VIASAT, INC. 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.
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:
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Fixed broadband services, which provide consumers and businesses with
high-speed, high-quality broadband internet access and VoIP services, primarily
in
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In-flight services, which provide industry-leading IFC, wireless in-flight entertainment and aviation software services.
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Prepaid 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. We provide Prepaid Internet services in multiple regions inMexico andBrazil and are trialing services in advance of full service launch in various other countries inSouth America andCentral America .
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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.
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Energy 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.
The assets and results of operations of our recent acquisitions, EBI and RigNet, are primarily included in our satellite services segment (with insignificant amounts included in our commercial networks segment).
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. We design, develop and produce space system solutions for multiple orbital regimes, including GEO, MEO and LEO. The primary products, systems, solutions and services offered by our commercial networks segment are comprised of:
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Mobile broadband satellite communication systems, designed for use in aircraft and seagoing vessels
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Fixed broadband satellite communication systems, including next-generation satellite network infrastructure and ground terminals.
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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.
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Satellite networking development, including specialized design and technology services covering all aspects of satellite communication system architecture and technology.
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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:
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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.
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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.
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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.
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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.
Factors and Trends Affecting our Results of Operations
We believe that the performance of our business and our results of operations in a given period are driven by various factors, including:
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the timing and impact of acquisitions, including our acquisitions of RigNet and EBI in fiscal year 2022 and the Inmarsat Transaction, as well as the payment of transaction consideration and the incurrence of transaction and integration costs or additional indebtedness in connection therewith (see the discussion below under "Inmarsat Acquisition");
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the extent and stage of our satellite design, construction and launch activities (as discussed further below), the associated level of investment required, the impact of any construction or launch delays or operational or launch failures, and the impact of bringing newly launched satellites into commercial service and associated ramp-up activities and costs (see the discussion below under "Satellite-Related Activities");
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our ability to manage available bandwidth ahead of the
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our ability to maintain the health, capacity, control and level of service of our satellite fleet, or the existence or occurrence of any malfunctions or anomalies in or other disruptions to our satellites;
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changes in the levels of our R&D spending, including the effects of associated tax credits;
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seasonal effects related to the timing of contract awards, the timing and availability ofU.S. Government funding, and the timing of product deliveries and customer acceptance in our government systems segment, as well as subscriber activity for our fixed broadband services related to traditional retail selling periods and increased demand for IFC services from airline passengers during peak holiday travel periods in our satellite services segment;
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the rate of growth in worldwide demand for mobile and fixed broadband connectivity, including growth in number internet users, applications and connected devices;
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the rate of technological innovation and change in the industries in which we operate, and the introduction of new competing technologies, products and services by new and existing competitors;
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the marketing and pricing strategies of our competitors with respect to competing technologies, products and services;
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our ability to implement (on a timely basis) our technology roadmap and the associated investments and costs, as well as market acceptance and the timing of availability of our new products and services;
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the timing, quantity and mix of products and services sold in each of our segments;
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the uptake of our in-flight services by commercial airlines and number of aircraft retrofitted or installed with our IFC systems, and the rate of revenue growth in our IFC-related businesses in our satellite services and commercial networks segments resulting from the normalization of or growth in global air traffic;
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varying subscriber addition, churn and average revenue per user (ARPU) rates for our fixed broadband businesses and mix of wholesale and retail subscribers;
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the complex and lengthy procurement process for most of our commercial networks and government systems customers and potential customers, and the impact of a failure to receive an expected order or a deferral of an order to a later period, and the timing of return to normalization of government acquisition processes that were disrupted by COVID-19;
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the difficulty in estimating costs over the life of a contract, which may require adjustment in future periods, and the impact of cost overruns on fixed-price development contracts;
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the timing of customer payments under significant contracts;
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our reliance on a few significant customers, particularly agencies of theU.S. Government , for a significant percentage of our revenues, as a result of which the loss or decline in business with any of these customers may negatively impact our revenue and collectability of related accounts receivable;
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our reliance on a global supply chain, including contract manufacturers and single-source or limited groups of suppliers;
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one-time charges to operating income arising from items such as acquisition costs and expenses, impairment of assets and write-offs of assets related to customer non-payments or obsolescence;
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changes in laws, regulations and interpretations affecting our business, including changes affecting spectrum availability or permitted uses;
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our ability to generate sufficient cash flows to repay our indebtedness; and
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the impact of public health crises, such as the COVID-19 pandemic, general economic and political conditions, and other trends that affect the industries in which we operate.
See also "Business-Segments" in Part I, Item 1 of this report for a discussion of what we believe to be key drivers for future growth in each of our segments.
COVID-19 InMarch 2020 , the global outbreak of COVID-19 was declared a pandemic by theWorld Health Organization and a national emergency by theU.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 onU.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 fiscal years 2021 and 2022 were impacted by the pandemic, the impact was not material to our financial position, results of operations or cash flows in such periods, with continued 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 in fiscal year 2023. The extent of the impact of the COVID-19 pandemic on our business in fiscal year 2023 and beyond will depend on many factors, including the duration and scope of the public health emergency, the extent, duration and effectiveness of containment actions taken, the 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.
Inmarsat Acquisition
OnNovember 8, 2021 , we entered into a Purchase Agreement with the Sellers to combineViasat with Inmarsat. Pursuant to the Purchase Agreement, we will purchase all of the issued and outstanding shares of Inmarsat from the Sellers upon the terms and subject to the conditions set forth therein. The total consideration payable by us under the Purchase Agreement consists of$850.0 million in cash, subject to adjustments (including for certain dividends, see below), and approximately 46.36 million unregistered shares of our common stock. InApril 2022 , Inmarsat paid a dividend of$299.3 million to the Sellers, resulting in a$299.3 million reduction in the cash consideration payable by us at the 45
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closing of the Inmarsat Transaction. Our board of directors has unanimously approved the Purchase Agreement and the proposed Inmarsat Transaction.
The closing of the Inmarsat Transaction is subject to customary closing conditions, including receipt of regulatory approvals and clearances, and approval by our stockholders of the issuance of shares in the Inmarsat Transaction and an amendment to our certificate of incorporation to increase the number of shares of our common stock authorized for issuance. The Purchase Agreement contains certain termination rights for both us and certain of the Sellers and further provides that, upon termination of the Purchase Agreement under certain circumstances, we may be obligated to pay a termination fee of up to$200.0 million or to reimburse certain out-of-pocket expenses of certain Sellers up to$40.0 million . We have obtained financing commitments for an additional$1.6 billion of new debt facilities in connection with the Inmarsat Transaction (which may be secured and/or unsecured), which amount excludes the commitments that were obtained with respect to the$700.0 million Term Loan Facility that we entered into onMarch 4, 2022 to fund our standalone growth expenditures. In light of the$299.3 million reduction in the cash purchase price payable in the Inmarsat Transaction due to the dividend paid by Inmarsat to the Sellers inApril 2022 , we currently expect to incur$1.3 billion of additional indebtedness under these commitments. However, the total amount of indebtedness incurred under these commitments may change, including in the event available cash from other sources is higher than expected. We also plan to assume$2.1 billion in principal amount of Inmarsat senior secured bonds and the outstanding indebtedness under Inmarsat's$2.4 billion senior secured credit facilities. In addition, we obtained commitments of$3.2 billion to backstop certain amendments required under the Revolving Credit Facility and Ex-Im Credit Facility and Inmarsat's$2.4 billion senior secured credit facilities, which amendments had been obtained under the Revolving Credit Facility and Inmarsat's$2.4 billion senior secured credit facilities as of the date of this report. We have incurred and expect to incur non-recurring costs associated with the Inmarsat Transaction and combining the operations of the two companies, as well as transaction fees and other costs related to the Inmarsat Transaction. Based on information available as of the date of this report, we currently estimate thatViasat may incur approximately$250 million in Transaction costs (including financing costs) through the closing of the Inmarsat Transaction, including (but not limited to) fees paid to investment banking, legal and accounting advisors, regulatory and public relations advisors, rating agency fees, filing fees, printing costs and other costs and expenses, although actual amounts could vary materially from these estimates if future developments differ from the underlying assumptions used by management in determining the current estimate of these costs. A significant portion of these transaction-related costs is contingent upon the closing of the Inmarsat Transaction occurring, although some have been and will be incurred regardless of whether the Inmarsat Transaction is consummated. In addition, the combined company will also incur significant restructuring and integration costs in connection with the Inmarsat Transaction. The costs related to restructuring will be expensed as a cost of the ongoing results of operations of either us or the combined company. There are processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the Inmarsat Transaction and the integration of Inmarsat's business. Based on information available as of the date of this report, we currently estimate that we will incur approximately$50 million in integration costs and investments to realize synergies and efficiencies during each of the first two years following the closing of the Inmarsat Transaction. While we have assumed a certain level of expenses would be incurred to integrate the two companies and achieve synergies and efficiencies and we continue to assess the magnitude of these costs, many of these expenses are, by their nature, difficult to estimate accurately and there are many factors beyond our control that could affect the total amount or timing of these costs. Although we expect that the elimination of duplicative costs, as well as the realization of strategic benefits, additional income, synergies and other efficiencies, should allow the combined company to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.
Other Acquisitions
OnApril 30, 2021 , we completed our acquisition of the remaining 51% interest in EBI, a satellite broadband internet service provider in EMEA, from Eutelsat. We paid approximately$167.0 million in cash, net of what is currently estimated to be an immaterial amount of estimated purchase price consideration (resulting in a cash outlay of approximately$51.0 million , net of approximately$121.7 million of EBI's cash on hand). OnApril 30, 2021 , we completed our acquisition of RigNet, a leading provider of ultra-secure, intelligent networking solutions and specialized applications. In connection with the acquisition, we issued approximately 4.0 million shares of our common stock to RigNet former shareholders, paid down$107.3 million of outstanding borrowings of RigNet's revolving credit facility, paid a de minimis amount of cash in respect of fractional shares and paid an insignificant amount of other consideration. We retained approximately$20.6 million of RigNet's cash on hand. Satellite-Related Activities 46
-------------------------------------------------------------------------------- We expect to continue to invest in IR&D as we continue our focus on leadership and innovation in satellite and space technologies, including for the development of any new generation satellite designs and next-generation satellite network solutions. The level of our 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. As we continue to build and expand our global network and satellite fleet, from time to time we enter into satellite construction agreements for the construction and purchase of additional satellites and (depending on the satellite design) the integration of our payload and technologies into the satellites. See Note 12 - Commitments to our consolidated financial statements for information as ofMarch 31, 2022 regarding our future minimum payments under our satellite construction contracts and other satellite-related purchase commitments (including satellite performance incentive obligations relating to theViaSat -1 andViaSat -2 satellites) for the next five fiscal years and thereafter. The total project cost to bring a new satellite into service will depend, among other things, on the scope and timing of the earth station infrastructure roll-out and the method used to procure fiber or other access to the earth station infrastructure. Our total cash funding of a satellite project may be reduced through third-party agreements, such as potential joint service offerings and other strategic partnering arrangements. In connection with the launch of any new satellite and the commencement of commercial service on the satellite, we expect to incur additional operating costs that negatively impact our financial results. For example, whenViaSat -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 ofViaSat -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. In addition, we may experience bandwidth supply constraints in the lead-up to the commencement of commercial service on new satellites. We anticipate that we will incur a similar cycle of increased operating costs and constrained bandwidth supply as we prepare for and launch commercial services on future satellites, including ourViaSat -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.
The invasion ofUkraine and the resulting sanctions imposed bythe United States and other countries onRussia have not had a material impact on our business, and are not expected to have a material impact on our cash flows, financial position or results of operations. We do not have material assets, operations, investments or human capital resources inRussia ,Ukraine orBelarus and our business does not rely on goods or services sourced inRussia ,Ukraine orBelarus . Prior to the invasion, we provided fixed broadband services through a wholesale distributor to a very small number of subscribers inRussia through our KA-SAT satellite. In response to the invasion, we terminated these services. We have no active fixed broadband customers inRussia , are not supplying new products or services to customers located inRussia and have no planned infrastructure projects in the country. Although we continue to provide fixed broadband services to users inUkraine through our KA-SAT satellite, these services are provided by third party wholesale distributors and we have limited exposure to revenue generation inUkraine . Revenues derived fromUkraine andRussia were de minimis in amount for the year endedMarch 31, 2022 . However, the invasion ofUkraine has exacerbated inflationary and supply chain issues, and may also worsen the current semiconductor chip shortage (sinceRussia andUkraine are both critical suppliers of neon gas and palladium used in chip production) and increase cybersecurity threats. While we do not currently anticipate material delays or material increased costs due to these factors, we cannot assure you that our business will not be materially impaired by any of these factors in the future. The long-term impacts of the conflict and the sanctions imposed onRussia remain uncertain and will depend on future developments, and we continue to monitor the evolving situation. See "Risk Factors-Our Reputation and Business Could Be Materially Harmed as a Result of Data Breaches, Data Theft, Unauthorized Access or Hacking" in Part I, Item 1A of this report for a discussion of a cyberattack that occurred onFebruary 24, 2022 involving our KA-SAT network. The cyberattack and resulting loss of service to certain fixed broadband customers inEurope andNorth Africa had a de minimis impact on our revenues and results of operations for affected periods and has not had a material impact on our business. Based on our comprehensive investigation efforts to date, there is no evidence that any end-user data or customer personal equipment was accessed, nor is there any evidence that the KA-SAT satellite itself or its supporting satellite ground infrastructure was directly involved, impaired or 47 -------------------------------------------------------------------------------- compromised. Since the incident, we have worked with the operator of the affected partition of the KA-SAT network to implement mitigation and recovery actions to restore network stability, preserve continuing service for unaffected end-users and mitigate or prevent similar attacks.
Sources of Revenues
Our satellite services segment revenues are primarily derived from our fixed broadband services, in-flight services and energy services (acquired through the RigNet acquisition). 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 90%, 89% and 88% of our total revenues for these segments for fiscal years 2022, 2021 and 2020, 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. 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%, 23% and 24% of our total revenues during fiscal years 2022, 2021 and 2020, respectively. Approximately 15%, 9% and 11% of our total revenues in fiscal years 2022, 2021 and 2020, 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 inthe 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
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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.
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, 2022 would change our income (loss) before income taxes by an insignificant
amount.
The evaluation of transaction price, including the amounts allocated to
performance obligations, may require significant judgments. Due to the nature of
the work required to be performed on many of our performance obligations, the
estimation of total revenue, and where applicable the cost at completion, is
complex, subject to many variables and requires significant judgment. Our
contracts may contain award fees, incentive fees, or other provisions, including
the potential for significant financing components, that can either increase or
decrease the transaction price. These amounts,
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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.
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
Property, equipment and satellites, net includes our owned and leased satellites
and the associated earth stations and networking equipment, as well as the
customer premise equipment units which are leased to subscribers under a retail
leasing program as part of our satellite services segment.
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
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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.
Leases
For contracts entered into on or afterApril 1, 2019 , we assess at contract inception whether the contract is, or contains, a lease. Generally, we determine that a lease exists when (1) the contract involves the use of a distinct identified asset, (2) we obtain the right to substantially all economic benefits from use of the asset, and (3) we have the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (5) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria. At the lease commencement date, we recognize a right-of-use asset and a lease liability for all leases, except short-term leases with an original term of 12 months or less. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use 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.
Business combinations
The purchase price for business combinations is allocated to the estimated fair values of acquired tangible and intangible assets, including goodwill, and assumed liabilities, where applicable. Additionally, we recognize technology, contracts and customer relationships, satellite co-location rights, trade names and other as identifiable intangible assets, which are recorded at fair value as of the transaction date.Goodwill is recorded when consideration transferred exceeds the fair value of identifiable assets and liabilities. Measurement-period adjustments to assets acquired and liabilities assumed with a corresponding offset to goodwill are recorded in the period they occur, which may include up to one year from the acquisition date. Contingent consideration is recorded at fair value at the acquisition date.
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
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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
2022, 2021 and 2020.
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 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 2022, we concluded that it was more likely than not that the
estimated fair value of our reporting units exceeded their carrying value as of
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$47.1 million atMarch 31, 2021 to$78.1 million atMarch 31, 2022 . 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 inthe 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 52
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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.
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, March 31, March 31,
2022 2021 2020
Revenues: 100.0 % 100.0 % 100.0 %
Product revenues 43 46 51
Service revenues 57 54 49
Operating expenses:
Cost of product revenues 33 34 37
Cost of service revenues 37 35 33
Selling, general and administrative 24 23 23
Independent research and development 5 5 6
Amortization of acquired intangible assets 1 - -
Income from operations - 3 2
Interest expense, net (1 ) (1 ) (2 )
(Loss) income before income taxes (1 ) 1 -
Benefit from (provision for) income taxes 1 (- ) -
Net (loss) income (- ) 1 1
Net (loss) income attributable to Viasat, Inc. (1 ) - -
Fiscal Year 2022 Compared to Fiscal Year 2021
Revenues
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Product revenues $ 1,210.4 $ 1,044.5 $ 166.0 16 %
Service revenues 1,577.2 1,211.7 365.6 30 %
Total revenues $ 2,787.6 $ 2,256.1 $ 531.5 24 %
Our total revenues increased by $531.5 million as a result of a $365.6 million
increase in service revenues and a $166.0 million increase in product revenues.
The service revenue increase was due to increases of $319.9 million in our
satellite services segment, $29.1 million in our government systems segment and
$16.6 million in our commercial networks segment. The product revenue increase
was driven primarily by an increase of $174.6 million in our commercial networks
segment, partially offset by an $8.6 million decrease in our government systems
segment.
Cost of revenues
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Cost of product revenues $ 914.3 $ 774.9 $ 139.4 18 %
Cost of service revenues 1,025.8 789.4 236.4 30 %
Total cost of revenues $ 1,940.1 $ 1,564.3 $ 375.8 24 %
Cost of revenues increased by $375.8 million due to an increase of $236.4
million in cost of service revenues and $139.4 million in cost of product
revenues. The cost of service revenue increase was primarily due to increased
service revenues, mainly from our satellite services segment, causing a $238.2
million increase in cost of service revenues on a constant margin basis. The
cost of product revenue increase was mainly due to increased product revenues,
causing a $123.1 million increase in cost of product revenues on a constant
margin basis, mainly from our commercial networks segment. The remainder of the
increase in cost of product revenues was due to lower margins, primarily driven
by cybersecurity and information assurance products in our government systems
segment.
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Selling, general and administrative expenses
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Selling, general and administrative $ 657.3 $ 512.3 $ 144.9 28 %
The $144.9 million increase in selling, general and administrative (SG&A)
expenses reflected an increase in support costs of $97.7 million , driven
primarily by support costs related to RigNet, as well as acquisition-related
expenses of approximately $34.0 million primarily related to the Inmarsat
Transaction. The increase in SG&A expenses was also driven by $43.7 million of
higher selling costs, reflected primarily in our satellite services segment, but
was also reflected across our two other 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
March 31, March 31, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Independent research and development $ 153.2 $ 115.8 $ 37.4 32 %
The $37.4 million increase in IR&D expenses was mainly the result of an increase
of $24.3 million in IR&D efforts in our commercial networks segment (primarily
related to next-generation satellite payload technologies and mobile broadband
satellite communication systems) and a $14.1 million increase in our government
systems segment (primarily related to the development of next-generation dual
band mobility solutions and the advancement of integrated government satellite
communications platforms).
Amortization of acquired intangible assets
We amortize our acquired intangible assets from prior acquisitions over their estimated useful lives, which range from two to 20 years. The$23.2 million increase in amortization of acquired intangible assets in fiscal year 2022 compared to fiscal year 2021 was primarily related to the amortization of new intangibles acquired as a result of the acquisition of RigNet and of the remaining 51% interest in EBI inApril 2021 . Expected amortization expense for acquired intangible assets for each of the following periods is as follows: Amortization (In thousands) Expected for fiscal year 2023$ 31,383 Expected for fiscal year 2024 30,002 Expected for fiscal year 2025 27,880 Expected for fiscal year 2026 26,366 Expected for fiscal year 2027 25,805 Thereafter 94,607$ 236,043 Interest income
Interest income for fiscal year 2022 was relatively flat compared to fiscal year 2021.
Interest expense The$3.3 million decrease in interest expense in fiscal year 2022 compared to fiscal year 2021 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, and interest expense related to the Term Loan Facility which was entered into onMarch 4, 2022 . Income taxes The income tax benefit in fiscal year 2022 primarily reflected the benefit of federal and state R&D tax credits, the reversal of a deferred tax liability recorded for EBI's outside basis difference upon assertion made during the first quarter of fiscal year 2022 to indefinitely reinvest future earnings offset by tax expense for non-deductible compensation and the tax expense for tax deficiencies upon settlement of stock-based compensation during the period. The income tax provision in fiscal year 2021 primarily reflected the tax expense from our income before income taxes, the tax expense for 54 -------------------------------------------------------------------------------- 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.
Segment Results for Fiscal Year 2022 Compared to Fiscal Year 2021
Satellite services segment
Revenues
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Segment product revenues $ - $ - $ - - %
Segment service revenues 1,188.8 868.9 319.9 37 %
Total segment revenues $ 1,188.8 $ 868.9 $ 319.9 37 %
Our satellite services segment revenues increased by $319.9 million due to an
increase in service revenues. The increase in service revenues was primarily
attributable to the acquisition of RigNet in the first quarter of fiscal year
2022, as well as increases in our in-flight services and fixed broadband
businesses. The acquisition of RigNet contributed approximately $154.5 million
of service revenues in fiscal year 2022. The increase in in-flight service
revenue of $106.0 million was driven primarily by an increase in the number of
commercial aircraft receiving our in-flight services through our IFC systems, as
the number of aircraft in service increased, passenger air traffic continued to
increase and aircraft that were previously inactive as a result of the COVID-19
pandemic continued to return to service. The increase in fixed broadband service
revenues was primarily attributable to the acquisition of the remaining 51%
interest in EBI, which also closed during the first quarter of fiscal year 2022,
with EBI contributing approximately $38.5 million of service revenues in fiscal
year 2022.
Segment operating profit
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Segment operating profit $ 42.9 $ 35.9 $ 7.0 20 %
Percentage of segment revenues 4 % 4 %
The $7.0 million increase in our satellite services segment operating profit was
driven primarily by higher earnings contributions of $100.3 million , primarily
due to an increase in revenues and improved margins from our in-flight services
as the business continued to scale. The increase in our satellite services
segment operating profit was partially offset by higher SG&A costs of $94.3
million (mainly attributable to RigNet, which was acquired during the first
quarter of fiscal year 2022, as well as acquisition-related expenses related to
the Inmarsat Transaction).
Commercial networks segment
Revenues
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Segment product revenues $ 443.4 $ 268.8 $ 174.6 65 %
Segment service revenues 68.7 52.0 16.6 32 %
Total segment revenues $ 512.1 $ 320.9 $ 191.2 60 %
Our commercial networks segment revenues increased by $191.2 million , due to a
$174.6 million increase in product revenues and a $16.6 million increase in
service revenues. The increase in product revenues was primarily due to
increases of $112.1 million in mobile broadband satellite communication systems
products due to increased IFC terminal deliveries as passenger air traffic
continued to increase compared to the severe decline in passenger traffic in the
prior year period as a result of the COVID-19 pandemic. There was also an
increase of $52.5 million in antenna systems products and $25.7 million in
RigNet products, partially offset by a $14.8 million decrease in fixed satellite
networks products. The increase in service revenues was primarily driven by an
increase in mobile broadband satellite communication services.
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Segment operating loss
Fiscal Years Ended Dollar Percentage
March 31, March 31, (Increase) (Increase)
(In millions, except percentages) 2022 2021 Decrease Decrease
Segment operating loss $ (180.3 ) $ (180.7 ) $ 0.5 0 %
Percentage of segment revenues (35 )% (56 )%
Our commercial networks segment operating loss decreased by an insignificant
amount year-over-year. The decrease in operating loss was driven primarily by
higher earnings contributions of $38.0 million , driven by increased revenues and
improved margins from our mobile broadband satellite communication systems
products. The decrease in commercial networks segment operating loss was offset
by a $24.3 million increase in IR&D expenses (primarily related to
next-generation satellite payload technologies and mobile broadband satellite
communication systems) and a $13.3 million increase in SG&A expenses (primarily
related to higher support costs).
Government systems segment
Revenues
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Segment product revenues $ 767.0 $ 775.6 $ (8.6 ) (1 )%
Segment service revenues 319.7 290.7 29.1 10 %
Total segment revenues $ 1,086.7 $ 1,066.3 $ 20.4 2 %
Our government systems segment revenues increased by $20.4 million due to an
increase of $29.1 million in service revenues, partially offset by a decrease of
$8.6 million in product revenues. The service revenue increase was primarily due
to a $18.3 million increase in government mobile broadband services, a $14.8
million increase in government satellite communication systems services, a $6.7
million increase in cybersecurity and information assurance services, partially
offset by a $11.0 million decrease in tactical data link services. The product
revenue decrease was primarily driven by a $24.5 million decrease in government
satellite communication systems products and a $17.8 million decrease in
government mobile broadband products. The decrease in product revenues was
partially offset by a $24.3 million increase in tactical data link products, a
$6.8 million increase in cybersecurity and information assurance products and a
$2.6 million increase in tactical satcom radio products. As a result of the
COVID-19 pandemic, our government systems segment continued to experience
complications in product manufacturing and shipments and some administrative
delays on certain contractual vehicles reflecting inherent challenges in the
remote work environment. In addition, product revenues in the segment were
negatively impacted in fiscal year 2022 by anticipated delays in certification
of certain information security and tactical data link products, as well as
certain unanticipated supply chain issues that affected certain product
shipments. Despite these obstacles, new government systems segment awards
remained strong through the end of fiscal year 2022.
Segment operating profit
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Segment operating profit $ 174.5 $ 208.6 $ (34.1 ) (16 )%
Percentage of segment revenues 16 % 20 %
The $34.1 million decrease in our government systems segment operating profit
was driven by a $37.3 million increase in SG&A costs (including $10.5 million of
acquisition-related expenses related to the Inmarsat Transaction) and a $14.1
million increase in IR&D expenses (primarily related to the development of
next-generation dual band mobility solutions and the advancement of integrated
government satellite communications platforms). The decrease in operating profit
was partially offset by higher earnings contributions of $17.4 million ,
primarily due to an increase in revenues.
Fiscal Year 2021 Compared to Fiscal Year 2020
For a discussion of our results of operations for fiscal year 2021 as compared to fiscal year 2020, 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 endedMarch 31, 2021 . 56
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Backlog
As reflected in the table below, our overall firm and funded backlog decreased
during fiscal year 2022.
As of As of
March 31, 2022 March 31, 2021
(In millions)
Firm backlog
Satellite services segment $ 554.5 $ 633.7
Commercial networks segment 632.2 733.2
Government systems segment 846.0 939.4
Total $ 2,032.7 $ 2,306.3
Funded backlog
Satellite services segment $ 554.5 $ 633.7
Commercial networks segment 583.1 639.6
Government systems segment 803.4 846.9
Total $ 1,941.0 $ 2,120.2
The firm backlog does not include contract options. Of the $2.0 billion in firm
backlog, a little over half is expected to be delivered during the next 12
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, 2022 , our IFC systems were installed and in
service on approximately 1,910 commercial aircraft, of which, due to impacts of
the COVID-19 pandemic, approximately 80 were inactive at fiscal year end. While
domestic airline traffic increased during fiscal year 2022 (with increased
planes in service and higher passenger volumes), global airline traffic has not
yet recovered to pre-pandemic levels. We expect to continue to see some negative
impacts on revenues and operating cash flows from our IFC businesses in fiscal
year 2023 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. We anticipate that approximately 970
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 $2.6 billion , $2.7 billion and $2.3 billion
for fiscal years 2022, 2021 and 2020, 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. AtMarch 31, 2022 , we had$310.5 million in cash and cash equivalents,$389.1 million in working capital, and no outstanding borrowings and borrowing availability of$637.0 million under our Revolving Credit Facility. AtMarch 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. We invest our cash in excess of current operating requirements in short-term, highly liquid bank money market accounts. During the second quarter of fiscal year 2021, we issued and sold an aggregate of 4,474,559 shares of 57 -------------------------------------------------------------------------------- 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. We currently expect to incur$1.3 billion of additional indebtedness under the financing commitments we obtained in connection with the Inmarsat Transaction (see the discussion above under "Inmarsat Acquisition"). However, the total amount of indebtedness incurred under these commitments may change, including in the event that available cash from other sources is higher than expected. We also plan to assume$2.1 billion in principal amount of Inmarsat senior secured bonds and the outstanding indebtedness under Inmarsat's$2.4 billion senior secured credit facilities. We had also obtained commitments of$3.2 billion to backstop certain amendments required under the Revolving Credit Facility and Ex-Im Credit Facility and Inmarsat's$2.4 billion senior secured credit facilities, which amendments had been obtained under the Revolving Credit Facility and Inmarsat's$2.4 billion senior secured credit facilities as of the date of this report. The general cash needs of our satellite services, commercial networks and government systems segments can vary significantly and our future capital requirements will depend upon many factors, including the timing and amount of cash required to consummate the Inmarsat Transaction (including the cash portion of the purchase price, transaction-related costs and integration-related costs, see the discussion above under "Inmarsat Acquisition"), as well as 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. In particular:
•
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 underU.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. Additionally, we will continue to evaluate other possible acquisitions of, or investments in complementary businesses, products and technologies which may require the use of cash or additional financing. We believe we have adequate sources of funding for theViaSat -3 constellation and consummation of the Inmarsat Transaction, which include, but are not limited to, our cash on hand, borrowing capacity, financing commitments obtained in connection with the Inmarsat Transaction and the cash we expect to generate from operations. Although a significant portion of transaction-related costs relating to the Inmarsat Transaction is contingent upon the closing of the Inmarsat Transaction occurring, some have been and will be incurred regardless of whether the Inmarsat Transaction is consummated. 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. From time to time, we file universal shelf registration statements with theSEC for the future sale of an unlimited amount of common stock, preferred stock, debt securities, depositary shares, warrants and rights, which 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. 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 2022 was$505.6 million compared to$727.2 million for fiscal year 2021. This$221.6 million decrease was primarily driven by a$290.1 million year-over-year increase in cash used to fund net operating assets, partially offset by our operating results (net loss adjusted for depreciation, amortization and other non-cash changes) which resulted in$68.5 million of higher cash provided by operating activities year-over-year. The increase in cash used to fund net operating assets during fiscal year 2022 when compared to fiscal year 2021 was primarily due to a decrease in cash inflows year-over-year from combined billed and unbilled accounts receivable, net, primarily attributable to increased billings for IFC terminals in our commercial networks segment and a decrease in cash inflows year-over-year from our collections in excess of revenues and deferred revenues included in accrued liabilities 58
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primarily due to the timing of milestone billings for certain larger development projects in our commercial networks segment.
Cash used in investing activities for fiscal year 2022 was$1,129.8 million compared to$885.3 million for fiscal year 2021. This$244.6 million increase in cash used in investing activities year-over year reflects$138.7 million in cash used for the RigNet and EBI acquisitions in the first quarter of fiscal year 2022, an increase of approximately$78.4 million primarily related to cash used for the construction of earth stations and network operation systems and an increase of approximately$22.9 million in cash used for construction of satellites. Cash provided by financing activities for fiscal year 2022 was$643.6 million compared to$149.7 million for fiscal year 2021. This$493.9 million increase in cash provided by financing activities year-over-year primarily reflects$686.0 million of proceeds received (net of issue discount) from borrowings under the Term Loan Facility, which was entered into inMarch 2022 , partially offset by the repayment of outstanding borrowings under the Revolving Credit Facility inMarch 2022 with the net proceeds of the Term Loan Facility and$174.7 million in net proceeds from a private placement of common stock in the second quarter of fiscal year 2021 (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.
Capital Expenditures and IR&D Investments
Our total capital expenditures in fiscal year 2023 are expected to be higher than fiscal year 2022, as we continue to invest in building and expanding our global network and satellite fleet, as well as costs related to the roll-out of related earth station infrastructure and increased ground network investments related to international expansion and other growth opportunities. See Note 12 - Commitments to our consolidated financial statements for information as ofMarch 31, 2022 regarding our future minimum payments under our satellite construction contracts and other satellite-related purchase commitments (including satellite performance incentive obligations relating to theViaSat -1 andViaSat -2 satellites) for the next five fiscal years and thereafter. 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. Our IR&D investments are expected to continue through fiscal year 2023 and beyond and support our government and commercial air mobility businesses. Additionally, we expect to continue to invest in building and expanding our global network and satellite fleet. IR&D expenses were approximately 5%, 5% and 6% of total revenues in fiscal years 2022, 2021 and 2020, respectively. As a government contractor, we are able to recover a portion of our IR&D expenses pursuant to our government contracts.
Long-Term Debt
As ofMarch 31, 2022 , the aggregate principal amount of our total outstanding indebtedness was$2.5 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,$700.0 million in principal amount of outstanding borrowings under our Term Loan Facility, no outstanding borrowings under our$700.0 million Revolving Credit Facility,$78.6 million in principal amount of outstanding borrowings under our Ex-Im Credit Facility and$45.8 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.
Contractual Obligations
The following table sets forth a summary of certain material cash requirements
for known contractual obligations and commitments at
For the Periods Ending
(In thousands, including interest where applicable) Next 12 months Thereafter
Operating leases $ 78,476$ 435,234 Senior Notes and Other Long-Term Debt (1) 172,658
3,091,341
Purchase commitments including satellite-
related agreements 1,516,336 1,062,513 Total$ 1,767,470 $ 4,589,088
(1) To the extent that the interest rate on any long-term debt is variable,
amounts reflected represent estimated interest payments on the applicable
current outstanding balance based on the interest rate at
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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 $157.5 million and $137.4 million of
"other liabilities" as of March 31, 2022 and March 31, 2021 , 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, deferred income taxes 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 "Purchase commitments including
satellite-related agreements"), 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. Also excluded from the above table are amounts payable to the
Sellers under the Purchase Agreement in the Inmarsat Transaction.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements at
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.
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