ViaSat, Inc. Form 10-K Summary
Business context and reporting period
ViaSat provides satellite broadband services, commercial satellite and wireless communications equipment, and secure communications systems for government customers. The filing covers fiscal year 2013, ended March 29, 2013; fiscal Q4 ended on that date. Its three segments are Satellite Services, Commercial Networks, and Government Systems.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $1,119.7 million | $863.6 million |
| Operating income (loss) | $(20.4) million | $2.2 million |
| Net income (loss) attributable to ViaSat | $(41.2) million | $7.5 million |
| Diluted earnings (loss) per share | $(0.94) | $0.17 |
| Cash from operating activities | $91.8 million | $141.4 million |
| Cash and cash equivalents at year-end | $105.7 million | $172.6 million |
| Working capital at year-end | $297.7 million | $327.1 million |
Revenue increased 29.6%, with product revenue up 22.6% and service revenue up 41.6%. Operating expenses grew faster than revenue: cost of service revenue rose 55.7%, and SG&A rose 32.5%. Operating margin was negative 1.8%, versus positive 0.3% a year earlier. Net loss included $43.8 million of net interest expense and a $26.5 million loss on extinguishment of debt. The filing reports a $50.1 million income tax benefit.
Cash used in investing activities was $201.6 million, including $176.3 million for property, equipment and satellites. Total debt was $588.7 million, including $575 million principal of 6.875% senior notes due 2020; there were no revolver borrowings. The $325 million revolving facility had $286.8 million of availability after letters of credit. The company reported compliance with its financial covenants at year-end. The balance sheet showed total assets of $1.79 billion and stockholders’ equity of $903.0 million.
Material changes and segment results
- Satellite Services: Revenue rose 24.4% to $277.0 million, supported by 14% subscriber growth to approximately 512,000 broadband subscribers. Segment operating loss widened to $79.2 million from $16.8 million, reflecting ViaSat-1 depreciation, subscriber acquisition, marketing, and service-support costs.
- Commercial Networks: Revenue increased 25.1% to $314.9 million, led by consumer broadband products. Operating loss narrowed to $11.1 million from $13.0 million, with higher product contribution partly offset by R&D and selling costs.
- Government Systems: Revenue increased 35.6% to $527.8 million; segment operating profit increased to $85.5 million from $50.7 million. U.S. government customers accounted for approximately 24% of company revenue, and the five largest contracts accounted for approximately 24%.
- Firm backlog increased to $851.9 million from $618.5 million; funded backlog rose to $842.5 million from $600.5 million. Management expected about $565.4 million of firm backlog to be delivered in fiscal 2014. Backlog is not guaranteed revenue and many contracts may be terminated by customers.
Fiscal Q4 revenue was $308.7 million, operating loss was $7.0 million, and net income attributable to ViaSat was $1.9 million, or $0.04 per diluted share. Annual cash from operations declined by $49.7 million, principally from operating costs and increased accounts receivable.
Outlook, risks, contingencies, and unusual items
- Management expected Exede subscriber growth to continue and believed that higher service revenue could improve Satellite Services’ operating results over time, while cautioning that there was no assurance. It also expected higher subscriber acquisition costs and CPE-related capital expenditures in fiscal 2014.
- On May 15, 2013, after fiscal year-end, ViaSat agreed to purchase ViaSat-2 for approximately $358 million plus launch-support costs. Management expected higher capital expenditures for the satellite and related ground infrastructure. Construction, launch, performance, insurance, and authorization risks remain material.
- Management cautioned that fiscal 2014 contract awards, particularly in Government Systems, could be affected by U.S. budget cuts and sequestration. Government contract audits remain incomplete for fiscal 2004 and later years; reserves for potential contract refunds were $7.2 million at year-end.
- ViaSat refinanced its $275 million of 8.875% notes due 2016 with 6.875% notes due 2020. The refinancing generated the $26.5 million extinguishment loss, including $19.8 million of cash costs and $6.7 million of non-cash charges.
- Patent infringement and breach-of-contract litigation with Space Systems/Loral and Loral includes counterclaims. The company believed current proceedings would not materially adversely affect it, but outcomes are uncertain.
- Other principal risks include satellite anomaly or failure, fixed-price contract cost overruns, dependence on government programs and a limited number of contracts, competition, regulatory and export-control changes, supplier concentration, leverage and covenant constraints, and the ability to execute the broadband strategy.
- The company stated that current cash, expected operating cash flow, and revolver availability should cover anticipated requirements for at least twelve months. It filed a universal shelf registration that permits future offerings of debt and equity securities.
Investor verification points
- Verify whether Exede subscriber growth and revenue gains translate into improved Satellite Services margins, after acquisition, support, and CPE costs.
- Track ViaSat-2 contract costs, launch schedule, funding needs, and the extent of additional launch-support costs.
- Review cash conversion and working-capital trends, particularly receivables and capital spending.
- Monitor federal budget actions, contract awards and funding, government audit outcomes, and the adequacy of the $7.2 million contract reserve.
- Assess leverage, debt-service capacity, covenant headroom, and any use of the shelf registration for additional financing.
- Follow the SS/L and Loral litigation and any potential financial or operational consequences.