VSAT

VIASAT INC. 10-Q Summary: Period Ended December 31, 2000

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended December 31, 2000, and the nine-month period ended on that date. ViaSat, Inc. operates in commercial and defense communication applications through two primary segments: ViaSat Satellite Networks (commercial) and Communication Systems Group (defense). A significant event during this period was the April 25, 2000, acquisition of the Satellite Networks Business from Scientific-Atlanta, Inc., for approximately $57.1 million in cash plus warrants.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 129.3% for the nine months ended December 31, 2000, driven primarily by the acquisition of the Satellite Networks Business and growth in commercial broadband programs.
• Margin Compression: Gross profit margin decreased from 42.9% to 32.4%. Management attributes this to a shift in product mix toward lower-margin development projects and higher volumes of commercial products compared to high-margin defense products.
• Expense Increases: Selling, general, and administrative (SG&A) expenses rose 143.9% due to acquisition transition costs and expanded commercial marketing efforts. Conversely, Independent Research and Development (IR&D) expenses decreased 17.0% due to increased funded development contracts.
• One-Time Charges: The period included a $2.3 million charge for acquired in-process research and development and $2.3 million in amortization of intangible assets related to the acquisition.
• Cash Flow Shift: Operating cash flow turned negative ($9.4 million used) compared to positive in the prior year, largely due to significant increases in accounts receivable and inventory associated with the new business. Investing activities consumed $60.0 million, primarily for the acquisition.

Guidance, Outlook, and Risks

• Backlog: As of December 31, 2000, firm backlog stood at $221.7 million ($207.9 million funded), a substantial increase from $88.2 million at March 31, 2000. Approximately $35.9 million is expected to be delivered in the fiscal year ending March 31, 2001.
• Liquidity: The company raised approximately $73.1 million via a secondary public stock offering in April 2000. Management believes current cash balances and expected operating cash flows are sufficient for the next 12 months. A $25.0 million revolving line of credit is under negotiation.
• Contingencies:
  • ORBCOMM Bankruptcy: ViaSat has approximately $4.9 million in assets (receivables and inventory) related to ORBCOMM Global, L.P., which filed for Chapter 11 bankruptcy. Recovery is not assured, and no loss has been accrued as the amount cannot be reasonably estimated.
  • Contract Performance: The company is not currently in compliance with performance covenants on certain contracts. While management does not expect termination or penalties, failure to meet milestones could result in liquidated damages.

Investor Verification Checklist

• Verify the recoverability of the $4.9 million in assets related to the bankrupt ORBCOMM entity.
• Assess the sustainability of gross margins given the shift toward lower-margin commercial development projects.
• Monitor the conversion of the $221.7 million backlog into revenue, noting that government contracts may be terminated at convenience.
• Confirm the status of the $25.0 million revolving credit facility negotiation.
• Review the final valuation of intangible assets and in-process R&D from the Satellite Networks acquisition, as current figures are preliminary.