ViaSat, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended April 4, 2014 (a 53-week year). The filing also reports fourth-quarter results; this is not a standalone calendar-2013 Q4 filing. ViaSat provides satellite broadband services, communications equipment and secure government systems through three segments: satellite services, commercial networks and government systems.
Financial results and liquidity
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $1,351.5 million | $1,119.7 million |
| Operating income (loss) | $3.3 million | $(20.4) million |
| Net income (loss) attributable to ViaSat | $(9.4) million | $(41.2) million |
| Basic and diluted EPS | $(0.21) | $(0.94) |
| Operating cash flow | $205.1 million | $91.8 million |
| Cash used in investing activities | $354.5 million | $201.6 million |
| Cash and cash equivalents at year-end | $58.3 million | $105.7 million |
| Working capital at year-end | $256.8 million | $297.7 million |
Revenue increased 20.7%, with product revenue up 18.3% and service revenue up 24.3%. The calculated operating margin was approximately 0.2%, compared with approximately negative 1.8% in FY2013. Segment operating results were: satellite services loss of $46.0 million (versus $79.2 million loss), commercial networks loss of $12.1 million (versus $11.1 million loss), and government systems profit of $76.0 million (versus $85.5 million profit).
Operating cash flow rose by $113.3 million year over year. Investing outflows increased, including $119.2 million of cash spent on ViaSat-2 construction. The resulting cash balance declined by $47.4 million during the year.
At April 4, 2014, principal debt was approximately $682.8 million: $575.0 million of 6.875% senior notes due 2020, $105.0 million drawn on the revolving credit facility and $2.8 million of other obligations. The balance sheet reports total debt of $691.6 million including the notes’ unamortized premium. The $500 million revolver had $355.5 million available after borrowings and letters of credit; the company reported compliance with its financial covenants. The filing states that cash, expected operating cash flow and available revolver capacity should cover anticipated requirements for at least 12 months.
Fourth-quarter results
FY2014 fourth-quarter revenue was $343.9 million, operating loss was $1.1 million, net loss attributable to ViaSat was $3.5 million and basic and diluted loss per share was $0.08. In FY2013’s fourth quarter, revenue was $308.7 million, operating loss was $7.0 million, net income attributable to ViaSat was $1.9 million and EPS was $0.04.
Material changes, outlook and risks
- Satellite services growth: Segment revenue increased 41.1% to $390.7 million. Exede and WildBlue subscribers rose 25%, from approximately 512,000 to 641,000; the segment operating loss narrowed as revenue and margins improved.
- Commercial networks and government systems: Revenue rose 25.6% to $395.5 million and 7.1% to $565.2 million, respectively. Government systems operating profit declined 11.0%; higher research and development and support costs weighed on both segments.
- Investment and project commitments: ViaSat estimated total ViaSat-2 project costs of $600 million to $650 million through launch, including satellite, launch, insurance and gateway infrastructure. Management expected continued investment in ViaSat-2 and subscriber acquisition during FY2015; no specific revenue or earnings guidance is provided.
- Unusual subsequent event: After year-end, a jury awarded ViaSat $283 million in its patent and contract dispute with Space Systems/Loral (SS/L). The award was subject to post-trial motions and appeal, and should not be treated as FY2014 recognized revenue or cash. ViaSat also had a separate pending lawsuit against SS/L.
- Other exposures: Key risks include satellite construction, launch and operating failures; competition and subscriber growth; reliance on U.S. government contracts and a small number of large contracts; fixed-price contract overruns; unresolved government cost audits; regulatory and export-control changes; supplier concentration; and substantial debt and covenant constraints.
- Other notable items: FY2013 included a $26.5 million loss on extinguishment of debt from refinancing the 2016 notes. FY2014 independent R&D expense increased 71.3% to $60.7 million. No material impairments were recorded in FY2014.
Key facts for investors to verify
- Review the full financial statements and cash-flow detail to assess whether operating cash generation can sustain ViaSat-2 spending and other investment needs.
- Verify ViaSat-2 schedule, total project cost, funding sources and any subsequent changes to launch or infrastructure plans.
- Track subscriber additions, churn, subscriber mix, revenue per subscriber and progress toward profitability in satellite services.
- Check the status, appeal and collectability of the $283 million SS/L verdict, as well as the separate litigation and any injunction proceedings.
- Review government audit outcomes and potential contract-cost adjustments; incurred-cost audits for FY2004 and later years remained open, with $6.7 million in related reserves at year-end.
- Monitor debt, revolver availability, covenant compliance and the effect of fixed-price contract performance on liquidity.