Business Context and Reporting Period
Company: VIASAT, INC.
Filing Type: Form 10-K (Annual Report)
Fiscal Year Ended: April 2, 2010
Business Overview: ViaSat is a leading provider of advanced satellite and wireless communications and secure networking systems. The company operates in three segments: Government Systems, Commercial Networks, and Satellite Services. A defining event for the fiscal year was the acquisition of WildBlue Holding, Inc. on December 15, 2009, which expanded ViaSat into a leading wholesale and retail provider of satellite broadband internet services in the United States.
Key Financial Metrics
| Metric | Fiscal 2010 | Fiscal 2009 |
|---|---|---|
| Total Revenues | $688.1 million | $628.2 million |
| Net Income (Attributable to ViaSat) | $31.1 million | $38.3 million |
| Diluted EPS | $0.89 | $1.20 |
| Operating Income | $43.0 million | $44.3 million |
| Operating Margin | 6.3% | 7.1% |
| Cash from Operations | $112.5 million | $61.9 million |
| Total Debt (Principal) | $335.0 million | $0 |
| Cash & Equivalents | $89.6 million | $63.5 million |
| Working Capital | $214.5 million | $203.4 million |
Note: Fiscal 2010 results include WildBlue operations from the acquisition date (Dec 15, 2009). Net income includes $8.7 million in transaction-related expenses and $2.7 million in restructuring costs related to the WildBlue acquisition.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 9.5% to $688.1 million, driven primarily by the inclusion of WildBlue service revenues ($63.4 million) and growth in mobile broadband services. Product revenues declined slightly ($11.3 million) due to lower sales in information assurance and consumer broadband, offset by growth in enterprise VSAT and government satellite systems.
- Profitability Decline: Net income decreased 18.8% to $31.1 million. This decline was primarily due to increased Selling, General, and Administrative (SG&A) expenses ($34.3 million increase) driven by WildBlue integration costs, transaction expenses, and new business proposal costs. Interest expense also increased significantly ($6.8 million) due to new debt financing.
- Balance Sheet Transformation: Total assets more than doubled to $1.29 billion, largely due to the acquisition of WildBlue assets (satellites, customer relationships, and goodwill). Long-term debt increased from $0 to $271.8 million (net of discount) following the issuance of $275.0 million in Senior Notes and borrowings under the Credit Facility.
- Segment Performance:
- Government Systems: Revenues flat ($385.2M); Operating profit slightly down ($55.7M).
- Commercial Networks: Revenues slightly down ($227.1M); Operating profit improved significantly to $6.1M from $0.1M due to margin improvements.
- Satellite Services: Revenues surged to $75.8M from $8.7M; Operating loss widened to $(9.3)M due to acquisition-related costs and SG&A.
Guidance, Outlook, and Risks
Outlook and Strategy:
- ViaSat-1 Satellite: The company is constructing ViaSat-1, a high-capacity Ka-band spot-beam satellite, with a planned launch in Spring 2011. It is expected to be the highest capacity satellite in the world (approx. 130 Gbps throughput) and will serve as the foundation for next-generation broadband services in North America.
- WildBlue Integration: Management expects to leverage WildBlue's distribution network to deploy ViaSat-1 services, aiming to provide broadband speeds comparable to terrestrial alternatives.
- Capital Allocation: Proceeds from a March 2010 public offering ($100.5 million net) were partially used to repay Credit Facility borrowings. Remaining funds are designated for working capital, capital expenditures, and ViaSat-1 financing.
Key Risks and Contingencies:
- Satellite Risks: Significant risks associated with the construction, launch, and in-orbit performance of ViaSat-1 and WildBlue-1. Launch failures or satellite anomalies could materially impact operations and financial results.
- Debt Covenants: The company carries significant indebtedness ($347.9 million total). Debt agreements contain restrictive covenants regarding leverage ratios, interest coverage, and asset dispositions. Failure to comply could result in default.
- Government Contract Reliance: Approximately 30% of revenues are derived from the U.S. government. Contracts are subject to termination, funding delays, and audit risks.
- Integration Risks: Challenges in integrating WildBlue's operations and culture, and the risk that WildBlue may continue to experience losses.
Investor Verification Checklist
- ViaSat-1 Progress: Verify the construction status, launch schedule (Spring 2011), and total project cost estimates (approx. $400 million) for the ViaSat-1 satellite.
- Debt Servicing Capacity: Assess the company's ability to meet interest payments on the $275 million Senior Notes (8.875% interest) and Credit Facility borrowings given the current operating cash flow.
- WildBlue Subscriber Growth: Monitor subscriber counts (424,000 as of April 2, 2010) and churn rates to validate the revenue potential of the satellite services segment.
- Government Backlog: Review the funded backlog ($521.0 million) and the mix of fixed-price vs. cost-reimbursement contracts to evaluate revenue visibility.
- Regulatory Compliance: Confirm compliance with FCC milestones for ViaSat-1 authorization and any potential changes in universal service contribution requirements.