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

Okay, thanks. Good afternoon, everybody, and welcome to ViaSat’s earnings call for our fourth 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, our 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. That said back to you, Mark.

Okay, thanks, Robert. So we’ll be referring to slides that are available over the web. I’ll start with a summary of financial highlights and an overview and then Shawn will discuss the consolidated and segment level financial results, I’ll provide some additional color on the businesses and then we’ll review our outlook and take questions. So, financial results for the quarter and full fiscal year were exceptional. Fourth quarter revenues were up 27% from last year to a record $557 million and revenues for the full year were up 30% to a record $2.1 billion. All operating segments achieved double-digit top-line growth in both the quarterly and full year periods. Fiscal 2019 contract awards were $2.4 billion, up 42%. And that excludes about $1 billion in recent multi-year defense, Indefinite Delivery Indefinite Quantity or IDIQ contracts and our AMSS contract options that aren’t counted in backlog. Those IDIQ and contract options are not definitive orders but have often led to firm orders and are indicative of demand. Top-line growth enabled even stronger adjusted EBITDA growth. Our fourth quarter adjusted EBITDA was up 95% year-over-year to $108 million, while fiscal 2019 full year adjusted EBITDA was up 44% year-over-year. So we’ve increased revenues at a 14% compounded annual growth rate for the last 15 years. This year at 30% is the fastest growth rate in that entire period, next closest was the year we introduced ViaSat-1 and that year was highly driven by residential broadband. This year was way more diverse and we believe more robust including additional satellite services and associated equipment plus other defense and commercial products, all in attractive growth markets where we hold strong competitive positions. Over the same 15 years, we’ve grown adjusted EBITDA at 16% compounded annual growth rate and this is the second best…

Thanks, Mark. As Mark just summarized, our financial results were very strong for the quarter and full fiscal year as we executed well on multiple fronts. We also crossed over a new annual revenue threshold, reaching $2.1 billion for fiscal 2019 comprised of solid growth for other businesses. For the quarter revenues increased between 21% and 31% across each of our three main segments with record revenues in satellite services and government systems. And we’re seeing the bandwidth economics we’ve invested in covered into growth with year-over-year adjusted EBITDA gains surpassing top-line performance for both the quarter and the annual periods. So starting with the quarterly results, our satellite service segments saw the highest percentage growth for the quarter of 31% year-over-year reaching a record of $190 million with sequential quarter revenues increasing 7%. This strong year-over-year performance was due to higher ARPUs, up 15% year-over-year and 5% sequentially. As we execute on our premium service strategy across our residential and our enterprise markets. We’re seeing higher customer satisfaction and lower churn rate and improved operating efficiencies, which contributed to the Q4 adjusted EBITDA gains I mentioned earlier. And IFC, we saw another quarter of strong revenue increases with an in-service fleet double the size we have last year, even with the approximately 40 737 MAX planes that have been grounded. Our services on board continue to broaden as our airline partners find ways to monetize the platform to differentiate themselves with unique offers like Apple music on American Airlines, Integrated IFE solutions and other entertainment offerings. Overall, our satellite service segment revenues continue to diversify with revenues other than U.S. fixed broadband businesses, now having grown to approximately 24% for the current quarter. On the international front, the fourth quarter of fiscal 2019 presented opportunities for expansion, coupled with…

Thanks, Shawn. So I’ll start my product list satellite services highlights. We grew quarterly satellite services revenues and adjusted EBITDA sequentially and year-over-year on a broadening vertical market space. U.S. fixed broadband subscribers grew slightly consistent with our strategic focus on higher value plans and in-flight connectivity tails in service continue to increase significantly more than doubling from the prior year period. We’ve also continued to grow Community WiFi sites and revenue in Mexico as well as internet connectivity to schools and other government sites in Brazil with our partner Telebras. We’re surfacing and overcoming operational and logistics challenges and believe underlying demand for affordable connectivity is strong. The chart in the lower left corner is derived from total satellite services revenue ending U.S. fixed subscribers for the period and ARPU. It makes several important points. You can see total satellite services revenue for fiscal 2019 is that a record high as is U.S. fixed broadband. Other satellite services led by IFC are also at record levels and continue to grow even faster and made up 22% of total satellite services revenue for the fiscal year according to this measure that was sequentially higher quarter-over-quarter and showed substantial growth year-over-year. We’re working to continue all these trends in fiscal 2020 and beyond. That is continued total revenue growth and continued U.S. fixed broadband revenue growth while building a more diversified and robust portfolio. We make new investments when we enter new vertical or geographic markets or support new platforms, but you can see we achieve robust adjusted EBITDA growth nonetheless. We aim to continue investing to expand our target markets in fiscal 2020 while also achieving attractive adjusted EBITDA growth. So on to in-flight connectivity highlights, we’re really pleased with our rapid growth in IFC and impressive market share gains…

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

Thank you. Good evening. Mark, I was hoping you could start off with, you’re talking about the Telebras partnership. You’ve put some numbers in the press releases. I think, there’s around 4,500 points sort of lit up at this point and with a target of I think 15,000 by the end of the year. Can you give us any sense of the economics of that business? Perhaps maybe comparing it to the village Wifi business that you’re doing in Mexico? Just to give us a sense of the other revenue opportunity there?

Our business in Brazil is going to be on a diversified basis as we’ve talked about before in some ways similar to what we’re doing on our own satellites. And we have different agreements covering those different businesses. So, the ones that we’ve done so far are under what’s called the GESAC program, which is really an agreement between Telebras and other parts of the Brazilian government to provide connectivity that basically Telebras contractually agreed to do and that was the purpose of that satellite. There are other businesses that are more like our Community Wifi business that we’ll be doing on that satellite and we may do others as well including mobility. But all those have really been pending the final court approval that we just announced this week. There’s a separate press release on that. So, I think we’ll go into maybe a little more depth on that, but the point of all that is just to say we really are just going to get started on Brazil this fiscal year, and we’ll probably be able to talk more about the business models once we have that going.

Got it. That’s helpful color. And then just a question on ARPU, I mean, you’ve had really impressive ARPU growth over the course of this year that’s obviously helped drive your service revenue growth. You did comment that you thought it would – the growth would understandably moderate this year, but is there kind of a theoretical upper limit on that? I mean if you look at sort of your high-end plans, sort of where they are, how should we think about ARPU over the next year or two in that consumer business?

Okay. So, for instance – so two points, one is –we pay a lot of attention to what’s going on in the residential broadband business in general, but if you look at what’s going on, let’s say the cable environment, which represents the majority of residential broadband in the U.S., ARPUs are going up pretty substantially in that field, driven by mostly what’s going on with video. And so, you’re seeing video and bundling with unbundling tends to takeaway discounts so that people otherwise would get for broadband, so broadband prices are rising. So, there’s some amount of ARPU updraft sort of industry wide. And then we’ve had, let’s call it some incremental ARPU gain that’s due to migration primarily of the big factors are migration away from wholesale business. So, we have a higher proportion of retail versus wholesale . So, that’s a big contributor to ARPU. And then the other is, we have emphasized these higher value plans, but it wouldn’t be appropriate to think it’s all just a phenomenon for us. If our plans are competitive and we believe our speeds are and we’re providing more video, more bandwidth per subscriber, more video content, some of that updraft is just industry wide. For us, and I think this quarter showed a little bit that there’s clearly trade offs that we can make in – that we can and we’ve done lots of tests and we’re going to continue to test this that we can get more subscribers if we offer more lower priced plans, but it’s just not clear that that’s a good economic trade for either us or our subscribers. So that, I think that’s the part where I would describe it as market discovery, marketing refinement, and more and more localization of the service plans that we offer. And it’s a little bit hard to predict, but I think that you could sort of think of it, there’s a little bit of a trade of ARPU versus subscribers for us. But as we’ve said before, the tradeoff that yields fewer subscribers and higher ARPU is better for us economically and it seems to be better for those subscribers that buy those plans. So, we would tend towards that.

Fair enough. And then one more for me. The Link 16 LEO order, I mean for the single satellite is pretty intriguing. Is there anything more you can say about what might be behind that? Are you privy to what that constellation might look like if they were going to go forward with it? Or is there any other color you can provide on that potential opportunity?

Well, right now, I would say we’re the leading industrial provider for that. So what the system ultimately turns out to be and how big it is, I think that will be influenced by how well we do in the concepts we put forth on it. I think it’s a good endorsement of our skills in tactical networking in Link 16 and in space, but it’s a little early to tell. It’s a rapid prototype. So, we’ll learn more. But I think that the trends that I described in DoD space, which are pretty evident just by the headlines that you see about space and the need for a space force, a space development agency. Although those things are indicative that if we can deliver more capability and the capability in a nutshell is what we described in the press release, which is very, very valuable data link into more of beyond on-site capability instead of just on the site. That’s the fundamental value proposition. I think to the extent that we can do that and integrate it with existing and plan terminals, it’s a powerful opportunity.

Sure. Great. Thanks for that Mark. Appreciate it.

Thank you, Rich.

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

Thanks. Good afternoon.

Hi, Ric.

Couple of questions. First, I think you mentioned that the final full settlement of the insurance came in the March quarter. How does that affect the financials? How was it booked through on the income statement side?

So most of the cash just was offset to the insurance receivable and how we recorded against the satellite. So the impact to the income statement was pretty small. I think for the quarter, it was around $3 million and $3.5 million.

And was that into SG&A that that would have come in as…

Yes, less than SG&A.

Okay. And then you’ve called out a couple of times about your entering into more markets in LATAM, Europe, and Asia. Some of it was in the quarter. Can you help us frame just a rough size about how much that impacted the quarter and you’re expecting it could impact the coming quarters? And is that in cost of service or is that also an SG&A?

Yes, it sort of different pieces to it. I characterize it for the quarter and we’re just getting started. So maybe to the tune of a couple million is a good number, but that is kind of between the lines.

Okay. And I think you also called out the seven 737 MAX is 47 aircraft grounded, starting to affect obviously the – now the June quarter. How should we think about the ARPA and the effect and what that drag might be and when do you assume that those was return to flight?

Yes. Turn it back to you.

Okay. I think I mean, you can look at it as a fraction of our fleet. It’s 4%, 4-ish percent of our fleet. But those planes get used a lot, I think that – we don’t profess to know anything more than what the market as a whole knows. So there’s some hope that there’ll be in service again during the September quarter. We’re going to do the best. We’re going to do what we can to support our airline customers. And I think that you can – given that size of our fleet, you could think of it as having that roughly proportional effect on revenue in that space.

The only thing I’d add to that Mark is, we have that doesn’t mean they’re grounded but there would’ve been more that have [indiscernible]. So the longer it goes versus our forecast, the short term impact is larger.

Yes. Right. We have more installs and so the in-flight, the [indiscernible] slipped out a little bit.

Yes. I mean that’s obviously what we missed goes away, but then it just comes back when they start – when they start flying again.

Okay. And then I think I saw a story that you guys had gotten STC on some what they called Super Midsize Cabin Business Jets. Can you talk a little bit about what you see in the business aviation side of things or what kind of antenna items you’re looking at there?

Yes. So the main thing we’re trying to do or are doing in the middle of doing with our business jet service, which we’ve had going for quite a while though has been Ku-band and the big – kind of the big change with ViaSat-2 is a much bigger coverage area and our ability to provide Ka-band coverage for all of North America now and all of Europe and the transatlantic that serves a big portion of – bigger portion of the business jet market. So our approach there has been I think look at scaling up has really been to deal with the OEMs and to provide Ka-band as a basically a line fit option. So that’s one of the options that you can choose. We think our Ka-band services really attractive and would be availability of these Ka-band antennas and the STCs that we’re announcing and along the way in the OEM agreements. We think are the first part of our strategy to build up that until we’re looking at some combination of some will be swap outs of existing customers. Some of our customers are just looking to add Ka-band to their Ku-band, but we think the biggest portion of growth will be on new planes that are line fit. And we’ve announced a few OEM agreements to be able to do that.

Okay. Sounds good.

We are talking about hundreds, I mean that’s where we are. We’ve been in the hundreds range for quite a few years in that space and we’d like to grow that pretty significantly.

And the timeframe to grow it really is into the orders or is getting line fit and getting them to produce and what you see market per year that they might go to get those up to?

I don’t have the numbers at my fingertips for the production rate on these planes and look, we’re still competing with others. I think that the – basically part of what’s helping us a lot is the quality that people associate with us due to our commercial in-flight connectivity that people look at the in-flight connectivity we’re providing on commercial airlines and see the difference between what we’re doing versus others. And to the extent that they can get that on their business jet, that’s pretty attractive. But we’re going to need to develop additional channels beyond just the line fit and [indiscernible] to really move the needle on this. So it’s kind of – it’s a multi year long-term project, but one that we’re pretty positive about.

Great. Thanks Mark. Thanks, Rick.

Thank you.

Thank you. Our next question comes from Simon Flannery with Morgan Stanley.

Thanks a lot. Good evening. I wonder if we could come back to ViaSat-3, I know what you say in the release, you’re progressing through the final module test and validation for the first two payloads. And you’re nearing final migration to the capital portion of the project, perhaps just update us on the timeline when you think you’ll – the latest thoughts on launch and in-service for the first couple and then maybe Shawn can you just take us through how that flows through with the income statement and cash flow statement. How do we expect OpEx and CapEx to trend as a result of that the kind of final stages before launch.

Sure. So I think on the timing, there’s not any real change to what we told you guys last quarter. That there’s no new updates there. As far as how just think about the pull through. Income statement wise that what we need to do is finish out the development on the ground. So when we think about next year, our R&D levels, I kind of noted, we don’t expect those to go down. We kind of think of those around this 6% of revenue target and that’s probably a good mark and that incorporates a lot of activities related to the ground R&D wrap up. And then on the CapEx side, obviously, next year is going to start to grow upward. Taking out the impacts of the insurance that we have this year to FY 2019 I think our capital was $675 million or so. So, expect that to maybe tick up next year, 300-ish mark, somewhere around there. I mean we can have milestones that move from year to year, so that they can flip over $50 million easily to one year to another. But we do expect that ViaSat-3 which is the dominant part of year-over-year growth to tick up next year.

So just to be clear, it would be $300 million higher than the underlying $675 million.

Yeah, I think that what we’ve said is, think about how we’re growing year-over-year, and at the upper peak value I think you would add that onto this year.

Perfect. Okay, great. And then just coming back to IFC, you talked about doing more internationally. And can you just talk about how that plays into ARPA, in IFC and maybe just expand a little bit on the announcement with China Satcom and the potential there?

Okay, I’m sorry. I’m sorry, Simon. Could you please say the first part again?

Yeah, the first one was just on the IFC ARPA. What do you see as the trends as you get into more international markets and then with the China Satcom deal?

Okay. So, the ARPA trends really depend on the strategy of the airlines. So some airlines, including international ones like Qantas have come up with really comprehensive strategies about with free in-flight connectivity, sponsorship programs, sports, entertainment, things like that. And so, ARPA on those is – can be higher than other domestic ones because the way they’re using it. Other airlines have that basically are just more entry level, may have a paid WiFi product and that may be in line or less depending on how often the planes by, what the take rates are for those particular markets. So it’s difficult to pinpoint a trend that isn’t tied to the way the each airline wants to use it. What we’re working on with the airlines are trying to help them, show ways – find ways where they can both get more passengers engaged because we think that makes most senses as they’re going to put the equipment on, they try to expose it to more passengers and how they can get more third parties to participate in those. And so, the one that we started in this March quarter that really – a lot went to market in the March quarter was the Apple agreement with American Airlines. And that’s gotten a bunch of attention. And so, I think that basically opening discussions with a number of both domestic and international airlines about how they might use the in-flight connectivity. And I would say the way those application trends evolve is going to have the biggest impact as opposed to the mix of domestic and international planes. Now that’s in a couple of other things. There’s – we’re doing international in a couple of different ways. One is, you know, one example would be in Australia where we…

Great, thanks a lot.

Thank you, Simon.

Thank you. And our next question comes from Philip Cusick with JPMorgan.

Mark, can you comment on M&A in the space. We have Inmarsat going private. Hughes seems to be cleaning up their structure. Do you think further consolidation makes sense for ViaSat given what’s going on in the ecosystem?

Well, I don’t know. I mean, there are elements of different organizations that could generate synergies and savings and – or revenue expansion opportunities, but most of the organizations that are involved are multifaceted and multidimensional. So, it makes it complicated. It’s hard to come up with a simple answer in the absence of something more specific.

Okay. And then on the government business, we saw a new record this quarter and revenue grew more than 20% in 2019. I’m just trying to think about how we should think about that pace being maintained in 2020 given the current backlog?

Well, I think I think there’s a good shot that we can grow in the 10-ish percent range. We’ve been above and below that a little bit, but right around there I think from a book to bill basis, you’d think we could do better, but some of it has to do with the timing of deliveries on those things – orders. I think in general they tend to go over on 18-ish months timeframe for the firm orders. So not all of that will fall in the quarter in the fiscal year, but we do go through these peak periods like we have in the last couple quarters where there’s just a lot of demand for deliveries in those periods and we were able to accommodate them. I wouldn’t count on that all the time. So I think 10-ish percent is probably a pretty good target.

Okay. And then one more if I can, Mark, you mentioned that that given all the investments that’s needed out there, not all of the revenue growth will come through on the cash flow line or on the EBITDA line. Shawn, you mentioned R&D picking up back to around 6%. Any other costs that we should be thinking about ramping in the next year?

No, I think those are the two primary drivers. It’s just keeping in mind that the R&Ds are ticking down. We’ve got some incremental investments and that we are investing and expanding markets both in fixed broadband and mobile broadband application.

Great.

It’s Rick…

Okay…

But one of the things we talked about was Ku-Ka for instance and then we talked about the international expansion. We have more – there are more STCs in those markets. And then obviously the community WiFi in an emerging market space. So those are areas that – the revenue isn’t catching up yet to the investments that we’re making. We’re making them because it has when we previously made those investments and we think it will.

Understood. Thanks, Rick.

Okay.

Thank you. And our next question comes from Chris Quilty with Quilty Analytics.

Rick, I want to follow up on the Ka-Ku antenna. I know a couple of years ago you were kind of only focusing on that for the government market. And just generically, what has changed here in the last couple of years that obviously you had some development efforts under the cover and you’re now aggressively moving with that product. Is that just due to the timing of the market opportunity that’s boiling up and when ViaSat-3 comes online? Or do you think that’s a product that kind of has staying power after ViaSat-3 as global?

Mark, why don’t you go ahead?

Yes – so, yes, basically we deployed the Ku-Ka in the government markets. It worked well. The customers like it. And we’ve had a lot of inbound – we have a lot of inbound requests from international airlines, who are really excited about ViaSat-3. And so the main thing we’ve been doing with them is lining up the timing of either their new aircraft deliveries or their planned conversion retrofit programs. And it basically – and also the other thing, which is a little bit of a fact of the space life is just there’s some uncertainties in getting satellites on orbit, which we’ve seen whether it’s launch issues or problems with other satellites that affect the launches or whatever. So the notion that for basically on a wide body, the application of a Ku-Ka is makes a lot of sense. It’s kind of an insurance policy against the timing of satellite launch. It also allows us to bring a lot of these aircrafts into service much more quickly. And one of the points that I think people don’t always appreciate is when we started with JetBlue has been really –really a great launch partner for us in the in-flight connectivity space. Everybody has been very impressed with their service, but until we got ViaSat-2 up, I mean, we only really served around 80%, I think I can’t remember the exact number, 75% to 80% of their seat miles because we didn’t cover the Caribbean. So one of the things that the international carriers are looking at is, is not just do we have 100% of their routes covered, but what fraction of their seat miles do we have covered and once we get into those, 70%, 80% ranges, it’s really interesting. And then if you can use Ku-band to fill in the gaps at a modest upfront cost, that’s a pretty attractive offer as well. So I think a lot of it’s really been due to the inbounds we’ve gotten and the enthusiasm about Ka-band and this is just a way to both accelerate that and to sort of backup the initial uncertainty around either launch timing or the timing of the different schedules.

Okay. And just to follow up, I think one of the other issues that you pointed out again a couple of years ago was both the kind of cost and weight as well as performance detriment that that product entailed. Have you been able to bring those more in line with traditional single band antennas?

So one is for the current configuration, mostly we’re talking about wide bodies. And so the – and the cost is – we believe the cost is attractive, the weight is – sort of the weight differential is kind of negligible on a wide body. The performance is really good. There is no performance impact whatsoever to the Ka-band and terminal – the Ka-band antenna. So I think those are the factors that that have made it really competitive and attractive.

So one thing I’d add is think about this as, again, best available network. So these – a lot of these aircrafts spend a lot of their times in our high capacity Ka coverage. So we’re really just talking about the fraction of the timer outside that coverage.

Understand. And final question just on coverage in Europe can you talk about with your partner there, what sort of capacity you feel you have for partner or airline expansion opportunities? Are you kind of stuck in gear for now? Or can you use the Ka-Ku as a way to expand until the ViaSat-3 comes online?

I think we’re well situated for capacity in Europe. Just based on some of our airline partners, we’re actually looking more at geographic expansion than capacity expansion in those regions and we have additional partners who are interested in helping us in those areas.

Understand, thank you.

Yes.

Thank you. Ladies and gentlemen, that concludes today’s question-and-answer session. I would now like to turn the call back over to Mr. Dankberg for any closing remarks.

Okay. So thanks a lot. I know we had a lot of material to cover and we thanks everybody for your time and attention for this quarter and we’ll look forward to speaking again next quarter.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may all disconnect and have a wonderful day.