Viasat (NASDAQ:VSAT) reported second-quarter financial results on Thursday. The transcript from the company’s second-quarter earnings call has been provided below.
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Summary
Viasat’s second-quarter results were solid and within targets, with expectations for over $225 million in free cash flow and capital expenditures between $850 and $900 million.
The deployment of Viasat-3 satellites is progressing well, opening opportunities in both commercial and government sectors, with expected revenue growth and improved financial flexibility.
The Defense and Advanced Technologies (DAT) segment continues to show strong demand, with expected mid-teens or better revenue growth for the full year driven by a firm backlog and new business pipeline.
Communication Services faced pressure, with a 3% revenue decline, but future growth is anticipated through Viasat-3 and other strategic initiatives.
Management is focused on reducing capital intensity and shifting from infrastructure investment to monetization and cash generation, with a strategic review committee assessing opportunities to enhance shareholder value.
Full Transcript
Tiffany (Conference Operator)
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. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad.
I would now like to turn the call over to Lisa Curran, Chief Enterprise and Strategy Officer. Lisa, please go ahead.
Lisa Curran (Senior Vice President, Strategic Finance and Investor Relations)
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.
Mark D. Dankberg (Chief Executive Officer)
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 three 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 in government and commercial applications; and the momentum in our government and technology businesses, and the Defense and Advanced Technology 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 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 flights 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 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 declines.
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. 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 upmarket 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 multi-year revenue growth outlook driven by firm backlog, an 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 represent 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 strengths 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 very 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. ERA, our multi-orbit aviation service, continues to represent a very attractive growth opportunity. Multiple airlines are evaluating ERA deployments, in particular, integrated in-flight connectivity and in-flight entertainment. Still only about one-third 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 non-terrestrial networking standards that enable the 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 build on our existing government and commercial business space.
Advancing this strategy, in September we executed a binding agreement with Space42 to establish Equitus, 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 required 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 funded 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 programs 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 the capital-intensive Viasat-3 phase is behind us. It offers more strategic flexibility. Each new opportunity is considered in terms of returns, cash generation, and alignment with shareholder interests. 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.
Lynn Shawn Duffy (Chief Financial Officer)
Thank you, Mark, thanks to everyone joining us today. A special thanks, as always, to 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 three strategic pillars of our financial framework: building our franchise, generating cash, and reducing our leverage. Those pillars drive how we allocate capital, evaluate investments, 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 two items impacting year-over-year EBITDA comparisons. First, we continue to invest in innovation reflected in elevated R&D, which is up 18 million. These investments support growth opportunities including PTSG, 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 4Q26, 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 in the prior-year fiscal quarter, elevated by, among other things, our $234 million South Kan 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 that fiscal 27 will be a very good 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 income. 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 3.2 times, a 0.3 times improvement versus the prior year.
Now let me turn to some segment highlights. In Communication Services, awards of 717 million declined 30%. Excluding the Southman 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 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 governments. Maritime revenue declined 8% as vessels in service were down. We ended the quarter with 1,990 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 continued 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 and 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 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 and Other, partially offset by good growth in Space and Mission Systems.
Year-to-date awards are up 6%. 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, base 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 PTSG 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 in 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, intensive operation. 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 Communication 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 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 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 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 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 let’s turn to our segments, beginning with Communication Services. Within Aviation, we expect revenue growth for the remainder of the year driven by ARPA 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 in meeting the demands of our customer base. Our operational performance, continued innovation, and growing backlog have established a solid foundation for robust multi-year 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 roadmap. While we recognize there’s hard work ahead, we also have a lot to be confident about. Our priorities are clear: improve 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.
Mark D. Dankberg (Chief Executive Officer)
Thanks, Gary. I’ll summarize with these three 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, 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.
Tiffany (Conference Operator)
As a reminder, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one. Again, we kindly ask that you limit your questions to one and one follow-up for today’s call. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Brent Pinter with Raymond James. Your line is open.
Brent Pinter (Analyst at Raymond James)
Hey everyone, thanks for taking the questions. 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 one or two 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?
Gary Chase (Chief Financial Officer)
Yeah, 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 affect 15 to 20% of our aviation revenue. And just to clarify, that’s 15 to 20% of aviation revenue. We make several points on that and, you know, 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, 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 costs, and we want to make sure that we’re doing everything we can to manage those appropriately 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 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 pipe 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, you know, 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, you know, what Mark was talking about just a second ago as he was nearing the end there on the, you know, the continued progress and 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, you know, 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, you know, drive the best long-term outcomes we can.
Did you want to?
Mark D. Dankberg (Chief Executive Officer)
Yeah, and just in terms of what it means for the market itself, you know, 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 we’ve been waiting for Viasat-3 really to be able to perfect that. So that is happening, and 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 depending 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, multi-band.
That works really well. So just to be clear, we think we’re going to compete. We’re going to compete well in the long run because we don’t really 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 this integration of in-flight entertainment and connectivity—that even when you put connectivity on, entertainment is a big part of that. So I think that’s one of the areas that we see that we’re pretty well differentiated.
Brent Pinter (Analyst at Raymond James)
Okay. 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?
Gary Chase (Chief Financial Officer)
Okay, yes. You know, 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. You know, one of the things that does seem to be true is that the value of our assets—when you think of, you can think of slicing them and dicing 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 some 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 those are the things that we’re doing and absolutely, we’re maintaining that view.
Brent Pinter (Analyst at Raymond James)
Great, thank you.
Tiffany (Conference Operator)
Your next question comes from the line of Tim Horan with Oppenheimer. Your line is open.
Tim Horan (Analyst at Oppenheimer)
Thanks, guys. A lot of moving parts on the communications services side. You were down a little bit this quarter, you know, year over year and sequentially. Can Viasat-3 here, can that reverse that? You know, I know there’s a lot of moving parts, but do you think communications services—well, can we get some color on what happened in the quarter and, you know, is this enough that you can grow communications services low to mid, you know, single digits over time?
And when can we expect that to happen? Thanks.
Mark D. Dankberg (Chief Executive Officer)
Yeah. 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 four 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 was just—there was nothing to do prior to getting Viasat-3. So 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., which 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: to improve, stabilize—the words that we use—for stabilize and improve 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—you know, 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, you know, we’ve got a market that’s about a third penetrated overall. And we still see growth there. There are things that we’re doing to do that.
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, what’s called military Ka-bands. That is a valuable thing for both us and allies, and that’s uniquely enabled by Viasat-3. So we have some tailwinds there. I think in the overall, you know, 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.
Tim Horan (Analyst at Oppenheimer)
And do you think we’re in a position to start to grow, you know, for the next fiscal year or just, you know, any color on the timing with the new satellites?
Mark D. Dankberg (Chief Executive Officer)
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, you know, right near the beginning of them. And that’d 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, you know, we’ll provide more color when we’re through that exercise.
Tim Horan (Analyst at Oppenheimer)
Thank you.
Tiffany (Conference Operator)
Your next question comes from the line of Brian Koontz with Needham and Company. Your line is open.
Brian Koontz (Analyst at Needham & Company)
Great, thanks. We talked about DAT and the space and mission systems segment there. Can you maybe, you know, 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? Thank you.
Mark D. Dankberg (Chief Executive Officer)
Okay. Yeah. Okay. So on the mission systems portion, well, DAT overall, we think we really like our portfolio there. You divide it into three 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 has its own growth areas. The tactical radio, tactical networking part. Lots of emphasis in the government on combining multiple different transmission systems 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 fun—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. Right now we’re in kind of a mix of development and certification phase and production phase.
You’ll see over the next couple years more and more of that portfolio switching to production, which is really good business for us. On the space and mission systems side, there’s been a lot of focus on LEO broadband. One of the main areas is maintaining our geosynchronous assets. A whole bunch of U.S. government missions 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 TDRS relay fleet.
And there’s a good article that was published on that. The underlying forcing function is there are a number of very important, both 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 two satellites. But over time there’s a pretty big and enduring opportunity there.
That goes really well with our PTSG award, which is really intended to modernize, help build more resilience into the wideband gapfiller or PTS 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 Viasat-3. Viasat-3 demonstrated some extremely valuable and state-of-the-art beamforming phased-array in-space technology.
We did the payload part. What we’re now getting into—and this is really good to get this through funded contracts—is the complete satellites using much, much less expensive underlying bus technology. And that’s one of the things we’re aiming at when we talk about reducing capital intensity. 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 Gary mentioned is we see currently about a $2 billion target for FY27 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 at broadband frequencies, but also in the mobile-satellite services frequencies as well.
So all these things taken together, I think we are pretty uniquely qualified 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 very unique capabilities Viasat-3 has. So anyway, you get that idea. That’s an area that we’re definitely excited about.
Brian Koontz (Analyst at Needham & Company)
That’s really great. Very thorough, Mark, really appreciate it. Thank you.
Tiffany (Conference Operator)
Your next question comes from the line of Edison U with Deutsche Bank. Your line is open.
Edison U (Analyst at Deutsche Bank)
Great. Thank you for taking our questions, as always. 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?
Mark D. Dankberg (Chief Executive Officer)
Okay, yep. So first of all, the first thing I gotta 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 in that plan. I think that we have multiple avenues to create value. We’ve talked about some of them. We kind of feel like, as I mentioned before, I think the board agrees, is that we’re seeing evidence that we have 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 timeline—the board’s timeline—and targets that the board is trying to motivate, incentivize management to achieve.
Edison U (Analyst at Deutsche Bank)
Understood, understood. And then, you know, we saw the news about TerreStar and I guess we’re curious, you know, maybe can you provide a little context on signing the MOU? And are there other types of similar engagements going on to that?
Mark D. Dankberg (Chief Executive Officer)
Yes. So the MOU with TerreStar relates to the mobile-satellite service bands, L-band 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 TerreStar and Canada are advanced and representative of what the opportunity is here. 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. 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—is that if they did it purely with their own sovereign constellation, the only place they could use it is over Canada.
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 Equitus to share. So that if the Canadians were to use capacity on Equitus when Equitus flights 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 Equitus 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 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 underlying premise. Equitus 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 of. 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 constellation. 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 we complete all of the regulatory approvals required to form the entity Equitus.
And then the first big step will be for Equitus to place a prime contract for its initial constellation. Those are the next big steps.
Edison U (Analyst at Deutsche Bank)
Thank you.
Tiffany (Conference Operator)
Your next question comes from the line of Justin Lang with Morgan Stanley. Your line is open.
Justin Lang (Analyst at Morgan Stanley)
Yeah, hi. Thanks for taking the questions, Mark. At DAT you mentioned moving up market 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. Thanks.
Mark D. Dankberg (Chief Executive Officer)
Yeah. 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 payloads, mostly on subsystems, modules, or components. So one example 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 processing. For instance, we did the radio frequency processing 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 satellites 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 getting to the point where those payloads 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. You know, for instance, on the PTSD program, we partnered with Rocket Lab who provided us with a low-cost bus, but we did the payloads. 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, I think we’re seeing the outcomes of that now. Plus the other part of it, which I don’t want to, 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 if you look at the assets that we have, global assets in satellite ground operations, underlying ground network, the ground capabilities that we built and also demonstrated 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.
Justin Lang (Analyst at Morgan Stanley)
Got it. That’s super helpful. And then maybe just one back on Equitus 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. Thanks.
Mark D. Dankberg (Chief Executive Officer)
Okay, so one of the points, you know, one of the points that we’re making with Equitus is that it’s a new company. It’s, 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, you know, trusted entity that multiple partners can participate in. So the main, you know, right now where the first levels of interest for sure are these countries or regions that want a LEO system but, you know, 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 infrastructures makes a lot of sense to those users. Some of them may be, you know, they can participate in this constellation in multiple ways. One is by buying or subscribing to capacity from Equitus when it’s over their region. Another one is by being a trading partner that is launching their own satellites and trading capacity into Equitus and its users, which is to the benefit, 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 Equitas.
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, these applications in the DDD market itself grows. So the, so what we’ve done is we’ve come up with the governance, interoperability, technical, all of the, you know, the infrastructure needs for that and you’ll.
Tiffany (Conference Operator)
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. Thank you. Ladies and gentlemen, thank you for your patience. I now hand the call back to Mark Dankberg.
Mark D. Dankberg (Chief Executive Officer)
Where did we drop off? Can you hear it? Yeah, Justin, can you tell us where you left us?
Justin Lang (Analyst at Morgan Stanley)
Yeah, I think, I think I caught it. So I think, I think. I think you laid it out well on what type of partners you’re looking to attract to Equitus, but if I just could sneak one really quick one in. 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?
Mark D. Dankberg (Chief Executive Officer)
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.
Justin Lang (Analyst at Morgan Stanley)
Got it, thank you.
Tiffany (Conference Operator)
Your next question comes from the line of James Ratzer with New Street Research. Your line is open.
James Ratzer (Analyst at New Street Research)
Yes, thank you very much indeed for taking the question. So, Mark, my kind of question really, I mean, suppose, follow on from that last one there from Justin, just a little bit more color around Equitas. 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 Equitas. 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 Equitas? And if you’re unable to answer those questions now, you know, on the kind of operational business plan, what should we think of as the timetable when you would be able to make those announcements? Thanks very much.
Mark D. Dankberg (Chief Executive Officer)
Okay. Yeah, I think the, what we’re, you know, what we’re intending to do is to provide additional disclosures as we achieve milestones that make them, you know, make them clear and certain. So the very first milestone I’ve mentioned 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, you know, 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, what, what does that mean in terms of satellites capability, schedule for delivery of the service? So those things are, will be determined. It’s all, 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’ll answer some of your first questions, I think some of the most important, 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.
James Ratzer (Analyst at New Street Research)
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?
Mark D. Dankberg (Chief Executive Officer)
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 if we just say, hey, let us just do it, I think it’ll become, it’ll become pretty clear.
James Ratzer (Analyst at New Street Research)
Got it. Okay, thanks so much.
Tiffany (Conference Operator)
That concludes our question and answer session for today. I will now turn the call back over to Mark Dankberg for closing remarks.
Mark D. Dankberg (Chief Executive Officer)
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, you know, 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, you know, 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, some of these things that are events that are going on.
Tiffany (Conference Operator)
Ladies and gentlemen, this concludes today’s call. Thank you all for joining. You may now disconnect.
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