Welcome to Viasat's FY20 First 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 conference call for our first fiscal quarter of 2020. 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. Back to you Mark.

Okay. Thanks, Robert. So, we will be referring to slides that are available over the web. I'll start with an overview, and then Shawn will discuss the consolidated and segment of our financial results, and then I'll provide some additional color, we'll review our outlook and take questions. So, last quarter we talked about momentum carrying over from our fiscal '19 into fiscal '20 and that certainly helping drive our first quarter results, with 22% year-over-year revenue growth and adjusted EBITDA up 115%, compared to last year. Underlying sources of momentum include a significantly higher residential ARPU base, more In-Flight connectivity planes in service, and a more diverse base of In-Flight Connectivity Services, all compared to where we were a year ago. Plus sustained growth in government products and services orders has built a significant backlog and we see expanding opportunities to grow our addressable markets within the US and with close allies. Adjusted EBITDA growth is yielding lower net leverage. That's down from about 5x last year to 3.3x at the end of the first quarter. De-levering is due to our typical satellite launch investment cycle, revenue growth enabled by cost effective bandwidth and attractive geographic markets, and margins derived from the relatively low variable cost nature of satellite network infrastructure services, and also help to illustrate the longer term potential for free cash flow and de-levering offered by the ViaSat 3 constellation, even long investing in follow on networks. In the mid-term, we expect net debt to grow with ongoing investments in ViaSat 3 space and ground infrastructure, but corresponding adjusted EBITDA growth can maintain prudent levels of net leverage. Executing on a truly differentiated strategy takes persistence, the constancy of purpose and actionable market technology and business insights. We aim to use our vertically integrated systems technology…

Thanks, Mark. Our fiscal 2020 is off to a very good start, with year-over-year trends supporting the solid growth we expect in fiscal 2020, and beyond. But, all Q1 revenues of $537 million increased 22% year-over-year, led by 20%-plus percent growth in both satellite services and government systems segment, which more than offset the anticipated ramp down effects of lower comer [ph] terminal deliveries in our Commercial Networks segment. Service revenues were up $53 million or 24%, while product revenues were up $45 million or 21%. First quarter adjusted EBITDA more than doubled year-over-year to $97 million, reflecting in the operating leverage that underpins our service businesses. Adjusted EBITDA margins were 18%, at nearly 8 percentage points compared to the same period last year, despite the growing investments we made internationally, as we expand upon our fixed and mobile broadband opportunities for us. Looking at each segment in government systems, we saw very strong revenue growth of $71 million, up 37% year-over-year. This was a result of strong product sells across many of our businesses, including record deliveries of our BATS-D handheld Link 16 radio and strong shipments of our small Tactical Datalink terminals. Segment Service revenues also grew strongly at 9% year-over-year, predominantly from government mobile broadband service offerings. Government systems adjusted EBITDA of $65 million represented a 49% increase over Q1 of last year. Gross margins were largely unchanged from the prior period, but a 3 percentage point decline in SG&A, as a percent of revenue, helped drive the higher adjusted EBITDA growth. Segment awards in Q1 were $215 million. As we've said in the past, awards in our government segment can be somewhat lumpy, it's just looking at our quarterly numbers. On a TTM basis, awards were nearly $1.2 billion or 31% higher than the same TTM…

Okay. Thanks, Shawn. I'll give a little color on some of our business areas. The chart on the lower left shows the steady progress we've made over the prior 5 fiscal years in Satellite Services and the trailing 12-month period ending with our first quarter of fiscal year 2020. We've had 6 straight quarters of sequential segment revenue growth catalyzed by ViaSat-2 entering service and the benefits of its technical innovations and bandwidth productivity, geographic coverage and flexibility. The chart illustrates 3 important points. One, long-term growth in the U.S. residential market which was natural entry application for us given the design trade-offs that were possible when we began the ViaSat-1 program back in 2008. Second, is the long-term steady diversification of the broadband services revenue base that's been led by the U.S. In-Flight Connectivity market, which was also a natural follow on to the U.S. residential market and that was enabled by ViaSat-1 bandwidth productivity and consistent with ViaSat-1 area design trade spaces plus our acquisition of the Wildblue satellite fleet. And then you got to see the long-term growth in total satellite services revenues, a product of the sustained growth in each of the first 2 U.S. markets and now augmented by regional and global growth enabled by the ViaSat-2 architecture and innovative business models, leveraging our network technology with regional satellite operators around the world. Focusing in on the first quarter results, segment revenue growth was largely driven by higher value, higher bandwidth U.S. residential service plans yielding a 16% ARPU growth compared to the year-ago period along with some modest subscriber gains. Then growth in In-Flight Connectivity Services revenue was also a strong contributor as airplanes and service increased by 76% compared to last year. So both of those markets benefit from our satellite bandwidth productivity…

[Operator Instructions] And our first question will come from the line of Ric Prentiss from Raymond James. You may begin.

Thanks, good afternoon. I want to actually start with just, Mark. You touched on a couple of times, how the ViaSat 3 constellations are really important and the timing could lineup nice with some aircraft. Can you just remind us of the launch and service dates that you're looking at? And I think you have diversified your launch vehicles to. So I just wanted to know what's the current thoughts on the ViaSat 3A, 3B, 3C?

That hasn't changed since we last talked about it. So we are talking about probably in the early part of calendar 2021 as the planned launch date for the first one. And then going into services, it's a new satellite so there is always a little bit of uncertainty with that architecture. But the main things that we did talk about previously are the launch agreements that we have executed allow us a much shorter orbit raising period. So that part has -- that part has condensed from months to probably around one month and then it will just be orbit test for the satellite before we go into service.

Okay. And how about like 3B, 3C, as you look into EMEA?

Those haven't changed. We've been looking at roughly 6-month interval from the launch of the Americas one to the Europe-Africa-Middle East one. And then we've said that we expect the launch of the third one to be before the end of calendar 2022.

Okay. And then you mentioned that you're already getting excited that you might start working on Viasat 4. Would that be after the 3A, 3B, 3C or is there a fourth ViaSat 3 that have to come out or kind of what's the thought on Viasat 4 rough timing as you look at the exciting demand for bandwidth?

We're not going to give -- I think right now we're going through, as I mentioned, the trade-offs on schedule, performance, cost. But what we're aiming for and what we expect is to have another pretty significant improvement relative to the ViaSat-3 series. So we've had ViaSat-4 because it's really kind of an embellishment of ViaSat 3. Think of it as a natural extension building on that technology. You don't have -- I mean its main objectives will be significantly more capacity per $1, big improvements in productivity. We'll talk about where we'll deploy it and what the schedule will be probably later this year as we complete the definition. But think about the returns of not -- a much reduced level of R&D to get to that solution versus what we went through with Viasat 3, except March that had more of an extension and be compatible with all of our ground that work.

And then, you also mentioned LEOs, you've got the Link 16 in there and that you might be able to work with some of them or collaborate with some of the LEOs that are planned out there? That's probably one of the top questions we get from investors, what are these potential new billionaire space-club LEO constellations mean, will they get funded? What does it mean? So maybe just opine a little bit on how you see the Space, pun intended, playing out over the next few years.

We've got a view on what makes for the best capital investments and I think that we really like our approach, because it allows us to deliver them. We think the most bandwidth per dollar invested into the places that have the most demand and that we can reinforce those. It's really difficult to do with those earth orbit satellites, we've spent a lot of time examining the filings. We think we understand what their approaches are. Some of them have some really innovative payload architecture. I'd say we still think ours is probably a better investment. It doesn't mean that some of them won't be deployed to some extent. One of the things we've mentioned multiple times is combining our geosynchronous satellite with either lower latency terrestrial infrastructure and, in some cases, possibly with lower latency LEO satellites, if they're available to deliver this hybrid GeoLEO experience. We're actively working that with some of the satellites. I think it's a very technically complex space, but I think if you look overall, we think it's going to be really hard for these LEO systems to deliver the same type of bandwidth economics, which means that generally they would be subject to either lower volume caps and we would be at the same point in time and the bandwidth would be significantly more expensive. We think the market really wants low cost bandwidth.

All right. And your comment there on low latency terrestrial set relate back to some of the CAF II funding, you got and how it might Link with the ViaSat 3 constellation?

No, no. The CAF II funding is really all based on purely satellite-based geosynchronous service. What we've alluded to about building hybrid networks with terrestrial, is essentially putting a router in a user's home that allows them to optimally combine satellite bandwidth with some terrestrial bandwidth. It's not as fast as the satellite, but has lower latency and that by combining those two, we can create the effect of high-speed, high-bandwidth, low latency communications. That's what that refers to, we're kind of in early Alpha testing now and we are aiming to expand our testing of that this year.

Great, thanks.

Thank you. And our next question comes from the line of Simon Flannery from Morgan Stanley. You may begin.

Great, thanks very much. Good evening. Mark, you talked a lot about the IFC business. Can you give us a sense on the Ka/Ku product? How much appetite are you seeing potentially for customers buying that, in the next year or two, or rather more interested in waiting for ViaSat 3 and going with the pure Ka/Ku report approach? And then on the IFC revenues, what are the trends in average revenue per aircraft and usage that you're seeing there? Is that something where there continues to be -- not as the aircraft online moderates with the American fleet migrating over, are we going to see potential for upside in ARPU over the next year or two as usage grows? Thanks.

Okay. Thanks, Simon. On the Ku/Ka, what we wanted to do was to engage with airlines now on global routes. And as I mentioned, there is several different markets, think of it as some retrofit opportunity in there, where there are planes that are already in service and depending on where those things are, good candidates for Ka/Ku now. Because, for a number of them, a large fraction of their seat mile expectations are in areas where we have Ka band and the Ku provides continuity and basically this same level of service that you would get from any other kind of activities service in those KU areas. Then there are some that are depending on the time, the delivery date of new aircraft where the Ku/Ka is also interesting. And then also, as you alluded, having the Ku/Ka product has really brought us into the conversation with airlines that are taking delivery of new aircraft in, say, the 21 or 22 timeframe. And, we don't have any announcements to make today, but we will have a number of interesting takers on the hybrid Ku/Ka terminal. We're seeing good interest in that, we're making progress on Type certifications for that. And then, that also led to some discussions with airlines who, when they look at the timeframe of their airplane deliveries and maybe the uncertainty associated with that and the delivery of our ViaSat 3 network, basically saying, "well, okay, given the fact gaps that small, we'll just go, okay". So, we're seeing some of each. We're hopeful that in the next quarter or so, we'll be able to talk explicitly about some of those deals. Then on the bandwidth utilization, yes, I think the general trends that we're seeing are just reflecting internet usage on a global basis. More and more people are interested in using the Internet on-board airplanes. In those that are using it, are tending to use more bandwidth, just because there is more media voice if, think of it as music and video embedded in social media in websites. And then also, in the streaming services. So, we're seeing more. We're also delivering more services, so that some of that comes from us being a prime contractor. And, for instance, if you look at our expanded agreements with JetBlue and United, each of those agreements involve us being a prime contractor and seeing more and more of those aircrafts converted to us being the prime contractor. That increases our responsibilities and revenue. And then finally, as we add services like broadcast TV, which we've done on American wireless IFE, you'll see that coming on additional airlines as well, and then some of these innovative services like the arrangement that we have with Apple and American Airlines for free Apple Music. All those are contributing to growth in revenue per aircraft. So that's that, plus the number of aircraft or what's driving our In-Flight Connectivity revenues.

Great, thanks a lot.

Thank you.

Thank you. And our next question comes from the line of Phil Cusick from JP Morgan. You may begin.

Government strength has been really amazing and starting to look like a trend, especially with all these different backlog categories. Is there a reason to think that this drops back to a lower level, and again recognizing that there is lumpiness here, is this level a better norm to assume going forward?

Well, I wish we could do 35% growth every quarter. We've been pretty consistent in the 10-ish plus or minus that, so like a low double-digit, percentage growth over the last few years. It's lumpy. I think that's probably a safer outlook for us. As we grow backlog and these IDIQs and get more confidence, I think if things change, we'll probably say that, but that double-digit, that's a good safe number.

Got it. Double digits are pretty big, right. And now that we're thinking more about the Viasat 4 generation; how should we think about R&D overtime? Should we look for this to ramp back up to the levels where it was a couple of years ago?

No, one of the things Shawn mentioned before and I think you saw it this quarter, is we came at a trough, at about 5% of revenue and this quarter, I think we're at the 6% range and that's our budget going ahead. If we're going to deviate from that we'll probably say something, but I think to the point that Rick made about the next generation of that constellation is, there was a lot of new stuff associated with ViaSat 3 and then the next generation is really using those tools. In a way that should involve much less R&D, both in the space side in the ground side. And so we're just doing that trade-off. The main point we wanted to get across on Viasat 4 and that next-generation constellation is to not think of ViaSat 3 as a thing or an endpoint, think of it as the first of a series, and that there is a lot of growth in performance and productivity, that's the measure we keep coming up with. And if you look at, using that contrast with these LEOs, I think some people think that LEO itself are a thing, and actually if you look at what's going to make a LEO constellation good, it's really in the payout architecture. We think we really like ours and we think it's really scalable, in contrast to some of what it would take to do, some of these LEO systems and that's the point we wanted to get across. We've done most of that work already.

Great. And one more if I can?

Just one thing Mark, the first thing about government side ViaSat 3; you're looking at how the government is going today when ViaSat 3 gets up there. We believe it's going to have a big impact on our government.

Yes, that's true. Go ahead.

Got it. And then last one, if I can. You put in the press release a discussion of the 18-inch satellite antenna. What should we think about the target market there and what sort of conversations have you had already? Thanks.

Okay. Basically, there is application for a range of government aircraft, basically with the larger aperture which is supported by those aircrafts. We can get higher peak speeds and better airtime costs. And so that's the dominant reason for it. So, some of them are in the rotary wing or the hybrid aircraft market and then the larger business jet market. Those would be the kind of the types of applications for that. And it just makes for better economics for those applications.

Thanks, guys.

Thank you.

Thank you. And our next question will come from the line of Mike Crawford from B. Riley. You may begin.

Thank you. If I could just maybe riffle shot a couple of quick ones. One, you've got this nice jury award in your litigation against the Cassia [ph] Communications of $49 million award. Do you have a timeline for when the judge might add to that, given the extended period time of infringement?

Okay. We don't like litigation, but we litigate when we feel like we need to, we're gratified by the jury decision, but there still a bunch of things to happen. There is going to be some post-trial motions by both sides and there will be probably appeals. So, it's too early to really speculate about what will happen next year, what the sequence will be, but I think it's a good indication that we certainly felt like we had a strong case in the matter.

Regarding another company that has a lot of IP that you're on the Board of Mark, and have investment is Trevesware [ph], and is there anything you can comment on how they're doing with their waveforms and business prospects?

Yes. So, Charles, we are the majority owner of Trevesware [ph], essentially, it's a majority-owned subsidiary of ours, we're really pleased with the progress that they've made in defense terrestrial radios. That have been a pretty rapidly growing provider of specialty radios, mostly into the special operations and early responder community. But based on what's going on in the larger army, there is some really good growth prospects in there. Hopefully, that will play out over the next couple of years, but we're really pleased with what they've done in the technology that they bring in.

Okay, thanks. And then just on these non-developmental items like -- but the STT was certainly one of those. But we saw just on July 31 Army award for STTs. Does that mean that's a program of record or you can get funding from both sources for those still or?

Yes, what's happened with a number of our -- what we call something a non-development item product. What that means is, basically, that we develop the underlying product on our own funds. Then, there may be customization or specific applications of those two specific platforms or operational needs. When that happens, one of the things you'll see is that there will be an official DOD nomenclature for that product and then often once it achieved that state, they'll consider it a program of record. So, that's happened with the STT. It's really become adopted as the primary small form factor and, you've been around for a while, you remember that there is a program called, Joint Tactical Radio System quite a while ago, which didn't end up leading to production, but there was what was called a small form factor radio in that. One of our targets was that we would end up sitting in there is the small form factor radio and that's essentially what's happened, that product. So, now that's become a program of record in a number of applications, that's happened with several of our non-development items. I think it's in the works or is happening with the BATS-D as well. And so, when those things happen, what you'll see is that some of those customers will be less reliant on the IDIQ types of contracts and we'll have our own program of record awards. But that's a good sign of success for that product and it really is, I think the real market leader in this small form factor Link 16.

Okay, thank you. And then the final one just relates to real-time earth, and where you would put that on the scale of future revenue opportunities? And then related to that would be, how these new ground station as a service installations, with the 7.3 main addition factor into that versus offloading other, like Leo constellation, ISR data, beam-them-up to ViaSat-3 and back down through your ViaSat-3 ground architecture, versus these specialized locations.

Okay. Yes, I mean, it's a good question. I think it's taking a step back. When you think of the earth observation market in general, we're a lot more bullish about these proliferated small satellite, because with a lot of satellites you can see everywhere at once, and one of the big opportunities that can come with seeing everywhere at once is basically the opportunity to provide connectivity both to test the satellites so that they're looking at exactly the right place, with the right sensors. Then, the other is to get information in real time instead of hours later or days later. So, if you look at what's happening, there is a lot of creativity in small, relatively inexpensive earth sensing satellites, but building a ground network for each of those would tend to dominate the total system cost for that. So, there's two ways to go about at least two and a half years, so if going about turning this into a real-time business. One is to have a whole lot of ground stations, but that is probably limited, it's the first and the easiest way to do it, but ultimately may be limited especially over ocean areas. The other one is to do what's been done in the government in the defense space for quite a while, and that is relays from high orbiting satellites. So, one of the things we're are looking at, is to build some relationships with a real-time earth ground network and that includes relationships with satellite sensing operations, as well as ground systems around the world. We're doing that in multiple ways, some of it are on our own, some of it as a technology provider to other players. And then, the other thing is the thing that you mentioned, which is ultimately, if you really want to be able to get real-time anywhere in the world, doing relay through geosynchronous satellite system, especially one with really high bandwidth, is the best way to do it, we think. So we're working both. This is a good example of us testing market entries and what we think is a prudent way, but in a way that we think is consistent with the long-term trends. I think it's worth noting that we're doing it. There is still having to do.

Okay, all right. Thank you very much.

Thanks a lot, Mike. Really appreciate your questions. So, I think that's it for questions. Thanks a lot everybody for joining our call and we look forward to speaking again next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.