Business Context and Reporting Period
Company: VIASAT, INC.
Filing Type: Form 10-K (Annual Report)
Period Ended: March 28, 2008
Business Overview: ViaSat is a leading producer of satellite and wireless communications systems for government and commercial customers. The company operates through three segments: Government Systems (tactical data links, secure networking), Commercial Networks (consumer/enterprise broadband, mobile broadband), and Satellite Services (managed network services). In fiscal 2008, the company began construction of the ViaSat-1 high-speed Ka-band satellite, planned for launch in early 2011.
Key Financial Metrics
| Metric (in millions) | Fiscal 2008 | Fiscal 2007 |
|---|---|---|
| Revenues | $574.7 | $516.6 |
| Net Income | $33.5 | $30.2 |
| Income from Operations | $42.9 | $35.4 |
| Operating Margin | 7.5% | 6.9% |
| Diluted EPS | $1.04 | $0.98 |
| Cash from Operations | $48.3 | $66.7 |
| Cash & Equivalents | $125.2 | $103.4 |
| Working Capital | $248.3 | $187.4 |
| Total Debt (Line of Credit) | $0.0 | $0.0 |
Note: The company had no outstanding borrowings under its $60 million line of credit as of March 28, 2008, though $8.0 million was utilized for standby letters of credit.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 11.2% to $574.7 million, driven by record new contract awards of $560.0 million in fiscal 2008 compared to $525.0 million in fiscal 2007.
- Segment Performance:
- Government Systems: Revenues rose 14.8% to $319.5 million, primarily due to increased sales of military satellite communication systems and tactical data links.
- Commercial Networks: Revenues increased 7.2% to $248.3 million, driven by consumer broadband and antenna systems, offset by a decline in enterprise VSAT sales.
- Satellite Services: Revenues remained flat at $6.8 million; operating losses widened to $2.9 million due to a receivable write-off from a customer bankruptcy.
- Cost Structure: Cost of revenues as a percentage of sales improved to 72.0% from 73.6%, aided by product cost reductions in consumer and mobile broadband products.
- Backlog: Firm backlog decreased to $374.4 million from $388.7 million, primarily due to large contract awards shifting from fiscal 2008 to fiscal 2009.
Guidance, Outlook, and Risks
Outlook and Strategy:
- ViaSat-1 Satellite: The company is constructing a high-capacity Ka-band satellite with a projected total project cost of approximately $420.0 million (including launch and infrastructure). Launch is targeted for early 2011. The company plans to fund this via cash on hand, borrowing capacity, and potential outside equity contributions.
- Acquisitions: Completed the acquisition of JAST, S.A. (Swiss antenna developer) in August 2007 to complement mobile satellite communications capabilities.
Key Risks and Contingencies:
- Satellite Project Risks: Significant exposure to cost overruns, launch delays, launch failure, and regulatory approval risks associated with the ViaSat-1 project.
- Customer Concentration: The U.S. government accounted for 30% of revenues. The five largest contracts generated 44% of total revenues.
- Fixed-Price Contracts: Approximately 86% of revenues are derived from fixed-price contracts, exposing the company to cost overrun risks.
- Supply Chain: Reliance on a limited number of contract manufacturers and sole-source suppliers for critical components (e.g., Texas Instruments, Broadcom).
- Financial Covenants: The credit facility requires minimum EBITDA of $30 million, tangible net worth of $135 million, and a quick ratio of 1.50. The company was in compliance as of March 28, 2008.
Investor Verification Checklist
- ViaSat-1 Funding: Verify the company's ability to secure the remaining capital required for the $420 million satellite project without dilutive equity issuance or debt covenant violations.
- Government Contract Renewals: Monitor the status of the top five contracts (44% of revenue) and the renewal of the MIDS tactical data link program.
- Commercial VSAT Trends: Assess the reasons for the $25.3 million decline in enterprise VSAT sales and the sustainability of consumer broadband growth.
- Fixed-Price Exposure: Review the margin stability of the 86% of revenue derived from fixed-price contracts, particularly in light of potential cost overruns.
- Customer Credit Risk: Evaluate the impact of the recent customer bankruptcy write-off in the Satellite Services segment on future receivables management.