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ViaSat (VSAT) Q2 Earnings Fall Y/Y on Escalating R&D Costs


ViaSat Inc.’s VSAT second-quarter fiscal 2018 adjusted earnings came in at 9 cents, down drastically from 40 cents recorded in the year-ago quarter. Despite only a marginal decline in quarterly revenues, ViaSat’s profits plummeted as the company ramped up expenses ahead of offering subscribers service with its new high-speed satellite, which was launched in June.

The company’s bottom line also trumped the Zacks Consensus Estimate of a loss of 6 cents.

On a GAAP basis, the company swung to a net loss of 24 cents per share, in stark contrast to earnings of 22 cents recorded in the year-ago period.

Inside the Headlines

The company posted revenues of $393.1 million in the fiscal second quarter, which missed the Zacks Consensus Estimate of $401 million. Revenues also declined 1.5% compared to the prior-year quarter tally. Strong growth in government business drove top-line growth, which was more than offset by contraction in Commercial Networks and Satellite Services revenues.

New contract awards (down 34.3% to $384.8 million) dipped sharply in the quarter.

Segment wise, Satellite Services revenues fell sharply (down 5.6% year over year) to $147.6 million. Excluding the prior-year benefit of $6.6 million connected to payments under the Space Systems/Loral (SS/L) settlement, revenues were essentially flat year over year. Notably, Average Revenue per User (ARPU) in ViaSat's residential broadband Internet business grew 9% year over year to a record high of $67.35.

Commercial Networks revenues continued to be strained, dropping 14% on a year-over-year basis to $56.3 million, dragged bylower fixed terminal sales for Australia's nbn satellite broadband service. This segment continues to witness an increase in research and development investment (up 45% year over year) associated with the internal development of the ViaSat-3 project and expansion of its commercial airline programs.

On the other hand, Government Systems reported impressive revenues of $189.2 million, up 6.7% year over year, driven by an expanding service base and strong momentum in tactical data-link products, government mobility platforms and secure networking products. Impressive growth in revenues drove solid operating profit (up 18% year over year) and record Adjusted EBITDA (up 15% year over year) for the quarter.

During the quarter, sales backlog contracted 1.1% year over year to $1,078.9 million, despite robust contribution from the Government Systems segment.

However, adjusted EBIDTA plunged 33.5% from the comparable quarter last year to $61.9 million, dragged by start-up costs associated with the ViaSat-2 network, higher R&D outlay and costs related to planned commercial air ramp-up. Also, completion of the Loral settlement affected the company’s EBITDA.

ViaSat, Inc. Price, Consensus and EPS Surprise

Other Highlights

The company launched its ViaSat-2 satellite successfully in the fiscal first quarter. ViaSat-2, touted to have twice the bandwidth and seven times more broadband coverage, is a massive improvement over ViaSat-1.

Some other features which make it more powerful than ViaSat-1 include high-capacity connectivity, smaller gateway antenna and twice as many gateways. ViaSat believes these advanced smaller gateways can help it place the latest satellites in proximity of popular Internet access points, delivering greater network reliability and security.

ViaSat maintains a leading position in the satellite and wireless communications market. The company has garnered enough economics of scale and scope to serve vast emerging markets in South America, Africa, the Middle East and Western Asia. ViaSat-2 services are expected to begin in fourth-quarter fiscal 2018.

The company has also been investing in the next generation of ViaSat-3 class satellites — which will provide even more bandwidth globally from satellites slated to launch starting in 2019.


ViaSat exited the fiscal year with cash and cash equivalents of $242.7 million compared with $130.1 million as of Mar 31, 2017. The company also generated strong operating cash flow in the fiscal first half, which hit $186 million, in spite of the uptick in R&D outlay, and the $23-million costs related to ViaSat-2 and commercial air ramping costs.

To Conclude

ViaSat posted mixed results for the reported quarter. Strong backlog levels, robust prospects of core government business and significant demand for higher speeds of broadband connectivity in residential, in-flight, and government markets are likely to accelerate the company’s growth momentum. In addition, the just-launched ViaSat-2 satellite is likely to help the company fortify its foothold in new geographic markets.

Despite these positives, escalating research and development costs remain a major concern for this Zacks Rank #3 (Hold) company in the near term. Furthermore, the company’s satellite services segment is highly affected by the seasonality of demand due to traditional retail selling periods.

Despite such headwinds, increasing adoption of satellite networking, in-flight Wi-Fi services in commercial aircraft data links and encryption-product based businesses are anticipated to drive the company’s long-term growth. We also believe the collaboration with Eutelsat is a strategic fit for ViaSat to embark on a global expansion drive.

Stocks to Consider

Some better-ranked stocks in the same space include Ubiquiti Networks, Inc. UBNT, Motorola Solutions, Inc. MSI and Comtech Telecommunications Corp. CMTL, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ubiquiti Networks has a decent earnings surprise history for the trailing four quarters, beating estimates thrice, with an average positive surprise of 5%.

Motorola Solutions has an impressive earnings surprise history. The company recorded an average positive surprise of 13.2% over the trailing four quarters, beating estimates all through.

With four back-to-back, strong earnings beats, Comtech has a striking average positive surprise of 78.8%.

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