Viasat, Inc. — Form 10-Q summary
Business context and reporting period. Viasat provides satellite broadband and connectivity services, commercial satellite and networking products, and government communications systems. This unaudited filing covers the quarter and nine months ended December 31, 2020 (fiscal 2021 Q3), compared with the corresponding prior-year periods. Unless indicated otherwise, amounts are in U.S. dollars.
Key financial results
| Metric | Three months ended Dec. 31, 2020 | Year-over-year change | Nine months ended Dec. 31, 2020 | Year-over-year change |
|---|---|---|---|---|
| Total revenue | $575.6 million | Down 2% | $1,660.3 million | Down 3% |
| Operating income | $21.8 million | Up from $14.0 million | $29.1 million | Up from $24.3 million |
| Net income (loss) attributable to Viasat | $6.8 million; $0.10 per diluted share | Up from $6.5 million; $0.10 per share | $(3.7) million; $(0.06) per diluted share | Compared with $(1.8) million; $(0.03) per share |
| Operating cash flow | Not separately provided in the filing excerpt | — | $557.4 million | Up from $293.4 million |
| Capital expenditures: property, equipment and satellites | Not separately provided in the filing excerpt | — | $655.7 million | Up from $548.2 million |
Quarterly cost of product and service revenues totaled $391.3 million, giving a gross margin of approximately 32.0% versus 31.3% a year earlier. Operating margin was approximately 3.8%, compared with 2.4%. For the nine-month period, gross margin was approximately 29.9% versus 30.2%, and operating margin was approximately 1.8% versus 1.4%. These percentages are calculated from reported revenue and expenses.
Quarterly service revenue increased 8% to $309.0 million, while product revenue fell 12% to $266.5 million. For the nine months, service revenue rose 5% to $887.2 million and product revenue declined 11% to $773.1 million.
Liquidity, cash flow and debt
- At December 31, 2020, cash and cash equivalents were $317.3 million and working capital was $326.0 million. The revolving credit facility had no borrowings, $35.9 million of letters of credit outstanding, and $664.1 million of available borrowing capacity. Viasat reported compliance with applicable financial covenants.
- Total debt was $1.860 billion in principal before discounts and issuance costs; reported current and long-term debt together were approximately $1.837 billion. Debt included $700 million of 2025 notes, $600 million of secured 2027 notes, $400 million of 2028 notes, $98.3 million outstanding under the Ex-Im facility and finance leases. Cash less principal debt implies net debt of approximately $1.543 billion.
- Nine-month operating cash flow of $557.4 million exceeded the $655.7 million spent on property, equipment and satellites by $98.3 million; total investing cash outflow was $702.8 million, including other asset purchases. Operating cash flow rose year over year, aided by working-capital movements, including receivables and customer advances.
- Financing cash flow was $156.9 million for the nine months, including $174.7 million in net proceeds from a July 2020 private placement of 4.47 million shares. Cash ended the period at $317.3 million.
Material changes and segment performance
- Satellite services: Quarterly revenue rose 4% to $220.8 million and segment operating profit increased to $11.5 million from $3.6 million. U.S. fixed-broadband subscribers were approximately 596,000, up from 586,000; growth and a richer mix of higher-speed plans supported results. In-flight connectivity remained affected by reduced air traffic and inactive aircraft.
- Commercial networks: Quarterly revenue increased 6% to $90.1 million, and segment operating loss narrowed to $39.0 million from $46.9 million, mainly reflecting lower R&D expense and improved fixed-network services. For the nine months, revenue fell 6% to $236.1 million, partly due to fewer in-flight connectivity terminal deliveries.
- Government systems: Quarterly revenue declined 9% to $264.7 million and segment operating profit fell 14% to $50.6 million, primarily due to lower product revenue and margins. Nine-month revenue declined 8% to $785.5 million and operating profit fell 11% to $148.0 million. Management said new awards remained strong, while pandemic-related manufacturing and shipment complications persisted.
- Firm backlog increased to $2.366 billion from $1.871 billion at March 31, 2020; funded backlog was $2.151 billion. Separately, remaining performance obligations were $2.4 billion, with a little over half expected to be recognized over the next 12 months. Backlog is not a guarantee of sales: contracts may be terminated and some amounts depend on future customer funding.
Outlook, risks and unusual items
- Management said COVID-19 had not materially affected consolidated financial position, results or cash flows through the reported periods, but commercial aviation-related businesses remained under pressure. The company expected IFC impacts on revenue and operating cash flows to continue through the fourth quarter of fiscal 2021 and potentially beyond, with improvement dependent on air traffic recovery.
- Viasat reported intermittent supply-chain and labor challenges on the first ViaSat-3 payload and said the Americas satellite launch would most likely move into the first quarter of calendar 2022. Fiscal 2021 capital expenditures were expected to exceed fiscal 2020, reflecting the third ViaSat-3 satellite and international ground-network investment. The filing gives no specific revenue or earnings guidance.
- Viasat agreed to acquire Eutelsat’s remaining 51% interest in Euro Infrastructure Co. for €140 million, subject to adjustments; after applying approximately €90 million of the investee’s cash, the expected cash outlay was €50 million. Closing was expected in fiscal Q4 2021, subject to customary conditions.
- Viasat also agreed to acquire RigNet in a stock transaction at an exchange ratio of 0.1845 Viasat shares per RigNet share. The transaction implied enterprise value of approximately $221.8 million and was expected to require about 4.0 million new Viasat shares, approximately 5.5% of shares outstanding at December 31, 2020. Closing was expected in fiscal Q1 2022, subject to regulatory and other conditions.
- ViaSat-2 previously had an antenna deployment issue; the company recorded a $177.4 million satellite carrying-value reduction and matching insurance receivable in fiscal 2019, and received $188.0 million of related insurance proceeds during fiscal 2019 and 2020, applied to the Ex-Im debt.
- DCAA incurred-cost audits for fiscal 2019 and 2020 remained incomplete. Contract-related reserves for possible U.S. Government contract cost adjustments were $8.8 million at December 31, 2020. Management said pending legal matters were not expected to have a material adverse effect, while noting adverse audit outcomes could result in refunds, penalties, contract actions or other sanctions.
- Management stated that current cash, expected operating cash generation and revolving-credit availability were expected to cover anticipated operating requirements for at least 12 months. This is subject to execution, satellite-project spending, acquisition costs and the risks described in the filing.
Important facts for investors to verify
- Progress, schedule and remaining funding needs for ViaSat-3, particularly the expected calendar Q1 2022 Americas launch and supply-chain constraints.
- Whether fixed-broadband subscriber and higher-speed-plan growth can offset persistent aviation weakness, and the pace at which inactive aircraft return to service.
- Conversion, timing and funding of the $2.366 billion firm backlog, including termination rights and the distinction between firm backlog and remaining performance obligations.
- Government product revenue, segment margins, contract awards and outcomes of pending DCAA audits and reviews.
- Debt service and leverage after issuance of the 2028 notes, and the cash, dilution and integration effects of the Euro Infrastructure Co. and RigNet transactions.
- Working-capital-driven cash-flow performance and the scale and timing of ViaSat-3 and other capital expenditures.