Business Context and Reporting Period
Company: ViaSat, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended July 3, 2009 (First Quarter of Fiscal Year 2010)
Business Overview: ViaSat is a producer of satellite and wireless communications systems serving 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, expected to launch in 2011.
Key Financial Metrics
| Metric (in thousands) | Q1 FY2010 (Ended July 3, 2009) |
Q1 FY2009 (Ended June 27, 2008) |
|---|---|---|
| Revenues | $158,408 | $152,961 |
| Net Income | $8,292 | $6,370 |
| Net Income Attributable to ViaSat | $8,269 | $6,291 |
| Diluted EPS | $0.25 | $0.20 |
| Operating Cash Flow | $(5,169) | $363 |
| Cash and Cash Equivalents (End of Period) | $104,272 | $110,865 |
| Total Debt (Line of Credit) | $80,000 | $0 |
| Working Capital | $285,135 | $203,390 |
Margins: Operating margin was 7.1% for the quarter, compared to 6.0% in the prior year period. The effective income tax rate was 25.9%.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 3.6% ($5.4 million) driven by growth in all three segments. Government Systems revenue rose 4.4% due to military satellite communications and tactical data link sales. Satellite Services revenue surged 82.8% due to mobile broadband services.
- Profitability: Net income increased 30.2% year-over-year. Operating income rose from $9.2 million to $11.3 million, aided by a 28.8% reduction in independent research and development (IR&D) expenses as the company shifted focus to customer-funded programs.
- Cash Flow: Operating cash flow turned negative ($5.2 million used) compared to a slight positive in the prior year. This was primarily due to a $19.7 million increase in accounts receivable driven by billing timing on large contracts.
- Debt and Liquidity: The company borrowed $80.0 million under its revolving credit facility on July 3, 2009, to fund operations and the ViaSat-1 satellite project. This was offset by a significant increase in cash balances from financing activities.
Guidance, Outlook, and Risks
- Capital Projects: The company is heavily invested in the ViaSat-1 satellite project, with a projected total cost of approximately $400 million. Construction payments of $26.9 million were made in the quarter. The satellite is expected to be in service by 2011.
- Backlog: Firm backlog decreased to $436.8 million from $474.6 million, primarily due to delays in expected contract awards shifting to later in the fiscal year. Funded backlog increased to $426.8 million.
- Tax Outlook: The effective tax rate increased due to the expiration of the federal research and development tax credit on December 31, 2009. Management estimates an annual effective tax rate of approximately 26.9% for fiscal year 2010 unless the credit is reinstated.
- Risks: Key risks include the timing of contract awards, the ability to realize revenues from backlog dependent on customer funding, and the execution of the ViaSat-1 satellite launch. The company notes that a majority of contracts can be terminated at the customer's convenience.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the new credit facility covenants (leverage and interest coverage ratios) following the $80 million drawdown.
- Receivables Quality: Assess the $183.8 million accounts receivable balance, noting the significant increase in unbilled receivables ($104.9 million) and the timing of billings on government contracts.
- Satellite Project Costs: Monitor capital expenditures related to the ViaSat-1 satellite against the $400 million projected total cost and the availability of remaining credit facility capacity ($84 million).
- Tax Credit Status: Track legislative developments regarding the potential reinstatement of the federal R&D tax credit, which would impact future effective tax rates.
- Backlog Conversion: Evaluate the conversion rate of the $436.8 million firm backlog into revenue, considering the risk of contract terminations.