VIASAT, INC. Company Overview
We are an innovator in communications technologies and services, focused on making connectivity accessible, available and secure for all. Our end-to-end platform of high-capacity Ka-band satellites, ground infrastructure and user terminals enables us to provide cost-effective, high-speed, high-quality broadband solutions to enterprises, consumers and government users around the globe, whether on the ground, in the air or at sea. In addition, our government business includes a market-leading portfolio of military tactical data link systems, satellite communication products and services and cybersecurity and information assurance products and services. Our product, system and service offerings are often linked through common underlying technologies, customer applications and market relationships. We believe that our portfolio of products and services, combined with our vertical integration strategy and ability to effectively cross-deploy technologies between government and commercial segments and across different geographic markets, provides us with a strong foundation to sustain and enhance our leadership in advanced communications and networking technologies.
We conduct our business through three segments: satellite services, commercial networks and government systems.
COVID-19
InMarch 2020 , the global outbreak of COVID-19 was declared a pandemic by theWorld Health Organization and a national emergency by theU.S. Government . The COVID-19 pandemic and attempts to contain it, such as mandatory closures, "shelter-in-place" orders and travel restrictions, have caused significant disruptions and adverse effects onU.S. and global economies, including impacts to supply chains, customer demand and financial markets. We have taken measures to protect the health and safety of our employees and to work with our customers, employees, suppliers, subcontractors, distributors, resellers and communities to address the disruptions from the pandemic. At the end of the fourth quarter of fiscal year 2020, we began to see the impacts of the evolving COVID-19 pandemic. However, financial impacts related to COVID-19, including our actions and costs in response to the pandemic, were not material to our financial position, results of operations or cash flows in the fourth quarter of fiscal year 2020. We expect our diversified businesses to provide resiliency as we enter fiscal year 2021. Our government systems segment, which represented 49% of our total revenues during fiscal year 2020, continued to perform in line with our expectations, with theU.S. Government identifying the Defense Industrial Base as a critical infrastructure sector. Demand for products and services in our government systems segment remained strong despite the evolving COVID-19 pandemic, although our government business has experienced some administrative delays on certain contractual vehicles as government customers adjust to the challenges inherent in the remote work environment resulting from the COVID-19 pandemic. Sincemid-March 2020 , we have experienced an uptick in demand for our fixed broadband services as a result of the COVID-19 pandemic, and we are currently participating in certain federal and state programs to ensure our residential and small business customers inthe United States have access to connectivity during the pandemic. However, our in-flight services and mobile broadband satellite communications system businesses began to be negatively impacted by the COVID-19 pandemic in the fourth quarter of fiscal year 2020 and we expect this negative impact to continue in fiscal year 2021 and potentially beyond due to the severe decline in global air traffic and resulting downturn in the commercial aviation market. In fiscal year 2020, less than 10% of our total revenues were generated by services and products provided to commercial airlines reported in our satellite services and commercial networks segments. The extent of the impact of the COVID-19 pandemic on our business in fiscal year 2021 and beyond will depend on many factors, including the duration and scope of the public health emergency, the extent, duration and effectiveness of containment actions taken, the extent of its disruption to important global, regional and local supply chains and economic markets and the impact of the pandemic on overall supply and demand, consumer confidence, discretionary spending levels and levels of economic activity.
Satellite Services
Our satellite services segment uses our proprietary technology platform to provide satellite-based high-speed broadband services around the globe for use in commercial applications. Our proprietary Ka-band satellites are at the core of our technology platform. The primary services offered by our satellite services segment are comprised of:
• Fixed broadband services, which provide consumers and businesses with
high-speed, high-quality broadband internet access and VoIP services. As
of
590,000 U.S. subscribers (excluding subscribers whose service would have
ordinarily been terminated in the absence of the federal FCC Pledge and
similar state programs we are currently participating
46
--------------------------------------------------------------------------------
in to ensure our customers have access to connectivity during the COVID-19
pandemic). For the three months ended March 31, 2020 , ARPU was $93.06 .
• In-flight services, which provide industry-leading IFC, W-IFE and aviation
software services. As of
commercial aircraft in service, with IFC services anticipated to be
activated on approximately 750 additional commercial aircraft under our
existing customer agreements with commercial airlines. The number of
commercial aircraft in service may be negatively impacted in future
quarters due to the grounding of installed aircraft as a result of theimpact of the COVID-19 pandemic on global air traffic and the airline
industry. The timing of installation and entry into service for additional
aircraft under existing customer agreements may also be delayed due to
COVID-19 impacts. There can be no assurance that anticipated IFC services
will be activated on all such additional commercial aircraft.
• Community Internet services, which offer innovative, affordable,satellite-based connectivity in communities with poor or no other means of
internet access. The services help foster digital inclusion by enabling
millions of people to connect to affordable high-quality internet services
via a centralized community hotspot connected to the internet via
satellite. Our Community Internet services are currently offered primarily
in
the future.
• Other mobile broadband services, which include high-speed, satellite-based
internet services to seagoing vessels (such as energy offshore vessels,
cruise ships, consumer ferries and yachts), as well as L-band managed
services enabling real-time machine-to-machine (M2M) position tracking,
management of remote assets and operations, and visibility into critical
areas of the supply chain.
Commercial Networks
Our commercial networks segment develops and sells a wide array of advanced satellite and wireless products, antenna systems and terminal solutions that support or enable the provision of high-speed fixed and mobile broadband services. The primary products, systems, solutions and services offered by our commercial networks segment are comprised of:
• Mobile broadband satellite communication systems, designed for use in
aircraft and seagoing vessels.
• Fixed broadband satellite communication systems, including next-generation
satellite network infrastructure and ground terminals.
• Antenna systems, including ground terminals and antennas for terrestrial
and satellite applications, mobile satellite communication, Ka-band earth
stations and other multi-band antennas.
• Satellite networking development, including specialized design and
technology services covering all aspects of satellite communication system
architecture and technology.
• Space systems, including the design and development of high-capacity
Ka-band satellites and associated payload technologies for our own
satellite fleet as well as for third parties.
Government Systems
Our government systems segment offers a broad array of products and services designed to enable the collection and transmission of secure real-time digital information and communications between fixed and mobile command centers, intelligence and defense platforms and individuals in the field. The primary products and services of our government systems segment include:
• Government mobile broadband products and services, which provide military
and government users with high-speed, real-time, broadband and multimedia
connectivity in key regions of the world, as well as line-of-sight and
beyond-line-of-sight ISR missions.
• Government satellite communication systems, which offer an array of
portable, mobile and fixed broadband modems, terminals, network access
control systems and antenna systems, and include products designed for
manpacks, aircraft, UAVs, seagoing vessels, ground-mobile vehicles and
fixed applications.
• Secure networking, cybersecurity and information assurance products and
services, which provide advanced, high-speed IP-based "Type 1" and
HAIPE-compliant encryption solutions that enable military and government
users to communicate information securely over networks, and that protect
the integrity of data stored on computers and storage devices.
• Tactical data links, including our BATS-D handheld Link 16 radios, our STT
2-channel radios for manned and unmanned applications, "disposable"
defense data links, and our MIDS and MIDS-JTRS terminals for military
fighter jets.
47
--------------------------------------------------------------------------------
Sources of Revenues
Our satellite services segment revenues are primarily derived from our fixed broadband services, in-flight services, and worldwide L-band managed services.
Revenues in our commercial networks and government systems segments are primarily derived from three types of contracts: fixed-price, cost-reimbursement and time-and-materials contracts. Fixed-price contracts (which require us to provide products and services under a contract at a specified price) comprised approximately 88%, 90% and 88% of our total revenues for these segments for fiscal years 2020, 2019 and 2018, respectively. The remainder of our revenues in these segments for such periods was derived primarily from cost-reimbursement contracts (under which we are reimbursed for all actual costs incurred in performing the contract to the extent such costs are within the contract ceiling and allowable under the terms of the contract, plus a fee or profit) and from time-and-materials contracts (which reimburse us for the number of labor hours expended at an established hourly rate negotiated in the contract, plus the cost of materials utilized in providing such products or services). Our ability to grow and maintain our revenues in our commercial networks and government systems segments has to date depended on our ability to identify and target markets where the customer places a high priority on the technology solution, and our ability to obtain additional sizable contract awards. Due to the nature of this process, it is difficult to predict the probability and timing of obtaining awards in these markets. Historically, a significant portion of our revenues in our commercial networks and government systems segments has been derived from customer contracts that include the development of products. The development efforts are conducted in direct response to the customer's specific requirements and, accordingly, expenditures related to such efforts are included in cost of sales when incurred and the related funding (which includes a profit component) is included in revenues. Revenues for our funded development from our customer contracts were approximately 24%, 19% and 19% of our total revenues during fiscal years 2020, 2019 and 2018, respectively. We also incur IR&D expenses, which are not directly funded by a third party. IR&D expenses consist primarily of salaries and other personnel-related expenses, supplies, prototype materials, testing and certification related to R&D projects. IR&D expenses were approximately 6%, 6% and 11% of total revenues in fiscal years 2020, 2019 and 2018, respectively. As a government contractor, we are able to recover a portion of our IR&D expenses pursuant to our government contracts. Approximately 11%, 11% and 12% of our total revenues in fiscal years 2020, 2019 and 2018, respectively, were derived from international sales. Doing business internationally creates additional risks related to global political and economic conditions and other factors identified under the heading "Risk Factors" in Part I, Item 1A and elsewhere in this report.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America (GAAP). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We consider the policies discussed below to be critical to an understanding of our financial statements because their application places the most significant demands on management's judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. We describe the specific risks for these critical accounting policies in the following paragraphs. For all of these policies, we caution that future events rarely develop exactly as forecast, and even the best estimates routinely require adjustment.
Revenue recognition
We apply the five-step revenue recognition model under Accounting Standards
Update (ASU) 2014-09, Revenue from Contracts with Customers (commonly referred
to as Accounting Standards Codification (ASC) 606) to our contracts with our
customers. Under this model, we (1) identify the contract with the customer, (2)
identify our performance obligations in the contract, (3) determine the
transaction price for the contract, (4) allocate the transaction price to our
performance obligations and (5) recognize revenue when or as we satisfy our
performance obligations. These performance obligations generally include the
purchase of services (including broadband capacity and the leasing of broadband
equipment), the purchase of products, and the development and delivery of
complex equipment built to customer specifications under long-term contracts.
48
--------------------------------------------------------------------------------
The timing of satisfaction of performance obligations may require judgment. We
derive a substantial portion of our revenues from contracts with customers for
services, primarily consisting of connectivity services. These contracts
typically require advance or recurring monthly payments by the customer. Our
obligation to provide connectivity services is satisfied over time as the
customer simultaneously receives and consumes the benefits provided. The measure
of progress over time is based upon either a period of time (e.g., over the
estimated contractual term) or usage (e.g., bandwidth used/bytes of data
processed). We evaluate whether broadband equipment provided to our customer as
part of the delivery of connectivity services represents a lease in accordance
with ASC 842. As discussed in Note 1 - The Company and a Summary of Its
Significant Accounting Policies - Leases to our consolidated financial
statements, for broadband equipment leased to fixed broadband customers in
conjunction with the delivery of connectivity services, we account for the lease
and non-lease components of connectivity services arrangement as a single
performance obligation as the connectivity services represent the predominant
component.
We also derive a portion of our revenues from contracts with customers to
provide products. Performance obligations to provide products are satisfied at
the point in time when control is transferred to the customer. These contracts
typically require payment by the customer upon passage of control and
determining the point at which control is transferred may require judgment. To
identify the point at which control is transferred to the customer, we consider
indicators that include, but are not limited to, whether (1) we have the present
right to payment for the asset, (2) the customer has legal title to the asset,
(3) physical possession of the asset has been transferred to the customer, (4)
the customer has the significant risks and rewards of ownership of the asset,
and (5) the customer has accepted the asset. For product revenues, control
generally passes to the customer upon delivery of goods to the customer.
The vast majority of our revenues from long-term contracts to develop and
deliver complex equipment built to customer specifications are derived from
contracts with the U.S. government (including foreign military sales contracted
through the U.S. government). Our contracts with the U.S. government typically
are subject to the Federal Acquisition Regulation (FAR) and are priced based on
estimated or actual costs of producing goods or providing services. The FAR
provides guidance on the types of costs that are allowable in establishing
prices for goods and services provided under U.S. government contracts. The
pricing for non-U.S. government contracts is based on the specific negotiations
with each customer. Under the typical payment terms of our U.S. government
fixed-price contracts, the customer pays us either performance-based payments
(PBPs) or progress payments. PBPs are interim payments based on quantifiable
measures of performance or on the achievement of specified events or milestones.
Progress payments are interim payments based on a percentage of the costs
incurred as the work progresses. Because the customer can often retain a portion
of the contract price until completion of the contract, our U.S. government
fixed-price contracts generally result in revenue recognized in excess of
billings which we present as unbilled accounts receivable on the balance sheet.
Amounts billed and due from our customers are classified as receivables on the
balance sheet. The portion of the payments retained by the customer until final
contract settlement is not considered a significant financing component because
the intent is to protect the customer. For our U.S. government cost-type
contracts, the customer generally pays us for our actual costs incurred within a
short period of time. For non-U.S. government contracts, we typically receive
interim payments as work progresses, although for some contracts, we may be
entitled to receive an advance payment. We recognize a liability for these
advance payments in excess of revenue recognized and present it as collections
in excess of revenues and deferred revenues on the balance sheet. An advance
payment is not typically considered a significant financing component because it
is used to meet working capital demands that can be higher in the early stages
of a contract and to protect us from the other party failing to adequately
complete some or all of its obligations under the contract.
Performance obligations related to developing and delivering complex equipment
built to customer specifications under long-term contracts are recognized over
time as these performance obligations do not create assets with an alternative
use to us and we have an enforceable right to payment for performance to date.
To measure the transfer of control, revenue is recognized based on the extent of
progress towards completion of the performance obligation. The selection of the
method to measure progress towards completion requires judgment and is based on
the nature of the products or services to be provided. We generally use the
cost-to-cost measure of progress for our contracts because that best depicts the
transfer of control to the customer which occurs as we incur costs on our
contracts. Under the cost-to-cost measure of progress, the extent of progress
towards completion is measured based on the ratio of costs incurred to date to
the total estimated costs at completion of the performance obligation.
Estimating the total costs at completion of a performance obligation requires
management to make estimates related to items such as subcontractor performance,
material costs and availability, labor costs and productivity and the costs of
overhead. When estimates of total costs to be incurred on a contract exceed
total estimates of revenue to be earned, a provision for the entire loss on the
contract is recognized in the period the loss is determined. A one percent
variance in our future cost estimates on open fixed-price contracts as of
March 31, 2020 would change our income before income taxes by an insignificant
amount.
The evaluation of transaction price, including the amounts allocated to
performance obligations, may require significant judgments. Due to the nature of
the work required to be performed on many of our performance obligations, the
estimation of total revenue, and where applicable the cost at completion, is
complex, subject to many variables and
49
--------------------------------------------------------------------------------
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.
Deferred costs to obtain or fulfill contract
Under ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers, we recognize an asset from the incremental costs of obtaining a contract with a customer, if we expect to recover those costs. The incremental costs of obtaining a contract are those costs that we incur to obtain a contract with a customer that we would not have incurred if the contract had not been obtained. ASC 340-40 also requires the recognition of an asset from the costs incurred to fulfill a contract when (1) the costs relate directly to a contract or to an anticipated contract that we can specifically identify, (2) the costs generate or enhance our resources that will be used in satisfying (or in continuing to satisfy) performance obligations in the future, and (3) the costs are expected to be recovered. We recognize an asset related to commission costs incurred primarily in our satellite services segment and recognize an asset related to costs incurred to fulfill contracts. Costs to acquire customer contracts are amortized over the estimated customer contract life. Costs to fulfill customer contracts are amortized in proportion to the revenue to which the costs relate. For contracts with an estimated amortization period of less than one year, we expense incremental costs immediately.
Warranty reserves
We provide limited warranties on our products for periods of up to five years. We record a liability for our warranty obligations when we ship the products or they are included in long-term construction contracts based upon an estimate of expected warranty costs. Amounts expected to be incurred within 12 months are classified as accrued liabilities and amounts expected to be incurred beyond 12 months are classified as other liabilities in the consolidated financial statements. For mature products, we estimate the warranty costs based on historical experience with the particular product. For newer products that do not have a history of warranty costs, we base our estimates on our experience with the technology involved and the types of failures that may occur. It is possible that our underlying assumptions will not reflect the actual experience, and in that case, we will make future adjustments to the recorded warranty obligation.
Property, equipment and satellites
Satellites and other property and equipment are recorded at cost or in the case
of certain satellites and other property acquired, the fair value at the date of
acquisition, net of accumulated depreciation. Capitalized satellite costs
consist primarily of the costs of satellite construction and launch, including
launch insurance and insurance during the period of in-orbit testing, the net
present value of performance incentive payments expected to be payable to the
satellite manufacturers (dependent on the continued satisfactory performance of
the satellites), costs directly associated with the monitoring and support of
satellite construction, and interest costs incurred during the period of
satellite construction. We also construct earth stations, network operations
systems and other assets to support our satellites, and those construction
costs, including interest, are capitalized as incurred. At the time satellites
are placed in service, we estimate the useful life of our satellites for
depreciation purposes based upon an analysis of each satellite's performance
against the original manufacturer's orbital design life, estimated fuel levels
and related consumption rates, as well as historical
50--------------------------------------------------------------------------------
satellite operating trends. We periodically review the remaining estimated useful life of our satellites to determine if revisions to the estimated useful lives are necessary.
We own three satellites in service (ViaSat -2,ViaSat -1 and WildBlue-1) and have lifetime leases of Ka-band capacity on two satellites. We also have a global constellation of three third-generationViaSat -3 class satellites under construction. In addition, we own related earth stations and networking equipment for all of our satellites. Property, equipment and satellites, net also includes the customer premise equipment (CPE) units leased to subscribers under a retail leasing program as part of our satellite services segment.
Leases
For contracts entered into on or afterApril 1, 2019 , we assess at contract inception whether the contract is, or contains, a lease. Generally, we determine that a lease exists when (i) the contract involves the use of a distinct identified asset, (ii) we obtain the right to substantially all economic benefits from use of the asset, and (iii) 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: (i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (iii) the lease term is for a major part of the remaining useful life of the asset, (iv) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (v) 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. Starting atApril 1, 2019 , 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 (i) fixed lease payments for the noncancelable lease term, (ii) fixed lease payments for optional renewal periods where it is reasonably certain the renewal option will be exercised, and (iii) variable lease payments that depend on an underlying index or rate, based on the index or rate in effect at lease commencement. Certain of our real estate lease agreements require variable lease payments that do not depend on an underlying index or rate established at lease commencement. Such payments and changes in payments based on a rate or index are recognized in operating expenses when incurred. Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the depreciation of assets obtained under finance leases on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. For both operating and finance leases, lease payments are allocated between a reduction of the lease liability and interest expense. For broadband equipment leased to fixed broadband customers in conjunction with the delivery of connectivity services, we have made an accounting policy election not to separate the broadband equipment from the related connectivity services. The connectivity services are the predominant component of these arrangements. The connectivity services are accounted for in accordance ASC 606. We are also a lessor for certain insignificant communications equipment. These leases meet the criteria for operating lease classification. Lease income associated with these leases is not material.
Impairment of long-lived and other long-term assets (property, equipment and satellites, and other assets, including goodwill)
In accordance with the authoritative guidance for impairment or disposal of
long-lived assets (ASC 360), we assess potential impairments to our long-lived
assets, including property, equipment and satellites and other assets, when
there is evidence that events or changes in circumstances indicate that the
carrying value may not be recoverable. We recognize an impairment loss when the
undiscounted cash flows expected to be generated by an asset (or group of
assets) are less than the asset's carrying value. Any required impairment loss
would be measured as the amount by which the asset's carrying value exceeds its
fair value, and would be recorded as a reduction in the carrying value of the
related asset and charged to results of operations. No material impairments were
recorded by us for fiscal years 2020, 2019 and 2018.
51
--------------------------------------------------------------------------------
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 the third quarter of
fiscal year 2020. ASU 2017-04 simplifies how we test goodwill for impairment by
removing Step 2 from the goodwill impairment test. 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. If it is more likely than not that the
carrying value of the reporting unit exceeds its estimated fair value, we
compare the fair value of the reporting unit to its carrying value. 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.
Furthermore, in addition to qualitative analysis, we believe it is appropriate
to conduct a quantitative analysis periodically as a prudent review of our
reporting unit goodwill fair values. We performed this analysis as of December
31, 2019 , our annual impairment test date. Our quantitative analysis estimates
the fair values of the reporting units using discounted cash flows and other
indicators of fair value. The forecast of future cash flow is based on our best
estimate of each reporting unit's future revenue and operating costs, based
primarily on existing firm orders, expected future orders, contracts with
suppliers, labor resources, general market conditions, and other relevant
factors. Based on a quantitative analysis for fiscal year 2020, we concluded
that estimated fair values of our reporting units significantly exceed their
respective carrying values.
Based on our qualitative and quantitative assessment performed during the fourth
quarter of fiscal year 2020 and the additional qualitative and quantitative
considerations as of March 31, 2020 in light of the significant decline in our
market capitalization following the COVID-19 outbreak, 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, 2020 .
Income taxes and valuation allowance on deferred tax assets
Management evaluates the realizability of our deferred tax assets and assesses the need for a valuation allowance on a quarterly basis to determine if the weight of available evidence suggests that an additional valuation allowance is needed. In accordance with the authoritative guidance for income taxes (ASC 740), net deferred tax assets are reduced by a valuation allowance if, based on all the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the event that our estimate of taxable income is less than that required to utilize the full amount of any deferred tax asset, a valuation allowance is established, which would cause a decrease to income in the period such determination is made. Our valuation allowance against deferred tax assets increased from$33.5 million atMarch 31, 2019 to$42.6 million atMarch 31, 2020 . The valuation allowance relates to state and foreign net operating loss carryforwards, state R&D tax credit carryforwards and foreign tax credit carryforwards. Our analysis of the need for a valuation allowance on deferred tax assets considered historical as well as forecasted future operating results. In addition, our evaluation considered other factors, including our contractual backlog, our history of positive earnings, current earnings trends assuming our satellite services segment continues to grow, taxable income adjusted for certain items, and forecasted income by jurisdiction. We also considered the period over which these net deferred tax assets can be realized and our history of not having federal tax loss carryforwards expire unused. Accruals for uncertain tax positions are provided for in accordance with the authoritative guidance for accounting for uncertainty in income taxes (ASC 740). Under the authoritative guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative guidance addresses the derecognition of income tax assets and liabilities, classification of deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. 52 -------------------------------------------------------------------------------- We are subject to income taxes inthe United States and numerous foreign jurisdictions. In the ordinary course of business, there are calculations and transactions where the ultimate tax determination is uncertain. In addition, changes in tax laws and regulations as well as adverse judicial rulings could adversely affect the income tax provision. We believe we have adequately provided for income tax issues not yet resolved with federal, state and foreign tax authorities. However, if these provided amounts prove to be more than what is necessary, the reversal of the reserves would result in tax benefits being recognized in the period in which we determine that provision for the liabilities is no longer necessary. If an ultimate tax assessment exceeds our estimate of tax liabilities, an additional charge to expense would result.
Results of Operations
The following table presents, as a percentage of total revenues, income statement data for the periods indicated:
Fiscal Years Ended
March 31, March 31, March 31,
2020 2019 2018
Revenues: 100.0 % 100.0 % 100.0 %
Product revenues 51 53 47
Service revenues 49 47 53
Operating expenses:
Cost of product revenues 37 40 35
Cost of service revenues 33 34 36
Selling, general and administrative 23 22 24
Independent research and development 6 6
11
Amortization of acquired intangible assets - - 1 Income (loss) from operations 2 (3 ) (6 ) Interest expense, net (2 ) (2 ) - Loss on extinguishment of debt - - (1 ) Income (loss) before income taxes - (5 ) (7 ) Benefit from income taxes - 2 2 Net income (loss) 1 (3 ) (4 ) Net loss attributable to Viasat, Inc. - (3 ) (4 )
Fiscal Year 2020 Compared to Fiscal Year 2019
Revenues
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2020 2019 (Decrease) (Decrease)
Product revenues $ 1,172.5 $ 1,092.7 $ 79.9 7 %
Service revenues 1,136.7 975.6 161.1 17 %
Total revenues $ 2,309.2 $ 2,068.3 $ 241.0 12 %
Our total revenues grew by $241.0 million as a result of a $161.1 million
increase in service revenues and a $79.9 million increase in product revenues.
The service revenue increase was due to an increase of $142.4 million in our
satellite services segment, $9.7 million in our commercial networks segment and
$9.0 million in our government systems segment. The product revenue increase was
driven primarily by an increase of $173.4 million in our government systems
segment, partially offset by a decrease in product revenues of $93.6 million in
our commercial networks segment.
53--------------------------------------------------------------------------------
Cost of revenues
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2020 2019 (Decrease) (Decrease)
Cost of product revenues $ 845.8 $ 834.5 $ 11.3 1 %
Cost of service revenues 763.9 703.2 60.7 9 %
Total cost of revenues $ 1,609.7 $ 1,537.7 $ 72.0 5 %
Cost of revenues increased by $72.0 million due to increases of $60.7 million in
cost of service revenues and $11.3 million in cost of product revenues. The cost
of service revenue increase was primarily due to increased revenues, mainly from
our satellite services segment, causing a $116.2 million increase in cost of
service revenues on a constant margin basis. The increase in cost of service
revenues was partially offset by improved margins, primarily driven by our fixed
broadband services and IFC services in our satellite services segment. The cost
of product revenue increase mainly related to increased revenues, causing a
$61.0 million increase in cost of product revenues on a constant margin basis
mainly from revenue increases in our government systems segment, partially
offset by decreased revenues in our commercial networks segment. The increase in
cost of product revenues was partially offset by improved margins, primarily
driven by our tactical satcom radio products and government satellite
communication systems products in our government systems segment and our
satellite networking development program products in our commercial networks
segment.
Selling, general and administrative expenses
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2020 2019
(Decrease) (Decrease)
Selling, general and administrative
14 %
The $64.6 million increase in SG&A expenses reflected an increase in support
costs of $68.6 million , which was reflected in all three segments, with the
highest increase in the satellite services segment. This increase also reflects
a gain of approximately $7.5 million recorded in the prior year period as a
reduction to SG&A expenses in our satellite services segment related to our
ViaSat -2 satellite insurance claims. These increases in SG&A expenses were
partially offset by a decrease in selling costs of $5.3 million driven by our
satellite services segment. SG&A expenses consisted primarily of personnel costs
and expenses for business development, marketing and sales, bid and proposal,
facilities, finance, contract administration and general management.
Independent research and development
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2020 2019
(Decrease) (Decrease)
Independent research and development
6 %
The $7.4 million increase in IR&D expenses was primarily the result of an
increase of $12.1 million in IR&D efforts in our commercial networks segment
(primarily related to mobile broadband satellite communication systems and
next-generation satellite payload technologies), partially offset by a decrease
of $4.3 million in IR&D efforts in our government systems segment (primarily
related to development of next-generation dual band mobility solutions).
Amortization of acquired intangible assets
We amortize our acquired intangible assets from prior acquisitions over their
estimated useful lives, which range from two to ten years. The
54--------------------------------------------------------------------------------
becoming fully amortized during the prior fiscal year. Current and expected
amortization expense for acquired intangible assets for each of the following
periods is as follows:
Amortization
(In thousands)
Expected for fiscal year 2021 $ 5,120
Expected for fiscal year 2022 3,297
Expected for fiscal year 2023 2,993
Expected for fiscal year 2024 2,472
Expected for fiscal year 2025 557
Thereafter -
$ 14,439
Interest income
The
Interest expense
The$11.4 million decrease in interest expense in fiscal year 2020 compared to fiscal year 2019 was primarily due to a decrease in interest expense attributable to the Ex-Im Credit Facility, as the insurance recovery proceeds related to theViaSat -2 satellite were used to pay down outstanding borrowings under the Ex-Im Credit Facility in the prior year period, coupled with an increase in the amount of interest capitalized. This decrease was partially offset by an increase in interest expense attributable to the 2027 Notes, which were issued inMarch 2019 . Capitalized interest during fiscal year 2020 related to construction of ourViaSat -3 class satellites, gateway and networking equipment and other assets.
Income taxes
The income tax benefit in fiscal year 2020 reflected benefit from federal and
state R&D tax credits, partially offset by the tax expense from our income
before income taxes. The income tax benefit in fiscal year 2019 reflected the
tax benefit from our loss before income taxes and the benefit from federal and
state R&D tax credits.
55
--------------------------------------------------------------------------------
Segment Results for Fiscal Year 2020 Compared to Fiscal Year 2019
Satellite services segment
Revenues
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2020 2019 (Decrease) (Decrease)
Segment product revenues $ - $ - $ - - %
Segment service revenues 826.6 684.2 142.4 21 %
Total segment revenues $ 826.6 $ 684.2 $ 142.4 21 %
Our satellite services segment revenues increased by $142.4 million as a result
of a $142.4 million increase in service revenues. The increase in service
revenues was primarily driven by the expansion of our fixed broadband services
and IFC services. The fixed broadband service revenue increase was driven by
higher average revenue per fixed broadband subscriber in the United States when
compared to the same period last fiscal year, reflecting a higher mix of new and
existing subscribers choosing Viasat's premium highest speed plans. Since
mid-March 2020 , we have experienced an uptick in demand for our fixed broadband
services as a result of the COVID-19 pandemic, and we are currently
participating in certain federal and state programs to ensure our residential
and small business customers have access to connectivity during the pandemic.
Total subscribers at March 31, 2020 were approximately 590,000 (excluding
subscribers whose service would have ordinarily been terminated in the absence
of the federal FCC Pledge and similar state programs we are currently
participating in related to the COVID-19 pandemic) compared to 586,000
subscribers at March 31, 2019 . The IFC service revenue increase was driven
primarily by the increase in the number of commercial aircraft receiving our
in-flight services through our IFC systems, with 1,390 commercial aircraft in
service utilizing our IFC systems as of March 31, 2020 , compared
to 1,312 commercial aircraft in service as of March 31, 2019 . However, our
in-flight services business began to be negatively impacted by the COVID-19
pandemic in the fourth quarter of fiscal year 2020 and we expect this negative
impact to continue in fiscal year 2021 and potentially beyond due to the severe
decline in global air traffic and the associated grounding of installed
aircraft.
Segment operating profit (loss)
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase (Increase)
(In millions, except percentages) 2020 2019 (Decrease) Decrease
Segment operating profit (loss) $ 7.0 $ (64.3 ) $ 71.3 (111 )%
Percentage of segment revenues 1 % (9 )%
The change in our satellite services segment operating loss to an operating
profit was driven primarily by higher earnings contributions of $99.4 million ,
mainly due to increased revenues of our fixed broadband services and IFC
services, partially offset by higher support costs and our investments in global
broadband businesses.
56
--------------------------------------------------------------------------------
Commercial networks segment
Revenues
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2020 2019 (Decrease) (Decrease)
Segment product revenues $ 290.0 $ 383.5 $ (93.6 ) (24 )%
Segment service revenues 54.6 44.9 9.7 22 %
Total segment revenues $ 344.6 $ 428.4 $ (83.8 ) (20 )%
Our commercial networks segment revenues decreased by $83.8 million , primarily
due to a $93.6 million decrease in product revenues, partially offset by a $9.7
million increase in service revenues. The decrease in product revenues was
primarily due to a decrease of $125.4 million in mobile broadband satellite
communication systems products due to accelerated IFC terminal deliveries in the
prior year period, partially offset by increases of $13.5 million in satellite
networking development programs products and $12.9 million in antenna systems
products. The service revenue increase was mainly due to a $11.4 million
increase in mobile broadband satellite communication systems services.
Segment operating loss
Fiscal Years Ended Dollar Percentage
March 31, March 31, (Increase) (Increase)
(In millions, except percentages) 2020 2019 Decrease Decrease
Segment operating loss $ (186.9 ) $ (166.6 ) $ (20.3 ) (12 )%
Percentage of segment revenues (54 )% (39 )%
The $20.3 million increase in our commercial networks segment operating loss was
driven primarily by a $12.9 million increase in SG&A expenses and an increase of
$12.1 million in IR&D expenses (primarily related to mobile broadband satellite
communication systems and next-generation satellite payload technologies). The
increase in operating loss was partially offset by higher earnings contributions
of $4.7 million , driven by increased revenues and improved margins from our
satellite networking development programs products.
Government systems segment
Revenues
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2020 2019 (Decrease) (Decrease)
Segment product revenues $ 882.6 $ 709.1 $ 173.4 24 %
Segment service revenues 255.5 246.5 9.0 4 %
Total segment revenues $ 1,138.1 $ 955.6 $ 182.4 19 %
Our government systems segment revenues increased by $182.4 million due to
increases of $173.4 million in product revenues and $9.0 million in service
revenues. The product revenue increase was due to a $65.5 million increase in
tactical satcom radio products, a $58.4 million increase in tactical data link
products, a $42.6 million increase in government satellite communication systems
products and a $23.1 million increase in government mobile broadband products,
partially offset by a $15.5 million decrease in cybersecurity and information
assurance products. The service revenue increase was primarily due to a $5.5
million increase in government mobile broadband services and a $3.7 million
increase in tactical data link services.
57--------------------------------------------------------------------------------
Segment operating profit
Fiscal Years Ended Dollar Percentage
March 31, March 31, Increase Increase
(In millions, except percentages) 2020 2019 (Decrease) (Decrease)
Segment operating profit $ 225.9 $ 180.0 $ 45.9 26 %
Percentage of segment revenues 20 % 19 %
The $45.9 million increase in our government systems segment operating profit
was primarily due to higher earnings contributions of $66.9 million , primarily
due to an increase in revenues and improved margins from our tactical satcom
radio products and government satellite communication systems products and
increased revenues from tactical data link products. This increase was partially
offset by higher SG&A costs of $25.3 million .
Fiscal Year 2019 Compared to Fiscal Year 2018
For a discussion of our results of operations for fiscal year 2019 as compared to fiscal year 2018, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2019 .
Backlog
As reflected in the table below, our overall firm and funded backlog increased during fiscal year 2020. The increases in both firm and funded backlog were attributable to increases in our satellite services and commercial networks segments.
As of As of
March 31, 2020 March 31, 2019
(In millions)Firm backlog Satellite services segment $ 611.3 $ 581.3 Commercial networks segment
408.1 353.8
Government systems segment 851.3 931.2
Total $ 1,870.7 $ 1,866.3 Funded backlog Satellite services segment $ 611.3 $ 581.3 Commercial networks segment
408.1 353.8
Government systems segment 858.7 912.0
Total $ 1,878.1 $ 1,847.1
The firm backlog does not include contract options. Of the $1.9 billion in firm
backlog, a little over half is expected to be delivered during the next twelve
months, with the balance delivered thereafter. We include in our backlog only
those orders for which we have accepted purchase orders, and not anticipated
purchase orders and requests. In our satellite services segment, our backlog
includes fixed broadband service revenues under our subscriber agreements, but
does not include future recurring IFC service revenues under our agreements with
commercial airlines. As of March 31, 2020 , we provided IFC services to 1,390
commercial aircraft, with IFC services anticipated to be activated on
approximately 750 additional commercial aircraft under our existing customer
agreements with commercial airlines. The number of commercial aircraft in
service may be negatively impacted in future quarters due to the grounding of
installed aircraft as a result of the impact of the COVID-19 pandemic on global
air traffic and the airline industry. The timing of installation and entry into
service of IFC systems on additional aircraft under existing customer agreements
may also be delayed as a result of the impact of the COVID-19 pandemic on the
global airline industry. Accordingly, there can be no assurance that all
anticipated purchase orders and requests will be placed or that anticipated IFC
services will be activated.
Our total new awards exclude future revenue under recurring consumer commitment
arrangements and were approximately $2.3 billion , $2.4 billion and $1.7 billion
for fiscal years 2020, 2019 and 2018, respectively.
Backlog is not necessarily indicative of future sales. A majority of our
contracts can be terminated at the convenience of the customer. Orders are often
made substantially in advance of delivery, and our contracts typically provide
that orders may be terminated with limited or no penalties. In addition,
purchase orders may present product specifications that would require us to
complete additional product development. A failure to develop products meeting
such specifications could lead to a termination of the related contract.
58
--------------------------------------------------------------------------------
Firm backlog amounts are comprised of funded and unfunded components. Funded
backlog represents the sum of contract amounts for which funds have been
specifically obligated by customers to contracts. Unfunded backlog represents
future amounts that customers may obligate over the specified contract
performance periods. Our customers allocate funds for expenditures on long-term
contracts on a periodic basis. Our ability to realize revenues from contracts in
backlog is dependent upon adequate funding for such contracts. Although we do
not control the funding of our contracts, our experience indicates that actual
contract funding has ultimately been approximately equal to the aggregate
amounts of the contracts.
Liquidity and Capital Resources
Overview
We have financed our operations to date primarily with cash flows from operations, bank line of credit financing, debt financing, export credit agency financing and equity financing. AtMarch 31, 2020 , we had$304.3 million in cash and cash equivalents,$441.1 million in working capital, and$390.0 million in principal amount of outstanding borrowings and borrowing availability of$292.7 million under our Revolving Credit Facility. AtMarch 31, 2019 , we had$261.7 million in cash and cash equivalents,$401.7 million in working capital, and no outstanding borrowings and borrowing availability of$680.4 million under the Revolving Credit Facility. We invest our cash in excess of current operating requirements in short-term, highly liquid bank money market accounts. Our future capital requirements will depend upon many factors, including the timing and amount of cash required for our satellite projects and any future broadband satellite projects we may engage in, expansion of our R&D and marketing efforts, and the nature and timing of orders. Additionally, we will continue to evaluate possible acquisitions of, or investments in complementary businesses, products and technologies which may require the use of cash or additional financing. The general cash needs of our satellite services, commercial networks and government systems segments can vary significantly. The cash needs of our satellite services segment tend to be driven by the timing and amount of capital expenditures (e.g., payments under satellite construction and launch contracts and investments in ground infrastructure roll-out), investments in joint ventures, strategic partnering arrangements and network expansion activities, as well as the quality of customer, type of contract and payment terms. In our commercial networks segment, cash needs tend to be driven primarily by the type and mix of contracts in backlog, the nature and quality of customers, the timing and amount of investments in IR&D activities (including with respect to next-generation satellite payload technologies) and the payment terms of customers (including whether advance payments are made or customer financing is required). In our government systems segment, the primary factors determining cash needs tend to be the type and mix of contracts in backlog (e.g., product or service, development or production) and timing of payments (including restrictions on the timing of cash payments underU.S. government procurement regulations). Other factors affecting the cash needs of our commercial networks and government systems segments include contract duration and program performance. For example, if a program is performing well and meeting its contractual requirements, then its cash flow requirements are usually lower. To further enhance our liquidity position or to finance the construction and launch of any future satellites, acquisitions, strategic partnering arrangements, joint ventures or other business investment initiatives, we may obtain additional financing, which could consist of debt, convertible debt or equity financing from public and/or private credit and capital markets. InFebruary 2019 , we filed a universal shelf registration statement with theSEC for the future sale of an unlimited amount of common stock, preferred stock, debt securities, depositary shares, warrants and rights. The securities may be offered from time to time, separately or together, directly by us, by selling security holders, or through underwriters, dealers or agents at amounts, prices, interest rates and other terms to be determined at the time of the offering. To date, COVID-19 has not had a significant impact on our liquidity, cash flows or capital resources. However, we have taken measures to mitigate the impact of COVID-19 on our business and financial position, including deferring certain capital expenditures, reducing discretionary expenditures and undertaking cost-reduction actions. We also drew$280.0 million , net, under our Revolving Credit Facility during the fourth quarter of fiscal year 2020 as a precautionary measure to preserve financial flexibility as we manage the impact of COVID-19. Given our current cash position, outlook for funds generated from operations, remaining borrowing availability under our Revolving Credit Facility of$292.7 million , cash needs and debt structure, we have not experienced to date, and do not expect to experience, any material issues with liquidity. Although we can give no assurances concerning our future liquidity, we believe that our current cash balances and net cash expected to be provided by operating activities along with availability under our Revolving Credit Facility will be sufficient to meet our anticipated operating requirements for at least the next 12 months. 59
--------------------------------------------------------------------------------
Cash flows
Cash provided by operating activities for fiscal year 2020 was$436.9 million compared to$327.6 million for fiscal year 2019. This$109.4 million increase was primarily driven by our operating results (net income adjusted for depreciation, amortization and other non-cash changes) which resulted in$136.6 million of higher cash provided by operating activities year-over-year, partially offset by a$27.3 million year-over-year increase in cash used to fund net operating assets. The increase in cash used to fund net operating assets during fiscal year 2020 when compared to fiscal year 2019 was primarily due to an increase in cash used for inventory in our commercial networks segment reflecting the accelerated install schedule in mobile broadband satellite communications systems products in the prior year period and timing of payments related to our accrued liabilities. Cash used in investing activities for fiscal year 2020 was$758.8 million compared to$489.4 million for fiscal year 2019. This$269.4 million increase in cash used in investing activities year-over year reflects an increase of$87.3 million in cash used for satellite construction, as well as the receipt in fiscal year 2019 of$183.4 million in insurance proceeds from insurance claims relating to theViaSat -2 satellite. Cash provided by financing activities for fiscal year 2020 was$365.2 million compared to$354.6 million for fiscal year 2019. Cash provided by financing activities year-over-year included a decrease in payments on borrowings under our Revolving Credit Facility of$480.0 million , a decrease in payments on borrowings under the Ex-Im Credit Facility of$201.2 million and a decrease of$7.3 million in payments of debt issuance costs, offset by lower proceeds from borrowings under our Revolving Credit Facility of$90.0 million and the receipt in the prior year period of$600.0 million of gross proceeds from our 2027 Notes. Cash provided by financing activities for both periods included cash received from stock option exercises and employee stock purchase plan purchases which were$12.1 million higher year-over-year. Both periods also included the repurchase of common stock related to net share settlement of certain employee tax liabilities in connection with the vesting of restricted stock unit awards.
Satellite-related activities
In connection with the development of any new generation satellite design, and the launch of any new satellite and the commencement of the related service, we expect to incur additional operating costs that negatively impact our financial results. For example, whenViaSat -2 was placed in service in the fourth quarter of fiscal year 2018, this resulted in additional operating costs in our satellite services segment during the ramp-up period prior to service launch and in the fiscal year following service launch. These increased operating costs included depreciation, amortization of capitalized software development, earth station connectivity, marketing and advertising costs, logistics, customer care and various support systems. In addition, interest expense increased during fiscal year 2019 as we no longer capitalized the interest expense relating to the debt incurred for the construction ofViaSat -2 and the related gateway and networking equipment once the satellite was in service. However, as the services we provide using the new satellite continue to scale, we expect to expand the revenue base for our broadband services and gain operating cost efficiencies, which together we expect will yield incremental segment earnings contributions, partially offset by investments associated with our global business and emerging markets growth. However, there can be no assurance that we will be successful in significantly increasing revenues or achieving operating profit in our satellite services segment. We anticipate that we will incur a similar cycle of increased operating costs as we prepare for and launch commercial services on future satellites, including ourViaSat -3 constellation, followed by increases in revenue base and in scale. Our first twoViaSat -3 class satellites, which are expected to cover theAmericas and the EMEA region, respectively, entered the phase of full construction during the second half of fiscal year 2018. InJuly 2019 , we entered into an agreement with Boeing for the construction and purchase of a thirdViaSat -3 class satellite and the integration of our payload technologies into the satellite. This satellite is expected to cover the APAC region. We expect ourViaSat -3 constellation, once in service, to provide a substantial amount of capacity and to enable us to deliver affordable connectivity across most of the world. The projected aggregate total project cost for the first twoViaSat -3 class satellites, including the satellites, launches, insurance and related earth station infrastructure, through satellite launch is estimated to be between$1.4 billion and$1.5 billion , and will depend on the timing of the earth station infrastructure roll-out of each satellite and the method we use to procure fiber access. We believe we have adequate sources of funding for theViaSat -3 class satellites, which include, but are not limited to, our cash on hand, borrowing capacity and the cash we expect to generate from operations over the next few years. Our total cash funding may be reduced through various third-party agreements, including potential joint service offerings and other strategic partnering arrangements. Our IR&D investments are expected to continue through fiscal year 2021 and beyond relating toViaSat -3 ground infrastructure and support of our government and commercial air mobility businesses. We expect to continue to invest in IR&D at a significant level as we continue our focus on leadership and innovation in satellite and space technologies. However, the level of investment in a given fiscal year will depend on a variety of factors, including the stage of development of our satellite projects, new market opportunities and our overall operating performance. In fiscal year 2021, 60
--------------------------------------------------------------------------------
capital expenditures are expected to increase when compared to fiscal year 2020,
as we have a third
Revolving Credit Facility
As ofMarch 31, 2020 , the Revolving Credit Facility provided a$700.0 million revolving line of credit (including up to$150.0 million of letters of credit), with a maturity date ofJanuary 18, 2024 . As ofMarch 31, 2020 , we had$390.0 million in principal amount of outstanding borrowings under the Revolving Credit Facility and$17.3 million outstanding under standby letters of credit, leaving borrowing availability under the Revolving Credit Facility as ofMarch 31, 2020 of$292.7 million . Borrowings under the Revolving Credit Facility bear interest, at our option, at either (1) the highest of the Federal Funds rate plus 0.50%, the Eurodollar rate plus 1.00%, or the administrative agent's prime rate as announced from time to time, or (2) the Eurodollar rate, plus, in the case of each of (1) and (2), an applicable margin that is based on our total leverage ratio. As ofMarch 31, 2020 , the weighted average effective interest rate on our outstanding borrowings under the Revolving Credit Facility was 2.70%. The Revolving Credit Facility is required to be guaranteed by certain significant domestic subsidiaries ofViasat (as defined in the Revolving Credit Facility) and secured by substantially all of our assets. As ofMarch 31, 2020 , none of our subsidiaries guaranteed the Revolving Credit Facility. The Revolving Credit Facility contains financial covenants regarding a maximum total leverage ratio and a minimum interest coverage ratio. In addition, the Revolving Credit Facility contains covenants that restrict, among other things, our ability to sell assets, make investments and acquisitions, make capital expenditures, grant liens, pay dividends and make certain other restricted payments.
Ex-Im Credit Facility
The Ex-Im Credit Facility originally provided a$362.4 million senior secured direct loan facility, which was fully drawn. Of the$362.4 million in principal amount of borrowings made under the Ex-Im Credit Facility,$321.2 million was used to finance up to 85% of the costs of construction, launch and insurance of theViaSat -2 satellite and related goods and services (including costs incurred on or afterSeptember 18, 2012 ), with the remaining$41.2 million used to finance the total exposure fees incurred under the Ex-Im Credit Facility (which included all previously accrued completion exposure fees). As ofMarch 31, 2020 , we had$117.9 million in principal amount of outstanding borrowings under the Ex-Im Credit Facility. Borrowings under the Ex-Im Credit Facility bear interest at a fixed rate of 2.38%, payable semi-annually in arrears. The effective interest rate on our outstanding borrowings under the Ex-Im Credit Facility, which takes into account timing and amount of borrowings and payments, exposure fees, debt issuance costs and other fees, is 4.54%. Borrowings under the Ex-Im Credit Facility are required to be repaid in 16 semi-annual principal installments, which commenced onApril 15, 2018 , with a maturity date ofOctober 15, 2025 . Pursuant to the terms of the Ex-Im Credit Facility, certain insurance proceeds related to theViaSat -2 satellite must be used to pay down outstanding borrowings under the Ex-Im Credit Facility upon receipt. During the first three months of fiscal year 2020, we received the remaining insurance proceeds of$2.3 million , which were in addition to the$185.7 million of insurance proceeds received during fiscal year 2019 related to theViaSat -2 satellite, all of which were used to pay down outstanding borrowings under the Ex-Im Credit Facility upon receipt. The Ex-Im Credit Facility is guaranteed byViasat and is secured by first-priority liens on theViaSat -2 satellite and related assets as well as a pledge of the capital stock of the borrower under the facility. The Ex-Im Credit Facility contains financial covenants regardingViasat's maximum total leverage ratio and minimum interest coverage ratio. In addition, the Ex-Im Credit Facility contains covenants that restrict, among other things, our ability to sell assets, make investments and acquisitions, make capital expenditures, grant liens, pay dividends and make certain other restricted payments. The 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 our consolidated financial statements. The discount of$42.3 million (consisting of the initial$6.0 million pre-exposure fee,$35.3 million of completion exposure fees and other customary fees) and deferred financing cost associated with the issuance of the borrowings under the Ex-Im Credit Facility are amortized to interest expense on an effective interest rate basis over the weighted average term of the Ex-Im Credit Facility and in accordance with the related payment obligations. 61
--------------------------------------------------------------------------------
Senior Notes
Senior Secured Notes due 2027
InMarch 2019 , we issued$600.0 million in principal amount of 2027 Notes in a private placement to institutional buyers. The 2027 Notes were issued at face value and are recorded as long-term debt, net of debt issuance costs, in our consolidated financial statements. The 2027 Notes bear interest at the rate of 5.625% per year, payable semi-annually in cash in arrears, which interest payments commenced inOctober 2019 . Debt issuance costs associated with the issuance of the 2027 Notes are amortized to interest expense on a straight-line basis over the term of the 2027 Notes, the results of which are not materially different from the effective interest rate basis. The 2027 Notes are required to be guaranteed on a senior secured basis by each of our existing and future subsidiaries that guarantees the Revolving Credit Facility. As ofMarch 31, 2020 , none of our subsidiaries guaranteed the 2027 Notes. The 2027 Notes are secured, equally and ratably with the Revolving Credit Facility and any future parity lien debt, by liens on substantially all of our assets. The 2027 Notes are our general senior secured obligations and rank equally in right of payment with all of our existing and future unsubordinated debt. The 2027 Notes are effectively senior to all of our existing and future unsecured debt (including our 5.625% Senior Notes due 2025 (the 2025 Notes)) as well as to all of any permitted junior lien debt that may be incurred in the future, in each case to the extent of the value of the assets securing the 2027 Notes. The 2027 Notes are effectively subordinated to any obligations that are secured by liens on assets that do not constitute a part of the collateral securing the 2027 Notes, are structurally subordinated to all existing and future liabilities (including trade payables) of our subsidiaries that do not guarantee the 2027 Notes (including obligations of the borrower under the Ex-Im Credit Facility), and are senior in right of payment to all of our existing and future subordinated indebtedness. The indenture governing the 2027 Notes limits, among other things, our and our 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 our satellite insurance; and consolidate or merge with, or sell substantially all of our assets to, another person. Prior toApril 15, 2022 , we may redeem up to 40% of the 2027 Notes at a redemption price of 105.625% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash proceeds of specified equity offerings. We may also redeem the 2027 Notes prior toApril 15, 2022 , in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus the applicable premium and any accrued and unpaid interest, if any, thereon to the redemption date. The applicable premium is calculated as the greater of: (i) 1.0% of the principal amount of such 2027 Notes and (ii) the excess, if any, of (a) the present value at such date of redemption of (1) the redemption price of such 2027 Notes onApril 15, 2022 plus (2) all required interest payments due on such 2027 Notes throughApril 15, 2022 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the treasury rate (as defined under the indenture governing the 2027 Notes) plus 50 basis points, over (b) the then-outstanding principal amount of such 2027 Notes. The 2027 Notes may be redeemed, in whole or in part, at any time during the 12 months beginning onApril 15, 2022 at a redemption price of 102.813%, during the 12 months beginning onApril 15, 2023 at a redemption price of 101.406%, and at any time on or afterApril 15, 2024 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date. In the event a change of control triggering event occurs (as defined in the indenture governing the 2027 Notes), each holder will have the right to require us to repurchase all or any part of such holder's 2027 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2027 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
Senior Notes due 2025
InSeptember 2017 , we issued$700.0 million in principal amount of the 2025 Notes in a private placement to institutional buyers. The 2025 Notes were issued at face value and are recorded as long-term debt, net of debt issuance costs, in our consolidated financial statements. The 2025 Notes bear interest at the rate of 5.625% per year, payable semi-annually in cash in arrears, which interest payments commenced inMarch 2018 . Debt issuance costs associated with the issuance of the 2025 Notes are amortized to interest expense on a straight-line basis over the term of the 2025 Notes, the results of which are not materially different from the effective interest rate basis. 62 -------------------------------------------------------------------------------- The 2025 Notes are required to be guaranteed on an unsecured senior basis by each of our existing and future subsidiaries that guarantees the Revolving Credit Facility. As ofMarch 31, 2020 , none of our subsidiaries guaranteed the 2025 Notes. The 2025 Notes are our general senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured unsubordinated debt. The 2025 Notes are effectively junior in right of payment to our existing and future secured debt, including under our 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 our subsidiaries that do not guarantee the 2025 Notes, and are senior in right of payment to all of our existing and future subordinated indebtedness. The indenture governing the 2025 Notes limits, among other things, our and our 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 our satellite insurance; and consolidate or merge with, or sell substantially all of our assets to, another person. Prior toSeptember 15, 2020 , we may redeem up to 40% of the 2025 Notes at a redemption price of 105.625% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash proceeds of specified equity offerings. We may also redeem the 2025 Notes prior toSeptember 15, 2020 , in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus the applicable premium and any accrued and unpaid interest, if any, thereon to the redemption date. The applicable premium is calculated as the greater of: (i) 1.0% of the principal amount of such 2025 Notes and (ii) the excess, if any, of (a) the present value at such date of redemption of (1) the redemption price of such 2025 Notes onSeptember 15, 2020 plus (2) all required interest payments due on such 2025 Notes throughSeptember 15, 2020 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the treasury rate (as defined under the indenture governing the 2025 Notes) plus 50 basis points, over (b) the then-outstanding principal amount of such 2025 Notes. The 2025 Notes may be redeemed, in whole or in part, at any time during the 12 months beginning onSeptember 15, 2020 at a redemption price of 102.813%, during the 12 months beginning onSeptember 15, 2021 at a redemption price of 101.406%, and at any time on or afterSeptember 15, 2022 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date. In the event a change of control triggering event occurs (as defined in the indenture governing the 2025 Notes), each holder will have the right to require us to repurchase all or any part of such holder's 2025 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2025 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
Discharge of indenture and loss on extinguishment of debt
In connection with our issuance of the 2025 Notes inSeptember 2017 , we repurchased and redeemed all$575.0 million in aggregate principal amount of our former 2020 Notes then outstanding through a cash tender offer and redemption, and the indenture governing the 2020 Notes was satisfied and discharged in accordance with its terms. InSeptember 2017 , we repurchased$298.2 million in aggregate principal amount of the 2020 Notes pursuant to the tender offer. The total cash payment to repurchase the tendered 2020 Notes in the tender offer, including accrued and unpaid interest to, but excluding, the repurchase date, was$309.3 million . Also inSeptember 2017 , in connection with the redemption of the remaining$276.8 million in aggregate principal amount of 2020 Notes, we irrevocably deposited$287.4 million withWilmington Trust , as trustee, as trust funds solely for the benefit of the holders of such 2020 Notes. The redemption price for the 2020 Notes was 101.719% of the principal amount so redeemed, plus accrued and unpaid interest to, but excluding, the redemption date ofOctober 5, 2017 . In connection with the satisfaction and discharge of the indenture governing the 2020 Notes, all of our obligations (other than certain customary provisions of the indenture that expressly survive pursuant to the terms of the indenture) were discharged inSeptember 2017 . As a result of the repurchase of the 2020 Notes in the tender offer and the redemption of the remaining 2020 Notes, we recognized a$10.2 million loss on extinguishment of debt during the second quarter of fiscal year 2018, which was comprised of$10.6 million in cash payments (including tender offer consideration, redemption premium and related professional fees), net of an insignificant amount in non-cash gain (including unamortized premium, net of unamortized debt issuance costs). 63
--------------------------------------------------------------------------------
Contractual Obligations
The following table sets forth a summary of our obligations atMarch 31, 2020 : For the Fiscal Years Ending (In thousands, including interest where applicable) Total 2021 2022-2023 2024-2025 Thereafter Operating leases$ 487,638 $ 62,064 $ 124,765 $ 115,580 $ 185,229 Finance leases 76,350 13,350 24,000 24,000 15,000 2027 Notes 853,125 33,750 67,500 67,500 684,375 2025 Notes 916,563 39,375 78,750 78,750 719,688 Revolving Credit Facility (1) 430,611 10,679 21,359 398,573 - Ex-Im Credit Facility 127,042 22,349 43,279 41,411 20,003 Satellite performance incentives 34,346 2,829 9,491 10,428 11,598 Purchase commitments including satellite- related agreements 1,853,750 1,045,887 721,621 59,653 26,589 Total$ 4,779,425 $ 1,230,283 $ 1,090,765 $ 795,895 $ 1,662,482
(1) To the extent that the interest rate is variable and ultimate amounts
borrowed under the Revolving Credit Facility may fluctuate, amounts reflected
represent estimated interest payments on our current outstanding balances
based on the weighted average effective interest rate at
the maturity date in January 2024 .
We purchase components from a variety of suppliers and use several
subcontractors and contract manufacturers to provide design and manufacturing
services for our products. During the normal course of business, we enter into
agreements with subcontractors, contract manufacturers and suppliers that either
allow them to procure inventory based upon criteria defined by us or that
establish the parameters defining our requirements. We also enter into
agreements and purchase commitments with suppliers for the construction, launch,
and operation of our satellites. In certain instances, these agreements allow us
the option to cancel, reschedule and adjust our requirements based on our
business needs prior to firm orders being placed. Consequently, only a portion
of our reported purchase commitments arising from these agreements are firm,
non-cancelable and unconditional commitments.
Our consolidated balance sheets included $120.9 million and $120.8 million of
"other liabilities" as of March 31, 2020 and March 31, 2019 , respectively, which
primarily consisted of the long-term portion of deferred revenues, the long-term
portion of our satellite performance incentive obligations relating to the
ViaSat -1 and ViaSat -2 satellites, our long-term warranty obligations and, in
fiscal year 2019 only, the long-term portion of deferred rent. With the
exception of the long-term portion of our satellite performance incentive
obligations relating to the ViaSat -1 and ViaSat -2 satellites (which is included
under "Satellite performance incentives"), these remaining liabilities have been
excluded from the above table as the timing and/or the amount of any cash
payment is uncertain. See Note 12 - Commitments to our consolidated financial
statements for additional information regarding satellite performance incentive
obligations relating to the ViaSat -1 and ViaSat -2 satellites. See Note 14 -
Product Warranty to our consolidated financial statements for a discussion of
our product warranties.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements at
Recent Authoritative Guidance
For information regarding recently adopted and issued accounting pronouncements,
see Note 1 - The Company and a Summary of Its Significant Accounting Policies to
the consolidated financial statements.
64--------------------------------------------------------------------------------
© Edgar Online, source
