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VSAT Viasat

Filed: 8 Feb 21, 2:40pm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2020.

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 (000-21767)

 

VIASAT, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

33-0174996

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

6155 El Camino Real

Carlsbad, California 92009

(760) 476-2200

(Address of principal executive offices and telephone number)

Securities registered pursuant to Section 12(b) of the Act:

 

(Title of Each Class)

 

(Trading Symbol)

 

(Name of Each Exchange on which Registered)

Common Stock, par value $0.0001 per share

 

VSAT

 

The Nasdaq Stock Market LLC

 

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of January 22, 2021 was 68,505,328.

 

 


 

VIASAT, INC.

TABLE OF CONTENTS

 

 

2


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

VIASAT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

As of

December 31, 2020

 

 

As of

March 31, 2020

 

 

 

(In thousands)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

317,344

 

 

$

304,309

 

Accounts receivable, net

 

 

202,792

 

 

 

330,698

 

Inventories

 

 

334,919

 

 

 

294,416

 

Prepaid expenses and other current assets

 

 

112,548

 

 

 

116,281

 

Total current assets

 

 

967,603

 

 

 

1,045,704

 

 

 

 

 

 

 

 

 

 

Property, equipment and satellites, net

 

 

2,973,733

 

 

 

2,586,735

 

Operating lease right-of-use assets

 

 

331,066

 

 

 

308,441

 

Other acquired intangible assets, net

 

 

11,079

 

 

 

14,439

 

Goodwill

 

 

122,448

 

 

 

121,197

 

Other assets

 

 

842,777

 

 

 

807,352

 

Total assets

 

$

5,248,706

 

 

$

4,883,868

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

122,342

 

 

$

183,601

 

Accrued and other liabilities

 

 

485,565

 

 

 

391,190

 

Current portion of long-term debt

 

 

33,735

 

 

 

29,788

 

Total current liabilities

 

 

641,642

 

 

 

604,579

 

 

 

 

 

 

 

 

 

 

Senior notes

 

 

1,682,523

 

 

 

1,285,497

 

Other long-term debt

 

 

121,225

 

 

 

536,166

 

Non-current operating lease liabilities

 

 

303,950

 

 

 

286,550

 

Other liabilities

 

 

152,040

 

 

 

120,934

 

Total liabilities

 

 

2,901,380

 

 

 

2,833,726

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Viasat, Inc. stockholders’ equity

 

 

 

 

 

 

 

 

Common stock

 

 

7

 

 

 

6

 

Paid-in capital

 

 

2,070,353

 

 

 

1,788,456

 

Retained earnings

 

 

241,707

 

 

 

245,373

 

Accumulated other comprehensive income (loss)

 

 

6,614

 

 

 

(6,048

)

Total Viasat, Inc. stockholders’ equity

 

 

2,318,681

 

 

 

2,027,787

 

Noncontrolling interest in subsidiary

 

 

28,645

 

 

 

22,355

 

Total equity

 

 

2,347,326

 

 

 

2,050,142

 

Total liabilities and equity

 

$

5,248,706

 

 

$

4,883,868

 

 

See accompanying notes to the condensed consolidated financial statements.

 

3


VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

266,514

 

 

$

303,090

 

 

$

773,128

 

 

$

873,535

 

Service revenues

 

 

309,045

 

 

 

285,134

 

 

 

887,197

 

 

 

843,982

 

Total revenues

 

 

575,559

 

 

 

588,224

 

 

 

1,660,325

 

 

 

1,717,517

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenues

 

 

196,895

 

 

 

214,098

 

 

 

576,677

 

 

 

634,113

 

Cost of service revenues

 

 

194,394

 

 

 

190,132

 

 

 

587,494

 

 

 

564,675

 

Selling, general and administrative

 

 

132,394

 

 

 

136,005

 

 

 

378,884

 

 

 

388,528

 

Independent research and development

 

 

28,803

 

 

 

32,164

 

 

 

83,970

 

 

 

99,952

 

Amortization of acquired intangible assets

 

 

1,313

 

 

 

1,856

 

 

 

4,171

 

 

 

5,920

 

Income from operations

 

 

21,760

 

 

 

13,969

 

 

 

29,129

 

 

 

24,329

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

114

 

 

 

179

 

 

 

474

 

 

 

1,517

 

Interest expense

 

 

(7,880

)

 

 

(9,276

)

 

 

(27,194

)

 

 

(29,990

)

Income (loss) before income taxes

 

 

13,994

 

 

 

4,872

 

 

 

2,409

 

 

 

(4,144

)

(Provision for) benefit from income taxes

 

 

(7,008

)

 

 

3,911

 

 

 

(573

)

 

 

8,731

 

Equity in income of unconsolidated affiliate, net

 

 

774

 

 

 

1,807

 

 

 

788

 

 

 

4,328

 

Net income

 

 

7,760

 

 

 

10,590

 

 

 

2,624

 

 

 

8,915

 

Less: net income attributable to

   noncontrolling interest, net of tax

 

 

1,000

 

 

 

4,114

 

 

 

6,290

 

 

 

10,713

 

Net income (loss) attributable to Viasat, Inc.

 

$

6,760

 

 

$

6,476

 

 

$

(3,666

)

 

$

(1,798

)

Basic net income (loss) per share attributable

   to Viasat, Inc. common stockholders

 

$

0.10

 

 

$

0.10

 

 

$

(0.06

)

 

$

(0.03

)

Diluted net income (loss) per share attributable

   to Viasat, Inc. common stockholders

 

$

0.10

 

 

$

0.10

 

 

$

(0.06

)

 

$

(0.03

)

Shares used in computing basic net income

   (loss) per share

 

 

67,995

 

 

 

61,813

 

 

 

65,704

 

 

 

61,405

 

Shares used in computing diluted net income

   (loss) per share

 

 

68,668

 

 

 

62,916

 

 

 

65,704

 

 

 

61,405

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

7,760

 

 

$

10,590

 

 

$

2,624

 

 

$

8,915

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on hedging, net of tax

 

 

 

 

 

184

 

 

 

 

 

 

232

 

Foreign currency translation adjustments, net

   of tax

 

 

9,047

 

 

 

(2,371

)

 

 

12,662

 

 

 

(6,091

)

Other comprehensive income (loss), net of tax

 

 

9,047

 

 

 

(2,187

)

 

 

12,662

 

 

 

(5,859

)

Comprehensive income

 

 

16,807

 

 

 

8,403

 

 

 

15,286

 

 

 

3,056

 

Less: comprehensive income attributable

   to noncontrolling interest, net of tax

 

 

1,000

 

 

 

4,114

 

 

 

6,290

 

 

 

10,713

 

Comprehensive income (loss) attributable to

   Viasat, Inc.

 

$

15,807

 

 

$

4,289

 

 

$

8,996

 

 

$

(7,657

)

 

See accompanying notes to the condensed consolidated financial statements.

4


VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Nine Months Ended

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

2,624

 

 

$

8,915

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

241,935

 

 

 

207,950

 

Amortization of intangible assets

 

 

50,181

 

 

 

47,159

 

Stock-based compensation expense

 

 

64,967

 

 

 

64,236

 

Loss on disposition of fixed assets

 

 

29,841

 

 

 

33,578

 

Other non-cash adjustments

 

 

3,611

 

 

 

(9,394

)

Increase (decrease) in cash resulting from changes in operating

   assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

123,374

 

 

 

(23,596

)

Inventories

 

 

(39,988

)

 

 

(47,897

)

Other assets

 

 

24,017

 

 

 

4,075

 

Accounts payable

 

 

(39,004

)

 

 

8,384

 

Accrued liabilities

 

 

102,603

 

 

 

16,596

 

Other liabilities

 

 

(6,787

)

 

 

(16,644

)

Net cash provided by operating activities

 

 

557,374

 

 

 

293,362

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property, equipment and satellites

 

 

(655,672

)

 

 

(548,225

)

Cash paid for patents, licenses and other assets

 

 

(47,164

)

 

 

(49,613

)

Proceeds from insurance claims on ViaSat-2 satellite

 

 

 

 

 

2,277

 

Net cash used in investing activities

 

 

(702,836

)

 

 

(595,561

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from debt borrowings

 

 

400,000

 

 

 

110,000

 

Payments of debt borrowings

 

 

(414,604

)

 

 

(27,142

)

Payment of debt issuance costs

 

 

(5,060

)

 

 

(2,479

)

Proceeds from issuance of common stock under equity plans

 

 

19,101

 

 

 

38,093

 

Purchase of common stock in treasury (immediately retired) related

   to tax withholdings for stock-based compensation

 

 

(13,013

)

 

 

(28,268

)

Proceeds from common stock issued in private placement, net

   of issuance costs

 

 

174,749

 

 

 

 

Other financing activities

 

 

(4,280

)

 

 

(1,746

)

Net cash provided by financing activities

 

 

156,893

 

 

 

88,458

 

Effect of exchange rate changes on cash

 

 

1,604

 

 

 

(182

)

Net increase (decrease) in cash and cash equivalents

 

 

13,035

 

 

 

(213,923

)

Cash and cash equivalents at beginning of period

 

 

304,309

 

 

 

261,701

 

Cash and cash equivalents at end of period

 

$

317,344

 

 

$

47,778

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for operating lease liabilities

 

$

55,717

 

 

$

17,900

 

Right-of-use assets obtained in exchange for finance lease liabilities

 

$

1,931

 

 

$

72,711

 

 

See accompanying notes to the condensed consolidated financial statements.

 

5


 

 

VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

 

 

 

Viasat, Inc. Stockholders

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

Issued

 

 

Amount

 

 

Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Noncontrolling

Interest in

Subsidiary

 

 

Total

 

 

 

(In thousands, except share data)

 

For the Three Months Ended December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2020

 

 

67,532,869

 

 

$

7

 

 

$

2,047,525

 

 

$

234,947

 

 

$

(2,433

)

 

$

27,645

 

 

$

2,307,691

 

Issuance of stock under Employee Stock Purchase

   Plan

 

 

356,523

 

 

 

 

 

 

9,895

 

 

 

 

 

 

 

 

 

 

 

 

9,895

 

Stock-based compensation

 

 

 

 

 

 

 

 

25,199

 

 

 

 

 

 

 

 

 

 

 

 

25,199

 

RSU awards vesting, net of shares withheld for taxes

   which have been retired

 

 

614,936

 

 

 

 

 

 

(12,266

)

 

 

 

 

 

 

 

 

 

 

 

(12,266

)

Net income

 

 

 

 

 

 

 

 

 

 

 

6,760

 

 

 

 

 

 

1,000

 

 

 

7,760

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,047

 

 

 

 

 

 

9,047

 

Balance at December 31, 2020

 

 

68,504,328

 

 

$

7

 

 

$

2,070,353

 

 

$

241,707

 

 

$

6,614

 

 

$

28,645

 

 

$

2,347,326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2019

 

 

61,352,560

 

 

$

6

 

 

$

1,751,924

 

 

$

237,311

 

 

$

1,666

 

 

$

14,929

 

 

$

2,005,836

 

Exercise of stock options

 

 

33,642

 

 

 

 

 

 

2,033

 

 

 

 

 

 

 

 

 

2,033

 

Issuance of stock under Employee Stock Purchase

   Plan

 

 

145,367

 

 

 

 

 

 

9,044

 

 

 

 

 

 

 

 

 

9,044

 

Stock-based compensation

 

 

 

 

 

 

 

25,135

 

 

 

 

 

 

 

 

 

25,135

 

RSU awards vesting, net of shares withheld for taxes

   which have been retired

 

 

591,689

 

 

 

 

 

 

(25,140

)

 

 

 

 

 

 

 

 

(25,140

)

Net income

 

 

 

 

 

 

 

 

 

6,476

 

 

 

 

 

4,114

 

 

 

10,590

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

(2,187

)

 

 

 

 

(2,187

)

Balance at December 31, 2019

 

 

62,123,258

 

 

$

6

 

 

$

1,762,996

 

 

$

243,787

 

 

$

(521

)

 

$

19,043

 

 

$

2,025,311

 

 

See accompanying notes to the condensed consolidated financial statements.

6


 

VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

 

 

 

Viasat, Inc. Stockholders

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

Issued

 

 

Amount

 

 

Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Noncontrolling

Interest in

Subsidiary

 

 

Total

 

 

 

(In thousands, except share data)

 

For the Nine Months Ended December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020

 

 

62,147,140

 

 

$

6

 

 

$

1,788,456

 

 

$

245,373

 

 

$

(6,048

)

 

$

22,355

 

 

$

2,050,142

 

Issuance of stock under Employee Stock Purchase

   Plan

 

 

638,792

 

 

 

 

 

 

19,101

 

 

 

 

 

 

 

 

 

 

 

 

19,101

 

Common stock issued in private placement, net of

   issuance costs

 

 

4,474,559

 

 

 

1

 

 

 

174,748

 

 

 

 

 

 

 

 

 

 

 

 

174,749

 

Stock-based compensation

 

 

 

 

 

 

 

 

75,655

 

 

 

 

 

 

 

 

 

 

 

 

75,655

 

Shares issued in settlement of certain accrued

   employee compensation liabilities

 

 

580,846

 

 

 

 

 

 

25,406

 

 

 

 

 

 

 

 

 

 

 

 

25,406

 

RSU awards vesting, net of shares withheld for taxes

   which have been retired

 

 

662,991

 

 

 

 

 

 

(13,013

)

 

 

 

 

 

 

 

 

 

 

 

(13,013

)

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

(3,666

)

 

 

 

 

 

6,290

 

 

 

2,624

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,662

 

 

 

 

 

 

12,662

 

Balance at December 31, 2020

 

 

68,504,328

 

 

$

7

 

 

$

2,070,353

 

 

$

241,707

 

 

$

6,614

 

 

$

28,645

 

 

$

2,347,326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

 

60,550,093

 

 

$

6

 

 

$

1,656,819

 

 

$

245,585

 

 

$

5,338

 

 

$

8,330

 

 

$

1,916,078

 

Exercise of stock options

 

 

335,373

 

 

 

 

 

20,743

 

 

 

 

 

 

 

 

 

20,743

 

Issuance of stock under Employee Stock Purchase

   Plan

 

 

311,137

 

 

 

 

 

17,350

 

 

 

 

 

 

 

 

 

17,350

 

Stock-based compensation

 

 

 

 

 

 

73,523

 

 

 

 

 

 

 

 

 

73,523

 

Shares issued in settlement of certain accrued

   employee compensation liabilities

 

 

255,615

 

 

 

 

 

22,829

 

 

 

 

 

 

 

 

 

22,829

 

RSU awards vesting, net of shares withheld for taxes

   which have been retired

 

 

671,040

 

 

 

 

 

(28,268

)

 

 

 

 

 

 

 

 

(28,268

)

Net (loss) income

 

 

 

 

 

 

 

 

(1,798

)

 

 

 

 

10,713

 

 

 

8,915

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

(5,859

)

 

 

 

 

(5,859

)

Balance at December 31, 2019

 

 

62,123,258

 

 

$

6

 

 

$

1,762,996

 

 

$

243,787

 

 

$

(521

)

 

$

19,043

 

 

$

2,025,311

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

7


 

 

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 — Basis of Presentation

The accompanying condensed consolidated balance sheet at December 31, 2020, the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended December 31, 2020 and 2019, the condensed consolidated statements of cash flows for the nine months ended December 31, 2020 and 2019 and the condensed consolidated statements of equity for the three and nine months ended December 31, 2020 and 2019 have been prepared by the management of Viasat, Inc. (also referred to hereafter as the Company or Viasat), and have not been audited. These financial statements have been prepared on the same basis as the audited consolidated financial statements for the fiscal year ended March 31, 2020 and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the Company’s results for the periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto for the fiscal year ended March 31, 2020 included in the Company’s Annual Report on Form 10-K. Interim operating results are not necessarily indicative of operating results for the full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP).

The Company’s condensed consolidated financial statements include the assets, liabilities and results of operations of Viasat, its wholly owned subsidiaries and its majority-owned subsidiary, TrellisWare Technologies, Inc. (TrellisWare). All significant intercompany amounts have been eliminated. Investments in entities in which the Company can exercise significant influence, but does not own a majority equity interest or otherwise control, are accounted for using the equity method and are included as investment in unconsolidated affiliate in other assets (long-term) on the condensed consolidated balance sheets.

During the second quarter of fiscal year 2021, the Company issued and sold an aggregate of 4,474,559 shares of the Company’s common stock at a purchase price of $39.11 per share to certain accredited investors in a private placement transaction exempt from registration under the Securities Act of 1933, as amended, resulting in net proceeds of approximately $174.7 million after deducting offering expenses.

The preparation of financial statements in conformity with GAAP 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. Significant estimates made by management include revenue recognition, stock-based compensation, allowance for doubtful accounts, valuation of goodwill and other intangible assets, patents, orbital slots and other licenses, software development, property, equipment and satellites, long-lived assets, contingencies and income taxes including the valuation allowance on deferred tax assets.

Revenue recognition

The Company applies the five-step model under Accounting Standards Codification (ASC) 606 to its contracts with its customers. Under this model the Company (1) identifies the contract with the customer, (2) identifies its performance obligations in the contract, (3) determines the transaction price for the contract, (4) allocates the transaction price to its performance obligations and (5) recognizes revenue when or as it satisfies its performance obligations. These performance obligations generally include the purchase of services (including broadband capacity and the leasing of broadband equipment), the purchase of products, and the development and delivery of complex equipment built to customer specifications under long-term contracts.

 

Performance obligations

 

The timing of satisfaction of performance obligations may require judgment. The Company derives a substantial portion of its revenues from contracts with customers for services, primarily consisting of connectivity services. These contracts typically require advance or recurring monthly payments by the customer. The Company’s obligation to provide connectivity services is satisfied over time as the customer simultaneously receives and consumes the benefits provided. The measure of progress over time is based upon either a period of time (e.g., over the estimated contractual term) or usage (e.g., bandwidth used/bytes of data processed). The Company evaluates whether broadband equipment provided to its customers as part of the delivery of connectivity services represents a lease in accordance with ASC 842. As discussed further below under “Leases - Lessor accounting”, for broadband equipment leased to consumer broadband

8


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

customers in conjunction with the delivery of connectivity services, the Company accounts for the lease and non-lease components of connectivity service arrangements as a single performance obligation as the connectivity services represent the predominant component.

The Company also derives a portion of its revenues from contracts with customers to provide products. Performance obligations to provide products are satisfied at the point in time when control is transferred to the customer. These contracts typically require payment by the customer upon passage of control and determining the point at which control is transferred may require judgment. To identify the point at which control is transferred to the customer, the Company considers indicators that include, but are not limited to, whether (1) the Company has the present right to payment for the asset, (2) the customer has legal title to the asset, (3) physical possession of the asset has been transferred to the customer, (4) the customer has the significant risks and rewards of ownership of the asset, and (5) the customer has accepted the asset. For product revenues, control generally passes to the customer upon delivery of goods to the customer.

The vast majority of the Company’s revenues from long-term contracts to develop and deliver complex equipment built to customer specifications are derived from contracts with the U.S. Government (including foreign military sales contracted through the U.S. Government). The Company’s contracts with the U.S. Government typically are subject to the Federal Acquisition Regulation (FAR) and are priced based on estimated or actual costs of producing goods or providing services. The FAR provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S. Government contracts. The pricing for non-U.S. Government contracts is based on the specific negotiations with each customer. Under the typical payment terms of the Company’s U.S. Government fixed-price contracts, the customer pays the Company either performance-based payments (PBPs) or progress payments. PBPs are interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments based on a percentage of the costs incurred as the work progresses. Because the customer can often retain a portion of the contract price until completion of the contract, the Company’s U.S. Government fixed-price contracts generally result in revenue recognized in excess of billings which the Company presents as unbilled accounts receivable on the balance sheet. Amounts billed and due from the Company’s customers are classified as receivables on the balance sheet. The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer. For the Company’s U.S. Government cost-type contracts, the customer generally pays the Company for its actual costs incurred within a short period of time. For non-U.S. Government contracts, the Company typically receives interim payments as work progresses, although for some contracts, the Company may be entitled to receive an advance payment. The Company recognizes a liability for these advance payments in excess of revenue recognized and presents it as collections in excess of revenues and deferred revenues on the balance sheet. An advance payment is not typically considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a contract and to protect the Company from the other party failing to adequately complete some or all of its obligations under the contract.

 

Performance obligations related to developing and delivering complex equipment built to customer specifications under long-term contracts are recognized over time as these performance obligations do not create assets with an alternative use to the Company and the Company has an enforceable right to payment for performance to date. To measure the transfer of control, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the cost-to-cost measure of progress for its contracts because that best depicts the transfer of control to the customer which occurs as the Company incurs costs on its contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Estimating the total costs at completion of a performance obligation requires management to make estimates related to items such as subcontractor performance, material costs and availability, labor costs and productivity and the costs of overhead. When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recognized in the period the loss is determined.

 

Contract costs on U.S. Government contracts are subject to audit and review by the Defense Contracting Management Agency (DCMA), the Defense Contract Audit Agency (DCAA), and other U.S. Government agencies, as well as negotiations with U.S. Government representatives. The Company’s incurred cost audits by the DCAA have not been concluded for fiscal years 2019 or 2020. As of December 31, 2020, the DCAA had completed its incurred cost audit for fiscal years 2004 and 2016 and approved the Company’s incurred costs for those fiscal years, as well as approved the

9


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Company’s incurred costs for fiscal years 2005 through 2015, 2017 and 2018 without further audit based on the determination of low risk. Although the Company has recorded contract revenues subsequent to fiscal year 2018 based upon an estimate of costs that the Company believes will be approved upon final audit or review, the Company does not know the outcome of any ongoing or future audits or reviews and adjustments, and if future adjustments exceed the Company’s estimates, its profitability would be adversely affected. As of December 31, 2020 and March 31, 2020, the Company had $8.8 million and $7.8 million, respectively, in contract-related reserves for its estimate of potential refunds to customers for potential cost adjustments on several multi-year U.S. Government cost reimbursable contracts (see Note 8 — Commitments and Contingencies for more information).

 

Evaluation of transaction price

 

The evaluation of transaction price, including the amounts allocated to performance obligations, may require significant judgments. Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue, and, where applicable, the cost at completion, is complex, subject to many variables and requires significant judgment. The Company’s contracts may contain award fees, incentive fees, or other provisions, including the potential for significant financing components, that can either increase or decrease the transaction price. These amounts, which are sometimes variable, can be dictated by performance metrics, program milestones or cost targets, the timing of payments, and customer discretion. The Company estimates variable consideration at the amount to which it expects to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available to the Company. In the event an agreement includes embedded financing components, the Company recognizes interest expense or interest income on the embedded financing components using the effective interest method. This methodology uses an implied interest rate which reflects the incremental borrowing rate which would be expected to be obtained in a separate financing transaction. The Company has elected the practical expedient not to adjust the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

 

If a contract is separated into more than one performance obligation, the total transaction price is allocated to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. Estimating standalone selling prices may require judgment. When available, the Company utilizes the observable price of a good or service when the Company sells that good or service separately in similar circumstances and to similar customers. If a standalone selling price is not directly observable, the Company estimates the standalone selling price by considering all information (including market conditions, specific factors, and information about the customer or class of customer) that is reasonably available.

 

Transaction price allocated to remaining performance obligations

 

The Company’s remaining performance obligations represent the transaction price of firm contracts and orders for which work has not been performed. The Company includes in its remaining performance obligations only those contracts and orders for which it has accepted purchase orders. Remaining performance obligations associated with the Company’s subscribers for fixed consumer and business broadband services in its satellite services segment exclude month-to-month service contracts in accordance with a practical expedient and are estimated using a portfolio approach in which the Company reviews all relevant promotional activities and calculates the remaining performance obligation using the average service component for the portfolio and the average time remaining under the contract. The Company’s future recurring in-flight connectivity service contracts in its satellite services segment do not have minimum service purchase requirements and therefore are not included in the Company’s remaining performance obligations. As of December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $2.4 billion, of which the Company expects to recognize a little over half over the next twelve months, with the balance recognized thereafter.

 

10


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

 

Disaggregation of revenue

 

The Company operates and manages its business in 3 reportable segments: satellite services, commercial networks and government systems. Revenue is disaggregated by products and services, customer type, contract type, and geographic area, respectively, as the Company believes this approach best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.

 

The following sets forth disaggregated reported revenue by segment and product and services for the three and nine months ended December 31, 2020 and 2019:

 

 

 

 

Three Months Ended December 31, 2020

 

 

 

Satellite

Services

 

 

Commercial

Networks

 

 

Government

Systems

 

 

Total

Revenues

 

 

 

(In thousands)

 

Product revenues

 

$

 

 

$

75,690

 

 

$

190,824

 

 

$

266,514

 

Service revenues

 

 

220,789

 

 

 

14,409

 

 

 

73,847

 

 

 

309,045

 

Total revenues

 

$

220,789

 

 

$

90,099

 

 

$

264,671

 

 

$

575,559

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 31, 2020

 

 

 

Satellite

Services

 

 

Commercial

Networks

 

 

Government

Systems

 

 

Total

Revenues

 

 

 

(In thousands)

 

Product revenues

 

$

 

 

$

197,560

 

 

$

575,568

 

 

$

773,128

 

Service revenues

 

 

638,660

 

 

 

38,561

 

 

 

209,976

 

 

 

887,197

 

Total revenues

 

$

638,660

 

 

$

236,121

 

 

$

785,544

 

 

$

1,660,325

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2019

 

 

 

Satellite

Services

 

 

Commercial

Networks

 

 

Government

Systems

 

 

Total

Revenues

 

 

 

(In thousands)

 

Product revenues

 

$

 

 

$

73,182

 

 

$

229,908

 

 

$

303,090

 

Service revenues

 

 

211,700

 

 

 

11,544

 

 

 

61,890

 

 

 

285,134

 

Total revenues

 

$

211,700

 

 

$

84,726

 

 

$

291,798

 

 

$

588,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 31, 2019

 

 

 

Satellite

Services

 

 

Commercial

Networks

 

 

Government

Systems

 

 

Total

Revenues

 

 

 

(In thousands)

 

Product revenues

 

$

 

 

$

212,226

 

 

$

661,309

 

 

$

873,535

 

Service revenues

 

 

614,232

 

 

 

39,520

 

 

 

190,230

 

 

 

843,982

 

Total revenues

 

$

614,232

 

 

$

251,746

 

 

$

851,539

 

 

$

1,717,517

 

 

Revenues from the U.S. Government as an individual customer comprised approximately 28% and 30% of total revenues for the three and nine months ended December 31, 2020, respectively, and approximately 30% of total revenues for both the three and nine months ended December 31, 2019, mainly reported within the government systems segment. Revenues from the Company’s other customers, mainly reported within the commercial networks and satellite services segments, comprised approximately 72% and 70% of total revenues for the three and nine months ended December 31, 2020, respectively, and approximately 70% of total revenues for both the three and nine months ended December 31, 2019.

 

The Company’s satellite services segment revenues are primarily derived from the Company’s fixed broadband services and in-flight services.

 

11


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

 

Revenues in the Company’s commercial networks and government systems segments are primarily derived from three types of contracts: fixed-price, cost-reimbursement and time-and-materials contracts. Fixed-price contracts (which require the Company to provide products and services under a contract at a specified price) comprised approximately 91% and 88% of the Company’s total revenues for these segments for the three and nine months ended December 31, 2020, respectively, and approximately 89% of the Company’s total revenues for these segments for both the three and nine months ended December 31, 2019. The remainder of the Company’s revenues in these segments for such periods was derived primarily from cost-reimbursement contracts (under which the Company is reimbursed for all actual costs incurred in performing the contract to the extent such costs are within the contract ceiling and allowable under the terms of the contract, plus a fee or profit) and from time-and-materials contracts (under which the Company is reimbursed for the number of labor hours expended at an established hourly rate negotiated in the contract, plus the cost of materials utilized in providing such products or services).

 

Historically, a significant portion of the Company’s revenues in its commercial networks and government systems segments has been derived from customer contracts that include the development of products. The development efforts are conducted in direct response to the customer’s specific requirements and, accordingly, expenditures related to such efforts are included in cost of sales when incurred and the related funding (which includes a profit component) is included in revenues. Revenues for the Company’s funded development from its customer contracts were approximately 20% and 23% of its total revenues for the three and nine months ended December 31, 2020, respectively, and approximately 24% and 23% of its total revenues for the three and nine months ended December 31, 2019, respectively.

 

Contract balances

 

Contract balances consist of contract assets and contract liabilities. A contract asset, or with respect to the Company, an unbilled accounts receivable, is recorded when revenue is recognized in advance of the Company’s right to bill and receive consideration, typically resulting from sales under long-term contracts. Unbilled accounts receivable are generally expected to be billed and collected within one year. The unbilled accounts receivable will decrease as provided services or delivered products are billed. The Company receives payments from customers based on a billing schedule established in the Company’s contracts.

 

When consideration is received in advance of the delivery of goods or services, a contract liability, or with respect to the Company, collections in excess of revenues or deferred revenues, is recorded. Reductions in the collections in excess of revenues or deferred revenues will be recorded as the Company satisfies the performance obligations.

 

The following table presents contract assets and liabilities as of December 31, 2020 and March 31, 2020:

 

 

 

As of

December 31, 2020

 

 

As of

March 31, 2020

 

 

 

(In thousands)

 

Unbilled accounts receivable

 

$

60,951

 

 

$

75,661

 

Collections in excess of revenues and deferred revenues

 

 

206,807

 

 

 

123,019

 

Deferred revenues, long-term portion

 

 

97,485

 

 

 

80,802

 

 

Unbilled accounts receivable decreased $14.7 million during the nine months ended December 31, 2020, primarily driven by an increase in billings in the Company’s government systems segment.

Collections in excess of revenues and deferred revenues increased $83.8 million during the nine months ended December 31, 2020, primarily driven by advances on goods or services received in excess of revenue recognized in the Company’s commercial networks segment.

During the three and nine months ended December 31, 2020, the Company recognized revenue of $7.6 million and $82.2 million, respectively, that was previously included in the Company’s collections in excess of revenues and deferred revenues at March 31, 2020. During the three and nine months ended December 31, 2019, the Company recognized revenue of $13.5 million and $84.7 million, respectively, that was previously included in the Company’s collections in excess of revenues and deferred revenues at March 31, 2019.

12


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Property, equipment and satellites

Satellites and other property and equipment, including internally developed software, are recorded at cost or, in the case of certain satellites and other property acquired, the fair value at the date of acquisition, net of accumulated depreciation. Capitalized satellite costs consist primarily of the costs of satellite construction and launch, including launch insurance and insurance during the period of in-orbit testing, the net present value of performance incentives expected to be payable to satellite manufacturers (dependent on the continued satisfactory performance of the satellites), costs directly associated with the monitoring and support of satellite construction, and interest costs incurred during the period of satellite construction. The Company also constructs earth stations, network operations systems and other assets to support its satellites, and those construction costs, including interest, are capitalized as incurred. At the time satellites are placed in service, the Company estimates the useful life of its satellites for depreciation purposes based upon an analysis of each satellite’s performance against the original manufacturer’s orbital design life, estimated fuel levels and related consumption rates, as well as historical satellite operating trends. The Company periodically reviews the remaining estimated useful life of its satellites to determine if revisions to estimated useful lives are necessary. Costs incurred for additions to property, equipment and satellites, together with major renewals and betterments, are capitalized and depreciated over the remaining life of the underlying asset. Costs incurred for maintenance, repairs and minor renewals and betterments are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is recognized in operations, which for the periods presented, primarily related to losses incurred for unreturned customer premise equipment (CPE). The Company computes depreciation using the straight-line method over the estimated useful lives of the assets ranging from two to 17 years. Leasehold improvements are capitalized and amortized using the straight-line method over the shorter of the lease term or the life of the improvement.

Costs related to internally developed software for internal uses are capitalized after the preliminary project stage is complete and are amortized over the estimated useful lives of the assets, which are approximately three to seven years. Capitalized costs for internal-use software are included in property, equipment and satellites, net in the Company’s condensed consolidated balance sheets.

Interest expense is capitalized on the carrying value of assets under construction, in accordance with the authoritative guidance for the capitalization of interest (ASC 835-20). With respect to the ViaSat-3 class satellites, gateway and networking equipment and other assets under construction, the Company capitalized $21.8 million and $57.7 million of interest expense for the three and nine months ended December 31, 2020, respectively, and $14.3 million and $38.6 million for the three and nine months ended December 31, 2019, respectively.

The Company owns three satellites in service (ViaSat-2, ViaSat-1 and WildBlue-1) and has lifetime leases of Ka-band capacity on two satellites. The Company also has a global constellation of three third-generation ViaSat-3 class satellites under construction. In addition, the Company owns related earth stations and networking equipment for all of its satellites. The Company procures indoor and outdoor CPE units leased to subscribers under a retail leasing program as part of the Company’s satellite services segment, which are reflected in investing activities and property, equipment and satellites, net in the accompanying condensed consolidated financial statements. The Company depreciates the satellites, earth stations and networking equipment, CPE units and related installation costs over their estimated useful lives. The total cost and accumulated depreciation of CPE units included in property, equipment and satellites, net, as of December 31, 2020 were $410.9 million and $186.8 million, respectively. The total cost and accumulated depreciation of CPE units included in property, equipment and satellites, net, as of March 31, 2020 were $399.3 million and $165.7 million, respectively.

On June 1, 2017, the Company’s second-generation ViaSat-2 satellite was successfully launched into orbit. In the fourth quarter of fiscal year 2018, shortly before the launch of commercial broadband services on the satellite, the Company reported an antenna deployment issue. The Company worked with the satellite manufacturer to determine the root cause of the antenna deployment issue, potential corrective measures, and resulting damage. In the second quarter of fiscal year 2019, the root cause analysis was completed. Based on that analysis, during the second quarter of fiscal year 2019, the Company recorded a reduction to the carrying value of the ViaSat-2 satellite of $177.4 million, with a corresponding insurance receivable of $177.4 million, based on the Company’s estimated ViaSat-2 output capabilities as compared to the anticipated, potential and configured capacity of the ViaSat-2 satellite. During fiscal years 2019 and 2020, the Company received an aggregate of $188.0 million of insurance proceeds related to the ViaSat-2 satellite. The ViaSat-2 satellite was primarily financed by the Company’s direct loan facility with the Export-Import Bank of the United States for ViaSat-2 (the Ex-Im Credit Facility) (see Note 6 — Senior Notes and Other Long-Term Debt for more

13


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

information). Pursuant to the terms of the Ex-Im Credit Facility, the proceeds received from the insurance claims for ViaSat-2 were used to pay down outstanding borrowings under the Ex-Im Credit Facility.

Occasionally, the Company may enter into finance lease arrangements for various machinery, equipment, computer-related equipment, software, furniture, fixtures, or satellites. The Company records amortization of assets leased under finance lease arrangements within depreciation expense (see Note 1 — Basis of Presentation – Leases for more information). The Company’s finance leases consist primarily of satellite lifetime Ka-band capacity leases and have remaining terms from one year to six years. The Company reports assets obtained under finance leases in property, equipment and satellites, net and the current and non-current portions of its finance lease liabilities in current portion of long-term debt and other long-term debt, respectively.

Leases

 

Lessee accounting

For contracts entered into on or after April 1, 2019, the Company assesses at contract inception whether the contract is, or contains, a lease. Generally, the Company determines that a lease exists when (1) the contract involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all economic benefits from use of the asset, and (3) the Company has the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (5) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria.

At the lease commencement date, the Company recognizes a right-of-use asset and a lease liability for all leases, except short-term leases with an original term of 12 months or less. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, less any lease incentives received. All right-of-use assets are periodically reviewed for impairment in accordance with standards that apply to long-lived assets. The lease liability is initially measured at the present value of the lease payments, discounted using an estimate of the Company’s incremental borrowing rate for a collateralized loan with the same term as the underlying leases.

Lease payments included in the measurement of lease liabilities consist of (1) fixed lease payments for the noncancelable lease term, (2) fixed lease payments for optional renewal periods where it is reasonably certain the renewal option will be exercised, and (3) variable lease payments that depend on an underlying index or rate, based on the index or rate in effect at lease commencement. Certain of the Company’s real estate lease agreements require variable lease payments that do not depend on an underlying index or rate established at lease commencement. Such payments and changes in payments based on a rate or index are recognized in operating expenses when incurred.

Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the depreciation of assets obtained under finance leases on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. For both operating and finance leases, lease payments are allocated between a reduction of the lease liability and interest expense.

The Company’s operating leases consist primarily of leases for office space, data centers and satellite ground facilities and have remaining terms from less than one year to twelve years, some of which include renewal options, and some of which include options to terminate the leases within one year. Certain earth station leases have renewal terms that have been deemed to be reasonably certain to be exercised and as such have been recognized as part of the Company’s right-of-use assets and lease liabilities. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company recognized right-of-use assets and lease liabilities for such leases in connection with its adoption of ASC 842 as of April 1, 2019. The Company reports operating lease right-of-use assets in operating lease right-of-use assets and the current and non-current portions of its operating lease liabilities in accrued and other liabilities and non-current operating lease liabilities, respectively.

14


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Lessor accounting

For broadband equipment leased to fixed broadband customers in conjunction with the delivery of connectivity services, the Company has made an accounting policy election not to separate the broadband equipment from the related connectivity services. The connectivity services are the predominant component of these arrangements. The connectivity services are accounted for in accordance with ASC 606. The Company is also a lessor for certain insignificant communications equipment. These leases meet the criteria for operating lease classification. Lease income associated with these leases is not material.

Patents, orbital slots and other licenses

The Company capitalizes the costs of obtaining or acquiring patents, orbital slots and other licenses. Amortization of intangible assets that have finite lives is provided for by the straight-line method over the shorter of the legal or estimated economic life. Total capitalized costs of $3.4 million and $3.3 million related to patents were included in other assets as of December 31, 2020 and March 31, 2020, respectively. The Company capitalized costs of $53.8 million and $39.5 million related to acquiring and obtaining orbital slots and other licenses included in other assets as of December 31, 2020 and March 31, 2020, respectively. Accumulated amortization related to these assets was $4.1 million and $3.7 million as of December 31, 2020 and March 31, 2020, respectively. Amortization expense related to these assets was an insignificant amount for the three and nine months ended December 31, 2020 and 2019. If a patent, orbital slot or other license is rejected, abandoned or otherwise invalidated, the unamortized cost is expensed in that period. During the three and nine months ended December 31, 2020 and 2019, the Company did not write off any significant costs due to abandonment or impairment.

Debt issuance costs

Debt issuance costs are amortized and recognized as interest expense using the effective interest rate method, or, when the results are not materially different, on a straight-line basis over the expected term of the related debt. During the nine months ended December 31, 2020 and 2019, $5.1 million and 0 debt issuance costs were capitalized, respectively. Unamortized debt issuance costs related to extinguished debt are expensed at the time the debt is extinguished and recorded in loss on extinguishment of debt in the condensed consolidated statements of operations and comprehensive income (loss). Debt issuance costs related to the Company’s revolving credit facility (the Revolving Credit Facility) are recorded in prepaid expenses and other current assets and in other long-term assets in the condensed consolidated balance sheets in accordance with the authoritative guidance for imputation of interest (ASC 835-30). Debt issuance costs related to the Company’s 5.625% Senior Notes due 2025 (the 2025 Notes), the Company’s 5.625% Senior Secured Notes due 2027 (the 2027 Notes), the Company’s 6.500% Senior Notes due 2028 (the 2028 Notes) and the Ex-Im Credit Facility are recorded as a direct deduction from the carrying amount of the related debt, consistent with debt discounts, in accordance with the authoritative guidance for imputation of interest (ASC 835-30).

Software development

Costs of developing software for sale are charged to independent research and development expense when incurred, until technological feasibility has been established. Software development costs incurred from the time technological feasibility is reached until the product is available for general release to customers are capitalized and reported at the lower of unamortized cost or net realizable value. Once the product is available for general release, the software development costs are amortized based on the ratio of current to future revenue for each product with an annual minimum equal to straight-line amortization over the remaining estimated economic life of the product, generally within five years. Capitalized costs, net, of $239.1 million and $242.7 million related to software developed for resale were included in other assets as of December 31, 2020 and March 31, 2020, respectively. The Company capitalized $13.0 million and $41.5 million of costs related to software developed for resale for the three and nine months ended December 31, 2020, respectively. The Company capitalized $13.4 million and $37.0 million of costs related to software developed for resale for the three and nine months ended December 31, 2019, respectively. Amortization expense for capitalized software development costs was $17.1 million and $45.1 million for the three and nine months ended December 31, 2020, respectively, and $13.9 million and $39.6 million for the three and nine months ended December 31, 2019, respectively.

15


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Self-insurance liabilities

The Company has self-insurance plans to retain a portion of the exposure for losses related to employee medical benefits and workers’ compensation. The self-insurance plans include policies which provide for both specific and aggregate stop-loss limits. The Company utilizes internal actuarial methods as well as other historical information for the purpose of estimating ultimate costs for a particular plan year. Based on these actuarial methods, along with currently available information and insurance industry statistics, the Company has recorded self-insurance liability for its plans of $6.9 million and $6.2 million in accrued and other liabilities in the condensed consolidated balance sheets as of December 31, 2020 and March 31, 2020, respectively. The Company’s estimate, which is subject to inherent variability, is based on average claims experience in the Company’s industry and its own experience in terms of frequency and severity of claims, including asserted and unasserted claims incurred but not reported, with no explicit provision for adverse fluctuation from year to year. This variability may lead to ultimate payments being either greater or less than the amounts presented above. Self-insurance liabilities have been classified as a current liability in accrued and other liabilities in accordance with the estimated timing of the projected payments.

Indemnification provisions

In the ordinary course of business, the Company includes indemnification provisions in certain of its contracts, generally relating to parties with which the Company has commercial relations. Pursuant to these agreements, the Company will indemnify, hold harmless and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, including but not limited to losses relating to third-party intellectual property claims. To date, there have not been any material costs incurred in connection with such indemnification clauses. The Company’s insurance policies do not necessarily cover the cost of defending indemnification claims or providing indemnification, so if a claim was filed against the Company by any party that the Company has agreed to indemnify, the Company could incur substantial legal costs and damages. A claim would be accrued when a loss is considered probable and the amount can be reasonably estimated. At December 31, 2020 and March 31, 2020, 0 such amounts were accrued related to the aforementioned provisions.

Noncontrolling interests

A noncontrolling interest represents the equity interest in a subsidiary that is not attributable, either directly or indirectly, to the Company and is reported as equity of the Company, separately from the Company’s controlling interest. Revenues, expenses, gains, losses, net income (loss) and other comprehensive income (loss) are reported in the condensed consolidated financial statements at the consolidated amounts, which include the amounts attributable to both the controlling and noncontrolling interest.

Investments in unconsolidated affiliate — equity method

Investments in entities in which the Company can exercise significant influence, but does not own a majority equity interest or otherwise control, are accounted for using the equity method and are included as investment in unconsolidated affiliate in other assets (long-term) on the condensed consolidated balance sheets. The Company records its share of the results of such entities within equity in income (loss) of unconsolidated affiliate, net on the condensed consolidated statements of operations and comprehensive income (loss). The Company monitors such investments for other-than-temporary impairment by considering factors including the current economic and market conditions and the operating performance of the entities and records reductions in carrying values when necessary. The fair value of privately held investments is estimated using the best available information as of the valuation date, including current earnings trends, undiscounted cash flows, quoted stock prices of comparable public companies, and other company specific information, including recent financing rounds.

Common stock held in treasury

As of December 31, 2020 and March 31, 2020, the Company had 0 shares of common stock held in treasury.

During the three months ended December 31, 2020 and 2019, the Company issued 963,565 and 932,074 shares of common stock, respectively, based on the vesting terms of certain restricted stock unit agreements. During the nine months ended December 31, 2020 and 2019, the Company issued 1,028,535 and 1,047,557 shares of common stock, respectively, based on the vesting terms of certain restricted stock unit agreements. In order for employees to satisfy minimum statutory employee tax withholding requirements related to the issuance of common stock underlying these restricted stock unit agreements, during the three months ended December 31, 2020 and 2019, the Company

16


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

repurchased 348,629 and 340,385 shares of common stock, respectively, at cost and with a total value of $12.3 million and $25.1 million, respectively. During the nine months ended December 31, 2020 and 2019, the Company repurchased 365,544 and 376,517 shares of common stock, respectively, at cost and with a total value of $13.0 million and $28.3 million, respectively. Although shares withheld for employee withholding taxes are technically not issued, they are treated as common stock repurchases for accounting purposes (with such shares deemed to be repurchased and then immediately retired), as they reduce the number of shares that otherwise would have been issued upon vesting of the restricted stock units. These retired shares remain as authorized stock and are considered to be unissued. The retirement of treasury stock had no impact on the Company’s total consolidated stockholders’ equity.

Stock-based compensation

In accordance with the authoritative guidance for share-based payments (ASC 718), the Company measures stock-based compensation cost at the grant date, based on the estimated fair value of the award. Expense for restricted stock units and stock options is recognized on a straight-line basis over the employee’s requisite service period. Expense for total shareholder return (TSR) performance stock options that vest is recognized regardless of the actual TSR outcome achieved and is recognized on a graded-vesting basis. The Company accounts for forfeitures as they occur. The Company recognized $21.7 million and $65.0 million of stock-based compensation expense for the three and nine months ended December 31, 2020, respectively. The Company recognized $21.9 million and $64.2 million of stock-based compensation expense for the three and nine months ended December 31, 2019, respectively.

Income taxes

Accruals for uncertain tax positions are provided for in accordance with the authoritative guidance for accounting for uncertainty in income taxes (ASC 740). The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative guidance for accounting for uncertainty in income taxes also provides guidance on derecognition of income tax assets and liabilities, classification of deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense.

Ordinarily, the Company calculates its provision for income taxes at the end of each interim reporting period on the basis of an estimated annual effective tax rate adjusted for tax items that are discrete to each period. However, when a reliable estimate cannot be made, the Company computes its provision for income taxes using the actual effective tax rate (discrete method) for the year-to-date period. The Company’s effective tax rate is highly influenced by the amount of its research and development (R&D) tax credits. A small change in estimated annual pretax income (loss) can produce a significant variance in the annual effective tax rate given the Company’s expected amount of R&D tax credits. This variability provides an unreliable estimate of the annual effective tax rate. As a result, and in accordance with the authoritative guidance for accounting for income taxes in interim periods, the Company has computed its provision for income taxes for the three and nine months ended December 31, 2020 and 2019 by applying the actual effective tax rate to the pretax income (loss) for the three-month and nine-month periods.

A deferred income tax asset or liability is established for the expected future tax consequences resulting from differences in the financial reporting and tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax credit and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

17


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Recent authoritative guidance

 

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments — Credit Losses (ASC 326). ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss model). It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to ASC 326, Financial Instruments — Credit Losses (ASC 326), which clarifies that impairment of receivables arising from operating leases should be accounted for in accordance with ASC 842, Leases. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to ASC 326, Financial Instruments — Credit Losses, in May 2019, the FASB issued ASU 2019-05, Financial Instruments — Credit Losses (ASC 326) Targeted Relief, in November 2019, the FASB issued ASU 2019-11, Codification Improvements to ASC 326, Financial Instruments — Credit Losses, in February 2020, the FASB issued ASU 2020-02, Financial Instruments — Credit Losses (ASC 326) and Leases (ASC 842) Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to ASU 2016-02, Leases (ASC 842) and in March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. These recently issued ASUs do not change the core principle of the guidance in ASU 2016-13 but rather are intended to clarify and improve operability of certain topics included within ASU 2016-13. ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11, ASU 2020-02, and ASU 2020-03 have the same effective date and transition requirements as ASU 2016-13. The Company adopted the new guidance in the first quarter of fiscal year 2021 using the modified retrospective approach with application of the model to the Company’s accounts receivables. Under the new standard, the Company is required to recognize estimated credit losses expected to occur over the estimated life or remaining contractual life of an asset using a broader range of information including past events, current conditions and consideration of supportable forecasts about future economic conditions. The adoption of the standard had an insignificant impact on the Company’s consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The Company adopted the new guidance in the first quarter of fiscal year 2021 and the guidance did not have a material impact on the Company’s consolidated financial statements and disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various areas related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning in fiscal year 2022, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (ASC 321), Investments – Equity Method and Joint Ventures (ASC 323) and Derivatives and Hedging (ASC 815). ASU 2020-01 clarifies the interaction of the accounting for equity securities under ASC 321 and investments accounted for under the equity method of accounting under ASC 323, and the accounting for certain forward contracts and purchased options accounted for under ASC 815. The new standard will become effective for the Company beginning in fiscal year 2022, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides temporary optional guidance to ease the potential accounting burden associated with the transition away from reference rates (such as the London Interbank Offered Rate) that are expected to be discontinued. ASU 2020-04 was effective upon issuance and can be applied for a limited time through December 31, 2022. The Company adopted the guidance upon issuance with no impact to the Company consolidated financial statements and disclosures.

 

In May 2020, the SEC adopted Amendments to Financial Disclosures about Acquired and Disposed Businesses (the Final Rule). The Final Rule amends SEC rules related to separate financial statements of acquired businesses, and, among other things, revises the income test by adding a revenue component, which is one of the tests used to determine whether a subsidiary of an acquired or disposed business is significant. The Final Rule reduces the anomalous result that registrants with marginal or break-even net income (loss) may be more likely to have subsidiaries deemed significant

18


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

where they otherwise would not. The Final Rule became effective on January 1, 2021, with early adoption permitted. The Company early adopted the provisions of the Final Rule in the first quarter of fiscal year 2021. The guidance did not have a material impact on the Company’s consolidated financial statements and disclosures.

 

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (ASC 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 simplifies the accounting for convertible instruments by removing the beneficial conversion and cash conversion accounting models for convertible instruments and removes certain settlement conditions that are required for contracts to qualify for equity classification. This new standard also simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method for convertible instruments and requires that the effect of potential share settlement be included in diluted earnings per share calculations when an instrument may be settled in cash or shares. The new standard requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The new standard will become effective for the Company beginning in fiscal year 2023, with early adoption permitted, but no earlier than fiscal year 2022. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.

 

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs. ASU 2020-08 clarifies that a company should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. The new standard will become effective for the Company beginning in fiscal year 2022. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.

 

In October 2020, the FASB issued ASU 2020-09, Debt (ASC 740) to update the SEC guidance in the Codification related to the Final Rule (issued in March 2020). The SEC guidance in the Codification has updated financial disclosures about guarantors and issuers of guaranteed securities and affiliates whose securities collateralize a registrant’s securities. The final rules, among other things, allow omission of financial statements with respect to guaranteed securities when certain criteria are met and became effective on January 4, 2021. The guidance does not have a material impact on the Company’s consolidated financial statements and disclosures.

 

19


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which is related to a project by the FASB to facilitate codification updates for technical corrections, clarifications and other minor improvements that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The new standard contains amendments that affect a wide variety of topics in the ASC. The various amendments in this new standard will become effective for the Company beginning in fiscal year 2022, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.

Note 2 — Composition of Certain Balance Sheet Captions

 

 

 

As of

December 31, 2020

 

 

As of

March 31, 2020

 

 

 

(In thousands)

 

Accounts receivable, net:

 

 

 

 

 

 

 

 

Billed

 

$

145,323

 

 

$

260,431

 

Unbilled

 

 

60,951

 

 

 

75,661

 

Allowance for doubtful accounts

 

 

(3,482

)

 

 

(5,394

)

 

 

$

202,792

 

 

$

330,698

 

Inventories:

 

 

 

 

 

 

 

 

Raw materials

 

$

95,872

 

 

$

83,353

 

Work in process

 

 

68,071

 

 

 

59,429

 

Finished goods

 

 

170,976

 

 

 

151,634

 

 

 

$

334,919

 

 

$

294,416

 

Prepaid expenses and other current assets:

 

 

 

 

 

 

 

 

Prepaid expenses

 

$

82,455

 

 

$

84,872

 

Other

 

 

30,093

 

 

 

31,409

 

 

 

$

112,548

 

 

$

116,281

 

Property, equipment and satellites, net:

 

 

 

 

 

 

 

 

Equipment and software (estimated useful life of 3-7 years)

 

$

1,424,548

 

 

$

1,229,926

 

CPE leased equipment (estimated useful life of 4-5 years)

 

 

410,879

 

 

 

399,343

 

Furniture and fixtures (estimated useful life of 7 years)

 

 

57,582

 

 

 

54,688

 

Leasehold improvements (estimated useful life of 2-17 years)

 

 

144,214

 

 

 

137,287

 

Building (estimated useful life of 12 years)

 

 

8,923

 

 

 

8,923

 

Land

 

 

2,291

 

 

 

2,291

 

Construction in progress

 

 

230,172

 

 

 

220,703

 

Satellites (estimated useful life of 12-17 years)

 

 

969,952

 

 

 

969,952

 

Satellite Ka-band capacity obtained under finance leases (estimated useful life of 7-11 years)

 

 

173,322

 

 

 

171,801

 

Satellites under construction

 

 

1,264,177

 

 

 

906,720

 

 

 

 

4,686,060

 

 

 

4,101,634

 

Less: accumulated depreciation and amortization

 

 

(1,712,327

)

 

 

(1,514,899

)

 

 

$

2,973,733

 

 

$

2,586,735

 

Other acquired intangible assets, net:

 

 

 

 

 

 

 

 

Technology (weighted average useful life of 6 years)

 

$

91,804

 

 

$

89,228

 

Contracts and customer relationships (weighted average useful life of 7 years)

 

 

103,724

 

 

 

103,114

 

Satellite co-location rights (weighted average useful life of 9 years)

 

 

8,600

 

 

 

8,600

 

Trade name (weighted average useful life of 3 years)

 

 

5,940

 

 

 

5,940

 

Other (weighted average useful life of 8 years)

 

 

6,421

 

 

 

6,399

 

 

 

 

216,489

 

 

 

213,281

 

Less: accumulated amortization

 

 

(205,410

)

 

 

(198,842

)

 

 

$

11,079

 

 

$

14,439

 

Other assets:

 

 

 

 

 

 

 

 

Investment in unconsolidated affiliate

 

$

168,787

 

 

$

160,204

 

Deferred income taxes

 

 

277,734

 

 

 

276,331

 

Capitalized software costs, net

 

 

239,104

 

 

 

242,741

 

Patents, orbital slots and other licenses, net

 

 

53,058

 

 

 

39,135

 

Other

 

 

104,094

 

 

 

88,941

 

 

 

$

842,777

 

 

$

807,352

 

Accrued and other liabilities:

 

 

 

 

 

 

 

 

Collections in excess of revenues and deferred revenues

 

$

206,807

 

 

$

123,019

 

Accrued employee compensation

 

 

61,479

 

 

 

72,654

 

Accrued vacation

 

 

53,758

 

 

 

48,963

 

Warranty reserve, current portion

 

 

6,115

 

 

 

6,233

 

Operating lease liabilities

 

 

49,370

 

 

 

42,146

 

Other

 

 

108,036

 

 

 

98,175

 

 

 

$

485,565

 

 

$

391,190

 

Other liabilities:

 

 

 

 

 

 

 

 

Deferred revenues, long-term portion

 

$

97,485

 

 

$

80,802

 

Warranty reserve, long-term portion

 

 

5,766

 

 

 

5,410

 

Satellite performance incentive obligations, long-term portion

 

 

23,005

 

 

 

24,349

 

Other

 

 

25,784

 

 

 

10,373

 

 

 

$

152,040

 

 

$

120,934

 

 

20


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

 

Note 3 — Fair Value Measurements

In accordance with the authoritative guidance for financial assets and liabilities measured at fair value on a recurring basis (ASC 820), the Company determines fair value based on the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants, and prioritizes the inputs used to measure fair value from market-based assumptions to entity specific assumptions:

 

Level 1 — Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

 

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 — Inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

The Company had $5.0 million in cash equivalents (Level 1) and 0 liabilities measured at fair value on a recurring basis as of December 31, 2020 and March 31, 2020.

 

The following section describes the valuation methodologies the Company uses to measure financial instruments at fair value:

Cash equivalents — The Company’s cash equivalents consist of money market funds. Money market funds are valued using quoted prices for identical assets in an active market with sufficient volume and frequency of transactions (Level 1).

Foreign currency forward contracts — The Company uses derivative financial instruments to manage foreign currency risk relating to foreign exchange rates. The Company does not use these instruments for speculative or trading purposes. The Company’s objective is to reduce the risk to earnings and cash flows associated with changes in foreign currency exchange rates. Derivative instruments are recognized as either assets or liabilities in the accompanying condensed consolidated financial statements and are measured at fair value. Gains and losses resulting from changes in the fair values of those derivative instruments are recorded to earnings or other comprehensive income (loss) depending on the use of the derivative instrument and whether it qualifies for hedge accounting. The Company’s foreign currency forward contracts are valued using standard calculations/models that are primarily based on observable inputs, such as foreign currency exchange rates, or can be corroborated by observable market data (Level 2).

Long-term debt — The Company’s long-term debt consists of borrowings under its Revolving Credit Facility and Ex-Im Credit Facility (collectively, the Credit Facilities), $700.0 million in aggregate principal amount of 2025 Notes, $600.0 million in aggregate principal amount of 2027 Notes, $400.0 million in aggregate principal amount of 2028 Notes and finance lease obligations reported at the present value of future minimum lease payments with current accrued interest. Long-term debt related to the Revolving Credit Facility is reported at the outstanding principal amount of borrowings, while long-term debt related to the Ex-Im Credit Facility, 2025 Notes, 2027 Notes and 2028 Notes is reported at amortized cost. However, for disclosure purposes, the Company is required to measure the fair value of outstanding debt on a recurring basis. The fair value of the Company’s long-term debt related to the Revolving Credit Facility approximates its carrying amount due to its variable interest rate, which approximates a market interest rate. As of December 31, 2020 and March 31, 2020, the fair value of the Company’s long-term debt related to the Ex-Im Credit Facility was determined based on a discounted cash flow analysis using observable market interest rates for instruments with similar terms (Level 2) and was approximately $100.6 million and $118.1 million, respectively. As of December 31, 2020 and March 31, 2020, the estimated fair value of the Company’s outstanding long-term debt related to the 2025 Notes was determined based on actual or estimated bids and offers for the 2025 Notes in an over-the-counter market (Level 2) and was $716.0 million and $653.6 million, respectively. As of December 31, 2020 and March 31, 2020, the estimated fair value of the Company’s outstanding long-term debt related to the 2027 Notes was determined based on actual or estimated bids and offers for the 2027 Notes in an over-the-counter market (Level 2) and was $630.0 million and $603.2 million, respectively. As of December 31, 2020, the estimated fair value of the Company’s outstanding long-term debt related to the 2028 Notes (which were issued in June 2020) was determined based on actual or estimated bids and offers for the 2028 Notes in an over-the-counter market (Level 2) and was $432.1 million.

21


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Satellite performance incentive obligations — The Company’s contracts with the manufacturers of the ViaSat-1 and ViaSat-2 satellites require the Company to make monthly in-orbit satellite performance incentive payments, including interest, through fiscal year 2027 and fiscal year 2028, respectively, subject to the continued satisfactory performance of the applicable satellites. The Company records the net present value of these expected future payments as a liability and as a component of the cost of the satellites. However, for disclosure purposes, the Company is required to measure the fair value of outstanding satellite performance incentive obligations on a recurring basis. The fair value of the Company’s outstanding satellite performance incentive obligations is estimated to approximate their carrying value based on current rates (Level 2). As of December 31, 2020 and March 31, 2020, the Company’s estimated satellite performance incentive obligations relating to the ViaSat-1 and ViaSat-2 satellites, including accrued interest, were $27.7 million and $27.4 million, respectively.

Note 4 — Shares Used In Computing Diluted Net Income (Loss) Per Share

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

(In thousands)

 

Weighted average:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding used in

   calculating basic net income (loss)

   per share attributable to Viasat, Inc.

   common stockholders

 

 

67,995

 

 

 

61,813

 

 

 

65,704

 

 

 

61,405

 

Options to purchase common stock as

   determined by application of the

   treasury stock method

 

 

 

 

 

90

 

 

 

 

 

 

 

Restricted stock units to acquire

   common stock as determined by

   application of the treasury stock

   method

 

 

108

 

 

 

773

 

 

 

 

 

 

 

Potentially issuable shares in

   connection with certain terms

   of the ViaSat 401(k) Profit

   Sharing Plan and Employee Stock

   Purchase Plan

 

 

565

 

 

 

240

 

 

 

 

 

 

 

Shares used in computing diluted net

   income (loss) per share attributable

   to Viasat, Inc. common stockholders

 

 

68,668

 

 

 

62,916

 

 

 

65,704

 

 

 

61,405

 

 

Antidilutive shares excluded from the calculation for the three months ended December 31, 2020 and 2019 consisted of 1,082,081 and 489,293 shares related to stock options (other than TSR performance stock options), respectively, 0 and 1,086,737 shares related to TSR performance stock options, respectively, and 2,928,601 and 68,256 shares related to restricted stock units, respectively.

 

The weighted average number of shares used to calculate basic and diluted net loss per share attributable to Viasat, Inc. common stockholders is the same for the nine months ended December 31, 2020 and 2019, as the Company incurred a net loss attributable to Viasat, Inc. common stockholders for such periods and inclusion of potentially dilutive weighted average shares of common stock would be antidilutive. Potentially dilutive weighted average shares excluded from the calculation for the nine months ended December 31, 2020 consisted of 1,176,106 shares related to stock options (other than TSR performance stock options), 0 shares related to TSR performance stock options, 2,514,857 shares related to restricted stock units and 496,869 shares related to certain terms of the ViaSat 401(k) Profit Sharing Plan and Employee Stock Purchase Plan. Potentially dilutive weighted average shares excluded from the calculation for the nine months ended December 31, 2019 consisted of 201,761 shares related to stock options (other than TSR performance stock options), 910,494 shares related to TSR performance stock options, 949,324 shares related to restricted stock units, and 230,588 shares related to certain terms of the ViaSat 401(k) Profit Sharing Plan and Employee Stock Purchase Plan.

 

22


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

 

Note 5 — Goodwill and Acquired Intangible Assets

During the nine months ended December 31, 2020, the increase in the Company’s goodwill related to the effects of foreign currency translation recorded within all three of the Company’s segments. During the nine months ended December 31, 2019, the increase in the Company’s goodwill related to the effects of foreign currency translation recorded within all three of the Company’s segments.

Other acquired intangible assets are amortized using the straight-line method over their estimated useful lives of two to ten years. Amortization expense related to other acquired intangible assets was $1.3 million and $1.9 million for the three months ended December 31, 2020 and 2019, respectively, and $4.2 million and $5.9 million for the nine months ended December 31, 2020 and 2019, respectively.

 

 

Note 6 — Senior Notes and Other Long-Term Debt

Total long-term debt consisted of the following as of December 31, 2020 and March 31, 2020:

 

 

 

As of

December 31, 2020

 

 

As of

March 31, 2020

 

 

 

(In thousands)

 

2028 Notes

 

$

400,000

 

 

$

 

2027 Notes

 

 

600,000

 

 

 

600,000

 

2025 Notes

 

 

700,000

 

 

 

700,000

 

Revolving Credit Facility

 

 

 

 

 

390,000

 

Ex-Im Credit Facility

 

 

98,261

 

 

 

117,913

 

Finance lease obligations (see Note 1)

 

 

61,927

 

 

 

64,956

 

Total debt

 

 

1,860,188

 

 

 

1,872,869

 

Unamortized discount and debt issuance costs

 

 

(22,705

)

 

 

(21,418

)

Less: current portion of long-term debt

 

 

33,735

 

 

 

29,788

 

Total long-term debt

 

$

1,803,748

 

 

$

1,821,663

 

 

Revolving Credit Facility

As of December 31, 2020, the Revolving Credit Facility provided a $700.0 million revolving line of credit (including up to $150.0 million of letters of credit), with a maturity date of January 18, 2024. At December 31, 2020, the Company had 0 outstanding borrowings under the Revolving Credit Facility and $35.9 million outstanding under standby letters of credit, leaving borrowing availability under the Revolving Credit Facility as of December 31, 2020 of $664.1 million.

Borrowings under the Revolving Credit Facility bear interest, at the Company’s option, at either (1) the highest of the Federal Funds rate plus 0.50%, the Eurodollar rate plus 1.00%, or the administrative agent’s prime rate as announced from time to time, or (2) the Eurodollar rate, plus, in the case of each of (1) and (2), an applicable margin that is based on the Company’s total leverage ratio. The Company has capitalized certain amounts of interest expense on the Revolving Credit Facility in connection with the construction of various assets during the construction period. The Revolving Credit Facility is required to be guaranteed by certain significant domestic subsidiaries of the Company (as defined in the Revolving Credit Facility) and secured by substantially all of the Company’s and any such subsidiaries’ assets. As of December 31, 2020, none of the Company’s subsidiaries guaranteed the Revolving Credit Facility.

The Revolving Credit Facility contains financial covenants regarding a maximum total leverage ratio and a minimum interest coverage ratio. In addition, the Revolving Credit Facility contains covenants that restrict, among other things, the Company’s ability to sell assets, make investments and acquisitions, make capital expenditures, grant liens, pay dividends and make certain other restricted payments. The Company was in compliance with its financial covenants under the Revolving Credit Facility as of December 31, 2020.

23


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Ex-Im Credit Facility

The Ex-Im Credit Facility originally provided a $362.4 million senior secured direct loan facility, which was fully drawn. Of the $362.4 million in principal amount of borrowings made under the Ex-Im Credit Facility, $321.2 million was used to finance up to 85% of the costs of construction, launch and insurance of the ViaSat-2 satellite and related goods and services (including costs incurred on or after September 18, 2012), with the remaining $41.2 million used to finance the total exposure fees incurred under the Ex-Im Credit Facility (which included all previously accrued completion exposure fees). As of December 31, 2020, the Company had $98.3 million in principal amount of outstanding borrowings under the Ex-Im Credit Facility.

Borrowings under the Ex-Im Credit Facility bear interest at a fixed rate of 2.38%, payable semi-annually in arrears. The effective interest rate on the Company’s outstanding borrowings under the Ex-Im Credit Facility, which takes into account timing and amount of borrowings and payments, exposure fees, debt issuance costs and other fees, is 4.54%. Borrowings under the Ex-Im Credit Facility are required to be repaid in 16 semi-annual principal installments, which commenced on April 15, 2018, with a maturity date of October 15, 2025. Pursuant to the terms of the Ex-Im Credit Facility, certain insurance proceeds related to the ViaSat-2 satellite must be used to pay down outstanding borrowings under the Ex-Im Credit Facility upon receipt. During fiscal years 2019 and 2020, the Company received an aggregate of $188.0 million of insurance proceeds related to the ViaSat-2 satellite, all of which were used to pay down outstanding borrowings under the Ex-Im Credit Facility upon receipt (see Note 1 — Basis of Presentation – Property, equipment and satellites for more information). The Ex-Im Credit Facility is guaranteed by Viasat and is secured by first-priority liens on the ViaSat-2 satellite and related assets, as well as a pledge of the capital stock of the borrower under the facility.

The Ex-Im Credit Facility contains financial covenants regarding Viasat’s maximum total leverage ratio and minimum interest coverage ratio. In addition, the Ex-Im Credit Facility contains covenants that restrict, among other things, the Company’s ability to sell assets, make investments and acquisitions, make capital expenditures, grant liens, pay dividends and make certain other restricted payments. The Company was in compliance with its financial covenants under the Ex-Im Credit Facility as of December 31, 2020.

Borrowings under the Ex-Im Credit Facility are recorded as current portion of long-term debt and as other long-term debt, net of unamortized discount and debt issuance costs, in the Company’s condensed consolidated financial statements. The discount of $42.3 million (consisting of the initial $6.0 million pre-exposure fee, $35.3 million of completion exposure fees, and other customary fees) and deferred financing cost associated with the issuance of the borrowings under the Ex-Im Credit Facility are amortized to interest expense on an effective interest rate basis over the weighted average term of the Ex-Im Credit Facility and in accordance with the related payment obligations.

Senior Notes

Senior Notes due 2028

In June 2020, the Company issued $400.0 million in principal amount of 2028 Notes in a private placement to institutional buyers. The 2028 Notes were issued at face value and are recorded as long-term debt, net of debt issuance costs, in the Company’s condensed consolidated financial statements. The 2028 Notes bear interest at the rate of 6.500% per year, payable semi-annually in cash in arrears, which interest payments commenced in January 2021. Debt issuance costs associated with the issuance of the 2028 Notes are amortized to interest expense on a straight-line basis over the term of the 2028 Notes, the results of which are not materially different from the effective interest rate basis.

The 2028 Notes are required to be guaranteed on an unsecured senior basis by each of the Company’s existing and future subsidiaries that guarantees the Revolving Credit Facility. As of December 31, 2020, none of the Company’s subsidiaries guaranteed the 2028 Notes. The 2028 Notes are the Company’s general senior unsecured obligations and rank equally in right of payment with all of the Company’s existing and future unsecured unsubordinated debt. The 2028 Notes are effectively junior in right of payment to the Company’s existing and future secured debt, including under the Credit Facilities and the 2027 Notes (to the extent of the value of the assets securing such debt), are structurally subordinated to all existing and future liabilities (including trade payables) of the Company’s subsidiaries that do not guarantee the 2028 Notes, and are senior in right of payment to all of the Company’s existing and future subordinated indebtedness.

The indenture governing the 2028 Notes limits, among other things, the Company’s and its restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and

24


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce the Company’s satellite insurance; and consolidate or merge with, or sell substantially all of their assets to, another person.

Prior to July 15, 2023, the Company may redeem up to 40% of the 2028 Notes at a redemption price of 106.500% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash proceeds of specified equity offerings. The Company may also redeem the 2028 Notes prior to July 15, 2023, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus the applicable premium and any accrued and unpaid interest, if any, thereon to the redemption date. The applicable premium is calculated as the greater of: (i) 1.0% of the principal amount of such 2028 Notes and (ii) the excess, if any, of (a) the present value at such date of redemption of (1) the redemption price of such 2028 Notes on July 15, 2023 plus (2) all required interest payments due on such 2028 Notes through July 15, 2023 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the treasury rate (as defined under the indenture governing the 2028 Notes) plus 50 basis points, over (b) the then-outstanding principal amount of such 2028 Notes. The 2028 Notes may be redeemed, in whole or in part, at any time during the 12 months beginning on July 15, 2023 at a redemption price of 103.250%, during the 12 months beginning on July 15, 2024 at a redemption price of 101.625%, and at any time on or after July 15, 2025 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date.  

In the event a change of control triggering event occurs (as defined in the indenture governing the 2028 Notes), each holder will have the right to require the Company to repurchase all or any part of such holder’s 2028 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2028 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

Senior Secured Notes due 2027

In March 2019, the Company issued $600.0 million in principal amount of 2027 Notes in a private placement to institutional buyers. The 2027 Notes were issued at face value and are recorded as long-term debt, net of debt issuance costs, in the Company’s condensed consolidated financial statements. The 2027 Notes bear interest at the rate of 5.625% per year, payable semi-annually in cash in arrears, which interest payments commenced in October 2019. Debt issuance costs associated with the issuance of the 2027 Notes are amortized to interest expense on a straight-line basis over the term of the 2027 Notes, the results of which are not materially different from the effective interest rate basis.

The 2027 Notes are required to be guaranteed on a senior secured basis by each of the Company’s existing and future subsidiaries that guarantees the Revolving Credit Facility. As of December 31, 2020, none of the Company’s subsidiaries guaranteed the 2027 Notes. The 2027 Notes are secured, equally and ratably with the Revolving Credit Facility and any future parity lien debt, by liens on substantially all of the Company’s assets.

The 2027 Notes are the Company’s general senior secured obligations and rank equally in right of payment with all of its existing and future unsubordinated debt. The 2027 Notes are effectively senior to all of the Company’s existing and future unsecured debt (including the 2025 Notes and the 2028 Notes) as well as to all of any permitted junior lien debt that may be incurred in the future, in each case to the extent of the value of the assets securing the 2027 Notes. The 2027 Notes are effectively subordinated to any obligations that are secured by liens on assets that do not constitute a part of the collateral securing the 2027 Notes, are structurally subordinated to all existing and future liabilities (including trade payables) of the Company’s subsidiaries that do not guarantee the 2027 Notes (including obligations of the borrower under the Ex-Im Credit Facility), and are senior in right of payment to all of the Company’s existing and future subordinated indebtedness.

The indenture governing the 2027 Notes limits, among other things, the Company’s and its restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce the Company’s satellite insurance; and consolidate or merge with, or sell substantially all of their assets to, another person.

Prior to April 15, 2022, the Company may redeem up to 40% of the 2027 Notes at a redemption price of 105.625% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash proceeds of specified equity offerings. The Company may also redeem the 2027 Notes prior to April 15, 2022, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus the applicable premium and any accrued and unpaid interest, if any, thereon to the redemption date. The applicable premium is calculated as the greater of: (i) 1.0% of the principal amount of such 2027 Notes and (ii) the excess, if any, of (a) the present value at such date of redemption of (1) the redemption price of such 2027 Notes on April 15, 2022 plus (2) all required interest payments due on such 2027 Notes through April 15, 2022 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the treasury rate (as defined under the indenture governing the 2027 Notes) plus 50 basis points, over (b) the then-outstanding principal amount of such 2027 Notes. The 2027 Notes may be redeemed, in whole or in part, at any time during the 12 months beginning on April 15, 2022 at a redemption price of 102.813%, during the 12 months beginning on April 15, 2023 at a redemption price of 101.406%, and at any time on or after April 15, 2024 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date.

25


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

 

In the event a change of control triggering event occurs (as defined in the indenture governing the 2027 Notes), each holder will have the right to require the Company to repurchase all or any part of such holder’s 2027 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2027 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

 

Senior Notes due 2025

In September 2017, the Company issued $700.0 million in principal amount of 2025 Notes in a private placement to institutional buyers. The 2025 Notes were issued at face value and are recorded as long-term debt, net of debt issuance costs, in the Company’s condensed consolidated financial statements. The 2025 Notes bear interest at the rate of 5.625% per year, payable semi-annually in cash in arrears, which interest payments commenced in March 2018. Debt issuance costs associated with the issuance of the 2025 Notes are amortized to interest expense on a straight-line basis over the term of the 2025 Notes, the results of which are not materially different from the effective interest rate basis.

The 2025 Notes are required to be guaranteed on an unsecured senior basis by each of the Company’s existing and future subsidiaries that guarantees the Revolving Credit Facility. As of December 31, 2020, none of the Company’s subsidiaries guaranteed the 2025 Notes. The 2025 Notes are the Company’s general senior unsecured obligations and rank equally in right of payment with all of the Company’s existing and future unsecured unsubordinated debt. The 2025 Notes are effectively junior in right of payment to the Company’s existing and future secured debt, including under the Credit Facilities and the 2027 Notes (to the extent of the value of the assets securing such debt), are structurally subordinated to all existing and future liabilities (including trade payables) of the Company’s subsidiaries that do not guarantee the 2025 Notes, and are senior in right of payment to all of the Company’s existing and future subordinated indebtedness.

The indenture governing the 2025 Notes limits, among other things, the Company’s and its restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce the Company’s satellite insurance; and consolidate or merge with, or sell substantially all of their assets to, another person.

The 2025 Notes may be redeemed, in whole or in part, at any time during the 12 months beginning on September 15, 2020 at a redemption price of 102.813%, during the 12 months beginning on September 15, 2021 at a redemption price of 101.406%, and at any time on or after September 15, 2022 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date.

In the event a change of control triggering event occurs (as defined in the indenture governing the 2025 Notes), each holder will have the right to require the Company to repurchase all or any part of such holder’s 2025 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2025 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

26


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

 

Note 7 — Product Warranty

The Company provides limited warranties on its products for periods of up to five years. The Company records a liability for its warranty obligations when products are shipped or they are included in long-term construction contracts based upon an estimate of expected warranty costs. Amounts expected to be incurred within 12 months are classified as accrued liabilities and amounts expected to be incurred beyond 12 months are classified as other liabilities in the condensed consolidated financial statements. For mature products, the warranty cost estimates are based on historical experience with the particular product. For newer products that do not have a history of warranty costs, the Company bases its estimates on its experience with the technology involved and the types of failures that may occur. It is possible that the Company’s underlying assumptions will not reflect the actual experience and, in that case, future adjustments will be made to the recorded warranty obligation. The following table reflects the change in the Company’s warranty accrual during the nine months ended December 31, 2020 and 2019:

 

 

 

Nine Months Ended

 

 

 

December 31,

2020

 

 

December 31,

2019

 

 

 

(In thousands)

 

Balance, beginning of period

 

$

11,643

 

 

$

7,584

 

Change in liability for warranties issued in period

 

 

4,120

 

 

 

6,216

 

Settlements made (in cash or in kind) during the

   period

 

 

(3,882

)

 

 

(3,729

)

Balance, end of period

 

$

11,881

 

 

$

10,071

 

 

Note 8 — Commitments and Contingencies

In July 2016, the Company entered into two separate agreements with The Boeing Company (Boeing) for the construction and purchase of the Company’s first two ViaSat-3 class satellites and the integration of Viasat’s payload technologies into the satellites. In July 2019, the Company entered into an agreement with Boeing for the construction and purchase of a third ViaSat-3 class satellite and the integration of Viasat’s payload technologies into the satellite.

 

From time to time, the Company is involved in a variety of claims, suits, investigations and proceedings arising in the ordinary course of business, including government investigations and claims, and other claims and proceedings with respect to intellectual property, breach of contract, labor and employment, tax and other matters. Such matters could result in fines; penalties, compensatory, treble or other damages; or non-monetary relief. A violation of government contract laws and regulations could also result in the termination of its government contracts or debarment from bidding on future government contracts. Although claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, the Company believes that the resolution of its current pending matters will not have a material adverse effect on its business, financial condition, results of operations or liquidity.

The Company has contracts with various U.S. Government agencies. Accordingly, the Company is routinely subject to audit and review by the DCMA, the DCAA and other U.S. Government agencies of its performance on government contracts, indirect rates and pricing practices, accounting and management internal control business systems, and compliance with applicable contracting and procurement laws, regulations and standards. An adverse outcome to a review or audit or other failure to comply with applicable contracting and procurement laws, regulations and standards could result in material civil and criminal penalties and administrative sanctions being imposed on the Company, which may include termination of contracts, forfeiture of profits, triggering of price reduction clauses, suspension of payments, significant customer refunds, fines and suspension, or a prohibition on doing business with U.S. Government agencies. In addition, if the Company fails to obtain an “adequate” determination of its various accounting and management internal control business systems from applicable U.S. Government agencies or if allegations of impropriety are made against it, the Company could suffer serious harm to its business or its reputation, including its ability to bid on new contracts or receive contract renewals and its competitive position in the bidding process. The Company’s incurred cost audits by the DCAA have not been concluded for fiscal years 2019 or 2020. As of December 31, 2020, the DCAA had completed its incurred cost audit for fiscal years 2004 and 2016 and approved the Company’s incurred costs for those fiscal years, as well as approved the Company’s incurred costs for fiscal years 2005 through 2015, 2017 and 2018 without further audit based on the determination of low risk. Although the Company has recorded contract revenues subsequent to fiscal year 2018 based upon an estimate of costs that the Company believes will be approved upon final audit or review, the

27


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Company does not know the outcome of any ongoing or future audits or reviews and adjustments, and if future adjustments exceed the Company’s estimates, its profitability would be adversely affected. As of December 31, 2020 and March 31, 2020, the Company had $8.8 million and $7.8 million, respectively, in contract-related reserves for its estimate of potential refunds to customers for potential cost adjustments on several multi-year U.S. Government cost reimbursable contracts. This reserve is classified as either an element of accrued liabilities or as a reduction of unbilled accounts receivable based on the status of the related contracts.

 

Note 9 — Income Taxes

Ordinarily, the Company calculates its provision for income taxes at the end of each interim reporting period on the basis of an estimated annual effective tax rate adjusted for tax items that are discrete to each period. However, when a reliable estimate cannot be made, the Company computes its provision for income taxes using the actual effective tax rate (discrete method) for the year-to-date period. The Company’s effective tax rate is highly influenced by the amount of its R&D tax credits. A small change in estimated annual pretax income (loss) can produce a significant variance in the annual effective tax rate given the Company’s expected amount of R&D tax credits. This variability provides an unreliable estimate of the annual effective tax rate. As a result, and in accordance with the authoritative guidance for accounting for income taxes in interim periods, the Company has computed its provision for income taxes for the three and nine months ended December 31, 2020 and 2019 by applying the actual effective tax rate to the income (loss) for the three-month and nine-month periods.

For the three and nine months ended December 31, 2020, the Company recorded an income tax provision of $7.0 million and an insignificant amount, respectively, resulting in effective tax rates of 50% and 24%, respectively. The effective tax rates for the periods differed from the U.S. statutory rate primarily due to the expense for tax deficiencies upon settlement of stock-based compensation during the periods, partially offset by the benefit of federal and state R&D tax credits.

For the three and nine months ended December 31, 2019, the Company recorded an income tax benefit of $3.9 million and $8.7 million, respectively, resulting in effective tax benefit rates of negative 80% and positive 211%, respectively. The effective tax rates for the periods differed from the U.S. statutory rate due primarily to the benefit of federal and state R&D tax credits.

Future realization of existing deferred tax assets ultimately depends on future profitability and the existence of sufficient taxable income of appropriate character (for example, ordinary income versus capital gains) within the carryforward period available under tax law. In the event that the Company’s estimate of taxable income is less than that required to utilize the full amount of any deferred tax asset, a valuation allowance is established, which would cause a decrease to income in the period such determination is made.

For the three and nine months ended December 31, 2020, the Company’s gross unrecognized tax benefits increased by $5.1 million and $12.0 million, respectively. In the next 12 months it is reasonably possible that the amount of unrecognized tax benefits will not change significantly.

In accordance with the authoritative guidance for share-based payments (ASC 718), the Company recognizes excess tax benefits or deficiencies on vesting or settlement of awards as an income tax benefit or expense within net income (loss) and the related cash flows classified within operating activities. In accordance with ASU 2016-09, during interim periods, excess tax benefits or deficiencies are recognized in income tax expense as discrete items in the reporting period in which they occur.

Note 10 — Equity Method Investments and Related-Party Transactions

Euro Broadband Infrastructure Sàrl

In March 2017, the Company acquired a 49% interest in Euro Broadband Infrastructure Sàrl (Euro Infrastructure Co.) for $139.5 million as part of the consummation of the Company’s strategic partnering arrangement with Eutelsat. The Company’s investment in Euro Infrastructure Co. is accounted for under the equity method and the total investment, including basis difference allocated to tangible assets, identifiable intangible assets, deferred income taxes and goodwill, is classified as a single line item, as an investment in unconsolidated affiliate, on the Company’s condensed consolidated balance sheets. Because the underlying net assets in Euro Infrastructure Co. and the related excess carrying value of investment over the proportionate share of net assets are denominated in Euros, foreign currency translation gains or losses impact the recorded value of the Company’s investment. The Company recorded a foreign currency translation gain, net of tax, of approximately $4.4 million and $5.9 million for the three and nine months ended December 31, 2020, respectively, in accumulated other comprehensive income (loss). The Company recorded foreign currency translation losses, net of tax, of approximately $4.2 million and $5.0 million for the three and nine months ended December 31, 2019, respectively, in accumulated other comprehensive income (loss). The Company records its proportionate share of the results of Euro Infrastructure Co., and any related basis difference amortization expense, within equity in income (loss) of unconsolidated affiliate, net, one quarter in arrears. Accordingly, the Company included its share of the results of Euro Infrastructure Co. for the three and nine months ended September 30, 2020 in its condensed consolidated financial statements for the three and nine months ended December 31, 2020, respectively, and the Company included its share of the results of Euro Infrastructure Co. for the three and nine months ended September 30, 2019 in its condensed consolidated financial statements for the three and nine months ended December 31, 2019, respectively. The Company’s investment in Euro Infrastructure Co. is presented at cost of investment plus its accumulated proportional share of income or loss, including amortization of the difference in the historical basis of the Company’s contribution, less any distributions it has received. On November 18, 2020, the Company entered into an agreement to purchase the remaining 51% interest in Euro Infrastructure Co. from Eutelsat (see Note 12 — Acquisitions for more information).

28


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

The difference between the Company’s carrying value of its investment in Euro Infrastructure Co. and its proportionate share of the net assets of Euro Infrastructure Co. as of December 31, 2020 and March 31, 2020 is summarized as follows:

 

 

 

As of

December 31, 2020

 

 

As of

March 31, 2020

 

 

 

(In thousands)

 

Carrying value of investment in Euro Infrastructure Co.

 

$

168,787

 

 

$

160,204

 

Less: proportionate share of net assets of Euro

   Infrastructure Co.

 

 

152,231

 

 

 

144,769

 

Excess carrying value of investment over

   proportionate share of net assets

 

$

16,556

 

 

$

15,435

 

The excess carrying value has been primarily

   assigned to:

 

 

 

 

 

 

 

 

Goodwill

 

$

22,838

 

 

$

21,777

 

Identifiable intangible assets

 

 

8,231

 

 

 

8,799

 

Tangible assets

 

 

(15,504

)

 

 

(16,142

)

Deferred income taxes

 

 

991

 

 

 

1,001

 

 

 

$

16,556

 

 

$

15,435

 

 

The identifiable intangible assets have useful lives of up to 11 years and a weighted average useful life of approximately ten years, and tangible assets have useful lives of up to 11 years and a weighted average useful life of approximately 11 years. Goodwill is not deductible for tax purposes.

The Company’s share of income on its investment in Euro Infrastructure Co. was an insignificant amount for the three and nine months ended December 31, 2020, and $1.8 million and $4.3 million for the three and nine months ended December 31, 2019, respectively, consisting of the Company’s share of equity in Euro Infrastructure Co.’s income, including amortization of the difference in the historical basis of the Company’s contribution.

Since acquiring its initial interest in Euro Infrastructure Co., the Company has recorded $11.2 million in retained earnings of undistributed cumulative earnings in equity interests, net of tax, as of December 31, 2020.

29


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Related-party transactions

Transactions with the equity method investee are considered related-party transactions. The following tables set forth the material related-party transactions entered into between Euro Infrastructure Co. and its subsidiaries, on the one hand, and the Company and its subsidiaries, on the other hand, in the ordinary course of business for the time periods presented:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

(In thousands)

 

Revenue – Euro Infrastructure Co.

 

$

8,319

 

 

$

*

 

 

$

9,743

 

 

$

8,469

 

Expense – Euro Infrastructure Co.

 

 

4,163

 

 

 

1,815

 

 

 

12,331

 

 

 

10,720

 

Cash received – Euro Infrastructure Co.

 

 

1,773

 

 

 

6,253

 

 

 

9,995

 

 

 

8,605

 

Cash paid – Euro Infrastructure Co.

 

 

7,867

 

 

 

3,198

 

 

 

20,947

 

 

 

10,654

 

 

 

 

As of

December 31, 2020

 

 

As of

March 31, 2020

 

 

 

(In thousands)

 

Collections in excess of revenues and deferred

   revenues – Euro Infrastructure Co.

 

$

6,084

 

 

$

5,832

 

Accounts payable – Euro Infrastructure Co.

 

*

 

 

 

5,446

 

 

*Amount was insignificant.

 

Note 11 — Segment Information

The Company’s reporting segments, comprised of the satellite services, commercial networks and government systems segments, are primarily distinguished by the type of customer and the related contractual requirements. The Company’s satellite services segment provides satellite-based broadband and related services to residential customers, Community Internet hotspot users, enterprises, commercial airlines and other mobile broadband customers. The Company’s commercial networks segment develops and offers advanced satellite and wireless broadband platforms, ground networking equipment, radio frequency and advanced microwave solutions, Application-Specific Integrated Circuit chip design, satellite payload development and space-to-earth connectivity systems, some of which are ultimately used by the Company’s satellite services segment. The Company’s government systems segment provides global mobile broadband services to military and government users and develops and offers network-centric, internet protocol-based fixed and mobile secure communications products and solutions. The more regulated government environment is subject to unique contractual requirements and possesses economic characteristics which differ from the satellite services and commercial networks segments. The Company’s segments are determined consistent with the way management currently organizes and evaluates financial information internally for making operating decisions and assessing performance.

30


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Segment revenues and operating profits (losses) for the three and nine months ended December 31, 2020 and 2019 were as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

(In thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Satellite services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

 

 

$

 

 

$

 

 

$

 

Service

 

 

220,789

 

 

 

211,700

 

 

 

638,660

 

 

 

614,232

 

Total

 

 

220,789

 

 

 

211,700

 

 

 

638,660

 

 

 

614,232

 

Commercial networks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

75,690

 

 

 

73,182

 

 

 

197,560

 

 

 

212,226

 

Service

 

 

14,409

 

 

 

11,544

 

 

 

38,561

 

 

 

39,520

 

Total

 

 

90,099

 

 

 

84,726

 

 

 

236,121

 

 

 

251,746

 

Government systems

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

190,824

 

 

 

229,908

 

 

 

575,568

 

 

 

661,309

 

Service

 

 

73,847

 

 

 

61,890

 

 

 

209,976

 

 

 

190,230

 

Total

 

 

264,671

 

 

 

291,798

 

 

 

785,544

 

 

 

851,539

 

Elimination of intersegment revenues

 

 

 

 

 

 

 

 

 

Total revenues

 

$

575,559

 

 

$

588,224

 

 

$

1,660,325

 

 

$

1,717,517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profits (losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Satellite services

 

$

11,457

 

 

$

3,600

 

 

$

21,083

 

 

$

6,648

 

Commercial networks

 

 

(39,028

)

 

 

(46,917

)

 

 

(135,785

)

 

 

(143,559

)

Government systems

 

 

50,644

 

 

 

59,142

 

 

 

148,002

 

 

 

167,160

 

Elimination of intersegment operating

   profits

 

 

 

 

 

 

 

 

 

 

Segment operating profit before corporate

   and amortization of acquired intangible

   assets

 

 

23,073

 

 

 

15,825

 

 

 

33,300

 

 

 

30,249

 

Corporate

 

 

 

 

 

 

 

 

 

 

Amortization of acquired intangible

   assets

 

 

(1,313

)

 

 

(1,856

)

 

 

(4,171

)

 

 

(5,920

)

Income from operations

 

$

21,760

 

 

$

13,969

 

 

$

29,129

 

 

$

24,329

 

 

Assets identifiable to segments include: accounts receivable, unbilled accounts receivable, inventory, acquired intangible assets and goodwill. The Company’s property and equipment, including its satellites, earth stations and other networking equipment, are assigned to corporate assets as they are available for use by the various segments throughout their estimated useful lives. Segment assets as of December 31, 2020 and March 31, 2020 were as follows:

 

 

 

As of

December 31, 2020

 

 

As of

March 31, 2020

 

 

 

(In thousands)

 

Segment assets:

 

 

 

 

 

 

 

 

Satellite services

 

$

57,706

 

 

$

86,252

 

Commercial networks

 

 

169,946

 

 

 

188,269

 

Government systems

 

 

439,794

 

 

 

484,237

 

Total segment assets

 

 

667,446

 

 

 

758,758

 

Corporate assets

 

 

4,581,260

 

 

 

4,125,110

 

Total assets

 

$

5,248,706

 

 

$

4,883,868

 

 

31


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

 

Other acquired intangible assets, net and goodwill included in segment assets as of December 31, 2020 and March 31, 2020 were as follows:

 

 

 

Other Acquired Intangible

Assets, Net

 

 

Goodwill

 

 

 

As of

December 31, 2020

 

 

As of

March 31, 2020

 

 

As of

December 31, 2020

 

 

As of

March 31, 2020

 

 

 

(In thousands)

 

Satellite services

 

$

6,499

 

 

$

7,368

 

 

$

13,955

 

 

$

13,489

 

Commercial networks

 

 

 

 

 

257

 

 

 

44,146

 

 

 

43,981

 

Government systems

 

 

4,580

 

 

 

6,814

 

 

 

64,347

 

 

 

63,727

 

Total

 

$

11,079

 

 

$

14,439

 

 

$

122,448

 

 

$

121,197

 

 

Amortization of acquired intangible assets by segment for the three and nine months ended December 31, 2020 and 2019 was as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

(In thousands)

 

Satellite services

 

$

557

 

 

$

678

 

 

$

1,612

 

 

$

2,383

 

Commercial networks

 

 

 

 

 

384

 

 

 

257

 

 

 

1,156

 

Government systems

 

 

756

 

 

 

794

 

 

 

2,302

 

 

 

2,381

 

Total amortization of acquired

   intangible assets

 

$

1,313

 

 

$

1,856

 

 

$

4,171

 

 

$

5,920

 

 

Revenues by geographic area for the three and nine months ended December 31, 2020 and 2019 were as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

December 31, 2020

 

 

December 31, 2020

 

 

 

(In thousands)

 

U.S. customers

 

$

512,439

 

 

$

1,523,969

 

Non-U.S. customers (each country individually insignificant)

 

 

63,120

 

 

 

136,356

 

Total revenues

 

$

575,559

 

 

$

1,660,325

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

December 31, 2019

 

 

December 31, 2019

 

 

 

(In thousands)

 

U.S. customers

 

$

523,455

 

 

$

1,521,022

 

Non-U.S. customers (each country individually insignificant)

 

 

64,769

 

 

 

196,495

 

Total revenues

 

$

588,224

 

 

$

1,717,517

 

 

The Company distinguishes revenues from external customers by geographic area based on customer location.

 

 

 

Note 12 — Acquisitions

On November 18, 2020, the Company entered into an agreement to purchase the remaining 51% interest in Euro Infrastructure Co. from Eutelsat for €140.0 million subject to customary net working capital and net debt adjustments. The purchase price is expected to be funded with available cash, resulting in a cash outlay of €50.0 million, after consideration of approximately €90.0 million of Euro Infrastructure Co.’s cash on hand. Consummation of the acquisition is subject to customary closing conditions and is expected to close in the fourth quarter of fiscal year 2021. The initial accounting for this acquisition will begin after the closing of the acquisition.

32


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

On December 20, 2020, the Company entered into an Agreement and Plan of Merger with RigNet, Inc. (RigNet), pursuant to which the Company has agreed to acquire RigNet in exchange for total consideration equal to the value of 0.1845 shares of the Company’s common stock for each share of RigNet common stock outstanding on the date of consummation of the acquisition. RigNet is a leading provider of ultra-secure, intelligent networking solutions and specialized applications. The Company will pay substantially all of the merger consideration at the closing of the acquisition in newly issued shares of the Company’s common stock, with cash amounts to be paid to RigNet stockholders in lieu of any fractional shares of the Company’s common stock. Consummation of the acquisition is subject to the expiration or termination of review under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, receipt of certain other material regulatory consents and approvals, absence of a material adverse effect with respect to the Company’s or RigNet’s business or financial condition and other customary closing conditions, and is expected to close in the first quarter of fiscal year 2022. The initial accounting for this acquisition will begin after the closing of the acquisition.

The transaction implies an enterprise value for RigNet of approximately $221.8 million, based on the closing price of the Company’s common stock and the number of RigNet shares of common stock outstanding as of the date of the agreement and RigNet’s net debt as of September 30, 2020 (which consisted of approximately $92.2 million in principal amount of RigNet debt, net of cash). Assuming no material change in the number of RigNet shares outstanding at the closing, and no closing adjustments, and taking into account expected treatment of equity-based awards at the closing of the transaction, the Company would issue approximately 4.0 million shares of the Company’s common stock at the closing (which would have comprised approximately 5.5% of the Company’s outstanding common stock had the acquisition been consummated on December 31, 2020).

 

 

 

33


 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” variations of such words and similar expressions to identify forward-looking statements. In addition, statements that refer to the impact of the novel coronavirus (COVID-19) pandemic on our business; projections of earnings, revenue, costs or other financial items; anticipated growth and trends in our business or key markets; future economic conditions and performance; the development, customer acceptance and anticipated performance of technologies, products or services; satellite construction and launch activities; the performance and anticipated benefits of our ViaSat-2 and ViaSat-3 class satellites and any future satellite we may construct or acquire; the impacts on overall coverage area, planned services and financial results of the identified antenna deployment issue on the ViaSat-2 satellite; the expected completion, capacity, service, coverage, service speeds and other features of our satellites, and the timing, cost, economics and other benefits associated therewith; anticipated subscriber growth; plans, objectives and strategies for future operations; our pending acquisitions of RigNet, Inc. (RigNet) and the remaining 51% interest in Euro Broadband Infrastructure Sàrl (Euro Infrastructure Co.); the number of in-flight connectivity (IFC) systems anticipated to be activated under existing contracts with commercial airlines; and other characterizations of future events or circumstances, are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Factors that could cause actual results to differ materially include: our ability to realize the anticipated benefits of the ViaSat-2 and ViaSat-3 class satellites and any future satellite we may construct or acquire; unexpected expenses related to our satellite projects; our ability to successfully implement our business plan for our broadband services on our anticipated timeline or at all; risks associated with the construction, launch and operation of satellites, including the effect of any anomaly, operational failure or degradation in satellite performance; the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees or the overall economy; our ability to realize the anticipated benefits of our acquisitions or strategic partnering arrangements; our ability to successfully develop, introduce and sell new technologies, products and services; audits by the U.S. Government; changes in the global business environment and economic conditions; delays in approving U.S. Government budgets and cuts in government defense expenditures; our reliance on U.S. Government contracts, and on a small number of contracts which account for a significant percentage of our revenues; reduced demand for products and services as a result of continued constraints on capital spending by customers; changes in relationships with, or the financial condition of, key customers or suppliers; our reliance on a limited number of third parties to manufacture and supply our products; increased competition; introduction of new technologies and other factors affecting the communications and defense industries generally; the effect of adverse regulatory changes (including changes affecting spectrum availability or permitted uses) on our ability to sell or deploy our products and services; changes in the way others use spectrum; our inability to access additional spectrum, use spectrum for additional purposes, and/or operate satellites at additional orbital locations; competing uses of the same spectrum or orbital locations that we utilize or seek to utilize; the effect of recent changes to U.S. tax laws; our level of indebtedness and ability to comply with applicable debt covenants; our involvement in litigation, including intellectual property claims and litigation to protect our proprietary technology; our dependence on a limited number of key employees; and other factors identified under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2020, under the heading “Risk Factors” in Part II, Item 1A of this report, elsewhere in this report and our other filings with the Securities and Exchange Commission (the SEC). Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

Company Overview

We are an innovator in communications technologies and services, focused on making connectivity accessible, available and secure for all. Our end-to-end platform of high-capacity Ka-band satellites, ground infrastructure and user terminals enables us to provide cost-effective, high-speed, high-quality broadband solutions to enterprises, consumers and government users around the globe, whether on the ground, in the air or at sea. In addition, our government business includes a market-leading portfolio of military tactical data link systems, satellite communication products and services and cybersecurity and information assurance products and services. Our product, system and service offerings are often linked through common underlying technologies, customer applications and market relationships. We believe that our portfolio of products and services, combined with our vertical integration strategy and ability to effectively cross-deploy technologies between government and commercial applications and segments as well as across different geographic markets, provides us with a strong foundation to sustain and enhance our leadership in advanced communications and networking technologies. Viasat, Inc. was incorporated in California in 1986, and reincorporated as a Delaware corporation in 1996.

34


 

We conduct our business through three segments: satellite services, commercial networks and government systems.

Acquisitions

On November 18, 2020, we entered into an agreement to purchase the remaining 51% interest in Euro Infrastructure Co. from Eutelsat for €140.0 million subject to customary net working capital and net debt adjustments. The purchase price is expected to be funded with available cash, resulting in a cash outlay of €50.0 million, net of approximately €90.0 million of Euro Infrastructure Co.’s cash on hand. Consummation of the acquisition is subject to customary closing conditions and is expected to close in the fourth quarter of fiscal year 2021.

On December 20, 2020, we entered into an Agreement and Plan of Merger with RigNet, pursuant to which we have agreed to acquire RigNet in exchange for total consideration equal to the value of 0.1845 shares of our common stock for each share of RigNet common stock outstanding on the date of consummation of the acquisition. RigNet is a leading provider of ultra-secure, intelligent networking solutions and specialized applications. We will pay substantially all of the merger consideration at the closing of the acquisition in newly issued shares of our common stock, with cash amounts to be paid to RigNet stockholders in lieu of any fractional shares of our common stock. Consummation of the acquisition is subject to the expiration or termination of review under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, receipt of certain other material regulatory consents and approvals, absence of a material adverse effect with respect to our or RigNet’s business or financial condition and other customary closing conditions, and is expected to close in the first quarter of fiscal year 2022. The initial accounting for this acquisition will begin after the closing of the acquisition.

The transaction implies an enterprise value for RigNet of approximately $221.8 million, based on the closing price of our common stock and the number of RigNet shares of common stock outstanding as of the date of the agreement and RigNet’s net debt as of September 30, 2020 (which consisted of approximately $92.2 million in principal amount of RigNet debt, net of cash). Assuming no material change in the number of RigNet shares outstanding at the closing, and no closing adjustments, and taking into account expected treatment of equity-based awards at the closing of the transaction, we would issue approximately 4.0 million shares of our common stock at the closing (which would have comprised approximately 5.5% of our outstanding common stock had the acquisition been consummated on December 31, 2020).

Private Placement

During the second quarter of fiscal year 2021, we issued and sold an aggregate of 4,474,559 shares of our common stock at a purchase price of $39.11 per share to certain accredited investors in a private placement transaction exempt from registration under the Securities Act of 1933, as amended, resulting in net proceeds of approximately $174.7 million after deducting offering expenses.

COVID-19

In March 2020, the global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government. The COVID-19 pandemic and attempts to contain it, such as mandatory closures, “shelter-in-place” orders and travel restrictions, have caused significant disruptions and adverse effects on U.S. and global economies, including impacts to supply chains, customer demand and financial markets. We have taken measures to protect the health and safety of our employees and to work with our customers, employees, suppliers, subcontractors, distributors, resellers and communities to address the disruptions from the pandemic. Although our financial results for the three and nine months ended December 31, 2020 continued to be impacted by the pandemic, the impact was not material to our financial position, results of operations or cash flows in those periods, with negative impacts particularly in our commercial air business offset by strong performance in other parts of our business. We continue to expect our diversified businesses to provide resiliency for the remainder of fiscal year 2021.

Our government systems segment, which represented 46% and 47% of our total revenues during the three and nine months ended December 31, 2020, respectively, continued to perform in line with our expectations. Demand for products and services in our government systems segment remained strong despite the evolving COVID-19 pandemic, although our government business continued to experience some administrative delays on certain contractual vehicles as government customers continue to adjust to the challenges inherent in the remote work environment resulting from the COVID-19 pandemic.

Since mid-March 2020, we have experienced an uptick in demand for our fixed broadband services in the United States, with net subscriber additions for our services fiscal year to date and increased demand for our premium highest speed plans. We also continue to participate in certain federal and state programs to ensure our residential and small business customers in the United States have access to connectivity during the pandemic. However, the COVID-19

35


 

pandemic continues to impact our higher-margin in-flight services business and our mobile broadband satellite communications system business in our satellite services and commercial networks segments, respectively, due to the severe decline in global air traffic and resulting downturn in the commercial aviation market. While current airline traffic is still a fraction of the prior year activity, our in-flight services business showed modest improvement compared to the quarter ended September 30, 2020 with increased planes in service and passenger volumes. We expect to continue to see negative impacts on revenues and operating cash flows from our IFC businesses in the fourth quarter of fiscal year 2021 and potentially beyond, but for the effects to continue to lessen over time with increases in passenger air traffic and the return to service of additional currently inactive aircraft. In fiscal year 2020, less than 10% of our total revenues were generated by services and products provided to commercial airlines reported in our satellite services and commercial networks segments.

The extent of the impact of the COVID-19 pandemic on our business in fiscal year 2021 and beyond will depend on many factors, including the duration and scope of the public health emergency, the extent, duration and effectiveness of containment actions taken, the speed and extent of vaccination programs, the extent of disruption to important global, regional and local supply chains and economic markets, and the impact of the pandemic on overall supply and demand, global air travel, consumer confidence, discretionary spending levels and levels of economic activity.

Satellite Services

Our satellite services segment uses our proprietary technology platform to provide satellite-based high-speed broadband services around the globe for use in commercial applications. Our proprietary Ka-band satellites are at the core of our technology platform. We own three satellites in service over North America: our second-generation ViaSat-2 satellite (launched in 2017), our first-generation ViaSat-1 satellite (launched in 2011) and the WildBlue-1 satellite (launched in 2007), have lifetime leases of Ka-band capacity on two satellites, jointly own the KA-SAT satellite over Europe, Middle East and Africa (EMEA), and have access to additional Ka-band capacity on partner satellites around the globe through various arrangements with third parties. We also have a global constellation of three third-generation ViaSat-3 class satellites under construction. We expect our ViaSat-3 constellation, once in service, to enable us to deliver affordable connectivity across most of the world. The primary services offered by our satellite services segment are comprised of:

 

Fixed broadband services, which provide consumers and businesses with high-speed, high-quality broadband internet access and Voice over Internet Protocol (VoIP) services, primarily in the United States but also in various countries in Europe and Latin America. As of December 31, 2020, we provided fixed broadband services to approximately 596,000 U.S. subscribers (excluding subscribers whose service would have ordinarily been terminated in the absence of the Federal Communications Commission (FCC) Pledge and similar state programs we are currently participating in to ensure our customers have access to connectivity during the COVID-19 pandemic).

 

In-flight services, which provide industry-leading IFC, wireless in-flight entertainment and aviation software services. As of December 31, 2020, we had our IFC systems installed and in service on approximately 1,430 commercial aircraft, of which, due to impacts of the COVID-19 pandemic approximately 250 were inactive at quarter end. We anticipate our IFC services will be activated on approximately 1,010 additional commercial aircraft under existing customer agreements with commercial airlines. However, the timing of installation and entry into service for additional aircraft under existing customer agreements may be delayed due to COVID-19 impacts. There can be no assurance that anticipated IFC services will be activated on all such additional commercial aircraft. See the section entitled “COVID-19” above for a discussion of the impact of the COVID-19 pandemic on our in-flight services business.  

 

Community Internet services, which offer innovative, affordable, satellite-based connectivity in communities with poor or no other means of internet access. The services help foster digital inclusion by enabling millions of people to connect to affordable high-quality internet services via a centralized community hotspot connected to the internet via satellite. Since launch, our Community Internet services have reached approximately 2 million people living and working in thousands of rural, suburban and urban communities in Mexico and we are trialing services in advance of full commercial launch in other countries, including Brazil.

 

Other mobile broadband services, which include high-speed, satellite-based internet services to seagoing vessels (such as energy offshore vessels, cruise ships, consumer ferries and yachts), as well as L-band managed services enabling real-time machine-to-machine (M2M) position tracking, management of remote assets and operations, and visibility into critical areas of the supply chain.

Following the consummation of our pending acquisitions of Euro Infrastructure Co. and RigNet (see discussion above), the assets and results of operations of Euro Infrastructure Co. and RigNet will be included in our satellite services segment.

36


 

Commercial Networks

We are a leading end-to-end network technology and equipment supplier in broadband satellite markets. In addition to developing our own proprietary high-capacity Ka-band satellite systems, our commercial networks segment develops and sells a wide array of advanced satellite and wireless products, antenna systems and terminal solutions that support or enable the provision of high-speed fixed and mobile broadband services. We design, develop and produce space system solutions for multiple orbital regimes, including geostationary (GEO), mid earth orbit (MEO) and low earth orbit (LEO). The primary products, systems, solutions and services offered by our commercial networks segment are comprised of:

 

Mobile broadband satellite communication systems, designed for use in aircraft and seagoing vessels.

 

Fixed broadband satellite communication systems, including next-generation satellite network infrastructure and ground terminals.

 

Antenna systems, including ground terminals and antennas for terrestrial and satellite applications, mobile satellite communication, Ka-band earth stations and other multi-band antennas.

 

Satellite networking development, including specialized design and technology services covering all aspects of satellite communication system architecture and technology.

 

Space systems, including the design and development of high-capacity Ka-band satellites and associated payload technologies for our own satellite fleet as well as for third parties.

 

Government Systems

We are a leading provider of innovative communications and cybersecurity products and solutions to the U.S. Government and other military and government users around the world. Our government systems segment offers a broad array of products and services designed to enable the collection and transmission of secure real-time digital information and communications between fixed and mobile command centers, intelligence and defense platforms and individuals in the field. The primary products and services of our government systems segment include:

 

Government mobile broadband products and services, which provide military and government users with high-speed, real-time, broadband and multimedia connectivity in key regions of the world, as well as line-of-sight and beyond-line-of-sight Intelligence Surveillance and Reconnaissance missions.

 

Government satellite communication systems, which offer an array of portable, mobile and fixed broadband modems, terminals, network access control systems and antenna systems, and include products designed for manpacks, aircraft, unmanned aerial vehicles, seagoing vessels, ground-mobile vehicles and fixed applications.

 

Secure networking, cybersecurity and information assurance products and services, which provide advanced, high-speed IP-based “Type 1” and High Assurance Internet Protocol Encryption (HAIPE®)-compliant encryption solutions that enable military and government users to communicate information securely over networks, and that protect the integrity of data stored on computers and storage devices.

 

Tactical data links, including our Battlefield Awareness and Targeting System — Dismounted (BATS-D) handheld Link 16 radios, our Small Tactical Terminal (STT) 2-channel radios for manned and unmanned applications, “disposable” defense data links, and our Multifunctional Information Distribution System (MIDS) and MIDS Joint Tactical Radio Systems (MIDS-JTRS) terminals for military fighter jets.

Sources of Revenues

Our satellite services segment revenues are primarily derived from our fixed broadband services and in-flight services.

Revenues in our commercial networks and government systems segments are primarily derived from three types of contracts: fixed-price, cost-reimbursement and time-and-materials contracts. Fixed-price contracts (which require us to provide products and services under a contract at a specified price) comprised approximately 91% and 89% of our total revenues for these segments for the three months ended December 31, 2020 and 2019, respectively, and approximately 88% and 89% of our total revenues for these segments for the nine months ended December 31, 2020 and 2019, respectively. The remainder of our revenues in these segments for such periods was derived primarily from cost-reimbursement contracts (under which we are reimbursed for all actual costs incurred in performing the contract to the extent such costs are within the contract ceiling and allowable under the terms of the contract, plus a fee or profit) and

37


 

from time-and-materials contracts (which reimburse us for the number of labor hours expended at an established hourly rate negotiated in the contract, plus the cost of materials utilized in providing such products or services).

Our ability to grow and maintain our revenues in our commercial networks and government systems segments has to date depended on our ability to identify and target markets where the customer places a high priority on the technology solution, and our ability to obtain additional sizable contract awards. Due to the nature of this process, it is difficult to predict the probability and timing of obtaining awards in these markets.

Historically, a significant portion of our revenues in our commercial networks and government systems segments has been derived from customer contracts that include the development of products. The development efforts are conducted in direct response to the customer’s specific requirements and, accordingly, expenditures related to such efforts are included in cost of sales when incurred and the related funding (which includes a profit component) is included in revenues. Revenues for our funded development from our customer contracts were approximately 20% and 24% of our total revenues for the three months ended December 31, 2020 and 2019, respectively, and approximately 23% of our total revenues for both the nine months ended December 31, 2020 and 2019.

We also incur independent research and development (IR&D) expenses, which are not directly funded by a third party. IR&D expenses consist primarily of salaries and other personnel-related expenses, supplies, prototype materials, testing and certification related to research and development (R&D) projects. IR&D expenses were approximately 5% of total revenues during both the three months ended December 31, 2020 and 2019, and approximately 5% and 6% of total revenues during the nine months ended December 31, 2020 and 2019, respectively. As a government contractor, we are able to recover a portion of our IR&D expenses pursuant to our government contracts.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We consider the policies discussed below to be critical to an understanding of our financial statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. We describe the specific risks for these critical accounting policies in the following paragraphs. For all of these policies, we caution that future events rarely develop exactly as forecast, and even the best estimates routinely require adjustment.

Revenue recognition

We apply the five-step revenue recognition model under Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (commonly referred to as Accounting Standards Codification (ASC) 606) to our contracts with our customers. Under this model, we (1) identify the contract with the customer, (2) identify our performance obligations in the contract, (3) determine the transaction price for the contract, (4) allocate the transaction price to our performance obligations and (5) recognize revenue when or as we satisfy our performance obligations. These performance obligations generally include the purchase of services (including broadband capacity and the leasing of broadband equipment), the purchase of products, and the development and delivery of complex equipment built to customer specifications under long-term contracts.

 

The timing of satisfaction of performance obligations may require judgment. We derive a substantial portion of our revenues from contracts with customers for services, primarily consisting of connectivity services. These contracts typically require advance or recurring monthly payments by the customer. Our obligation to provide connectivity services is satisfied over time as the customer simultaneously receives and consumes the benefits provided. The measure of progress over time is based upon either a period of time (e.g., over the estimated contractual term) or usage (e.g., bandwidth used/bytes of data processed). We evaluate whether broadband equipment provided to our customer as part of the delivery of connectivity services represents a lease in accordance with ASC 842. As discussed in Note 1 – Basis of Presentation – Leases to our condensed consolidated financial statements, for broadband equipment leased to fixed broadband customers in conjunction with the delivery of connectivity services, we account for the lease and non-lease components of connectivity services arrangement as a single performance obligation as the connectivity services represent the predominant component.

We also derive a portion of our revenues from contracts with customers to provide products. Performance obligations to provide products are satisfied at the point in time when control is transferred to the customer. These

38


 

contracts typically require payment by the customer upon passage of control and determining the point at which control is transferred may require judgment. To identify the point at which control is transferred to the customer, we consider indicators that include, but are not limited to, whether (1) we have the present right to payment for the asset, (2) the customer has legal title to the asset, (3) physical possession of the asset has been transferred to the customer, (4) the customer has the significant risks and rewards of ownership of the asset, and (5) the customer has accepted the asset. For product revenues, control generally passes to the customer upon delivery of goods to the customer.

 

The vast majority of our revenues from long-term contracts to develop and deliver complex equipment built to customer specifications are derived from contracts with the U.S. Government (including foreign military sales contracted through the U.S. Government). Our contracts with the U.S. Government typically are subject to the Federal Acquisition Regulation (FAR) and are priced based on estimated or actual costs of producing goods or providing services. The FAR provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S. Government contracts. The pricing for non-U.S. Government contracts is based on the specific negotiations with each customer. Under the typical payment terms of our U.S. Government fixed-price contracts, the customer pays us either performance-based payments (PBPs) or progress payments. PBPs are interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments based on a percentage of the costs incurred as the work progresses. Because the customer can often retain a portion of the contract price until completion of the contract, our U.S. Government fixed-price contracts generally result in revenue recognized in excess of billings which we present as unbilled accounts receivable on the balance sheet. Amounts billed and due from our customers are classified as receivables on the balance sheet. The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer. For our U.S. Government cost-type contracts, the customer generally pays us for our actual costs incurred within a short period of time. For non-U.S. Government contracts, we typically receive interim payments as work progresses, although for some contracts, we may be entitled to receive an advance payment. We recognize a liability for these advance payments in excess of revenue recognized and present it as collections in excess of revenues and deferred revenues on the balance sheet. An advance payment is not typically considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a contract and to protect us from the other party failing to adequately complete some or all of its obligations under the contract.

 

Performance obligations related to developing and delivering complex equipment built to customer specifications under long-term contracts are recognized over time as these performance obligations do not create assets with an alternative use to us and we have an enforceable right to payment for performance to date. To measure the transfer of control, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost-to-cost measure of progress for our contracts because that best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Estimating the total costs at completion of a performance obligation requires management to make estimates related to items such as subcontractor performance, material costs and availability, labor costs and productivity and the costs of overhead. When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recognized in the period the loss is determined. A one percent variance in our future cost estimates on open fixed-price contracts as of December 31, 2020 would change our income (loss) before income taxes by an insignificant amount.

 

The evaluation of transaction price, including the amounts allocated to performance obligations, may require significant judgments. Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue, and where applicable the cost at completion, is complex, subject to many variables and requires significant judgment. Our contracts may contain award fees, incentive fees, or other provisions, including the potential for significant financing components, that can either increase or decrease the transaction price. These amounts, which are sometimes variable, can be dictated by performance metrics, program milestones or cost targets, the timing of payments, and customer discretion. We estimate variable consideration at the amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. In the event an agreement includes embedded financing components, we recognize interest expense or interest income on the embedded financing components using the effective interest method. This methodology uses an implied interest rate which reflects the incremental borrowing rate which would be expected to be

39


 

obtained in a separate financing transaction. We have elected the practical expedient not to adjust the promised amount of consideration for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

 

If a contract is separated into more than one performance obligation, the total transaction price is allocated to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. Estimating standalone selling prices may require judgment. When available, we utilize the observable price of a good or service when we sell that good or service separately in similar circumstances and to similar customers. If a standalone selling price is not directly observable, we estimate the standalone selling price by considering all information (including market conditions, specific factors, and information about the customer or class of customer) that is reasonably available.

Warranty reserves

We provide limited warranties on our products for periods of up to five years. We record a liability for our warranty obligations when we ship the products or they are included in long-term construction contracts based upon an estimate of expected warranty costs. Amounts expected to be incurred within 12 months are classified as accrued liabilities and amounts expected to be incurred beyond 12 months are classified as other liabilities in the condensed consolidated financial statements. For mature products, we estimate the warranty costs based on historical experience with the particular product. For newer products that do not have a history of warranty costs, we base our estimates on our experience with the technology involved and the types of failures that may occur. It is possible that our underlying assumptions will not reflect the actual experience, and, in that case, we will make future adjustments to the recorded warranty obligation.

Property, equipment and satellites

Satellites and other property and equipment are recorded at cost or in the case of certain satellites and other property acquired, the fair value at the date of acquisition, net of accumulated depreciation. Capitalized satellite costs consist primarily of the costs of satellite construction and launch, including launch insurance and insurance during the period of in-orbit testing, the net present value of performance incentive payments expected to be payable to the satellite manufacturers (dependent on the continued satisfactory performance of the satellites), costs directly associated with the monitoring and support of satellite construction, and interest costs incurred during the period of satellite construction. We also construct earth stations, network operations systems and other assets to support our satellites, and those construction costs, including interest, are capitalized as incurred. At the time satellites are placed in service, we estimate the useful life of our satellites for depreciation purposes based upon an analysis of each satellite’s performance against the original manufacturer’s orbital design life, estimated fuel levels and related consumption rates, as well as historical satellite operating trends. We periodically review the remaining estimated useful life of our satellites to determine if revisions to the estimated useful lives are necessary.

We own three satellites in service (ViaSat-2, ViaSat-1 and WildBlue-1) and have lifetime leases of Ka-band capacity on two satellites. We also have a global constellation of three third-generation ViaSat-3 class satellites under construction. In addition, we own related earth stations and networking equipment for all of our satellites. Property, equipment and satellites, net also includes the customer premise equipment units leased to subscribers under a retail leasing program as part of our satellite services segment.

Leases

For contracts entered into on or after April 1, 2019, we assess at contract inception whether the contract is, or contains, a lease. Generally, we determine that a lease exists when (1) the contract involves the use of a distinct identified asset, (2) we obtain the right to substantially all economic benefits from use of the asset, and (3) we have the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (5) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria.

At the lease commencement date, we recognize a right-of-use asset and a lease liability for all leases, except short-term leases with an original term of 12 months or less. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use

40


 

asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, less any lease incentives received. All right-of-use assets are periodically reviewed for impairment in accordance with standards that apply to long-lived assets. The lease liability is initially measured at the present value of the lease payments, discounted using an estimate of our incremental borrowing rate for a collateralized loan with the same term as the underlying leases.

Lease payments included in the measurement of lease liabilities consist of (1) fixed lease payments for the noncancelable lease term, (2) fixed lease payments for optional renewal periods where it is reasonably certain the renewal option will be exercised, and (3) variable lease payments that depend on an underlying index or rate, based on the index or rate in effect at lease commencement. Certain of our real estate lease agreements require variable lease payments that do not depend on an underlying index or rate established at lease commencement. Such payments and changes in payments based on a rate or index are recognized in operating expenses when incurred.

Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the depreciation of assets obtained under finance leases on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. For both operating and finance leases, lease payments are allocated between a reduction of the lease liability and interest expense.

For broadband equipment leased to fixed broadband customers in conjunction with the delivery of connectivity services, we have made an accounting policy election not to separate the broadband equipment from the related connectivity services. The connectivity services are the predominant component of these arrangements. The connectivity services are accounted for in accordance ASC 606. We are also a lessor for certain insignificant communications equipment. These leases meet the criteria for operating lease classification. Lease income associated with these leases is not material.

Impairment of long-lived and other long-term assets (property, equipment and satellites, and other assets, including goodwill)

In accordance with the authoritative guidance for impairment or disposal of long-lived assets (ASC 360), we assess potential impairments to our long-lived assets, including property, equipment and satellites and other assets, when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable. We recognize an impairment loss when the undiscounted cash flows expected to be generated by an asset (or group of assets) are less than the asset’s carrying value. Any required impairment loss would be measured as the amount by which the asset’s carrying value exceeds its fair value, and would be recorded as a reduction in the carrying value of the related asset and charged to results of operations. No material impairments were recorded by us for the three and nine months ended December 31, 2020 and 2019.

We account for our goodwill under the authoritative guidance for goodwill and other intangible assets (ASC 350) and the provisions of ASU 2017-04, Simplifying the Test for Goodwill Impairment, which we early adopted in fiscal year 2020. ASU 2017-04 simplifies how we test goodwill for impairment by removing Step 2 from the goodwill impairment test. Current authoritative guidance allows us to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If, after completing the qualitative assessment, we determine that it is more likely than not that the estimated fair value is greater than the carrying value, we conclude that no impairment exists. If it is more likely than not that the carrying value of the reporting unit exceeds its estimated fair value, we compare the fair value of the reporting unit to its carrying value. If the estimated fair value of the reporting unit is less than the carrying value, then a goodwill impairment charge will be recognized in the amount by which the carrying amount exceeds the fair value, limited to the total amount of goodwill allocated to that reporting unit. We test goodwill for impairment during the fourth quarter every fiscal year and when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist.

In accordance with ASC 350, we assess qualitative factors to determine whether goodwill is impaired. The qualitative analysis includes assessing the impact of changes in certain factors including: (1) changes in forecasted operating results and comparing actual results to projections, (2) changes in the industry or our competitive environment since the acquisition date, (3) changes in the overall economy, our market share and market interest rates since the acquisition date, (4) trends in the stock price and related market capitalization and enterprise values, (5) trends in peer companies’ total enterprise value metrics, and (6) additional factors such as management turnover, changes in regulation and changes in litigation matters.

Furthermore, in addition to qualitative analysis, we believe it is appropriate to conduct a quantitative analysis periodically as a prudent review of our reporting unit goodwill fair values. We performed this analysis as of December 31, 2019, our annual impairment test date. Our quantitative analysis estimates the fair values of the reporting units using

41


 

discounted cash flows and other indicators of fair value. The forecast of future cash flow is based on our best estimate of each reporting unit’s future revenue and operating costs, based primarily on existing firm orders, expected future orders, contracts with suppliers, labor resources, general market conditions, and other relevant factors. Based on a quantitative analysis for fiscal year 2020, we concluded that estimated fair values of our reporting units significantly exceed their respective carrying values.

Based on our qualitative and quantitative assessment performed during the fourth quarter of fiscal year 2020 and the additional qualitative and quantitative considerations as of March 31, 2020 in light of the significant decline in our market capitalization following the COVID-19 outbreak, we concluded that it was more likely than not that the estimated fair value of our reporting units exceeded their carrying value as of March 31, 2020.

Income taxes and valuation allowance on deferred tax assets

Management evaluates the realizability of our deferred tax assets and assesses the need for a valuation allowance on a quarterly basis to determine if the weight of available evidence suggests that an additional valuation allowance is needed. In accordance with the authoritative guidance for income taxes (ASC 740), net deferred tax assets are reduced by a valuation allowance if, based on all the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the event that our estimate of taxable income is less than that required to utilize the full amount of any deferred tax asset, a valuation allowance is established, which would cause a decrease to income in the period such determination is made. Our valuation allowance against deferred tax assets increased from $42.6 million at March 31, 2020 to $48.0 million at December 31, 2020. The valuation allowance relates to state and foreign net operating loss carryforwards, state R&D tax credit carryforwards and foreign tax credit carryforwards.

Our analysis of the need for a valuation allowance on deferred tax assets considered historical as well as forecasted future operating results. In addition, our evaluation considered other factors, including our contractual backlog, our history of positive earnings, current earnings trends assuming our satellite services segment continues to grow, taxable income adjusted for certain items, and forecasted income by jurisdiction. We also considered the period over which these net deferred tax assets can be realized and our history of not having federal tax loss carryforwards expire unused.

Accruals for uncertain tax positions are provided for in accordance with the authoritative guidance for accounting for uncertainty in income taxes (ASC 740). Under the authoritative guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative guidance addresses the derecognition of income tax assets and liabilities, classification of deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures.

We are subject to income taxes in the United States and numerous foreign jurisdictions. In the ordinary course of business, there are calculations and transactions where the ultimate tax determination is uncertain. In addition, changes in tax laws and regulations as well as adverse judicial rulings could adversely affect the income tax provision. We believe we have adequately provided for income tax issues not yet resolved with federal, state and foreign tax authorities. However, if these provided amounts prove to be more than what is necessary, the reversal of the reserves would result in tax benefits being recognized in the period in which we determine that provision for the liabilities is no longer necessary. If an ultimate tax assessment exceeds our estimate of tax liabilities, an additional charge to expense would result.

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Results of Operations

The following table presents, as a percentage of total revenues, income statement data for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

December 31,

2020

 

 

December 31,

2019

 

 

December 31,

2020

 

 

December 31,

2019

 

Revenues:

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

Product revenues

 

 

46

 

 

 

52

 

 

 

47

 

 

 

51

 

Service revenues

 

 

54

 

 

 

48

 

 

 

53

 

 

 

49

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenues

 

 

34

 

 

 

36

 

 

 

35

 

 

 

37

 

Cost of service revenues

 

 

34

 

 

 

32

 

 

 

35

 

 

 

33

 

Selling, general and administrative

 

 

23

 

 

 

23

 

 

 

23

 

 

 

23

 

Independent research and development

 

 

5

 

 

 

5

 

 

 

5

 

 

 

6

 

Amortization of acquired intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

4

 

 

 

2

 

 

 

2

 

 

 

1

 

Interest expense, net

 

 

(1

)

 

 

(2

)

 

 

(2

)

 

 

(2

)

Income (loss) before income taxes

 

 

2

 

 

 

1

 

 

 

 

 

 

 

(Provision for) benefit from income taxes

 

 

(1

)

 

 

1

 

 

 

 

 

 

1

 

Net income

 

 

1

 

 

 

2

 

 

 

 

 

 

1

 

Net income (loss) attributable to Viasat, Inc.

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2020 vs. Three Months Ended December 31, 2019

Revenues

 

 

 

Three Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Product revenues

 

$

266.5

 

 

$

303.1

 

 

$

(36.6

)

 

 

(12

)%

Service revenues

 

 

309.0

 

 

 

285.1

 

 

 

23.9

 

 

 

8

%

Total revenues

 

$

575.6

 

 

$

588.2

 

 

$

(12.7

)

 

 

(2

)%

 

Our total revenues decreased by $12.7 million as a result of a $36.6 million decrease in product revenues, partially offset by a $23.9 million increase in service revenues. The product revenue decrease was driven primarily by a decrease of $39.1 million in our government systems segment, partially offset by a $2.5 million increase in our commercial networks segment. The service revenue increase was due to increases of $12.0 million in our government systems segment, $9.1 million in our satellite services segment and $2.9 million in our commercial networks segment.

 

Cost of revenues

 

 

 

Three Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Cost of product revenues

 

$

196.9

 

 

$

214.1

 

 

$

(17.2

)

 

 

(8

)%

Cost of service revenues

 

 

194.4

 

 

 

190.1

 

 

 

4.3

 

 

 

2

%

Total cost of revenues

 

$

391.3

 

 

$

404.2

 

 

$

(12.9

)

 

 

(3

)%

 

Cost of revenues decreased $12.9 million due to a decrease of $17.2 million in cost of product revenues, partially offset by a $4.3 million increase in cost of service revenues. The cost of product revenue decrease primarily related to decreased product revenues, causing a $25.8 million decrease in cost of product revenues on a constant margin basis, mainly in our government systems segment. The decrease in cost of product revenues was partially offset by lower margins, driven by our government mobile broadband products and tactical satcom radio products in our government systems segment. The increase in cost of service revenues was primarily due to increased revenues from our government systems and satellite services segment.

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Selling, general and administrative expenses

 

 

 

Three Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Selling, general and administrative

 

$

132.4

 

 

$

136.0

 

 

$

(3.6

)

 

 

(3

)%

 

The $3.6 million decrease in selling, general and administrative (SG&A) expenses was driven primarily by decreases of $3.0 million in selling costs and $1.3 million in bid and proposal costs. The decrease in selling costs was reflected primarily in our satellite services and commercial networks segments, and the decrease in bid and proposal costs related primarily to our government systems segment. SG&A expenses consisted primarily of personnel costs and expenses for business development, marketing and sales, bid and proposal, facilities, finance, contract administration and general management.

Independent research and development

 

 

 

Three Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Independent research and development

 

$

28.8

 

 

$

32.2

 

 

$

(3.4

)

 

 

(10

)%

 

The $3.4 million decrease in IR&D expenses was mainly the result of a decrease of $4.4 million in IR&D efforts in our commercial networks segment (primarily related to a decrease in IR&D expenses related to next-generation satellite payload technologies).

Amortization of acquired intangible assets

We amortize our acquired intangible assets from prior acquisitions over their estimated useful lives, which range from two to ten years. The insignificant decrease in amortization of acquired intangible assets in the third quarter of fiscal year 2021 compared to the prior year period was primarily the result of certain acquired intangibles in our commercial networks and satellite services segments becoming fully amortized during the prior fiscal year.

 

Interest income

The slight decrease in interest income for the three months ended December 31, 2020 compared to the prior year period was mainly the result of lower interest rates during the third quarter of fiscal year 2021 compared to the prior year period.

Interest expense

The $1.4 million decrease in interest expense for the three months ended December 31, 2020 compared to the prior year period was primarily the result of an increase in the amount of interest capitalized during the third quarter of fiscal year 2021 compared to the period year period, partially offset by an increase in interest expense attributable to our 6.500% Senior Notes due 2028 (the 2028 Notes), which were issued in the first quarter of fiscal year 2021.  

Income taxes

For the three months ended December 31, 2020, we recorded an income tax provision of $7.0 million, resulting in an effective tax rate of 50%. For the three months ended December 31, 2019, we recorded an income tax benefit of $3.9 million, resulting in an effective tax benefit rate of negative 80%. The effective tax rates for the periods differed from the U.S. statutory rate primarily due to the benefit of federal and state R&D tax credits. In addition, the effective tax rate for the three months ended December 31, 2020 included the expense for tax deficiencies upon settlement of stock-based compensation during the period.

Ordinarily, the effective tax rate at the end of an interim period is calculated using an estimate of the annual effective tax rate expected to be applicable for the full fiscal year. However, when a reliable estimate cannot be made, we compute our provision for income taxes using the actual effective tax rate (discrete method) for the year-to-date period. Our effective tax rate is highly influenced by the amount of our R&D tax credits. A small change in estimated annual pretax income (loss) can produce a significant variance in the annual effective tax rate given our expected amount of R&D tax credits. This variability provides an unreliable estimate of the annual effective tax rate. As a result, and in accordance with the authoritative guidance for accounting for income taxes in interim periods, we have computed our provision for income

44


 

taxes for the three months ended December 31, 2020 and 2019 by applying the actual effective tax rates to the income for the three-month periods.

Segment Results for the Three Months Ended December 31, 2020 vs. Three Months Ended December 31, 2019

Satellite services segment

Revenues

 

 

 

Three Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment product revenues

 

$

 

 

$

 

 

$

 

 

 

%

Segment service revenues

 

 

220.8

 

 

 

211.7

 

 

 

9.1

 

 

 

4

%

Total segment revenues

 

$

220.8

 

 

$

211.7

 

 

$

9.1

 

 

 

4

%

 

Our satellite services segment revenues increased by $9.1 million due to an increase in service revenues. The increase in service revenues was primarily driven by the expansion of our fixed broadband services and higher average revenue per fixed broadband subscriber in the United States (ARPU) when compared to the prior year period, partially offset by a decrease in service revenues from our in-flight services. Total subscribers at December 31, 2020 were approximately 596,000 compared to 586,000 subscribers at December 31, 2019. The increase in ARPU reflected a higher mix of new and existing subscribers choosing Viasat’s premium highest speed plans. The in-flight service revenue decrease was driven primarily by a 14% decrease in the number of commercial aircraft using in-flight services through our IFC systems as of quarter end as a result of the COVID-19 pandemic. In addition, our third quarter fiscal year 2021 in-flight service revenues continued to be impacted by reduced passenger air traffic, the number of inactive installed aircraft and lower capacity on active installed aircraft as a result of the COVID-19 pandemic.

Segment operating profit

 

 

 

Three Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment operating profit

 

$

11.5

 

 

$

3.6

 

 

$

7.9

 

 

 

218

%

Percentage of segment revenues

 

 

5

%

 

 

2

%

 

 

 

 

 

 

 

 

 

The $7.9 million increase in our satellite services segment operating profit was driven primarily by higher earnings contributions of $6.2 million, primarily due to an increase in revenues and improved margins from our fixed broadband services, reflecting the strength of the low variable costs structure of our fixed broadband services business as the business continues to scale. The increase in our satellite services segment operating profit was also due to a decrease in SG&A costs of $1.9 million. This was partially offset by lower margins resulting from the negative impact of the COVID-19 pandemic on our in-flight services business and an increase in costs related to our investments in emerging global broadband businesses.

Commercial networks segment

Revenues

 

 

 

Three Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment product revenues

 

$

75.7

 

 

$

73.2

 

 

$

2.5

 

 

 

3

%

Segment service revenues

 

 

14.4

 

 

 

11.5

 

 

 

2.9

 

 

 

25

%

Total segment revenues

 

$

90.1

 

 

$

84.7

 

 

$

5.4

 

 

 

6

%

 

45


 

 

Our commercial networks segment revenues increased by $5.4 million, due to a $2.9 million increase in service revenues and a $2.5 million increase in product revenues. The increase in service revenues was primarily driven by an increase in fixed satellite network services. The increase in product revenues was primarily due to increases of $7.5 million in antenna systems products and $4.1 million in fixed satellite networks products, partially offset by a decrease of $8.2 million in mobile broadband satellite communication systems products due to decreased IFC terminal deliveries resulting from the severe decline in global air traffic and resulting downturn in the commercial aviation market as a result of the COVID-19 pandemic.

Segment operating loss

 

 

 

Three Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

(Increase)

Decrease

 

 

(Increase)

Decrease

 

Segment operating loss

 

$

(39.0

)

 

$

(46.9

)

 

$

7.9

 

 

 

17

%

Percentage of segment revenues

 

 

(43

)%

 

 

(55

)%

 

 

 

 

 

 

 

 

 

The $7.9 million reduction in our commercial networks segment operating loss was driven primarily by a $4.4 million decrease in IR&D expenses (primarily related to next-generation satellite payload technologies) and higher earnings contributions of $3.3 million, primarily due to higher revenues and improved margins in our fixed satellite networks services.

Government systems segment

Revenues

 

 

 

Three Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment product revenues

 

$

190.8

 

 

$

229.9

 

 

$

(39.1

)

 

 

(17

)%

Segment service revenues

 

 

73.8

 

 

 

61.9

 

 

 

12.0

 

 

 

19

%

Total segment revenues

 

$

264.7

 

 

$

291.8

 

 

$

(27.1

)

 

 

(9

)%

 

Our government systems segment revenues decreased by $27.1 million due to a decrease of $39.1 million in product revenues, partially offset by an increase of $12.0 million in service revenues. The decrease in product revenues was mainly due to a $23.9 million decrease in government mobile broadband products, a $22.6 million decrease in tactical satcom radio products and a $6.6 million decrease in government satellite communication systems products, partially offset by an $8.4 million increase in tactical data link products and a $5.9 million increase in cybersecurity and information assurance products. Our government systems segment continued to show some impacts from the pandemic, which has somewhat complicated product manufacturing and shipments, but new government systems segment awards remained very strong through the end of the third quarter of fiscal year 2021. The service revenue increase was primarily due to an $8.2 million increase in government mobile broadband services, a $2.0 million increase in tactical satcom radio services and a $2.0 million increase in tactical data link services.

 

Segment operating profit

 

 

 

Three Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment operating profit

 

$

50.6

 

 

$

59.1

 

 

$

(8.5

)

 

 

(14

)%

Percentage of segment revenues

 

 

19

%

 

 

20

%

 

 

 

 

 

 

 

 

 

The $8.5 million decrease in our government systems segment operating profit was primarily due to lower earnings contributions of $9.2 million, primarily due to a decrease in revenues in our government mobile broadband products, tactical satcom radio products and government satellite communication systems products, and lower margins from our government mobile broadband products and tactical satcom radio products. This decrease was partially offset by lower SG&A costs of $1.5 million.

46


 

Nine Months Ended December 31, 2020 vs. Nine Months Ended December 31, 2019

Revenues

 

 

 

Nine Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Product revenues

 

$

773.1

 

 

$

873.5

 

 

$

(100.4

)

 

 

(11

)%

Service revenues

 

 

887.2

 

 

 

844.0

 

 

 

43.2

 

 

 

5

%

Total revenues

 

$

1,660.3

 

 

$

1,717.5

 

 

$

(57.2

)

 

 

(3

)%

 

Our total revenues decreased by $57.2 million as a result of a $100.4 million decrease in product revenues, partially offset by a $43.2 million increase in service revenues. The decrease in product revenues was driven primarily by decreases of $85.7 million in our government systems segment and $14.7 million in our commercial networks segment. The service revenue increase was due to increases of $24.4 million in our satellite services segment and $19.7 million in our government systems segment.

Cost of revenues

 

 

 

Nine Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Cost of product revenues

 

$

576.7

 

 

$

634.1

 

 

$

(57.4

)

 

 

(9

)%

Cost of service revenues

 

 

587.5

 

 

 

564.7

 

 

 

22.8

 

 

 

4

%

Total cost of revenues

 

$

1,164.2

 

 

$

1,198.8

 

 

$

(34.6

)

 

 

(3

)%

 

Cost of revenues decreased by $34.6 million due to a decrease of $57.4 million in cost of product revenues, partially offset by an increase of $22.8 million in cost of service revenues. The cost of product revenue decrease was mainly due to decreased product revenues, causing a $72.9 million decrease in cost of product revenues on a constant margin basis, mainly from revenue decreases in our government systems and commercial networks segments. The cost of service revenue increase primarily related to increased revenues from our fixed broadband services business, partially offset by improved margins in our fixed broadband services business, reflecting the strength of the low variable costs structure of our fixed broadband services business as the business continues to scale.

Selling, general and administrative expenses

 

 

 

Nine Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Selling, general and administrative

 

$

378.9

 

 

$

388.5

 

 

$

(9.6

)

 

 

(2

)%

 

The $9.6 million decrease in SG&A expenses was primarily due to a decrease in selling costs of $10.5 million and a decrease in bid and proposal costs of $5.8 million, partially offset by an increase in support costs of $6.7 million. The decrease in selling costs was reflected in all three segments, but was mainly driven by our satellite services segment. The decrease in bid and proposal costs was mainly from our government systems segment. The increase in support costs was primarily driven by our government systems and commercial networks segments. SG&A expenses consisted primarily of personnel costs and expenses for business development, marketing and sales, bid and proposal, facilities, finance, contract administration and general management.

Independent research and development

 

 

 

Nine Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Independent research and development

 

$

84.0

 

 

$

100.0

 

 

$

(16.0

)

 

 

(16

)%

 

47


 

 

The $16.0 million decrease in IR&D expenses was mainly the result of a decrease of $13.7 million in IR&D efforts in our commercial networks segment (primarily related to a decrease in IR&D expenses related to next-generation satellite payload technologies) and a decrease of $2.3 million in our government systems segment (primarily related to a decrease in IR&D expenses related to next-generation dual band mobility solutions).  

Amortization of acquired intangible assets

We amortize our acquired intangible assets from prior acquisitions over their estimated useful lives, which range from two to ten years. The $1.7 million decrease in amortization of acquired intangible assets in the first nine months of fiscal year 2021 compared to the prior year period was primarily the result of certain acquired intangibles in our satellite services and commercial networks segments becoming fully amortized during the last twelve months.

 

Interest income

The $1.0 million decrease in interest income for the nine months ended December 31, 2020 compared to the prior year period was the result of lower interest rates during the first nine months of fiscal year 2021 compared to the prior year period.

Interest expense

The $2.8 million decrease in interest expense in the nine months ended December 31, 2020 compared to the prior year period was primarily due to an increase in the amount of interest capitalized during the first nine months of fiscal year 2021 compared to the prior year period. This decrease in interest expense was partially offset by the addition of interest expense relating to the 2028 Notes, which were issued in the first quarter of fiscal year 2021, and higher outstanding borrowings under our Revolving Credit Facility (even though outstanding borrowings were repaid during the first quarter of fiscal year 2021 with proceeds from the issuance of the 2028 Notes in June 2020).

Income taxes

For the nine months ended December 31, 2020, we recorded an income tax provision of an insignificant amount, resulting in an effective tax rate of 24%. For the nine months ended December 31, 2019, we recorded an income tax benefit of $8.7 million, resulting in an effective tax benefit rate of 211%. The effective tax rates for the periods differed from the U.S. statutory rate due primarily to the benefit of federal and state R&D tax credits. In addition, the effective tax rate for the nine months ended December 31, 2020 included the expense for tax deficiencies upon settlement of stock-based compensation during the period.

Ordinarily, the effective tax rate at the end of an interim period is calculated using an estimate of the annual effective tax rate expected to be applicable for the full fiscal year. However, when a reliable estimate cannot be made, we compute our provision for income taxes using the actual effective tax rate (discrete method) for the year-to-date period. Our effective tax rate is highly influenced by the amount of our R&D tax credits. A small change in estimated annual pretax income (loss) can produce a significant variance in the annual effective tax rate given our expected amount of R&D tax credits. This variability provides an unreliable estimate of the annual effective tax rate. As a result, and in accordance with the authoritative guidance for accounting for income taxes in interim periods, we have computed our provision for income taxes for the nine months ended December 31, 2020 and 2019 by applying the actual effective tax rates to the income (loss) for the nine-month periods.

Segment Results for the Nine Months Ended December 31, 2020 vs. Nine Months Ended December 31, 2019

Satellite services segment

Revenues

 

 

 

Nine Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment product revenues

 

$

 

 

$

 

 

$

 

 

 

%

Segment service revenues

 

 

638.7

 

 

 

614.2

 

 

 

24.4

 

 

 

4

%

Total segment revenues

 

$

638.7

 

 

$

614.2

 

 

$

24.4

 

 

 

4

%

 

48


 

 

Our satellite services segment revenues increased by $24.4 million due to an increase in service revenues. The increase in service revenues was primarily driven by the expansion of our fixed broadband services and higher ARPU when compared to the prior year period, partially offset by a decrease in service revenues from our in-flight services. Total subscribers at December 31, 2020 were approximately 596,000 compared to 586,000 subscribers at December 31, 2019. The increase in ARPU reflected a higher mix of new and existing subscribers choosing Viasat’s premium highest speed plans. The in-flight service revenue decrease was driven primarily by a 14% decrease in the number of commercial aircraft using in-flight services through our IFC systems as of quarter end as a result of the COVID-19 pandemic. In addition, our first nine months of fiscal year 2021 in-flight service revenues continued to be impacted by reduced passenger air traffic, the number of inactive installed aircraft and lower capacity on active installed aircraft as a result of the COVID-19 pandemic.

Segment operating profit

 

 

 

Nine Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment operating profit

 

$

21.1

 

 

$

6.6

 

 

$

14.4

 

 

 

217

%

Percentage of segment revenues

 

 

3

%

 

 

1

%

 

 

 

 

 

 

 

 

 

The $14.4 million increase in our satellite services segment operating profit was driven primarily by lower selling and support costs and increased revenues with significant flow through resulting in improved margins, reflecting the strength of the low variable costs structure of our fixed broadband services business as the business continues to scale. This was partially offset by lower margins resulting from the negative impact of the COVID-19 pandemic on our in-flight services business and an increase in costs related to our investments in emerging global broadband businesses.

Commercial networks segment

Revenues

 

 

 

Nine Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment product revenues

 

$

197.6

 

 

$

212.2

 

 

$

(14.7

)

 

 

(7

)%

Segment service revenues

 

 

38.6

 

 

 

39.5

 

 

 

(1.0

)

 

 

(2

)%

Total segment revenues

 

$

236.1

 

 

$

251.8

 

 

$

(15.6

)

 

 

(6

)%

 

Our commercial networks segment revenues decreased by $15.6 million, primarily due to a $14.7 million decrease in product revenues and a $1.0 million decrease in service revenues. The decrease in product revenues was primarily due to a decrease of $34.8 million in mobile broadband satellite communication systems products due to decreased IFC terminal deliveries resulting from the severe decline in global air traffic and resulting downturn in the commercial aviation market as a result of the COVID-19 pandemic, as well as a decrease of $3.9 million in satellite networking development programs products. The product revenue decrease was partially offset by increases of $16.3 million in antenna systems products and $5.8 million in fixed satellite networks products. The decrease in service revenues was primarily due to a $4.0 million decrease in mobile broadband satellite communication systems services, partially offset by an increase of $3.0 million in fixed satellite network services.

Segment operating loss

 

 

 

Nine Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

(Increase)

Decrease

 

 

(Increase)

Decrease

 

Segment operating loss

 

$

(135.8

)

 

$

(143.6

)

 

$

7.8

 

 

 

5

%

Percentage of segment revenues

 

 

(58

)%

 

 

(57

)%

 

 

 

 

 

 

 

 

 

Our commercial networks segment operating loss decreased by $7.8 million year-over-year. The decrease in operating loss was driven primarily by a $13.7 million decrease in IR&D expenses (primarily related to next-generation satellite payload technologies), partially offset by lower earnings contributions of $5.5 million, driven by decreased revenues and lower margins related to our mobile broadband satellite communication systems products.

49


 

Government systems segment

Revenues

 

 

 

Nine Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment product revenues

 

$

575.6

 

 

$

661.3

 

 

$

(85.7

)

 

 

(13

)%

Segment service revenues

 

 

210.0

 

 

 

190.2

 

 

 

19.7

 

 

 

10

%

Total segment revenues

 

$

785.5

 

 

$

851.5

 

 

$

(66.0

)

 

 

(8

)%

 

Our government systems segment revenues decreased by $66.0 million due to a decrease of $85.7 million in product revenues, partially offset by an increase of $19.7 million in service revenues. The product revenue decrease was primarily driven by a $47.9 million decrease in government mobile broadband products, a $26.8 million decrease in government satellite communication systems products and a $23.8 million decrease in tactical satcom radio products. The decrease in product revenues was partially offset by an increase of $7.2 million in cybersecurity and information assurance products and a $6.1 million increase in tactical data link products. Our government systems segment continued to show some impacts from the pandemic, which has somewhat complicated product manufacturing and shipments, but new government systems segment awards remained very strong through the third quarter of the fiscal year. The service revenue increase was primarily due to a $12.8 million increase in government mobile broadband services, a $4.0 million increase in tactical data link services and a $1.5 million increase in tactical satcom radio services.

Segment operating profit

 

 

 

Nine Months Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

December 31,

2020

 

 

December 31,

2019

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment operating profit

 

$

148.0

 

 

$

167.2

 

 

$

(19.2

)

 

 

(11

)%

Percentage of segment revenues

 

 

19

%

 

 

20

%

 

 

 

 

 

 

 

 

 

The $19.2 million decrease in our government systems segment operating profit was primarily due to lower earnings contributions of $22.9 million, primarily due to a decrease in revenues and lower margins from our government mobile broadband products and tactical satcom radio products, partially offset by lower IR&D costs of $2.3 million.

Backlog

As reflected in the table below, our overall firm and funded backlog increased during the first nine months of fiscal year 2021.

 

 

 

As of

December 31, 2020

 

 

As of

March 31, 2020

 

 

 

(In millions)

 

Firm backlog

 

 

 

 

 

 

 

 

Satellite services segment

 

$

643.0

 

 

$

611.3

 

Commercial networks segment

 

 

688.3

 

 

 

408.1

 

Government systems segment

 

 

1,034.4

 

 

 

851.3

 

Total

 

$

2,365.7

 

 

$

1,870.7

 

Funded backlog

 

 

 

 

 

 

 

 

Satellite services segment

 

$

643.0

 

 

$

611.3

 

Commercial networks segment

 

 

592.1

 

 

 

408.1

 

Government systems segment

 

 

915.6

 

 

 

858.7

 

Total

 

$

2,150.7

 

 

$

1,878.1

 

The firm backlog does not include contract options. Of the $2.4 billion in firm backlog, a little over half is expected to be delivered during the next twelve months, with the balance delivered thereafter. We include in our backlog only those orders for which we have accepted purchase orders, and not anticipated purchase orders and requests. In our satellite services segment, our backlog includes fixed broadband service revenues under our subscriber agreements, but does not include future recurring IFC service revenues under our agreements with commercial airlines. As of December 31, 2020, we had our IFC systems installed and in service on approximately 1,430 commercial aircraft, of which, due to impacts of the COVID-19 pandemic, approximately 250 were inactive at quarter end. While current airline traffic is still a fraction of the prior year activity, our in-flight services showed modest improvement in the quarter with increased planes in service

50


 

and passenger volumes. We expect the negative impact on our IFC business from the pandemic to continue through the remainder of fiscal year 2021 and potentially beyond due to the severe decline in global air traffic and associated grounding of installed aircraft, but to lessen over time with increases in passenger air traffic. We anticipate our IFC services will be activated on approximately 1,010 additional commercial aircraft under existing customer agreements with commercial airlines. However, the timing of installation and entry into service of IFC systems on additional aircraft under existing customer agreements may be delayed as a result of the impact of the COVID-19 pandemic on the global airline industry. Accordingly, there can be no assurance that all anticipated purchase orders and requests will be placed or that anticipated IFC services will be activated.

Our total new awards exclude future revenue under recurring consumer commitment arrangements and were approximately $643.4 million and $2.1 billion for the three and nine months ended December 31, 2020, respectively, compared to approximately $577.4 million and $1.8 billion for the three and nine months ended December 31, 2019, respectively.

Backlog is not necessarily indicative of future sales. A majority of our contracts can be terminated at the convenience of the customer. Orders are often made substantially in advance of delivery, and our contracts typically provide that orders may be terminated with limited or no penalties. In addition, purchase orders may present product specifications that would require us to complete additional product development. A failure to develop products meeting such specifications could lead to a termination of the related contract.

Firm backlog amounts 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. Our customers allocate funds for expenditures on long-term contracts on a periodic basis. Our ability to realize revenues from contracts in backlog is dependent upon adequate funding for such contracts. Although we do not control the funding of our contracts, our experience indicates that actual contract funding has ultimately been approximately equal to the aggregate amounts of the contracts.

Liquidity and Capital Resources

Overview

We have financed our operations to date primarily with cash flows from operations, bank line of credit financing, debt financing, export credit agency financing and equity financing. At December 31, 2020, we had $317.3 million in cash and cash equivalents, $326.0 million in working capital, and no outstanding borrowings and borrowing availability of $664.1 million under our Revolving Credit Facility. On July 23, 2020, we issued and sold an aggregate of 4,474,559 shares of our common stock at a purchase price of $39.11 per share to certain accredited investors in a private placement transaction exempt from registration under the Securities Act of 1933, as amended, resulting in net proceeds of approximately $174.7 million after deducting offering expenses. At March 31, 2020, we had $304.3 million in cash and cash equivalents, $441.1 million in working capital, and $390.0 million in principal amount of outstanding borrowings and borrowing availability of $292.7 million under our Revolving Credit Facility. We invest our cash in excess of current operating requirements in short-term, highly liquid bank money market accounts.

Our future capital requirements will depend upon many factors, including the timing and amount of cash required for our satellite projects and any future broadband satellite projects we may engage in, expansion of our R&D and marketing efforts, and the nature and timing of orders. Additionally, we will continue to evaluate possible acquisitions of, or investments in complementary businesses, products and technologies which may require the use of cash or additional financing.

The general cash needs of our satellite services, commercial networks and government systems segments can vary significantly. The cash needs of our satellite services segment tend to be driven by the timing and amount of capital expenditures (e.g., payments under satellite construction and launch contracts and investments in ground infrastructure roll-out), investments in joint ventures, strategic partnering arrangements and network expansion activities, as well as the quality of customer, type of contract and payment terms. In our commercial networks segment, cash needs tend to be driven primarily by the type and mix of contracts in backlog, the nature and quality of customers, the timing and amount of investments in IR&D activities (including with respect to next-generation satellite payload technologies) and the payment terms of customers (including whether advance payments are made or customer financing is required). In our government systems segment, the primary factors determining cash needs tend to be the type and mix of contracts in backlog (e.g., product or service, development or production) and timing of payments (including restrictions on the timing of cash payments under U.S. Government procurement regulations). Other factors affecting the cash needs of our commercial

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networks and government systems segments include contract duration and program performance. For example, if a program is performing well and meeting its contractual requirements, then its cash flow requirements are usually lower.

To further enhance our liquidity position or to finance the construction and launch of any future satellites, acquisitions, strategic partnering arrangements, joint ventures or other business investment initiatives, we may obtain additional financing, which could consist of debt, convertible debt or equity financing from public and/or private credit and capital markets. In February 2019, we filed a universal shelf registration statement with the SEC for the future sale of an unlimited amount of common stock, preferred stock, debt securities, depositary shares, warrants and rights. The securities may be offered from time to time, separately or together, directly by us, by selling security holders, or through underwriters, dealers or agents at amounts, prices, interest rates and other terms to be determined at the time of the offering.

To date, COVID-19 has not had a significant impact on our liquidity, cash flows or capital resources. However, we have taken measures to mitigate the impact of COVID-19 on our business and financial position, including deferring certain capital expenditures, reducing discretionary expenditures and undertaking cost-reduction actions. Given our current cash position, outlook for funds generated from operations, borrowing availability under our Revolving Credit Facility of $664.1 million, cash needs and debt structure, we have not experienced to date, and do not expect to experience, any material issues with liquidity. Although we can give no assurances concerning our future liquidity, we believe that our current cash balances and net cash expected to be provided by operating activities along with availability under our Revolving Credit Facility will be sufficient to meet our anticipated operating requirements for at least the next 12 months.

Cash flows

Cash provided by operating activities for the first nine months of fiscal year 2021 was $557.4 million compared to $293.4 million in the prior year period. This $264.0 million increase was primarily driven by a $223.3 million year-over-year decrease in cash used to fund net operating assets and our operating results (net income adjusted for depreciation, amortization and other non-cash charges) which resulted in $40.7 million of higher cash provided by operating activities year-over-year. The decrease in cash used to fund net operating assets during the first nine months of fiscal year 2021 when compared to the prior year period was primarily due to an increase in cash inflows year-over-year from combined billed and unbilled accounts receivable, net, attributable to the timing of contractual milestones for certain larger development programs in our government systems segment as well as revenue decreases in our in-flight services business in our satellite services segment and an increase in our collections in excess of revenues and deferred revenues included in accrued liabilities due to the timing of milestone billings for certain larger development projects in our commercial networks segment.

Cash used in investing activities for the first nine months of fiscal year 2021 was $702.8 million compared to $595.6 million in the prior year period. This $107.3 million increase in cash used in investing activities year-over-year reflects an increase of $105.2 million in cash used for ViaSat-3 constellation construction.

Cash provided by financing activities for the first nine months of fiscal year 2021 was $156.9 million compared to $88.5 million for the prior year period. This $68.4 million increase in cash provided by financing activities year-over-year was primarily related to $174.7 million in net proceeds from a private placement of common stock in July 2020 (after deducting offering expenses).

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Satellite-related activities

In connection with the development of any new generation satellite design, and the launch of any new satellite and the commencement of the related service, we expect to incur additional operating costs that negatively impact our financial results. For example, when ViaSat-2 was placed in service in the fourth quarter of fiscal year 2018, this resulted in additional operating costs in our satellite services segment during the ramp-up period prior to service launch and in the fiscal year following service launch. These increased operating costs included depreciation, amortization of capitalized software development, earth station connectivity, marketing and advertising costs, logistics, customer care and various support systems. In addition, interest expense increased during fiscal year 2019 as we no longer capitalized the interest expense relating to the debt incurred for the construction of ViaSat-2 and the related gateway and networking equipment once the satellite was in service. However, as the services we provide using the new satellite continue to scale, we expect to continue to expand the revenue base for our broadband services and gain operating cost efficiencies, which together we expect will yield incremental segment earnings contributions, partially offset by investments associated with our global business and emerging markets growth. However, there can be no assurance that we will be successful in significantly increasing revenues or achieving operating profit in our satellite services segment. We anticipate that we will incur a similar cycle of increased operating costs as we prepare for and launch commercial services on future satellites, including our ViaSat-3 constellation, followed by increases in revenue base and in scale.

Our first two ViaSat-3 class satellites, which are expected to cover the Americas and the EMEA region, respectively, entered the phase of full construction during the second half of fiscal year 2018. In July 2019, we entered into an agreement with The Boeing Company for the construction and purchase of a third ViaSat-3 class satellite and the integration of our payload technologies into the satellite. This satellite is expected to cover the Asia and Pacific region. We expect our ViaSat-3 constellation, once in service, to provide a substantial amount of capacity and to enable us to deliver affordable connectivity across most of the world. We are making good progress on our ViaSat-3 constellation, but the recent spikes in COVID-19 during the holidays and early part of calendar 2021 have led to intermittent supply chain and labor availability challenges as we work to complete the payload for the first ViaSat-3 satellite.  While we were able to offset some of these impacts with schedule gains in other areas, at this time we believe that the launch of ViaSat-3 (Americas) will most likely move into the first quarter of calendar 2022. We believe we have adequate sources of funding for the ViaSat-3 class satellites, which include, but are not limited to, our cash on hand, borrowing capacity and the cash we expect to generate from operations over the next few years. Our total cash funding may be reduced through various third-party agreements, including potential joint service offerings and other strategic partnering arrangements.

Our IR&D investments are expected to continue through fiscal year 2021 and beyond relating to ViaSat-3 ground infrastructure and support of our government and commercial air mobility businesses. We expect to continue to invest in IR&D at a significant level as we continue our focus on leadership and innovation in satellite and space technologies. However, the level of investment in a given fiscal year will depend on a variety of factors, including the stage of development of our satellite projects, new market opportunities and our overall operating performance. Our total capital expenditures in fiscal year 2021 are expected to be higher than fiscal year 2020, as we have a third ViaSat-3 class satellite under construction, as well as increased ground network investments related to international expansion.

Revolving Credit Facility

As of December 31, 2020, the Revolving Credit Facility provided a $700.0 million revolving line of credit (including up to $150.0 million of letters of credit), with a maturity date of January 18, 2024. As of December 31, 2020, we had no outstanding borrowings under the Revolving Credit Facility and $35.9 million outstanding under standby letters of credit, leaving borrowing availability under the Revolving Credit Facility as of December 31, 2020 of $664.1 million.

Borrowings under the Revolving Credit Facility bear interest, at our option, at either (1) the highest of the Federal Funds rate plus 0.50%, the Eurodollar rate plus 1.00%, or the administrative agent’s prime rate as announced from time to time, or (2) the Eurodollar rate, plus, in the case of each of (1) and (2), an applicable margin that is based on our total leverage ratio. The Revolving Credit Facility is required to be guaranteed by certain significant domestic subsidiaries of Viasat (as defined in the Revolving Credit Facility) and secured by substantially all of our assets. As of December 31, 2020, none of our subsidiaries guaranteed the Revolving Credit Facility.

The Revolving Credit Facility contains financial covenants regarding a maximum total leverage ratio and a minimum interest coverage ratio. In addition, the Revolving Credit Facility contains covenants that restrict, among other things, our ability to sell assets, make investments and acquisitions, make capital expenditures, grant liens, pay dividends and make certain other restricted payments.

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Ex-Im Credit Facility

The Ex-Im Credit Facility originally provided a $362.4 million senior secured direct loan facility, which was fully drawn. Of the $362.4 million in principal amount of borrowings made under the Ex-Im Credit Facility, $321.2 million was used to finance up to 85% of the costs of construction, launch and insurance of the ViaSat-2 satellite and related goods and services (including costs incurred on or after September 18, 2012), with the remaining $41.2 million used to finance the total exposure fees incurred under the Ex-Im Credit Facility (which included all previously accrued completion exposure fees). At December 31, 2020, we had $98.3 million in principal amount of outstanding borrowings under the Ex-Im Credit Facility.

Borrowings under the Ex-Im Credit Facility bear interest at a fixed rate of 2.38%, payable semi-annually in arrears. The effective interest rate on our outstanding borrowings under the Ex-Im Credit Facility, which takes into account timing and amount of borrowings and payments, exposure fees, debt issuance costs and other fees, is 4.54%. Borrowings under the Ex-Im Credit Facility are required to be repaid in 16 semi-annual principal installments, which commenced on April 15, 2018, with a maturity date of October 15, 2025. Pursuant to the terms of the Ex-Im Credit Facility, certain insurance proceeds related to the ViaSat-2 satellite must be used to pay down outstanding borrowings under the Ex-Im Credit Facility upon receipt. During fiscal years 2019 and 2020, we received an aggregate of $188.0 million of insurance proceeds related to the ViaSat-2 satellite, all of which were used to pay down outstanding borrowings under the Ex-Im Credit Facility upon receipt. The Ex-Im Credit Facility is guaranteed by Viasat and is secured by first-priority liens on the ViaSat-2 satellite and related assets as well as a pledge of the capital stock of the borrower under the facility.

The Ex-Im Credit Facility contains financial covenants regarding Viasat’s maximum total leverage ratio and minimum interest coverage ratio. In addition, the Ex-Im Credit Facility contains covenants that restrict, among other things, our ability to sell assets, make investments and acquisitions, make capital expenditures, grant liens, pay dividends and make certain other restricted payments.

The borrowings under the Ex-Im Credit Facility are recorded as current portion of long-term debt and as other long-term debt, net of unamortized discount and debt issuance costs, in our condensed consolidated financial statements. The discount of $42.3 million (consisting of the initial $6.0 million pre-exposure fee, $35.3 million of completion exposure fees and other customary fees) and deferred financing cost associated with the issuance of the borrowings under the Ex-Im Credit Facility are amortized to interest expense on an effective interest rate basis over the weighted average term of the Ex-Im Credit Facility and in accordance with the related payment obligations.

Senior Notes

Senior Notes due 2028

In June 2020, we issued $400.0 million in principal amount of 2028 Notes in a private placement to institutional buyers. The 2028 Notes were issued at face value and are recorded as long-term debt, net of debt issuance costs, in our condensed consolidated financial statements. The 2028 Notes bear interest at the rate of 6.500% per year, payable semi-annually in cash in arrears, which interest payments commenced in January 2021. Debt issuance costs associated with the issuance of the 2028 Notes are amortized to interest expense on a straight-line basis over the term of the 2028 Notes, the results of which are not materially different from the effective interest rate basis.

The 2028 Notes are required to be guaranteed on an unsecured senior basis by each of our existing and future subsidiaries that guarantees the Revolving Credit Facility. As of December 31, 2020, none of our subsidiaries guaranteed the 2028 Notes. The 2028 Notes are our general senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured unsubordinated debt. The 2028 Notes are effectively junior in right of payment to our existing and future secured debt, including under the Revolving Credit Facility and the Ex-Im Credit Facility (collectively, our Credit Facilities) and the 2027 Notes (to the extent of the value of the assets securing such debt), are structurally subordinated to all existing and future liabilities (including trade payables) of our subsidiaries that do not guarantee the 2028 Notes, and are senior in right of payment to all of our existing and future subordinated indebtedness.

The indenture governing the 2028 Notes limits, among other things, our and our restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce our satellite insurance; and consolidate or merge with, or sell substantially all of our assets to, another person.

Prior to July 15, 2023, we may redeem up to 40% of the 2028 Notes at a redemption price of 106.500% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash

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proceeds of specified equity offerings. We may also redeem the 2028 Notes prior to July 15, 2023, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus the applicable premium and any accrued and unpaid interest, if any, thereon to the redemption date. The applicable premium is calculated as the greater of: (i) 1.0% of the principal amount of such 2028 Notes and (ii) the excess, if any, of (a) the present value at such date of redemption of (1) the redemption price of such 2028 Notes on July 15, 2023 plus (2) all required interest payments due on such 2028 Notes through July 15, 2023 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the treasury rate (as defined under the indenture governing the 2028 Notes) plus 50 basis points, over (b) the then-outstanding principal amount of such 2028 Notes. The 2028 Notes may be redeemed, in whole or in part, at any time during the 12 months beginning on July 15, 2023 at a redemption price of 103.250%, during the 12 months beginning on July 15, 2024 at a redemption price of 101.625%, and at any time on or after July 15, 2025 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date.

In the event a change of control triggering event occurs (as defined in the indenture governing the 2028 Notes), each holder will have the right to require us to repurchase all or any part of such holder’s 2028 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2028 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

 

Senior Secured Notes due 2027

In March 2019, we issued $600.0 million in principal amount of 2027 Notes in a private placement to institutional buyers. The 2027 Notes were issued at face value and are recorded as long-term debt, net of debt issuance costs, in our condensed consolidated financial statements. The 2027 Notes bear interest at the rate of 5.625% per year, payable semi-annually in cash in arrears, which interest payments commenced in October 2019. Debt issuance costs associated with the issuance of the 2027 Notes are amortized to interest expense on a straight-line basis over the term of the 2027 Notes, the results of which are not materially different from the effective interest rate basis.

The 2027 Notes are required to be guaranteed on a senior secured basis by each of our existing and future subsidiaries that guarantees the Revolving Credit Facility. As of December 31, 2020, none of our subsidiaries guaranteed the 2027 Notes. The 2027 Notes are secured, equally and ratably with the Revolving Credit Facility and any future parity lien debt, by liens on substantially all of our assets.

The 2027 Notes are our general senior secured obligations and rank equally in right of payment with all of our existing and future unsubordinated debt. The 2027 Notes are effectively senior to all of our existing and future unsecured debt (including our 5.625% Senior Notes due 2025 (the 2025 Notes) and the 2028 Notes) as well as to all of any permitted junior lien debt that may be incurred in the future, in each case to the extent of the value of the assets securing the 2027 Notes. The 2027 Notes are effectively subordinated to any obligations that are secured by liens on assets that do not constitute a part of the collateral securing the 2027 Notes, are structurally subordinated to all existing and future liabilities (including trade payables) of our subsidiaries that do not guarantee the 2027 Notes (including obligations of the borrower under the Ex-Im Credit Facility), and are senior in right of payment to all of our existing and future subordinated indebtedness.

The indenture governing the 2027 Notes limits, among other things, our and our restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce our satellite insurance; and consolidate or merge with, or sell substantially all of our assets to, another person.

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Prior to April 15, 2022, we may redeem up to 40% of the 2027 Notes at a redemption price of 105.625% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash proceeds of specified equity offerings. We may also redeem the 2027 Notes prior to April 15, 2022, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus the applicable premium and any accrued and unpaid interest, if any, thereon to the redemption date. The applicable premium is calculated as the greater of: (i) 1.0% of the principal amount of such 2027 Notes and (ii) the excess, if any, of (a) the present value at such date of redemption of (1) the redemption price of such 2027 Notes on April 15, 2022 plus (2) all required interest payments due on such 2027 Notes through April 15, 2022 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the treasury rate (as defined under the indenture governing the 2027 Notes) plus 50 basis points, over (b) the then-outstanding principal amount of such 2027 Notes. The 2027 Notes may be redeemed, in whole or in part, at any time during the 12 months beginning on April 15, 2022 at a redemption price of 102.813%, during the 12 months beginning on April 15, 2023 at a redemption price of 101.406%, and at any time on or after April 15, 2024 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date.

In the event a change of control triggering event occurs (as defined in the indenture governing the 2027 Notes), each holder will have the right to require us to repurchase all or any part of such holder’s 2027 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2027 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

 

Senior Notes due 2025

In September 2017, we issued $700.0 million in principal amount of 2025 Notes in a private placement to institutional buyers. The 2025 Notes were issued at face value and are recorded as long-term debt, net of debt issuance costs, in our condensed consolidated financial statements. The 2025 Notes bear interest at the rate of 5.625% per year, payable semi-annually in cash in arrears, which interest payments commenced in March 2018. Debt issuance costs associated with the issuance of the 2025 Notes are amortized to interest expense on a straight-line basis over the term of the 2025 Notes, the results of which are not materially different from the effective interest rate basis.

The 2025 Notes are required to be guaranteed on an unsecured senior basis by each of our existing and future subsidiaries that guarantees the Revolving Credit Facility. As of December 31, 2020, none of our subsidiaries guaranteed the 2025 Notes. The 2025 Notes are our general senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured unsubordinated debt. The 2025 Notes are effectively junior in right of payment to our existing and future secured debt, including under our Credit Facilities and the 2027 Notes (to the extent of the value of the assets securing such debt), are structurally subordinated to all existing and future liabilities (including trade payables) of our subsidiaries that do not guarantee the 2025 Notes, and are senior in right of payment to all of our existing and future subordinated indebtedness.

The indenture governing the 2025 Notes limits, among other things, our and our restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce our satellite insurance; and consolidate or merge with, or sell substantially all of our assets to, another person.

The 2025 Notes may be redeemed, in whole or in part, at any time during the 12 months beginning on September 15, 2020 at a redemption price of 102.813%, during the 12 months beginning on September 15, 2021 at a redemption price of 101.406%, and at any time on or after September 15, 2022 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date.

In the event a change of control triggering event occurs (as defined in the indenture governing the 2025 Notes), each holder will have the right to require us to repurchase all or any part of such holder’s 2025 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2025 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

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Contractual Obligations

The following table sets forth a summary of our obligations at December 31, 2020:

 

 

 

 

 

 

 

For the

Remainder of

Fiscal Year

 

 

For the Fiscal Years Ending

 

(In thousands, including interest where applicable)

 

Total

 

 

2021

 

 

2022-2023

 

 

2024-2025

 

 

Thereafter

 

Operating leases

 

$

457,362

 

 

$

16,361

 

 

$

130,420

 

 

$

119,533

 

 

$

191,048

 

Finance leases

 

 

71,079

 

 

 

6,504

 

 

 

25,575

 

 

 

24,000

 

 

 

15,000

 

2028 Notes

 

 

609,517

 

 

 

14,517

 

 

 

52,000

 

 

 

52,000

 

 

 

491,000

 

2027 Notes

 

 

819,375

 

 

 

 

 

 

67,500

 

 

 

67,500

 

 

 

684,375

 

2025 Notes

 

 

896,876

 

 

 

19,688

 

 

 

78,750

 

 

 

78,750

 

 

 

719,688

 

Revolving Credit Facility

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ex-Im Credit Facility

 

 

104,693

 

 

 

 

 

 

43,279

 

 

 

41,411

 

 

 

20,003

 

Satellite performance incentives

 

 

33,281

 

 

 

1,302

 

 

 

9,805

 

 

 

10,756

 

 

 

11,418

 

Purchase commitments including satellite-related

   agreements

 

 

1,552,554

 

 

 

411,809

 

 

 

1,029,200

 

 

 

83,523

 

 

 

28,022

 

Total

 

$

4,544,737

 

 

$

470,181

 

 

$

1,436,529

 

 

$

477,473

 

 

$

2,160,554

 

 

 

We purchase components from a variety of suppliers and use several subcontractors and contract manufacturers to provide design and manufacturing services for our products. During the normal course of business, we enter into agreements with subcontractors, contract manufacturers and suppliers that either allow them to procure inventory based upon criteria defined by us or that establish the parameters defining our requirements. We also enter into agreements and purchase commitments with suppliers for the construction, launch, and operation of our satellites. In certain instances, these agreements allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to firm orders being placed. Consequently, only a portion of our reported purchase commitments arising from these agreements are firm, non-cancelable and unconditional commitments.

Our condensed consolidated balance sheets included $152.0 million and $120.9 million of “other liabilities” as of December 31, 2020 and March 31, 2020, respectively, which primarily consisted of the long-term portion of deferred revenues, the long-term portion of our satellite performance incentive obligations relating to the ViaSat-1 and ViaSat-2 satellites and our long-term warranty obligations. With the exception of the long-term portion of our satellite performance incentive obligations relating to the ViaSat-1 and ViaSat-2 satellites (which is included under “Satellite performance incentives”), these remaining liabilities have been excluded from the above table as the timing and/or the amount of any cash payment is uncertain. See Note 12 — Commitments to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2020 for additional information regarding satellite performance incentive obligations relating to the ViaSat-1 and ViaSat-2 satellites. See Note 7 — Product Warranty to our condensed consolidated financial statements for a discussion of our product warranties.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements at December 31, 2020 as defined in Regulation S-K Item 303(a)(4) other than as discussed under “Contractual Obligations” above or disclosed in the notes to our condensed consolidated financial statements included in this report or in our Annual Report on Form 10-K for the year ended March 31, 2020.

Recent Authoritative Guidance

For information regarding recently adopted and issued accounting pronouncements, see Note 1 — Basis of Presentation to our condensed consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, short-term and long-term obligations, including the Credit Facilities, the 2025 Notes, the 2027 Notes and the 2028 Notes, and foreign currency forward contracts. We consider investments in highly liquid instruments purchased with a remaining maturity of three months or less at the date of purchase to be cash equivalents. As of December 31, 2020, we had no outstanding borrowings under our Revolving Credit Facility, $98.3 million in principal amount of outstanding borrowings under our Ex-Im Credit Facility, $700.0 million in aggregate principal amount outstanding of the 2025 Notes, $600.0 million in aggregate principal amount outstanding of the 2027 Notes and $400.0 million in aggregate principal amount outstanding of the 2028 Notes, and we held no short-term investments. Our 2025 Notes, 2027 Notes, 2028 Notes and borrowings under our Ex-Im Credit Facility bear interest at a fixed rate and therefore our exposure to market risk for changes in interest rates relates primarily to borrowings under our Revolving Credit Facility, cash equivalents, short-term investments and short-term obligations.

The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. To minimize this risk, we maintain a significant amount of our cash balance in money market accounts. In general, money market accounts are not subject to interest rate risk because the interest paid on such funds fluctuates with the prevailing interest rate. Our cash and cash equivalents earn interest at variable rates. Our interest income has been and may continue to be negatively impacted by low market interest rates. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. If the underlying weighted average interest rate on our cash and cash equivalents, assuming balances remain constant over a year, changed by 50 basis points, interest income would have increased or decreased by an insignificant amount for the three and nine months ended December 31, 2020 and 2019. Because our investment policy restricts us to invest in conservative, interest-bearing investments and because our business strategy does not rely on generating material returns from our investment portfolio, we do not expect our market risk exposure on our investment portfolio to be material.

Our primary interest rate under the Revolving Credit Facility is the Eurodollar rate plus an applicable margin that is based on our total leverage ratio. Under the Revolving Credit Facility, the effective interest rate as of December 31, 2020 that would have been applied to any new Eurodollar-based borrowings under the Revolving Credit Facility was approximately 1.84%. As of December 31, 2020, we had no outstanding borrowings under our Revolving Credit Facility. Accordingly, assuming the outstanding balance remained constant over a year changes in the interest rates applicable to our Revolving Credit Facility would have no effect on our interest incurred or cash flow.

Foreign Exchange Risk

We generally conduct our business in U.S. dollars. However, as our international business is conducted in a variety of foreign currencies, we are exposed to fluctuations in foreign currency exchange rates. Our investment in Euro Broadband Infrastructure Sàrl during the fourth quarter of fiscal year 2017, which is denominated in Euros, increases our exposure to foreign currency risk. A five percent variance in foreign currencies in which our international business is conducted would change our income (loss) before income taxes by an insignificant amount and $1.0 million for the three and nine months ended December 31, 2020, respectively, and by an insignificant amount for the three and nine months ended December 31, 2019. Our objective in managing our exposure to foreign currency risk is to reduce earnings and cash flow volatility associated with foreign exchange rate fluctuations. Accordingly, from time to time, we may enter into foreign currency forward contracts to mitigate risks associated with foreign currency denominated assets, liabilities, commitments and anticipated foreign currency transactions.

As of December 31, 2020 and March 31, 2020, we had no foreign currency forward contracts outstanding.

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Item 4. Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified and pursuant to the requirements of the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2020, the end of the period covered by this report. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2020.

During the period covered by this report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

From time to time, we are involved in a variety of claims, suits, investigations and proceedings arising in the ordinary course of business, including government investigations and claims, and other claims and proceedings with respect to intellectual property, breach of contract, labor and employment, tax and other matters. Such matters could result in fines; penalties, compensatory, treble or other damages; or non-monetary relief. A violation of government contract laws and regulations could also result in the termination of our government contracts or debarment from bidding on future government contracts. Although claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, we believe that the resolution of our current pending matters will not have a material adverse effect on our business, financial condition, results of operations or liquidity. Regardless of the outcome, litigation can have an adverse impact on us because of defense costs, diversion of management resources and other factors. In addition, it is possible that an unfavorable resolution of one or more such proceedings could in the future materially and adversely affect our business, financial condition, results of operations or liquidity in a particular period. For further information on the risks we face from existing and future claims, suits, investigations and proceedings, see “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020, which factors could materially affect our business, financial condition, liquidity or future results. The risks described in our reports on Forms 10-K and 10-Q are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity or future results.

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Item 6. Exhibits

 

 

 

 

 

Incorporated by Reference

 

 

Exhibit

Number

 

Exhibit Description

 

Form  

 

File No. 

 

Exhibit  

 

Filing Date  

 

Filed or

Furnished

Herewith

 

 

 

 

 

 

 

 

 

 

 

 

 

    2.1

 

Agreement and Plan of Merger, dated as of December 20, 2020, by and among Viasat, Inc., Royal Acquisition Sub, Inc. and RigNet, Inc.

 

8-K

 

000-21767

 

2.1

 

12/21/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  10.1

 

Support Agreement, dated as of December 20, 2020, by and between Viasat, Inc. and Digital Oilfield Investments LP

 

8-K

 

000-21767

 

10.1

 

12/21/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  31.1

 

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

  31.2

 

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

  32.1

 

Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.INS

 

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60


 

 

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.

 

 

 

February 8, 2021

 

/s/ RICK BALDRIDGE

 

 

Rick Baldridge

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

 

/s/ SHAWN DUFFY

 

 

Shawn Duffy

 

 

Senior Vice President and Chief Financial Officer

 

 

(Principal Financial Officer)

 

61