Business context and reporting period
Viasat, Inc. filed this unaudited Form 10-Q for the quarter and six months ended September 30, 2021 (its fiscal 2022 second quarter). The company operates satellite services, commercial networks and government systems. Results include RigNet and Euro Infrastructure Co. from their April 30, 2021 acquisition dates; comparisons with the prior year are therefore affected by acquisitions as well as business trends.
Financial performance and position
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Revenue | $701.4 | $554.3 | $1,366.2 | $1,084.8 |
| Gross profit / margin | $212.9 / 30.4% | $167.0 / 30.1% | $423.8 / 31.0% | $311.9 / 28.8% |
| Operating income / margin | $8.3 / 1.2% | $12.7 / 2.3% | $24.6 / 1.8% | $7.4 / 0.7% |
| Net income attributable to Viasat | $3.3 | $2.0 | $20.3 | $(10.4) |
| Diluted earnings per share | $0.04 | $0.03 | $0.27 | $(0.16) |
| Operating cash flow | Not separately reported | Not separately reported | $227.8 | $333.5 |
- Quarterly revenue rose 27%; product revenue increased 21% and service revenue 32%. For the six months, revenue rose 26%. Higher satellite-services revenue and commercial-networks product sales were key contributors.
- Quarterly operating income declined despite higher revenue, as SG&A, R&D and acquired-intangible amortization increased. Six-month operating income improved from the prior-year period.
- Six-month operating cash flow fell $105.7 million, principally reflecting less favorable working-capital movements. Investing cash outflow was $613.6 million, including $138.7 million of acquisition payments and $448.3 million of property, equipment and satellite purchases.
- At September 30, cash was $217.7 million and working capital was $332.1 million. Total debt was $2.160 billion principal, including $320 million drawn on the revolving facility; net debt was approximately $1.94 billion. Revolver availability was $327.2 million. Viasat reported compliance with its debt covenants.
- Capital investment remains substantial: property, equipment and satellites, net, were $3.465 billion, including $1.570 billion of satellites under construction. The company has three ViaSat-3 satellites under construction.
Material changes versus the prior comparable period
- Satellite-services revenue rose 39% in the quarter and 37% for the six months, reflecting RigNet and Euro Infrastructure Co. contributions, fixed-broadband plan mix, and improvement in in-flight connectivity (IFC) activity.
- Commercial-networks revenue rose 71% in the quarter and 74% for the six months, mainly from mobile broadband satellite communication systems and antenna products. The segment continued to report operating losses, though its six-month loss narrowed to $83.0 million from $96.8 million.
- Government-systems revenue increased 3% in both periods. Segment operating profit decreased to $44.0 million in the quarter and $91.4 million for six months, with higher SG&A and R&D partly offset by product and service contributions.
- Cash declined $78.3 million from March 31. Debt increased, including $320 million of revolver borrowings; other long-term debt also reflects acquisition-related financing and obligations.
Outlook, management commentary, risks and unusual items
- Management said current cash, expected operating cash generation and revolver availability should meet anticipated operating needs for at least 12 months. It expects fiscal 2022 capital expenditures to exceed fiscal 2021, citing ViaSat-3 construction and launch preparation, ground-network expansion and initial ViaSat-4 spending. No numerical full-year earnings or revenue guidance was provided.
- Management reported that COVID-19 had not materially affected overall financial position, results or cash flows in the reported periods, but commercial aviation remained impaired. About 1,700 aircraft had Viasat IFC systems installed, of which about 80 were inactive; around 1,070 additional aircraft were anticipated under existing agreements, subject to timing and activation uncertainties. Management expected IFC effects to continue through the rest of fiscal 2022 and potentially beyond.
- Firm backlog was $2.324 billion at September 30, versus $2.306 billion at March 31; $2.131 billion was funded. The company expects approximately half of firm backlog to be delivered within 12 months. Remaining performance obligations were $2.3 billion, with approximately half expected to be recognized over the next 12 months. Backlog excludes some recurring services and may be terminated or depend on future customer funding.
- On April 30, Viasat acquired the remaining 51% of Euro Infrastructure Co. and all of RigNet. Purchase-price allocations were preliminary. RigNet contributed $79.2 million of six-month revenue and $16.2 million of net losses after acquisition.
- On November 8, after quarter-end, Viasat agreed to acquire Inmarsat for $850 million cash, subject to adjustment, plus approximately 46.36 million Viasat shares. The transaction requires regulatory and shareholder approvals. Viasat obtained commitments for $2.3 billion of new debt facilities and expects to assume substantial Inmarsat debt; termination under specified conditions could trigger fees of up to $200 million or expense reimbursement up to $40 million.
- Other matters to monitor include unresolved DCAA incurred-cost audits for fiscal 2020 and 2021 (contract-related reserves were $10.9 million), government contract compliance and potential adjustments, fixed-price contract execution, satellite construction/launch and capacity risks, foreign exchange exposure, tax estimates, and acquisition integration. Management said pending ordinary-course legal matters were not expected to have a material adverse effect. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- How much reported growth and profit contribution is attributable to the acquisitions versus organic growth, and whether RigNet’s post-acquisition losses improve.
- Actual ViaSat-3 construction, launch and capital-spending timing, and the effect on cash flow, debt and operating margins.
- Recovery in air travel, IFC aircraft activation and customer demand, alongside fixed-broadband subscriber mix and service economics.
- Cash conversion and working-capital movements, revolver usage, covenant headroom and financing needs, especially in light of the proposed Inmarsat transaction.
- Final acquisition valuations, integration outcomes, and Inmarsat approval, financing, closing and potential dilution risks.
- Results of pending government cost audits and any changes in contract reserves, backlog funding or contract awards.