Viasat, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2018. The financial statements are unaudited. Viasat provides satellite broadband services, commercial communications networks, and government communications systems.
Financial performance
| Metric | Q3 FY2019 | Q3 FY2018 | Nine months FY2019 | Nine months FY2018 |
|---|---|---|---|---|
| Revenue | $554.7m | $381.8m | $1,511.0m | $1,155.0m |
| Gross profit / margin | $152.0m / 27.4% | $118.1m / 30.9% | $371.3m / 24.6% | $361.5m / 31.3% |
| Operating income (loss) / margin | $6.0m / 1.1% | ($25.3m) / (6.6%) | ($70.0m) / (4.6%) | ($59.1m) / (5.1%) |
| Net loss attributable to Viasat | ($10.4m) | ($24.6m) | ($70.1m) | ($47.4m) |
| Diluted loss per share | ($0.17) | ($0.42) | ($1.17) | ($0.81) |
Q3 revenue rose 45%, led by commercial networks and government systems product sales. Government systems operating profit increased to $49.9m; commercial networks narrowed its operating loss to $31.2m. Satellite services posted a $10.2m operating loss, compared with $1.7m profit a year earlier, as ViaSat-2 launch-related costs and lower fixed-broadband margins outweighed service growth. For the nine months, satellite services had a $65.0m operating loss versus $33.1m operating profit in the prior period.
Operating cash flow for the nine months was $214.7m, down from $282.6m. Capital spending on property, equipment and satellites was $491.8m; investing cash outflow was $340.4m after $172.2m of ViaSat-2 insurance proceeds and $14.0m from a property sale. Cash declined to $43.4m from $71.4m at March 31, 2018.
At December 31, 2018, working capital was $209.8m. Total debt principal was $1,177.3m: $700.0m of 2025 notes, $325.0m drawn on the revolving facility, and $152.3m under the Ex-Im facility. Revolver availability was $455.2m after letters of credit. Viasat reported compliance with debt covenants. Nine-month interest expense was $40.3m, compared with $0.3m in the prior-year period.
Material changes and business indicators
- Revenue increased 31% for the nine months. Product revenue grew 53%; service revenue grew 13%.
- Fixed broadband subscribers were approximately 584,000, up from 577,000 a year earlier. Aircraft using Viasat IFC systems rose to 1,123 from 589.
- Firm backlog was $1.83bn, up from $1.09bn at March 31; funded backlog was $1.71bn. About half of firm backlog was expected to be delivered in the next 12 months. Backlog includes fixed-broadband subscriber contracts under the new revenue standard and is not necessarily indicative of future sales.
- Viasat adopted ASC 606 on April 1, 2018 using the modified retrospective method, increasing opening retained earnings by $27.2m. For the nine months, reported revenue was $7.3m lower and net loss $9.9m less than under the historical accounting method; reported loss per share was $1.17 versus a pro forma $1.34 under that method.
Outlook, commentary and risks
- Management said cash, expected operating cash flow and revolver availability should cover anticipated requirements for at least 12 months. No specific earnings or revenue guidance is provided in the filing.
- Two ViaSat-3 satellites were in full construction. The first was targeted for launch in late 2020 or early 2021. Projected cost for the first two satellites, including launches, insurance and related ground infrastructure, was $1.2bn–$1.4bn. In January 2019, Viasat agreed to proceed with a third ViaSat-3 satellite for the Asia-Pacific region; its expected launch timing and project cost are not stated here.
- ViaSat-2 suffered an antenna deployment issue. Viasat reduced the satellite’s carrying value by $177.4m in Q2 FY2019 and recorded a corresponding insurance receivable. It received $172.2m in proceeds, applied to Ex-Im debt, and reported a further $12.3m receivable at quarter-end. A $4.0m insurance-related gain reduced Q3 SG&A.
- On January 18, 2019, the revolver was amended to extend maturity to January 2024, reduce the interest margin and provide additional covenant flexibility.
- Key risks include satellite construction, launch and operating performance; ViaSat-2’s reduced output; execution and funding of ViaSat-3; customer and government-contract concentration; contract termination and funding risks; cost and pricing audits; and debt covenant and interest-rate exposure. DCAA incurred-cost audits for fiscal years 2016–2018 remained incomplete; recorded contract-related reserves were $4.9m.
- Management reported disclosure controls were effective at a reasonable assurance level and no material change in internal control over financial reporting during the quarter. It did not expect pending legal matters to have a material adverse effect, while noting litigation outcomes remain uncertain.
Important facts for investors to verify
- Whether ViaSat-2’s actual capacity, service quality and insurance recoveries align with management estimates.
- ViaSat-3 construction, launch schedule, total project costs, financing needs and any commitments for the third satellite.
- Satellite-services margins and cash requirements as subscriber and IFC growth continues.
- Conversion, funding and cancellation exposure within the $1.83bn firm backlog, including anticipated IFC aircraft orders excluded from backlog.
- Results of outstanding government contract audits and whether reserves adequately cover potential adjustments.
- Debt levels, liquidity, covenant compliance and the financial effect of the amended revolving credit facility.