Viasat, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended June 30, 2020, compared with the three months ended June 30, 2019. Financial statements are unaudited. Viasat operates in satellite services, commercial networks and government systems.
Key financial metrics
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $530.5 million | $537.0 million |
| Operating loss | $5.3 million | $8.1 million |
| Net loss attributable to Viasat | $12.4 million; $0.20 per share | $11.5 million; $0.19 per share |
| Operating cash flow | $156.9 million | $46.5 million |
| Capital expenditures for property, equipment and satellites | $208.7 million | $166.1 million |
- Operating margin was approximately negative 1% of revenue, compared with negative 2% a year earlier. Service revenue rose 2% while product revenue fell 5%.
- Satellite services revenue was $202.0 million, commercial networks $67.2 million, and government systems $261.3 million. Segment operating results were losses of $1.9 million and $51.4 million in satellite services and commercial networks, respectively, and income of $49.5 million in government systems.
- Cash and cash equivalents were $232.4 million at June 30, down from $304.3 million at March 31. Working capital was $356.3 million, versus $441.1 million.
- Debt principal totaled approximately $1.87 billion. The company had no revolver borrowings, $668.7 million of revolver availability, and $108.1 million outstanding under the Ex-Im facility. Cash flow from operations was below property-and-satellite purchases during the quarter.
- Firm backlog was $2.115 billion, including $2.007 billion funded; a little over half of firm backlog was expected to be delivered in the next 12 months. Backlog may be cancelled or depend on future customer funding.
Material changes and business developments
- Revenue declined $6.5 million year over year. Growth in service revenue, especially fixed broadband, was offset by weaker product sales, including lower commercial aviation-related deliveries.
- Government systems revenue was essentially flat, but segment operating profit rose 8% to $49.5 million. Commercial networks revenue fell 15% to $67.2 million, while its operating loss remained substantial.
- Operating cash flow improved year over year, mainly from working-capital timing, including collections on government programs. Investing cash use increased, principally due to higher satellite construction spending.
- In June 2020, Viasat issued $400 million of 6.5% senior notes due 2028; proceeds were used in part to repay $390 million of revolving-credit borrowings. On July 23, after quarter-end, it issued 4.47 million shares for approximately $175 million gross proceeds for general corporate purposes.
Outlook, commentary and risks
- Management said COVID-19 had not materially affected first-quarter financial position, results or cash flows overall, with weakness in commercial aviation offset by performance elsewhere. Fixed-broadband demand increased; Viasat had approximately 599,000 U.S. subscribers.
- COVID-19 materially pressured in-flight connectivity and mobile broadband aviation activity: approximately 630 of 1,390 aircraft with installed in-flight systems were inactive at quarter-end. Management expected pressure to continue through the rest of FY2021 and potentially beyond, easing as air travel recovers. The timing of additional aircraft activations may be delayed.
- Government demand remained strong, although administrative delays could shift contract awards toward the second half of FY2021. Management described diversified businesses as a source of resilience.
- Management expected FY2021 capital expenditures to increase from FY2020, reflecting the third ViaSat-3 satellite and international ground-network investment. COVID-related personnel effects on Viasat and suppliers could delay targeted satellite launches. No specific full-year financial guidance was provided in the supplied filing text.
- Key execution risks include satellite construction, launch and performance; the ViaSat-2 antenna deployment issue; airline-market recovery; government contract funding and audit outcomes; and the company’s substantial debt and capital needs. Management reported covenant compliance and said available cash, expected operating cash flow and revolver availability should meet anticipated requirements for at least 12 months.
- DCAA incurred-cost audits for FY2019 and FY2020 remained open. Viasat had $7.8 million of reserves for potential adjustments and refunds on certain government cost-reimbursement contracts. The company said current pending legal matters were not expected to have a material adverse effect, while noting outcomes remain uncertain.
Important facts for investors to verify
- Whether fixed-broadband growth and margins can offset continued weakness in in-flight connectivity and commercial networks.
- Actual aircraft reactivations and the timing of new installations, alongside global air-traffic recovery.
- ViaSat-3 construction, launch timelines, costs and any effects from COVID-related workforce or supplier disruptions.
- Government contract awards, funding, audit resolutions and whether the $7.8 million reserve proves sufficient.
- Cash needs for satellite investment, debt servicing and the use of proceeds from the July equity placement.
- Whether reported backlog converts to revenue, given cancellation rights and dependence on customer funding.