Viasat, Inc. — Q1 FY2022 Form 10-Q
Business context and period: This unaudited quarterly report covers the three months ended June 30, 2021, Viasat’s first quarter of fiscal 2022. The company operates satellite services, commercial networks and government systems businesses. Comparisons are with the three months ended June 30, 2020; balance-sheet comparisons are with March 31, 2021.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Revenue | $664.9 million | $530.5 million |
| Operating income (loss) | $16.3 million | $(5.3) million |
| Net income (loss) attributable to Viasat | $17.0 million | $(12.4) million |
| Diluted EPS | $0.23 | $(0.20) |
| Operating cash flow | $65.1 million | $156.9 million |
| Capital expenditures for property, equipment and satellites | $246.2 million | $208.7 million |
- Revenue increased 25% year over year: product revenue rose 17% to $293.3 million and service revenue rose 33% to $371.6 million. Gross profit, calculated as revenue less reported product and service costs, was $210.9 million, or about 31.7% of revenue, versus $144.9 million, or about 27.3%.
- Satellite services revenue rose 36% to $274.1 million; segment operating profit was $12.5 million versus a $1.9 million loss. Commercial networks revenue rose 77% to $118.6 million and its operating loss narrowed to $37.7 million from $51.4 million. Government systems revenue rose 4% to $272.1 million; operating profit declined to $47.4 million from $49.5 million.
- Cash and cash equivalents were $275.7 million at June 30, down from $295.9 million at March 31. Working capital was $388.5 million. Operating cash flow fell by $91.8 million year over year, mainly due to less favorable working-capital movements.
- Total debt principal, including finance leases, was approximately $2.16 billion, compared with $1.85 billion at March 31. This included $320.0 million drawn on the $700.0 million revolving facility; availability after letters of credit was $320.3 million. The company reported compliance with debt covenants.
Material changes and notable items
- On April 30, 2021, Viasat acquired the remaining 51% of Euro Broadband Infrastructure, gaining full ownership of the KA-SAT satellite and related EMEA infrastructure. The transaction’s preliminary consideration was $327.4 million, including the fair value of the previously held interest; net cash outlay was about $51 million after acquired cash.
- On the same date, Viasat acquired RigNet for approximately $317.9 million in consideration, including about 4.0 million Viasat shares valued at $207.2 million and repayment of RigNet borrowings. RigNet contributed approximately $34.0 million of revenue and $6.3 million of net losses after acquisition during the quarter. Acquisition accounting and purchase price allocations remained preliminary.
- Investing cash outflow increased to $399.6 million, including $138.7 million of acquisition-related payments and higher satellite construction spending. Financing cash inflow was $315.2 million, principally from revolving-credit borrowings.
- Other income included $4.1 million; the filing describes the acquisition-related remeasurement gain as insignificant. The $4.1 million income tax benefit reflected R&D credits and reversal of a deferred tax liability related to Euro Infrastructure.
- Firm backlog declined to $2.22 billion from $2.31 billion at March 31; funded backlog declined to $2.05 billion from $2.12 billion. New awards were $595.0 million versus $736.9 million a year earlier.
Outlook, commentary and risks
- Management expects fiscal 2022 capital expenditures to exceed fiscal 2021 levels, reflecting ViaSat-3 satellite construction, the anticipated first satellite launch and international ground-network investment. It expects continued significant R&D investment. No specific revenue or earnings guidance is provided in the supplied filing text.
- Management said current cash, expected operating cash generation and revolving-credit availability should cover anticipated operating requirements for at least the next 12 months. The company said COVID-19 had not materially affected its financial position, results or cash flows during the quarter.
- Fixed broadband demand remained strong, while airline traffic and in-flight connectivity were still below pre-pandemic levels. Management expected continued pressure on IFC revenue and operating cash flow through the rest of FY2022 and potentially beyond, with improvement dependent on passenger traffic and aircraft returning to service. About 150 of 1,550 aircraft with installed IFC systems were inactive at quarter end; approximately 1,160 more aircraft were anticipated under existing agreements, but timing and activation are uncertain.
- All three ViaSat-3 satellites were under construction. Satellite construction, launch, operational performance and capacity constraints are key execution risks; management noted that launch and service ramp-up can bring additional costs before revenue scales. Total contractual obligations were reported at $5.19 billion, including $1.93 billion of purchase commitments, much of which relates to satellites.
- Other material risks include ongoing U.S. Government contract audits (incurred-cost audits for FY2019–FY2021 were incomplete), possible contract-cost adjustments, fixed-price program execution, customer termination or funding decisions, supply-chain and regulatory issues, competition, foreign-exchange exposure and the company’s substantial debt. Contract-related reserves for potential government-customer refunds were $10.9 million.
Important facts for investors to verify
- How much revenue and profit growth came from acquired businesses versus organic performance, and whether the preliminary acquisition valuations and expected synergies are borne out.
- Progress, cost, launch timing and commercial ramp-up of ViaSat-3, together with capital spending and resulting liquidity needs.
- Recovery in airline traffic, inactive aircraft returning to service and conversion of anticipated IFC aircraft into active installations and revenue.
- Backlog conversion, customer funding and termination provisions, and the outcomes of outstanding government audits and potential contract adjustments.
- Debt levels, revolving-facility availability, covenant headroom and the effect of variable-rate borrowing costs.