Q4 2021 ViaSat Inc Earnings Call
[music].
Welcome to Viasat.
That's why 21 fourth quarter earnings conference call.
For today's call is Rick Baldridge, President and CEO you May proceed Mr ball drink.
Okay. Thanks for joining us today.
We released our shareholder letter earlier today before the market opened and hope you have all had a whole type of review that.
On today's call and do a little bit on just brief opening remarks and spin.
And perhaps the time on Q&A.
But first let's have Robert will provide our safe Harbor disclosure.
Thanks, Rick as you know this discussion will contain forward looking statements. This is a reminder, that factors could cause actual results to differ materially and additional information concerning these factors is contained in our SEC filings, including our most recent reports on form 10, Ks and Qs copies are available from the SEC or from our website.
Okay. Thanks Robert.
Hello, everybody and.
Welcome to our fourth quarter and year end call and addition to Robert <unk>, joining us on the call today.
Mark Day Berg, our executive Chairman Mark <unk>.
Shawn Duffy.
Paul Froelich from corporate development Investor relation team and.
A new addition here Peter Lopez joined Us Thats, focusing on IR Investor Relations right now.
So before getting into Q&A, we'll just go and cover a few highlights.
First thing to note is we're really really.
Proud of what we achieved and and.
And our fiscal year 'twenty 1.
Performance.
And especially in light of all the challenges and I'm sure a lot of companies have but.
Associated with Covid, 19, and obviously hit us.
Price from the beginning.
Combination of our diversified business mix and early and very decisive cost actions and then prioritization along the year.
Alongside the really hard work and.
And that stability and flexibility of our employees.
Allowed us to achieve really stellar financial results for the year, including records for adjusted EBITDA operating cash flow.
Over $700 million.
And record awards.
We finished the year on a strong note with.
Fourth quarter that is stronger than normal 23% year over year growth and Q4 adjusted EBITDA.
Our business segments are performing well with really strong momentum going into 2022 and it sounded like services, we saw strong demand with stable churn and record RFP are fixed consumer services.
Our IFC business was severely impacted by Covid and all year we've.
We've seen some steady improvement each quarter since the beginning.
But we're still well below the level of pre pandemic business.
The trend continues towards normal travel patterns with our consumers leading business travelers from that area.
Government systems had good revenue and EBITDA performance, especially in light of the procurement challenges created by the pandemic.
And we had another year of over a $1 billion and awards and making the Mark and the third year in a row for that milestone and our government business and.
Added to our backlog.
Commercial networks had a strong performance here.
And our antenna systems business specifically.
Partially offsetting the COVID-19 related impact and IFC mobile terminal.
Shipments.
But beyond the numbers, we achieved other really really important execution milestones and wins that are worth noting 1 is the first 1 is completed and payload integration.
First of the 3 Viasat 3.
Payloads for women and that's going to go over the Americas at our Tempe, Arizona facility.
And we're currently preparing the first payload for shipments to Boeing which is eminent.
Launch day of early calendar 2022 remains on track.
We added Delta Airlines is a new.
And important to customer and our and our IFC business now with over 530 aircraft under contract again saw the press release, we sent out today and it added another 230 aircrafts to what we already had.
We commenced installations and another new customer KLM Royal Dutch Airlines.
And we kept our eye on long term strategies and opportunity sets with with the acquisition of Rick net and the other half of our European joint venture closed on actually on the same day.
These achievements reflect our continued focus on execution ahead, and Viasat 3 as we grow our global footprint and expand into new geographies.
And new vertical markets.
And also support our long term financial targets. Despite the challenges of COVID-19, we believe we've kept viasat on track to double revenue and more than double EBITDA by FY 'twenty 5 you're still targeting turning free cash flow positive 2 to 3 quarters. After the launch of our second Viasat 3 satellite.
So with that let's go ahead and jump into the first questions operator.
Thank you Sir as a reminder to all participants you have a question. Please press star 1 on your tenants from Keybanc again, that's part 1 on your telephone keypad, However, and if your question has been answered.
And your sales from the queue.
And thank you please standby, while we can pile on.
Our first question is from Rick Prentiss with Raymond James Your line is open.
Good morning, and good afternoon, everyone.
Good morning.
Couple of questions first question just want to talk on the schedule and you mentioned that.
3.
Mark is on track for calendar year 'twenty 2 early launch.
COVID-19 and supply chains construction stuff, where we can.
And we'll lay out the thoughts and then.
And then when the 3 D over EMEA and <unk>.
APAC are on track for launching and in service.
Well I mean, I can't predict that there won't be any other COVID-19 impacts I mean, that's.
And so.
And definitely hit us pretty hard and this last year on that payload, but generally speaking we are pretty well coordinated.
Supply chain and most of the most everything's there for that first 1.
Boeing.
And I'll, let those guys speak for themselves, but we've got a lot of confidence.
And I understand the schedule.
Buses.
And it is ready so we don't expect anything but.
Anything could happen.
The second.
Payload.
We've said before is about 6 months behind.
The first 1.
The only thing that's happened here is the third payload right now which used to be a year behind the second 1 is more like and a 6 to 9 month range behind the second 1.
Moved up.
So that's that's the current schedule.
And how long to rise them into orbit and how long should we think about food service versus launch dates.
Yeah.
Well.
I don't think we've officially announce our launch providers for each 1 of them and it varies by launch provider.
So.
And we'll give you a better idea.
As we get a little bit closer to the launch and.
In terms of.
Cause each 1 has a different orbit raising profile.
On the test after we get it on orbit is probably about the same and that's probably a little longer for the first 1 and then it is for the second and third 1.
Makes sense.
Obviously, a big year for government.
And $1 billion and awards when you think about those those awards and the bidding how many of those contracts are you guys going on like a solo bids and how many are your joint bidding with someone else and and who are your bigger partners or your competitors and I'd be thinking about those awards that you keep putting up on the board.
Well.
And in most cases were the prime.
So we do partner with other people on obviously.
Uh huh.
Yeah.
And our partnership on a on on Australia.
And with Northrop, we've so we'll partner where it makes sense. We've done we do work with Harris on.
And <unk> product, there and that case, a supplier to us.
We provide.
Ponant to them too and others, so, but most of our awards work.
A lot of them are competitive and.
So we're competing against other big price as well as other.
And so obviously the mid thing as we compete with.
With a b.
And we compete with the joint Venture's data link solutions between EBITDA and yield.
The old Rockwell and.
So.
And Thats competitive every day.
On every cycle small tactical terminal.
Not really competing we're competing in any case with potentially an alternative solution on an alternative way to do it.
But we're we're the only ones with that product so.
That was a non developmental item, we've invested our money and.
And develop that so were.
And it's.
It really was competitive with the old.
A piece of the old J Trs the adult airborne maritime and fixed terminal that didn't make it through the J Trs profile and that's really what we're that terminal and competes and we.
We don't nobody else has a handheld link 16 product like ours that Betsy so on.
And a lot of these cases.
The sole source product.
Oh, that's out there and.
And we are the prime contractor.
And on an F 18, so.
We're not the ultimate source, but they're procuring this from us.
Makes sense and last 1 from me.
Rick you called out the acquisitions that you made at April 30, and I think it was on.
The rig net and the European JV, how should we think about what that means as far as audited revenue and EBITDA.
And EBITDA.
And once you folded into your systems now you've had them for.
Just about a month now.
Shawn Yeah, Hey, Rick and I can jump in on that.
And I, probably think about it and combine.
Top line and maybe next year contributing another 230 million herself.
And on the EBITDA line, maybe at that point.
Okay, and Thats for like 11 months and.
Around there.
The other thing to think about us and this year there are synergies and each 1 of these transactions, but there is also on implementation costs and.
And the integration cost and getting them in and then it kind of the way we're looking at it pretty much offset each other its first fiscal year.
Right right and then.
And can it go into sat services or is there some mix between the different segments that you guys report.
The majority of and that's kind of go on to SAP services. There is a bit on the product side from right now and I will go over into commercial.
And think of it as you know.
Yes and.
Our around that 10% to 15% of that number.
Perfect I appreciate you guys all stay well.
Thanks, Rick.
Our next question is from Simon Flannery with Morgan Stanley Your line again.
Great. Thank you so much.
The shareholder letter you talked about.
Significant.
The growth opportunity and recurring service revenue since the bioscience constellation and 3.
Thanks to enter service.
Could you give us and have a bit more color about what your visibility is on that opportunity and so in terms of sales conversations or traffic and aren't going to be moving across to how do we think about that.
And that ramp and recurring service revenue.
The 3 satellites come on and how much of that is sort of in backlog or pretty firmly circled at this point.
So Simon.
We're not unlike a lot of the fixed satellite service guys that.
Spell their bandwidth out and get contracts before they launch I think you know we don't do that.
I mean, it's not that we don't do some of that we've done that for instance, with.
With Sci.
<unk> and Canada.
As an example, previously at telesat before with them from that stuff with but I.
I mean.
And then tell us up.
But the other operators, but.
This comes from.
Getting consumer subscribers and getting small business subscribers and arrow and winning in flight connectivity and platform markets and that space.
Vehicles maritime signing up those subscribers as we go.
And in most cases, our direct.
And when we get outside of the U S. There will be areas, where we make some wholesale deals and.
And though it might be areas, where we sell some capacity but.
There is these satellites are.
There were built to what we see doesn't demand.
And the marketplace.
Parks with Mark area, where we see demand and where we think we can increase.
Our market share by bringing something that's quite a bit better than and that's 1 and therefore.
So.
Like.
No.
I'm not going to mentioned and the other operators, but they may pre sell 2 thirds of other satellite before they ever.
Before they ever launch and that's not what we do.
Yeah.
So the other the other.
And we do have.
Yes.
Yes.
2500 aircraft.
Government.
And so a lot of those moves on.
As we predicted.
We're looking to capture.
And the revenue that are pretty simple and that helps us corporate cash.
Relatively.
Yeah that makes sense and I guess part of it you do have a backlog of IFC and and you added to that today with Delta.
What's what.
What sort of timeline do you think you will see those planes coming online.
I think so and what we deliver about lower 400, and those aircrafts over the next 12 months.
And something like that of the Delta aircraft.
Okay, and then the balance of the year after.
Yeah.
Great.
Perhaps any color on OUI.
And we heard many of our companies talking about things got better in March and then continue to improve and we see the latest TSA data. So is it fair to say that activity and IFC is.
<unk> to accelerate through this.
The current quarter from the levels of Q1.
Yes, I kind of identified that in my opening remarks, there there definitely were seeing.
Month to month increase and.
And the number of aircrafts that are actually in service and the number of passengers that are flying.
But most of it.
And consumer.
Theyre not theyre seeing a very slow return business travelers right now.
Great and are you seeing more evidence that consumers are starting to have higher take rates, we use more bandwidth and maybe on the past.
Pursuant, we're seeing similar take rates.
And what we've seen just if you think of a percentage of.
Passengers.
And remember that business people travel for leisure also.
So just because they're not traveling for business doesn't mean, they're not doing business, while they're traveling.
Yeah.
Okay, great. Many thanks.
Okay.
Our next question is from the line of Phil Cusick with Jpmorgan. Your line is open.
Hey, guys. Thanks.
With the payload of the first Viasat 3 shipping soon and the next to getting towards completion.
And as how we should think about Capex and the next year.
And so and I can take that 1.
A couple of things 1 is to remember that.
And this year I would say, we had a little bit of our capital.
And I'm, just trying to act and perfectly match that up against the war on schedule.
I think that 1 thing to keep in mind.
And then we're in that last year with our lives.
Capital in 'twenty 2.
Think of it and the quarterly rate around 300 million and it is.
And a startup T S on the back half.
That's probably a good range.
Okay.
Okay.
And then second if you could talk about the sales headwinds you've seen.
And the government and defense business over the last year and are those easing that we can start seeing that business really take off.
Labor day.
Most of them were related to.
I mean like simple physical things people couldn't get access to.
Some of the networks that they needed to.
Utilized to review and issue contracts or 2 and I stepped contracts or those types of things and and.
And given what's happened and given that the CDC has now come out and.
A lot of people have been vaccinated and.
The other saying that if you have been vetted fully vaccinated and and.
And it had the adequate time that.
You don't have those precautions so.
And we would expect that things are returning to normal over the next few months and certainly the remainder of the year.
And we're seeing we still see quite a bit towards obviously and we've got over $1 billion.
But it was it was.
More difficult and in previous periods for sure.
Right, that's just logistics of signing contracts and <unk>.
And there I know, it's been a big headwind, but it seems like.
And quite normal yet, but getting towards normal and the next few months.
And that's a good characterization.
And is there a real.
Backlog on things that need to be signed and are sort of ready to go to Rick.
Keep picking up whether its this quarter and next quarter or is that going to be more gradual.
And all that.
There are always pretty lumpy.
And I would expect that's going to continue so.
If you look and this year, we had really good and front end orders and that area. Because it's just service from contract timing and those things were ready to go and.
So I think we will see it.
<unk> to be lumpy.
Okay, and then last 1 and there was no headline recently that you may consider splitting the business or selling a business pretty clearly aren't getting the multiple for the defense business and the market that you deserve.
Help us think about anything.
Anything you can do on how that makes sense or what the synergies are of having the government and civilian businesses under a single roof.
Thank you.
Sure Yes.
The significant synergies and adding those to government and commercial.
And it comes from multiple different vectors, 1 as the governor from him.
I think it is.
And a complicated user.
Types of broadband services, because they will have concentrated and demand in certain areas that will move around.
And.
Well you have to think that as if you wanted to.
Total of your contracts.
You have to have bandwidth available and all the places where they might be.
And they are a large fraction.
Total.
Total net.
Net net utilization utilization of that can be really well.
Okay.
And as a commercial business.
And it's easier to blend and that the government contract.
And your resources.
And that's 1 of the source.
Obscurity and.
We've seen that over and.
And.
And we already have.
Linda is on Panther.
Primarily in the <unk>.
This is Patrick.
At <unk>, we will get the single effects on a more global.
The other thing.
It's really important is that from.
And it's a really good way for us to compete more effectively.
And this market and someone who got on that.
And the combination of broadband capabilities.
Organic and capabilities that we do.
So.
We find on anything other than the market.
The other thing and I would add there is.
There have been times, where it has had a lot of credit FERC, Kevin on business and Theres times only seems like we don't get it and I think those are transitory.
And.
Don't like it but it's like this but I think its transitory.
Okay. Thanks, guys.
Yeah.
Our next question is from the line of Mike Crawford with B Riley Securities. Your line is open.
Thank you on.
Satellite services side, we saw that you got the landing rights and Nigeria, what about progress and other regions, where we should be looking for.
Continued.
And the extension of your landing rights globally.
Oh.
Mark you want and talking about that.
Yes.
So right now what we're doing on a global basis is a lot of times when we're using.
And any bandwidth engine and new markets.
And that isn't a good example, and Nigeria is 1 where we sit on that specific yet for that.
You'll see us getting about any rights and those areas.
More and areas.
As you know as we get our own and coverage in those areas and that's probably the best.
Hey.
And that kind of cat, So Duffy Americas.
And we'll be the first place because we can do some of that with Viasat 2 and also from the partner with Viasat 2 is coming on.
So we're not always and we're not.
You're always going to make announcements around right.
It really depends on the specific market.
Yeah.
Okay. Thank you and then on the.
Commercial networks. So is there can you talk about.
For this current fiscal 'twenty, 2 how much of that would be like antennas, and 1 lab and others versus say.
Satellite payloads and.
And I have a satellite equipment for your own.
Users broadband this year and then how that's going to shift over the next couple of years once viasat 3 starts to dominate a little bit more.
1 other.
Yeah.
1 of the biggest area of who's going to read.
And it really has gone awards last year and we see this.
And good news is and.
Promotion and what that means.
Would you essentially ground segment for different equivalents of Earth observation satellite.
No it's not.
And the new space New.
New space does work.
Paramount of it and communications and a lot of it is and things that relate to Earth observation.
A lot more demand for ground that works for that.
And so some of that is.
And our custom orders how do we grow.
For those.
Alex another area, that's been growing pretty pretty well on our comp on it.
And are used and space systems out and Thats good.
Yeah.
The opportunities for discover.
And commercial and there as well.
Those are the 2 fastest growing parts of the commercial networks and.
And this coming year.
And cloud connectivity equipment can be on street are contributing to that that the growth there.
And overall, Mike over the next 2 years.
Mark is right, but that's from.
From an external standpoint, and you can look at that over the next 2 years I'd say well over half of it is.
Viasat 3 related payloads and ground segment appointment and that's kind of occur through that segment just from a cost standpoint.
Okay. Thank you and then.
Just a couple more 1.
Back to Rick <unk>.
Said.
Uh huh.
Integration.
Second and that kind of upside synergies this year, but.
Can you quantify them, but.
For this year.
Yeah, I think what I would think about and yeah.
And you look longer out.
There are some further opportunities bandwidth and so forth and forget the price up pretty nicely.
And I'm in Euro terms and.
Got it.
And associate with all the traditional.
And how about company Todd.
It was kind of elements and G&A.
And the tender.
And the $10 million to $15 million range and that's a good range.
Rick.
Okay.
And then.
And then last question from me.
If you just looked at your data links business, which I think would be mostly if not all and government systems like.
Yes.
Yeah.
What is the.
The order.
The magnitude of revenue generated from that business today and profitability compared with government systems has a home.
And case that was 1 that was could potentially be carved out.
Well I mean, it's hypothetical so.
I think that we're not right now.
And we have our integrated business and like Mark said that utilizes.
All of that and stuff so.
We've talked before about roughly having something pretty close to.
Third and.
And that kind of area.
And to a little bit higher and that area and our services business and our cyber security.
Yes.
And then satellite.
Satellite.
Modems and that kind of stuff and the rest of the area. So.
It's kind of like that.
But really don't disclose the pieces.
Okay, Alright, thank you very much.
Thanks.
Once again, ladies and gentlemen, if you have a question. Please press star 1 on your telephone keypad again Thats star 1 on your telephone keypad.
Okay, we'll take what we take 1 more.
And.
And 1 more call.
1 more question.
Sir our last question is from the line of Chris Quilty with Quilty analytics. Your line is open.
Thanks, I wanted to follow up on just a couple of commentary or a couple of points that were in the commentary.
1 of them indicated that the margins in the.
Services business will likely be pressured towards the back end of the year as you start to roll out.
Some of the costs associated with Viasat 3.
So and should we expect that mostly around the fourth quarter or should we see the margins pressuring down before then.
Yeah, and I would.
Thank you, Matt and Chris is still.
Castor startup costs coming on for Viasat 3.
I think Canada and scale, our ramp as we bring up the network and so on.
Trickle and earlier and then yes, you're right and get a little bit heavier on the backend.
So we've already started and we've already started and yes, I think Shawn described it exactly right. It's like a ramp and so the fourth quarter will be the biggest quarter by far and and certainly accelerate and that timeframe.
As we get closer to launching the satellites and.
Go on but we can't wait to the last second to start.
And.
And we've already started and got back.
And and we're putting.
Satellite access nodes and we're running tests for lighting and some of the fiber rings up and that will just ramp as we go throughout the year, but the fourth quarter will be.
Definitely.
Hey, heavier than the other quarters.
Understand it and I think.
You know and also at the start of Covid, you had to lay off of a couple of hundred people on the IFC side, presumably you're going to be bringing back some of those people also as the business scales and so does that also play into the margin compression.
No I mean, I don't think so.
And we never.
Just because on 1 area gets yet that's not the only area I would say well over half the employees that were.
That left and administrative functions.
So we try and to try to preserve the people that are actually and the <unk>.
Operating expenses as much as possible.
And.
It was well over half and it was more like 70% so.
Add back and those areas will definitely lagged the business.
Uh huh.
And the plan would be to as we go forward to get as efficient as we can.
But we won't be as employees were definitely hiring.
That's good to know on.
On the government side the.
SBA has made some pretty favorable comments around the role that link 16 will eventually play and the space force as whole proliferated Leo can you kind of give us an update on on where you are right and that program in terms of timing or other new developments.
Spring and other developments around <unk> is that the question.
And just specifically the link 16 Leo effort.
And how that might fit.
<unk> fit into the Fda's plans.
Yes.
Just on <unk> and space in general.
Different visual and parts of the Dod.
On it.
SPX expected.
And looking through the particulars.
And I kind of on.
From that.
Transmission capability, which can be huge.
And.
Like you've seen with with them incorporate that and we continue usually to that.
And this is the recognition of the day.
And there is an existing contract and especially for <unk>.
New applications and link 16 that arc.
Right.
And over the horizon.
Shortly and communications.
And there's other organizations that are more on link 16, either side also see specific applications as opposed to just having to be part of kind of a transition portfolio. So.
We're working with let's say both sides of that and there is definitely opportunities for innovation.
And Scott.
And here.
And space conflicts and be more than gas.
And just 1 element and it kind of broad.
Yes.
And that.
2.
So to be determinant and I think 1 of the things Thats really interesting about the team.
That will come on in the past.
Rapid growth and a number.
And just like a team.
And there's been cool and things like sensors and.
And as.
Good day.
Okay.
So I haven't had to draw on the array of participants.
Creates new interesting applications for BT to participants and their and.
I think there's good up dropping lately.
And the space.
Thank you for your question.
Yeah, I wanted to give me a number.
Okay.
Hum.
Hum.
So let me let me ask 1 final question, which is the government.
<unk> services revenue I think was a record at $80 million and a quarter.
And you also had some commentary around you know that being a big driver once Viasat 3 comes online and I guess my question is I think most of the stuff that you do today.
Ku band Arc light.
Do you need a new contract vehicle.
Or new hardware to migrate aircraft from <unk>.
And I guess, he Ku band Arclight network on 2 new Viasat, 3 I reported K a.
No.
On the programs that we won number of and the last couple years, especially maybe back on that.
And our.
And I think on our customers understand that.
And would kick in.
On the specialty guys.
Global capability.
So all of those attacks.
But on most of those contracts.
We contemplate and migration to get in.
Already.
Hardware components.
And that was anticipated.
As well.
So I'd say no.
And the roads well paid for that.
This customer base.
Got it and and Mark and I assume you are like calling in on our Inmarsat or Intelsat network, because you've got a bad connection and it's not a viasat 3 calls.
[laughter] I'm sorry about that.
[laughter] no product I'm not going on anything.
[laughter].
Alright, thank you.
Thanks, Chris.
Okay.
And I guess that was the last call. So thanks, everybody for joining we appreciate it again we had.
Definitely proud of our people and and the performance.
This year I think.
Harold and was a lot higher than what.
And obviously everybody is really really.
The team did a fantastic job and.
And where things are accelerating so were we.
And we looked at the growth year, and our fiscal year 'twenty 2.
And.
And we're really confident and and both are achieving the outlook and getting these kidney satellite's launch. So we will see you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for joining you may now disconnect.
And things.
Paul.
Yes.
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