Viasat, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended March 31, 2020. The filing also reports the fourth quarter ended March 31, 2020; it is not a calendar-year 2019 report. Amounts below are in U.S. dollars.
Business context
Viasat provides satellite broadband services, communications equipment and government communications and cybersecurity products through Satellite Services, Commercial Networks and Government Systems. The company’s strategy depends on its satellite network and continued investment in the three ViaSat-3 satellites under construction.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $2,309.2 million | $2,068.3 million |
| Operating income (loss) | $38.4 million | $(60.6) million |
| Consolidated net income (loss) | $13.8 million | $(66.5) million |
| Net income (loss) attributable to Viasat | $(0.2) million | $(67.6) million |
| Cash from operating activities | $436.9 million | $327.6 million |
| Cash and cash equivalents at year-end | $304.3 million | $261.7 million |
| Working capital at year-end | $441.1 million | $401.7 million |
- Revenue rose 12%. Service revenue increased 17% to $1,136.7 million; product revenue increased 7% to $1,172.5 million.
- Gross profit was approximately $699.6 million, or 30.3% of revenue, versus approximately $530.5 million, or 25.7%, in FY2019. Operating margin was 1.7%, compared with negative 2.9%.
- Operating cash flow increased $109.4 million. Purchases of property, equipment and satellites were $694.0 million; operating cash flow less these purchases was approximately negative $257.0 million, a simple cash-flow proxy rather than a company-reported measure. Investing activities used $758.8 million.
- At March 31, 2020, principal debt and finance lease obligations totaled approximately $1.873 billion. Cash was $304.3 million, and $292.7 million remained available under the revolving credit facility. The company drew $280 million net on that facility during the fourth quarter as a precautionary measure.
- FY2020 Government Systems revenue increased 19% to $1,138.1 million and segment operating profit rose 26% to $225.9 million. Satellite Services revenue grew 21% to $826.6 million and the segment moved to $7.0 million operating profit from a $64.3 million loss. Commercial Networks revenue declined 20% to $344.6 million and its operating loss widened to $186.9 million.
Fourth-quarter snapshot: Revenue was $591.7 million, versus $557.2 million in FY2019’s fourth quarter. Operating income was $14.1 million versus $9.4 million; consolidated net income was $4.9 million versus $5.4 million; and net income attributable to Viasat was $1.6 million versus $2.5 million.
Material changes and unusual items
- The improvement in annual operating results reflected revenue growth and improved margins, particularly in Satellite Services and Government Systems. Viasat nevertheless reported a small net loss attributable to its own stockholders, as consolidated net income was more than offset by income attributable to noncontrolling interests.
- ViaSat-2’s antenna deployment issue led to a $177.4 million reduction in the satellite’s carrying value and a corresponding insurance receivable in FY2019. Viasat received $188.0 million in total insurance proceeds across FY2019 and FY2020, which were applied to the Ex-Im facility; the final $2.3 million was received in FY2020.
- Adoption of lease accounting in FY2020 added $308.4 million of operating lease right-of-use assets and $328.7 million of operating lease liabilities at year-end; management said adoption did not materially affect FY2020 earnings or cash flow.
- Firm backlog was $1.871 billion, broadly unchanged from $1.866 billion; funded backlog was $1.878 billion, up from $1.847 billion. A little over half of firm backlog was expected to be delivered within 12 months. Backlog is not assured revenue: many contracts can be terminated, and government funding and customer orders remain factors.
Outlook, risks and contingencies
- Management targeted a mid-calendar-2021 launch for the first ViaSat-3 satellite, but said COVID-19 disruptions increased schedule risk. Two satellites were in full construction; the third, intended for APAC, was contracted with Boeing in July 2019. Estimated project cost for the first two satellites, including launches, insurance and related ground infrastructure through launch, was $1.4–$1.5 billion.
- Management expected FY2021 capital expenditures to increase, reflecting the third ViaSat-3 satellite and international ground-network investment. It said existing cash, operating cash generation and revolving-credit availability were expected to cover anticipated operating requirements for at least 12 months, while providing no assurance about future liquidity.
- COVID-19 had not materially affected FY2020 financial position, results or cash flows through year-end. Fixed-broadband demand had increased, and Government Systems demand remained strong, although some contract administration was delayed. In-flight services and mobile broadband were already negatively affected; management expected aviation-related weakness to continue into FY2021 and possibly beyond. Airline-related products and services represented less than 10% of FY2020 revenue.
- Key exposures include satellite construction, launch and operating risks; ViaSat-2 performance; substantial capital needs and debt; competition from terrestrial, LEO and MEO networks; dependence on U.S. government business; fixed-price contract cost overruns; supply-chain disruption; spectrum and regulatory changes; and the uncertain duration and economic effects of COVID-19.
- DCAA incurred-cost audits for FY2019 and FY2020 remained open. The company had recorded $7.8 million in contract-related reserves for possible cost adjustments on certain government cost-reimbursement contracts. Management believed pending litigation would not materially harm the company, but acknowledged outcomes are uncertain.
- The auditor issued an unqualified opinion and found internal control over financial reporting effective. Its critical audit matter was management’s estimation of costs to complete long-term fixed-price contracts.
Important facts for investors to verify
- Progress, cost and launch timing for all three ViaSat-3 satellites, including the effect of COVID-19 on payload completion and spacecraft integration.
- Whether aviation-service declines, aircraft groundings and delayed installations materially affect revenue, margins and cash generation.
- Cash burn and funding needs for satellite construction, and compliance with debt covenants as leverage and investment spending evolve.
- Government contract awards, appropriations, audit outcomes and any changes to the $7.8 million contract reserve.
- Subscriber, ARPU and churn trends in fixed broadband, including the distinction between ordinary subscribers and customers retained under pandemic connectivity programs.