UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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 (
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(
(Address of principal executive offices and telephone number)
Securities registered pursuant to Section 12(b) of the Act:
(Title of Each Class) |
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(Trading Symbol) |
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(Name of Each Exchange on which Registered) |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of January 26, 2024 was
VIASAT, INC.
TABLE OF CONTENTS
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
VIASAT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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As of |
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As of |
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(In thousands) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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— |
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Short-term investments |
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— |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, equipment and satellites, net |
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Operating lease right-of-use assets |
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Other acquired intangible assets, net |
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Goodwill |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued and other liabilities |
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Current portion of long-term debt |
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Total current liabilities |
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Senior notes |
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Other long-term debt |
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Non-current operating lease liabilities |
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Other liabilities |
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Total liabilities |
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(Note 10) |
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Equity: |
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Viasat, Inc. stockholders’ equity |
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Common stock |
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Paid-in capital |
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Retained earnings |
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Accumulated other comprehensive income (loss) |
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( |
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Total Viasat, Inc. stockholders’ equity |
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Noncontrolling interest in subsidiary |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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See accompanying notes to the condensed consolidated financial statements.
3
VIASAT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
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Three Months Ended |
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Nine Months Ended |
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December 31, 2023 |
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December 31, 2022 |
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December 31, 2023 |
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December 31, 2022 |
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(In thousands, except per share data) |
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Revenues: |
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Product revenues |
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$ |
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$ |
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$ |
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$ |
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Service revenues |
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Total revenues |
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Operating expenses: |
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Cost of product revenues |
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Cost of service revenues |
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Selling, general and administrative (including satellite impairment and related charges, net – see Note 1 – Basis of Presentation – Property, equipment and satellites) |
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Independent research and development |
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Amortization of acquired intangible assets |
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Income (loss) from operations |
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( |
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( |
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( |
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( |
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Other income (expense): |
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Interest income |
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Interest expense |
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( |
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( |
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( |
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( |
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Other income, net |
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— |
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— |
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— |
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Income (loss) from continuing operations before income taxes |
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( |
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( |
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( |
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( |
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(Provision for) benefit from income taxes from continuing operations |
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( |
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Equity in income (loss) of unconsolidated affiliate, net |
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( |
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( |
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Net income (loss) from continuing operations |
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( |
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( |
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( |
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( |
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Net income (loss) from discontinued operations, net of tax |
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— |
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— |
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Net income (loss) |
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( |
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( |
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( |
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Less: net income (loss) attributable to |
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Net income (loss) attributable to Viasat, Inc. |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Income (loss) per share attributable |
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Continuing operations |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Discontinued operations |
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— |
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— |
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Income (loss) |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Income (loss) per share attributable |
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Continuing operations |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Discontinued operations |
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— |
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— |
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Income (loss) |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Shares used in computing basic net |
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Shares used in computing diluted net |
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Comprehensive income (loss): |
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Net income (loss) |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments, net |
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( |
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Unrealized gain (loss) on hedging, net of tax |
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— |
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— |
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Other comprehensive income (loss), net of tax |
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( |
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Comprehensive income (loss) |
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( |
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( |
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( |
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( |
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Less: comprehensive income (loss) attributable |
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Comprehensive income (loss) attributable to |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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See accompanying notes to the condensed consolidated financial statements.
4
VIASAT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Nine Months Ended |
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December 31, 2023 |
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December 31, 2022 |
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Cash Flows from Continuing and Discontinued Operations |
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(In thousands) |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation |
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Amortization of intangible assets |
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Stock-based compensation expense |
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Satellite impairment and disposition of fixed assets losses, net |
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Deferred income taxes and other non-cash adjustments |
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( |
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Increase (decrease) in cash resulting from changes in operating |
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Accounts receivable |
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( |
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( |
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Inventories |
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( |
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( |
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Other assets |
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Accounts payable |
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Accrued liabilities |
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( |
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( |
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Other liabilities |
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( |
) |
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( |
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Net cash provided by (used in) operating activities |
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Cash flows from investing activities: |
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Purchase of property, equipment and satellites, and other assets |
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( |
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( |
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Payment related to acquisition of a business, net of cash acquired |
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( |
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— |
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Proceeds from sale of short-term investments |
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— |
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Payments to acquire short-term investments |
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( |
) |
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— |
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Net cash provided by (used in) investing activities |
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( |
) |
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( |
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Cash flows from financing activities: |
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Proceeds from debt borrowings |
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Payments on debt borrowings |
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( |
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( |
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Payments of debt issuance costs |
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( |
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( |
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Proceeds from issuance of common stock under equity plans |
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Purchase of common stock in treasury (immediately retired) related |
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( |
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( |
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Repurchase of shares by majority-owned subsidiary |
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— |
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( |
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Other financing activities |
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( |
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Net cash provided by (used in) financing activities |
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Effect of exchange rate changes on cash |
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( |
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Net increase (decrease) in cash and cash equivalents and restricted cash |
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( |
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Cash and cash equivalents and restricted cash at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Non-cash investing and financing activities: |
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Issuance of common stock in connection with acquisition |
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$ |
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$ |
— |
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Issuance of common stock in satisfaction of certain accrued compensation liabilities |
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$ |
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$ |
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Right-of-use assets obtained in exchange for operating lease liabilities |
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$ |
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$ |
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Capital expenditures not paid for during the period |
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$ |
— |
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$ |
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See accompanying notes to the condensed consolidated financial statements.
5
VIASAT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
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Viasat, Inc. Stockholders |
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Common Stock |
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Number of |
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Amount |
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Paid-in |
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Retained |
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Accumulated |
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Noncontrolling |
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Total |
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(In thousands, except share data) |
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For the Three Months Ended December 31, 2023 |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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RSU awards vesting, net of shares withheld for taxes |
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— |
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( |
) |
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— |
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— |
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— |
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( |
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Net income (loss) |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive income (loss), net of tax |
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— |
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— |
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— |
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— |
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— |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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For the Three Months Ended December 31, 2022 |
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Balance at September 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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RSU awards vesting, net of shares withheld for taxes |
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— |
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( |
) |
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— |
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— |
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— |
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( |
) |
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Net income (loss) |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive income (loss), net of tax |
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— |
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— |
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— |
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— |
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— |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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See accompanying notes to the condensed consolidated financial statements.
6
VIASAT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
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Viasat, Inc. Stockholders |
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Common Stock |
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Number of |
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Amount |
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Paid-in |
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Retained |
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Accumulated |
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Noncontrolling |
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Total |
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(In thousands, except share data) |
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For the Nine Months Ended December 31, 2023 |
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Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Exercise of stock options |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of stock under Employee Stock Purchase |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Shares issued in settlement of certain accrued |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
RSU awards vesting, net of shares withheld for taxes |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Shares issued in connection with acquisition of business, net of issuance costs |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Other noncontrolling interest activity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss), net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Balance at December 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
For the Nine Months Ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance at March 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Issuance of stock under Employee Stock Purchase |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Shares issued in settlement of certain accrued |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
RSU awards vesting, net of shares withheld for taxes |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Other noncontrolling interest activity |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss), net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at December 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
See accompanying notes to the condensed consolidated financial statements.
7
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 — Basis of Presentation
The accompanying condensed consolidated balance sheet at December 31, 2023, the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended December 31, 2023 and 2022, the condensed consolidated statements of cash flows for the nine months ended December 31, 2023 and 2022 and the condensed consolidated statements of equity for the three and nine months ended December 31, 2023 and 2022 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, 2023 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, 2023 included in the Company’s Annual Report on Form 10-K. Interim operating results are not necessarily indicative of operating results for the full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP).
The Company’s condensed consolidated financial statements include the assets, liabilities and results of operations of Viasat, its wholly owned subsidiaries and its majority-owned subsidiary, TrellisWare Technologies, Inc. (TrellisWare).
All significant intercompany amounts have been eliminated. Investments in entities in which the Company can exercise significant influence, but does not own a majority equity interest or otherwise control, are accounted for using the equity method and are included as investment in unconsolidated affiliate in other assets (long-term) on the condensed consolidated balance sheets.
On May 30, 2023, the Company purchased all of the issued and outstanding shares of Connect Topco Limited, a private company limited by shares and incorporated in Guernsey (Inmarsat Holdings and, together with its subsidiaries, Inmarsat) in exchange for approximately $
In connection with the closing of the Inmarsat Acquisition, the Company's certificate of incorporation was amended to increase the number of shares of common stock authorized for issuance from
On January 3, 2023, the Company completed the sale of certain assets and liabilities comprising the Company's Link-16 Tactical Data Links business (the Link-16 TDL Business), part of the Company's government systems segment, to L3Harris Technologies, Inc. (L3Harris) in exchange for approximately $
8
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
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, derivatives, 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 (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.
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 the authoritative guidance for leases (ASC 842). As discussed further below under “Leases - Lessor accounting”, for broadband equipment leased to 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.
9
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The Company’s contracts with the U.S. Government typically are subject to the Federal Acquisition Regulation (FAR) and are priced based on estimated or actual costs of producing goods or providing services. The FAR provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S. Government contracts. The pricing for non-U.S. Government contracts is based on the specific negotiations with each customer. Under the typical payment terms of the Company’s U.S. Government fixed-price contracts, the customer pays the Company either performance-based payments (PBPs) or progress payments. PBPs are interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments based on a percentage of the costs incurred as the work progresses. Because the customer can often retain a portion of the contract price until completion of the contract, the Company’s U.S. Government fixed-price contracts generally result in revenue recognized in excess of billings which the Company presents as unbilled accounts receivable on the balance sheet. Amounts billed and due from the Company’s customers are classified as receivables on the balance sheet. The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer. For the Company’s U.S. Government cost-type contracts, the customer generally pays the Company for its actual costs incurred within a short period of time. For non-U.S. Government contracts, the Company typically receives interim payments as work progresses, although for some contracts, the Company may be entitled to receive an advance payment. The Company recognizes a liability for these advance payments in excess of revenue recognized and presents it as collections in excess of revenues and deferred revenues on the balance sheet. An advance payment is not typically considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a contract and to protect the Company from the other party failing to adequately complete some or all of its obligations under the contract.
Performance obligations related to developing and delivering complex equipment built to customer specifications under long-term contracts are recognized over time as these performance obligations do not create assets with an alternative use to the Company and the Company has an enforceable right to payment for performance to date. To measure the transfer of control, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the cost-to-cost measure of progress for its contracts because that best depicts the transfer of control to the customer which occurs as the Company incurs costs on its contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Estimating the total costs at completion of a performance obligation requires management to make estimates related to items such as subcontractor performance, material costs and availability, labor costs and productivity and the costs of overhead. When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recognized in the period the loss is determined.
Contract costs on U.S. Government contracts are subject to audit and review by the Defense Contracting Management Agency (DCMA), the Defense Contract Audit Agency (DCAA), and other U.S. Government agencies, as well as negotiations with U.S. Government representatives. As of December 31, 2023, the DCAA had completed its incurred cost audit for fiscal years 2004, 2016, 2019, 2020 and 2021. The DCMA approved the Company’s incurred costs for those fiscal years, with the exception of 2021, which is pending. The DCMA also approved the Company’s incurred costs for fiscal years 2005 through 2015, 2017, 2018 and 2022 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. The Company had $
10
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
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.
If a contract is separated into more than one performance obligation, the total transaction price is allocated to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. Estimating standalone selling prices may require judgment. When available, the Company utilizes the observable price of a good or service when the Company sells that good or service separately in similar circumstances and to similar customers. If a standalone selling price is not directly observable, the Company estimates the standalone selling price by considering all information (including market conditions, specific factors, and information about the customer or class of customer) that is reasonably available.
Transaction price allocated to remaining performance obligations
The Company’s remaining performance obligations represent the transaction price of firm contracts and orders for which work has not been performed. The Company includes in its remaining performance obligations only those contracts and orders for which it has accepted purchase orders. Remaining performance obligations associated with the Company’s subscribers for fixed consumer and business broadband services in its satellite services segment exclude month-to-month service contracts in accordance with a practical expedient and are estimated using a portfolio approach in which the Company reviews all relevant promotional activities and calculates the remaining performance obligation using the average service component for the portfolio and the average time remaining under the contract. The Company’s future recurring in-flight connectivity service contracts in its satellite services segment do not have minimum service purchase requirements and therefore are not included in the Company’s remaining performance obligations. As of December 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $
Disaggregation of revenue
The Company operates and manages its business in
11
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The following sets forth disaggregated reported revenue by segment and product and services for the three and nine months ended December 31, 2023 and 2022:
|
|
Three Months Ended December 31, 2023 |
|
|||||||||||||
|
|
Satellite |
|
|
Commercial |
|
|
Government |
|
|
Total |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Product revenues |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Service revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Nine Months Ended December 31, 2023 |
|
|||||||||||||
|
|
Satellite |
|
|
Commercial |
|
|
Government |
|
|
Total |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Product revenues |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Service revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended December 31, 2022 |
|
|||||||||||||
|
|
Satellite |
|
|
Commercial |
|
|
Government |
|
|
Total |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Product revenues |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Service revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Nine Months Ended December 31, 2022 |
|
|||||||||||||
|
|
Satellite |
|
|
Commercial |
|
|
Government |
|
|
Total |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Product revenues |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Service revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenues from the U.S. Government as an individual customer comprised approximately
The Company’s satellite services segment revenues are primarily derived from the Company’s in-flight services, fixed broadband services, maritime services (including narrowband and safety of communication capabilities primarily acquired through the Inmarsat Acquisition), and energy services.
12
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Revenues in the Company’s commercial networks and government systems segments are primarily derived from three types of contracts: fixed-price, cost-reimbursement and time-and-materials contracts. Fixed-price contracts (which require the Company to provide products and services under a contract at a specified price) comprised approximately
Historically, a significant portion of the Company’s revenues in its commercial networks and government systems segments has been derived from customer contracts that include the development of products. The development efforts are conducted in direct response to the customer’s specific requirements and, accordingly, expenditures related to such efforts are included in cost of sales when incurred and the related funding (which includes a profit component) is included in revenues. Revenues for the Company’s funded development from its customer contracts were approximately
Contract balances
Contract balances consist of contract assets and contract liabilities. A contract asset, or with respect to the Company, an unbilled accounts receivable, is recorded when revenue is recognized in advance of the Company’s right to bill and receive consideration, typically resulting from sales under long-term contracts. Unbilled accounts receivable are generally expected to be billed and collected within one year. The unbilled accounts receivable will decrease as provided services or delivered products are billed. The Company receives payments from customers based on a billing schedule established in the Company’s contracts.
When consideration is received in advance of the delivery of goods or services, a contract liability, or with respect to the Company, collections in excess of revenues or deferred revenues, is recorded. Reductions in the collections in excess of revenues or deferred revenues will be recorded as the Company satisfies the performance obligations.
The following table presents contract assets and liabilities as of December 31, 2023 and March 31, 2023:
|
|
As of |
|
|
As of |
|
||
|
|
(In thousands) |
|
|||||
Unbilled accounts receivable |
|
$ |
|
|
$ |
|
||
Collections in excess of revenues and deferred revenues |
|
|
|
|
|
|
||
Deferred revenues, long-term portion |
|
|
|
|
|
|
||
Unbilled accounts receivable increased by $
Collections in excess of revenues and deferred revenues increased by $
Based on preliminary estimates, the Inmarsat Acquisition contributed approximately $
13
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
During the three and nine months ended December 31, 2023, the Company recognized revenue of $
Cash equivalents
Cash equivalents consist of highly liquid investments with original maturities of three months or less at the date of purchase, with a significant portion held in U.S. government-backed qualified money-market securities.
Restricted cash
Restricted cash relates to deposits required by certain counterparties as collateral pursuant to outstanding letters of credit. Restricted cash as of December 31, 2023 and March 31, 2023 was
In accordance with the authoritative guidance for the statement of cash flows (ASU 230),
|
|
As of |
|
|
As of |
|
||
|
|
(In thousands) |
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
— |
|
|
|
|
|
Total cash and cash equivalents and restricted cash |
|
$ |
|
|
$ |
|
||
Short-term investments
Short-term investments comprise deposits held with banks, money market funds, certificate of deposits and other short-term, highly liquid investments with an original maturity of between 91 and 120 days.
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 commercial service, the Company estimates the useful life of its satellites for depreciation purposes based upon an analysis of each satellite’s performance against the original manufacturer’s orbital design life, estimated fuel levels and related consumption rates, as well as historical satellite operating trends. The Company periodically reviews the remaining estimated useful life of its satellites to determine if revisions to estimated useful lives are necessary. Costs incurred for additions to property, equipment and satellites, together with major renewals and betterments, are capitalized and depreciated over the remaining life of the underlying asset. Costs incurred for maintenance, repairs and minor renewals and betterments are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is recognized in operations, which for the periods presented, primarily related to losses incurred for unreturned customer premise equipment (CPE). The Company computes depreciation using the straight-line method over the estimated useful lives of the assets ranging from to
14
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
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 to
The Company's complementary fleet of 21 satellites in space spans the Ka-, L- and S- bands. In addition to Viasat’s legacy satellite fleet, the closing of the Inmarsat Acquisition added: five additional high-bandwidth Ka-band satellites, eight high-availability L-band satellites (three of which are contingency satellites in orbit but not currently in service), an S-band satellite that supports the European Aviation Network (EAN) to provide in-flight connectivity services to commercial airlines in Europe, and an Inmarsat-6 (I-6) class hybrid Ka-/L-band satellite (the I-6 F1 satellite), with additional satellites under development. In addition to the Company's satellite fleet, the Company has purchased capacity on and has access to additional regional partner satellites. In addition, the Company owns related earth stations and networking equipment for all of its satellites. The Company procures CPE units leased to customers in order to connect to the Company's satellite network as part of the Company’s satellite services segment, which are reflected in investing activities and property, equipment and satellites, net in the accompanying condensed consolidated financial statements. The Company depreciates the satellites, earth stations and networking equipment, CPE units and related installation costs over their estimated useful lives. The total cost and accumulated depreciation of CPE units included in property, equipment and satellites, net, as of December 31, 2023 were $
The Company launched the first of its third-generation ViaSat-3 class satellites, ViaSat-3 F1, into orbit on April 30, 2023 and is planning to launch two additional third-generation ViaSat-3 class satellites currently under construction.
On August 24, 2023, the Company reported that the I-6 F2 satellite, which was launched on February 18, 2023, suffered a power subsystem anomaly during its orbit raising phase. The Company and Airbus, the satellite's manufacturer, performed a root cause analysis of the anomaly and concluded the satellite would not operate as intended. The Company determined that the full carrying value of the I-6 F2 satellite is not recoverable. The I-6 F2 anomaly does not impact ongoing customer services. The I-6 F1 satellite, which was launched in December 2021, is operational and continues to perform as expected.
As a result of the anomalies that occurred with respect to the ViaSat-3 F1 and I-6 F2 satellites, as well as the impact of integration efforts related to the Inmarsat Acquisition, the Company undertook extensive analysis of its existing integrated satellite fleet and ongoing satellites under construction projects, taking into account its anticipated future capacity needs, projected capital investment profile and access to third party satellites under existing bandwidth arrangements. Based on the impairment analysis performed during the second quarter of fiscal year 2024, as a result of the anomalies experienced in the two satellites and integration impact related to the Inmarsat Acquisition, the Company recorded a reduction to the carrying value of satellites under construction (including capitalized interest) of an insignificant amount during the three months ended December 31, 2023 and approximately $
15
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
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 to
Cloud computing arrangements
The Company enters into certain cloud-based software hosting arrangements that are accounted for as service contracts. Costs incurred for these arrangements are capitalized for application development activities, if material, and immediately expensed for preliminary project activities and postimplementation activities. The Company amortizes the capitalized development costs straight-line over the fixed, non-cancellable term of the associated hosting arrangement plus any reasonably certain renewal periods. The capitalized costs are included in other current assets within the prepaid expenses and other current assets caption, and other assets (long-term) on the Company's consolidated balance sheets.
Leases
Lessee accounting
In accordance with 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.
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.
16
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The Company’s operating leases consist primarily of leases for office space, data centers and satellite ground facilities and have remaining terms that typically range from less than
Lessor accounting
For broadband equipment leased to 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, orbital slots and spectrum assets, 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 related to patents of $
Debt issuance costs
Debt issuance costs are amortized and recognized as interest expense using the effective interest rate method, or, when the results are not materially different, on a straight-line basis over the expected term of the related debt. During the nine months ended December 31, 2023 and 2022, the Company capitalized $
17
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
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
Self-insurance and post-retirement medical benefit 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 $
As a part of the Inmarsat Acquisition, the Company assumed a post-retirement medical benefit plan for retired employees (and their dependents) who were employed by Inmarsat before January 1, 1998. The plan is self-funded and there are no plan assets from which the costs are paid. The cost of providing these benefits is actuarially determined and accrued over the service period of the active employee groups. The annual increase in Inmarsat's contribution to post-retirement medical liability is capped at the United Kingdom Consumer Price Index +1%.
Indemnification provisions
In the ordinary course of business, the Company includes indemnification provisions in certain of its contracts, generally relating to parties with which the Company has commercial relations. Pursuant to these agreements, the Company will indemnify, hold harmless and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, including but not limited to losses relating to third-party intellectual property claims. To date, there have not been any material costs incurred in connection with such indemnification clauses. The Company’s insurance policies do not necessarily cover the cost of defending indemnification claims or providing indemnification, so if a claim was filed against the Company by any party that the Company has agreed to indemnify, the Company could incur substantial legal costs and damages. A claim would be accrued when a loss is considered probable and the amount can be reasonably estimated. At December 31, 2023 and March 31, 2023,
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.
18
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
On August 15, 2022, TrellisWare, a majority-owned subsidiary of the Company, completed the repurchase of shares of its common stock from participating stockholders for a total purchase price of approximately $
The following table summarizes the effect of the change in the Company's percentage ownership interest in TrellisWare on the Company's equity for the three and nine months ended December 31, 2023 and 2022:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Net income (loss) attributable to Viasat, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Transfers to noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Change from net income (loss) attributable to Viasat, Inc. and transfers from (to) noncontrolling interest |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Investments in unconsolidated affiliate — equity method
Investments in entities in which the Company can exercise significant influence, but does not own a majority equity interest or otherwise control, are accounted for using the equity method and are included as investment in unconsolidated affiliate in other assets (long-term) on the condensed consolidated balance sheets. The Company records its share of the results of such entities within equity in income (loss) of unconsolidated affiliate, net on the condensed consolidated statements of operations and comprehensive income (loss). The Company monitors such investments for other-than-temporary impairment by considering factors including the current economic and market conditions and the operating performance of the entities and records reductions in carrying values when necessary. The fair value of privately held investments is estimated using the best available information as of the valuation date, including current earnings trends, undiscounted cash flows, quoted stock prices of comparable public companies, and other company specific information, including recent financing rounds.
Common stock held in treasury
As of December 31, 2023 and March 31, 2023, the Company had
During the three months ended December 31, 2023 and 2022, the Company issued
Derivatives
As a result of the Inmarsat Acquisition on May 30, 2023 (see Note 4 – Acquisition for more information), the Company assumed interest rate cap contracts to hedge the variable interest rate under the Inmarsat Term Loan Facility (see Note 8 – Senior Notes and Other Long-Term Debt for more information
19
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The Company does not use this instrument, or these types of instruments in general, for speculative or trading purposes. The Company’s objective is to reduce the risk to earnings and cash flows associated with changes in debt with variable interest rates. Derivative instruments are recognized as either assets or liabilities in the condensed consolidated balance sheets and are measured at fair value. The value of a hedging derivative is classified as a non-current asset or liability if the cash flows are due to be received in greater than 12 months, and as a current asset or liability if the cash flows are due to be received in less than 12 months.
Gains and losses arising from derivative instruments not designated as hedging instruments are recorded in other income (expense) as gains (losses) on derivative instruments. Gains and losses arising from changes in the fair value of derivative instruments which are designated as cash-flow hedging instruments are recorded in accumulated other comprehensive income (loss) as unrealized gains (losses) on derivative instruments until the underlying transaction affects the Company’s earnings, at which time they are then recorded in the same income statement line as the underlying transaction. The Company may designate a hedging derivative with periodic cash settlements and a non-zero fair value at hedge inception as the hedging instrument in a qualifying cash flow hedging relationship. The non-zero fair value of cash flow hedges on the designation date is recognized into income under a systematic and rational method over the life of the hedging instrument and in the same line item on the condensed consolidated statements of operations as the earnings of the hedge item, with the offset recorded to other comprehensive income (loss).
During the three and nine months ended December 31, 2023, the Company recognized a loss of $
At December 31, 2023 the estimated net amount of unrealized gains or losses related to the interest rate cap contracts that was expected to be reclassified to earnings net of the recognition into income of non-zero hedge inception fair value within the next 12 months was $
20
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 market-based performance stock options that vest is recognized regardless of the actual outcome achieved and is recognized on a graded-vesting basis. The Company accounts for forfeitures as they occur. The Company recognized $
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.
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
21
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Company beginning in fiscal year 2025. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
22
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Note 2 — Composition of Certain Balance Sheet Captions
|
|
As of |
|
|
As of |
|
||
|
|
(In thousands) |
|
|||||
Accounts receivable, net: |
|
|
|
|
|
|
||
Billed |
|
$ |
|
|
$ |
|
||
Unbilled |
|
|
|
|
|
|
||
Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Inventories: |
|
|
|
|
|
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Prepaid expenses and other current assets: |
|
|
|
|
|
|
||
Insurance receivable |
|
$ |
|
|
$ |
— |
|
|
Prepaid expenses |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Property, equipment and satellites, net: |
|
|
|
|
|
|
||
Equipment and software (estimated useful life of |
|
$ |
|
|
$ |
|
||
CPE leased equipment (estimated useful life of |
|
|
|
|
|
|
||
Furniture and fixtures (estimated useful life of |
|
|
|
|
|
|
||
Leasehold improvements (estimated useful life of |
|
|
|
|
|
|
||
Buildings (estimated useful life of |
|
|
|
|
|
|
||
Land |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Satellites (estimated useful life of |
|
|
|
|
|
|
||
Satellite Ka-band capacity obtained under finance leases (estimated useful life of |
|
|
|
|
|
|
||
Satellites under construction |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Other acquired intangible assets, net: |
|
|
|
|
|
|
||
Contracts and customer relationships (weighted average useful life of |
|
$ |
|
|
$ |
|
||
Orbital slots and spectrum assets (weighted average useful life of |
|
|
|
|
|
|
||
Technology (weighted average useful life of |
|
|
|
|
|
|
||
Trade name (weighted average useful life of |
|
|
|
|
|
|
||
Other (weighted average useful life of |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Other assets: |
|
|
|
|
|
|
||
Deferred income taxes |
|
$ |
|
|
$ |
|
||
Capitalized software costs, net |
|
|
|
|
|
|
||
Patents, orbital slots and other licenses, net |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Accrued and other liabilities: |
|
|
|
|
|
|
||
Collections in excess of revenues and deferred revenues |
|
$ |
|
|
$ |
|
||
Accrued employee compensation |
|
|
|
|
|
|
||
Accrued vacation |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Income taxes payable |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Other liabilities: |
|
|
|
|
|
|
||
Deferred revenues, long-term portion |
|
$ |
|
|
$ |
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
23
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Note 3 — Fair Value Measurements
In accordance with the authoritative guidance for financial assets and liabilities measured at fair value on a recurring basis (ASC 820), the Company determines fair value based on the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants, and prioritizes the inputs used to measure fair value from market-based assumptions to entity specific assumptions:
• Level 1 — Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.
• Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
• Level 3 — Inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.
The following tables present the Company's hierarchy for its assets measured at fair value on a recurring basis as of December 31, 2023 and March 31, 2023. The Company had
|
|
Fair Value as of |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Short-term investments |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Interest rate cap contracts |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total assets measured at fair value on a recurring |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Fair Value as of |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Total assets measured at fair value on a recurring |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
The following section describes the valuation methodologies the Company uses to measure financial instruments at fair value:
Cash equivalents — The Company’s cash equivalents consist of money market funds, with a significant portion held in U.S. government backed qualified money market securities.
Short-term investments — The Company’s short-term investments consist of deposits held with banks, money market funds, certificate of deposits and other short-term, highly liquid investments with an original maturity of between 91 and 120 days.
Interest rate cap contracts — The Company assumed interest rate cap contracts to hedge the variable interest rate under the Inmarsat Term Loan Facility (see Note 1 – Basis of Presentation – Derivatives for more information). The Company’s interest rate cap contracts are valued using the forward interest rate curve at each reporting date (Level 2).
24
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Contingencies — In connection with the acquisition of the remaining
Long-term debt — The Company’s long-term debt consists of borrowings under the Viasat Credit Facilities and Inmarsat's $2.45 billion senior secured credit facility (the Inmarsat Secured Credit Facility), $700.0 million in aggregate principal amount of 2025 Notes, $600.0 million in aggregate principal amount of 2027 Notes, $400.0 million in aggregate principal amount of 2028 Notes, $733.4 million in aggregate principal amount of 2031 Notes, $2.08 billion in aggregate principal amount of Inmarsat 2026 Notes (together with the 2025 Notes, the 2027 Notes, the 2028 Notes and the 2031 Notes, the Notes) and finance lease obligations reported at the present value of future minimum lease payments with current accrued interest. Long-term debt related to Viasat's $647.5 million revolving credit facility (the Viasat Revolving Credit Facility) and Inmarsat's $700.0 million revolving line of credit under the Inmarsat Secured Credit Facility (the Inmarsat Revolving Credit Facility) is reported at the outstanding principal amount of borrowings, while long-term debt related to the Viasat Credit Facilities, the Inmarsat Term Loan Facility and the Notes is reported at amortized cost. However, for disclosure purposes, the Company is required to measure the fair value of outstanding debt on a recurring basis. The fair value of the Company’s long-term debt related to the Viasat Term Loan Facilities, the Viasat Revolving Credit Facility and the Inmarsat Secured Credit Facility approximates its carrying amount due to its variable interest rate, which approximates a market interest rate. As of December 31, 2023 and March 31, 2023, the fair value of the Company’s long-term debt related to the Ex-Im Credit Facility was Level 2 and was approximately $
Satellite performance incentive obligations — The Company’s contracts with satellite manufacturers require the Company to make monthly in-orbit satellite performance incentive payments with respect to certain satellites in commercial service, including interest, through fiscal year
Note 4 — Acquisition
On May 30, 2023, the Company completed the acquisition of all outstanding shares of Inmarsat Holdings, a privately held leading provider of global mobile satellite communications services. The Inmarsat Acquisition positions the Company as a leading global communications innovator with enhanced scale and scope to connect the world affordably, securely and reliably. The complementary assets and resources of the combined company position the Company to provide advanced new services in mobile and fixed segments, driving greater customer choice in broadband communications and narrowband services (including the Internet of Things (IoT)). These benefits and additional opportunities were among the factors that contributed to a purchase price resulting in the recognition of preliminary estimated goodwill of $
25
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The consideration transferred of approximately $
The purchase price allocation is preliminary primarily due to the pending finalization of the Company’s valuation analysis and review of various tax attributes. The Company allocated the purchase price to tangible and intangible assets acquired and liabilities assumed based on the preliminary estimates of their fair values, which is subject to adjustment for up to one year after the closing of the Inmarsat Acquisition as additional information is obtained.
|
|
(In thousands) |
|
|
Current assets |
|
$ |
|
|
Property, equipment and satellites |
|
|
|
|
Identifiable intangible assets |
|
|
|
|
Other assets |
|
|
|
|
Total assets acquired |
|
$ |
|
|
Current liabilities |
|
|
( |
) |
Long-term debt, excluding short-term portion |
|
|
( |
) |
Other long-term liabilities |
|
|
( |
) |
Total liabilities assumed |
|
$ |
( |
) |
Goodwill |
|
|
|
|
Total consideration transferred |
|
$ |
|
|
|
|
|
|
|
Weighted |
|
||
|
|
Estimated Fair Value |
|
|
Average Estimated Useful Life |
|
||
|
|
(In thousands) |
|
|
(In years) |
|
||
Orbital slots and spectrum assets |
|
$ |
|
|
|
|
||
Customer relationships |
|
|
|
|
|
|
||
Technology |
|
|
|
|
|
|
||
Trade name |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total identifiable intangible assets |
|
$ |
|
|
|
|
||
The intangible assets acquired in the Inmarsat Acquisition were determined in accordance with the authoritative guidance for business combinations (ASC 805), based on estimated fair values using valuation techniques consistent with the market approach, income approach and/or cost approach to measure fair value.
The condensed consolidated financial statements include the operating results of Inmarsat from the date of acquisition. Since the acquisition date on May 30, 2023, the Company recorded approximately $
26
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
In November 2023, as a part of an important milestone in the Company’s integration program following the Inmarsat Acquisition and as part of the Company’s ongoing strategy to streamline operations and better serve the Company’s growing customer base, the Company completed work on the rationalization of roles in the Company’s global business, which is intended to achieve both operational and cost efficiencies. As part of the role rationalization, the Company reduced its global workforce and recorded total costs (primarily related to employee severance payments, benefits and related termination costs) of approximately $
Unaudited Pro Forma Financial Information
The unaudited financial information in the table below summarizes the combined results of operations for the Company and Inmarsat on a pro forma basis, as though the companies had been combined as of the beginning of fiscal year 2023, April 1, 2022. The pro forma information is presented for informational purposes only and may not be indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the related fiscal periods.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||
|
|
December 31, 2022 |
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
|||
|
|
(In thousands) |
|
|||||||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net income (loss) attributable |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Note 5 — Discontinued Operations
On October 1, 2022, the Company entered into an Asset Purchase Agreement to sell the Link-16 TDL Business in its government systems segment to L3Harris in exchange for approximately $
In connection with the closing of the Link-16 TDL Sale on January 3, 2023, the Company and L3Harris entered into certain ancillary commercial agreements, including certain license agreements for the cross-licensing by each party of certain intellectual property rights relating to the Link-16 TDL Business and the Company’s retained businesses, a supply agreement with respect to the supply of certain Link-16 and related products following the closing, and certain services agreements for the provision of engineering and support services for the transition of the Link-16 TDL Business following the closing, in each case subject to the terms and conditions set forth therein. The impact of these agreements on the Company's condensed consolidated financial statements was not significant.
The operating results of the discontinued operations only reflect revenues and expenses that are directly attributable to the Link-16 TDL Business that have been eliminated from continuing operations. The following table presents key components of “Net income (loss) from discontinued operations, net of tax” for the three and nine months ended December 31, 2022:
27
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
|
December 31, 2022 |
|
|
December 31, 2022 |
|
||
|
|
(In thousands) |
|
|||||
Revenues |
|
$ |
|
|
$ |
|
||
Operating expenses: |
|
|
|
|
|
|
||
Cost of revenues |
|
|
|
|
|
|
||
Other operating expenses |
|
|
|
|
|
|
||
Net income (loss) from discontinued operations before income taxes |
|
$ |
|
|
$ |
|
||
(Provision for) benefit from income taxes |
|
|
( |
) |
|
|
( |
) |
Net income (loss) from discontinued operations, net of tax |
|
$ |
|
|
$ |
|
||
The cash flows related to discontinued operations have not been segregated and are included in the condensed consolidated statements of cash flows. The following table presents key cash flow and non-cash information related to discontinued operations for the nine months ended December 31, 2022:
|
|
Nine Months Ended |
|
|
|
|
December 31, 2022 |
|
|
|
|
(In thousands) |
|
|
Depreciation |
|
$ |
|
|
Amortization of intangible assets |
|
|
|
|
Capital expenditures |
|
|
|
|
Note 6 — Shares Used In Computing Diluted Net Income (Loss) Per Share
The weighted average number of shares used to calculate basic and diluted net loss per share attributable to Viasat, Inc. common stockholders is the same for the three and nine months ended December 31, 2023 and for the three and nine months ended December 31, 2022, as the Company incurred a net loss from continuing operations (excluding income (loss) from continuing operations attributable to the noncontrolling interest) for such periods and inclusion of potentially dilutive weighted average shares of common stock would be antidilutive.
Potentially dilutive weighted average shares excluded from the calculation for the three months ended December 31, 2023 and 2022 consisted of
Potentially dilutive weighted average shares excluded from the calculation for the nine months ended December 31, 2023 and 2022 consisted of
Note 7 — Goodwill and Acquired Intangible Assets
During the nine months ended December 31, 2023, the increase in the Company’s goodwill primarily related to the Inmarsat Acquisition (see Note 4 — Acquisition for more information) and foreign currency translation effect recorded within all three of the Company's segments. During the nine months ended December 31, 2022, the decrease in the Company’s goodwill relating to its continuing operations primarily related to a foreign currency translation effect recorded within all three of the Company’s segments.
28
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The expected amortization expense of amortizable acquired intangible assets may change due to the effects of foreign currency fluctuations as a result of international businesses acquired.
|
|
Amortization |
|
|
|
|
(In thousands) |
|
|
For the nine months ended December 31, 2023 |
|
$ |
|
|
|
|
|
|
|
Expected for the remainder of fiscal year 2024 |
|
$ |
|
|
Expected for fiscal year 2025 |
|
|
|
|
Expected for fiscal year 2026 |
|
|
|
|
Expected for fiscal year 2027 |
|
|
|
|
Expected for fiscal year 2028 |
|
|
|
|
Expected for fiscal year 2029 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
|
Note 8 — Senior Notes and Other Long-Term Debt
Total long-term debt consisted of the following as of December 31, 2023 and March 31, 2023:
|
|
As of |
|
|
As of |
|
||
|
|
(In thousands) |
|
|||||
2031 Notes |
|
$ |
|
|
$ |
— |
|
|
2028 Notes |
|
|
|
|
|
|
||
2027 Notes |
|
|
|
|
|
|
||
2025 Notes |
|
|
|
|
|
|
||
2022 Term Loan Facility |
|
|
|
|
|
|
||
2023 Term Loan Facility |
|
|
|
|
|
— |
|
|
Viasat Revolving Credit Facility |
|
|
— |
|
|
|
— |
|
Ex-Im Credit Facility |
|
|
|
|
|
|
||
Inmarsat 2026 Notes |
|
|
|
|
|
— |
|
|
Inmarsat Term Loan Facility |
|
|
|
|
|
— |
|
|
Inmarsat Revolving Credit Facility |
|
|
— |
|
|
|
— |
|
(see Note 1) |
|
|
|
|
|
|
||
Total debt |
|
|
|
|
|
|
||
Unamortized discount and debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Less: current portion of long-term debt |
|
|
|
|
|
|
||
Total long-term debt |
|
$ |
|
|
$ |
|
||
2022 Term Loan Facility
In March 2022, the Company entered into a $
Borrowings under the 2022 Term Loan Facility are required to be repaid in quarterly installments of $
29
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Borrowings under the 2022 Term Loan Facility are recorded as current portion of long-term debt and as other long-term debt, net of unamortized discount and debt issuance costs, in the Company’s condensed consolidated financial statements. The 2022 Term Loan Facility was issued with an original issue discount of
2023 Term Loan Facility
In connection with the closing of the Inmarsat Acquisition, on May 30, 2023, the Company entered into a $
Borrowings under the 2023 Term Loan Facility are recorded as current portion of long-term debt and as other long-term debt, net of unamortized discount and debt issuance costs, in the Company’s condensed consolidated financial statements. The 2023 Term Loan Facility was issued with an original issue discount of
Bridge Facility
Viasat Revolving Credit Facility
As of December 31, 2023, the Viasat Revolving Credit Facility provided a $
30
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Ex-Im Credit Facility
The Ex-Im Credit Facility originally provided a $
Borrowings under the Ex-Im Credit Facility bear interest at a fixed rate of
Borrowings under the Ex-Im Credit Facility are recorded as current portion of long-term debt and as other long-term debt, net of unamortized discount and debt issuance costs, in the Company’s condensed consolidated financial statements. The discount of $
In September 2023, the Company amended the Ex-Im Credit Facility to provide additional covenant flexibility.
Inmarsat Secured Credit Facility
31
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Borrowings under the Inmarsat Term Loan Facility are recorded as current portion of long-term debt and as other long-term debt, net of unamortized fair value adjustment made in purchase accounting, in the Company’s condensed consolidated financial statements.
Senior Notes
Senior Notes due 2031
On September 28, 2023, the Company issued $
The 2031 Notes are required to be guaranteed on an unsecured senior basis by each of the Company’s existing and future subsidiaries that guarantees the Viasat Revolving Credit Facility. As of December 31, 2023, none of the Company’s subsidiaries guaranteed the 2031 Notes. The 2031 Notes are the Company’s general senior unsecured obligations and rank equally in right of payment with all of the Company’s existing and future unsecured unsubordinated debt. The 2031 Notes are effectively junior in right of payment to the Company’s existing and future secured debt, including under the Credit Facilities and the 2027 Notes (to the extent of the value of the assets securing such debt), are structurally subordinated to all existing and future liabilities (including trade payables) of the Company’s subsidiaries that do not guarantee the 2031 Notes, and are senior in right of payment to all of the Company’s existing and future subordinated indebtedness.
The indenture governing the 2031 Notes limits, among other things, the Company’s and its restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce the Company’s satellite insurance; and consolidate or merge with, or sell substantially all of their assets to, another person.
32
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Senior Notes due 2028
In June 2020, the Company issued $
The 2028 Notes are required to be guaranteed on an unsecured senior basis by each of the Company’s existing and future subsidiaries that guarantees the Viasat Revolving Credit Facility. As of December 31, 2023, none of the Company’s subsidiaries guaranteed the 2028 Notes. The 2028 Notes are the Company’s general senior unsecured obligations and rank equally in right of payment with all of the Company’s existing and future unsecured unsubordinated debt. The 2028 Notes are effectively junior in right of payment to the Company’s existing and future secured debt, including under the Credit Facilities and the 2027 Notes (to the extent of the value of the assets securing such debt), are structurally subordinated to all existing and future liabilities (including trade payables) of the Company’s subsidiaries that do not guarantee the 2028 Notes, and are senior in right of payment to all of the Company’s existing and future subordinated indebtedness.
The indenture governing the 2028 Notes limits, among other things, the Company’s and its restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce the Company’s satellite insurance; and consolidate or merge with, or sell substantially all of their assets to, another person.
The 2028 Notes may be redeemed,
Senior Secured Notes due 2027
In March 2019, the Company issued $
33
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The 2027 Notes are required to be guaranteed on a senior secured basis by each of the Company’s existing and future subsidiaries that guarantees the Viasat Revolving Credit Facility. As of December 31, 2023, none of the Company’s subsidiaries guaranteed the 2027 Notes. The 2027 Notes are secured, equally and ratably with the 2022 Term Loan Facility, the 2023 Term Loan Facility, the Viasat Revolving Credit Facility and any future parity lien debt, by liens on substantially all of the Company’s and such subsidiaries' assets.
The 2027 Notes are the Company’s general senior secured obligations and rank equally in right of payment with all of its existing and future unsubordinated debt. The 2027 Notes are effectively senior to all of the Company’s existing and future unsecured debt (including the 2025 Notes, the 2028 Notes and the 2031 Notes) as well as to all of any permitted junior lien debt that may be incurred in the future, in each case to the extent of the value of the assets securing the 2027 Notes. The 2027 Notes are effectively subordinated to any obligations that are secured by liens on assets that do not constitute a part of the collateral securing the 2027 Notes (such as the Inmarsat 2026 Notes), are structurally subordinated to all existing and future liabilities (including trade payables) of the Company’s subsidiaries that do not guarantee the 2027 Notes, and are senior in right of payment to all of the Company’s existing and future subordinated indebtedness.
The indenture governing the 2027 Notes limits, among other things, the Company’s and its restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce the Company’s satellite insurance; and consolidate or merge with, or sell substantially all of their assets to, another person.
The 2027 Notes may be redeemed,
Senior Notes due 2025
In September 2017, the Company issued $
The 2025 Notes are required to be guaranteed on an unsecured senior basis by each of the Company’s existing and future subsidiaries that guarantees the Viasat Revolving Credit Facility. As of December 31, 2023, none of the Company’s subsidiaries guaranteed the 2025 Notes. The 2025 Notes are the Company’s general senior unsecured obligations and rank equally in right of payment with all of the Company’s existing and future unsecured unsubordinated debt. The 2025 Notes are effectively junior in right of payment to the Company’s existing and future secured debt, including under the Credit Facilities and the 2027 Notes (to the extent of the value of the assets securing such debt), are structurally subordinated to all existing and future liabilities (including trade payables) of the Company’s subsidiaries that do not guarantee the 2025 Notes, and are senior in right of payment to all of the Company’s existing and future subordinated indebtedness.
The indenture governing the 2025 Notes limits, among other things, the Company’s and its restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce the Company’s satellite insurance; and consolidate or merge with, or sell substantially all of their assets to, another person.
34
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The 2025 Notes may be redeemed,
Inmarsat Senior Secured Notes due 2026
In October 2019, certain subsidiaries of Inmarsat Holdings issued $
The Inmarsat 2026 Notes are secured by pari passu first priority liens on the collateral securing the Inmarsat Secured Credit Facility, and are required to be guaranteed on a senior secured basis by restricted subsidiaries of Inmarsat Holdings that guarantee or are borrowers under Inmarsat’s senior secured indebtedness, subject to exceptions. The Inmarsat 2026 Notes are required to be guaranteed by the subsidiaries guaranteeing the Inmarsat Secured Credit Facility.
The indenture governing the Inmarsat 2026 Notes limits, among other things, the ability of the issuers and their restricted subsidiaries to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; and consolidate or merge with, or sell substantially all of their assets to, another person.
The Inmarsat 2026 Notes may be redeemed,
The Inmarsat 2026 Notes are recorded as other long-term debt, net of unamortized fair value adjustment made in purchase accounting, in the Company’s condensed consolidated financial statements.
Note 9 — Related-Party Transactions
In the normal course of business, the Company engages in transactions with its equity method investments (Navarino UK and JSAT Mobile), which are considered related-party transactions. The Company recognized revenue from Navarino UK and JSAT Mobile for the three and nine months ended December 31, 2023 of $
Note 10 — Commitments and Contingencies
From time to time, the Company enters into satellite construction agreements as well as various other satellite-related purchase commitments, including with respect to the provision of launch services, operation of its satellites and satellite insurance. See Note 13 – Commitments to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023 for information regarding the Company’s future minimum payments under its satellite construction contracts and other satellite-related purchase commitments.
35
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Periodically, the Company is involved in a variety of claims, suits, investigations and proceedings arising in the ordinary course of business, including government investigations and claims, and other claims and proceedings with respect to intellectual property, breach of contract, labor and employment, tax and other matters. Such matters could result in fines; penalties, compensatory, treble or other damages; or non-monetary relief. A violation of government contract laws and regulations could also result in the termination of its government contracts or debarment from bidding on future government contracts. Although claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, the Company believes that the resolution of its current pending matters will not have a material adverse effect on its business, financial condition, results of operations or liquidity.
The Company has contracts with various U.S. Government agencies. Accordingly, the Company is routinely subject to audit and review by the DCMA, the DCAA and other U.S. Government agencies of its performance on government contracts, indirect rates and pricing practices, accounting and management internal control business systems, and compliance with applicable contracting and procurement laws, regulations and standards. An adverse outcome to a review or audit or other failure to comply with applicable contracting and procurement laws, regulations and standards could result in material civil and criminal penalties and administrative sanctions being imposed on the Company, which may include termination of contracts, forfeiture of profits, triggering of price reduction clauses, suspension of payments, significant customer refunds, fines and suspension, or a prohibition on doing business with U.S. Government agencies. In addition, if the Company fails to obtain an “adequate” determination of its various accounting and management internal control business systems from applicable U.S. Government agencies or if allegations of impropriety are made against it, the Company could suffer serious harm to its business or its reputation, including its ability to bid on new contracts or receive contract renewals and its competitive position in the bidding process. As of December 31, 2023, the DCAA had completed its incurred cost audit for fiscal years 2004, 2016, 2019, 2020 and 2021. The DCMA approved the Company’s incurred costs for those fiscal years with the exception of 2021, which is pending. The DCMA also approved the Company’s incurred costs for fiscal years 2005 through 2015, 2017, 2018 and 2022 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. The Company had $
On July 8, 2022, Cisco Systems, Inc. (Cisco), which previously acquired Acacia Communications, Inc. (Acacia), paid the Company $
Note 11 — Income Taxes
For the three and nine months ended December 31, 2023, the Company recorded an income tax benefit of $
36
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
For the three and nine months ended December 31, 2022, the Company recorded an income tax provision of $
During the second quarter of fiscal year 2024, in evaluating the Company’s ability to realize its U.S. net deferred tax assets, the Company considered all available positive and negative evidence, including but not limited to operating results, forecasted ranges of future taxable income, and its recent satellite anomalies. ASC 740 places more weight on the objectively verifiable evidence of current pre-tax losses and recent events than forecasts of future profitability. Therefore, the Company determined it is more likely than not that its U.S. net deferred tax assets will not be realized. As a result, the Company’s tax benefit for the nine months ended December 31, 2023 was reduced by a valuation allowance recorded against its U.S. losses for the periods.
During the second quarter of fiscal year 2023, the Company determined it is more likely than not that a majority of its California R&D tax credits will not be realized due to reduced taxable income apportioned to California in connection with the Link-16 TDL Sale. As a result, during the second quarter of fiscal year 2023, the Company recorded a valuation allowance of $
The Company's total valuation allowance increased from $
For the three and nine months ended December 31, 2023, the Company’s gross unrecognized tax benefits decreased by $
Note 12 — Segment Information
The Company’s reportable segments (satellite services, commercial networks and government systems) are primarily distinguished by the type of customer and the related contractual requirements. The Company’s satellite services segment provides satellite-based broadband and related services to commercial airlines and other aircraft, residential customers and enterprises, maritime vessels (acquired through the Inmarsat Acquisition) and other mobile broadband customers, and Prepaid Internet users. The Company’s commercial networks segment develops and offers advanced satellite and wireless broadband platforms, ground networking equipment, radio frequency and advanced microwave solutions, Application-Specific Integrated Circuit (ASIC) chip design, satellite payload development and space-to-earth connectivity systems, some of which are ultimately used by the Company’s satellite services segment. The Company’s government systems segment provides global mobile broadband services and narrowband products and services (acquired through the Inmarsat Acquisition) to military and government users and develops and offers network-centric, internet protocol-based fixed and mobile secure communications products and solutions. The more regulated government environment is subject to unique contractual requirements and possesses economic characteristics which differ from the satellite services and commercial networks segments.
37
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
As described in Note 1 — Basis of Presentation and Note 5 — Discontinued Operations, on October 1, 2022, the Company entered into an Asset Purchase Agreement to sell certain assets and assign certain liabilities comprising the Link-16 TDL Business to L3Harris. In accordance with ASC 205-20, the Company determined that the Link-16 TDL Business met held-for-sale and discontinued operations accounting criteria at the end of the second quarter of fiscal year 2023. Accordingly, the segment information for the periods prior to the measurement date of a discontinued operation that is part of a reportable segment is required to be restated to reflect the discontinued operation classification. However, the discontinued operations have been excluded from segment results for all periods presented. Further, as the discontinued operation is part of a reportable segment but not the entire reportable segment, the costs previously allocated to a discontinued operation have been reasonably reallocated to the remaining operating segments. Therefore, certain corporate and other indirect costs previously allocated to the Link-16 TDL Business have been allocated across all three segments for the periods presented. On January 3, 2023, the Company completed the Link-16 TDL Sale. See Note 5 — Discontinued Operations for additional information.
Segment revenues and operating profits (losses) for the three and nine months ended December 31, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Satellite services |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Service |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial networks |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Government systems |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Elimination of intersegment revenues |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating profits (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Satellite services |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Commercial networks |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Government systems |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Elimination of intersegment operating |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Segment operating profit (loss) before corporate |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Corporate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of acquired intangible |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income (loss) from operations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
38
VIASAT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Assets identifiable to segments include: accounts receivable, unbilled accounts receivable, inventory, acquired intangible assets and goodwill. The Company’s property and equipment, including its satellites, earth stations and other networking equipment, are assigned to corporate assets as they are available for use by the various segments throughout their estimated useful lives.
|
|
As of |
|
|
As of |
|
||
|
|
(In thousands) |
|
|||||
Segment assets: |
|
|
|
|
|
|
||
Satellite services |
|
$ |
|
|
$ |
|
||
Commercial networks |
|
|
|
|
|
|
||
Government systems |
|
|
|
|
|
|
||
Total segment assets |
|
|
|
|
|
|
||
Corporate assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Other acquired intangible assets, net and goodwill included in segment assets as of December 31, 2023 and March 31, 2023 were as follows:
|
|
Other Acquired Intangible |
|
|
Goodwill |
|
||||||||||
|
|
As of |
|
|
As of |
|
|
As of |
|
|
As of |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Satellite services |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commercial networks |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Government systems |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Amortization of acquired intangible assets by segment for the three and nine months ended December 31, 2023 and 2022 was as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Satellite services |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commercial networks |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Government systems |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total amortization of acquired |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenues by geographic area for the three and nine months ended December 31, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
|
December 31, 2023 |
|
|
December 31, 2023 |
|
||
|
|
(In thousands) |
|
|||||
U.S. customers |
|
$ |
|
|
$ |
|
||
Non-U.S. customers (each country individually insignificant) |
|
|
|
|
|
|
||
Total revenues |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
|
December 31, 2022 |
|
|
December 31, 2022 |
|
||
|
|
(In thousands) |
|
|||||
U.S. customers |
|
$ |
|
|
$ |
|
||
Non-U.S. customers (each country individually insignificant) |
|
|
|
|
|
|
||
Total revenues |
|
$ |
|
|
$ |
|
||
The Company distinguishes revenues from external customers by geographic area based on customer location.
39
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” variations of such words and similar expressions to identify forward-looking statements. In addition, statements regarding the expected benefits, synergies, growth opportunities and other financial and operating benefits of the Inmarsat Acquisition (as defined below), and the expected charges and costs resulting from associated integration efforts; projections of earnings, revenue, costs or other financial items; anticipated growth and trends in our business or key markets; future economic conditions and performance; the development, customer acceptance and anticipated performance of technologies, products or services; the construction, completion, testing, launch, commencement of commercial service, expected performance and benefits of satellites (including future satellites planned or under construction) and the timing thereof; the extent and impact of anomalies on the ViaSat-3 F1 and Inmarsat-6 (I-6) F2 satellites, the anticipated functionality or performance of such satellites and any potential remedial or mitigating measures that may be undertaken or insurance proceeds that may be recoverable in connection therewith; the expected capacity, 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 in-flight connectivity (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 that the Inmarsat Acquisition disrupts current plans and operations or diverts management's attention from our business; the effect of the Inmarsat Acquisition on our ability to retain and hire key personnel and maintain relationships with our customers, suppliers and others with whom we do business; our ability to successfully integrate the operations, technologies and employees of Inmarsat (as defined herein); the ability to realize anticipated benefits and synergies of the Inmarsat Acquisition and our other acquisitions, including the expectation of enhancements to our products and services, greater revenue or growth opportunities, and the realization of operating efficiencies and cost savings (including the timing and amount thereof); the ability to ensure continued performance and market growth of our business following the closing of the Inmarsat Acquisition; our ability to realize the anticipated benefits of any existing or future satellite; unexpected expenses related to our satellite projects; our ability to successfully implement our business plan for our broadband services on our anticipated timeline or at all; capacity constraints in our business in the lead-up to the launch of services on our ViaSat-3 satellites; risks associated with the construction, launch and operation of satellites, including the effect of any anomaly, operational failure or degradation in satellite performance; our ability to successfully develop, introduce and sell new technologies, products and services; audits by the U.S. Government; changes in the global business environment and economic conditions; delays in approving U.S. Government budgets and cuts in government defense expenditures; our reliance on U.S. Government contracts, and on a small number of contracts which account for a significant percentage of our revenues; reduced demand for products and services as a result of continued constraints on capital spending by customers; changes in relationships with, or the financial condition of, key customers or suppliers; our reliance on a limited number of third parties to manufacture and supply our products; increased competition; introduction of new technologies and other factors affecting the communications and defense industries generally; the effect of adverse regulatory changes (including changes affecting spectrum availability or permitted uses) on our ability to sell or deploy our products and services; changes in the way others use spectrum; our inability to access additional spectrum, use spectrum for additional purposes, and/or operate satellites at additional orbital locations; competing uses of the same spectrum or orbital locations that we utilize or seek to utilize; the effect of changes to global tax laws; our level of indebtedness and ability to comply with applicable debt covenants; our involvement in litigation, including intellectual property claims and litigation to protect our proprietary technology; our dependence on a limited number of key employees; and other factors identified under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 (as updated by our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023) and under the heading “Risk Factors” in Part II, Item 1A of this report, elsewhere in this report and our other filings with the Securities and Exchange Commission (the SEC). Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
40
Company Overview
We are an innovative, global provider of communications technologies and services, focused on making connectivity accessible, available and secure for all. Our end-to-end platform of satellites, ground infrastructure and user terminals enables us to provide cost-effective, high-speed, high-quality broadband and other connectivity 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 portfolio of communications gateways; situational awareness products and services; satellite communication products and services, across using various frequency bands; cybersecurity and information assurance products and services; and tactical data link solutions. We believe that our diversification strategy— anchored in a broad portfolio of customer-centric products and services and supported by our fleet of broadband and narrowband satellites—our vertical integration 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 in California in 1986, and reincorporated as a Delaware corporation in 1996.
We conduct our business through three segments: satellite services, commercial networks and government systems.
Inmarsat Acquisition
On May 30, 2023, we purchased all of the issued and outstanding shares of Connect Topco Limited, a private company limited by shares and incorporated in Guernsey (Inmarsat Holdings and, together with its subsidiaries, Inmarsat), in exchange for approximately $550.7 million in cash and 46.36 million shares of our common stock (the Inmarsat Acquisition). In connection with the closing of the Inmarsat Acquisition, we entered into a $616.7 million senior secured term loan facility (the 2023 Term Loan Facility) and a $733.4 million unsecured bridge loan facility (the Bridge Facility), which were fully drawn at closing. On September 28, 2023, we replaced the Bridge Facility with the 7.500% Senior Notes due 2031, in the same principal amount and at the same interest rate.
Sale of Link-16 TDL Business
On January 3, 2023, we completed the sale of certain assets and liabilities comprising our Link-16 Tactical Data Links business (the Link-16 TDL Business) to L3Harris Technologies, Inc. (L3Harris) in exchange for approximately $1.96 billion in cash, subject to certain adjustments (the Link-16 TDL Sale). Unless otherwise noted, discussion throughout this Quarterly Report on Form 10-Q relates to our continuing operations only and excludes the Link-16 TDL Business. See Note 5 — Discontinued Operations to our condensed consolidated financial statements for additional information.
Satellite Services
Our satellite services segment uses our proprietary technology platform to provide both high-speed broadband and narrowband services via satellite around the globe for use in commercial applications.
Our complementary fleet of 21 satellites in space spans the Ka-, L- and S- bands. In addition to Viasat’s legacy satellite fleet, the closing of the Inmarsat Acquisition added: five additional high-bandwidth Ka-band satellites, eight high-availability L-band satellites (three of which are contingency satellites in orbit but not currently in service), an S-band satellite that supports the European Aviation Network (EAN) to provide IFC services to commercial airlines in Europe, and an I-6 class hybrid Ka-/L-band satellite (the I-6 F1 satellite), with additional satellites under development. Our expanded satellite fleet enables us to provide near global coverage (including strong oceanic coverage and polar reach) with greater redundancy and resiliency. We launched the first of our third-generation ViaSat-3 class satellites, ViaSat-3 F1, into orbit on April 30, 2023. On July 12, 2023, we reported a reflector deployment issue that materially impacted the performance of the ViaSat-3 F1 satellite, and on August 24, 2023, we reported the I-6 F2 satellite suffered a power subsystem anomaly during its orbit raising phase, and concluded that the satellite would not operate as intended (see Note 1 — Basis of Presentation — Property, equipment and satellites to our condensed consolidated financial statements for more information).
The primary services offered by our satellite services segment are comprised of:
41
The assets and results of operations of Inmarsat's commercial business are primarily included in our satellite services segment (with an insignificant amount included in our commercial networks segment and Inmarsat's government business included in our government systems segment) for the period following the closing of the Inmarsat Acquisition on May 30, 2023.
Commercial Networks
Our commercial networks segment develops and sells a wide array of advanced satellite and wireless products, antenna systems and network and terminal solutions that support or enable the provision of high-speed fixed and mobile broadband services. We design, develop and produce space system solutions for multiple orbital regimes, including geostationary (GEO), medium earth orbit (MEO) and low earth orbit (LEO). The primary products, systems, solutions and services offered by our commercial networks segment are comprised of:
Government Systems
Our government systems segment offers a broad array of products and services, including:
42
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 ended March 31, 2023.
Sources of Revenues
Our satellite services segment revenues are primarily derived from our in-flight services, fixed broadband services, maritime services (including narrowband and safety of communication capabilities primarily acquired through the Inmarsat Acquisition), and energy services.
Revenues in our commercial networks and government systems segments are primarily derived from three types of contracts: fixed-price contracts (which require us to provide products and services under a contract at a specified price), 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 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).
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. See Note 1 — Basis of Presentation to our condensed consolidated financial statements for additional information.
To date, our ability to grow and maintain our revenues in our commercial networks and government systems segments has 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.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We consider the policies discussed below to be critical to an understanding of our financial statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. We describe the specific risks for these critical accounting policies in the following paragraphs. For all of these policies, we caution that future events rarely develop exactly as forecast, and even the best estimates routinely require adjustment.
43
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 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 the authoritative guidance for leases (ASC 842). As discussed in Note 1 – Basis of Presentation – Leases to our condensed consolidated financial statements, for broadband equipment leased to customers in conjunction with the delivery of connectivity services, we account for the lease and non-lease components of connectivity services arrangement as a single performance obligation as the connectivity services represent the predominant component.
We also derive a portion of our revenues from contracts with customers to provide products. Performance obligations to provide products are satisfied at the point in time when control is transferred to the customer. These contracts typically require payment by the customer upon passage of control and determining the point at which control is transferred may require judgment. To identify the point at which control is transferred to the customer, we consider indicators that include, but are not limited to, whether (1) we have the present right to payment for the asset, (2) the customer has legal title to the asset, (3) physical possession of the asset has been transferred to the customer, (4) the customer has the significant risks and rewards of ownership of the asset, and (5) the customer has accepted the asset. For product revenues, control generally passes to the customer upon delivery of goods to the customer.
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.
44
Performance obligations related to developing and delivering complex equipment built to customer specifications under long-term contracts are recognized over time as these performance obligations do not create assets with an alternative use to us and we have an enforceable right to payment for performance to date. To measure the transfer of control, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost-to-cost measure of progress for our contracts because that best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Estimating the total costs at completion of a performance obligation requires management to make estimates related to items such as subcontractor performance, material costs and availability, labor costs and productivity and the costs of overhead. When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recognized in the period the loss is determined. A one percent variance in our future cost estimates on open fixed-price contracts as of December 31, 2023 would change our income (loss) before income taxes by an insignificant amount.
The evaluation of transaction price, including the amounts allocated to performance obligations, may require significant judgments. Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue, and where applicable the cost at completion, is complex, subject to many variables and requires significant judgment. Our contracts may contain award fees, incentive fees, or other provisions, including the potential for significant financing components, that can either increase or decrease the transaction price. These amounts, which are sometimes variable, can be dictated by performance metrics, program milestones or cost targets, the timing of payments, and customer discretion. We estimate variable consideration at the amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. In the event an agreement includes embedded financing components, we recognize interest expense or interest income on the embedded financing components using the effective interest method. This methodology uses an implied interest rate which reflects the incremental borrowing rate which would be expected to be 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.
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 customers 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 commercial 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.
45
Leases
In accordance with 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 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 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, orbital slots and spectrum assets, 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. Except for the impairment related to certain of our satellites under construction and satellite programs (discussed in Note 1 — Basis of Presentation – Property, equipment and satellites above), no material impairments were recorded for the three and nine months ended December 31, 2023 and 2022.
46
We account for our goodwill under the authoritative guidance for goodwill and other intangible assets (ASC 350) and the provisions of ASU 2017-04, Simplifying the Test for Goodwill Impairment, which we early adopted in fiscal year 2020. Current authoritative guidance allows us to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If, after completing the qualitative assessment, we determine that it is more likely than not that the estimated fair value is greater than the carrying value, we conclude that no impairment exists. Alternatively, if we determine in the qualitative assessment that it is more likely than not that the fair value is less than its carrying value, then we perform a quantitative goodwill impairment test to identify both the existence of an impairment and the amount of impairment loss, by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than the carrying value, then a goodwill impairment charge will be recognized in the amount by which the carrying amount exceeds the fair value, limited to the total amount of goodwill allocated to that reporting unit. We test goodwill for impairment during the fourth quarter every fiscal year and when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist.
In accordance with ASC 350, we assess qualitative factors to determine whether goodwill is impaired. The qualitative analysis includes assessing the impact of changes in certain factors including: (1) changes in forecasted operating results and comparing actual results to projections, (2) changes in the industry or our competitive environment since the acquisition date, (3) changes in the overall economy, our market share and market interest rates since the acquisition date, (4) trends in the stock price and related market capitalization and enterprise values, (5) trends in peer companies’ total enterprise value metrics, and (6) additional factors such as management turnover, changes in regulation and changes in litigation matters.
Based on our qualitative and quantitative assessments performed during the fourth quarter of fiscal year 2023, we concluded that it was more likely than not that the estimated fair value of our reporting units exceeded their carrying value as of March 31, 2023.
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 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. Additionally, in our analysis, we also considered the fact that ASC 740 places more weight on the objectively verifiable evidence of current pre-tax losses and recent events than forecasts of future profitability.
Accruals for uncertain tax positions are provided for in accordance with the authoritative guidance for accounting for uncertainty in income taxes (ASC 740). Under the authoritative guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative guidance addresses the derecognition of income tax assets and liabilities, classification of deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures.
We are subject to income taxes in the United States and numerous foreign jurisdictions. In the ordinary course of business, there are calculations and transactions where the ultimate tax determination is uncertain. In addition, changes in tax laws and regulations as well as adverse judicial rulings could adversely affect the income tax provision. We believe we have adequately provided for income tax issues not yet resolved with federal, state and foreign tax authorities. However, if these provided amounts prove to be more than what is necessary, the reversal of the reserves would result in tax benefits being recognized in the period in which we determine that provision for the liabilities is no longer necessary. If an ultimate tax assessment exceeds our estimate of tax liabilities, an additional charge to expense would result.
47
Results of Operations
The following table presents, as a percentage of total revenues, income statement data of our continuing operations for the periods indicated:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
||||
Revenues: |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Product revenues |
|
|
27 |
|
|
|
38 |
|
|
|
30 |
|
|
|
36 |
|
Service revenues |
|
|
73 |
|
|
|
62 |
|
|
|
70 |
|
|
|
64 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of product revenues |
|
|
22 |
|
|
|
31 |
|
|
|
22 |
|
|
|
28 |
|
Cost of service revenues |
|
|
46 |
|
|
|
43 |
|
|
|
44 |
|
|
|
43 |
|
Selling, general and administrative |
|
|
24 |
|
|
|
25 |
|
|
|
52 |
|
|
|
27 |
|
Independent research and development |
|
|
4 |
|
|
|
5 |
|
|
|
3 |
|
|
|
5 |
|
Amortization of acquired intangible assets |
|
|
8 |
|
|
|
1 |
|
|
|
6 |
|
|
|
1 |
|
Income (loss) from continuing operations |
|
|
(4 |
) |
|
|
(5 |
) |
|
|
(28 |
) |
|
|
(4 |
) |
Interest (expense) income, net |
|
|
(10 |
) |
|
|
(1 |
) |
|
|
(6 |
) |
|
|
(1 |
) |
Income (loss) from continuing operations before income taxes |
|
|
(14 |
) |
|
|
(6 |
) |
|
|
(35 |
) |
|
|
(5 |
) |
(Provision for) benefit from income taxes from continuing operations |
|
|
3 |
|
|
|
(1 |
) |
|
|
4 |
|
|
|
(3 |
) |
Net income (loss) from continuing operations |
|
|
(11 |
) |
|
|
(7 |
) |
|
|
(31 |
) |
|
|
(8 |
) |
Net income (loss) from discontinued operations, net of tax |
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
2 |
|
Net income (loss) attributable to Viasat, Inc. |
|
|
(11 |
) |
|
|
(6 |
) |
|
|
(31 |
) |
|
|
(6 |
) |
Three Months Ended December 31, 2023 vs. Three Months Ended December 31, 2022
Revenues
|
|
Three Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Product revenues |
|
$ |
303.1 |
|
|
$ |
249.3 |
|
|
$ |
53.8 |
|
|
|
22 |
% |
Service revenues |
|
|
825.5 |
|
|
|
402.1 |
|
|
|
423.3 |
|
|
|
105 |
% |
Total revenues |
|
$ |
1,128.5 |
|
|
$ |
651.4 |
|
|
$ |
477.1 |
|
|
|
73 |
% |
Our total revenues increased by $477.1 million as a result of a $423.3 million increase in service revenues and a $53.8 million increase in product revenues, including a full quarter of contribution from the Inmarsat Acquisition. The service revenue increase was driven by increases of $279.0 million in our satellite services segment, $142.5 million in our government systems segment and $1.8 million in our commercial networks segment. The product revenue increase was driven primarily by a $56.4 million increase in our government systems segment, partially offset by a $2.6 million decrease in our commercial networks segment.
Cost of revenues
|
|
Three Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Cost of product revenues |
|
$ |
252.5 |
|
|
$ |
205.2 |
|
|
$ |
47.3 |
|
|
|
23 |
% |
Cost of service revenues |
|
|
514.8 |
|
|
|
277.9 |
|
|
|
236.9 |
|
|
|
85 |
% |
Total cost of revenues |
|
$ |
767.3 |
|
|
$ |
483.0 |
|
|
$ |
284.2 |
|
|
|
59 |
% |
48
Cost of revenues increased by $284.2 million due to increases of $236.9 million in cost of service revenues and a $47.3 million in cost of product revenues. The cost of service revenues increase was primarily due to increased service revenues, mainly from our satellite services and government systems segments, causing a $292.5 million increase in cost of service revenues on a constant margin basis. The increase in cost of service revenues was partially offset by higher margins within our government systems and satellite services segments. The cost of product revenues increase was primarily due to increased product revenues, mainly from our government systems segment, causing a $44.2 million increase in cost of product revenues on a constant margin basis. The increase in cost of product revenues was also due to lower margins, primarily in our commercial networks and government systems segments.
Selling, general and administrative expenses
|
|
Three Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Selling, general and administrative |
|
$ |
271.7 |
|
|
$ |
162.8 |
|
|
$ |
108.9 |
|
|
|
67 |
% |
The $108.9 million increase in selling, general and administrative (SG&A) expenses was driven primarily by an increase in support costs of $83.9 million, reflected across all three of our segments, including a full quarter of contribution from the Inmarsat Acquisition. The increase in SG&A expenses was also driven by $19.9 million in higher selling costs, reflected primarily in our satellite services and government systems segments. SG&A expenses consisted primarily of personnel costs and expenses for business development, marketing and sales, bid and proposal, acquisition and transaction related expenses, facilities, finance, contract administration and general management.
Independent research and development
|
|
Three Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Independent research and development |
|
$ |
41.7 |
|
|
$ |
29.4 |
|
|
$ |
12.3 |
|
|
|
42 |
% |
The $12.3 million increase in independent research and development (IR&D) expenses was mainly the result of increases of $6.7 million in IR&D efforts in our government systems segment (primarily related to tactical satcom radio products and a full quarter of contribution from the Inmarsat Acquisition) and $5.6 million in our commercial networks segment (primarily related to a full quarter of contribution from the Inmarsat Acquisition and mobile broadband satellite communication systems for commercial airline platforms).
Amortization of acquired intangible assets
We amortize our acquired intangible assets from prior acquisitions over their estimated useful lives, which range from two to 20 years. The $84.3 million increase in amortization of acquired intangible assets in the third quarter of fiscal year 2024 compared to the prior year period was primarily related to the amortization of new intangibles acquired as a result of the Inmarsat Acquisition in May 2023. The current and expected amortization for acquired intangible assets for each of the following periods is as follows:
|
|
Amortization |
|
|
|
|
(In thousands) |
|
|
For the nine months ended December 31, 2023 |
|
$ |
200,904 |
|
|
|
|
|
|
Expected for the remainder of fiscal year 2024 |
|
$ |
91,395 |
|
Expected for fiscal year 2025 |
|
|
364,819 |
|
Expected for fiscal year 2026 |
|
|
364,667 |
|
Expected for fiscal year 2027 |
|
|
295,938 |
|
Expected for fiscal year 2028 |
|
|
285,005 |
|
Expected for fiscal year 2029 |
|
|
284,260 |
|
Thereafter |
|
|
1,087,581 |
|
|
|
$ |
2,773,665 |
|
49
Interest income
The $20.4 million increase in interest income for the three months ended December 31, 2023 compared to the prior year period was primarily due to the interest earned on the invested portion of the cash related to proceeds of approximately $1.9 billion received from L3Harris in the Link-16 TDL Sale as well as cash acquired as part of the Inmarsat Acquisition.
Interest expense
The $124.8 million increase in interest expense for the three months ended December 31, 2023 compared to the prior year period was primarily the result of the effects of increased interest expense arising from our increased level of indebtedness following the closing of the Inmarsat Acquisition on May 30, 2023.
Income taxes
For the three months ended December 31, 2023, we recorded an income tax benefit of $34.5 million, resulting in an effective tax rate of 22%. The effective tax rate for the period did not differ significantly from the U.S. statutory rate despite a valuation allowance recorded against our U.S. net deferred tax assets primarily due to the impacts of Inmarsat purchase price allocation adjustments recorded in the quarter. For the three months ended December 31, 2022, we recorded an income tax provision of $5.2 million, resulting in an effective tax rate of negative 13%. The effective tax rate for the period differed from the U.S. statutory rate due primarily to the expense for tax deficiencies upon settlement of stock-based compensation during the period.
Segment Results for the Three Months Ended December 31, 2023 vs. Three Months Ended December 31, 2022
Satellite services segment
Revenues
|
|
Three Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Segment product revenues |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
% |
Segment service revenues |
|
|
581.4 |
|
|
|
302.4 |
|
|
|
279.0 |
|
|
|
92 |
% |
Total segment revenues |
|
$ |
581.4 |
|
|
$ |
302.4 |
|
|
$ |
279.0 |
|
|
|
92 |
% |
The increase of $279.0 million in our satellite services segment revenues for the three months ended December 31, 2023 compared to the prior year period was primarily due to the Inmarsat Acquisition in May 2023 and an increase in our in-flight services business. The Inmarsat Acquisition contributed approximately $281.5 million of service revenues (nearly half from maritime services) in our satellite services segment in the third quarter of fiscal year 2024. Our in-flight services business service revenue increased $84.3 million as the number of commercial aircraft receiving our in-flight services through our IFC systems and passenger air traffic both continued to increase. The increase in our satellite services segment revenues was partially offset by lower fixed broadband revenues in the United States as we continued to allocate a greater proportion of our bandwidth to our IFC business due to bandwidth constraints.
Segment operating profit (loss)
|
|
Three Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Segment operating profit (loss) |
|
$ |
41.1 |
|
|
$ |
(8.4 |
) |
|
$ |
49.5 |
|
|
|
588 |
% |
Percentage of segment revenues |
|
|
7 |
% |
|
|
(3 |
)% |
|
|
|
|
|
|
||
The change in our satellite services segment operating loss to an operating profit was primarily due to increased earnings contributions of $107.9 million, mainly due to an increase in revenues from the Inmarsat Acquisition in May 2023 and improved margins from our in-flight services business as it continued to scale. The increase in earnings contributions was partially offset by higher SG&A costs of $58.3 million, of which $45.1 million related to the Inmarsat Acquisition.
50
Commercial networks segment
Revenues
|
|
Three Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Segment product revenues |
|
$ |
144.5 |
|
|
$ |
147.2 |
|
|
$ |
(2.6 |
) |
|
|
(2 |
)% |
Segment service revenues |
|
|
21.8 |
|
|
|
20.1 |
|
|
|
1.8 |
|
|
|
9 |
% |
Total segment revenues |
|
$ |
166.4 |
|
|
$ |
167.2 |
|
|
$ |
(0.9 |
) |
|
|
(1 |
)% |
Our commercial networks segment revenues decreased by an insignificant amount due to a $2.6 million decrease in product revenues, partially offset by a $1.8 million increase in service revenues. The decrease in product revenues was primarily driven by a decrease of $3.8 million in mobile broadband satellite communication systems products, related to lower IFC terminal shipments, and a $3.0 million decrease in antenna systems products. The decrease in product revenues was partially offset by a $4.3 million increase in satellite networking development programs products. The increase in service revenues was primarily driven by increases in mobile broadband satellite communication systems services.
Segment operating profit (loss)
|
|
Three Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
(Increase) |
|
|
(Increase) |
|
||||
Segment operating profit (loss) |
|
$ |
(70.3 |
) |
|
$ |
(40.3 |
) |
|
$ |
(30.1 |
) |
|
|
(75 |
)% |
Percentage of segment revenues |
|
|
(42 |
)% |
|
|
(24 |
)% |
|
|
|
|
|
|
||
The increase in our commercial networks segment operating loss was primarily due to lower earnings contributions of $12.7 million, higher SG&A costs of $11.7 million and an increase in IR&D expenses of $5.6 million (primarily related to a full quarter of contribution from the Inmarsat Acquisition and mobile broadband satellite communication systems for commercial airline platforms).
Government systems segment
Revenues
|
|
Three Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Segment product revenues |
|
$ |
158.5 |
|
|
$ |
102.2 |
|
|
$ |
56.4 |
|
|
|
55 |
% |
Segment service revenues |
|
|
222.2 |
|
|
|
79.7 |
|
|
|
142.5 |
|
|
|
179 |
% |
Total segment revenues |
|
$ |
380.8 |
|
|
$ |
181.8 |
|
|
$ |
198.9 |
|
|
|
109 |
% |
Our government systems segment revenues increased by $198.9 million due to a $142.5 million increase in service revenues, and a $56.4 million increase in product revenues. The service revenue increase was primarily due to the Inmarsat Acquisition in May 2023 and a $4.0 million increase in government mobile broadband services. The Inmarsat Acquisition contributed approximately $135.9 million of service revenues in our government systems segment in the third quarter of fiscal year 2024. The product revenue increase was primarily driven by a $25.4 million increase in cybersecurity and information assurance products, $19.4 million due to the Inmarsat Acquisition, and $15.8 million in tactical satcom radio products.
Segment operating profit (loss)
|
|
Three Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Segment operating profit (loss) |
|
$ |
77.0 |
|
|
$ |
24.8 |
|
|
$ |
52.2 |
|
|
|
210 |
% |
Percentage of segment revenues |
|
|
20 |
% |
|
|
14 |
% |
|
|
|
|
|
|
||
51
The $52.2 million increase in our government systems segment operating profit was primarily driven by increased earnings contributions of $97.7 million, primarily due to increased revenues from the Inmarsat Acquisition in May 2023. The increase in operating profit was partially offset by a $38.8 million increase in SG&A costs, of which $28.1 million related to the Inmarsat Acquisition and $6.7 million to IR&D costs (primarily related to tactical satcom radio products and a full quarter of contribution from the Inmarsat Acquisition).
Nine Months Ended December 31, 2023 vs. Nine Months Ended December 31, 2022
Revenues
|
|
Nine Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Product revenues |
|
$ |
941.2 |
|
|
$ |
682.8 |
|
|
$ |
258.4 |
|
|
|
38 |
% |
Service revenues |
|
|
2,192.6 |
|
|
|
1,207.3 |
|
|
|
985.3 |
|
|
|
82 |
% |
Total revenues |
|
$ |
3,133.7 |
|
|
$ |
1,890.1 |
|
|
$ |
1,243.7 |
|
|
|
66 |
% |
Our total revenues grew by $1,243.7 million as a result of a $985.3 million increase in service revenues and a $258.4 million increase in product revenues, including seven months of contribution from the Inmarsat Acquisition. The service revenue increase was due to increases of $650.2 million in our satellite services segment, $327.9 million in our government systems segment, and $7.2 million in our commercial networks segment. The increase in product revenue was driven primarily by a $135.5 million increase in our government systems segment and a $122.9 million increase in our commercial networks segment.
Cost of revenues
|
|
Nine Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Cost of product revenues |
|
$ |
703.6 |
|
|
$ |
528.5 |
|
|
$ |
175.1 |
|
|
|
33 |
% |
Cost of service revenues |
|
|
1,374.9 |
|
|
|
814.2 |
|
|
|
560.6 |
|
|
|
69 |
% |
Total cost of revenues |
|
$ |
2,078.5 |
|
|
$ |
1,342.7 |
|
|
$ |
735.8 |
|
|
|
55 |
% |
Cost of revenues increased by $735.8 million due to increases of $560.6 million in cost of service revenues and $175.1 million in cost of product revenues. The cost of service revenues increase was primarily due to increased service revenues across each of our segments, causing a $664.5 million increase in cost of service revenues on a constant margin basis. The increase in cost of service revenues was partially offset by higher margins, primarily driven by our government systems and satellite services segments. The cost of product revenues increase was primarily due to increased product revenues, mainly from our government systems and commercial networks segments, causing a $180.6 million increase in cost of product revenues on a constant margin basis, prior to the effects of product revenues related to the Acacia litigation (see Note 10 — Commitments and Contingencies to our condensed consolidated financial statements for more information). The increase in cost of product revenues was partially offset by higher margins, primarily driven by our government systems segment.
Selling, general and administrative expenses
|
|
Nine Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Selling, general and administrative |
|
$ |
1,640.3 |
|
|
$ |
511.7 |
|
|
$ |
1,128.6 |
|
|
|
221 |
% |
52
The $1,128.6 million increase in SG&A expenses was driven primarily by a net loss of approximately $905.5 million related to satellite impairment, including liabilities associated with the termination of certain subcontractor agreements, net of estimated insurance claim receivables recorded in our satellite service segment. See Note 1 — Basis of Presentation — Property, equipment and satellites to our condensed consolidated financial statements for more information. Additionally, we experienced an increase in support costs of $183.5 million, reflected across all three of our segments, including seven months of contribution from the Inmarsat Acquisition. The increase in SG&A expenses was also driven by $42.3 million in higher selling costs, reflected primarily in our satellite services and government systems segments. SG&A expenses consisted primarily of personnel costs and expenses for business development, marketing and sales, bid and proposal, acquisition and transaction related expenses, facilities, finance, contract administration and general management.
Independent research and development
|
|
Nine Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Independent research and development |
|
$ |
104.2 |
|
|
$ |
96.6 |
|
|
$ |
7.5 |
|
|
|
8 |
% |
The $7.5 million increase in IR&D expenses was mainly the result of a $12.0 million increase in our government systems segment (primarily related to seven months of contribution from the Inmarsat Acquisition, information assurance projects and tactical satcom radio products). This overall increase was partially offset by a $4.4 million decrease in IR&D efforts in our commercial networks segment (primarily related to next-generation consumer broadband integrated technologies and next-generation satellite payload technologies). The decrease in our commercial networks segment was partially offset by an increase in IR&D expenses related to seven months of contribution from the Inmarsat Acquisition and mobile broadband satellite communication systems for commercial airline platforms.
Amortization of acquired intangible assets
We amortize our acquired intangible assets from prior acquisitions over their estimated useful lives, which range from two to 20 years. The $178.6 million increase in amortization of acquired intangible assets in the first nine months of fiscal year 2024 compared to the prior year period was primarily related to the amortization of new intangibles acquired as a result of the Inmarsat Acquisition in May 2023. The current and expected amortization for acquired intangible assets for each of the following periods is as follows:
|
|
Amortization |
|
|
|
|
(In thousands) |
|
|
For the nine months ended December 31, 2023 |
|
$ |
200,904 |
|
|
|
|
|
|
Expected for the remainder of fiscal year 2024 |
|
$ |
91,395 |
|
Expected for fiscal year 2025 |
|
|
364,819 |
|
Expected for fiscal year 2026 |
|
|
364,667 |
|
Expected for fiscal year 2027 |
|
|
295,938 |
|
Expected for fiscal year 2028 |
|
|
285,005 |
|
Expected for fiscal year 2029 |
|
|
284,260 |
|
Thereafter |
|
|
1,087,581 |
|
|
|
$ |
2,773,665 |
|
Interest income
The $65.1 million increase in interest income for the nine months ended December 31, 2023 compared to the prior year period was primarily due to the interest earned on the invested portion of the cash related to proceeds of approximately $1.9 billion received from L3Harris in the Link-16 TDL Sale as well as cash acquired as part of the Inmarsat Acquisition.
53
Interest expense
The $256.4 million increase in interest expense for the nine months ended December 31, 2023 compared to the prior year period was primarily the result of the effects of increased interest expense arising from our increased level of indebtedness following the closing of the Inmarsat Acquisition on May 30, 2023. The increase in interest expense was partially offset by an increase in the amount of interest capitalized during the first nine months of fiscal year 2024 compared to the prior year period.
Income taxes
For the nine months ended December 31, 2023, we recorded an income tax benefit of $128.1 million, resulting in an effective tax rate of 12%. The effective tax rate for the period differed from the U.S. statutory rate primarily due to a valuation allowance recorded against our U.S. net deferred tax assets. For the nine months ended December 31, 2022, we recorded an income tax provision of $59.0 million, resulting in an effective tax rate of negative 63%. The effective tax rate for the period differed from the U.S. statutory rate due primarily to the establishment of a valuation allowance on the deferred tax asset for California R&D tax credits that was partially offset by the benefit of federal R&D tax credits, and the expense for tax deficiencies upon settlement of stock-based compensation during the period.
Segment Results for the Nine Months Ended December 31, 2023 vs. Nine Months Ended December 31, 2022
Satellite services segment
Revenues
|
|
Nine Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Segment product revenues |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
% |
Segment service revenues |
|
|
1,565.2 |
|
|
|
915.1 |
|
|
|
650.2 |
|
|
|
71 |
% |
Total segment revenues |
|
$ |
1,565.2 |
|
|
$ |
915.1 |
|
|
$ |
650.2 |
|
|
|
71 |
% |
The increase of $650.2 million in our satellite services segment revenues for the nine months ended December 31, 2023 compared to the prior year period was primarily due to the Inmarsat Acquisition in May 2023 and an increase in our in-flight services business. The Inmarsat Acquisition contributed approximately $644.8 million of service revenues (nearly half from maritime services) in our satellite services segment in the nine months ended December 31, 2023. Our in-flight services business service revenue increased $217.9 million as the number of commercial aircraft receiving our in-flight services through IFC systems and passenger air traffic both continued to increase. The increase in our satellite services segment revenues was partially offset by lower fixed broadband revenues in the United States as we continued to allocate a greater proportion of our bandwidth to our IFC business due to bandwidth constraints.
Segment operating profit (loss)
|
|
Nine Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
(Increase) |
|
|
(Increase) |
|
||||
Segment operating profit (loss) |
|
$ |
(779.5 |
) |
|
$ |
(13.1 |
) |
|
$ |
(766.4 |
) |
|
|
(5,831 |
)% |
Percentage of segment revenues |
|
|
(50 |
)% |
|
|
(1 |
)% |
|
|
|
|
|
|
||
54
The increase in our satellite services segment operating loss is primarily due to the recording of satellite impairment and related charges, net of estimated insurance claim receivables of approximately $905.5 million in the current year period, as described above, as well as higher SG&A costs of $98.8 million, mostly related to the Inmarsat Acquisition, partially offset by increased earnings contributions of $238.0 million, mainly due to an increase in revenues from the Inmarsat Acquisition in May 2023 and improved margins from our in-flight services business as it continued to scale.
Commercial networks segment
Revenues
|
|
Nine Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Segment product revenues |
|
$ |
523.5 |
|
|
$ |
400.6 |
|
|
$ |
122.9 |
|
|
|
31 |
% |
Segment service revenues |
|
|
66.6 |
|
|
|
59.5 |
|
|
|
7.2 |
|
|
|
12 |
% |
Total segment revenues |
|
$ |
590.2 |
|
|
$ |
460.0 |
|
|
$ |
130.1 |
|
|
|
28 |
% |
Our commercial networks segment revenues increased by $130.1 million, due to a $122.9 million increase in product revenues and a $7.2 million increase in service revenues. The increase in product revenues was primarily the result of an increase in revenues recognized as a result of settlement payments from the Acacia litigation (see Note 10 — Commitments and Contingencies to our condensed consolidated financial statements for more information). The increase in product revenues was also driven by increases of $30.6 million in mobile broadband satellite communication systems products related to higher IFC terminal shipments, $30.4 million in antenna systems products, and $14.0 million in satellite payload technology development programs. The increase in service revenues was primarily driven by increases in mobile broadband satellite communication systems services.
Segment operating profit (loss)
|
|
Nine Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
(Increase) |
|
|
(Increase) |
|
||||
Segment operating profit (loss) |
|
$ |
(74.0 |
) |
|
$ |
(90.4 |
) |
|
$ |
16.5 |
|
|
|
18 |
% |
Percentage of segment revenues |
|
|
(13 |
)% |
|
|
(20 |
)% |
|
|
|
|
|
|
||
The $16.5 million decrease in our commercial networks operating loss was driven primarily by an increase in earnings contributions of $40.0 million and a decrease of $4.4 million in IR&D expenses (primarily related to next-generation consumer broadband integrated networking technologies and next-generation satellite payload technologies, partially offset by an increase in IR&D expenses related to mobile broadband satellite communication systems for commercial airline platforms and seven months of contribution from the Inmarsat Acquisition). The decrease in commercial networks segment operating loss was partially offset by higher SG&A costs of $27.9 million.
Government systems segment
Revenues
|
|
Nine Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Segment product revenues |
|
$ |
417.7 |
|
|
$ |
282.2 |
|
|
$ |
135.5 |
|
|
|
48 |
% |
Segment service revenues |
|
|
560.7 |
|
|
|
232.8 |
|
|
|
327.9 |
|
|
|
141 |
% |
Total segment revenues |
|
$ |
978.3 |
|
|
$ |
515.0 |
|
|
$ |
463.4 |
|
|
|
90 |
% |
55
Our government systems segment revenues increased by $463.4 million due to increases of $327.9 million in service revenues and $135.5 million in product revenues. The service revenue increase was primarily due to the Inmarsat Acquisition in May 2023 and increases of $14.9 million in government mobile broadband services, $5.9 million in tactical data link solutions, and $3.5 million in tactical satcom radio services. The Inmarsat Acquisition contributed approximately $303.0 million of service revenues in our government systems segment following the closing of the acquisition. The product revenue increase was primarily driven by a $86.6 million increase in cybersecurity and information assurance products and $38.7 million increase due to the Inmarsat Acquisition.
Segment operating profit (loss)
|
|
Nine Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|||||||
(In millions, except percentages) |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
Increase |
|
||||
Segment operating profit (loss) |
|
$ |
164.3 |
|
|
$ |
42.7 |
|
|
$ |
121.6 |
|
|
|
285 |
% |
Percentage of segment revenues |
|
|
17 |
% |
|
|
8 |
% |
|
|
|
|
|
|
||
The $121.6 million increase in our government systems segment operating profit was primarily driven by higher earnings contributions of $230.0 million, primarily due to increased revenues from the Inmarsat Acquisition in May 2023. The increase in operating profit was partially offset by a $96.4 million increase in SG&A costs, of which $67.1 million related to the Inmarsat Acquisition and $12.0 million increase in IR&D expenses (primarily related to seven months of contribution from the Inmarsat Acquisition, information assurance projects and tactical satcom radio products).
Backlog
Our firm and funded backlog as of December 31, 2023 is reflected in the table below.
|
|
As of |
|
|
|
|
(In millions) |
|
|
Firm backlog |
|
|
|
|
Satellite services segment |
|
$ |
1,844.1 |
|
Commercial networks segment |
|
|
635.8 |
|
Government systems segment |
|
|
1,242.3 |
|
Total |
|
$ |
3,722.2 |
|
Funded backlog |
|
|
|
|
Satellite services segment |
|
$ |
1,844.1 |
|
Commercial networks segment |
|
|
597.0 |
|
Government systems segment |
|
|
1,130.8 |
|
Total |
|
$ |
3,571.9 |
|
The firm backlog does not include contract options. As of December 31, 2023, approximately half of the firm backlog 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 December 31, 2023, our IFC systems were installed and in service on approximately 3,540 commercial aircraft of which approximately 40 were inactive at quarter end (mostly due to standard aircraft maintenance). We anticipate that approximately 1,430 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 lingering impacts 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 which exclude future revenue under recurring consumer commitment arrangements were approximately $1.2 billion and $3.0 billion for the three and nine months ended December 31, 2023, respectively, compared to approximately $617.1 million (of which $40.0 million was attributable to discontinued operations related to the Link-16 TDL Business) and $2.5 billion (of which $384.5 million was attributable to discontinued operations related to the Link-16 TDL Business) for the three and nine months ended December 31, 2022, 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
56
provide that orders may be terminated with limited or no penalties. In addition, purchase orders may present product specifications that would require us to complete additional product development. A failure to develop products meeting such specifications could lead to a termination of the related contract.
Firm backlog amounts are comprised of funded and unfunded components. Funded backlog represents the sum of contract amounts for which funds have been specifically obligated by customers to contracts. Unfunded backlog represents future amounts that customers may obligate over the specified contract performance periods. Our customers allocate funds for expenditures on long-term contracts on a periodic basis. Our ability to realize revenues from contracts in backlog is dependent upon adequate funding for such contracts. Although we do not control the funding of our contracts, our experience indicates that actual contract funding has ultimately been approximately equal to the aggregate amounts of the contracts.
Liquidity and Capital Resources
Overview
We have financed our operations to date primarily with cash flows from operations, bank line of credit financing, debt financing, export credit agency financing and equity financing. At December 31, 2023, we had $1.6 billion in cash and cash equivalents, $2.4 billion in working capital, no outstanding borrowings and borrowing availability of $592.2 million under Viasat's $647.5 million revolving credit facility (the Viasat Revolving Credit Facility), and no outstanding borrowings and borrowing availability of $700.0 million under Inmarsat's $700.0 million revolving line of credit (the Inmarsat Revolving Credit Facility and, together with the Viasat Revolving Credit Facility, the Revolving Credit Facilities). At March 31, 2023, we had $1.4 billion in cash and cash equivalents and restricted cash, $1.3 billion in working capital, and no outstanding borrowings and borrowing availability of $657.4 million under the Viasat Revolving Credit Facility. We invest our cash in excess of current operating requirements in short-term, highly liquid bank money market funds primarily investing in U.S. government-backed securities and treasuries.
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 cash required for our satellite projects and any future broadband satellite projects we may engage in, expansion of our IR&D and marketing efforts, the nature and timing of orders and integration-related costs related to the Inmarsat Acquisition. In particular:
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.
In November 2023, we announced an important milestone in our integration program following our Inmarsat Acquisition. As part of our ongoing strategy to streamline operations and better serve our growing customer base, we completed our work on the rationalization of roles in our global business, which is intended to achieve both operational and cost efficiencies. As part of the role rationalization, we reduced our global workforce by approximately 800 positions, or approximately 10%, and recorded total costs (primarily related to employee severance payments, benefits and related termination costs) of approximately $45 million during the three and nine months ended December 2023. These one-time costs were recorded within operating expenses in our condensed consolidated statements of operations across all three of our segments, with insignificant amounts remaining to be incurred and paid.
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
57
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 the SEC for the future sale of an unlimited amount of common stock, preferred stock, debt securities, depositary shares and warrants, 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. Additionally, we consider strategic divestitures from time to time, such as the Link-16 TDL Sale that was completed in January 2023 for approximately $1.96 billion in cash, subject to adjustments.
Although we can give no assurances concerning our future liquidity, we believe that we have adequate sources of funding to meet our anticipated operating requirements for the next 12 months, which include, but are not limited to, cash on hand, borrowing capacity, and cash expected to be provided by operating activities.
Cash flows
Cash provided by operating activities for the first nine months of fiscal year 2024 was $456.2 million compared to $317.6 million in the prior year period. This $138.6 million increase was driven by our operating results (net income (loss) adjusted for depreciation, amortization and other non-cash charges) which resulted in $247.8 million of higher cash provided by operating activities year-over-year, partially offset by a $109.2 million year-over-year increase in cash used to fund net operating assets. The increase in cash used to fund net operating assets during the first nine months of fiscal year 2024 when compared to the prior year period was primarily due to timing of payments related to our accounts payables and accrued liabilities, and the timing of deferred revenue recognized under certain long-term contracts acquired through the Inmarsat Acquisition in our satellite services segment.
Cash used in investing activities for the first nine months of fiscal year 2024 was approximately $1.5 billion compared to $850.7 million in the prior year period. This $601.1 million increase in cash used in investing activities year-over-year reflects $342.6 million in cash (net of cash acquired) used for the Inmarsat Acquisition in the first quarter of fiscal year 2024 and an increase in cash used for capital expenditures of approximately $324.6 million (including cash used for Inmarsat capital expenditures since the date of acquisition).
Cash provided by financing activities for the first nine months of fiscal year 2024 was approximately $1.2 billion compared to $406.0 million for the prior year period. This $830.1 million increase in cash provided by financing activities year-over-year was mainly due to an increase in proceeds from debt borrowings of approximately $794.7 million (see Note 8 — Senior Notes and Other Long-Term Debt for further information).
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 13 — Commitments to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2023 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 the ViaSat-1 and ViaSat-2 satellites) for the next five fiscal years and thereafter, as well as purchase commitments including satellite-related agreements under the contractual obligations table below (which also includes future payment obligations assumed through the Inmarsat Acquisition). 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.
58
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, when ViaSat-2 was placed in commercial service in the fourth quarter of fiscal year 2018, this resulted in additional operating costs in our satellite services segment during the ramp-up period prior to service launch and in the fiscal year following service launch. These increased operating costs included depreciation, amortization of capitalized software development, earth station connectivity, marketing and advertising costs, logistics, customer care and various support systems. In addition, interest expense increased during fiscal year 2019 as we no longer capitalized the interest expense relating to the debt incurred for the construction of ViaSat-2 and the related gateway and networking equipment once the satellite was in commercial service. As services using the new satellite scaled, however, our revenue base for broadband services expanded and we gained operating cost efficiencies, which together yielded incremental segment earnings contributions. We anticipate that we will incur a similar cycle of increased operating costs and constrained bandwidth supply as we prepare for and launch commercial services on future satellites, 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. In addition, we may experience capacity constraints on our existing satellites in the lead-up to the commencement of commercial service on new satellites, such as the capacity constraints we experienced during fiscal years 2023 and 2024.
Long-term debt
As of December 31, 2023, the aggregate principal amount of our total outstanding indebtedness was $7.6 billion, which was comprised of (1) $700.0 million in principal amount of Viasat's 5.625% Senior Notes due 2025, $600.0 million in principal amount of Viasat's 5.625% Senior Secured Notes due 2027, $400.0 million in principal amount of Viasat's 6.500% Senior Notes due 2028, $733.4 million in principal amount of Viasat's 7.500% Senior Notes due 2031 and $2.08 billion in principal amount of Inmarsat's 6.750% Senior Secured Notes due 2026 (collectively, the Notes), (2) $689.5 million in principal amount of outstanding borrowings under our $700.0 million senior secured term loan facility (the 2022 Term Loan Facility), $615.2 million in principal amount of outstanding borrowings under our 2023 Term Loan Facility, $1.68 billion in principal amount of outstanding borrowings under Inmarsat's $1.75 billion senior secured term loan facility (the Inmarsat Term Loan Facility and, together with the Inmarsat Revolving Credit Facility, the Inmarsat Secured Credit Facility), no outstanding borrowings under our Revolving Credit Facilities, and $39.3 million in principal amount of outstanding borrowings under our direct loan facility with the Export-Import Bank of the United States (the Ex-Im Credit Facility) (collectively, the Credit Facilities), and (3) $29.8 million of finance lease obligations. For information regarding our outstanding indebtedness, refer to Note 8 – 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 March 31, 2023, as well as Note 4 – Acquisition, related to the Inmarsat Acquisition, and Note 1 – Basis of Presentation – Property, equipment and satellites, related to satellite impairment, to our condensed consolidated financial statements for more information.
Contractual Obligations
The following table sets forth a summary of certain material cash requirements for known contractual obligations and commitments at December 31, 2023:
(In thousands, including interest where applicable) |
|
Next 12 months |
|
|
Thereafter |
|
||
Operating leases |
|
$ |
104,620 |
|
|
$ |
822,145 |
|
Senior Notes and Other Long-Term Debt (1) |
|
|
591,961 |
|
|
|
9,292,516 |
|
Purchase commitments including satellite-related |
|
|
1,497,935 |
|
|
|
1,005,058 |
|
Total |
|
$ |
2,194,516 |
|
|
$ |
11,119,719 |
|
59
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. We may also cancel, reschedule or adjust our requirements based on business needs after firm orders are placed at a cost, which may be material.
Our condensed consolidated balance sheets included $2.5 billion and $218.5 million of “other liabilities” as of December 31, 2023 and March 31, 2023, respectively, which primarily consisted of deferred income taxes and the long-term portion of deferred revenues. These remaining liabilities have been excluded from the above table as the timing and/or the amount of any cash payment is uncertain.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements at December 31, 2023 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 ended March 31, 2023.
Recent Authoritative Guidance
For information regarding recently adopted and issued accounting pronouncements, see Note 1 — Basis of Presentation to our condensed consolidated financial statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our financial instruments consist of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, accounts payable and short-term and long-term obligations (including the Credit Facilities and the Notes), and interest rate cap contracts. We consider investments in highly liquid instruments purchased with a remaining maturity of three months or less at the date of purchase to be cash equivalents. As of December 31, 2023, we held $30.0 million in short-term investments. Our indebtedness for borrowed money comprises borrowings under our Credit Facilities and the aggregate principal amount outstanding under our Notes. The Notes and borrowings under our Ex-Im Credit Facility bear interest at a fixed rate and therefore our exposure to market risk for changes in interest rates relates primarily to borrowings under our remaining Credit Facilities, cash equivalents, short-term investments and short-term obligations.
The primary objectives of our investment activities are to preserve principal and maximize the income we receive from our investments without significantly increasing risk. To minimize this risk, we maintain a significant amount of our cash balance in money market accounts, with a significant portion held in U.S. government-backed qualified money-market securities. In general, money market accounts are not subject to interest rate risk because the interest paid on such funds fluctuates with the prevailing interest rate. Our cash and cash equivalents earn interest at variable rates. Our interest income has been and may continue to be negatively impacted by low market interest rates. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Because our investment policy restricts us to invest in conservative, interest-bearing investments and because our business strategy does not rely on generating material returns from our investment portfolio, we do not expect our market risk exposure on our investment portfolio to be material. Due to the short-term nature of our investment portfolio, we do not believe an immediate 10% increase or decrease in interest rates would have a material effect on the fair market value of our portfolio. We therefore do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.
Our primary interest rate under our variable rate Credit Facilities is the forward-looking term SOFR rate plus an applicable margin. As of December 31, 2023, the effective interest rate on our outstanding borrowings under the 2022 Term Loan Facility was 10.39%, under the 2023 Term Loan Facility was 10.94%, and under the Inmarsat Term Loan Facility was approximately 9.66%. As of December 31, 2023, the effective interest rate that would have been applied to any new SOFR-based borrowings under the Viasat Revolving Credit Facility was approximately 7.85%, and under the Inmarsat Revolving Credit Facility was approximately 8.36%. As of December 31, 2023, we had no outstanding borrowings under our Revolving Credit Facilities. Accordingly, assuming the outstanding balance under the 2022 Term Loan Facility, the 2023 Term Loan Facility and the Inmarsat Term Loan Facility remained constant over a year and we continued to have no outstanding borrowings under the Revolving Credit Facilities, a 50 basis point increase in the interest rates would increase interest incurred, prior to effects of capitalized interest but taking into account Inmarsat's interest rate cap contracts with respect to the Inmarsat Term Loan Facility, by approximately $6.8 million over a 12-month period.
We have entered into interest rate cap contracts to hedge the variable interest rates under the Inmarsat Term Loan Facility. The interest rate cap contracts provide protection of Compound SOFR up to 2% and cover 99% of the total nominal amount of the Inmarsat Term Loan Facility. As of December 31, 2023, a 100 basis point increase or decrease in interest rates would increase or decrease the carrying and fair values of the interest rate cap contract by approximately $18.0 million.
Foreign Exchange Risk
We generally conduct our business in U.S. dollars. However, as our international business is conducted in a variety of foreign currencies, we are exposed to fluctuations in foreign currency exchange rates. A five percent variance in foreign currencies in which our international business is conducted would change our income (loss) before income taxes by an insignificant amount for both the three and nine months ended December 31, 2023 and an insignificant amount and $1.6 million for the three and nine months ended December 31, 2022, respectively. Our objective in managing our exposure to foreign currency risk is to reduce earnings and cash flow volatility associated with foreign exchange rate fluctuations. Accordingly, from time to time, we may enter into foreign currency forward contracts to mitigate risks associated with foreign currency denominated assets, liabilities, commitments and anticipated foreign currency transactions.
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Item 4. Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified and pursuant to the requirements of the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
On May 30, 2023, the Inmarsat Acquisition was completed. SEC guidance permits management to omit an assessment of an acquired business’ internal control over financial reporting from management's assessment of internal control over financial reporting and disclosure controls and procedures for a period not to exceed one year from the date of the acquisition. Management has begun integrating Inmarsat into our existing control procedures. Integration activities relating to the Inmarsat Acquisition may lead us to modify certain controls in future periods.
As required by SEC Rule 13a-15(b), we carried out an evaluation, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2023, the end of the period covered by this report. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2023.
During the period covered by this report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Periodically, we are involved in a variety of claims, suits, investigations and proceedings arising in the ordinary course of business, including government investigations and claims, and other claims and proceedings with respect to intellectual property, breach of contract, labor and employment, tax and other matters. Such matters could result in fines; penalties, compensatory, treble or other damages; or non-monetary relief. A violation of government contract laws and regulations could also result in the termination of our government contracts or debarment from bidding on future government contracts. Although claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, we believe that the resolution of our current pending matters will not have a material adverse effect on our business, financial condition, results of operations or liquidity. Regardless of the outcome, litigation can have an adverse impact on us because of defense costs, diversion of management resources and other factors. In addition, it is possible that an unfavorable resolution of one or more such proceedings could in the future materially and adversely affect our business, financial condition, results of operations or liquidity in a particular period. For further information on the risks we face from existing and future claims, suits, investigations and proceedings, see “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 as supplemented by the factors discussed in Part II, Item 1A, "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, which factors could materially affect our business, financial condition, liquidity or future results. There have been no material changes to the risk factors described in the "Risk Factors" section in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 and such Quarterly Report on Form 10-Q. The risks described in our reports on Forms 10-K and 10-Q are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity or future results.
Item 5. Other Information
During the three months ended December 31, 2023, no director or officer, as defined in Rule 16a-1(f),
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Item 6. Exhibits
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Incorporated by Reference |
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Exhibit Description |
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File No. |
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Exhibit |
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Filing Date |
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Filed or Furnished Herewith |
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3.1 |
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10-Q |
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000-21767 |
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3.1 |
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11/09/2023 |
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4.1 |
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X |
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10.1** |
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Viasat, Inc. 1996 Equity Participation Plan Performance Stock Option Agreement |
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X |
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31.1 |
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Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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X |
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31.2 |
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Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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X |
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32.1* |
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101.INS |
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema with Embedded Linkbases Document |
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104 |
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Cover Page (formatted as inline XBRL and contained in Exhibit 101) |
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* The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the SEC and are not to be incorporated by reference into any filing of Viasat under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
** Indicates management contract, compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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VIASAT, INC. |
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February 8, 2024 |
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/s/ MARK DANKBERG |
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Mark Dankberg |
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Chairman of the Board and Chief Executive Officer |
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(Principal Executive Officer) |
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/s/ SHAWN DUFFY |
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Shawn Duffy |
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Senior Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
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