Business Context and Reporting Period
Company: ViaSat, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: October 2, 2009 (Second Quarter of Fiscal Year 2010)
Business Overview: ViaSat is a provider of advanced satellite and wireless communications and secure networking systems. Operations are conducted through three segments: Government Systems, Commercial Networks, and Satellite Services.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Oct 2, 2009 | Six Months Ended Oct 2, 2009 |
|---|---|---|
| Revenues | $160,666 | $319,074 |
| Net Income Attributable to ViaSat | $9,175 | $17,444 |
| Diluted EPS | $0.28 | $0.53 |
| Operating Cash Flow | N/A | $912 |
| Cash and Equivalents (End of Period) | $83,884 | $83,884 |
| Working Capital | $268,598 | $268,598 |
| Debt (Line of Credit) | $80,000 | $80,000 |
Note: Operating cash flow is presented for the six-month period as the three-month figure is not explicitly detailed in the cash flow statement.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 0.9% ($1.4 million) for the quarter and 2.2% ($6.8 million) for the six months compared to the prior year periods. Growth was driven by the Government Systems and Satellite Services segments, offset by a decline in Commercial Networks.
- Profitability: Operating income increased 29.3% to $12.0 million for the quarter and 26.2% to $23.3 million for the six months. Net income attributable to ViaSat remained relatively flat for the quarter ($9.2 million vs. $9.3 million) but increased 12.2% for the six months ($17.4 million vs. $15.5 million).
- Cost Management: Cost of revenues decreased as a percentage of revenue from 72.5% to 69.5% for the quarter, driven by product cost reductions in Government Systems and Commercial Networks.
- Expense Increases: Selling, General, and Administrative (SG&A) expenses rose 13.8% for the quarter, primarily due to $2.5 million in transaction-related expenses for the pending WildBlue acquisition.
- Cash Flow: Net cash provided by operating activities dropped significantly to $0.9 million for the six months ended Oct 2, 2009, compared to $18.4 million in the prior year, largely due to a $42.5 million increase in accounts receivable.
Guidance, Outlook, and Material Events
- WildBlue Acquisition: On September 30, 2009, ViaSat agreed to acquire WildBlue Holding, Inc. for approximately $568 million ($443 million cash, $125 million stock). The deal is subject to regulatory approval and is expected to close in the third or fourth quarter of fiscal 2010.
- Debt Financing: Subsequent to the period end, on October 22, 2009, ViaSat issued $275 million in 8.875% senior notes due 2016. Proceeds were used to repay the $80 million outstanding balance on its revolving credit facility.
- ViaSat-1 Satellite: Construction continues on the high-capacity Ka-band satellite, with a projected total project cost of approximately $400 million. Launch is planned for early 2011.
- Tax Rate: The estimated annual effective tax rate for fiscal 2010 is approximately 25.1%, higher than the prior year due to the expiration of the federal research and development tax credit on December 31, 2009.
- Risks: Significant risks include the ability to integrate WildBlue, the impact of increased indebtedness on liquidity, and the potential for contract terminations given that a majority of contracts can be terminated at the customer's convenience.
Investor Verification Checklist
- WildBlue Closing: Verify the status of regulatory approvals (FCC, FTC) and the final closing date for the WildBlue acquisition.
- Debt Covenants: Confirm compliance with financial covenants under the new senior notes indenture and the amended credit facility, particularly regarding leverage ratios.
- Receivables Quality: Investigate the $42.5 million increase in accounts receivable to ensure collectability, especially given the mix of government and commercial contracts.
- Satellite Project Costs: Monitor the ViaSat-1 construction budget for potential cost overruns or delays in the 2011 launch schedule.
- Operating Cash Flow: Assess the sustainability of operating cash flows given the significant drop in the first half of fiscal 2010 and the upcoming cash requirements for the WildBlue acquisition.