Business Context and Reporting Period
Company: VIASAT, INC.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended December 31, 1997.
Business Overview: ViaSat provides satellite communications and networking systems, primarily serving the United States Government and its prime contractors. Revenue is recognized using the percentage of completion method for cost-plus and fixed-price contracts.
Key Financial Metrics
| Metric | Three Months Ended Dec 31, 1997 |
Nine Months Ended Dec 31, 1997 |
Nine Months Ended Dec 31, 1996 |
|---|---|---|---|
| Revenues | $15,991,000 | $46,398,000 | $33,661,000 |
| Gross Profit | $5,757,000 | $16,292,000 | $10,081,000 |
| Gross Margin | 36.0% | 35.1% | 29.9% |
| Net Income | $1,351,000 | $3,729,000 | $1,935,000 |
| Diluted EPS | $0.16 | $0.46 | $0.31 |
| Cash from Operations | N/A | $3,273,000 | ($1,496,000) |
| Cash & Equivalents | $13,071,000 | $13,071,000 | $13,823,000 |
| Working Capital | $22,897,000 | $22,897,000 | N/A |
| Total Debt | $2,306,000 | $2,306,000 | N/A |
Note: Working Capital calculated as Total Current Assets ($35,322,000) minus Total Current Liabilities ($12,425,000). Total Debt includes current portion of notes payable ($1,037,000) and long-term notes payable ($1,269,000).
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 32.4% for the quarter and 37.8% for the nine-month period compared to the prior year. Growth was driven by VM-200 modems, Starwire(R) systems, and Joint Communication Simulator (JCS) products. Commercial revenue grew significantly from $642,000 to $2.5 million (quarter) and $902,000 to $5.5 million (nine months).
- Margin Expansion: Gross margin improved from 31.7% to 36.0% (quarter) and 29.9% to 35.1% (nine months) due to a higher mix of high-margin products and favorable contract adjustments.
- Expense Increases: Selling, General, and Administrative (SG&A) expenses rose 60.9% (quarter) and 57.9% (nine months) due to marketing commercial products and increased staffing. Independent Research and Development (IR&D) expenses increased 36.2% (quarter) and 48.2% (nine months), primarily for StarWire(R) DAMA product development.
- Cash Flow Turnaround: Operating cash flow turned positive, providing $3.3 million for the nine months ended Dec 31, 1997, compared to a use of $1.5 million in the prior year period.
Guidance, Outlook, and Risks
- Backlog: Firm backlog stood at $67.0 million as of December 31, 1997, with $51.9 million funded. Approximately $18 million is expected to be delivered in the fiscal year ending March 31, 1998. This represents a decrease from the $78.4 million backlog at March 31, 1997.
- Liquidity: Management believes current cash balances ($13.1 million), credit facilities ($6.0 million line of credit, $4.5 million equipment financing), and operating cash flow are sufficient for the next 12 months. No borrowings were outstanding under the line of credit.
- Contingencies: The company is not currently in compliance with performance covenants on several contracts. However, management does not expect customers to terminate contracts or seek liquidated damages based on historical experience, and no reserves have been accrued.
- Tax Rate: The effective income tax rate increased to 37% from 35% due to limitations on qualified research and development tax credits.
Investor Verification Checklist
- Backlog Realization: Verify the convertibility of the $67.0 million backlog into revenue, noting that a majority of government contracts can be terminated at the customer's convenience.
- Contract Compliance: Monitor the status of contracts where the company is not in compliance with performance milestones to assess the risk of potential liquidated damages.
- Commercial Growth Sustainability: Assess the sustainability of the rapid growth in commercial revenue ($2.5M quarter vs $0.6M prior year) and its impact on future margins.
- Inventory Levels: Review inventory buildup ($5.1M vs $4.5M prior year) to ensure it aligns with production demands and does not indicate obsolescence risks.
- Debt Covenants: Confirm adherence to the Union Bank credit facility terms, which expire September 15, 1998.