ViaSat, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended April 3, 2015 (52 weeks), compared with fiscal 2014 ended April 4, 2014 (53 weeks). The filing also reports fourth-quarter results. ViaSat provides satellite broadband services, communications equipment and systems, and government networking solutions through its Satellite Services, Commercial Networks and Government Systems segments.
Financial performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Total revenue | $1,382.5 million | $1,351.5 million |
| Operating income | $83.1 million | $3.3 million |
| Operating margin | 6.0% | 0.2% |
| Net income (loss) attributable to ViaSat | $40.4 million | $(9.4) million |
| Diluted earnings (loss) per share | $0.84 | $(0.21) |
| Cash provided by operating activities | $349.5 million | $205.1 million |
| Cash and cash equivalents at year-end | $52.3 million | $58.3 million |
- Revenue increased 2.3%: service revenue rose 15.7% to $654.5 million, while product revenue fell 7.3% to $728.1 million.
- Operating income included a substantial benefit from the SS/L and Loral settlement. FY2015 net income was $40.4 million, or 2.9% of revenue.
- Cash used in investing activities was $476.6 million, primarily reflecting satellite and other capital spending and acquisitions. Purchases of property, equipment and satellites totaled $366.5 million.
- Working capital was $280.5 million. Total debt was approximately $806.3 million, compared with $691.6 million a year earlier; cash less debt was approximately $754.1 million net debt.
- Debt included $575.0 million of 6.875% senior notes due 2020, $210.0 million drawn on the revolving facility and $20.5 million borrowed under the Ex-Im facility for ViaSat-2. The company reported $249.6 million of revolver availability and $452.5 million available under the Ex-Im facility for ViaSat-2 costs; both facilities have covenants.
Fourth-quarter results
FY2015 fourth-quarter revenue was $364.8 million, operating income $19.7 million, net income attributable to ViaSat $7.5 million and diluted EPS $0.16. In the year-ago quarter, revenue was $343.9 million, operating loss $1.1 million, net loss attributable to ViaSat $3.5 million and diluted loss per share $0.08. FY2015 quarterly results included settlement-related revenue and SG&A reductions.
Material changes and segment performance
- Satellite Services: Revenue rose 27.9% to $499.9 million; operating profit was $62.4 million versus a $46.0 million loss. Subscribers increased 7% to approximately 686,000, and more than 330 aircraft were in service with in-flight Wi-Fi. Settlement proceeds contributed $51.8 million to segment operating profit.
- Commercial Networks: Revenue declined 12.2% to $347.1 million, and operating loss widened to $33.6 million from $12.1 million. Lower fixed-satellite network and consumer terminal revenues and weaker margins were key factors.
- Government Systems: Revenue decreased 5.3% to $535.5 million; operating profit edged down to $72.3 million from $76.0 million. Lower government satellite communications product revenue was partly offset by growth in tactical data links, information assurance and services.
- Firm backlog was $915.6 million, up from $899.5 million; funded backlog was $841.4 million, down from $852.6 million. About $512.0 million of firm backlog was expected to be delivered in FY2016. Backlog is not a guarantee of revenue and many contracts may be terminated.
Outlook, risks and unusual items
- Management provided no specific numerical revenue or earnings guidance. It expected continued investment in subscriber acquisition and ViaSat-2 construction during FY2016, and said ViaSat-2 rollout would affect future Satellite Services results, with an expected relative impact below that of ViaSat-1’s rollout.
- ViaSat estimated total ViaSat-2 project costs through launch, including satellite, launch, insurance and related gateway infrastructure, at $600–$650 million. Completion timing and gateway rollout affect the estimate; the filing does not provide a clear launch date.
- In September 2014, ViaSat settled litigation with Space Systems/Loral and Loral for total payments of $108.7 million, including interest, over two and a half years. It recognized $53.7 million in FY2015; remaining payments are recognized as received.
- NetNearU was acquired for $60.2 million cash consideration. ViaSat expects its Wi-Fi network management capabilities to support expansion into additional commercial and government markets.
- Key risks include satellite construction, launch or in-orbit performance; the ability to grow broadband subscribers and realize ViaSat-2 benefits; competition and high capital needs; dependence on U.S. government contracts and appropriations; fixed-price contract cost overruns; government audits; concentrated contracts and suppliers; debt, covenant and refinancing risks; and regulatory and export-control changes.
- DCAA incurred-cost audits remained open for FY2011 and subsequent years. Reserves for potential government contract cost adjustments were $4.3 million at year-end. The company reported compliance with its credit-facility financial covenants and effective disclosure controls and internal control over financial reporting.
- The board approved a change to a March 31 fiscal year-end effective with the fiscal year beginning April 4, 2015. The filing notes that FY2014 included an extra week, which management did not believe materially affected results.
Important facts for investors to verify
- How much of FY2015 operating improvement and Satellite Services profit reflects the settlement, and how much is supported by recurring operating performance?
- Whether subscriber growth, average revenue per subscriber and service margins can continue to improve as ViaSat invests in growth and prepares ViaSat-2.
- ViaSat-2 construction progress, updated total cost, funding drawdowns, launch timing and expected operating impact.
- Backlog conversion and funding, particularly the decline in funded backlog and the termination rights in many customer contracts.
- Debt covenant headroom, liquidity after planned ViaSat-2 spending, and the company’s ability to service or refinance debt.
- Outcomes of outstanding government audits and whether any cost adjustments exceed recorded reserves.