VSAT

Business Context and Reporting Period

Company: VIASAT INC
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and nine months ended January 2, 2009 (Fiscal Year 2009)
Business Overview: ViaSat is a producer of satellite and wireless communications systems serving government and commercial customers. Operations are organized into three segments: Government Systems, Commercial Networks, and Satellite Services. The company is currently constructing the ViaSat-1 high-capacity broadband satellite.

Key Financial Metrics

Note: Working Capital calculated as Current Assets ($332,298) minus Current Liabilities ($120,036). No outstanding borrowings under the $85 million credit facility as of January 2, 2009.

Material Changes vs. Prior Period

• Revenue: For the nine months ended January 2, 2009, revenue increased 8.3% to $462.6 million compared to $427.2 million in the prior year. This was driven by an 18.8% increase in Government Systems revenue ($279.7M) and a 28.1% increase in Satellite Services revenue ($6.5M), partially offset by a 5.5% decline in Commercial Networks revenue ($176.4M).
• Profitability: Net income for the nine-month period rose 14.0% to $26.2 million. Operating income remained flat at $30.0 million compared to the prior year.
• Cash Flow: Operating cash flow decreased 31.7% to $31.5 million, primarily due to a $16.2 million increase in cash used for net operating assets (specifically accounts receivable and inventory).
• Investing Activities: Cash used in investing activities surged to $93.9 million (from $35.2 million prior year), driven by $71.5 million in expenditures for the ViaSat-1 satellite construction.
• Liquidity: Cash and cash equivalents declined from $125.2 million to $63.7 million due to heavy capital investment in the satellite project.

Guidance, Outlook, and Risks

• Backlog: Firm backlog increased to $516.4 million (from $374.4 million), with funded backlog at $429.1 million. Approximately $118.6 million is expected to be delivered in the remainder of fiscal 2009.
• ViaSat-1 Project: The company estimates total project costs (satellite, launch, insurance, gateway) at approximately $400 million. Launch is targeted for the first half of 2011. Management believes current cash, operating cash flows, and the $79 million available credit facility are sufficient to fund operations for the next 12 months.
• Tax Outlook: The estimated annual effective tax rate for fiscal 2009 is 18.9%, down from 28.1% in 2008, largely due to R&D tax credits and the expiration of statutes of limitations on prior tax returns.
• Risks: Key risks include the ability to successfully integrate the ViaSat-1 satellite, potential contract terminations by government customers, and the impact of global economic conditions on commercial demand. The company notes that a 1% variance in cost estimates on open fixed-price contracts could impact pre-tax income by approximately $0.4 million.

Investor Verification Checklist

• ViaSat-1 Funding: Verify the sufficiency of the $63.7 million cash balance and $79 million credit line against the remaining ~$330 million required for the ViaSat-1 project completion.
• Commercial Segment Margins: Investigate the cause of the 96.7% drop in Commercial Networks operating profit (to $0.1M) and the decline in consumer broadband product sales.
• Accounts Receivable: Review the $10.7 million increase in billed and unbilled receivables to assess collection risks, particularly given the shift toward commercial customers.
• Contract Losses: Confirm the status of loss contracts, which totaled $1.6 million for the nine-month period, and monitor for future provisions.
• Related Party Transactions: Review the $65.3 million paid to Space Systems/Loral (SS/L) for satellite construction and the $9.5 million outstanding payable.