Big revenue, big write-offs for Viasat

Viasat took in $1.2 billion in its first full quarter of owning Inmarsat, a massive boost showing strength from both sides of the operations. The company also recognized $1.6 billion in write-offs related to satellite failures and program cancellations. Perhaps most interesting, however, is growing clarity of what the future constellation will look like – and who the future customer base will be – for the combined companies.

A mobility shift

Viasat now serves more than 19,000 aircraft and maritime vessels with Ka-band services. The Inmarsat integration added approximately 1,000 commercial aircraft to the tally, plus significant business aviation and maritime installs. And the company wants that to grow further.

Viasat was willing to sacrifice terrestrial market growth for its aero mobility platform in the past. But integration with Inmarsat appears to have further reinforced that transition, based Inmarsat’s legacy business model. Today the company is focusing on “broadband customers whose connectivity is directly coupled to operational needs or wants and where customers are motivated to understand and measure the quality of connectivity that they need for those purposes.” In short, Viasat wants to work with customers who rely on its satellite services as a critical component of their operations. And, perhaps more notably, who are willing to pay a premium as a result.

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Whether this is a direct challenge to the Starlink best effort offering (though now with some hints of SLAs and traffic prioritization) or simply a way to spin the search for higher yielding traffic is less clear. But it is also now part of the company’s constellation architecture planning.

Dankberg also called attention to Viasat’s success in the inflight connectivity market and the company’s ability to manage the demand elasticity for different service levels in different markets at different price points. Ultimately, he believes the Viasat model will allow airlines to “both differentiate their brand and their value propositions from other airlines while also capturing the value that’s created by that connectivity.”

Even without ViaSat-3 F1 at full capacity.

ViaSat-3 shuffle

ViaSat-3 F1 will initially operate over the Americas, despite only being able to deliver 10% of its designed capacity. But it will not remain there. CEO Mark Dankberg confirmed during the investor call that “Either ViaSat-3 Flight 2 or Flight 3 would replace Flight 1 over the Americas, and then Flight 1 would be relocated.” This is, in effect, Viasat admitting that the Americas is the most in-demand region for capacity, particularly as it considers the lower-margin, higher-volume fixed terrestrial operations.

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Timing for getting the F2 and F3 satellites into orbit has also slipped, though Viasat says now it has a confirmed contract for the F3 launch. The F2 satellite is still awaiting the completed reflector failure root cause report (expected next week) before it can be re-integrated and prepared for launch. While not surprising that the launch took a delay awaiting those findings, this would appear to be the first time the company has confirmed the F2 satellite had its reflector assembly removed as part of the failure analysis. Dankberg acknowledged the company is still awaiting “more information next week [on] what that lead time will be for the reflector delivery.”

The F3 satellite uses a different reflector assembly, but its launch has now slipped to Q4 2024. Previously that was expected in the first half of the year, on a roughly six month cadence for each of the three launches. Dankberg suggests the new timing was driven by launch vehicle and launch window availability. He declined, however, to confirm who the contracted launch provider will be. Previously Viasat reported deals with SpaceX, ULA, and Arianespace for launches.

I-6 constellation rethink

The total write-off of the I-6 F2 satellite is, according to Viasat, not too big a deal. The company says “near-term contribution to revenue was expected to be small” and that the satellite was more of a redundancy for the aging I-4 satellites than anything else. Which, of course, is not what Inmarsat was saying a couple years ago when the I-6 satellites were being planned. But there’s some consolation in that at least the Ka-band capacity can be covered by other GEO assets.

On the L-band front – a segment Viasat was incredibly bullish on as part of the Inmarsat acquisition – the plan now appears to be more of a multi-step approach. Dankberg says the I-8 satellites are coming soon, “shoring up the existing fleet” by 2026. Those small GEO satellites are not, however, the only planned assets for L-band. Dankberg adds, “part of our CapEx budget on a go forward basis and part of what we’re talking about in ecosystem building is to really modernize that whole fleet.”

ViaSat-4 write-off

Finally, Viasat has, for the time being, decided to give up on the thesis that simply flooding the skies with more capacity is the best evolutionary step for its constellation, at least in the near-term. “It was designed prior to the Inmarsat acquisition, when fixed services were a higher priority,” Dankberg explained. He added that a growing shift towards the mobility markets allows for deferral of CapEx and improves profitability in the near-term.

And when the time comes to develop the next generation of satellites, Viasat will have options. “Whereas the original design of ViaSat-4 that we started really was about large bulk amounts of bandwidth at low cost…we felt it made complete economic sense to focus on the mobility markets, and then bring, a new broadband mobility satellite to market following those later on at the end of the decade,” Dankberg explained. To that end, the company expects “key technology work that was performed on ViaSat-4 will apply to a future broadband satellite flight that will deliver better returns in mobility applications” than the original ViaSat-4 design.