Viasat, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2023. The interim financial statements are unaudited. Comparisons are with the corresponding 2022 periods unless noted.
Business context
Viasat operates satellite services, commercial networks and government systems businesses. Results include Inmarsat from its May 30, 2023 acquisition; the Link-16 Tactical Data Links business, sold in January 2023, is presented as discontinued operations in prior-period results. The acquisition materially changed the scale and composition of the business and added substantial debt, service revenue and acquired intangible assets.
Key financial results
| Metric | Three months ended Dec. 31 | Nine months ended Dec. 31 |
|---|---|---|
| Revenue, 2023 | $1.129 billion | $3.134 billion |
| Revenue, 2022 | $651.4 million | $1.890 billion |
| Operating income (loss), 2023 | $(43.9) million | $(890.1) million |
| Net income (loss) attributable to Viasat, 2023 | $(124.4) million | $(968.6) million |
| Net income (loss) attributable to Viasat, 2022 | $(42.2) million | $(112.0) million |
| Operating cash flow, nine months | $456.2 million, versus $317.6 million | |
| Cash purchases of property, equipment, satellites and other assets, nine months | $1.161 billion, versus $850.7 million |
Revenue rose 73% in the quarter and 66% for the nine-month period, primarily reflecting Inmarsat and growth in in-flight and government services. Reported gross profit (revenue less product and service costs) was approximately $361.3 million for the quarter and $1.055 billion for nine months. Operating results include acquisition-related amortization and, for the nine-month period, major satellite impairment charges.
Quarterly segment revenue and operating profit (loss): satellite services $581.4 million and $41.1 million; commercial networks $166.4 million and $(70.3) million; government systems $380.8 million and $77.0 million. Satellite services and government systems benefited from Inmarsat contributions; commercial networks’ operating loss widened year over year.
Liquidity, debt and cash flow
- At December 31, 2023, cash and cash equivalents were $1.621 billion; working capital was reported by management as $2.4 billion.
- Gross principal debt was approximately $7.6 billion, compared with $2.5 billion at March 31, 2023. The increase largely reflects debt assumed or issued in connection with Inmarsat. Debt included $2.08 billion of Inmarsat notes due 2026, a $1.68 billion Inmarsat term loan and Viasat term loans; no borrowings were outstanding under either revolving facility.
- Available revolving credit was $592.2 million under Viasat’s facility and $700.0 million under Inmarsat’s facility. Management stated it believes funding sources are adequate for anticipated operating needs over the next 12 months.
- Nine-month investing cash outflow was $1.452 billion, including $342.6 million net cash paid for the Inmarsat acquisition. Financing cash inflow was $1.236 billion. Operating cash flow less reported cash purchases of property, equipment, satellites and other assets was approximately negative $705 million, before acquisition and financing activity.
- Quarterly interest expense was $133.5 million, compared with $8.7 million a year earlier; nine-month interest expense was $275.6 million versus $19.3 million. Variable-rate term loans carried effective rates of 9.66%–10.94% at quarter end. Management estimated a 50-basis-point rate increase would add about $6.8 million of annual interest, before capitalized-interest effects and after the Inmarsat rate caps.
Material changes, outlook and risks
- Satellite anomalies and impairment: ViaSat-3 F1’s reflector issue is expected to leave less than 10% of planned throughput recoverable. Inmarsat I-6 F2 suffered a power subsystem anomaly and was determined not recoverable; the filing says the anomaly did not affect ongoing customer services. In the first nine months, Viasat recorded approximately $1.6 billion of satellite-related asset reductions, partly offset by approximately $770 million of insurance claim receivables, producing a net loss of approximately $905.5 million, including related termination liabilities. The quarter’s satellite-related impairment loss was described as insignificant. After quarter end, Viasat received nearly $260 million in insurance proceeds related to the claims.
- Acquisition and integration: Inmarsat contributed approximately $443.1 million of revenue and $24.2 million of net loss in the quarter; for the post-acquisition nine-month period it contributed approximately $1.0 billion of revenue and $159.3 million of net loss. The purchase-price allocation remains preliminary. Viasat reduced its global workforce by approximately 800 positions, or about 10%, and recorded approximately $45 million of one-time costs, with insignificant amounts remaining to be incurred and paid.
- Other unusual item: In the second quarter, Viasat recognized $99.9 million of product revenue and $7.2 million of interest income following settlement of Acacia-related litigation; the settlement may also provide ongoing licensing and royalty payments.
- Operating constraints and pipeline: U.S. fixed-broadband revenue was pressured as bandwidth was redirected toward in-flight services. Approximately 3,540 aircraft had Viasat systems installed and in service at quarter end, with about 1,430 additional aircraft anticipated under existing agreements; timing and activation are not assured. Firm backlog was $3.722 billion, of which $3.572 billion was funded; about half of firm backlog was expected to be delivered over the next 12 months. Backlog is not necessarily indicative of future sales, and many contracts can be terminated with limited or no penalties.
- Taxes, audits and other risks: Viasat recorded a valuation allowance against U.S. net deferred tax assets; total valuation allowance rose to $285.1 million from $150.0 million at March 31, 2023. Government contract audits could result in adjustments, refunds, penalties or other sanctions; contract-related reserves were $16.6 million. The company reported compliance with applicable debt financial covenants at quarter end. Management cited satellite execution, capacity, acquisition integration, indebtedness, government funding and contract exposure, competition and regulatory matters among forward-looking risks.
- Guidance: The supplied filing text provides no clear numerical earnings or revenue guidance. Management describes expected satellite investment and ramp-up costs, potential future capacity constraints, and planned integration efficiencies, but cautions that benefits and timing are uncertain.
Most important facts for investors to verify
- Progress and outcomes of insurance claims, including proceeds received after quarter end, and the remaining financial exposure from the ViaSat-3 F1 and I-6 F2 anomalies.
- Satellite capacity plans, service performance and the impact of bandwidth constraints on fixed broadband and in-flight growth.
- Inmarsat integration progress, realization of anticipated efficiencies, final purchase-price allocation and ongoing acquired-business profitability.
- Debt maturities, refinancing needs, interest expense, covenant headroom and the company’s ability to fund substantial satellite commitments and capital spending.
- Conversion and cancellation risk in funded and unfunded backlog, aircraft deployment schedules, and the outcome of government contract audits.
- Whether future taxable income supports realization of deferred tax assets and whether additional valuation allowances are needed.