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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

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

 

For the quarterly period ended June 30, 2022.

OR

 

 

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

 

For the transition period from to .

Commission File Number (000-21767)

 

img242758238_0.jpg 

VIASAT, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

33-0174996

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

6155 El Camino Real

Carlsbad, California 92009

(760) 476-2200

(Address of principal executive offices and telephone number)

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

 

(Title of Each Class)

 

(Trading Symbol)

 

(Name of Each Exchange on which Registered)

Common Stock, par value $0.0001 per share

 

VSAT

 

The Nasdaq Stock Market LLC

 

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

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

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

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

 

 

 


 

VIASAT, INC.

TABLE OF CONTENTS

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements (Unaudited)

 

3

Condensed Consolidated Balance Sheets

 

3

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

 

4

Condensed Consolidated Statements of Cash Flows

 

5

Condensed Consolidated Statements of Equity

 

6

Notes to the Condensed Consolidated Financial Statements

 

7

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

 

33

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

50

Item 4. Controls and Procedures

 

51

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

51

Item 1A. Risk Factors

 

51

Item 5. Other Information

 

52

Item 6. Exhibits

 

53

Signatures

 

54

 

2


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

VIASAT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

As of
 June 30, 2022

 

 

As of
 March 31, 2022

 

 

 

(In thousands)

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

221,520

 

 

$

310,459

 

Accounts receivable, net

 

 

372,118

 

 

 

359,269

 

Inventories

 

 

362,007

 

 

 

341,890

 

Prepaid expenses and other current assets

 

 

172,692

 

 

 

147,854

 

Total current assets

 

 

1,128,337

 

 

 

1,159,472

 

 

 

 

 

 

 

 

Property, equipment and satellites, net

 

 

3,864,499

 

 

 

3,741,912

 

Operating lease right-of-use assets

 

 

345,369

 

 

 

356,176

 

Other acquired intangible assets, net

 

 

222,187

 

 

 

236,043

 

Goodwill

 

 

187,359

 

 

 

190,113

 

Other assets

 

 

735,604

 

 

 

705,630

 

Total assets

 

$

6,483,355

 

 

$

6,389,346

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

246,516

 

 

$

219,088

 

Accrued and other liabilities

 

 

441,141

 

 

 

516,422

 

Current portion of long-term debt

 

 

38,471

 

 

 

34,911

 

Total current liabilities

 

 

726,128

 

 

 

770,421

 

 

 

 

 

 

 

 

Senior notes

 

 

1,686,965

 

 

 

1,686,225

 

Other long-term debt

 

 

902,880

 

 

 

764,991

 

Non-current operating lease liabilities

 

 

316,096

 

 

 

327,664

 

Other liabilities

 

 

149,174

 

 

 

157,451

 

Total liabilities

 

 

3,781,243

 

 

 

3,706,752

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Viasat, Inc. stockholders’ equity

 

 

 

 

 

 

Common stock

 

 

8

 

 

 

7

 

Paid-in capital

 

 

2,482,847

 

 

 

2,421,950

 

Retained earnings

 

 

211,966

 

 

 

233,530

 

Accumulated other comprehensive income (loss)

 

 

(41,962

)

 

 

(21,621

)

Total Viasat, Inc. stockholders’ equity

 

 

2,652,859

 

 

 

2,633,866

 

Noncontrolling interest in subsidiary

 

 

49,253

 

 

 

48,728

 

Total equity

 

 

2,702,112

 

 

 

2,682,594

 

Total liabilities and equity

 

$

6,483,355

 

 

$

6,389,346

 

 

See accompanying notes to the condensed consolidated financial statements.

3


 

VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

Product revenues

 

$

268,800

 

 

$

293,264

 

Service revenues

 

 

409,423

 

 

 

371,596

 

Total revenues

 

 

678,223

 

 

 

664,860

 

Operating expenses:

 

 

 

 

 

 

Cost of product revenues

 

 

210,686

 

 

 

219,347

 

Cost of service revenues

 

 

271,700

 

 

 

234,629

 

Selling, general and administrative

 

 

179,613

 

 

 

154,200

 

Independent research and development

 

 

35,763

 

 

 

34,463

 

Amortization of acquired intangible assets

 

 

7,523

 

 

 

5,929

 

Income (loss) from operations

 

 

(27,062

)

 

 

16,292

 

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

123

 

 

 

63

 

Interest expense

 

 

(5,873

)

 

 

(6,292

)

Other income, net

 

 

1,011

 

 

 

4,118

 

Income (loss) before income taxes

 

 

(31,801

)

 

 

14,181

 

(Provision for) benefit from income taxes

 

 

10,762

 

 

 

4,087

 

Equity in income (loss) of unconsolidated affiliate, net

 

 

 

 

 

(256

)

Net income (loss)

 

 

(21,039

)

 

 

18,012

 

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

 

 

525

 

 

 

1,044

 

Net income (loss) attributable to Viasat, Inc.

 

$

(21,564

)

 

$

16,968

 

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

 

$

(0.29

)

 

$

0.24

 

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

 

$

(0.29

)

 

$

0.23

 

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

 

 

74,863

 

 

 

71,543

 

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

 

 

74,863

 

 

 

72,818

 

Comprehensive income (loss):

 

 

 

 

 

 

Net income (loss)

 

$

(21,039

)

 

$

18,012

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

Foreign currency translation adjustments, net
   of tax

 

 

(20,341

)

 

 

(15,742

)

Other comprehensive income (loss), net of tax

 

 

(20,341

)

 

 

(15,742

)

Comprehensive income (loss)

 

 

(41,380

)

 

 

2,270

 

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

 

 

525

 

 

 

1,044

 

Comprehensive income (loss) attributable to
   Viasat, Inc.

 

$

(41,905

)

 

$

1,226

 

 

See accompanying notes to the condensed consolidated financial statements.

4


 

VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

(21,039

)

 

$

18,012

 

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

 

 

 

 

 

 

Depreciation

 

 

102,353

 

 

 

94,149

 

Amortization of intangible assets

 

 

21,734

 

 

 

20,603

 

Stock-based compensation expense

 

 

21,232

 

 

 

22,218

 

Loss on disposition of fixed assets

 

 

11,150

 

 

 

8,713

 

Other non-cash adjustments

 

 

(7,569

)

 

 

(5,395

)

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

 

 

 

 

 

 

Accounts receivable

 

 

(27,102

)

 

 

(47,885

)

Inventories

 

 

(20,563

)

 

 

(10,483

)

Other assets

 

 

9,148

 

 

 

4,398

 

Accounts payable

 

 

16,912

 

 

 

26,625

 

Accrued liabilities

 

 

(50,195

)

 

 

(55,027

)

Other liabilities

 

 

(16,424

)

 

 

(10,799

)

Net cash provided by (used in) operating activities

 

 

39,637

 

 

 

65,129

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property, equipment and satellites

 

 

(246,854

)

 

 

(246,164

)

Cash paid for patents, licenses and other assets

 

 

(24,003

)

 

 

(14,743

)

Payments related to acquisition of businesses, net of cash acquired

 

 

 

 

 

(138,668

)

Net cash provided by (used in) investing activities

 

 

(270,857

)

 

 

(399,575

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from debt borrowings

 

 

150,000

 

 

 

320,000

 

Payments on debt borrowings

 

 

(12,693

)

 

 

(12,346

)

Payment of debt issuance costs

 

 

(1,511

)

 

 

 

Proceeds from issuance of common stock under equity plans

 

 

9,626

 

 

 

8,717

 

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

 

 

(505

)

 

 

(458

)

Other financing activities

 

 

(706

)

 

 

(691

)

Net cash provided by (used in) financing activities

 

 

144,211

 

 

 

315,222

 

Effect of exchange rate changes on cash

 

 

(1,930

)

 

 

(1,037

)

Net increase (decrease) in cash and cash equivalents

 

 

(88,939

)

 

 

(20,261

)

Cash and cash equivalents at beginning of period

 

 

310,459

 

 

 

295,949

 

Cash and cash equivalents at end of period

 

$

221,520

 

 

$

275,688

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Issuance of common stock in connection with acquisition

 

$

 

 

$

207,169

 

 

See accompanying notes to the condensed consolidated financial statements.

5


 

VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

 

 

 

Viasat, Inc. Stockholders

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of
Shares
Issued

 

 

Amount

 

 

Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Noncontrolling
Interest in
Subsidiary

 

 

Total

 

 

 

(In thousands, except share data)

 

For the Three Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2022

 

 

74,428,816

 

 

$

7

 

 

$

2,421,950

 

 

$

233,530

 

 

$

(21,621

)

 

$

48,728

 

 

$

2,682,594

 

Issuance of stock under Employee Stock Purchase
   Plan

 

 

369,712

 

 

 

 

 

 

9,626

 

 

 

 

 

 

 

 

 

 

 

 

9,626

 

Stock-based compensation

 

 

 

 

 

 

 

 

24,158

 

 

 

 

 

 

 

 

 

 

 

 

24,158

 

Shares issued in settlement of certain accrued
   employee compensation liabilities

 

 

719,989

 

 

 

1

 

 

 

27,618

 

 

 

 

 

 

 

 

 

 

 

 

27,619

 

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

 

 

33,306

 

 

 

 

 

 

(505

)

 

 

 

 

 

 

 

 

 

 

 

(505

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(21,564

)

 

 

 

 

 

525

 

 

 

(21,039

)

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,341

)

 

 

 

 

 

(20,341

)

Balance at June 30, 2022

 

 

75,551,823

 

 

$

8

 

 

$

2,482,847

 

 

$

211,966

 

 

$

(41,962

)

 

$

49,253

 

 

$

2,702,112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

 

68,529,133

 

 

$

7

 

 

$

2,092,595

 

 

$

249,064

 

 

$

9,803

 

 

$

35,765

 

 

$

2,387,234

 

Exercise of stock options

 

 

363

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

11

 

Issuance of stock under Employee Stock Purchase
   Plan

 

 

313,700

 

 

 

 

 

 

8,706

 

 

 

 

 

 

 

 

 

 

 

 

8,706

 

Stock-based compensation

 

 

 

 

 

 

 

 

27,512

 

 

 

 

 

 

 

 

 

 

 

 

27,512

 

Shares issued in settlement of certain accrued
   employee compensation liabilities

 

 

457,130

 

 

 

 

 

 

24,488

 

 

 

 

 

 

 

 

 

 

 

 

24,488

 

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

 

 

20,339

 

 

 

 

 

 

(458

)

 

 

 

 

 

 

 

 

 

 

 

(458

)

Shares issued in connection with acquisition of
   business

 

 

4,000,189

 

 

 

 

 

 

207,169

 

 

 

 

 

 

 

 

 

 

 

 

207,169

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

78

 

 

 

78

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

16,968

 

 

 

 

 

 

1,044

 

 

 

18,012

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,742

)

 

 

 

 

 

(15,742

)

Balance at June 30, 2021

 

 

73,320,854

 

 

$

7

 

 

$

2,360,023

 

 

$

266,032

 

 

$

(5,939

)

 

$

36,887

 

 

$

2,657,010

 

 

See accompanying notes to the condensed consolidated financial statements.

6


 

VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 — Basis of Presentation

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

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

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

On November 8, 2021, the Company entered into a Share Purchase Agreement to combine with Connect Topco Limited, a private company limited by shares and incorporated in Guernsey (Inmarsat), with the shareholders of Inmarsat and certain management and employees who hold options and shares of a subsidiary of Inmarsat whose options and shares will be exchanged for shares of Inmarsat prior to closing (collectively, the Sellers). Pursuant to the Share Purchase Agreement, the Company will purchase all of the issued and outstanding shares of Inmarsat from the Sellers upon the terms and subject to the conditions set forth therein (the Inmarsat Transaction) (see Note 11 – Acquisitions for more information).

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

Revenue recognition

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

 

7


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Performance obligations

 

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

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

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

 

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

8


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

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

 

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

 

Evaluation of transaction price

 

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

 

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

 

Transaction price allocated to remaining performance obligations

 

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

9


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

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

 

Disaggregation of revenue

 

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

 

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

 

 

 

 

Three Months Ended June 30, 2022

 

 

 

Satellite
Services

 

 

Commercial
Networks

 

 

Government
Systems

 

 

Total
Revenues

 

 

 

(In thousands)

 

Product revenues