Welcome to Viasat's Fiscal Year 2019 Second Quarter Earnings Conference Call. Your host for today's call is Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.

Okay, thanks. Hello, everybody. And welcome to the Viasat's earnings conference call for our second fiscal quarter of 2019. I'm Mark Dankberg, Chairman and CEO, and I've got with me Rick Baldridge, our President and Chief Operating Officer; Shawn Duffy, our CFO; Robert Blair, General Counsel; Bruce Dirks, our Treasurer; and Paul Froelich in Corporate Development. Before we start, Robert will provide our Safe Harbor disclosure.

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

Okay, thanks. I'll start with highlights and then after that Shawn will go into more depth on the financial results and then I'll come back and give more detail on this quarter's results in fixed broadband, In-Flight Connectivity, and our Government Segment. And after that, I'm going to discuss our overall satellite broadband strategy, especially on the main growth drivers. And we'll show how some of the data we've already been disclosing gives more visibility into the factors that are driving our growth and how those factors affect our near and long-term outlooks. Remember, during fiscal 2017 and 2018, we invested a lot for growth in In-Flight Connectivity and Government products and services. With growth we're aiming to achieve in the years here and it's gaining momentum. Second quarter revenues were up 32% year-over-year to a record $517 million and up 24% year-to-date to a record of $956 million. There is strong growth in all our segments. As expected, In-Flight Connectivity is leading the way with equipment sales in the Commercial Networks segment and the recurring services from those sales in the Satellite Services segment. Government Systems is doing exceptionally well, delivering excellent revenue and earnings growth due to our satellite mobility services and growth in other product areas. The U.S. fixed broadband portion of Satellite Services segment revenue is running at a record rate, also contributing to Satellite Services segment growth and sequential earnings growth. Forward momentum is exceptionally strong with record second quarter orders of nearly $740 million, that's up 92% year-over-year. Year-to-date, book-to-bill company-wide is over 130% and record backlog of about $1.9 billion lends confidence to continued growth opportunities for the balance of the fiscal year and into the next. We are executing on our orders and converting revenue growth into adjusted EBITDA, which is up…

Thanks, Mark. As Mark indicated, we are very happy with our financial results for the quarter and the year-to-date. A key point before I walk through the Q2 details is that, this quarter, we had both top line and adjusted EBITDA growth on a sequential quarter basis across every segment, marking a turning point as we exit our Q1 adjusted EBITDA level. Looking at our Q2 results, overall revenue was up 32% compared to the prior year period, with a 54% increase in product revenue and a 12% increase in service revenue. And growth in product revenue for IFC and government satellite terminals this period will enable service growth in future periods. We also saw strong gains in our adjusted EBITDA performance with a year-over-year increase of nearly $16 million or 25% and on a sequential quarter basis by $32 million or just over 72%. Government Systems continued to produce record results with revenues reaching a new high of $240 million, up 27% and record adjusted EBITDA of $62 million, up 21% from the prior year period. In segment-adjusted EBITDA margins, we had a slight dip due to lower developmental product margins associated with one of our larger international programs, partially offset by an improvement in G&A and R&D as a percentage of sales. Our sequential performance was also outstanding, generating an additional $19 million or 43% increase in segment-adjusted EBITDA. Additionally, I wanted to note that while most of our service revenue show up in the Satellite Service segment, there is a large and growing service component in Government Systems. There our service revenues in Q2 had a new record high of $64 million, up 16% from last year. Also, this quarter we experienced another strong contract win flow which resulted in Q2 government awards of $451 million, up…

Okay. Thanks, Shawn. So I'll start going into our fixed broadband services. The U.S. residential business is more sensitive to capacity than other services. So we're focused on optimizing that given the antenna anomaly. In the second quarter, fixed broadband contributed to good revenue and adjusted EBITDA growth in the Satellite Services segment with about 7,000 net new subscribers and 10% higher ARPU on a year-over-year basis. While, for competitive reasons, we don't break out details of the different components of our Satellite Services segment, I'll show that our second quarter end run rate of net subscribers times ARPU is at a record high for us. Those results are consistent with our strategy of ViaSat-2 fixed services growth through a combination of ARPU and subscriber count. Until we get ViaSat-3 in service, ARPU growth through higher priced, higher value service plans is the best way to improve the value of our service to customers and to optimize cash flow. To illustrate that, consider two different alternatives for incremental revenue growth with just notional round numbers for simplicity. One subscriber at $100 a month generates the same recurring revenue as two at $50 a month. But over a three year period the single $100 subscriber generates well over $1,000 favorable benefit to cash through SAC and variable cost avoidance. Even with just 100,000 subscribers, that means over $100 million of benefit to cash flow. We have an opportunity to apply that trade-off to several hundred thousand. Since we want to optimize cash flow from ViaSat-2 in the medium term, until Viasat-3, we want to favor ARPU growth over subscriber growth to the extent that the market allows. We've been trending in that direction on both ViaSat-1 and on ViaSat-2. Of course, we have strategies to adapt in those times and places…

Thank you. Our first question comes from Philip Cusick with JPMorgan. Your line is open.

Thank you. This is Sebastiano on for Phil. Thanks for taking question. I'm just wanted to see if you could update us on Viasat's business plans in Europe. I mean, Eutelsat JV has kind of gone and you're now more on a go-to-alone strategy. So I think ahead of the ViaSat-3 EMEA launch, anything you could potentially – any color you can give us on what you're doing in those markets as well as any conversations – you alluded to it in the slides just from an RFP perspective on (49:58) any additional color on that opportunity?

Yeah. So, for Europe, obviously unwinding the joint venture, the future joint venture work with Eutelsat is going to have an impact on the growth rate in the interim in Europe and that's factored into our plans. I think we will still continue to develop all of our broadband markets in Europe. I think we'll be able to support that. It won't go as fast. In the overall scheme of things, it's not a material impact to our results.

Okay. And then in terms of your – one of your comments toward the end here just unpredictability of whether it'd be volumes on broadband, residential broadband net add basis and/or ARPU as you take a more market localized approach, I mean just how do we balance that with you talked about the inflection and the characteristics of both profitability post ViaSat-1 launch? Obviously now you're focused more on profitability. How should we think about the margin recovery from here? Is there any changes or mismatch whether it'd be from a fixed cost perspective ahead of revenue? Just how should we kind of think about that in light of somewhat of a pivot in strategy focusing on profitability?

Okay. So, I think the way to think about it is what we're really – what we're really doing is, we're selling bandwidth, right. We're selling it into different markets, but the underlying dynamics are very similar. We have a relatively high fixed cost and we've expanded our network, so we do that, but the variable costs of selling bandwidth are low. So whether we bring it to market in government, or In-Flight Connectivity, or fixed broadband, the underlying dynamics are the same in terms of margins, right? As a matter of fact, depending on where we sell it, if we sell it in places, for instance, in government, mobility, or In-Flight Connectivity where our customers buy equipment and there is essentially no churn, in the long run the margins actually can be better. So I think the way to think about it is just to look at the total revenue growth rate. And one of the points that we've made is, if you look at the history on ViaSat-1 and as we brought more bandwidth into service, got scale advantages, our margins generally expanded. We should see the same effect here no matter how we sell that bandwidth.

Yeah. The only – this is Rick. The only thing I would add is, I mean, this has been our plan.

Yeah.

So, this is not really a change. This has been our plan.

Thanks.

Thank you. And our next question comes from Rich Valera with Needham & Company. Your line is open. Richard Valera - Needham & Co. LLC: Thank you. Mark, I was wondering, if you could give any color on any of the other large orders that comprise the $450 million or so of Government Systems bookings. It sounds like you only called out specifically I think $50 million to $60 million. So, any color there would be appreciated. And then, with respect to what that implies for longer-term growth, I mean, you guys have sort of been pretty steady at kind of a very low double-digit growth, kind of 10%-plus in that business. Does the recent very strong bookings, I think you've got kind of a trailing 12-month 1.4 to 1 book-to-bill suggest this business might be able to actually accelerate its growth rate over the next 12 months, 18 months. Thanks.

Okay, Yes, so we'd like that. I think one of the things we've always said is that bookings tend to be very lumpy and they don't necessarily directly – I mean, it's very difficult to directly translate that into a much faster growth rate. Obviously, we're really happy with the bookings and I think they give us a chance to grow faster, but you'd need to see that turn into a sustained revenue growth rate. So, we are working on that. The underlying theme that we've been talking about in government products and the products are a big component of the orders, that we've been looking to evolve our customer base more into the mainstream services and little less focused – I mean, not that we're less focused on it, but that we can break through beyond the sort of special forces, early responders types, who are the most receptive to new technology and those are the ones that try things out. What we're finding is, which is really good, is that a lot of the things that are working well for the special forces and the early responders and getting the attention of the regular Army, Air Force, and Navy. So to the extent that we can continue that, you could see a real step growth in our product sales. That's what we're working towards. I'd say the early signs are encouraging, but it's too early to declare victory there. The other and until the – just to put that in perspective, what you're seeing is, we're selling these integrated systems, more complete integrated systems that include components of satellite terminals, Link 16 products, especially that's the tactical data links product, especially the ones that we've developed on our own that there was no program of record for their turning into programs of record. That's also a really good sign. And the other area of product growth that's growing well in other's future revenues – services revenue are satellite terminals of various types. So, then it's pretty much across the board. Richard Valera - Needham & Co. LLC: Got it.

I think that answered – yeah, I think that answered all your questions. Was there any others? Richard Valera - Needham & Co. LLC: No, I think that was it on that. I had one other one. Just wanted to follow-up on the consumer broadband topic. So I get the focus on fewer, higher ARPU subs and the favorable – more favorable economics there. I guess the question is, was there anything, any transient factors affecting the number of subscribers this quarter or was this kind of a quote, normal quarter and should we think of the kind of sub-adds in ARPU this quarter as kind of a baseline going forward? It sounds like you can be plus or minus off this. But I guess the question is, was there anything unusual in this quarter or transient that that might have been suppressing subs or is that sort of the baseline we should kind of think of going forward? Thanks.

Okay. Yeah. So, I think the way we're going about the market, while the underlying fundamentals are really similar to what we have in the past, the price points are higher, right. The service plans are good, we are delivering much higher speeds. We're delivering a lot more video stream viewing, which is ultimately what we think a lot of people buy higher performance broadband plans for, but the price points are high. In this quarter we had a – basically the satellite was just coming into service, so we had kind of an open playing field. As I mentioned in, some markets, we basically had more demand than we expected. And we may need to slow down in some of those markets. In other markets, the demand wasn't as high and we'll probably adjust the service plans to help drive more demand. And some of that stuff takes – think of it as a quarter or so to understand, and adapt, and respond. So, I think the only thing I can say is, what I said before, which is people should probably expect things to fluctuate around those results. We had really good ARPU growth, but if we – think of the two of them as sort of combined. If we reduce service plans, we might get reduced service plan pricing in some markets. We'll probably get more net subscribers, but the ARPU would go down, the product might be roughly the same. Flip side, if we can raise – if we choose to either come up with a mix of more premium plans in other markets, subscribers might go down and ARPU might go up. But we're just totally oriented towards the combination of the two. And we don't really want to give any guidance either way on just one element of it, which would be the sub count.

Other than we expect continued EBITDA growth.

Yes.

Thanks. Richard Valera - Needham & Co. LLC: Okay. Thanks for that, Mark. Appreciate it.

We have time for only one more question, we've got to cut it off at that today.

Okay.

Okay. Our last question comes from Ric Prentiss with Raymond James. Your line is open. Ric H. Prentiss - Raymond James & Associates, Inc.: Thanks, guys. I guess the message is, wow, careful, what you ask for because you might get it. You squeeze an Analyst Day into 15 minutes here. Appreciate all the topics. A couple if I could. One on the insurance payment. Some people had been thinking on the claim that it would be reflective on like what percent of capital was impaired, but it really sounds like, we should be thinking about it from bandwidth, because that's really what you're selling. So, how should we think about that having said you've got a $1 million reserve and what it means to your ability to sell bandwidth?

Okay. So that is – yes, Ric, that's a good way to put it. It's really impactful also that the insurers understand that ultimately the product we're selling and the purpose of the satellite is bandwidth, right. So that was the basis of the claim and the settlement. So we have less bandwidth than we would have if the antennas had deployed nominally. We're disappointed about that, but we still have a lot and we have a lot of outlets in which to deploy it. So we see good growth prospects. We still describe it as a pretty formidable asset, but the amount of bandwidth we have we think is the most of any satellite operator. And now we have a more asset base for it and so we can still get really good returns. We see – as I mentioned, we do forecasting. One of the reasons we've switched to these higher priced, higher value plans, while again it sort of reduces the near-term addressable market, it's a way for us to make up for the bandwidth efficiency. Basically that's what we're doing. It's made life more challenging in that particular market. But I think we're overcoming it. In the other markets, basically we already had all the agreements. We have plenty of bandwidth. We're not constrained in the government and the In-Flight Connectivity or these other international markets. And so we're – I'd say we know what our challenges are and I think we are working on achieving the conversion of that bandwidth into the revenue and earnings that we wanted. Ric H. Prentiss - Raymond James & Associates, Inc.: Okay. And from a strategic level, Baupost was brought on-board I think in an observational role into the board. Can you touch a little bit about what the thoughts are in doing that and what it might be the message you would want the Street to think about bringing them over the wall, if you will?

So, one is, we're really pleased to have them working with us more closely on the board. Obviously, many people understand we are a capital-intensive company at this time. We're investing in assets that we think are really good. They are obviously very good at allocating capital and capital structures. We think that they can help us. We think it's good for us. It represents something of a commitment on their part. We are very pleased that they have made it. We're happy to have the support. Ric H. Prentiss - Raymond James & Associates, Inc.: And anything as far as what it might signal strategically or what thoughts might be?

You'd have to ask them. I think the main thing we're focused on is doing really, really well on what we're doing.

I mean, their main message to us is that they have been in the stock for a long time and this is a very supportive move.

Yeah. Yeah. Ric H. Prentiss - Raymond James & Associates, Inc.: Okay. And final one on just on the bandwidth. Is there some number that we should be focusing on as far as what that bandwidth is you're able to sell? I know it gets complicated, you got different beams, different locations, durability, but just how should we think about what that is that you're able to sell to kind of answer Sebastiano's question about you really selling bandwidth? How should we think about modeling the ability on the outside of the company to figure out how you're selling bandwidth?

I think that was part of the point of going through all the different vertical applications. So, I think of it as yield management on an asset, right. We have large assets that we've acquired. They can be very valuable when projected into different markets. The value in different markets is determined by different factors. A lot of it is determined by what's the next best alternative in each of those markets. And so once you come around to the notion that the purpose of the satellite, the way you value the asset is by the amount of bandwidth it has, I think you can see that in a lot of our markets where we're competing with other satellite operators, the bandwidth is really valuable. And so what we look at is, what is the competitive offer in the market that still allows us to earn a good return on our bandwidth sales and we want to do that on a diversified basis. We think there's great value in having these multiple outlets, because different vertical markets undergo different stresses or strains at different times, different geographic markets have the same thing. So we put some value in maintaining that diversity. We also get a lot of value out of having all these countercyclical peak demand. So one of the things we emphasize in bandwidth is, people look at what the average revenue for bandwidth is, but it's like a utility. It's like electric power, you want it to work when you need it the most, right, you don't buy electric power so that you can have it on the average, you buy it for the peak. Same thing for bandwidth. So when we have all these uses and have different peak demands that we can combine them effectively and still meet all our obligations, we get even more value out of the bandwidth. So basically one of the things to do and this is one we're not going to disclose competitive information, but I think one of the things analysts can sort of look at is, well, how much value do we derive from bandwidth in each of these different markets. And then that's a way to sort of be able to turn the bandwidth that we have into revenue and then to look at how we're competing in those markets. We think we're competing really, really well in most of the markets and that will give you some sense of the growth. That's why we suggested these parametric approximations in each of the different markets. I know there's a bunch of work. We think it's worth it for us. We're going through it, because we think we can get a lot of value, but that's how we look at it. Ric H. Prentiss - Raymond James & Associates, Inc.: Great. That's really helpful. Thanks for all the details guys.

Thank you, Ric. Ric H. Prentiss - Raymond James & Associates, Inc.: Yeah.

Okay, so thanks. Sorry, we took a lot of time in our explanation. We really appreciate everybody's time and patience and look forward to talking again next quarter or sooner.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect everyone. Have a great day.