Viasat, Inc. (VSAT) Q2 2027 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viasat Second Quarter 2027 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] I would now like to turn the call over to Lisa Curran, Chief Enterprise and Strategy Officer. Lisa, please go ahead.

Thank you, Tiffany. We will present certain non-GAAP financial measures on today's call. Information required by the SEC relating to these non-GAAP financial measures is available in our Q2 fiscal year '27 Shareholder Letter on the Investor Relations section of our website. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. We will also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, and actual results might differ materially from any forward-looking statements that we make today. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings and annual report on Form 10-K. These forward-looking statements speak only as of the date they are made, and we do not assume any obligation to update any forward-looking statements. With that, I'll turn it over to Mark Dankberg, Chairman and CEO.

Good afternoon, and thanks for joining us today. I'm Mark Dankberg, CEO and Chairman of Viasat. With me are Lisa Curran, our Chief Enterprise and Strategy Officer; and Gary Chase, our Chief Financial Officer. As always, we encourage you to review our shareholder letter and presentation materials for more detail. I'll focus mostly on 3 areas today: progress on our strategic priorities, the successful deployment and early impact of our ViaSat-3 satellites and how they play into our business and government and commercial applications and the momentum in our Government and Technology businesses and the Defense and Advanced Technologies segment, in particular, and how that fits with our portfolio. Last quarter, we discussed how growing demand for resilient communications, secure networking, cybersecurity, mission systems and space enabled infrastructure was creating attractive long-term opportunities. We also discussed how global geopolitical uncertainty is blurring the boundaries of government and commercial space capabilities and can advantage vertically integrated players that span both. Recent global events underscore the need for satellite users to have multiple trusted options for accessing space with robustness to a range of threats, countermeasures or just arbitrary operating changes. With that backdrop, we see more emphasis on creating alternatives and competition in satellite networks translating to more growth opportunities for Viasat. Our 40-year track record of innovation and trusted performance is an asset. We see evidence of our technology investments, network assets and position in both commercial and national security markets are landing key growth opportunities. That's driving our DAT segment where awards, backlog and customer demand continue to build. Both ViaSat-3 Flight 2 and 3 are in service, performing as expected and being integrated into commercial and government services. We now have opportunities to prove unique and valuable capabilities like countermeasures resilience and really small user terminals. At the same time, competition is increasing in many commercial markets, consistent with our expectations and reflected in our planning. Nevertheless, we're entering a period of very significant growth in new contract awards and revenue, lower capital intensity, sustained free cash flow and somewhat greater financial flexibility. These points help illustrate our commitment to sustained value creation through differentiated strategy and focused execution. Furthermore, as part of our strategic review, we continue to assess how best to optimize our portfolio, enhance shareholder value, improve capital efficiency and position to capture attractive growth opportunities. While our review remains ongoing, our decision framework is still based on achieving strategic goals, disciplined capital allocation and meaningful long-term shareholder value creation. Meanwhile, Second quarter results were solid and within our targets. For fiscal '27, we now expect more than $225 million of free cash flow while managing capital expenditures to about $850 million to $900 million. We expect total new contract awards to be strong, yielding an attractive book-to-bill and a backlog setting us up for sustained revenue growth. Gary will give more detail on the outlook, but I'll give some context. While we've revised some commercial aviation assumptions, and taken a more conservative view of in-flight connectivity backlog, our broader investment thesis is unchanged, supported by growth in DAT and government SATCOM services, including aviation. We continue to see growing demand in important attractive markets, increasing evidence that our technology investments are creating value and meaningful opportunities to improve cash generation as capital intensity declined. As communications and space infrastructure becomes absolutely critical to governments, enterprises and national security, customers are looking for trusted partners. Both commercial and government customers value resilience, competition and optionality. The main growth theme this quarter, as expected, is the continued momentum in DAT. DAT Q2 revenue grew about 20% year-over-year, with strong demand for secure communications, cybersecurity, tactical networking, resilient space architectures and mission systems. We are effectively moving up market from providing components or modules to mission systems, including delivery and operation of space vehicles. For the full year, we expect DAT mid-teens or better revenue growth with a sustained multiyear revenue growth outlook driven by firm backlog and inventory of IDIQ contract vehicles and a very attractive new business pipeline. Awards remain a leading indicator of growth. In addition to government DAT technology awards, our confidence is growing in significant potential commercial and international space technology awards. That represents both near-term revenue and longer-term enhanced competitiveness in our communication services businesses. In the second quarter, DAT earned about $420 million of firm awards and our current fiscal year '27 plan anticipates about $2 billion of awards compared to $1.6 billion last year. Our confidence is not just from the amount of backlog, it's also the strategic value of the program. Increasingly, we're seeing and winning integrated mission outcomes more than stand-alone products. That aligns with our experience in space systems, tactical terrestrial and space networks, cyber mission integration and culminating in service delivery, both in the commercial and government sectors. As I mentioned, both ViaSat-3 flights 2 and 3 are in service. We're adding more bandwidth capacity through the ground network and expanding customer applications and migrating more user terminals onto those satellites. Customers on ViaSat-3 are measuring pretty dramatic and impressive improvements in speeds and user experience. The per user bandwidth consumption measure that correlates pretty well to customer experience, is comparable to that claimed for LEO services. We believe that ViaSat-3 can help shape industry sentiment and benefit our business results through both revenue generation and operating economics while creating opportunities in both government and commercial markets. Aera, our multi-orbit aviation service, continues to represent a very attractive growth opportunity. Multiple airlines are evaluating Aera deployments. In particular, estimated integrated in-flight connectivity and in-flight entertainment still only about 1/3 penetrated. And we see considerable interest in more choice among airlines as well as in other satellite service segments as well. We're also building confidence in our approach to integrate connectivity and entertainment in ways that help airlines optimize and benefit from passenger engagement. We're also making progress on substantially growing our L and S-band mobile satellite services addressable market, building around interoperable, 3GPP, 5G and 6G nonterrestrial networking standards that enable a highly anticipated direct-to-device services market. Our approach enables us to bring unique value propositions to direct to device as well as to other large evolving or new and emerging mobile satellite services markets that builds on our existing government and commercial business space. Advancing this strategy in September, we executed a binding agreement with Space42 to establish Equatys, the first standards-based shared mobile satellite network infrastructure company. Overall, we're focused on reducing capital intensity. Over the last several years, we've invested heavily in ViaSat-3 infrastructure, spectrum, advanced security and networking platforms. Those investments require substantial capital, but they also created the foundation of the growth stage we're entering now. We're just beginning to realize the benefits including having abundant bandwidth for both government and commercial services. As a result, we're transitioning from a period of significant infrastructure investment into one more focused on monetization, utilization, debt reduction and returns. We're further refining state-of-the-art ViaSat-3 technology and converting it into funded turnkey satellite program that can drive near-term government and commercial revenue and can help contain ongoing capital investments that grow our differentiated dual-use vertically integrated portfolio. Basically, we believe that capital-intensive ViaSat-3 phase is behind us. That offers more strategic flexibility. Each new opportunity is considered in terms of returns, cash generation and alignment with shareholder interest. Most opportunities build on the unique complement of assets we already have, including global spectrum access, orbital and ground infrastructure, technology and customer relationships. Our approach is straightforward: remain strategically engaged through a market attractiveness lens, invest selectively, maintain disciplined return thresholds and partner where appropriate. We're not speculating. We're pursuing opportunities, we believe, can create durable value, while maintaining our focus on free cash flow, capital discipline and shareholder alignment. So with that, I'll turn it over to Gary for more information on our second quarter financial results and our outlook for fiscal '27.

Thank you, Mark. Thanks to everyone joining us today. And special thanks as always to the Team Viasat for the dedication and hard work you put into producing these results. We're now halfway through the fiscal year. And overall, we're pleased with how the year is shaping up. This quarter's story is straightforward with communication services facing near-term pressure while momentum across Defense and Advanced Technologies accelerates. As a result of this segment mix impact, award timing and growth investments, we now anticipate approximately flat full year EBITDA. Our revenue outlook reflects strong awards activity and growing backlog in key markets, and we're seeing improving free cash flow. Our efforts center on the 3 strategic pillars of our financial framework: Building our franchise, generating cash and reducing our leverage. Those pillars drive how we allocate capital, evaluate investment and create long-term shareholder value. We'll discuss our 2Q results and outlook for the year using that lens. Let me start with the quarter and note that all statements following in this section will refer to the second quarter of fiscal '27 compared to the prior year period, the second quarter of fiscal '26. For context, I'll illuminate 2 items impacting year-over-year EBITDA comparison. First, we continued to invest in innovation reflected in elevated R&D, which is up $18 million. These investments support growth opportunities, including PTS-G, direct-to-device, phased array antennas for multi-orbit aviation and next-generation geo satellites. Second, as noted last quarter, we completed the sale of our equity interest in Navarino in the fourth quarter, and Navarino contributed $4 million of adjusted EBITDA to Communication Services in the prior year period. On a combined basis, these items impact year-over-year EBITDA comparisons by $22 million. Company-wide awards for the quarter were about $1.1 billion, down 24%. Awards were unusually high, elevated by -- in the prior year fiscal quarter, elevated by, among other things, our $234 million SouthPAN Award. We're encouraged by the quality of opportunities we're winning and the strength we're seeing across our pipeline. Stepping out of some of the temporal factors that drive quarterly awards, we can see the fiscal '27 will be a very good one for awards, topping our exceptional year in fiscal '26. The award and backlog trends we're seeing today continue to reinforce confidence in our long-term growth outlook. Backlog was $4.2 billion, an increase of 7% with growth in both segments, but led by 20% growth at DAT. Revenue was $1.2 billion, up 3% with a 3% decline in Communication Services and 20% growth in DAT. Net loss was $129 million, a $68 million decline compared to the prior year period. This decline primarily related to an increased provision for income taxes, higher R&D and higher stock-based compensation expense, which is an artifact of the share price rising and the only expense you'll ever hear me say I'd like to see going up. We're also seeing increased depreciation and interest expense moving from capital expenditures to the P&L as a result of ViaSat-3 service entry. Adjusted EBITDA was $370 million, down 4%, impacted by the above-noted factors. Free cash flow is solid as we generated $78 million, up 14%, driven by operating cash flow of $285 million, up 1% and capital expenditures of $207 million, down 3%. Our net debt relative to trailing adjusted EBITDA was approximately 3.2x, a 0.3x improvement versus the prior year. Now let me turn to some segment highlights. In Communication Services, awards of $717 million declined 30%. Excluding the SouthPAN Awards, Communication Services awards declined 10%, reflecting a decline in maritime and fixed services and other. Revenue was $815 million, down 3%. Growth in aviation and government SATCOM was offset by declines in residential fixed broadband and maritime. Aviation revenue grew 8%, ending with approximately 4,490 commercial aircraft in service, a slight decline sequentially. On a year-over-year basis, aircraft in service increased 6% with average revenue per aircraft up 3%. Our in-flight connectivity backlog at quarter end was about 660 commercial aircraft and includes aircraft awarded in the quarter offset by installations and removals from backlog based on recent customer announcements. We continue to focus on what matters most: the quality of our airline relationships, the growth of our installed base and the long-term service revenue opportunity those aircraft represent. Long-term demand fundamentals remain strong. And in the second half, we expect continued new installations and awards. Government SATCOM revenue grew 4% on increased usage from U.S. and international government. Maritime revenue declined 8% as vessels in service were down. We ended the quarter with 1,990 higher ARPU NexusWave vessels in service and continue to work on increasing our installation rate. Our quarter end outstanding order book exceeded 1,500 vessels and positive trends continued through October with an additional 120 installations and 140 orders. Fixed services and other revenue was down 23% as U.S. fixed broadband subscribers continue to decline during the seasonally high-churn summer months as we awaited ViaSat-3 Flight 2. We ended the quarter with 100,000 subscribers and $111 average revenue per user. Following the successful deployment and residential service launch of ViaSat-3 Flight 2 in early October, we initiated targeted plans to take advantage of Flight 2, which is capable of delivering vastly improved customer experiences. Our plan is to leverage improved performance to stabilize the business over the next few quarters. Communication Services adjusted EBITDA was $294 million, down 13%, primarily driven by the decline in fixed services & other and maritime, including the Navarino sale and the increased R&D spending mentioned earlier. Turning to Defense and Advanced Technologies performance for the quarter. As noted previously, we expected the year to be back-end loaded. In the second half, we expect to see conversion of our substantial DAT awards and backlog into accelerated revenue, EBITDA and free cash flow growth. Importantly, this momentum is evident and significant across all DAT business lines. Our DAT segment awards of $421 million declined 10%, reflecting a decline in advanced technologies & other partially offset by good growth in space and mission systems. Year-to-date awards are up 6%, and we expect full year awards to be up significantly. DAT revenue was $365 million, up 20%, driven by infoSec and cyber defense and tactical networking. InfoSec and cyber product revenues increased 27%, driven by new encryption development programs, space encryption products and higher MOJO deliveries. We continue to expect strong growth in infoSec and cyber for the fiscal year. Space and mission systems revenues increased 4% and included initial design activity on the PTS-G program and the migration of a key product from development to production. We continue to expect substantially improved growth in space and mission systems in fiscal '27 and beyond, reflective of our strong backlog and growing demand for resilient space architectures and national security missions. Tactical networking revenues were up 31% year-over-year with tactical communications products and TrellisWare both benefiting from strong sales to international customers. Product growth within Tactical Communications was led by satellite network control systems and modems. We expect increasing growth in tactical networking as it continues to be an important platform as military customers modernize to support increasingly distributed and data-intensive operations. Adjusted EBITDA was $76 million, up 57% or $28 million, primarily driven by tactical networking and space and mission systems with some offset from R&D. As we continue to invest in cyber capabilities, mission networking, resilient space missions, secure communications and advanced networking architectures, our addressable markets are expanding and we're positioned to compete for increasingly strategic and valuable programs. Now let's turn to our outlook. Overall, our performance for the first half of fiscal '27 has been tracking with expectations. Looking ahead, we anticipate a meaningful acceleration during the second half, driven by the accelerated conversion of our backlog and awards. We continue to expect total revenue to grow mid-single digits. Our Communications Services segment is expected to be flattish, while we expect DAT growth in the mid- to high teens. We now expect our adjusted EBITDA for fiscal '27 to be about flat year-over-year. Our ongoing net commitment to capital discipline has resulted in a reduction in our expected fiscal '27 spend. We now expect consolidated fiscal '27 CapEx between $850 million and $900 million. Our CapEx is expected to break down as follows: maintenance of between $300 million and $350 million, capitalized interest of more than $170 million, ViaSat-3 spend of $75 million, most of which was incurred in Q1, success based of about $100 million and about $200 million to $250 million for growth CapEx, which is in addition to the increased investments in R&D that are also driving future growth through innovation. Inmarsat CapEx is expected to be $250 million to $300 million and is included within the consolidated CapEx range I just mentioned. Our free cash flow expectations have improved as well. We now expect free cash flow of more than $225 million for the fiscal year. We remain committed to investing in attractive growth opportunities. We're doing so through the lens of long-term returns and free cash flow. Now I'll turn to our segments, beginning with Communication Services. Within aviation, we expect revenue growth for the remainder of the year driven by ARPU expansion with the trend of slight sequential declines in aircraft counts continuing. We expect maritime vessels in service to decline modestly compared to fiscal '26 but expect significant growth in the NexusWave installed base that offers customers more value and drives higher average revenue. We expect a moderation of the declines in our fixed broadband business with ViaSat-3 Flight 2 entering service, as we begin a multi-quarter path towards stabilization. We expect another year of growth within government SATCOM. We're excited about the service entry of ViaSat-3 Flights 2 and 3 and are already making a big difference for our customers. Special thanks to all our teams that have made ViaSat-3 a reality. But we have more work to do, and our focus is now on bringing the capacity and capabilities it offers to provide superior customer outcomes and maximize the long-term value of our investment. Turning to DAT. We expect to build on our strong first half financial performance with a stronger second half. Our teams continue to demonstrate outstanding execution and meeting the demands of our customer base. Our operational performance, continued innovation and growing backlog have established a solid foundation for robust multiyear growth. We continue to expect strong awards, revenue and EBITDA growth as we capture opportunities across the fastest-growing markets we serve. Now let me give some flavor beyond the current year on the heels of some recent announcements. We now expect aviation revenue to decline in fiscal '28 from levels achieved in fiscal '27. We're evaluating the trajectory of that decline and have begun mapping appropriate cost mitigation. At the same time, we're evaluating substantial growth opportunities elsewhere in the portfolio as part of our long-range planning process. We'll provide more details when appropriate, but we're confident in our ability to continue generating meaningful free cash flow while investing in growth opportunities across both segments. In conclusion, this quarter reflects progress along our financial road map. While we recognize there's hard work ahead, we also have a lot to be confident about. Our priorities are clear: improved returns on capital through franchise and earnings growth while generating positive free cash flow to repay debt and continue reducing net leverage. The Viasat team is fully dedicated to executing our strategic priorities and delivering on our commitments for the fiscal year and over the long term. We have exceptional assets, talented people and opportunities that we believe remain underappreciated. Our job is to convert those advantages into stronger earnings, cash flow and returns for shareholders. And that is exactly what we're focused on doing. I look forward to getting this important work done with my Viasat colleagues. And with that, I'll hand the call back to Mark.

Thanks, Gary. I'll summarize with these 3 key takeaways. First, our own technology and a rapidly growing base of customer-funded development contract awards in networking, cyber and space technologies are translating into stronger awards, backlog and growth opportunities in both government and commercial markets and becoming an increasingly important driver of Viasat's overall financial performance and lower capital intensity. Second, the successful completion of the ViaSat-3 deployment program marks the transition from infrastructure build-out to monetization, competitive customer experiences and cash generation. Third, our growing DAT revenue, improving capital efficiency and lower capital expenditures are supporting free cash flow growth and continued deleveraging. We know we're in a very dynamic, competitive and geopolitical environment. We also believe Viasat is entering a fundamentally different phase characterized by expanding growth opportunities, lower capital intensity and increasing financial and strategic optionality. We're maintaining our strategic review committee to regularly assess our opportunities and ensure we're aligned in pursuit of customer outcomes and increasing shareholder value. Thanks for your continued trust in our team. So with that, let's open it up for questions.

[Operator Instructions] Your first question comes from the line of Brent Penter with Raymond James.

First one for me. Can you talk about what you're seeing in the aviation market today? And particularly, how that's changed in the past 1 or 2 quarters, given that outlook you just laid out, Gary. And then have F2 and F3 changed the tenor of your conversations at all with airlines now that you can offer a lot more capacity?

Yes. Okay. Thanks, Brent. Let me put a little more color behind some of what I articulated a few minutes back. Bottom line, we are going to see impacts from the announcements you were referencing. We've also got a lot of opportunities that are going to help us manage through those. To put those in perspective, they will ultimately -- these announcements will ultimately affect 15% to 20% of our aviation revenue. And just to clarify, that's 15% to 20% of aviation revenue. Let me make several points on that, and we can see if there are follow-ups first. We don't expect any abrupt impact from it. I think that those are impacts that will take place over time. And we're working now to better understand what that timing is. Second, I'll remind you that we still have a good-sized backlog that we're continuing to install, and as I noted, we are continuing to see interest in adding service. So we expect to be bringing new orders in that will help grow both that backlog and then ultimately the installed base. And we need to think about that in terms of timing as well. We also -- and we were doing this anyway, but we're really assessing some mitigating actions that we think on the cost side. We're really working hard to deliver, as Mark calls it, non-bandwidth cost. And we want to make sure that we're doing everything we can to manage those appropriately, and in light of these announcements, but also it's something -- action we were taking to be more competitive for the long term anyway. And I'll just remind you what I think is really the key point. What you've heard in the prepared remarks and what you see in all the results, all the award activity, there are a lot of opportunities that are coming down the pike, and we got to take all of that and really balance those out. As it happens, we are entering a time of year. Every December, we do a long-range plan, a long-range financial plan that we bring to our Board, and it spawns a lot of discussion, and we're going to be bringing all those factors together. I think what you've seen in terms of existing performance and what Mark was talking about just a second ago as he was nearing the end there, on the continued progress in being more capital efficient, we're really confident that we're going to be able to continue generating meaningful cash flow. It's a little early for us to think to what P&L impacts there may be. But we're really confident we can get at least that far. And we're going to be working hard to drive the best long-term outcomes we can. Did you want to...

Yes. And just in terms of what it means for the market itself, I think -- we were the ones that originally drove the market towards free for all the passengers. We see that, that is definitely the direction in which it's going. I think there's that -- we've been waiting for ViaSat-3 really to be able to perfect that. So that is happening, and we've been very -- we've been very encouraged with the quality of the service that our customers have reported. So they're really happy with it. I think one of the things we mentioned before is one of the ways you can tell people like it is just how much bandwidth they use. So bandwidth consumption is like double to triple on different flights. That's a really good sign that people are using it. So I think that in terms of being positioned for future growth in the business, we think that getting ViaSat-3s in service, that was a really big step. The next remaining step that is not that far away is being able to provide hybrid services that's multi-orbit. That's coming. We're already doing that in the maritime space. And so that's going to help as well. And the other point we'd make is our government aviation business is still growing. It's multi-orbit, multiband that works really well. So -- just to be clear, we think we're going to compete and we're going to compete well in the long run because we don't really see -- we don't see the market changing. The one thing I think that we are also doing, and I think we're pretty well ahead on this, is the integration of in-flight entertainment and connectivity that even when you put connectivity on, entertainment is a big part of that. So I think we're -- I think that's one of the areas that we see that we're pretty well differentiated.

Okay. I appreciate all the color there. And then just a clarification, the letter talks about maintaining the strategic review committee. So I just want to make sure I'm understanding correctly that the strategic review is still active. And then is the strategic review related to spectrum or the DAT segment? Or is it all of the above?

Okay. Yes. The purpose of the strategic review committee is to make sure that we're doing everything we can to deliver value to shareholders, that's what the focus is. And we have been looking at a variety of strategic options. One of the things that does seem to be true is that the value of our assets. When you can think of slicing them and dicing them, you can see them in different ways, you've mentioned a couple of them, but the value of the underlying assets seems to be appreciating. That's one. So that part is consistent with what some of -- one of the purposes of what the committee is evaluating. And then I would say, if anything, the range of options that we have to benefit from those options is probably growing. So that -- those are the things that we're doing. And then absolutely, we're maintaining that view.

Your next question comes from the line of Tim Horan with Oppenheimer.

A lot of moving parts on the Communications Services side. You were down a little bit this quarter year-over-year and sequentially. Can the version 3 here, can that reverse that? I know there's a lot of moving parts, but do you think Comms Services -- or can we get some color what happened in the quarter? And is this enough that you can grow Comms Services low to mid single digits over time? And when can we expect that to happen?

Yes. The short answer is we do expect to grow Communication Services over time. And you're seeing, kind of think of it as Gary covered 4 different elements of that. The government parts of Communication Services, aviation, maritime and fixed. We've been battling headwinds -- the biggest headwinds have been fixed, and that's really -- that was, there was nothing to do prior to getting ViaSat-3. So we do -- we do have ViaSat-3. I would note that the residential consumer market is very volatile, and it's a contested market in the U.S., is where most of our business is. So just to Gary's point before, we have opportunities to generate cash from the business. That's where the focus is, is to improve, stabilize, that will use or stabilize and free cash flow there. On the maritime side, Gary also mentioned one of our main objectives there is to increase the installation rate, that is to get platforms in service. We've had good -- orders have been strong on the service, but we're continuing to increase the installation rates, but that is one of the focus areas there. On the aviation side, we've got a market that's about 1/3 penetrated overall. And we -- yes, we still see growth there. There are things that we're doing to do that. The government SATCOM side, there's a couple of things that are tailwinds for us. One of the things that ViaSat-3 brings with us is the ability to serve the government mil -- what's called military Ka-band. That is a valuable thing for both U.S. and allies, and that's uniquely enabled by ViaSat-3. So we have some tailwinds there. I think in the overall -- our first objective is just to overall return the portfolio to growth. The main thing that we've been focused on, we kind of described it -- we have described it since we've been in the business as yield management, that is understanding the unit economics of each of those services and getting the best returns that we can out of those in aggregate.

And do you think we're in a position to start to grow for the next fiscal year? Or just any color on the timing with the new satellites?

I think as Gary said, we're going through our review -- our strategic review process. We'll typically talk about each of our fiscal years right near the beginning of them. And that, that would be the appropriate time to come up with a forecast.

What we were just talking about is going to be a part of that. So we'll provide more color when we're through that exercise.

Your next question comes from the line of Ryan Koontz with Needham & Company.

I want to talk about DAT and the space and mission systems segment there. Can you maybe remind us of your outlook there and also frame that up against the broader space ecosystem kind of how you generally fit there, what your roles are versus so many other new private players coming along?

Okay. So on the Mission Systems portion, DAT overall has -- we think we really like our portfolio there. We divide it into 3 main parts, which is the tactical networking part, the encryption and security part and then the space and mission systems part, okay? Each of those is -- each of those has its own growth areas. The tactical radio -- tactical networking part, lots of emphasis in the government on combining multiple different transmission systems into -- into a single sort of seamless service, we've been in that business for quite a while. I think we have a really strong position there. The demand for that is only increasing as the level of countermeasures that are being seen applied to individual transmission systems is only growing. So that's a good business. The encryption business is really, kind of think of one of the most -- not the only, but one of the most fundamental drivers is everybody acknowledges the need for post-quantum computing security. So that is a big -- it's not the only driver, but that is a big forcing function for encryption, very high leverage, really strong position for us. You're going to see that continue to grow with -- right now, we're in kind of a mix of development and certification phase, the production phase, you'll see over the next couple of years, more and more of that portfolio switching to production, which is really good business for us. In the space and mission systems side, there's been a lot of focus on LEO broadband. One of the main areas is maintaining our -- the assets -- a whole bunch of U.S. government missions that are uniquely supported in geosynchronous markets. So that ranges from tactical to strategic. And also recently, one of the things we've been expecting, very excited about, was announced today is an award for what's called NEXUS, which is a replenishment or replacement for the NASA's TDRS fleet, so relay. And there's a good article that was published on the underlying forcing function is there is -- there's a number of very important both civil and government, civil and defense missions supported by those satellites, very expensive. NASA does not intend to replace them and is looking for competitive, low-cost commercial alternatives to fulfill those missions. So today, they announced a $460 million award for an initial 2 satellites. But there's -- over time, there's a pretty big and enduring opportunity there. That goes really well with our PTS-G award, which is really intended to modernize, help build more resilience into the Wideband Gapfiller. Yes, fleets that are for tactical, organically owned tactical fleets that are in some ways, meaningfully more resilient than LEO systems. The idea is not that it's instead of, it's both. So that you can take -- I'm going to go back to the ViaSat-3. ViaSat-3 demonstrated some extremely valuable and state-of-the-art beam-forming phased array in space technology. We did the payload part, that what we're now getting into -- and this is really good to get this through funded contracts, is the complete satellites, using much less expensive underlying bus technology. So that -- and that's one of the things we are aiming at when we talk about reducing capital intensity. Is it basically takes things that we had to fund through capital programs or R&D, now we can develop technology, build production capability. And so just in terms of numbers, what we -- what Gary mentioned is we see currently about a $2 billion target for FY '27 awards in DAT. That is, I'd say, confidence level on that is very high. I think there's upside opportunities there. And one of the things that's still pending are some commercial opportunities, again, where we would be funded for developing complete spacecraft, not just in broadband frequencies, but also in the global satellite services frequencies as well. So these other things taken together, I think we are pretty uniquely qualified for these -- for these applications given the payload expertise that we've demonstrated. And I think you're going to see more pretty interesting announcements on the government side taking advantage of the capabilities that -- the very unique capabilities ViaSat-3 has. So anyway, you get that. That's an area that we're definitely excited about.

Your next question comes from the line of Edison Yu with Deutsche Bank.

We noticed this week that there was a new incentive program filed, and it lays out a variety of targets. Could you perhaps elaborate a bit more on how the committee came up with some of these targets? And how should we think about your vision in achieving some of those?

Okay. Yes. So the first thing I got to say is that's done by our comp committee. I'm on the Board, but I'm recused from participating in the comp committee. I think that the comp committee's clear objective was just to very clearly align the company's direction and efforts with shareholders, and that's what's set out, what's set out in that plan. I think that the -- we have multiple avenues to create value. We've talked about some of them. We kind of feel like, as I mentioned before, and I think the Board agrees, is that we're seeing evidence that we have growth assets that are appreciating in value. We have multiple ways to capture value on that for shareholders. And so the plan itself is not prescriptive. It gives us a number of paths to do it and sets out a time line, that the Board's time line and targets that we are, that the Board is trying to motivate and incentivize management to achieve.

Understood. Understood. And then we saw the news about TerraStar. And I guess, I was curious, what was the -- maybe if you can put a little context on signing the MOU. And are there other types of similar engagements going on to that?

Yes. So the MOU with TerraStar relates to the mobile satellite service bands, L-bands and S-band and especially to the direct-to-device applications for it, but also to the more traditional mobile satellite services applications, including national security applications. So think -- and what we think is TerraStar in Canada are advanced and representative of what the opportunity is here. So they have -- so in Canada, Canadian national operators have allocations in Canada in the S-band. They would like to use that for both commercial and national security purposes. But if they -- and just going back to the direct-to-device market, in order to do that, you pretty much need to use low earth orbit for that part -- for the direct-to-device part of the mission in order to get the power levels to close links to ordinary handheld mobile devices. The issue that Canada has and many other areas are facing the same, which is that they would -- if they did it purely with their own sovereign constellation, the only place they could use it is over Canada because that's the only place where they have spectrum allocations. Obviously, that's a big headwind to getting economic utility out of it. So what we're describing in the MOU is an interoperability and a cooperation agreement between a Canadian constellation and Equatys to share so that if the Canadians were to use capacity on Equatys when Equatys satellites are over Canada, they can get far more utility, much more utility than they would out of their own constellation, and it would serve their market way better from both a national security perspective and a commercial perspective. And then on the other hand, the Equatys users, which include us, would benefit from having the use of the Canadian satellites when they're over areas outside of Canada where we would like to use -- where we would like more bandwidth. So instead of us having to capitalize a very large fleet, we can trade. We can exchange some of our bandwidth in their market, they can exchange their bandwidth in ours. That is the -- that's the underlying premise. Equatys provides standards for that -- for the interoperability mechanisms to do that, which leverage commercial open standards, 3GPP, 5G and 6G and also provides satellite control operation mechanisms to facilitate those types. We are seeing quite a bit of interest from other countries and regions around the world that have exactly the same problem. One of the big opportunities that we've talked about in the past is with Europe. In Europe, one of the things that is a little advanced relative to Canada is they see the same opportunity. They also would like to have European technology participate in that. And we've been awarded a number of meaningful European Space Agency contracts to not only facilitate those types of interoperability, but also create European industrial capability so that Europe would have greater flexibility in how they build and operate their own -- their constellation. So that's another example, but I can tell you there are other examples of places that have national or regional spectrum would like to have a LEO constellation, but see the economic and functional advantages of interoperating not just with us, but with each other. That is each of the sovereign countries can trade with each other through the standards and the control mechanisms that we're describing. So we think it's a big opportunity. As we're saying kind of the next big step, and we'll provide more information when that happens is when the -- we complete all of the regulatory approvals required to form the entity, Equatys. And then the first big step will be for Equatys to place a prime contract for its initial constellation. Those are the next big steps.

Your next question comes from the line of Justin Lang with Morgan Stanley.

Mark, at DAT, you mentioned moving upmarket from components to full space vehicles even. So curious if you could just expand on that a little bit and whether that journey requires more investment to realize or changes the margin trajectory that we've seen at DAT going forward?

Yes. One of the things that we have done in our -- in a couple of our different divisions is to do advanced work for government customers on satellite payload, mostly on subsystems, modules or components. So one example, I think we've talked about in the past is satellite cross-links. So we've done -- for instance, there are some government constellations that use radio frequency cross-links that we developed. They're very cost effective. They provide more than sufficient bandwidth, and they fit well for the ranges, distances that are required for some of these applications. We've also done commercial cross-links. For instance, we did the radio frequency cross-links on the Iridium constellation. So those are fairly sophisticated, started with components, modules, subsystems. The biggest -- by far, the biggest payload project we undertook was the ViaSat-3 payload system. That is -- I mean, it's the highest power commercial satellite ever done, greatest amount of thermal dissipation ever done by far, the greatest amount of beam forming capability ever done. So with that, that's established a lot of credibility for us doing complete payload systems. And now it's gotten to the point where those payload -- really that payload so it dominates some of these applications, the complexity and the functional capability and the cost of them. So we've been partnering with small bus manufacturers. For instance, on the PTS-G program, we partnered with Rocket Lab, who provided us with a low-cost bus, but we did the payload. So now we're getting to the point where we have a number of opportunities, some of them working with the same customers who used to work with us on the components, modules and subsystems to develop complete satellites. I think we've earned a lot of credibility delivered on those, but also from a functional capability perspective for any of these satellites that benefit from very high frequency content or also from beam forming, I think we're very competitive. That's I think we're seeing the outcomes of that now. Plus the other part of it, which I don't want people to underestimate is a lot of times, the contracts that we're getting are for not only to design and manufacture the satellites, but it's to operate them as well. So our -- so if you look at the assets that we have, global assets in satellite ground operations, underlying ground network, ground capabilities that we built and also demonstrated on ViaSat-3, those are getting a lot of attention as well. So we're very, very cost effective when it comes to the operating part, which is part of the purpose of these programs that we're participating in.

Got it. That's super helpful. And then maybe just one back on Equatys and this idea of bringing on new partners. Curious how you think about potentially accommodating maybe a larger scale partner that would seek a significant or even controlling stake in the JV and how you generally would think about that possibility?

Okay. So one of the points that we're making with Equatys is that it's a new company. It's not -- it doesn't exist only for the benefit of Viasat and Space42, which are the founders. It is intended to be a neutral, trusted entity that multiple partners can participate in. So the main -- right now, we're -- the first levels of interest for sure are these countries or regions that want a LEO system, but don't have the capital, and it makes no sense for them to build an entire LEO constellation only for their country or region. So the notion of shared infrastructure makes a lot of sense to those users. Some of them may be -- they can participate in this constellation in multiple ways. One is by buying or subscribing to capacity from Equatys when it's over their region. Another one is by being a trading partner that is launching their own satellites and trading capacity into Equatys and its users, which is the -- is a good thing from our perspective, but it's done in this open and trusted interoperable way. And then the other thing that they may do that some are expressing interest in is becoming equity investors in Equatys. That is, because it represents a good opportunity for infrastructure-like returns from its user base. And then also there's a good opportunity to grow the constellation substantially as we grow more of these applications and the D2D market itself grows. So what we've done is we've come up with the governance, interoperability, technical, all of the infrastructure needs for that, you'll... [Technical Difficulty]

Ladies and gentlemen, this is the operator. I apologize, but there will be a slight delay in today's conference, a technical delay. Please hold and the call will resume momentarily. Ladies and gentlemen, thank you for your patience. I now hand the call back to Mark Dankberg.

Where we dropped off?

Can you hear it?

Yes, we are live. Justin Lang is the question at the moment. His line is open. Mark, the floor is yours.

Justin, can you tell us where you left us?

Yes, I think I caught it. So I think you laid it out well on what type of partners you're looking to attract to Equatys. But if I just could sneak one really quick one in and sorry if this is splitting hairs, Mark. But just the commentary coming back on the Strategic Review Committee, was that intended to suggest like a bit of a shift in what the committee has been tasked with up until now? Is that the sort of subtle implication there?

No. I'd say it's just to reinforce the role of the committee and also the purpose of the plan is to put some numbers behind it as well.

Your next question comes from the line of James Ratzer with New Street Research.

So Mark, my kind of question really, I mean, follow on from that last one there from Justin, just a little bit more color around Equatys. Would love to get your kind of latest thinking on what the timetable might be for potentially announcing any new future equity partner to come into Equatys. And are you able at this stage to share kind of anything more around kind of the operational business plan? When do you think the first launches might take place? How are you thinking about the costs per satellite and per launch for Equatys? And if you're unable to answer those questions now on the kind of operational business plan, what should we think of as the timetable when you would be able to make those announcements?

Okay. Yes. I think that what we're intending to do is to provide additional disclosures as we achieve milestones that make them clear and certain. So the very first milestone I've mentioned it a couple of times is that we're forming a new entity. That entity needs certain regulatory approvals. We're not quite -- not completely done with those approvals. We expect to be not-too-distant future. I'm not going to make any predictions. But I think once we have those, the first thing that we'll announce is we'll address -- kind of the one of the main questions people are asking us is what's the underlying technical solution? Like what does that mean in terms of satellite capability, schedule for delivery of the service. So those things are -- will be determined. It's all set up. We just need to have the entity exist and the initial funding for the entity. So I'd say stay tuned, and we'll provide that update. And then from there, that will answer some of your first questions. I think some of the most important ones. And then we'll be able to -- once we've been able to say that, get more of a sense of what the interest is from third-party investors.

Do you think, Mark, is that something maybe is Q1 calendar next year too early? Or is that the kind of right time frame for that?

So it's taken a little while to do these. I think we'd rather just do it. I think it's getting close enough to where we just say, hey, let us just do it. I think it will become pretty clear.

That concludes our question-and-answer session for today. I will now turn the call back over to Mark Dankberg for closing remarks.

Okay. So covered a lot of ground in our call. I think there are a few things that we'd like just to remind everybody. First of all, that we've got a strong portfolio. We think we're going to get good growth. We're very focused on cash and monetization, and we believe that our peak CapEx phase is behind us. We've got monetization opportunity in front of us. We've also got a set of contracts that will help with our overall approach of lowering the capital intensity of the business. And there's quite a bit that I think will become -- a lot of information that will become available over the next couple of quarters. And finally, we've gotten a lot of questions around the strategic review committee. We want to reinforce that our Board and management are totally aligned in terms of creation of shareholder value, and we think we're putting more hard data behind that with the -- I think with the compensation plan that the Board put together. So thanks again, and look forward to speaking next time we have some updates on some of these things that are -- events that are going on. Thanks.

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