VIASAT, INC. Forward-Looking Statements
This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. We use words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "goal," "intend," "may," "plan," "project," "seek," "should," "target," "will," "would," variations of such words and similar expressions to identify forward-looking statements. In addition, statements that refer to the proposed Inmarsat Transaction (as defined below) and any statements regarding the expected timing, benefits, synergies, growth opportunities and other financial and operating benefits thereof, the closing of the Inmarsat Transaction and timing or satisfaction of regulatory and other closing conditions, or the anticipated operations, financial position, liquidity, performance, prospects or growth and scale opportunities of the combined company; 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 anticipated benefits of our acquisitions of RigNet, Inc. (RigNet) and Euro Broadband Infrastructure Sàrl (EBI); the development, customer acceptance and anticipated performance of technologies, products or services; satellite construction and launch activities; the performance and anticipated benefits of ourViaSat -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: risks and uncertainties related to the Inmarsat Transaction, including the failure to obtain, or delays in obtaining, required regulatory approvals or clearances; the risk that any such approval may result in the imposition of conditions that could adversely affectViasat , the combined company or the expected benefits of the Inmarsat Transaction; the failure to satisfy any of the closing conditions to the Inmarsat Transaction on a timely basis or at all; any adverse impact on the business ofViasat or Inmarsat as a result of uncertainty surrounding the Inmarsat Transaction; the nature, cost and outcome of any legal proceedings related to the Inmarsat Transaction; the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreement for the Inmarsat Transaction, including in circumstances requiringViasat to pay a termination fee; the risk thatViasat's stock price may decline significantly if the Inmarsat Transaction is not consummated; the failure to obtain the necessary debt financing arrangements set forth in the commitment letters received in connection with the Inmarsat Transaction; risks that the Inmarsat Transaction disrupts current plans and operations or diverts management's attention from its ongoing business; the effect of the announcement of the Inmarsat Transaction on the ability ofViasat to retain and hire key personnel and maintain relationships with its customers, suppliers and others with whom it does business; the ability ofViasat to successfully integrate Inmarsat operations, technologies and employees; the ability to realize anticipated benefits and synergies of the Inmarsat Transaction, including the expectation of enhancements toViasat's products and services, greater revenue or growth opportunities, operating efficiencies and cost savings; the ability to ensure continued performance and market growth of the combined company's business; our ability to realize the anticipated benefits of theViaSat -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 ourViaSat -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 and EBI acquisitions; our ability to successfully develop, introduce and sell new technologies, products and services; audits by theU.S. Government ; changes in the global business environment and economic conditions; delays in approvingU.S. Government budgets and cuts in government defense expenditures; our reliance onU.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 33 -------------------------------------------------------------------------------- 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 toU.S. tax laws; our level of indebtedness and ability to comply with applicable debt covenants; our involvement in litigation, including intellectual property claims and litigation to protect our proprietary technology; our dependence on a limited number of key employees; and other factors identified under the heading "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2022 , under the heading "Risk Factors" in Part II, Item 1A of this report, elsewhere in this report and our other filings with theSecurities and Exchange Commission (theSEC ). Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
Company Overview
We are an innovator in communications technologies and services, focused on making connectivity accessible, available and secure for all. Our end-to-end platform of high-capacity Ka-band satellites, ground infrastructure and user terminals enables us to provide cost-effective, high-speed, high-quality broadband solutions to enterprises, consumers, 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.Viasat, Inc. was incorporated inCalifornia in 1986, and reincorporated as aDelaware corporation in 1996.
We conduct our business through three segments: satellite services, commercial networks and government systems.
Inmarsat Acquisition
OnNovember 8, 2021 , we entered into a Share Purchase Agreement (the Purchase Agreement) to combine withConnect Topco Limited , a private company limited by shares and incorporated in Guernsey (Inmarsat), with the shareholders of Inmarsat and certain management and employeeswho hold options and shares of a subsidiary of Inmarsat whose options and shares will be exchanged for shares of Inmarsat prior to closing (collectively, the Sellers). 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 Inmarsat Transaction). The total consideration payable by us under the Purchase Agreement consists of$850.0 million in cash, subject to adjustments (such as the dividend paid by Inmarsat inApril 2022 , see below), and approximately 46.36 million unregistered shares of our common stock. OnApril 6, 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 closing of the Inmarsat Transaction. Our board of directors has unanimously approved the Purchase Agreement and the proposed Inmarsat Transaction. Our stockholders approved the issuance of shares in the transaction and an amendment to the Company's certificate of incorporation to increase the number of shares of common stock authorized for issuance at a special meeting held onJune 21, 2022 . The closing of the Inmarsat Transaction is subject to customary closing conditions, including receipt of regulatory approvals and clearances. 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). In light of the$299.3 million reduction in the cash purchase price payable in the Inmarsat Transaction, 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 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. In addition, we obtained commitments of$3.2 billion to backstop certain amendments required under our revolving credit facility (the Revolving Credit Facility) and our direct loan facility with the Export-Import 34 --------------------------------------------------------------------------------
Other Acquisitions
OnApril 30, 2021 , we completed our acquisition of the remaining 51% interest in EBI, a satellite broadband internet service provider inEurope ,Middle East andAfrica (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 (net of approximately$121.7 million of EBI's cash on hand, resulting in a cash outlay of approximately$51.0 million ). 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, and retained approximately$20.6 million of RigNet's cash on hand.
The assets and results of operations of EBI and RigNet are primarily included in our satellite services segment, with insignificant amounts included in our commercial networks segment.
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 the three months endedJune 30, 2022 were impacted by the pandemic, the impact was not material to our financial position, results of operations or cash flows in the period. 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 the remainder of 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.
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 Voice over Internet
Protocol services, primarily in
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In-flight services, which provide industry-leading IFC, wireless in-flight entertainment and aviation software services. As ofJune 30, 2022 , we had our IFC systems installed and in service on approximately 1,930 commercial aircraft, of which, due to impacts of the COVID-19 pandemic approximately 30 were inactive at quarter end. We anticipate that approximately 1,210 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.
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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 . 35 --------------------------------------------------------------------------------
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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 geostationary, medium earth orbit, and low earth orbit. 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 Intelligence Surveillance and Reconnaissance 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, unmanned aerial vehicles, 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 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.
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Tactical data links, including our Battlefield Awareness and Targeting System - Dismounted handheld Link 16 radios, ourSmall Tactical Terminal 2 -channel radios for manned and unmanned applications, "disposable" defense data links, and our Multifunctional Information Distribution System (MIDS) and MIDS Joint Tactical Radio Systems terminals for military fighter jets.
Factors and Trends Affecting our Results of Operations
For a summary of factors and trends affecting our results of operations, see Part II, Item 7, "Factors and Trends Affecting our Results of Operations" in our Annual Report on Form 10-K for the year endedMarch 31, 2022 . 36 --------------------------------------------------------------------------------
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 86% and 89% of our total revenues for these segments for the three months endedJune 30, 2022 and 2021, 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% and 23% of our total revenues for the three months endedJune 30, 2022 and 2021, respectively.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted 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 is satisfied over time as the
customer simultaneously receives and consumes the benefits provided. The measure
of progress over time is based upon either a period of time (e.g., over the
estimated contractual term) or usage (e.g., bandwidth used/bytes of data
processed). We evaluate whether broadband equipment provided to our customer as
part of the delivery of connectivity services represents a lease in accordance
with ASC 842. As discussed in Note 1 - Basis of Presentation - Leases to our
condensed consolidated financial statements, for broadband equipment leased to
fixed broadband customers in conjunction with the delivery of connectivity
services, we account for the lease and non-lease components of connectivity
services arrangement as a single performance obligation as the connectivity
services represent the predominant component.
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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 June
30, 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, 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
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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.
Warranty reserves
We provide limited warranties on our products for periods of up to five years. We record a liability for our warranty obligations when we ship the products or they are included in long-term construction contracts based upon an estimate of expected warranty costs. Amounts expected to be incurred within 12 months are classified as accrued liabilities and amounts expected to be incurred beyond 12 months are classified as other liabilities in the condensed consolidated financial statements. For mature products, we estimate the warranty costs based on historical experience with the particular product. For newer products that do not have a history of warranty costs, we base our estimates on our experience with the technology involved and the types of failures that may occur. It is possible that our underlying assumptions will not reflect the actual experience, and, in that case, we will make future adjustments to the recorded warranty obligation.
Property, equipment and satellites
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 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
In accordance with the authoritative guidance for leases (ASC 842), 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
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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, 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 which the asset's carrying value exceeds its fair value, and would be recorded as a reduction in the carrying value of the related asset and charged to results of operations. No material impairments were recorded by us for the three months endedJune 30, 2022 and 2021. 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 40 -------------------------------------------------------------------------------- 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 decreased from$78.1 million atMarch 31, 2022 to$77.1 million atJune 30, 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 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. 41 --------------------------------------------------------------------------------
Results of Operations
The following table presents, as a percentage of total revenues, income statement data for the periods indicated:
Three Months Ended
June 30, June 30,
2022 2021
Revenues: 100 % 100 %
Product revenues 40 44
Service revenues 60 56
Operating expenses:
Cost of product revenues 31 33
Cost of service revenues 40 35
Selling, general and administrative 26 23
Independent research and development 5 5
Amortization of acquired intangible assets 1 1
Income (loss) from operations (4 ) 2
Interest expense, net (1 ) (1 )
Income (loss) before income taxes (5 ) 2
(Provision for) benefit from income taxes 2 1
Net income (loss) (3 ) 3
Net income (loss) attributable to Viasat, Inc. (3 ) 3
Three Months Ended
Revenues
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Product revenues $ 268.8 $ 293.3 $ (24.5 ) (8 )%
Service revenues 409.4 371.6 37.8 10 %
Total revenues $ 678.2 $ 664.9 $ 13.4 2 %
Our total revenues increased by $13.4 million as a result of a $37.8 million
increase in service revenues, partially offset by a $24.5 million decrease in
product revenues. The service revenue increase was primarily driven by an
increase of $38.0 million in our satellite services segment. The product revenue
decrease was driven by a $16.5 million decrease in our government systems
segment and an $8.0 million decrease in our commercial networks segment.
Cost of revenues
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Cost of product revenues $ 210.7 $ 219.3 $ (8.7 ) (4 )%
Cost of service revenues 271.7 234.6 37.1 16 %
Total cost of revenues $ 482.4 $ 454.0 $ 28.4 6 %
Cost of revenues increased $28.4 million due to an increase of $37.1 million in
cost of service revenues, partially offset by an $8.7 million decrease 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 $23.9 million increase in cost of service revenues on a constant margin basis.
The increase in cost of service revenues was also driven by lower margins,
primarily driven by our satellite services and commercial networks segments. The
decrease in cost of product revenues was mostly driven by decreased product
revenues, causing an $18.3 million decrease in cost of product revenues on a
constant margin basis, from our government systems and commercial networks
segments. The decrease in cost of product revenues was partially offset by lower
margins, also from our government systems and commercial networks segments.
42
--------------------------------------------------------------------------------Selling, general and administrative expenses
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Selling, general and administrative $ 179.6 $ 154.2 $ 25.4 16 %
The $25.4 million increase in selling, general and administrative (SG&A)
expenses reflected an increase in support costs of $18.4 million , driven
primarily by acquisition-related expenses of approximately $13.1 million mainly
related to the Inmarsat Transaction. The increase in SG&A expenses was also
driven by $5.2 million of higher selling costs, reflected primarily in our
satellite services segment. SG&A expenses consisted primarily of personnel costs
and expenses for business development, marketing and sales, bid and proposal,
facilities, finance, contract administration and general management.
Independent research and development
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Independent research and development $ 35.8 $ 34.5 $ 1.3 4 %
The
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$1.6 million increase in amortization of acquired intangible assets in the first quarter of fiscal year 2023 compared to the prior year period was primarily related to the amortization of new intangibles acquired as a result of the acquisition of RigNet inApril 2021 . The current and expected amortization expense for acquired intangible assets for each of the following periods is as follows: Amortization (In thousands)
For the three months ended
Expected for the remainder of fiscal year 2023
28,733
Expected for fiscal year 2025 26,701
Expected for fiscal year 2026 26,549
Expected for fiscal year 2027 26,549
Thereafter 91,098
$ 222,187
Interest income
Interest income for the three months ended
Interest expense
The slight decrease in interest expense for the three months endedJune 30, 2022 compared to the prior year period was primarily the result of an increase in the amount of interest capitalized during the first quarter of fiscal year 2023 compared to the prior year period, partially offset by an increase in interest expense related to our$700.0 million senior secured term loan facility (the Term Loan Facility) which was entered into during the fourth quarter of fiscal year 2022. 43 --------------------------------------------------------------------------------
Income taxes
For the three months endedJune 30, 2022 , we recorded an income tax benefit of$10.8 million , resulting in an effective tax rate of 34%. For the three months endedJune 30, 2021 , we recorded an income tax benefit of$4.1 million , resulting in an effective tax rate of negative 29%. The effective tax rates for such periods differed from theU.S. statutory rate primarily due to the benefit of federal and state R&D tax credits. Ordinarily, the effective tax rate at the end of an interim period is calculated using an estimate of the annual effective tax rate expected to be applicable for the full fiscal year. However, when a reliable estimate cannot be made, we compute our provision for income taxes using the actual effective tax rate (discrete method) for the year-to-date period. Our effective tax rate is highly influenced by the amount of our R&D tax credits. A small change in estimated annual pretax income (loss) can produce a significant variance in the annual effective tax rate given our expected amount of R&D tax credits. This variability provides an unreliable estimate of the annual effective tax rate. As a result, and in accordance with the authoritative guidance for accounting for income taxes in interim periods, we have computed our (provision for) benefit from income taxes for the three months endedJune 30, 2022 and 2021 by applying the actual effective tax rate to the pretax income (loss) for the three-month periods. Segment Results for the Three Months EndedJune 30, 2022 vs. Three Months EndedJune 30, 2021 Satellite services segment Revenues Three Months Ended Dollar Percentage June 30, June 30, Increase Increase (In millions, except percentages) 2022 2021 (Decrease) (Decrease) Segment product revenues $ - $ - $ - - % Segment service revenues 312.1 274.1 38.0 14 % Total segment revenues$ 312.1 $ 274.1 $ 38.0 14 % Our satellite services segment revenues increased by$38.0 million for the three months endedJune 30, 2022 compared to the prior year period due to an increase in service revenues. The increase in service revenues was primarily attributable to an increase in our commercial in-flight services business. The increase in in-flight service revenue of$37.6 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.
Segment operating profit (loss)
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Segment operating profit (loss) $ 3.5 $ 12.5 $ (9.0 ) (72 )%
Percentage of segment revenues 1 % 5 %
The $9.0 million decrease in satellite services segment operating profit was
driven primarily by higher SG&A costs of $12.5 million (mainly attributable to
acquisition-related expenses related to the Inmarsat Transaction) as well as
growing expenses associated with activating more of the ViaSat -3 ground network
and international activities. The decrease in our satellite services segment
operating profit was partially offset by higher earnings contributions of $3.8
million , primarily due to an increase in revenues and improved margins from our
in-flight services as the business continued to scale.
Commercial networks segment
Revenues
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Segment product revenues $ 93.6 $ 101.5 $ (8.0 ) (8 )%
Segment service revenues 19.2 17.1 2.1 13 %
Total segment revenues $ 112.8 $ 118.6 $ (5.8 ) (5 )%
44-------------------------------------------------------------------------------- Our commercial networks segment revenues decreased by$5.8 million , due to an$8.0 million decrease in product revenues, partially offset by a$2.1 million increase in service revenues. The decrease in product revenues was primarily due to decreases of$10.1 million in mobile broadband satellite communication systems products, related to IFC terminal deliveries. There were also decreases of$3.2 million in satellite networking development programs and$2.5 million in fixed satellite networks products, partially offset by a$4.3 million increase in antenna systems and$4.1 million increase in RigNet products. The increase in service revenues was primarily driven by increases in mobile broadband satellite communication and fixed satellite network services.
Segment operating profit (loss)
Three Months Ended Dollar Percentage
June 30, June 30, (Increase) (Increase)
(In millions, except percentages) 2022 2021
Decrease Decrease
Segment operating profit (loss)
(12 )%
Percentage of segment revenues (38 )% (32 )%
The $4.7 million increase in our commercial networks segment operating loss was
driven by lower earnings contributions of $3.4 million , primarily due to lower
revenues and margins and a $1.6 million increase in SG&A costs.
Government systems segment
Revenues
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Segment product revenues $ 175.2 $ 191.7 $ (16.5 ) (9 )%
Segment service revenues 78.1 80.4 (2.3 ) (3 )%
Total segment revenues $ 253.3 $ 272.1 $ (18.8 ) (7 )%
Our government systems segment revenues decreased by $18.8 million due to a
$16.5 million decrease in product revenues and $2.3 million decrease in service
revenues. The product revenue decrease was primarily due to a $9.0 million
decrease in government satellite communication systems, an $8.2 million decrease
in government mobile broadband products, and a $3.9 million decrease in
cybersecurity and information assurance products, partially offset by a $5.6
million increase in tactical data link products. Our government systems segment
continued to show some impacts from the COVID-19 pandemic, due to complications
in product manufacturing and shipments, but new government systems segment
awards remained strong through the end of the first quarter of fiscal year 2023.
The service revenue decrease was primarily due to a $5.5 million decrease in
government mobile broadband services, partially offset by a $2.6 million
increase in satellite communication systems services.
Segment operating profit (loss)
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2022 2021 (Decrease) (Decrease)
Segment operating profit (loss) $ 19.4 $ 47.4 $ (28.1 ) (59 )%
Percentage of segment revenues 8 % 17 %
The $28.1 million decrease in our government systems segment operating profit
was primarily driven by lower earnings contributions of $15.4 million , primarily
due to lower revenues, lower margin product sales mix and an $11.4 million
increase in SG&A costs (primarily related to acquisition-related expenses
related to the Inmarsat Transaction).
45
--------------------------------------------------------------------------------Backlog
As reflected in the table below, our overall firm and funded backlog increased during the first three months of fiscal year 2023.
As of As of
June 30, 2022 March 31, 2022
(In millions)
Firm backlog
Satellite services segment $ 510.0 $ 554.5
Commercial networks segment 660.0 632.2
Government systems segment 895.2 846.0
Total $ 2,065.2 $ 2,032.7
Funded backlog
Satellite services segment $ 510.0 $ 554.5
Commercial networks segment 625.7 583.1
Government systems segment 822.6 803.4
Total $ 1,958.3 $ 1,941.0
The firm backlog does not include contract options. Of the $2.1 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 June 30, 2022 , our IFC systems were installed and in
service on approximately 1,930 commercial aircraft, of which, due to impacts of
the COVID-19 pandemic, approximately 30 were inactive at quarter end. While
domestic airline traffic continued to increase during fiscal year 2023 (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 1,210 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 $782.6 million and $595.0 million for the
three months ended June 30, 2022 and 2021, 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. AtJune 30, 2022 , we had$221.5 million in cash and cash equivalents,$402.2 million in working capital, and$150.0 million in principal amount of outstanding borrowings and borrowing availability of$486.7 million under our Revolving Credit Facility. 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 46 --------------------------------------------------------------------------------$637.0 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. 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, all of which amendments had been obtained 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 IR&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 the first three months of fiscal year 2023 was$39.6 million compared to$65.1 million in the prior year period. This$25.5 million decrease was primarily driven by our operating results (net income (loss) adjusted for depreciation, amortization and other non-cash charges) which resulted in$30.4 million of lower cash 47 -------------------------------------------------------------------------------- provided by operating activities year-over-year, partially offset by a$4.9 million year-over-year decrease in cash used to fund net operating assets. The decrease in cash used to fund net operating assets during the first three months of fiscal year 2023 when compared to the prior year period was primarily due to a lower increase in combined billed and unbilled accounts receivable, net, due to the timing of IFC terminal deliveries (which were more front loaded in fiscal year 2022) in our commercial networks segment, partially offset by a higher increase in cash used for IFC terminal inventory in our commercial networks segment in expectation of related revenue ramp up over the next several quarters in fiscal year 2023 for both existing and new commercial airline customers. Cash used in investing activities for the first three months of fiscal year 2023 was$270.9 million compared to$399.6 million in the prior year period. This$128.7 million decrease in cash used in investing activities year-over-year reflects cash used for the RigNet and EBI acquisitions in the first quarter of fiscal year 2022. Cash provided by financing activities for the first three months of fiscal year 2023 was$144.2 million compared to$315.2 million for the prior year period. This$171.0 million decrease in cash provided by financing activities year-over-year was mainly due to a decrease in proceeds from debt borrowings of$170.0 million year-over-year.
Satellite-related activities
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 included in our Annual Report on Form 10-K for the year endedMarch 31, 2022 for information 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.
Long-term debt
As ofJune 30, 2022 , the aggregate principal amount of our total outstanding indebtedness was$2.7 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 (together with the 2025 Notes and 2027 Notes, the Notes),$700.0 million in principal amount of outstanding borrowings under our$700.0 million Term Loan Facility,$150.0 million in principal amount of outstanding borrowings under our$700.0 million Revolving Credit Facility,$68.8 million in principal amount of outstanding borrowings under our Ex-Im Credit Facility and$45.7 million of finance lease obligations. For information 48 -------------------------------------------------------------------------------- regarding our Term Loan Facility, Revolving Credit Facility and Ex-Im Facility (collectively, the Credit Facilities) and Notes, refer to Note 6 - Senior Notes and Other Long-Term Debt to our condensed consolidated financial statements.
Capital Expenditures and IR&D Investments
For a discussion of our capital expenditures and IR&D investments, see Part II,
Item 7, "Liquidity and Capital Resources - Capital Expenditures and IR&D
Investments" in our Annual Report on Form 10-K for the year ended
Contractual Obligations
The following table sets forth a summary of certain material cash requirements
for known contractual obligations and commitments at
(In thousands, including interest where applicable) Next 12 months
Thereafter
Operating leases $ 79,372$ 420,584 Senior Notes and Other Long-Term Debt (1) 185,956
3,248,089
Purchase commitments including satellite-related
agreements 1,501,316 1,075,532 Total$ 1,766,644 $ 4,744,205 (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
We purchase components from a variety of suppliers and use several subcontractors and contract manufacturers to provide design and manufacturing services for our products. During the normal course of business, we enter into agreements with subcontractors, contract manufacturers and suppliers that either allow them to procure inventory based upon criteria defined by us or that establish the parameters defining our requirements. We also enter into agreements and purchase commitments with suppliers for the construction, launch, and operation of our satellites. In certain instances, these agreements allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to firm orders being placed. Consequently, only a portion of our reported purchase commitments arising from these agreements are firm, non-cancelable and unconditional commitments. Our condensed consolidated balance sheets included$149.2 million and$157.5 million of "other liabilities" as ofJune 30, 2022 andMarch 31, 2022 , respectively, which primarily consisted of the long-term portion of deferred revenues, the long-term portion of our satellite performance incentive obligations relating to theViaSat -1 andViaSat -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 theViaSat -1 andViaSat -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 included in our Annual Report on Form 10-K for the year endedMarch 31, 2022 for additional information regarding satellite performance incentive obligations relating to theViaSat -1 andViaSat -2 satellites. See Note 7 - Product Warranty to our condensed 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 atJune 30, 2022 as defined in Regulation S-K Item 303(b) other than as discussed under "Contractual Obligations" above or disclosed in the notes to our condensed consolidated financial statements included in this report or in our Annual Report on Form 10-K for the year endedMarch 31, 2022 .
Recent Authoritative Guidance
For information regarding recently adopted and issued accounting pronouncements, see Note 1 - Basis of Presentation to our condensed consolidated financial statements.
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