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VSAT Viasat

Filed: 28 May 21, 1:50pm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

(Mark One)

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

For the fiscal year ended March 31, 2021

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

 

 

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

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.      Yes      No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.      Yes      No

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

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

The aggregate market value of the common stock held by non-affiliates of the registrant as of September 30, 2020 was approximately $2,223,902,302 (based on the closing price on that date for shares of the registrant’s common stock as reported by the Nasdaq Global Select Market).

The number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of May 14, 2021 was 72,529,686.

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with its 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K where indicated. Such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended March 31, 2021.

 

 

 

 


VIASAT, INC.

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

 

 

PART I

 

 

Item 1.

 

Business

 

2

Item 1A.

 

Risk Factors

 

23

Item 1B.

 

Unresolved Staff Comments

 

38

Item 2.

 

Properties

 

38

Item 3.

 

Legal Proceedings

 

38

Item 4.

 

Mine Safety Disclosures

 

38

 

 

 

 

 

 

 

PART II

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

39

Item 6.

 

Selected Financial Data

 

39

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

40

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

56

Item 8.

 

Financial Statements and Supplementary Data

 

56

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

57

Item 9A.

 

Controls and Procedures

 

57

Item 9B.

 

Other Information

 

57

 

 

 

 

 

 

 

PART III

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

58

Item 11.

 

Executive Compensation

 

58

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

58

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

58

Item 14.

 

Principal Accounting Fees and Services

 

58

 

 

 

 

 

 

 

PART IV

 

 

Item 15.

 

Exhibits, Financial Statement Schedules

 

59

Item 16.

 

Form 10-K Summary

 

62

Signatures

 

63

 

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PART I

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, 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; our expectations regarding an end to the pandemic and a lessening of its effects on our business, including expectations for increased airline passenger traffic and in-flight connectivity (IFC) growth; 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 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; international growth opportunities; the number of additional aircraft under existing contracts with commercial airlines anticipated to be put into service with our IFC systems; 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; capacity constraints in our business in the lead-up to the launch of services on our ViaSat-3 satellites; 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, including the RigNet, Inc. (RigNet) and Euro Broadband Infrastructure Sàrl (Euro Infrastructure Co.) acquisitions; 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 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.

ITEM 1. BUSINESS

Corporate Information

We were incorporated in California in 1986 under the name Viasat, Inc., and subsequently reincorporated in Delaware in 1996. The mailing address of our worldwide headquarters is 6155 El Camino Real, Carlsbad, California 92009, and our telephone number at that location is (760) 476-2200. Our website address is www.viasat.com. The information on our website does not constitute part of this report.

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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, military 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. We believe that our diversification strategy—anchored in a broad portfolio of products and services—our vertical integration approach and our ability to effectively cross-deploy technologies between government and commercial applications and segments as well as across different geographic markets, provide us with a strong foundation to sustain and enhance our leadership in advanced communications and networking technologies.

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

Recent Transactions

On April 30, 2021, subsequent to fiscal year end, we purchased the remaining 51% interest in Euro Infrastructure Co. from Eutelsat for €142.6 million, or approximately $172.7 million (subject to customary post-closing net working capital and net debt adjustments). The purchase price was funded with available cash, resulting in a cash outlay of approximately €41.6 million, or $50.4 million, net of approximately €101.0 million, or $122.3 million, of Euro Infrastructure Co.’s cash on hand. This acquisition is expected to provide a foundation for further growth and investment in the European region, in addition to Africa and the Middle East.

On April 30, 2021, subsequent to fiscal year end, we acquired RigNet in exchange for the issuance of approximately 4.0 million shares of our common stock and a de minimis amount of cash in respect of fractional shares. RigNet is a leading provider of ultra-secure, intelligent networking solutions and specialized applications, and the acquisition is expected to enable us to further expand into new global markets and adjacent industries, including renewable energies, transportation, maritime, mining and other enterprise markets.

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, and we also have access to a number of Ka-band and Ku-band satellites in service globally. We own three Ka-band 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), and, after acquiring the remaining interest in Euro Infrastructure Co. subsequent to the fiscal year end, we also own the KA-SAT satellite over Europe, Middle East and Africa (EMEA). In addition, we have lifetime leases of Ka-band capacity on two satellites—one over North America and a second one over EMEA. 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 provide approximately eight times the capacity of our own satellite fleet in-service today, and to enable us to deliver affordable connectivity across most of the world. As of March 31, 2021, we provided fixed broadband services to approximately 590,000 U.S. subscribers, as well as broadband connectivity (through fixed broadband services or Community Internet hotspots) to tens of thousands of international sites.

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 as well as in various countries in Europe and Latin America. Our service offerings include premium data plans with download speeds up to 100 Mbps in select areas in the United States. We also offer wholesale and retail fixed broadband services to our distribution partners.

 

In-Flight Services, which provide industry-leading IFC, wireless in-flight entertainment (W-IFE) and aviation software services to commercial airlines and private business jets. The data capacity of our IFC systems enables all passengers and crew to receive in-flight internet service in the air similar to the internet service available on the ground, supporting applications such as high-speed web browsing, streaming and social media applications. Our W-IFE service is a cloud-based platform providing passengers with access to a wide range of premium entertainment, video and information services maintained on an onboard server and wirelessly delivered direct to passengers’ own devices. As of March 31, 2021, our IFC systems were installed and in service on approximately 1,480 commercial aircraft, of which, due to impacts of the COVID-19

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pandemic, approximately 200 were inactive at fiscal year end. We anticipate that approximately 1,190 additional commercial aircraft under existing customer agreements with commercial airlines will be put into service with our IFC systems. However, the timing of installation and entry into service for additional aircraft under existing customer agreements may be delayed due to COVID-19 impacts. Additionally, due to the nature of commercial airline contracts, there can be no assurance that anticipated IFC services will be activated on all such additional commercial aircraft.

 

Community Internet Services, which offer innovative, affordable, satellite-based connectivity in communities that have little, or no, access to the internet. 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. We are trialing services in advance of full commercial launch in other countries, including Brazil, Guatemala and Nigeria.

 

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. In addition, we offer 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. Our high-performance M2M terminals are used for a broad range of applications including emergency responders, oil and gas pipeline monitoring, mobile fleet management, and high-value asset tracking.

 

Advanced Software and Communication Infrastructure Services, which include ultra-secure solutions spanning global IP connectivity, bandwidth-optimized over-the-top applications, industrial Internet-of-Things big data enablement and industry-leading machine learning analytics. These services support the evolution of digital enablement, and primarily result from our acquisition of RigNet subsequent to fiscal year end.

The assets and results of operations of Euro Infrastructure Co. and RigNet, which were acquired subsequent to fiscal year end (see discussion above), will primarily be included in our satellite services segment (with insignificant amounts included in our commercial networks segment), commencing with the first quarter of fiscal year 2022.

Our ViaSat-3 class satellites are our third-generation, high-capacity Ka-band satellite design and are designed to further improve the speed, availability and cost-efficiency of our proprietary Ka-band satellite network. The satellites will have significantly greater data capacity and geographic coverage than our second-generation ViaSat-2 satellite. Our third-generation satellite design has enhanced ability to flexibly and dynamically allocate capacity by service, time and geography, allowing us to allocate our satellite capacity to markets where bandwidth usage demands and returns are highest. We have three ViaSat-3 class satellites under construction: the first is intended to cover the Americas, the second to cover the EMEA region, and the third to cover the Asia Pacific (APAC) region. We are making good progress on our ViaSat-3 constellation, but the spikes in COVID-19 between the end of calendar year 2020 and early calendar year 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 continue to target an early calendar year 2022 launch of the ViaSat-3 (Americas) satellite.

In the fourth quarter of fiscal year 2018, we reported an antenna deployment issue on our ViaSat-2 satellite shortly before the launch of commercial broadband services. We worked with the satellite manufacturer to determine the root cause of the antenna deployment issue, potential corrective measures and resulting damage. In fiscal year 2019, the root cause analysis was completed and we filed insurance claims for the resulting damage. We received an aggregate of $188.0 million in insurance proceeds, which were used to pay down outstanding borrowings under our direct loan facility with the Export-Import Bank of the United States (the Ex-Im Credit Facility) used to finance the ViaSat-2 satellite (see “Liquidity and Capital Resources—Ex-Im Credit Facility” below). Our ViaSat-2 satellite, despite this anomaly, significantly expanded our network’s data capacity and geographic reach.

We believe that growth in our satellite services segment will be driven in the coming years by continued demand for high-speed broadband services across the globe, driven by an increase in the number of internet users, applications and connected devices. This presents opportunities across a number of Viasat satellite services businesses, including residential, business internet and Community Internet. Further growth in our in-flight services business is expected to be driven by the installation of our IFC systems on additional commercial aircraft and the expansion of airlines and flight routes covered by the footprint of our satellite fleet following the launch of our ViaSat-3 constellation. However, we expect our anticipated growth to be partially offset by ramping start-up expenses in new international and vertical markets and ground network infrastructure investments associated with the launch of our ViaSat-3 constellation, and that growth in the United States (particularly in our fixed broadband business) is expected to be affected by capacity constraints ahead of the launch of commercial service of the ViaSat-3 (Americas) satellite.

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During fiscal year 2021, through the COVID-19 pandemic, we experienced increased demand for our premium high-speed plans in our fixed broadband services business, reflecting customers’ increased bandwidth needs in a remote working/distance schooling environment. However, the pandemic also caused a severe decline in global air traffic during fiscal year 2021, which reduced demand for our in-flight services and IFC systems in our satellite services and commercial networks segments, respectively. While current global airline traffic is still a fraction of the activity in fiscal year 2020, domestic airline traffic is showing signs of improvement. As a result, our in-flight services business showed modest improvement in the quarter ended March 31, 2021 compared to the quarter ended December 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 fiscal year 2022 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.

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), medium earth orbit (MEO) and low earth orbit (LEO).

Our products, systems and solutions are generally developed through a combination of customer and discretionary internal research and development (R&D) funding, and products are often linked through common underlying technologies, customer applications and market relationships. For example, products, systems and solutions developed and sold in our commercial networks segment are often complementary to those developed and sold to government customers in our government systems segment, and our portfolio of government and military offerings in our government systems segment leverages our technological investments in our commercial networks segment. Our commercial networks segment also drives growth in our satellite services segment. For example, the IFC terminals sold and installed on commercial aircraft and business jets in our commercial networks segment are then utilized to receive IFC services, driving recurring revenues in our satellite services segment.

The primary products, systems, solutions and services offered by our commercial networks segment are comprised of:

 

Mobile Broadband Satellite Communication Systems, which include systems and products designed for use in aircraft, seagoing vessels and land-mobile systems, such as the IFC systems we install on business and commercial aircraft. These systems and products are designed to provide high-speed, cost-efficient broadband access to customers while on the move, and also utilize fixed broadband satellite infrastructure. The COVID-19 pandemic continues to impact our mobile broadband satellite communications system business due to the severe decline in global air traffic and resulting downturn in the commercial aviation market.

 

Fixed Broadband Satellite Communication Systems, which include next-generation satellite network infrastructure and ground terminals designed to enable satellite-based broadband access for residential, enterprise and Community Internet hotspot users. Products and solutions in this category include space-to-earth connectivity systems, ground network infrastructure and user terminals. We also offer related products and services to enterprise customers to address bandwidth constraints, latency and other issues. In addition to commercial sales of these products and solutions, we also deploy our fixed broadband satellite communication systems to support our own fleet of proprietary Ka-band satellites.

 

Antenna Systems, which include state-of-the-art ground and airborne terminals, antennas and gateways for terrestrial and satellite customer applications (such as Real-Time Earth imaging and remote sensing services, mobile satellite communication, Ka-band earth stations and other multi-band antennas).

 

Satellite Networking Development, which includes specialized design and technology services covering all aspects of satellite communication system architecture and technology. Services include analysis, design and development of satellite and ground systems, semiconductor design for Application-Specific Integrated Circuit (ASIC) and Monolithic Microwave Integrated Circuit (MMIC) chips and network function virtualization, as well as modules and subsystems for various commercial, military and space uses.

 

Space System Design and Development, which includes the design and development of high-capacity Ka-band satellites and the associated satellite payload and antenna technologies for our own satellite fleet as well as for third parties. Our space system design and development products and services include architectures for GEO, MEO and LEO and other small satellite platforms.

 

We believe growth in our commercial networks segment will be driven in the coming years by continued growth in worldwide demand for mobile and fixed broadband connectivity. As the cost-effectiveness of satellite technologies to

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rapidly deploy broadband services across wide geographic areas and to large numbers of people continues to increase, we believe demand for the ground networking equipment and products that enable or support access to satellite-based broadband services will continue to grow.

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. Customers of our government systems segment include the U.S. Department of Defense (DoD), those serving the Five Eye (FVEY) intelligence alliance (Australia, Canada, New Zealand, the United Kingdom and the United States), allied foreign governments, allied armed forces, public safety first-responders and remote government employees.

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 (LOS) and beyond-line-of-sight (BLOS) Intelligence, Surveillance and Reconnaissance (ISR) missions. Our government mobile broadband services include high-bandwidth global communications services in support of VIP and senior-level airborne operations and emergency response, as well as LOS and BLOS ISR missions. Products include mobile broadband modems, terminals, network access control systems and antenna systems using a range of satellite frequency bands capable of being installed and operated on a wide variety of fixed wing, rotary wing, manned and unmanned aircraft, ground vehicles and maritime platforms. Services include advanced mobility services to governments for aircraft and ships, as well as for nomadic and ground based missions. Our high-capacity, secure mobile broadband products and services are enabled by our next-generation satellite network infrastructure, which will be further enhanced following the launch of our ViaSat-3 constellation.

 

Government Satellite Communication (SATCOM) Systems, which offer an array of portable, mobile and fixed broadband modems, terminals, network access control systems and antenna systems using a range of satellite frequency bands for Command and Control (C2) missions, satellite networking services and network management systems for Wi-Fi and other internet access networks. Our SATCOM systems, products and services are designed to support high-throughput broadband data links, to increase available bandwidth using existing satellite capacity, and to be resilient in order to withstand certain catastrophic events. Our range of SATCOM broadband modems, terminals and systems support high-speed broadband and multimedia transmissions over point-to-point, mesh and hub-and-spoke satellite networking systems, and include products designed for manpacks, aircraft, unmanned aerial vehicles (UAVs), 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. Our encryption products and modules use a programmable, high-assurance architecture that can be easily upgraded in the field or integrated into existing communication networks, and are available both on a stand-alone basis and as embedded modules within our tactical radio, information distribution and other SATCOM systems and products.

 

Tactical Data Links, which comprise advanced tactical radio and information distribution systems that enable secure voice and real-time collection and dissemination of video and data using secure, jam-resistant transmission links. These data links communicate over Link 16 or tactical VHF/UHF networks, from manned and unmanned aircraft, ground vehicles, individual warfighters and other remote platforms to each other and networked communication and command centers. Key products in this category include our Battlefield Awareness and Targeting System — Dismounted (BATS-D) handheld Link 16 radios, our Battlefield Awareness and Targeting System — Embedded (BATS-E) 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 System (MIDS-JTRS) terminals for military fighter jets.

We believe the battlefield of the future will require a resilient communications architecture capable of supporting tomorrow’s Multi-Domain Command and Control (MDC2), the Internet of Battlefield Things (IoBT), and high-velocity, data-rich network-centric operations, enabling secure, reliable and ubiquitous connectivity while under attack, on the move or at

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fixed locations around the globe. These requirements will potentially provide significant growth opportunities in our government systems segment in the coming years, as demand increases for secure, higher-capacity, higher-quality broadband services, associated ground systems and advanced cybersecurity protections. Additional growth factors also reside in an increasing military interest for high-speed broadband BLOS connectivity, for example over Link 16 networks, supporting real-time C2 decision-making and enhanced situational awareness across ground and air applications.

 

Our Strengths

We believe the following strengths position our business to capitalize on the attractive growth opportunities presented in our business segments:

 

Innovation of Next-Generation Satellite and Space Technologies. We have a long history of innovation in next-generation satellite and space technologies. Our award-winning first-generation, high-capacity Ka-band spot-beam satellite, ViaSat-1, earned a Guinness World Records® title in 2013 as the highest-capacity communications satellite in the world at that time. Our second-generation ViaSat-2 satellite and its advanced ground network infrastructure significantly expanded our total data capacity and geographic reach, and support the flexible allocation of capacity to meet demand within the satellite’s footprint. By improving satellite speed, availability and geographic coverage area, our ViaSat-2 satellite enabled us to provide compelling premium retail service plans in select markets that can compete against traditional terrestrial broadband service providers and to significantly expand our IFC services business. In March 2018, ViaSat-2 was selected as a winner in the ‘Space, Platforms’ category of Aviation Week’s 61st Annual Laureate Awards, honoring extraordinary achievements in the global aerospace arena. Our third-generation ViaSat-3 class satellites under construction offer a new satellite architecture with miniaturized electronics and more productive and efficient antenna designs. This new satellite design is expected to significantly expand the geographic coverage area and data capacity of each satellite and to further enhance our ability to flexibly and dynamically allocate capacity to match demand, resulting in greater speed, availability and cost-efficiency. Furthermore, we are now working on the design of our next-generation ViaSat-4 satellite system, which is expected to be even more capable with each satellite able to deliver multiple Terabits per second—yielding another significant productivity gain relative to ViaSat-3 class satellites. We believe our history since inception of developing proprietary and innovative satellite technologies spanning spacecraft, ground infrastructure, user terminals and network design demonstrates that we possess the expertise and credibility required to serve the evolving technology needs of our customers whether on the ground, in the air or at sea.

 

Vertically Integrated End-to-End Platform of Leading Broadband Technologies. We believe our innovative ecosystem of high-capacity Ka-band satellites, ground infrastructure and user terminals provides a vertically integrated end-to-end platform that creates significant synergies in our business and uniquely positions us to drive operational efficiencies and cost-effectively deliver a diverse portfolio of high-speed, high-quality broadband solutions and applications to enterprises, consumers, military and government users. Our product, system and service offerings are often linked through common underlying technologies, customer applications and market relationships. We believe that our comprehensive and vertically integrated portfolio of satellites, products and services, combined with our ability to effectively cross-deploy technologies between government and commercial segments and across different geographic markets, provides us with a strong foundation to sustain and enhance our leadership in broadband technologies and services.

 

Diversification of Business Model. Our business is highly diversified. Our fixed broadband services range from premium residential services at high data speeds to Community Internet services designed to provide affordable internet access in countries with significant unserved or underserved populations. Our IFC systems and services support high-speed broadband services for commercial, private and military aircraft around the globe. We also sell complex satellite communication systems and products to communications service providers, enterprises and government users, and in our government systems segment we offer a portfolio of military tactical data link, cybersecurity and information assurance products and services. This diversification in product and service offerings, customer base and market segment helps to reduce our exposure to fluctuations in any of the individual markets we serve and to provide resilience in our business performance in times of economic or political disruption. For example, during fiscal year 2021, revenue impacts to our commercial aviation business in our satellite services and commercial networks segments resulting from the global disruption in the airline industry caused by the COVID-19 pandemic were offset by strong demand in our fixed broadband services business and other parts of our business.

 

Broad Array of Broadband Service Offerings, Tailored to Market Demand. Our proprietary Ka-band satellite network provides the platform for us to provide a broad array of satellite-based high-quality, high-speed broadband services with multiple applications. Our offerings include fixed broadband services to residential and enterprise customers, market-leading mobility services to aircraft utilizing our IFC systems, and satellite-

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powered Community Internet services that provide affordable and reliable high-speed connectivity in unserved and underserved areas. In the U.S. residential broadband market, our ViaSat-2 satellite supports retail service plans offering data capacity in select markets of up to 100 Mbps. We expect our ViaSat-3 satellites to support a wide array of premium service offerings in more geographic areas. Our IFC services enable connectivity services to be provided to more passengers and crew on more flights, across commercial and business aircraft, and the ability to leverage high-capacity internet services such as streaming video. Our IFC services have received numerous awards and accolades, including the 2019 APEX Global Passenger Choice Award Winner and 2018 APEX Regional Passenger Choice Award Winner for best Wi-Fi (for our services on JetBlue). These awards were tallied from passenger-submitted data, showcasing the power of the Viasat internet platform to deliver exceptional in-flight connectivity services. In 2015, Viasat’s IFC systems received the Crystal Cabin Award for the best Passenger Comfort System, the Excellence in Avionics Award for In-Flight Connectivity Innovation and the Via Satellite Excellence Award for Vertical Impact. The flexibility, high data throughput and broad geographic coverage area of ViaSat-2 (and our even more powerful third-generation ViaSat-3 class proprietary Ka-band satellites under construction), combined with our ability to dynamically allocate capacity based on demand, enable us to support a wide range of high-speed broadband services addressing multiple markets, provide innovative new services creating new market opportunities, tailor our service offerings to market needs, and compete more effectively in the markets we serve.

 

Diverse Portfolio of Market-Leading Military and Government Offerings. 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 for innovative communications products and solutions designed to enable the transmission of secure real-time digital information and communications between fixed and mobile command centers, intelligence and defense platforms and individuals. Our portfolio of government and military offerings leverages our technological investments in our commercial business, and includes tactical data links, small satellite development, fixed and mobile satellite broadband systems and services, cybersecurity and information assurance products and services. Total new awards in our government systems segment grew from $460.9 million in fiscal year 2011 to $1.2 billion in fiscal year 2021, despite an uneven defense spending environment, reflecting the high demand for our diverse portfolio of products and services for military and government users. Our tactical data link products include our market-leading BATS-D AN/PRC-161 handheld Link 16 radios and STT KOR-24A 2-channel radios, which bridge the gap between air and ground forces by providing secure, reliable access to integrated air and ground data for improved situational awareness capabilities and support communications, and are capable of advanced concurrent multiple reception capabilities to enhance communications and reduce network congestion. Our small satellite development work is market leading and is designed to enable a new tactical space layer for our government customers, enabling increasingly advanced precision operations and maneuvering. For example, we are working with the Air Force Research Laboratory (AFRL) Space Vehicles XVI program to deliver and test the first-ever Link 16-capable LEO spacecraft. Leveraging Viasat’s leadership in satellite innovation and military communications, the Viasat-designed spacecraft is intended to enhance warfighters' situational awareness by extending the range of Link 16 networks – using a constellation of satellites to provide greater access to Link 16 capabilities in contested or congested environments. Further, in February 2021, Viasat was awarded a $50.8 million IDIQ contract from the AFRL to potentially develop a broad range of prototype space systems, with services including studies, design, manufacturing, integration, launch, flight and demonstration of small satellites, ground terminals and other technologies. Our mobile satellite broadband offerings leverage our innovative satellite technologies and proprietary Ka-band satellite platform, allowing us to provide high-speed, high-quality internet services to government and military aircraft, ships and vehicles. In September 2018, we were awarded an eight-year, firm-fixed-price contract to provide in-flight broadband and connectivity services to U.S. Government Senior Leader and VIP aircraft. Our secure networking products and services include a broad portfolio of advanced, high-speed Type 1 encryption solutions that are capable of operating at speeds of up to 100 Gbps, as well as advanced cybersecurity products to secure information transmitted via the cloud. In February 2021, we received enhanced cybersecurity accreditation from the U.S. Department of Homeland Security (DHS) through their Enhanced Cybersecurity Services (ECS) program. As an accredited ECS provider, we will receive DHS-provided sensitive and classified cybersecurity threat indicators and information to defend U.S.-based public and private computer networks, including state and local governments, against unauthorized access, exploitation and data exfiltration.

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Blue-Chip Customer Base. Our blue-chip customer base includes customers such as the U.S. Government, leading aerospace and defense prime contractors, allied foreign governments, civil agencies, satellite network integrators, large communications service providers, commercial airlines and enterprises requiring complex communications and networking solutions and services. We believe that the credit strength of these key customers helps support more consistent financial performance. Moreover, our direct relationships with key customers such as commercial airlines and the DoD allow us to adapt our satellite designs and product and service offerings to better meet their desired outcomes.

 

Experienced Management Team and Diversified Board of Directors. Our core management team is comprised of seasoned executives with significant satellite communications, defense and aerospace experience. For example, our Executive Chairman, Mark Dankberg, has been with Viasat since its inception in 1986. Mr. Dankberg is considered to be a leading expert in the field of satellite, wireless and defense communications. Richard Baldridge, who assumed the position of Viasat’s President and Chief Executive Officer in November 2020, has been with Viasat for over 20 years. During Mr. Baldridge’s tenure, Viasat has grown organically and through acquisitions by more than a factor of 10. In addition, over the past several years, we have undertaken a conscious effort to diversify our Board of Directors, bringing in a wide variety of skills and experience aligned with our long-term goals. Our Board is comprised of a diverse range of high-profile corporate leaders with extensive experience in globalization, communications, space operations, and technology and business integration.

Our Strategy

Our business strategy is to maintain our leadership position in cost-efficient, high-quality satellite-based communications products and services, focused on making connectivity accessible, available and secure for all. The principal elements of our strategy include:

 

Drive Capital Efficiencies

 

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Deliver the Most Productive Satellite Systems: We are hyper-focused on maximizing the useful bandwidth per total lifetime capital cost of each satellite. We refer to this as “bandwidth productivity” and see this metric as a key factor in determining our return on satellite investment for each satellite we design, develop and build. When measured in terms of bandwidth productivity, we believe our existing and planned satellite fleet substantially outperforms other satellite operators and would also outperform our expectations for the LEO constellations proposed by new market entrants.

 

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Drive Efficiencies of Scale and Operations. We intend to continue to drive efficiencies in our businesses through our vertical integration strategy and increasing scale as we move into new and adjacent geographic, product and service markets. We optimize our satellite systems through our development of an end-to-end platform of next-generation Ka-band satellites, ground networking equipment and user terminals that enable the provision of a broad array of high-speed broadband services. Our ViaSat-3 class satellites are expected to further drive scale and operational efficiencies through their enhanced ability to efficiently and dynamically match supply and demand through the flexible allocation of capacity by service, time and geography within the satellite footprint, as well as through their expected global geographic reach.

 

Focus on Relentless Execution

 

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Maintain Focus on Technology Leadership: We continue to focus on R&D to bring high-capacity, high-speed broadband communications to the global market. Our continued innovation in satellite system product development has been one of our hallmarks. We intend to maintain our leadership position in satellite systems, technologies and services, while continuing to expand our efforts in wireless communications, cloud networking and security. Our R&D efforts are supported by a global employee base that includes approximately 3,000 engineers and a culture that deeply values and supports innovation.

 

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Follow Our Path of Proven Performance: We have an enviable track record for identifying and bringing to market impactful communications technologies in space systems. ViaSat-1 was the highest capacity communications satellite at the time of its launch; ViaSat-2 almost doubled the capacity of ViaSat-1; and the ViaSat-3 constellation is anticipated to have roughly eight times more capacity than Viasat’s existing satellite fleet combined.

 

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Customer-Centricity Evolution: We are hyper-focused on increasing our customer interactions and have incorporated new technologies, tools and learnings from artificial intelligence and machine learning to enhanced customer intimacy techniques and customer advisory counsels. We strive to continue to

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improve our ongoing customer engagements through proactive response, deeper customer insights and enhanced customer exchanges. This is an ongoing effort that will continue to be an investment and nurture opportunity for us.

 

Continue to Expand into New Markets and Geographies

 

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Enter and Disrupt New and Adjacent Markets through Technology Innovation: We continue to create or address new and adjacent markets using our technological advancements to disrupt existing business models and drive shifts in target markets or user demand. For example, the technological innovations and power of our proprietary Ka-band satellite network enabled us to disrupt the IFC business model and successfully expand our broadband service offerings into the commercial air market. As the capacity and geographic coverage areas of our satellite systems continue to increase with each generation of our high-capacity Ka-band satellite designs, we expect the addressable markets for our broadband technologies, products and services to continue to expand. Higher capacity, more flexible satellites will allow us to offer a broader array of cost-effective, high-quality broadband services that can be tailored to different geographic regions and bandwidth usage demand.

 

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Think Beyond Current Customer Requirements to Open New Markets: In our government systems business, we actively identify market or operational needs that are not currently served by existing communications and encryption products and services, with a view to developing unique or disruptive products and services and creating new addressable markets. In fact, a key component to the continued success of Viasat’s defense business is its expansive portfolio of non-developmental items (NDI), which are designed to rapidly deliver cutting-edge technology solutions well ahead of the traditional government procurement model. Many of our NDI technologies fall within our tactical data links systems, such as BATS-D handheld Link 16 radios and STT KOR-24A 2-channel radios for manned and unmanned applications. Our business model delivers advanced capabilities significantly faster, at lower lifecycle costs and with lower risk to the customer when compared to traditional defense acquisition programs and timelines.

 

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Target International Expansion. With the impending launch of our ViaSat-3 constellation, we have placed tremendous effort on growing our operations, sales/distribution, customer/partner base and regulatory framework globally. We continue to believe that international markets provide attractive opportunities for the long-term growth of our business. As worldwide demand for broadband connectivity continues to grow, we expect that our comprehensive offering of next-generation Ka-band satellites, advanced end-to-end communication systems and ground networking equipment and products, and their ability to enable a wide range of cost-effective, high-speed, high-quality broadband services, will be increasingly attractive internationally. Our ViaSat-2 satellite significantly expanded the geographic coverage area of our broadband services over North and Central America and the primary aeronautical and maritime routes across the Atlantic Ocean, allowing us to bring high-value in-flight services to many more commercial, business and government aircraft within the expanded satellite footprint and launch new, innovative ground-based services in new markets, such as our Community Internet service in Mexico. Ahead of the ViaSat-3 constellation launch, we have leveraged third-party partner satellites (such as Telebras in Brazil, Avanti in EMEA, nbn Co in Australia, Gazprom Space Systems in Russia and China Satcom in China) to create a runway for Viasat to begin offering and trialing service plans internationally as well as build brand presence and name recognition. We have also undertaken a thoughtful approach to mergers and acquisitions to drive international expansion. For example, the acquisition of the remaining interest in Euro Infrastructure Co. is expected to enable us to expand more effectively and rapidly in the EMEA region. Our recent acquisition of RigNet also positions us to further expand into new global markets, as RigNet has customers and operations globally. Finally, we expect our ViaSat-3 and ViaSat-4 global constellations will be enablers for the scalable, long-term global expansion of our business, providing the platform for us to deliver high-quality and affordable broadband connectivity worldwide. Demand profile differs by geographic market, reflecting geographic, economic, political, regulatory and other factors. However, the flexibility, high data capacity and broad geographic coverage area of our second- and third-generation proprietary Ka-band satellites allow us to tailor our service offerings for the opportunities and needs of different geographic markets.

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Prioritize the End-User

 

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Recognize Broadband Connectivity is a Means to an End, not an End in Itself. The value of a broadband network is in the applications it enables. With this understanding, we have worked closely with leading edge and content providers (including companies such as Apple, Facebook, fuboTV and others) to enhance end-users’ experiences with their online and streaming media services over our network, helping them leverage the potential of making affordable broadband available in places where it has never been. We also work with U.S. Government agencies, major airlines and others on multiple continents to help ensure end-users have great — and affordable — broadband experiences on our network. Our ViaSat-3 constellation will help meet end-user demand and the need for global reach. In addition, we work with various international governments to help bring digital and social inclusion to their constituents through efficient satellite-enabled services such as our Community Internet hotspots. By making broadband connectivity accessible to millions of people living in regions where traditional terrestrial and wireless internet services were either non-existent or cost prohibitive, we have been able to help generate positive socio-economic impacts — in education, e-commerce, finance, healthcare and more — at lower bandwidth costs.

 

Manage for the Long Term

 

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Pursue Growth Through Strategic Alliances, Partnering Arrangements and Relationships. We actively seek strategic relationships and joint ventures with companies whose financial, marketing, operational or technological resources can accelerate the introduction of new technologies, service offerings and/or the penetration of new markets. For example, in 2018 we entered into a strategic agreement in Brazil with a local partner to bring high-speed, affordable internet to unserved and underserved communities, which will allow us to gain market insights and build brand awareness in advance of when our ViaSat-3 constellation will provide additional capacity to the region. In our government systems segment, we also regularly enter into teaming arrangements with other government contractors to more effectively capture complex government programs. We have also engaged in strategic relationships with companies that have innovative technologies and products, highly skilled personnel, market presence, or customer relationships and distribution channels that complement our strategy. We may continue to evaluate acquisitions of, or investments in, complementary companies, businesses, products or technologies to supplement our internal growth.

Our Customers

Our customer base is highly diversified. Customers in our satellite services segment reflect the diversity in our broadband service offerings and include residential customers, small and medium-sized businesses, enterprise customers, commercial airlines and Community Internet hotspot users. Customers of our fixed broadband services are obtained through either our direct or partner distribution channels. The customers of our government systems and commercial networks segments include the DoD, the U.S. National Security Agency, the intelligence community, the U.S. Department of Homeland Security, FVEY and other allied foreign governments and militaries, select other U.S. federal, state and local government agencies, commercial and defense contractors, satellite network integrators, large communications service providers and enterprises requiring complex communications and networking solutions. We enter into government contracts either directly with U.S. or foreign governments, or indirectly through domestic or international partners or resellers. In our commercial networks segment, we also act as both a prime contractor and subcontractor for the sale of equipment and services.

Revenues from the U.S. Government as an individual customer comprised approximately 30%, 30% and 26% of total revenues for fiscal years 2021, 2020 and 2019, respectively. None of our other customers comprised 10% or more of total revenues in fiscal years 2021, 2020 and 2019.

U.S. Government Contracts

Substantial portions of our revenues are generated from contracts and subcontracts with the DoD and other federal government agencies. Many of our contracts are subject to a competitive bid process and are awarded on the basis of technical merit, personnel qualifications, experience and price. We also receive some contract awards involving special technical capabilities on a negotiated, noncompetitive basis due to our unique mix of communication products, satellite services, engineering capabilities and technical expertise in specialized areas. The Federal Acquisition Streamlining Act of 1994 has encouraged the use of commercial type pricing, such as firm-fixed-price contracts, on dual use products. Our future revenues and income could be materially affected by changes in government procurement policies and related oversight, a reduction in expenditures for the products and services we provide, and other risks generally associated with federal government contracts.

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We provide products under federal government contracts that usually require performance over a period of several months to multiple years. Long-term contracts may be conditioned upon continued availability of congressional appropriations. Variances between anticipated budget and congressional appropriations may result in a delay, reduction or termination of these contracts.

Our federal government contracts are performed under cost-reimbursement contracts, time-and-materials contracts and fixed-price contracts. Cost-reimbursement contracts provide for reimbursement of costs and payment of a fee. The fee may be either fixed by the contract or variable, based upon cost control, quality, delivery and the customer’s subjective evaluation of the work. Under time-and-materials contracts, we receive a fixed amount by labor category for services performed and are reimbursed for the cost of materials purchased to perform the contract. Under a fixed-price contract, we agree to perform specific work, which may include product R&D, for a fixed price and, accordingly, realize the benefit or detriment to the extent that the actual cost of performing the work differs from the contract price. In fiscal year 2021, approximately 10% of our total government revenues were generated from cost-reimbursement contracts with the federal government or our prime contractors, less than 1% from time-and-materials contracts and approximately 90% from fixed-price contracts.

Our allowable federal government contract costs and fees are subject to audit and review by the Defense Contracting Management Agency (DCMA) and the Defense Contract Audit Agency (DCAA), as discussed below under “— Regulatory Environment — Other Regulations.”

Our federal government contracts may be terminated, in whole or in part, at the convenience of the U.S. Government. If a termination for convenience occurs, the U.S. Government generally is obligated to pay for work completed or services rendered and/or the cost incurred by us under the contract, which may include a fee or allowance for profit. Contracts with prime contractors may have negotiated termination schedules that apply. When we participate as a subcontractor, we are at risk if the prime contractor does not perform its contract. Similarly, when we act as a prime contractor employing subcontractors, we are at risk if a subcontractor does not perform its subcontract.

Some of our federal government contracts contain options that are exercisable at the discretion of the customer. An option may extend the period of performance for one or more years for additional consideration on terms and conditions similar to those contained in the original contract. An option may also increase the level of effort and assign new tasks to us.

Our eligibility to perform under our federal government contracts requires us to maintain adequate security measures. We have implemented security procedures that we believe adequately satisfy the requirements of our federal government contracts.

Research and Development

The industries in which we compete are subject to rapid technological developments, evolving standards, changes in customer requirements and continuing developments in the communications and networking environment. Our continuing ability to adapt to these changes, and to develop innovative satellite and communications technologies, and new and enhanced products and services, is a significant factor in maintaining or improving our competitive position and our prospects for growth. Therefore, we continue to make significant investments in next-generation satellite technologies and communications product and services development.

We conduct the majority of our R&D activities in-house and have R&D and engineering staff, which includes approximately 3,000 engineers worldwide. Our product development activities focus on products that we consider viable revenue opportunities to support all of our business segments. We incurred $115.8 million, $130.4 million and $123.0 million during fiscal years 2021, 2020 and 2019, respectively, on independent research and development (IR&D) expenses, which comprise R&D not directly funded by a third party. Funded R&D contains a profit component and is therefore not directly comparable to IR&D. As a U.S. Government contractor, we also are able to recover a portion of our IR&D expenses, consisting primarily of salaries and other personnel-related expenses, supplies and prototype materials related to R&D programs.

Intellectual Property

We seek to establish and maintain our proprietary rights in our technology and products through a combination of patents, copyrights, trademarks, trade secrets and contractual rights. We also seek to maintain our trade secrets and confidential information through nondisclosure policies, the use of appropriate confidentiality agreements and other security measures. We have registered a number of patents and trademarks in the United States and in other countries and have a substantial number of patent filings pending determination. There can be no assurance, however, that these rights can be successfully enforced against competitive products in any particular jurisdiction. Although we believe the

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protection afforded by our patents, copyrights, trademarks, trade secrets and contracts has value, the rapidly changing technology in the networking, satellite and wireless communications industries and uncertainties in the legal process make our future success dependent primarily on the innovative skills, technological expertise and management abilities of our employees rather than on the protections afforded by patent, copyright, trademark and trade secret laws and contractual rights. Accordingly, while these legal protections are important, they must be supported by other factors such as the expanding knowledge, ability and experience of our personnel, and the continued development of new products and product enhancements.

Certain of our products include software or other intellectual property licensed from third parties. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, we believe, based upon past experience and standard industry practice, that such licenses generally could be obtained on commercially reasonable terms. Nonetheless, there can be no assurance that the necessary licenses would be available on acceptable terms, if at all. Our inability to obtain these licenses or other rights or to obtain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could have a material adverse effect on our business, operating results and financial condition.

The industry in which we compete is characterized by rapidly changing technology, a large number of patents, and frequent claims and related litigation regarding patent and other intellectual property rights. We cannot assure you that our patents and other proprietary rights will not be challenged, invalidated or circumvented, that others will not assert intellectual property rights to technologies that are relevant to us, or that our rights will give us a competitive advantage. In addition, the laws of some foreign countries may not protect our proprietary rights to the same extent as the laws of the United States.

Sales and Marketing

We have a sales presence in various domestic and international locations, and we sell our products and services both directly and indirectly through partners, as described below:

 

Satellite Services Sales Organization. Our satellite services sales organization for our broadband internet services sells through both direct and indirect channels. Our residential fixed broadband services are sold directly to customers through our Viasat Internet website, sales call centers and over 1,000 active retail dealers (including DirecTV). Our Community Internet services are sold through local distribution partnerships. Our business internet offerings are sold through a mix of direct sales personnel who work with enterprises and a network of enterprise-focused master agents and wholesale distribution partners. Our commercial aviation offerings are sold direct to airlines, and our business aviation offerings are sold through direct sales and business development personnel as well as through aviation-focused value-added resellers. Our maritime service offerings are sold through direct and indirect value-added reseller partners targeting a variety of maritime commercial prospects. In each case, our focus is to identify business opportunities and develop solutions for the unique needs of each customer segment.

 

Commercial Networks Sales Organization. Our commercial networks sales organization consists of sales managers and sales engineers, who act as the primary interface to establish account relationships and determine technical requirements for customer networks. In addition to our sales force, we maintain a highly-trained service staff to provide technical product and service support to our customers. The sales cycle in the commercial network market is often lengthy and it is not unusual for a sale to take up to 18 months from the initial contact through the execution of the agreement. The sales process often includes several network design iterations, network demonstrations and pilot networks consisting of a few sites.

 

Government Systems Sales Organization. Our government systems sales organization consists of both direct sales personnel who sell our standard products and services, and business development personnel who work with engineers, program managers, marketing managers and contract managers to identify business opportunities, develop customer relationships, develop solutions for customers’ needs, prepare proposals and negotiate contractual arrangements. The period of time from initial contact through the point of product sale and delivery can take over three years for more complex product developments. Products already in production can usually be delivered to a customer between 90 to 180 days from the point of product sale.

 

Strategic Partners. To augment our direct sales efforts, we seek to develop key strategic relationships to market and sell our products and services. We direct our sales and marketing efforts to our strategic partners, primarily through our senior management relationships. In some cases a strategic ally may be the prime contractor for a system or network installation and will subcontract a portion of the project to us. In other cases, the strategic ally may recommend us as the prime contractor for the design and integration of the network. We seek strategic relationships and partners based on many factors, including financial resources, technical capability, geographic location and market presence.

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Our marketing team works closely with our corporate and business segment leadership, customer account executives, and business development, sales and operations organizations to increase the awareness of the Viasat brand through a mix of positive program performance, agile, results-oriented multichannel marketing campaigns that reflect new and evolving customer journeys, public relations, paid media, live and virtual trade show participation and conference speaking engagements that keep the market current on our services, products and features. Viasat products and services, both in the U.S. and internationally, are typically sold under one unified master global brand, using a single logo and visual identity system. Our marketing team also identifies and sizes new and adjacent target markets for our products and services, creates awareness of our company and our portfolio of offerings, and generates contacts and leads within these targeted markets.

Competition

The markets in which we compete are characterized by rapid change, converging technologies and a migration to solutions that offer higher capacity and speed and other superior advantages. These market factors represent both an opportunity and a competitive threat to us. In many cases our competitors can also be our customers or partners. Accordingly, maintaining an open and cooperative relationship is important. The overall number of our competitors may increase, and the identity and composition of competitors may change. As we continue to expand our business globally, we may see new competition in different geographic regions.

To compete, we emphasize:

 

the high-speed, high-quality and broad geographic availability of our broadband services;

 

our deep understanding of our customers’ unique expectations and requirements;

 

our proven designs and network integration services for complex, customized network needs;

 

our demonstrated performance in uniquely challenging environments;

 

the increased bandwidth efficiency offered by our networks, products and services;

 

our advanced security and information assurance capabilities;

 

the innovative and flexible features integrated into our products and services;

 

our network management experience;

 

our end-to-end network implementation capabilities;

 

the distinct advantages of satellite data networks;

 

the technical advantages and advanced features of our antenna systems as compared to our competitors’ offerings; and

 

the overall cost-effectiveness of our communications systems, products and services.

While we believe we compete successfully on each of these factors, we expect to continue to face intense competition in each of our markets.

In our satellite services segment, we face competition for fixed broadband services both from existing competitors and emerging technologies. Our fixed broadband service offerings compete with broadband service offerings from wireline and wireless telecommunications companies, including cable companies, fiber and DSL companies, satellite companies and fixed wireless companies. Many of our competitors are larger than us, have substantial capital resources, have greater brand recognition, have access to spectrum or technologies not available to us, or are able to offer bundled service offerings that we are not able to duplicate, all of which may reduce demand for our broadband services. This has in part driven our strategic focus on suburban and rural geographies outside of the cable and fiber competitive footprint. New entrants, some with significant financial resources and new emerging technologies (including terrestrial and space-based networks, such as LEO and MEO constellations) may compete with our broadband service offerings. Additionally, wireless telecommunications carriers such as AT&T, T-Mobile and Verizon are currently offering unlimited wireless data plans that could attract our existing and future subscribers. Our IFC and W-IFE service offerings compete against air-to-ground mobile services and other satellite-based services, such as the services offered by Global Eagle Entertainment, Gogo, Intelsat, Inmarsat and Panasonic Avionics Corporation, and in the future may compete against companies pursuing LEO and MEO constellations.

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In our commercial networks segment, we compete with numerous other providers of satellite and terrestrial communications systems, products and equipment, including: Airbus, CPI SATCOM & Antenna Technologies Division, Comtech, EchoStar (Hughes Network Systems), General Dynamics, Gilat, L3Harris, Panasonic, Safran Aerosystems, Space Systems/Loral (SS/L) (MAXAR), ST Engineering iDirect and Thales Group. In addition, some of our customers continuously evaluate whether to develop and manufacture their own products and could elect to compete with us at any time.

Within our government systems segment, we generally compete with government communications service providers and manufacturers of defense electronics products, systems or subsystems, such as BAE Systems, Collins Aerospace, General Dynamics, Inmarsat, Intelsat, L3Harris and similar companies. We may also compete directly with the largest defense prime contractors, including Boeing, Lockheed Martin, Northrop Grumman and Raytheon Technologies Corporation. In many cases we partner with our competitors, and therefore maintaining an open and cooperative relationship is important.

Many of our competitors in our commercial networks and government systems segments have significant competitive advantages, including strong customer relationships, more experience with regulatory compliance, greater financial and management resources and access to technologies not available to us. Many of our competitors are also substantially larger than we are and may have more extensive engineering, manufacturing and marketing capabilities than we do. As a result, these competitors may be able to adapt more quickly to changing technology or market conditions or may be able to devote greater resources to the development, promotion and sale of their products.

Manufacturing

Our manufacturing objective is to produce high-quality products that conform to specifications at the lowest possible manufacturing cost. To achieve this objective, we primarily utilize a range of contract manufacturers that are selected based on the production volumes and complexity of the product. By employing contract manufacturers, we are able to reduce the costs of products and support rapid fluctuations in delivery rates when needed. As part of our manufacturing process, we conduct extensive testing and quality control procedures for all products before they are delivered to customers.

Contract manufacturers produce products for many different customers and are able to pass on the benefits of large-scale manufacturing to their customers. These manufacturers are able to produce high quality products at lower costs by: (1) exercising their high-volume purchasing power, (2) employing advanced and efficient production equipment and capital intensive systems whose costs are leveraged across their broad customer base, and (3) using a cost-effective skilled workforce. Our primary contract manufacturers include Benchmark, CyberTAN, IEC Electronics Corporation, L3Harris, Microelectronics Technology, Plexus, Regal Technology Partners and Sanmina.

Our experienced management team facilitates an efficient contract manufacturing process through the development of strong relationships with a number of different domestic and off-shore contract manufacturers. By negotiating beneficial contract provisions and purchasing some of the equipment needed to manufacture our products, we retain the ability to move the production of our products from one contract manufacturing source to another if required. Our operations management has experience in the successful transition from in-house production to contract manufacturing. The degree to which we employ contract manufacturing depends on the maturity of the product and the forecasted production life cycle. We intend to limit our internal manufacturing capacity to supporting new product development activities, building customized products that need to be manufactured in strict accordance with a customer’s specifications or delivery schedules, and building proprietary, highly sensitive Viasat-designed products and components for use in our proprietary technology platform. Therefore, our internal manufacturing capability for standard products has been, and is expected to continue to be, very limited and we intend to continue to rely on contract manufacturers for large-scale manufacturing. Our internal manufacturing capability is dependent on the availability of essential materials, parts and subassemblies from our suppliers and subcontractors. We use numerous sources for the wide array of raw materials required for our operations and our products, such as electronic components, printed circuit boards, metals and plastics. Although alternative sources generally exist for these raw materials, qualification of the sources could take a year or more. We also rely on outside vendors to manufacture specific components and subassemblies used in the production of our products. Some components, subassemblies, and services necessary for the manufacture of our products are obtained from a sole source supplier or a limited group of suppliers.

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Regulatory Environment

We are required to comply with the laws and regulations of, and often obtain approvals from, national and local authorities in connection with the services that we provide. In particular, we provide a number of services that rely on the use of radio-frequency spectrum, and the provision of such services is highly regulated. National authorities generally require that the satellites they authorize be operated in a manner consistent with the regulations and procedures of the International Telecommunication Union (ITU), a specialized agency of the United Nations, which require the coordination of the operation of satellite systems in certain circumstances, and more generally are intended to avoid the occurrence of harmful interference among different users of the radio spectrum.

We also produce a variety of communications systems and networking equipment, the design, manufacture, and marketing of which are subject to the laws and regulations of the jurisdictions in which we sell such equipment. We are subject to export control laws and regulations, and trade and economic sanctions laws and regulations, with respect to the export of such systems and equipment. As a government contractor, we are subject to U.S. procurement laws and regulations.

Radio-frequency and Communications Regulation

International Telecommunication Union (ITU)

The orbital location and frequencies for our satellites are subject to the ITU’s regulations, including its frequency registration and coordination procedures, and its various provisions on spectrum usage. Those procedures are specified in the ITU Radio Regulations and seek to facilitate shared international use of limited spectrum and orbital resources in a manner that avoids harmful interference. Among other things, the ITU regulations set forth procedures for establishing international priority with respect to the use of such resources, deadlines for bringing satellite networks into use in order to maintain such priority, and coordination rights and obligations with respect to other networks, which vary depending on whether such networks have higher or lower ITU priority.

The ITU regulations provide allocations or designations for how spectrum can be used for various purposes, and whether such uses operate on a primary or secondary basis with respect to one another. Secondary uses may not cause harmful interference to primary uses, and may not claim interference protection from primary uses.

On our behalf, various countries have made ITU filings, and may in the future make additional filings, for the frequency assignments at particular orbital locations that are used, or may in the future be used, by our current satellite networks and potential future satellite networks we may build or acquire. In the event that any international coordination process that is triggered by such an ITU filing is not successfully completed, or bringing into use deadlines or requirements are not satisfied, we may be compelled to accept more limited or suboptimal orbital and spectrum rights, to operate the applicable satellite(s) on a non-interference basis, or to cease operating such satellite(s) altogether. The orbital arc is becoming increasingly congested with respect to such ITU filings and the satellite networks operated under those filings.

In addition, the ITU’s Radio Regulations are subject to change at periodic ITU World Radio-communication Conferences (WRCs), and their application is determined by various governing bodies within the ITU. WRCs typically are convened approximately every four years, with the next one scheduled to occur in 2023. The next WRC is considering various changes to the Radio Regulations that address the terms and conditions under which spectrum is used for satellite and terrestrial and purposes, and future WRCs are likely to do the same.

Spectrum

The space stations and ground networks we use to provide our broadband services rely on access to spectrum within each country in which we do business. Use of such spectrum is authorized by regulatory authorities within each country (or a regional authority whose jurisdiction over spectrum rights encompasses that country), which determine the terms and conditions for access to and use of that spectrum in that particular country. The terms and conditions for access can and do vary by country, may differ from the ITU’s Radio regulations, and may change over time. In particular, the growing demand for both satellite and terrestrial communications services is causing many countries to evaluate how spectrum is used within their borders, and to consider changes in the local terms and conditions for access to and use of spectrum. Those terms and conditions affect, among other things, the extent to which, and how, we must share spectrum with other spectrum users, including terrestrial and satellite uses, and whether we must operate on a secondary basis in some cases. Most of the spectrum on which we rely is shared with other satellite networks, including those operating in different orbits that could cross our orbital location and result in interference conditions. In many countries, portions of the spectrum on which we rely also are shared with terrestrial wireless services.

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If the deployment of new terrestrial or satellite networks results in harmful interference into our satellite operations, or if the implementation of those networks under newly adopted terms and conditions constrains or prohibits the types of spectrum uses for which we have planned in a manner that we do not anticipate, such developments could have a material adverse effect on our business, financial condition and results of operations.

Broadband Services

We provide high-speed broadband internet access and VoIP services to customers in the United States, as well as in Europe and Latin America and on aircraft and seagoing vessels travelling around the world. Our provision of these services is subject to a number of legal obligations, including requirements to obtain licenses, authorizations and/or registrations to provide service in or to a given jurisdiction, implementation of certain network capabilities to assist law enforcement, and open internet requirements. Legislators and regulators often consider changes to existing statutes, rules and requirements, or prescribe new ones, which could significantly impact the ability to comply, or the costs of complying with, these types of obligations, or that otherwise could materially and adversely affect our ability to provide service in a given jurisdiction.    

US Regulation

The commercial use of radio-frequency spectrum in the United States is subject to the jurisdiction of the Federal Communications Commission (FCC) under the Communications Act of 1934, as amended (Communications Act). The FCC is responsible for licensing the operation of satellite earth stations and spacecraft, regulating the technical and other aspects of the operation of these facilities, and regulating certain aspects of the provision of services to customers.

Earth Stations. The Communications Act requires a license for the operation of transmitting satellite earth station facilities and certain receiving satellite earth station facilities in the United States. We currently hold licenses authorizing us to operate various earth stations within the United States, including but not limited to user terminals and facilities that aggregate traffic and interconnect with the internet backbone and network hubs. These licenses typically are granted for 15 year terms, and typically are renewed in the ordinary course. Material changes in earth station operations would require prior approval by the FCC. The operation of our earth stations is subject to various license conditions, as well as the technical and operational requirements of the FCC’s rules and regulations.

Space Stations. In the United States, the FCC authorizes the launch and operation of commercial spacecraft, and also authorizes non-U.S. licensed spacecraft to be used to serve the United States. The FCC has authorized the use of the ViaSat-1, ViaSat-2, WildBlue-1, Anik F2 and one ViaSat-3 class spacecraft to serve the United States. The FCC also has granted us the right to use certain future spacecraft to serve the United States, as long as we implement those spacecraft by certain deadlines. The use of these spacecraft in our business is subject to various conditions in the underlying authorizations, as well as the technical and operational requirements of the FCC’s rules and regulations.

Universal Service. Certain of our services may constitute the provision of telecommunications to, from or within the United States, and may require us to contribute a percentage of our revenues from such services to universal service support mechanisms that subsidize the provision of services to low-income consumers, high-cost areas, schools, libraries and rural health care providers. This percentage is set each calendar quarter by the FCC, and currently is 33.4%. Current FCC rules permit us to pass this universal service contribution through to our customers. The FCC has established universal service funding mechanisms to support the provision of voice and broadband services in certain high-cost areas of the United States. These supporting mechanisms are known as the Connect America Fund (CAF) and the Rural Digital Opportunity Fund (RDOF). Among other things, the CAF and RDOF mechanisms provide, or will likely provide, support to terrestrial service providers under terms and conditions that are not available to satellite-based service providers. The CAF and RDOF mechanisms could provide other service providers a competitive advantage in providing broadband services in supported areas, which could have a material adverse effect on our business, financial condition and results of operations. Additionally, Viasat has been selected as the winning bidder with respect to $122.5 million in support under the CAF program to serve certain portions of the country, and must comply with federal and state obligations imposed in connection with such support.

CALEA. We are obligated to comply with the requirements of the Communications Assistance for Law Enforcement Act (CALEA), which requires telecommunications providers and broadband internet access providers to ensure that law enforcement agencies are able to conduct lawfully-authorized surveillance of users of their services.

Net Neutrality. In February 2015, the FCC adopted new rules intended to preserve the openness of the internet, a concept generally referred to as “net neutrality” or “open internet.” The FCC’s “net neutrality” rules, among other things, prohibited all ISPs from: (i) blocking access to legal content, applications, services, or non-harmful devices (subject to an exception for “reasonable network management”); (ii) impairing or degrading lawful internet traffic on the basis of content, applications, services, or non-harmful devices (subject to the same exception); (iii) favoring some lawful internet traffic

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over other lawful traffic in exchange for consideration of any kind whatsoever; and (iv) unreasonably interfering with or unreasonably disadvantaging the ability of end users to access content or the ability of content providers to access end users (again subject to the exception for “reasonable network management”). ISPs also are obligated to make certain disclosures to consumers with respect to their network management policies.

In adopting these rules, the FCC relied on Title II of the Communications Act, which authorizes the FCC to regulate telecommunications common carriers. More specifically, the FCC reclassified mass-market retail broadband internet access service as a “telecommunications service” subject to common-carrier regulation under Title II, reversing longstanding precedent classifying broadband as a lightly regulated “information service” not subject to such regulation. Such common-carrier regulation potentially could have included review of the reasonableness of an ISP’s rates and practices.

In January 2018, the FCC adopted an order restoring the classification of broadband internet access service as a lightly regulated information service, ending the Title II regulatory approach adopted in 2015. The order eliminated explicit requirements against blocking or throttling traffic and paid prioritization of traffic. At the same time, the FCC maintained the consumer disclosure requirements with some modifications and acknowledged the jurisdiction of the Federal Trade Commission to enforce consumer protection measures. The 2018 order was largely upheld by the D.C. Circuit. In addition, legislative proposals that would restore net neutrality requirements are being considered in Congress, and some states have recently adopted portions of the net neutrality requirements. Some legislative actions at the state level are being challenged in courts on federal preemption and other grounds. We cannot predict the outcome of these pending lawsuits and legislative efforts, or any resulting impact on ISPs.

Privacy and Data Security. We are subject to federal and state laws concerning privacy and the handling of consumers’ personal information. Certain of these laws provide privacy protections for customer proprietary network information related to our voice services. The Federal Trade Commission also oversees consumer privacy and data security more broadly through its authority to take enforcement action for unfair or deceptive practices, and state consumer protection laws can prompt review of privacy practices by state attorneys general. In addition, certain states have established specific consumer privacy and data security requirements, including the California Consumer Privacy Act (CCPA) and the California Privacy Rights Act that will amend the CCPA in January 2023, which combined give California residents the right to receive certain disclosures regarding the collection, use, and disclosure of personal information, as well as rights to access, delete, and restrict the sale and sharing of certain personal information collected about them by us and our service providers. State laws continue to evolve, and as various states introduce similar proposals, we and our business customers and partners could be exposed to additional regulatory obligations. Many states also have enacted security breach notification laws requiring notice to consumers and government agencies upon disclosure of certain information to an unauthorized party resulting from a security breach.

Foreign Regulation

Our operation of spacecraft and ground network and our provision of services to customers outside of the United States are subject to legal requirements of the jurisdictions issuing the satellite authorizations and in which Viasat provides services. These include obtaining the market access, spectrum access and licenses, authorizations and/or registrations that are necessary to operate or provide service in or to a given jurisdiction, and in many cases licenses for the operation of transmitting satellite earth station facilities and certain receiving satellite earth station facilities. In particular, we must obtain authority to operate various earth stations outside the United States, including but not limited to user terminals and facilities that aggregate traffic and interconnect with the internet backbone and network hubs. This authority is subject to conditions and limitations that vary from jurisdiction to jurisdiction.

The spacecraft we use in our business are subject to the regulatory authority of, and conditions imposed by, foreign governments, as well as contractual arrangements with third parties and the rules and procedures of the ITU. Our ViaSat-1 satellite operates under authority granted to ManSat Limited by the governments of the Isle of Man and the United Kingdom (as well as authority from the FCC), and pursuant to contractual arrangements we have with ManSat Limited that extend past the expected useful life of ViaSat-1. ViaSat-2 operates under the authority of the United Kingdom. We also use Ka-band capacity on the Anik F2 satellite to provide our broadband services under an agreement with Telesat Canada, and we may do so until the end of the useful life of that satellite. Telesat Canada operates that satellite under authority granted to it by the government of Canada. We also currently use the WildBlue-1 satellite, which we own, and which is co-located with Anik F2 under authority granted to Telesat Canada by the government of Canada, and pursuant to an agreement we have with Telesat Canada that expires upon the end of the useful life of Anik F2. Accordingly, we are reliant upon ManSat Limited and Telesat Canada maintaining their respective governmental rights on which our operating rights are based. The use of these spacecraft in our business is subject to various conditions in the underlying authorizations held by us, ManSat Limited and Telesat Canada, as well as the technical and operational requirements of the rules and regulations of those jurisdictions.

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We are also subject to certain other forms of foreign regulation in connection with our provision of communications services. In the area of privacy, we are subject to existing, new, and evolving laws and regulations in the markets in which we operate. For instance, certain of our business units are subject to the European Union’s (EU) General Data Protection Regulation (GDPR), which imposes transparency, accountability, data protection, cross-border data transfer, and other obligations on Viasat both as a data controller and a data processor in relation to personal information of individuals in the EU. Privacy laws and regulations can be subject to differing interpretations and may be inconsistent among jurisdictions. Certain foreign jurisdictions in which we operate also impose requirements related to network management practices, cooperation with local law enforcement agencies, and other matters. A smaller number of foreign jurisdictions in which we operate have adopted laws enabling the government to suspend ISP services in the country.

Equipment Design, Manufacture, and Marketing

We must comply with the applicable laws and regulations and, where required, obtain the approval of the regulatory authority of each country in which we design, manufacture, or market our communications systems and networking equipment. Applicable laws and regulatory requirements vary from country to country, and jurisdiction to jurisdiction. The increasing demand for wireless communications has exerted pressure on regulatory bodies worldwide to adopt new standards for these products, generally following extensive investigation and deliberation over competing technologies. The delays inherent in this government approval process have in the past caused and may in the future cause the cancellation, postponement or rescheduling of the installation of communication systems by our customers, which in turn may have a material adverse impact on the sale of our products to the customers.

Equipment Testing and Verification. Certain equipment that we manufacture must comply with applicable technical requirements intended to minimize radio interference to other communications services and ensure product safety. In the United States, the FCC is responsible for ensuring that communications devices comply with technical requirements for minimizing radio interference and human exposure to radio emissions. Other regulators perform similar functions around the world. These types of requirements typically provide for equipment to be tested either by the manufacturer or by a private testing organization to ensure compliance with the applicable technical requirements. In some cases, the regulator requires submission of an application, which must be approved by the regulator or a private testing organization accredited by the regulator.

Export Controls. Due to the nature and sophistication of our communications products, we must comply with applicable U.S. Government and other agency regulations regarding the handling and export of certain of our products. This often requires extra or special handling of these products and could increase our costs. Failure to comply with these regulations could result in substantial harm to the company, including fines, penalties and the forfeiture of future rights to sell or export these products.

Aviation-Related Regulation

Aircraft Modification. The Federal Aviation Administration (FAA) is responsible for the regulation and oversight of civil aviation within the United States. The FAA develops and enforces airworthiness standards and regulations that certify the industry’s ability to manufacture aircraft and aircraft components, perform modification and maintenance activities on aircraft, and repair equipment previously installed on aircraft. We interact with the FAA regarding aircraft modification through two main activities: (1) supporting Type Certificate (TC) activity with an aircraft original equipment manufacturer (OEM) to obtain linefit certification of our IFC and W-IFE equipment and (2) obtaining a Supplemental Type Certificate (STC) to enable the retrofit of our IFC and W-IFE equipment. With respect to TC activity, the OEM is responsible for full certification and FAA regulatory compliance and we are responsible for providing certified equipment to the OEM. With respect to STC activity, we typically use Organization Designation Authorization (ODA) to support holding and maintaining our STCs to ensure FAA regulatory compliance. Our commercial aviation business depends on our ability to interact with the FAA and ODAs, as well as FAA-certified engineering professionals, in order to access data and obtain authorizations and approvals.

Parts Manufacturing Approval. We have a wide range of products supporting both commercial and business aviation customers. The FAA, under its Part Manufacturing Approval (PMA) program, provides authorization to entities like us and our vendors to manufacture and deliver IFC and W-IFE equipment. These approvals are provided through assigned FAA Manufacturing Inspection District Offices and are subject to strict rules and ongoing oversight. We have been able to obtain PMA on our entire fleet of current IFC and W-IFE product offerings due to multiple licensing agreements with both OEMs for linefit installations and ODAs for retrofit installations.

FAA Part 145 Repair Stations. The FAA has approved several of our locations as 14 CFR Part 145 repair stations, which enables us to provide ongoing support to customers with respect to our IFC and W-IFE systems. These repair stations support both line-replaceable unit (LRU) and line maintenance activities associated with our IFC and W-IFE products. These approvals are provided and overseen by FAA Flight Standards District Offices. We have also obtained European Aviation Safety Agency (EASA) approval for our repair stations dedicated to LRU repair and maintenance for our IFC and W-IFE products.

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Other Regulations

As a government contractor, we are routinely subject to audit and review by the DCMA, the DCAA and other U.S. Government agencies of our 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. Both contractors and the U.S. Government agencies conducting these audits and reviews have come under increased scrutiny. In particular, audits and reviews have become more rigorous and the standards to which we are held are being more strictly interpreted, increasing the likelihood of an audit or review resulting in an adverse outcome. Increases in congressional scrutiny and investigations into business practices and major programs supported by contractors may lead to increased legal costs and may harm our reputation and profitability if we are among the targeted companies. 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 us, 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 we fail to obtain an “adequate” determination of our various accounting and management internal control business systems from applicable U.S. Government agencies or if allegations of impropriety are made against us, we could suffer serious harm to our business or our reputation, including our ability to bid on new contracts or receive contract renewals or our competitive position in the bidding process. Any of these outcomes could have a material adverse effect on our business, financial condition and results of operations.

We are also subject to a variety of U.S. and international regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture our products. The failure to comply with current or future regulations could result in the imposition of substantial fines on us, suspension of production, alteration of our manufacturing processes or cessation of operations. To date, these regulations have not had a material effect on our business, as we have neither incurred significant costs to maintain compliance nor to remedy past noncompliance, and we do not expect such regulations to have a material effect on our business in the current fiscal year.

Seasonality

In our satellite services segment, historically subscriber activity for our fixed broadband services has been influenced by seasonal effects related to traditional retail selling periods, with new sales activity generally anticipated to be higher in the second half of the calendar year. However, sales activity and churn can be strongly affected by other factors which may either offset or magnify any anticipated seasonal effects, including availability of capacity, promotional and subscriber retention efforts, changes in our resellers, distributors and wholesalers, changes in the competitive landscape, economic conditions, and changes in credit check and subscriber approval processes.

Our commercial networks segment is not generally affected by seasonal impacts. In our government systems segment, our results are impacted by various factors including the timing of contract awards and the timing and availability of U.S. Government funding, as well as the timing of product deliveries and customer acceptance.

While the above-described trends have been observed consistently in recent years, we cannot predict with any certainty whether they will continue in the near future as the economy and our customers continue to react to the COVID-19 pandemic and experience associated disruptions and dislocations. See the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — COVID-19” in Item 7 for a discussion of the impact of the COVID-19 pandemic on our satellite services segment.

Availability of Public Reports

Through a link on the Investor Relations section of our website at www.viasat.com, we make available the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings are available free of charge. They are also available free of charge on the SEC’s website at www.sec.gov. The information on our website is not part of this report or any other report that we furnish to or file with the SEC.

Human Capital

As of March 31, 2021, we employed approximately 5,800 individuals worldwide, with 91% of our workforce located in the United States. We consistently engage with our employees and generally consider the relationships with our employees to be positive, with a significant majority stating that they are proud to work at Viasat. Competition for technical personnel in our industry is intense. We believe our future success depends in part on our continued ability to attract, hire, engage and retain qualified personnel.

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Viasat has a long history of putting people first. We believe that one of the most important investments we make is in our people. Our mission to connect the world depends on our ability to come together as one team to make a positive impact. As a global team, we take pride in our culture of teamwork, trust and collaboration. We prioritize our employees’ health and well-being to ensure we are all able to do our best work. For example, in response to the COVID-19 pandemic, we quickly transitioned teams to a work-from-home model and equipped them with the resources to perform their jobs safely. For certain employees, whose roles needed to be performed onsite, we deployed a robust set of safety protocols aligned with then-current medical best practices and government mandates. We also introduced additional resources and benefits, including mental health and well-being resources and paid time off for COVID-19-related issues.

Our key pillars of human capital management are ensuring the health and safety of our employees, developing talented people, fostering diversity and inclusion and engaging communities. We believe that our long-term success is in large part dependent on our success across these dimensions, and we will continue to invest in and prioritize these areas in the future.

Executive Officers

Set forth below is information concerning our executive officers and their ages:

 

Name

 

Age

 

Position

Mark Dankberg

 

66

 

Executive Chairman

Richard Baldridge

 

63

 

President & Chief Executive Officer and Board Director

Robert Blair

 

47

 

Vice President, General Counsel and Secretary

Girish Chandran

 

56

 

Vice President and Chief Technical Officer

Evan Dixon

 

40

 

President, Global Fixed Broadband

James Dodd

 

59

 

Senior Vice President and President, Global Enterprise & Mobility

Shawn Duffy

 

51

 

Senior Vice President and Chief Financial Officer

Kevin Harkenrider

 

65

 

Executive Vice President, Global Operations and Chief Operations Officer

Melinda Kimbro

 

48

 

Senior Vice President, People & Culture and Chief People Officer

Keven Lippert

 

49

 

Executive Vice President, Strategic Initiatives and Chief Commercial Officer

Craig Miller

 

49

 

President, Government Systems

Mark Miller

 

61

 

Executive Vice President and Chief Technical Officer

Krishna Nathan

 

59

 

Chief Information Officer

David Ryan

 

66

 

Senior Vice President and President, Space & Commercial Networks

 

Mark Dankberg is a founder of Viasat and has served as Executive Chairman since November 2020, and previously served as Chairman of the Board and Chief Executive Officer of Viasat since its inception in May 1986. Mr. Dankberg provides Viasat with significant operational, business and technological expertise in the satellite and communications industry, and intimate knowledge of the issues facing our management. Mr. Dankberg also has significant expertise and perspective as a member of the boards of directors of companies in various industries, including communications. Mr. Dankberg currently serves on the board of Lytx, Inc., a privately-held company that provides fleet safety management solutions, and the Rice University Board of Trustees. Prior to founding Viasat, he was Assistant Vice President of M/A-COM Linkabit, a manufacturer of satellite telecommunications equipment, from 1979 to 1986, and Communications Engineer for Rockwell International Corporation from 1977 to 1979. Mr. Dankberg holds B.S.E.E. and M.E.E. degrees from Rice University.

Richard Baldridge joined Viasat in April 1999, serving as our Executive Vice President, Chief Financial Officer and Chief Operating Officer from 2000 and as our Executive Vice President and Chief Operating Officer from 2002. Mr. Baldridge was appointed President and Chief Operating Officer in 2003 and assumed his current role of President and Chief Executive Officer in November 2020. Mr. Baldridge has also served on our Board of Directors since 2016. In addition, Mr. Baldridge serves as a director of Ducommun Incorporated (NYSE: DCO), a provider of engineering and manufacturing services to the aerospace and defense industries, and EvoNexus, a San Diego based non-profit technology incubator. Prior to joining Viasat, Mr. Baldridge served as Vice President and General Manager of Raytheon Corporation’s Training Systems Division from January 1998 to April 1999. From June 1994 to December 1997, Mr. Baldridge served as Chief Operating Officer and Chief Financial Officer for Hughes Information Systems and Hughes Training Inc., prior to their acquisition by Raytheon in 1997. Mr. Baldridge’s other experience includes various senior

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financial and general management roles with General Dynamics Corporation. Mr. Baldridge holds a B.S.B.A. degree in Information Systems from New Mexico State University.

Robert Blair joined Viasat in May 2008 as Assistant General Counsel. In April 2009, Mr. Blair was appointed Associate General Counsel and in 2014 was appointed Vice President and Deputy General Counsel. In May 2017, Mr. Blair assumed his current position as Vice President, General Counsel and Secretary. In addition, Mr. Blair has served as a director of the San Diego Regional Economic Development Corporation since 2015. Prior to joining Viasat, Mr. Blair was an associate at the law firm of Latham & Watkins LLP. Mr. Blair holds a J.D. degree from Stanford University and A.B. degrees in Broadcast Journalism and Policy Studies from Syracuse University.

Girish Chandran joined Viasat in October 2007 as a Principal Engineer. In September 2013, Mr. Chandran was appointed Chief Technology Officer — Commercial Networks. In May 2017, he assumed his current position as Vice President and Chief Technical Officer. Mr. Chandran has extensive experience building multimedia networks. Prior to joining Viasat, from 2001 to 2007, Mr. Chandran served as Vice President of Engineering at Newtec America Inc., a satellite communications equipment provider. From 1995 to 2001, he held several roles, including Vice President of Systems Engineering, at Tiernan Communications Inc. (acquired by Radyne Comstream Inc.), a provider of video compression and transmission solutions. Mr. Chandran earned a Ph.D. degree in Electrical Engineering from the University of California, San Diego, an M.S. degree in Electrical Communication Engineering from the Indian Institute of Science and a BSc. degree in Physics from the University of Kerala.

Evan Dixon joined Viasat in 2015 and served as Deputy CEO and Chief Marketing Officer of Euro Broadband Infrastructure Sarl (which was at that time 49% owned by Viasat). In March 2018, he was appointed Vice President and General Manager of Viasat Europe, and in March 2020, he was appointed President, Global Fixed Broadband. Mr. Dixon previously held senior management positions at DIRECTV, a satellite television company, and AT&T Inc., a telecommunications company. Mr. Dixon holds a B.S. degree in Business Administration from the University of Colorado and an M.B.A. degree from Pepperdine University.

James Dodd joined Viasat in March 2020 as President, Global Mobile Solutions. In December 2020, he assumed his current position as Senior Vice President and President, Global Enterprise & Mobility. Prior to joining Viasat, Mr. Dodd held a number of senior-level aviation management and engineering roles at Boeing, focused on complex Department of Defense and international contracted programs, overseeing strategic planning, execution, engineering and business development. Mr. Dodd was retired from October 2016 to February 2020, and at Boeing served as Vice President and Program Manager – Mobility, Surveillance and Engagement from 2015 to September 2016, Vice President and Program Manager – Weapons and Missile Systems from 2013 to 2014, and Vice President and Program Manager – Phantom Works, Advanced Boeing Military Aircraft from 2011 to 2012. Mr. Dodd earned an M.B.A. degree from Seattle University and a B.S. degree in Physics from Arkansas State University.

Shawn Duffy joined Viasat in 2005 as Corporate Controller. In 2009, she was appointed Viasat’s Vice President and Corporate Controller and in 2012 was appointed Vice President — Corporate Controller and Chief Accounting Officer. From August 2012 until April 2013, Ms. Duffy also served as interim Chief Financial Officer. She assumed her current position as Senior Vice President and Chief Financial Officer in June 2014. Prior to joining Viasat, Ms. Duffy was a Senior Manager at Ernst & Young, LLP, serving the technology and consumer product markets. Ms. Duffy is a certified public accountant in the State of California, and earned a B.S.B.A. degree in Accounting from San Diego State University.

Kevin Harkenrider joined Viasat in October 2006 as Director — Operations, served as Vice President — Operations from January 2007 until December 2009, served as Vice President of Viasat and Chief Operating Officer of Viasat Communications Inc. from December 2009 to April 2011, as Senior Vice President — Infrastructure Operations from April 2011 to May 2012, as Senior Vice President — Broadband Services from May 2012 to May 2015, as Senior Vice President — Commercial Networks from May 2015 to May 2018, and as Senior Vice President and President, Broadband Systems from May 2018 until March 2020. Mr. Harkenrider assumed his current position as Executive Vice President – Global Operations and Chief Operations Officer in March 2020. Prior to joining Viasat, Mr. Harkenrider served as Account Executive at Computer Sciences Corporation from 2002 through October 2006. From 1992 to 2001, Mr. Harkenrider held several positions at BAE Systems, Mission Solutions (formerly GDE Systems, Marconi Integrated Systems and General Dynamics Corporation, Electronics Division), including Vice President and Program Director, Vice President — Operations and Vice President — Material. Prior to 1992, Mr. Harkenrider served in several director and program manager positions at General Dynamics Corporation. Mr. Harkenrider holds a B.S. degree in Civil Engineering from Union College and an M.B.A. degree from the University of Pittsburgh.

Melinda Kimbro joined Viasat in 2001 as Manager of Learning and Development. In 2003 she began to assume a broader role with the Human Resources organization. In 2008 she was appointed Director of Human Resources and in 2011 was appointed Vice President — Human Resources. In April 2016, she assumed the position of Senior Vice President — Human Resources, which was retitled Senior Vice President — People & Culture in April 2017. In May 2018,

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she was also named Chief People Officer. Ms. Kimbro currently serves on the board of trustees at the San Diego Museum of Art. Ms. Kimbro started her career teaching at San Diego State University within the School of Communication. Prior to joining Viasat she held roles in corporate learning and organizational development for Nicholas-Applegate Capital Management, Qualcomm Personal Electronics and Sony Electronics. Ms. Kimbro holds B.A. and M.A. degrees in Communication from San Diego State University.

Keven Lippert joined Viasat in May 2000 as Associate General Counsel and Assistant Secretary. In April 2007, he was appointed Viasat’s Vice President, General Counsel and Secretary, in 2012 he was appointed Senior Vice President — General Counsel and Secretary, and in June 2014 he was appointed Executive Vice President — General Counsel and Secretary. In May 2017, he was appointed President, Broadband Services and Chief Legal Officer, and in May 2018, he assumed the position as Executive Vice President, Corporate Development and Chief Administrative Officer. Effective September 2018, he assumed his current position as Executive Vice President, Strategic Initiatives and Chief Commercial Officer. Prior to joining Viasat, Mr. Lippert was a corporate associate at the law firm of Latham & Watkins LLP. Mr. Lippert holds a J.D. degree from the University of Michigan and a B.S. degree in Business Administration from the University of California, Berkeley.

Craig Miller joined Viasat in 1995 and has held numerous technology, business and strategic leadership roles. In January 2015, Mr. Miller was appointed Chief Technology Officer, Government Systems, and in May 2021, he was promoted to President, Government Systems. Mr. Miller holds a B.S. degree in Electrical Engineering from the University of Arizona.

Mark Miller is a founder of Viasat and served as Vice President and Chief Technical Officer of Viasat from March 1993 to June 2014, when he assumed his current position as Executive Vice President and Chief Technical Officer. From 1986 through 1993, Mr. Miller served as Engineering Manager. Prior to joining Viasat, Mr. Miller was a Staff Engineer at M/A-COM Linkabit from 1983 to 1986. Mr. Miller holds a B.S.E.E. degree from the University of California, San Diego and an M.S.E.E. degree from the University of California, Los Angeles.

Krishna Nathan joined Viasat in September 2019 as its Chief Information Officer. Mr. Nathan previously held senior leadership roles at S&P Global, a financial information and analytics company, and IBM, a technology company. Mr. Nathan holds a B.S. degree in Electrical Engineering from George Washington University, an M.S. degree in Electrical Engineering from M.I.T. and a Ph.D. degree in Engineering from Brown University.

David Ryan joined Viasat in May 2016 as Vice President — Intelligence Programs, was appointed Senior Vice President and President, Space Systems in March 2018, and was appointed Senior Vice President and President, Space & Commercial Networks in March 2019. Prior to joining Viasat, Mr. Ryan held several roles at Northrop Grumman Corporation from 2005 to 2014, including Sector Vice President and General Manager of the Intelligence Systems Division. He also served in various roles at Boeing from 1990 to 2005, including President of Boeing Space Systems International. Mr. Ryan currently serves as a director of Space Micro Inc., a satellite electronics product company. Mr. Ryan earned a B.S.E.E and an M.E.E degree from Rice University.

ITEM 1A. RISK FACTORS

You should consider each of the following factors as well as the other information in this Annual Report in evaluating our business and prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the following risks actually occur, our business and financial results could be harmed. In that case, the trading price of our common stock could decline. You should also refer to the other information set forth in this Annual Report, including our financial statements and the related notes.

Risks Related to Our Satellites and Business

Our Operating Results Are Difficult to Predict

Our operating results have varied significantly from quarter to quarter in the past and may continue to do so in the future. The factors that cause our quarter-to-quarter operating results to be unpredictable include:

 

the construction, launch or acquisition of satellites, the associated level of investment required and the impact of any construction or launch delays, operational or launch failures or other disruptions to our satellites;

 

the uptake of our in-flight services by commercial airlines and number of aircraft being retrofitted or installed with our IFC systems;

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varying subscriber addition, churn and average revenue per user (ARPU) rates for our fixed broadband business and mix of wholesale and retail subscribers;

 

a complex and lengthy procurement process for most of our commercial networks and government systems customers and potential customers;

 

changes in the levels of R&D spending, including the effects of associated tax credits;

 

cost overruns on fixed-price development contracts;

 

the difficulty in estimating costs over the life of a contract, which may require adjustment in future periods;

 

the timing, quantity and mix of products and services sold;

 

market acceptance and the timing of availability of our new products and services;

 

the timing of customer payments for significant contracts;

 

one-time charges to operating income arising from items such as acquisition expenses, impairment of assets and write-offs of assets related to customer non-payments or obsolescence;

 

the failure to receive an expected order or a deferral of an order to a later period; and

 

the impact of public health crises, such as the COVID-19 pandemic, and economic and political conditions.

Any of the foregoing factors, or any other factors discussed elsewhere herein, could have a material adverse effect on our business, financial condition and results of operations that could adversely affect our stock price. In addition, it is likely that in one or more future quarters our results may fall below the expectations of analysts and investors, which would likely cause the trading price of our common stock to decrease.

Satellite Failures or Degradations in Satellite Performance Could Affect Our Business, Financial Condition and Results of Operations

We own four satellites in service (ViaSat-2, ViaSat-1, KA-SAT and WildBlue-1) and lease or have access to capacity on multiple satellites. In addition, we have three ViaSat-3 class satellites under construction, and may construct, acquire or use additional satellites in the future. Satellites utilize highly complex technology and operate in the harsh environment of space and are subject to significant operational risks while in orbit. These risks include malfunctions (commonly referred to as anomalies), such as malfunctions in the deployment of subsystems and/or components, interference from electrostatic storms, and collisions with meteoroids, decommissioned spacecraft or other space debris. Our satellites have experienced various anomalies in the past and we will likely experience anomalies in the future. Anomalies can occur as a result of various factors, such as satellite manufacturer error, problems with the power or control sub-system of a satellite or general failures resulting from operating satellites in the harsh space environment.

Any single anomaly or other operational failure or degradation on the satellites we use could have a material adverse effect on our business, financial condition and results of operations. Anomalies may also reduce the expected useful life of a satellite, thereby creating additional expense due to the need to provide replacement or backup capacity. We may not be able to obtain backup capacity or a replacement satellite on reasonable economic terms, a reasonable schedule or at all. In addition, anomalies may cause a reduction of the revenues generated by the applicable satellite or the recognition of an impairment loss, and in some circumstances could lead to claims from third parties for damages, for example, if a satellite experiencing an anomaly were to cause physical damage to another satellite, create interference to the transmissions on another satellite or cause another satellite operator to incur expenses to avoid such physical damage or interference. Finally, anomalies may adversely affect our ability to insure our satellites at commercially reasonable premiums or terms, if at all. While some anomalies are covered by insurance policies, others may not be covered or may be subject to large deductibles.

Although our satellites have redundant or backup systems and components that operate in the event of an anomaly, operational failure or degradation of primary critical components, these redundant or backup systems and components are subject to risk of failure similar to those experienced by the primary systems and components. The occurrence of a failure of any of these redundant or backup systems and components could materially impair the useful life, capacity, coverage or operational capabilities of the satellite.

Satellites Have a Finite Useful Life, and Their Actual Operational Life May Be Shorter than Their Design Life

Our ability to earn revenues from our satellite services depends on the continued operation of the satellites we own and operate or use. Each satellite has a limited useful life, referred to as its design life. There can be no assurance as to the actual operational life of a satellite, which may be shorter than its design life. A number of factors affect the useful lives of the satellites, including quality of design and construction, durability of component parts and back-up units, the ability to

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continue to maintain proper orbit and control over the satellite’s functions, efficiency of the launch vehicle used, consumption of on-board fuel, degradation and durability of solar panels, the actual space environment experienced and the occurrence of anomalies or other in-orbit risks affecting the satellite. In addition, continued improvements in satellite technology may make satellites obsolete prior to the end of their operational life.

New or Proposed Satellites Are Subject to Significant Risks Related to Construction and Launch that Could Limit Our Ability to Utilize these Satellites

We have three ViaSat-3 class satellites under construction and may construct and launch additional satellites in the future. The design and construction of satellites require significant investments of capital and management time. Satellite construction and launch are also subject to significant risks, including construction delays, manufacturer error, cost overruns, regulatory conditions or delays, unavailability of launch opportunities, launch failure, damage or destruction during launch and improper orbital placement, any of which could result in significant additional cost or materially impair the useful life, capacity, coverage or operational capabilities of the satellite. Unlike our ViaSat-1 and ViaSat-2 satellites, which were constructed in their entirety by the satellite manufacturer, we construct the payload for our ViaSat-3 class satellites ourselves at our own facilities, with Boeing then integrating the completed payload into the satellite bus at their facilities. Moreover, the technologies in our ViaSat-3 satellite design are very complex, and there can be no assurance that the technologies will work as we expect or that we will realize any or all of the anticipated benefits of our ViaSat-3 satellite design. Difficulties or delays in the construction or integration of the payload for our ViaSat-3 class satellites or the implementation of our ViaSat-3 satellite design could adversely affect our business plan for these satellites and result in significant additional cost. We have in the past identified construction-related issues in our satellites. For example, our ViaSat-2 satellite experienced an antenna deployment issue which reduced its output capabilities. We have also experienced delays in satellite construction and launch, such as the delay in launching of our ViaSat-2 satellite caused by civil unrest in French Guiana (the location of the satellite launch) and the construction delays in our ViaSat-3 satellites caused by the COVID-19 pandemic. If satellite construction schedules are not met or other events prevent satellite launch on schedule, a launch opportunity may not be available at the time the satellite is ready to be launched. In addition, delays in construction or launch could impact our ability to meet milestone conditions in our satellite authorizations and/or to maintain the rights we may enjoy under various ITU filings. In addition, a launch failure may result in significant delays because of the need both to construct a replacement satellite, which can take up to 36 months or longer, and to obtain other launch opportunities. The overall historical loss rate in the satellite industry for all launches of commercial satellites in fixed orbits in the last five years is estimated by some industry participants to be approximately 3% but could at any time be higher. Launch vehicles may also under perform, in which case the satellite may still be able to be placed into service by using its onboard propulsion systems to reach the desired orbital location, but this would cause a reduction in its useful life.  A significant delay in the construction, delivery or launch of a satellite may have a material adverse effect on our operations or our business plan for the satellite.

Moreover, even if launch is successful, there can be no assurance that the satellite will successfully reach its geostationary orbital slot and pass in-orbit testing prior to transfer of control of the satellite to us. The failure to implement our satellite deployment plan on schedule could have a material adverse effect on our business, financial condition and results of operations.

Potential Satellite Losses May Not Be Fully Covered By Insurance, or at All

We may not be able to obtain or renew pre-launch, launch or in-orbit insurance for our satellites on reasonable economic terms or at all. If we are able to obtain or renew our insurance, it may contain customary exclusions and exclusions for past satellite anomalies. A failure to obtain or renew our satellite insurance may also result in a default under our debt instruments. In addition, the occurrence of anomalies on other satellites, or failures of a satellite using similar components or failures of a similar launch vehicle to any launch vehicle we intend to use, may materially adversely affect our ability to insure our satellites at commercially reasonable premiums or terms, if at all.

The policies covering our insured satellites will not cover the full cost of constructing and launching or replacing a satellite nor fully cover our losses in the event of a satellite failure or significant degradation. Moreover, such policies do not cover, and we do not have protection against, lost profits, business interruptions, fixed operating expenses, loss of business or similar losses, including contractual payments that we may be required to make under our agreements with our customers for interruptions or degradations in service. Our insurance contains customary exclusions, material change and other conditions that could limit recovery under those policies. Further, any insurance proceeds may not be received on a timely basis in order to launch a replacement satellite or take other remedial measures. In addition, the policies are subject to limitations involving uninsured losses, large satellite performance deductibles and policy limits.

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The COVID-19 Pandemic Could Have a Material Adverse Effect on Our Business, Financial Condition and Results of Operations

In March 2020, COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government. The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which may materially and adversely affect our business, financial condition, results of operations and cash flows. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it impacts our employees, suppliers, customers and partners and the overall economy.

Our management is focused on mitigating the effects of the COVID-19 pandemic, which has required and will continue to require a large investment of time and resources across our business. The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be predicted with confidence, including: the duration, scope and severity of the pandemic; actions taken to contain or mitigate its impact and their effectiveness; the speed and extent of vaccination programs; impacts on our supply chain (including shortages of component parts or constrained manufacturing capacity); the impact of the pandemic on economic activity; the extent and duration of the pandemic’s effect on customer demand, payment and buying patterns; the impact of the pandemic on demand for global air or cruise ship travel and the extent and duration of the grounding of aircraft; a reduction in government spending in response to the COVID-19 pandemic or a prioritization of healthcare and unemployment spending over defense expenditures; the health of and the effect on our workforce and our ability to meet staffing needs in our businesses and facilities (particularly if members of our workforce are quarantined as a result of exposure); any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions; and the potential effects on our internal controls, including those over financial reporting, as a result of changes in working environments such as shelter-in-place and similar orders that are applicable to our employees and business partners, among others. The impact of COVID-19 may also exacerbate other risks discussed under the heading “Risk Factors” and elsewhere in this report.

The Markets in Which We Compete Are Highly Competitive and Our Competitors May Have Greater Resources than Us

The markets in which we compete are highly competitive and competition is increasing. In addition, because the markets in which we operate are constantly evolving and characterized by rapid technological change, it is difficult for us to predict whether, when and by whom new competing technologies, products or services may be introduced into our markets. Currently, we face substantial competition in each of our business segments. See “Business–Competition” in Part I, Item 1 of this report for a discussion of the competitive environment in each of our business segments. Many of our competitors have significant competitive advantages, including strong customer relationships, more experience with regulatory compliance, greater financial and management resources and access to technologies not available to us. Many of our competitors are also substantially larger than we are and may have more extensive engineering, manufacturing and marketing capabilities than we do. As a result, these competitors may be able to adapt more quickly to changing technology or market conditions or may be able to devote greater resources to the development, promotion and sale of their products. Our ability to compete in each of our segments may also be adversely affected by limits on our capital resources and our ability to invest in maintaining and expanding our market share.

We May Be Unable to Obtain or Maintain Required Authorizations or Contractual Arrangements

Various types of U.S. domestic and international authorizations and contractual arrangements are required in connection with the products and services that we provide. See “Regulatory Environment.” Compliance with certain laws, regulations, conditions and other requirements, including the payment of fees, may be required to maintain the rights provided by such authorizations, including the rights to operate satellite networks at certain orbital slots in certain radio frequencies. Failure to comply with such requirements, or comply in a timely manner, could lead to the loss of such authorizations and could have a material adverse impact on our business, financial condition and results of operations.

We currently hold authorizations to, among other things, operate various satellite earth stations (including but not limited to user terminals, facilities that interconnect with the internet backbone, and network hubs) and operate satellite space stations and/or use those space stations to provide service to certain jurisdictions. Such authorizations are conditioned upon meeting certain milestone conditions and/or due diligence requirements, which if not met or extended could result in loss of the authorization. While we anticipate that these authorizations will be extended or renewed in the ordinary course to the extent that they otherwise would expire, or replaced by authorizations covering more advanced facilities, we can provide no assurance that this will be the case. Our inability to timely obtain or maintain such authorizations could delay or preclude our operation of such satellites or our provision of products and services that rely upon such satellites. Further, changes to the laws and regulations under which we operate could adversely affect our ability to obtain or maintain authorizations. Any of these circumstances could have a material adverse impact on our business, financial condition and results of operations.

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The spacecraft we use in our business are subject to the regulatory authority of, and conditions imposed by, foreign governments, as well as contractual arrangements with third parties and the regulations and procedures of the ITU governing access to orbital and spectrum rights and the international coordination of satellite networks. The use of spacecraft in our business is subject to various conditions in the underlying authorizations held by us and third parties, as well as the requirements of the laws and regulations of those jurisdictions. Any failure to meet these types of requirements in a timely manner, maintain our contractual arrangements, obtain or maintain our authorizations, or manage potential conflicts with the orbital slot rights afforded to third parties, could lead to us losing our rights to operate from these orbital locations or may otherwise require us to modify or limit our operations from these locations, which could materially adversely affect our ability to operate a satellite at full capacity or at all, and could have a material adverse impact on our business, financial condition and results of operations.

The Global Business Environment and Economic Conditions Could Negatively Affect Our Business, Financial Condition and Results of Operations

Our business and operating results are affected by the global business environment and economic conditions, including changes in interest rates, consumer credit conditions, consumer debt levels, consumer confidence, rates of inflation, unemployment rates, energy costs, geopolitical issues and other macro-economic factors. For example, high unemployment levels or energy costs may impact our customer base in our satellite services segment by reducing consumers’ discretionary income and affecting their ability to subscribe for our broadband services. Our commercial networks segment similarly depends on the economic health and willingness of our customers and potential customers to make and adhere to capital and financial commitments to purchase our products and services. During periods of slowing global economic growth or recession, our customers or key suppliers may experience deterioration of their businesses, cash flow shortages and difficulty obtaining financing or insolvency. Existing or potential customers may reduce or postpone spending in response to tighter credit, reduced consumer demand, negative financial news or declines in income or asset values, which could have a material negative effect on the demand for our products and services. For example, the business and financial condition of our commercial airline customers, which represented less than 10% of our total revenues for fiscal year 2020, were materially impacted during fiscal year 2021 by disruptions to global air travel caused by the outbreak of COVID-19. In addition, natural disasters, political instability, civil unrest, terrorist activity, acts of war, and public health issues such as the COVID-19 pandemic or epidemics could disrupt supplies and raise prices globally which, in turn, may have adverse effects on the world and U.S. economies. Any of these factors could result in reduced demand for, and pricing pressure on, our products and services, which could reduce our revenues and adversely affect our business, financial condition and results of operations.

In addition, U.S. credit and capital markets have experienced significant dislocations and liquidity disruptions from time to time. Uncertainty or volatility in credit or capital markets may negatively impact our ability to access additional debt or equity financing or to refinance existing indebtedness in the future on favorable terms or at all. Any of these risks could impair our ability to fund our operations or limit our ability to expand our business, which could have a material adverse effect on our business, financial condition and results of operations.

The outbreak of COVID-19 has created considerable instability and disruption in the U.S. and world economies and financial markets, and contributed to significant volatility in equity and debt markets, and may result in an economic downturn or recession. As COVID-19 continues to spread, the potential impacts, including a global, regional or other economic recession, are increasingly uncertain and difficult to assess. The extent of the impact of the COVID-19 pandemic on our business 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 its 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. See “—The COVID-19 pandemic could have a material adverse effect on our business, financial condition and results of operations.”

Acquisitions, Joint Ventures and Other Strategic Alliances May Have an Adverse Effect on Our Business

In order to position ourselves to take advantage of growth opportunities, from time to time we make strategic acquisitions (such as our acquisition of RigNet) and enter into joint ventures and other strategic alliances that involve significant risks and uncertainties. Risks and uncertainties relating to acquisitions, joint ventures and other strategic alliances include:

 

the difficulty in integrating and managing newly acquired businesses or any businesses of a joint venture or strategic alliance in an efficient and effective manner;

 

the challenges in achieving objectives, cost savings and other benefits expected from such transactions;

 

the risk of diverting resources and the attention of senior management from the operations of our business;

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additional demands on management related to the increase in the size and scope of our company following an acquisition or to the complexities of a joint venture or strategic alliance;

 

difficulties in the assimilation and retention of key employees and in maintaining relationships with present and potential customers, distributors and suppliers of an acquired business;

 

the lack of unilateral control over a joint venture or strategic alliance and the risk that joint venture or strategic partners have business goals and interests that are not aligned with ours;

 

the failure of a partner to satisfy its obligations or the bankruptcy or malfeasance of such partner;

 

costs and expenses associated with any undisclosed or potential liabilities of an acquired business;

 

delays, difficulties or unexpected costs in the integration, assimilation, implementation or modification of platforms, systems, functions, technologies and infrastructure to support the combined business, joint venture or strategic alliance, as well as maintaining uniform standards, controls (including internal accounting controls), procedures and policies;

 

the risk that funding requirements may be significantly greater than anticipated;

 

the risks of entering markets in which we have less experience; and

 

the risks of disputes concerning indemnities and other obligations that could result in substantial costs.

In connection with acquisitions, joint ventures or strategic alliances, we may incur debt, issue equity securities, assume contingent liabilities or have amortization expenses and write-downs of acquired assets, which could cause our earnings per share to decline. Mergers, acquisitions, joint ventures and strategic alliances are inherently risky and subject to many factors outside of our control, and we cannot be certain that our previous or future acquisitions, joint ventures and strategic alliances will be successful and will not materially adversely affect our business, operating results or financial condition. We may not be able to successfully integrate the businesses, products, technologies or personnel that we acquire in the future, and any strategic investments we make may not meet our financial or other investment objectives. Any failure to do so could seriously harm our business, financial condition and results of operations.

Our Reliance on U.S. Government Contracts Exposes Us to Significant Risks

Our government systems segment revenues typically represent approximately half of our total revenues and are derived primarily from U.S. Government applications. Therefore, any significant disruption or deterioration of our relationship with the U.S. Government would significantly reduce our revenues. U.S. Government business exposes us to various risks, including:

 

changes in governmental procurement legislation and regulations and other policies, which may reflect military and political developments;

 

unexpected contract or project terminations or suspensions;

 

unpredictable order placements, reductions or cancellations;

 

reductions or delays in government funds available for our projects due to government policy changes, budget cuts or delays, changes in available funding, reductions in defense expenditures and contract adjustments;

 

the ability of competitors to protest contractual awards;

 

penalties arising from post-award contract audits;

 

the reduction in the value of our contracts as a result of the routine audit and investigation of our costs by U.S. Government agencies;

 

higher-than-expected final costs, particularly relating to software and hardware development, for work performed under contracts where we commit to specified deliveries for a fixed price;

 

limited profitability from cost-reimbursement contracts under which the profit is limited to a specified amount;

 

unpredictable cash collections of unbilled receivables that may be subject to acceptance of deliverables by the customer and contract close-out procedures, including government approval of final indirect rates;

 

competition with programs managed by other government contractors for limited resources and for uncertain levels of funding;

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significant changes in contract scheduling or program structure, which generally result in delays or reductions in deliveries; and

 

intense competition for available U.S. Government business necessitating increases in time and investment for design and development.

We must comply with and are affected by laws and regulations relating to the award, administration and performance of U.S. Government contracts. Government contract laws and regulations affect how we do business with our customers and, in some instances, impose added costs on our business, including the establishment of compliance procedures. A violation of specific laws and regulations could result in the imposition of fines and penalties, the termination of our contracts or debarment from bidding on contracts.

Substantially all of our U.S. Government backlog scheduled for delivery can be terminated at the convenience of the U.S. Government because our contracts with the U.S. Government typically provide that orders may be terminated with limited or no penalties. If we are unable to address any of the risks described above, or if we were to lose all or a substantial portion of our sales to the U.S. Government, it could materially harm our business and impair the value of our common stock.

The funding of U.S. Government programs is subject to congressional appropriations. Congress generally appropriates funds on a fiscal year basis even though a program may extend over several fiscal years. Consequently, programs are often only partially funded initially and additional funds are committed only as Congress makes further appropriations. In the event that appropriations for one of our programs become unavailable, or are reduced or delayed, our contract or subcontract under such program may be terminated or adjusted by the government, which could have a negative impact on our future sales and results of operations. Budget cuts to defense spending, such as those that took effect in March 2013 under the Budget Control Act of 2011, can exacerbate these problems. From time to time, when a formal appropriation bill has not been signed into law before the end of the U.S. Government’s fiscal year, Congress may pass a continuing resolution that authorizes agencies of the U.S. Government to continue to operate, generally at the same funding levels from the prior year, but does not authorize new spending initiatives, during a certain period. During such period (or until the regular appropriation bills are passed), delays can occur in procurement of products and services due to lack of funding, and such delays can affect our results of operations during the period of delay.

Our Success Depends on the Investment in and Development of New Broadband Technologies and Advanced Communications and Secure Networking Systems, Products and Services, as well as their Market Acceptance

Broadband, advanced communications and secure networking markets are subject to rapid technological change, frequent new and enhanced product and service introductions, product obsolescence and changes in user requirements. Our ability to compete successfully in these markets depends on our success in applying our expertise and technology to existing and emerging broadband, advanced communications and secure networking markets, as well as our ability to successfully develop, introduce and sell new products and services on a timely and cost-effective basis that respond to ever-changing customer requirements, which depends on several factors, including:

 

our ability to continue to develop market-leading satellite technologies, including high-capacity Ka-band satellites and associated ground networks;

 

our ability to enhance our offerings by continuing to increase satellite capacity, bandwidth cost-efficiencies and service quality and adding innovative features that differentiate our offerings from those of our competitors;

 

successful integration of various elements of our complex technologies and system architectures;

 

timely completion and introduction of new system and product designs;

 

achievement of acceptable product and service costs;

 

timely and efficient implementation of our manufacturing and assembly processes and cost reduction efforts;

 

establishment of close working relationships with major customers for the design of their new communications and secure networking systems incorporating our products and services;

 

development of competitive products, services and technologies by existing and new competitors;

 

marketing and pricing strategies of our competitors with respect to competitive products and services; and

 

market acceptance of our new products and services.

We cannot assure you that our new technology, product or service offerings will be successful or that any of our offerings will achieve market acceptance. Many of these risks are amplified in new and emerging markets where we do not currently operate or have limited operations, but which present opportunities for international expansion following the

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launch of our ViaSat-3 global constellation. The time from conception through satellite launch for a new satellite design may be four years or longer, thereby delaying our ability to realize the benefits of our investments in new satellite designs and technologies. We may experience difficulties that could delay or prevent us from successfully selecting, developing, manufacturing or marketing new technologies, products or services, which could increase costs and divert our attention and resources from other projects. We cannot be sure that our efforts and expenditures will ultimately lead to the timely development of new offerings and technologies. In addition, defects may be found in our products after we begin deliveries that could degrade service quality, or result in the delay or loss of market acceptance. If we are unable to design, manufacture, integrate and market profitable new products and services for existing or emerging markets, it could materially harm our business, financial condition and results of operations, and impair the value of our common stock.

In addition, we believe that significant investments in next-generation broadband satellites and associated infrastructure will continue to be required as demand for broadband services and satellite systems with higher capacity and higher speed continues to grow. The development of these capital-intensive next-generation systems may require us to undertake debt financing and/or the issuance of additional equity, which could expose us to increased risks and impair the value of our common stock. In addition, if we are unable to effectively or profitably design, manufacture, integrate and market such next-generation technologies, it could materially harm our business, financial condition and results of operations, and impair the value of our common stock.

Because Our Products Are Complex and Are Deployed in Complex Environments, Our Products May Have Defects that We Discover Only After Full Deployment, which Could Seriously Harm Our Business

We produce highly complex products that incorporate leading-edge technology, including both hardware and software. Software typically contains defects or programming flaws that can unexpectedly interfere with expected operations. In addition, our products are complex and are designed to be deployed across complex networks, which in some cases may include over a million users. Because of the nature of these products, there is no assurance that our pre-shipment testing programs will be adequate to detect all defects. As a result, our customers may discover errors or defects in our hardware or software, or our products may not operate as expected after they have been fully deployed. If we are unable to cure a product defect, we could experience damage to our reputation, reduced customer satisfaction, loss of existing customers and failure to attract new customers, failure to achieve market acceptance, cancellation of orders, loss of revenues, reduction in backlog and market share, increased service and warranty costs, diversion of development resources, legal actions by our customers, product returns or recalls, issuance of credit to customers and increased insurance costs. Further, due to the high volume nature of our fixed broadband business, defects of products in this business could significantly increase these risks. Defects, integration issues or other performance problems in our products could also result in financial or other damages to our customers. Our customers could seek damages for related losses from us, which could seriously harm our business, financial condition and results of operations. A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly. The occurrence of any of these problems would seriously harm our business, financial condition and results of operations.

Our Reputation and Business Could Be Materially Harmed as a Result of Data Breaches, Data Theft, Unauthorized Access or Hacking

Our success depends, in part, on the secure and uninterrupted performance of our information technology systems. These systems may be subject to damage or interruption from, among other things, earthquakes, adverse weather conditions, other natural disasters, terrorist attacks, rogue employees, power loss, telecommunications failures, and cybersecurity risks. An increasing number of companies have disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on their computer networks. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Additionally, outside parties may attempt to induce employees or users to disclose sensitive or confidential information in order to gain access to data. If unauthorized parties gain access to our information technology systems, they may be able to misappropriate assets or sensitive information (such as personal information of our customers, business partners and employees), cause interruption in our operations, corruption of data or computers, or otherwise damage our reputation and business. In such circumstances, we could be held liable to our customers or other parties, or be subject to regulatory or other actions for breaching privacy rules. Any compromise of our security could result in a loss of confidence in our security measures, and subject us to litigation, civil or criminal penalties, and negative publicity that could adversely affect our financial condition and results of operations. We could also suffer other negative consequences, including significant remediation costs, significant increased cybersecurity protection costs, loss of material revenues resulting from attacks on our satellites or technology, and the unauthorized use of proprietary information or the failure to retain or attract customers following an attack. Further, if we are unable to comply with the security standards established by banks and the payment card industry, we may be subject to fines, restrictions, and expulsion from card acceptance programs, which could adversely affect our operations.

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A Significant Portion of Our Revenues Is Derived from a Few of Our Contracts

A small number of our contracts account for a significant percentage of our revenues. Our five largest contracts generated approximately 16% of our total revenues in fiscal year 2021. Our largest revenue-producing contracts are related to our tactical data link products and fixed satellite networks. The failure of these customers or any of our key distributors to place additional orders or to maintain their contracts with us for any reason, including any downturn in their business or financial condition or our inability to renew our contracts with these customers or obtain new contracts when they expire, could materially harm our business and impair the value of our common stock.

A number of our commercial customers have in the past, and may in the future, experience financial difficulties. Many of our commercial customers face risks that are similar to those we encounter, including risks associated with market growth, product defects, market acceptance of products and services, and the ability to obtain sufficient capital. We cannot assure you that our customers will be successful in managing these risks. If our customers do not successfully manage these types of risks, it could impair our ability to generate revenues and collect amounts due from these customers and materially harm our business.

Our Development Contracts May Be Difficult for Us to Comply with and May Expose Us to Third-Party Claims for Damages

We are often party to government and commercial contracts involving the development of new products. We derived approximately 23% of our total revenues for fiscal year 2021 from these development contracts. These contracts typically contain strict performance obligations and project milestones. We cannot assure you we will comply with these performance obligations or meet these project milestones in the future. If we are unable to comply with these performance obligations or meet these milestones, our customers may terminate these contracts and, under some circumstances, recover damages or other penalties from us. We are not currently, nor have we always been, in compliance with all outstanding performance obligations and project milestones in our contracts. We cannot assure you that the other parties to any such contract will not terminate the contract or seek damages from us. If other parties elect to terminate their contracts or seek damages from us, it could materially harm our business and impair the value of our common stock.

We May Experience Losses from Our Fixed-Price Contracts

A substantial majority of revenues in our government systems and commercial networks segments are derived from contracts with fixed prices. These contracts carry the risk of potential cost overruns because we assume all of the cost burden. We assume greater financial risk on fixed-price contracts than on other types of contracts because if we do not anticipate technical problems, estimate costs accurately or control costs during performance of a fixed-price contract, it may significantly reduce our net profit or cause a loss on the contract. In the past, we have experienced significant cost overruns and losses on fixed-price contracts. Because many of these contracts involve new technologies and applications and can last for years, unforeseen events, such as technological difficulties, fluctuations in the price of raw materials, problems with our suppliers and cost overruns, can result in the contractual price becoming less favorable or even unprofitable to us over time. Furthermore, if we do not meet contract deadlines or specifications, we may need to renegotiate contracts on less favorable terms, be forced to pay penalties or liquidated damages or suffer major losses if the customer exercises its right to terminate. We believe a high percentage of our contracts in our government systems and commercial networks segments will be at fixed prices in the future. Although we attempt to accurately estimate costs for fixed-price contracts, we cannot assure you our estimates will be adequate or that substantial losses on fixed-price contracts will not occur in the future. If we are unable to address any of the risks described above, it could materially harm our business, financial condition and results of operations, and impair the value of our common stock.

Our Reliance on a Limited Number of Third Parties to Manufacture and Supply Our Products and the Components Contained therein Exposes Us to Various Risks

We expect our internal manufacturing capacity to be limited to supporting new product development activities, building customized products that need to be manufactured in strict accordance with a customer’s specifications or delivery schedules, and building proprietary, highly sensitive Viasat-designed products and components for use in our proprietary technology platform. Therefore, our internal manufacturing capacity has been, and is expected to continue to be, very limited and we intend to continue to rely on contract manufacturers to produce the majority of our products. In addition, some components, subassemblies and services necessary for the manufacture of our products are obtained from a sole source supplier or a limited group of suppliers.

Our reliance on contract manufacturers and on sole source suppliers or a limited group of suppliers involves several risks. We may not be able to obtain an adequate supply of required components, and our control over the price, timely delivery, reliability and quality of finished products may be reduced. The process of manufacturing our products and some of our components and subassemblies is extremely complex. We have in the past experienced and may in the future

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experience delays in the delivery of and quality problems with products and components and subassemblies from vendors. Some of the suppliers we rely upon have relatively limited financial and other resources. Some of our vendors have manufacturing facilities in areas that may be prone to natural disasters and other natural occurrences that may affect their ability to perform and deliver under our contract. Moreover, an outbreak of a pandemic such as the COVID-19 pandemic and associated quarantines, closures and travel restrictions or other major event may cause temporary or long-term disruptions in our supply chain and distribution systems and/or delays in the delivery of inventory. If we are not able to obtain timely deliveries of components and subassemblies of acceptable quality or if we are otherwise required to seek alternative sources of supply or to substitute alternative technology, or to manufacture our finished products or components and subassemblies internally, our ability to satisfactorily and timely complete our customer obligations could be negatively impacted which could result in reduced sales, termination of contracts and damage to our reputation and relationships with our customers. This failure could also result in a customer terminating our contract for default. A default termination could expose us to liability and have a material adverse effect on our ability to compete for future contracts and orders. In addition, a delay in our ability to obtain components and equipment parts from our suppliers may affect our ability to meet our customers’ needs and may have an adverse effect upon our profitability.

We Depend on a Limited Number of Key Employees Who Would Be Difficult to Replace

We depend on a limited number of key technical, marketing and management personnel to manage and operate our business. In particular, we believe our success depends to a significant degree on our ability to attract and retain highly skilled personnel, including our Executive Chairman, Mark Dankberg, and our Chief Executive Officer, Richard Baldridge, and those highly skilled design, process and test engineers involved in the manufacture of existing products and the development of new products and processes. The competition for these types of personnel is intense, and the loss of key employees could materially harm our business and impair the value of our common stock. To the extent that the demand for qualified personnel exceeds supply, we could experience higher labor, recruiting or training costs to attract and retain such employees, or experience difficulties in performing under our contracts if our needs for such employees were unmet.

Because We Conduct Business Internationally, We Face Additional Risks Related to Global Political and Economic Conditions, Changes in Regulation and Currency Fluctuations

Approximately 9% of our total revenues in fiscal year 2021 were derived from international sales. Many of our international sales may be denominated in foreign currencies. Because we do not currently engage in, nor do we anticipate engaging in, material foreign currency hedging transactions related to international sales, a decrease in the value of foreign currencies relative to the U.S. dollar could result in losses from transactions denominated in foreign currencies. This decrease in value could also make our products less price-competitive.

There are additional risks in conducting business internationally, including unexpected changes in laws, policies and regulatory requirements, including but not limited to regulations related to import-export control; increased cost of localizing systems in foreign countries; increased sales and marketing and R&D expenses; availability of suitable export financing; timing and availability of export licenses; imposition of taxes, tariffs, embargoes and other trade barriers; political and economic instability, including as a result of the United Kingdom’s “Brexit” withdrawal from the EU; issues related to the political relationship between the United States and other countries; fluctuations in currency exchange rates, foreign exchange controls and restrictions on cash repatriation; compliance with international laws and U.S. laws affecting the activities of U.S. companies abroad; challenges in staffing and managing foreign operations; difficulties in managing distributors; requirements for additional liquidity to fund our international operations; ineffective legal protection of our intellectual property rights in certain countries; potentially adverse tax consequences; potential difficulty in making adequate payment arrangements; and potential difficulty in collecting accounts receivable. As a result of these and other risks, we may be unsuccessful in implementing our business plan for our broadband services business internationally, or we may not be able to achieve the revenues that we expect.

In addition, some of our customer purchase agreements are governed by foreign laws, which may differ significantly from U.S. laws. We may be limited in our ability to enforce our rights under these agreements and to collect damages, if awarded. If we are unable to address any of the risks described above, it could materially harm our business and impair the value of our common stock.

Adverse Resolution of Litigation May Harm Our Operating Results or Financial Condition

We are a party to various lawsuits and claims in the normal course of our business. Litigation can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable resolution of a particular lawsuit could have a material adverse effect on our business, financial condition and results of operations.

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Future Sales of Our Common Stock Could Lower Our Stock Price and Dilute Existing Stockholders

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. For example, during the third quarter of fiscal year 2017 we completed the sale of approximately 7.5 million shares of our common stock in an underwritten public offering. Additionally, during the second quarter of fiscal year 2021, we completed the sale of approximately 4.5 million shares of our common stock to certain accredited investors in a private placement transaction exempt from registration under the Securities Act of 1933, as amended.

We may also issue additional shares of common stock to finance future acquisitions. For example, during the first quarter of fiscal year 2022, we issued approximately 4.0 million shares of our common stock as consideration for our acquisition of RigNet. Additionally, a substantial number of shares of our common stock are available for future sale pursuant to stock options, warrants or issuance pursuant to our 1996 Equity Participation Plan of ViaSat, Inc. and the ViaSat, Inc. Employee Stock Purchase Plan. We cannot predict the size of future issuances of our common stock or the effect, if any, that future sales and issuances of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares issued upon the exercise of stock options and warrants or in connection with acquisition financing), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock. In addition, these sales may be dilutive to existing stockholders.

We Expect Our Stock Price to Be Volatile, and You May Lose All or Some of Your Investment

The market price of our common stock has been volatile in the past. For example, between April 1, 2019 and March 31, 2021, the market price of our common stock ranged from $97.31 to $25.10 (the low price occurred during the fourth quarter of fiscal year 2020, during a period when the COVID-19 pandemic drove significant volatility and dislocation in the stock market generally). Trading prices may continue to fluctuate in response to a number of events and factors, including the following:

 

quarterly variations in operating results and announcements of innovations;

 

announcements relating to the acquisition, construction and launch of satellites or the uptake of our in-flight services and IFC systems by commercial airlines;

 

new products, services and strategic developments by us or our competitors;

 

developments in our relationships with our customers, distributors, suppliers and joint venture partners;

 

changes in estimates and recommendations by securities analysts or failure to meet their expectations;

 

regulatory developments or other changes in the industries in which we operate; and

 

changes in market conditions in our industry or the economy as a whole.

Any of these events may cause the market price of our common stock to fall. In addition, the stock market in general and the market prices for technology companies in particular have experienced significant volatility that often has been unrelated to the operating performance of these companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance.

We May Not Be Able to Utilize All of Our Deferred Tax Assets

We believe that we are likely to have sufficient taxable income in the future to fully realize our net deferred tax assets (consisting primarily of net operating loss and tax credit carryforwards, reserves and accruals that are not currently deductible for tax purposes). However, some or all of these deferred tax assets could expire unused if we are unable to generate sufficient taxable income in the future to take advantage of them or we enter into transactions that limit our right to use them. If it became more likely than not that deferred tax assets would expire unused, we would have to increase our valuation allowance against deferred tax assets to reflect this fact, which could materially increase our income tax expense, and adversely affect our results of operations and tangible net worth in the period in which it is recorded.

Moreover, our ability to utilize our net operating loss and tax credit carryforwards to offset future taxable income and reduce future cash tax liabilities would be negatively impacted if we were to experience an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the Code). In general terms, an “ownership change” can occur whenever the ownership of a company by one or more “5% shareholders” changes by more than 50 percentage points within a three-year period. The determination of whether an ownership change has occurred for purposes of Section 382 of the Code is complex and requires significant judgment. Moreover, the number of shares of our common stock outstanding at any time for purposes of Section 382 of the Code may differ from the number of shares that

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we report as outstanding in our filings with the SEC. If an ownership change occurs, our ability to utilize our net operating loss and tax credit carryforwards would be negatively impacted, which could have a material adverse effect on our business, financial condition and results of operations.

Provisions in Our Certificate of Incorporation and Bylaws, under Delaware Law and in Our Credit Facilities May Discourage, Delay or Prevent a Change in Control or Prevent an Acquisition of Our Business at a Premium Price

Some of the provisions of our certificate of incorporation, our bylaws and Delaware law could discourage, delay or prevent an acquisition of our business, even if a change in control of Viasat would be beneficial to the interests of our stockholders and was made at a premium price. These provisions:

 

permit the board of directors to increase its own size and fill the resulting vacancies;

 

provide for a board comprised of three classes of directors with each serving a staggered three-year term;

 

authorize the issuance of blank check preferred stock in one or more series; and

 

prohibit stockholder action by written consent.

We are also subject to Section 203 of the Delaware General Corporation Law, which imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our common stock. In addition, under the Indentures, if certain “change of control” events occur, each holder of Notes may require us to repurchase all of such holder’s Notes at a purchase price equal to 101% of the principal amount of such Notes. Additionally, our Credit Facilities provide for an event of default upon the occurrence of certain specified “change of control” events.

Risks Related to the Regulation of Our Business

Our International Sales and Operations Are Subject to Applicable Laws Relating to Trade, Export Controls and Foreign Corrupt Practices, the Violation of Which Could Adversely Affect Our Operations

We must comply with all applicable export control laws and regulations of the United States and other countries. U.S. laws and regulations applicable to us include the Arms Export Control Act, the International Traffic in Arms Regulations (ITAR), the Export Administration Regulations (EAR) and the trade sanctions laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). The export of certain satellite hardware, services and technical data relating to satellites is regulated by the U.S. Department of State under ITAR. Other items are controlled for export by the U.S. Department of Commerce under the EAR. We cannot provide services to certain countries subject to U.S. trade sanctions unless we first obtain the necessary authorizations from OFAC. In addition, we are subject to the Foreign Corrupt Practices Act, which generally bars bribes or unreasonable gifts to foreign governments or officials. Violations of these laws or regulations could result in significant additional sanctions including fines, more onerous compliance requirements, more extensive debarments from export privileges or loss of authorizations needed to conduct aspects of our international business. A violation of ITAR or the other regulations enumerated above could materially adversely affect our business, financial condition and results of operations.

Changes in the Regulatory Environment Could Have a Material Adverse Impact on Our Competitive Position, Growth and Financial Performance

Our business is highly regulated. We are subject to the regulatory authority of the jurisdictions in which we operate, including the United States and other jurisdictions around the world. Those authorities regulate, among other things, the launch and operation of satellites, the use of radio spectrum, the ability to operate satellites at specific orbital locations in space, the licensing of earth stations and other radio transmitters, the provision of communications services, and the design, manufacture and marketing of communications systems and networking infrastructure. The space stations and ground network we use to provide our broadband services operate using some spectrum that is regulated for use on a primary basis for certain types of the satellite services we provide, some spectrum that is regulated for use on a shared basis with terrestrial wireless services, and some spectrum that is regulated primarily for terrestrial wireless and other uses but that we are authorized to use on a secondary or non-interference basis. Moreover, spectrum availability varies from country to country, and even within countries, within our service areas.

Laws and regulations affecting our business are subject to change in response to industry developments, new technology, and political considerations, among other things. Legislators and regulatory authorities in various countries are considering, and may in the future adopt, new laws, policies and regulations, as well as changes to existing regulations. We cannot predict when or whether applicable laws or regulations may come into effect or change, or what the cost and time necessary to comply with such new or updated laws or regulations may be.

Changes in laws or regulations, including changes in the way spectrum is regulated and/or in regulations governing our products and services, changes in the way spectrum is made available to us, or is allowed to be used by others, or

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competing uses of spectrum or orbital locations, could, directly or indirectly, affect our operations or the operations of our distribution partners, increase the cost of providing our products and services and make our products and services less competitive. Some regulators are considering new or additional terrestrial services in the spectrum in which we operate, which may not be compatible with the way we use, or plan to use, that same spectrum. In certain instances, such changes could have a material adverse effect on our business, financial condition and results of operations.

Changes in U.S. political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the countries where we do business or source goods and materials, and any negative sentiments towards the United States as a result of such changes, could adversely affect our business.

Among other things, changes to laws and regulations could materially harm our business by (1) affecting our ability to obtain or retain required governmental authorizations, (2) restricting our ability to provide certain products or services, (3) restricting development efforts by us and our customers, (4) making our current products and services less attractive or obsolete, (5) increasing our operational costs, or (6) making it easier or less expensive for our competitors to compete with us. Failure to comply with applicable laws or regulations could result in the imposition of financial penalties against us, the adverse modification or cancellation of required authorizations, or other material adverse actions. Any such matters could materially harm our business and impair the value of our common stock.

Our Business Could Be Adversely Affected by a Negative Audit by the U.S. Government

As a government contractor, we are routinely subject to audit and review by the DCMA, the DCAA and other U.S. Government agencies of our 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. Audits and reviews have become more rigorous and the standards to which we are held are being more strictly interpreted, increasing the likelihood of an audit or review resulting in an adverse outcome. Increases in congressional scrutiny and investigations into business practices and major programs supported by contractors may lead to increased legal costs and may harm our reputation and profitability if we are among the targeted companies.

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 us, 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 we fail to obtain an “adequate” determination of our various accounting and management internal control business systems from applicable U.S. Government agencies or if allegations of impropriety are made against us, we could suffer serious harm to our business or our reputation, including our ability to bid on new contracts or receive contract renewals and our competitive position in the bidding process. Any of these outcomes could have a material adverse effect on our business, financial condition and results of operations.

 

Risks Related to Intellectual Property

Our Ability to Protect Our Proprietary Technology Is Limited

Our success depends on our ability to protect our proprietary rights to the technologies we use in our products and services. We generally rely on a combination of patents, copyrights, trademarks and trade secret laws and contractual rights to protect our proprietary rights. We also enter into confidentiality agreements with our employees, consultants and corporate partners, and control access to and distribution of our proprietary information. Despite our efforts, unauthorized parties may attempt to copy or obtain and use our proprietary information. If we are unable to protect our proprietary rights adequately, our competitors could use the intellectual property we have developed to enhance their own products and services, which could materially harm our business and impair the value of our common stock. Monitoring and preventing unauthorized use of our technology is difficult. From time to time, we undertake actions to prevent unauthorized use of our technology, including sending cease and desist letters. In addition, we may be required to commence litigation to protect our intellectual property rights or to determine the validity and scope of the proprietary rights of others. For example, in February 2012 we successfully sued Space Systems/Loral, Inc. and its former parent company Loral Space & Communications, Inc. for patent infringement and breach of contract relating to the manufacture of ViaSat-1. If we are unsuccessful in any such litigation in the future, our rights to enforce such intellectual property may be impaired or we could lose our rights to such intellectual property. We do not know whether the steps we have taken will prevent unauthorized use of our technology, including in foreign countries where the laws may not protect our proprietary rights as extensively as in the United States. If we are unable to protect our proprietary rights, we may find ourselves at a competitive disadvantage to others who need not incur the substantial expense, time and effort required to create the innovative products. Also, we have delivered technical data and information to the U.S. Government under procurement contracts, and the U.S. Government may have unlimited rights to use that technical data and information. There can be no assurance that the U.S. Government will not authorize others to use that data and information to compete with us.

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Our Involvement in Litigation Relating to Intellectual Property Claims May Have a Material Adverse Effect on Our Business

We may be party to intellectual property infringement, invalidity, right to use or ownership claims by third parties or claims for indemnification resulting from infringement claims. Regardless of the merit of these claims, intellectual property litigation can be time consuming and costly and may result in the diversion of the attention of technical and management personnel. An adverse result in any litigation could have a material adverse effect on our business, financial condition and results of operations. Asserted claims or initiated litigation can include claims against us or our manufacturers, suppliers or customers alleging infringement of their proprietary rights with respect to our existing or future products, or components of those products. If our products are found to infringe or violate the intellectual property rights of third parties, we may be forced to (1) seek licenses or royalty arrangements from such third parties, (2) stop selling, incorporating or using products that included the challenged intellectual property, or (3) incur substantial costs to redesign those products that use the technology. We cannot assure you that we would be able to obtain any such licenses or royalty arrangements on reasonable terms or at all or to develop redesigned products or, if these redesigned products were developed, they would perform as required or be accepted in the applicable markets.

We Rely on the Availability of Third-Party Licenses

Many of our products are designed to include software or other intellectual property licensed from third parties. It may be necessary in the future to seek or renew licenses relating to various elements of the technology used to develop these products. We cannot assure you that our existing or future third-party licenses will be available to us on commercially reasonable terms, if at all. Our inability to maintain or obtain any third-party license required to sell or develop our products and product enhancements could require us to obtain substitute technology of lower quality or performance standards, or at greater cost.

 

Risks Related to Our Indebtedness

Our Level of Indebtedness May Adversely Affect Our Ability to Operate Our Business, Remain in Compliance with Debt Covenants, React to Changes in Our Business or the Industry in which We Operate, or Prevent Us from Making Payments on Our Indebtedness

We have a significant amount of indebtedness. As of March 31, 2021, the aggregate principal amount of our total outstanding indebtedness was $1.9 billion, which was comprised of $700.0 million in principal amount of 5.625% Senior Notes due 2025 (the 2025 Notes), $600.0 million in principal amount of 5.625% Senior Secured Notes due 2027 (the 2027 Notes), $400.0 million in principal amount of 6.500% Senior Notes due 2028 (the 2028 Notes), no outstanding borrowings under our revolving credit facility (the Revolving Credit Facility and, together with the Ex-Im Credit Facility, the Credit Facilities), $98.3 million in principal amount of outstanding borrowings under the Ex-Im Credit Facility and $56.3 million of finance lease obligations. As of March 31, 2021, we had undrawn availability of $673.7 million under our Revolving Credit Facility and no remaining availability under our Ex-Im Credit Facility.

Our high level of indebtedness could have important consequences. For example, it could:

 

make it more difficult for us to satisfy our debt obligations;

 

increase our vulnerability to general adverse economic and industry conditions;

 

impair our ability to obtain additional debt or equity financing in the future for working capital, capital expenditures, product development, satellite construction, acquisitions or general corporate or other purposes;

 

require us to dedicate a material portion of our cash flows to the payment of principal and interest on our indebtedness, thereby reducing the availability of our cash flows to fund working capital needs, capital expenditures, product development, satellite construction, acquisitions and other general corporate purposes;

 

expose us to variable interest rate risk to the extent we make borrowings under our Revolving Credit Facility;

 

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

 

place us at a disadvantage compared to our competitors that have less indebtedness; and

 

limit our ability to adjust to changing market conditions.

Any of these risks could materially impact our ability to fund our operations or limit our ability to expand our business, which could have a material adverse effect on our business, financial condition and results of operations.

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We May Incur Additional Indebtedness, which Could Further Increase the Risks Associated with Our Leverage

We may incur significant additional indebtedness in the future, which may include financing relating to future satellites, potential acquisitions, joint ventures and strategic alliances, working capital, capital expenditures or general corporate purposes. For example, we may incur additional indebtedness to fund our investments in our ViaSat-3 class satellites. As of March 31, 2021, we had undrawn availability of $673.7 million under our Revolving Credit Facility. In addition, the Credit Facilities and the indentures (collectively, the Indentures) governing the 2025 Notes, the 2027 Notes and the 2028 Notes (collectively, the Notes) permit us, subject to specified limitations, to incur additional indebtedness, including secured indebtedness.

In February 2019, we filed a universal shelf registration statement with the SEC for the future sale of an unlimited amount of debt securities, common stock, preferred stock, 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 and agents at amounts, prices, interest rates and other terms to be determined at the time of the offering. If our level of indebtedness increases significantly, the related risks that we now face would intensify.

We May Not Be Able to Generate Sufficient Cash to Service All of Our Indebtedness and Fund Our Working Capital and Capital Expenditures or Refinance Our Indebtedness, and May Be Forced to Take Other Actions to Satisfy Our Obligations under Our Indebtedness, which May Not Be Successful

Our ability to make scheduled payments on or to refinance our indebtedness will depend upon our future operating performance and on our ability to generate cash flow in the future, which is subject to economic, financial, business, competitive, legislative, regulatory and other factors beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings, including under our Revolving Credit Facility, will be sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. Moreover, there can be no assurance that we will be able to refinance our debt obligations on commercially reasonable terms, or at all.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investment and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service obligations. Our Credit Facilities and the Indentures restrict our ability to dispose of assets and use the proceeds from the disposition, and may also restrict our ability to raise debt or equity capital to repay or service our indebtedness.

If we cannot make scheduled payments on our debt, we will be in default and, as a result, the lenders under our Credit Facilities and the holders of the Notes could declare all outstanding principal and interest to be due and payable, the lenders under our Credit Facilities could terminate their commitments to loan money and foreclose against the assets securing the borrowings under our Credit Facilities, and we could be forced into bankruptcy or liquidation, which could result in you losing your investment in our company.

Covenants in Our Debt Agreements Could Limit Our Ability to Implement Our Business Plan

The Credit Facilities and the Indentures contain covenants that may restrict our ability to implement our business plan, borrow under our Credit Facilities or secure additional financing, respond to changing conditions, and engage in opportunistic transactions. The Credit Facilities and the Indentures include covenants restricting, among other things, our ability to incur indebtedness, issue redeemable or preferred stock, incur liens, sell or dispose of assets (including capital stock of subsidiaries), make loans and investments, pay dividends, enter into affiliate transactions, reduce our satellite insurance and consolidate or merge with or into, or sell substantially all of our assets to, another person.

In addition, our Credit Facilities require us to comply with certain financial covenants, including a maximum total leverage ratio and minimum interest coverage ratio. Our Revolving Credit Facility and the 2027 Notes are equally and ratably secured by first-priority liens on substantially all of the assets of our company, including the stock of our significant subsidiaries, and the assets of the subsidiary guarantors under our Revolving Credit Facility and the indenture governing the 2027 Notes. Our 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 the stock of our foreign subsidiary that owns the ViaSat-2 satellite.

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If we default under our Credit Facilities or the Indentures, all outstanding amounts thereunder could become immediately due and payable. In the past we violated covenants in our former revolving credit facilities and received waivers for these violations. We cannot assure you that we will be able to comply with covenants or that any covenant violations will be waived in the future. Any violation that is not waived could result in an event of default, permitting our lenders to declare outstanding indebtedness and interest thereon due and payable, and permitting the lenders under our Credit Facilities to suspend commitments to make any advance or, with respect to the Revolving Credit Facility, require any outstanding letters of credit to be collateralized by an interest bearing cash account, any or all of which could have a material adverse effect on our business, financial condition and results of operations. In addition, if we fail to comply with our financial or other covenants under our Credit Facilities or the Indentures, we may need additional financing to service or extinguish our indebtedness. We may not be able to obtain financing or refinancing on terms acceptable to us, if at all. We cannot assure you that we would have sufficient funds to repay all the outstanding amounts under our Credit Facilities or the Indentures, and any acceleration of amounts due would have a material adverse effect on our liquidity and financial condition.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our worldwide headquarters are located at our Carlsbad, California campus. In addition to our Carlsbad campus, we have facilities, offices or earth stations located across the United States including our Tempe, Arizona facility, and across the globe. Although we believe that our existing facilities are suitable and adequate for our present purposes, we anticipate operating additional regional sales offices in fiscal year 2022 and beyond. Each of our segments uses each of these facilities.

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 of this report.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the Nasdaq Global Select Market under the symbol “VSAT.” As of May 14, 2021, there were approximately 501 holders of record of our common stock. A substantially greater number of holders of Viasat common stock are “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.

Dividend Policy

To date, we have neither declared nor paid any dividends on our common stock. We currently intend to retain all future earnings, if any, for use in the operation and development of our business and, therefore, do not expect to declare or pay any cash dividends on our common stock in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, general business condition and such other factors as the Board of Directors may deem relevant. In addition, as more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, the existing terms of our Credit Facilities and the Indentures restrict our ability to declare or pay dividends on our common stock.

ITEM 6. SELECTED FINANCIAL DATA

This item is no longer required as we have elected to early apply the changes to Item 301 of Regulation S-K contained in SEC Release No. 33-10890.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

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

Acquisitions

On April 30, 2021, subsequent to fiscal year end, we purchased the remaining 51% interest in Euro Infrastructure Co. from Eutelsat for approximately €142.6 million, or approximately $172.7 million (subject to customary post-closing net working capital and net debt adjustments). The purchase price was funded with available cash, resulting in a cash outlay of approximately €41.6 million, or $50.4 million, net of approximately €101.0 million, or $122.3 million, of Euro Infrastructure Co.’s cash on hand.

On April 30, 2021, subsequent to fiscal year end, we acquired RigNet in exchange for the issuance of approximately 4.0 million shares of our common stock and a de minimis amount of cash in respect of fractional shares. RigNet is a leading provider of ultra-secure, intelligent networking solutions and specialized applications.

Given the timing of the closing of these acquisitions, we are currently in the process of valuing the assets acquired and liabilities assumed in each of the business combinations. Therefore, we are not yet able to provide the amounts to be recognized for the major classes of assets acquired and liabilities assumed and other disclosures required by ASC 805, Business Combinations. We will disclose this and other related information in our Quarterly Report on Form 10-Q for the quarter ending June 30, 2021.

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 year ended March 31, 2021 were impacted by the pandemic, the impact was not material to our financial position, results of operations or cash flows in such period, with negative impacts particularly in our commercial aviation business offset by strong demand in our fixed broadband services business and other parts of our business. We continue to expect our diversified businesses to provide resiliency as we enter fiscal year 2022.

Our government systems segment, which represented 47% and 49% of our total revenues during fiscal years 2021 and 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 experienced 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.

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During fiscal year 2021, through the COVID-19 pandemic, we experienced increased demand for our premium high-speed plans in our fixed broadband services business, reflecting customers’ increased bandwidth needs in a remote working/distance schooling environment. However, the pandemic also caused a severe decline in global air traffic during fiscal year 2021, which reduced demand for our in-flight services and IFC systems in our satellite services and commercial networks segments, respectively. While current global airline traffic is still a fraction of the activity in fiscal year 2020, domestic airline traffic is showing signs of improvement. As a result, our in-flight services business showed modest improvement in the quarter ended March 31, 2021 compared to the quarter ended December 31, 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 fiscal year 2022 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 each of fiscal years 2021 and 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 2022 and potentially 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. 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 VoIP services, primarily in the United States but also in various countries in Europe and Latin America. As of March 31, 2021, we provided fixed broadband services to approximately 590,000 U.S. subscribers.

 

In-flight services, which provide industry-leading IFC, W-IFE and aviation software services. As of March 31, 2021, our IFC systems were installed and in service on approximately 1,480 commercial aircraft, of which, due to impacts of the COVID-19 pandemic, approximately 200 were inactive at fiscal year end. We anticipate that approximately 1,190 additional commercial aircraft under existing customer agreements with commercial airlines will be put into service with our IFC systems. However, the timing of installation and entry into service for additional aircraft under existing customer agreements may be delayed due to COVID-19 impacts. Additionally, due to the nature of commercial airline contracts, 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. Our Community Internet services are currently offered in Mexico, and we are trialing services in advance of full commercial launch in other countries, including Brazil, Guatemala and Nigeria.

 

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.

 

Advanced software and communication infrastructure services, which include ultra-secure solutions spanning global IP connectivity, bandwidth-optimized over-the-top applications, industrial Internet-of-Things big data enablement and industry-leading machine learning analytics. These services support the full evolution of digital enablement, and primarily result from our acquisition of RigNet subsequent to fiscal year end.

The assets and results of operations of Euro Infrastructure Co. and RigNet, which were acquired subsequent to fiscal year end (see discussion above), will primarily be included in our satellite services segment (with insignificant amounts included in our commercial networks segment), commencing with the first quarter of fiscal year 2022.

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Commercial Networks

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. 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, seagoing vessels and land-mobile systems.

 

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

 

Antenna systems, including state-of-the-art ground and airborne terminals, antennas and gateways for terrestrial and satellite customer 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

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 ISR 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, UAVs, 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 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 BATS-D handheld Link 16 radios, our STT 2-channel radios for manned and unmanned applications, “disposable” defense data links, and our MIDS and 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 89%, 88% and 90% of our total revenues for these segments for fiscal years 2021, 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 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.

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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 23%, 24% and 19% of our total revenues during fiscal years 2021, 2020 and 2019, respectively.

We also incur 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 R&D projects. IR&D expenses were approximately 5%, 6% and 6% of total revenues in fiscal years 2021, 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.

Approximately 9%, 11% and 11% of our total revenues in fiscal years 2021, 2020 and 2019, respectively, were derived from international sales. Doing business internationally creates additional risks related to global political and economic conditions and other factors identified under the heading “Risk Factors” in Part I, Item 1A and elsewhere in this report.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our 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 – The Company and a Summary of Its Significant Accounting Policies – Leases to our 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 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.

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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 March 31, 2021 would change our income 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 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.

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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.

Deferred costs to obtain or fulfill contract

Under ASC 340-40, Other Assets and Deferred Costs – Contracts with Customers, we recognize an asset from the incremental costs of obtaining a contract with a customer if we expect to recover those costs. The incremental costs of obtaining a contract are those costs that we incur to obtain a contract with a customer that we would not have incurred if the contract had not been obtained. ASC 340-40 also requires the recognition of an asset from the costs incurred to fulfill a contract when (1) the costs relate directly to a contract or to an anticipated contract that we can specifically identify, (2) the costs generate or enhance our resources that will be used in satisfying (or in continuing to satisfy) performance obligations in the future, and (3) the costs are expected to be recovered. We recognize an asset related to commission costs incurred primarily in our satellite services segment and recognize an asset related to costs incurred to fulfill contracts. Costs to acquire customer contracts are amortized over the estimated customer contract life. Costs to fulfill customer contracts are amortized in proportion to the revenue to which the costs relate. For contracts with an estimated amortization period of less than one year, we expense incremental costs immediately.

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 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 over North America (ViaSat-2, ViaSat-1 and WildBlue-1) and, after acquiring the remaining interest in Euro Infrastructure Co. subsequent to fiscal year end, we also own the KA-SAT satellite over EMEA. In addition, we 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)

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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 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 fiscal years 2021, 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. 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. Alternatively, if we determine in the qualitative assessment that it is more likely than not that the fair value is less than its carrying value, then we perform a quantitative goodwill impairment test to identify both the existence of an impairment and the amount of impairment loss, by comparing the fair value of the reporting unit with its carrying amount, including goodwill. 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

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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.

Based on our qualitative assessment performed during the fourth quarter of fiscal year 2021, 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, 2021, and therefore, determined it was not necessary to perform a quantitative goodwill impairment test.

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 $47.1 million at March 31, 2021. 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:

 

 

 

Fiscal Years Ended

 

 

 

March 31,

2021

 

 

March 31,

2020

 

 

March 31,

2019

 

Revenues:

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

Product revenues

 

 

46

 

 

 

51

 

 

 

53

 

Service revenues

 

 

54

 

 

 

49

 

 

 

47

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenues

 

 

34

 

 

 

37

 

 

 

40

 

Cost of service revenues

 

 

35

 

 

 

33

 

 

 

34

 

Selling, general and administrative

 

 

23

 

 

 

23

 

 

 

22

 

Independent research and development

 

 

5

 

 

 

6

 

 

 

6

 

Amortization of acquired intangible assets

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

3

 

 

 

2

 

 

 

(3

)

Interest expense, net

 

 

(1

)

 

 

(2

)

 

 

(2

)

Income (loss) before income taxes

 

 

1

 

 

 

 

 

 

(5

)

(Provision for) benefit from income taxes

 

 

(—

)

 

 

 

 

 

2

 

Net income (loss)

 

 

1

 

 

 

1

 

 

 

(3

)

Net income (loss) attributable to Viasat, Inc.

 

 

 

 

 

 

 

 

(3

)

 

Fiscal Year 2021 Compared to Fiscal Year 2020

Revenues

 

 

 

Fiscal Years Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

March 31,

2021

 

 

March 31,

2020

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Product revenues

 

$

1,044.5

 

 

$

1,172.5

 

 

$

(128.1

)

 

 

(11

)%

Service revenues

 

 

1,211.7

 

 

 

1,136.7

 

 

 

75.0

 

 

 

7

%

Total revenues

 

$

2,256.1

 

 

$

2,309.2

 

 

$

(53.1

)

 

 

(2

)%

 

Our total revenues decreased by $53.1 million as a result of a $128.1 million decrease in product revenues, partially offset by a $75.0 million increase in service revenues. The product revenue decrease was driven primarily by decreases of $107.0 million in our government systems segment and $21.1 million in our commercial networks segment. The service revenue increase was due to increases of $42.4 million in our satellite services segment and $35.2 million in our government systems segment, partially offset by a $2.6 million decrease in our commercial networks segment.

Cost of revenues

 

 

 

Fiscal Years Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

March 31,

2021

 

 

March 31,

2020

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Cost of product revenues

 

$

774.9

 

 

$

845.8

 

 

$

(70.9

)

 

 

(8

)%

Cost of service revenues

 

 

789.4

 

 

 

763.9

 

 

 

25.5

 

 

 

3

%

Total cost of revenues

 

$

1,564.3

 

 

$

1,609.7

 

 

$

(45.4

)

 

 

(3

)%

 

Cost of revenues decreased by $45.4 million due to a decrease of $70.9 million in cost of product revenues, partially offset by a $25.5 million increase in cost of service revenues. The cost of product revenue decrease was mainly due to decreased revenues, causing a $92.4 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 decrease in cost of product revenues was partially offset by lower margins, primarily driven by our mobile broadband satellite communication systems products in our commercial networks segment and our government mobile broadband products and tactical data link products in our government systems segment. 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.

48


Selling, general and administrative expenses

 

 

 

Fiscal Years Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

March 31,

2021

 

 

March 31,

2020

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Selling, general and administrative

 

$

512.3

 

 

$

523.1

 

 

$

(10.8

)

 

 

(2

)%

 

The $10.8 million decrease in SG&A expenses was primarily due to a decrease in selling costs of $13.4 million and a decrease in bid and proposal costs of $6.6 million, partially offset by an increase in support costs of $9.2 million. The decrease in selling costs was mainly driven by our satellite services segment, but was reflected across all three segments. The decrease in bid and proposal costs was mainly from our government systems segment. The increase in support costs reflected increases across all three 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

 

 

 

Fiscal Years Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

March 31,

2021

 

 

March 31,

2020

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Independent research and development

 

$

115.8

 

 

$

130.4

 

 

$

(14.6

)

 

 

(11

)%

 

The $14.6 million decrease in IR&D expenses was mainly the result of a decrease of $16.7 million in IR&D efforts in our commercial networks segment (primarily related to next-generation satellite payload technologies and mobile broadband satellite communication systems).

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 $2.1 million decrease in amortization of acquired intangible assets in fiscal year 2021 compared to fiscal year 2020 was primarily the result of certain acquired intangibles in our satellite services segment becoming fully amortized during the prior fiscal year. Expected amortization expense for acquired intangible assets for each of the following periods is as follows:

 

 

 

Amortization

 

 

 

(In thousands)

 

Expected for fiscal year 2022

 

$

3,300

 

Expected for fiscal year 2023

 

 

2,993

 

Expected for fiscal year 2024

 

 

2,472

 

Expected for fiscal year 2025

 

 

803

 

Expected for fiscal year 2026

 

 

 

Thereafter

 

 

 

 

 

$

9,568

 

 

Interest income

The $1.2 million decrease in interest income for fiscal year 2021 compared to fiscal year 2020 was primarily the result of lower interest rates during fiscal year 2021 compared to fiscal year 2020.

Interest expense

The $6.0 million decrease in interest expense in fiscal year 2021 compared to fiscal year 2020 was primarily due to an increase in the amount of interest capitalized compared to the prior year period. This decrease in interest expense was partially offset by the addition of interest expense related to the 2028 Notes, which were issued in the first quarter of fiscal year 2021.

Income taxes

The income tax provision in fiscal year 2021 primarily reflected the tax expense from our income before income taxes, the tax expense for tax deficiencies upon settlement of stock-based compensation during the period, and non-deductible compensation, partially offset by benefit from federal and state R&D tax credits. The income tax benefit in fiscal

49


year 2020 primarily reflected the tax benefit from federal and state R&D tax credits, partially offset by the tax expense from our income before income taxes.

Segment Results for Fiscal Year 2021 Compared to Fiscal Year 2020

Satellite services segment

Revenues

 

 

 

Fiscal Years Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

March 31,

2021

 

 

March 31,

2020

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment product revenues

 

$

 

 

$

 

 

$

 

 

 

%

Segment service revenues

 

 

868.9

 

 

 

826.6

 

 

 

42.4

 

 

 

5

%

Total segment revenues

 

$

868.9

 

 

$

826.6

 

 

$

42.4

 

 

 

5

%

 

Our satellite services segment revenues increased by $42.4 million due to an increase in service revenues. The increase in service revenues was primarily driven by higher ARPU in the United States in our fixed broadband business when compared to the prior year period, partially offset by a decrease in service revenues from our in-flight services. 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 an 8% decrease in the number of commercial aircraft using in-flight services through our IFC systems as of year end as a result of the COVID-19 pandemic. In addition, our fiscal year 2021 in-flight service revenues were impacted by the reductions in passenger air traffic and the number of inactive installed aircraft, as well as lower capacity on active installed aircraft as a result of the COVID-19 pandemic.

Segment operating profit

 

 

 

Fiscal Years Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

March 31,

2021

 

 

March 31,

2020

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment operating profit

 

$

35.9

 

 

$

7.0

 

 

$

28.8

 

 

 

411

%

Percentage of segment revenues

 

 

4

%

 

 

1

%

 

 

 

 

 

 

 

 

 

The $28.8 million increase in our satellite services segment operating profit was driven primarily by higher earnings contributions of $24.4 million, mainly due to 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. The increase in operating profit was also driven by lower selling costs. This increase 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

 

 

 

Fiscal Years Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

March 31,

2021

 

 

March 31,

2020

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment product revenues

 

$

268.8

 

 

$

290.0

 

 

$

(21.1

)

 

 

(7

)%

Segment service revenues

 

 

52.0

 

 

 

54.6

 

 

 

(2.6

)

 

 

(5

)%

Total segment revenues

 

$

320.9

 

 

$

344.6

 

 

$

(23.7

)

 

 

(7

)%

 

Our commercial networks segment revenues decreased by $23.7 million, primarily due to a $21.1 million decrease in product revenues and a $2.6 million decrease in service revenues. The decrease in product revenues was primarily due to a decrease of $44.9 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 $5.4 million in satellite networking development programs products. The product revenue decrease was partially offset by increases of $22.7 million in antenna systems products and $4.0 million in fixed satellite networks products. The decrease in service revenues was primarily due to a $5.3 million decrease in mobile broadband satellite communication systems services, partially offset by a $2.9 million increase in fixed satellite network services.

50


Segment operating loss

 

 

 

Fiscal Years Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

March 31,

2021

 

 

March 31,

2020

 

 

(Increase)

Decrease

 

 

(Increase)

Decrease

 

Segment operating loss

 

$

(180.7

)

 

$

(186.9

)

 

$

6.1

 

 

 

3

%

Percentage of segment revenues

 

 

(56

)%

 

 

(54

)%

 

 

 

 

 

 

 

 

 

Our commercial networks segment operating loss decreased by $6.1 million year-over-year. The decrease in operating loss was driven primarily by a $16.7 million decrease in IR&D expenses (primarily related to next-generation satellite payload technologies and mobile broadband satellite communication systems) and careful management of SG&A expenses, partially offset by lower earnings contributions of $12.4 million, driven by decreased revenues and lower margins from our mobile broadband satellite communication systems products.

Government systems segment

Revenues

 

 

 

Fiscal Years Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

March 31,

2021

 

 

March 31,

2020

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment product revenues

 

$

775.6

 

 

$

882.6

 

 

$

(107.0

)

 

 

(12

)%

Segment service revenues

 

 

290.7

 

 

 

255.5

 

 

 

35.2

 

 

 

14

%

Total segment revenues

 

$

1,066.3

 

 

$

1,138.1

 

 

$

(71.8

)

 

 

(6

)%

 

Our government systems segment revenues decreased by $71.8 million due to a decrease of $107.0 million in product revenues, partially offset by an increase of $35.2 million in service revenues. The product revenue decrease was primarily driven by a $62.0 million decrease in government mobile broadband products, a $37.4 million decrease in government satellite communication systems products and a $21.2 million decrease in tactical satcom radio products. The decrease in product revenues was partially offset by an increase of $10.1 million in cybersecurity and information assurance products and a $3.8 million increase in tactical data link products. Our government systems segment continued to show some impacts from the COVID-19 pandemic, which has somewhat complicated product manufacturing and shipments, but new government systems segment awards remained very strong through the end of the fiscal year. The service revenue increase was primarily due to a $20.4 million increase in government mobile broadband services, a $5.2 million increase in tactical data link services, a $4.8 million increase in government satellite communication systems services, a $2.5 million increase in cybersecurity and information assurance services and a $2.2 million increase in tactical satcom radio services. In the second half of fiscal year 2021, we experienced higher usage demand for our services across all major government customer verticals.

Segment operating profit

 

 

 

Fiscal Years Ended

 

 

Dollar

 

 

Percentage

 

(In millions, except percentages)

 

March 31,

2021

 

 

March 31,

2020

 

 

Increase

(Decrease)

 

 

Increase

(Decrease)

 

Segment operating profit

 

$

208.6

 

 

$

225.9

 

 

$

(17.3

)

 

 

(8

)%

Percentage of segment revenues

 

 

20

%

 

 

20

%

 

 

 

 

 

 

 

 

 

The $17.3 million decrease in our government systems segment operating profit was primarily due to lower earnings contributions of $19.8 million, primarily due to a decrease in revenues and lower margins from our government mobile broadband products and higher IR&D investments, partially offset by SG&A expense management resulting in lower costs of $3.6 million.

Fiscal Year 2020 Compared to Fiscal Year 2019

 

For a discussion of our results of operations for fiscal year 2020 as compared to fiscal year 2019, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2020.

51


Backlog

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

 

 

 

As of

March 31, 2021

 

 

As of

March 31, 2020

 

 

 

(In millions)

 

Firm backlog

 

 

 

 

 

 

 

 

Satellite services segment

 

$

633.7

 

 

$

611.3

 

Commercial networks segment

 

 

733.2

 

 

 

408.1

 

Government systems segment

 

 

939.4

 

 

 

851.3

 

Total

 

$

2,306.3

 

 

$

1,870.7

 

Funded backlog

 

 

 

 

 

 

 

 

Satellite services segment

 

$

633.7

 

 

$

611.3

 

Commercial networks segment

 

 

639.6

 

 

 

408.1

 

Government systems segment

 

 

846.9

 

 

 

858.7

 

Total

 

$

2,120.2

 

 

$

1,878.1

 

 

The firm backlog does not include contract options. Of the $2.3 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 March 31, 2021, our IFC systems were installed and in service on approximately 1,480 commercial aircraft, of which, due to impacts of the COVID-19 pandemic, approximately 200 were inactive at fiscal year end. While current global airline traffic is still a fraction of the activity in fiscal year 2020, domestic airline traffic is showing signs of improvement. As a result, our in-flight services business showed modest improvement in the quarter ended March 31, 2021, with increased planes in service and passenger volumes. We expect the negative impact on our IFC business from the pandemic to continue into fiscal year 2022 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 that approximately 1,190 additional commercial aircraft under existing customer agreements with commercial airlines will be put into service with our IFC systems. 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 $2.7 billion, $2.3 billion and $2.4 billion for fiscal years 2021, 2020 and 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 March 31, 2021, we had $295.9 million in cash and cash equivalents, $282.8 million in working capital, and no outstanding borrowings and borrowing availability of $673.7 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

52


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 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 $673.7 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 fiscal year 2021 was $727.2 million compared to $436.9 million for fiscal year 2020. This $290.3 million increase was primarily driven by a $229.0 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 changes) which resulted in $61.3 million of higher cash provided by operating activities year-over-year. The decrease in cash used to fund net operating assets during fiscal year 2021 when compared to fiscal year 2020 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 mobile broadband satellite communication systems products and services business in our commercial networks and satellite services segments 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 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 and government systems segments.

53


Cash used in investing activities for fiscal year 2021 was $885.3 million compared to $758.8 million for fiscal year 2020. This $126.5 million increase in cash used in investing activities year-over year reflects an increase of approximately $118.8 million in cash used for satellite construction.

Cash provided by financing activities for fiscal year 2021 was $149.7 million compared to $365.2 million for fiscal year 2020. This $215.5 million decrease in cash provided by financing activities year-over-year reflects proceeds from borrowings under our Revolving Credit Facility of $420.0 million in fiscal year 2020 and an increase in payments on borrowings under our Revolving Credit Facility of $360.0 million year-over-year. This decrease was partially offset by $400.0 million of gross proceeds from our 2028 Notes in June 2020 and $174.7 million of net proceeds from a private placement of common stock in July 2020 (after deducting offering expenses). Cash provided by financing activities for both periods included cash received from employee stock purchase plan purchases and the repurchase of common stock related to net share settlement of certain employee tax liabilities in connection with the vesting of restricted stock unit awards.

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. As services using the new satellite scaled, however, our revenue base for broadband services expanded and we gained operating cost efficiencies, which together yielded incremental segment earnings contributions. 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. However, there can be no assurance that we will be successful in significantly increasing revenues or achieving or maintaining operating profit in our satellite services segment, and any such gains may also be offset by investments in our global business.

We currently have three ViaSat-3 class satellites under construction. We have entered into satellite construction agreements with Boeing for their construction and purchase and the integration of our payload and technologies into the satellites. In addition, we have entered into various other satellite-related purchase commitments, including with respect to the provision of launch services, satellite operation and satellite insurance. See Note 12 – Commitments to our consolidated financial statements for information as of March 31, 2021 regarding our future minimum payments under our satellite construction contracts and other satellite-related purchase commitments for the next five fiscal years and thereafter. In addition, we will continue to incur costs related to the roll-out of related earth station infrastructure to support the ViaSat-3 constellation, the amount of which will depend, among other matters, on the timing of roll-out and method used to procure fiber access. We believe we have adequate sources of funding for the ViaSat-3 constellation, 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 2022 and beyond relating to next generation satellite network solutions 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 2022 are expected to be higher than fiscal year 2021, as we have a third ViaSat-3 class satellite under construction, as well as increased ground network investments related to international expansion.

Long-Term Debt

As of March 31, 2021, the aggregate principal amount of our total outstanding indebtedness was $1.9 billion, which was comprised of $700.0 million in principal amount of 2025 Notes, $600.0 million in principal amount of 2027 Notes, $400.0 million in principal amount of 2028 Notes, no outstanding borrowings under our $700.0 million Revolving Credit Facility, $98.3 million in principal amount of outstanding borrowings under our Ex-Im Credit Facility with a maturity date of October 15, 2025 and $56.3 million of finance lease obligations. For information regarding our Credit Facilities and Notes, refer to Note 6 – Senior Notes and Other Long-Term Debt to our consolidated financial statements.

54


Contractual Obligations

The following table sets forth a summary of our obligations at March 31, 2021:

 

 

 

 

 

 

 

For the Fiscal Years Ending

 

(In thousands, including interest where applicable)

 

Total

 

 

2022

 

 

2023-2024

 

 

2025-2026

 

 

Thereafter

 

Operating leases

 

$

444,674

 

 

$

67,940

 

 

$

125,686

 

 

$

111,684

 

 

$

139,364

 

Finance leases

 

 

64,575

 

 

 

13,567

 

 

 

24,008

 

 

 

24,000

 

 

 

3,000

 

2028 Notes

 

 

595,000

 

 

 

26,000

 

 

 

52,000

 

 

 

52,000

 

 

 

465,000

 

2027 Notes

 

 

819,375

 

 

 

33,750

 

 

 

67,500

 

 

 

67,500

 

 

 

650,625

 

2025 Notes

 

 

877,188

 

 

 

39,375

 

 

 

78,750

 

 

 

759,063

 

 

 

 

Revolving Credit Facility

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ex-Im Credit Facility

 

 

104,693

 

 

 

21,874

 

 

 

42,344

 

 

 

40,475

 

 

 

 

Satellite performance incentives

 

 

32,520

 

 

 

5,334

 

 

 

10,269

 

 

 

11,269

 

 

 

5,648

 

Purchase commitments including satellite-

   related agreements

 

 

1,650,828

 

 

 

1,087,573

 

 

 

436,635

 

 

 

46,121

 

 

 

80,499

 

Total

 

$

4,588,853

 

 

$

1,295,413

 

 

$

837,192

 

 

$

1,112,112

 

 

$

1,344,136

 

 

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 consolidated balance sheets included $137.4 million and $120.9 million of “other liabilities” as of March 31, 2021 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 for additional information regarding satellite performance incentive obligations relating to the ViaSat-1 and ViaSat-2 satellites. See Note 14 – Product Warranty to our consolidated financial statements for a discussion of our product warranties.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements at March 31, 2021 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 consolidated financial statements included in this report.

Recent Authoritative Guidance

For information regarding recently adopted and issued accounting pronouncements, see Note 1 – The Company and a Summary of Its Significant Accounting Policies to the consolidated financial statements.

55


ITEM 7A. 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 and the 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 March 31, 2021, 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. The 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 fiscal years ended March 31, 2021 and March 31, 2020. 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 March 31, 2021 that would have been applied to any new Eurodollar-based borrowings under the Revolving Credit Facility was approximately 1.78%. As of March 31, 2021, we had no outstanding borrowings under our Revolving Credit Facility. Accordingly, assuming the outstanding balance remained constant over a year, changes in interest rates applicable to our Revolving Credit Facility would have no effect on our interest incurred and 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. A five percent variance in foreign currencies in which our international business is conducted would change our income (loss) before income taxes by $1.1 million and an insignificant amount for the fiscal years ended March 31, 2021 and March 31, 2020, respectively. 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 March 31, 2021 and March 31, 2020, we had no foreign currency forward contracts outstanding.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements at March 31, 2021 and March 31, 2020 and for each of the three fiscal years in the period ended March 31, 2021, and the Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, are included in this report on pages F-1 through F-43.

Summarized Quarterly Data (Unaudited)

This item is no longer required as we have elected to early apply the changes to Item 302 of Regulation S-K contained in SEC Release No. 33-10890 and there has not been a material retrospective change to the information previously reported.

56


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure 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 March 31, 2021, 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 March 31, 2021.

Management’s Report on Internal Control Over Financial Reporting

The company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of the company’s management, including our Chief Executive Officer and Chief Financial Officer, the company conducted an evaluation of the effectiveness of its internal control over financial reporting based on criteria established in the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the company’s management concluded that its internal control over financial reporting was effective as of March 31, 2021.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The company’s independent registered public accounting firm has audited the effectiveness of the company’s internal control over financial reporting as of March 31, 2021, as stated in their report which appears on page F-1.

Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes. During the quarter ended March 31, 2021, 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.

ITEM 9B. OTHER INFORMATION

None.

 

57


PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is included in our definitive Proxy Statement to be filed with the SEC in connection with our 2021 Annual Meeting of Stockholders (the Proxy Statement) under the headings “Corporate Governance Principles and Board Matters,” “Election of Directors” and “Ownership of Securities,” and is incorporated herein by reference.

The information required by this item relating to our executive officers is included under the caption “Executive Officers” in Part I of this Form 10-K and is incorporated herein by reference into this section.

We have adopted a code of ethics applicable to all of our employees (including our principal executive officer, principal financial officer, principal accounting officer and controller). The code of ethics is designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. The full text of our code of ethics is published on our website at www.viasat.com. We intend to disclose future amendments to certain provisions of our code of ethics, or waivers of such provisions granted to executive officers and directors, on our website within four business days following the date of such amendment or waiver.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is included in the Proxy Statement under the heading “Executive Compensation” and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is included in the Proxy Statement under the headings “Ownership of Securities” and “Executive Compensation — Equity Compensation Plan Information,” and is incorporated herein by reference.

The information required by this item is included in the Proxy Statement under the headings “Corporate Governance Principles and Board Matters” and “Certain Relationships and Related Transactions,” and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is included in the Proxy Statement under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm” and is incorporated herein by reference.

 

58


PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)

The following documents are filed as part of this report:

 

 

(1)

Consolidated Financial Statements

 

 

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

 

(3)

Exhibits

 

Exhibit

Number

 

 

Incorporated by Reference

 

Filed or
Furnished
Herewith

 

Exhibit Description

 

Form

 

File No.

 

Exhibit

 

Filing Date

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

3.1

Second Amended and Restated Certificate of Incorporation of ViaSat, Inc.

10-Q

000-21767

3.1

11/14/2000

 

 

 

 

 

 

 

 

3.2

Second Amended and Restated Bylaws of ViaSat, Inc.

8-K

000-21767

3.1

12/04/2012

 

 

 

 

 

 

 

 

4.1

Form of Common Stock Certificate (p)

S-1/A

333-13183

4.1

11/05/1996

 

 

 

 

 

 

 

 

4.2

Indenture dated as of September 21, 2017, between ViaSat, Inc. and Wilmington Trust, National Association, as trustee

8-K

000-21767

4.1

09/21/2017

 

 

 

 

 

 

 

 

4.3

Form of 5.625% Senior Note due 2025 of ViaSat, Inc. (attached as Exhibit A to the Indenture filed as Exhibit 4.2 hereto)

8-K

000-21767

4.1

09/21/2017

 

 

 

 

 

 

 

 

4.4

Indenture, dated as of March 27, 2019, between Viasat, Inc. and Wilmington Trust, National Association, as trustee and as collateral trustee

8-K

000-21767

4.1

03/27/2019

 

 

 

 

 

 

 

 

4.5

Form of 5.625% Senior Secured Note due 2027 of Viasat, Inc. (attached as Exhibit A to the Indenture filed as Exhibit 4.4 hereto)

8-K

000-21767

4.1

03/27/2019

 

 

 

 

 

 

 

 

4.6

Indenture, dated as of June 24, 2020, between Viasat, Inc. and Wilmington Trust, National Association, as trustee.

8-K

000-21767

4.1

06/24/2020

 

 

 

 

 

 

 

 

4.7

Form of 6.500% Senior Note due 2028 of Viasat, Inc. (attached as Exhibit A to the Indenture filed as Exhibit 4.6 hereto)

8-K

000-21767

4.1

06/24/2020

 

 

 

 

 

 

 

 

4.8

Description of Registered Securities

10-K

000-21767

4.6

05/29/2020

 

 

 

 

 

 

 

 

10.1

Form of Indemnification Agreement between ViaSat, Inc. and each of its directors and officers

8-K

000-21767

99.1

03/07/2008

 

59


Exhibit

Number

 

 

Incorporated by Reference

 

Filed or
Furnished
Herewith

 

Exhibit Description

 

Form

 

File No.

 

Exhibit

 

Filing Date

 

 

 

 

 

 

 

 

10.2*

ViaSat, Inc. Employee Stock Purchase Plan (as Amended and Restated Effective September 4, 2019)

S-8

333-234634

10.7

11/12/2019

 

 

 

 

 

 

 

 

10.3*

1996 Equity Participation Plan of ViaSat, Inc. (As Amended and Restated Effective September 3, 2020)

8-K

000-21767

10.1

09/09/2020

 

 

 

 

 

 

 

 

10.3.1*

Amendment to 1996 Equity Participation Plan of Viasat, Inc. (As Amended and Restated Effective September 3, 2020)

S-8

333-255690

10.2

04/30/2021

 

 

 

 

 

 

 

 

10.4*

Form of Stock Option Agreement for the 1996 Equity Participation Plan of ViaSat, Inc.

10-K

000-21767

10.4

05/26/2015

 

 

 

 

 

 

 

 

10.5*

Form of Performance Stock Option Agreement for the 1996 Equity Participation Plan of ViaSat, Inc.

10-Q

000-21767

10.1

02/9/2018

 

 

 

 

 

 

 

 

10.6*

Form of Restricted Stock Unit Award Agreement for the 1996 Equity Participation Plan of ViaSat, Inc.—Global

10-K

000-21767

10.5

05/25/2017

 

 

 

 

 

 

 

 

10.7*

Form of Restricted Stock Unit Award Agreement for the 1996 Equity Participation Plan of ViaSat, Inc.—Independent Director

10-K

000-21767

10.6

05/26/2015

 

 

 

 

 

 

 

 

10.8*

Form of Restricted Stock Unit Award Agreement for the 1996 Equity Participation Plan of ViaSat, Inc.—Executive

10-K

000-21767

10.7

05/26/2015

 

 

 

 

 

 

 

 

10.9*

Form of Change in Control Severance Agreement between ViaSat, Inc. and each of its executive officers

8-K

000-21767

10.1

08/04/2010

 

 

 

 

 

 

 

 

10.10

Credit Agreement dated as of November 26, 2013, by and among ViaSat, Inc., Union Bank, N.A. (as agent) and the other lenders party thereto

8-K

000-21767

10.1

11/26/2013

 

 

 

 

 

 

 

 

10.10.1

First Amendment to Credit Agreement and Other Loan Documents dated as of March 12, 2015, by and among ViaSat, Inc., Union Bank, N.A. (as agent) and the other lenders party thereto

8-K

000-21767

10.2

03/13/2015

 

 

 

 

 

 

 

 

10.10.2

Second Amendment to Credit Agreement and Other Loan Documents dated as of May 24, 2016, by and among Viasat, Inc., MUFG Union Bank, N.A. (as agent) and the other lenders party thereto

8-K

000-21767

10.1

05/24/2016

 

 

 

 

 

 

 

 

10.10.3

Third Amendment to Credit Agreement dated as of May 24, 2018 by and among Viasat, Inc., MUFG Union Bank, N.A. (as agent) and the other lenders party thereto

10-K

000-21767

10.10.3

05/30/2018

 

 

 

 

 

 

 

 

10.10.4

Fourth Amendment to Credit Agreement dated as of January 18, 2019, by and among Viasat, Inc., MUFG Union Bank, N.A. (as administrative agent and collateral agent) and the other lenders party thereto

8-K

000-21767

10.1

01/22/2019

 

 

 

 

 

 

 

 

10.11

Credit Agreement dated as of March 12, 2015, by and among ViaSat Technologies Limited, ViaSat, Inc., JPMorgan Chase Bank, National Association (as Ex-Im facility agent) and the Export-Import Bank of the United States

8-K

000-21767

10.1

03/13/2015

 

60


Exhibit

Number

 

 

Incorporated by Reference

 

Filed or
Furnished
Herewith

 

Exhibit Description

 

Form

 

File No.

 

Exhibit

 

Filing Date

 

 

 

 

 

 

 

 

10.11.1

First Amendment to Credit Agreement, dated as of June 12, 2015, by and among ViaSat Technologies Limited, ViaSat, Inc., JPMorgan Chase Bank, National Association (as Ex-Im Facility Agent) and the Export-Import Bank of the United States

10-Q

000-21767

10.1

08/10/2015

 

 

 

 

 

 

 

 

10.11.2

Second Amendment Agreement, dated as of March 23, 2016, by and among ViaSat Technologies Limited, ViaSat, Inc., JPMorgan Chase Bank, National Association (as Ex-Im Facility Agent) and the Export-Import Bank of the United States

8-K

000-21767

10.1

03/24/2016

 

 

 

 

 

 

 

 

10.11.3

Third Amendment Agreement, dated as of October 11, 2016, by and among ViaSat Technologies Limited, ViaSat, Inc., JPMorgan Chase Bank, National Association (as Ex-Im Facility Agent) and the Export-Import Bank of the United States

8-K

000-21767

10.1

10/12/2016

 

 

 

 

 

 

 

 

10.11.4

Fourth Amendment to Credit Agreement, dated as of July 17, 2018, by and among Viasat Technologies Limited, Viasat, Inc., JPMorgan Chase Bank, National Association (as Ex-Im Facility Agent) and the Export-Import Bank of the United States

8-K

000-21767

10.1

07/23/2018

 

 

 

 

 

 

 

 

10.11.5

Fifth Amendment Agreement, dated as of February 28, 2019, by and among Viasat Technologies Limited, Viasat, Inc., JPMorgan Chase Bank, National Association (as Ex-Im Facility Agent) and the Export-Import Bank of the United States

8-K

000-21767

10.1

02/28/2019

 

 

 

 

 

 

 

 

10.12*

RigNet, Inc. 2010 Omnibus Incentive Plan

S-8

333-255690

10.3

04/30/2021

 

10.12.1*

Amendment to RigNet, Inc. 2010 Omnibus Incentive Plan

S-8

333-255690

10.4

04/30/2021

 

 

 

 

 

 

 

 

10.13*

RigNet, Inc. 2019 Omnibus Incentive Plan

S-8

333-255690

10.5

04/30/2021

 

 

 

 

 

 

 

 

10.13.1*

Amendment to RigNet, Inc. 2019 Omnibus Incentive Plan

S-8

333-255690

10.6

04/30/2021

 

 

 

 

 

 

 

 

10.14*

Nonqualified Stock Option Award Agreement, by and between RigNet, Inc. and Errol Olivier, effective as of January 8, 2020

S-8

333-255690

10.7

04/30/2021

 

 

 

 

 

 

 

 

10.15*

Restricted Stock Unit Award Agreement, by and between RigNet, Inc. and Errol Olivier, effective as of January 8, 2020

S-8

333-255690

10.8

04/30/2021

 

 

 

 

 

 

 

 

21.1

Subsidiaries

 

 

 

 

X

 

 

 

 

 

 

 

23.1

Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm

 

 

 

 

X

 

 

 

 

 

 

 

24.1

Power of Attorney (see signature page)

 

 

 

 

X

 

 

 

 

 

 

 

31.1

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

 

 

 

 

X

61


Exhibit

Number

 

 

Incorporated by Reference

 

Filed or
Furnished
Herewith

 

Exhibit Description

 

Form

 

File No.

 

Exhibit

 

Filing Date

 

 

 

 

 

 

 

 

31.2

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

 

 

 

 

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

 

*

Indicates management contract, compensatory plan or arrangement.

(p)

Filed in paper.

ITEM 16. FORM 10-K SUMMARY

None.

62


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

 

 

 

By: 

 

 /s/ RICHARD BALDRIDGE

 

 

President and Chief Executive Officer

 

Date: May 28, 2021

Know all persons by these presents, that each person whose signature appears below constitutes and appoints Richard Baldridge and Shawn Duffy, jointly and severally, his or her attorneys-in-fact, each with the full power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ RICHARD BALDRIDGE

 

President, Chief Executive Officer and Director

 

May 28, 2021

Richard Baldridge

 

(Principal Executive Officer)

 

 

 

 

 

 

 

/s/ SHAWN DUFFY

 

Senior Vice President and

 

May 28, 2021

Shawn Duffy

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

/s/ MARK DANKBERG

 

Executive Chairman

 

May 28, 2021

Mark Dankberg

 

 

 

 

 

 

 

 

 

/s/ JAMES BRIDENSTINE

 

Director

 

May 28, 2021

James Bridenstine

 

 

 

 

 

 

 

 

 

/s/ ROBERT JOHNSON

 

Director

 

May 28, 2021

Robert Johnson

 

 

 

 

 

 

 

 

 

/s/ SEAN PAK

 

Director

 

May 28, 2021

Sean Pak

 

 

 

 

 

 

 

 

 

/s/ VARSHA RAO

 

Director

 

May 28, 2021

Varsha Rao

 

 

 

 

 

 

 

 

 

/s/ JOHN STENBIT

 

Director

 

May 28, 2021

John Stenbit

 

 

 

 

 

 

 

 

 

/s/ THERESA WISE

 

Director

 

May 28, 2021

Theresa Wise

 

 

 

 

 

 

 

 

 

 

 

 

63


 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Viasat, Inc.

 

Opinions on the Financial Statements and Internal Control over Financial Reporting

 

We have audited the accompanying consolidated balance sheets of Viasat, Inc. and its subsidiaries (the “Company”) as of March 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive income (loss), of equity, and of cash flows for each of the three years in the period ended March 31, 2021, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

 

Changes in Accounting Principles

 

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal year 2020 and the manner in which it accounts for revenues from contracts with customers in fiscal year 2019.

 

Basis for Opinions

 

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

 

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

F-1


 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Critical Audit Matters

 

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Revenue Recognition – Estimated Costs at Completion

 

As described in Note 1 to the consolidated financial statements, 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. A portion of the Company’s total revenues of $2.3 billion for the year ended March 31, 2021 are from long-term contracts. 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 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.

 

The principal considerations for our determination that performing procedures relating to revenue recognition – estimated costs at completion is a critical audit matter are the significant judgment by management when developing the estimated costs at completion on individual fixed-price contracts, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating evidence related to the estimated costs at completion, including the evaluation of management’s judgment as it relates to the subcontractor performance, material costs and availability, labor costs and productivity, and the costs of overhead.

 

F-2


 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the completeness and accuracy of estimated costs at completion. The procedures also included, among others, evaluating and testing management’s process for developing estimates of total estimated costs at completion for long-term contracts for a sample of contracts. This included testing the completeness and accuracy of costs incurred to date and evaluating the reasonableness of significant estimates used by management, including subcontractor performance, material costs, labor costs, and overhead costs, and considering factors that could affect the accuracy of those estimates. Evaluating the reasonableness of the significant assumptions used involved assessing management’s ability to reasonably estimate costs at completion by (i) testing samples of third-party quotes or bids for materials and subcontractor services, (ii) assessing the reasonableness of estimates of total costs at completion in comparison to actual total costs incurred to date, (iii) recalculating estimated labor and overhead, and (iv) evaluating the timely identification of circumstances that may warrant a modification to estimated costs to complete, including actual costs in excess of estimates.

 

 

/s/ PricewaterhouseCoopers LLP

San Diego, California

May 28, 2021

 

We have served as the Company’s auditor since 1992.

F-3


 

VIASAT, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

As of

March 31, 2021

 

 

As of

March 31, 2020

 

 

 

(In thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

295,949

 

 

$

304,309

 

Accounts receivable, net

 

 

238,652

 

 

 

330,698

 

Inventories

 

 

336,672

 

 

 

294,416

 

Prepaid expenses and other current assets

 

 

119,960

 

 

 

116,281

 

Total current assets

 

 

991,233

 

 

 

1,045,704

 

 

 

 

 

 

 

 

 

 

Property, equipment and satellites, net

 

 

3,050,483

 

 

 

2,586,735

 

Operating lease right-of-use assets

 

 

340,456

 

 

 

308,441

 

Other acquired intangible assets, net

 

 

9,568

 

 

 

14,439

 

Goodwill

 

 

122,300

 

 

 

121,197

 

Other assets

 

 

835,427

 

 

 

807,352

 

Total assets

 

$

5,349,467

 

 

$

4,883,868

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

145,134

 

 

$

183,601

 

Accrued and other liabilities

 

 

532,831

 

 

 

391,190

 

Current portion of long-term debt

 

 

30,472

 

 

 

29,788

 

Total current liabilities

 

 

708,437

 

 

 

604,579

 

 

 

 

 

 

 

 

 

 

Senior notes

 

 

1,683,264

 

 

 

1,285,497

 

Other long-term debt

 

 

119,420

 

 

 

536,166

 

Non-current operating lease liabilities

 

 

313,762

 

 

 

286,550

 

Other liabilities

 

 

137,350

 

 

 

120,934

 

Total liabilities

 

 

2,962,233

 

 

 

2,833,726

 

Commitments and contingencies (Notes 12 and 13)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Viasat, Inc. stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 5,000,000 shares authorized;

   0 shares issued and outstanding at March 31, 2021 and 2020,

   respectively

 

 

 

 

 

 

Common stock, $0.0001 par value, 100,000,000 shares authorized;

   68,529,133 and 62,147,140 shares outstanding at March 31, 2021 and 2020,

   respectively

 

 

7

 

 

 

6

 

Paid-in capital

 

 

2,092,595

 

 

 

1,788,456

 

Retained earnings

 

 

249,064

 

 

 

245,373

 

Accumulated other comprehensive income (loss)

 

 

9,803

 

 

 

(6,048

)

Total Viasat, Inc. stockholders’ equity

 

 

2,351,469

 

 

 

2,027,787

 

Noncontrolling interest in subsidiary

 

 

35,765

 

 

 

22,355

 

Total equity

 

 

2,387,234

 

 

 

2,050,142

 

Total liabilities and equity

 

$

5,349,467

 

 

$

4,883,868

 

 

See accompanying notes to the consolidated financial statements.

 

F-4


 

VIASAT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 

 

 

Fiscal Years Ended

 

 

 

March 31,

2021

 

 

March 31,

2020

 

 

March 31,

2019

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

1,044,450

 

 

$

1,172,541

 

 

$

1,092,691

 

Service revenues

 

 

1,211,657

 

 

 

1,136,697

 

 

 

975,567

 

Total revenues

 

 

2,256,107

 

 

 

2,309,238

 

 

 

2,068,258

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenues

 

 

774,893

 

 

 

845,757

 

 

 

834,472

 

Cost of service revenues

 

 

789,391

 

 

 

763,930

 

 

 

703,249

 

Selling, general and administrative

 

 

512,316

 

 

 

523,085

 

 

 

458,458

 

Independent research and development

 

 

115,792

 

 

 

130,434

 

 

 

123,044

 

Amortization of acquired intangible assets

 

 

5,482

 

 

 

7,611

 

 

 

9,655

 

Income (loss) from operations

 

 

58,233

 

 

 

38,421

 

 

 

(60,620

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

440

 

 

 

1,648

 

 

 

149

 

Interest expense

 

 

(32,687

)

 

 

(38,641

)

 

 

(50,010

)

Income (loss) before income taxes

 

 

25,986

 

 

 

1,428

 

 

 

(110,481

)

(Provision for) benefit from income taxes

 

 

(9,441

)

 

 

7,915

 

 

 

41,014

 

Equity in income of unconsolidated affiliate, net

 

 

556

 

 

 

4,470

 

 

 

2,998

 

Net income (loss)

 

 

17,101

 

 

 

13,813

 

 

 

(66,469

)

Less: net income attributable to noncontrolling

   interests, net of tax

 

 

13,410

 

 

 

14,025

 

 

 

1,154

 

Net income (loss) attributable to Viasat, Inc.

 

$

3,691

 

 

$

(212

)

 

$

(67,623

)

Net income (loss) per share attributable to Viasat, Inc.

   common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share attributable to Viasat, Inc.

   common stockholders

 

$

0.06

 

 

$

(0.00

)

 

$

(1.13

)

Diluted net income (loss) per share attributable to Viasat, Inc.

   common stockholders

 

$

0.06

 

 

$

(0.00

)

 

$

(1.13

)

Shares used in computing basic net income (loss) per share

 

 

66,444

 

 

 

61,632

 

 

 

59,942

 

Shares used in computing diluted net income (loss) per share

 

 

67,020

 

 

 

61,632

 

 

 

59,942

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

17,101

 

 

$

13,813

 

 

$

(66,469

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on hedging, net of tax

 

 

 

 

 

235

 

 

 

(242

)

Foreign currency translation adjustments, net of tax

 

 

15,851

 

 

 

(11,621

)

 

 

(9,985

)

Other comprehensive income (loss), net of tax

 

 

15,851

 

 

 

(11,386

)

 

 

(10,227

)

Comprehensive income (loss)

 

 

32,952

 

 

 

2,427

 

 

 

(76,696

)

Less: comprehensive income attributable to

   noncontrolling interests, net of tax

 

 

13,410

 

 

 

14,025

 

 

 

1,154

 

Comprehensive income (loss) attributable to

   Viasat, Inc.

 

$

19,542

 

 

$

(11,598

)

 

$

(77,850

)

 

See accompanying notes to the consolidated financial statements.

 

F-5


 

VIASAT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Fiscal Years Ended

 

 

 

March 31,

2021

 

 

March 31,

2020

 

 

March 31,

2019

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

17,101

 

 

$

13,813

 

 

$

(66,469

)

Adjustments to reconcile net income (loss) to net cash provided

   by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

330,861

 

 

 

279,733

 

 

 

262,289

 

Amortization of intangible assets

 

 

66,241

 

 

 

62,445

 

 

 

56,324

 

Stock-based compensation expense

 

 

84,879

 

 

 

86,553

 

 

 

79,599

 

Loss on disposition of fixed assets

 

 

39,442

 

 

 

45,622

 

 

 

41,957

 

Other non-cash adjustments

 

 

7,773

 

 

 

(3,154

)

 

 

(25,330

)

Increase (decrease) in cash resulting from changes in operating assets

   and liabilities, net of effect of acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

84,411

 

 

 

(44,807

)

 

 

(46,108

)

Inventories

 

 

(42,460

)

 

 

(58,997

)

 

 

(36,593

)

Other assets

 

 

36,431

 

 

 

(3,313

)

 

 

(2,349

)

Accounts payable

 

 

(24,363

)

 

 

28,175

 

 

 

(5,714

)

Accrued liabilities

 

 

154,898

 

 

 

55,126

 

 

 

71,478

 

Other liabilities

 

 

(27,999

)

 

 

(24,260

)

 

 

(1,533

)

Net cash provided by operating activities

 

 

727,215

 

 

 

436,936

 

 

 

327,551

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, equipment and satellites

 

 

(827,241

)

 

 

(693,966

)

 

 

(636,855

)

Cash paid for patents, licenses and other assets

 

 

(58,030

)

 

 

(67,112

)

 

 

(49,965

)

Proceeds from insurance claims on ViaSat-2 satellite

 

 

 

 

 

2,277

 

 

 

185,706

 

Proceeds from sale of real property

 

 

 

 

 

 

 

 

14,034

 

Payments related to acquisition of business, net of cash acquired

 

 

 

 

 

 

 

 

(2,339

)

Net cash used in investing activities

 

 

(885,271

)

 

 

(758,801

)

 

 

(489,419

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from debt borrowings

 

 

400,000

 

 

 

420,000

 

 

 

1,110,000

 

Payments of debt borrowings

 

 

(420,552

)

 

 

(59,691

)

 

 

(732,840

)

Payment of debt issuance costs

 

 

(5,060

)

 

 

(2,479

)

 

 

(9,767

)

Proceeds from issuance of common stock under equity plans

 

 

19,101

 

 

 

38,410

 

 

 

26,330

 

Purchase of common stock in treasury (immediately retired)

   related to tax withholdings for stock-based compensation

 

 

(13,676

)

 

 

(28,802

)

 

 

(28,826

)

Proceeds from common stock issued in private placement, net

   of issuance costs

 

 

174,749

 

 

 

 

 

 

 

Other financing activities

 

 

(4,871

)

 

 

(2,253

)

 

 

(10,280

)

Net cash provided by financing activities

 

 

149,691

 

 

 

365,185

 

 

 

354,617

 

Effect of exchange rate changes on cash

 

 

5

 

 

 

(712

)

 

 

(2,494

)

Net (decrease) increase in cash and cash equivalents

 

 

(8,360

)

 

 

42,608

 

 

 

190,255

 

Cash and cash equivalents at beginning of fiscal year

 

 

304,309

 

 

 

261,701

 

 

 

71,446

 

Cash and cash equivalents at end of fiscal year

 

$

295,949

 

 

$

304,309

 

 

$

261,701

 

Supplemental information:

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest (net of amounts capitalized)

 

$

23,526

 

 

$

27,805

 

 

$

35,119

 

Cash paid for income taxes, net

 

$

6,670

 

 

$

10,950

 

 

$

1,758

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock in satisfaction of certain accrued

   employee compensation liabilities

 

$

25,406

 

 

$

22,829

 

 

$

32,129

 

Capital expenditures not paid for

 

$

32,616

 

 

$

43,606

 

 

$

40,619

 

 

See accompanying notes to the consolidated financial statements.

 

F-6


 

VIASAT, INC.

CONSOLIDATED STATEMENTS OF EQUITY

 

 

 

Viasat, Inc. Stockholders

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

Issued

 

 

Amount

 

 

Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Noncontrolling

Interest in

Subsidiaries

 

 

Total

 

 

 

(In thousands, except share data)

 

Balance at March 31, 2018

 

 

58,905,274

 

 

$

6

 

 

$

1,535,635

 

 

$

285,960

 

 

$

15,565

 

 

$

10,841

 

 

$

1,848,007

 

Exercise of stock options

 

 

275,000

 

 

 

 

 

 

11,087

 

 

 

 

 

 

 

 

 

 

 

 

11,087

 

Issuance of stock under Employee Stock

   Purchase Plan

 

 

289,024

 

 

 

 

 

 

15,243

 

 

 

 

 

 

 

 

 

 

 

 

15,243

 

Stock-based compensation

 

 

 

 

 

 

 

 

91,470

 

 

 

 

 

 

 

 

 

 

 

 

91,470

 

Shares and fully-vested RSUs issued in settlement of

   certain accrued employee compensation liabilities,

   net of shares withheld for taxes which have been

   retired

 

 

438,433

 

 

 

 

 

 

27,701

 

 

 

 

 

 

 

 

 

 

 

 

27,701

 

RSU awards vesting, net of shares withheld for taxes

   which have been retired

 

 

642,362

 

 

 

 

 

 

(24,398

)

 

 

 

 

 

 

 

 

 

 

 

(24,398

)

Cumulative effect adjustment upon adoption of new

   revenue recognition guidance (ASU 2014-09)

 

 

 

 

 

 

 

 

 

 

 

27,248

 

 

 

 

 

 

 

 

 

27,248

 

Other noncontrolling interest activity

 

 

 

 

 

 

 

 

81

 

 

 

 

 

 

 

 

 

(3,665

)

 

 

(3,584

)

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

(67,623

)

 

 

 

 

 

1,154

 

 

 

(66,469

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,227

)

 

 

 

 

 

(10,227

)

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

 

 

340,373

 

 

 

 

 

 

21,060

 

 

 

 

 

 

 

 

 

 

 

 

21,060

 

Issuance of stock under Employee Stock

   Purchase Plan

 

 

311,137

 

 

 

 

 

 

17,350

 

 

 

 

 

 

 

 

 

 

 

 

17,350

 

Stock-based compensation

 

 

 

 

 

 

 

 

99,200

 

 

 

 

 

 

 

 

 

 

 

 

99,200

 

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

 

 

689,922

 

 

 

 

 

 

(28,802

)

 

 

 

 

 

 

 

 

 

 

 

(28,802

)

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

(212

)

 

 

 

 

 

14,025

 

 

 

13,813

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,386

)

 

 

 

 

 

(11,386

)

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

 

 

 

 

 

 

 

 

98,560

 

 

 

 

 

 

 

 

 

 

 

 

98,560

 

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

 

 

687,796

 

 

 

 

 

 

(13,676

)

 

 

 

 

 

 

 

 

 

 

 

(13,676

)

Net income

 

 

 

 

 

 

 

 

 

 

 

3,691

 

 

 

 

 

 

13,410

 

 

 

17,101

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,851

 

 

 

 

 

 

15,851

 

Balance at March 31, 2021

 

 

68,529,133

 

 

$

7

 

 

$

2,092,595

 

 

$

249,064

 

 

$

9,803

 

 

$

35,765

 

 

$

2,387,234

 

 

See accompanying notes to the consolidated financial statements.

 

 

 

F-7


 

VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — The Company and a Summary of Its Significant Accounting Policies

The Company

Viasat, Inc. (also referred to hereafter as the “Company” or “Viasat”) is an innovator in communications technologies and services, including high-speed and cost-effective broadband and advanced communications products and services.

Principles of consolidation

The Company’s 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). During the third quarter of fiscal year 2019, Viasat Europe Sàrl (formerly known as Euro Broadband Retail Sàrl), which was previously a majority-owned subsidiary, became a wholly owned subsidiary when the Company purchased the remaining 49% interest in the company for an insignificant amount. 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 consolidated balance sheets.

Certain prior period amounts have been reclassified to conform to the current period presentation.

Management estimates and assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (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.

 

Cash equivalents

Cash equivalents consist of highly liquid investments with original maturities of three months or less at the date of purchase.

Accounts receivable and allowance for doubtful accounts

The Company records any unconditional rights to consideration as receivables at net realizable value including an allowance for estimated uncollectible accounts. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. Amounts determined to be uncollectible are charged or written off against the reserve. Historically, the Company’s allowance for doubtful accounts has been minimal primarily because a significant portion of its sales has been to the U.S. Government or with respect to its satellite services commercial business, the Company bills and collects in advance.

Concentration of risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash equivalents and accounts receivable which are generally not collateralized. The Company limits its exposure to credit loss by placing its cash equivalents with high credit quality financial institutions and investing in high quality short-term debt instruments. The Company establishes customer credit policies related to its accounts receivable based on historical collection experiences within the various markets in which the Company operates, historical past due amounts and any specific information that the Company becomes aware of such as bankruptcy or liquidity issues of customers.

F-8


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Revenues from the U.S. Government as an individual customer comprised approximately 30%, 30% and 26% of total revenues for fiscal years 2021, 2020 and 2019, respectively. Billed accounts receivable to the U.S. Government as of March 31, 2021 and 2020 were approximately 27% and 35%, respectively, of total billed receivables. In addition, none of the Company’s commercial customers comprised 10% or more of total revenues for fiscal years 2021, 2020 and 2019. The Company’s five largest contracts generated approximately 16%, 18% and 20% of the Company’s total revenues for the fiscal years ended March 31, 2021, March 31, 2020 and March 31, 2019, respectively.

The Company relies on a limited number of contract manufacturers to produce its products.

Inventory

Inventory is valued at the lower of cost and net realizable value, cost being determined by the weighted average cost method.

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 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 (Accounting Standards Codification (ASC) 835-20). With respect to the ViaSat-3 class satellites, gateway and networking equipment and other assets under construction, the Company capitalized $81.0 million, $54.1 million and $39.5 million of interest expense for the fiscal years ended March 31, 2021, March 31, 2020 and March 31, 2019, respectively.

The Company owns three satellites in service over North America (ViaSat-2, ViaSat-1 and WildBlue-1) and, after acquiring the remaining interest in Euro Infrastructure Co. subsequent to fiscal year end, the Company also owns the KA-SAT satellite over Europe, Middle East, and Africa (EMEA). In addition, the Company 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 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 March 31, 2021 were

F-9


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

$409.9 million and $193.7 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 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 — The Company and a Summary of Its Significant Accounting Policies – Leases and Note 5 — Leases for more information).

Leases

Lessee accounting

The Company adopted Accounting Standards Update (ASU) 2016-02, Leases, as amended, commonly referred to as ASC 842, on April 1, 2019 using the optional transition method. Under the optional transition method, the Company applied the new guidance to all leases that commenced before and were existing as of April 1, 2019. 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

F-10


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

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.

 

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.

 

Goodwill and intangible assets

The authoritative guidance for business combinations (ASC 805) requires that all business combinations be accounted for using the purchase method. The authoritative guidance for business combinations also specifies criteria for recognizing and reporting intangible assets apart from goodwill; however, acquired workforce must be recognized and reported in goodwill. The authoritative guidance for goodwill and other intangible assets (ASC 350) requires that intangible assets with an indefinite life should not be amortized until their life is determined to be finite. All other intangible assets must be amortized over their useful life. The authoritative guidance for goodwill and other intangible assets prohibits the amortization of goodwill and indefinite-lived intangible assets, but instead requires these assets to be tested for impairment at least annually and more frequently upon the occurrence of specified events. In addition, all goodwill must be assigned to reporting units for purposes of impairment testing.

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 $3.5 million and $3.3 million related to patents were included in other assets as of March 31, 2021 and 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 March 31, 2021 and 2020, respectively. Accumulated amortization related to these assets was $4.4 million and $3.7 million as of March 31, 2021 and 2020, respectively. Amortization expense related to these assets was an insignificant amount for the fiscal years ended March 31, 2021, 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 fiscal years 2021, 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 fiscal year 2021, $5.1 million of debt issuance costs were capitalized. During fiscal year 2020, 0 debt issuance costs were capitalized. During fiscal year 2019, $12.2 million of debt issuance costs were capitalized. 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 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 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

F-11


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

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 $237.1 million and $242.7 million related to software developed for resale were included in other assets as of March 31, 2021 and 2020, respectively. The Company capitalized $54.0 million and $51.3 million of costs related to software developed for resale for the fiscal years ended March 31, 2021 and 2020, respectively. Amortization expense for capitalized software development costs was $59.6 million, $53.0 million and $45.9 million during fiscal years 2021, 2020 and 2019, respectively.

 

 

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), the Company assesses potential impairments to 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. An impairment loss is recognized 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 the Company for fiscal years 2021, 2020 and 2019.

The Company accounts for its 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 the Company early adopted in the third quarter of fiscal year 2020. The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If, after completing the qualitative assessment, the Company determines that it is more likely than not that the estimated fair value is greater than the carrying value, the Company concludes that no impairment exists. Alternatively, if the Company determines in the qualitative assessment that it is more likely than not that the fair value is less than its carrying value, then the Company performs a quantitative goodwill impairment test to identify both the existence of an impairment and the amount of impairment loss, by comparing the fair value of the reporting unit with its carrying amount, including goodwill. 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. The Company tests 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, the Company assesses 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 its competitive environment since the acquisition date, (3) changes in the overall economy, its 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.

Based on the Company’s qualitative assessment performed during the fourth quarter of fiscal year 2021, the Company concluded that it was more likely than not that the estimated fair value of the Company’s reporting units exceeded their carrying values as of March 31, 2021, and therefore, determined it was not necessary to perform a quantitative impairment analysis. NaN impairments were recorded by the Company related to goodwill and other intangible assets for fiscal years 2021, 2020 and 2019.

Warranty reserves

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 the Company ships 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 consolidated financial statements. For mature products, the Company estimates the warranty costs 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

F-12


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

possible that the Company’s underlying assumptions will not reflect the actual experience, and in that case, the Company will make future adjustments to the recorded warranty obligation (see Note 14 – Product Warranty).

Fair value of financial instruments

The carrying amounts of the Company’s financial instruments, including cash equivalents, receivables, accounts payable and accrued liabilities, approximate their fair values due to their short-term maturities. The estimated fair value of the Company’s long-term borrowings and other long-term interest bearing liabilities is determined by using available market information for those securities or similar financial instruments (see Note 3 – Fair Value Measurements).

 

 

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 consolidated balance sheets as of March 31, 2021 and 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 March 31, 2021 and 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 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 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 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.

F-13


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Common stock held in treasury

As of March 31, 2021 and 2020, the Company had 0 shares of common stock held in treasury.

 

During fiscal years 2021, 2020 and 2019, the Company issued 1,064,680, 1,075,526 and 1,201,502 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, the Company repurchased 376,884, 385,604 and 427,088 shares of common stock at cost and with a total value of $13.7 million, $28.8 million and $28.8 million during fiscal years 2021, 2020 and 2019, 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.

Foreign currency

In general, the functional currency of a foreign operation is deemed to be the local country’s currency. Consequently, assets and liabilities of operations outside the United States are generally translated into U.S. dollars, and the effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) within Viasat, Inc. stockholders’ equity.

Other comprehensive income related to the effects of foreign currency translation adjustments attributable to Viasat, Inc. during fiscal year 2021 was $20.4 million, or $15.9 million net of tax. Other comprehensive loss related to the effects of foreign currency translation adjustments attributable to Viasat, Inc. during fiscal year 2020 was $12.8 million, or $11.6 million net of tax. Other comprehensive loss related to the effects of foreign currency translation adjustments attributed to Viasat, Inc. during fiscal year 2019 was $11.8 million, or $10.0 million net of tax.

Revenue recognition

Effective April 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (commonly referred to as ASC 606) using the modified retrospective method of adoption. This update established ASC 606, Revenue from Contracts with Customers and ASC 340-40, Other Assets and Deferred Costs – Contracts with Customers.

The Company applies the five-step model under 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 above under “Leases - Lessor accounting”, for broadband equipment leased to consumer broadband 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.

 

F-14


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

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 March 31, 2021, 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 Company does not know the outcome of any ongoing or future audits or reviews and adjustments, and if future adjustments exceed the

F-15


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Company’s estimates, its profitability would be adversely affected. As of March 31, 2021 and March 31, 2020, the Company had $10.3 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 13 – 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 (IFC) 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 March 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $2.3 billion, of which the Company expects to recognize a little over half over the next twelve months, with the balance recognized thereafter.

 

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.

 

F-16


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

The following sets forth disaggregated reported revenue by segment and product and services for the fiscal years ended March 31, 2021, 2020 and 2019:

 

 

 

Fiscal Year Ended March 31, 2021

 

 

 

Satellite

Services

 

 

Commercial

Networks

 

 

Government

Systems

 

 

Total Revenues

 

 

 

(In thousands)

 

Product revenues

 

$

 

 

$

268,830

 

 

$

775,620

 

 

$

1,044,450

 

Service revenues

 

 

868,943

 

 

 

52,026

 

 

 

290,688

 

 

 

1,211,657

 

Total revenues

 

$

868,943

 

 

$

320,856

 

 

$

1,066,308

 

 

$

2,256,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended March 31, 2020

 

 

 

Satellite

Services

 

 

Commercial

Networks

 

 

Government

Systems

 

 

Total Revenues

 

 

 

(In thousands)

 

Product revenues

 

$

 

 

$

289,959

 

 

$

882,582

 

 

$

1,172,541

 

Service revenues

 

 

826,583

 

 

 

54,598

 

 

 

255,516

 

 

 

1,136,697

 

Total revenues

 

$

826,583

 

 

$

344,557

 

 

$

1,138,098

 

 

$

2,309,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended March 31, 2019

 

 

 

Satellite

Services

 

 

Commercial

Networks

 

 

Government

Systems

 

 

Total Revenues

 

 

 

(In thousands)

 

Product revenues

 

$

 

 

$

383,547

 

 

$

709,144

 

 

$

1,092,691

 

Service revenues

 

 

684,205

 

 

 

44,857

 

 

 

246,505

 

 

 

975,567

 

Total revenues

 

$

684,205

 

 

$

428,404

 

 

$

955,649

 

 

$

2,068,258

 

 

Revenues from the U.S. Government as an individual customer comprised approximately, 30%, 30% and 26% of total revenues for the fiscal years ended March 31, 2021, 2020 and 2019, respectively, 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 70%, 70% and 74% of total revenues for the fiscal years ended March 31, 2021, 2020 and 2019, respectively.

 

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

 

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 89%, 88% and 90% of the Company’s total revenues for these segments for the fiscal years ended March 31, 2021, 2020 and 2019, respectively. 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 23%, 24% and 19% of its total revenues for the fiscal years ended March 31, 2021, 2020 and 2019, respectively.

 

F-17


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

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 March 31, 2021 and March 31, 2020:

 

 

 

As of

March 31,

2021

 

 

As of

March 31,

2020

 

 

 

(In thousands)

 

Unbilled accounts receivable

 

$

70,785

 

 

$

75,661

 

Collections in excess of revenues and deferred revenues

 

 

216,594

 

 

 

123,019

 

Deferred revenues, long-term portion

 

 

84,654

 

 

 

80,802

 

 

Unbilled accounts receivable decreased $4.9 million during fiscal year 2021, primarily driven by an increase in billings in the Company’s government systems segment.

 

Collections in excess of revenues and deferred revenues increased $93.6 million during fiscal year 2021, primarily driven by advances on goods or services received in excess of revenue recognized mainly in the Company’s commercial networks segment, but also in the Company’s government systems segment.

 

During the fiscal year ended March 31, 2021, the Company recognized revenue of $98.6 million that was previously included in the Company’s collections in excess of revenues and deferred revenues at March 31, 2020. During the fiscal year ended March 31, 2020, the Company recognized revenue of $93.1 million related to the Company’s collections in excess of revenues and deferred revenues at March 31, 2019.

 

Other assets and deferred costs – contracts with customers

 

Per ASC 340-40, Other Assets and Deferred Costs – Contracts with Customers, the Company recognizes an asset from the incremental costs of obtaining a contract with a customer if the Company expects to recover those costs. The incremental costs of obtaining a contract are those costs that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. ASC 340-40 also requires the recognition of an asset from the costs incurred to fulfill a contract when (1) the costs relate directly to a contract or to an anticipated contract that the Company can specifically identify, (2) the costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future, and (3) the costs are expected to be recovered. Adoption of the standard has resulted in the recognition of an asset related to commission costs incurred primarily in the Company’s satellite services segment, and recognition of an asset related to costs incurred to fulfill contracts. Costs to acquire customer contracts are amortized over the estimated customer contract life. Costs to fulfill customer contracts are amortized in proportion to the revenue to which the costs relate. For contracts with an estimated amortization period of less than one year, the Company elected the practical expedient and expenses incremental costs immediately. The Company’s deferred customer contract acquisition costs and costs to fulfill contract balances were $60.4 million and $24.2 million, respectively as of March 31, 2021. Of the Company’s total deferred customer contract acquisition costs and costs to fulfill contracts, $26.8 million was included in prepaid expenses and other current assets and $57.8 million was included in other assets on the Company’s consolidated balance sheet as of March 31, 2021. The Company’s deferred customer contract acquisition costs and costs to fulfill contract balances were $58.1 million and $18.9 million, respectively, as of March 31, 2020. Of the Company’s total deferred customer contract acquisition costs and costs to fulfill contracts, $23.5 million was included in prepaid expenses and other current assets and $53.5 million was included in other assets on the Company’s consolidated balance sheet as of March 31, 2020. For total deferred customer contract acquisition costs and contract fulfillment costs, the Company’s amortization and reduction of carrying value associated

F-18


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

with contract termination was $50.5 million, $46.4 million and $41.6 million for the fiscal years ended March 31, 2021, March 31, 2020 and March 31, 2019, respectively.

 

Advertising costs

In accordance with the authoritative guidance for advertising costs (ASC 720-35), advertising costs are expensed as incurred and included in selling, general and administrative expenses. Advertising expenses for fiscal years 2021, 2020 and 2019 were $12.0 million, $25.8 million and $37.8 million, respectively.

 

 

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 recognizes excess tax benefits or deficiencies on vesting or settlement of awards as discrete items within income tax benefit or provision within net income (loss) and the related cash flows classified within operating activities.

Independent research and development

Independent research and development (IR&D), which is not directly funded by a third party, is expensed as incurred. IR&D expenses consist primarily of salaries and other personnel-related expenses, supplies, prototype materials and other expenses related to research and development programs.

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.

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.

 

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

Earnings per share

Basic earnings per share is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share is based upon the weighted average number of common shares outstanding and potential common stock, if dilutive during the period. Potential common stock includes options granted (including TSR performance stock options) and restricted stock units awarded under the Company’s equity compensation plan which are included in the earnings per share calculations using the treasury stock method, common shares expected to be issued under the Company’s employee stock purchase plan, and shares potentially issuable under the Viasat 401(k) Profit Sharing Plan in connection with the Company’s decision to pay a discretionary match in common stock or cash.

F-19


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Segment reporting

The Company’s reporting segments, namely its 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 services to customers, enterprises, commercial airlines and 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 (ASIC) 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 develops and offers network-centric, Internet Protocol (IP)-based fixed and mobile secure government communications systems, products, services and solutions and provides global mobile broadband service and product offerings. 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 (see Note 15 – Segment Information).

Recent authoritative guidance

 

In June 2016, the Financial Accounting Standards Board (FASB) issued 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 basis approach with application of the model to the Company’s accounts receivables. Under the new guidance, 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 this guidance 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. 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.

F-20


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

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 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. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which clarifies the scope and application of the guidance in ASU 2020-04. ASU 2021-01 clarifies that certain optional expedients and exceptions in ASU 2020-04 and Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The guidance in ASU 2020-04 and ASU 2021-01 are both effective upon issuance through December 31, 2022. The new guidance did not have a material impact on the Company’s consolidated financial statements and disclosures.

In May 2020, the Securities and Exchange Commission (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 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.

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 early adopted this guidance beginning in the fourth quarter of fiscal year 2021 and the guidance did not have a material impact on the Company’s consolidated financial statements and disclosures.

 

F-21


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Note 2 — Composition of Certain Balance Sheet Captions

 

 

 

As of

March 31, 2021

 

 

As of

March 31, 2020

 

 

 

(In thousands)

 

Accounts receivable, net:

 

 

 

 

 

 

 

 

Billed

 

$

172,559

 

 

$

260,431

 

Unbilled

 

 

70,785

 

 

 

75,661

 

Allowance for doubtful accounts

 

 

(4,692

)

 

 

(5,394

)

 

 

$

238,652

 

 

$

330,698

 

Inventories:

 

 

 

 

 

 

 

 

Raw materials

 

$

98,338

 

 

$

83,353

 

Work in process

 

 

71,875

 

 

 

59,429

 

Finished goods

 

 

166,459

 

 

 

151,634

 

 

 

$

336,672

 

 

$

294,416

 

Prepaid expenses and other current assets:

 

 

 

 

 

 

 

 

Prepaid expenses

 

$

94,405

 

 

$

84,872

 

Other

 

 

25,555

 

 

 

31,409

 

 

 

$

119,960

 

 

$

116,281

 

Property, equipment and satellites, net:

 

 

 

 

 

 

 

 

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

 

$

1,505,697

 

 

$

1,229,926

 

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

 

 

409,942

 

 

 

399,343

 

Furniture and fixtures (estimated useful life of 7 years)

 

 

57,433

 

 

 

54,688

 

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

 

 

149,324

 

 

 

137,287

 

Building (estimated useful life of 12 years)

 

 

8,923

 

 

 

8,923

 

Land

 

 

2,291

 

 

 

2,291

 

Construction in progress

 

 

219,482

 

 

 

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)

 

 

173,467

 

 

 

171,801

��

Satellites under construction

 

 

1,338,408

 

 

 

906,720

 

 

 

 

4,834,919

 

 

 

4,101,634

 

Less: accumulated depreciation and amortization

 

 

(1,784,436

)

 

 

(1,514,899

)

 

 

$

3,050,483

 

 

$

2,586,735

 

Other assets:

 

 

 

 

 

 

 

 

Investment in unconsolidated affiliate

 

$

176,938

 

 

$

160,204

 

Deferred income taxes

 

 

273,288

 

 

 

276,331

 

Capitalized software costs, net

 

 

237,100

 

 

 

242,741

 

Patents, orbital slots and other licenses, net

 

 

52,889

 

 

 

39,135

 

Other

 

 

95,212

 

 

 

88,941

 

 

 

$

835,427

 

 

$

807,352

 

Accrued and other liabilities:

 

 

 

 

 

 

 

 

Collections in excess of revenues and deferred revenues

 

$

216,594

 

 

$

123,019

 

Accrued employee compensation

 

 

87,153

 

 

 

72,654

 

Accrued vacation

 

 

59,509

 

 

 

48,963

 

Warranty reserve, current portion

 

 

6,693

 

 

 

6,233

 

Operating lease liabilities

 

 

48,896

 

 

 

42,146

 

Other

 

 

113,986

 

 

 

98,175

 

 

 

$

532,831

 

 

$

391,190

 

Other liabilities:

 

 

 

 

 

 

 

 

Deferred revenues, long-term portion

 

$

84,654

 

 

$

80,802

 

Warranty reserve, long-term portion

 

 

5,193

 

 

 

5,410

 

Satellite performance incentive obligations, long-term portion

 

 

22,191

 

 

 

24,349

 

Other

 

 

25,312

 

 

 

10,373

 

 

 

$

137,350

 

 

$

120,934

 

 

F-22


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

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 both March 31, 2021 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 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, the 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 March 31, 2021 and 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 $100.1 million and $118.1 million, respectively. As of March 31, 2021 and 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 $709.6 million and $653.6 million, respectively. As of March 31, 2021 and 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 $629.2 million and $603.2 million, respectively. As of March 31, 2021, 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 $420.5 million.

 

F-23


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

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 March 31, 2021 and 2020, the Company’s estimated satellite performance incentive obligations relating to the ViaSat-1 and ViaSat-2 satellites, including accrued interest, were $27.1 million and $27.4 million, respectively.

Note 4 — Goodwill and Acquired Intangible Assets

During fiscal year 2021, the increase in the Company’s goodwill related to the insignificant amount of the effects of foreign currency translation recorded within all three of the Company’s segments. During fiscal year 2020, the decrease in the Company’s goodwill related to the insignificant amount of 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 $5.5 million, $7.6 million and $9.7 million for the fiscal years ended March 31, 2021, March 31, 2020 and March 31, 2019, respectively.

The expected amortization expense of amortizable acquired intangible assets may change due to the effects of foreign currency fluctuations as a result of international businesses acquired. Expected amortization expense for acquired intangible assets for each of the following periods is as follows:

 

 

 

Amortization

 

 

 

(In thousands)

 

Expected for fiscal year 2022

 

$

3,300

 

Expected for fiscal year 2023

 

 

2,993

 

Expected for fiscal year 2024

 

 

2,472

 

Expected for fiscal year 2025

 

 

803

 

Expected for fiscal year 2026

 

 

 

Thereafter

 

 

 

 

 

$

9,568

 

 

The allocation of the other acquired intangible assets and the related accumulated amortization as of March 31, 2021 and 2020 is as follows:

 

 

 

 

 

 

 

As of March 31, 2021

 

 

As of March 31, 2020

 

 

 

Weighted

Average

Useful Life

 

 

Total

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

 

Total

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

 

 

(In years)

 

 

(In thousands)

 

Technology

 

 

6

 

 

$

78,185

 

 

$

(71,549

)

 

$

6,636

 

 

$

89,228

 

 

$

(78,935

)

 

$

10,293

 

Contracts and customer relationships

 

 

8

 

 

 

55,161

 

 

 

(52,229

)

 

 

2,932

 

 

 

103,114

 

 

 

(98,968

)

 

 

4,146

 

Satellite co-location rights

 

 

9

 

 

 

8,600

 

 

 

(8,600

)

 

 

 

 

 

8,600

 

 

 

(8,600

)

 

 

 

Trade name

 

 

3

 

 

 

5,940

 

 

 

(5,940

)

 

 

 

 

 

5,940

 

 

 

(5,940

)

 

 

 

Other

 

 

7

 

 

 

3,663

 

 

 

(3,663

)

 

 

 

 

 

6,399

 

 

 

(6,399

)

 

 

 

Total other acquired intangible assets

 

 

7

 

 

$

151,549

 

 

$

(141,981

)

 

$

9,568

 

 

$

213,281

 

 

$

(198,842

)

 

$

14,439

 

 

 

In fiscal year 2021, the gross amount and accumulated amortization for acquired identifiable intangible assets were reduced by the retirement of fully amortized assets that were no longer in use.

F-24


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Note 5 — Leases

 

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 (see Note 1 — The Company and a Summary of Its Significant Accounting Policies — Leases for more information). 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.

The Company’s finance leases consist primarily of satellite lifetime Ka-band capacity leases and have remaining terms from less than one to five 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.

 

The components of the Company's lease costs, weighted average lease terms and discount rates are presented in the tables below:

 

 

 

Fiscal Years Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

 

 

(In thousands)

 

Lease cost:

 

 

 

 

 

 

 

 

Operating lease cost

 

$

65,732

 

 

$

60,861

 

Finance lease cost:

 

 

 

 

 

 

 

 

Depreciation of assets obtained under finance leases

 

 

13,656

 

 

 

11,328

 

Interest on lease liabilities

 

 

3,314

 

 

 

2,144

 

Short-term lease cost

 

 

5,618

 

 

 

4,750

 

Variable lease cost

 

 

7,176

 

 

 

8,608

 

Net lease cost

 

$

95,496

 

 

$

87,691

 

 

 

 

As of

 

 

As of

 

 

 

March 31, 2021

 

 

March 31, 2020

 

Lease term and discount rate:

 

 

 

 

 

 

 

 

Weighted average remaining lease term (in years):

 

 

 

 

 

 

 

 

Operating leases

 

 

7.4

 

 

 

7.0

 

Finance leases

 

5.3

 

 

6.3

 

 

 

 

 

 

 

 

 

 

Weighted average discount rate:

 

 

 

 

 

 

 

 

Operating leases

 

 

5.4

%

 

 

5.4

%

Finance leases

 

 

5.4

%

 

 

5.4

%

 

F-25


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

The following table details components of the consolidated statements of cash flows for operating and finance leases:

 

 

 

Fiscal Years Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

64,676

 

 

$

58,987

 

Operating cash flows from finance leases

 

 

3,108

 

 

 

1,856

 

Financing cash flows from finance leases

 

 

10,900

 

 

 

8,044

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Operating leases

 

$

78,393

 

 

$

25,420

 

Finance leases

 

 

2,076

 

 

 

72,711

 

 

 

The following table presents maturities of the Company’s lease liabilities as of March 31, 2021:

 

 

 

Operating Leases

 

 

Finance Leases

 

 

 

(In thousands)

 

Expected for fiscal year 2022

 

$

67,650

 

 

$

13,567

 

Expected for fiscal year 2023

 

 

62,746

 

 

 

12,008

 

Expected for fiscal year 2024

 

 

62,173

 

 

 

12,000

 

Expected for fiscal year 2025

 

 

57,100

 

 

 

12,000

 

Expected for fiscal year 2026

 

 

54,084

 

 

 

12,000

 

Thereafter

 

 

139,230

 

 

 

3,000

 

Total future lease payments required

 

 

442,983

 

 

 

64,575

 

Less: interest

 

 

80,325

 

 

 

8,239

 

Total

 

$

362,658

 

 

$

56,336

 

 

As of March 31, 2021, the Company had $1.7 million of additional lease commitments that will commence in fiscal year 2022 with lease terms of three to six years.

As discussed in Note 1 – The Company and a Summary of Its Significant Accounting Policies – Leases, in fiscal year 2020 the Company adopted ASC 842 using the optional transition method presenting prior period amounts and disclosures under ASC 840. Rent expense was $53.5 million for the fiscal year ended March 31, 2019.

F-26


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Note 6 — Senior Notes and Other Long-Term Debt

Total long-term debt consisted of the following as of March 31, 2021 and 2020:

 

 

 

As of

March 31, 2021

 

 

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 5)

 

 

56,336

 

 

 

64,956

 

Total debt

 

 

1,854,597

 

 

 

1,872,869

 

Unamortized discount and debt issuance costs

 

 

(21,441

)

 

 

(21,418

)

Less: current portion of long-term debt

 

 

30,472

 

 

 

29,788

 

Total long-term debt

 

$

1,802,684

 

 

$

1,821,663

 

 

The estimated aggregate amounts and timing of payments on the Company’s long-term debt obligations as of March 31, 2021 for the next five fiscal years and thereafter were as follows (excluding the effects of discount accretion under the 2025 Notes, the 2027 Notes, the 2028 Notes and the Ex-Im Credit Facility):

 

For the Fiscal Years Ending

 

 

 

 

 

 

(In thousands)

 

2022

 

$

30,472

 

2023

 

 

29,455

 

2024

 

 

29,986

 

2025

 

 

30,555

 

2026

 

 

731,155

 

Thereafter

 

 

1,002,974

 

 

 

 

1,854,597

 

Plus: unamortized discount and debt issuance costs

 

 

(21,441

)

Total

 

$

1,833,156

 

 

Revolving Credit Facility

As of March 31, 2021, 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 March 31, 2021, the Company had 0 outstanding borrowings under the Revolving Credit Facility and $26.3 million outstanding under standby letters of credit, leaving borrowing availability under the Revolving Credit Facility as of March 31, 2021 of $673.7 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 March 31, 2021, 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 March 31, 2021.

F-27


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

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 March 31, 2021, 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 – The Company and a Summary of Its Significant Accounting Policies – 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 March 31, 2021.

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 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 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 March 31, 2021, 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

F-28


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

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 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 March 31, 2021, 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

F-29


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

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 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 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 March 31, 2021, 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).

F-30


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Note 7 — Common Stock and Stock Plans

In February 2019, the Company 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 the Company, 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.

 

In November 1996, the Company adopted the 1996 Equity Participation Plan (the Equity Participation Plan). The Equity Participation Plan provides for the grant to executive officers, other key employees, consultants and non-employee directors of the Company a broad variety of stock-based compensation alternatives such as nonqualified stock options, incentive stock options, restricted stock units and performance awards. From November 1996 to September 2020 through various amendments of the Equity Participation Plan, the Company increased the maximum number of shares reserved for issuance under this plan to 38,025,000 shares. The Company believes that such awards better align the interests of its employees with those of its stockholders. Shares of the Company’s common stock granted under the Equity Participation Plan in the form of stock options or stock appreciation right are counted against the Equity Participation Plan share reserve on a one for one basis and performance-based stock options are calculated assuming “maximum” performance. Shares of the Company’s common stock granted under the Equity Participation Plan as an award other than as an option or as a stock appreciation right with a per share purchase price lower than 100% of fair market value on the date of grant are counted against the Equity Participation Plan share reserve as two shares for each share of common stock prior to September 22, 2010 and subsequent to September 19, 2012, and as 2.65 shares for each share of common stock during the period beginning on September 22, 2010 and ending on September 19, 2012. Restricted stock units are granted to eligible employees and directors and represent rights to receive shares of common stock at a future date.

In November 1996, the Company adopted the ViaSat, Inc. Employee Stock Purchase Plan (the Employee Stock Purchase Plan) to assist employees in acquiring a stock ownership interest in the Company and to encourage them to remain in the employment of the Company. The Employee Stock Purchase Plan is intended to qualify under Section 423 of the Internal Revenue Code. From November 1996 to September 2019 through various amendments of the Employee Stock Purchase Plan, the Company increased the maximum number of shares reserved for issuance under this plan to 4,450,000 shares. To facilitate participation for employees located outside of the United States in light of non-U.S. law and other considerations, the amended Employee Stock Purchase Plan also provides for the grant of purchase rights that are not intended to be tax-qualified. The Employee Stock Purchase Plan permits eligible employees to purchase common stock at a discount through payroll deductions during specified six-month offering periods. No employee may purchase more than $25,000 worth of stock in any calendar year. The price of shares purchased under the Employee Stock Purchase Plan is equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower.

Total stock-based compensation expense recognized in accordance with the authoritative guidance for share-based payments was as follows:

 

 

 

Fiscal Years Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

 

March 31, 2019

 

 

 

(In thousands)

 

Stock-based compensation expense before taxes

 

$

84,879

 

 

$

86,553

 

 

$

79,599

 

Related income tax benefits

 

 

(19,485

)

 

 

(20,388

)

 

 

(18,824

)

Stock-based compensation expense, net of taxes

 

$

65,394

 

 

$

66,165

 

 

$

60,775

 

 

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 discrete items within income tax benefit or provision within net income (loss) and the related cash flows classified within operating activities.

The compensation cost that has been charged against income for the Equity Participation Plan under the authoritative guidance for share-based payments was $77.9 million, $81.5 million and $75.3 million, and for the Employee Stock Purchase Plan was $6.9 million, $5.0 million and $4.3 million, for the fiscal years ended March 31, 2021, March 31, 2020 and March 31, 2019, respectively. The Company capitalized $13.7 million, $12.6 million and $11.9 million of stock-based compensation expense as a part of the cost for software development for resale included in other assets and as a part of the equipment and software for internal use and satellites included in property, equipment and satellites, net for fiscal years 2021, 2020 and 2019, respectively.

 

F-31


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

As of March 31, 2021, total unrecognized compensation cost related to unvested stock-based compensation arrangements granted under the Equity Participation Plan (including stock options, TSR performance stock options and restricted stock units) and the Employee Stock Purchase Plan was $170.2 million and $1.4 million, respectively. These costs are expected to be recognized over a weighted average period of 1.2 years, 1.7 years and 2.8 years, for stock options, TSR performance stock options and restricted stock units, respectively, under the Equity Participation Plan and less than six months under the Employee Stock Purchase Plan.

Stock options, TSR performance stock options and employee stock purchase plan. The Company’s stock options typically have a simple four-year vesting schedule (except for one- and three-year vesting schedules for options granted to the members of the Company’s Board of Directors) and a six-year contractual term. The Company grants TSR performance stock options to executive officers under the 1996 Equity Participation Plan. The number of shares of TSR performance stock options that will become eligible to vest based on the time-based vesting schedule described below is based on a comparison over a four-year performance period of the Company’s TSR to the TSR of the companies included in the S&P Mid Cap 400 Index. The number of options that may become vested and exercisable will range from 0% to 175% of the target number of options based on the Company’s relative TSR ranking for the performance period. The Company’s TSR performance stock options have a four-year time-based vesting schedule and a six-year contractual term. The TSR performance stock options must be vested under both the time-based vesting schedule and the performance-based vesting conditions in order to become exercisable. Expense for TSR performance stock options that time-vest is recognized regardless of the actual TSR outcome achieved and is recognized on a graded-vesting basis. The weighted average estimated fair value of TSR performance stock options granted during fiscal years 2021, 2020 and 2019 was $19.25, $30.41 and $32.32 per share, respectively, using the Monte Carlo simulation. The weighted average estimated fair value of stock options granted and employee stock purchase plan shares issued during fiscal year 2021 was $12.81 and $11.60 per share, respectively, during fiscal year 2020 was $20.15 and $17.15 per share, respectively, and during fiscal year 2019 was $18.35 and $15.14 per share, respectively, using the Black-Scholes model. The weighted average assumptions (annualized percentages) used in the Black-Scholes model and Monte Carlo simulation were as follows:

 

 

 

Stock Options

 

 

TSR Performance Stock Options

 

 

Employee Stock Purchase Plan

 

 

 

Fiscal Year

2021

 

 

Fiscal Year

2020

 

 

Fiscal Year

2019

 

 

Fiscal Year

2021

 

 

Fiscal Year

2020

 

 

Fiscal Year

2019

 

 

Fiscal Year

2021

 

 

Fiscal Year

2020

 

 

Fiscal Year

2019

 

Volatility

 

 

39.1

%

 

 

27.9

%

 

 

27.9

%

 

 

39.8

%

 

 

27.7

%

 

 

28.2

%

 

 

64.8

%

 

 

24.6

%

 

 

32.8

%

Risk-free interest rate

 

 

0.2

%

 

 

1.3

%

 

 

2.8

%

 

 

0.4

%

 

 

1.7

%

 

 

2.8

%

 

 

0.1

%

 

 

1.8

%

 

 

2.4

%

Dividend yield

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

Expected life

 

5.0 years

 

 

5.0 years

 

 

5.0 years

 

 

5.0 years

 

 

5.0 years

 

 

5.0 years

 

 

0.5 years

 

 

0.5 years

 

 

0.5 years

 

 

The Company’s expected volatility is a measure of the amount by which its stock price is expected to fluctuate over the expected term of the stock-based award. The estimated volatilities for stock options and TSR performance options are based on the historical volatility calculated using the daily stock price of the Company’s stock over a recent historical period equal to the expected term. The risk-free interest rate that the Company uses in determining the fair value of its stock-based awards is based on the implied yield on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of its stock-based awards. The expected terms or lives of stock options and TSR performance stock options represent the expected period of time from the date of grant to the estimated date that the stock options under the Company’s Equity Participation Plan would be fully exercised. The expected term assumption is estimated based primarily on the options’ vesting terms and remaining contractual life and employees’ expected exercise and post-vesting employment termination behavior.

 

F-32


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

A summary of stock option activity for fiscal year 2021 is presented below:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise Price

per Share

 

 

Weighted Average

Remaining

Contractual

Term in Years

 

 

Aggregate

Intrinsic

Value

(In thousands)

 

Outstanding at March 31, 2020

 

 

1,225,233

 

 

$

65.96

 

 

 

 

 

 

 

 

 

Options granted

 

 

34,000

 

 

 

40.25

 

 

 

 

 

 

 

 

 

Options expired

 

 

(302,500

)

 

 

65.54

 

 

 

 

 

 

 

 

 

Options exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2021

 

 

956,733

 

 

$

65.18

 

 

 

1.5

 

 

$

266

 

Vested and exercisable at March 31, 2021

 

 

916,733

 

 

$

66.11

 

 

 

1.4

 

 

$

 

 

The total intrinsic value of stock options exercised during fiscal years 2021, 2020 and 2019 was 0, $7.9 million and $7.9 million, respectively. All options issued under the Company’s stock option plans have an exercise price equal to the fair market value of the Company’s stock on the date of the grant. The Company recorded 0 excess tax benefit during fiscal year 2021 and an insignificant amount of excess tax benefit during fiscal years 2020 and 2019 related to stock option exercises.

A summary of TSR performance stock option activity for fiscal year 2021 is presented below:

 

 

 

Number of

Shares (1)

 

 

Weighted

Average

Exercise Price

per Share

 

 

Weighted Average

Remaining

Contractual

Term in Years

 

 

Aggregate

Intrinsic

Value

(In thousands)

 

Outstanding at March 31, 2020

 

 

1,630,806

 

 

$

71.52

 

 

 

 

 

 

 

 

 

TSR performance options granted

 

 

784,653

 

 

 

35.66

 

 

 

 

 

 

 

 

 

TSR performance options canceled

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TSR performance options exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2021

 

 

2,415,459

 

 

$

59.87

 

 

 

4.3

 

 

$

9,738

 

Vested and exercisable at March 31, 2021

 

 

 

 

$

 

 

 

 

 

$

 

 

(1)

Number of shares is based on the target number of options under each TSR performance stock option.

 

Restricted stock units. Restricted stock units represent a right to receive shares of common stock at a future date determined in accordance with the participant’s award agreement. There is no exercise price and no monetary payment required for receipt of restricted stock units or the shares issued in settlement of the award. Instead, consideration is furnished in the form of the participant’s services to the Company. Restricted stock units generally vest over four years (except for one- and three-year vesting schedules for restricted stock units granted to the members of the Company’s Board of Directors). Compensation cost for these awards is based on the fair value on the date of grant and recognized as compensation expense on a straight-line basis over the requisite service period. For fiscal years 2021, 2020 and 2019, the Company recognized $59.4 million, $62.4 million and $58.8 million, respectively, in stock-based compensation expense related to these restricted stock unit awards.

 

F-33


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

The per unit weighted average grant date fair value of restricted stock units granted during fiscal years 2021, 2020 and 2019 was $36.57, $71.59 and $67.88, respectively. A summary of restricted stock unit activity for fiscal year 2021 is presented below:

 

 

 

Number of

Restricted

Stock

Units

 

 

Weighted

Average Grant

Date Fair Value

per Share

 

Outstanding at March 31, 2020

 

 

3,020,308

 

 

$

69.35

 

Awarded

 

 

1,643,114

 

 

 

36.57

 

Forfeited

 

 

(167,181

)

 

 

65.42

 

Vested

 

 

(1,064,680

)

 

 

70.64

 

Outstanding at March 31, 2021

 

 

3,431,561

 

 

$

53.44

 

Vested and deferred at March 31, 2021

 

 

188,717

 

 

$

47.01

 

 

The total fair value of shares vested related to restricted stock units during the fiscal years 2021, 2020 and 2019 was $38.8 million, $80.4 million and $81.1 million, respectively.

Note 8 — Shares Used In Computing Diluted Net Income (Loss) Per Share

 

 

 

Fiscal Years Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

 

March 31, 2019

 

 

 

(In thousands)

 

Weighted average:

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding used in calculating basic

   net income (loss) per share attributable to Viasat,

   Inc. common stockholders

 

 

66,444

 

 

 

61,632

 

 

 

59,942

 

Restricted stock units to acquire common stock as

   determined by application of the treasury stock

   method

 

 

170

 

 

 

 

 

 

 

Potentially issuable shares in connection with certain

   terms of the Viasat 401(k) Profit Sharing Plan and

   Employee Stock Purchase Plan

 

 

406

 

 

 

 

 

 

 

Shares used in computing diluted net income (loss) per

   share attributable to Viasat, Inc. common

   stockholders

 

 

67,020

 

 

 

61,632

 

 

 

59,942

 

 

Antidilutive shares excluded from the calculation for the fiscal year ended March 31, 2021 consisted of 1,119,819 shares related to stock options (other than TSR performance stock options), 475,371 shares related to TSR performance stock options and 2,205,085 shares related to restricted stock units.

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 fiscal years ended March 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 fiscal years 2020 and 2019, respectively, consisted of 591,396 and 1,291,503 shares related to stock options (other than TSR performance stock options), 138,026 and 871,343 shares related to TSR performance stock options, 841,890 and 612,318 shares related to restricted stock units, and 446,603 and 215,956 shares related to certain terms of the Viasat 401(k) Profit Sharing Plan and Employee Stock Purchase Plan.

 

F-34


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Note 9 — Income Taxes

The components of income (loss) before income taxes by jurisdiction are as follows:

 

 

 

Fiscal Years Ended

 

 

 

March 31,

2021

 

 

March 31,

2020

 

 

March 31,

2019

 

 

 

(In thousands)

 

United States

 

$

48,443

 

 

$

27,000

 

 

$

(102,643

)

Foreign

 

 

(22,457

)

 

 

(25,572

)

 

 

(7,838

)

 

 

$

25,986

 

 

$

1,428

 

 

$

(110,481

)

 

The (provision for) benefit from income taxes includes the following:

 

 

 

Fiscal Years Ended

 

 

 

March 31,

2021

 

 

March 31,

2020

 

 

March 31,

2019

 

 

 

(In thousands)

 

Current tax provision

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

(8,573

)

 

$

(5,935

)

 

$

(821

)

State

 

 

(3,386

)

 

 

(1,465

)

 

 

(690

)

Foreign

 

 

449

 

 

 

(327

)

 

 

(1,619

)

 

 

 

(11,510

)

 

 

(7,727

)

 

 

(3,130

)

Deferred tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

708

 

 

 

9,889

 

 

 

34,099

 

State

 

 

823

 

 

 

5,797

 

 

 

8,738

 

Foreign

 

 

538

 

 

 

(44

)

 

 

1,307

 

 

 

 

2,069

 

 

 

15,642

 

 

 

44,144

 

Total (provision for) benefit from income taxes

 

$

(9,441

)

 

$

7,915

 

 

$

41,014

 

 

Significant components of the Company’s net deferred tax assets are as follows:

 

 

 

As of

 

 

 

March 31,

2021

 

 

March 31,

2020

 

 

 

(In thousands)

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Net operating loss carryforwards

 

$

187,900

 

 

$

217,883

 

Tax credit carryforwards

 

 

272,126

 

 

 

248,425

 

Operating lease liabilities

 

 

88,259

 

 

 

78,114

 

Deferred revenue

 

 

21,345

 

 

 

24,840

 

Other

 

 

82,222

 

 

 

62,691

 

Valuation allowance

 

 

(47,076

)

 

 

(42,621

)

Total deferred tax assets

 

 

604,776

 

 

 

589,332

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Intangible assets

 

 

(71,335

)

 

 

(71,116

)

Property, equipment and satellites

 

 

(142,899

)

 

 

(142,049

)

Operating lease assets

 

 

(83,065

)

 

 

(73,446

)

Other

 

 

(34,208

)

 

 

(27,374

)

Total deferred tax liabilities

 

 

(331,507

)

 

 

(313,985

)

Net deferred tax assets

 

$

273,269

 

 

$

275,347

 

 

F-35


VIASAT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

A reconciliation of the (provision for) benefit from income taxes to the amount computed by applying the statutory federal income tax rate to income (loss) before income taxes is as follows:

 

 

 

Fiscal Years Ended

 

 

 

March 31,

2021

 

 

March 31,

2020

 

 

March 31,

2019

 

 

 

(In thousands)

 

Tax (provision) benefit at federal statutory rate

 

$

(5,457

)

 

$

(300

)

 

$

23,201

 

State tax (provision) benefit, net of federal benefit

 

 

(5,067

)

 

 

(1,093

)

 

 

1,815

 

Tax credits, net of valuation allowance

 

 

24,272

 

 

 

25,153

 

 

 

26,836

 

Non-deductible compensation

 

 

(5,728

)

 

 

(7,150

)

 

 

(4,527

)

Non-deductible meals and entertainment

 

 

(386

)

 

 

(1,075

)

 

 

(929

)

Stock-based compensation

 

 

(9,901

)

 

 

780

 

 

 

180

 

Change in federal tax rate due to 2020 CARES

   Act and 2017 Tax Cuts and Jobs Act

 

 

 

 

567

 

 

 

Change in state effective tax rate

 

 

(2,360

)

 

 

(14

)

 

 

(684

)

Foreign effective tax rate differential, net of

   valuation allowance

 

 

(3,046

)

 

 

(5,707

)

 

 

(1,552

)

Unremitted subsidiary gains

 

 

(1,682

)