ViaSat, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended June 30, 2015. Following a fiscal-year change, this is the first quarter of fiscal 2016; the comparable prior-year quarter ended July 4, 2014. ViaSat operates satellite services, commercial networks, and government systems businesses.
Financial performance and liquidity
| Metric | Quarter ended June 30, 2015 | Prior-year quarter |
|---|---|---|
| Revenue | $344.4 million | $319.5 million |
| Operating income (loss) | $9.4 million | $(1.2) million |
| Net income (loss) attributable to ViaSat | $2.6 million | $(5.9) million |
| Diluted earnings (loss) per share | $0.05 | $(0.13) |
| Operating cash flow | $18.0 million | $46.9 million |
- Revenue increased 7.8%, driven by service revenue growth of 16.3%; product revenue was nearly flat. Operating margin was 2.7%, versus negative 0.4% in the prior-year quarter.
- Satellite services revenue was $132.4 million, up 20.7%; segment operating profit was $17.0 million. Commercial networks revenue fell 27.6% to $66.8 million and the segment operating loss widened to $18.7 million. Government systems revenue rose 23.6% to $145.2 million, with operating profit of $15.9 million.
- Cash and cash equivalents were $42.5 million at June 30, down from $52.3 million at April 3. Working capital was $342.3 million.
- Total debt was $861.7 million, up from $806.7 million at April 3; this included $575.0 million principal on 2020 Notes, $225.0 million on the revolver, and $61.6 million on the Ex-Im facility. Revolver availability was $228.8 million; $411.4 million remained available under the Ex-Im facility for ViaSat-2 costs. The company reported compliance with credit-facility covenants.
- Investing activities used $86.7 million, mainly for satellites, property and equipment, patents and other assets. Financing activities provided $58.8 million. Net cash decreased $9.8 million.
Material changes versus the prior comparable period
- Satellite services benefited from subscriber growth (about 685,000 versus 641,000) and more than 380 aircraft using its in-flight Wi-Fi service. The segment also recorded $6.2 million of settlement-related product revenue.
- Government systems growth reflected higher satellite communications and tactical data-link sales, as well as NetNearU service revenue. Commercial networks weakness reflected projects nearing completion and lower consumer broadband terminal sales.
- Independent research and development expense increased 59.6% to $15.6 million, primarily in commercial networks. Interest expense fell by about $2.0 million, principally because more interest was capitalized during ViaSat-2 construction.
- Operating cash flow declined $28.9 million, largely because of increased cash use for operating assets and liabilities, including receivables and accrued liabilities.
- Firm backlog declined to $872.5 million from $915.6 million; funded backlog fell to $795.7 million from $841.4 million.
Outlook, commentary, risks and unusual items
- Management said available cash, expected operating cash flow and credit-facility capacity should meet anticipated operating needs for at least the next 12 months. No specific revenue or earnings guidance was provided.
- ViaSat estimated ViaSat-2 project costs through launch at $600–$650 million, depending partly on gateway infrastructure rollout. Management cited cash, Ex-Im borrowing capacity and expected operating cash flow as funding sources.
- The $108.7 million SS/L/Loral settlement is payable over two and a half years. The quarter included $6.2 million recognized as product revenue and $0.7 million as interest income; future payments are recognized when received.
- Government contract audits remain ongoing for fiscal 2013 and later years. Adverse audit outcomes could lead to refunds, penalties, contract actions or restrictions. The company had a $4.0 million reserve for potential government contract cost adjustments.
- Other risks include ViaSat-2 construction, launch and operating performance; dependence on government contracts and funding; contract termination and backlog conversion; competition; debt and covenant exposure; and litigation. Backlog includes orders that may be terminated, and is not necessarily indicative of future sales.
- The company estimated a 34.8% fiscal 2016 effective tax rate; reinstatement of the expired federal R&D tax credit could reduce it. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether subscriber growth and service margins continue, and how the $6.2 million settlement revenue affects comparisons.
- Commercial networks’ ability to recover from lower product revenue and segment losses while increasing R&D spending.
- Backlog conversion, new awards, customer funding and cancellation exposure, particularly in government programs.
- ViaSat-2 project cost, schedule, financing availability, and construction and launch risks.
- Cash generation and debt trends, including revolver usage, Ex-Im borrowing, interest costs and covenant compliance.
- Resolution of government audits and the adequacy of contract, tax and other contingency reserves.