Viasat, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2017. This was Viasat’s fiscal 2018 third quarter; comparative periods ended December 31, 2016. Financial statements are unaudited. Unless stated otherwise, amounts are in millions of dollars.
Business context and key financial metrics
Viasat provides satellite broadband services, commercial satellite and network products, and government communications and cybersecurity solutions through its satellite services, commercial networks, and government systems segments.
| Metric | Three months ended Dec. 31, 2017 | Nine months ended Dec. 31, 2017 |
|---|---|---|
| Revenue | $381.8 | $1,155.0 |
| Operating income (loss) | $(25.3) | $(59.1) |
| Net income (loss) attributable to Viasat | $(24.6) | $(47.4) |
| Diluted earnings (loss) per share | $(0.42) | $(0.81) |
| Operating cash flow | Not presented for the quarter | $282.6 |
| Capital spending on property, equipment and satellites | Not presented for the quarter | $354.4 |
For the quarter, gross profit was approximately $118.1 million, or 30.9% of revenue, compared with $125.1 million, or 32.9%, a year earlier. Operating margin was (6.6)%, versus 2.0%. For the nine months, gross profit was approximately $361.5 million, or 31.3%, versus $368.0 million, or 32.2%; operating margin was (5.1)%, versus 3.0%.
At December 31, cash and cash equivalents were $161.8 million and working capital was $261.7 million. Total debt was approximately $1,062.7 million in principal, or $1,021.7 million net of unamortized discounts and issuance costs. The $800 million revolving facility had no borrowings and $770.9 million available after letters of credit; the $362.4 million Ex-Im facility was fully drawn. Viasat reported compliance with debt covenants.
Material changes versus the prior comparable period
- Quarterly revenue was nearly flat, up 0.3%; nine-month revenue rose 1.1%. Quarterly net income attributable to Viasat shifted from $4.2 million profit to a $24.6 million loss; the nine-month result shifted from $17.1 million profit to a $47.4 million loss.
- Quarterly SG&A increased 24.7% to $100.1 million, and independent R&D rose 16.6% to $40.1 million. For nine months, SG&A increased 17.9% to $279.4 million and R&D increased 46.4% to $131.5 million, reflecting support for ViaSat-2, commercial aviation growth, international expansion, and next-generation satellite and mobility development.
- Satellite services quarterly revenue declined 9.7% to $144.5 million and segment operating profit fell to $1.7 million from $34.8 million. Prior-year results included payments under a settlement agreement that ended in fiscal 2017; current-period margins were also pressured by service ramp-up and launch preparation costs. Fixed broadband subscribers declined to approximately 577,000 from 675,000, while aircraft using Viasat in-flight internet increased to 589 from 555.
- Government systems quarterly revenue increased 9.5% to $181.8 million and operating profit increased to $29.7 million from $24.1 million. Commercial networks quarterly revenue rose 1.9% to $55.5 million, but its operating loss widened to $53.5 million from $48.6 million.
- Nine-month operating cash flow declined $30.1 million to $282.6 million. Investing cash outflow was $409.6 million, compared with $463.4 million; financing cash inflow was $157.9 million, compared with $394.0 million.
Outlook, commentary, risks and unusual items
- Satellites and investment: ViaSat-2 was launched in June 2017 and had completed orbit raising and orbital placement; in-orbit testing and transfer of operations remained pending. In January 2018, Viasat disclosed an antenna issue under investigation. Management expected no material impact to overall coverage, planned services, or expected financial results, but noted uncertainty. Two ViaSat-3 satellites were under construction; projected combined project cost through launch was $1.2–$1.4 billion. Management expected elevated fiscal 2018 R&D and continued ground-infrastructure investment.
- Liquidity outlook: Management believed cash, expected operating cash flow, and revolver availability would cover anticipated operating requirements for at least 12 months. This is not earnings guidance. The filing provides no specific consolidated revenue or earnings forecast.
- Backlog: Firm backlog was $1.129 billion and funded backlog $1.023 billion at December 31, 2017, up from $1.024 billion and $937.9 million, respectively, at March 31. Management cautioned that backlog is not necessarily indicative of future sales; many contracts can be terminated, and some depend on future customer funding. Approximately 750 expected aircraft installations were not yet supported by accepted purchase orders.
- Debt refinancing: Viasat issued $700 million of 5.625% senior notes due 2025 and repurchased or redeemed all $575 million of 6.875% notes due 2020. The refinancing resulted in a $10.2 million loss on extinguishment of debt during the nine-month period.
- Tax and contingencies: The new U.S. tax law reduced the federal corporate rate and led to a preliminary $12.2 million deferred-tax remeasurement expense; final effects remained subject to evaluation. Viasat retained an $11.8 million accrual for the TrellisWare government-contract investigation and stated that its outcome and ultimate damages were uncertain. Government cost audits for fiscal 2016 and 2017 remained open; adverse audit adjustments could affect profitability.
- Other items: Nine-month results included a $10.2 million debt-extinguishment loss and an $18.5 million income-tax benefit. The filing reported $6.4 million of contract losses for the nine months, compared with $2.8 million in the prior-year period. No material off-balance-sheet arrangements were reported beyond disclosed commitments and financial-statement notes.
Important facts for investors to verify
- Progress and final outcome of ViaSat-2 in-orbit testing, antenna-issue analysis, and service launch.
- Whether ViaSat-2 and ViaSat-3 investment plans remain within expected cost and funding ranges, and their effects on margins and cash flow.
- Trends in fixed broadband subscriber counts and profitability, alongside in-flight aircraft deployments and service margins.
- Execution and funding conversion of backlog, including the status of anticipated aircraft orders and government contract funding.
- Resolution of the TrellisWare investigation and outstanding government audits, and any resulting financial or contract consequences.
- Final tax-reform accounting, debt repayment requirements, and continued covenant compliance.