Viasat, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2021. This is Viasat’s fiscal third quarter of fiscal 2022. The interim financial statements are unaudited.
Financial performance
| Metric | Three months ended Dec. 31, 2021 | Prior-year quarter | Nine months ended Dec. 31, 2021 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $719.7 million | $575.6 million | $2,085.9 million | $1,660.3 million |
| Operating income | $4.5 million | $21.8 million | $29.1 million | $29.1 million |
| Net income (loss) attributable to Viasat | $(6.6) million | $6.8 million | $13.6 million | $(3.7) million |
| Diluted EPS | $(0.09) | $0.10 | $0.18 | $(0.06) |
| Operating cash flow | Not separately presented | Not separately presented | $386.4 million | $557.4 million |
- Quarterly revenue rose 25%, with service revenue up 31% and product revenue up 19%. Nine-month revenue rose 26%.
- Quarterly operating margin declined to about 0.6% from 3.8%; cost of service revenue grew faster than service revenue, and SG&A, R&D, and acquired-intangible amortization increased. Nine-month operating income was essentially flat despite revenue growth.
- Quarterly consolidated net loss was $4.0 million; the portion attributable to Viasat was a $6.6 million loss. Nine-month consolidated net income was $19.2 million, including $5.5 million attributable to noncontrolling interests.
- At December 31, cash was $166.0 million, working capital was $241.2 million, and total assets were $6.09 billion. Cash declined $129.9 million from March 31.
- Nine-month investing cash outflow was $850.9 million, including $671.2 million for property, equipment and satellites and $138.7 million for acquisitions. Financing cash inflow was $338.3 million.
- Debt principal totaled approximately $2.20 billion, including $370 million drawn on the revolving facility. The balance sheet reported $2.15 billion of long-term debt, net of discounts and issuance costs, plus $29.6 million current debt. Revolver availability was $271.1 million. The company reported compliance with debt covenants.
Segments and changes versus prior period
- Satellite services: Quarterly revenue increased 40% to $309.7 million; segment operating profit rose to $14.2 million from $11.5 million. Growth included RigNet, EBI, fixed broadband and recovering in-flight connectivity (IFC).
- Commercial networks: Quarterly revenue increased 55% to $139.7 million, mainly from mobile broadband systems and antenna products. Segment operating loss widened to $44.6 million from $39.0 million. For the nine months, revenue increased 66% and operating loss narrowed to $127.6 million from $135.8 million.
- Government systems: Quarterly revenue increased 2% to $270.3 million, while segment operating profit declined 16% to $42.5 million. Nine-month revenue rose 3%, while operating profit declined 10% to $133.9 million.
- Quarterly revenue growth reflected both acquisitions and organic activity; RigNet contributed $52.2 million of revenue in the quarter and $131.4 million since acquisition. The quarter also included $11.8 million of Inmarsat transaction-related expenses in SG&A. Acquired-intangible amortization increased following the EBI and RigNet acquisitions.
- Firm backlog was $2.14 billion, down from $2.31 billion at March 31, 2021; funded backlog was $1.94 billion, down from $2.12 billion. The company expects a little over half of firm backlog to be delivered within 12 months. Backlog excludes future recurring IFC revenue and can be terminated or affected by customer funding.
Outlook, transactions and risks
- No specific consolidated revenue or earnings guidance is provided in the filing. Management said it expects fiscal 2022 capital expenditures to exceed fiscal 2021, with investment in the ViaSat-3 satellites, ground infrastructure, international expansion and initial ViaSat-4 spending. The first ViaSat-3 launch was targeted for late summer 2022, subject to third-party deliverables, launch windows and other factors.
- Management said COVID-19 had not materially affected overall financial position, results or cash flows during the reported periods, but airline traffic and IFC remained below pre-pandemic levels. The company expected continued, though diminishing, IFC pressure through the rest of fiscal 2022 and potentially beyond. Fixed broadband demand and government demand were described as resilient; government operations still faced some administrative delays and product manufacturing or shipment complications.
- The proposed Inmarsat acquisition remained subject to closing conditions, including regulatory approvals and Viasat stockholder approval. Consideration is $850 million in cash, subject to adjustment, plus approximately 46.36 million Viasat shares. Viasat also planned to assume $2.1 billion of Inmarsat bonds and its outstanding $2.4 billion credit facilities, and had commitments for $2.3 billion of new debt facilities. Certain termination circumstances could require a fee of up to $200 million or expense reimbursement of up to $40 million.
- EBI and RigNet were acquired on April 30, 2021. Purchase price allocations remained preliminary. Viasat cited expected diversification and growth opportunities, but realization and integration are uncertain.
- Key exposures include satellite construction, launch and operating performance; heavy capital and purchase commitments; COVID-related aviation recovery; government contract audits and funding; and leverage and financing needed for the Inmarsat transaction. DCAA incurred-cost audits for fiscal 2020 and 2021 remained incomplete; recorded contract-related reserves were $12.1 million. Management believed current liquidity sources would cover anticipated requirements for at least 12 months.
- Ordinary-course litigation and claims were not expected by management to have a material adverse effect, but outcomes are uncertain. Management concluded disclosure controls were effective as of December 31, 2021.
Investor verification priorities
- Track Inmarsat closing approvals, final financing structure, transaction costs, termination exposure and resulting pro forma leverage and dilution.
- Verify ViaSat-3 construction and launch milestones, future capital spending, and the timing of service revenue and operating-cost ramp-up.
- Assess underlying segment margins separately from acquisition contributions and transaction expenses, especially commercial networks’ operating losses and government systems’ profit decline.
- Monitor cash conversion, working-capital movements, revolver availability, covenant headroom and funding of satellite commitments.
- Follow airline traffic recovery and aircraft activations, as well as government contract audits, funding and potential cost adjustments.