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ViaSat (VSAT) Posts Q3 Loss Ahead of ViaSat-2 Service Launch

Zacks

ViaSat Inc. VSAT reported third-quarter fiscal 2018 adjusted loss of 4 cents per share, down drastically from earnings of 29 cents recorded in the year-ago quarter. With only a marginal gain in quarterly revenues, ViaSat’s earnings plummeted as the company ramped up expenses ahead of offering subscribers service with its new high-speed satellite.

Further, the company recorded an additional income-tax expense of approximately $12 million in relation to the recent tax reforms.

On a GAAP basis, the company swung to a net loss of 42 cents per share, in stark contrast to earnings of 8 cents recorded in the year-ago period.

Inside the Headlines


The company posted revenues of $381.8 million in the fiscal third quarter, which marginally lagged the Zacks Consensus Estimate of $388.6 million. Revenues inched up 0.3% compared to the prior-year quarter tally. Strong growth in government business drove top-line performance, which was offset by contraction in Satellite Services revenues. Revenue growth was strained owing to the capacity constraints that the company is facing ahead of the ViaSat-2 commercial service launch.

New contract awards (up 23.2% to $436 million) rose sharply in the quarter.

Segment wise, Satellite Services revenues continued the downward trend and slipped sharply (down 9.7% year over year) to $144.5 million, due to a modest downtick in residential subscriber count. The decline was also attributable to the prior-year benefit of $6.8 million connected to proceeds under the Loral settlement. Notably, Average Revenue per User (ARPU) in ViaSat's residential broadband Internet business grew 8% year over yearto a new record high of $68.23.

Commercial Networks’ performance turned around this quarter, as its revenues inched up 1.9% on a year-over-year basis to $55.5 million, driven byhigher airborne terminal sales.

On the other hand, Government Systems continued the impressive growth trajectory and reported solid revenues of $181.8 million, up 9.5% year over year, driven by growth across the broad product service portfolio. Impressive growth in revenues drove solid operating profit (up 23% year over year) and Adjusted EBITDA (up 19.7% year over year) for the reported quarter.

During the quarter, sales backlog grew 6.3% year over year to $1,128.7 million, led by record contribution from the Government Systems segment.

Adjusted EBITDA plunged 33% from the comparable quarter last year to $56.2 million, hurt by elevated start-up costs associated with the ViaSat-2 service launch, higher R&D outlay and costs related to planned large-scale service ramp-up in commercial air. Also, completion of the Loral settlement affected the company’s EBITDA. Nevertheless, sequentially, R&D levels declined $6 million, as ViaSat begins transitioning to the ViaSat-3 payload construction phase.

ViaSat, Inc. Price, Consensus and EPS Surprise

Other Highlights

The company’s ViaSat-2 satellite is ready for service and will likely be launched next week, with national coverage scheduled for February end. 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.

Further, the ViaSat-3 payload program has begun its transition to the construction phase.

Concurrent with the earnings release, the company announced signing a new direct contract with the United Airlines for more than 70 additional aircraft, including the new 737MAX fleet.

In the fiscal third quarter, ViaSat entered production service with Qantas in Australia using its second-generation platform. The company inked contracts for 92 additional aircrafts from existing airline customers during the quarter, bringing its tally for total in-service and under contract airplanes to nearly 1,600.

Liquidity

ViaSat exited the fiscal third quarter with cash and cash equivalents of $161.8 million compared with $130.1 million as of Mar 31, 2017. The company also generated strong operating cash flow in the fiscal year to date, which hit $283 million, despite the ramp-up of expenses and capacity constraints.

To Conclude

The company is about to roll out ViaSat-2 commercial services and is also beginning to transition to lower payload R&D expenses on the ViaSat-3 program. Both these factors will support profitability and capital-flow improvement.

ViaSat-2 projects segment revenues to resume growth this year, even as ramp-up expenses beginning to moderate as a percentage of sales. Nonetheless, the company predicts much heavier advertising activity over the next several quarters, which will again raise costs and hurt margins. Further, the fiscal fourth quarter is expected to see higher commission expenses related to increased subscriber additions.

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 the near term.

Zacks Rank & Stocks to Consider

We have a Zacks Rank #4 (Sell) on ViaSat currently. Some better-ranked stocks in the same space include iRobot Corporation IRBT, Motorola Solutions, Inc. MSI and Harris Corporation HRS, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

iRobot Corporation has an impressive earnings surprise history. The company recorded an average positive surprise of 113% over the trailing four quarters, beating estimates strongly all through.

Motorola Solutions has a decent earnings surprise history for the preceding four quarters, beating estimates each time, with an average positive surprise of 11.8%.

With four back-to-back earnings beats, Harris Corporation has a striking average positive surprise of 6.7%.

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