We Study Billionaires - The Investor’s Podcast Network - TIP361: The Race for Space w/ Ben Claremon & Eugene Robin

Starting point is 00:00:00 You're listening to TIP. On today's episode, I welcome back to the show Ben Claremont and Eugene Robin from Cove Street Capital. We quickly touch on the performance of Lumen Technologies, a stock they pitched back on our show in December of 2020, whose price subsequently has risen 50% in Q1. But the real reason I brought back Ben and Eugene was to discuss the race for space and their position in Viasat. If you only follow the headlines, you'd think that Elon Musk is on an underline, encumbered path to space domination, especially with his satellite business under SpaceX called Starlink. In this episode, we cover how Vyasat might currently be wildly underappreciated by the

Starting point is 00:00:41 market, how Starlink compares to VySat and the future of satellite broadband, their intrinsic value of Vyacet, and much, much more. I love doing deep dives into stocks with Ben and Eugene because they are truly value investors. It's also worth mentioning that Eugene once worked at Viasat and has a deep knowledge on the business. So sit back and enjoy learning from Ben and Eugene about how Viasat and more ways than one might be heading for the stratosphere. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Hello everybody and welcome to the Investors podcast. I'm your host,

Starting point is 00:01:35 Trey Lockerbie, and today I have back with me Ben Claremont and Eugene Robin, principals at Cove Street Capital. Welcome back to the show. Thanks for having us. We're excited to be back. Well, I couldn't wait to talk to you guys because last time you were here about mid-December of 2020, we were talking about Lumen Technologies. And at that time, the stock was trading somewhere around $10.50 and 50 cents a share. And after we aired that episode, it surged about 50% to a close of 15 to 15 and a half, and now it's drifted back down to somewhere around $13.

Starting point is 00:02:08 So I have to ask, what are your thoughts quickly about the surge and how are you guys feeling about the stock today? So when we spoke, Lumen had been under a fair amount of pressure. I mean, there's no way to know for sure, but we think that it was kind of a victim of the end of your tax selling to some degree as people didn't have a whole lot of losses and Lumen was down, and so it got sold down pretty hard towards the end of the year. And then, I guess serendipitously, it got caught up in the GameStop kind of rush where people saw that was heavily shorted and thought that maybe it could be the next GameStop. It didn't end up

Starting point is 00:02:44 being quite that. And we actually sold a little bit above 16. And then we promptly bought it right back. So thank you, Mr. Market and your irrationality for giving us that opportunity. But to be Frank, some of the gap between what we perceive to be intrinsic value and the stock price has closed, but nowhere near where, you know, to make it anywhere near fair value. The truth of the matter is, there have been a number of fiber transactions that would be good comparisons for the Lumen business side slash level three, the old level three business. And they're suggestive of a much higher value for this company. And even a company like Cogent, which is a public company, trades it like 20 times EBIDDA and has a very similar business model to the Lumen's business

Starting point is 00:03:27 services side. And you know, it's 20 times for Kodgen and five times for what every, all of Lumen just doesn't make sense to us. And the fact is, since we've spoken, Southeastern, which is one of the largest shareholders and has filed a 13D has continued to push the company to highlight the value of its various assets. One of the sell side analysts reported that the company has hired bankers to look at selling the consumer business. You remember from our original podcast, that was one of our premises, is that they would separate these two businesses. So honestly, things are in motion. I think people need to be patient, but they get paid to wait because the dividend yield is like, I think, seven and a half or eight percent still. So our conviction about

Starting point is 00:04:11 women really hasn't changed, and we continue to scratch our heads regarding the discount between comparable transactions and what we think the fibrous worth and what the stock trades at. So a lot to unpack there. First of all, you mentioned you guys sold a little bit, bought some back as it fluctuated. What net net where you guys kind of said is, are you back to where you were and just took some money off the table or you know, have you kind of de-risked a little bit more? No, I mean, I can just talk about the strategy that I co-managed where it's our largest position. It went from a 10% position to a 15% position because of that.

Starting point is 00:04:48 And so from a risk management perspective, I looked in the mirror and talked to my co-manager, who was our founder about this. And the question was, if it was a 10% position at $8 and it's a 15% position at 16, what is a proper risk management thing to do? And our perspective is you take some money off the table because if the gap between intrinsic value had closed to some degree. And so you take a little bit off to risk manage, and then the stock promptly fell back. So it's still a 10% plus position. That kind of raises another question, which is, you know, as far as rebalancing, is 10%

Starting point is 00:05:24 sort of the optimal range for you guys for anyone holding? This is an outlier. We look at this as a special situation. We think that the writing is on the wall, that these assets are being separated. And the company has not come out and said so, but everything we see points to that. So I would say periodically, we are concentrated investors and we will take larger swings. Typically, our position sizes are two and a half, five, and seven and a half. Ten percent is the only, this is the largest position we've ever had. It speaks to our conviction. It speaks to the amount of work we've done. It speaks to our understanding of what's going on, you know, with management internally. Could there be other 10% positions in the

Starting point is 00:06:05 strategy's future? Absolutely. But, I mean, I would say, say, this is not quote unquote normal for us. This is a big, calculated, very asymmetric bet in our mind. For those who are new to this discussion, I encourage you to go back to our episode number 326, where we really go deep on Lumen and you can kind of get a feel for the company. Something at the end of our discussion was really interesting because somehow we brought up Viasat, which is another one of your largest positions, I believe. And we started just talking about it casually and how Elon and Starlink have kind of entered the space as a competitor to Viasat.

Starting point is 00:06:41 Now, I'm a longtime fanboy of Elon Musk, and I follow his companies pretty closely. And he seems to have this unstoppable advantage in the race for space domination, given his fleet of reusable rockets that he can launch at will for a discount. And he's now introduced Starlink, which is this constellation of satellites to beam down broadband all over the world. And they already have hundreds of satellites in orbit. So from my outside perspective, it appears that he's only a short time away from producing billions of dollars worth of new revenue through this internet service. So why am I saying all of this? Well, basically because you guys hinted that the fact that Viasat, which is the stock that we

Starting point is 00:07:24 are spotlighting today, is a vastly superior company to SpaceX and Starlink in this initiative. and that really caught my ear, and I've been wanting to learn more about it ever since. Now, I wish I had kind of listened to you at the time when you mentioned that because it was trading around $30 a share and it's now shot up to 60 and drifted back down to about 50s as of today, the low 50s. But I want to definitely spotlight this stock because I think that's news to a lot of people who are very familiar with the Elon Musk PR machine and maybe if only really heard about Starling. Let's take the opportunity to learn about Viasat. And, And I'd just like to start with a quick overview of Viasat and how it makes money.

Starting point is 00:08:04 Let's start there. So I'm going to give the spoiler, immediate spoiler alert, and then I'm going to pass it to Eugene to answer really the meat of your question. SpaceX has done incredible things with a launch technology. And Starlink has a pole position to be really successful in a lot of rural broadband applications. But the truth of the matter is, in five years, Biasat is going to be an in-flight Wi-Fi and military connectivity focused company.

Starting point is 00:08:33 Rural broadband will be a competitive market where ViyaSat will have assets that can compete, not necessarily with fiber, but with whatever Starlink offers. And it will be a competitive market just like DSL was, just like if you're in Los Angeles and there are three or four different fiber providers that you can touch, it will be competitive. But the success of Viasset over the next three to five years will be based on their ability to penetrate in-flight Wi-Fi globally and offer connectivity to the military that does not exist today, expanding the total addressable market well beyond what other people are even considering now. And now I'll hand it to Eugene.

Starting point is 00:09:14 I just want to clarify one thing. I do not want for people to think that any way we believe Starlink is an inferior product. to buy assets, current NICC product. I just want to say that. And also preface what I'm going to say with the following that, I believe Elon will be the only person that's successful within Leo, barring, you know, Bezos throwing $20 billion at the problem. Because obviously, if you have an unlimited checkbook, I think you could do whatever you want,

Starting point is 00:09:44 really. Leo meaning lower Earth orbit, right? I just want to spell that out for people as well. Yes. Sorry. I try to avoid acronyms, the low Earth orbit. But so Jeff Bezos is also kind of in the game with Kuyper. That's his constellation.

Starting point is 00:09:58 Certainly, if you really want to talk about advantages, I think he probably has the best one, which is money. It's almost an infinite. It's a rounding error for him, really, as opposed to Musk as well as, you know, Biasad. So I just want to say that on front, like I really do believe that they will be successful. I think that he's already successful, let's put it that way. There'll be a part of the pie that's controlled by the. the Leo lower orbit operators, and they'll be a part of the pie that's controlled by the geo or

Starting point is 00:10:28 geostationary satellite operators like Biasat. That's really how you have to think about it. It's unfortunate, but people think this is like a zero-sum game where there's going to be a winner-takes-all sort of thing where Elon's kind of advanced space capabilities, allow him to win the entire pie. It's impossible for many, many, many reasons, which I'll kind of touch on. But to answer the question I think you posed initially, which is how does Viasset make money, I kind of want to rewind the clock a little bit and I will give the disclaimer that once upon the time I had a real job and I was a software engineer and I actually worked on VySat when I graduated from the school. So when I was there, the part of the business that I worked in was the network systems

Starting point is 00:11:10 group and the actual core of Vyacet from its founding has been within encryption and decryption technology specifically for the military. So this isn't a company that all of a sudden woke up and said, hey, you know what we should do is get into military applications. They've always been there. That's been the core moneymaker from day one. They've actually been the displacer in that space. Mark Dankberg created a more advanced and niche products at within encryption and decryption specifically for an enlightened network of communications for the military. and slowly over time, they became, you know, they went from startup to the structure to now a dominant player within that space for the DOD. So that's actually how the core of how they make money is that defense side.

Starting point is 00:12:00 And then actually most people, when they look at the company, because all the glitz and glamour and, you know, headlines and all that is specifically on the residential broadband. They skirt over this, what we consider it to be a diamond, the ruffer, the true jewel, which is the, defense side. And it's due to the defense side, it's high cash flow generated capabilities. Vice has been able to develop everything else that they have. So that's actually the core of how they make money. In conjunction to that, what they have is really a communications equipment business, which they sell ground network equipment to other satellite providers, actually. And so that's the one thing that's really interesting because I think space tech is in this really interesting revolutionary kind of flowering point where, you know, we're actually in Nelson Gundo.

Starting point is 00:12:45 And behind me, there's probably three dozen startups right now and all the large defense contractors that are in space. So we're at the in the epicenter of it. And as more and more money flows to it, then Biasat will actually benefit on the communication equipment side because most people don't have the 25-year track record of building space reliable equipment that biocytes, whether that be the antennas or the ground station network equipment or some of the more nuanced things that go into the satellites. So that's one of the ways that they also make money.

Starting point is 00:13:21 And then the other one obviously is the, let's call it the satellite service side, which is I think where most people are kind of fixated on. So that's the residential broadband. They do that through their exceed service. I don't know if they still call that. It's called that anymore. And then we have infight Wi-Fi. So if you're flown on JetBlue or American,

Starting point is 00:13:40 that's actually all powered by Biasat. It used to be powered by a discounted-old go-go, which, again, if anyone's ever flown and used go-go, it's one of the worst services I've ever imagined. And then so the Biasad displaced them. In fact, I think it's public now. So Delta officially signed on to have their entire fleet be switched over with the Viasat through 2022, I believe. So they have been invited Wi-Fi.

Starting point is 00:14:05 Then they have, called community Wi-Fi, but it's actually a really interesting little niche business that they don't talk about as much. But if you go to Mexico or parts of Brazil now, they actually have these waypoints that they put in rural, very poor areas. They can beam down to connectivity to. And from that waypoint, it actually distributes connectivity to folks that can maybe pay a dollar a day, roughly for internet access. They actually provide a scaled, cheap connectivity solution for folks that cannot get connectivity around the world. And lastly, you know, due to the requisition of Rignet, they'll have a maritime business, which is both offshore oil derricks, they have, you know, tankers, cruise liners, things like

Starting point is 00:14:52 that all need connectivity. So when you're out in the middle of the ocean, obviously you're far away from any sort of wireless connectivity capabilities. And you need people now want to be connected all the time. So why is that will be that bridge? So that's kind of like the, I'm trying to go quickly over it. but that's the satellite service. Those are like the three, I guess, legs of how WISA truly makes money.

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Starting point is 00:19:15 Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. VISA's revenues are only a couple of billion dollars. right now, but it seems like the satellite industry globally and connectivity and some of these other industries you mentioned that they're playing in. We're talking about hundreds of billions of dollars, right? So as far as market share goes, how do they kind of fit into the landscape?

Starting point is 00:19:45 What would you say, are they dominating on the, obviously on the U.S. government space? Do they have sort of a monopoly on that business? Just give us an idea of their position in the space overall. So let's start with the government system side. So if you look at the government revenue, they have about what it's called, I'm just rounding up $1.1 billion in total revenue. Most of that, maybe 75% of it is on products. So that's kind of the things that I described in the network encryptors, the handheld portable radios, go to individual special operations units. There's a high-end encryption modems that go, you get installed in like Blackhawks and F-18s and things like that. So that's the core of the products that within the government

Starting point is 00:20:28 services and they have what they concern to be the service line. While that's a catch-all, the vast majority of that is actually the connectivity side that they use their current satellite systems and also partner with others and resell to the government. So that is about $200, call it $275 million. So tiny, the addressful market, just for America's DOD, I'm not even talking about the UK or Australia or anyone else that within our NATO complex is $4 billion. Needless to say, there's a large runway from where they are today to where they can be. In case people are kind of curious like, okay, well, what does that actually mean? What does a connectivity service provider actually do for the DOD?

Starting point is 00:21:08 By that specific line item is actually Air Force 1 and Air Force 2. So they power our presidents when they fly around in Air Force 1. They power the actual connectivity, encrypted, hardened connectivity that goes into State Department airplanes, that's one of their biggest contracts. They also do special operations connectivity to SOCOM, and obviously, I don't know specifically what that entails for obvious reasons, but they either use their current satellites or most likely given where special operations folks operate. They'll actually buy a resell effectively connectivity from an Intel SAT or in Marsad or SCS,

Starting point is 00:21:50 which are what I consider to be traditional mainline distributors of SETA. connectivity around the world. And why that's important, because the WISA's trying to build a global constellation with their Biasat 3 constellation, every time they cover a new part of the world, it actually opens up the opportunity to sell that connectivity to their defense partners. And as a outline for you, if let's say the market is $4 billion just from the United States, our own DOD uses, You can imagine that if Viassad has the contract to deliver connectivity because they happen to have the hardware that's doing it for that part of the military right now, they can just basically redirect connectivity to their own satellite. And now instead of paying and reselling someone else's revenue, they'll get that all coming to them. That's, I think if you want to talk about the markets that operate, that's kind of the military side.

Starting point is 00:22:45 Then if you go to connectivity services for broadband, so broadband in the U.S., there's probably to aggregate Hughes, which is the other main competitor to BISA right now, and Biasat together, you're looking at somewhere around 2 million users in that I'm just rounding. So there's 2 million satellites, satellite satellite internet users. Elon believes that not only that market could be his, which I totally understand and agree with, but also on the periphery of DSL. What's really DSL? Like, people use that term a lot, but the way that the government defines what's high-speed DSL is basically only 25 megapits per second download speeds. Most of us here in LA probably have somewhere around 100. The point is the actual

Starting point is 00:23:37 true addressable market for high-speed connectivity for internet via satellite can actually be much greater. I actually think that's one of the things that SpaceX truly get, where it's not just about, hey, I'm in the middle of nowhere, North Dakota, and I really need to connect, and I'd like to connect on a fast way to the internet, but also they can pick off people on the periphery of larger cities and things like that. The point is the pie is so massive that if Leo is successful, that doesn't mean that geo won't be. Okay. And I think that that's really what people misunderstand. here. So they treat bias as some sort of weird short to the success of Elon. We fundamentally disagree. And again, we'll run around across some of the reasons why. But yes, I mean,

Starting point is 00:24:26 if you think of Tam for broadband connectivity as anyone who has subpar connectivity, that extends to a lot of people who are even in populated. And I think that's actually why Elon is building what he's building. He's not building it. He's going to start out with the rule. because that's the proof point, right? And that's the easiest thing to say, like, hey, look, it's working and these people are hungry and strapped for this connectivity. But I think his overall goal is going to have to be if he really wants to make this economic to go after some of the DSL users that are actually Central Link, probably.

Starting point is 00:24:59 It's easy to kind of get a quick sense that Vyacet has been around for a very long time. And a lot of people's eyes, it could be seen as, I don't know, a dinosaur in the worst case, compared to something like a SpaceX with reusable rockets that are launching these things up. Let's walk the listeners through why the disruption of Viassat might be very hard. Well, that's a great point you made about Viassad being a dinosaur. So let me just start there. Vyacet isn't a dinosaur. It's actually on the specifically NGO.

Starting point is 00:25:31 It's on the leading edge of geo. And in fact, if Mark is correct about the, say, the fourth generation, because he's already sets things like 8 terabytes per satellite. It will be the equivalent of everyone's satellite currently in existence in geo or being planned times, I must say, four. Just think about that one generation four satellite will be that. The point is, Biasa continues to iterate and develop and leap ahead of all the competition that they have in geo.

Starting point is 00:26:05 I personally, this is our premise, that if Gio, was left alone and had no Leo competition, my side actually would eventually dominate and own 99% of it. Unless, you know, we had some natural champions that were kept around just because, you know, France wanted to have their own or whatnot. But the technological progression there was such that they were starting to get to an inflection point of just opening up a wider and wider, I guess, evolutionary advantage versus their competitors. Let's put it that way, right? Now, when you talk about comparing that to what Elon's doing of Leo. So one, you know, people need to understand the true difference between geostationary

Starting point is 00:26:46 and low Earth orbit is the low Earth orbit side of Leo means that they're at like, you know, let's say 550 kilometers above the Earth, which means that the, just physics, right, the speed of light travels a certain amount of time. And so you can get 25 millisecond latency. So just how fast it takes your uplink and then... for it to hit the satellite and come back down as a downlight. So, geostationary is much, much, much, much higher up in space. And so that means that the average ping or the average latency becomes somewhere around

Starting point is 00:27:21 4 to 600 milliseconds, massively different. Is that really important, though? It is if you're a Twitch streamer or a gamer or a heavy Zoom user. So if you were doing Zoom over by site service, we'd obviously have a lag and a delay, which is obviously, is annoying. You could do it, but you'd have to pause for a split second, and people don't like that. So there is a more advanced use case for Leo that, you know, geo just cannot hurdle over right now. And it will never do so.

Starting point is 00:27:55 Just because, again, physics being what it is, it is what it is, right? So I think that's really, we talk about the differentiators of Leo servers versus geo. That's what it comes down to. It's whether or not you're doing live video streaming. If you're not, you're just consuming bandwidth when it comes to browsing it around the internet or bringing up Netflix movies, YouTube, it doesn't happen. I mean, it's indiscernible in the way that they've kind of optimized the way they they catch things down at the modem level.

Starting point is 00:28:26 It's not a big deal. Starlink is very focused on the lower Earth orbit or the Leo side of the business. Viasat has a lot of assets on the geostationary side of the business. Not that they don't have Leo as well, but they're primarily focused on geo, and is that harder to disrupt? They do not have a Leo connectivity solution that's consumer or business facing. They actually have a trial with the Air Force building Leo satellites for maybe an military constellation, but they do not have anything on the Leo side. They've been okay to, I think there's a

Starting point is 00:29:06 plan. I think they have a 430 or something like that satellite constellation. They could launch themselves, but they have historically claimed that it doesn't make economic sense for them to do so. Their main reason why is because, so geostationary is a singular satellite. There's not like thousand of them. There's just one. Avisat has two. And eventually, they'll make a geostationary. we have like between six and ten. So that one satellite, though, can take its beams, just think of them as like spotlights and divide them up into many, many, many other tiny beams and then steer it. This is the thing that Mark Pioneer, steer that beam into the highest bandwidth of the demand

Starting point is 00:29:52 area that they have, which means that one satellite can effectively, if you sell it correctly, utilize 90 to 95% of its overall capacity. So you have sitting up top, it doesn't move. It just says, okay, there's more demand over here. So I just steer the beam that way. Leo, by its design, is actually a satellite. They're much smaller. They're speeding across the sky, never ending, always, you know, orbiting the Earth or

Starting point is 00:30:21 orbiting the Earth. And so you should think about the flight path of Leo satellite. Most of the time it spends over uninhabited parts of the world. Our world's 70% water. So it's beaming satellite connectivity to absolutely no one. We can get into the more technical aspects of what Elon has to hurdle over. But one of them being, if you're a Leo connectivity provider and you're trying to, let's say, provide connectivity to a plane or a ship in the middle of the Pacific, you can't.

Starting point is 00:30:52 Even if you're over them, the reason why is because there's no way for you, to beam the request by the user on the ground or in the air in this case, back down to Earth and into the actual internet without having something called base stations. So in the middle of the Pacific, you can't have a base station because, well, there's nothing, there's no fiber, there's no, I mean, it's impossible for you to connect. How did the airplanes then going over the ocean have Wi-Fi coming down, obviously, from satellite with Biasat? How are they getting the...

Starting point is 00:31:24 So because Geo, just think of Geo is a big flashlight, right? It's shining on this part of the Earth. Well, that flashlight also sees base stations as opposed to Leo, which is much, much closer to the ground. And so its view angle is constrained to, you know, I don't know the specific sign of starting this well, but let's say it's a constraint to like a 50 square mile radius, right? If it doesn't see a base station within its view angle, then it can't actually communicate with the internet, right?

Starting point is 00:31:56 On that point, how much in your estimation does SpaceX truly pose a risk to VySAT? It sounds like they are going to really take over this rural total addressable market, if you will, for people who aren't connected to the internet. And you guys seem okay with that, right? That doesn't seem to encroach on Vyacet's turf that much. I'm wondering, does SpaceX and Vysat actually benefit from each other in any way in this regard?

Starting point is 00:32:20 So a couple things. One, I actually don't think that he's going to, So when I said 2 million rural users, I actually don't think he's going to get to 2 million. I think probably 400,000 is what he's capable of really serving really well. If he sticks to the 100 megabit per second download speeds and unlimited actual capacity, which I have a high – I don't think he'll do that. I think he'll actually amend the plans if it gets really successful. And they'll degrade the service.

Starting point is 00:32:49 How many satellites would that take also? because he's talking about hundreds of satellites going on this bit. I think 4,400 that he's now okay to do at about 550 kilometers will allow him to do about 400,000 to maybe 500,000 users in a quality service, right? I just want to have people understand. So because the satellite is what it is, right? It's fiber. You can have multiplexers that you can swap out and you can take one strand and then subdivide

Starting point is 00:33:19 into 1,000 strands. and it's all done by both software and also hardware on the ground. And it's a very like adaptive meeting. Like you can swap Google it out every month if you want, right? Leo satellites, you can't do that with. So once you launch them up there to refresh the entire system would take you a year to three years. Think of the satellite as like a fixed amount of bandwidth and you can take that bandwidth and slice it up and dice it up among a bunch of these users.

Starting point is 00:33:46 But then you have to start making tradeoffs between capacity and, actual speed. So, if you're in, right now, he's serving the 10,000 or 40,000 users and people love it. If you can X that, can you have the same quality of service? Maybe if you go 20x that I don't think you can. This is physics, right? I mean, there's a certain amount of capacity that he has to use. He can divide it up among all the users. If there are too many users, then he has to degrade the quality of the service is kind of like our salt's phone towers, right? If there's 10,000 people connected to one tower, it's going to be like you're on 2G. So it's the opposite of a network effect in that regard, right?

Starting point is 00:34:26 It's ironically given the name, but it's like the more people using it, the less. That's exactly right, which is why, you know, Elon has said like, hey, I'm going to, I want to get to 40,000 satellites. And why does he say that? It's not, he's not saying it for like, just for fun. He actually needs to have the density of those satellites in order to provide more, the same service to more and more people. Because again, at any given point in time, if you're going to be a Starlink user,

Starting point is 00:34:55 you're going to be maybe seeing two, maybe four satellites above you. And each of those satellites is small. And technically, you know, if you really want to get down to it, can serve maybe 500 people. So if you're in a rural area in Iowa with 20,000 people who really want connectivity, actually physically speaking, he can't capture 100, percent of the market. I hope that makes sense. He'll do really, really well, but if he wants to get 100 percent of the market, he's going to have to degrade everyone else's connectivity, which would then make it be on par with or even worse than what Hughes or Biaside can provide.

Starting point is 00:35:32 So there's a limit to how much he can win, which goes back to our point, which is not a winner takes a high. It's going to be Elon and Starlink have this nice slice. Vyazad has this slice, Hughes has this slice and declining, but they're all, they're going to win in some way, right? I think you also ask, like, can they help each other? There are network effects in the sense that he's actually, his promotion machine is so great because he's advertising for satellite connectivity in general. And what is that going to do for providers like VySED who can, let's say they can subtuple

Starting point is 00:36:11 the quality of the service over our next three years, just by providing more and more bandwidth, I think they'll be able to write on the coattails of this great PR machine that Starlink has and saying, hey, if you want 100 megabits per second, we could also do that. And let's say that we're not going to charge you $500 for the equipment. We're going to charge you $25 or $50, maybe even give it to your career. As well as a race to space, are we talking about a race to the bottom as well, meaning that all this capacity coming from space in the near future? Is that just that just that just, like crush the price of internet? I mean, are we going to be paying any pennies for connectivity? And is that actually have a negative effect on these companies' revenue streams?

Starting point is 00:36:50 Great, great, great question. Think of it this way. I don't think the price of internet, have you paid more for your internet since 1998? I don't think so. I think most people have paid between $50 and $120 for the longest time ever. And you can, you know, they'll run promotions. you'll threaten to switch over from spectrum to DISH or whatever. But in the end, the price has been relatively the same. What's actually changed and plummeted is the price per bit deliberate. And that's the key here. So when you think about who's going to win in the future,

Starting point is 00:37:25 it's going to be the person with the lowest price per bit, because in the end, connectivity is a commodity. You don't care as a consumer, whether you're in the military, well, maybe I should caveat that. Maybe. Encryption, right. Exactly, right. But let's say you're a maritime consumer or a backhaul consumer or you're just a

Starting point is 00:37:44 regular consumer at your house. If you don't care really who it is, you just want good service, you want most of it and you want it for the cheapest price possible. It's very simple. So what does that mean? That means that the folks in the satellite space with the lowest cost per bit are going to be the dominant players. And again, if you think about the overall capacity, this pot, your overall

Starting point is 00:38:07 share of the revenue attached to that capacity will be your equivalent share of the capacity pot, right? I mean, if you're selling a commodity and there's really no differentiation, a bit is a bit, then your share of that pie will be dependent upon how good is your actual space tech. And so I think this is exactly why we believe that Biasat will provide a larger than current slice of the pie in the future. And also, I really do think that Musk and, and the Starlink are correct, that pie will grow. And the more and more capacity and connectivity that there is up in the sky, more and more use cases will show up.

Starting point is 00:38:49 And then you'll start seeing crazy stuff like, oh, sensors around, you know, I'm just making things like instead of building a wall, why don't we actually employ sensors? It's for- Does the Starlink have a vertical, almost integration with Tesla vehicles that are obviously getting connectivity on the highways and stuff? Is that part of the benefit? Is there an advantage that is going to benefit Tesla in some way from having these satellites in space? It's funny.

Starting point is 00:39:14 I believe that Starlink has told its users and beta users to, please do not take the satellite dish and drive around with it on top of your truck or whatever, your Tesla. Or we'll actually turn it off and take it from you. But that's ending, I'm going to say in June. I think they put something out where they're going to allow their users to be mobile. Because I think, again, one of the sneaky things that he's going to do is, I think he will integrate the service in some way. I think that's how he thinks with Tesla. And it will be kind of like the serious sort of, hey, I bought this car, a serious radio already preinstalled. It'll be, hey, I bought this Tesla.

Starting point is 00:39:54 I already has snarling preinstalled. Meaning like now you've got your full self-driving on the highway and now you've got Netflix streaming on your car perfectly. Exactly. And again, I think one of the limbers to truly. having autonomous vehicles is connectivity and sensors. And so, you know, if you're out in the middle of Arizona, your car needs to have some sort of waypoints that are pre-programmed and downloaded onto it and are adaptive. And I think the connectivity will, if you have a higher throughput connectivity solution, I

Starting point is 00:40:25 think that will enable things like that. Like I said, there's things that hire and connectivity through space that we haven't even thought of that will look here. And I think that's really the long-term business case for Starlinking Elon, too. Speaking of Tesla, Ben, Tesla seems to be holding the crown for, like, the major ESG company on the public markets right now. But I've heard you say that Viasat is the ultimate ESG company. I would love to know why. Can you elaborate on that?

Starting point is 00:40:57 I've said that a little bit facetiously, but think about this way. So how many years ago did Google with their Loon program where they're putting hard our balloons up in the air and trying to beam connectivity to poor areas where that weren't connected, or Mark Zuckerberg of Facebook saying that he was going to connect the world's poor. And, you know, Elon talking about it as well. Mya said is already doing that through their community Wi-Fi business. And so if you just look at what they're doing in Mexico, as Eugene described, they already have a profitable business that beams satellite connectivity to a central, basically little ground station, and then that Wi-Fi is then dispersed at the town square where people can

Starting point is 00:41:33 actually use it. And these are people who have never had connectivity before. Calling it the ultimate ESG stock is, I think, a little bit overstated. But the truth of the matter is, you read all these articles about, oh, look at these great companies trying to connect people. Biaset is already doing that. And so they have a pilot in Brazil, they have a business in Mexico. They're already doing North Africa. When the two satellites come out in Mia and APAC, there's going to be an opportunity to connect millions, if not billions of people who through their community Wi-Fi business that have never had connectivity before. So if you believe that a good way to raise people out of poverty, a good way for people

Starting point is 00:42:12 to be connected to the world is to have internet connection, then Biasat is a really good social sustainability company. And it will also be a good business model for them. Because what they're trying to do is they're trying to fill up the capacity. And so I think one of the things, and Eugene's kind of touched on this, but one of the things that people are always looking for, so looking for some silver bullet, they're like, well, what's the one thing you're going to do to fill up the capacity? With VySAT, it's everything. So they're putting up these three Vyostat, three satellites, one over North America, one over APEC, and one over AIMIA. APAC and AMIA, our sense is that they're going to be heavily weighted towards the military. If you just think about what our U.S. military cares about, they care about what's going on in the Middle East and North Africa. And they care. about what's happening in the Pacific. Listen, there's not going to be any Starlink with base stations in China. You're not going to put physical base stations in China. So you have to have a high throughput set out geosatellite if you want connectivity to our troops or

Starting point is 00:43:13 our Marines or our Navy in the Pacific, right? And so the military, our sense is that it's going to take up a fair amount of the capacity in those satellites. But then there's just so many other ways to win, right? There's global in-flight Wi-Fi, which we haven't talked about. So Eugene already made the joke about GoGo and how bad it is. If you fly JetBlue right now, you'll see a better experience than is anyone else's offering with the Viassat service. But let's just be clear. That's the Vyset 2 satellite. When the Vyset 3 satellite is up in early 2022, you're going to see much better in-flight Wi-Fi. And it's going to just, our sense is that whatever Global Eagle and Go-Go can offer, it's going to be not even anywhere near what VISA can offer.

Starting point is 00:43:54 But then when Amia and AAC are up as well, those satellites, you're going to have global connectivity. So you're going to be able to fly from New York to Tokyo and you're going to have connectivity hopefully the whole time. Obviously, there could be intermittent nowadays, but you're going to have, when the APEC satellites up, you're going to be able to have connectivity the whole time. That is a business that doesn't exist today. No one who's flying from L.A. to Tokyo right now has connectivity.

Starting point is 00:44:18 And so that's when you think about the TAM expanding Biasat as, you know, it feel the dreams. So if you build connectivity through infight Wi-Fi, that's global, people will come. And so when you have in-flight Wi-Fi, you have some rural broadband, and you have the military, and then you have community Wi-Fi. Our sense is that they're going to have no issues filling up this capacity, because use cases are going to be a come that haven't existed yet, and people who have never been connected will be connected. You ask us a question, it's like, well, there's all this capacity coming out. I mean, I just read the charter call today.

Starting point is 00:44:50 I mean, they're talking about, I think the average user for charter fixed broadband is like 700 gigs a month. And a lot of the users are now using over 1,000 gigs a month. It is unbelievable the demand for bandwidth. And where is that coming from? It's coming from video. It's coming from gaming. I mean, think about it. People used to be watching TV.

Starting point is 00:45:10 Now they're not. Now they're streaming everything. And you can't stream if you don't have an internet connection. And so what that's doing, and video is a high, takes a lot of bandwidth. So we just think that the total adjustable market and demand for bandwidth is growing so much faster than any amount of capacity that Biasat can build. When they go internationally and do transit plan and trans-Pacific flights, those customers are sometimes two to four times more valuable than a domestic U.S. customer.

Starting point is 00:45:37 So the actual addressable market for infight connectivity could be a moonshot, it would be a billion dollars, but I don't even think it's a moonshot because honestly, you're talking about that's probably six and a half thousand tails, six thousand tails. And they're already on track to get to two and a half thousand from what we can see today. And that's without the APEC connectivity in place. That's without most of the African subcontinent, African continent in place and without any of the Indian Ocean passages. So the actual numbers here are so immense that that's the actual true business case for Bysets and continuity of these things. And I will add that for the equivalent consumer, I would rather have a thousand tails than half a million

Starting point is 00:46:23 consumers. The reason why those thousand tails, tails, meaning. So, meaning planes. So a thousand planes, I'd rather have that than four or five hundred thousand consumers because those four to five hundred thousand consumers have a natural churn of about two and a half to three and a half percent. the planes have zero. So the actual cost to get the same profitability levels for infight Wi-Fi are that much greater than having a consumer broadband business. And by the way, Starlink and Elon, they know this. They're not going to just let other people take this market.

Starting point is 00:46:59 They will get there eventually, I believe. I think they'll be longer. It's going to be it'll take them longer than I think they think. They have to have FAA clearances to get their equipment on board. actually don't, I don't think they have air mobile ready antennas currently developed. So the point is, like, for the addressable market provider by the site and their growth trajectory on the like activity site itself, could make this company into a, call it, a $5 billion or $6 billion, and it ended up just by itself without having any of the military or commercial area site,

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Starting point is 00:50:56 All right, back to the show. Let's talk a little bit about the risks involved because you mentioned all of this capacity coming online. I mean, you mentioned Starlink's tens of thousands. I think you said 40,000 satellites going up into space. My tiny human brain is making this assumption like, that sounds like a lot of satellites and that's going to clutter our skies and there's inherent risks to that. If I step back, it's probably like space is infinite.

Starting point is 00:51:22 The world is very large. That's probably negligible in the grand scheme of things. Is there any risk to putting this much material up into our stratosphere, basically? Well, it depends who you talk to. So obviously Starlink and Kuiper, they say no with a caveat. The caveat being you need to have good, would they consider space junk management schemes? And you need to have good, like, collision avoidance systems and be really good at tracking things. Just to clarify, though, for your listeners, so Yon has, I think,

Starting point is 00:51:56 I think 4,400 is the FCC OK number. It's not 40,000. So he wants to eventually get there, but that will take another round of regulatory approvals and years and years of study and blah, blah, blah. So I think for what he can accomplish today, they'll still be very impressive, but it's not going to be 40,000. One of the things that people push back on them on was like, well, if there's a collision, you might actually cause this cascading effect of just destruction in space

Starting point is 00:52:25 because if you can't, if you have so many things crossing. The domino effect, right? Exactly. Yeah, you might actually, and this is Kessler syndrome, actually a term for it, where a satellite that's out of control that causes one collision can actually cause an infinite number of collisions, and then that space junk that is left behind that you can't control anymore will basically make that band of the Earth's atmosphere inoperable for all satellite connectivity or solutions in general, which would be really, really bad.

Starting point is 00:52:55 because it's not just about SpaceX, right? We have the International Space Station there. We have, you know, various other countries have their own satellites, whether it's my satellites or whatever it may be, orbiting there. So you have to think about the world, not just yourself. So there are certainly there are risks there, but at least our SEC has deemed it irrelevant when it comes to Starlink. They literally this week improved the 4,400 to go up.

Starting point is 00:53:22 So that will happen. I mean, there are many other, I think, risks in general. And the 4,400, once it operates for a couple of years and if they can show that it's safe, I think the regulators might relax a little bit. But I think up until that point, you know, you still have, I'm going to guess, four to five years before they allow him to do anything more than what they have right now in the docket. All right. And I've heard you talk about the government side of the business for Viasat and that it could make up as much as $46

Starting point is 00:53:52 dollars a share just on its own. Obviously, the stock's currently just in the low 50s. That's a lot. That's the majority of the share price right now. But, you know, I'm curious. The assumption sounds like Starlink is not going to come after that business, mainly because VySat has this really longstanding relationship with the government and that its encryption technology is very strong.

Starting point is 00:54:15 But all of those things sound like kind of, if I'm thinking about Elon Musk and his relationship with the government, as well as his ability. in the, to, you know, create encryption in other ways or advanced technology in other ways, that doesn't sound that defensible to me if he's coming after it. Do you guys look at him as a risk for coming after that government business at all? I don't think that he's going to go into the hardware side. There's actually a ton. The mode there is much greater than I could even possibly describe because it's not just like

Starting point is 00:54:48 you're making hardware, right? because you're going into a highly regulated environment where you have to have NSA type points or certifications for a lot of the equipment. So these aren't like, oh, let me just slap together something and commercial off the shelf and walla, you know, I have a government contract. These are boxes that have been pre-cleared and tested with a lot of the alphabet agencies and NSA being the primary one that allow for hardened jammer. resistant communications in the middle of war. And trust me, the military doesn't move quickly

Starting point is 00:55:25 when it comes to changing over providers because if someone's coming along saying, like, I can do this better. And then you have to prove that you can operate in that hostile environment. And what bias that has is three decades worth of proving that they're able to operate in those hostile environments within an encryption and encryption and compression algorithm that allows for incredibly high throughput amounts of data to go through the typical warfighter's hands. I'm not worried. I would put the chances of him getting into the product space at zero. I think obviously connectivity, again, I don't want people to think like,

Starting point is 00:56:03 Nate saying Starlink in any way, I do believe wholeheartedly that he will provide some connectivity for certain government solutions going forward. Again, just from the GAO report, I mentioned, it's $4 billion today, right, that market. So, again, can vice a win 20% of it and get $800 million revenue from their current $275? I think so. Can Space X get their share? I also think so. There's enough here to go around, let's put it that way.

Starting point is 00:56:35 In the end, they serve different use cases. And that's really important to understand, you know, again, if you're. a geo-stationary provider and they need connectivity for whatever reason. In the middle of the southeast, you know, South China Sea, I'm going to guess that you're going to get the call and not the Leo person because the Leo doesn't have secured, I guess, offload points or no gateways that the DoD would trust. I know people's like, oh, well, he's going to put, you know, floating barges in the middle of the Pacific.

Starting point is 00:57:10 Okay, you try to sell that to an admiral who's like, wait a minute. that I'm going to be reliant on something that could be sunk with a submarine. Explain that to me again. So anyway, there are a lot of advantages that Vice has to protect itself from the defense side. And honestly, they're dropping the bucket right now when it comes to the connectivity revenue from the DoD. And I still believe people totally miss that point. They completely don't understand how competitively positioned they are for the future,

Starting point is 00:57:41 with the caveats being that they need to have the global satellite network up. So those two ones that come. And that's the Viasat 3. And when is the debut of that? Like, when should we expect that to be in the sky? The first one, which goes over in North and South America, effectively, the American satellite comes up in, well, the launch should be, they say Q1, the calendar Q1 of 2022. So call it eight months from now, seven to eight months from now.

Starting point is 00:58:13 And then you start seeing revenue within 12 months. And in your opinion, the market is just not pricing that in. In fact, this has been the history of Vysat stock. We've owned this in different sizes for six years. And in between the first satellite and the second satellite, actually caused by SpaceX because SpaceX was going to be the launch provider for Vysad 2. And if you guys recall, they had an issue with a couple of their rockets blowing up. And so they canceled all launches for like four months until they figure out what was going

Starting point is 00:58:46 on with the rocket systems, which caused this massive backlog of satellites companies who had to be pushed to the very back of someone else's line. So by the said, contracted out with Arian space to do their second launch and had to wait an extra year and a half effectively. So, and then that lull, that's when the initial shorts came out and Carysdale did a great piece and attacked it exactly the right time. And people said, oh, my God, this is a terrible company. They'll never grow because their rural broadband is getting eaten by 4G, whatever.

Starting point is 00:59:17 The 4G was the boogeyman back then. And so we suffered for two years, like idiots. And then the satellite was launched and revenue started increasing. The cash flow started coming through. And all of a sudden, they went into the 90s. And I think the same thing is happening right now, really. I mean, it's just Starlink is the new boogeyman. And that boogeyman is much scarier because he has a much better PR.

Starting point is 00:59:41 And so I think we believe that there is a good buy point even today for someone who has longer than a two-border time horizon and can wait out the volatility. We believe that they will be rewarded with a much higher stock within the next two years. Got it. And Gwen Shawlowe, I was mentioning the CEO of SpaceX has mentioned that, you know, Obviously, their core focus with Starlink is consumer-based. But she also mentioned that while SpaceX might not be a company that makes sense to go public, Starlink could be, meaning they could spin that off potentially and take Starlink public.

Starting point is 01:00:17 So I have to ask if that were to happen, is that a stock that you guys would be looking at pretty closely and even investing in? It depends on what the prices. I mean, we're cheap skates and value guys. You know, we have a problem with cracking open the wallet and paying for growth. I will say that I almost guarantee you that if Starlink were to go public, there would be an immediate long short trade where people would go along Starlink and short the traditional providers, which unfortunately I think why I said would be lumped into that mix. It would be to people's

Starting point is 01:00:49 detriment, but I think that they'll be the natural thing that someone would do. I highly doubt that they'll do this in terms of the separating it out because I do, I like Elon and his like Hutzpah, his ability to like just make things, will things to happen. But one of the things that, you know, I think one of his core beliefs is he needs to go to Mars, he can't raise the money to go to Mars without Starlink as part of SpaceX. No one's going to give SpaceX money to go build a cool little rocket trip to go take a Starlink is his AWS kind of future. Exactly, exactly.

Starting point is 01:01:23 I think Starlink is going to fund his other adventures in space. And I think he totally understands that point. and I don't know why they would separate out the companies. It doesn't make sense from a fundraising perspective. There's no way Starlink is making money right now. Now, that hasn't stopped anybody from going public, especially if there's a SPAC involved. But let's just think about it this way. To be a Starlink subscriber, it is like $99 a month and then $500 for the dish.

Starting point is 01:01:50 We've seen estimates for the dish that you put on your house of $2,000 to $3,000 in costs. So they're selling it to you for $500, and they're paying. $2,000 to $3,000 just for that. Plus, their cost of their satellites, which we haven't even talked about, is astronomical, especially as it, like, on a per bit basis compared to what Biasat can get for the Biasat 3 Constellations. So my guess is that Starlink is bleeding.

Starting point is 01:02:16 And just like with VySat, there will be an inflection point at some point if they get enough users. Let's talk about that and not making money, right? And let's talk about the Viasat financials because they are also not making earnings at the moment, and their free cash flow has been pretty abysmal. And I don't know if that has to do with the acquisition you mentioned, but talk us through

Starting point is 01:02:36 how we should think through Viasat's financials and where the earnings are going to turn around. Looking at the income statement is difficult. I think you have to focus on the cash flow statement. And as Eugene always says, you have to look at cash flow from operations because they're going to continue to spend on satellite capax because Mark Denkberg and the team see this gigantic opportunity to basically revolutionize, again, the geostationary world and to, you know, as we've talked about, increase the total addressable market by providing connectivity that

Starting point is 01:03:04 didn't use to exist. So right now, we are literally near the bottom of their financials because in-flight Wi-Fi has been crushed by COVID, right? Nothing having to do with them. They've been spending a ton on R&D to finish the Biasat 3 constellations, and I guess they're already spending a little bit on Biosat 4. But if you just think about a satellite, you build it and you look the most levered and the least profitable the day before. launches and then it launches and you get to reap the benefit. So it's just like a piece of real estate, right? You build a building and you have all this debt and you have no revenue until you start to lease it up. So think about that. And so basically over the next 18 to 24 months,

Starting point is 01:03:46 they're going to launch three satellites. They've already spent the majority of the CAPEX for the VISA three constellation. And so you're going to see a cash flow inflection point happen in our estimation very quickly. And so here's what's really important. about that. With just Viasset 1 and Viya Set 2 up, they weren't particularly self-funding, right? They would have to take on debt in order to build a BISAT 3 complex. Now, when those three satellites are up and if they're as successful as we think they can be, BISAT will be self-funding from then on and will be able to fund the BISF in the four constellation over time without taking on equity or debt. They've just been a little bit subscale because remember, as Eugene said,

Starting point is 01:04:27 they got into the connectivity business in 2011. This was a core military encryption company until Mark Danker decided that they could completely disintermediate the traditional geo world. And so I think they benefit significantly from having more scale, more total free cash flow to be able to fund whatever adventures, whether that's a Leo constellation for the government, whether it's their own Leo constellation for consumer broadband. They're going to have the cash flow. But our point is that.

Starting point is 01:04:57 You're just not going to see it right this moment. And so really, as Eugene said, people underestimate, have underestimated Mark Dankberg at every turn like they have with Elon to some degree. But you're going to see in our estimation, the cash flow turnaround, the leverage come down, and the profitability rise significantly as these satellites are launched. And that's going to, in our estimation, change people's perception of this time. Well, this is what I love about you guys. Because of all the value investors, I know, you guys are in these trenches.

Starting point is 01:05:32 And I've just loved watching you guys with Lumen and now with Viasat. I mean, these are companies. Like, if I use my own tool on our TIP finance website, it's not very compelling, right? The free cash flows on this thing are pretty negative. And without doing a ton of research that you guys have, it's not something I would even probably consider. But you guys seem to be well positioned for these turnaround moments where these things, You mentioned unlocking the value, and that's really what it is.

Starting point is 01:05:59 It's this game of, with value investing, right, is we're doing this research to unlock this hidden value that the market isn't seeing. And so I really highly weight your opinion, especially you, Eugene, because you have so much experience with this company in particular. But with all that said, I have to wonder how your experience might bias your opinion on this. You're very close to this company. And I'm wondering, on the flip side of buying, what would convince you? you guys to sell via SAD? What would you see and be looking for to say, okay, this is the time to let it go? I think that's a fantastic question. We have a robust, we call it the devil's advocate process. So typically, a position has two longs and one short, and we assign people the short.

Starting point is 01:06:44 So you have to come up with every single reason under the sun that our key variables on the long side will not happen. And you have to bring evidence-based data to back up. up your assertions, right? And so luckily, in the Biasat's case, it's not too long, one short, it's only one long, and then everyone else short. So I'm 150% aware of my own ingrained bias. I do, and I'm the first one to admit, so you know, I think you described yourself as a Elon fan boy. I'm a Mark Dengberg fan boy, because I worked for the man, and I understand the culture within Biasat. I love that company. I truly do. I have nothing but good things to say about it. and I had the first person to admit that I am 100% biased.

Starting point is 01:07:27 You can be a fanboy, but as long as you look for this confirming evidence, that's how you maintain rational sanity. And Ben and Jeff and Andrew, another one of our colleagues, they keep me grounded constantly. I will say that over the course of the last two years, what's really changed is I took the probability of Elon's success from like a 30% chance to 100%. And I adjusted our model the assumptions of like presidential broadband growth and revenue contribution from it accordingly, right? Because again, I don't want to have my head in the sand.

Starting point is 01:08:04 I mean, this man is doing great things. He's literally building a massive network that has never been seeing from scratch. And he's there. He's already built it. It's not building. He's built it. So I don't want to be, you know, saying like, oh, well, you know, that's not going to affect by.

Starting point is 01:08:19 I said, of course it will. you would be a maniac to say that there won't be some knock-on effects, right? And so certainly there was a residential broadband space, there will be. And I think we've, in our adjusted expectations, have encapsulated that. When would we sell it? You know, there's always a price, right? I think it is a compounder. I think every single day it gets more valuable.

Starting point is 01:08:40 But if I woke up tomorrow and I don't know, something happened and all of a sudden it's worth $200 a share, I don't know. I mean, we're a small cab investors. it's probably inappropriate for us to own something that's $15 billion or $20 billion anyway. So that's one way that it exists to portfolio. Another way is we're shown through data, factual data, that we're incorrect in our assumptions on infight Wi-Fi growth, that we are incorrect on our assumptions on the defense side growth, and we are incorrect in our assumptions and their defensibility in the residential broadband.

Starting point is 01:09:11 If that starts happening, I'm going to be like, okay, totally wrong. I'm sorry. I apologize to our clients and take our medicine. But until that happens, until that the data comes in, that this confirms what we believe to be the growth trajectory here, there is no reason to sell it because, again, I really do believe this is a compounding machine. It's not a gram. It's not a point-to-point truth. You touched on one of the reasons to sell might be potentially one reason that I love referencing, which is getting tomorrow's price today. So let's talk a little bit about that and close out there

Starting point is 01:09:45 with your sort of overall intrinsic value assumption? We think of typically underwrite things in three-year chunks. The really annoying thing here is COVID. Besides the inflight Wi-Fi issue, it delayed the launch by now it's coming up to almost a year. Supply chain issues because people just literally not being able to be at work or, you know, getting sick. And so having to close down their clean rooms and things like that, also the supply

Starting point is 01:10:13 chain was disrupted. I mean, it really delayed things immensely. But from here, if we just assume a normal cadence and then launching the Emia 1, six months after the first Americas one, and then the APEC one, another six to nine months after the Amia one, we believe that over the next three years, you could see a upside of somewhere between $120 and $150 a share. The intermediate at level, I would say once the Americans 1 is launched and the revenue profile starts adjusting to the new revenue opportunities that they've set up for the Americas 1, we believe that the intermediary stock will be between the 80s and then we will get the full upside over the next year and a half after that following the AMIA launch because in Mia, that revenue

Starting point is 01:11:05 will be de novo revenue, meaning like they have America's revenue right now, right? And so whatever they can get as an additional revenue on the America side, which you can argue like, well, let's say they're not going to get as much on residential and they're just going to be defensive. It won't be actual real grower, which I think are a fair point. But on the Amia side, it will literally be like brandy, like, you know, oh, my God, they all of a sudden you wake up and they have an extra $250 million and revenue flowing through. And then, you know, you will see the bump up in cash flow from operations. And then that's actually the inflection point.

Starting point is 01:11:39 you'll start seeing them generate free cash flow. I think once that happens, it'll solve the problem of what everyone points out, which is, hey, look, these guys, they've been building these things. That's fantastic, but how do we know that they're actually successful? Because in the end, there's been no free cash flow generated. And I think once the Mee winds up, the CAPEX should normalize somewhere around $6 to $800 million, is our assumption. And you'll start generating a decent amount of free cash flow,

Starting point is 01:12:07 and it will actually deliver and allow them to do other things, whether it's add-on the acquisitions or returning it, a cashholder shareholders in some way. So I think that's kind of the progression of the upside that we're sitting there. Fantastic. Well, Ben, Eugene, I always enjoy talking with you guys and digging in deep on these picks because it's just fascinating. And, I mean, there's just something so exciting about this race for space we're witnessing and alive for today.

Starting point is 01:12:36 and I'm going to really enjoy the progress of both Starlink and ViyaSat. So before we let you go, I want to make sure we give a handoff to Cove Street, any of your social platforms or any other resources you guys want to highlight. We definitely are out there. We're not some opaque hedge fund that doesn't talk about our positions. We're happy as we talked about with looming with you and Viassad here. So if you go to our website, site, Coves Street,cavel.com, and go to our thoughts tab. You can see any number of interviews and discussions that Eugene and I have had.

Starting point is 01:13:06 If you're on Twitter, I've reemerged on Twitter over the last six months, and you can find me the Inoculated Investor, pretty active on Twitter as well. We approach everything with a fair amount of humility, and we understand that with both women and bias, we are making very contrarian statements that other people may have very applicable and coherent questions about. And so we're always happy for people's feedback. So reach out to us, find us on the website, and reach out to us if you have feedback or questions because we're always interested in people's perspective, especially if they know,

Starting point is 01:13:40 they know these companies of these industries. Well, we will incorporate our, you know, their information into our own mosaic as well. All right, gentlemen, thank you again for coming on the show. Hope to do it again soon. Thank you, Trey. Really appreciate the time. All right, everybody. That's all we had for you for today's episode. If you're loving the show, definitely don't forget to follow us on your favorite podcast app and follow me on Twitter as well, at Trey Lockerbie. Lastly, I'd be remiss if I didn't remind you to check out the TIP Finance tool. Just Google TIP finance and it should pop right up.

Starting point is 01:14:12 And with that, we'll see you again next time. Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by the Investors Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts or courses, go to the investorspodcast.com. This show is for entertainment. purposes only before making any decision consult a professional.

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We Study Billionaires - The Investor’s Podcast Network - TIP361: The Race for Space w/ Ben Claremon & Eugene Robin

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