line is open. Mike Crawford - B. Riley & Co. LLC: Thank you. Just to go a little bit further into this theme of more aero traffic in the next couple of quarters. Last month SpaceNews quoted Gogo's CFO as talking about 2Ku saving some – doesn't sound right – amount of savings per plane, $1.8 million, which implies like $150,000 a month per plane of bandwidth savings. With the 380 planes you have in service I mean can you give us a rough idea of what the revenue per plane is now? And maybe where that might go if people are consuming more bandwidth on this flights?

Don't really break that out. The thing I'd bring up again though is we pointed this out a few quarters ago. At the time, I think it was about this time last year, we said that an airplane is kind of like 100 – each airplane is kind of like 100 consumer subscriptions. And that it's a little bit rough, because the airplane has some benefits in there's really no subscriber acquisition costs, we're not investing in subscribers, churn, there's no churn. But what we'd expect to see is if the bandwidth consumption goes up that that ratio will improve quite a bit. I mean it could improve a pretty substantial amount. And that's what we're waiting to see. And we'll want to see that that works out well, not just for us but for JetBlue and Amazon and the other, Virgin, if they go with streaming as well that we work out a good economic deal all around. But I think that – I think there's definitely the potential to see that number rise pretty substantially of equivalent subscribers. Mike Crawford - B. Riley & Co. LLC: Okay. Thank you, Mike (sic) [Mark] (41:08). And then on that SAC, it would seem more efficient, easy to install terminals would help to lower that cost now. I believe you might be working on something like that? Is that something that would come out on a ViaSat-1 network? Or would that be something that would come with ViaSat-2?

We are – so we are working on that. And we think there's a number of benefits in the ecosystem for doing it. But it's probably more timed towards ViaSat-2 than ViaSat-1. Mike Crawford - B. Riley & Co. LLC: Okay. Thank you.

Thanks, Mike.

And we have a follow-up question from the line of Rich Valera. Your line is open. Richard F. Valera - Needham & Co. LLC: Yeah. Thank you. Obviously a nice strong start to the year in the Government business. I'm wondering if anything has changed there in terms of your outlook for growth in that business? I think you had previously talked about maybe for the full year seeing roughly double-digit growth in that segment. Overall is that still a pretty good number we think for that business?

Yeah. I think if you look outward, we are still on track to where we thought we'd be last quarter. And it's in that range. We have a lot of backlog to work on and a lot of growth opportunities on the service side. Richard F. Valera - Needham & Co. LLC: That's very interesting.

I think we said it was better than double digit. It was closer to 20% year-over-year growth this year, Rich.

High double digit. Richard F. Valera - Needham & Co. LLC: For the whole year?

Yeah. Richard F. Valera - Needham & Co. LLC: Oh. Okay. Yeah. I mean so...

From the revenue – on the revenue side, not as much on the earning side. Richard F. Valera - Needham & Co. LLC: Right, right. Yeah. I guess it's – I feel like the comp was sort of relatively easy in the first quarter when you posted that sort of 20% plus. But I – the comps get a little tougher. I wasn't sure if you...

Yeah. I think our book to bill last year was over 1.2 to 1 and we expressed that (43:22) would come through, so... Richard F. Valera - Needham & Co. LLC: Right. Right. Right. Okay. Thank you for that color.

Yeah.

And our next question comes from the line of Chris Quilty of Raymond James. Your line is open. Chris D. Quilty - Raymond James & Associates, Inc.: Thank you. Mark, can you comment on the customer ARPU, if you look at it on a year-over-year basis? What has been the biggest contributor to the ARPU lift? Is it the addition of services or migrations in plans? And on that last point, have you seen any particular change in the spilt between the three level plans?

Okay. Yeah. Yeah. I mean so, one thing that contributes some to it is our VoIP service plan. So that's an ancillary service. It's really the main one that we offer, and that has a little bit of a lift. But the biggest factor is the thing that you described, which is the split among the service plans that we offer. That, when we've offered these, especially higher volume service plans, like our unlimited Freedom plan, and we have these plans called Liberty plans in sort of the midfield beams, those are higher priced plans. But people like them a lot more. And that really accounts for a large fraction of the lift in ARPU. And then the other ingredient is that – the split between retail and wholesale has become – has moved a little more towards retail over the last year. So that also contributes to a higher ARPU. Chris D. Quilty - Raymond James & Associates, Inc.: Got you. And just on the Government business, with a forecast of close to 20% growth, would a continuing resolution, which is probably likely, have any impact on that growth forecast?

No. We've been looking at sort of the budget – the – kind of the budget battle wars, and looking at them in the context of our program outlook. And we think we're in a fairly robust position relative to that. Chris D. Quilty - Raymond James & Associates, Inc.: Got you. Shawn, can you give us a sense of the estimated CapEx, either for ViaSat-2 or just on a whole, for the year?

Yeah. Sure. So I think, from ViaSat-2's perspective, if you just kind of look at the primary cost of the satellite and the launch and the insurance. We're about 62% paid to date. So if you kind of look out to the rest of the year, we probably will make another $100 million in payments around that, just based on when certain milestones hit. Chris D. Quilty - Raymond James & Associates, Inc.: And just the – sorry. The baseline CapEx, non-satellite related?

I think that we have some network expansion in some areas that we may be investing in towards the end of the year. If you look at probably 2015 and kind of compare that to what we'd see for the full year of 2016 kind of all-in, with all activities, you may see a lift of somewhere around 10%, 15%, just based on when those milestones hit. Chris D. Quilty - Raymond James & Associates, Inc.: Okay. And final question, the – just on the WildBlue satellite. Where are you at in terms of subscribers? Have you been continuing to shed subscribers to provide capacity for the aviation business? Or is that necessary, as you start bringing on higher bandwidth streaming plans?

We've been, I'd say, optimizing our network to get the best use out of it. And so that does involve moving some of the subscribers around a little bit. But we're – the fraction of our subscribers that are on the old – or the consumer subscribers that are on the old satellites, has been going slowly down. And so I think we're in the 80,000-something range on the – on between WildBlue-1 and Anik F2 on the old satellites, in that range.

We are using those satellites quite a bit for the aero mobile, for the mobile as well.

Yeah. Yeah. Chris D. Quilty - Raymond James & Associates, Inc.: Got you. Actually one more question on the – you had mentioned with the JetBlue that the – as the streaming plans come on and bandwidth usage goes up, revenue goes up. So does that imply that the contract is structured on capacity usage, rather than per passenger usage?

No. What we've done is, we have a pretty – I think we have a contract with JetBlue that's really denominated in passenger usage. But we're – there are adjustments for it when you add streaming to that mix. Chris D. Quilty - Raymond James & Associates, Inc.: Right.

So at the beginning, didn't really – we didn't anticipate much streaming. What I think JetBlue has found is that, across a whole plane, adding streaming sort of definitely adds a lot to customer satisfaction, and at a price that's pretty attractive, from their perspective. And it's good for us. So I'm not going to go into the exact details, but it's basically – it's the phrase that they used when we started was – and this was sort of their thought – was, if we can give really good broadband for the cost of a bag of peanuts and a Coke, that's a great investment for us. So maybe it's like, now you're getting a second glass of Coke or another bag of peanuts or something like that. But it's basically – that's the way to think about it. They get a little bit more, but they get a lot more value out of it. Chris D. Quilty - Raymond James & Associates, Inc.: Great.

And so we benefit, both by a little bit more bandwidth and the more penetration in the airplane, both of those. Chris D. Quilty - Raymond James & Associates, Inc.: Perfect. Thank you very much.

Sure. Okay. So one more question?

Our next question comes from the line of Andrew Spinola of Wells Fargo. Your line is open

Thank you. Shawn, was – is the first quarter – the first fiscal quarter of the year in defense a seasonally weak quarter in terms of margin or mix? And just in general in the long term for Government can we expect a tailwind in your margin, as it sounds like services are going to become a bigger part of that revenue line?

Yeah. I think traditionally this quarter has been – looking over the spectrum of the core can be a little bit softer quarter. And we see certain opportunities with Government sweep-ups (50:03) at the September 30 timeframe that tends to build on the last half, as well as the service base growing.

Got it. And then, Mark, on your – on the – on slide number 9 where you show the customer satisfaction rankings, I try to do some work on this and try to understand how you compare against your peers. And you show this as you being sort of more favorable than cable. But does that suggest that you've reached a point with satellite broadband where you've solved a lot of the connectivity issues and consistency issues that seem to have plagued the service in the past. And it can legitimately compete against some of the wire line services. I mean is that essentially what you're saying with the slide and what you believe?

Yeah. So we tried to be pretty careful about it. I mean that is a composite ranking, which includes speed, reliability, customer support. Kind of the way I'd put it is for people who don't – right now for people who don't use a lot of bandwidth and aren't gamers, our service is pretty comparable and pretty equivalent for that if they're using bandwidth within the amount that we serve. That's part of the point is that people when they don't know the details of how satellite works or DSL works or cable works, and they just give a rating of it, hey, it turns out in the overall scheme of things that our rating is pretty comparable. And so we think we are a pretty good substitute. Now the issue that we've talked about that we think is really the one that most limits our growth in the market is the bandwidth caps. That if people know of the existence of bandwidth caps and it inhibits their usage or they're reluctant to use it as much or they hit the bandwidth caps, then our scores go down markedly. So that's the main thing that we're focused on. And the other thing that people like is speed. And the other picture we had on that same chart were those FCC – just the sort of the cover page from the FCC's Measuring Broadband America test. And there the cable companies did fine in terms of delivering their advertised speeds. But in general the DSL companies did not. They delivered lower than their advertised speed. And usually their advertised speed is slower than ours. So that there is really an opportunity for us to be very competitive and preferable to a terrestrial service. And there's still 25 million-ish DSL customers out there. So basically what we're saying is we think that when we deliver the service well – and you can see that not every satellite service can be delivered well, right – that we do ours well, that we think we're growing our addressable market. And especially when we go to ViaSat-2, and we can lift those volume limits substantially or take them out of play and increase the speeds. We should do really well. We should get a lift in customer satisfaction. And for bunch of customers be preferable to some of those terrestrial alternatives. That's the plan.

And part of the reason I ask that question is sort of a lead-in to this next question. But you started to offer streaming video on the planes. And there are these introductions in new over-the-top services like Sling TV. And I'm wondering just when you think about ViaSat-2, do you see yourself more becoming sort of like a triple play provider with voice, broadband, and video? Or do you think your demand and end market is going to skew more towards staying at just broadband and voice type package?

That's a good question. I think that clearly, especially this week, this whole notion of cord cutting is pretty topical. I think for us what we would like to be – and this is what we're aiming for with ViaSat-2 – is to be a really good broadband plan for which subscribers can add their own choice of over-the-top services, and that we perform really well there. And I think that's becoming a bigger and bigger opportunity. So that's more the way we do it is not so much that we'd be a branded video provider of our own. But that we'd be a good choice for people that are interested in cord cutting.

Makes sense. Thank you very much.

Okay. Thank you. Okay.

And then we have no further....

Yeah. I think that's it for our time for today. Thanks a lot everybody for listening in. And we'll look forward to talking to you again next quarter.