ViaSat, Inc. — Form 10-Q Summary
Business context and period: The filing covers ViaSat’s first quarter of fiscal 2015, the three months ended July 4, 2014; comparative results are for the three months ended June 28, 2013. ViaSat operates satellite services, commercial networks, and government systems businesses. The unaudited interim statements include the June 2014 acquisition of NetNearU.
Financial performance and condition
| Metric | Q1 FY2015 | Prior comparable quarter |
|---|---|---|
| Revenue | $319.5 million | $321.1 million |
| Operating income (loss) | $(1.2) million | $3.4 million |
| Net loss attributable to ViaSat | $(5.9) million | $(1.8) million |
| Basic and diluted loss per share | $(0.13) | $(0.04) |
| Operating margin | (0.4)% | 1.1% |
| Operating cash flow | $46.9 million | $53.8 million |
| Investing cash flow | $(154.3) million | $(87.2) million |
| Cash and cash equivalents at period end | $58.1 million | $79.7 million |
- Product revenue fell 7.7% to $168.1 million; service revenue rose 8.9% to $151.3 million. Gross margin was approximately 25.6%, versus 26.7% in the comparable quarter.
- Satellite services revenue increased 27.8% to $109.7 million, and its operating loss narrowed to $1.9 million from $13.0 million. Commercial networks revenue declined 5.3% to $92.2 million and shifted from $3.3 million of operating profit to a $6.0 million loss. Government systems revenue fell 14.7% to $117.5 million; operating profit decreased to $10.8 million from $16.6 million.
- At July 4, 2014, working capital was $288.0 million. Current assets were $541.0 million and current liabilities $253.0 million.
- Total debt was $791.2 million: $575.0 million principal on 6.875% senior notes due 2020 and $205.0 million drawn on the revolving credit facility, plus other debt. Revolver availability was $255.5 million after $39.5 million of letters of credit. The revolver’s weighted average effective rate was 2.16%; the company reported compliance with its financial covenants.
- Operating cash flow declined by $6.9 million year over year. Investing outflow rose mainly due to acquisition spending and ViaSat-2 construction. Financing inflow included $100.0 million of net revolver borrowings.
Changes, outlook, risks, and unusual items
- NetNearU was acquired on June 6 for estimated consideration of $59.9 million; preliminary net cash outlay, after acquired cash, was approximately $55.8 million. The purchase added $34.1 million of goodwill. Management expects its network-management technology to support expansion of Exede services into additional commercial and government markets.
- ViaSat-2 construction costs are part of a projected total project cost of $600–$650 million through launch, including satellite, launch, insurance, and related gateway infrastructure. Management said cash, expected operating cash generation, and available borrowing capacity should cover anticipated operating requirements for at least the next 12 months and support the project. No specific earnings or revenue guidance is provided.
- Satellite services growth reflected more Exede subscribers and higher average revenue per subscriber: approximately 641,000 subscribers at quarter end, up 17% from about 550,000 a year earlier. Management cautioned that future subscriber and service-revenue growth is not assured and described subscriber levels as relatively flat versus fiscal year-end, reflecting cyclical trends.
- Management attributed the commercial networks operating loss chiefly to lower margins and a mix shift toward funded development work rather than terminal production contracts. Government systems results were affected by lower command-and-control-related revenue and higher support and proposal costs. Satellite services benefited from subscriber scale and improved margins.
- Firm backlog was $892.3 million, down from $899.5 million at April 4; funded backlog was $865.8 million, up from $852.6 million. New awards were $310.1 million, versus $254.0 million a year earlier. Backlog is not a guarantee of sales: customer funding is periodic and many contracts may be terminated with limited or no penalty.
- On April 24, a jury awarded ViaSat $283.0 million in its patent and contract case against Space Systems/Loral. Subsequent to quarter-end, the court upheld liability findings but ordered a new trial on damages, scheduled for November 12, 2014; rulings remained subject to appeal. The filing does not identify the jury award as revenue or a recognized asset in the quarter’s results.
- Other exposures include ongoing government contract audits, potential cost adjustments and customer refunds (a $6.7 million reserve was recorded), contract-estimate risk, satellite construction, launch and performance risks, indebtedness and covenants, and litigation. Management said pending ordinary-course matters were not expected to materially adversely affect the company, while noting outcomes are uncertain.
- Disclosure controls were assessed as effective at a reasonable assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether subscriber growth and service margins continue, and whether ViaSat-2 remains within the projected $600–$650 million cost range and schedule.
- Commercial networks and government systems contract mix, customer demand, new awards, and conversion of backlog to funded revenue and cash.
- Available revolver capacity, covenant headroom, cash generation, and funding needs for satellite investment and other commitments.
- Developments in the SS/L damages retrial, appeals, injunction proceedings, and whether any litigation award is ultimately recognized or collected.
- Outcomes of government contract audits and the adequacy of the $6.7 million reserve, as well as the preliminary NetNearU purchase-price allocation.