ViaSat Announces First Quarter Fiscal Year 2018 Results

Aug. 8, 2017

ViaSat Inc.  announced financial results for the fiscal first quarter ended June 30, 2017.

"ViaSat-2 is launched!" said Mark Dankberg, ViaSat chairman and CEO. "While we prepare to bring the satellite into service, we continue to deliver strong operating results. First quarter government results were exceptional, demonstrating the strategic benefits we seek from research and development (R&D) investments - rapid, profitable growth through differentiated products and services that meet end-user demands in complex market spaces. Government revenue has grown at a five-year 11% Compound Annual Growth Rate (CAGR), and operating profit at a five-year 17% CAGR, and this fiscal year started even stronger, with record backlog and opportunities for rapid market expansion. Commercial in-flight Wi-Fi is now also poised for exciting growth with a highly-differentiated service, and around 840 additional planes under contract. Our investments there will enable installations for new customers to start in the second quarter of fiscal 2018. Consumer broadband growth is next, expected to begin in the second half of our fiscal year. As top-line performance across these businesses trend upward, we also expect the uptick in R&D expenses, driven by the ViaSat-3 payload and investments in commercial airline platforms, to largely subside later this fiscal year. Our goal is to execute the substantial growth opportunities we've enabled in each segment as we wind down R&D expenses to more normal proportions."

Satellite Services
In the first quarter of fiscal year 2018, ViaSat's Satellite Services segment revenues were essentially flat year-over-year. Results were led by strong revenue growth in commercial air, coupled with increased consumer broadband revenues. The prior year period reflects a benefit of $6.6 million associated with payments under the Space Systems/Loral (SS/L) settlement, which concluded in the fourth quarter of fiscal 2017. The absence of the SS/L settlement proceeds in the current year period, coupled with expenses relating to preparations for the ViaSat-2 service launch and large-scale commercial air in-flight connectivity service ramp, both expected to occur in the current fiscal year, led to lower segment operating profits and Adjusted EBITDA compared with the prior year period. Highlights for the quarter include:

• ARPU in the residential business grew 11% year-over-year to a new record high of $66.61, reflecting a greater proportion of higher bandwidth, higher value plans, and a greater proportion of retail subscribers. This increase offsets the effects of a decrease in the total number of residential subscribers, which at the close of the first quarter of fiscal 2018 was approximately 625,000 residential subscribers.
• Strong in-flight connectivity services revenue growth continued compared to the same period last year driven by more commercial aircraft in service, and a greater amount of ViaSat's Ka-band fleet bandwidth allocated to serve more passengers. At the close of the first quarter of fiscal 2018, there were 568 aircraft in service and approximately 840 additional aircraft under contract. The rate of new installations is anticipated to accelerate significantly during fiscal year 2018 based on Supplemental Type Certificate (STC) approvals and completion of airline-specific acceptance tests.
• ViaSat introduced its second-generation (Gen-2) in-flight entertainment and connectivity (IFEC) equipment for the ViaSat-2 and ViaSat-3 class satellite platforms. Following the close of the first quarter of fiscal year 2018, ViaSat completed its first Gen-2 installation on a Qantas 737-800 aircraft and received Gen-2 STC approval from the Federal Aviation Administration, allowing ViaSat to offer internet service on Boeing 737 aircraft.

Commercial Networks
In the first quarter of fiscal year 2018, ViaSat's Commercial Networks segment activities continued to be heavily focused on R&D investment in the Company's ViaSat-3 project, a next-generation, global coverage satellite platform expected to comprise of three satellites that are each designed to deliver over 1 Terabit per second (Tbps) of high throughput Ka-band broadband capacity; as well as investment in expanded commercial airline platforms, such as the Gen-2 IFEC system and related STC and line-fit programs. This accelerated investment activity resulted in a 67% increase in R&D expenses compared to the prior year period. Quarterly revenues were down 31% compared to the same period last year, primarily as a result of lower fixed terminal sales for Australia's nbn™ satellite broadband service that commenced last fiscal year. Finally, the first quarter also included accelerated product manufacturing support activities in preparation for ViaSat-2 service launch, and a steep ramp of mobile terminal deliveries that are expected to occur in the second half of fiscal year 2018. As a result, segment operating losses were higher and Adjusted EBITDA was lower for the first quarter of fiscal year 2018, as compared to the same period last year. Highlights for the quarter include:

• Following the successful launch of the ViaSat-2 satellite on June 1, 2017, the satellite completed its chemical orbit raising phase and initial deployments, including its solar arrays. The ViaSat-2 satellite is currently in its electronic propulsion orbit raising phase, and is expected to reach its geostationary orbital slot in the third quarter of fiscal year 2018.
• ViaSat-2 network infrastructure, terminals and system testing remain on schedule for service delivery in the fourth quarter of fiscal year 2018.
• The engineering test and qualification phase of the ViaSat-3 payload development program continued to achieve milestones toward its target performance and is expected to be substantially complete this fiscal year. The first production flight hardware is expected to begin arriving in ViaSat's Tempe Arizona facility in the third quarter of fiscal year 2018.

Government Systems
In the first quarter of fiscal year 2018, ViaSat's Government Systems segment achieved record operating profit and Adjusted EBITDA assisted by revenues which increased 26% year-over-year to $182.6 million. A growing service base coupled with strong momentum in tactical datalink products, government mobility platforms and satellite communications solutions drove the segment's revenue gains. Operating profit increased to $32.6 million, an 82% increase year-over-year and Adjusted EBITDA was $49.2 million, up 51% compared to the prior year period. Operating profit, revenue and new contract award growth continue to be driven by strong demand for ViaSat's Government Systems segment unique Non-Developmental Item products and services initiated under company funded R&D programs in prior periods. Highlights for the quarter include:

• ViaSat's Government Systems segment contract awards were exceptionally strong at $247.9 million in the first quarter of fiscal year 2018, reflecting a 1.4 to 1 book-to-bill ratio. The Government Systems segment fiscal first quarter backlog closed at a record high level of $696.1 million, a 48% increase over the same period last year.
• ViaSat announced key awards:
  • Lot 5 and Lot 5a contracts totaling $88.3 million from the U.S. Navy Space and Naval Warfare Systems Command to provide Multifunctional Information Distribution System Joint Tactical Radio System terminals to the U.S. Navy and Air Force.
  • A multi-year contract from Boeing for the production of ViaSat's KOR-24A Link 16 Small Tactical Terminal for AH-64E Apache Guardian aircraft for U.S. Army and International Foreign Military Sales cases.
  • A follow-on contract from Lockheed Martin to deliver datalink communications for the integration and test phase of the U.S. Navy's Long Range Anti-Ship Missile program.