Business Context and Reporting Period
Company: VIASAT, INC.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and nine months ended December 28, 2007 (Fiscal Year 2008, Q3).
Business Overview: ViaSat is a provider of advanced digital satellite communications, wireless, and secure networking equipment. Operations are divided into two primary segments: Government (defense communications, information assurance) and Commercial (Satellite Networks and Antenna Systems).
Key Financial Metrics
| Financial Metric (in thousands) | Three Months Ended Dec 28, 2007 |
Nine Months Ended Dec 28, 2007 |
Nine Months Ended Dec 29, 2006 |
|---|---|---|---|
| Revenues | $152,053 | $427,240 | $384,538 |
| Cost of Revenues | $105,842 | $306,751 | $285,942 |
| Gross Margin % | 30.4% | 28.2% | 25.6% |
| Income from Operations | $14,497 | $30,027 | $25,887 |
| Net Income | $10,225 | $22,991 | $21,590 |
| Diluted EPS | $0.32 | $0.71 | $0.71 |
| Cash from Operating Activities | N/A | $46,087 | $42,336 |
| Cash and Cash Equivalents (End of Period) | $121,073 | $121,073 | $76,619 |
| Total Debt (Secured Borrowings) | $5,111 | $5,111 | N/A |
| Working Capital | $240,017 | $240,017 | $187,406 |
Note: Debt consists of a secured borrowing arrangement; no borrowings were outstanding under the $60 million revolving credit facility.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 22.3% year-over-year for the quarter and 11.1% for the nine-month period. Growth was driven by higher beginning backlog and new awards in both Government and Commercial segments.
- Segment Performance:
- Government: Revenues rose 23.0% (quarter) and 13.5% (nine months), driven by information assurance products and military satellite systems. Operating profit increased 77.7% for the quarter due to margin gains and better program performance.
- Commercial: Revenues rose 21.4% (quarter) and 8.2% (nine months). Growth in consumer/mobile broadband and Antenna Systems offset a decline in enterprise VSAT sales. Commercial operating profit decreased slightly for the quarter but improved significantly for the nine-month period.
- Cost Management: Cost of revenues as a percentage of revenue decreased from 72.7% to 69.6% (quarter) and 74.4% to 71.8% (nine months), attributed to product cost reductions and improved program performance.
- Acquisitions: Completed the acquisition of JAST, S.A. in August 2007 for approximately $2.1 million, adding microwave circuit and antenna technologies.
- Tax Rate: The effective tax rate increased to 30.4% for the quarter and 29.1% for the nine months, compared to a benefit in the prior year, primarily due to the expiration of the federal research and development tax credit on December 31, 2007.
Guidance, Outlook, and Risks
- Backlog: Firm backlog increased to $422.9 million (from $388.7 million at the prior year-end). Approximately $116.2 million is expected to be delivered in the remaining quarter of fiscal 2008.
- Major Project (ViaSat-1): In January 2008, the company entered into agreements to purchase a Ka-band satellite (ViaSat-1) for approximately $209.1 million. A beam-sharing agreement with Loral Space & Communications involves Loral contributing 15% of total costs (approx. $60 million). Launch is planned for early 2011.
- Liquidity: The company maintains a $60 million revolving credit facility with $51.8 million available. Management believes current cash and operating cash flows are sufficient for the next 12 months.
- Risks:
- Satellite Project Risks: Significant exposure to cost overruns, schedule delays, launch failures, and regulatory hurdles regarding the ViaSat-1 satellite.
- Contract Termination: A majority of contracts can be terminated at the customer's convenience with limited penalties.
- Tax Policy: Future tax rates depend on the potential reinstatement of the federal R&D tax credit.
Investor Verification Checklist
- Backlog Realization: Verify the conversion rate of the $422.9 million backlog into revenue, noting the risk of customer termination.
- ViaSat-1 Funding: Confirm the funding status and cost-sharing arrangements with Loral for the $209.1 million satellite project.
- Commercial Segment Mix: Monitor the decline in enterprise VSAT sales versus growth in consumer broadband to assess long-term revenue stability.
- Tax Rate Volatility: Track legislative updates regarding the federal R&D tax credit, as its expiration has increased the effective tax rate.
- Accounts Receivable: Review the $7.6 million increase in receivables, attributed to delayed payments from a government customer, to ensure collection in the fourth quarter.