After two consecutive quarters of a miss, ViaSat Inc.VSAT posted impressive results for second-quarter fiscal 2017, with adjusted earnings (including stock-based compensation adjustments) of 24 cents comparing favorably with the Zacks Consensus Estimate of a loss of 2 cents.
Non-GAAP earnings came in at 40 cents, up 33.3% from 30 cents in the year-ago quarter.
The bottom line largely benefited from higher operating income, lower interest expense and favorable tax rate related to the federal R&D tax credit. Moreover, strong revenue growth also drove the bottom line.
Inside the Headlines
The company posted revenues of $399.2 million in second-quarter fiscal 2017, which surpassed the Zacks Consensus Estimate of $374 million, and were also up 13.0% year over year. Robust growth in Government and Satellite Services businesses supported the top-line performance. Also, the company won record level of new contract awards, highlighting sustained demand for both products and services.
Segment wise, Satellite Services revenues were up 11.5% year over year to $156.3 million. Impressive sales were driven by high residential services offerings, which, in turn, led to an increase in Average Revenue Per User (ARPU). Further, an increase in adoption of the company's high-speed in-flight internet system by a large number of commercial aircrafts acted as a major profit churner.
However, Commercial Networks revenues continued to show weakness, edging down 1.4% on a year-over-year basis to $65.5 million. Unfavorable product mix and increase in research and development investment associated with internal development of the ViaSat-3 payloads as well as expansion of the commercial in-flight Internet solutions hampered/paralyzed the EBITA growth of this segment.
On the other hand, Government Systems reported record revenues of $177.4 million, up 20.9% year over year. The revenue growth of this segment is attributable to impressive performance from data links and cybersecurity product lines, along with higher service revenues from ViaSat Wireless Services and government mobility services.
During the quarter, sales backlog climbed 21.6% year over year to $1091.4 million. Adjusted EBIDTA rose 7.7% from the comparable quarter last year to $93.2 million.
During the reported quarter, Satellite Services expanded residential broadband service offerings, including new premium service plans and value-added service bundle, which proved conducive to the growth of Average Revenue Per User in the residential broadband internet business. In addition, the company managed to clinch new service contracts from Finnair and SAS to offer in-flight internet services.
The company's Government Systems segment won a contract from Protected Tactical Service Field Demonstration to develop a special type of modem and embedded cryptographic unit for wideband anti-jam communications across both government and commercial satellites. Other major contracts include one from Space and Naval Warfare Systems Command to support the U.S. Navy's joint Ultra High Frequency military satellite communications system and the other from NuWaves Engineering to simulate the RF signal environment for the U.S. Army's Joint Scalable Tactical Emulated Network.
In addition, the company launched its first 100 Gbps Type 1 Ethernet encryptor and achieved National Security Agency-certification for two new network encryptors. The Commercial Networks also fared well, with the company successfully completing environmental testing and end-to-end terminal compatibility testing on the ViaSat-2 satellites. ViaSat-2 is on schedule for completion and the shipment of the satellite to its launch site is likely to commence in Dec 2016. Also, the ViaSat-3 program is well on track, with the first two ViaSat-3 class satellites on schedule and an upcoming spacecraft preliminary design review (PDR) for mid-Nov 2016.
ViaSat exited the quarter with cash and cash equivalents of $51.3 million, compared with $42.1 million as of Mar 31, 2016.
VIASAT INC Price, Consensus and EPS Surprise
ViaSat maintains a leading position in the satellite and wireless communications market. The company continuously leverages on its advanced technology and competency to capture the lion's share of this market. Going forward, it forecasts decent revenue growth for both near term and the longer run. The optimistic outlook stems from the robust demand of the company's offerings. ViaSat believes that the growth momentum of its Satellite Services revenues and ARPU are unlikely to fizzle anytime soon.
Moreover, with the ViaSat-2 in service launch, the company expects fast subscriber growth, thus boosting the segment's growth. Further, sturdy award wins in the Government business signals that this segment will be a key growth driver for the upcoming quarters. Growing broadband mobility and new tactical data link terminals lend confidence to the company's optimistic outlook in the government business.
We believe that the momentous market traction of ViaSat-1 satellites, along with strategically planned ViaSat-2 and ViaSat 3 satellites, will provide ViaSat with a solid competitive edge over its peers. This, in turn, will bolster the growth of this Zacks Rank #3 (Hold) company over the long run.
Stocks to Consider
Some better-ranked stocks in the sector include Cirrus Logic Inc. CRUS , FormFactor Inc. FORM , Cirrus Logic Inc. CRUS , and Adobe Systems Inc., ADBE . While Cirrus Logic and FormFactor Inc. sport a Zacks Rank #1 (Strong Buy), Adobe Systems carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Adobe Systems is a leading player in the computer software space. The company has a striking earnings surprise history over the trailing four quarters, having beaten estimates all through, for an average beat of 5.6%.
Cirrus Logic is a premier supplier of high performance analog circuits and advanced mixed-signal chip solutions. The company has managed to beat earnings estimates thrice in the trailing four quarters with an average beat of 53.7%.
FormFactor is an OEM of automated wafer probe cards used in the back-end portion of the semiconductor manufacturing process. The company has a decent earnings surprise history, beating estimates three out of four times with an average positive surprise of 22.0%.
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