Viasat, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2019, filed May 28, 2019. The request metadata says “2018 Q4,” but this filing reports FY2019; its fourth-quarter figures are for the quarter ended March 31, 2019.
Business context
Viasat provides satellite broadband services, commercial satellite and wireless network products, and secure communications and related systems for government customers. Its three reporting segments are satellite services, commercial networks, and government systems.
Financial performance
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $2.068 billion | $1.595 billion |
| Gross profit and margin | $530.5 million; 25.7% | $473.8 million; 29.7% |
| Operating income (loss) | $(60.6) million; (2.9%) margin | $(92.2) million; (5.8%) margin |
| Net income (loss) attributable to Viasat | $(67.6) million | $(67.3) million |
| Basic and diluted EPS | $(1.13) | $(1.15) |
| Cash from operations | $327.6 million | $358.6 million |
| Cash and cash equivalents at year-end | $261.7 million | $71.4 million |
| Working capital | $401.7 million | $146.1 million |
Revenue rose 30%, led by higher product sales in commercial networks and government systems and growth in satellite-service revenue. Gross margin declined as costs grew faster than sales, including lower margins in certain product lines and fixed broadband services. Interest expense increased to $50.0 million from $4.0 million, mainly reflecting ViaSat-2 entering service, lower capitalized interest, and debt levels. The FY2019 tax benefit was $41.0 million.
Segment revenue and operating result: satellite services, $684.2 million and $(64.3) million; commercial networks, $428.4 million and $(166.6) million; government systems, $955.6 million and $180.0 million. The satellite-services loss reflected ViaSat-2 launch-related costs, higher marketing and support costs, and lower fixed-broadband margins. Commercial networks’ operating loss narrowed, while government systems’ operating profit increased.
Fourth-quarter FY2019 revenue was $557.2 million, operating income $9.4 million, net income $5.4 million, and EPS $0.04. In fourth-quarter FY2018, revenue was $439.7 million, operating loss $33.1 million, net loss $19.5 million, and EPS $(0.34).
Debt, liquidity, and cash flow
Outstanding debt principal totaled $1.440 billion at March 31, 2019: $700 million of 5.625% notes due 2025, $600 million of 5.625% secured notes due 2027, and $139.6 million under the Ex-Im facility. The balance-sheet carrying amount of long-term debt, including current portion and net of issuance costs and discount, was approximately $1.413 billion. The company had no revolver borrowings and $680.4 million of available capacity, after letters of credit.
Operating cash flow was $327.6 million; investing activities used $489.4 million, including $636.9 million for property, equipment and satellites, partly offset by $185.7 million of ViaSat-2 insurance proceeds. Financing activities provided $354.6 million, including the $600 million 2027 Notes issuance. Management said cash, expected operating cash flow, and revolver availability should cover anticipated requirements for at least 12 months.
Material changes, outlook, and risks
- ViaSat-2 anomaly: An antenna deployment issue reduced estimated satellite carrying value by $177.4 million, with a corresponding insurance receivable. Viasat received $185.7 million in recovery proceeds during FY2019, used to repay Ex-Im borrowings; $2.3 million of probable claims remained receivable at year-end. A $7.5 million insurance-related gain was recorded in SG&A.
- ViaSat-3 investment: Two satellites were in full construction and the company agreed to proceed with a third in January 2019. The first was targeted for launch in early calendar 2021. The estimated project cost for the first two, including launches, insurance, and related ground infrastructure, was $1.2–$1.4 billion. FY2020 capital expenditures were expected to increase, including for the third satellite and international ground-network expansion.
- Operating outlook: Management expected ViaSat-2 scaling to expand fixed-broadband and in-flight revenue and improve operating efficiencies, but cautioned that increased satellite-services profitability was not assured. Viasat reported about 586,000 fixed-broadband subscribers and 1,312 aircraft using its in-flight systems at year-end; it anticipated installations on about 490 additional aircraft under existing agreements, including roughly 230 not yet covered by accepted purchase orders.
- Backlog: Firm backlog was $1.866 billion, of which $1.847 billion was funded; a little over half of firm backlog was expected to be delivered in FY2020. Backlog excludes some anticipated aircraft orders and future recurring in-flight service revenue, and many contracts may be terminated by customers.
- Key risks: Satellite construction, launch, and operational failures; intense competition, including terrestrial broadband and 5G; dependence on U.S. government procurement and funding; fixed-price contract cost overruns; spectrum and regulatory changes; and reliance on suppliers and contract manufacturers. The U.S. government represented 26% of revenue, and the five largest contracts represented about 20%.
- Contingencies: The TrellisWare False Claims Act investigation was settled and paid in FY2018. FY2019 DCAA incurred-cost audits were incomplete; contract-related reserves for potential cost adjustments were $4.9 million. Management believed pending legal matters would not materially affect the company, while noting outcomes remain uncertain.
- Accounting and controls: Adoption of ASC 606 increased FY2019 net loss by $12.3 million versus the historical accounting method, according to the filing’s comparison. The auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification points
- Confirm the economic and service-capacity effects of the ViaSat-2 antenna issue, remaining insurance recoveries, and debt repayments funded by insurance proceeds.
- Track ViaSat-3 schedule, total project spending, launch risk, and FY2020 capital expenditure needs.
- Assess whether revenue growth can translate into improved gross margins and sustained satellite-services profitability.
- Review debt service, covenant headroom, cash generation, and the use of the $680.4 million revolver availability.
- Monitor government-contract concentration, DCAA audit outcomes, and the status of potential cost-adjustment reserves.
- Reconcile backlog conversion with delivery timing and distinguish accepted orders from anticipated aircraft installations.