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ViaSat (VSAT) Scores Hat-Trick with Huge Q4 Earnings Beat

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ViaSat Inc. (VSAT - Free Report) scored an impressive hat-trick of earnings beats, as its fourth-quarter fiscal 2017 results surpassed estimates by a colossal margin. The company’s adjusted earnings (including stock-based compensation adjustments) of 14 cents came in miles ahead of the Zacks Consensus Estimate of 1 penny.

Non-GAAP earnings rose 10.3%, compared with the year-ago quarter, to 32 cents. Robust top-line growth, led by record revenues in Satellite Services and Government Systems businesses, drove the earnings expansion.Also, a drastic fall in interest expense boosted earnings.

For fiscal 2017, non-GAAP earnings came in at $65.6 million, up 7.5% over the last fiscal.

Inside the Headlines

The company posted revenues of $416.4 million in the fiscal fourth quarter, which trumped the Zacks Consensus Estimate of $399 million. Revenues also rose 12% compared to the prior-year quarter tally. Robust growth in satellite services operations across the residential, aero and government mobility markets, and terrific growth in government business, supported the remarkable top-line performance.

For fiscal 2017, the top line came in at $1,559.3 million, up 10% over fiscal 2016. The company won record level of new contract awards ($1.7 billion), highlighting strong demand for both products and services.

Segment wise, Satellite Services revenues were up 10.6% year over year to $160.9 million, which was a record high for the segment. Impressive sales were driven by premium higher bandwidth broadband internet plans and growth in value-added service offerings. Particularly, growth of Average Revenue per User (ARPU) in ViaSat's residential broadband internet business proved to be a major profit churner for value-added services.

However, Commercial Networks revenues continued to display weakness, declining 5% on a year-over-year basis to $59.1 million. This segment continues to witness an increase in research and development investment (up 77% year over year) associated with internal development of the ViaSat-3 project and expansion of next-gen mobility solutions.

On the other hand, Government Systems reported record revenues of $196.5 million, up an impressive 19.5% year over year. The company’s cybersecurity and information assurance, tactical data link and tactical satellite communication radio products continued to fuel growth in this segment.

During the quarter, sales backlog climbed 8.8% year over year to $1024.4 million. Also, adjusted EBIDTA rose 3.5% from the comparable quarter last year to $83.5 million.

ViaSat, Inc. Price, Consensus and EPS Surprise

Quarterly Highlights

In March, ViaSat and Eutelsat Communications closed their previously announced joint venture, setting up two entities. One of them, with 51% Eutelsat ownership, and 49% ViSat ownership, will own and operate Eutelsat's KA-SAT satellite and the wholesale broadband business. The second entity, which will have 51% of ViaSat’s ownership and 49% Eutelsat’s ownership, will purchase wholesale KA-SAT satellite-based capacity to offer retail broadband internet services in the European region.

The company is scheduled to launch ViaSat-2 satellite on Jun 1, from the Guiana Space Centrein French Guiana.

ViaSat offers inflight Wi-Fi on JetBlue, as well as for some American Airlines and United Airlines commercial aircraft. The company offers its technology to 559 aircraft currently. Further, ViaSat-2 boasts twice the bandwidth of the company’s ViaSat-1 satellite, which was launched in 2011. The new satellite will reportedly help expand the coverage to Mexico, the Caribbean and parts of Central/South America and over the Atlantic.

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

Liquidity

ViaSat exited the fiscal year with cash and cash equivalents of $130.1 million compared with $42.1 million as of Mar 31, 2016. The company also generated record levels of operating cash flow in fiscal 2017, which hit $411.3 million.

To Conclude

ViaSat posted impressive fourth-quarter and fiscal 2017 results, setting multiple records. 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 about-to-be-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. Further, the company’s satellite services segment is highly affected by 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 expected 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 include Ubiquiti Networks, Inc. , Sonus Networks, Inc. and Sierra Wireless, Inc. , 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 solid earnings surprise history for the trailing four quarters, having beaten estimates thrice, for an average beat of 13.3%.

Sonus Networks has a striking earnings surprise history for the trailing four quarters, beating estimates all through for an average positive surprise of 57.6%.

Sierra Wireless has beaten estimates impressively thrice over the trailing four quarters, with an average positive surprise of 155.9%.

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