It has been about a month since the last earnings report for ViaSat, Inc. (VSAT - Free Report) . Shares have added about 1.5% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is VSAT due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
ViaSat Posts Q3 Loss Ahead of ViaSat-2 Service Launch
ViaSat 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.
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.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter. Consensus estimates have shifted downward by 105% due to these changes.
At this time, VSAT has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise VSAT has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.