ViaSat (VSAT) Down 12.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for ViaSat (VSAT). Shares have lost about 12.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ViaSat due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Viasat Q4 Earnings Beat Estimates on Record Revenues

Viasat reported solid fourth-quarter fiscal 2020 financial results, with the bottom and the top line surpassing the respective Zacks Consensus Estimate. Accretive subscriber base and accelerated investments in ViaSat-3 constellation coupled with sustained momentum in the Government Systems and Satellite Services segment supported the quarterly results.

Net Income

On a GAAP basis, net income for the March quarter was $1.6 million or 3 cents per share compared with $2.5 million or 4 cents per share in the year-ago quarter. The improvement was primarily driven by top-line growth. The bottom line surpassed the Zacks Consensus Estimate by 9 cents. For fiscal 2020, net loss was $0.2 million or break even on a per share basis compared with net loss of $67.6 million or loss of $1.13 per share in fiscal 2019.

Non-GAAP net income came in at $20 million or 32 cents per share compared with $20.4 million or 33 cents per share in the prior-year quarter. For fiscal 2020, non-GAAP net income was $72 million or $1.14 per share compared with $0.9 million or 1 cent per share in fiscal 2019.

Revenues

Quarterly total revenues increased 6.2% year over year to $591.7 million. The upside was primarily driven by strong revenue growth in the Satellite Services and Government Systems segment backed by sustained sales backlog. This was partially offset by decline in new contract awards. While product revenues totaled $299 million, up 2.3% year over year, service revenues rose 10.5% to $292.7 million. The top line surpassed the consensus estimate of $589 million. For fiscal 2020, revenues increased 11.7% year over year to $2,309.2 million on the back of solid execution across diversified business lines.

Segment Results

Revenues from Satellite Services increased 11.8% year over year to $212.4 million, setting a record high figure. Markedly, the segment achieved its ninth sequential quarter of revenue growth. The performance was led by all-time high average revenue per user, up 13.5% year over year to $93.06 primarily driven by the addition of new subscribers to premium broadband service plans due to increased COVID-19 shelter-in-place orders. However, the IFC business which comprises less than 10% of annual revenues, suffered a major setback owing to reduced air travel.

Impressively, Viasat added 4,000 new subscribers in the reported quarter and provided fixed satellite Internet to more than 11,000 locations in Brazil during fiscal 2020. Despite the uncertainties related to COVID-19 pandemic, the segment witnessed robust revenues in in-flight services, up 13% year over year. In fiscal 2020, Viasat added 590,000 fixed broadband subscribers in the United States as part of FCC’s "Keep Americans Connected" pledge. The company ended the quarter with 1,390 aircrafts in commercial IFC business.

The segment’s operating profit was $0.4 million compared with $0.7 million in the year-ago quarter. Adjusted EBITDA was $70.1 million, up 7.5% driven by a diversified service portfolio.

Commercial Networks revenues inched up 1.1% to $92.8 million on growth in antenna systems. However, it was partially offset by the accelerated American Airlines install schedule in the prior-year period. Markedly, the segment continues to invest in R&D to reinforce high priority long-term strategic growth opportunities. The segment’s operating loss was $43.3 million compared with loss of $49.2 million in the year-ago quarter. Adjusted EBITDA was negative $26.9 million compared with negative $34.3 million in the year-ago quarter. The year-over-year upside can be attributed to enhanced commercial air margins and robust antenna systems revenue.

Despite supply chain disruptions stemming from the COVID-19 pandemic, revenues from Government Systems increased 4.1% year over year to $286.6 million. The increase was primarily driven by new orders under IDIQ agreements. Notably, the segment achieved a significant milestone as it surpassed $1 billion mark for the first time. In the reported quarter, Government Systems received awards of $216 million, which were mainly driven by government mobile broadband, tactical data links and satellite networking. However, the segment’s operating profit was $58.7 million, down 2.5% year over year. Adjusted EBITDA was $77.1 million, down 0.3% year over year, mainly due to delay in shelter-in-place orders.

Other Details

Total operating income was $14.1 million compared with $9.4 million in the year-earlier quarter. Adjusted EBITDA came in at $120.3 million compared with $108.3 million a year ago.

Cash Flow & Liquidity

During fiscal 2020, Viasat generated a record high of $437 million of cash from operations compared with $328 million in the year-ago period. The increase was mainly driven by robust earnings performance. The company also withdrew $280 million under a revolving credit facility to avail additional flexibility amid coronavirus disruptions.

As of Mar 31, the satellite and wireless networking technology provider had $304.3 million in cash and equivalents with $536.2 million of long-term debt compared with the respective tallies of $261.7 million and $110 million in the year-ago period.

Moving Forward

Despite uncertainties pertaining to COVID-19 pandemic, Viasat delivered impressive results in fiscal 2020 and continues to hold a leading position in the satellite and wireless communications market. With the rapid proliferation of the smartphone market and usage of mobile broadband, the user demand for coverage speed and quality has increased, which in turn is fueling demand for network tuning and optimization to maintain high data traffic. Backed by a robust vertically-integrated business model, the company remains focused on the launch of ViaSat-3 class satellite in mid-2021.

Markedly, the company has also undertaken cost-reduction initiatives to tackle softness in IFC business and increase its market-share post COVID-19 crisis. With major shifts in satellite and broadband connectivity, Viasat expects to witness increasing demand for broadband services globally. Equipped with a resilient business portfolio, the company expects to maintain financial prudence in capital investments and witness potential strategic growth opportunities with augmented geographic presence. It is to be seen whether Viasat can sustain the momentum in the coming days amid disruptions caused by the COVID-19 pandemic.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -71.64% due to these changes.

VGM Scores

At this time, ViaSat has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, ViaSat has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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