Viasat, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2023 (Viasat fiscal 2024 second quarter). Unaudited results include Inmarsat from its May 30, 2023 acquisition. Unless noted, comparisons are with the prior-year continuing operations.
Business context and reporting period
Viasat provides satellite connectivity and communications products and services through satellite services, commercial networks, and government systems. The Inmarsat acquisition expanded its global mobile satellite services, including maritime, aviation, and government offerings. The Link-16 Tactical Data Links business was sold in January 2023 and is reported as discontinued operations in the prior-year income statement.
Key financial results
- Revenue: Second-quarter revenue was $1.225 billion, up 85% from $663.6 million. Product revenue was $401.7 million, up 54%; service revenue was $823.7 million, up 105%. Inmarsat contributed $426.6 million of revenue during the quarter. For the six months, revenue was $2.005 billion, up 62%.
- Profit and margins: Second-quarter operating loss was $804.7 million, versus operating income of $4.7 million a year earlier; net loss attributable to Viasat was $767.2 million, or $6.16 per diluted share, versus a $48.2 million loss, or $0.64 per share. The current-quarter operating loss chiefly reflects a $900 million net satellite impairment and related charges. Gross margin, calculated from reported revenue and cost of product and service revenues, was approximately 37.5%, compared with 33.4%.
- Segment results: Satellite services revenue rose 95% to $585.3 million, but the segment reported an $832.0 million operating loss, including the impairment. Commercial networks revenue rose 53% to $275.2 million and segment operating profit was $43.1 million. Government systems revenue rose 99% to $364.9 million and segment operating profit was $65.7 million.
- Cash flow: For the six months, operating activities provided $322.6 million, investing activities used $1.001 billion, and financing activities provided $1.268 billion. Capital expenditures and purchases of property, equipment, satellites, and other assets were $740.7 million; acquisition payments, net of cash acquired, were $342.6 million.
- Liquidity: At September 30, cash and cash equivalents were $1.962 billion and restricted cash was $7.2 million. Working capital was approximately $2.5 billion. Neither revolving credit facility was drawn; reported availability was $599.3 million under Viasat’s facility and $700 million under Inmarsat’s.
- Debt: Aggregate debt principal was $7.6 billion at quarter-end, versus $2.5 billion at March 31, 2023, largely following the acquisition. Second-quarter interest expense was $86.2 million, versus $4.6 million a year earlier. Effective rates were 10.35% on Viasat’s term loan, 10.91% on its 2023 term loan, and approximately 6.70% on Inmarsat’s term loan. Viasat reported compliance with applicable financial covenants.
Material changes and unusual items
- Satellite impairments: Viasat concluded ViaSat-3 F1 would deliver less than 10% of planned throughput following a reflector deployment issue. Inmarsat’s I-6 F2 satellite suffered a power-system anomaly and was determined not to be recoverable; the filing says this did not affect ongoing customer services. The company reduced satellite asset carrying values by approximately $1.6 billion, partly offset by $770 million of estimated insurance claim receivables, and recorded a net $900 million loss, including certain subcontractor termination liabilities.
- Inmarsat acquisition and financing: Consideration was approximately $2.679 billion, comprising $550.7 million in cash and 46.36 million Viasat shares. The purchase-price allocation remains preliminary. Viasat issued $733.4 million of 7.500% notes due 2031 and used proceeds together with cash to repay the acquisition-related bridge facility.
- Other unusual revenue: A settlement of Acacia/Cisco litigation resulted in $99.9 million of product revenue and $7.2 million of interest income in the quarter. The parties settled pending litigation on September 29; the company may receive future licensing and royalty payments.
- Taxes: Viasat recorded a $93.1 million second-quarter income tax benefit, but increased its valuation allowance from $150.0 million at March 31 to $288.8 million at September 30. Management cited recent losses and satellite anomalies in concluding U.S. deferred tax assets were more likely than not not realizable.
- Workforce actions after quarter-end: On November 2, Viasat announced a reduction of approximately 800 positions, or 10% of its global workforce. It expects approximately $45 million of charges and cash costs, predominantly in the second half of fiscal 2024.
Outlook, management commentary, and risks
- Management stated it expects adequate funding for anticipated operating requirements over the next 12 months from cash, borrowing capacity, and operating cash flows; it did not provide numerical revenue or earnings guidance in the supplied filing text.
- Management cited growth in in-flight services and passenger air traffic, while noting lower U.S. fixed-broadband revenue due to bandwidth constraints. Approximately 3,390 commercial aircraft had Viasat systems installed and in service; about 1,600 more aircraft under existing agreements are anticipated, but timing and activation are uncertain.
- Firm backlog was $3.644 billion, of which $3.517 billion was funded. Almost half of firm backlog was expected to be delivered within 12 months. Backlog excludes certain future recurring in-flight revenues and is not a guarantee of sales; many contracts may be terminated, and unfunded work depends on customer appropriations.
- Key risks include satellite performance and insurance recovery, integration and realization of Inmarsat benefits, high indebtedness and interest costs, bandwidth capacity, government contract audits and funding, and execution of satellite programs. The company said pending legal matters were not expected to have a material adverse effect, while acknowledging outcomes are uncertain. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Progress and timing of insurance proceeds for ViaSat-3 F1 and I-6 F2, and any effects on planned capacity, capital spending, or customer service.
- Whether the preliminary Inmarsat purchase accounting, integration plans, and expected operating benefits change materially.
- Debt maturities, borrowing costs, revolver availability, covenant headroom, and the company’s ability to generate cash after capital expenditures.
- Whether the $288.8 million tax valuation allowance, contract audit reserves, and any later tax or government-contract adjustments require further charges.
- Timing of aircraft installations, satellite bandwidth availability, backlog funding and conversion, and the costs and expected savings from the workforce reduction.