Welcome to ViaSat's FY2017 Third Quarter Earnings Conference Call. Your host for today's conference call is Mark Dankberg, Chairman and CEO. You may proceed Mr. Dankberg.

Okay, thanks. Good afternoon and welcome to ViaSat's earnings conference call for our third quarter of our fiscal year 2017. I'm Mark Dankberg, Chairman and CEO. And I've got with me Rick Baldridge, our President and Chief Operating Officer; Shawn Duffy, our Chief Financial Officer; Keven Lippert, our General Counsel; and Bruce Dirks, our Treasurer. So before we start, Keven will provide a Safe Harbor disclosure.

Thanks, Mark. As you know, this discussion contains forward-looking statements. This is a reminder that certain factors could cause actual results to differ materially. Additional information concerning these factors is contained in our SEC filings, including our most recent reports on Form 10-K and Form 10-Q. Copies are available from the SEC or from our website. With that said, back to you Mark.

Okay. Thanks, Keven. As usual we'll be referring to slides that are available on the web. And we will start with some financial and business highlights and then Shawn will go into more depth on the financial results and I'll come back and give a little more color on our business and discuss our outlook, and then we'll take questions. I want to start with a little bit of a recap on revenues and EBITDA margin trends over the last 10 years. And we've got a chart at the top of this page that shows that including year-to-date for fiscal '17. We excluded the non-recurring portion of [indiscernible] by one settlement in fiscal year '15. So we've had steady revenue growth even as our business mix has evolved and after we first sold the bandwidth on ViaSat-1, we've become more services oriented and we've invested in vertical integration that puts us in close contact with our end-users over a bigger portion of our customer base. That gives us greater control over the quality and value of our offerings and more sensitivity to the continual changes that are inherent in rapidly evolving internet driven markets. Till this year, when we ramped up work on ViaSat-3 we've been steadily growing both EBITDA and EBITDA margins on a company-wide basis. So just to recap, we believe that anticipated bandwidth productivity of the ViaSat-3 Satellite is pretty transformational and to enable pretty substantial competitive advantage. To achieve that potential, we've developed a new and different tailored architectural framework that we think has a faster and steeper learning curve than the industry has been on. One of the artifacts of our choice to build those payloads is at the pre-type portions of the design and construction work is extent R&D instead of capitalized and that's…

Thanks, Mark. We're seeing excellent top line results in our Satellite Services and our Government Systems business segment. Slide 4 shows revenue and adjusted EBITDA by segments for the third quarter fiscal 2017 compared to the same period last year. Revenues were up $33 million or about 9% from the prior period with growth in service revenues slightly outpacing the growth in our product revenue base. In Satellite Services, revenues reached another record of $160 million due to a combination of higher ARPU in our residential subscription business and higher accounts and revenue in the commercial air business. These growth drivers along with the existing sales of our consumer service business allowed us to convert roughly 69% of our year-over-year top line revenue growth straight into adjusted EBITDA. In our residential business, our mix of premium subscribers increased by nearly 60% from the year ago period, which helped drive ARPU to a new record. In addition to showing higher customers satisfaction trends and corresponding low return on a sequential quarter-for-quarter basis. In commercial air, we have 109 more aircrafts in service compared to the same time last year; and just as we've seen increasing bandwidth usage in our consumer business, we're seeing similar trends in IFC as our partners broaden the way they utilize our high capacity satellite solutions for their airline customers such as JetBlue's recent addition of gate-to-gate internet service. In commercial networks, our revenues were flat with good opportunities to resume top line growth in the second half of next year reinforced by our recent commercial air wins and more than 750 future air terminal shifts now under contract. Looking to the bottom line, our segment adjusted EBITDA loss widened reflecting the higher expense to R&D primarily related to the ViaSat-3 program Mark just discussed as well…

Okay, thanks Shawn. So I'll go into some more detail on some of the points we talked about upfront. This slide has a set of charts that both illustrates how we've continued to drive revenue and EBITDA growth on our existing satellite fleet and the exciting growth opportunities enabled by the upcoming ViaSat-2 launch. We've said over the last several quarters that consumer satellite services growth has been driven by offering higher priced, higher value premium plans and by non-bandwidth consuming value-added services such as Wi-Fi, Voice over IP and easy care service offerings. The single-most popular option has been an upgrade to 25 megabit per second speed that we've introduced in selected geographic markets. Our bandwidth constraint still limit the availability of this option, you can see that growth there is accelerating. The chart on the lower left is when we've used the floor and it for context showed as of September 2014 and as used by the SEC Chairman of the competitive environment across the U.S. for different offered broadband speed tiers. Only about 7% of the market had no other option for a 10 megabit per second service. You can see that about 20% of the market had no other choice for a 25 megabit per second service, that's like triple the opportunity there. Speed continues to be the single-most desirable attribute of the broadband service. At 25 to 50 megabit per second speeds, 75% to 80% of the market was estimated to have either zero or one choice for an ISP compared with only 40% of the market with zero or one choice at 10 megabits. So clearly moving up market creates the opportunity for more favorable competitive dynamics. Our success in doing so is shown in the upper right chart. We've steadily increased the proportion…

Thank you. [Operator Instructions] Our first question comes from Rich Valera with Needham & Co.

Thank you. A question on the consumer business. You've had a very nice trajectory on the ARPU there last few quarters up about 2.5% quarter-over-quarter, each quarter; just wondering how you think about that ARPU longer term? Well, first sort of the next few quarters before ViaSet-2 gets into service; then how do you think it can trend once you get ViaSet-2 in the service and you can offer say 50 and 75 megabyte plans?

So -- I mean, basically we expect the current trends to continue driven by the same factors that have. There is going to be down to it -- I think we're not there yet. When we get to ViaSat-2, we do think there is going to be demand for the really high speed services and that will introduce a little bit more upside to it. One other factor I would say is that we've migrated our mix from retail to wholesale, so we have much greater proportion of retail than we used to. I think when we launched ViaSat-2 -- but we may end up with faster growing wholesale and that would -- wouldn't affect ARPU of the retail component but the wholesale retail mix may moderate overall ARPU.

Got it. And then similar question but on the in-flight business, you know, the first several 100 planes that you took on-board were through live TV and presumably they are getting a cut there and are at certain terms. Now you're going to start adding a lot of planes from America and others that are -- you know, you're the service provider, there is no sort of cut being taken presumably; so just wondering how that is likely to affect the average revenue per plane? You should be expect that to be trending up as you start adding planes that are -- where you're the primary service provider to the end customer.

I don't -- that's -- what I'm going through details of our contract -- that's not -- I don't think that's really going to be the driving factor. I think there's going to be a couple of balancing -- you know, couple of offsetting trends. One is that we think passengers really like the service of the airlines, are learning more and more what that value -- how to capitalize on the benefit that they bring to those passengers. So -- and besides that you've got the general trend on the Internet which is the same activities that you do this year, use more bandwidth than you did last year, just more video-embedded in things like social media and web pages and e-mail attachments; you know, everything is trending up for bandwidth. On the other hand, one of our main advantages is that our customers get tapped into our fleet which has improved productivity and let us reduce the bandwidth cost. So I think that there will be a trend probably towards more revenue. I think it will be mostly driven by greater bandwidth usage that overcomes kind the other factors. I think that's what the driver will be and I think that greater bandwidth usage will come from more penetration, little more bandwidth per user. And then also we think that more and more of the airlines are seeing the benefits of tapping into Internet-based media as opposed to purchased broadcast media or stores media and that's going to enable them to save money overall, they will probably increase bandwidth usage.

Got it, it makes sense. Thank you, Mark.

Thank you. Our next question comes from Ric Prentiss with Raymond James. Your question please?

Yes thanks, good afternoon, a couple of questions. First, congrats on getting the first half of the Eutelsat joint venture, obviously some questions then surrounding the second step where you both intend to move forward with it. Can you help us understand based on their webcast this morning bright and early that they were anticipating maybe contributing about half of the space and ground component and that there might be a total cost of that for the ViaSat-3 be about $650 million. How should we think about the timing and the size of kind of what their contribution might be? And I was asked this morning if there would be any non-cash component to it.

Okay. Yes, I think what you heard was them responding to specific questions. What I'd say is that overall, it's a little bit of a complicated agreement, there is a lot of dimensions to it and I'd say it's not -- doesn't really make sense to just single out that one capital complement to mention for discussion. I think overall, they talked about what their objectives are which was to get within their capital budget to be able to preserve their EBITDA margins within infrastructure base business, to get to a really attractive -- you know, the number they cite is $1 million or €1million per megabit. So all those things -- we can help them achieve all those things that they are going to -- it's going to be an overall comprehensive agreement and I'd prefer to wait until we have that agreement to go into details on what each component will be. But I think it's going to be a good agreement for us and it will be a good agreement for them.

Alright. And they this morning thought it could be -- if I quote year end, you're just saying later this year; should we think about roughly when you might be able to update us on that?

Yes, I think that the plan is by later this year -- this calendar year, that we should be able to complete that agreement.

Okay. And my second question is on slide 12, you talked about kind of the R&D levels pre ViaSat-2 and post ViaSat-2; on the post ViaSet-2 it says on the slide network R&D will stabilize relative to overall business -- how should we think about that in terms of dollars or percent of business because obviously, it's elevated now? We're just trying to think of scaling it, looking forward as the company moves beyond the ViaSet-2 days and even beyond ViaSat-3?

Ric, this is Shawn. I think one of the things that I kind of mentioned as we're talking through script is that we expect R&D to uptick a little bit over the next couple of quarters. And then as we go into next year, on the backend it should level out a bit. I think one of the things we're looking out is opportunities and timing of the APAC Satellite. So we'll update you if there is any drivers there but -- and we'll expect it to grow for next few quarters and then we even out, probably on the next on the back half for the year.

Ric this is Rick. It should come down after that. I mean we're doing two things; one, the pre-production hardware that's for ViaSat-3 and we'll have some more from additional non-recurring for the third APAC satellite like Shawn said. We're also spending quite a bit of money on the ground network as well. So what we're doing at ViaSat-2 is useful in ViaSat-3 and then a lot of what we're doing on ViaSat-3 will be useful in all the future satellite. So once we get through that phase, the percentage of R&D kind of the revenue align should come down.

That make sense. Thanks guys.

Thank you. Our next question is from Andrew [ph] with McQuarie. Your question please?

Thanks for taking my question. First, I was wondering if you could maybe comment on [indiscernible] for '17. Do you see any potential disruption to your aircraft? And then Shawn maybe you can talk about -- walk through the targets for [indiscernible]?

Okay, I got the first part and I think the first part was a question about targets and FY17 and we don't see a disruption to our existing in-flight business based on that. Second question, I didn't hear. Could you repeat that?

I'm sorry. I was asking about the guidance for fiscal '17; how is 4Q like -- given the last three quarters on EBITDA, specifically?

I think as Mark mentioned during the call that we think it's holding pretty steady to what we told you guys before for the year for '17.

Our fiscal '17 ends in March. I don't know if that was the year you were talking about?

For fiscal year specifically, just wanted to know based on the trends in the business and -- yes, uptick in R&D; do you think you're comfortable meeting your year-end kind of --

We're not giving specific guidance.

Okay, thank you.

Thank you. Our next question comes from [indiscernible]. Your question please?

Thank you. I had a couple of questions, please. And the first one I wanted to play Devil's Advocate for a bit, and so bear with me. And given your evident incredibly high conviction around the relative competitiveness of the ViaSat-3, it seems that you just had -- you talk sort of walking away with more from the JV than you are; and that kind of thinking behind that is that once they've entered into the JV they're going to have control over EMS satellite from the ViaSat-3 constellation for roughly half the CapEx cost of that satellite but they will have control of about how or where it gets sold. Now I appreciate you control the retail care but at the infrastructure care level, you don't -- they can kind of do what they want; and in fact they can even go so far as to sell to your competitors; should they want to do so. So I know you've laid out previously why you chose this path as a bridgehead into other markets and why Europe is attractive. But again, why did you not back yourself just to go alone I suppose; and so just revisiting that thinking. And then although the U.S. -- I leave my second question.

Well, just on your first question, so it's a good question. I think that your question sort of highlights why we think it's really important to consider the ViaSat-3 portion of the joint venture once we've reached an agreement on all the terms. We have a preliminary agreement with them but it's different than what you've described but I think rather than go through all the differences I would -- I think it's best to wait until we have a definitive agreement and then we'll both talk about it then. I think if your question would be a fair question, if it were the way you're described.

Okay, we put a bit more detail.

Yes.

Okay, fair enough. Second question was around HTS Leo [ph], and the risk from HTS Loe should have happened has been discussed more robustly off-late. And I don't think you've ever really addressed in this form. So it would interesting to hear your comments on the technical feasibility of HTS Leo. And then assuming all the various how do get cleared and some of these constellations do come to pass, it would be interesting to hear your perspective on naturally how much latency really does matter as a buying decision in your chosen application areas of residential broadband and mobility?

Okay. Look I talked about this somewhat in the past, I'll give the highlights. One is there are a lot of challenges with the building the Leo systems, there are lot of different Leo systems that are proposed, probably the one that is closest to reality is OneWeb. And I think OneWeb faces a bunch of challenges but they're not insurmountable. I don't think I would bet against -- it's not that we would say it's not going to work or we bet against it. I think what we're doing is a better investment, that's our view. We've had a lot of involvements with every -- kind of every flavor of non-geosynchronous satellite system and I think we have a good understanding of them. I think and basically just to put things in perspective, in 2020 we're looking at probably well over a 1000 terabits per second of access bandwidth demand globally. And both we and OneWeb would have single-digit amounts of terabit, so I don't think it's a fight to the death between us as an example. I do think that we have some very fundamental differences in our go-to-market approaches; number one is, our own experience in selling consumer broadband is that latency is not -- that it's not even one of the top two dominant sort of performance attributes for consumers, the top two are clearly speed and volume of bandwidth and it's really driven by video. So one of -- for us the thing that we've been very focused on is driving down the cost of bandwidth so that we can offer high-speeds and especially essentially uncapped plans; as I described before that's a big factor in customer satisfaction. But the other really big differentiator between what we're doing in lower systems, especially to the geographic…

Thank you very much.

Thank you. Our next question comes from Lui [ph] with William Blair. Your questions please?

Thanks. Mark, Rick and Shawn thanks for taking my question. Since you have made progress on a commercial ViaSat-3 capacity agreement with Eutelsat, I was wondering if you could address the ViaSat-3 Department of Defense opportunity? And based on preliminary test how does ViaSat-3 compare to the U.S. government's legacy wideband, extremely high frequency and the OOS systems? And what can those systems do that ViaSat-3 can't do and what can ViaSat-3 do that those systems can't do?

That's a good question. So one is we're very optimistic about our prospects with the U.S. DoD. So far all of our business with DoD has been conducted through individual service agreements. So generally we've made agreements with specific organizations who have purchased broadband terminals from us and then gone on to purchase individual service contracts for those platforms that are tailored to their operational requirements. And I'd say in the big picture that's probably the way things will continue. We do -- what's interesting in DoD is that all of it depends organic capabilities are procured against very specific operational requirements. So if you look at them, you've mentioned kind of the advanced VHF -- the advanced VHF is very specific nuclear strategic functional capabilities which ViaSat-3 wouldn't necessarily address. Now it also has applications for lower-end tactical uses that we feel we would address, probably more effectively. And so those -- so while we wouldn't displace any VHF constellation, we may be able to absorb some applications that are more tactical either way from its primary mission; and that -- and so we've had ongoing discussions with users about that. If you look at the other organic systems like WGS and Milos [ph], they are really designed for very different things. WGS is already well oversubscribed and again, the DoD has not yet really identified ongoing requirements beyond WGS that they've funded other than through their ongoing purchases of commercial bandwidth. And what we've been able to convey to our customers is that, ViaSat-3 compared to the other commercial options and actually even compared to WGS has all these featured much higher speeds, more bandwidth per platform or simultaneous platforms in the air, probably greater resilience against accidental or intentional attacks and actually in much lower ongoing cost. The Milos [ph] segment was originally really intended for ground users but it also has chip-board applications. There our services are -- you know, those are measured in kilobits, ours are measured in megabits, so for applications that are things like imagery intelligence data management, all of our customers are -- even in the case where they do have Milos [ph] capability are augmenting it with ours. So overall, we've had really good reception and we don't really see on the horizon either written requirements or alternatives for the features that they've been buying from us.

Great, thanks.

Thank you. Our next question comes from Mike Crawford with B.Riley & Company. Your question please?

Sure, thank you. Just to continue on the slower discussion, so you and 10 or 11 others provided proposed constellations that would share spectrum that OneWeb is requesting. How many of these constellations do you think the FCC would give spectrum to and make it bill?

You know we can't speak for the FCC. We've had only preliminary feedback on our filings, it's a little bit complicated because of the change in administration and change in management at the FCC. Overall, I think the main pieces I'd say we've gotten are one is that our filing was thoughtful and in that there was a range of thoughtfulness I'd say and completeness in the filings and I just put it at the higher end of that. And then the other one is, what are they going to do with that. And right now the feedback is, the FCC doesn't necessarily see themselves in a position of picking winners and losers. And so they're going to -- they're trying to wrestle with what is the best way to deal with that. I think one way to sort of understand what might happen would be to go back and look at what happened in the past in the 90's when there were these multiple Leo constellations for L-band and S-band and how the FCC dealt with that which is real kind of dividing up the spectrum and allowing the market to sort through what the implications were. You might see something similar this time.

Okay, thank you. And one -- I thought unique aspect of your proposed constellation was this feature where you would have antennas pointing not only down to earth on your proposed constellation but also pointing up towards ViaSat-3 to use your global ViaSat-3 network as a form of backhaul and a means of getting data from the satellites back down to the ground and to users. And to what extent might you be able to do that for others low earth orbit or for Mio [ph] constellations including the DoD?

Yes, that's a really interesting capability. Basically what you need to be able to do -- to do that is you need on the [indiscernible] Earth orbit whether it's Leo or Mio [ph] constellation as you need to have antennas that look up, where you need to have some way to look up as well as down. I think right now most of the Leo communications constellations that you're seeing -- I think that latency is the primary value proposition for their system and so they are not really that interested in looking up. On the other hand there is a whole bunch of lower Earth orbit, Earth sensing and observation satellites I see that is really, really interesting opportunity. So we've been working with them and we see that -- that could be a really good feature. You know for us, we're kind of little more focused on speed and volume of bandwidth, we think it makes sense even for communication satellites but you know for systems that are going to have more expensive bandwidth, they are probably going to be more focused on the latency.

Okay, thank you very much.

Thanks, Mike. I guess one more question we will take.

Our next question comes from Andrew [ph] of Wells Fargo. Your question please?

Thank you. It's a pretty simple question; could you walk through the comments you made about fiscal '18 EBITDA impacts? If I'm correct, the settlement goes away in '17, you made the comment that the R&D expenses go off for the next couple of quarter; so I would think that it would be over $25 million a quarter, maybe something like $100 million or $105 million in fiscal '18? And then the comment about transition expenses with ViaSat-2; is that just simply increased SAC because of stronger gross adds or is there something else in there?

Okay. I think the build around -- that is about $7 million a quarter, yes, $6.5 million a quarter. So that will go away. The R&D, Shawn do you want -- little bit higher than this year --

A little bit higher than the number Andrew gave.

Okay. And then on the ViaSat-2, basically the two main effects will be that once the [indiscernible] goes into service, we'll have little bit higher fixed costs on the ground network and we have that same effect when we launched ViaSat-1; they will be moderated this time. So a little bit higher fixed cost and then the other is the SAC expenses.

You have to spin the fiber up and do other things to be able to support satellite, Andrew.

Understood. I appreciate it. Thank you very much.

Thank you. I show no further questions at this time. I would like to turn the call over to Mr. Dankberg for closing remarks.

Okay, well, thanks everybody for tuning in. That concludes our presentation for this quarter and we look forward to talking to you again next quarter right after our ViaSat-2 launch. It would be fun. Thanks.

Thank you, ladies and gentlemen. This does conclude today's conference. You may now disconnect. Have a great day.