Mark Dankberg - Chairman and CEO Rick Baldridge - President and COO Shawn Duffy - CFO Robert Blair - General Counsel Bruce Dirks - Treasurer Paul Froelich - Corporate Development

Sebastiano Petti - JPMorgan Ric Prentiss - Raymond James Simon Flannery - Morgan Stanley Louis DePalma - William Blair Andrew Spinola - Wells Fargo Rich Valera - Needham and Company Chris Quilty - Quilty Analytics

Welcome to ViaSat's Fiscal Year 2018 Fourth Quarter Earnings Conference Call. Your host for today’s call is Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.

Yes, thanks. Good afternoon everybody, and welcome to our earnings call for our year end fiscal 2018. I’m Mark Dankberg, Chairman and CEO, and I’ve got with me Rick Baldridge, our President and Chief Operating Officer; Shawn Duffy, our CFO; Robert Blair, our General Counsel; Bruce Dirks, our Treasurer; and Paul Froelich from Corporate Development. And before we start, Robert will provide our Safe Harbor disclosure.

Thanks Mark. 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. That said, back to you, Mark.

Great, thanks. So we’ll be referring to slides that are available over the web, and I’ll start with an overview, and Shawn will discuss the consolidated and segment of our financial results. Then I’ll get some additional color or review our outlook and then we'll take questions. So the main thing is that while fiscal 2018 was impacted by launch delays and the antenna issue in ViaSat-2, as well as the substantial investments we made in space and ground network and in-flight connectivity infrastructure, we did achieve the milestones we intended, so that we can enable significant growth in fiscal 2019 and beyond. So beside this, top level accomplishments that set the stage for that growth. And after several launch delays, we've got ViaSat-2 in service even with the antenna issue, we believe it's the most capable broadband satellite ever, it’s kind of powerful combination of speed, bandwidth, broad geographic coverage and real time operational flexibility The ground network state-of-the-art with much smaller fiber gateways and it's highly virtualized. We deployed our second generation of in-flight connectivity terminals on new airlines and now we can rapidly scale in-flight connectivity services through our existing orders. We market tested new consumer plans and features that we intend to scale in this fiscal year 2019 and beyond. We added to geographic and vertical markets for broadband Satellite Services. Government Systems had a fabulous year with 13% year-over-year growth in revenues, 27% in adjusted EBITDA, and 42% in operating earnings, all driven by new products and services and expanded applications and customer organizations. And finally, we successfully completed the pre-flight hardware and testing on ViaSat-3, that enables flight hardware production. So our mission for fiscal 2018 is to capitalize on all this with strong growth in revenue and earnings. The growth drivers are on the side and they're already underway. First is to rapidly scale our in-flight connectivity aircraft in service. That started in the fourth quarter and it's moving fast. Next is continued growth in market expansion in Government Systems. That's largely driven by product services applications and user organizations that are already underway. Next is to grow our U.S. residential revenue subscriber account and adjusted EBITDA. We started that with sequential quarter-over-quarter revenue growth in the fourth quarter. And then with ViaSat-2, we can also begin scaling new vertical and geographic markets. We've also continued to test and analyze the ViaSat-2 antenna issues and our confidence in our assessment of the situation has grown. We still have some more ground network work to make the best of the situation and will submit our proof of loss to obtain insurance reimbursement in this current quarter. And finally, we're also going to continue ViaSat-3 satellite production. So that’s the top level overview. Shawn will go into more depth on the financials for the fourth quarter and for fiscal 2018 as a whole.

Thanks Mark. Our fourth quarter of fiscal 2018 was marked by achievement of important execution milestones across our businesses and our Q4 financial results are in line with our expectation. Satellite Services saw the introduction of commercial service on ViaSat-2, stable subscriber count, strong ARPU growth and American Airlines connected aircraft are ramping. Our Commercial Network segment reflected strong uptick in IFC terminal deliveries and ViaSat-3 tailored R&D expenses decreased sequentially once again. And our Government Systems segment achieved record levels of Link 16 product family deliveries and strong adjusted EBITDA margin increases. Looking closer at Q4, we see Government Systems had a topline growth of $22 million representing record revenues and an 11% year-over-year increase. Much of this growth was from the data link product lines I mentioned earlier which brought improved overall margins and drove segment adjusted EBITDA to a record $58 million. To give a bit more color here, this quarter we shipped record levels of JTRS units. Small tactical terminals and our newest data link solution, the handheld Link 16 radio. These last two products are considered NDI products or non-development items meaning they’re platform through the company's funded development efforts. Therefore, they tend to yield higher contribution margins than earlier generation customer-funded data link solutions. So overall, this represented a 30% year-over-year adjusted EBITDA increase or 10% year-over-year if you exclude the $8 million adjusted EBITDA impact of the Telebras contingency reserve we booked in Q4 of FY '17 and that's despite the increased segment R&D investments of approximately $2 million associated with our next generation government mobility solutions. In Satellite Services, we saw fourth quarter revenues grow on a sequential basis for the first time in several quarters driven by our ViaSat-2 service launch and growth in commercial air revenues. Also Q4 had two fewer days than Q3, so it was a shorter quarter. On a year-over-year basis, segment revenues were down due to completion of the quarterly $6.8 million the raw settlement payment in Q4 last year. Plus the revenue impact from 13% fewer consumer subs, corresponding to ViaSat-2 satellite delays. Offsetting these impacts were revenue contributions from continued consumer ARPU increases and growth in our IFC service businesses. As we look forward with ViaSat-2 now opened nationwide, we expect revenue growth to accelerate driven by subscriber growth, new aircraft installations and shared Wi-Fi services and the year will be back end loaded as service revenue scale following the delay in our service on ViaSat-2. Q4 segment operating profit and adjusted EBITDA was lower compared to the prior period primarily as a result of the revenue decrease. The fourth quarter also reflected additional investments in commercial IFC support. We expect these costs to stay elevated for several more quarters for our ever revenues from the growing residential subscriber base and the installed aircraft fleet, we’ll begin to drive contribution margins in second half of fiscal 2019 highlighting the operating leverage ability of this segment. In commercial networks, quarterly revenues grew 29% year-over-year and 37% sequentially driven by increased sales of airport terminals. We also saw new contract awards ramp up in Q4, growing 29% year-over-year and 17% higher on a full year basis. Continued demand for IFC equipment and new contract wins for next generation broadband capability also resulted in positive book-to-bill position for fiscal 2018. We expect mobility product sales to continue to strengthen throughout the year, as we execute the American Airlines program and those of our other airline customers. This quarter also included initial shipments of our newest fixed consumer terminals to our third-party customer in Canada, and we expect to see those to grow in the coming quarters as well. And finally the segment also saw another sequential quarter of decreased segment R&D expenses of $3 million as our ViaSat-3 pilot program continues to shift to the capital portion of the project. Achieving these operating milestones, we reduced our commercial segment operating profit and adjusted EBITDA losses compared to the prior year period and sequentially. On Slide 5, we see the revenue and adjusted EBITDA performance for full fiscal 2018 compared to fiscal 2017. In Government Systems, revenues increased 13% from last year reaching a new record of over $1.75 billion. The increase was mostly the result of higher product sales across our diverse portfolio with tactical data links, global mobile broadband, cyber information assurance and tactical satcom radio products all contributing to the increase. Service revenues also increased in the areas of satcom and global mobile broadband and tactical data links. This year we also invested incremental $16 million in government segment R&D, with a heavy focus on expanding our government mobility product platforms to next generation satellite capabilities. So despite this kicked up investment, adjusted EBITDA in the segment achieved a new record of $207 million, driven primarily by the higher margin non-developmental item product sales I mentioned earlier, as well as our service portfolio. Looking to our full year Satellite Services revenues, they were up about $40 million with the bulk of that $27 million due to completion of the Loral settlement payments last year. The remaining 2% year-over-year revenue decrease was due to the lower overall number of residential subscribers offset by both higher ARPU and expansion of IFC business. Adjusted EBITDA was impacted by the lower revenue, as well as higher operational and marketing costs associated with ViaSat’s new service launch and our commercial mobility ramp, which were more prevalent in the second half of the year. In commercial network, our full year revenues were down slightly compared to last year mostly attributable to lower consumer terminal sales offset by our second half ramp up in commercial air terminal sales. Adjusted EBITDA was impacted by lower revenue and the margin mix between our mobile terminals compared to our fixed consumer terminals, plus higher G&A for our IFC business and the anticipated year-over-year increase in R&D for the ViaSat-2 program of about $22 million. As I mentioned earlier, commercial networks generated a positive book-to-bill ratio, which increased segment backlog by 8% year-over-year and this backlog continues to exclude the anticipated words under the company’s existing IFC contracts. So similar to what we provided in the last few quarters, Slide 6 shows last quarter of adjusted EBITDA for both the quarter and the fiscal year period. And it isolates the large transitory items we've been highlighting. What you can see in the chart on the left for Q4 is that our overall R&D actually decreased year-over-year and it was the higher cost associated with ViaSat-2 service launch and commercial mobility ramping that were the dominant headwinds to adjusted EBITDA growth. On Slide 7, we summarize income and cash flow for the year and debt and leverage trends for the last two years. In the net income line, we see the adjusted EBITDA impact I discussed earlier was higher depreciation and non-cash costs, primarily offset by a tax benefit associated with the current year loss. Also included in our fiscal 2018 results were $10.2 million extinguishment charge related to our Q3 debt refi. And approximately $12 million of additional tax expense related to the revaluation of deferred tax asset as a result of the Q3 tax reform legislation, which did reduce the federal tax rate to 21%. The net impact was a GAAP net loss of $67 million for the year and non-GAAP net income of just over $2 million. So before I move on, I'll quickly remind everyone that the new revenue standards will come into effect for us next quarter Q1 FY '19 with two primary impacts to our consumer broadband business. One, commissions incurred for new SaaS after April 1 will be capitalized and amortized over those customers accepted lives. And two, we’ll record a recaptured commission asset net of amortizations associated with our existing assets, which will also be amortized over the estimated remaining life. With this change, you should expect to see approximately 80% to 85% of our SaaS being capitalized in the future versus the 60% to 70% leap range historically. As we close out our fiscal 2018, our standard implementation activities for ASC 606 are still heavily underway. So we expect to provide further details on any other identified differences in next quarter’s call. Turning to cash flow, despite the higher R&D and the ramping expenses incurred throughout the year, we generated over $350 million of cash flow from operations. In CapEx, our fiscal 2018 investment levels were down about $130 million or an 18% decrease compared to last year. Looking across our project portfolio, ViaSat-2 satellite network expenditures were down as that project moved to completion offset by a second half stretch of weather related CP investment and higher investment in the ViaSat-2 program. So in summary, the year-over-year variance is primarily due to fiscal 2017, including our investments in Eutelsat’s KA-SAT satellite and our acquisition of the IFC and aviation software company Arconics. Also keep in mind that as we grow our subscriber base on ViaSat-2, we would expect to see CP investments stay elevated alongside our ViaSat-3 activities which will continue to ramp throughout fiscal 2019. Looking at the chart in the lower right, our Q4 net leverage ended the year at 4.2 times adjusted EBITDA. This increase was mainly driven by our transitory FY 2018 adjusted EBITDA headwinds caused by the factors we've been stressing on the last few calls. As we've discussed previously, we expect to see leverage continue trend upward for another two quarters as we stack new ViaSat-2 subscribers plus ramp our ViaSat-3 satellite construction activities. Starting in the December quarter, we should begin to see deleveraging again as adjusted EBITDA growth begins to accelerate. Also I should point out that our covenant adjusted EBITDA in our loan agreement and bond indenture has a number of additional non-cash add backs which are not included in our reported adjusted EBITDA. Thus, our net leverage ratio for covenant purposes is quite a bit lower than what you see here and with our recently amended bank credit agreement, we’re able to partner with our banks and obtain additional flexibility throughout the next year to maintain our current growth trajectory and our investments and our ViaSat-3 satellite. So finally our Q4 liquidity position remains very strong. This $71 million of cash and nothing outstanding on our $800 million credit facility. So taking these two amounts into account less our outstanding fees, we continue to have significant liquidity of $842 million. So with that, I'll turn it back over to you Mark.

Okay. Thanks Shawn. So, I'll give a little bit more color on each of our business segments. We're anticipating strong in-flight connectivity growth in fiscal 2019 by enabling our new airline partners to get their fleets equipped with our service. We made good progress on that in the fourth quarter with 46 new planes placed into service, which is more than we've done in the prior three quarters combined. We also delivered a total of over 80 terminals in the fourth quarter and expect that number to grow in the coming quarters. So we expect to see accelerating growth of connected aircraft in service in the current quarter and beyond. We and our airline customers have continued to have very positive feedback on the quality of the in-flight connectivity service. SAS Airlines had a very successful media flight to introduce service last week and we now also wireless in-flight entertainment operating with two airlines and we've established prime contractor relationships with all of our airline customers. So our fiscal year 2019 mission is to scale. We've got an opportunity to reach over a 1,000 aircraft in service by the end of the fiscal 2019 year. The combination of equipment sales and new in-flight connectivity service revenues are anticipated to be the greatest contributor to year-over-year revenue growth. Our existing aircraft under contract wins confidence to that growth out. Of course, we still have opportunities to add new airlines as well as to increase our tail count from growth with existing customers. We're also working on exciting new Internet, media and content partnerships that leverage our connectivity advantages for our airline partners and their passengers. We believe the growth we can achieve can help establish that we're going to be the best long-term player in the global in-flight connectivity market, offering the best value to the airlines within economically viable and scalable business model that delivers on the ground like seamless, frictionless, Wi-Fi Internet experience to all of their passengers. Government Systems had a very strong quarter and an excellent year. Revenue grew a 11% year-over-year in the fourth quarter, 13% for the fiscal year. Adjusted EBITDA grew 30% year-over-year in the fourth quarter and reached $207 million, which was up 27% for the year as a whole, and our operating profit increased 59% year-over-year for the fourth quarter and 42% for the year as a whole. Revenue, adjusted EBITDA and operating profit all set new records for the Government segment. Year-end backlog was also up 6% from last year. Slide 9 shows that the pattern of growth for the past four fiscal years where we've achieved a 13% compound annual growth rate in revenue over that period with good margins as the business has scaled. Overall, we believe the main factors that have fueled that growth remain present. We've had good success in Information Assurance appliances have footholds and cyber services continued market expansion opportunities and tactical radios as well as in mobile satellite broadband equipment and services. After a about two years of delays and cancellations in defense communications programs to the record there’s strong interest in commercial technology and non-developmental items such as we make and we've got a very good track record there. Our Government growth can be lumpy, we believe we have good opportunities for sustained growth and our backlog hopes win and confidence to that outlook. We anticipate revenue and earnings should continue to grow in fiscal year 2019 and to be somewhat back loaded as had been our pattern in prior years. So, we're also very focused on growing revenue and adjusted EBITDA for our U.S. residential broadband business in fiscal year 2019. This slide shows a sample speed has taken from a ViaSat-2 user terminal. We think that speed well over a 100-megabits per second is pretty impressive and such a small dish. So as we've discussed previously we're emphasizing more premium, higher speed, higher volume service plans. We're targeting plans that can support much more streaming video on demand viewing than traditionally kept plans. It's a challenge, what we're aiming to tap into long-term demand for Internet delivered video while leveraging our competitive advantage in satellite bandwidth with capital efficiency. Those plans led to an 8% year-over-year increase in ARPU in the fourth quarter which helped us grow U.S. residential broadband revenues sequentially quarter-over-quarter despite a very small sequential decrease of a few 100 subscribers. ARPU growth was almost completely due to core broadband services revenue which reflects substantially more broadband per subscriber for the new plan sets. Overall, in fiscal 2019, we continue to plan for revenue growth to be driven by a combination of higher sub-counts and higher value premium plans with the ultimate proportions depending on market demand and plan X. Things are doing pretty well. We're rapidly growing the number of subscribers on ViaSat-2. Growth is accelerating each month as we incorporate more geography, bring on additional distribution, and ramp our marketing spend. We currently have tens of thousands of subscribers on ViaSat-2 and network performance has largely been quite good. We anticipate that subscriber growth will continue to accelerate as we refine and grow the service areas that support our highest speed plans. ViaSat-2 antenna issue does present some complications. We've been working for several months with a model that predicts the antenna pattern for the affected deals. Data to-date has confirmed our understanding of the issue including our estimate of the satellites maximum potential capacity. The ongoing root cause analysis has helped to confirm and refine our assessment of the antenna issue, but it did add some temporary delay to the rate at which we've been able to expand the geographic coverage of the affected beams and add subscribers to the new satellite. Additional data and measurements were, excuse me, in preparing our proof of loss due to the antenna issue. We expect we'll power our insurance proof of loss in the current quarter. We're taking a number of measures to adapt to the effects introduced by the antenna issue, we're continuing to compensate through technical, business and operational means. Those measures will evolve over the next few months. One of the big advantages of ViaSat-2 is its very broad geographic coverage. As we've said before, that's fully operational and unaffected by the antenna issue. We have full and continuous coverage from the northern tip of South America up through Central America, the Caribbean, the U.S., large parts of Canada and across the Atlantic Ocean. We've had very good initial success with our Wi-Fi hotspot business in Mexico using our legacy fleet. We've begun ramping that significantly with ViaSat-2, and we're planning to expand into more markets. The availability of ViaSat-2 bandwidth also let us scale our enterprise broadband services. We're making good progress on construction of the Americas, and Europe, Middle East, Africa satellite in the ViaSat-3 series. Preflight R&D expense activities for the spacecraft are winding down and capitalized space flight hardware production is ramping up, moderating R&D expenses creates a little bit of a tailwind for fiscal year 2019 adjusted EBITDA growth. As we've previously said, we're still planning for the Europe, Middle East, Africa satellite approximately six months after the first Americas one. Although Eutelsat ultimately choose to build in own satellite to target that region, the existing JV’s with Eutelsat using KA-SAT remain in place. The primary impact plus is that our capital budget is a little tighter, but it's manageable. We're methodically entering retail service in European countries starting with the most difficult markets, since that's where the KA-SAT bandwidth is most readily available. We're still aiming to have the first ViaSat-3 satellite in service in the second half of calendar year 2020 taking into account the spacecraft integration, launch, a record orbit raising and on-orbit testing. System performance budgets are still on plan, and we've steadily been able to burn down risks through ground testing. Our early experience with ViaSat-2 reinforces our view of the competitive advantages we can achieve with ViaSat-3 performance. We believe our 100-megabit per second service plans are years ahead of the rest of the satellite market, and then ViaSat-3 should enable us to push those speeds up several fold. We'll be able to bring our highest speed planes everywhere in the U.S. and in Europe and our bandwidth economics will enable us to deliver even more video streaming hours and with more attractive pricing. U.S. residential broadband is planned to contribute to ARPU and adjusted EBITDA growth during fiscal year 2019, along with the in-flight connectivity and government systems businesses. Residential broadband doesn't have the benefit of a big predictable order book like those other two businesses, but based on market results today we're confident that residential broadband will contribute meaningfully to this year's growth story. Okay. In terms of our outlook we're very excited about what we accomplished this past fiscal year and our prospects for growth in revenue and adjusted EBITDA in fiscal 2019 and beyond. We've already covered the main drivers, but I'll summarize them here. First we're ramping in-flight connectivity hardware shipments to enable our airline partners to get their planes in service. We’ve got an excellent opportunity to grow to over a 1,000 aircraft in service by the end of fiscal 2019. We've got a prime contractor relationship with all of our airline customers now. So by taking on that role and the associated functions we expect to also grow Rev aircraft as well. Hardware deliveries are already well underway and services revenue will scale as those aircraft are activated. And government systems business also has a good opportunity to continue its track record of strong growth. We've been expanding our market with additional Tactical Radio information assurance and cyber and satellite products and services. We've begun crossing over from early adopter organizations to much larger and more mainstream user organizations. We've added new platforms and helped create more effective operational concepts. The Defense Department is currently more receptive to new commercial and non-development item technologies. Our government business does exhibit sees no quarterly effects based on government funding cycles for our products and services and tends to be significantly stronger in the second half of our fiscal years. Individual quarterly reporting periods can be lumpy. We’ve also had good opportunities for U.S. residential broadband growth in fiscal 2019. We turned the corner in our fiscal 2018 fourth quarter with sequential quarter-over-quarter revenue growth, driven by more premium service plans on essentially flat subs. We continue to emphasize higher speed, higher volume, premium plans that support much more streaming video on demand. Revenue growth for fiscal 2019 is anticipated to reflect some mix of ARPU plus subscriber growth in proportions reflecting market demand. Adjusted EBITDA growth due to residential broadband will occur in the second half as we overcome higher marketing and SAC expenses initial promotional pricing and the fixed cost associated with the ViaSat-2 network expansion. We also expand and anticipate growth in our Wi-Fi hotspot in enterprise verticals and in additional geographic markets. Adjusted EBITDA growth will also had a tailwind effect from moderating quarterly R&D expenses as we plan to return to levels that we've had in the past, would be in the range of 7% of revenues. And with that, let's open it up for questions.

[Operator Instructions] Our first question comes from the line of Philip Cusick of JPMorgan. Your question please.

This is Sebastiano for Phil. I just had a quick question regarding the satellite anomaly, I know you said there appears to be no effect on the coverage, but you also said you’re looking at the affected geographic coverage of the beams. I mean have you lost any particular capacity in the geography or how should we think about the capacity issue across the footprint?

So the way we design the satellite and it's a pretty unique design for this particular satellite is think of it us having one very large contiguous coverage area and that's due to one set of antennas and then within that we augment that coverage and what we anticipated to be the highest demand areas and that's another set. And that second set is where there's an antenna issue and that is - that's basically what we're describing. And so in some of the areas covered by those antennas, we have issues that we've described before. That's what the - that’s when we referred to the coverage issues and so they're only within the larger coverage area and they're only in specific markets. Does that help?

Now that makes sense. And then just looking at the Independent R&D obviously continues to decline you called that out. How should we think about steady state for that should, we see further declines through here? Is this a rough level that we should expect for fiscal 2019?

What we’ve said, I mean if you look at this historically before we had the ramp due to the R&D expenses that are associated with prefilled on ViaSat-3, we tend to run in the 6%, 7% of revenue range. And that’s kind of a good target for where we’re headed back to

Our next question comes from the line of Ric Prentiss of Raymond James. Your line is open.

A couple questions following on Sebastiano. Mark you mentioned the estimated max capacity of ViaSat-2. Is that still looking like the 260 down from the 300? Or just wondering what you've found? I think you said you've been working on some ground station work to make the best of the situation?

Yes. So last time we had an estimate of about 260 gigabits as the maximum potential capacity for the satellite, given the antenna issue as we understand it, and that's right where we stand still basically, the work we've done since has just confirmed that just given more weight to that estimate.

And that's down from almost 300 theoretical although you provided way back win?

So, the 300 was sort of the initial capacity that we estimated for the satellite, just as a reminder when we did ViaSat-1, our original estimate was a 100, we ended up with 140 gigabits after it was in orbit, and we did all the measurements and took advantage of an additional spectrum. So the 300 was just the - it was just a preliminary estimate of the satellite, it wasn't necessarily the maximum potential capacity of the satellite.

That makes sense. And then - I’ll stand in that line, you mentioned that you'll file the claim this quarter. Do you expect to prove a loss this quarter? Do you expect to get compensated within this current quarter as well?

No, we don't expect to be compensated this quarter.

How long would that process kind of take to get the money in hand and…

I don't really want to speculate on that one. We think we have a very clear argument, but it's a big claim and we've not been through the process before.

And then for Shawn, you mentioned a little bit about ASC 605 going to ASC 606 with this current quarter now. Can you give us an idea of what kind of magnitude we're talking about on revenues and EBITDA and I assume the direction is improving, since you’ll be capitalizing and amortizing. So if there is any kind of rough magnitude we can think of?

Yes, I think it's a little bit early to give you guys kind of quantification of all the impact. We're still having in the process and we'll give you guys, we implement in Q1. So we'll give you guys more update then. I think kind of one of the things I mentioned is the most significant change that we've noted is around the debt commission and the new commissions being capitalized but keep in mind that we do have to put out this day one asset that will get amortized fast into the P&L. So the benefit through the capitalization of that commission gets muted.

And the last one for me the Eutelsat JV, other phase going away, what are you guys doing internally since the insurance payment won’t come in the quarter either. What are doing you internally as far as looking at projects, controlling costs, just trying to think through the liquidity item you talked about, is there been any changes in kind of procedures there?

This is Rich. We definitely focused in the near-term on cost reduction any kind of capital delays we can do that only impact near-term revenue streams. We've got cost savings program in place. So we're trying to do the things to make sure that we have some describe it as absorbing boundaries in the near term. As Shawn said, we have about two quarters of that to deal with before we begin deleveraging. So we've done just prudent things in the near term.

Our next question comes from the line of Simon Flannery of Morgan Stanley. Your line is open.

…getting into the 1,000 is that something that will kind of steadily increase the installs each quarter. I know there's sometimes a summer busy period for some of the airlines, so might it sort of slow in the summer and then ramp into year-end any color around that. And I think you've mentioned ARPU might be going up, so any color around how we should think about modeling ARPU. And then coming back to Europe, are you still interested in finding a partner for Europe or is the intention that go it alone and what is your thought process on having ViaSat-3 Asia Asia-Pac is that is that something that you have got a more clarity on? Thanks.

So the first part of your question got a little cut off, I think what you're asking was the rate at which we’re going to deploy aircraft heading to the 1,000. And basically we're working with our airline, the airline some sales are actually managing the installs and the rate at which they refurbish airplanes. And so for instance American Airlines has a number of refurbishments going on for other purposes as well. And so that's probably the largest contributor to growth. And we're really piggybacking on that installed rate. I think they're probably going to continue to expand the rate at which they install aircraft over the next two quarters or three quarters. So I think you'll see it grow, it will level-off. But that's several quarters away. You asked about Europe.

ARPU?

ARPU. So the ARPU will, - ARPU is going to depend on the rate at which the installs get done the mix among the airlines that we're installing on because different airlines have different plans. And then also it's going to depend a little bit on the way that the airlines bring the service to market and that's evolving. I'd say a little bit and that's really up to their discretion. I mean we're going to support them in however they want to do it. So I think we’ll be able to give I’d say a clear view on that in a couple of quarters. You'll be able to tell a little bit of it as more and more of the airplanes go into service and you see especially how American chooses to offer that service. And I think each of the airlines they're all looking around to see what other airlines are doing and the best ways to take advantage of the connectivity that we have I’d say that's constantly evolving. In Europe, let’s say, I think one of the things that you've seen with us is we think you - we really need to have some measure of control over the way satellite services are presented because we've had issues with distribution partners in the past that are really have some conflicts or really trying to preserve some other business model that's not necessarily the best for projecting the satellite services. So in Europe, and this is what we've been doing in other markets as well, we're very oriented towards retail services at least as a starting point so we get the best understanding of the market. And that's what we're doing now. We're also looking for partners that don't have any conflicts of interest with that often if we partner with telecom partners that have fixed facilities on the ground whether they are wired and wireless generally their variable cost for providing service on their existing facilities is low and they’d rather do that and provide a better service by satellite. And so that's where - that's really the issue that we're most concerned about when we think about the channels that we go to market with. But we think there will be other partners. Right now it's we don't really have enough scale given the bandwidth resources to try to drive that. We may as we get closer to service ViaSat-3 have announcements on that. For Asia-Pacific, we're still working on the Asia-Pacific satellite, probably the dominant effects on pacing for starting that satellite. I have been coming up with the best configuration for the Asia-Pacific market. Asia-Pacific market we’ve said before is very kind of complicated because very argumenta ocean, land masses are dispersed and you've got a couple of large markets that are heavily regulated where we may not be able to get access or where we're not going to bet heavily on access with this first satellite. But we do - we’ve been converging on the right configuration before, we also have some technical improvements that will increase the capacity pretty meaningfully from what we were able to do with the first two. So getting those two in place and we're negotiating with the spacecraft manufacturers to get a good deal on that. I think there is a pretty good shot we'll be able to announce something probably in the next couple of quarters after this one.

Our next question comes from the line of Louis DePalma of William Blair. Your question please.

Shawn highlighted a very strong small form factor Link 16 shipments. I was wondering was that part of that $250 million SOCOM IDIQ or were those shipments for a different customer?

We can use that IDIQ contract, let’s say is that SOCOM customers can use that contract to purchase their - to purchase those radios. Those aren't the only customers for those radios, we have we deliver radios - those radios other customers through other vehicles, but SOCOM can use that contract to purchase those radios if they choose. So far they've really been directly towards certain platforms that weren't part of that IDIQ.

Rick I was wondering in the prepared remarks you were talking about programs of record and were you alluding to that they are becoming a program of record sometime in the near future?

Well basically one of the major investments that the DoD and DoD has had several investments that just haven't turned out the way they anticipated. Those are things like Joint Tactical Radio System and so for instance our Link 16 Small Tactical Terminals have ended up going on a lot of platforms that we’re originally going to get that JTRS radio. And the small Tactical terminal has been so successful that it has been designated a program of record, but there are others as well. So there really was no - there was no program or record for a handheld Link 16. That's really a totally new concept that we came up with. We think that there's a lot of good applications, we're getting very good reception for it. Wouldn't be surprised for it to become a program of record in the future - that's not the case now and there are other programs of record that haven't really scaled the way they were intended. That give us opportunities for our products and services especially satellite programs. That's a good opportunity for us.

I think that's what Mark was talking about in the prepared remarks, is that sometimes programs are waiting for the delivery on this progression into record and so they need something, they haven't been that - those things haven't been delivered by the programs of record.

So there is increased agility when it's not part of the program of record?

But is really demand, there's pent up demand because they didn't get things delivered.

And further ViaSat-3 initial American satellite that is set to come into service in the second half of 2020. Does ViaSat plan to launch retail services in Brazil, Colombia and Argentina. And does ViaSat have the spectrum landing rights or the rights to operate in those countries. Right now I know you have that partnership in Brazil, but does those give you the access to use Viasat-3 in those Latin American countries?

Look, landing rights are a country by country issue based on our partnership with Telebras that program does give us landing rights in Brazil for that satellite. Now one of the things that we mentioned at the time was that through our relationship with Telebras and the mission that we're helping them perform you know I think there is good prospect for us to expand landing rights that we have to other satellites as well and which could include our Viasat-3. When we choose to enter a specific markets only do it in those places where we do have landing rights. A big part of what we're trying to do with things like our community Wi-FI hotspot service is to you know to create an environment where countries want us to come in there, and that's been going well. I think that's one of the reasons that Brazil was excited about working with us that the next year - the program that we have in Mexico which we just kind of announced preliminarily in the last few weeks to put a bit of a reference account for us because it's been very, very successful there both for us and I think for Mexico as well.

And lastly can you talk about the decision by Congress to fund WGS-11 and WGS-12 satellites? And does that impact at all your projections for how you're going to fill the Viasat-3 EMEA satellite?

So you know I think the stated government argument for why they acquired additional WGS satellites is that they really hadn't been able to say it institutionally from a Defense Department perspective, converge on an alternative to WGS. And they look at the age of existing WGS Satellites and said okay, we want to buy two more. So I think that was what the rationale was. From our perspective if you look at the services that we're offering through our satellites, there are basically no way to perform most of those services using WGS. So in some sense it’s really, it’s really doesn't have any effect on our expectations of revenue growth for our services because WGS isn't a substitute for it. It does other things, but it doesn’t do the things that we do.

Our next question comes from the line of Andrew Spinola of Wells Fargo. Your line is open.

Couple of questions on the help of ViaSat-2. Mark you described the performance during the quarter as largely good. And I'm wondering if you can just help me understand when it's not performing well and what that means to the customer. And what if anything you can do to fix that?

So that's a fair question. So basically here’s the way I’d put, a lease spent about three years preparing all the plans and configuration and operating parameters for ViaSat-2 based on the way the antennas would work. The satellite is incredibly flexible and programmable. And once we found the - once we found the issue on Orbit we had about two months to reboot all those plans to accommodate that. And I'd say in a couple of places we basically configured it in a way that didn't - that led to some bandwidth shortages. And so that was, when I say largely, that's basically the issue that we've had, it’s in a few beams that we just configured it wrong because we just didn't anticipate all of the operational impacts of the un-orbit you know the antenna issue. Once we realized, and it didn't take us very long, and whenever we had those problems, we had realized that we'd reconfigure the satellite to fix that problem. So that's when I say largely, it hasn’t been glitch free, but there's not been - the second thing I'd emphasize is there hasn't been anything that we've seen that our models don't explain. So, it's really just been a question of fixing and ironing out those glitches. Does that make sense?

Exactly. And so at this point in time all the glitches have been fixed and all of the beams are turned on so that - because you’ve said a national rollout, but I guess I had a sense that maybe some of the beams have been a little late in rolling out. So has everything turned on now? Or as of when were they fully turned on?

So I would say 98% and 99% of the beams are on. The 1% or 2% that’s left, we might not turn on, that’s. So I think we're pretty much in coverage now that the final point of it is that while we've been refining these estimates, we haven't - think of a beam as having a contour on the ground. We can say here's where the beam is, but the issue that we had to really confirm and we wanted to do this with direct measurements on the ground was like understanding where the edges of those beams were, because we don't want to offer service to people without having good understanding of the satellite performance in each of those areas. So basically we've turned all the beams on in to some extent but think of it the outer sneak peek of the outer edges of those beams we delayed turning on so that we'd have some margin for error in case the model didn't turn out to be correct. But so far, things have checked out really well. I mentioned we have tens of thousands of terminals on the ground in all the beams so with those we can measure what the actual performance is and we're just now about to expand all the beams to sort of their kind of what we believe will be probably their end coverage state. The other thing I also mentioned that we have a few things going on still just like one of them is we design the satellite so that we could cover all of the service area and not need all of the ground gateways to do that. But because of the antenna issue, there is a lot more value in getting all those gateways deployed. So once we have all that done we're doing that ahead of when we originally anticipated and that will probably be done I think in July, August timeframe and that'll get us pretty much all the tools we need to be able to manage all the service in all the areas.

One of the net effects Mark if I can just is that we because of these contours that Mark talked about, we limited the service areas that we were selling in. So you can think of it as limiting the geographies in the high demand areas that we're selling in. That constrained demand a little bit and the growth rate, but things we’re pretty excited about the way things are going.

That kind of leads to my next question which is, could you give us some help on what you've seen in April and May so far that we can think about net adds in this quarter and also a couple of quarters ago I asked you if you thought ViaSat-2, we'd see more than 140,000 net adds that you did in the first 12 months with ViaSat-1. Since then last quarter this quarter you've made some sort of commentary that has made a lot of people think that you were walking back from that expectation. And so I'm just wondering honestly, what can you tell us about Q1, what can you tell us about what you're trying to message in terms of net adds on a 12-month basis.

So we're not going to give a net ad guidance. So I think here's the issue for us is I think we’re offering plans that use a lot more bandwidth. So basically as people adopt those plans on ViaSat-1 is faster they adopt those plans the fewer subscribers we would have, what we really want to do is we want to pick the people on ViaSat-2. That's really what matters, right and so because that's where we're going to get growth and ViaSat-2 has a lot more bandwidth and ViaSat-1 like we’d talk about more than double. So the issue with predicting net adds in the short term is that we know the subscriber kind of ViaSat-1 is going down, it's supposed to do that. Right now we're getting higher revenue from the people, but we're getting less revenue per unit bandwidth and we can support fewer subscribers, but that's what supposed to happen. At the same time ViaSat-2 is ramping up and the rate at which it ramps, it is somewhat proportional to the amount of coverage that it has. So we're just now getting to the point where we're at full coverage. So what we do when we're trying to look at how we're doing compared to our plans is we look at what that growth rate is on ViaSat-2 especially and think of it as, okay we've got 10 quarters or 11 quarters of time where we want to have ViaSat-2 filled up. Are we going at a rate that's going to do that? And the answer so far looks like yes. I mean I hate to - we're not going to declare a victory this early. But so far it's going well. And as we expand coverage I think it will go better. But that that net is really the combination of the two factors. So what you'll see I think is you'll see growth in ARPU and you'll see revenue growth early on but it'll probably take a couple of quarters before we know what that net add per quarter will look like.

I also think that just given the other areas that Mark talked about earlier enterprise and IFC that more a higher percentage of ViaSat-2 is going to go towards these other applications where historically we are.

So that's I mean right now we have an allocation for each of those. I think we have enough maneuvering room so that if some of the new services come closer, we expect we'll fill them with existing services but whereas ViaSat-1 was well over 90% residential ViaSat-2 percentage of residential we think will be quite a bit less than that because that's the way we would want it to be because those other services are more valuable.

I definitely get that. When you say quite a bit lower, we used to talk about 75% is it - I mean it’d be great if it's 50% aero right so, are going a lot lower. Is it going to be a lot lower than you said?

Yes, that's in the ballpark. That’s in the ballpark.

I should hop off - I have to ask one more question. There was a huge jump in cost of service in the fourth quarter. Shawn you used the word transitory a couple of times, but Mark used the word fixed costs in ViaSat-2, what if anything in here is really transitory because it was a huge jump and is anything really one-time in there that I can expect to go away in the next quarter and going forward.

Well you know if you're looking at the cost of service line, you need to factor in the satellite going into service and the ground network going into service and all of our software and so on and so forth. So you’re just looking at that line alone you know that component I would say is not as transitory. But it is lumpy in the sense that it's just coming in Q4.

The only area let’s say that we have some transitory growth in relative to the revenue is more in the in-flight connectivity since we’re launching kind of the new terminals and some development front end on the new services that should shrink as a percentage of revenue. But so should the fixed cost on VisSat-2 but we turned on all the gateways as Mark said, we’re accelerating gateways versus - the turn on versus the original plan. I mean all the fiber gets lit up, all the front end fixed costs gets lit up, a little earlier than we had planned.

That’s helpful. Thank you very much.

On an absolute basis, a lot of the costs are fixed right.

High percentage are fixed costs.

But it’s a one-time increase in those fixed costs.

Our next question comes from the line of Rich Valera of Needham and Company. Your line is open.

With respect to the retail JV over in Europe, the Eutelsat was quite clear saying they thought that JV was not working well and they thought that retail was not the right way to go to market. So you guys obviously have a different take on that. But what is your take on how that JV has gone so far? And if it's not gone great what do you guys think you can do differently to make it go better in the future?

I’d say we and Eutelsat have different views of what the best way to market satellite bandwidth is as we tend to be very vertically integrated on each of our segments. Historically most of the FSS operators have been more wholesale oriented and rely on other partners for distribution whether that’s in-flight connectivity or residential broadband or enterprise or whatever. And so I think there's a philosophical difference there. Clearly the wholesale approach has worked for many years for existing operators. Our approach has been really very different. I think in some ways we march to the beat of our own drummer. I think that we still like the way that we’ve gone about it in the U.S. market. And I don't really want to get into an argument with Eutelsat over the best way to do it. But we liked the way that we're doing it. I think it will work for us. It will give us more control. I think the notion of wholesale and one of the things that Eutelsat has talked about and I think was influential in their decision was arrangement with our launch for distribution for consumer broadband, subsidized by the French government. So that's fine. I think that'll probably work to some extent to them. We don't think that's the best long-term approach. We think that the path that we're on is and we're - I’d say we’re happy with the rate of progress on it. The other thing, I would say is that things we referenced in the prepared remarks is that Eutelsat’s existing wholesale approach has basically sold out most of their bandwidth in what are the easiest market. And so the objective for retail was not list to go into these markets that hadn't sold in some period of time. So those are clearly the most difficult markets and try to open those up through retail. So that's what we're doing still. I mean, I think that's a - that was the kind of a compromise for the two JV partnerships because the other JV is a wholesale business. So that's what we’re doing. I think we're relative to the difficulty. I think we're pretty happy with the progress that we've made, and we think that will translate into other markets as we have more and more capacity there.

Our next question comes from the line of Chris Quilty of Quilty Analytics. Your line is open.

Mark, just a follow-up question on capacity. First of all with the ViaSat-1, if you have subs going down and ARPUs going up. In the long-term once that transition is made does that mean that ViaSat-1 is generating more or less or the same amount of revenues as it was when it was sold in full and selling old plans?

So that is exactly what we've been saying for a couple of years is that the amount of revenue that satellite will generate will go down because we're giving people more bandwidth for the same amount of money. Right, and we only have a finite amount of bandwidth and we think that's what the market wants and we think that’s what the future is. So the way we deal with that is we have satellites that have produced way more bandwidth for the roughly the same capital cost and we actually gain in that on satellite like ViaSat-2. ViaSat-1 will go down, we think as ViaSat-2 will go up even faster. That’s the plan.

And question on the way you describe the beam coverage on ViaSat-2, it sounds like you've got the broad geographic overlay which is fine but your concentrated beams which are on the areas where you were expecting to get the highest subscribers and where in the past you run out of capacity, am I correct that those are the beams that are having the issues? And if so, does that limit your - let's say theoretical number of subscribers to a greater degree than the actual impairment in terms of megabits or gigabits per second because you've now got stranded capacity in general areas and inhibited capacity in the areas where you needed it?

So, yes the question that you're asking is the whole point of why we put the flexibility into the satellite, so we can allocate the capacity in the places where we believe there is the most demand. So we had - when we did the designer satellite, we had good - I'd say, we had good market data that led us to place the capacity in the places that we chose. Now that we know where the beams are, we can recalculate what the address market is, and we think the address market is fine. I mean we think there's still plenty of demand, we just needed to know where it was. And so that's the theory, and now that the satellites in service and rescaling geography, we're getting the real world results from that, and so far it's good. I think we're - so far we're pretty optimistic that things will continue to go well, but I should like to have more than a few months of experience before we pronounce that.

The Asia-Pacific satellite, are you still attempting to try to bring in a partner for that? Or is there a path of going forward on your own?

Yes, there’s a path going forward on our own. We are talking to partners on it, but we'll make a decision if we think that having a partner makes the overall investment better for us, but the default plan is to do it on our own.

You also mentioned in terms of your IFC customers that you’re prime on all of them now, which means - I think you publicly announced that that you took over that relationship for both JetBlue and American, but were there others where you’ve sort of assumed the role of prime?

Yes, so when we started with United, we also went through ITV which was eventually acquired by Telus. So the last order that we got from United had all of the new planes as - with us as the prime contractor.

And final question for Shawn, you gave a lot of color around R&D coming down and markets that were growing and the tailwind for EBITDA, but I couldn't get to an exact number. Could you maybe give us a band of where you think EBITDA might land this year? Is it $300 million to $350 million, $350 million to $400 million something like that to help us all?

I guess we're not going to give an exact number. It should be a strong growth here, but we're not going to provide the number.

So I think that’s all the questions that we've got time for. And we appreciate everybody's participation in this quarter's call and look forward to speaking again in next quarter.

Thank you, sir. Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.