VSAT

Business Context and Reporting Period

Company: VIASAT, INC.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: October 3, 2008 (Second Quarter of Fiscal Year 2009)
Business Overview: ViaSat is a producer of satellite and wireless communications systems for government and commercial customers. Operations are divided into three segments: Government Systems, Commercial Networks, and Satellite Services. The company is currently constructing the ViaSat-1 high-capacity satellite, with a planned launch in early 2011.

Key Financial Metrics

Note: Operating cash flow is reported for the six-month period only in the summary tables provided in the filing text.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 8.6% ($12.7 million) for the quarter and 13.5% ($37.1 million) for the six months compared to the prior year periods. This was driven primarily by the Government Systems segment (+21.9% quarterly) due to higher awards in information assurance and military satellite communications.
• Profitability: Net income increased 7.8% for the quarter and 21.8% for the six months. However, the Commercial Networks segment reported an operating loss of $0.9 million for the quarter, down from a profit of $2.3 million in the prior year, due to reduced consumer broadband sales.
• Cash Flow: Net cash provided by operating activities decreased significantly to $18.4 million for the six months ended Oct 3, 2008, compared to $37.7 million in the prior year, largely due to increased cash used for net operating assets.
• Investing Activities: Cash used in investing activities rose to $52.9 million (six months) from $19.1 million, primarily due to $36.5 million in capital expenditures for the ViaSat-1 satellite construction.
• Backlog: Total firm backlog increased to $523.6 million from $374.4 million at the end of the prior fiscal year.

Guidance, Outlook, and Risks

• Outlook: Management estimates the annual effective income tax rate for fiscal year 2009 to be approximately 22.3%, lower than the prior year's 28.1%, due to the extension of the research and development tax credit under the Emergency Economic Stabilization Act of 2008.
• Capital Requirements: The projected total cost for the ViaSat-1 project (satellite, launch, insurance, gateway) is estimated at $400.0 million. Management believes current cash, operating cash flows, and credit facility availability are sufficient for the next 12 months but may seek additional equity or debt financing.
• Liquidity: On October 31, 2008, the company entered into a new $85.0 million revolving credit facility, replacing a $40.0 million facility. As of the reporting date, there were no outstanding borrowings under the line of credit.
• Risks: The filing highlights risks associated with recent turbulence in financial markets, tighter credit conditions, and potential impacts on customer liquidity. Additionally, a significant portion of revenue is derived from fixed-price government contracts, where cost estimation errors could materially impact results.

Investor Verification Checklist

• ViaSat-1 Funding: Verify the company's ability to fund the remaining ~$400 million project cost without dilutive equity offerings or covenant breaches.
• Commercial Segment Margins: Monitor the Commercial Networks segment for continued losses or margin compression in consumer broadband products.
• Backlog Realization: Assess the convertibility of the $523.6 million backlog into revenue, noting that a majority of contracts can be terminated at customer convenience.
• Working Capital Trends: Review the significant decrease in operating cash flow ($19.3 million drop year-over-year) and its impact on liquidity.
• Tax Rate Sustainability: Confirm the sustainability of the 22.3% effective tax rate, which relies on specific R&D tax credits.