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ViaSat, Inc. (VSAT)
Q3 2018 Earnings Conference Call
February 8, 2018 17:00 ET
Mark Dankberg - Chairman and Chief Executive Officer
Rick Baldridge - President and Chief Operating Officer
Shawn Duffy - Chief Financial Officer
Robert Blair - General Counsel
Bruce Dirks - Treasurer
Paul Froelich - Corporate Development
Mike Crawford - B. Riley
Rich Valera - Needham & Company
Ric Prentiss - Raymond James
Andrew Spinola - Wells Fargo
Simon Flannery - Morgan Stanley
Phil Cusick - JPMorgan
Chris Quilty - Quilty Analytics
Previous Statements by VSAT
» ViaSat (VSAT) Q2 2018 Results - Earnings Call Transcript
» ViaSat (VSAT) Q1 2018 Results - Earnings Call Transcript
» ViaSat's (VSAT) CEO Mark Dankberg on Q4 2017 Results - Earnings Call Transcript
Okay, thanks. Good afternoon, everybody and welcome to ViaSat’s earnings conference call for our third fiscal quarter of 2018. So I am Mark Dankberg, Chairman and CEO and I’ve got with me Rick Baldridge, our President and Chief Operating Officer; Shawn Duffy, our Chief Financial Officer; Robert Blair, General Counsel; Bruce Dirks, our Treasurer; and Paul Froelich in Corporate Development.
So, before we start, Robert will provide our Safe Harbor disclosure.
Thanks Mark. As you know, this discussion will contain forward-looking statements. This is a reminder that factors could cause actual results to differ materially. Additional information concerning these factors is contained in our SEC filings including our most recent reports on Form 10-K and Form 10-Q. Copies are available from the SEC or from our website.
That said, back to you Mark.
Okay. So we will be referring to slides that are available over the web and I will start with highlights and then Shawn will discuss the consolidated and segment of our financial results. Then I will come back and go into some depth on our residential broadband, in-flight government businesses and we will review our outlook and take questions.
So, the first highlight is that ViaSat-2 is ready for service. We anticipate launching the service region by region starting as early as next week with national coverage planned for the end of this month. We will feature unlimited plans nationwide with the highest speeds available in high demand markets. Test marketing of the unlimited plans has gone well and I will discuss that in some more detail later. We have been anticipating a significant ramp in in-flight connectivity and that’s underway. In the third quarter, we entered production service with Qantas in Australia using our second generation platform and we began testing service on both new and retrofit aircraft with American Airlines. We have signed contracts for 92 additional aircrafts from existing airline customers during the third quarter and that brought our total of in-service and under contract airplanes to just over 1,500.
Then today, we announced a new direct contract with the United Airlines for over 70 additional aircraft, including their new 737MAX fleet. And just to be sure, those new aircraft are in addition to the 92 planes that were signed during the third quarter, so that puts us closer to 1,600 total now and it’s also significant, because United was the only other airline besides JetBlue where we were originally in a subcontract situation. Now, we are really pleased to be working directly with both JetBlue and United. And we had another very strong quarter in government systems. Revenue was up 9% and adjusted EBITDA was up 20% in the third quarter on a year-over-year basis. Orders were strong at about $200 million in the third quarter and that also drove backlog to a record for government systems at just over $700 million. We see good growth prospects across all the government major product lines, which as a reminder were enabled by significant R&D investments that we have made in prior periods and we will give more information on that later as well. So, Shawn, just do that financial part.
Thanks Mark. Overall, our third quarter results were in line with our expectation based on the business drivers we have discussed last call. Looking forward, we are well-positioned on multiple fronts. Orders were up 23% year-over-year, with record backlog of $1.1 billion. We are about to launch ViaSat-2 services and we are beginning to transition to lower payload R&D expenses on the ViaSat-3 program, which will further support P&L and capital flow improvement.
Turning to the quarterly P&L, revenues grew year-over-year just slightly despite the capacity constraints we have to contend with ahead of the ViaSat-2 commercial service launch. Let’s recall that our last year’s Q3 also included $6.8 million of Loral settlement proceeds. EBITDA reflected the impacts of the elevated expenditures associated with bringing ViaSat-2 into service, gearing up for strong IFC growth, flow-through of the year-over-year Loral settlement impact and the continuing R&D expenditures on next-gen technologies. However, I do want to point out that while our Q3 R&D levels were up year-over-year as expected, we do see a decrease of $6 million on a sequential quarter basis as we begin transitioning to the capital portion of the ViaSat based program.
So, looking at our segment results, in Government Systems, Q3 was marked with nice growth across broad product service portfolio. Revenues were up 9% year-over-year reaching $182 million and adjusted EBITDA grew at double that rate of 20% year-over-year to $48 million. Product and service margins were up significantly more than offsetting a $9 million combined increase in R&D initiatives, which included elevated proposal efforts that help secure the $199 million in new orders bringing segment backlog to a record level of over $700 million. And remember, this excludes future awards anticipated under our ID/IQ contract such as the $350 million silicon agreement we have recently announced and we thought it was a very strong Q3 segment EBITDA quarter, with margins increasing over 200 basis points year-over-year.
In Satellite Services, revenues were down year-over-year primarily due to a modest downtick in residential subscriber count, which is stabilizing ahead of our new service launch and the 6.8 million Loral settlement impact, I mentioned earlier. These factors were partially offset by an 8% ARPU growth to a new record high of 68.23. In IFC, we saw another quarter of revenue growth, with 34 more aircraft in service at quarter end versus Q3 last year and increases in ARPU.