[Satellite News 05-19-10] While ViaSat’s 2010 fiscal year results were received cautiously by analysts, the investment community remains confident in the satellite solution provider’s 58 percent growth in contract awards to $111 million, a boost for the company, which has had a difficult time cracking the government business market.
    ViaSat saw its overall revenues rise but net profits fall from $38.3 million in 2009 to $31.3 million in 2010. Its government systems segment posted revenues of $385.2 million, down slightly from the previous year due to lower sales of information assurance and tactical data link products.
    Chris Quilty, a telecoms equity analyst at Raymond James, said ViaSat missed its consensus forecast in the fourth quarter of 2010 but reported a strong book-to-bill of 1.2x and steady progress toward its first quarter 2011 launch of the ViaSat-1 satellite. “ViaSat reported revenues of $213 million versus a consensus forecast of $217 million. Government revenues declined for the second consecutive quarter, down 8 percent year-on-year to $101 million, due primarily by the timing of contract awards, especially in the IA product line.”
   Quilty said ViaSat had difficulties on the consumer side, as well. “ViaSat added a mere 1,000 new subscribers in the fourth quarter — an average of 15,000 over the prior six months due to capacity constraints and a concerted effort to improve service levels in oversubscribed regions through natural attrition and churn. Likewise, management intends to boost data rates in under-subscribed regions, such as the Western United States, although not quite to the levels that will be offered on ViaSat-1.”
    Despite its troubles, Quilty said that investors should remain confident in the company’s standing, especially with how the company is managing its $568 million investment in WildBlue, acquired in October. “Management’s decision to throttle down subscriber growth on the WildBlue-1 satellite is a smart strategic move, but it could cause some financial headwinds in 2011 if new subscriber plans targeted at the Western United States fail to take hold as expected. Looking at the bigger picture, we remain a big fan of ViaSat’s consumer broadband efforts but believe the stock is fully valued relative to its peer group of satellite operators.”
   Mike Crawford, a telecoms equity analyst at B. Riley & Co, is a long-term believer in ViaSat stock. “Investors are buying an asset that we believe will be generating on average some $450 million in EBITDA (plus however much the government systems business grows) in the not-too-distant future. Our $50 price target represents an estimated value of $2.3 billion, about 5 times its projected value and EBITDA. In contrast, satellite services like ETL trade at 8 to 9 times EBITDA multiples, implying much greater upside for ViaSat than our current target,” Crawford said.
   Focusing on ViaSat’s government segment, Richard Valera, a telecoms equity analyst at Needham & Co., said while ViaSat’s near-term results continue to see some pressure from sluggish U.S. military procurement procedures, he believes the company’s medium- and longer-term prospects are robust. ViaSat has a “solidified competitive position in encryption and potential for substantial market expansion in datalinks with its MIDS-J platform. On the commercial side, we expect the company to begin seeing a ramp in its Ka-band infrastructure sales in 2011, to be followed in 2012 by the ramp of service revenue from ViaSat-1.”
   In terms of the consumer side of the business, Valera said ViaSat’s WildBlue subscribers of 424,000 essentially were in line with analysts’ 425,000 estimate. “Despite monthly churn of 2.25 percent being slightly higher than modeled, ViaSat-1 remains on track for its late first fiscal quarter 2011 launch, and management acknowledged having begun planning for ViaSat-2, with a possible commencement on the build of its second satellite in late C2010.”
   While Valera is keeping his projections positive, he added that investors in ViaSat should acknowledge some risk: “The potential for dilution to near-term earnings from financing of the company’s plan to build and launch its own broadband satellite as well as any execution issues or delays associated with this project; the potential for slower-than-expected sales of the company’s broadband consumer terminals as well potential for continued program delays beyond what we have modeled; the inherent lumpiness of the company’s bookings, which could result in lower than expected bookings in any given quarter; and the possibility that the company will be unable to ramp its margins as we have modeled.”