ViaSat (VSAT) Q3 2022 Earnings Call Transcript

ViaSat (VSAT 6.71%)
Q3 2022 Earnings Call
Feb 03, 2022, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Viasat's Fiscal Year 2022 third quarter earnings conference call. Your host for today's call is Rick Baldridge, president and CEO. You may proceed, Mr. Baldridge.

Rick Baldridge -- President and Chief Executive Officer

OK. Thanks. Thanks for joining us today, everybody. We released our shareholder letter earlier today before the market opened, and we hope you've had a chance to take a look at that.

Joining me today on the call is Mark Dankberg, our executive chairman; Shawn Duffy, our CFO; Robert Blair, our general counsel; Paul Froelich from corporate development; and Peter Lopez from investor relations. Today's call will consist of some -- just a couple of brief opening remarks, and then we'll go into Q&A. First, let's have Robert provide us some Safe Harbor.

Robert Blair -- Vice President, General Counsel, and Secretary

Thanks, Rick. 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 Forms 10-K and 10-Q.

Copies are available from the SEC or from our website. With that, back to you, Rick.

Rick Baldridge -- President and Chief Executive Officer

OK. Thanks, Robert. First, if you didn't have a chance to read the letter, you can see our business continues to perform well on almost every front. So today, we'll go into some of the details, talk about the ViaSat-3 schedule and give you an update on the Inmarsat transaction.

We've tried to answer a lot of the questions that we've been getting in the letter, but also hope to answer any remaining questions here in a few minutes. With that, I'll start with a few of the important highlights of the quarter. Revenue grew by $144 million year over year to $720 million, while adjusted EBITDA also reached a new record of $163 million continues the momentum over the last several quarters. We grew year over year in each of our segments as well.

In Satellite Services, year-over-year revenue growth of 40% was driven mainly by the performance in our IFC business, both aircraft return to service and new customers such as Delta coming online, as well as contributions from the RigNet and EBI acquisitions. Fixed broadband was reasonably flat as we continue to reallocate finite bandwidth resources to our growing mobility business. Overall, 37% of our Satellite Services revenue came from mobility in the quarter. International and other revenue, underscoring the increasingly diversity of our businesses.

Those businesses have the greatest growth opportunity, and we anticipate we'll continue to diversify our Satellite Services portfolio as we go forward. Government Systems had good revenue performance with service revenues up 5% year over year and total revenue up 2% year over year. While we saw a strong performance from tactical SATCOM radio and tactical data link's products, there have been longer than anticipated delays in processing certifications required prior to delivery of some of our security assurance product orders. In addition to the $956 million of backlog, we have an IDIQ contracts with almost $4 billion of unawarded potential value, none of which is included in our backlog numbers.

Commercial Networks continue to deliver good results with revenues up 55% year over year. The increase was mostly driven by increased IFC terminal shipments and another strong contribution from our ground antenna systems division and RigNet product revenue. We expect that our IFC orders and antenna systems backlog will support continued good results in this segment. Turning to our announced acquisition of Inmarsat.

We spent our time since the announcement preparing the required filings and are progressing well on multiple fronts. We completed the required loan amendment of Viasat's $700 million revolver and Inmarsat's $700 million credit facility and a $1.7 billion term loan. We're progressing well on the regulatory front, both in the U.S. and U.K.

and have made initial regulatory filings with the U.S. Department of Justice in the SEC and plan to make many additional filings within the next few weeks. Inmarsat itself is delivering strong financial and operational results, consistent with what we thought. You can see further details on Page 8 of the shareholder letter.

I'd also remind you to keep an eye up for our transaction proxy was expected to be followed very soon. We're very excited about the transaction and so are our customers. A number of airlines have been reaching out to learn more about the transaction, including how it will help us better serve our existing and future customers. We think our dedication to global growth has been a big consideration in recent business activity and new orders for long-range aircraft.

On our last call, we said we expect to close in nine to 18 months from signing. We continue to believe that's a good estimate, hopefully by the end of this calendar year. Regarding ViaSat-3 constellation, the ViaSat-3 Americas launch is now expected to be late summer due to some modest slippage in our supply chain. We've been working through limited availability of specific critical skill workers.

We've made really good progress on alpha testing of our space ground system integration using one of our own orbit satellites. And we're working to take advantage of that to manage on-orbit testing so we can maintain the commencement of initial services by the end of the calendar year. We don't expect this -- which is consistent with what we said before. So we don't expect this to materially impact our financial outlook we've previously provided.

The ViaSat-3 EMEA payload modules progressed very well in our Tempe facility by taking advantage of the learnings from Flight 1 Americas, we're now 95% completed the payload units -- have been already installed. We're in the final stages prior to shipping that to Boeing for integration with the bus. We expect learnings on the payload bus integration will benefit Flight 2 schedule at Boeing, and we continue to target that launch about six months after Flight 1. Turning to the outlook.

Briefly, our companywide outlook remains strong. We continue to believe we'll achieve our stand-alone financial targets, including our average annual adjusted EBITDA growth in the mid-teens for FY '22, '23, relative to FY '21, as we've previously stated. But we also believe we're on track to more than double adjusted EBITDA by FY '25 relative to FY '20 on a stand-alone basis. While, of course, we're very excited about the Inmarsat acquisition and ViaSat-3, our strong operational and financial performance demonstrates that our teams are working diligently to drive good execution.

I think the same can be said for the Inmarsat based on their strong performance. So with that, we'll turn it over for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Rick Prentiss of Raymond James. Your line is open.

Rick Prentiss -- Raymond James -- Analyst

Hi, everybody. Happy New Year, I guess, offically. A couple of questions for you guys. First, obviously, ViaSat-3 is slipping a little bit, 3B, about six months till after the first 3A.

How should we think about magnitude of costs that you need to put in for ground and other operating expenses before the revenues start generating and what kind of pacing there might be as far as cost or revenues in the satellite launches?

Shawn Duffy -- Chief Financial Officer

Rick, this is Shawn. So we're starting to incur some of those as we speak, but they're -- we've been trying to pace those somewhat with the launch. You can think of this quarter as maybe $5 million. As we get closer and closer to launch, like I said, those will start to ramp up.

So maybe in the annual rate, around 35 right before we go into service, is a good estimate.

Rick Prentiss -- Raymond James -- Analyst

$35 million on an annual basis?

Shawn Duffy -- Chief Financial Officer

Yeah. So kind of ramp up to that.

Rick Prentiss -- Raymond James -- Analyst

Makes sense. And obviously, it's about a year from now that you get into service, hopefully, a little sooner. How are you guys feeling about maintaining flat revenue on the U.S. consumer broadband side, given the demand from in-flight connectivity or should we expect some declines in the revenues on consumer broadband as we look into the future?

Mark Dankberg -- Executive Chairman

Hi, Ric, it's Mark. Yeah. So far, what we've seen is kind of the ARPU growth has maintained pretty much the same pace and actually, in some cases, a little bit better than the sub decline. And that -- I think that's also kind of consistent with what's going on in the industry.

So we think that's more or less kind of the trend that we'd expect between now and entering service in the U.S.

Rick Prentiss -- Raymond James -- Analyst

OK. And we saw some announcements. It looks like on the competitive front, space like Starlink is starting to pivot to some more business enterprise with $500 plans, $2,500 CPE costs. How are you thinking about the competitive dynamics out there as far as your ability to grow with ViaSat-3 is in the air?

Mark Dankberg -- Executive Chairman

Well, a few things. One, it's a very big market. We have seen so far sort of, I'd say, de minimis and immaterial impact in the overall markets due to space [Inaudible] you can see that they're out there. But one of the points that we've made, and I think that this is turning out to be true is that the better the services, the more value you can offer as a function of price, the bigger the market is.

And so what's happening is you've seen the market. We're seeing the market grow, and I think we're still getting a share of that market that's sufficient for our growth targets. The other point I would say is, if you look at what we're doing on the enterprise side, we tend to be a lot more vertically integrated into each specific market where there's quite a bit of value add besides just providing a broadband pipe. And we think that's really a good fit for us.

So the types of plans that they're describing will -- they're sort of interesting, but we don't really see them having any impact on our forward-looking outlook.

Rick Prentiss -- Raymond James -- Analyst

OK. Thanks, everyone. Stay well.

Operator

Thank you. Our next question comes from Landon Park of Morgan Stanley. Please go ahead.

Landon Park -- Morgan Stanley -- Analyst

Thank you. Hello, everyone. A couple of questions. So could you talk about your conversations that you've had with The U.K.

government over the last couple of weeks and maybe some of your takeaways from those? And what type of concessions or agreements you guys are thinking about as part of the deal.

Rick Baldridge -- President and Chief Executive Officer

Yeah. So when we announced the deal, we were actually ready to go a little earlier and they asked us to lay it. They had worked out what we call undertakings with the previous private equity group that had taken this thing private. And I'd say the discussions we've had are fairly consistent with those types of things.

There's not, quite frankly, the plans that we have in The U.K., in my view, are quite a bit more favorable to The U.K. than what's going on and we're more vertically integrated. We'll bring more R&D. I think the types of people we hired will be more technical people.

So I think we just have a really positive story. And you've read the things in the newspaper, what they're worried about. And I just -- I don't think we have that situation. Not every deal is the same.

And so those have been the discussions just talking about what our plans are. And I think the discussions have gone really well. There were some articles that came out by the same three people that previously written about in a very negative way and the new articles are much more balanced. So I think that we've got a good story.

We've been in the U.K. for 10 years -- over 10 years. We have data at security products over there that we provide today that actually provides most of the data at rest security products over there that we provide today -- actually provides most of the data rest security across their MOD. We've previously announced a satellite operation center investment in the U.K.

prior to this deal even getting signed. And so we have a very good story, and they seem to be pretty receptive.

Landon Park -- Morgan Stanley -- Analyst

And is the deal going to be subject to the new national security oversight law that recently went into place?

Rick Baldridge -- President and Chief Executive Officer

It is, yes. So we expect a full review across the board on all. That's what we expected going in.

Landon Park -- Morgan Stanley -- Analyst

OK. So moving on to the broadband business. There's been some news that Facebook is going to be sort of winding down some of their -- or I think most of their international Wi-Fi Express business. They had partnered with you in Mexico.

Could you maybe just talk about any impacts that might have on you? And maybe just a broader update on that international Wi-Fi program you guys have been running and what type of returns you've been able to see out of that business?

Rick Baldridge -- President and Chief Executive Officer

I'm sorry, I missed the very first sense that about the company that you mentioned. 

Landon Park -- Morgan Stanley -- Analyst

Facebook. 

Rick Baldridge -- President and Chief Executive Officer

OK. Yeah. So our -- no, on the international front, in terms of fixed services, we have two sets of initiatives. One is direct residential broadband that we're doing in several countries since acquired in Europe, the other part of the joint venture we have with Eutelsat.

And the other part, which is the part that -- I think you're referring to are the what we call community Internet or shared Internet services. And we're doing that in a few different ways. The main common element is to bring bandwidth in by satellite to some central point and then distribute that bandwidth to end users. And we're doing that actually in multiple different ways.

We're doing it via land. We're doing it via wireless. We're doing it by unlicensed Wi-Fi. And each of those -- we think that each of those will have places under different circumstances.

But right now, all three modes of delivery are, I think, are growing and are attractive to under different circumstances. On the Facebook thing specifically, we're working with those guys right now on transitioning that, so we don't see any impact.

Mark Dankberg -- Executive Chairman

Yeah. And look, mete other part of it is our -- what we're doing with Facebook was more about trying to understand where to deliver service and how effective that service was. And I think that that activity has been benefiting both companies.

Landon Park -- Morgan Stanley -- Analyst

Great. And the last one for me, just on the commercial network side, can you talk about some of the managed services that you guys expect to ramp up in that business over the next couple of years? And maybe what that -- the margin profile looks like for some of that and the prospects to get that segment closer to breakeven?

Rick Baldridge -- President and Chief Executive Officer

OK. So on the communications network side, I'm going to unpack that a little bit. So from a managed services perspective, the main thing that we've been doing there is in what we call real-time earth. Is that where -- so that is a shared network services business, primarily for earth observation downlinks -- data downlinks.

Is that what you're referring to?

Landon Park -- Morgan Stanley -- Analyst

Yes, that is what I'm referring to.

Rick Baldridge -- President and Chief Executive Officer

Yeah. So that's still a relatively small business. But it's growing pretty steadily. And right now, what we've been doing is working primarily with third-party partners versus we did one with indigenous people in Australia.

We just recently did one in Ghana, and we have more opportunities for that. And then the other kind of really -- the two other really interesting elements of that, what are the main businesses in our communication network that's accounted for a lot of growth for us is building kind of the largest, most capable full motion ground antenna systems. And the reason that's valuable is a very large antenna just a lot more efficient at getting high-speed data down. So higher speed for the highest resolution sensor data.

And then the other one is that that makes them most effective for these new generation of very, very small satellites. So you don't need a lot of power, sophistication. From the space path, you can focus most of your value on the sensing part. So those two things are really valuable.

And then the other thing that we're working to integrate with that is I think it is LEO-GEO relay, which is a very unique mission that ViaSat-3 constellation can do because of the global coverage in the high capacity. So right now, they're small businesses. They're good margin businesses. And we think that is -- the variable costs are low.

So as they scale, those margins will improve. On the overall issue of EBITDA -- turning that business EBITDA positive, the main -- kind of the main thing that has been a drag on EBITDA is what we think is actually a benefit, which is we're doing our own payload designs for the Viasat satellite series. And we're also now extending some of those payload capabilities into third-party satellites like what area that's been good for us has been cross links for satellites. And we have a number of government contracts.

And now we have commercial contracts for cross-linking. We think that's a really attractive business. So the fact that we do that for both ourselves and others as opposed to just buying satellites like most other satellite operators do means that we expense the R&D as opposed to capitalizing the R&D that goes into these next-generation satellite designs. And that is the single biggest -- I mean it's really the only factor in the negative EBITDA in that business.

Shawn Duffy -- Chief Financial Officer

Yeah. Landon, this is Shawn. Just to add it, right? We -- most of our R&D, we centralize in that segment, right? It benefits across the segment which have most inflows there. So outside of that, it's a nicely profitable segment for us.

Landon Park -- Morgan Stanley -- Analyst

No, I understand. I was just trying to understand if on a reported basis, if there was a path over the next three years or so to get it closer to breakeven?

Shawn Duffy -- Chief Financial Officer

Yeah. I mean I think we're -- I think we'll see improvements in that. We're going to continue to have good momentum in ISE and delivery of terminals there, but we're going to continue to invest as well for NextGen and things that we think are very valuable in commercial applications, as well as government.

Landon Park -- Morgan Stanley -- Analyst

And R&D at 5% of revenues is still a good --

Shawn Duffy -- Chief Financial Officer

Yeah. This quarter, we were about 5.2%. So 5%, 5.5% somewhere between or a good estimate.

Landon Park -- Morgan Stanley -- Analyst

Great. Thanks, everyone, for all the color.

Rick Baldridge -- President and Chief Executive Officer

Yup. Thanks, Landon.

Operator

Thank you. Our next question comes from Mathieu Robillard of Barclays. Your line is open.

Mathieu Robilliard -- Barclays -- Analyst

Hi. Good afternoon, and thank you very much. I have three questions, please. The first one relates to the Inmarsat acquisition.

You were mentioning in your scripted remarks that you've engaged with clients and clients are asking about what this could mean and what kind of services maybe you can provide. Could you give us a little bit more color in terms of what is their interest focused on in a combined Inmarsat Viasat proposition?

Rick Baldridge -- President and Chief Executive Officer

Sure. Yeah. So the main things that we've been focused on -- and these are, I'd say, these are common among a lot of the mobility businesses. Number one is there's an issue about bandwidth density, which is how do you avoid congestion in your network so that our mobility customers get -- had a reliable service when they go into busy airports or hubs.

And one of the things we showed, we thought was one of the most important slides in our presentation about the Inmarsat acquisition was just the density of demand for commercial air and commercial air is relatively easy to show because it's scheduled airlines. But similar situations occur in things like general aviation maritime and other -- and even in land mobile applications. So that -- one of the things that's really been an important factor for Viasat's growth has been our ability to deal with that, especially in the U.S., which is the largest domestic market for air travel. And if you look at the large airlines that we serve in the large airport cities, I think we've been able to demonstrate our ability to keep ahead of that issue.

So that's one. Another one that I think people are really interested in and especially in maritime and in some of the intercontinental aviation is the hybrid services between Ka-band and L-Band and being able to provide that continuity of service even under the worst weather conditions, which is where when you think of airline safety or maritime safety, where a lot of the most stressful situations are associated with bad weather. So that's being able to bundle those things into attractive systems is a really good thing. And then the other, which has been kind of the main thing that airlines have been looking to ViaSat-4 that we believe Inmarsat really accelerates is redundant global coverage.

And so we'll get there faster and we'll have multiple satellites and sort of those long haul international routes. I'd say those are some of the main topics that customers have come to us to discuss first.

Mathieu Robilliard -- Barclays -- Analyst

And is that -- if I can follow up, is that also a discussion you're having with governments that may require more capacity?

Rick Baldridge -- President and Chief Executive Officer

Well, yeah, if you look at -- I mean one of the things that's also been a valuable business for us, as well as for Inmarsat is in dealing with government applications. And the big thing with government applications is they don't really know where their [Inaudible] will be. They can anticipate, but they can pop up anywhere in the world. And when they do, they also have this issue about very large amounts of demand concentrated in relatively small geographic areas.

So being able to deal with those issues and being able to deal with some of the unique things that we bring, for instance, with ViaSat-3 are potential to deliver uplink speeds from platforms that are exceptionally good, much better than even a lot of these new NGSO systems. So those are -- they are just the attractions of the combined resources and capabilities of the companies.

Mathieu Robilliard -- Barclays -- Analyst

Thank you. If I continue on the government and specifically service revenues, which kind of links a bit to what we just discussed. I realize service revenues and bandwidth demand for you today in Government Services is a small part of your revenues, but I was wondering if you see any increase in demand recently, obviously, slightly more tense geopolitical situation? And whether in the past, you've seen big increases in demand linked to any deterioration on that front?

Rick Baldridge -- President and Chief Executive Officer

Yeah. So I mean, I think all satellite operators tend to see increased demand for government bandwidth when there are conference in the world. So we're not -- if you have bandwidth in the places where it's needed then you're in a position to be able to help support that. I think more recently, there's threats of conflict.

It doesn't come out -- turn out to be that way. So right now, we're just really seeing more, I'd say, inquiries about more around planning and contingency planning, what can be done. I think we're -- I think as we've grown, I think we're in a position to be able to deliver more support. In general, though, some places, demand has gone down, and it will probably appear in new places, if it does.

Mark Dankberg -- Executive Chairman

Overall satellites -- not satellites, but services portion of our government revenue has been growing over the last few years.

Rick Baldridge -- President and Chief Executive Officer

Yeah. I think we've talked about that being in the 20% to 25% range of total services Government Systems revenue.

Mathieu Robilliard -- Barclays -- Analyst

Great. Thanks. And if I finish with one question on the U.S. broadband market.

So you do mention in your press release that the number of subscribers has come down a bit, but that's kind of voluntary to some extent as you want to use more capacity in IFC. But I had a broader question concerning the market and the competition there because some of the telecom players are pushing a lot more, it seems FWA solutions as a way to increase their revenues. And I was wondering if you saw that as potentially a new source of competition, a reduction of your potential addressable market in the U.S.? Thank you.

Mark Dankberg -- Executive Chairman

OK. No, we don't -- it turns out fixed wireless has not really been a material factor in changing the market for satellite broadband in the U.S. There are other factors. I mean, so cable edge-outs, fiber -- new fiber builds, those are probably more of a factor.

And then the other one, I think, kind of ebbs and flows, depending on the economy demand and a couple of other factors is people just using their mobile service plan as their own broadband service. And that becomes a little more tenable for people when they have -- when they're going to the office and they have broadband resources that work or somewhere other than home. But those are the main factors. And that's how -- what we see probably shaping the market.

Over the next few years, we've done a pretty detailed micro analysis of that on a region-by-region basis. And we think it will eat into the market, but it's not going to eliminate the market. There's -- what we've expected over the next five years, we talked about this a few times, it's kind of modest growth on a subscriber basis in the U.S. between now and, say, 2025.

Mathieu Robilliard -- Barclays -- Analyst

Great. Thank you very much.

Mark Dankberg -- Executive Chairman

Thank you.

Operator

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

Chris Quilty -- Quilty Analytics -- Analyst

Thanks, guys. I had a question about the forgotten acquisition maybe with RigNet. We haven't talked about it in a lot of detail, but can you give us maybe a status update now that you've had it a couple of quarters under your belt of what you're seeing in that business in terms of both business operations, integration, cost reductions and, I guess, putting Inmarsat aside for a moment, because there's a lot of changes that could come. But like what plans do you have now for that business in terms of growing it and migrating it with the ViaSat-3 services?

Rick Baldridge -- President and Chief Executive Officer

Yeah. So the integration has gone very well between the two groups. There was some initial cost reductions that took place early on. We've been working on the integration, the business areas have become -- our global operations have all been integrated under one group.

So that's gone well. We have started our initial first Ka-band deployment in some of the rigs where they were previously leasing capacity, but that's just at the very beginning. It's just started with some trials. That's obviously one of the big benefits here to both drive performance and helping the cost profile overtime.

That will improve as we began to launch these ViaSat-3 satellites. That's where the real growth opportunity there is. And the Intelie part of that business has been a very positive surprise, really strong team has a good platform. They continue to win new business, and we're -- there's other applications across Viasat where that group can help.

So we're -- I'd say things are about as expected so far.

Chris Quilty -- Quilty Analytics -- Analyst

Gotcha. And question on the Ka-band rollout on the rigs. There was probably some reason in the past why RigNet was hesitant to use Inmarsat as the backup, but have you determined what the backup path will be there for those systems?

Rick Baldridge -- President and Chief Executive Officer

So yeah, one of the things we're not doing is disclosing our execution strategy to the competition. So one of the things we're doing in these trials is demonstrating what's capable. And so our view is that you give a whole bunch of people, a whole much more bandwidth and charge them a lot less is you create things that they would have done had they been able to do and work. And so we're able to do that in areas where we have a footprint right now, which is limited.

As those satellites roll out and then with Inmarsat, we won't be limited to that. And so we'll be able to do that across the board. So the real opportunity here is growing the type of services we deliver to all these platforms.

Chris Quilty -- Quilty Analytics -- Analyst

Understand. Different question. Mark, you mentioned cross links. I assume you were referring to RF and not optical cross links?

Mark Dankberg -- Executive Chairman

Yes. Correct.

Chris Quilty -- Quilty Analytics -- Analyst

OK. Can you name any of the programs where you're targeting business? Because I'm not aware of any off hand, at least unclassified?

Mark Dankberg -- Executive Chairman

Well, the largest commercial one that we had is Iridium. So we did all of the onboard -- remember, Iridium is our cross-linked system. So we did all of the onboard cross links for Iridium. We have mostly otherwise, so far, have been mostly government programs, including -- I don't really want to name them, but some name brand new multi-satellite government programs, we will be -- we've been funded.

And I think we'll be in the production version of those satellites as well. And the cross link that we've been doing are generally Ka-band or much higher frequencies that have a lot more capacity. I think one of the most interesting ones where we are getting traction as well in both government and commercial programs is in the LEO-GEO cross links, which is a pretty unique capability. But the big advantage there, if you have a very high capacity global system like ViaSat-3, you can just insert the LEO cross links into the global coverage capability of ViaSat-3.

So that's a really, really interesting opportunity, and we're getting good traction on that on both government and commercial sides.

Chris Quilty -- Quilty Analytics -- Analyst

Gotcha. And the sort of high-profile government name, is that perhaps a new effort with a generic sounding dumb name and very high volume where the primary focus is on optical?

Mark Dankberg -- Executive Chairman

No. [Inaudible] speculation. No. There's certainly a place for optical propylene.

The big advantage of RF cross links and let's say RF is kind of interesting in the gigabit up to the gigabit range, and you may see optical cross links in the 10 or more gigabit range. But if gigabit is a worthwhile bandwidth, the big advantage of optical is much -- or much less power, doesn't require the platform stability, you can network it, so you can hop the links around, a lot easier to make in great connections, build packet networks. So there's -- I know there's a lot of focus on laser cross links, but the optical one is a really interesting market and one that -- I think we are -- I mean sorry, the RF is really interesting, and it's one where I think we have a really good competitive position.

Chris Quilty -- Quilty Analytics -- Analyst

Gotcha. Because I didn't ask Shawn any questions, I'm going to follow up with one financial question, which is when you were talk -- mentioning with Rick earlier the ground equipment costs, are those capitalized costs now? Or are those costs that you are expanding?

Shawn Duffy -- Chief Financial Officer

Chris, what I was trying to capture for you guys is how the opex will ramp ahead of the service launch, that's not the capex.

Chris Quilty -- Quilty Analytics -- Analyst

OK. And you're not, again, not able to capitalize any of the ground equipment, R&D and build out until the satellite is operational?

Shawn Duffy -- Chief Financial Officer

No. It's part of the full project profile that we've given you guys, which includes the satellite, the launch, the insurance, all the initial ground. That stuff is capitalized. It's just the operating when you light it up, essentially, that gets to expense.

Mark Dankberg -- Executive Chairman

Think of the power, and fiber optics, and rent, and all of those types of expenses.

Chris Quilty -- Quilty Analytics -- Analyst

Great. And I know you haven't given out a specific number. But then do you use the term gateway or no? What the name you use for your --

Mark Dankberg -- Executive Chairman

[Inaudible] gateways.

Chris Quilty -- Quilty Analytics -- Analyst

Yes. OK. What percent of those are installed now? And do you light them up and keep them lit up until ViaSat-3 is launched? Or do you kind of light them up and turn them off just to test them?

Mark Dankberg -- Executive Chairman

So we probably have close to half of the initial set of [Inaudible] in the U.S.

Shawn Duffy -- Chief Financial Officer

Coming over the next few months.

Mark Dankberg -- Executive Chairman

Yeah. Somewhere in that range is what will happen. One of the things Rick mentioned is that things are going well on space ground testing. We're able to test a lot of the integration using the new ground network in one of our existing satellites.

We think that's a lot of functionality. So what we are doing is we're lighting up some of them along the way to increase the scope of that testing. But the bulk of them will be activated very close to the launch or post launch.

Chris Quilty -- Quilty Analytics -- Analyst

Gotcha. And final question for Shawn. I think the last number you gave was $2.3 billion for the ViaSat-3 program, just a clarification. Does that include capitalized interest or not?

Shawn Duffy -- Chief Financial Officer

That is without the capitalized interest, about that range.

Chris Quilty -- Quilty Analytics -- Analyst

OK. Perfect. Thank you.

Mark Dankberg -- Executive Chairman

Thanks, Chris.

Operator

Thank you. Our next question comes from Louie DiPalma of William Blair. Your line is open.

Louie DiPalma -- William Blair and Company -- Analyst

Good afternoon, Rick, Mark, and Shawn.

Rick Baldridge -- President and Chief Executive Officer

Good afternoon.

Louie DiPalma -- William Blair and Company -- Analyst

I was wondering does the U.K. government have any interest in investing in the Viasat Inmarsat combination in the same way that they invested $500 million into OneWeb?

Rick Baldridge -- President and Chief Executive Officer

We haven't had that discussion. I think OneWeb was having those discussions. I'd say that's the big difference is they were looking for investors. I don't think the U.K.

government is probably interested in investing in a public company.

Louie DiPalma -- William Blair and Company -- Analyst

OK. That makes sense. And switching to ViaSat-3, I was wondering what is your degree of confidence that you will have ViaSat-3 services commencing for either consumer broadband or aviation this year?

Mark Dankberg -- Executive Chairman

I would say pretty good. I mean, we have a plan that does that, but there's uncertainties along the way. I wish we could be certain, but we can't be certain. I think we have a plan.

But if you look at sort of the main thing that caused the launch schedule, it was the lack of availability of specific people who have been able to forecast that three months ago, things looked like COVID stuff was going away and life was coming back to normal. So I wish I could tell you we are certain that we have a plan. Generally, we've been pretty good at executing plans when the assumptions behind them are true.

Louie DiPalma -- William Blair and Company -- Analyst

OK. Thanks, Mark. And for the customer premise equipment and the terminals associated with the ViaSat-3 system, how will the economics be different for new customers that want to use the ViaSat-3 system versus existing customers that are currently on ViaSat-1 or ViaSat-2 that are looking to upgrade? And the reason I'm asking is a lot has been made about how like SpaceX with Starlink takes a pretty hefty loss on their terminals. And I'm wondering like how does that loss compared to the economics for your geostationary type terminals?

Mark Dankberg -- Executive Chairman

OK. So one is the ViaSat-3 overall economics, I think, will be in line with what we've experienced since we did ViaSat-1, which I think of it as customer lifetime value compared to customer acquisition cost, lifetime it tends to be 3x somewhere in that range, right, about a lifetime value. And that's based on many, many years of good understanding of customer acquisition cost, churn statistics, ongoing customer support. And I think we have some initiatives that actually reduce cost and can improve that.

So we'll see similar things with ViaSat-3. It's kind of what we expect. And the thing I would say that maybe doesn't get as much attention as it probably should from investors to think about is really there's kind of the biggest issue in running these businesses to deliver an attractive service into do it profitably is the amortized airtime costs. And so what -- if you think about it, and this is kind of what we said in the past is there's kind of a rule of thumb of think of bandwidth and space is inventory, and you're seeing that right now, right? Whether -- it doesn't matter if it's GEO or LEO, if you don't have enough bandwidth and you add more customers or you're seeing customers use more bandwidth, speeds can drop and that's exactly what you're seeing.

For instance, in the Leo world this speeds are dropping, and you don't add more bandwidth and the customers you already have use more bandwidth even if you don't add any new ones. So what we think about is when we bring out these systems that have big improvements in the airtime economics, well, we tend to value the bandwidth on all of our systems at the lower of cost or [Inaudible] market, right? That's kind of the way that you tend to think about bandwidth. So we can offer -- we'll be able to offer a lot of the same services that we do on ViaSat-3 on the older satellites. They're capable of doing it.

They don't -- you don't have to necessarily switch satellite or get new CPE to be able to get the new services. That's kind of what -- that's the payoff of that. And that helps us to preserve this kind of ratio of life time value to customer acquisition costs. Does that answer your question?

Louie DiPalma -- William Blair and Company -- Analyst

Yes. Great. Thanks, Mark. Thanks, Rick.

Mark Dankberg -- Executive Chairman

Sure. Thanks, Louie.

Operator

Thank you. Our next question comes from Ryan Koontz of Needham & Company. Your line is open.

Ryan Koontz -- Needham and Company -- Analyst

Thanks for taking the question. On the Delta IFC business, it sounds like that's really humming here. When do you expect that to peak on the commercial side as you kind of penetrate the fleet there? Any outlook on time line?

Rick Baldridge -- President and Chief Executive Officer

So we're a little over halfway through the build-out of the current backlog with Delta. And so we're still ramping there. And there are -- there's a lot of other activity, I'd say, in the commercial air marketplace. So --

Mark Dankberg -- Executive Chairman

So a fraction of our -- if you look at the number of new planes that we have on order that we described in the letter, Delta is less than half that.

Rick Baldridge -- President and Chief Executive Officer

Well under half. Yeah. So -- and it's not -- it has been -- we don't expect it to stop. There's just a lot of new interest.

Ryan Koontz -- Needham and Company -- Analyst

Got it. And just a housekeeping question here on the acquisition expense, popping up in the quarter there. Do you expect that to stay pretty steady into the close of the deal and kind of ramp post integration of Inmarsat?

Mark Dankberg -- Executive Chairman

No. Right upfront was pretty heavy on the expense side. We are still running -- we're still spending money. There's definitely lawyers still working on regulatory filings, and they can spend money for sure.

But it's not at the rate it was in the December quarter.

Ryan Koontz -- Needham and Company -- Analyst

Got it. That's it.

Mark Dankberg -- Executive Chairman

Thanks, Ryan.

Rick Baldridge -- President and Chief Executive Officer

OK. I think that's the last question. So I just want to say, operator, thank you, and thanks to everybody together with Mark and kind of the rest of the team here, we want to thank you guys for spending some time with us. Hopefully, you found the letter informative and your continued feedback on that, [Inaudible] is helpful, makes it -- continue to make it better for trying to answer your questions next time.

Our operational momentum is still really positive. We're excited about the capabilities and opportunities that Inmarsat will bring. We think they have got a strong team, and their performance has been excellent over the same period. But at the same time, we're focused on what we're doing.

We're focused on our execution. Our leadership team and our employees are really focused on executing our plan. So again, don't hesitate to reach out to Peter with input or other questions you've got. We look forward to following up with you guys.

Thanks.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Rick Baldridge -- President and Chief Executive Officer

Robert Blair -- Vice President, General Counsel, and Secretary

Rick Prentiss -- Raymond James -- Analyst

Shawn Duffy -- Chief Financial Officer

Mark Dankberg -- Executive Chairman

Landon Park -- Morgan Stanley -- Analyst

Mathieu Robilliard -- Barclays -- Analyst

Chris Quilty -- Quilty Analytics -- Analyst

Louie DiPalma -- William Blair and Company -- Analyst

Ryan Koontz -- Needham and Company -- Analyst

More VSAT analysis

All earnings call transcripts