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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

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

 

For the quarterly period ended June 30, 2022.

OR

 

 

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

 

For the transition period from to .

Commission File Number (000-21767)

 

img242758238_0.jpg 

VIASAT, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

33-0174996

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

6155 El Camino Real

Carlsbad, California 92009

(760) 476-2200

(Address of principal executive offices and telephone number)

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

 

(Title of Each Class)

 

(Trading Symbol)

 

(Name of Each Exchange on which Registered)

Common Stock, par value $0.0001 per share

 

VSAT

 

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

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

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

The number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of July 22, 2022 was 75,552,525.

 

 

 


 

VIASAT, INC.

TABLE OF CONTENTS

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements (Unaudited)

 

3

Condensed Consolidated Balance Sheets

 

3

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

 

4

Condensed Consolidated Statements of Cash Flows

 

5

Condensed Consolidated Statements of Equity

 

6

Notes to the Condensed Consolidated Financial Statements

 

7

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

 

33

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

50

Item 4. Controls and Procedures

 

51

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

51

Item 1A. Risk Factors

 

51

Item 5. Other Information

 

52

Item 6. Exhibits

 

53

Signatures

 

54

 

2


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

VIASAT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

As of
 June 30, 2022

 

 

As of
 March 31, 2022

 

 

 

(In thousands)

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

221,520

 

 

$

310,459

 

Accounts receivable, net

 

 

372,118

 

 

 

359,269

 

Inventories

 

 

362,007

 

 

 

341,890

 

Prepaid expenses and other current assets

 

 

172,692

 

 

 

147,854

 

Total current assets

 

 

1,128,337

 

 

 

1,159,472

 

 

 

 

 

 

 

 

Property, equipment and satellites, net

 

 

3,864,499

 

 

 

3,741,912

 

Operating lease right-of-use assets

 

 

345,369

 

 

 

356,176

 

Other acquired intangible assets, net

 

 

222,187

 

 

 

236,043

 

Goodwill

 

 

187,359

 

 

 

190,113

 

Other assets

 

 

735,604

 

 

 

705,630

 

Total assets

 

$

6,483,355

 

 

$

6,389,346

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

246,516

 

 

$

219,088

 

Accrued and other liabilities

 

 

441,141

 

 

 

516,422

 

Current portion of long-term debt

 

 

38,471

 

 

 

34,911

 

Total current liabilities

 

 

726,128

 

 

 

770,421

 

 

 

 

 

 

 

 

Senior notes

 

 

1,686,965

 

 

 

1,686,225

 

Other long-term debt

 

 

902,880

 

 

 

764,991

 

Non-current operating lease liabilities

 

 

316,096

 

 

 

327,664

 

Other liabilities

 

 

149,174

 

 

 

157,451

 

Total liabilities

 

 

3,781,243

 

 

 

3,706,752

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Viasat, Inc. stockholders’ equity

 

 

 

 

 

 

Common stock

 

 

8

 

 

 

7

 

Paid-in capital

 

 

2,482,847

 

 

 

2,421,950

 

Retained earnings

 

 

211,966

 

 

 

233,530

 

Accumulated other comprehensive income (loss)

 

 

(41,962

)

 

 

(21,621

)

Total Viasat, Inc. stockholders’ equity

 

 

2,652,859

 

 

 

2,633,866

 

Noncontrolling interest in subsidiary

 

 

49,253

 

 

 

48,728

 

Total equity

 

 

2,702,112

 

 

 

2,682,594

 

Total liabilities and equity

 

$

6,483,355

 

 

$

6,389,346

 

 

See accompanying notes to the condensed consolidated financial statements.

3


 

VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

Product revenues

 

$

268,800

 

 

$

293,264

 

Service revenues

 

 

409,423

 

 

 

371,596

 

Total revenues

 

 

678,223

 

 

 

664,860

 

Operating expenses:

 

 

 

 

 

 

Cost of product revenues

 

 

210,686

 

 

 

219,347

 

Cost of service revenues

 

 

271,700

 

 

 

234,629

 

Selling, general and administrative

 

 

179,613

 

 

 

154,200

 

Independent research and development

 

 

35,763

 

 

 

34,463

 

Amortization of acquired intangible assets

 

 

7,523

 

 

 

5,929

 

Income (loss) from operations

 

 

(27,062

)

 

 

16,292

 

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

123

 

 

 

63

 

Interest expense

 

 

(5,873

)

 

 

(6,292

)

Other income, net

 

 

1,011

 

 

 

4,118

 

Income (loss) before income taxes

 

 

(31,801

)

 

 

14,181

 

(Provision for) benefit from income taxes

 

 

10,762

 

 

 

4,087

 

Equity in income (loss) of unconsolidated affiliate, net

 

 

 

 

 

(256

)

Net income (loss)

 

 

(21,039

)

 

 

18,012

 

Less: net income (loss) attributable to
   noncontrolling interest, net of tax

 

 

525

 

 

 

1,044

 

Net income (loss) attributable to Viasat, Inc.

 

$

(21,564

)

 

$

16,968

 

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

 

$

(0.29

)

 

$

0.24

 

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

 

$

(0.29

)

 

$

0.23

 

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

 

 

74,863

 

 

 

71,543

 

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

 

 

74,863

 

 

 

72,818

 

Comprehensive income (loss):

 

 

 

 

 

 

Net income (loss)

 

$

(21,039

)

 

$

18,012

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

Foreign currency translation adjustments, net
   of tax

 

 

(20,341

)

 

 

(15,742

)

Other comprehensive income (loss), net of tax

 

 

(20,341

)

 

 

(15,742

)

Comprehensive income (loss)

 

 

(41,380

)

 

 

2,270

 

Less: comprehensive income (loss) attributable
   to noncontrolling interest, net of tax

 

 

525

 

 

 

1,044

 

Comprehensive income (loss) attributable to
   Viasat, Inc.

 

$

(41,905

)

 

$

1,226

 

 

See accompanying notes to the condensed consolidated financial statements.

4


 

VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

(21,039

)

 

$

18,012

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation

 

 

102,353

 

 

 

94,149

 

Amortization of intangible assets

 

 

21,734

 

 

 

20,603

 

Stock-based compensation expense

 

 

21,232

 

 

 

22,218

 

Loss on disposition of fixed assets

 

 

11,150

 

 

 

8,713

 

Other non-cash adjustments

 

 

(7,569

)

 

 

(5,395

)

Increase (decrease) in cash resulting from changes in operating
   assets and liabilities, net of effect of acquisitions:

 

 

 

 

 

 

Accounts receivable

 

 

(27,102

)

 

 

(47,885

)

Inventories

 

 

(20,563

)

 

 

(10,483

)

Other assets

 

 

9,148

 

 

 

4,398

 

Accounts payable

 

 

16,912

 

 

 

26,625

 

Accrued liabilities

 

 

(50,195

)

 

 

(55,027

)

Other liabilities

 

 

(16,424

)

 

 

(10,799

)

Net cash provided by (used in) operating activities

 

 

39,637

 

 

 

65,129

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property, equipment and satellites

 

 

(246,854

)

 

 

(246,164

)

Cash paid for patents, licenses and other assets

 

 

(24,003

)

 

 

(14,743

)

Payments related to acquisition of businesses, net of cash acquired

 

 

 

 

 

(138,668

)

Net cash provided by (used in) investing activities

 

 

(270,857

)

 

 

(399,575

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from debt borrowings

 

 

150,000

 

 

 

320,000

 

Payments on debt borrowings

 

 

(12,693

)

 

 

(12,346

)

Payment of debt issuance costs

 

 

(1,511

)

 

 

 

Proceeds from issuance of common stock under equity plans

 

 

9,626

 

 

 

8,717

 

Purchase of common stock in treasury (immediately retired) related
   to tax withholdings for stock-based compensation

 

 

(505

)

 

 

(458

)

Other financing activities

 

 

(706

)

 

 

(691

)

Net cash provided by (used in) financing activities

 

 

144,211

 

 

 

315,222

 

Effect of exchange rate changes on cash

 

 

(1,930

)

 

 

(1,037

)

Net increase (decrease) in cash and cash equivalents

 

 

(88,939

)

 

 

(20,261

)

Cash and cash equivalents at beginning of period

 

 

310,459

 

 

 

295,949

 

Cash and cash equivalents at end of period

 

$

221,520

 

 

$

275,688

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Issuance of common stock in connection with acquisition

 

$

 

 

$

207,169

 

 

See accompanying notes to the condensed consolidated financial statements.

5


 

VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

 

 

 

Viasat, Inc. Stockholders

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of
Shares
Issued

 

 

Amount

 

 

Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Noncontrolling
Interest in
Subsidiary

 

 

Total

 

 

 

(In thousands, except share data)

 

For the Three Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2022

 

 

74,428,816

 

 

$

7

 

 

$

2,421,950

 

 

$

233,530

 

 

$

(21,621

)

 

$

48,728

 

 

$

2,682,594

 

Issuance of stock under Employee Stock Purchase
   Plan

 

 

369,712

 

 

 

 

 

 

9,626

 

 

 

 

 

 

 

 

 

 

 

 

9,626

 

Stock-based compensation

 

 

 

 

 

 

 

 

24,158

 

 

 

 

 

 

 

 

 

 

 

 

24,158

 

Shares issued in settlement of certain accrued
   employee compensation liabilities

 

 

719,989

 

 

 

1

 

 

 

27,618

 

 

 

 

 

 

 

 

 

 

 

 

27,619

 

RSU awards vesting, net of shares withheld for taxes
   which have been retired

 

 

33,306

 

 

 

 

 

 

(505

)

 

 

 

 

 

 

 

 

 

 

 

(505

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(21,564

)

 

 

 

 

 

525

 

 

 

(21,039

)

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,341

)

 

 

 

 

 

(20,341

)

Balance at June 30, 2022

 

 

75,551,823

 

 

$

8

 

 

$

2,482,847

 

 

$

211,966

 

 

$

(41,962

)

 

$

49,253

 

 

$

2,702,112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

 

68,529,133

 

 

$

7

 

 

$

2,092,595

 

 

$

249,064

 

 

$

9,803

 

 

$

35,765

 

 

$

2,387,234

 

Exercise of stock options

 

 

363

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

11

 

Issuance of stock under Employee Stock Purchase
   Plan

 

 

313,700

 

 

 

 

 

 

8,706

 

 

 

 

 

 

 

 

 

 

 

 

8,706

 

Stock-based compensation

 

 

 

 

 

 

 

 

27,512

 

 

 

 

 

 

 

 

 

 

 

 

27,512

 

Shares issued in settlement of certain accrued
   employee compensation liabilities

 

 

457,130

 

 

 

 

 

 

24,488

 

 

 

 

 

 

 

 

 

 

 

 

24,488

 

RSU awards vesting, net of shares withheld for taxes
   which have been retired

 

 

20,339

 

 

 

 

 

 

(458

)

 

 

 

 

 

 

 

 

 

 

 

(458

)

Shares issued in connection with acquisition of
   business

 

 

4,000,189

 

 

 

 

 

 

207,169

 

 

 

 

 

 

 

 

 

 

 

 

207,169

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

78

 

 

 

78

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

16,968

 

 

 

 

 

 

1,044

 

 

 

18,012

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,742

)

 

 

 

 

 

(15,742

)

Balance at June 30, 2021

 

 

73,320,854

 

 

$

7

 

 

$

2,360,023

 

 

$

266,032

 

 

$

(5,939

)

 

$

36,887

 

 

$

2,657,010

 

 

See accompanying notes to the condensed consolidated financial statements.

6


 

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 — Basis of Presentation

The accompanying condensed consolidated balance sheet at June 30, 2022, the condensed consolidated statements of operations and comprehensive income (loss) for the three months ended June 30, 2022 and 2021, the condensed consolidated statements of cash flows for the three months ended June 30, 2022 and 2021 and the condensed consolidated statements of equity for the three months ended June 30, 2022 and 2021 have been prepared by the management of Viasat, Inc. (also referred to hereafter as the Company or Viasat), and have not been audited. These financial statements have been prepared on the same basis as the audited consolidated financial statements for the fiscal year ended March 31, 2022 and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the Company’s results for the periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto for the fiscal year ended March 31, 2022 included in the Company’s Annual Report on Form 10-K. Interim operating results are not necessarily indicative of operating results for the full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP).

The Company’s condensed consolidated financial statements include the assets, liabilities and results of operations of Viasat, its wholly owned subsidiaries and its majority-owned subsidiary, TrellisWare Technologies, Inc. (TrellisWare). During the first quarter of fiscal year 2022, the Company completed the acquisitions of the remaining 51% interest in Euro Broadband Infrastructure Sàrl (EBI) and RigNet, Inc. (RigNet) (see Note 11 – Acquisitions for more information). The acquisitions were accounted for as purchases and accordingly, the condensed consolidated financial statements include the operating results of EBI and RigNet from the dates of acquisition.

All significant intercompany amounts have been eliminated. Investments in entities in which the Company can exercise significant influence, but does not own a majority equity interest or otherwise control, are accounted for using the equity method and are included as investment in unconsolidated affiliate in other assets (long-term) on the condensed consolidated balance sheets.

On November 8, 2021, the Company entered into a Share Purchase Agreement to combine with Connect Topco Limited, a private company limited by shares and incorporated in Guernsey (Inmarsat), with the shareholders of Inmarsat and certain management and employees who 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 Share Purchase Agreement, the Company 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) (see Note 11 – Acquisitions for more information).

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Estimates have been prepared on the basis of the most current and best available information and actual results could differ from those estimates. Significant estimates made by management include revenue recognition, stock-based compensation, allowance for doubtful accounts, valuation of goodwill and other intangible assets, patents, orbital slots and other licenses, software development, property, equipment and satellites, long-lived assets, contingencies and income taxes including the valuation allowance on deferred tax assets.

Revenue recognition

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

 

7


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Performance obligations

 

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

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

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

 

Performance obligations related to developing and delivering complex equipment built to customer specifications under long-term contracts are recognized over time as these performance obligations do not create assets with an alternative use to the Company and the Company has an enforceable right to payment for performance to date. To measure the transfer of control, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the cost-to-cost measure of progress for its contracts because that best depicts the transfer of control to the customer which occurs as the Company incurs costs on its contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance

8


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

obligation. Estimating the total costs at completion of a performance obligation requires management to make estimates related to items such as subcontractor performance, material costs and availability, labor costs and productivity and the costs of overhead. When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recognized in the period the loss is determined.

 

Contract costs on U.S. Government contracts are subject to audit and review by the Defense Contracting Management Agency (DCMA), the Defense Contract Audit Agency (DCAA), and other U.S. Government agencies, as well as negotiations with U.S. Government representatives. The Company’s incurred cost audit by the DCAA has not been concluded for fiscal year 2021. As of June 30, 2022, the DCAA had completed its incurred cost audit for fiscal years 2004, 2016, 2019 and 2020 and approved the Company’s incurred costs for those fiscal years, as well as approved the Company’s incurred costs for fiscal years 2005 through 2015, 2017 and 2018 without further audit based on the determination of low risk. Although the Company has recorded contract revenues subsequent to fiscal year 2020 based upon an estimate of costs that the Company believes will be approved upon final audit or review, the Company does not know the outcome of any ongoing or future audits or reviews and adjustments, and if future adjustments exceed the Company’s estimates, its profitability would be adversely affected. As of both June 30, 2022 and March 31, 2022, the Company had $12.1 million in contract-related reserves for its estimate of potential refunds to customers for potential cost adjustments on several multi-year U.S. Government cost reimbursable contracts (see Note 8 — Commitments and Contingencies for more information).

 

Evaluation of transaction price

 

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

 

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

 

Transaction price allocated to remaining performance obligations

 

The Company’s remaining performance obligations represent the transaction price of firm contracts and orders for which work has not been performed. The Company includes in its remaining performance obligations only those contracts and orders for which it has accepted purchase orders. Remaining performance obligations associated with the Company’s subscribers for fixed consumer and business broadband services in its satellite services segment exclude month-to-month service contracts in accordance with a practical expedient and are estimated using a portfolio approach in which the Company reviews all relevant promotional activities and calculates the remaining performance obligation using the

9


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

average service component for the portfolio and the average time remaining under the contract. The Company’s future recurring in-flight connectivity service contracts in its satellite services segment do not have minimum service purchase requirements and therefore are not included in the Company’s remaining performance obligations. As of June 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $2.1 billion, of which the Company expects to recognize a little over half over the next 12 months, with the balance recognized thereafter.

 

Disaggregation of revenue

 

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

 

The following sets forth disaggregated reported revenue by segment and product and services for the three months ended June 30, 2022 and 2021:

 

 

 

 

Three Months Ended June 30, 2022

 

 

 

Satellite
Services

 

 

Commercial
Networks

 

 

Government
Systems

 

 

Total
Revenues

 

 

 

(In thousands)

 

Product revenues

 

$

 

 

$

93,575

 

 

$

175,225

 

 

$

268,800

 

Service revenues

 

 

312,100

 

 

 

19,209

 

 

 

78,114

 

 

 

409,423

 

Total revenues

 

$

312,100

 

 

$

112,784

 

 

$

253,339

 

 

$

678,223

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2021

 

 

 

Satellite
Services

 

 

Commercial
Networks

 

 

Government
Systems

 

 

Total
Revenues

 

 

 

(In thousands)

 

Product revenues

 

$

 

 

$

101,531

 

 

$

191,733

 

 

$

293,264

 

Service revenues

 

 

274,117

 

 

 

17,065

 

 

 

80,414

 

 

 

371,596

 

Total revenues

 

$

274,117

 

 

$

118,596

 

 

$

272,147

 

 

$

664,860

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from the U.S. Government as an individual customer comprised approximately 24% and 28% of total revenues for the three months ended June 30, 2022 and 2021, respectively, mainly reported within the government systems segment. Revenues from the Company’s other customers, mainly reported within the commercial networks and satellite services segments, comprised approximately 76% and 72% of total revenues for the three months ended June 30, 2022 and 2021, respectively.

 

The Company’s satellite services segment revenues are primarily derived from the Company’s fixed broadband services, in-flight services and energy services (acquired through the RigNet acquisition).

 

Revenues in the Company’s commercial networks and government systems segments are primarily derived from three types of contracts: fixed-price, cost-reimbursement and time-and-materials contracts. Fixed-price contracts (which require the Company to provide products and services under a contract at a specified price) comprised approximately 86% and 89% of the Company’s total revenues for these segments for the three months ended June 30, 2022 and 2021, respectively. The remainder of the Company’s revenues in these segments for such periods was derived primarily from cost-reimbursement contracts (under which the Company is reimbursed for all actual costs incurred in performing the contract to the extent such costs are within the contract ceiling and allowable under the terms of the contract, plus a fee or profit) and from time-and-materials contracts (under which the Company is reimbursed for the number of labor hours expended at an established hourly rate negotiated in the contract, plus the cost of materials utilized in providing such products or services).

 

Historically, a significant portion of the Company’s revenues in its commercial networks and government systems segments has been derived from customer contracts that include the development of products. The development efforts are conducted in direct response to the customer’s specific requirements and, accordingly, expenditures related to such

10


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

efforts are included in cost of sales when incurred and the related funding (which includes a profit component) is included in revenues. Revenues for the Company’s funded development from its customer contracts were approximately 23% and 23% of its total revenues for the three months ended June 30, 2022 and 2021, respectively.

 

Contract balances

 

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

 

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

 

The following table presents contract assets and liabilities as of June 30, 2022 and March 31, 2022:

 

 

 

As of
 June 30, 2022

 

 

As of
 March 31, 2022

 

 

 

(In thousands)

 

Unbilled accounts receivable

 

$

95,799

 

 

$

103,045

 

Collections in excess of revenues and deferred revenues

 

 

154,828

 

 

 

148,906

 

Deferred revenues, long-term portion

 

 

85,216

 

 

 

90,151

 

 

Unbilled accounts receivable decreased $7.2 million during the three months ended June 30, 2022, primarily driven by an increase in billings in the Company’s satellite networks and government systems segments.

Collections in excess of revenues and deferred revenues increased $5.9 million during the three months ended June 30, 2022, primarily driven by advances on goods or services received in excess of revenue recognized mainly in the Company’s government systems segment.

During the three months ended June 30, 2022, the Company recognized revenue of $81.2 million that was previously included in the Company’s collections in excess of revenues and deferred revenues at March 31, 2022. During the three months ended June 30, 2021, the Company recognized revenue of $78.2 million that was previously included in the Company’s collections in excess of revenues and deferred revenues at March 31, 2021.

Property, equipment and satellites

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

11


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

the assets ranging from two to 38 years. Leasehold improvements are capitalized and amortized using the straight-line method over the shorter of the lease term or the life of the improvement.

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

Interest expense is capitalized on the carrying value of assets under construction, in accordance with the authoritative guidance for the capitalization of interest (ASC 835-20). With respect to the construction of satellites, gateway and networking equipment and other assets under construction, the Company capitalized $33.6 million and $23.6 million of interest expense for the three months ended June 30, 2022 and 2021, respectively.

The Company owns four satellites in service — three over North America (ViaSat-2, ViaSat-1 and WildBlue-1) and, the KA-SAT satellite over Europe, Middle East, and Africa (EMEA). In addition, the Company has lifetime leases of Ka-band capacity on two satellites. The Company is also planning to launch a global constellation of three third-generation ViaSat-3 class satellites under construction. In addition, the Company owns related earth stations and networking equipment for all of its satellites. The Company procures indoor and outdoor CPE units leased to subscribers under a retail leasing program as part of the Company’s satellite services segment, which are reflected in investing activities and property, equipment and satellites, net in the accompanying condensed consolidated financial statements. The Company depreciates the satellites, earth stations and networking equipment, CPE units and related installation costs over their estimated useful lives. The total cost and accumulated depreciation of CPE units included in property, equipment and satellites, net, as of June 30, 2022 were $385.4 million and $210.5 million, respectively. The total cost and accumulated depreciation of CPE units included in property, equipment and satellites, net, as of March 31, 2022 were $395.5 million and $210.6 million, respectively.

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

Leases

 

Lessee accounting

In accordance with the authoritative guidance for leases (ASC 842), the Company assesses at contract inception whether the contract is, or contains, a lease. Generally, the Company determines that a lease exists when (1) the contract involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all economic benefits from use of the asset, and (3) the Company has the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (5) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria.

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

12


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

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

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

The Company’s operating leases consist primarily of leases for office space, data centers and satellite ground facilities and have remaining terms from less than one year to 11 years, some of which include renewal options, and some of which include options to terminate the leases within one year. Certain earth station leases have renewal terms that have been deemed to be reasonably certain to be exercised and as such have been recognized as part of the Company’s right-of-use assets and lease liabilities. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company recognizes right-of-use assets and lease liabilities for such leases in accordance with the authoritative guidance for leases (ASC 842). The Company reports operating lease right-of-use assets in operating lease right-of-use assets and the current and non-current portions of its operating lease liabilities in accrued and other liabilities and non-current operating lease liabilities, respectively.

Lessor accounting

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

Business combinations

The authoritative guidance for business combinations (ASC 805) requires that all business combinations be accounted for using the purchase method. The purchase price for business combinations is allocated to the estimated fair values of acquired tangible and intangible assets, and assumed liabilities, where applicable. The Company recognizes 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.

Patents, orbital slots and other licenses

The Company capitalizes the costs of obtaining or acquiring patents, orbital slots and other licenses. Amortization of intangible assets that have finite lives is provided for by the straight-line method over the shorter of the legal or estimated economic life. Total capitalized costs of $3.5 million related to patents were included in other assets as of both June 30, 2022 and March 31, 2022. The Company capitalized costs of $67.7 million and $64.1 million related to acquiring and obtaining orbital slots and other licenses included in other assets as of June 30, 2022 and March 31, 2022, respectively. Accumulated amortization related to these assets was $5.7 million and $5.4 million as of June 30, 2022 and March 31, 2022, respectively. Amortization expense related to these assets was an insignificant amount for both the three months ended June 30, 2022 and 2021. If a patent, orbital slot or other license is rejected, abandoned or otherwise invalidated, the unamortized cost is expensed in that period. During the three months ended June 30, 2022 and 2021, the Company did not write off any significant costs due to abandonment or impairment.

Debt issuance costs

13


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Debt issuance costs are amortized and recognized as interest expense using the effective interest rate method, or, when the results are not materially different, on a straight-line basis over the expected term of the related debt. During both the three months ended June 30, 2022 and 2021, no debt issuance costs were capitalized. Unamortized debt issuance costs related to extinguished debt are expensed at the time the debt is extinguished and recorded in loss on extinguishment of debt in the condensed consolidated statements of operations and comprehensive income (loss). Debt issuance costs related to the Company’s revolving credit facility (the Revolving Credit Facility) are recorded in other long-term assets in the condensed consolidated balance sheets in accordance with the authoritative guidance for imputation of interest (ASC 835-30). Debt issuance costs related to the Company’s $700.0 million senior secured term loan facility (the Term Loan Facility), 5.625% Senior Notes due 2025 (the 2025 Notes), the Company’s 5.625% Senior Secured Notes due 2027 (the 2027 Notes), the Company’s 6.500% Senior Notes due 2028 (the 2028 Notes and, together with the 2025 Notes and the 2027 Notes, the Notes) and the Ex-Im Credit Facility are recorded as a direct deduction from the carrying amount of the related debt, consistent with debt discounts, in accordance with the authoritative guidance for imputation of interest (ASC 835-30).

Software development

Costs of developing software for sale are charged to independent research and development expense when incurred, until technological feasibility has been established. Software development costs incurred from the time technological feasibility is reached until the product is available for general release to customers are capitalized and reported at the lower of unamortized cost or net realizable value. Once the product is available for general release, the software development costs are amortized based on the ratio of current to future revenue for each product with an annual minimum equal to straight-line amortization over the remaining estimated economic life of the product, generally within five years. Capitalized costs, net, of $221.1 million and $221.6 million related to software developed for resale were included in other assets as of June 30, 2022 and March 31, 2022, respectively. The Company capitalized $9.0 million and $9.9 million of costs related to software developed for resale for the three months ended June 30, 2022 and 2021, respectively. Amortization expense for capitalized software development costs was $9.5 million and $14.5 million for the three months ended June 30, 2022 and 2021, respectively.

Self-insurance liabilities

The Company has self-insurance plans to retain a portion of the exposure for losses related to employee medical benefits and workers’ compensation. The self-insurance plans include policies which provide for both specific and aggregate stop-loss limits. The Company utilizes actuarial methods as well as other historical information for the purpose of estimating ultimate costs for a particular plan year. Based on these actuarial methods, along with currently available information and insurance industry statistics, the Company has recorded self-insurance liability for its plans of $7.1 million and $6.5 million as of June 30, 2022 and March 31, 2022, respectively. The Company’s estimate, which is subject to inherent variability, is based on average claims experience in the Company’s industry and its own experience in terms of frequency and severity of claims, including asserted and unasserted claims incurred but not reported, with no explicit provision for adverse fluctuation from year to year. This variability may lead to ultimate payments being either greater or less than the amounts presented above. Self-insurance liabilities have been classified as a current liability in accrued and other liabilities in accordance with the estimated timing of the projected payments.

Indemnification provisions

In the ordinary course of business, the Company includes indemnification provisions in certain of its contracts, generally relating to parties with which the Company has commercial relations. Pursuant to these agreements, the Company will indemnify, hold harmless and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, including but not limited to losses relating to third-party intellectual property claims. To date, there have not been any material costs incurred in connection with such indemnification clauses. The Company’s insurance policies do not necessarily cover the cost of defending indemnification claims or providing indemnification, so if a claim was filed against the Company by any party that the Company has agreed to indemnify, the Company could incur substantial legal costs and damages. A claim would be accrued when a loss is considered probable and the amount can be reasonably estimated. At June 30, 2022 and March 31, 2022, no such amounts were accrued related to the aforementioned provisions.

14


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Noncontrolling interests

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

Investments in unconsolidated affiliate — equity method

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

Common stock held in treasury

As of June 30, 2022 and March 31, 2022, the Company had no shares of common stock held in treasury.

During the three months ended June 30, 2022 and 2021, the Company issued 46,471 and 29,060 shares of common stock, respectively, based on the vesting terms of certain restricted stock unit agreements. In order for employees to satisfy minimum statutory employee tax withholding requirements related to the issuance of common stock underlying these restricted stock unit agreements, during the three months ended June 30, 2022 and 2021, the Company repurchased 13,165 and 8,721 shares of common stock, respectively, at cost and with a total value of an insignificant amount in both periods. Although shares withheld for employee withholding taxes are technically not issued, they are treated as common stock repurchases for accounting purposes (with such shares deemed to be repurchased and then immediately retired), as they reduce the number of shares that otherwise would have been issued upon vesting of the restricted stock units. These retired shares remain as authorized stock and are considered to be unissued. The retirement of treasury stock had no impact on the Company’s total consolidated stockholders’ equity.

15


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Stock-based compensation

In accordance with the authoritative guidance for share-based payments (ASC 718), the Company measures stock-based compensation cost at the grant date, based on the estimated fair value of the award. Expense for restricted stock units and stock options is recognized on a straight-line basis over the employee’s requisite service period. Expense for total shareholder return (TSR) performance stock options that vest is recognized regardless of the actual TSR outcome achieved and is recognized on a graded-vesting basis. The Company accounts for forfeitures as they occur. The Company recognized $21.2 million and $22.2 million of stock-based compensation expense for the three months ended June 30, 2022 and 2021, respectively. The Company recognizes excess tax benefits or deficiencies on vesting or settlement of awards as discrete items within income tax benefit or provision within net income (loss) and the related cash flows are classified within operating activities.

Income taxes

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

Ordinarily, the Company calculates its provision for income taxes at the end of each interim reporting period on the basis of an estimated annual effective tax rate adjusted for tax items that are discrete to each period. However, when a reliable estimate cannot be made, the Company computes its provision for income taxes using the actual effective tax rate (discrete method) for the year-to-date period. The Company’s effective tax rate is highly influenced by the amount of its research and development (R&D) tax credits. A small change in estimated annual pretax income (loss) can produce a significant variance in the annual effective tax rate given the Company’s expected amount of R&D tax credits. This variability provides an unreliable estimate of the annual effective tax rate. As a result, and in accordance with the authoritative guidance for accounting for income taxes in interim periods, the Company has computed its (provision for) benefit from income taxes for the three months ended June 30, 2022 and 2021 by applying the actual effective tax rate to the pretax income (loss) for the three-month periods.

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

Recent authoritative guidance

 

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (ASC 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 simplifies the accounting for convertible instruments by removing the beneficial conversion and cash conversion accounting models for convertible instruments and removes certain settlement conditions that are required for contracts to qualify for equity classification. This new standard also simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method for convertible instruments and requires that the effect of potential share settlement be included in diluted earnings per share calculations when an instrument may be settled in cash or shares. The new standard requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The Company adopted the new guidance in the first quarter of fiscal year 2023 and the guidance did not have a material impact on the Company’s consolidated financial statements and disclosures.

 

In October 2021, the FASB issued ASU 2021-08, Business Combinations (ASC 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with ASC 606 as if the acquirer had

16


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

originated the contracts. The new standard will become effective for the Company beginning in fiscal year 2024, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.

 

In November 2021, the FASB issued ASU 2021-10, Government Assistance (ASC 832): Disclosures by Business Entities about Government Assistance. ASU 2021-10 requires annual disclosures when an entity accounts for a transaction with a government by applying a grant or contribution accounting model by analogy to other accounting guidance. The new standard is effective for annual periods beginning after December 15, 2021. The Company will adopt this guidance effective fiscal year-end 2023. The Company is currently evaluating the impact of this standard on its annual disclosures.

 

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (ASC 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2022-01 made targeted improvements to the optional hedge accounting model with the objective of improving hedge accounting to better portray the economic results of an entity’s risk management activities in its financial statements. The new standard will become effective for the Company beginning in fiscal year 2024. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.

 

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (ASC 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing certain disclosure requirements for loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Furthermore, it requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments – Credit Losses – Measured at Amortized Cost. The new standard will become effective for the Company beginning in fiscal year 2024. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.

 

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (ASC 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered in measuring the security's fair value. The standard also requires certain disclosures for equity securities that are subject to contractual restrictions. The new standard will become effective for the Company beginning in fiscal year 2025. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.

17


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Note 2 — Composition of Certain Balance Sheet Captions

 

 

 

As of
 June 30, 2022

 

 

As of
 March 31, 2022

 

 

 

(In thousands)

 

Accounts receivable, net:

 

 

 

 

 

 

Billed

 

$

289,580

 

 

$

263,383

 

Unbilled

 

 

95,799

 

 

 

103,045

 

Allowance for doubtful accounts

 

 

(13,261

)

 

 

(7,159

)

 

 

$

372,118

 

 

$

359,269

 

Inventories:

 

 

 

 

 

 

Raw materials

 

$

106,047

 

 

$

92,650

 

Work in process

 

 

65,107

 

 

 

64,371

 

Finished goods

 

 

190,853

 

 

 

184,869

 

 

 

$

362,007

 

 

$

341,890

 

Prepaid expenses and other current assets:

 

 

 

 

 

 

Prepaid expenses

 

$

104,039

 

 

$

107,885

 

Other

 

 

68,653

 

 

 

39,969

 

 

 

$

172,692

 

 

$

147,854

 

Property, equipment and satellites, net:

 

 

 

 

 

 

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

 

$

1,796,855

 

 

$

1,750,855

 

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

 

 

385,428

 

 

 

395,539

 

Furniture and fixtures (estimated useful life of 7 years)

 

 

59,196

 

 

 

58,602

 

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

 

 

151,207

 

 

 

151,508

 

Buildings (estimated useful life of 12-38 years)

 

 

12,340

 

 

 

12,440

 

Land

 

 

3,854

 

 

 

3,944

 

Construction in progress

 

 

447,147

 

 

 

387,668

 

Satellites (estimated useful life of 7-17 years)

 

 

1,054,551

 

 

 

1,059,182

 

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

 

 

176,348

 

 

 

173,480

 

Satellites under construction

 

 

1,917,973

 

 

 

1,808,474

 

 

 

 

6,004,899

 

 

 

5,801,692

 

Less: accumulated depreciation and amortization

 

 

(2,140,400

)

 

 

(2,059,780

)

 

 

$

3,864,499

 

 

$

3,741,912

 

Other acquired intangible assets, net:

 

 

 

 

 

 

Technology (weighted average useful life of 7 years)

 

$

150,063

 

 

$

154,624

 

Contracts and customer relationships (weighted average useful life of 10 years)

 

 

161,888

 

 

 

164,635