Viasat Announces Third Quarter Fiscal Year 2018 Results

8 February 2018

Viasat Inc. announced financial results for the fiscal third quarter ended December 31, 2017.

"Fiscal 2018 is a year of investment and positioning Viasat for growth on multiple fronts. We executed well on our primary objectives in the third quarter, including building on the momentum in the Government Systems segment; preparing for the launch of new residential service plans enabled by ViaSat-2; continuing to deploy and scale our next-generation IFC platform; and hitting important research and development (R&D) milestones associated with ViaSat-3," said Mark Dankberg, Viasat chairman and CEO. "Our Government Systems segment continues to set records and create new opportunities despite budget headwinds. In our residential business, we're enthused by the market testing to date for our ViaSat-2 residential services and we are gaining important insights on consumer demand and bandwidth economics that suggest potential for strong revenue and earnings growth opportunities. In our IFC business, we made important strides with Qantas entering production service, we began initial installations for both line-fit and retro-fit on American Airlines and we made progress in Europe. We also increased the number of commercial aircraft either in service or under contract by 92 during the third quarter. Finally, we continue to make progress on the first two ViaSat-3 satellites. We began transitioning certain payload modules into the flight hardware construction phase – resulting in a decrease in R&D expenses in the third quarter relative to the second quarter of this fiscal year. Overall, I'm really pleased with the execution and our team's ability to achieve the milestones that position us for exciting growth in fiscal year 2019 and beyond."

U.S. Tax Reform
The Tax Cuts and Jobs Act (the Tax Reform), enacted on December 22, 2017, among other matters, lowered the corporate federal income tax rate from 35% to 21%. As the Company has a March 31 fiscal year-end, the lower corporate federal income tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 32% for fiscal year 2018, and 21% for subsequent years. Although, the lower corporate federal income tax rate will be positive for the Company in the long-term, in the current quarter, based on preliminary calculations, the Company revalued its net deferred tax assets and as a result recorded additional income tax expense of approximately $12.2 million for the three and nine months ended December 31, 2017. The impact of the Tax Reform on diluted per share net loss attributable to Viasat, Inc. common stockholders for the three and nine months ended December 31, 2017 was $0.21 per share. The impact of the Tax Reform on Non-GAAP diluted per share net (loss) income attributable to Viasat, Inc. common stockholders for the three and nine months ended December 31, 2017 was $0.06 per share.

Accompanying Announcement from Thursday, February 8, 2018
Today, Viasat announced a new contract with United Airlines (UAL) to bring Viasat's latest generation in-flight entertainment and connectivity (IFEC) system to more than 70 aircraft, including at least 58 of United's new Boeing 737MAX aircraft. Viasat will serve as the direct in-flight internet service provider to United, deploying its most advanced IFEC system, in order to provide United customers access to fast, reliable internet connections from the air—for accessing their favorite websites to connecting with key business applications such as a corporate VPN and secure email. Viasat's IFEC system will also power United's Personal Device Entertainment system, which offers customers access to hundreds of entertainment titles from its onboard library.

Satellite Services
In the third quarter of fiscal year 2018, Viasat's Satellite Services segment revenues were lower compared to the same period last year primarily due to a moderate decrease in the overall number of residential subscribers, which at the close of the third quarter of fiscal year 2018 was approximately 577,000. This decrease was partially offset by continued growth in ARPU, and expansion of Viasat's IFC services. In addition, the prior year included a revenue benefit of $6.8 million associated with payments under the Space Systems/Loral (SS/L) settlement. Segment operating profits and Adjusted EBITDA were lower compared to the prior year period primarily as a result of the revenue decrease as well as increased expenses related to the expected February 2018 commercial launch of broadband services on the ViaSat-2 satellite, and anticipated rapid growth for IFC services. Highlights for the quarter include:

• ARPU in the residential business grew 8% year-over-year to a record high of $68.23, as the Company continued to see good response to its selective introduction of higher-value premium service plans ahead of the ViaSat-2 commercial service launch.
• As of quarter end, approximately 43,000 subscribers were already on "ViaSat-2 like" unlimited plans on the ViaSat-1 satellite, indicating consumers' interest for higher-value premium service plans that deliver higher speeds, more data and more video streaming.
• At the close of the third quarter of fiscal year 2018, there were 589 commercial aircraft in service equipped with Viasat's IFC system and Viasat expects to install its system on 912 additional aircraft under existing contracts, a sequential increase of 92 planes to a total of 1,501 aircraft either in service or under contract. The Company anticipates a significant increase in new installations of its IFC system to begin in the fourth quarter of fiscal year 2018.
• Viasat expanded its relationship with JetBlue, signing a contract to upgrade JetBlue aircraft to the latest Viasat connectivity hardware. This will provide JetBlue direct access to the expanded coverage and capacity of the ViaSat-2 and ViaSat-3 satellite platforms and create new opportunities for innovative passenger information and entertainment options.

Fiscal year-to-date, Satellite Services segment revenues, operating profit and Adjusted EBITDA were lower compared to the same period last year. This decrease reflected the $20.0 million year-over-year impact to revenues and operating profit due to the completion of payments under the SS/L settlement agreement in the prior fiscal year, plus costs associated with the preparation and launch of the ViaSat-2 satellite service for residential, aviation, enterprise and emerging markets.

Commercial Networks
In the third quarter of fiscal year 2018, Viasat's Commercial Networks segment results continued to reflect R&D investments in the Company's ultra-high capacity ViaSat-3 class satellite constellation, as well as upfront costs due to ramping demand for Viasat's IFC terminal systems. As a result, segment operating loss was higher and Adjusted EBITDA was lower for the third quarter of fiscal year 2018 compared to the same period last year. Highlights for the quarter include:

• New contract awards for the segment were higher by 81% compared to the same period last fiscal year, and by 13% on a fiscal year–to-date basis, primarily due to demand for IFC equipment and new contract wins for next-generation broadband capabilities, including phased array antenna solutions for residential and on-the-move applications. The book-to-bill ratio for the third quarter and year-to-date were 1.6:1 and 1.2:1, respectively.
• Viasat expects to launch commercial broadband services on the ViaSat-2 satellite in February 2018.
• Viasat and Boeing have proceeded with full construction, integration and testing of the first two ViaSat-3 class satellites. As a result, R&D for the quarter decreased sequentially from the second quarter of fiscal year 2018.

Fiscal year-to-date, Commercial Networks segment operating loss was higher and Adjusted EBITDA was lower compared to the same period last year, reflecting year-over-year impacts and investment trends similar to those seen in the third quarter of fiscal year 2018. Fiscal year-to-date segment revenues were down 15% compared to the same period last year, primarily as a result of lower fixed terminal sales for Australia's nbn™ satellite broadband service, partially offset by an increase in delivery of next-generation IFC systems.

Government Systems
Viasat's Government Systems segment revenues for the third quarter of fiscal year 2018 were $181.8 million, a 9% increase year-over-year. Continued demand for Viasat's tactical data link products, secure networking products and government mobility services provides evidence of Viasat's ability to bring commercial innovation into the defense sector. Operating profit increased by 23% to $29.7 million and Adjusted EBITDA increased 20% to $47.8 million for the quarter, compared to the prior year period. Operating profit and revenue growth were driven primarily by strong demand for Viasat's Non-Developmental Item (NDI) products initiated under Company funded R&D programs in prior periods, alongside expanding demand for cybersecurity and information assurance products. Highlights for the quarter include:

• Fiscal year-to-date segment contract awards equaled $629.9 million, reflecting a 1.1 to 1 book-to-bill ratio, and a record segment backlog of $702.2 million, driving total Company backlog to $1.1 billion.
• Key awards:
  • Viasat was awarded a contract to upgrade the NATO UHF satellite communications control stations to comply with the Integrated Waveform baseline, giving NATO greater communications interoperability, scalability and flexibility across legacy and next-generation platforms.
  • Viasat received a five-year, sole-source Indefinite Delivery Indefinite Quantity (IDIQ) contract with an initial ceiling of $350 million for advanced equipment, systems, services and support to modernize ground/air situational awareness, tactical data links, terrestrial networking, intelligence, surveillance and reconnaissance, tactical satellite communications, information assurance, network management and cybersecurity for Special Operations Forces.
• Key milestones achieved:
  • The first ever handheld Link 16 radio, the Viasat Battlefield Awareness and Targeting System - Dismounted (BATS-D) device, known to the United States Department of Defense as the AN/PRC-161, became National Security Agency (NSA) Type 1 certified.
  • The U.S. Air Force and Viasat completed production readiness review on the Mini Crypto program for the development of an embeddable cryptographic security/data module for military handheld devices and unmanned systems that communicates sensitive and classified data.

Fiscal year-to-date, Viasat's Government Systems segment delivered record performance, with revenue growth of 13% year-over-year to $553.6 million amidst a competitive defense sector. Operating profit increased 36% year-over-year to a record of $96.5 million, generating record Adjusted EBITDA of $148.5 million, a 27% increase over the same period last year.