Business Context and Reporting Period
Company: ViaSat, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Nine months ended December 31, 2015 (Fiscal Year 2016).
Business Overview: ViaSat operates in three segments: Satellite Services (broadband services), Commercial Networks (satellite and wireless systems), and Government Systems (secure communications). The company recently changed its fiscal year end to March 31, effective April 4, 2015.
Key Financial Metrics (Nine Months Ended Dec 31, 2015)
| Metric | Value (in thousands) |
|---|---|
| Total Revenues | $1,045,467 |
| Net Income | $17,383 |
| Net Income Attributable to ViaSat | $17,291 |
| Diluted EPS | $0.35 |
| Operating Cash Flow | $219,490 |
| Cash and Cash Equivalents | $63,864 |
| Total Debt (Long-term + Current) | $937,229 |
| Working Capital | $331,764 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 2.7% to $1.045 billion, driven by a 15.7% increase in service revenues ($557.2M), partially offset by a 9.0% decline in product revenues ($488.3M).
- Profitability Decline: Net income attributable to ViaSat decreased 47.3% to $17.3 million compared to $32.8 million in the prior year period. Operating income fell 47.0% to $33.6 million.
- Segment Performance:
- Satellite Services: Revenues up 12.0% and operating profit up 25.1% due to subscriber growth (687,000 subscribers) and higher average revenue per user.
- Commercial Networks: Revenues down 28.3% and operating loss widened to $70.9 million (from $20.8M loss) due to decreased product sales and increased independent R&D spending.
- Government Systems: Revenues up 15.0% and operating profit up 17.2% driven by satellite communication systems and tactical data link products.
- Tax Benefit: The company recorded a tax benefit of $1.3 million (vs. $7.6M expense prior year) largely due to the retroactive extension of the R&D tax credit under the PATH Act of 2015.
Guidance, Outlook, and Risks
- Strategic Partnership: In February 2016, ViaSat entered a framework agreement with Eutelsat to form a strategic partnership for European satellite broadband services. ViaSat intends to purchase a 49% stake in a new Eutelsat subsidiary for approximately €132.5 million, financing this via its Revolving Credit Facility. Closing is expected in Q1 FY2017.
- Satellite Projects: ViaSat-2 construction continues with a projected total cost of $600M-$650M. A new launch services agreement for one satellite was signed in January 2016 for approximately $115 million.
- Backlog: Firm backlog decreased to $866.0 million from $915.6 million at the prior year-end. Funded backlog is $807.6 million.
- Risks: Key risks include the ability to realize benefits from ViaSat-2 and ViaSat-3 satellites, execution of the Eutelsat partnership, U.S. government contract audits, and reliance on a limited number of key customers and suppliers.
Investor Verification Checklist
- Commercial Networks Losses: Verify the sustainability of the widening operating loss in the Commercial Networks segment and the timeline for R&D investments to yield revenue.
- Debt Covenants: Confirm continued compliance with financial covenants (leverage and interest coverage ratios) under the Revolving Credit Facility and Ex-Im Credit Facility, especially given the planned Eutelsat acquisition financing.
- Government Contract Audits: Monitor the status of DCAA incurred cost audits for fiscal year 2015, as adjustments could impact profitability.
- Subscriber Growth: Validate the trajectory of Exede subscriber growth and average revenue per subscriber to support Satellite Services margins.
- Capital Expenditures: Track cash outflows related to ViaSat-2 construction and the new launch agreement to ensure liquidity remains sufficient.