Mark Dankberg - Chairman and CEO Rick Baldridge - COO and President Shawn Duffy - CFO Robert Blair - General Counsel Bruce Dirks - Treasurer Keven Lippert - President, Satellite Services

Rich Valera - Needham Mike Crawford - B. Riley Louie DiPalma - William Blair Chris Quilty - Quilty Analytics Andrew Spinola - Wells Fargo Ric Prentiss - Raymond James

Welcome to ViaSat Full Year 2017 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instruction will follow at that time. [Operator Instruction] As a remainder, this conference is being recorded. Your host for today's conference call is Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.

Okay, thanks. Good afternoon everybody and welcome to ViaSat's earnings conference call for our fourth quarter and full year of fiscal year 2017. I'm Mark Dankberg, Chairman and CEO and I've got with me Rick Baldridge, our Chief Operating Officer and President; and Shawn Duffy, our CFO; Robert Blair who is now our General Counsel; and Bruce Dirks, our Treasurer; Keven Lippert, who was General Counsel is now our President for Satellite Services. Before we start, Robert will provide our Safe Harbor disclosure.

Thanks, Mark. As you know, this discussion will contain forward-looking statements. This is simply 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. With that said, I’ll turn it back to Mark.

Okay, thanks. So, I hope you’re referring to slides that are available over the web. I’ll start with some highlights in a top level business overview and then after that Shawn will discuss the consolidated and segment level financial results, and then I’ll give some additional details and color. And finally, I’ll summarize our outlook and we will take some questions. So, we will organize our discussion around three main themes for this quarter. First is growth. Companywide revenues for our fourth quarter grew 12% year-over-year and 10% for the fiscal year as a whole to a record of $1.56 billion. Government Systems led the way in our fourth quarter with 20% year-over-year growth and 13% for the fiscal year as a whole. Satellite Services grew 11% in the fourth quarter and also 13% for the fiscal year as a whole. We feel we are well positioned for sustained growth. New orders for the year were a record at $1.66 billion; government orders were over half that amount at a record of $851 million that’s about 24% higher than this year's government revenues. We’ve got current backlog of over 830 commercial in-flight connectivity orders scheduled to begin installations in our second quarter of this fiscal year 2018. We now have 559 commercial aircraft in service that’s 17% increase over last year. Although it's still a relatively small part of our Satellite Services business, in-flight connectivity revenues are up 40% on a year-over-year basis. Our backlog creates a good opportunity to sustain rapid growth and the momentum in that industry continues to be strong. While the launch delay on ViaSat-2 coupled with the high utilization of our existing satellites is a headwind, we can still anticipate good year-over-year revenue growth in our fiscal year 2018 and beyond. Second point is our execution. Our operating businesses are delivering strong financial performance and cash flow and it’s a telling indicator of how we can leverage the performance advantages of ViaSat-1 across residential, mobile and government service opportunities while also capitalizing on our competitive advantages as a government prime contractor. Adjusted EBITDA was $83 million in the fourth quarter and $341 million for fiscal 2017 as a whole. Those are increases of about 3.5% and 3% respectively over the prior periods. But excluding the R&D due just to ViaSat-3, EBITDA for the fourth quarter was $100 million and it would have been $394 million for fiscal year 2017. Operating cash flow for fiscal year 2017 was $411 million that’s up 39% from fiscal year 2017 and reaching 26% of revenue. So, the third point is investment in our future opportunities. We believe our strong topline revenue growth and operating cash flow are compelling evidence of the market power of our unique business models in satellite broadband services and government secure data networks. So, we're making substantial investments that we believe will sustain and accelerate that growth and cash flow generation in the years to come. Our strategy is simple, we want to lead the way with the highest speeds and most bandwidth at the lowest total cost with the flexibility to apply those resources to most valuable, geographic and vertical markets on a global basis. And it’s a very complex technology problem and we believe we're in the best position to compete on that playing field. Later in the call, show some examples of the progress we're making on those investments. So for now then, with that I'll turn it over to Shawn.

Thanks, Mark. I'll spend just a few minutes on slide four, which shows revenue and adjusted EBITDA performance for the fourth quarter. But before I turn to the details, I wanted to touch couple of high points. Our Q4 reflected another very good quarter with strong financial results and many new records. Our existing businesses are generating excellent growth, double-digit level performance, which supports the significant investments we’re making to expand our global KA capacity by nearly 15x through our ViaSat-3 program. Alongside there is substantial investment in next-gen aviation solutions and FCCs, our fast growing commercial air Wi-Fi business. To put it in perspective, our Q4 adjusted EBITDA performance excluding our ViaSat-3 R&D investments is trending over a $100 million per quarter. Looking to the segments for the quarter, as Mark mentioned earlier, we achieved another quarter of record revenues of 416 million in Q4, primarily driven by our Satellite Services and Government Systems segments. In Satellite Services, revenues were up 11% year-over-year due to higher consumer ARPU which was up 13% on a slightly lower sub base, plus we had nearly 100 more commercial aircraft in service on average during the period with greater usage per aircraft with the in-flight connectivity revenues 40% year-over-year. With continued service offering expansion such as VoIP, 25 megabit per second speed plans, in-home Wi-Fi and extended care packages in residential, plus broader in-flight solutions and networking enhancement, we have been able to continue to grow -- improve on our bandwidth economics, which led to over 70% of our year-over-year segment revenue growth falling straight to earnings, generating the segment adjusted EBITDA increase of 18% to $75 million along with margin expansion to 47% up about 280 basis points from last year. Our Government segment also had a very strong quarter with top line growth of 20% across our cybersecurity and information assurance products, tactical data link and tactical sat-com radio. Segment adjusted EBITDA of $45 million was also very strong, growing both year-over-year and sequentially, despite an $11.8 million loss contingency reserve we reported by our 52% owned subsidiary TrellisWare. This was recorded in G&A and impacted both our Government segment EBITDA and companywide EBITDA by $8 million net of minority interest impact. Note that our portion of TrellisWare’s Q4 bottom line loss resulting from the reserve was partially offset by TrellisWare’s earnings for the quarter for a total loss $2.6 million as reflected in the consolidated statement of operations in our press release. So without this TrellisWare reserve, adjusted EBITDA for the Government segment in Q4 would have been at 22% from the prior year period. Commercial Networks showed a slight decrease in revenues from the year ago period due to primarily lower consumer terminal sales partially offset by higher sales of antenna system product. Adjusted EBITDA was negatively impacted by increased R&D spending on ViaSat-3, annual success based [ph] mobility investments I mentioned earlier, which was a main contributor to the $10 million erosion in EBITDA from the prior year period. Thus as I touched upon earlier, if we exclude the Q4 ViaSat-3 R&D expenditures, adjusted EBITDA growth for the quarter on a consolidated basis would have been 15%, outpacing our top line performance. And even with these investments, we are generating growth and good margins, as I also highlighted. Turning to slide five, we see fiscal 2017 was also a very strong year for us financially, with record consolidated revenues of nearly $1.6 billion, a 10% increase year-over-year. Our new order flows were also a record high at nearly $1.7 billion, generating eight consecutive years of positive book to bill and a FY17 yearend backlog position of over $1 billion which was also up year-over-year by about 9%. Our FY17 drivers line up very similar to our Q4 results with strong operating contributions again driving Satellite Services and Government Systems segments. In Satellite Services, revenues increased $70 million or 13% from the previous year to a record of $630 million. This top line growth was spread across our business, driven by higher consumer services revenues, coupled with growth in general aviation and commercial air Wi-Fi services. Consumer ARPU for the year was up 10% as a result of a higher percentage of premium plan, more value added services and a slight increase in our retail net. For the period, we had about a half of a percent fewer total subscribers which partially offset the positive impact of the ARPU increase. On the aviation front, we continue to see strong indicators in commercial air with ending total count increasing by 17% from fiscal 2016 and meaningful increases in average revenue per aircraft during the year. Service revenues from resellers of our Yonder mobility service were also higher. Today, we have over 90% of the world's most frequently traveled flight tasks covered. And we're seeing that evidence as our in-flight business continues to expand globally. In late 2016, we launched our first European commercial in-flight service on El Al Airlines, utilizing the KA-SAT satellite held by Euro Infrastructure Company, one of the joint venture entities with Eutelsat of which we own 49%. We expect our presence in that region to expand, both through our new joint venture and our existing customer relationships such Icelandair. Our segment EBITDA performance for the quarter was solid and profitable, so down slightly on a sequential quarter basis, primarily through a combination of the impact of seasonal passenger trends which are the lowest in the January through March period. At the same time, we're seeing a slight pickup in cost for current and future in-flight service launch activities, plus we did have two less service days in Q4 versus Q3. Despite these modest impacts, we ended the year with segment adjusted EBITDA margins around 47%, up over 350 basis points compared to last year, reflecting the continuing top line growth and overall scaling efficiencies in our business. The lines of business driving our 13% revenue growth in Government Systems were the same as what we discussed for Q4. Adjusted EBITDA of a $162 million was also a new record and was up 13% from fiscal 2016. So, despite the continuing resolution environment we’ve operated in for most of fiscal 2017, our Government segment had another tremendous year, setting new records across financial metrics including orders, revenue and EBITDA, providing a good base as we head into fiscal 2018. In Commercial Networks revenue was off slightly compared to last year due to lower sales of mobility and residential broadband terminals offset partially by higher sales in antenna system products, optical ASIC development revenue and higher fixed satellite network support sales. As planned, our commercial R&D spending this year totaled a $130 million, up $51 million year over year with ViaSat reinvestments being the largest contributor to the growth. The balance of the increase was driven by a recent commercial air win and together with the ramping ViaSat activities was the main contributor to FY17’s reduction in segment EBITDA. So, just like I mentioned on the last slide, if we exclude the ViaSat-3 R&D expenditures from the calculation, adjusted EBITDA growth for the year on a consolidated basis would have been 13% and even with our significant R&D investment this year, we still achieved record fiscal adjusted EBITDA generation outside of fiscal year 2015 when we reported that $40 million non-recurring benefit from [indiscernible]. So in summary, our fiscal 2017 was a great year financially with multiple records for the Company as well as in our Government System and Satellite Services segments. We're entering fiscal 2018 with over $1 billion in backlog and our existing lines of business are poised for continued top line growth next year with some of the things Mark mentioned earlier weighing on our FY18 EBITDA margin. This next slide summarizes both our income and cash flow statements as well as our overall leverage position. Net income and non-GAAP net income were higher year-over-year in both the fourth quarter and full year periods, and earnings per share figures follow same relationship. A few other items I would like to point out. First, our SG&A line includes the $11.8 million contingency reserve included in our Q4 results for our 52% owned subsidiary TrellisWare I discussed earlier. While the full charge is shown in the line, the net impact to our bottom line was approximately $4 million, net of tax and the minority interest adjustments or about $0.07 on a per diluted share basis for fiscal 2017. And when you exclude this charge, our recurring SG&A expenses were up year-over-year but down as a percentage of revenue. Second, our fiscal 2017 income taxes included four quarters of federal R&D credit versus five quarters included in the last year. With the federal R&D credit in a permanently reenacted status currently, these year-to-year income tax impacts should be minimized, offset with potential variation related to income allocations globally and variability in our deductions for stock comp, which can move based on our stock price and in fiscal 2018 based on changes in the accounting rules, will now flow to tax expense versus ASIC in prior years. And finally, our FY17 diluted shares take into account the weighted effect at the 7.5 million share issuances completed in November 2016, and this equated to about $0.06 per share diluted impact through our FY17 non-GAAP earnings. As we look to the cash flow statement, to reiterate what Mark said in the opening remarks, we achieved record levels of operating cash flow this year of $411 million. Our satellite investments also grew with three satellites under construction. ViaSat-2 is about ready to launch and our two ViaSat-3s together driving satellite CapEx to $275 million at 77% year-over-year, plus in Q4 we closed and funded the acquisition of 49% of Euro Infrastructure Company or 114 million for our strategic partnership with Eutelsat. So in context, our operating cash flow this year trended essentially all of our FY17 satellite related CapEx plus our initial strategic investments in the European broadband market. The $392 million of cash from financing activities reflected the $503 million equity offering in November 2016 offset partially by our net debt pay down of $103 million. We ended the quarter with nothing outstanding on our $800 million revolver and $275 million outstanding on our XM loan. Our net leverage is sitting at a very comfortable position at 2.2 times trailing 12 months adjusted EBITDA and our liquidity position remains very strong with unused loan commitments and cash balances, providing flexibility in net cash of $1 billion. So with that I’ll turn it back to you, Mark.

Okay. Thanks, Shawn. So, this next slide gives an overview of our exceptional Government System segment performance in a challenging defense environment. In fiscal 2017, we delivered mid-teens growth in revenue, adjusted EBITDA and new contract orders, all setting records for the Company through a very good year across the board including tactical data links, cybersecurity and satellite products and services. We won programs of record and also created new products and services that end users need but aren’t delivered through the DOD’s acquisition processes. At second skill, filling in the gaps in the acquisition system has been a key to strong growth despite the macro environment. We’ve invested wisely in R&D and have leveraged foundational satellite technologies that are driving growth in our commercial markets too. One way to think about it that we have much defense experience and capabilities than other commercial companies offering comparable services to the defense department in a much more commercial business approach than the pure play defense companies. Our market position has been very effective in navigating a time of great change in our national defense missions and competitive posture. The top and bottom line results speak for themselves, but we're also pleased with the business mix stride in that growth. This year, we were in several contracts that effectively scaled up products and services to organizations and/or platforms that we had initially captured in prior periods, such as solving 16 terminals on Apache helicopters or tactical encryption devices. But we're also introducing new products and services to new organizations and platforms that have good opportunities to scale even further in the future, such as handled Link 16 radios and cybersecurity for mobile satellite broadband, as well as new satellite products and services for a verity of mobile platforms. So, going forward, we anticipate continued challenging market conditions and we will have multiple competitors in our market segments. DOD budget wrangling is likely going to create lumpiness in award timing but we're excited by the growth opportunities in front of us and our progress to-date. So, while still small relative to our overall business, our in-flight commercial connectivity business is growing fast. As we mentioned earlier, in-flight connectivity revenue is up 40% year-over-year as we serve more planes, more passengers using more devices and have internet bandwidth usage growth. We're building a reputation for quality, performance and affordability, and we now have a backlog of orders for 830 aircraft over the next few years, following our most recent win with Icelandair. Overall, we're pleased with our progress to date and our prospects going forward. Having JetBlue as our launch partner enabled us to set a benchmark for creating an exceptional passenger experience that’s put a spot light on the limitations of other systems, and we're building on that benchmark and working with JetBlue to continue improving both the passenger experience and the economics of delivering it. This year, will be an exciting and important one for us in the in-flight connectivity market. We will be increasing the pace of installations on new aircraft substantially as we welcome new customers including American Airlines, Finnair, SAS Qantas and Icelandair that will collectively expand the presence of our best in class service both domestically and in a number of international markets. Each of these airlines has expressed a strong interest in creating a service that’s very passenger friendly and engaging. American will be our largest customer by plane count. We continue to meet critical milestones towards the line-fit process in support of the Boeing 737 MAX delivery to American Airlines in the coming months. It’s a step for us because the 737 MAX is expected to be Boeing’s largest selling plane with 3,700 already on order. Icelandair is our most recent new partner in the first plan is ViaSat-2 for transatlantic. Qantas is very exacting with their commitment to a free internet service that features the benefits of streaming media for sports and entertainment. We are working with the National Broadband Network in Australia to deliver their service. Finnair and SAS, our European carriers that along with our existing partner EL AL will help grow in-flight connectivity in our recently executed joint venture with Eutelsat on KA-SAT. Overall, we still have a lot of work to do and believe we will continue to expand our share of market in the still early days this business opportunity. The wins we’ve announced over the past year help illustrate that airlines around the world become more aware of the extent to its exceptional Wi-Fi service impacts the overall passenger experience. Our Satellite Services segment includes residential broadband, in-flight connectivity and nascent enterprise and Wi-Fi service offerings. Results this quarter continued trends from prior periods. Residential ARPU is again at record levels, up 13% year-over-year. ARPU growth results from a combination of factors including an increasing mix of higher value, higher speed, higher bandwidth service plans, growing proportion of retail versus wholesale subscribers and growing contributions from non-bandwidth centric value added services such as Voice over IP and in-home Wi-Fi networking. Satellite Services revenue is up slightly sequentially in the fourth quarter with a slight decrease in sequential EBITDA due to expenses in the in-flight connectivity portion associated within our rapid growth. The growth of our in-flight connectivity service and a growing amount of government services under our U.S. Ka-band satellites contributes to a bandwidth constrained environment for us pending ViaSat-2. Also, we continue to market test, higher speed and higher bandwidth residential plans as we prepare for the launch of ViaSat-2. The net effect of those factors is that we anticipate the absolute number of residential subscribers will continue to decrease until ViaSat-2 is in service. But as we’ve seen so far ARPU growth may contribute [ph] to that. And we’ve pretty significantly scaled our R&D investments over the last six quarters. By now, it should be obvious that we are super excited about the competitive advantages we believe will gain as a result of those investments and the growth opportunities they create for the company and its investors. This quarter, we thought it would be worthwhile share [ph] the tangible results of those investments and share some of the enthusiasm and excitement we as a Company feel about our accomplishments. So, remember, when we talk about the growth in R&D investments, we refer to the incremental R&D that’s associated with this ViaSat-3 satellites. So, the implication of framing it that way is that we are continuing our core R&D that’s been driving the exceptional growth in our Government business and commercial initiatives such as in-flight connectivity. We think our track record in Government and our success in disrupting the IFC market speaks for itself about the value and effectiveness of our R&D program. But this photo on this page represents another way to frame the benefits of our core R&D and our approach to holistic broadband system design. So right hand portion of the photo shows the ViaSat-1 class teleport gateway. That’s still the state of the art for high capacities broadband satellites. It shows a seven-meter antenna system and a building that has satellite network equipment needed to connect that gateway to the fiber internet backbone. ViaSat-1 had 20 such gateways with the ground infrastructure capital investment of about a $100 million. Remember that maximum amount of user bandwidth of broadband satellite can deliver to its users can’t be any more than the amount of draw from the fiber internet backbone. So, to add more capacity, you need more gateways. The size and much of the expense of that gateway is driven by ViaSat-1 class satellite architecture. And there aren't any geosynchronous high capacity satellites in the world that even today use an architecture better than that ViaSat-1. So, you can't double the capacity of the ViaSat-1 class satellite with the same user terminal assumptions without doubling the number of those gateways and the roughly $100 million capital investment required. But look at the ViaSat-2 gateway on the left hand side. The gateway antenna is much smaller and all the ground equipment needed to support it is housed in just two small utility cabinets. There will eventually be more than twice as many gateways for ViaSat-2 than for ViaSat-1, though we can light up the whole satellite with only about half the fully built out quantity. These smaller, much less expensive gateways can be located in more favorable locations with lower cost fiber access, though also deliver higher network reliability and greater security than is possible with the ViaSat-1 architecture. So, this all derives from the core portions of our R&D investments. The capital investment savings derived from this R&D expense over the next couple of quarters is in excess of $100 million compared to just using the prior state of the art ViaSat-1 technology. ViaSat-2 architecture and gateways offers a unique competitive advantage at an integral part of our bandwidth economic strategy. So, as I mentioned before when we talk about the growth in R&D over prior years that really means the expenses associated with the ViaSat-3 program. Both of those R&D expenses are to create the engineering prototypes and qualification hardware that precedes construction of the actual flight hardware. The flight hardware will be capitalized as would a satellite we purchase from a third party’s part as we did with ViaSat-1 and 2. We're in the process of transitioning from design and testing to flight qualification testing. Overall, we're really pleased. While there is so much to do, we retired substantial risks and are still on track to achieve the technical and functional objectives we set out two years ago. So, we hope the photos on this page will help people understand the economic value of the new technologies we're inventing and the progress we’ve made. The pictures on the left hand side shows much of the communications payload hardware for ViaSat-1. The physical scale should be evident by the people standing in the background and foreground next to those big circuit panels. The picture on the lower left is a three dimensional computer aided design drawing of a wave guide assembly that was needed to connect all that communications hardware on those panels to the satellite antennas. The size of that wave guide assembly is similar to the circuit panels. So, remember, our target on ViaSat-3 is over a terabit per second. That's roughly ten times the bandwidth capacity of ViaSat-1. At ViaSat-1, hardware is still close to the state of the art for broadband satellites. It will be impossible to build a ViaSat-3 scale satellite out of those components, and with that architecture and launch it on any existing airplane or rocket. The right hand picture shows an engineer holding one of the ViaSat-3 payload modules that we've been inventing with our R&D expenses. That little module processes significantly more bandwidth, much more effectively than the entire ViaSat-1 payload. Testing to-date indicates the payload module shown meets the requirement needs to play its role in the ViaSat-3 system. We aren’t going to discuss the architecture or design of the module, but it doesn’t take a lot of imagination to get some sense of the scale of integration we are achieving and how it can yield the function results we are aiming for. It would take roughly $5 billion in capital investments in ViaSat-1 class satellites or maybe 2.5 billion in ViaSat-2 class satellites to get the amount of downstream capacity from a single ViaSat-3. Plus ViaSat-3 has substantial advantages in geographic coverage, flexibility in allocating its bandwidth to the places with the greater demand and advances in reliability and security of service. You can also imagine that we could take a module like that or even just a portion of it, and integrate it into a very small extremely low class lower orbit satellite. Even though we could do this, it too wouldn’t be anywhere near cost effective is what we are doing. Our geosynchronous satellite should get about triple the useful life of the payload system, share all the space craft test functions among multiple copies and have a 100% of use of those electronics focused on a geographic markets that have the highest economic value. LEO satellite, will spend about 75% of its time over places where it would be impossible or just highly unlikely to generate revenue. So, first -- finally, let's consider the financial value of reinventing communication satellite payloads. As we have discussed in today's financial results, ViaSat-1 revenues are approaching about $600 million a year at almost 50% EBITDA margins. If we were to maintain the same unit price of bandwidth in our markets, each ViaSat-3 satellite would then generate something like $6 billion a year of revenue. We still haven't seen meaningful improvements in bandwidth productivity relative to ViaSat-1 from other satellite operators. But, even with bandwidth unit pricing that’s just a fraction of today's value, each ViaSat-3 satellite could generate multiples of our current ViaSat-1 run rate. It will take a few more years until we realize all the benefits of these R&D investments, we always take a long term view of our business. We’re really excited about the prospects and we are confident these R&D investments will drive significant value creation for our stakeholders as we bring our revolutionary new satellites into service over the next few years. Okay. So, now, I’ll go over some of the major factors that will affect our revenue and earnings outlook for our fiscal year 2018 for each of our business segments. I’ll start with Satellite Services. First main point is that the payments we have been receiving from Space Systems/ Loral as part of the $109 million settlement for their right to use ViaSat-1 technology ended with the end of fiscal year 2017. So that’s about $26 million through fiscal year that will not recur in fiscal year 2018. And thinking about our residential broadband services for the first three quarters of fiscal 2018, will still be bandwidth constraint. We anticipate growth in in-flight connectivity and in government mobile broadband. The government mobile broadband services fall into our Government segment, so that will transfer some revenue and earnings from the Satellite Services segment. In-flight connectivity growth can increase the revenue in Satellite Services. For residential services, we would likely see current trends continue with fewer subscribers, higher ARPU. With ViaSat-2 launching eminently, we’ll also begin incurring fixed fiber and ground networking cost for its ground infrastructure, just as we did prior to entering service after the launch of ViaSat-1. Even the balance of ViaSat-2 more than doubled ViaSat-1, there are only a few more initial gateways that ViaSat-1 had, so each of those handles more fiber capacity. When ViaSat-2 does enter service later in the fiscal year, we expect more rapid subscriber growth and we will incur the variable sack expenses commensurate with that growth. For our Commercial Networks segment, one of the bigger factors in fiscal 2018 will be revenue growth from sales of airborne terminals for our rapidly growing in-flight connectivity network. We’ve got a significant backlog of over 830 aircraft stretching over about three years. And we still have good opportunities to grow that backlog including revenue opportunities for fiscal 2018 amid strong market momentum. Growth with new airlines and new aircraft types will involve more lower terminal fight noteworthiness qualifications and additional STCs and line state R&D expenses as part of our core R&D program. We also had growth in ViaSat-3 R&D expense as we ramp up the flight qualification portion of that program. Government Systems has excellent opportunities for continued strong growth and momentum. Book-to-bill this past year was positive over 20%. We’ve got a strong backlog entering fiscal 2018 and good opportunities at mobile broadband, tactical data links and cyber security. We also have good opportunities to increase mobile broadband services revenue from user terminals that were installed during this past fiscal 2017. So, that we will be happy to open it up for questions.

[Operator Instructions] And our first question comes from the line of Rich Valera from Needham. Your line is now open.

I just wanted to get a little color on your thoughts on the timing and magnitude of the ramp of your in-flight installs. I think you said in your second fiscal quarter, you expected that to start. Could you give us a sense of kind of what kind of quarterly rate you might expect that to get to as you start executing on your backlog, particularly in American planes?

Yes. It’s Rick Baldridge. Since right now, we're in a little bit of a pause in the new equipments going to airplane, so still start ramping late this quarter and kind ramp through the year. On a quarterly basis, we get -- we don’t get a full rate within this calendar year, I think that happens in early next calendar year. That should be -- should get that over, definitely over a 100 a quarter in early next calendar year.

Got it. That’s helpful. Thank you. And I just wanted to get your thoughts on ARPU which were pretty exceptional this quarter. I mean, the quarter-over-quarter growth was quite impressive. It sounds like you expect to be able to continue to grow ARPU, but just wondering if we think about what kind of rate you can grow ARPU over the next year or so, how we should think about that relative to prior trends?

It's like Mark said, we are making some trades. One of the things that doesn’t get included in that ARPU number is what's going on in the other services, like some of the stuff we’ve gotten in emerging markets and so we exclude that. So, we think in the residential ARPU, we’re going to still three migrations towards retail from wholesale, so that will because ARPU to continue to grow. And we are selling, like Mark mentioned, we are selling services that have generally higher speeds and higher volumes in preparation for ViaSat-2 service launch. So, I think ARPU is going to continue to grow fairly strong. We haven’t given specific indication but offsetting that is certainly these reductions in absolute subscriber count. And so, overall, the revenue in that business we are expecting closer to flat for this next year.

Got it and just one more if I could, just sort of bigger picture. You’ve alluded to the fact that JetBlue among others have heightened the awareness of carriers to quality broadband. Can you talk about broadly in the market how that’s affected your pipeline and the prospects for getting more business, particularly on the international front? Just give a little bit more color on what you are seeing out there with in terms of awareness of broadband?

One of the big things that JetBlue has done with their free services is that the number of passengers that use it by far much higher than any other in-flight service. And I think that some of that’s because it’s free but JetBlue is benefiting from that passenger satisfaction engagement that comes with that high penetration. So, I think that -- that’s I think one of the most powerful factors that stands behind our growth that if you need -- like one way you can define a good in-flight connectivity services across $35 or $40 and it works okay. And another one is that it's free and everybody uses it and it works really well. And I think that that’s kind of a contrast in terms of customer experience. One of the things we’ve been clear on is that the ability to deliver that is really a function of the satellite. There is nothing you can do with the modem or antenna on an airplane that changes the satellite being the bottleneck for delivering good service to higher numbers of passengers. So, for us on an international, really the way we’ve grown is we’ve grown as our coverage footprint grows. So, it's been U.S., Europe when we were able to hide up the service on KA-SAT, Australia with NBN. With ViaSat-2, we are going to be able to transatlantic; Latin America, Caribbean. So, that’s how we’re expanding. ViaSat-3 is really the kind of a transformational factor that’s going to enable us to get to worldwide coverage. And as we are getting closer and closer to the launch of ViaSat-3 and looking at the timelines at which the stuff has deployed, it’s becoming more and more real and immediate to the airlines. And so, those are the factors that are influencing our success in the market and we think those are only going to get better.

Thank you. And our next question comes from the line of Mike Crawford from B. Riley. Your line is now open.

Thank you. Thanks for showing those ViaSat-3 modules and I'm wondering how do those compare with the hardware you provided for Iridium Next?

Okay. So, Iridium Next is basically what we did on that was KA-band space to ground and space to space inter satellite links. So, I would say the level of integration is a little bit comparable; I think ViaSat-3 is more integrated. But, the amount of bandwidth that we're delivering on Iridium Next is tiny-tiny fraction of what we do on ViaSat. And the Iridium satellite is -- I'm not to specify but it's got to be over a 1,000 times or less than the bandwidth that’s on a ViaSat-3. So that -- the biggest issue there is scale. The underlying Ka-band technology we kind of proved out in the Iridium program.

Okay. Thank you. And then just regarding the majority of subsidiary, TrellisWare that makes these advanced wave forms, how do wave forms compare to the ones that you are developing and working within in the government systems arena such as your Link 16 and other solutions? Do you use TrellisWare or is that separate?

TrellisWare and our Link 16 right now deliver -- really address two different markets. Link 16 is primarily an airborne situational awareness link; and the work that TrellisWare is doing primarily ground handheld radios. There's definitely an opportunity for those two markets to converge in the future, if you think about air to ground communications and ability to closely integrate ground with airborne support. But right now, they're sort of on two separate tracks.

Right, including the HHL 16 radio?

Right. So, the handheld, the Link 16 radio is really a way for ground users to tap into the airborne situational awareness that Link 16 provides. And there is a video that the air force put out six months, nine months ago that talked about how they could apply that. It's really a way for ground tactical operators to coordinate more closely and more quickly with close air support.

Okay. Thank you, just one more if you don't mind. So, in emerging markets, you've talked about entering those different capacity, probably a Wi-Fi hotspot model with prepaid airtime and you talked about it has to do in Mexico but you've also mentioned another foreign places like Venezuela and Colombia that seem to be outside of the footprint ViaSat-2 that you show, for example, in the presentation today. So, is it -- does the footprint actually -- how far into a place like Colombia does ViaSat-2 footprint reach?

ViaSat-2 footprint goes to the northern tip of South America which is where Colombia and Venezuela are. And even though we don't cover all of those countries, we do cover the coastal areas which is where most of the population is. So, those are -- they are candidates for us. As we have mentioned multiple times, one of the good things about ViaSat-2 is we have the ability to move bandwidth around. So, if there are market opportunities for us there, we can go that far out; if not, we can use a bandwidth in other places.

Thank you. And our next question comes from the line of Louie DiPalma with William Blair. Your line is now open.

Mark, on EchoStar, on its earnings call indicated that it expects to make a final decision within the next few months regarding Jupiter-3. I was wondering if there is any potential for ViaSat and EchoStar to form a ViaSat-3 partnership similar to your proposed partnerships with Eutelsat, or do you view the existing duopoly market structure with each provider launching satellites in tandem as the most efficient over the long term?

Well, there is a bunch of speculations associated with that but we are not going to speculate. But I wouldn’t say that two sets of satellites is the most efficient.

Okay. On another topic, I guess the backlogs for in-flight connectivity increased last quarter from 750 to 830 and it appears that Icelandair was for 16 aircraft; was the remainder for Qantas converting from a trial to a commercial order or was there an unannounced win in your backlog?

There are not unannounced wins at this point. So all of the growth from backlog is from our existing airline customers.

It is mostly Qantas.

Okay. And lastly, could you provide more color on how the defense market is challenging? It seems that a lot of the defense contractors such as Raytheon and Lockheed Martin are seeing strong demand with all the geopolitical uncertainty?

Well, it's challenging. I think there is two parts to it. One is if you look on that graph, you can see sort of what the trend -- has been over the last eight or so years in terms of government R&D spending and procurement. And it looks like that may pick up. But the other challenge has been just on the whole budgeting process. And we have been operating under continuing resolutions for so long. And that’s a little bit tricky because continuing resolutions are really meant to preserve current spending rates on each -- kind of on each individual program line item. And we have been growing at a very good rate. So, you’ve got a somehow harmonized, figuring out how the -- I think we and our customers have figured out how to harmonize growth in our programs with that continuing resolution environment.

Great. And one last one for Shawn. Shawn you and Rick previously indicated that total R&D in fiscal year 2018 should be a roughly the same as fiscal 2017. And I was wondering if that view has changed at all, and if that takes into account any potential spending on ViaSat-3 Asia?

Yes, sure. So, I think what we have talked about is that the ViaSat-3 activities are going to continue to ramp on an accelerated rate and to the first half of next year and continue throughout the year. So, I think as R&D being somewhere between 15% and 20% on year-over-year basis and you got [audio gap] we're going to have…

Related to ViaSat-3.

Related to ViaSat-3, yes. And then, you’ve got to include into that we have some additional STC expenses that can cause some variability. But it’s going be definitely in the first half of the year and then up a little bit over year over year.

Okay. And are you guys pursuing line-fit or ability for the other airframes besides the 737 MAX?

Yes.

Thank you. And our next question comes from the line of Chris Quilty from Quilty Analytics. Your line is now open.

A quick question just back on the IFC market. I know amongst the many service providers out there, there is lots of different revenue models that both the airlines are using as well as the service providers. Can you give your sense of where you think things will go in terms of free across all the airlines versus some of the airlines that are using per megabyte packages and tagged on to that, what are the metrics that you're using, is it sort of a monthly charge per aircraft or per number of passengers that you think is optimal for you on a service provider side?

The models are certainly going to evolve. I mean, I think that the airlines are learning, different airlines are learning in different ways but they are just learning sort of what the overall role of in-flight connectivity is on the whole passenger experience. Essentially, just think of it is, they are trying to buy customer satisfaction, invest viably in customer satisfaction and they can do that with meals, they can do that with in-flight entertainment, they can do it with seats, they can do with Wi-Fi and connectivity. There is multiple ways they can do it. But what we believe is that and surveys from multiple sources show this is that in-flight connectivity is one of the most desired amenities. And what we’re showing is that when you deliver it on a very large scale, you can do it at a very low cost. And that was kind of the JetBlue approach pretty much from the beginning; it seems to be working for them. Also you see on in-flight entertainment that whereas people used to charge for that that’s become free. Other things are going the opposite direction; meal used to be free in a lot of places, now you pay for them and carry-ons used to be free and some airlines are charging for those. I think it's going to be a shake out of what the passengers like. Our sense is that the passengers really like and value in-flight connectivity. And then you can add to that that whole landscape there, the fact that. Getting the attention of airline passengers is pretty valuable to a lot of different media companies, internet companies and sponsors, and we are seeing with JetBlue and with others that under the right circumstances, if the passengers associate their brand with a good experience, that’s valuable to those companies and that can further offset the cost of the in-flight connectivity. So, I think it’s going to take a little while for all this stuff to shake out. I think that as more and bigger airlines signed up and sign up with the objective of really improving that connectivity experience and reaching more passengers, I think you’ll see more and more influence sort of ripples through the route system each airlines affected by what the competition is, the routes that are most important to it. I think those are factors; we’ll have to see how it plays out.

Let me ask the question in different way. Are all of your customer contracts substantially the same in the way that they are structured and have you seen any push back from customers that want to buy capacity in a different way?

One is we are there to help the airlines make more money. So that’s the purpose of the in-flight connectivity. So, we are not trying to pose on the airlines any particular rigid way of doing it. So, we will work with airlines to come up with a program attested to their needs. So that’s what we are doing. I think that the airlines, all are aware of these trends. And even if they don’t go with the free model as example, where the model that we would suggest, we’ll do it the way they like but they all sort of can see that free is a likely outcome. Whether it takes a year or two years, three years that that’s probably where it's going to end up. And so, no matter how we start, we give the airlines optionality to figure out a good way to get there on their own.

On the other side of the mobility, your government mobility has grown real nicely in recent years. Are you tapped out on the number of platforms that you can address with that legacy KU network? And where do you see that eventually converting to KA, if you do?

No, we are not tapped out. We are seeing very good growth. I think a lot of our government customers who like the optionality and flexibility that KA, KU gives them. So, we can do KA, we can do KU, we can do KA and KU integrated. And all of those things are happening. I think that most of our defense customers recognize the value of the KA-band satellites and that as the ViaSat-3 series gets closer and closer, we are going to see most of the usage go on those.

And question for Shawn. Can you remind us from an accounting perspective, how and where you are reflecting the Eutelsat arrangement? And how it impacts ARPUs and whether you’ll ever report separate subs on that business?

So, the connected is the simplest form. It's very consistent while we’ve talked about in prior periods. The retail co entity is entity we own 51% of and they will be consolidated into our financial. So, we will have all of those revenues and expenses going down, we’re going offset [ph] as the 49% owned by Eutelsat going to minority interest. On the infrastructure side that we own the 49% of, that’s going to come in as an equity method investment as a one line item in statement [ph] and we are going to get our percent of their earning offset from the [ph] acquisition accounting adjustments that we do. So that’s how we will come into the financials. And as it relates to the subscribers I think we're going to have very similar reporting to what we do in our U.S. market. And you we’ll continue to address that as we define a little bit more good offers, will be there.

And one final question on the subscribers. I think EchoStar talked about the fact that they had converted their relationship with DISH from wholesale to retail. Is it fair to assume you're doing the same?

Yes. I mean that was a decision on DISH 's part. So, we expect that's how we'll do most of our business, most or all of our business with DISH, after some transition.

On a go forward basis, so they'll continue to own the existing wholesale subs?

Yes. Right, the existing subs that they own -- they will own.

And final question just on Qantas. I've read some stories that they're doing better than expected in Australia with those Skymaster satellites on the retail side that the capacity's getting sucked up. Where does that leave you in terms of the Qantas model for KA-band and can you also discuss the sort of KA KU strategy there?

So for domestic Australia, we've gone through this with [technical difficulty] their primary mission is to provide service for residential and we work with them to go through allocations or what the impact of the in-flight service would be for Qantas and it’s negligible. I think that NBN is comfortable with supporting Qantas for the service that Qantas wants and expects. So, I think that's worked out. I think that the Qantas international long haul is a different topic and not really prepared to discuss that at this time.

Obviously, ViaSat-3 Pacific would solve those issues?

Yes, absolutely. And certainly it could also augment any issues that Australia has in terms of bandwidth available for to it and to subscribers.

I would think so.

Okay. Mark, why don't we take one more question?

Thank you. And our last question comes from the line of Andrew Spinola from Wells Fargo. Your line is now open.

Thank you. Can you clarify the comment about satellite services revenue being flat next year? Does that include contributions from Eutelsat or not?

No, it doesn't include anything from Eutelsat.

Got it. In terms of the aero ramp that's in front of you guys, how do we get comfortable, not so much with the satellite side but more of the structural engineering side regarding the STCs and your ability to install? You're talking about getting to a rate over a 100 per quarter next year, you’ve sort of been the wholesale provider in the past. So, what sort of milestones, where are you in terms of certifications and how do we are comfortable that you can sort of scale to that that type of install rate?

We're -- we really can't talk about in line installation certifications as an agreement with Boeing. But, we've made great progress on getting through the certifications with our new product, this next generation set of equipment. And so, we plan to be installed well ahead of ViaSat-2 satellite availability on all those. So, we are starting soon. And we could I mean 100, 122, 100, that part is -- just takes a little bit of time. But it's not a limiting factor for us. More of a limiting factor is for the airlines is how many -- how -- to get the airline offline around their maintenance schedules and get the installations done. That is not an equipment availability issue, it's really airline installation issue coordinate that with each airline.

But I mean from of an engineering perspective, I mean we have been through it. I think one of the strengths of us as a company is we do a lot of airborne satellite work both with DOD and with business jets and commercial airlines. So, we have been through it, we think that they are well engineered. There will ultimately be rate at which they’re installed and the retrofit is going to be driven by the rate at which the airplanes are made available by the airlines.

On a consumer broadband side, I think you sort of made a comment that net adds will sort of – can see that at these levels. Given that in the future quarters before ViaSat-2 how to use in the market, is there any way for you guys to defend against used by upgrading customers that are off contract or are there any things that you are doing to defend that your existing position? And why shouldn’t we expect churn maybe to kick up a little higher so that net adds turn more negative during the rest of the year as you have this competitor in the market that has capacity?

Well, they are good questions. I mean, they’ve been in service on the new satellites for over two months. So, we have a little bit of a feel for what's the competitive landscape is. And I think the service plan they are offering are pretty comparable to what we have -- I think 25 megabits and we also have 25 megabits [technical difficulty]. I think they are doing more price promotions, which are valuable. And certainly because they have way more capacity than we do, and I think this is the biggest factor that it makes sense for them to spend a lot more money on advertising and promotion than we do. So, their share of voice is high. But on the other hand we have in front of us a satellite that we think will allow us to offer better plans. And so one of the ways that we can deal with it, one of the tools is to start improving our plans as in anticipation of what the ViaSat-2 plan will be in a selected spot beam environment. But there is still plenty of demand. I think we don’t dismiss the questions that you are raising, but so far experience has been that we think we can do what we have described and that’s what looks like the outlook is through the end of this calendar year when ViaSat-2 goes into service. The other thing is I think that the target market that we are aiming for is much bigger than a market of just between us in use. I mean that we are not sighting over every subscriber with you at speeds of 25 megabytes per second; we are really better than -- I think it’s probably for sure better than the average of broadband in the U.S. So, it’s a pretty broad market. So, we will see when we will report next quarter, but so far that’s really how it looks.

Only thing I’d add Mark is that we do have -- we have demand for bandwidth with other applications right now. So, part of it is as we do turn people often, we said earlier that we do expect subscribers will go down over the year. We've got uses for that bandwidth.

Got it. That’s helpful, one last question for me. Mark, you made a comment earlier, in your work with JetBlue, you're looking to help improve the economics to them with the next generation solution. And given they’re at unlimited now at a certain ARPU, I'm sort of asking the high level question about ARPU. As airlines get to this unlimited plan, is it -- I mean, are we in a deflationary environment going forward such that you will be passing along some of this benefit to the airlines and how do we think the average revenue per plane going forward as plane sort of airlines reached this unlimited level like JetBlue?

So, good question. So, yes, one of the things we’ve been pretty vocal and we did again here, we're trying to drive down the cost band of it. And we're offering to share those savings with our customers whether they’re residential, government or commercial air. So, what that means is you got these offsetting factors which is just doing the same things on an airplane, take more bandwidth each year, right. Websites have more integrated videos, social media has more integrated video. So, if you do nothing else, bandwidth consumption would go up. The other thing that we're trying to do with JetBlue is to increase -- help them increase engagement. They find that passengers that use the in-flight connectivity are happier that they are more likely to fly at JetBlue again at a presence for the airline. So another way to increase bandwidth usage is to get more engagement. And finally, I think we're just scratching the surface of how people are going to use streaming media on the airplanes. I think that you will see more and more choices for over the top live TV services, more choices for sports. And I think that will drive more bandwidth consumption and then also as device screens get to the higher resolution that will also drive more bandwidth consumption. So, you’ve got all these factors that we think could improve the overall passenger experience and we can improve their economics by passing on some of the savings on bandwidth cost. I mean other thing that we can do is working with JetBlue and we're also doing the same with these other new airlines is that as engagement grows and more and more people are aware of it, there are more opportunities to get revenue from sources other than the passengers. So we're pretty actively engaged with that. And that’s another way to help JetBlue and our other airlines improve their economics.

If I can just follow up on that. I guess, so will the demand from the airlines exceed your cost improvement and the capacity such that you think for a customer like JetBlue that the average revenue per plane will go higher going forward as you think them taking advantage of the better capacity will be just a function of taking the advantage of your new technology and not necessary translating it to a higher revenue per plane?

So, what’s happened so far and we’ve been working on all these things is that average revenue per plane has gone up because all those factors. And that’s actually true for us not just on JetBlue. But I think that it’s just more engagement, more bandwidth per website, no matter what the mechanism is by which people access the internet, the trends are for bandwidth usage to grow. And so the net result of that so far has been growth in average revenue per plane. And I think that there is a way to do that. And what we want to do is we want to do it in a way that’s good for everybody, right, that’s good for the airline, that’s good for the passengers, good for the third party media companies and for us. But I think that’s the trend and that you will see even with your airtime pricing come down that consumption in passenger satisfaction is going to go up.

I think there is time for one more question.

And our next question comes from the line of Ric Prentiss from Raymond James. Your line is now open.

Thanks guys. I appreciate you squeezing me in. I’ve been outside at a conference. So, I apologize if some of the questions were asked. First one, you guys talked little bit about the installed time or the installed pace with American, how many days do they need to take it onto a maintenance schedule at American for you guys to do the installs?

I think you have got to ask American that. I mean working -- obviously we are working with them but I think they have got control of disclosure on amount of time they’ve in aircraft offline.

And I assume there is some seasonality to when they want to take somebody off as well. Can you help us to understand any kind of seasonality impact as far as what that pacing might look like?

Sure. We have got two things going with American, retrofit aircraft and that’s definitely effected by seasonality and they have new deliveries for [indiscernible] both of those going with them. So I think they are pretty anxious to step on, in fact they know, they stress that with me all the time. So, I think they are going to go about as fast as they can. But you are right, there is seasonality, certainly for certain aircraft types from certain routes..

The only other thing I want to add there is -- element of this is just an artifact of doing an install for a satellite antenna at all. I think for our particular install, I think our install is probably the most efficient in the industry, partly because we have fewer pieces of equipment, more of it is integrated. There is fewer cables. So, I think that while install rate’s little bit an issue -- it’s a fair question for the satellite as a whole. I think we are pretty favorably positioned in that respect with the airlines.

And then did you talk at all about the next phase of the JV with Eutelsat and then the initial phase and you talked little bit about the retail co and infra co but there is a possibility of expand that relationship is there an update on that?

No, the next phase would be the ViaSat-3 portion. And I think we are both aiming more for the end of the calendar year to have an update on that.

As far as timing for potential on a ViaSat-3C, is there any kind of timeframe as long as should we expecting go no go decision how you might proceed with it?

I think it likely will proceed but the timing again will be the end of the calendar year for us to have a further disclosure on that.

Makes sense. Okay, thanks for squeezing me in guys.

All right. Mark, that’s it.

Okay. So, lots of questions, lots of stuff to discuss. Thanks a lot everybody for joining us and I look forward to speaking you again next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.