Viasat (VSAT) Q1 2027 earnings call transcript

Thank you, Tina. 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 on our Q1 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 certain forward-looking statements within the meaning of the Federal Securities Law, 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 will make today. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available in our FTC filings and annual report on Form 10-K. These forward-looking statements speak only as of the day they are made, and we do not assume any obligation to update any forward-looking statements.

With that, I'll turn it over to Mark Dankberg, Chairman and CEO.

Good afternoon, and thanks for joining us today. Hi, I'm Mark Dengberg, CEO and Chairman of VIASAT. With me, along with Lisa, we have Gary Chase, our Chief Financial Officer. As always, we encourage reading the Shareholder letter and referencing the slides we posted on our website earlier this afternoon for more details. I'll start with two areas up front, and Gary will review our first quarter results and outlook for fiscal year 27, then we'll take questions. I will cover our top-level first-quarter financial results, our near-term objectives, and operational strategic initiatives, including VIASAT 3.

The first quarter of fiscal year 2027 showed disciplined execution, contingent operational progress, and milestones building our confidence in the long-term outlook. Gary will discuss the financial results in more detail, but some of the highlights include record new awards and backlogs in the Defense and Advanced Technology segment. Most notably, we won the next phase of the Protected Tactical SATCOM Global, or PTSG, program. It's important for two, three reasons.

First, it indicates the importance of a multi-orbit national security strategy, including a new approach to proliferated geosynchronous satellites. Second, it also indicates the competitive advantages of integration across space and technology and dual-use satellite services, such as VIASAT has.

Second, we also continue to drive good cash performance with positive free cash flow of $72 million, up 19%, driven by operating cash flow of $291 million. Third, our government sat-com services grew 10% year-over-year this quarter. More of our solutions combine multi-orbit orchestration, close integration with specific mission systems, data analytics, and dual-use infrastructure to augment and enhance MIL-STAT-CON systems. The mission systems aspect leverages our extensive experience with our diversified customer base and helps drive both technology and recurring service revenue. Leveraging dual use both significantly benefits our customers and is expected to benefit our focus on improving return on invested capital.

Finally, successful deployments for VIASAT 3, flights 2 and 3, are important for ongoing communication services businesses, but also for the unique technology and functional capabilities that those satellites bring. We believe validation of the underlying technologies will contribute to near-term growth in DAF, including in new multi-orbit space systems that leverage those technologies.

On the near-term operational strategic initiative front, we entered fiscal year 27 focused on three priorities. Selecting and competing effectively in attractive growth markets. We are leveraging new technology to reduce our effective airtime costs by using greater geographic coverage flexibility to drive more resilient, efficient, and effective satellite usage, and continuing to integrate AI and machine learning in multi-orbit network optimization. We're seeing both near-term and longer-term benefits from those three initiatives. One overarching theme is the growing convergence of communications, cybersecurity, networking, data analytics, and proliferated, resilient, dual-use space infrastructure.

From a national security perspective, there's an emphasis on integrated mission outcomes over just standalone products. We believe VIASAT is uniquely positioned to compete in a number of important application areas. Another very important key theme is a renewed focus on the mobile satellite services frequency bands. There's a lot of attention on direct-to-device because of the integration of 3GPP satellite non-terrestrial network capability into terrestrial mobile devices and networks. As a leading player, the existing mobile satellite services markets such as mobile voice, aeronautical and maritime safety, and rapidly growing converged space and terrestrial Internet of Things applications, we also see opportunities to capture growth in those enterprise areas beyond just the consumer markets. We anticipate introduction of AI-driven autonomy into land, sea, and air platforms will also be a growth catalyst.

We continue to believe that our leading role serving the critical safety services, combined with our ability to reliably and quickly evolve our user base to next-generation space resources, Our globally coordinated spectrum and market access licenses and our approaches to highly efficient spectrum utilization and the application of proven shared infrastructure technology and business models will all help us compete effectively in a broad range of mobile satellite services applications, including D2D. Our teams delivered solid operational performance during the first quarter, maintaining financial discipline while achieving our adjusted EBITDA objectives despite ongoing headwinds in portions of our portfolio.

We maintained a strong focus on cost discipline, operational productivity, and cash flow generation while continuing to invest selectively in strategic growth initiatives. We do understand that some segments of the market are clearly going to be significantly more competitive than in the past. We believe we can continue to be a healthy competitor, leveraging new VIASAT 3 technologies along with multiband, multi-orbit integration.

Rapid evolutions in payload system and mission technology are creating very substantial additional new technology and services market opportunities, Especially for companies that integrate across commercial and national security applications and can invent and scale those new technologies. We're beginning to see evidence of the opportunities provided in those areas, and we see growth in DAT awards in particular as leading indicators building confidence in that approach.

Turning to next generation of connectivity, we did successfully complete all deployments in the bus in-orbit test phase on VIASAT 3 Flight 2. Subsequent to quarter end, we successfully completed reflector and boom deployment on VIASAT 3 Flight 3 and entered the in-orbit test phase ahead of expected service entry over the Asia-Pacific region in late August or early September of this year.

The continued integration of multi-orbit capabilities and the development of next generation terminals and network architectures are all designed to improve bandwidth productivity, that is, more usable bandwidth per unit capital and operational spend, and increase network flexibility and resilience while further decreasing the proportion of those costs that are associated with launch. These capabilities allow us to place capacity where and when it's needed, improve capacity utilization, improve customer experience, and support attractive returns on invested capital while remaining highly competitive in our target market.

In maritime, Nexus Wave continues to demonstrate customer interest and acceptance of effective multi-orbit solutions. In aviation, we remain focused on using our latest satellites to enhance customer experience and service reliability and advancing our next-generation connectivity roadmap. We continue to work closely with airline partners as the market more closely integrates and optimizes the entire onboard experience across connectivity and passenger entertainment and engagement. From a longer-term perspective, we see increasing convergence in dual-use commercial and national security uses of space.

Some key indicators of that include increased targeting of civil and commercial infrastructure of all types, telecom, navigation, timing, energy, computing, even in the earliest stages of geopolitical conflict. That requires increased resilience and adaptability for all forms of satellite communication.

Rapidly increasing physical occupation of space, especially LEO, is driving new resilience needs for critical national security missions. And the rapid pace of new technology introduction evolved in all forms in geopolitical conflict to putting a premium emphasis on new technology, but the ability to integrate new technologies into operations and mission success. We believe VIASAT is exceptionally well positioned to capture these opportunities through our unique combination of space and ground network technologies, resilient space and terrestrial radio and multimedia networking, link in network security and cyber defense, and mission and operational expertise. While DAT will often be the first place growth in those areas will be manifested, we see good potential for ongoing conversions to both government and commercial recurring satellite services.

These DAT contracts can include operational demonstration phases, and this quarter also highlights that we have good growth in recurring government satellite services revenue. In summary, we're seeing evolution in our portfolio of government and commercial technologies and incurring services businesses. Overall, we recognize the effects of greater competition in our legacy commercial services. We're seeing growth in emerging segments of dual-use, multi-orbit, multi-band, driven by underlying new technologies where we can be among the few leaders. We believe the balance suggests overall good growth opportunities with DAT awards and government communication services as leading indicators, and those trends becoming increasingly clear even in the balance of this fiscal year.

We're continuing to manage our business, generate cash, continue to delever and strengthen the balance sheet while reducing capital intensity and investing prudently in underlying new technologies. So with that, I'll turn it over to Gary for more information on our first quarter financial results and our outlook for fiscal 27.

Thank you, Mark, and thanks to all of you who are joining us. Most important of all, thank you to the VIASAT team for the hard work that went into producing these results. We remain focused on the three pillars of our financial journey, building our franchises, generating cash, and reducing our leverage. Using that lens, let's discuss our first quarter results and our outlook for the year. All my statements that follow in this section will refer to the first quarter of fiscal 27 compared to the prior year period, the first quarter of fiscal 26.

Before I start, let me call out two items that impact comparisons to the prior year. First, we completed the sale of our equity interest in Navarino in the fourth quarter of 26. Navarino contributed $3 million of adjusted EBIT DOC to communication services in the prior year period.

Second, IP licensing revenue related to the settlement a few years ago continued to decline as the associated licensee product lines have continued to evolve. The year-over-year revenue on adjusted EBITDA impact of this decline was $19 million on the quarter and is reflected in advanced technologies and other within our defense and advanced technologies segment. On a combined basis, these items impacted year-over-year EBITDA comparisons by $22 million. Company-wide awards for the quarter were about $1.3 billion, up 10%, led by defense and advanced technologies with space emission systems, tactical networking, and aviation the drivers of growth.

Backlog was $4.2 billion, up almost 19%, with growth in communication services of 13%, and in debt of 32%. Revenue was $1.2 billion, down approximately 1%, reflecting a 4% decline in debt and flat communication services. Revenue would have been flat, excluding the impacts previously noted. Net loss was $52 million, an improvement of $5 million, principally due to lower interest expenses we continued to pay down debt. An adjusted EBITDA was $381 million, down 7%. But for the noted impacts of Navarino and lower IP licensing in AT&O, EBITDA would be just about flat. Now, excluding cash taxes from the gain on the sale of our interest in Navarino of about $30 million, which were paid in the first quarter of 2017, we generated positive free cash flow of $72 million, up 19%, and driven by operating cash flow of $291 million, which was up 13%, and capital expenditures of $219 million, which were up 11%.

The first quarter is typically our toughest cash quarter given annual bonus payments, so I'm especially pleased to see strong cash generation. Our net debt relative to trailing EBITDA was approximately 3.2 times, a meaningful 0.4 times improvement versus the prior year period. Now let turn to some segment highlights In communication services awards of million increased 3 driven by aviation and maritime Revenue was million approximately flat Growth in aviation and government SACCOM was offset by declines in residential fixed broadband and maritime Aviation revenue grew 11 ending with approximately 4 commercial aircraft in service a 10 increase year combined with higher average revenue per aircraft While we had a healthy quarter for installations, we had a number of aircraft deactivate service for previously announced transitions to a competing provider.

Within aviation, we expect revenue growth for the remainder of the year driven by ARPA expansion as more of our customer base migrates to full fast-free offerings, while units remain relatively stable to the units we ended the first quarter with. We have units flowing in and out of our aircraft backlog each quarter. This quarter's net new aircraft awards were positive, and our backlog declined due to installations during the quarter. Our IFC backlog at quarter end was about 850 commercial aircraft. Government SATCOM revenue growth accelerated to 10%, reflecting good growth with increased usage from U. S. and international governments. When we continue to work through challenges in maritime, revenue declined 7% as vessels in service were down.

We ended the quarter with more than 1,700 Nexus Wave vessels in service and continue to work on improving our installation rate while our current order book exceeds 1,400 vessels. Fixed services and other revenue was down 27% as U. S. fixed broadband subscribers continued to decline. We ended the quarter with 115,000 subscribers and a $111 average revenue per user.

Communication services adjusted EBITDA was $311 million, down 3%, primarily driven by the decline in fixed services and other and maritime, which included the sale of our interest in Navarino for a $3 million headwind in the quarter.

Turning to defense and advanced technologies performance during the quarter, our DAT segment awards $524 million increased 22% driven by growth in space emission systems and tactical networking. DAT awards are a leading indicator of future revenues. We continue to see a very strong growth environment for DAT driven by both government and commercial opportunities for new technologies that will enhance our service businesses. That revenue was $331 million, down 4%, reflecting a decline in advanced technology and other in space and mission systems, partially offset by strong growth in tactical networking. Revenue would have been up about 2%, excluding the impact from lower IP licensing revenue previously noted. InfoSec and CyberDefense product revenues declined 8%, reflecting lower shipments of our high-assurance encryption products.

Timing of product delivery varies quarter to quarter based on multiple factors, including customer schedule. Despite the Q1 reduction, we expect strong growth in InfoSec and Cyber for fiscal 2017. Space emissions systems revenue declined 24%, reflecting a supplier delay in one program And a transition from development to production on another program. However, similar to InfoSec and Cyber, we expect strong growth in space emission systems for the fiscal year, despite the Q1 decline.

Tactical networking revenues were up 36% year-over-year, driven by strength in both our tactical communications products and Trellisware. Trellisware revenue growth was driven primarily by product sales to international customers as opposed to waveform royalties. The call is where capital radio revenues are driven by a comprehensive portfolio of products, modules, and licenses that each embody unique technology. Advanced technologies and other revenue was down $17 million, reflecting the declining benefit from IP licensing revenue.

Adjusted EBITDA was $70 million, down 20%, or $17 million, compared to the prior year quarter, primarily reflecting the decline in IP licensing revenue within AT&O. Excluding that IP licensing revenue adjusted EBITDA was up slightly.

Now let's turn to our outlook. Our financial outlook for fiscal 27 is unchanged. We expect revenue to grow mid-single digits with communication services growth of low single digits and DAC growth in the mid-teens. We continue to expect our adjusted EBITDA for the fiscal year to be flat to up slightly year over year. Here, consolidated fiscal 27 capex is expected to be between $950 million and $1 billion. Our consolidated capex is expected to break down as follows. Maintenance of about $400 million, capitalized interest of greater than $150 million, VIA SAT-3 spend of about $50 million, most of which was incurred in Q1, success-based of up to $150 million, and about $225 to $250 million for growth CapEx, with an emphasis on future satellites other than VIA SAT-3, as well as investments in DAT segment and government sat-com.

InMarsat CapEx is expected to be $250 to $300 million and is contained within the consolidated numbers I just guided to. We continue to expect free cash flow of about $180 million for fiscal year 27. Let's turn to our segments, beginning with communication services. Within aviation, we expect revenue growth compared to fiscal 26 as ARPA expands on unit counts similar to the Q1 ending number. However, we expect the overall rate of aviation revenue growth to moderate relative to recent years. We expect maritime vessels and service to decline modestly compared to fiscal 26, but expect significant growth in the Nexus Wave installed base that offers customers more value and drives higher ARPAs. We expect stabilization of our fixed broadband business to occur sometime after VIASAT 3 Flight 2 enters service, but expect continued declines until that time.

We expect another year of growth within governance. com. We've been waiting a long time for the capacity and capabilities of VIASAT 3 flights 2 and 3. We're excited to be on the customer service entry for both satellites. Thanks to all the teams who have made VIASAT 3 a reality. Now, our focus is ensuring that the capabilities of VIASAT 3 are mobilized to address the growing appetite our communication services customers have for connectivity and to position us for growth in years ahead.

Turning to DAT, we expect a very good year ahead. Our teams are doing an awesome job of anticipating and meeting the growing needs of our customers, which is driving exciting momentum in awards that will drive revenue and earnings for years to come. We expect another year of strong revenue growth from encryption and accelerated growth from space emission systems and tactical networking. The team has continued to deliver big wins in the most important high-growth markets. I'll also note that during the quarter, we did move an additional $100 million in cash from InMarsat to VIASAT. We've now moved a total of $450 million so far, including the $100 million just referenced. And we'll continue to evaluate opportunities to reshape our capital structure.

In conclusion, we had a good quarter, so we continue to make progress on our financial journey. We're excited for a lot of hard work ahead of us, and we remain focused on improving returns on capital through franchise and earnings growth, generating positive free cash flow, repaying debt, and reducing net leverage. We thank you for your continued support. Team VIASAT is working to deliver our commitments for the year and beyond.

With that, let me hand the call back to Mark.

Thanks, Gary. So the combination of growth in the space market and our business and technical progress is creating more opportunity for us than ever. The VIASAT 3 deployments, along with a number of other important space and ground technology accomplishments and competitive wins, is building momentum in new markets and applications. Demand for resilient communications, secure networks, mission-critical connectivity, and space-enabled capabilities is clearly growing to both commercial and event markets globally.

VIASAT has never been defined by a single technology cycle satellite on through market trend. Our history has been built on continued innovation, reinvention, resilience, and the ability to adapt to changing customer needs. While the path forward won't be without challenges, we believe the foundation we've built and the opportunities ahead will continue to sustain our success. We enter the remainder of fiscal year 2027 with confidence in our strategy, momentum across key growth initiatives, and a clear focus on creating long-term shareholder value.

So, Operator, you can now open the line for questions.

Okay. Well, first thing, I think I'd say just in terms of S-Band, you know, S-Band tends to be less globally coordinated with ITU rights and more around national market access when used for mobile satellite services. And it's the same for our spectrum as with others. The main thing we would say is that the best way to hold on to your spectrum is to put it in use for public benefit for the nations which have granted those market access rights. So our S-band is currently in use for the purpose that it was licensed for in Europe, and I think we're working with Europe on those particular missions and new missions. And, you know, I think we will work with the European Union and the individual nations to continue to evolve what we do and what they're looking for.

I think we have good support within Europe, but I'm not going to make any particular predictions about our success to others at this point. I think we have a, you know, I think we have a, as the only incumbent that's actually using the spectrum for the purpose for which it's licensed, I think that gives us a good leg up, but we'll just have to see on that one. On the L-Band, you know, I think one of the main points that we want to make is that our L-Band is licensed, again, for specific mission purposes. We fulfill those purposes. They're generally really important, involving maritime and aeronautical safety is two of the main ones. One of the things that is a little bit unique about L-Band is that in order to accomplish those missions, countries want to cooperate with each other, which is the purpose for which NMARSAT was originally formed.

We still uphold those missions, and one of the main points is that the amount of bandwidth delivered, as opposed to spectrum, separating bandwidth is basically what you get. The bits that you get through the spectrum, the demand for bandwidth is increasing in performing those missions, both in terms of maritime safety market and especially in the aeronautical safety market.

So right now, what we are aiming at is not only fulfilling the current missions, but the way that those missions are evolving. And what we think is there's a good match between the spectrum that we have and the long-term purpose of those missions, as well as new applications that are evolving, such as D2D. Now we also use our spectrum for other valuable missions which are not necessarily associated with those particular safety missions. We think the same thing will happen as we increase the network capabilities using our next generations of constellations.

Okay. Well, first of all, the markets that we're in, primarily for monetizing our satellites now, mostly mobility markets, and that includes aeronautical, both private aviation, commercial aviation, maritime, primarily vertical and maritime on large enterprise. We have ships and then government. So what we're aiming for, those are the biggest uses. We also have fixed consumer use, which has obviously been declining over time, mostly because the other markets are a lot more attractive. The other major mobility market is government mobility.

So we expect growth in basically all those markets. Probably the one right now, the ones that are growing fastest are aviation and government. They're both growing from a combination of more bandwidth use per platform and more platforms. So those are really going to be kind of the keys to success. The aviation market is still relatively lightly penetrated, maybe in the range of 30-ish percent, I think, on a global basis. Some of the market segments that are lower penetrated are going to be more challenging but I think that the addition of more satellites more capacity is going to help address those those being more of the international markets and also more of the low carrier markets So, you know, in general, what you're seeing to the same in kind of all transmission markets It is lower unit costs of bandwidth, but overtaken by much larger growth in consumption on a per unit basis.

So that's what we call ARPA, average revenue per aircraft in the aviation market. We're seeing the same effects in the maritime market, though, where consumption is growing because of new applications. We'll also see the same in aeronautical and are certainly seeing the same in aviation. So the simple message is similar vertical markets, more platforms, more usage per platform. I think we'll also be able to bring, because we're getting large infusions of bandwidth, we will bring some of that bandwidth into the fixed markets as well. So both consumer, and we're seeing some opportunities for growth in fixed enterprise as well.

Okay, yeah. When it comes to the DAT segment, I mean, right now what we're seeing is really good growth in those parts of the business that are in the DAT. So that's defense and advanced technology. That's going to be the fastest growing part of our business. That'll be reflected in new awards. I think this was a strong quarter for new awards. Our pipeline is really attractive, and I think that we'll provide updates as we get, you know, as we execute contracts. Some of those contracts you'll see possibly in defense announcements before we can make those announcements, if you keep an eye on that. In terms of the review, it's ongoing. The main thing that we're looking at is what those particular contracts are and what the criteria are for winning them.

So, think of it as, you know, clearly our DAT business is going to grow. I'll give you one example, which is in PTSG, part of the award there was around technology, that is, building low-cost, affordable, proliferated satellites, but another part of it is actually operating those satellites. So it's interesting to note that among the bidders, the ones that were successful were the ones that could both provide technology and the operational capabilities.

The government's looking, especially in a proliferated environment, for new mechanisms for operating satellites as well. So some of that, while the original awards will be reflected in the DAT segment, in the longer term, we expect to see government communication services revenue as well. And if you look at our pipeline of new awards, that notion of integrated both technology development to technology production combined with operational capability is a recurring theme. So the very first thing on our plate is just to capture the awards, build the value of the DAT segment. And what we're doing is we're having an ongoing evaluation of how do we best position that for the benefit of shareholders? What is the best way for shareholders to benefit?

And right now, while the DAT segment is co-resident with our operating business, our services businesses, we don't have to worry about how we divide up the margins associated with that. Among different equity holders. So, we're looking, you know, what we're looking at is just what is the best way to do that. It's possible that we continue to keep them together under one roof. We do that for some period of time. But the issue is that doing a separation is a little bit of a one-way door. We want to make sure that at the time we do that, if we do that, we do it in a way that most benefit shareholders.

Okay. So in terms of equities, our intent with the next major announcement would be the funding of the initial satellite constellation. That's really the catalyst for the next round of disclosures. And that really will be the answer to the second part of your question, which is how much new capacity will come online. The, let's see, I'm not going to talk about the timing of that announcement, but that is what we're focused on, is the details of a satellite constellation procurement for Equitus and then what that means for each of the users of the Equitus constellation, With us and Space 42 being the two largest and initial users of it. In terms of the amount of increase in capacity, that's going to be orders of magnitude.

The amount of capacity on a per satellite basis is going to be hundreds or thousands of relative. I have to remember, relative capacity is a function not only of the satellites, but also of the types of terminals that are using them. When used in the types of applications that we have now, it'll be in the 1,000 to 10,000-ish amount of total capacity on a global basis for the new constellation. So that will cover higher speeds, higher volume, higher density of usage associated with these evolved MSS applications, some of which we think will be pretty substantial growth, especially for things like unmanned vehicles, both land and air vehicles. That's going to consume a lot of growth.

And then also, we expect that we'll be able to apply a lot of that capacity towards other markets, too, especially the D2D market and government markets. But I think the increase in capacity is going to be in orders of magnitude. We'll be able to find that more clearly when we describe the initial constellation in more detail.

So the F2 and F3 satellites are KA-band. Those are broadband satellites. Those require directional antennas. The Equitus constellation will be mobile satellite services band, which is the L&S band. So we don't, there will be, think of it as a continuum of missions. So we'll have aeronautical uses for broadband, which will scale with different platforms. We'll also have aeronautical uses for L&S band. But what I was referring to before, and with Equitus, that will be the L and S band, frequencies, and F2 and F3 or KA band.

Okay. Yeah, the purpose of the strategic review has been and remains to be, you know, delivering value to shareholders, right? That's the purpose of it. The issue is that we're in a very dynamic business environment, geopolitical environment.

That's what, you know, the question is, do we come up with a strategy that is pertinent or relevant to what the competitive situation is and the value of our resources and assets? And so the first thing that we had to deal with were some internal issues associated with potential separation. And that includes, you know, the two big ones that we had highlighted at the time was, one, bringing flights two and three into service, making sure that the satellites deployed directly and that we could bring them into service. We're, you know, at the tail end of those. I think we're going to retire those risks. There were also some risks associated with the separate debt silos from the Inmarsat and VIASAT, you know, from the Inmarsat acquisition.

I think those things are becoming more clear as well. But the biggest factor, and one of the ones that we've also highlighted, is the competitive posture of the combined company relative to the separate companies. And clearly, the multiples associated with the defense business are really attractive with the standalone business. That is one of the things that's prompted that review. But the other thing is, the thing behind that is that you want a defense business that's going to grow rapidly.

And so we, the very first thing we're trying to preserve is make sure that our defense business grows rapidly, which we believe it is. And we also, you know, what we believe as well, and some of that will become more evident over the next couple quarters as we win or lose specific contracts or, you know, and learn what the reasoning is behind that on customer decisions. But right now, our prospects, so we're really optimistic about our prospects, and those prospects do involve dual-use applications.

And that is, you know, if you look on a competitive basis in the space segment, dual-use does seem to be a really important theme, both in the U. S. and globally. And that's because of reasons that we've talked about before, which is the cost of putting assets in space and the potential for monetizing those assets in the commercial market when they're not used for defense applications. And then the other thing that's becoming really, really clear, you can certainly see that from what's going on in the Middle East as well, is that more and more commercial infrastructure is targeted. So there will be, certainly will be benefits from having the same or related types of resilience techniques for commercial use.

Things like navigation, positioning, timing, communications, access to situational awareness, all those things are becoming more important for commercial assets as well. So, I'd say while we're on a good run in the DAT business, we're probably going to make sure that we understand that because we don't want to prematurely separate the businesses. That's probably the single biggest factor on the DAT side. And on the spectrum side, what we're also seeing is a rapidly evolving environment where the competitive dynamics, especially in the D2D space, are really in turmoil. Because of the issue about whether let say non networks are intended to augment terrestrial networks or compete with terrestrial networks That has a really big impact on the competitive environment and the choices of some non network operators will create opportunities for others So we're definitely seeing the effects of that.

So, again, what we're real near-term focused is to increase the value of our spectrum by being able to address some of these larger markets to validate not just what the transactional value of the spectrum is, but what the value of it would be when brought into use, whether it's by us or others, and make sure that we can put our spectrum to the highest purposes. And I think that equities is going to help us frame that. So that's what we're going to continue to do. I think we're not going to make a premature decision on either spectrum or DAP separation while the competitive environment is so dynamic.

Yeah. So just in terms of the aeronautical safety requirement, drones are certainly a really big potential growth area. And for drones, one of the things to look at is there was a notice of proposed rulemaking Speaking from the Department of Transportation about how the U. S. would handle autonomous air vehicles, and it requires some backup. Assuming that the primary, you know, just, well, the simplest thing to think of is think about what's happened with autonomous ground vehicles. They get confused sometimes. They have the option of pulling over to the side of the road. You don't have that option with an air vehicle, right? So it's really, really important that air vehicles have continuous and uninterrupted transmission for command and control or telemetry.

So that is one of the things that's addressed in that. That will be a special purpose application. It's very directly related to some of our existing missions in air traffic safety. You know, even with commercial air traffic, there's lots of interest in, for instance, autonomous co-pilots, single-pilot vehicles, where you can see that there's some overlap between or continuum between the completely unmanned ones and the manned aerial vehicles. So that's a really good target area for us. For unmanned land vehicles, there's another aspect of it, which is that besides just the command and control part of it, it opens up a lot more applications for passenger use of those vehicles, a lot of which likely would be through 5G terrestrial networks, but would certainly be augmented by nontrrestrial networks.

So those are two examples. The other really big example is the use of autonomous drones, land, sea, and air in government applications. So that's clearly a rapidly growing area as well. So those are some of the ones that we're keeping current in, in terms of working with potential customers, making sure our technology is appropriate for those.

So, we've booked what we've, you know, what we've been awarded thus far. There's two components to it. There's a base order, and there are some options. What's in the backlog is the order that we received. It does not include the options. I'm sorry, I'm not sure I entirely followed the remainder of that question.

We will recognize revenue and we'll have earnings in that program based on how we're spending against the long-term program value. We'll book it as percent complete accounting the way we do with the remainder of our contracts that are like this.

Yeah, you know, different companies treat these delivery order contracts differently. What we do is we only put it in backlog or count it as an order when we have a firm delivery order against the delivery order contract. Some contractors, some people will just announce the value of that, consider that backlog. What we do is we have a separate, we'll separately describe the total value of delivery order contracts that we can work against, but that's not the same as backlog for us. In this particular case, I think the next increases in delivery orders against the contract would be either for more copies of the same satellite, which is one possibility. The other one would be for subsequent generations of the satellite, which we also expect that the government will go probably to some extent in both of those directions.

So, short answer is no. I think that's what we're holding up for is to have the next announcement, which really would be about the equities purchase of its initial satellite constellation. So, once we can announce that, that's when we'll do it. And we just decided just to wait for that.

Well, I think that, I mean, that was a transaction where we get more insight into it. And yes, there were four bidders. I think that the number of bidders is going to depend both on other spectrum.

If you think of a potential spectrum transaction, it's going to be both the unit value. You know, you think of it as a price per megahertz pop per market area. That's one way that you'll see what the amount of interest is. The other one's going to be on the volume of that, the size of that transaction, the amount of spectrum that's available.

So that was one data point. I think, you know, more recently there's probably going to be some disclosure around an Iridium data point. And we're paying, yes, we're paying attention to all that. And then just on the other side, again, we think that the transactional value should grow with the development value, right? So what we're trying to make sure we understand is what is the development value of the spectrum and what's the transaction value, and then we can decide strategically what makes the most sense for us.

Yeah, I mean, there are several values, several variables at play in the maritime market. One is, you know, the rate at which we can do installations. Some of that where we have customers that have made commitments for portions of their fleet, you know, getting those portions installed are kind of gates to getting additional orders. But also the market is somewhat, think of it as the distribution channel to market is a little bit fragmented as well. And so I think we're doing really well with our direct relationships. Some of the indirect relationships are going to require more work because of some of the incentives that have existed in the past for some of the resellers and aggregators of satellite capacity.

I think as demand is going up, that more and more, I think that those aggregators will turn to arrangements with a few satellite operators that really have the ability to serve the most congested and densest markets. So I think, you know, we've got a couple of things that we're working through. I think the biggest thing is so far, and we're closing in on a couple thousand vessels connected, I think customer satisfaction is good. The ability to deliver that's essentially the same as a Leo-only solution is pretty clear.

So that's the thing that we're most focused on is the value proposition to the end users. I think that part's going well. The rest, I think we do have some logistics stuff. I don't mean to minimize that. I think we're making progress on that. And I think we're also working on the distribution. Those will be the factors that will drive longer-term penetration.

Yeah, so in DAT we have a part called mission systems, and what we're seeing are opportunities all across the board. I mean, there are, think of it as short-term issues with existing government space assets that are expiring, and they're looking for commercial versions. That's some combination of defense, civil, special mission stuff. We're seeing opportunities there. We're also seeing the government wanting to consolidate the ways that they manage control systems, refreshes on the ground system, refreshes on the terminals. The other really big thing that's become an issue is, you know, think of it as what we make like tactical radios for fighter jets or ground vehicles, and often you'll find integration is a really big issue.

You know, getting a system distributed within the platform that it's serving. So that's creating opportunities for us as well. And then there's some new, you know, just really new areas around space-to-space links. We're doing well in that. Optical, space-to-space, space-to-ground, those are opportunities. It's just a real, I mean, that is space in general is a really booming area for us. And I think that's what you're going to see when it comes to award opportunities for us in the next year.

Okay. So, thanks, everybody, for joining our call. I know that it is a really dynamic environment out there. We're excited about that. I think the numbers that are most attractive to us, most exciting for us, are both the new order rate, especially in the DAT segment, which includes technology on both the government and commercial side. We think technology is going to be the leading indicator for awards growth, and we've got a really good pipeline. I think that will develop over just the next few quarters. We'll be able to talk about that. And the other point that we want to reinforce is that that technology is really the leading edge of what drives our services and recurring revenue business.

So I think that that's going to That's going to help us overcome some of the increased competition in some of our older parts of our business. But basically, all the things where we're seeing growth are well within the target area that we've been working on for probably decades. So thanks for joining us, and I look forward to speaking again next quarter.