Viasat's Q2 2026: Contradictions in Business Segmentation, ViaSat-3 Growth, and Spectrum Monetization Strategies

Date of Call: None provided

Financials Results

• Revenue: $1.1B, up 2% year-over-year
• Operating Margin: Adjusted EBITDA margin 34% (Adjusted EBITDA $385M), adjusted EBITDA up 3% year-over-year

Guidance:

• Fiscal 2026 revenue expected to be up low single digits year-over-year
• Expect flattish year-over-year adjusted EBITDA with continued quarter-to-quarter variability
• Cash from operations expected to grow double digits for the year
• Capital expenditures for fiscal 2026 expected to be about $1.2B (includes $200M capitalized interest, ~$500M maintenance, ~$100M success-based, ~$250M Viasat 3 completion)
• Expect negative free cash flow in H2 2026 as remaining Viasat 3-related spend occurs, and positive free cash flow in fiscal 2027
• Free cash flow guidance excludes Legato lump‑sum proceeds but includes recurring quarterly payments

Business Commentary:

• Revenue Growth and Segment Performance:
• Viasat reported revenue of $1.1 billion for Q2 FY2026, up 2% year-over-year, led by a 3% growth in the defense and advanced technology segment and a 1% year-over-year increase in the communication services segment.

• The growth was driven by favorable service revenue mix, lower depreciation and amortization, and reduced SG&A expenses.

• Backlog and Award Growth:

• Viasat's backlog increased to a record $1.2 billion, up 31% year-over-year and 14% sequentially, with awards totaling $1.5 billion, up 17%.

• This growth was attributed to strong demand in defense and advanced technology segments and notable awards in communication services.

• Launch and Capacity Expansion:

• The imminent launch of Viasat 3, Flight 2 is expected to significantly enhance Viasat's bandwidth capacity, supporting growth in its franchise businesses.

• The increase in capacity will facilitate growth in communication services and drive free cash flow contributions.

• Capital Structure and Debt Reduction:

• Viasat is focused on reducing its capital intensity and optimizing its capital structure, with a goal of achieving a debt-to-adjusted-EBITDA ratio of no more than 3x.
• This is supported by significant cash generation and strategic debt restructuring, including a $420 million payment from Legato.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted improved profitability and cash: net loss narrowed to $61M from $138M a year ago; revenue grew 2% YOY; adjusted EBITDA rose 3% to $385M (34% margin); trailing-12-month free cash flow $147M and positive FCF for three consecutive quarters. Management emphasized awards/backlog growth and imminent Viasat 3 Flight 2 launch as drivers of future growth.

Q&A:

• Question from Brent Panther (Raymond James): What inning are you in evaluating a potential split/spin and can you elaborate on vertical integration and the debt-silo collapse comments?
  Response: Management is continuously evaluating separation versus vertical integration with no set timeline; they are weighing trade-offs to preserve competitive advantages while exploring structures that could collapse debt silos and create more attractive investment vehicles.

• Question from Brent Panther (Raymond James): Remind us what international spectrum you own (MHz/priority rights) and how open are you to alternative monetization approaches?
  Response: Viasat’s ITU spectrum positions are public and globally coordinated; the company has materially large global spectrum holdings and is open to monetization or coordination agreements, provided regulatory/public‑interest obligations are honored.

• Question from Brent Panther (Raymond James): Can you expand on Equitus—ideal customers, partner conversations, economics and CapEx sizing?
  Response: Equitus aims to provide shared mobile‑satellite infrastructure to regional operators, MVNOs and sovereign customers to lower per‑operator CapEx and aggregate capacity; discussions with regional operators and ESA underway, but economics and CapEx sizing remain undefined pending structuring.

• Question from Sebastiano Petti (JPMorgan): The Space42 announcement referenced well over 100 MHz of harmonized MSS spectrum — is that accurate for Viasat's global harmonized spectrum?
  Response: Yes — the cited '100+ MHz' refers to the combined Viasat and Space42 spectrum position.

• Question from Sebastiano Petti (JPMorgan): As Equitus progresses toward a service launch within ~3 years, when should we expect partner/MVNO/investor milestones?
  Response: Expect partner, investor and user‑contract milestones over the coming quarters and years as Equitus is definitized; strong interest exists but detailed transactions remain to be finalized.

• Question from Sebastiano Petti (JPMorgan): With strong awards and backlog growth, how should we think about backlog monetization cadence beyond book‑to‑bill metrics?
  Response: Management emphasizes franchise KPIs (aircraft installs, ARPA, awards/backlog, book‑to‑bill) and Flight 2 capacity as the primary drivers of converting backlog into revenue; no new cadence metric beyond those highlighted.

• Question from Mike Raffert (Wolfe Research): For HaloNet and LEO‑to‑GEO relays (e.g., EO/data), how will that work and timing to market?
  Response: HaloNet targets multiple use cases (launch telemetry, LEO‑to‑GEO relay for sensor tasking/EO) with different architectures and market timelines; rollout will be market‑specific.

• Question from Mike Raffert (Wolfe Research): How does the advent of quantum computing affect Viasat's cryptographic/encryption franchises?
  Response: Quantum threats are accelerating demand for quantum‑resistant cryptography and data‑center cryptographic solutions, increasing demand for high‑assurance, modernized encryption products.

• Question from Mike Raffert (Wolfe Research): How are you accounting for the $420M lump sum and the additional $100M payment?
  Response: The lump sum proceeds are largely recorded to deferred revenue and recognized over contract lives; an interest portion is recognized as interest income, with minimal EBITDA impact; additional details to be provided in Q3.

• Question from Ryan Kuntz (Needham & Company): What percentage of communication services backlog is dependent on Flight 2 capacity and how should we think about pent‑up demand timing?
  Response: Much expected demand from Flight 2 will show up as increased airtime/ARPA and installs rather than backlog bookings; backlog items are distinct from recurring usage gains enabled by additional capacity.

• Question from Ryan Kuntz (Needham & Company): Any updated thoughts on the aviation environment and how it's evolving?
  Response: Aviation continues to see higher penetration and bandwidth demand; airlines seek free Wi‑Fi plus differentiated monetization strategies, and Viasat is focusing on tailored service plans and monetization to capture value.

• Question from Colin Canfield (Guggenheim): How should investors think about spectrum valuation vs. recent terrestrial/non‑terrestrial precedent transactions and do you prefer cash vs equity?
  Response: Management focuses on practical value extraction (operational deployment, partnerships, regulatory compliance) over direct comparables; they remain open to transactions that are value‑accretive but will evaluate structure case‑by‑case rather than signaling a blanket cash vs equity preference.

• Question from Colin Canfield (Guggenheim): How is incremental government demand outside the U.S. (e.g., Europe) unfolding and does IRIS2 timing affect opportunities?
  Response: Non‑U.S. governments are prioritizing sovereign, resilient dual‑use capabilities; demand emphasizes sovereign control, secure/rapidly deployable terminals and infrastructure‑sharing options, creating multi‑year opportunities.

• Question from Edison Yu (Deutsche Bank): Clarify S‑band in Europe and the post‑2027 allocation—do you expect to retain it?
  Response: Viasat has applied for post‑2027 EU S‑band allocations, believes it met prior commitments via the Inmarsat acquisition, and awaits EU allocation decisions expected over the next 1–2 years.

• Question from Edison Yu (Deutsche Bank): If Flights 2 and 3 are fully operational, how large a growth bump might you expect?
  Response: Flights 2 and 3 together roughly triple Viasat's bandwidth capacity; converting that into revenue depends on service mix, regional demand and timing, but it materially expands runway—especially in mobility markets.

Contradiction Point 1

Strategic Evaluation of Business Segmentation

It highlights differing perspectives on the strategic evaluation of separating government and commercial businesses, which could impact operational strategies and shareholder value.

Evaluate the possibility of separating government and commercial businesses? What are the implications of vertical integration and debt considerations? - Brent Panther (Raymond James)

2026Q2: We're continuously evaluating options for the separation and integration, considering the trade-offs between retaining competitive advantages and creating more attractive investment vehicles. - Lisa Curran(CSO)

What are the pros and cons of separating businesses in SpinCos? - Richard Hamilton Prentiss (Raymond James & Associates, Inc., Research Division)

2026Q1: We consider synergy benefits and capital requirements in our portfolio review. Space capabilities are being integrated into various systems, which may increase or decrease synergies. - Mark D. Dankberg(CEO)

Contradiction Point 2

Impact of ViaSat-3 Flight 2 and 3 on Business Growth and Sales

It involves expectations for the impact of ViaSat-3 Flight 2 and 3 on business growth and sales, which are crucial for understanding the company's growth trajectory.

What is the outlook for pent-up demand and timing of Flight 2 in communications services? - Ryan Kuntz (Needham & Company)

2026Q2: The Flight 2 capacity will enable continued growth in aviation and maritime services through increased consumption and penetration. Growth will be driven by existing customer relationships and service plans. - Lisa Curran(CSO)

What will be the revenue contribution from ViaSat-3 Flights 2 and 3 in 2027? - Colin Canfield (Cantor Fitzgerald & Co.)

2025Q4: Each satellite has more bandwidth than our existing fleet combined. We will continue to grow demand through more platforms and increased usage per platform, supporting significant revenue growth. - Mark Dankberg(CEO)

Contradiction Point 3

Quantum-Resistant Cryptography and Encryption Franchises

It involves the company's approach to quantum-resistant cryptography and its impact on encryption franchises, which are critical for its technology and security offerings.

How does the emergence of quantum computing affect your encryption businesses? - Mike Raffert (Wolfe Research)

2026Q2: Quantum-resistant cryptography is a priority due to quantum computing's ability to factor numbers. Additionally, increasing computational demands in data centers drive modernization and adoption of secure cryptographic systems that are quantum-resistant. - Lisa Curran(CSO)

What are the key growth drivers for the Information Security and Space Emission Systems businesses? - Ryan Koontz (Needham & Company)

2025Q4: The drivers include quantum-resistant encryption, cybersecurity in space, and mission-critical technology insertions. We are successful in government contracts and mission-critical roles, such as lunar communication programs. - Mark Dankberg(CEO)

Contradiction Point 4

Shared Infrastructure Strategy

It addresses the company's approach to shared infrastructure, which is crucial for capital efficiency and future growth.

What is the significance of the global harmonized spectrum for Viasat following the Space42 announcement? - Sebastian Petti (JPMorgan)

2026Q2: The 100 megahertz refers to the combination of Viasat and Space42's spectrum. We're continually working on defining more details for partnerships and milestones. - Lisa Curran(Corporate Representative)

How do you view shared infrastructure for NTN, D2D, and LEO systems compared to large CapEx programs? - Richard Hamilton Prentiss (Raymond James & Associates, Inc., Research Division)

2026Q1: Shared infrastructure is capital-efficient compared to large CapEx programs. We aim to create a satellite equivalent to terrestrial towers, aggregating spectrum efficiently. - Mark D. Dankberg(CEO)

Contradiction Point 5

Spectrum Monetization and Deployment

It involves the company's strategy for monetizing and deploying its spectrum assets, which is crucial for its business growth and financial performance.

How should we view the global harmonized spectrum for Viasat in relation to the Space42 announcement? - Sebastian Petti (JPMorgan)

2026Q2: We're evaluating monetization versus development based on existing L-band business and demand growth. High-power levels are expected to improve maritime offerings. The decision is contextual, considering public interest benefits. - Lisa Curran(Corporate Representative)

How do you decide between monetizing spectrum and deploying it? - Xin Yu (Deutsche Bank)

2025Q3: We evaluate monetization versus development based on existing L-band business and demand growth. High-power levels are expected to improve maritime offerings. The decision is contextual, considering public interest benefits. - Mark Dankberg(Chairman and CEO)