VIASAT INC quarterly report, Q3 FY2023

Viasat, Inc. — Form 10-Q summary

Reporting period: Quarter ended December 31, 2022 (Viasat fiscal 2023 third quarter). Unaudited results; dollars below are U.S. dollars. Continuing-operations results exclude the Link-16 Tactical Data Links (TDL) business, which was reported as discontinued operations.

Financial performance and position

Metric	Three months ended Dec. 31, 2022	Prior-year quarter	Nine months ended Dec. 31, 2022	Prior-year period
Continuing-operations revenue	$651.4 million	$625.3 million	$1,890.1 million	$1,810.4 million
Operating income (loss)	$(31.3) million	$(28.7) million	$(83.3) million	$(64.5) million
Continuing-operations net income (loss)	$(44.8) million	$(30.4) million	$(153.1) million	$(55.9) million
Net income (loss) attributable to Viasat	$(42.2) million	$(6.6) million	$(112.0) million	$13.6 million

• Quarterly revenue increased 4%; product revenue rose 10% and service revenue 1%. Approximate gross margin was 25.8%, down from 29.0%, as cost of revenues grew faster than revenue. Operating margin was approximately negative 4.8% versus negative 4.6%.
• Quarterly segment results: satellite services revenue was $302.4 million and operating loss was $8.4 million; commercial networks revenue was $167.2 million and operating loss was $40.3 million; government systems revenue was $181.8 million and operating profit was $24.8 million. Segment figures exclude Link-16 TDL.
• Nine-month operating cash flow was $317.6 million, compared with $386.4 million. Investing cash outflow was $850.7 million, including $782.6 million for property, equipment and satellites. Financing cash inflow was $406.0 million. Cash declined $128.3 million to $182.1 million.
• At December 31, cash was $182.1 million, working capital was $401.0 million, and total assets were $6.80 billion. Current assets were $1.25 billion and current liabilities $851.2 million.
• Debt principal was approximately $2.97 billion, including $475 million drawn on the revolving facility; reported long-term debt, net of discounts and current portion, was $2.90 billion. Revolver availability was $156.8 million after letters of credit. The company reported compliance with applicable financial covenants.

Material changes and unusual items

• On January 3, 2023, after quarter-end, Viasat completed the sale of its Link-16 TDL business to L3Harris. Net cash proceeds were approximately $1.9 billion after estimated transaction costs and customary adjustments. Management estimated a fourth-quarter fiscal 2023 gain of $1.5–$1.6 billion, subject to final estimates. Viasat used part of the proceeds to repay all revolver borrowings.
• Link-16 TDL discontinued-operations revenue was $62.7 million for the quarter and $247.1 million for the nine months; corresponding net income was $4.3 million and $44.0 million. Prior-year comparable net income was $26.5 million and $75.1 million.
• A $62.2 million payment resolving the Acacia contract judgment was recorded during the first half: $55.8 million as commercial networks product revenue and $6.4 million as interest income. This benefited nine-month results and is not presented as recurring revenue.
• Nine-month SG&A rose 9% to $511.7 million, including higher Inmarsat-related transaction expenses. The tax provision was $59.0 million, including a $69.0 million valuation allowance on California R&D tax credits; the allowance contributed to an effective tax rate of negative 63%.
• Property, equipment and satellites, net, increased to $4.20 billion from $3.70 billion at March 31, 2022, while construction in progress and satellites under construction rose. Capital spending remains substantial.

Outlook, risks and contingencies

• Management expected satellite-services margins to improve after ViaSat-3 Americas enters commercial service and capacity scales, while warning that launch, service ramp, bandwidth constraints and operating costs could affect results. The filing gives no clear quantified earnings or revenue guidance.
• Satellite-services quarterly revenue fell 2% as Viasat managed fixed-broadband subscribers and capacity ahead of ViaSat-3; in-flight connectivity growth partly offset the decline. The company reported systems installed on about 2,140 aircraft, with approximately 1,260 additional aircraft anticipated under existing agreements; activation timing and ultimate deployment are uncertain.
• The Inmarsat acquisition remained subject to regulatory approvals and other closing conditions. Consideration includes cash and approximately 46.36 million Viasat shares; planned financing and assumed Inmarsat debt are significant. Termination under certain conditions could require a fee of up to $200 million or expense reimbursement up to $40 million.
• Management said available funding was adequate for anticipated operating needs over the next 12 months and to fund the planned Inmarsat transaction, citing cash, borrowing capacity, operating cash flow and financing commitments. This assessment depends on execution, transaction timing and financing conditions.
• Other key risks include supply-chain shortages and certification delays, airline recovery, satellite construction and launch performance, customer contract cancellations or funding, U.S. Government contract audits, debt and interest-rate exposure, competition, spectrum and regulatory issues, and litigation. The fiscal 2021 incurred-cost audit remained open; $12.1 million was reserved for potential government contract cost adjustments. Management believed pending legal matters would not materially affect the company, but outcomes are uncertain.
• Disclosure controls were assessed as effective at a reasonable assurance level; no material change in internal control over financial reporting was reported.

Important facts for investors to verify

• Final Link-16 sale accounting, including the realized gain, working-capital adjustments, transaction costs and use of proceeds to reduce debt.
• Inmarsat transaction status, regulatory conditions, financing, expected share dilution and total debt impact.
• ViaSat-3 Americas construction, launch and service timing, and whether added capacity supports subscriber growth and margin recovery.
• Underlying performance excluding the one-time Acacia settlement and discontinued Link-16 results, particularly satellite-services profitability and cash generation.
• Capital expenditure commitments, cash needs, debt maturities and covenant headroom, especially as the 2025 Notes approach maturity.
• Outcomes of government contract audits and realization of deferred tax assets, including the California R&D credit valuation allowance.