Viasat Inc  (NASDAQ: VSAT) Q4 2020 Earnings Call Transcript

Viasat Inc  (VSAT) Q4 2020 earnings call dated May 26, 2020

Corporate Participants:

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Robert Blair — Vice President, General Counsel and Secretary

Richard Baldridge — Director, President and Chief Operating Officer

Shawn Duffy — Senior Vice President and Chief Financial Officer

Analysts:

Phil Cusick — J.P. Morgan — Analyst

Rich Valera — Needham & Company Inc. — Analyst

Simon Flannery — Morgan Stanley — Analyst

Ric Prentiss — Raymond James — Analyst

Mike Crawford — B. Riley FBR — Analyst

Chris Quilty — Quilty Analytics — Analyst

Louie DiPalma — William Blair — Analyst

Presentation:

Operator

Welcome to Viasat’s FY ’20 Fourth Quarter Earnings Conference Call. Your host for today’s call is going to be Mark Dankberg, Chairman and CEO. You may proceed, Mr. Dankberg.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Okay, thanks. Good afternoon everybody and welcome to our earnings call for our full-year fiscal 2020 and fourth quarter results. So, I’m Mark Dankberg, Chairman and CEO. And also on the call are Rick Baldridge, our President and Chief Operating Officer; Shawn Duffy, our CFO; Robert Blair, General Counsel; Bruce Dirks, our Treasurer; and Paul Froelich in Corporate Development.

And as you may have seen in the press release announcing this call, this quarter we are introducing a new format for quarterly earnings where the financial results and business discussion and other special topics that we normally would have covered in opening remarks and slides are now contained in a shareholder letter that’s on our website. So this should allow us to use the bulk of the time in this call for more in-depth Q&A.

And before we start, Robert will provide our safe harbor disclosure.

Robert Blair — Vice President, General Counsel and Secretary

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, I’ll turn back to Mark.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Thanks Robert. As our letter described, we finished up fiscal year 2020 with record results and we’ve taken some additional steps to make sure that we’ve got a secure financial position going forward. Unfortunately, this is against a really terrible backdrop of this ongoing global pandemic. I’m not going to spend too much time reviewing what was in the letter, so that we can get to Q&A, but I would like to highlight a few key points.

So we set revenue, operating cash flows, and adjusted EBITDA records for fiscal 2020. Ended with our balance sheet in solid shape and slightly lower leverage than we had at the end of the third quarter. Our diverse portfolio of vertically integrated service and product offerings across multiple markets, has so far largely insulated us from the negative business aspects of pandemic, with our in-flight connectivity business being the only one materially negatively affected. Well, it’s hard to predict the future impact of the ongoing crisis, we continue towards our goal of shipping the first ViaSat-3 payload later this fall, but the pandemic does increase schedule risk in the form of supply chain and health related disruptions.

We have taken cost-reduction measures earlier this quarter to address the downturn in commercial in-flight connectivity. We’ve been through other global financial crisis before. We understand the importance of financial discipline and the potential for strong companies to emerge even stronger. We want maneuvering to do so at this time and will continue to act appropriately has a situation evolves. While we don’t expect those cost actions to fully compensate for the downturn and in-flight connectivity. We do anticipate stability and growth opportunities in our fiscal ’21. And at this point, better growth opportunities in adjusted EBITDA than in revenue.

So that’s it, for our opening remarks, and we’ll be happy to take questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Philip Cusick from J.P. Morgan. Your line is now open.

Phil Cusick — J.P. Morgan — Analyst

Hi Mark, thanks. Can you hear me?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Yes, I can Phil.

Phil Cusick — J.P. Morgan — Analyst

Great, thank you. Maybe start with the cost cutting that you’ve discussed in the letter, what was done late in the quarter or early in the first quarter of this year and how should that impact projects or spending going forward?

Richard Baldridge — Director, President and Chief Operating Officer

Yeah Phil. This is Rick Baldridge. We did a whole series of things. So we in general — we had a layoff of reduction in force of a little over 300 employees. We are going through a series of additional furloughs in areas that are impacted near-term of just from a work schedule standpoint. We froze salaries for a large part of population except for the — a group people making under a certain dollar threshold for the year. We’ve froze hiring in general. We never totally freeze it because there’s some people that we’ve got still — that we still have to affect. And then we took action in all series of other overhead expenses that that we felt like we could avoid or delay here in the near-term, but in aggregate, it was over $100 million of cost reductions in the year.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

[Speech Overlap] The second part of your question is the main area is in in-flight connectivity and support. Those are the main areas. And because of the downturn there, there’s just a lot less demand for work in that area. And that’s the top line area where you see the cost reductions.

Phil Cusick — J.P. Morgan — Analyst

[Speech Overlap] Should we think about any projects that are being put to the side, aside from the Aero business?

Richard Baldridge — Director, President and Chief Operating Officer

No, not really. We’re trying to use, we think there is opportunities for additional new projects.

Phil Cusick — J.P. Morgan — Analyst

I assume one of those is the LEO constellation, can you dig more into the, the sort of likelihood or timeframe of information of finding out if you’re going to start spending that money? And sort of range for us what that LEO constellation might look like?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Okay. So the first step is we have already filed for NGSO constellation at MEO. So basically, what our filing does now is it just lowers the orbit from MEO to LEO. We had a purpose in mind for the MEO, but the biggest factor in wanting to go over the altitude is really the amount of funding that the FCC is aiming at low specifications. So they put a particular threshold on it, which was 100 milliseconds and if you know, one of the things that we’ve been following closely is what the rules are for bidding for those subsidies. And just as a reminder, we had participated in what was called the CAF II or The Connect America Fund subsidies. So we have a really good understanding of how they work and what the implications were — of those rules, including the low latency rules. So quite a while ago, we had started looking at what would be involved in lowering the altitude of the license, how we were just recently granted. So that — it does involve more satellites than we would have used in MEO, but the satellites are a lot smaller and less expensive than they otherwise would be, but the main attraction is that things are evolving, but assuming that the FCC does allow LEO to be eligible in the Phase II part of the Rural Digital Opportunity Fund. The opportunity for funding is far in excess of the increase in what the constellation would cost. So that’s the main reasoning behind it. The main point, I’d make is that we’re early in the process, it’s the first step is to file the amendment that we did, that would allow us to use the spectrum that we’re already granted that over altitude.

I guess just to add a little bit more color. We’ve done a lot of time looking at trade-off on service economics, on bandwidth economics for all these different applications that we participate in and we put some of the stuff in the latter half, I’d be happy to go into more depth of questions around what’s in the letter, but the upshot of it all is that, the thing that really — the thing that scales in driving bandwidth costs down are network and payloads, with payloads being part of the network. And so what we have been working on and what we’ve made really good progress on and that’s been the reason for our filing is basically a way to get a lot more capacity through lower orbit satellites than anybody has done before. And that’s really what the point is. And we think that having — there are quite a few reasons but having fewer satellites with a lot more bandwidth per satellite, we believe is a lot more economical than doing the opposite; that is more satellites with the spend with less throughput. And so we’re able to make really good progress on that and that’s kind of the economic underpinning that makes it worth filing for.

Phil Cusick — J.P. Morgan — Analyst

Okay. Is it fair to say that if you didn’t get a pretty substantial amount funding from the government you wouldn’t be building up — you wouldn’t be planning to build the LEO satellite constellation?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

The funding is certainly the most — that’s the most obvious attraction to it. I wouldn’t say that there aren’t others, but that’s a really big chunk.

Phil Cusick — J.P. Morgan — Analyst

Okay, thanks guys.

Operator

Thank you. And our next question comes from Rich Valera from Needham & Company. Your line is now open.

Rich Valera — Needham & Company Inc. — Analyst

Thank you. Good afternoon. Just a follow-up on the commentary on the cost cuts. It sounded like you’re making, and I wanted to make sure I was clear on that $100 million of annualized cost cuts, but that’s not going to fully offset the impact of the lower IFC revenue. Is that correct? I just wanted to make sure I understood the magnitude of both the cost cuts and how much impact you’re expecting from the lower IFC flights?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Yes. It’s really just over the next year, put an amount to that, Rich, but it’s not — doesn’t all go forward because — you know if these are — some of these are temporary, right. So, things like salary freezes won’t go in perpetuity. So, it’s not — you can’t project that all out in the future. Certainly the headcount reductions we made should carry on, but at some point in time, they have to staff the business that we have. So — and yes, what we said earlier was our cost cuts did not completely offset the impact that we’re seeing in the IFC — the impact that we anticipate in the IFC business outlook.

Rich Valera — Needham & Company Inc. — Analyst

Got it. And presumably that is a blend of both service and fewer terminal sales, is that correct?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Yes, correct.

Rich Valera — Needham & Company Inc. — Analyst

Got it. And then you mentioned, I think that you had some success in shifting bandwidth from IFC applications to consumer. Can you just talk about that how seamless that is and is it — can you kind of do that one for one, just wondering how efficient that is and does that change at all your thoughts on the fill — the timing of the fill of the satellite as you look towards the launch VS-3 launch?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

So, yeah, we can apply bandwidth and we share bandwidth. The — so yes, so we’re doing some that — we’re keeping eye on the in-flight market, so we can respond to that. I mean, there’s — one of the things that sort of enabled it is the fact that there is some amount of churn in the residential. So, you can anticipate how much bandwidth would free up and where. So, that — all that stuff goes into our forecasting, so we can buy us the mix of applications a little more to those that have more demand now. There’s not much more to it than that.

Rich Valera — Needham & Company Inc. — Analyst

Got it. And then the ARPU was pretty impressive. Wondering if you could give any color on kind of what drove the strong ARPU and how we should think about that going forward? Is it sustainable or about that going forward? Is it sustainable or is it potentially even upside from these levels?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Okay so there’s multiple factors that have gone into the growth of ARPU. Some of it is a shift from both that we talked about past, just from wholesale to retail. Some of it is migration from customers that have had older plans to the newer plans. And some of its just churn on the older customers, replacing them with customers that have chosen the higher value plans. We’re not yet at the top of ARPU, but growth rate in ARPU will be lower this year than it was last year because we’ve done a lot of the migrations that have contributed to the growth in the ARPU. Another factor — one of the things we talked about a pretty fair amount is the bandwidth is really the dominant issue in providing residential broadband service. And this — the current environment is definitely showing that because, we’ve got a lot more people doing work from home or school from home, so there’s path for high bandwidth applications.

And then the other thing, which I think is going to be very significant factor going forward is the steady migration from broadcast TV to over-the-top broadband video. So we are seeing, even among the relatively recent case of subscribers we have, more interest in the higher bandwidth plans. That is the plans that have more bandwidth usage allowed. And so that’s probably an added increment to ARPU this quarter, we’re starting in the current first quarter than we had, say a year ago. And all that, there’s could be other thing — the other thing is, when it comes to, for instance, I think one of the thing we have mentioned is that one of the things we’re seeing now, people who really didn’t have broadband or a fixed broadband service at home because they had access to broadband network. And let’s say they used just a mobile service at home. People like that are running out of bandwidth. They can’t — there’s not enough bandwidth to support their needs at home. So they’re much more interested in at services like ours that have a lot more bandwidth per dollar, but I think that those things in the near-term will probably tend to drive ARPU. I think what we’ve said before, one of the things to get ViaSat-3 as we not expect ARPU to continue to rise, because we’d be aiming at a wider segment of the market.

Rich Valera — Needham & Company Inc. — Analyst

Got it. That makes sense. Thanks for that, Mark.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Sure.

Operator

Thank you. And our next question comes from Simon Flannery from Morgan Stanley. Your line is now open.

Simon Flannery — Morgan Stanley — Analyst

Great. Thanks very much, and thanks for all the information in the shareholder letter very helpful. On ViaSat-3 and COVID, can you just talk about have you actually had delays so far, or are you just being cautious about the steps? And maybe you can just think about where the challenges are. Do you think you still have a shot of making that mid 2021 timing or is it likely to slip later? And then maybe, Shawn, you can help us with some color as we think through the capex and margin implications as we run-up to the ViaSat-3 launch and beyond? Thank you.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Yeah, I think we’re being cautious. We’ve had a lot of challenges just in performing, because working on the payload requires both us and our subcontractors that have people working together. So we’ve been, I think, pretty resourceful on that, and it’s held up pretty well. Not perfect, but pretty well. But there’s going to be challenges. And as time goes on, we’ll probably run into more people that get exposed to the virus and that we’ll have to work around. Do you want to add anything Rick to that?

Richard Baldridge — Director, President and Chief Operating Officer

I think we have one critical sub that was down for two weeks, as a result of — result that impacting their facility. But other than that they’ve just been minor.

Shawn Duffy — Senior Vice President and Chief Financial Officer

Yeah and Simon, I think as far as the capex, so you’ll know that kind of FY ’20 was a little bit lighter than what we were anticipating. And so when I think about that for next year, I kind of plan on that uptick that we thought was going to happen in this year happen into next year. So I think that’s a backdrop on the capex. And then when you look out, and I think the other point to that, which was clear in the shareholder letter that we talked about is, we think we’re going to be able to stay comfortable within our target ranges on the leverage side, creep up a little bit with the normal satellite, you know cycles of the satellite, well within the target ranges.

Simon Flannery — Morgan Stanley — Analyst

Great. And then just one follow-up. There’s been a number of the players in the industry have been under financial duress during the last couple of months. Do you think this might, kind of, lead to a realignment in the industry from a consolidation perspective, both through the satellite operators and the kind of the third-party providers, etc. and any opportunities for you to take part in that?

Richard Baldridge — Director, President and Chief Operating Officer

Yes. So we’re certainly paying attention. I think that if you look in any type of players that have been under the most duress, a pretty different business models than we have. And I think one of the things that really been surfaced is that there’s really not a complete alignment of interest between, for instance satellite operator and these distributors, kind of, the company that provide the value-added services to end customers, such as governments or airlines, or maritime, or oil and gas or whatever, that there’s — clearly, there’s just contention over margins and strategic value. And so, I think, that our vertically integrated model is just robust. It’s just more straightforward. It was hard to develop. We’ve invested a lot in it over the years. I think it’s working well, but it allows us to basically be totally aligned and focused on our customers. And there’s not a lot of assets out there that are built around that business model, so that makes it tricky for us to be able to find things that we would go after. I think, the things that we’re mostly after would be specialized skills or specialized market access that would help with our model.

The other thing that we’re been really focused on is this bandwidth value proposition. And there aren’t a ton of assets out there that have the same type of productivity as ours. Assets can be repriced in the market and so that’s one of the things we’re going to look at. But even with the repricing, it’s not clear that they’ll come very close to what we can do. But those are the things that we’ll look at. I think we’ve been, in general, a lot more focused on attracting customers than in, sort of, maneuvering around competitors. And so, it’s not clear that it won’t really impact our trajectory that much, but I do think the industries will consolidate, and I think we’ll come out with a stronger strategic position. That’s what we’re focused on.

Simon Flannery — Morgan Stanley — Analyst

Okay. Thank you.

Richard Baldridge — Director, President and Chief Operating Officer

Thanks, Simon.

Operator

Thank you. And our next question comes from Ric Prentiss with Raymond James. Your line is now open.

Ric Prentiss — Raymond James — Analyst

Thanks. Good afternoon. I hope you, your employees and families are all okay during this difficult time. A couple of questions, if I could. First, can you remind us of what that target leverage zone is that you would creep up to? And I think you called out in the shareholder letter, which again appreciate that new item, the timing of the government contracts maybe slipping into not early fiscal ’21, does that mean more middle of the — or fall, winter?

Shawn Duffy — Senior Vice President and Chief Financial Officer

Okay. So to start up on the leverage question, I think what we typically said is, kind of in the 3.5% to 4% range. So around the 4% range, so I think, is kind of that upper level. And then, as far as the government contracts, what we’re just saying is kind of delays, its administrative delays. It’s not losses. We’re not seeing business contraction. Things are moving to the right within notional like weeks, not months, so it’s kind of fits in that range.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Yeah. On the government, I’d say, a fair amount of the government bureaucracy is having a trickier time adapting to work-from-home than commercial customers are. Some of that has to do with security, some of it has to do with — a lot has to do with security. And the specific machines that people can use to do their jobs. So that, I would say, the things that will help that along will be better processed and remote security and/or better or just more people being able to work from the facilities. I think those are kind of the two things that will help more through that administrative backlog.

Ric Prentiss — Raymond James — Analyst

Okay. Should still be able to ship than catching up, because you probably have built some of the stuff, it really is more just on the receipt side of it sounds like.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

No. There’s also — there, you need to have government approvals at shipment time. And again, those can be a little tricky to get to. I think people are doing the best they can. It’s just unexpected. And there’s really no precedent for it. And so I think that’s what we — customers are working through, but there’s some issues on both sides, both the final acceptance and the final order issuance.

Ric Prentiss — Raymond James — Analyst

Okay. And you talked little bit about the Rudolph auctions coming up. First, can you remind us of how much CAF II funding subsidy you were winners for and when that might start being received? And the second question related would be any concern on what competition for more fiber deeper into network might mean either from Rudolph or future infrastructure build maybe coming out of COVID-19?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Okay. So on the Rudolph there is current plan is $16.4 billion in phase one and about $4 billion, phase two. The — not that time in CAF II and not all of the funds were awarded. So we would expect that some of the funds would likely flip from phase one to phase two. It could be a fairly meaningful number. Also the dynamics on Rudolph, I think will be different than they are on — were on CAF II. There could — because there could be more satellite competition in that might end up basically, meaning some areas aren’t awarded. The fiber doesn’t — didn’t go that deep into the CAF II option. We don’t expect it to go that deeply into the heart of option. It’s kind of in the 20% — 25%-ish for the CAF II, but used a disproportionate amount of the subsidy. One thing that we look at, and we take into account all the time is basically kind of overlap of our subscriber base and our prospective subscriber base and how that evolves with these subsidized areas. And it’s not super — of course there’s some correlation to it, but it’s not super impactful. And mostly we don’t compete with fiber. I think the fiber — the growth in fiber is, let’s say, for about $6 million. If it were 25%, it’d be about 1.5 million homes. Those are the rest of the stuff we feel like we can compete with pretty effectively.

Ric Prentiss — Raymond James — Analyst

Great. Appreciate that color. And again, best wishes everybody in this difficult time.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Thank you, Ric.

Richard Baldridge — Director, President and Chief Operating Officer

Thank you, Ric.

Operator

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

Mike Crawford — B. Riley FBR — Analyst

Thank you. So, Mark, just FCC subsidies could make MEO business case tenable. Can we look at OneWeb constellation as being tenable to consider the initial equity holders as basically subsidizing, whoever is going to pick up the pieces and build out the rest of the constellation?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Okay. So, one is, I don’t think I would go so far as to say that an FCC subsidy would make a constellation in general. The — if you’re — I’m just — I mean, if you’re drawing up, since you’re investing $10 billion in a constellation, getting $1 billion or $2 billion is probably not going be decisive and making that economically good. But if you know what the locations are, what the range of subsidies are, and you can design a system that’s really kind of explicitly aimed at that, I think you have a way better shot at being able to do that. OneWeb — the big issue with OneWeb in the context of the subsidies, I guess, it doesn’t have anywhere near enough total bandwidth over the US to have a meaningful impact on that. While the low latency or latency requirement’s are hard, bandwidth demands that are associated with RDOF are priorities. Those are much harder. And so, I think, bandwidth are going to turn out to be the low-value [Phonetic] metric, and that’s why we focused on that. So you got — these systems are just in [Indecipherable] of trade-offs, and we don’t see other systems that have the right balance with trade-offs that we could achieve with this particular constellation.

Mike Crawford — B. Riley FBR — Analyst

Okay. Thank you. And then, related to LEO constellation, viability would be cost of ground equipment, and particularly flat panel antenna. So, do you see that as a hurdle that through brute force will be overcome overtime, or is that still just proven to be too elusive?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

It’s not going to be overcome through brute force, that’s for sure. It’s challenging, but that is this whole notion of flexible beamforming. That’s the core of what we’ve been working on for a decade. So, I think we can do it. We can — I think that we have some pretty big advantages in ground terminals at the user side and in the gateway side, and that that those things are going to end up having a big impact on the economics. So, I just wanted to — if you look at the chart, there we said, they’re not — it doesn’t overcome issues of lifetime and the fact that you just can’t — you can’t cluster non-geosynchronous satellites over any particular territory. You got to deal with the orbit of that dynamic issues. But I think that we’re really strong in all the ground elements, and I’m quite confident that we could deal with the user terminal part.

Mike Crawford — B. Riley FBR — Analyst

Okay. Thank you. Then, if ViaSat were to get some subsidy and build out a small LEO constellation, then that presumably would delay your shift into generating positive free cash flow above the investment that you’ve been making into — being basically ViaSat-3 constellation. So, I think previously you said, once the first two ViaSat-3 satellites start to load up and then that’s when you shift into positive free cash flow and never look back, is that still the case or when do you think ViaSat hits that threshold?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Sure. Okay. Good point. Thanks for asking that question, because I’m sure it’s on a lot of people’s mind. So, no, it does not change. We’re — we’ve said all of that — the way we make money is by putting bandwidth in space and then monetize. And so, we have had a plan for building additional satellites beyond ViaSat-3, talk about ViaSat-4. This particular constellation doesn’t need to be in service until 2026. And so, we’re looking at — like you said, being able to reach free cash flow positive with the second satellite in orbit, which would be much sooner. But with — so that will be much sooner than the timeframe for deploying this constellation. So, the answer is, we understand the reasoning behind getting to free cash flow positive and we are embracing it. So — but that doesn’t mean that we just launched three satellites and stopped. No, we’re looking at, whatever it is that drives incremental returns, and being able to compete in an environment where that amount of subsidy may be available makes a really attractive return. So that would be one of the ways that we’d look at allocating capital beyond the first ViaSat-3 satellite.

Mike Crawford — B. Riley FBR — Analyst

Okay. Thank you. And then final quick question, just relates to launch window. So, assuming you can overcome your supply chain challenges and get the payload in and then the integrator can get that to the SpaceX or whoever’s going to do your first launch. Is that window getting jammed up by delays in 2020, or do you think that will be unraveled by the time you’re ready to go next year?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

So we’ve been working with our launch provider, and we have a primary one and the backup. We’ve been working with them to make sure that we’ve got a launch window that fits with the completion data of the satellite. And so, we’re in good shape. We’ve got multiple — we’ve got maneuvering room if we do get delays as a result of this pandemic. No, we have already worked through that issue.

Mike Crawford — B. Riley FBR — Analyst

Okay. Thank you very much.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Thanks, Mike.

Operator

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

Chris Quilty — Quilty Analytics — Analyst

Thanks, guys. A question on the IFC market. And maybe it’s a little bit generic, but how are you thinking about the market and its recovery? And sort of what actions are you seeing by customers in terms of their ability or willingness to install new aircraft, have they just signaled to you that, hey, we’re on hold for the next several months, is there the possibility of the actual aircraft getting retired that are currently installed? And when do you think they’ll get back to a more normal rhythm of installing aircraft?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Okay. So it’s hard — very difficult to generalize among the different carriers because they have different strategic orientations that are — and it’s somewhat just the randomness and the timing of this relative to what their own business cycles were — about what situation they’re in their near-term versus long-term focus. But what I would say, in general, for the carriers that we’re working with — it’s a two-pronged issues. Front number one is just to make sure that they survive through the pandemic and that they keep their workforce and their assets intact and their customers — their customer value propositions and communicate with customers, and so one part of it, so near-term issues. But the other part on the best carriers is what’s it going to be like on the other side and what’s the role of connectivity in that? And so, what we are seeing among the airlines that we’ve been working with our existing customers and new ones is absolutely continued interest in in-flight connectivity, probably expanded interest in it. I would say that there’s a lot of discussion about what the shape of recovery will be. I think that most of the carriers are probably looking to retire older less efficient aircraft. And so, I think you will see retirements — fleet retirements, and you’ve seen some of those announced already, as an example.

From our perspective, we have tended to capture newer planes. And so, I think that we’ll see fewer retirements than some of the other in-flight providers will see. As an example, the MAX — there’s not really been a lot of discussion about the MAX grounding, but the MAX is one of the new — the most fuel-efficient planes out there. That comes back. That’s good for us. 787s also, so I think we’re a little bit disproportionately tilted towards the newer planes. So, I think, we’ll see probably a little fewer retirements, but the other thing that’s kind of plays out, if there are planes that are grounded and may not return to service that quickly, that’s a great opportunity to upgrade or install in-flight connectivity at effectively a lower cost than it would be with all those planes that are in use. And that’s not lost on the carriers as well. So that’s a pretty good — that’s a good opportunity for us. Does that cover most of the…

Chris Quilty — Quilty Analytics — Analyst

Yes. I mean it does — I mean, with so many aircraft parked, this would be a great time to install aircraft. But given the first priority of preserving cash, I’m assuming not much of that is happening. But, I guess, the question is, do you see the long-term profitability of the aircraft — of the airlines? If they’re restricted in the number of passengers and the load factors they can achieve that profitability overall is hurt, where are they going to cut? I mean, are they going to reduce their investments in in-flight connectivity as a service offered to customers? And is that a concern?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Okay. So, I think that — well, question number one is, I don’t think — we don’t see airlines in general looking at in-flight connectivity as a money loser. That’s may be, but that’s not what their intent is. I think what their intent is to view that to — as a money maker. And the way they would make money is either through better fill factors, better ticket pricing, better yield in variable pricing. I think that there are different strategies. I think those are not yet proven. I think that one of the things that we’ve been saying, I think, that’s catching on is that, for airlines, they’re not really going to monetize in-flight connectivity unless everybody can use it, unless the engagement is high and the same that drive high engagement. They’re up and high bandwidth and, so that’s been our competitive mantra for years.

And I think that airlines — there are definitely airlines that are looking at how — they look at that more seriously, how do they integrate that into their business model and can we help them with that. And I think that we can. And so that’s one of the things that — one thing that happens in — and we’ve seen this in past times is that, when money is really tight, people are generally more receptive to new business models and we generally have pretty creative business models. And so, I think that the idea that we can work with the airlines to help them improve their business model through higher passenger engagement, high bandwidth activities. I think that’s getting more traction now, because of the limitations of the budgets and the fact that they’ve got the opportunity to install, whether we can put that across the finish line with number of carriers, we’ll see over the next few months, but the opportunities are clearly there.

Chris Quilty — Quilty Analytics — Analyst

That’s good. Thank you for the explanation. And a question for Shawn, I mean, have you seen any issues with bad debt?

Shawn Duffy — Senior Vice President and Chief Financial Officer

Yeah. I would say that we did have a bit of pressure points in the infrastructure side of the business. I think people recently filed [Indecipherable] bankruptcy, so we had a small amount — very small amount in the way we partnered with them there. Don’t expect to see a lot more.

Chris Quilty — Quilty Analytics — Analyst

Great. And a final question here. I hate to ask the LEO thing, because it’s kind of non-relevant in the near-term. But is there a regulatory precedent that you can cite of changing from a MEO to a LEO? I mean, I know SpaceX, for example, has done some filings to change the altitude of their satellite, and they are fighting Amazon and others with what are relatively minor altitude changes. I can’t recall an example, and I just don’t know what the regulatory precedent would be for that kind of a shift. And this is a Ka-band system, correct?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Okay, yeah. Our filing is Ka-b, there — I definitely don’t want to go into a lot of detail on that. But our filings are public. Your can see them. So you can read the filings and you can understand what our arguments are. But basically, the filings are primarily spectrum filings. And the burden — the main burden is to show that the constellation, as modified, would not cause any more interference to other constellations that would have been generated by the original filing. That’s really what the test is. And that’s the test that SpaceX and others have gone through when they’ve adjusted their altitudes. And there’s a bunch of data in our filings that shows that that’s actually the case. In some cases, we’d actually cause less interference even with more satellites at a lower altitude. And the reasons why are explained in the filings, and there’s charts and graphs that support the arguments. But that’s basically the gist of it, the altitude shift itself isn’t the issue. It’s the — basically the compliance with the spectrum license.

Chris Quilty — Quilty Analytics — Analyst

Understand. Thank you.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Thanks, Chris.

Operator

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

Louie DiPalma — William Blair — Analyst

Hi, Mark, Rich, Shawn and Bruce, good afternoon.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Hi, Louie.

Shawn Duffy — Senior Vice President and Chief Financial Officer

Hi, Louie.

Louie DiPalma — William Blair — Analyst

There have been a couple of questions about capex and leverage. Should we still expect capex for the next three years of fiscal 2021, 2022 and 2023 to be in the $900 million to $1 billion range?

Shawn Duffy — Senior Vice President and Chief Financial Officer

Yeah. I think those ranges is okay, right? You’re stepping into the sixth part of the ViaSat result from a milestone perspective with their subcontractors.

Louie DiPalma — William Blair — Analyst

Okay. And Shawn, should it fall by like around 40% or so, like following the build-out of the ViaSat-3 APAC? Is that the type of capex cliff that you’re expecting?

Shawn Duffy — Senior Vice President and Chief Financial Officer

I think what I would say is, absent follow-on satellite investments and things we may do in the portfolio, it’s obviously bringing down the satellite investment stack has a significant drop-off, yes.

Louie DiPalma — William Blair — Analyst

Okay. Thanks. And –.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

And Louie, [Indecipherable] — just don’t think about capex as a fixed variable and everything else is varying, right? We’re going to treat everything, holistically. So — but I have leverage on spending on capex, on operating expenses, and we have variables in our revenue and earnings. So we’re going to treat it all as a system. But what — Shawn just described is correct based on our assessment of what the situation is now.

Louie DiPalma — William Blair — Analyst

Got you. Thanks. And related to the government division, Mark, for any delays that may happen for government procurements in the near-term, should we expect an elevated second half of the year, or do you expect some of the orders that you previously anticipated for fiscal 2021 to shift into fiscal 2022?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

No. I think the point we’ve been trying to make is that, it seems right now, it’s always hard to predict the future right now. So all of the sort of the thesis that we’ve had that have worked to grow our government business, they’re all in place. Things are going well. I think that’s what we’re trying to communicate.

The main thing is that, the execution of certain orders and the execution of acceptance on certain products is going to be slow until either people can work from the office where they can adapt a little bit better to work-from-home. That’s really what the issue is. We do think that that will be resolved by the second half of this fiscal year. And so that would account for some slippage. I mean, basically think of some revenue and earnings that would shift from the first half to the second half. But overall, things are — on the government side are good. I mean it seems to be overall, as usual with good opportunities. We did talk about that $1 billion IDIQ that we just won, that was really good substantiation as well. But we do have some of these customers that are inhibited by the work-from-home.

Louie DiPalma — William Blair — Analyst

Sounds good. And related to the $1 billion IDIQ for the MIDS JTRS, I think during the quarter, BAE Systems, they announced the acquisition of Raytheon’s Airborne Tactical Radios and Rockwell Collins GPS assets. Do these two acquisitions have any impact on your business? I know you compete with BAE Systems through their Data Link Solutions joint venture.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Yeah. For late ’16, BAE’s business is pretty much expressed through DLS for that. They have, I would say — on the edges, there was some — in the old Rockwell ARC-210 and Variant business, there was some overlapping in our old UHF business, that’s probably the only main area. And they captured our contenders with the old Magnavox, Fort Wayne businesses that they kept the ARC-210. So, the — from a BAE perspective, that would be — it would be the parts of Raytheon, Fort Wayne. And there’s a little bit of overlap there, but it’s not substantial.

Louie DiPalma — William Blair — Analyst

Okay. And final one for me. You announced an in-flight connectivity contract win for American Airlines’ new Boeing 787s. Do you have anything brewing with Delta that you’re able to disclose or did you have anything thrilling prior to the pandemic?

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Louie, we’re not going to — we’re not going to comment on that. One thing I think we can bring out that, we hadn’t mentioned otherwise is that our backlog of airplanes has grown from — including from some new customers. So, we can’t announce anything. The customers walk out when they’re ready, they’ll announce what they are. We are still winning. We are still winning business. I think we can’t comment on any particular airline.

Louie DiPalma — William Blair — Analyst

Great. Thanks. Thanks, Mark. Thanks, everybody.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Thanks, Louie.

Richard Baldridge — Director, President and Chief Operating Officer

Thanks, Louie.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Okay.

Operator

Thank you. And I’m showing no further questions. I’d now like to turn the call back to Mr. Dankberg.

Mark Dankberg — Chairman of the Board and Chief Executive Officer

Okay. So, thanks. Really appreciate everybody taking the time. Hopefully we’ve got to spend more of it on your questions. And if anybody has feedback or would like to give us feedback on the side on our new format, we’d really appreciate that. So, with that, I look forward to speaking again next quarter. Thanks.

Operator

[Operator Closing Remarks]