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Why Is ViaSat (VSAT) Down 3.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for ViaSat (VSAT - Free Report) . Shares have lost about 3.6% 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 its most recent earnings report in order to get a better handle on the important drivers.

Viasat Records Narrower-Than-Expected Q1 Loss

Viasat reported relatively healthy first-quarter fiscal 2021 results, with the top and bottom lines surpassing the respective Zacks Consensus Estimate. An accretive subscriber base, prudent working capital management and solid progress in ViaSat-3 constellation, coupled with sustained momentum in the Government Systems and Satellite Services segments, supported the quarterly results.

Net Income

On a GAAP basis, net loss for the June quarter was $12.4 million or a loss of 20 cents per share compared with net loss of $11.5 million or a loss of 19 cents in the year-ago quarter. The wider loss was primarily driven by top-line contraction. Nevertheless, the bottom line was narrower than the Zacks Consensus Estimate of a loss of 43 cents.

Non-GAAP net income came in at $4.8 million or 8 cents per share compared with $6.4 million or 10 cents per share in the prior-year quarter.

Revenues

Quarterly total revenues decreased 1.2% year over year to $530.5 million. The decline was primarily driven by a steep fall in commercial air traffic due to the virus outbreak and associated lockdown measures, partially offset by modest revenue growth in the Satellite Services backed by a record backlog. While product revenues totaled $250.6 million, down 4.9% year over year, service revenues rose 2.4% to $279.9 million. The top line surpassed the consensus mark of $515 million.

Segment Results

Revenues from Satellite Services increased 2.6% year over year to $202 million, driven by more subscribers and incremental bandwidth demand per subscriber. Markedly, the segment witnessed high demand for video streaming services and high-speed data for coronavirus-induced social-distancing measures. Average revenue per user was up 18% year over year to $99, 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 due to reduced air travel.

Impressively, Viasat added about 9,000 new subscribers in the reported quarter. The company ended the quarter with 45% of 1,390 aircraft inactive in the commercial IFC business due to the adverse impact of the virus outbreak. The segment’s operating loss was $1.9 million compared with an operating loss of $2.1 million in the year-ago quarter. Adjusted EBITDA was $71.4 million, up 6.4% driven by a diversified service portfolio.

Commercial Networks revenues were down 14.9% to $67.2 million with sales of commercial air equipment falling 90% year over year. However, this was partially offset by 36% growth in antenna systems with strong demand for remote sensing and earth observation. Markedly, the segment continues to invest in R&D to reinforce high-priority, long-term strategic growth opportunities. The segment’s operating loss was $51.4 million compared with a loss of $49.9 million in the year-ago quarter. Adjusted EBITDA was negative $34.1 million compared with negative $35.2 million in the year-ago quarter.

Despite supply-chain disruptions, stemming from the COVID-19 pandemic, revenues from Government Systems remained flat at $261.3 million. The company secured new orders worth $334 million in the quarter under IDIQ agreements. The segment’s operating profit was $49.5 million, up 7.8% year over year on stringent cost-cutting initiatives. Adjusted EBITDA was $67.5 million, up 4% year over year, mainly due to better business mix and lower R&D expenses.

Other Details

Total operating loss was $5.3 million compared with an operating loss of $8.1 million in the year-earlier quarter. Adjusted EBITDA came in at $104.7 million compared with $96.8 million a year ago. New contract awards during the quarter aggregated $736.9 million, up from $505.8 million, while sales backlog was a record high at $2,114.6 million, up from $1,839.8 million a year ago.

Cash Flow & Liquidity

During first-quarter fiscal 2021, Viasat generated a record high of $157 million of cash from operations, driven by robust earnings performance and working capital management. The company issued a secondary offering worth $400 million and utilized the proceeds to repay debt under its revolving credit facility.

As of Jun 30, 2020, the satellite and wireless networking technology provider had $232.4 million in cash and equivalents with $134.6 million of other long-term debt.

Moving Forward

Despite uncertainties pertaining to the COVID-19 pandemic, Viasat delivered impressive results in first-quarter fiscal 2021 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 the IFC business and increase its market-share post the 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.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted 53.68% due to these changes.

VGM Scores

Currently, ViaSat has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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