Forward-Looking Statements
This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. We use words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "goal," "intend," "may," "plan," "project," "seek," "should," "target," "will," "would," variations of such words and similar expressions to identify forward-looking statements. In addition, statements that refer to the impact of the novel coronavirus (COVID-19) pandemic on our business; our expectations regarding an end to the pandemic and a lessening of its effects on our business, including expectations for increased airline passenger traffic and in-flight connectivity (IFC) growth; projections of earnings, revenue, costs or other financial items; anticipated growth and trends in our business or key markets; future economic conditions and performance; the anticipated benefits of our acquisitions RigNet, Inc. (RigNet) and Euro Broadband Infrastructure Sàrl (Euro Infrastructure Co. ); the development, customer acceptance and anticipated performance of technologies, products or services; satellite construction and launch activities; the performance and anticipated benefits of ourViaSat -2 andViaSat -3 class satellites and any future satellite we may construct or acquire; the expected completion, capacity, service, coverage, service speeds and other features of our satellites, and the timing, cost, economics and other benefits associated therewith; anticipated subscriber growth; plans, objectives and strategies for future operations; international growth opportunities; the number of additional aircraft under existing contracts with commercial airlines anticipated to be put into service with our IFC systems; and other characterizations of future events or circumstances, are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Factors that could cause actual results to differ materially include: our ability to realize the anticipated benefits of theViaSat -2 andViaSat -3 class satellites and any future satellite we may construct or acquire; unexpected expenses related to our satellite projects; our ability to successfully implement our business plan for our broadband services on our anticipated timeline or at all; capacity constraints in our business in the lead-up to the launch of services on ourViaSat -3 satellites; risks associated with the construction, launch and operation of satellites, including the effect of any anomaly, operational failure or degradation in satellite performance; the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees or the overall economy; our ability to realize the anticipated benefits of our acquisitions or strategic partnering arrangements, including the RigNet andEuro Infrastructure Co. acquisitions; our ability to successfully develop, introduce and sell new technologies, products and services; audits by theU.S. Government ; changes in the global business environment and economic conditions; delays in approvingU.S. Government budgets and cuts in government defense expenditures; our reliance onU.S. Government contracts, and on a small number of contracts which account for a significant percentage of our revenues; reduced demand for products and services as a result of continued constraints on capital spending by customers; changes in relationships with, or the financial condition of, key customers or suppliers; our reliance on a limited number of third parties to manufacture and supply our products; increased competition; introduction of new technologies and other factors affecting the communications and defense industries generally; the effect of adverse regulatory changes (including changes affecting spectrum availability or permitted uses) on our ability to sell or deploy our products and services; changes in the way others use spectrum; our inability to access additional spectrum, use spectrum for additional purposes, and/or operate satellites at additional orbital locations; competing uses of the same spectrum or orbital locations that we utilize or seek to utilize; the effect of recent changes toU.S. tax laws; our level of indebtedness and ability to comply with applicable debt covenants; our involvement in litigation, including intellectual property claims and litigation to protect our proprietary technology; our dependence on a limited number of key employees; and other factors identified under the heading "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2021 , under the heading "Risk Factors" in Part II, Item 1A of this report, elsewhere in this report and our other filings with theSecurities and Exchange Commission (theSEC ). Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
Company Overview
We are an innovator in communications technologies and services, focused on
making connectivity accessible, available and secure for all. Our end-to-end
platform of high-capacity Ka-band satellites, ground infrastructure and user
terminals enables us to provide cost-effective, high-speed, high-quality
broadband solutions to enterprises, consumers, military and government users
around the globe, whether on the ground, in the air or at sea. In addition, our
government business includes a market-leading portfolio of military tactical
data link systems, satellite communication products and services and
cybersecurity and information assurance products and services. We believe that
our diversification strategy-anchored in a broad portfolio of products and
services-our vertical integration approach and our ability to effectively
cross-deploy technologies between government and commercial applications and
segments as well as across
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-------------------------------------------------------------------------------- different geographic markets, provide us with a strong foundation to sustain and enhance our leadership in advanced communications and networking technologies.Viasat, Inc. was incorporated inCalifornia in 1986, and reincorporated as aDelaware corporation in 1996.
We conduct our business through three segments: satellite services, commercial
networks and government systems.
Acquisitions
OnApril 30, 2021 , we completed our acquisition of the remaining 51% interest inEuro Infrastructure Co. , a leading KA-SAT satellite broadband internet service provider inEurope ,Middle East andAfrica (EMEA) from Eutelsat. The acquisition is expected to facilitate the diversification of our business portfolio inEurope , while establishing operations, distribution and sales of satellite-based broadband services, ahead of the anticipatedViaSat -3 (EMEA) satellite launch. We paid approximately$167.0 million in cash, net of what is currently estimated to be an immaterial amount of estimated purchase price consideration (resulting in a cash outlay of approximately$51.0 million , net of approximately$121.7 million ofEuro Infrastructure Co.'s cash on hand) and the fair value of previously held equity method investment of approximately$160.4 million . In connection with the acquisition, we remeasured the previously held equity method investment to its fair value as of the date of the acquisition, recognized previously unrecognized foreign currency gain and settlement of insignificant preexisting relationships, and as a result recorded an insignificant total net gain included in other income, net in the condensed consolidated statements of operations and comprehensive income (loss). OnApril 30, 2021 , we completed our acquisition of RigNet, a leading provider of ultra-secure, intelligent networking solutions and specialized applications. In connection with the acquisition, we issued approximately 4.0 million shares of our common stock to RigNet former shareholders, paid down$107.3 million of outstanding borrowings of RigNet's revolving credit facility, paid a de minimis amount of cash in respect of fractional shares and paid an insignificant amount of other consideration. We retained approximately$20.6 million of RigNet's cash on hand. COVID-19 InMarch 2020 , the global outbreak of COVID-19 was declared a pandemic by theWorld Health Organization and a national emergency by theU.S. Government . The COVID-19 pandemic and attempts to contain it, such as mandatory closures, "shelter-in-place" orders and travel restrictions, have caused significant disruptions and adverse effects onU.S. and global economies, including impacts to supply chains, customer demand and financial markets. We have taken measures to protect the health and safety of our employees and to work with our customers, employees, suppliers, subcontractors, distributors, resellers and communities to address the disruptions from the pandemic. Although our financial results for the three months endedJune 30, 2021 were impacted by the pandemic, the impact was not material to our financial position, results of operations or cash flows in such period, with negative impacts particularly in our commercial aviation business offset by strong demand in our fixed broadband services business and other parts of our business. We continue to expect our diversified businesses to provide resiliency for the remainder of fiscal year 2022. Our government systems segment, which represented 41% of our total revenues during the three months endedJune 30, 2021 , continued to perform in line with our expectations. Demand for products and services in our government systems segment remained strong despite the evolving COVID-19 pandemic, although our government business continued to experience some administrative delays on certain contractual vehicles as government customers continue to adjust to the challenges inherent in the remote work environment resulting from the COVID-19 pandemic. Since the onset of pandemic lockdowns inMarch 2020 , we have experienced increased demand for our premium high-speed plans in our fixed broadband services business, reflecting customers' increased bandwidth needs in a remote working/distance schooling environment. However, the pandemic also caused a severe decline in global air traffic, which reduced demand for our in-flight services and IFC systems in our satellite services and commercial networks segments, respectively. While current global airline traffic is still a fraction of pre-pandemic activity, domestic airline traffic continues to show signs of improvement. As a result, our in-flight services business showed modest improvement in the quarter endedJune 30, 2021 compared to the quarter endedMarch 31, 2021 , with increased planes in service and passenger volumes. We expect to continue to see negative impacts on revenues and operating cash flows from our IFC businesses in the remainder of fiscal year 2022 and potentially beyond, but for the effects to continue to lessen over time with increases in passenger air traffic and the return to service of additional currently inactive aircraft. In fiscal year 2020, prior to the pandemic, 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 2022 and potentially beyond will depend on many factors, including the duration and scope of the public health emergency, the extent, duration and 34 -------------------------------------------------------------------------------- effectiveness of containment actions taken, the efficacy and extent of vaccination programs, the extent of disruption to important global, regional and local supply chains and economic markets, and the impact of the pandemic on overall supply and demand, global air travel, consumer confidence, discretionary spending levels and levels of economic activity.
Satellite Services
Our satellite services segment uses our proprietary technology platform to provide satellite-based high-speed broadband services around the globe for use in commercial applications. Our proprietary Ka-band satellites are at the core of our technology platform, and we also have access to a number of Ka-band and Ku-band satellites in service globally. We own three Ka-band satellites in service overNorth America : our second-generationViaSat -2 satellite (launched in 2017), our first-generationViaSat -1 satellite (launched in 2011) and the WildBlue-1 satellite (launched in 2007), and, after acquiring the remaining interest inEuro Infrastructure Co. in the first quarter of fiscal year 2022, we also own the KA-SAT satellite over EMEA. In addition, we have lifetime leases of Ka-band capacity on two satellites-one overNorth America and a second one over EMEA. We also have a global constellation of three third-generationViaSat -3 class satellites under construction. We expect ourViaSat -3 constellation, once in service, to enable us to deliver affordable connectivity across most of the world.
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 Voice over Internet
Protocol (VoIP) services, primarily inthe United States as well as in various countries inEurope andLatin America .
• In-flight services, which provide industry-leading IFC, wireless in-flight
entertainment and aviation software services. As of
our IFC systems installed and in service on approximately 1,550 commercial
aircraft, of which, due to impacts of the COVID-19 pandemic approximately
150 were inactive at quarter end. We anticipate that approximately 1,160
additional commercial aircraft under existing customer agreements with
commercial airlines will be put into service with our IFC systems.
However, the timing of installation and entry into service for additional
aircraft under existing customer agreements may be delayed due to COVID-19
impacts. Additionally, due to the nature of commercial airline contracts,
there can be no assurance that anticipated IFC services will be activated
on all such additional commercial aircraft. See the section entitled
“COVID-19” above for a discussion of the impact of the COVID-19 pandemic
on our in-flight services business.
• Community Internet services, which offer innovative, affordable,
satellite-based connectivity in communities with that have little, or no,
access to the internet. The services help foster digital inclusion by
enabling millions of people to connect to affordable high-quality internet
services via a centralized community hotspot connected to the internet via
satellite. Since launch, our Community Internet services have reached
approximately 2 million people living and working in thousands of rural,
suburban and urban communities in
advance of full commercial launch in other countries, including
• 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.
• Advanced software and communication infrastructure services, which include
ultra-secure solutions spanning global IP connectivity,
bandwidth-optimized over-the-top applications, industrial
Internet-of-Things big data enablement and industry-leading machine
learning analytics. These services support the evolution of digital
enablement, and primarily result from our acquisition of RigNet in the
first quarter of fiscal year 2022.
The assets and results of operations of our recent acquisitions,
Infrastructure Co.
segment (with insignificant amounts included in our commercial networks
segment).
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Commercial Networks
Our commercial networks segment develops and sells a wide array of advanced satellite and wireless products, antenna systems and terminal solutions that support or enable the provision of high-speed fixed and mobile broadband services. We design, develop and produce space system solutions for multiple orbital regimes, including geostationary (GEO), medium earth orbit (MEO) and low earth orbit (LEO). The primary products, systems, solutions and services offered by our commercial networks segment are comprised of:
• Mobile broadband satellite communication systems, designed for use in
aircraft, seagoing vessels and land-mobile systems.
• Fixed broadband satellite communication systems, including next-generation
satellite network infrastructure and ground terminals.
• Antenna systems, including state-of-the-art ground and airborne terminals,
antennas and gateways for terrestrial and satellite customer applications,
mobile satellite communication, Ka-band earth stations and other
multi-band antennas.
• 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 Intelligence Surveillance and Reconnaissance
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, unmanned aerial vehicles, 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 High
Assurance Internet Protocol Encryption (HAIPE®)-compliant encryption
solutions that enable military and government users to communicate
information securely over networks, and that protect the integrity of data
stored on computers and storage devices.
• Tactical data links, including our Battlefield Awareness and Targeting
System – Dismounted (BATS-D) handheld Link 16 radios, our Small Tactical
Terminal (STT) 2-channel radios for manned and unmanned applications,
“disposable” defense data links, and our Multifunctional Information
Distribution System (MIDS) and MIDS Joint Tactical Radio Systems
(MIDS-JTRS) terminals for military fighter jets.
Sources of Revenues
Our satellite services segment revenues are primarily derived from our fixed
broadband services and in-flight 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 89% and 85% of our total revenues for these segments for the three months endedJune 30, 2021 and 2020, 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). 36 -------------------------------------------------------------------------------- Our ability to grow and maintain our revenues in our commercial networks and government systems segments has to date depended on our ability to identify and target markets where the customer places a high priority on the technology solution, and our ability to obtain additional sizable contract awards. Due to the nature of this process, it is difficult to predict the probability and timing of obtaining awards in these markets. Historically, a significant portion of our revenues in our commercial networks and government systems segments has been derived from customer contracts that include the development of products. The development efforts are conducted in direct response to the customer's specific requirements and, accordingly, expenditures related to such efforts are included in cost of sales when incurred and the related funding (which includes a profit component) is included in revenues. Revenues for our funded development from our customer contracts were approximately 23% and 27% of our total revenues for the three months endedJune 30, 2021 and 2020, respectively. We also incur independent research and development (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 research and development (R&D) projects. IR&D expenses were approximately 5% of total revenues during both the three months endedJune 30, 2021 and 2020. As a government contractor, we are able to recover a portion of our IR&D expenses pursuant to our government contracts.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America (GAAP). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We consider the policies discussed below to be critical to an understanding of our financial statements because their application places the most significant demands on management's judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. We describe the specific risks for these critical accounting policies in the following paragraphs. For all of these policies, we caution that future events rarely develop exactly as forecast, and even the best estimates routinely require adjustment.
Revenue recognition
We apply the five-step revenue recognition model under Accounting Standards
Update (ASU) 2014-09, Revenue from Contracts with Customers (commonly referred
to as Accounting Standards Codification (ASC) 606) to our contracts with our
customers. Under this model, we (1) identify the contract with the customer, (2)
identify our performance obligations in the contract, (3) determine the
transaction price for the contract, (4) allocate the transaction price to our
performance obligations and (5) recognize revenue when or as we satisfy our
performance obligations. These performance obligations generally include the
purchase of services (including broadband capacity and the leasing of broadband
equipment), the purchase of products, and the development and delivery of
complex equipment built to customer specifications under long-term contracts.
The timing of satisfaction of performance obligations may require judgment. We
derive a substantial portion of our revenues from contracts with customers for
services, primarily consisting of connectivity services. These contracts
typically require advance or recurring monthly payments by the customer. Our
obligation to provide connectivity services is satisfied over time as the
customer simultaneously receives and consumes the benefits provided. The measure
of progress over time is based upon either a period of time (e.g., over the
estimated contractual term) or usage (e.g., bandwidth used/bytes of data
processed). We evaluate whether broadband equipment provided to our customer as
part of the delivery of connectivity services represents a lease in accordance
with ASC 842. As discussed in Note 1 - Basis of Presentation - Leases to our
condensed consolidated financial statements, for broadband equipment leased to
fixed broadband customers in conjunction with the delivery of connectivity
services, we account for the lease and non-lease components of connectivity
services arrangement as a single performance obligation as the connectivity
services represent the predominant component.
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
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-------------------------------------------------------------------------------- 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 theU.S. Government (including foreign military sales contracted through theU.S. Government ). Our contracts with theU.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 underU.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 ourU.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, ourU.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 ourU.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 ofJune 30, 2021 would change our income (loss) before income taxes by an insignificant amount. The evaluation of transaction price, including the amounts allocated to performance obligations, may require significant judgments. Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue, and where applicable the cost at completion, is complex, subject to many variables and requires significant judgment. Our contracts may contain award fees, incentive fees, or other provisions, including the potential for significant financing components, that can either increase or decrease the transaction price. These amounts, which are sometimes variable, can be dictated by performance metrics, program milestones or cost targets, the timing of payments, and customer discretion. We estimate variable consideration at the amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. In the event an agreement includes embedded financing components, we recognize interest expense or interest income on the embedded financing components using the effective interest method. This methodology uses an implied interest rate which reflects the incremental borrowing rate which would be expected to be obtained in a separate financing transaction. We have elected the practical expedient not to adjust the promised amount of consideration for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less. 38 -------------------------------------------------------------------------------- If a contract is separated into more than one performance obligation, the total transaction price is allocated to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. Estimating standalone selling prices may require judgment. When available, we utilize the observable price of a good or service when we sell that good or service separately in similar circumstances and to similar customers. If a standalone selling price is not directly observable, we estimate the standalone selling price by considering all information (including market conditions, specific factors, and information about the customer or class of customer) that is reasonably available.
Warranty reserves
We provide limited warranties on our products for periods of up to five years. We record a liability for our warranty obligations when we ship the products or they are included in long-term construction contracts based upon an estimate of expected warranty costs. Amounts expected to be incurred within 12 months are classified as accrued liabilities and amounts expected to be incurred beyond 12 months are classified as other liabilities in the condensed consolidated financial statements. For mature products, we estimate the warranty costs based on historical experience with the particular product. For newer products that do not have a history of warranty costs, we base our estimates on our experience with the technology involved and the types of failures that may occur. It is possible that our underlying assumptions will not reflect the actual experience, and, in that case, we will make future adjustments to the recorded warranty obligation.
Property, equipment and satellites
Satellites and other property and equipment are recorded at cost or in the case of certain satellites and other property acquired, the fair value at the date of acquisition, net of accumulated depreciation. Capitalized satellite costs consist primarily of the costs of satellite construction and launch, including launch insurance and insurance during the period of in-orbit testing, the net present value of performance incentive payments expected to be payable to the satellite manufacturers (dependent on the continued satisfactory performance of the satellites), costs directly associated with the monitoring and support of satellite construction, and interest costs incurred during the period of satellite construction. We also construct earth stations, network operations systems and other assets to support our satellites, and those construction costs, including interest, are capitalized as incurred. At the time satellites are placed in service, we estimate the useful life of our satellites for depreciation purposes based upon an analysis of each satellite's performance against the original manufacturer's orbital design life, estimated fuel levels and related consumption rates, as well as historical satellite operating trends. We periodically review the remaining estimated useful life of our satellites to determine if revisions to the estimated useful lives are necessary. We own three satellites in service overNorth America (ViaSat -2,ViaSat -1 and WildBlue-1) and, after acquiring the remaining interest inEuro Infrastructure Co. in the first quarter of fiscal year 2022, we also own the KA-SAT satellite over EMEA. In addition, we 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 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 (1) the contract involves the use of a distinct identified asset, (2) we obtain the right to substantially all economic benefits from use of the asset, and (3) we have the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset, (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (5) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria. At the lease commencement date, we recognize a right-of-use asset and a lease liability for all leases, except short-term leases with an original term of 12 months or less. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, less any lease incentives received. All right-of-use assets are periodically reviewed for impairment in accordance with standards that apply to long-lived assets. The lease liability is initially measured at the present value of the lease payments, discounted using an estimate of our incremental borrowing rate for a collateralized loan with the same term as the underlying leases. 39 -------------------------------------------------------------------------------- Lease payments included in the measurement of lease liabilities consist of (1) fixed lease payments for the noncancelable lease term, (2) fixed lease payments for optional renewal periods where it is reasonably certain the renewal option will be exercised, and (3) variable lease payments that depend on an underlying index or rate, based on the index or rate in effect at lease commencement. Certain of our real estate lease agreements require variable lease payments that do not depend on an underlying index or rate established at lease commencement. Such payments and changes in payments based on a rate or index are recognized in operating expenses when incurred. Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the depreciation of assets obtained under finance leases on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. For both operating and finance leases, lease payments are allocated between a reduction of the lease liability and interest expense. For broadband equipment leased to fixed broadband customers in conjunction with the delivery of connectivity services, we have made an accounting policy election not to separate the broadband equipment from the related connectivity services. The connectivity services are the predominant component of these arrangements. The connectivity services are accounted for in accordance ASC 606. We are also a lessor for certain insignificant communications equipment. These leases meet the criteria for operating lease classification. Lease income associated with these leases is not material.
Impairment of long-lived and other long-term assets (property, equipment and
satellites, and other assets, including goodwill)
In accordance with the authoritative guidance for impairment or disposal of long-lived assets (ASC 360), we assess potential impairments to our long-lived assets, including property, equipment and satellites and other assets, when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable. We recognize an impairment loss when the undiscounted cash flows expected to be generated by an asset (or group of assets) are less than the asset's carrying value. Any required impairment loss would be measured as the amount by which the asset's carrying value exceeds its fair value, and would be recorded as a reduction in the carrying value of the related asset and charged to results of operations. No material impairments were recorded by us for the three months endedJune 30, 2021 and 2020. We account for our goodwill under the authoritative guidance for goodwill and other intangible assets (ASC 350) and the provisions of ASU 2017-04, Simplifying the Test for Goodwill Impairment, which we early adopted in fiscal year 2020. Current authoritative guidance allows us to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If, after completing the qualitative assessment, we determine that it is more likely than not that the estimated fair value is greater than the carrying value, we conclude that no impairment exists. Alternatively, if we determine in the qualitative assessment that it is more likely than not that the fair value is less than its carrying value, then we perform a quantitative goodwill impairment test to identify both the existence of an impairment and the amount of impairment loss, by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than the carrying value, then a goodwill impairment charge will be recognized in the amount by which the carrying amount exceeds the fair value, limited to the total amount of goodwill allocated to that reporting unit. We test goodwill for impairment during the fourth quarter every fiscal year and when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist. In accordance with ASC 350, we assess qualitative factors to determine whether goodwill is impaired. The qualitative analysis includes assessing the impact of changes in certain factors including: (1) changes in forecasted operating results and comparing actual results to projections, (2) changes in the industry or our competitive environment since the acquisition date, (3) changes in the overall economy, our market share and market interest rates since the acquisition date, (4) trends in the stock price and related market capitalization and enterprise values, (5) trends in peer companies' total enterprise value metrics, and (6) additional factors such as management turnover, changes in regulation and changes in litigation matters.
Based on our qualitative assessment performed during the fourth quarter of
fiscal year 2021, we concluded that it was more likely than not that the
estimated fair value of our reporting units exceeded their carrying value as of
quantitative goodwill impairment test.
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
40 -------------------------------------------------------------------------------- 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$23.5 million from$47.1 million atMarch 31, 2021 to$70.6 million atJune 30, 2021 . The valuation allowance relates to state and foreign net operating loss carryforwards, state R&D tax credit carryforwards and foreign tax credit carryforwards. Our analysis of the need for a valuation allowance on deferred tax assets considered historical as well as forecasted future operating results. In addition, our evaluation considered other factors, including our contractual backlog, our history of positive earnings, current earnings trends assuming our satellite services segment continues to grow, taxable income adjusted for certain items, and forecasted income by jurisdiction. We also considered the period over which these net deferred tax assets can be realized and our history of not having federal tax loss carryforwards expire unused. Accruals for uncertain tax positions are provided for in accordance with the authoritative guidance for accounting for uncertainty in income taxes (ASC 740). Under the authoritative guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative guidance addresses the derecognition of income tax assets and liabilities, classification of deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. We are subject to income taxes inthe United States and numerous foreign jurisdictions. In the ordinary course of business, there are calculations and transactions where the ultimate tax determination is uncertain. In addition, changes in tax laws and regulations as well as adverse judicial rulings could adversely affect the income tax provision. We believe we have adequately provided for income tax issues not yet resolved with federal, state and foreign tax authorities. However, if these provided amounts prove to be more than what is necessary, the reversal of the reserves would result in tax benefits being recognized in the period in which we determine that provision for the liabilities is no longer necessary. If an ultimate tax assessment exceeds our estimate of tax liabilities, an additional charge to expense would result.
Results of Operations
The following table presents, as a percentage of total revenues, income
statement data for the periods indicated:
Three Months Ended
June 30, June 30,
2021 2020
Revenues: 100 % 100 %
Product revenues 44 47
Service revenues 56 53
Operating expenses:
Cost of product revenues 33 35
Cost of service revenues 35 37
Selling, general and administrative 23 23
Independent research and development 5 5
Amortization of acquired intangible assets 1 -
Income (loss) from operations 2 (1 )
Interest expense, net (1 ) (2 )
Income (loss) before income taxes 2 (3 )
Benefit from income taxes 1 1
Net income (loss) 3 (2 )
Net income (loss) attributable to Viasat, Inc. 3 (2 )
41
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Three Months Ended
Revenues
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2021 2020 (Decrease) (Decrease)
Product revenues $ 293.3 $ 250.6 $ 42.6 17 %
Service revenues 371.6 279.9 91.7 33 %
Total revenues $ 664.9 $ 530.5 $ 134.4 25 %
Our total revenues grew by $134.4 million as a result of a $91.7 million
increase in service revenues and a $42.6 million increase in product revenues.
The service revenue increase was due to increases of $72.1 million in our
satellite services segment, $14.6 million in our government systems segment and
$5.0 million in our commercial networks segment. The product revenue increase
was driven primarily by an increase of $46.4 million in our commercial networks
segment, partially offset by a $3.8 million decrease in our government systems
segment.
Cost of revenues
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2021 2020 (Decrease) (Decrease)
Cost of product revenues $ 219.3 $ 187.9 $ 31.5 17 %
Cost of service revenues 234.6 197.7 37.0 19 %
Total cost of revenues $ 454.0 $ 385.6 $ 68.4 18 %
Cost of revenues increased $68.4 million due to increases of $37.0 million in
cost of service revenues and $31.5 million in cost of product revenues. The cost
of service revenue increase was primarily due to increased service revenues,
mainly from our satellite services segment, causing a $64.8 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 IFC services in our satellite services segment. The cost of product revenue
increase primarily related to increased product revenues, causing a $32.0
million increase in cost of product revenues on a constant margin basis, mainly
in our commercial networks segment.
Selling, general and administrative expenses
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2021 2020 (Decrease) (Decrease)
Selling, general and administrative $ 154.2 $ 121.0 $ 33.2 27 %
The
expenses reflected an increase in support costs of
reflected in all three segments, with the highest increase in our satellite
services segment. The increase in SG&A expenses was also driven by
of higher selling costs, reflected primarily in our satellite services and
government systems segments. SG&A expenses consisted primarily of personnel
costs and expenses for business development, marketing and sales, bid and
proposal, facilities, finance, contract administration and general management.
Independent research and development
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2021 2020
(Decrease) (Decrease)
Independent research and development
25 % The$6.8 million increase in IR&D expenses was primarily the result of increases in our commercial networks and government systems segments primarily related to an increase in IR&D expenses related to next-generation satellite platforms and payload technologies. 42
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Amortization of acquired intangible assets
We amortize our acquired intangible assets from prior acquisitions over their estimated useful lives, which range from two to 12 years. The$4.4 million increase in amortization of acquired intangible assets in the first quarter of fiscal year 2022 compared to the prior year period was primarily related to the amortization of new intangibles acquired as a result of the acquisition of the remaining 51% interest inEuro Infrastructure Co. and of RigNet inApril 2021 . Current and expected amortization expense for acquired intangible assets for each of the following periods is as follows: Amortization (In thousands)
For the three months ended
Expected for the remainder of fiscal year 2022
Expected for fiscal year 2023
31,673
Expected for fiscal year 2024 30,123
Expected for fiscal year 2025 27,848
Expected for fiscal year 2026 27,696
Thereafter 120,845
$ 261,941
Interest income
The decrease in interest income for the three months ended
compared to the prior year period was mainly the result of lower average
invested cash balances during the first quarter of fiscal year 2022 compared to
the prior year period.
Interest expense The$3.2 million decrease in interest expense for the three months endedJune 30, 2021 compared to the prior year period was primarily the result of an increase in the amount of interest capitalized compared to the period year period, partially offset by an increase in interest expense attributable to our 6.500% Senior Notes due 2028 (the 2028 Notes), which were issued in lateJune 2020 . Income taxes For the three months endedJune 30, 2021 , we recorded an income tax benefit of$4.1 million , resulting in an effective tax benefit rate of 29%. For the three months endedJune 30, 2020 , we recorded an income tax benefit of$5.7 million , resulting in an effective tax benefit rate of 39%. The effective tax benefit rates for the periods differed from theU.S. statutory rate primarily due to the benefit of federal and state R&D tax credits. In addition, the effective tax rate for the three months endedJune 30, 2021 included a tax benefit for the reversal of a deferred tax liability recorded forEuro Infrastructure Co.'s outside basis difference upon assertion to indefinitely reinvest future earnings. Ordinarily, the effective tax rate at the end of an interim period is calculated using an estimate of the annual effective tax rate expected to be applicable for the full fiscal year. However, when a reliable estimate cannot be made, we compute our provision for income taxes using the actual effective tax rate (discrete method) for the year-to-date period. Our effective tax rate is highly influenced by the amount of our R&D tax credits. A small change in estimated annual pretax income (loss) can produce a significant variance in the annual effective tax rate given our expected amount of R&D tax credits. This variability provides an unreliable estimate of the annual effective tax rate. As a result, and in accordance with the authoritative guidance for accounting for income taxes in interim periods, we have computed our provision for income taxes for the three months endedJune 30, 2021 and 2020 by applying the actual effective tax rates to the income (loss) for the three-month periods. 43 -------------------------------------------------------------------------------- Segment Results for the Three Months EndedJune 30, 2021 vs. Three Months EndedJune 30, 2020 Satellite services segment Revenues Three Months Ended Dollar Percentage June 30, June 30, Increase Increase (In millions, except percentages) 2021 2020 (Decrease) (Decrease) Segment product revenues $ - $ - $ - - % Segment service revenues 274.1 202.0 72.1 36 % Total segment revenues$ 274.1 $ 202.0 $ 72.1 36 % Our satellite services segment revenues increased by$72.1 million due to an increase in service revenues. The increase in service revenues was primarily attributable to the acquisition of RigNet inApril 2021 , as well as increases in our in-flight services and fixed broadband businesses. The acquisition of RigNet contributed approximately$27.5 million of service revenues in the first quarter of fiscal year 2022 since the date of acquisition. The increase in in-flight service revenue of$19.9 million was driven primarily by an increase in the number of commercial aircraft receiving our in-flight services through our IFC systems, as passenger air traffic increased and aircraft that were previously inactive as a result of the COVID-19 pandemic returned to service. The increase in fixed broadband service revenues was driven by a higher mix of new and existing subscribers choosingViasat's premium highest speed plans. In addition, the acquisition of the remaining 51% interest inEuro Infrastructure Co. contributed approximately$8.4 million of service revenues in the first quarter of fiscal year 2022 since the date of its acquisition inApril 2021 .
Segment operating profit (loss)
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2021 2020 (Decrease) (Decrease)
Segment operating profit (loss) $ 12.5 $ (1.9 ) $ 14.4 774 %
Percentage of segment revenues 5 % (1 )%
The change in our satellite services segment operating loss to an operating
profit was driven primarily by higher earnings contributions of $39.9 million ,
mainly due to an increase in revenues and improved margins from our in-flight
services and fixed broadband services, as both businesses continue to scale. The
change from operating loss to operating profit was partially offset by higher
SG&A costs of $25.8 million , of which $7.0 million related to the acquisitions
of RigNet and Euro Infrastructure Co. during the first quarter of fiscal year
2022.
Commercial networks segment
Revenues
Three Months Ended Dollar Percentage
June 30, June 30, Increase Increase
(In millions, except percentages) 2021 2020 (Decrease) (Decrease)
Segment product revenues $ 101.5 $ 55.1 $ 46.4 84 %
Segment service revenues 17.1 12.0 5.0 42 %
Total segment revenues $ 118.6 $ 67.2 $ 51.4 77 %
Our commercial networks segment revenues increased by $51.4 million , due to a
$46.4 million increase in product revenues and a $5.0 million increase in
service revenues. The increase in product revenues was primarily due to
increases of $30.6 million in mobile broadband satellite communication systems
products, $11.3 million in antenna systems products and $6.5 million in RigNet
products since the date of acquisition. The increase in service revenues was
mainly driven by an increase in mobile broadband satellite communication systems
services.
Segment operating loss
Three Months Ended Dollar Percentage
June 30, June 30, (Increase) (Increase)
(In millions, except percentages) 2021 2020 Decrease Decrease
Segment operating loss $ (37.7 ) $ (51.4 ) $ 13.7 27 %
Percentage of segment revenues (32 )% (77 )%
44
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The$13.7 million reduction in our commercial networks segment operating loss was driven primarily by higher earnings contributions of$18.9 million , primarily due to higher revenues and improved margins in our mobile broadband satellite communications systems products, slightly offset by an increase in IR&D investments. Government systems segment Revenues Three Months Ended Dollar Percentage June 30, June 30, Increase Increase (In millions, except percentages) 2021 2020 (Decrease) (Decrease) Segment product revenues$ 191.7 $ 195.5 $ (3.8 ) (2 )% Segment service revenues 80.4 65.8 14.6 22 % Total segment revenues$ 272.1 $ 261.3 $ 10.8 4 % Our government systems segment revenues increased by$10.8 million due to an increase of$14.6 million in service revenues, partially offset by a decrease of$3.8 million in product revenues. The service revenue increase was primarily due to an$8.1 million increase in government mobile broadband services, a$4.2 million increase in government satellite communication systems services and a$1.9 million increase in cybersecurity and information assurance services. The decrease in product revenues was mainly due to an$11.9 million decrease in tactical satcom radio products and a$4.3 million decrease in government satellite communication systems products, partially offset by a$9.2 million increase in tactical data link products, a$1.7 million increase in government mobile broadband products and a$1.6 million increase in cybersecurity and information assurance products. Our government systems segment continued to show some impacts from the pandemic, which has somewhat complicated product manufacturing and shipments, but new government systems segment awards remained very strong in the first quarter of fiscal year 2022. Segment operating profit Three Months Ended Dollar Percentage June 30, June 30, Increase Increase (In millions, except percentages) 2021 2020 (Decrease) (Decrease) Segment operating profit$ 47.4 $ 49.5 $ (2.1 ) (4 )% Percentage of segment revenues 17 % 19 % The$2.1 million decrease in our government systems segment operating profit was driven by a$5.3 million increase in SG&A costs and a$4.0 million increase in IR&D investments. The decrease in operating profit was partially offset by higher earnings contributions of$7.2 million , primarily due to an increase in revenues in our tactical data link products and government mobile broadband services.
Backlog
As reflected in the table below, our overall firm and funded backlog decreased
during the first three months of fiscal year 2022.
As of As of
June 30, 2021 March 31, 2021
(In millions)
Firm backlog
Satellite services segment $ 617.8 $ 633.7
Commercial networks segment 686.3 733.2
Government systems segment 920.0 939.4
Total $ 2,224.1 $ 2,306.3
Funded backlog
Satellite services segment $ 617.8 $ 633.7
Commercial networks segment 600.7 639.6
Government systems segment 827.7 846.9
Total $ 2,046.2 $ 2,120.2
45
-------------------------------------------------------------------------------- The firm backlog does not include contract options. Of the$2.2 billion in firm backlog, a little over half is expected to be delivered during the next 12 months, with the balance delivered thereafter. We include in our backlog only those orders for which we have accepted purchase orders, and not anticipated purchase orders and requests. In our satellite services segment, our backlog includes fixed broadband service revenues under our subscriber agreements, but does not include future recurring IFC service revenues under our agreements with commercial airlines. As ofJune 30, 2021 , our IFC systems were installed and in service on approximately 1,550 commercial aircraft, of which, due to impacts of the COVID-19 pandemic, approximately 150 were inactive at quarter end. While current global airline traffic is still a fraction of the activity in fiscal year 2020, domestic airline traffic continues to show signs of improvement. As a result, our in-flight services business showed modest improvement in the quarter endedJune 30, 2021 , with increased planes in service and passenger volumes. We expect the negative impact on our IFC business from the pandemic to continue through the remainder of fiscal year 2022 and potentially beyond due to the severe decline in global air traffic and associated grounding of installed aircraft, but to lessen over time with increases in passenger air traffic. We anticipate that approximately 1,160 additional commercial aircraft under existing customer agreements with commercial airlines will be put into service with our IFC systems. However, the timing of installation and entry into service of IFC systems on additional aircraft under existing customer agreements may be delayed as a result of the impact of the COVID-19 pandemic on the global airline industry. Accordingly, there can be no assurance that all anticipated purchase orders and requests will be placed or that anticipated IFC services will be activated. Our total new awards exclude future revenue under recurring consumer commitment arrangements and were approximately$595.0 million and$736.9 million for the three months endedJune 30, 2021 and 2020, respectively. Backlog is not necessarily indicative of future sales. A majority of our contracts can be terminated at the convenience of the customer. Orders are often made substantially in advance of delivery, and our contracts typically provide that orders may be terminated with limited or no penalties. In addition, purchase orders may present product specifications that would require us to complete additional product development. A failure to develop products meeting such specifications could lead to a termination of the related contract. Firm backlog amounts are comprised of funded and unfunded components. Funded backlog represents the sum of contract amounts for which funds have been specifically obligated by customers to contracts. Unfunded backlog represents future amounts that customers may obligate over the specified contract performance periods. Our customers allocate funds for expenditures on long-term contracts on a periodic basis. Our ability to realize revenues from contracts in backlog is dependent upon adequate funding for such contracts. Although we do not control the funding of our contracts, our experience indicates that actual contract funding has ultimately been approximately equal to the aggregate amounts of the contracts.
Liquidity and Capital Resources
Overview
We have financed our operations to date primarily with cash flows from operations, bank line of credit financing, debt financing, export credit agency financing and equity financing. AtJune 30, 2021 , we had$275.7 million in cash and cash equivalents,$388.5 million in working capital, and$320.0 million in principal amount of outstanding borrowings and borrowing availability of$320.3 million under our Revolving Credit Facility. AtMarch 31, 2021 , we had$295.9 million in cash and cash equivalents,$282.8 million in working capital, and no outstanding borrowings and borrowing availability of$673.7 million under our Revolving Credit Facility. We invest our cash in excess of current operating requirements in short-term, highly liquid bank money market accounts. 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 46
-------------------------------------------------------------------------------- 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. Given our current cash position, outlook for funds generated from operations, remaining borrowing availability under our Revolving Credit Facility of$320.3 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. Cash flows Cash provided by operating activities for the first three months of fiscal year 2022 was$65.1 million compared to$156.9 million in the prior year period. This$91.8 million decrease was primarily driven by a$142.8 million year-over-year increase in cash used to fund net operating assets, partially offset by our operating results (net income adjusted for depreciation, amortization and other non-cash charges) which resulted in$51.0 million of higher cash provided by operating activities year-over-year. The increase in cash used to fund net operating assets during the first three months of fiscal year 2022 when compared to the prior year period was primarily due to a decrease in cash inflows year-over-year from combined billed and unbilled accounts receivable, net, attributable to billings for IFC terminals in our commercial networks segment in the first quarter of fiscal year 2022 and a decrease in cash inflows year-over-year from our collections in excess of revenues and deferred revenues included in accrued liabilities due to the timing of milestone billings for certain larger development projects in our commercial networks and government systems segments. Cash used in investing activities for the first three months of fiscal year 2022 was$399.6 million compared to$229.3 million in the prior year period. This$170.3 million increase in cash used in investing activities year-over-year reflects$138.7 million in cash used for the RigNet andEuro Infrastructure Co. acquisitions in the first quarter of fiscal year 2022 and an increase of$26.0 million in cash used for construction of satellites. Cash provided by financing activities for the first three months of fiscal year 2022 was$315.2 million compared to an insignificant amount for the prior year period. This$315.1 million increase in cash provided by financing activities year-over-year reflects proceeds from borrowings under our Revolving Credit Facility of$320.0 million in the first quarter of fiscal year 2022. 47 --------------------------------------------------------------------------------
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. As services using the new satellite scaled, however, our revenue base for broadband services expanded and we gained operating cost efficiencies, which together yielded incremental segment earnings contributions. We anticipate that we will incur a similar cycle of increased operating costs as we prepare for and launch commercial services on future satellites, including ourViaSat -3 constellation, followed by increases in revenue base and in scale. However, there can be no assurance that we will be successful in significantly increasing revenues or achieving or maintaining operating profit in our satellite services segment, and any such gains may also be offset by investments in our global business. We currently have threeViaSat -3 class satellites under construction. We have entered into satellite construction agreements with Boeing for their construction and purchase and the integration of our payload and technologies into the satellites. In addition, we have entered into various other satellite-related purchase commitments, including with respect to the provision of launch services, satellite operation and satellite insurance. See Note 12 - Commitments to our consolidated financial statements included in our Annual Report on Form 10-K for the year endedMarch 31, 2021 for information regarding our future minimum payments under our satellite construction contracts and other satellite-related purchase commitments for the next five fiscal years and thereafter. In addition, we will continue to incur costs related to the roll-out of related earth station infrastructure to support theViaSat -3 constellation, the amount of which will depend, among other matters, on the timing of roll-out and method used to procure fiber access. We believe we have adequate sources of funding for theViaSat -3 constellation, 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 the remainder of fiscal year 2022 and beyond relating to next generation satellite network solutions 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. Our total capital expenditures in fiscal year 2022 are expected to be higher than fiscal year 2021, as we head into the anticipated launch of the firstViaSat -3 satellite and continue to invest in the second and thirdViaSat -3 satellites, as well as increase ground network investments related to international expansion.
Long-Term Debt
As ofJune 30, 2021 , the aggregate principal amount of our total outstanding indebtedness was$2.2 billion , which was comprised of$700.0 million in principal amount of 2025 Notes,$600.0 million in principal amount of 2027 Notes,$400.0 million in principal amount of 2028 Notes (together with the 2025 Notes and 2027 Notes, the Notes),$320.0 million in principal amount of outstanding borrowings under our$700.0 million Revolving Credit Facility,$88.4 million in principal amount of outstanding borrowings under our Ex-Im Credit Facility with a maturity date ofOctober 15, 2025 (together with the Revolving Credit Facility, the Credit Facilities) and$54.0 million of finance lease obligations. For information regarding our Credit Facilities and Notes, refer to Note 6 - Senior Notes and Other Long-Term Debt to our condensed consolidated financial statements. 48
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Contractual Obligations
The following table sets forth a summary of our obligations atJune 30, 2021 : For the Remainder of Fiscal Year For the Fiscal Years Ending (In thousands, including interest where applicable) Total 2022 2023-2024 2025-2026 Thereafter Operating leases$ 466,757 $ 56,135 $ 135,196 $ 122,361 $ 153,065 Finance leases 61,483 10,232 24,251 24,000 3,000 2028 Notes 595,000 26,000 52,000 52,000 465,000 2027 Notes 802,500 16,875 67,500 67,500 650,625 2025 Notes 877,188 39,375 78,750 759,063 - Revolving Credit Facility (1) 333,188 3,877 329,311 - - Ex-Im Credit Facility 93,701 10,882 42,344 40,475 - Satellite performance incentives 31,444 4,258 10,269 11,269 5,648 Purchase commitments including satellite-related agreements 1,925,318 1,015,533 727,674 102,108 80,003 Total$ 5,186,579 $ 1,183,167 $ 1,467,295 $ 1,178,776 $ 1,357,341
(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 inJanuary 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 condensed consolidated balance sheets included$165.0 million and$137.4 million of "other liabilities" as ofJune 30, 2021 andMarch 31, 2021 , respectively, which primarily consisted of the long-term portion of deferred revenues, the long-term portion of our satellite performance incentive obligations relating to theViaSat -1 andViaSat -2 satellites and our long-term warranty obligations. With the exception of the long-term portion of our satellite performance incentive obligations relating to theViaSat -1 andViaSat -2 satellites (which is included under "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 included in our Annual Report on Form 10-K for the year endedMarch 31, 2021 for additional information regarding satellite performance incentive obligations relating to theViaSat -1 andViaSat -2 satellites. See Note 7 - Product Warranty to our condensed consolidated financial statements for a discussion of our product warranties.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements atJune 30, 2021 as defined in Regulation S-K Item 303(a)(4) other than as discussed under "Contractual Obligations" above or disclosed in the notes to our condensed consolidated financial statements included in this report or in our Annual Report on Form 10-K for the year endedMarch 31, 2021 .
Recent Authoritative Guidance
For information regarding recently adopted and issued accounting pronouncements,
see Note 1 – Basis of Presentation to our condensed consolidated financial
statements.
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