Viasat, Inc. — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2019. Unaudited; comparisons are with the periods ended December 31, 2018 unless otherwise noted. Viasat operates satellite services, commercial networks and government systems businesses.
Key financial metrics
| Metric | Three months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2019 | Comparable prior period |
|---|---|---|---|
| Revenue | $588.2 million | $1,717.5 million | $554.7 million and $1,511.0 million |
| Operating income (loss) | $14.0 million | $24.3 million | $6.0 million and $(70.0) million |
| Net income (loss) attributable to Viasat | $6.5 million | $(1.8) million | $(10.4) million and $(70.1) million |
| Diluted EPS attributable to Viasat | $0.10 | $(0.03) | $(0.17) and $(1.17) |
| Operating cash flow | Not provided for the quarter | $293.4 million | $214.7 million |
| Purchases of property, equipment and satellites | Not provided for the quarter | $548.2 million | $491.8 million |
Gross profit, calculated as revenue less cost of product and service revenues, was $184.0 million (31.3% of revenue) for the quarter and $518.7 million (30.2%) for nine months. Nine-month operating cash flow less property, equipment and satellite purchases was approximately negative $254.9 million; this measure excludes other investing activity.
At December 31, 2019, cash and cash equivalents were $47.8 million, down from $261.7 million at March 31, 2019. Working capital was $211.8 million. Total debt, including finance lease obligations and before unamortized discounts and issuance costs, was $1.595 billion; the balance sheet reported $1.543 billion of long-term debt, net of current maturities. The $700 million revolving facility had $110 million drawn, $27.6 million of standby letters of credit and $562.4 million available. Viasat reported compliance with debt financial covenants.
Material changes versus the prior comparable period
- Quarterly revenue increased 6%; service revenue rose 13%, while product revenue was essentially flat. Nine-month revenue increased 14%, with service revenue up 19% and product revenue up 9%.
- Satellite services revenue rose 19% for the quarter and 24% for nine months. Segment operating results improved to profit of $3.6 million for the quarter and $6.6 million for nine months, from losses of $10.2 million and $65.0 million, respectively. Growth reflected fixed broadband and in-flight services, along with improved margins and operating scale.
- Commercial networks revenue fell 33% for the quarter and 25% for nine months, mainly as in-flight connectivity terminal deliveries normalized after accelerated prior-year deliveries. Segment operating losses widened to $46.9 million for the quarter and $143.6 million for nine months, including higher SG&A and research and development spending.
- Government systems revenue grew 17% for the quarter and 25% for nine months, driven by tactical satcom radios, government mobile broadband and tactical data links. Segment operating profit increased to $59.1 million and $167.2 million, respectively.
- Quarterly SG&A increased $21.4 million, partly reflecting higher support costs and a prior-year $4.0 million ViaSat-2 insurance-related gain that reduced SG&A. Nine-month SG&A rose $48.2 million. Interest expense declined year over year, mainly due to ViaSat-2 insurance proceeds used to repay Ex-Im debt and higher capitalized interest, partly offset by interest on the 2027 notes.
Outlook, risks and notable items
- Management said current cash, expected operating cash flow and revolving-credit availability should cover anticipated operating requirements for at least 12 months. Fiscal 2020 capital expenditures are expected to increase versus fiscal 2019, reflecting a third ViaSat-3 satellite under construction and international ground-network investment.
- The first ViaSat-3 launch is targeted for mid-calendar 2021, subject to manufacturing, launch-window and other dependencies. Two satellites were in full construction; a July 2019 Boeing agreement covers construction of a third satellite intended for the Asia-Pacific region. Management expects satellite-services scale and margins to improve, but gives no assurance of achieving planned growth or segment profitability.
- Firm backlog was $1.924 billion, of which $1.908 billion was funded; a little over half was expected to be delivered in the following 12 months. Backlog excludes certain anticipated orders and recurring in-flight revenue, and many customer contracts may be terminated with limited or no penalty.
- ViaSat-2’s previously disclosed antenna deployment issue led to a $177.4 million satellite carrying-value reduction in fiscal 2019, with a corresponding insurance receivable. The remaining $2.3 million of insurance proceeds was received in the first quarter of fiscal 2020 and applied to Ex-Im borrowings. No new material satellite impairment was reported for the periods presented.
- U.S. government customers accounted for approximately 30% of revenue in the quarter and nine-month period, versus 23% and 27% in the prior-year periods. Fiscal 2019 incurred-cost audits remained incomplete; reserves for potential customer refunds on government cost-reimbursable contracts were $6.8 million at period-end.
- Other exposures include satellite construction and operating risks, government contract audits and funding, competition, spectrum and regulatory matters, and the company’s substantial investment commitments. Management said pending legal matters were not expected to have a material adverse effect, while noting outcomes are uncertain. Adoption of lease accounting increased reported assets and liabilities; management said it did not materially affect period results or cash flows.
Investor verification priorities
- Track ViaSat-3 construction costs, funding, launch timing and the expected increase in fiscal 2020 capital spending.
- Assess cash use, liquidity and debt service as satellite investment continues; verify revolving-credit availability and covenant compliance in subsequent filings.
- Monitor satellite-services profitability and subscriber economics, in-flight aircraft activations, and commercial-networks recovery after lower terminal deliveries.
- Evaluate backlog conversion, customer cancellation rights, government budget and contract funding, and outcomes of pending cost audits and potential refunds.
- Review whether the ViaSat-2 antenna issue or other satellite performance developments affect capacity, insurance recoveries or operating plans.