Business Context and Reporting Period
Company: VIASAT, INC.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and nine months ended December 31, 1999
Business Overview: ViaSat provides services primarily to the United States Government and its prime contractors under cost-plus-fixed fee, fixed-price, and time-and-material contracts. The company operates in defense and commercial satellite communications sectors.
Key Financial Metrics
| Metric | Three Months Ended Dec 31, 1999 |
Nine Months Ended Dec 31, 1999 |
Nine Months Ended Dec 31, 1998 |
|---|---|---|---|
| Revenues | $18.04 million | $52.09 million | $53.27 million |
| Gross Profit | $7.55 million (41.8%) | $22.33 million (42.9%) | $19.81 million (37.2%) |
| Net Income | $2.01 million | $5.62 million | $4.42 million |
| Diluted EPS | $0.23 | $0.66 | $0.54 |
| Cash & Equivalents | $16.58 million (as of Dec 31, 1999) | ||
| Working Capital | $36.8 million (as of Dec 31, 1999) | ||
| Debt (Notes Payable) | $1.5 million (Total: $1.501 million) |
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased 4.7% for the quarter and 2.2% for the nine-month period compared to the prior year. This was primarily due to lower volumes of defense products, partially offset by growth in commercial product revenues.
- Margin Expansion: Gross profit margins improved significantly, rising from 34.5% to 41.8% for the quarter and from 37.2% to 42.9% for the nine-month period. This was driven by a favorable product mix and volume improvements in commercial programs.
- Expense Growth: Selling, General, and Administrative (SG&A) expenses increased 20.0% (quarter) and 13.5% (nine months) due to increased bid/proposal costs and staffing. Independent Research and Development (IR&D) expenses also rose, driven by defense product work.
- Cash Flow Shift: Net cash provided by operating activities dropped significantly from $8.4 million to $1.7 million for the nine-month period. This decrease was attributed to the timing of receivable collections (high days sales outstanding due to government processing delays), inventory growth, and lower accounts payable.
- Investing Activity: Net cash provided by investing activities turned positive ($9.3 million) due to the net sale/maturity of short-term investments ($12.2 million), offset by $2.9 million in capital expenditures.
Outlook, Risks, and Unusual Items
- Backlog: Firm backlog stood at $77.2 million as of December 31, 1999 ($57.9 million funded), a significant increase from $44.9 million at the prior fiscal year-end. However, a majority of government backlog can be terminated at the customer's convenience.
- Acquisition: In January 2000, ViaSat agreed to purchase the satellite networks business of Scientific-Atlanta, Inc. for approximately $74.9 million plus warrants. Funding is expected to come from a debt or equity offering.
- Liquidity: The company holds $19.2 million in cash, cash equivalents, and short-term investments. Management believes current resources are sufficient for the next 12 months, excluding acquisitions.
- Contingencies: The company is not in compliance with performance milestones on certain contracts. While management does not expect termination or liquidated damages based on historical experience, no accrual has been made for potential penalties.
- Year 2000 Issue: No material Year 2000 problems have been experienced to date, though risks remain regarding government and vendor systems.
Investor Verification Checklist
- Receivables Quality: Verify the collectability of the $22.3 million in accounts receivable, noting the high days sales outstanding and delays in government payments.
- Acquisition Financing: Monitor the status of the $74.9 million acquisition of Scientific-Atlanta's satellite business and the method of financing (debt vs. equity).
- Contract Compliance: Assess the risk of contract termination or penalties related to the disclosed non-compliance with performance milestones on government contracts.
- Revenue Mix: Confirm the sustainability of the improved gross margins driven by commercial products versus the decline in defense product volumes.
- Debt Renewal: Verify the terms of the renegotiated credit facility with Union Bank of California, as the previous facilities had expired.