1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the quarterly period ended
June 30, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from
____________ to____________.
Commission File Number ( 0-21767 )
VIASAT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0174996
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2290 COSMOS COURT, CARLSBAD, CALIFORNIA 92009
(760) 438-8099
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock, $.0001
par value, as of July 30, 1998 was 7,976,649.
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VIASAT, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet at June 30, 1998 and
March 31, 1998 2
Condensed Statement of Income for the three months
ended June 30, 1998 and 1997 3
Condensed Statement of Cash Flows for the three months
ended June 30, 1998 and 1997 4
Condensed Statement of Stockholders' Equity for the
three months ended June 30, 1998 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
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VIASAT, INC.
CONDENSED BALANCE SHEET
JUNE 30, MARCH 31,
1998 1998
------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 6,755,000 $ 3,290,000
Short-term investments 5,084,000 5,918,000
Accounts receivable 16,319,000 19,056,000
Inventory 5,811,000 4,687,000
Deferred income taxes 1,670,000 1,548,000
Other current assets 416,000 479,000
------------- -------------
Total current assets 36,055,000 34,978,000
Property and equipment, net 7,371,000 6,986,000
Other assets 640,000 829,000
------------- -------------
Total assets $ 44,066,000 $ 42,793,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,664,000 $ 4,555,000
Accrued liabilities 4,708,000 5,087,000
Current portion of notes payable 1,312,000 1,060,000
------------- -------------
Total current liabilities 9,684,000 10,702,000
------------- -------------
Notes payable 2,047,000 1,544,000
Other liabilities 871,000 937,000
------------- -------------
Total long-term liabilities 2,918,000 2,481,000
------------- -------------
Contingencies (Note 7)
Stockholders' equity:
Common stock 81,000 81,000
Paid in capital 17,133,000 16,668,000
Retained earnings 14,250,000 12,861,000
------------- -------------
Total stockholders' equity 31,464,000 29,610,000
------------- -------------
Total liabilities and stockholders' equity $ 44,066,000 $ 42,793,000
============= =============
See accompanying notes to condensed financial statements
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VIASAT, INC.
CONDENSED STATEMENT OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
-----------------------------------
1998 1997
------------ ------------
Revenues $ 16,304,000 $ 14,476,000
Cost of revenues 9,832,000 9,359,000
------------ ------------
Gross profit 6,472,000 5,117,000
Operating expenses:
Selling, general and administrative 2,355,000 1,790,000
Independent research and development 1,940,000 1,621,000
------------ ------------
Income from operations 2,177,000 1,706,000
Other income (expense):
Interest income 140,000 209,000
Interest expense (70,000) (50,000)
------------ ------------
Income before income taxes 2,247,000 1,865,000
Provision for income taxes 858,000 690,000
------------ ------------
Net income $ 1,389,000 $ 1,175,000
============ ============
Basic net income per share $ .18 $ .15
============ ============
Diluted net income per share $ .17 $ .15
============ ============
Shares used in basic net income per share computation 7,921,563 7,744,119
============ ============
Shares used in diluted net income per share computation 8,209,522 8,071,640
============ ============
See accompanying notes to condensed financial statements.
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VIASAT, INC.
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
-----------------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
Net income $ 1,389,000 $ 1,175,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 688,000 469,000
Deferred income taxes (83,000) (160,000)
Increase (decrease) in cash resulting from changes in:
Accounts receivable 2,737,000 (1,711,000)
Inventory (1,124,000) (1,049,000)
Other assets 213,000 1,050,000
Accounts payable (891,000) (55,000)
Accrued liabilities (379,000) 1,358,000
Other liabilities (66,000) (18,000)
------------ ------------
Net cash provided by operating activities 2,484,000 1,059,000
------------ ------------
Cash flows from investing activities:
Proceeds from maturity of short-term investments 834,000
Purchases of property and equipment (1,073,000) (693,000)
------------ ------------
Net cash used in investing activities (239,000) (693,000)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 1,007,000 160,000
Repayment of notes payable (252,000) (665,000)
Proceeds from issuance of common stock 465,000 318,000
------------ ------------
Net cash provided by (used in) financing activities 1,220,000 (187,000)
------------ ------------
Net increase in cash and cash equivalents 3,465,000 179,000
Cash and cash equivalents at beginning of period 3,290,000 12,673,000
------------ ------------
Cash and cash equivalents at end of period $ 6,755,000 $ 12,852,000
============ ============
Supplemental information:
Cash paid for interest $ 70,000 $ 50,000
============ ============
Cash paid for income taxes $ 260,000 $ 541,000
============ ============
See accompanying notes to condensed financial statements
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VIASAT, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
NUMBER PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
--------- ----------- ----------- -----------
Balance at March 31, 1998 7,920,639 $ 81,000 $16,668,000 $12,861,000
Exercise of stock options 23,399 204,000
Issuance for Employee Stock
Purchase Plan 22,167 261,000
Net Income 1,389,000
--------- ----------- ----------- -----------
Balance at June 30, 1998 7,966,205 $ 81,000 $17,133,000 $14,250,000
========= =========== =========== ===========
See accompanying notes to condensed financial statements.
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VIASAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed balance sheet as of June 30, 1998 and the condensed
statements of income and of cash flows for the three month periods ended June
30, 1998 and 1997, and the statement of stockholders' equity for the three
months ended June 30, 1998 have been prepared by ViaSat, Inc. (the "Company"),
and have not been audited. These financial statements, in the opinion of
management, include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial position, results
of operations and cash flows for all periods presented. These financial
statements should be read in conjunction with the financial statements and notes
thereto for the year ended March 31, 1998 included in the Company's 1998 Annual
Report on Form 10-K. Interim operating results are not necessarily indicative of
operating results for the full year.
NOTE 2 - MANAGEMENT ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Estimates
have been prepared on the basis of the most current and best available
information and actual results could differ from those estimates.
NOTE 3 - REVENUE RECOGNITION
The majority of the Company's revenues are derived from services performed for
the United States Government and its prime contractors under a variety of
contracts including cost-plus-fixed fee, fixed-price, and time and materials
type contracts. Generally, revenues are recognized as services are performed
using the percentage of completion method, measured primarily by costs incurred
to date compared with total estimated costs at completion or based on the number
of units delivered. The Company provides for anticipated losses on contracts by
a charge to income during the period in which they are first identified.
Contract costs, including indirect costs, are subject to audit and negotiations
with Government representatives. These audits have been completed and agreed
upon through fiscal year 1995. Contract revenues and accounts receivable are
stated at amounts which are expected to be realized upon final settlement.
NOTE 4 - EARNINGS PER SHARE
Common stock equivalents of 287,959 and 327,521 shares for the three months
ended June 30, 1998 and 1997 were used to calculate diluted earnings per share.
Common stock equivalents are primarily comprised of options granted under the
Company's stock option plan. There are no reconciling items in calculating the
numerator for basic and diluted earnings per share for any of the periods
presented.
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VIASAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 5 - COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS
JUNE 30, MARCH 31,
1998 1998
--------------- --------------
(UNAUDITED)
Accounts receivable:
Billed $ 10,564,000 $ 12,077,000
Unbilled 5,755,000 6,979,000
--------------- --------------
$ 16,319,000 $ 19,056,000
=============== ==============
Inventory:
Raw materials $ 2,666,000 $ 1,564,000
Work in process 2,044,000 2,372,000
Finished goods 1,101,000 751,000
--------------- --------------
$ 5,811,000 $ 4,687,000
=============== ==============
Accrued liabilities:
Current portion of warranty reserve $ 1,431,000 $ 1,279,000
Accrued vacation 1,021,000 974,000
Income taxes payable 989,000 309,000
Collections in excess of revenues 428,000 930,000
Accrued 401(k) matching contribution 248,000 671,000
Accrued bonus 177,000 500,000
Other 414,000 424,000
--------------- --------------
$ 4,708,000 $ 5,087,000
=============== ==============
NOTE 6 - INCOME TAXES
The provision (benefit) for income taxes is as follows:
THREE MONTHS
ENDED JUNE 30,
------------------------------------
1998 1997
-------------- --------------
(UNAUDITED) (UNAUDITED)
Current tax provision:
Federal $ 701,000 $ 666,000
State 240,000 182,000
-------------- --------------
941,000 848,000
-------------- --------------
Deferred tax provision:
Federal (28,000) (122,000)
State (55,000) (36,000)
--------------- ---------------
(83,000) (158,000)
--------------- ---------------
Total provision for income
Taxes $ 858,000 $ 690,000
============== ==============
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VIASAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Significant components of the Company's deferred tax assets and liabilities are
as follows:
JUNE 30, MARCH 31,
1998 1998
-------------- ---------------
(UNAUDITED)
Deferred tax assets:
Warranty reserve $ 773,000 $ 738,000
Inventory reserve 569,000 383,000
Accrued vacation 337,000 328,000
State Income Taxes 81,000 243,000
Other 392,000 377,000
-------------- ---------------
Total deferred tax assets $ 2,152,000 $ 2,069,000
============== ===============
NOTE 7 - CONTINGENCIES
The Company is currently a party to various government and commercial contracts
which require the Company to meet performance covenants and project milestones.
Under the terms of these contracts, failure by the Company to meet such
performance covenants and milestones permit the other party to terminate the
contract and, under certain circumstances, recover liquidated damages or other
penalties. The Company is currently not in compliance, or in the past was not in
compliance with the performance or milestone requirements of many of these
contracts. Historically, the Company's customers have not elected to terminate
such contracts or seek liquidated damages from the Company and management does
not believe that its existing customers will do so; therefore, the Company has
not accrued for any potential liquidated damages or penalties.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
When used in this discussion, the words "believes," "anticipated" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements which speak only as of the
date hereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Readers are also
urged to carefully review and consider the various disclosures made by the
Company which attempt to advise interested parties of the factors which affect
the Company's business, including without limitation the disclosures made under
the caption "Risk Factors" in the Company's Annual Report on Form 10-K for its
fiscal year ended March 31, 1998 filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues, certain
income data for the periods indicated.
THREE MONTHS ENDED
JUNE 30,
---------------------
1998 1997
----- -----
Revenue 100.0% 100.0%
Cost of revenue 60.3 64.7
----- -----
Gross profit 39.7 35.3
Operating expenses:
Selling, general, and administrative 14.4 12.4
Independent research and development 11.9 11.2
----- -----
Income from operations 13.4 11.8
Income before income taxes 13.8 12.9
Net income 8.5 8.1
THREE MONTHS ENDED JUNE 30, 1998 VS. THREE MONTHS ENDED JUNE 30, 1997
Revenues. Revenues increased 12.6% from $14.5 million for the three months
ended June 30, 1997 to $16.3 million for the three months ended June 30, 1998.
This increase was primarily due to increases in revenues generated by several
product lines including JCS (Joint Communication Simulator) and MIDS
(Multifunction Information Distribution System). These increases were partially
offset by a decrease in revenues derived from UHF DAMA network control stations.
Gross Profit. Gross profit increased 26.5% from $5.1 million (35.3% of
revenues) for the three months ended June 30, 1997 to $6.5 million (39.7% of
revenues) for the three months ended June 30, 1998. The Company's sales for the
three months ended June 30, 1998 were comprised of higher margin products
relative to the same quarter of the prior year.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased 31.6% from $1.8 million (12.4% of
revenues) for the three months ended June 30, 1997 to $2.4 million (14.4% of
revenues) for the three months ended June 30, 1998. The increase in SG&A
expenses as a percentage of revenues reflects increased expenditures relating to
marketing of commercial products, increased bid and proposal efforts for defense
programs, and additional administrative staffing to support the Company's
growth. SG&A expenses consist primarily of personnel costs and expenses for
business development, marketing and sales, bid and proposal, finance, contract
administration and general management. Certain SG&A expenses are difficult to
predict and vary based on specific government and commercial sales
opportunities.
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Independent Research and Development. Independent Research and Development
("IR&D") expenses increased 19.7% from $1.6 million (11.2% of revenues) for the
three months ended June 30, 1997 to $1.9 million (11.9% of revenues) for the
three months ended June 30, 1998. This increase resulted primarily from higher
IR&D expenses related to the Company's government products.
Interest Expense. Interest expense increased from $50,000 for the three
months ended June 30, 1997 to $70,000 for the three months ended June 30, 1998.
Interest expense relates to loans for the purchase of capital equipment, which
are generally four year fixed-rate term loans, and to short-term borrowings
under the Company's line of credit to cover working capital requirements. Total
outstanding equipment loans were $2.1 million at June 30, 1997 and $3.4 million
at June 30, 1998. There were no outstanding borrowings under the Company's line
of credit as of June 30, 1997 and 1998.
Interest Income. Interest income decreased from $209,000 for the three
months ended June 30, 1997 to $140,000 for the three months ended June 30, 1998.
This decrease was primarily the result of lower cash balances. Interest income
relates to interest earned on short-term deposits of cash.
Provision for Income Taxes. The Company's effective income tax rate
increased from 37% for the three months ended June 30, 1997 to 38% for the three
months ended June 30, 1998. The Company's effective income tax rate increased
due to a limitation on qualified research and development expenditures used to
calculate the Company's research and development tax credit.
BACKLOG
At June 30, 1998, the Company had firm backlog of $66.9 million, of which $43.3
million was funded. The firm backlog of $66.9 million does not include contract
options of $24.2 million. Of the $66.9 million in firm backlog, approximately
$38.5 million is expected to be delivered in the fiscal year ending March 31,
1999, $18.2 million is expected to be delivered in the fiscal year ending March
31, 2000 and the balance is expected to be delivered in the fiscal year ending
March 31, 2001 and thereafter. The Company had firm backlog of $72.7 million, of
which $48.0 million was funded, not including options of $24.3 million, at March
31, 1998. The Company includes in its backlog only those orders for which it has
accepted purchase orders. However, backlog is not necessarily indicative of
future sales. A majority of the Company's backlog scheduled for delivery can be
terminated at the convenience of the government since orders are often made
substantially in advance of delivery, and the Company's contracts typically
provide that orders may be terminated with limited or no penalties. In addition,
purchase orders may set forth product specifications that would require the
Company to complete additional product development. A failure to develop
products meeting such specifications could lead to a termination of the related
purchase order.
The backlog amounts as presented are comprised of funded and unfunded
components. Funded backlog represents the sum of contract amounts for which
funds have been specifically obligated by customers to contracts. Unfunded
backlog represents future amounts that customers may obligate over the specified
contract performance periods. The Company's customers allocate funds for
expenditures on long-term contracts on a periodic basis. The ability of the
Company to realize revenues from government contracts in backlog is dependent
upon adequate funding for such contracts. Although funding of its government
contracts is not within the Company's control, the Company's experience
indicates that actual contract fundings have ultimately been approximately equal
to the aggregate amounts of the contracts.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily from cash flow from
operations, bank line of credit financing, equity financing and loans for the
purchase of capital equipment. Cash provided by operating activities for the
three months ended June 30, 1998 and 1997 was $2.5 million and $1.1 million,
respectively. The relative increase in cash provided by operating activities for
the three months ended June 30, 1998 compared to the same period of the prior
year was primarily due to the timing of receivable collections which were offset
by decreased levels of accounts payable and accrued liabilities.
Cash used in investing activities for the three months ended June 30, 1998 and
1997 was $239,000 and $693,000, respectively. The Company's purchase of fixed
assets increased during the period, however this increase was offset by the
maturity of certain short-term investments which were reinvested in cash
equivalents. The Company's purchases of property and equipment primarily consist
of test equipment and computers.
Cash provided/(used) by financing activities for the three months ended June 30,
1998 and 1997 was $1.2 million and ($187,000), respectively. This increase was
primarily the result of borrowings for equipment financing and proceeds from the
sale of common stock through the Company's employee stock option and purchase
plans.
At June 30, 1998, the Company had $11.8 million in cash, cash equivalents and
short-term investments, $26.4 million in working capital and $3.4 million in
long-term debt, which consisted of equipment financing. The Company had a zero
balance under its line of credit at June 30, 1998.
The Company's credit facility with Union Bank of California includes a $6.0
million line of credit and $4.5 million in commitments for equipment financing.
The line of credit allows the Company to borrow, for general working capital
purposes, the greater of $2.0 million or 80% of eligible accounts receivable
plus 50% of the Company's eligible inventory. At the Company's option, interest
accrues either at the bank's prime rate or at the bank's LIBOR rate plus 1.75%.
The credit facility expires on September 15, 1998. The Company is required to
pay a fee equal to 0.09% of the unused portion of the line of credit on a
quarterly basis.
The Company has commenced the evaluation of its computer systems and products to
insure its operations will not be adversely effected by year 2000 software
problems. Presently, the Company does not believe that year 2000 compliance will
result in additional material investments by the Company, nor does the Company
anticipate that the year 2000 problem will have a material adverse effect on the
business operations or financial performance of the Company. There can be no
assurances, however, that the year 2000 problem will not adversely effect the
Company and its business.
The Company's future capital requirements will depend upon many factors,
including the progress of the Company's research and development efforts,
expansion of the Company's marketing efforts, and the nature and timing of
commercial orders. The Company believes that its current cash balances, amounts
available under its credit facilities and net cash expected to be provided by
operating activities, will be sufficient to meet its working capital and capital
expenditure requirements for at least the next 12 months. Management intends to
invest the Company's cash in excess of current operating requirements in
short-term, interest-bearing, investment-grade securities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 - Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarter ended June 30,
1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIASAT, INC.
Date: August 14, 1998 /s/ Mark D. Dankberg
-------------------------------
MARK D. DANKBERG
President
Chief Executive Officer
/s/ Gregory D. Monahan
-------------------------------
GREGORY D. MONAHAN
Vice President & General
Counsel
Chief Financial Officer
13
5
1,000
3-MOS
MAR-31-1999
APR-01-1998
JUN-30-1998
6,755
5,084
16,319
0
5,811
36,055
13,672
6,301
44,066
9,684
0
0
0
81
31,383
44,066
16,304
16,304
9,832
9,832
4,295
0
(70)
2,247
858
1,389
0
0
0
1,389
0.18
0.17
