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Viasat, Inc.

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Q4 2022 · Earnings Call Transcript

May 25, 2022

Operator

Hello and welcome to Viasat's Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. Your host for today is Rick Baldridge, President and CEO.

Sir you may proceed.

Rick Baldridge

Okay. Thanks for joining us today.

Just want to point out that we released our Shareholder Letter shortly after market closed and is available on our website. We'll be referring throughout the call.

So, joining me today on the call Mark Dankberg, our Executive Chairman; our CFO, Shawn Duffy; Robert Blair, our General Counsel; and Paul Froelich, Corporate Development; Peter Lopez from Investor Relations. So, today's call -- we'll just go through a few brief opening remarks, following up by Q&A.

So, before we get started, let's have Robert provide our Safe Harbor.

Robert Blair

Thanks Rick. As you know this discussion will contain forward-looking statements.

This is a reminder that factors could cause actual results to differ materially. Additional information concerning these factors is contained in our SEC filings including our most recent reports on Form 10-K and Form 10-Q.

Copies are available from the SEC or from our website. Back to you, Rick.

Rick Baldridge

Okay. Thanks Robert.

Fiscal ’22 was a great year for ViaSat. We delivered the financial results that we targeted -- we had targeted and previously communicated to our investors and we continue to execute on a number of very strategic and operational fronts.

For the year, we achieved record revenue of $2.8 billion and record adjusted EBITDA of $611 million. For revenue, this was a 24% year-over-year increase and for adjusted EBITDA was a 15% increase which is consistent with our guidance of double-digit revenue growth and mid-teens adjusted EBITDA growth.

We hit our goals for the year. While we outperformed in the first three quarters, we knew Q4 would be sequentially softer based on the factors we communicate in our last call, with increased ground network costs for the upcoming ViaSat-3 America satellite, increased R&D investments, and changes in product mix which had -- which were exasperated by certain government secure products certification delays, as we described last quarter, as well as some sudden, but since resolved supply chain issues that impacted certain government product shipments.

Touching briefly on Satellite Services. As anticipated, we're seeing very good growth to-date in our IFC business both aircraft returning to service, additional aircraft from new and existing customers.

We also had contributions from the recent RigNet and EBI acquisition. Fixed broadband growth was a little weaker than we -- as we manage our limited bandwidth supply in the U.S.

in support of high value data plans and growing IFC demand. In IFC, we are adding new customers and increasing the tail counts with existing customers.

We are very proud of our agreement with Southwest Airlines which was announced subsequent to the end of the quarter. Although we continue to be hampered by bandwidth constraints in the U.S., which has resulted in continued subscriber decline, we're making steady progress in fixed broadband elsewhere.

For example, just recently, we surpassed the 50,000 subscriber mark in Brazil after only having nationwide commercial service there for about 18 months, lending confidence our ability to successfully execute retail service launches in some of the new international markets we're going after. The letter does a good job covering our government and commercial segments.

So, let's move on to the ViaSat-3 constellation where we cleared a several large risk reduction milestones in the last several months. ViaSat-3 America satellite has completed vacuum extreme temperature testing at Boeing and we were pleased to see payload performance better than expected during testing.

We should be complete with the vacuum chamber by the end of today, allowing us to move the spacecraft out and proceed with the rest of integration effort. Alpha testing on the ViaSat-3 ground network has gone very well and we're on track to have sufficient infrastructure in place to enable commercial services, which we were targeting for early in our fiscal fourth quarter -- within a week or so we were planning last quarter.

ViaSat-3 EMEA payload module is now complete and is undergoing final testing at our Tempe, Arizona facility for shipment to Boeing, which is expected to occur in -- sometime this quarter. Based on our experience on the America satellite, this second payload was completed much faster, with a more predictable schedule.

The same is holding true for the third satellite, the Asia-Pacific satellite. So, turning to Inmarsat, we're continuing to advance on various transaction milestones and since last quarterly update, we've completed agreement with the U.K.

Government for certain economic undertakings, which demonstrates our long-term commitment with the U.K. We filed the definitive proxy statement with the SEC and set a date of June 21 for a special meeting of our shareholders regarding the transaction.

Inmarsat just reported another quarter of solid financial operational results, which are highlighted on page 10 of the shareholder letter. And you can go to their website too I believe.

We're targeting to complete the transaction by the end of this calendar year. But the antitrust approval processes in the U.S.

and U.K. being the [patient items] (ph) just because of their process -- nature of their process.

In March, we, ViaSat, completed a term loan for $700 million of financing which was used to pay down our revolver with the remainder of the cash to be used to continue funding the ViaSat-3 constellation. And I'll remind everyone that we have all remaining transaction financing in place.

And this financing was fully committed at the time we signed our purchase agreements last November and includes provisions that limit the impact of the current debt market volatility might have had on our ability to close the transaction or achieving our financial objectives [Indiscernible]. Turning to our outlook, the company-wide outlook remains strong, we continue to believe we'll achieve our standalone financial targets including our average annual adjusted EBITDA growth in the mid-teens for FY ’23 relative to FY ’22.

This has been achieved for our last fiscal year. The last quarterly revenue -- the quarterly revenue and EBITDA trajectory for this year, FY ’23, will be weighted towards the second half as we ramp up commercial airlines in service over the course of the year to an anticipated 2,400 tails approximately.

As we begin commercial services on ViaSat-3 in our fourth fiscal quarter - ViaSat-3 in our Q4 normal seasonality and near-term certifications and supply chain issues we described in our letter. Longer term, we also continue to believe that we're on track to achieve more than double-digit adjusted EBITDA by FY ’25, relative to FY ‘20 on a standalone basis.

Well, of course, we're very excited about the upcoming ViaSat-3 launch and Inmarsat acquisition, our strong operational and financial performance demonstrates our teams continue to focus on solid day-to-day execution. I think the same can be said for Inmarsat based on their results.

So, with that, let's take your questions.

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Landon Park with Morgan Stanley.

Your line is open.

Landon Park

Great. Thanks for taking the questions everyone.

I'm wondering if you can just confirm in terms of the actual launch timing for the ViaSat-3 satellite versus the late summer window that you had given last quarter? And then beyond that, I'm wondering if you can delve a little bit more into some of the mobility markets maybe what you're seeing out breaking that now that we're seeing some better demand in the oil and gas industry?

And maybe touch on your ambitions within the business aviation market and where you're at with your ESA development?

Rick Baldridge

Okay, on the ViaSat-3 schedule, we -- it has slipped weeks since our last call. Right now I think we were anticipating being in service by the end of the year and we're early into the -- what our fiscal fourth quarter, so the January timeframe is what we're expecting now.

So, it's been weeks and I think the -- what we have is a launch window and so where we fall within that window, it's kind of could move it a little bit to the left or to the right, but that's what we expect. We've been able to mitigate a little bit of the fiscal slip of the delivery for launch, just the build out of our ground network and ongoing testing, so we're doing some of the testing that we would have normally done on orbit, we're being able to do that with some of our existing satellites on our ground network.

So, trying to mitigate a little bit of the impact, and that's kind of how we get to early next year service launch. So, that's that part.

I'll talk about RigNet - and I'll talk about the last part, the oil and gas part in RigNet. When we acquired RigNet, the real price here is -- isn't really large growth in oil and gas side, it's really being able to substitute bandwidth, which we really do need the ViaSat-3 satellites for how they were doing business and grow the types of offerings we can make in their market segments.

So, some of that growth really depends on us getting this constellation up. And so what we've been doing in the meantime is integration efforts with RigNet and Inmarsat helps with that as well.

Some of the Inmarsat assets that they have just RigNet as a customer of theirs as well. So, in order to do that integration is really what drives future value with the RigNet businesses.

Landon Park

Can you size that in any way?

Rick Baldridge

Yes, I think we -- it's kind of like -- it's not really --- what you don't want to do in these markets because you go in and replace what they're currently doing with something that's cheaper. Instead what you want to enable is a lot more services that they would do if they had the bandwidth and so on a per site basis, it could be multiples of what they have as opposed to 10% or 20% more.

So, yes.

Landon Park

And in terms of the synergy number and timing?

Rick Baldridge

On RigNet?

Landon Park

Correct.

Rick Baldridge

Most of the synergies at RigNet that we've achieved the cost synergies that we had laid out in our initial objective, most of the synergies with RigNet are in ability to stop paying ongoing fees to other satellite operators and replace that with our own capacity. And so those will occur as we bring on these ViaSat-3 satellites.

Landon Park

Okay.

Mark Dankberg

Yes, business jets, that's been growing for us and growing for Inmarsat as well, main things that we've been focused on are working out with OEMs because OEMs are a pretty straightforward way to get built on the aircraft and create service opportunities. And then also in working with fleet operators, again, that's a good way to grow the business.

And then we're also increasing the ways in which we work with distributors to make services more attractive. The biggest thing on business jets is getting more coverage with ViaSat-2, and having European coverage that a fair amount of the market for us.

But now as ViaSat-3 comes up with Inmarsat, the combination of kind of their coverage and our capacities looked really - looks really promising in the market.

Landon Park

And your ESA development?

Mark Dankberg

Yes. So, from an ESA perspective, we already did a flight demo on that.

We did it on a business jet as the first one. What we're working on now is converting that into commercial products for both kinds of [Indiscernible] bit.

One of the main focus for us is our commercial market is having a follow-on product there that's kind of future proof in multi-orbit. But then we're also going to be able to apply those same technologies also into the business jet and the smaller jet market as well -- smaller commercial jet or regional markets as well.

But the technology -- or the main thing that we're doing right now is productizing what we demonstrated earlier.

Landon Park

Great. Thanks very much Mark.

Rick Baldridge

It's also directly applicable to our land mobile markets in the future. So, a lot of common elements to that product.

Landon Park

Okay. And just some really quick ones for Shawn.

I'm just wondering if you could provide some more details in terms of the types of rates that you're locked into on the financing? And maybe just anything you can say on the CapEx outlook for the fiscal year?

Shawn Duffy

Yes, sure. So, with respect to their rates, not going to give all the details of the underlying agreement.

But the way I think you can think about it, is because we're signing U.K. style deal overall, the financing that we put in place it was submitted, as Rick mentioned.

And so the rates and the major terms are kind of conditioned to the market back in November and so that gives you a little bit of a -- kind of a framework with respect to the kind of the protections that are built in there. And that gives us that upper limit benefit relative to the outlook.

And then I'm sorry, you asked about CapEx as well. So, I think you can see that our CapEx for this year was a little bit lighter than what we were targeting.

So, next year, you can think about it -- we're getting into the big part of the program this year and next year. So, I think next year, thinking about around 350 or so per quarter is a good range, might be a little thicker in the last couple quarters, but that's a good range.

Landon Park

Great. Thanks Shawn.

Thanks, everyone.

Rick Baldridge

Yes, thanks Landon.

Operator

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

Your line is open.

Unidentified Analyst

Hey, everyone, this is Brent on for Ric. Good afternoon.

A few questions. First, appreciate the updates on the ViaSat-3 timeline.

I'm also wondering what are the current expected timelines for launch as well as in service for the EMEA and APAC satellites?

Rick Baldridge

Well, we've said for a while that they're kind of six months [Indiscernible] from the other one, but I'd say the second one hasn't slipped when we've had these last weeks, so it could be coming in just inside that. But by the end of calendar 2023, our third launch is right around that year-end mark.

So, it's possible slips into early 2024, calendar 2024, or stays in calendar 2023, but count on that because it could be a little earlier.

Unidentified Analyst

Okay, that's helpful. And you talked about increasing spending as you get ready for that on the OpEx side, how much did you spend in 4Q really specific to the ground systems in ViaSat-3 on the OpEx side?

And what's the magnitude and pacing of OpEx related to ViaSat-3 preparation from here forward?

Shawn Duffy

So, and -- this is Shawn, so in Q4, the number was, say, $7 million to $8 million. And that's going to keep increasing sequentially quarter-to-quarter next year.

So, you can think of next year -- full year probably across the fleet somewhere around $60 million.

Unidentified Analyst

Great, got it. And then you also talked about R&D spending and some exciting projects on the government and mobility side and mentioned a few projects there.

What can these projects should we be most excited about as far as near-term, mid-term and long-term opportunities?

Mark Dankberg

Probably the ones with the closest timelines are going to be the government ones, because they represent opportunity to get integrated onto new types of aircraft, or to extend our -- basically to extend our region within certain types of existing customers. But the kind of the long-term ones are really both air mobility and land mobility are kind of the two big ones.

The air mobile stuff, we think the market is still pretty lightly penetrated. There's 30,000 commercial aircraft going to 40,000, we think the commercial air mobility markets is still really, really exciting one going into the general aviation markets right now, kind of the largest jets being able to move down to the mid-tier and even lower jet, that's a really exciting market.

The one that's we're just getting into and we're part of some of our investments are going are in land mobile as well and land mobile is -- we can see a lot of similarities to the air mobility markets, a lot of them are driven by people and passengers. But there's also some really interesting broadband IoT markets.

And that’s the one, I think is -- that's going to be good market. What we're really looking to do is to make sure that we have presence in all those mobility markets that we've outlined in our total addressable market.

These are things that add up to that $1.5 trillion. I think it's one of the things that we see is really important is serving a broad range of those markets, driving bandwidth consumption, and getting the revenue from that enables us to keep moving down the learning curve on the bandwidth productivity, that's what made this possible so far.

So, I think it's kind of that all those aggregate markets.

Unidentified Analyst

Okay, and last one from -- yes, that's helpful. And last one from me on the Inmarsat timeline, what do you think would cause you to exceed or miss the timeline of year end?

And what's your biggest concerns right now?

Rick Baldridge

Well, it really is just the process on the anti-trust reviews. So, in the U.K., it's the CMA and here at DOJ.

And we're producing tens of thousands of documents for those reviews. And so it's just -- and it really just as a process, we don't see any issues of that, it's been going quite well, the discussions have been.

We went into this thing, got an understanding what all the questions would be, we think we've got a very good case. And they're two totally different processes, so they work differently.

And we've made very good progress, the undertakings as an example in the U.K., but that we've made really good progress in multi-countries for working through the hurdles and -- so we don't really see anything -- in doesn’t state anything negative, I haven't seen any indication of that. It's really just there's a way in which they go about your submittals and then questions and your responses of that review cycle.

So, if that goes slower, that capricious we -- if we -- one request goes into another request then that's another delay. And that's what guiding us.

I think what we've -- we still feel good about the nine to 18-month guideline that we gave out.

Unidentified Analyst

Okay, thanks, everyone. Stay well.

Operator

Thank you. Our next question comes from the line of Ryan Koontz with Needham & Company.

Your line is open.

Ryan Koontz

Thanks for the question. Most of my questions have been answered, but wondered if you could give us a ballpark on the magnitude of the slip out on revenue in the government system side from these NSA approvals and such be helpful?

Thank you?

Shawn Duffy

Yes, hey, I can try to give you at least a feel for what we're thinking. I mean, one of the things I think it's really important to keep in mind, we talked about last quarter that we saw these pressures coming Q4 and into the early year and I think that's exactly what we're seeing.

The other thing is Q1 is seasonally our lighter quarter in that government segment, so you got to keep both of things in play. I think that's going to be when we think about the sequential performance, that will be the highlight.

Rick Baldridge

So, Q -- just last time, we talked about these delays and certifications moving out of last -- out of -- we actually had expected them in our December quarter. And then we said, what's going to happen in Q4 could happen in Q1 or Q2 of our FY 2023, so June or September.

We don't see it occurring in Q1. We think it's going to move into the September quarter, which means you won't start really getting deliveries of those products until Q3 and Q4.

So, except that, we haven't seen any reduction in demand. These are really just getting this to the certification process so they can be delivered.

So, we don't see an overall reduction in terms of what the value of those are going to be, it's just the light.

Ryan Koontz

Got it.

Rick Baldridge

We also had some part shortages that have occurred in the last couple of quarters of those products that we're resolving that have been resolved for right now that should start shipping. But like Shawn said, we've spent another sequentially down quarter in in our June quarter versus the March quarter overall until that starts to come back.

Ryan Koontz

Got it. Very helpful.

Thanks so much.

Rick Baldridge

Thanks Ron.

Operator

Thank you. Our next question comes from the line of Louie DiPalma with William Blair.

Your line is open.

Louie DiPalma

Rick and Mark, good afternoon.

Rick Baldridge

Hey Louie.

Mark Dankberg

Hey Louie.

Louie DiPalma

What drove the sequential decrease in Satellite Services revenue? Was it like entirely driven by like lower subscribers on the consumer broadband side due to the capacity shift towards mobility?

Or were there any like one-time items in the quarter that drove that decrease?

Shawn Duffy

Hey Louie, this is Shawn. So, primarily, we did have a little bit of fixed broadband pressure, it was offset from growth in LatAm.

But the other thing is there is a little bit of seasonality that you see in Q4 from Q3 in the ISP business as well, so something to keep in mind.

Louie DiPalma

Sounds good. And with the expected launch of an entry into service of ViaSat-3, I think you said for January, should that lead to a stabilization for the residential broadband revenue?

Or do you expect residential broadband revenue to continue to decline in fiscal 2023, and for that to be like more than offset by increases in the aviation revenue?

Mark Dankberg

So, overall in 2023, in the first three quarters, we expect residential does continue to decline as we allocate more of the bandwidth to the in-flight. And we've talked about the number of airplanes that we expect to activate, and that's really what's going to drive the decline in residential subscriber count.

But in the fourth quarter, we're expecting that to turn around and start growing again. And we do have expectations of growing the residential subscriber count in the U.S.

as well as internationally going forward from there.

Rick Baldridge

So, one point you should see first is it stabilize a little bit and then start to grow. One of the I just like to comment on about this, remember when the IFC business got hit with COVID, that we put a lot of resources towards offsetting that in the residential side.

And then with IFC coming back, you're seeing residential contract as we allocate bandwidth again. So, that's one of the things we like about having multiples of these businesses so that we can allocate resources in real-time around those market areas.

Louie DiPalma

Great. So, ultimately, you expect both U.S.

consumer broadband subscribers and like potentially like ARPU to increase beginning -- I think towards the end of fiscal 2023?

Rick Baldridge

Yes, on a sequential basis, we expect subscribers to start growing in the fourth quarter as we get capacity. I think from an ARPU perspective, where we will -- we're going to look at what the market is, but one of the things that is driven our ARPU up is the fact that we didn't have very much bandwidth.

So, we have a lot more bandwidth and we'll probably be able to grow in multiple segments of the market, not just the way we've been growing, which is through higher ARPU. So, I think we'll have better plans that are more valuable plans.

Some of those will be higher priced than what we have now. But I think we'll also be able to introduce plans that are low pricing what we have now, because we'll have a lot more bandwidth inventory to work with.

So, I think ARPU trajectory, we'll have more clarity on that probably once we started going to market with those services.

Louie DiPalma

Sounds good. Related to Inmarsat, are there any plans to develop a Ka-Band antenna that would be compatible with both the ViaSat and the Inmarsat network, such that when you're like bidding on, like, international aircraft right now and like when you equip aircraft over the next two years that they would be compatible with either network, so, there's like increased redundancy?

Mark Dankberg

Yes. So, as a matter of fact, right now, one of the things that we've done is we've tried to make our Ka-Band terminals compatible with a large number of different Ka-Band satellites.

So, for instance, we don't use all these compatibilities yet, but just talking about our own network right now, for instance, that we work on NBN satellites in Australia, we work on Brazilian Telebras satellite. In Brazil, we work on [indiscernible] satellites.

We work on other third-party satellites in Europe, and we can work on satellites in Asia. So, the antenna systems we work on all those.

With respective Inmarsat satellites, in particular, all of our antennas are capable of working on the Inmarsat satellite. The Inmarsat terminals are capable of working on our satellites, there may be network or modem compatibilities, that we'll have to work out either on individual airplanes or we also can work -- do those things within the network gateways, which then apply to all the airplanes that's connecting those gateways.

So, we have quite a bit of maneuvering room to be able to get that, but our objective is really to be able to get global coverage, pretty much immediately between the two fleets and to have that additional redundancy that you're referring to with our own satellites and theirs as well. And that's -- I think that's going to be a really attractive feature for our customers.

Rick Baldridge

Just think of it as an ability to roam on networks. Could roam on ours or vice versa.

Louie DiPalma

Thanks. And just one final question.

Do you have a rough estimate of your backlog for aviation, like commercial aircraft under contract? I know you said that you have 1,830 online and you expect to have 2,400 online by the end of fiscal 2023.

But how much -- how many more planes will you have in backlog at the end -- or like right now -- or like at the end of fiscal 2023 to install in the future?

Shawn Duffy

So, Louie, right now we have just under 1,000 and you can think that -- just to be clear, that doesn't include the Southwest order. So,

Louie DiPalma

Okay.

Shawn Duffy

So, a good healthy backlog.

Louie DiPalma

And for that backlog, it seems interesting in that I think two years ago or three years ago, you announced, like an order for United Airlines 737 MAX, and I think it was for like a small quantity, but I think they have like a very large order of MAX aircraft and they have a lot of like options. And a lot of your customers like Delta have options with the A321 Neo and I think American Airlines has options with the A321 Neo, does the -- does your backlog contain like options or are they just for like firm orders for aircraft?

Rick Baldridge

It's just the firm orders that they've made today, it's all in our backlog. Some of those orders include aircraft that those customers have, for instance, a Southwest order includes aircrafts that Southwest that are yet to be delivered to Southwest.

So, it's not -- some of these are on new aircraft that they've got orders for, for example. But in the cases of the other ones, what we're -- our goal is, is to be kind of the best provider to each one of these guys, so that when they do order new aircrafts, those are coming with our service.

And that's our mission is to make those customers very happy, provide the best available connectivity and value to the airline customers, so that all their future owners have our equipment and that's Plan A.

Mark Dankberg

And that's pretty much work today. The other thing -- the other part of this, because we do get questions, as well.

What we want to do is make it so that the surface on the planes that are equipped with ours so good that they're motivated to update their existing fleet as well. And that's kind of well as possible.

So, those are the ways in which we continue to grow orders with existing customers. I think the other the fixers can play with pretty much all the airlines that we serve now.

Louie DiPalma

Can I ask another question, actually? On this topic for a lot of your airline contracts, have you contemplated the potential transition to free Wi-Fi?

And like, are you able to, like add a high level like, estimate what would be like the potential impact -- like average revenue per aircraft in that type of transition?

Rick Baldridge

So, yes, okay. Yes to both of those.

I think that one of the things that’s -- here's the kind of, I think the way that I would put it, what's gone on in the airline industry in the last couple of years is, for a while there was a focus on connecting individuals names, let's take an individual plane, fly it on a route, show me what you can do on that plane. I think what has happened is as people have airlines see the value utility of Wi-Fi, and they realize that they get kind of customer satisfaction from passengers that use the connectivity, the notion of making it free has become more important.

And then when they make it free, and the usage grows, what they find is that the real issue is less connecting individual planes and more, making that service reliable for their fleet as a whole, especially in the places that they're hubs where, where there would be the most planes. So, that's where the focus is gone and what that means is that when airlines make Wi-Fi purchase decisions, that issue about -- okay, what would it look like for us to go free?

We want that as an option. And what does that mean, for connectivity at our hubs cities?

What does that mean for service level agreements? That becomes a part of the negotiation.

And I think that from our perspective, yes, it's good for us that it gets more usage. And one of the things we're working with airlines to make sure that it's good for them as well.

So, that -- those are two things -- the way in which they do it would have some impact on the specific the revenue numbers or the ARPA, average revenue per airplane that we would get. But the outcome is, it's certainly going to be good for us to get more usage, and we think it'll be good for them, as well.

That's the -- that's what we're aiming for. But one of the reasons why we're not as potentially sometimes as transparent as the competition.

And some of this is because it's important to our airline customers that they communicate what their strategy is, and we follow them. But sometimes it might be easier and in for us to describe it as like I said, some of our competition has, but we found that to the extent that we're allowing them to communicate their strategy, that that's a better partnership for us with them.

Louie DiPalma

Understood. Thanks.

Shawn Duffy

This is the super clear nature of [indiscernible] and our backlog that I gave you coming out of the year and just under 1,000 aircraft that this definitely does not include anything from Southwest.

Rick Baldridge

Does not -- right.

Shawn Duffy

Yes.

Louie DiPalma

Okay, so with Southwest, it might be like 1,400 or so?

Rick Baldridge

No comment.

Mark Dankberg

Sure, I mean there's different estimates out there of outlook--

Rick Baldridge

Purchase plans are for new planes, which is what -- what's covered under the agreement. And so probably the thing to do would be to look at estimates, estimates for what Southwest deliveries would be and I think we have a good shot at capturing all those.

Louie DiPalma

Yes, you didn't use any qualifier, you just said all like future aircrafts from Southwest. So, that's a pretty long timeline you know.

Rick Baldridge

There are 730, [indiscernible] going to the Max version. We don’t have to continue their earnings.

Louie DiPalma

That’s great. Thanks.

Thanks Shawn for the clarification. Thanks Rick and Mark.

Operator

Thank you. Our next question comes from Milan -- of Chris Quilty with Quilty Analytics.

Your line is open.

Chris Quilty

Thanks. I know you just said that it's better that your customers communicate their strategy, but one notable aspect of that Southwest announcement is they've historically been all Ku, so do you see this as a permanent forward shift by Southwest to a Ka-Band system?

Rick Baldridge

I don’t really think it's an issue of Ka or Ku, I think it's an issue of Southwest. Our job right now is to make Southwest the planes that fly on our network of Southwest, such a good quality of service that they want to own the rest of their fleet.

I mean, that's the challenge. And it's their job to go figure out what -- to the extent that they're going to do that or do they have another supplier they're happy with.

And I will float that plane out. I think that it's really not about Ka or Ku.

Mark Dankberg

Look I would say is if you design satellites and space systems to take advantage of the things that you can do in Ka-Band, that they don't come automatically just because they use Ka-Band, right. They come from having some of the features that we have in our satellites, and especially, in biotech [ph], that should give us the ability to deliver a better service.

That’s what we're aiming forward [ph]. And we think that they should and want to do the best they can with the service that they have now.

It's my job to give them the option to do that. So, what we really want, Chris is, there's this concept of versus intent, right?

Somebody buys and what's the probability we're going to fly with you again within the next year? And to the extent that we can positively impact purchasing by having our service award, that's really our mission.

Forever, yes.

Chris Quilty

Great. Shifting gears in the commercial network segment, you've been on fire on the ground antenna segment.

And I'm just looking out to the next fiscal year and should we expect that trend to continue or should we see it level off a bit? And can you maybe detail what you see as the factors that have been driving that growth?

Shawn Duffy

Yes, sure Chris. I think when you think about next year, it's a couple of pieces, right?

One is part of our growth -- a big part of our growth this year was IoT terminal delivery and that's going to be a big part of our growth next year too. So, this year, I think we delivered 450 and we're going to do plus 600 next year.

So, we're excited about that. But keep in mind--

Rick Baldridge

But a little lower in Q4 and Q1.

Shawn Duffy

Yes, really tied to our customer demands and we're meeting their schedule.

Rick Baldridge

Aircraft deliveries and also certification completions, right. Those are kind of gating drivers and then also on the big ground antenna business.

Shawn Duffy

Yes, fantastic. I mean, they had some significant wins and I think that they're going to continue to grow into next year, too.

Rick Baldridge

And Chris, I think your question just sort of highlights a point, which is we have kind of -- we tend to get business in lumps, whether it's government contracts, big antenna contracts, or airline wins. And so the timing of growth in a lot of those businesses is really dependent on the timing of those things.

The one business that we have that that's really not subject to that which is the U.S. residential business, is actually the one that we're using to feed the in-flight business.

So, that's what's really contributing to the lumpiness that that you're seeing in Q4 and going into it Q1 and Q2 and way that fiscal year 2023 will play out. So, the good thing is that we have most of the lumps in the pipeline now that those are the things that drive the rate of growth.

On an annual basis, pretty good; on a quarterly basis, it can be unpredictable a little bit.

Chris Quilty

Got you. And on the ground equipment side, was it mostly Earth observation driven?

Rick Baldridge

Yes.

Chris Quilty

Great.

Rick Baldridge

And the other thing on that side, I think one of the things that in the long run that will help with that is that this CSP, Communication Services Project award that we got from NASA, which is really intended to kind of leverage the combination of the ground antenna business that we have with space relay for both commercial and government customers. I think those two things are pretty synergistic.

And it's worth highlighting that as it relates to kind of the future prospects for our ground antenna business.

Chris Quilty

Got you. And I keep -- hate to keep asking antenna questions, but where -- have you made any progress or do you have any prognostication on your electronically-steered flat panel antenna, when that should be in the market?

And where specifically you're looking to position it relative to what dozen or more competitive products that are coming to market?

Rick Baldridge

Okay, so our main objective -- and we think this should be what our customers' main objective, for those antennas, is to deliver services most cost effectively. So, that -- that's what -- I think that's what's going to differentiate our antennas.

We know -- in order to do that, you may need our network capabilities. Some of the things that we're building in are a little bit unique to our networks.

So, we're a lot more focused on our antennas as a delivery mechanism for our service, than we are antennas as a standalone product. And that causes us to look at some of the features or specifications of some of these competing products differently than somebody who's just in the market for an antenna might, okay.

So, that's kind of the guiding principle for us. And some of those things really impact not your ability to make a connection, but the flexibility that you have in scheduling these connections among all the different services that we have.

Just to build on a theme, you know that we're very focused on this productivity measure, some of which comes from high capacity satellite, some of it comes from our ability to move bandwidth around and deliver on these service level agreements reliably, really efficiently. And so some of the features that we build in, just make scheduling the bandwidth a lot more efficient or the ability to use multiple orbits really efficiently, that's the other thing that we're putting in.

Some of the first applications that you'll see for that maybe in land mobile applications using some of the -- some more copies of the antennas that we've flown, for instance, in business aviation. And -- but one of the main products that we have an aim for is the commercial aviation market.

We'll talk about that more as we get closer to it and give our customers the opportunity to weigh in on the specifics that we be focused in on that.

Mark Dankberg

That’s the question mark.

Rick Baldridge

Just to try to clarify because one way to approach this would be you're building antennas for a mass market, I call it the lowest common denominator approach. Another one is, we would buy antennas if they had the features that we wanted, right.

But they don't, so talk a little bit about that. You said that.

Mark Dankberg

Yes. So, I think just to build on Rick's point, which is an important one is a lot of times when people buy antennas as a product, one of the things to look at is what is the worst case performance of that under particular combination of look angles or satellite you're using, don't look at sort of what's the worst case performance because if they go off and buy service from a third-party, they're not quite sure what the attributes of the satellite that deliver that service will be.

For us knowing that we have a pretty big fleet with some very unique capabilities. What makes a lot of sense is for us to come up with an intense specification that delivers the best weighted average performance under all operating conditions for those customers.

So, even -- so as an example, if we had a worst case performance specification, but that condition arose only a very small fraction of the time and still allow us to reliably meet our service level agreement, we would choose that as an acceptable criteria, if it what it did was it enabled, way better performance most of the time under the operating conditions that we expect for that customer. So, there's a difference between sort of expected or weighted average and worst case can have a really big impact on your choice of antenna technology.

When you're just selling third-party antennas, customers might rationally choose a different one.

Rick Baldridge

So, we're not doing these things so we can be able to sell a bunch of antennas and make money on antennas in mass markets, and really to enable antennas services we're kind of on -- in the markets that we're addressing that.

Mark Dankberg

Does that makes sense?

Chris Quilty

Yes, got you. So, you're designing an antenna that's optimized for your service?

Rick Baldridge

Yes, which ultimately, involves not just our own satellites, but a whole bunch of partner satellites as well, including a number of partners that haven't yet discussed, but we think are going to be really valuable in the future

Mark Dankberg

And multi orbit.

Rick Baldridge

Yes, right.

Chris Quilty

Great. Do you want to elaborate on that multi-orbit strategy?

Rick Baldridge

No, other than to say we think that the what we're trying to do in the multi-orbit strategy is get the best of each orbits attributes, right? So, for the geosynchronous satellites, what we've got is really -- we think, really, really low cost bandwidth and the ability to deliver a lot of bandwidth in these very congested places, like airline hubs as one example, ports would be another example.

So, you'd want to use that. If to the extent that you have traffic that that benefits from a lower propagation delay or lower latency, then you'd like to use non-geo for that.

Or if you want coverage in places that the geo doesn't reach, as well you want non-geo for that. And also depending on what customers you get, now traffic evolves, we also can have hotspots in areas that we didn't expect and so, to the extent that we can use partner satellites to serve those that can let us get customers that we wouldn't otherwise be able to get, because we can fill in those hotspots.

So, those are the main reasons for using multiple satellite partners, as well as not with non-geo being one set of those partners.

Chris Quilty

Got you. So, I'll wait till next quarter, so you can tell us who's non-geo.

I appreciate the feedback.

Rick Baldridge

Yes. Okay.

Chris Quilty

All right. Thanks guys.

Rick Baldridge

Thanks Chris.

Operator

Thank you. Our final question comes from the line of Landon Park of Morgan Stanley with a follow-up.

Your line is open.

Landon Park

Great, thanks for taking the follow-up guys. I was just wondering if you could elaborate on the U.S.

residential terrestrial competition that you talked about in the letter? And then just one quick one for you, Shawn.

Just taking the $700 million EBITDA guidance with the $1.4 billion [ph] CapEx guidance? Should we be thinking about cash burn in the $700 million range or are there other working capital or other considerations to think about?

Shawn Duffy

Yes, I would think one thing to keep in mind to say about first is we're going to be growing and we're going to be working to kind of see the channel for that growth to go ahead and buy us [indiscernible]. So, I spent a little better working capital burn in there, relative on year-over-year basis.

I think what we've also said is we kind of expect next year's leverage to be around the 4.5 mark. So, it kind of gives you some places to try and get it around.

Landon Park

Okay.

Rick Baldridge

Okay. And then on the residential market, probably kind of a longer term biggest factors are probably going to be government subsidies, and kind of build out of fiber and cable terrestrial networks.

So, that's -- what we're really looking at is what impact that has on the addressable market. I think others have talked about that, too.

We think the addressable market will go down. But we think it creates opportunities maybe different price points than what we've operated at now.

And if you look at kind of the long-term, I think, a couple of years ago, we gave a pie chart that showed higher expectations of what our satellite services markets are -- total markets would be in FY 2025. And that FY 2025 had -- it showed sort of modest growth in the U.S.

residential market as a whole. But a much larger fraction of our total business coming from these international mobility markets.

That's still the way we see it taking into account what's going on in the build out and subsidy in the U.S. market.

I think we have room to grow by and this is like hundreds of thousands, we're not planning on talking about growing by millions of subscribers in the U.S. market.

Mark Dankberg

You'd say that we'll be able to dramatically increase our addressable market and plan tight on that, but at a much smaller share of our addressable market with this. So, that's what we're anticipating.

Landon Park

When -- are you guys start testing those new plans before [indiscernible] actually enter service or--?

Rick Baldridge

Yes, we are. And you'll see what we're doing right now, I would say, one of our most promising plans is really around higher quality and more video streaming.

And that's gone really, really well. But it's hundreds of subscribers that we're testing that hump, but that's gone really, really well.

That'll be one of the things that we do with ViaSat-3. You'll see us also begin testing on higher speed plans than we have now.

Right now we topped out at 100 megabits per second, we'll probably go to meaningfully higher plan -- higher speed plans. I think what you'll see us kind of moving in both directions, both the plans that are better premium -- more premium than what we have now and then others that are more value based, which could involve improvements in performance, but also could be a little bit lower price points.

The other point I would make on subsidies is one of the ways in which the government is using subsidies is with what they call the ACP program, which is basically a way it's got -- it's like a voucher program for lower income, fixed broadband subscribers. And that is available to satellite service providers as well.

And so that's something that we're just going to be adopting kind of at the end -- sometime this quarter. And that will help with our kind of markets that are more price-sensitive or economically-stressed than we've had before.

Landon Park

So, you can participate in the EBB [ph] program?

Rick Baldridge

Yes, the ACP program, I think, is going to be more significant than that. And it's pretty -- it's a pretty straightforward program, people qualify, they get like, I think it's like $30 a month.

It's pretty, pretty meaningful. I think that's the one -- I think we are in the EBB.

I think the ACP one we think is going to be probably more impactful. And it does appear that that will continue on, it's a pretty popular program.

Landon Park

Right. You talked about fiber and cable, are you saying fixed wireless at all?

Rick Baldridge

We do I mean, we see each of those, I think that it's kind of like a T-Mobile version of mid-band, it's probably going to be more representative of fixed -- it's a fixed wireless that arrives on mobile service, that's probably going to be more impactful than dedicated fixed wireless. I think, probably the long-term thing, but if you look at the way T-Mobile has done it is they've done it subordinate to their mobile service.

So, that is going to have an impact on geographically where it can roll out the extent to which it can roll out, and kind of the long-term duration of that, but that's probably the -- kind of the most -- the biggest potential impact. I think one of the things that that's really going to -- that we see repeatedly is people coming and going, especially when they're economically -- in economically stressful times, people just go into a mobile plan and not having a fixed plan at all.

And we actually think there's some opportunity around augmenting some of that stuff as well. So, we think -- I don't -- we never want to think it's always business as usual, using the same tool in different markets.

So, whenever there's change, there's opportunity. But I think our -- the main -- the biggest theme for us and it did play out in the fourth quarter, one of the statistics that we put in, in our letter was, I think, in the fourth quarter of FY 2022, 39% of our satellite services revenue came from local and international compared to 16% in the same quarter a year ago.

So, that -- that's the long-term trend. I think we definitely hear -- we're not -- it's not like we're abandoning or its going away in the residential market, but we think the real growth is in the mobility markets and a lot of growth internationally, where some of those factors that are in hinging on the U.S.

are happening and are unlikely to happen.

Landon Park

Okay. Thanks everyone.

Rick Baldridge

Thanks Landon.

Operator

Thanks. I will now like to turn the call back over to Mr.

Baldridge for closing remarks.

Rick Baldridge

Okay, thanks. So, first of all, I say thank you guys for showing up.

We know there were a bunch of conflicts, right now and there were -- people couldn't make it because this was tough, like, so we appreciate all the good questions and you guys for listening to the call. I've had to make a couple points before we just finished one is that, like we did in Q4 and this year, we constantly balanced investments and EBITDA to try to make sure we're hitting the targets that was out there and make sure that we can borrow the money, we're trying to borrow finish the ViaSat-3 constellation, get it up until we have a little bit more room being put the accelerator on some of the things we think are valuable and to the extent that we don't, we kind of constrain that.

And so we're constantly doing that. I think you guys that have been around for a while know that balance.

It's really exciting because of the upcoming ViaSat-3 launch, it's in our sights and we're getting excited about that. So, just -- for Mark and me and the rest of the team, just want to thank you guys for being on the call.

another really good year, we think our operational momentum is really strong and very positive and on top of that, getting to that first ViaSat-3 launch, which we've been waiting for, that's the capacity we sorely need regionally and allow us to improve our service offerings. This is what we've been waiting for.

And while [indiscernible] gives us the global capabilities and opportunities that enhance our expanding mobile focus on a global basis, we're excited about that. And at the same time, our teams here remain hyper-focused on executing the plan.

So, that that enables us to go expand the business. So, don't hesitate to contact Peter or the rest of our team if you have more questions on our results or other topics today.

We look forward to updating you next quarter. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.

You may now disconnect.

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