vsat-10q_20180930.htm

 

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 September 30, 2018.

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)

 

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)

 

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, 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 October 26, 2018 was 59,650,229.

 

 

 


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 Statement 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

 

34

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

54

Item 4. Controls and Procedures

 

55

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

55

Item 1A. Risk Factors

 

55

Item 6. Exhibits

 

56

Signatures

 

57

 

 


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

VIASAT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

As of

September 30, 2018

 

 

As of

March 31, 2018

 

 

 

(In thousands)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

44,458

 

 

$

71,446

 

Restricted cash

 

 

7,169

 

 

 

 

Accounts receivable, net

 

 

268,803

 

 

 

267,665

 

Inventories

 

 

232,078

 

 

 

196,307

 

Prepaid expenses and other current assets

 

 

233,258

 

 

 

77,135

 

Total current assets

 

 

785,766

 

 

 

612,553

 

 

 

 

 

 

 

 

 

 

Satellites, net

 

 

1,124,074

 

 

 

1,239,987

 

Property and equipment, net

 

 

826,299

 

 

 

722,488

 

Other acquired intangible assets, net

 

 

26,072

 

 

 

31,862

 

Goodwill

 

 

122,676

 

 

 

121,085

 

Other assets

 

 

744,740

 

 

 

686,134

 

Total assets

 

$

3,629,627

 

 

$

3,414,109

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

165,317

 

 

$

157,481

 

Accrued liabilities

 

 

250,407

 

 

 

263,676

 

Current portion of long-term debt

 

 

47,702

 

 

 

45,300

 

Total current liabilities

 

 

463,426

 

 

 

466,457

 

 

 

 

 

 

 

 

 

 

Senior notes

 

 

691,497

 

 

 

690,886

 

Other long-term debt

 

 

460,101

 

 

 

287,519

 

Other liabilities

 

 

130,266

 

 

 

121,240

 

Total liabilities

 

 

1,745,290

 

 

 

1,566,102

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Viasat, Inc. stockholders’ equity

 

 

 

 

 

 

 

 

Common stock

 

 

6

 

 

 

6

 

Paid-in capital

 

 

1,614,224

 

 

 

1,535,635

 

Retained earnings

 

 

252,107

 

 

 

285,960

 

Accumulated other comprehensive income

 

 

8,376

 

 

 

15,565

 

Total Viasat, Inc. stockholders’ equity

 

 

1,874,713

 

 

 

1,837,166

 

Noncontrolling interest in subsidiaries

 

 

9,624

 

 

 

10,841

 

Total equity

 

 

1,884,337

 

 

 

1,848,007

 

Total liabilities and equity

 

$

3,629,627

 

 

$

3,414,109

 

 

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

 

 

Six Months Ended

 

 

 

September 30, 2018

 

 

September 30, 2017

 

 

September 30, 2018

 

 

September 30, 2017

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

280,435

 

 

$

181,783

 

 

$

498,564

 

 

$

347,901

 

Service revenues

 

 

237,039

 

 

 

211,291

 

 

 

457,779

 

 

 

425,217

 

Total revenues

 

 

517,474

 

 

 

393,074

 

 

 

956,343

 

 

 

773,118

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenues

 

 

216,900

 

 

 

133,850

 

 

 

390,348

 

 

 

256,495

 

Cost of service revenues

 

 

175,230

 

 

 

135,412

 

 

 

346,662

 

 

 

273,263

 

Selling, general and administrative

 

 

113,120

 

 

 

90,084

 

 

 

225,762

 

 

 

179,257

 

Independent research and development

 

 

31,360

 

 

 

46,268

 

 

 

64,733

 

 

 

91,333

 

Amortization of acquired intangible assets

 

 

2,435

 

 

 

3,320

 

 

 

4,888

 

 

 

6,580

 

Loss from operations

 

 

(21,571

)

 

 

(15,860

)

 

 

(76,050

)

 

 

(33,810

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

29

 

 

 

177

 

 

 

65

 

 

 

270

 

Interest expense

 

 

(14,074

)

 

 

(197

)

 

 

(25,398

)

 

 

(253

)

Loss on extinguishment of debt

 

 

 

 

 

(10,217

)

 

 

 

 

 

(10,217

)

Loss before income taxes

 

 

(35,616

)

 

 

(26,097

)

 

 

(101,383

)

 

 

(44,010

)

Benefit from income taxes

 

 

9,704

 

 

 

11,464

 

 

 

38,909

 

 

 

20,644

 

Equity in income of unconsolidated affiliate, net

 

 

314

 

 

 

741

 

 

 

1,379

 

 

 

228

 

Net loss

 

 

(25,598

)

 

 

(13,892

)

 

 

(61,095

)

 

 

(23,138

)

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

 

 

126

 

 

 

(203

)

 

 

(1,361

)

 

 

(410

)

Net loss attributable to Viasat, Inc.

 

$

(25,724

)

 

$

(13,689

)

 

$

(59,734

)

 

$

(22,728

)

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

 

$

(0.43

)

 

$

(0.24

)

 

$

(1.00

)

 

$

(0.39

)

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

 

$

(0.43

)

 

$

(0.24

)

 

$

(1.00

)

 

$

(0.39

)

Shares used in computing basic net loss per share

 

 

59,734

 

 

 

58,229

 

 

 

59,470

 

 

 

58,039

 

Shares used in computing diluted net loss per share

 

 

59,734

 

 

 

58,229

 

 

 

59,470

 

 

 

58,039

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(25,598

)

 

$

(13,892

)

 

$

(61,095

)

 

$

(23,138

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on hedging, net of tax

 

 

38

 

 

 

17

 

 

 

(288

)

 

 

109

 

Foreign currency translation adjustments, net of tax

 

 

(7,104

)

 

 

6,321

 

 

 

(6,901

)

 

 

9,846

 

Other comprehensive (loss) income, net of tax

 

 

(7,066

)

 

 

6,338

 

 

 

(7,189

)

 

 

9,955

 

Comprehensive loss

 

 

(32,664

)

 

 

(7,554

)

 

 

(68,284

)

 

 

(13,183

)

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

 

 

126

 

 

 

(203

)

 

 

(1,361

)

 

 

(410

)

Comprehensive loss attributable to Viasat, Inc.

 

$

(32,790

)

 

$

(7,351

)

 

$

(66,923

)

 

$

(12,773

)

 

See accompanying notes to the condensed consolidated financial statements.

4


 

VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Six Months Ended

 

 

 

September 30, 2018

 

 

September 30, 2017

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(61,095

)

 

$

(23,138

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

128,990

 

 

 

101,659

 

Amortization of intangible assets

 

 

28,281

 

 

 

23,150

 

Deferred income taxes

 

 

(40,528

)

 

 

(21,313

)

Stock-based compensation expense

 

 

38,503

 

 

 

31,490

 

Loss on disposition of fixed assets

 

 

26,025

 

 

 

17,853

 

Loss on extinguishment of debt

 

 

 

 

 

10,217

 

Other non-cash adjustments

 

 

7,775

 

 

 

4,253

 

Increase (decrease) in cash resulting from changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(10,595

)

 

 

7,657

 

Inventories

 

 

(34,173

)

 

 

(12,455

)

Other assets

 

 

(9,771

)

 

 

(18,277

)

Accounts payable

 

 

19,908

 

 

 

(7,744

)

Accrued liabilities

 

 

10,396

 

 

 

5,984

 

Other liabilities

 

 

7,576

 

 

 

66,490

 

Net cash provided by operating activities

 

 

111,292

 

 

 

185,826

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property, equipment and satellites

 

 

(333,466

)

 

 

(206,627

)

Cash paid for patents, licenses and other assets

 

 

(21,692

)

 

 

(36,969

)

Proceeds from insurance claims on ViaSat-2 satellite

 

 

44,394

 

 

 

 

Proceeds from sale of real property

 

 

14,034

 

 

 

 

Other investing activities

 

 

(2,339

)

 

 

 

Net cash used in investing activities

 

 

(299,069

)

 

 

(243,596

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from revolving credit facility borrowings

 

 

355,000

 

 

 

 

Payments of revolving credit facility borrowings

 

 

(130,000

)

 

 

 

Payments of Ex-Im credit facility borrowings

 

 

(56,386

)

 

 

 

Proceeds from Ex-Im credit facility borrowings, net of discount

 

 

 

 

 

52,503

 

Proceeds from issuance of 2025 Notes

 

 

 

 

 

700,000

 

Repayment of 2020 Notes

 

 

 

 

 

(575,000

)

Payment of debt extinguishment costs

 

 

 

 

 

(10,602

)

Payment of debt issuance costs

 

 

 

 

 

(8,735

)

Proceeds from issuance of common stock under equity plans

 

 

11,087

 

 

 

14,871

 

Purchase of common stock in treasury (immediately retired) related to tax

   withholdings for share-based awards

 

 

(6,551

)

 

 

(2,483

)

Other financing activities

 

 

(3,886

)

 

 

(757

)

Net cash provided by financing activities

 

 

169,264

 

 

 

169,797

 

Effect of exchange rate changes on cash

 

 

(1,306

)

 

 

583

 

Net (decrease) increase in cash and cash equivalents and restricted cash

 

 

(19,819

)

 

 

112,610

 

Cash and cash equivalents and restricted cash at beginning of period

 

 

71,446

 

 

 

130,098

 

Cash and cash equivalents and restricted cash at end of period

 

$

51,627

 

 

$

242,708

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock in satisfaction of certain accrued employee

   compensation liabilities

 

$

32,129

 

 

$

16,409

 

Capital expenditures not paid for

 

$

6,724

 

 

$

13,003

 

Exposure fees on Ex-Im credit facility financed through Ex-Im credit facility

 

$

 

 

$

5,764

 

 

See accompanying notes to the condensed consolidated financial statements.

 

5


 

VIASAT, INC.

CONDENSED CONSOLIDATED STATEMENT 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

Subsidiaries

 

 

Total

 

 

 

(In thousands, except share data)

 

Balance at March 31, 2018

 

 

58,905,274

 

 

$

6

 

 

$

1,535,635

 

 

$

285,960

 

 

$

15,565

 

 

$

10,841

 

 

$

1,848,007

 

Exercise of stock options

 

 

101,000

 

 

 

 

 

 

3,703

 

 

 

 

 

 

 

 

 

 

 

 

3,703

 

Issuance of stock under Employee Stock Purchase Plan

 

 

132,180

 

 

 

 

 

 

7,384

 

 

 

 

 

 

 

 

 

 

 

 

7,384

 

Stock-based compensation

 

 

 

 

 

 

 

 

43,945

 

 

 

 

 

 

 

 

 

 

 

 

43,945

 

Shares and fully-vested RSUs issued in settlement of

   certain accrued employee compensation liabilities, net

   of shares withheld for taxes which have been retired

 

 

438,433

 

 

 

 

 

 

27,701

 

 

 

 

 

 

 

 

 

 

 

 

27,701

 

RSU awards vesting, net of shares withheld for taxes

   which have been retired

 

 

73,342

 

 

 

 

 

 

(2,123

)

 

 

 

 

 

 

 

 

 

 

 

(2,123

)

Cumulative effect adjustment upon adoption of new

   revenue recognition guidance (ASU 2014-09)

 

 

 

 

 

 

 

 

 

 

 

25,881

 

 

 

 

 

 

 

 

 

25,881

 

Other noncontrolling interest activity

 

 

 

 

 

 

 

 

(2,021

)

 

 

 

 

 

 

 

 

144

 

 

 

(1,877

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(59,734

)

 

 

 

 

 

(1,361

)

 

 

(61,095

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,189

)

 

 

 

 

 

(7,189

)

Balance at September 30, 2018

 

 

59,650,229

 

 

$

6

 

 

$

1,614,224

 

 

$

252,107

 

 

$

8,376

 

 

$

9,624

 

 

$

1,884,337

 

 

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 September 30, 2018, the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended September 30, 2018 and 2017, the condensed consolidated statements of cash flows for the six months ended September 30, 2018 and 2017 and the condensed consolidated statement of equity for the six months ended September 30, 2018 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, 2018 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, 2018 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 subsidiaries, TrellisWare Technologies, Inc. and Euro Broadband Retail Sàrl. 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.

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, self-insurance reserves, allowance for doubtful accounts, warranty accruals, valuation of goodwill and other intangible assets, patents, orbital slots and other licenses, software development, property, equipment and satellites, long-lived assets, derivatives, contingencies and income taxes including the valuation allowance on deferred tax assets.

Revenue recognition

Effective April 1, 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (commonly referred to as Accounting Standards Codification (ASC) 606). This update established ASC 606, Revenue from Contracts with Customers and ASC 340-40, Other Assets and Deferred Costs – Contracts with Customers.

 

In order to assess the impact of the new accounting standards, the Company applied the new standards to all open contracts existing as of April 1, 2018. The Company elected the practical expedient to reflect the aggregate effect of all contract modifications occurring before April 1, 2018 when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to the satisfied and unsatisfied performance obligations. The aggregated effect of applying this practical expedient did not have a significant impact on the Company’s conclusions.

 

 

 

7


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

To reflect the adoption of the new standards, the Company elected to use the “modified retrospective method,” which resulted in the Company recording the retrospective cumulative effect to the opening balance of retained earnings. The following table presents the summary of the impact of adopting the new standards:

 

 

 

As of

March 31,

2018

 

 

Adjustments Due to ASC 606

 

 

As of

April 1,

2018

 

 

 

(In thousands)

 

Condensed Consolidated Balance Sheets:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

267,665

 

 

$

(5,664

)

 

$

262,001

 

Inventories

 

 

196,307

 

 

 

1,623

 

 

 

197,930

 

Prepaid expenses and other current assets

 

 

77,135

 

 

 

18,098

 

 

 

95,233

 

Other assets

 

 

686,134

 

 

 

17,738

 

 

 

703,872

 

Accrued liabilities

 

 

263,676

 

 

 

5,916

 

 

 

269,592

 

Retained earnings

 

 

285,960

 

 

 

25,879

 

 

 

311,839

 

 

The key impact of adoption is the deferral of commissions primarily in the Company’s satellite services segment, which were historically expensed as incurred as further described below.

 

The Company applied the five-step model under ASC 606 to its contracts with its customers to determine the impact of the new standard. 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 requirements to develop and deliver complex equipment built to customer specifications under long-term contracts.

 

Performance obligations

 

The timing of satisfaction of performance obligations may require judgment. The Company derives a substantial portion of its revenues from contracts with customers for services, primarily connectivity services including leasing of related broadband equipment. 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). From a recognition perspective, the leasing of broadband equipment is evaluated in accordance with the authoritative guidance for leases (ASC 840). The Company’s accounting for equipment leases involves specific determinations under ASC 840, which may involve complex provisions and significant judgments. In accordance with ASC 840, the Company applies the following criteria to determine the nature of the lease (e.g., as an operating or sales type lease): (1) review for transfers of ownership of the equipment to the lessee by the end of the lease term, (2) review of the lease terms to determine if it contains an option to purchase the leased equipment for a price which is sufficiently lower than the expected fair value of the equipment at the date of the option, (3) review of the lease term to determine if it is equal to or greater than 75% of the economic life of the equipment, and (4) review of the present value of the minimum lease payments to determine if they are equal to or greater than 90% of the fair market value of the equipment at the inception of the lease. Additionally, the Company considers the cancelability of the contract and any related uncertainty of collections or risk in recoverability of the lease investment at lease inception. Revenue from sales type leases is recognized at the inception of the lease or when the equipment has been delivered and installed at the customer site, if installation is required. Revenues from equipment rentals under operating leases are recognized as earned over the lease term, which is generally on a straight-line basis.

 

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.

 

8


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

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 obligation. When estimates of total costs to be incurred on a performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation 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 audits by the DCAA have not been concluded for fiscal years 2016 through 2018. As of September 30, 2018, the DCAA had completed its incurred cost audit for fiscal year 2004 and approved the Company’s incurred cost claims for fiscal years 2005 through 2015 without further audit. Although the Company has recorded contract revenues subsequent to fiscal year 2015 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 September 30, 2018 and March 31, 2018, the Company had $2.6 million and $1.6 million, respectively, 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).

 

9


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Evaluation of transaction price

 

The evaluation of transaction price, including the amounts allocated to performance obligations, may require significant judgments. Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue, and where applicable the cost at completion, is complex, subject to many variables and requires significant judgment. The Company’s contracts may contain award fees, incentive fees, or other provisions, including the potential for significant financing components, that can either increase or decrease the transaction price. These amounts, which are sometimes variable, can be dictated by performance metrics, program milestones or cost targets, the timing of payments, and customer discretion. The Company estimates variable consideration at the amount to which it expects to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available to the Company. 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 average service component for the portfolio and the average time remaining under the contract. The Company’s future recurring in-flight connectivity (IFC) 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 September 30, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was $1.9 billion, of which the Company expects to recognize a little over half over the next twelve 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.

 

10


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

The following sets forth disaggregated reported revenue by segment and product and services for the three and six months ended September 30, 2018:

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

Satellite Services

 

 

Commercial Networks

 

 

Government Systems

 

 

Total Revenues

 

 

 

(In thousands)

 

Product revenues

 

$

 

 

$

104,190

 

 

$

176,245

 

 

$

280,435

 

Service revenues

 

 

162,962

 

 

 

10,330

 

 

 

63,747

 

 

 

237,039

 

Total revenues

 

$

162,962

 

 

$

114,520

 

 

$

239,992

 

 

$

517,474

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30, 2018

 

 

 

Satellite Services

 

 

Commercial Networks

 

 

Government Systems

 

 

Total Revenues

 

 

 

(In thousands)

 

Product revenues

 

$

 

 

$

189,323

 

 

$

309,241

 

 

$

498,564

 

Service revenues

 

 

316,523

 

 

 

20,263

 

 

 

120,993

 

 

 

457,779

 

Total revenues

 

$

316,523

 

 

$

209,586

 

 

$

430,234

 

 

$

956,343

 

 

Revenues from the U.S. government as an individual customer comprised approximately 29% of total revenues for the three and six months ended September 30, 2018, mainly reported within the government systems segment. The Company’s commercial customers, mainly reported within the commercial networks and satellite services segments, comprised approximately 71% of total revenues for the three and six months ended September 30, 2018.

 

The Company’s satellite services segment revenues are primarily derived from the Company’s fixed broadband services, IFC services and worldwide managed network services.

 

Revenues in the Company’s commercial networks and government systems segments are primarily derived from three types of contracts: fixed-price, cost-reimbursement and time-and-materials contracts. Fixed-price contracts (which require the Company to provide products and services under a contract at a specified price) comprised approximately 90% and 89% of the Company’s total revenues for these segments for the three and six months ended September 30, 2018, respectively. The remainder of the Company’s revenues in these segments for such periods was derived primarily from cost-reimbursement contracts (under which the Company is reimbursed for all actual costs incurred in performing the contract to the extent such costs are within the contract ceiling and allowable under the terms of the contract, plus a fee or profit) and from time-and-materials contracts (under which the Company is reimbursed for the number of labor hours expended at an established hourly rate negotiated in the contract, plus the cost of materials utilized in providing such products or services).

 

Historically, a significant portion of the Company’s revenues in its commercial networks and government systems segments has been derived from customer contracts that include the development of products. The development efforts are conducted in direct response to the customer’s specific requirements and, accordingly, expenditures related to such efforts are included in cost of sales when incurred and the related funding (which includes a profit component) is included in revenues. Revenues for the Company’s funded development from its customer contracts were approximately 17% of its total revenues for the three and six months ended September 30, 2018.

Revenues by geographic area for the three and six months ended September 30, 2018 were as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

September 30, 2018

 

 

September 30, 2018

 

 

 

(In thousands)

 

U.S. customers

 

$

470,220

 

 

$

848,392

 

Non U.S. customers

 

 

47,254

 

 

 

107,951

 

Total revenues

 

$

517,474

 

 

$

956,343

 

 

The Company distinguishes revenues from external customers by geographic area based on customer location.

 

11


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Contract balances

 

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

 

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

 

The following table presents contract assets and liabilities as of September 30, 2018 and April 1, 2018:

 

 

 

As of

September 30,

2018

 

 

As of

April 1,

2018

 

 

 

(In thousands)

 

Unbilled accounts receivable

 

$

81,592

 

 

$

79,492

 

Collections in excess of revenues and deferred revenues

 

 

108,977

 

 

 

127,355

 

Deferred revenues, long-term portion

 

 

81,740

 

 

 

77,831

 

 

During the three and six months ended September 30, 2018, the Company recognized revenue of $31.5 million and $82.1 million, respectively, related to the Company’s collections in excess of revenues and deferred revenues at April 1, 2018.

 

Other assets and deferred costs – contracts with customers

 

The adoption of ASU 2014-09 also included the establishment of ASC 340-40, Other Assets and Deferred Costs – Contracts with Customers. The new standard requires the recognition of an asset from the incremental costs of obtaining a contract with a customer, if the Company expects to recover those costs. The incremental costs of obtaining a contract are those costs that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. ASC 340-40 also requires the recognition of an asset from the costs incurred to fulfill a contract when (1) the costs relate directly to a contract or to an anticipated contract that the Company can specifically identify, (2) the costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future, and (3) the costs are expected to be recovered. Adoption of the standard has resulted in the recognition of an asset related to commission costs incurred primarily in the Company’s satellite services segment, and recognition of an asset related to costs incurred to fulfill contracts. Costs to acquire customer contracts are amortized over the estimated customer contract life. Costs to fulfill customer contracts are amortized in proportion to the revenue to which the costs relate. For contracts with an estimated amortization period of less than one year, the Company elected the practical expedient and expenses incremental costs immediately. The Company’s deferred customer contract acquisition costs and costs to fulfill contract balances were $48.4 million and $7.4 million as of September 30, 2018, respectively. Of the Company’s total deferred customer contract acquisition costs and costs to fulfill contracts, $19.1 million was included in prepaid expenses and other current assets and $36.7 million was included in other assets on the Company’s condensed consolidated balance sheet as of September 30, 2018. For total deferred customer contract acquisition costs and contract fulfillment costs, the Company’s amortization and reduction of carrying value associated with contract termination was $10.6 million and $20.3 million, for the three and six months ended September 30, 2018, respectively.

12


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Comparative results

The Company adopted ASC 606 as of April 1, 2018 using the “modified retrospective method” under which the Company is required to provide additional disclosures comparing results to previous accounting standards. Accordingly, the following table presents the Company’s reported results under ASC 606 and the Company’s pro forma results using the historical accounting method under ASC 605 for the three and six months ended September 30, 2018 and as of September 30, 2018:

 

 

 

Three Months Ended September 30, 2018

 

 

 

As Reported

 

 

Impact of

ASC 606

 

 

Historical

Accounting

Method

 

 

 

(In thousands, except per share data)

 

Condensed Consolidated Statements of Operations

   and Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

280,435

 

 

$

(4,779

)

 

$

275,656

 

Service revenues

 

 

237,039

 

 

 

(511

)

 

 

236,528

 

Total revenues

 

 

517,474

 

 

 

(5,290

)

 

 

512,184

 

Cost of product revenues

 

 

216,900

 

 

 

(3,396

)

 

 

213,504

 

Cost of service revenues

 

 

175,230

 

 

 

52

 

 

 

175,282

 

Selling, general and administrative

 

 

113,120

 

 

 

3,871

 

 

 

116,991

 

Independent research and development

 

 

31,360

 

 

 

1,500

 

 

 

32,860

 

Loss from operations

 

 

(21,571

)

 

 

(7,317

)

 

 

(28,888

)

Interest expense

 

 

(14,074

)

 

 

1,011

 

 

 

(13,063

)

Loss before income taxes

 

 

(35,616

)

 

 

(6,306

)

 

 

(41,922

)

Benefit from income taxes

 

 

9,704

 

 

 

1,940

 

 

 

11,644

 

Net loss

 

 

(25,598

)

 

 

(4,366

)

 

 

(29,964

)

Net loss attributable to Viasat, Inc.

 

 

(25,724

)

 

 

(4,366

)

 

 

(30,090

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per share attributable to Viasat, Inc.

   common stockholders

 

$

(0.43

)

 

$

(0.07

)

 

$

(0.50

)

Diluted net loss per share attributable to Viasat, Inc.

   common stockholders

 

$

(0.43

)

 

$

(0.07

)

 

$

(0.50

)

13


VIASAT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

 

 

 

Six Months Ended September 30, 2018

 

 

 

As Reported

 

 

Impact of

ASC 606

 

 

Historical

Accounting

Method

 

 

 

(In thousands, except per share data)

 

Condensed Consolidated Statements of Operations

   and Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

498,564

 

 

$

(4,200

)

 

$

494,364

 

Service revenues

 

 

457,779

 

 

 

(1,577

)

 

 

456,202

 

Total revenues

 

 

956,343

 

 

 

(5,777

)

 

 

950,566

 

Cost of product revenues

 

 

390,348