Iridium Communications Inc. 10-K

Item 8. Financial Statements and Supplementary Data Page Iridium Communications Inc.: Report of KPMG LLP, Independent Registered Public Accounting Firm (PCAOB ID: 185 ) 53 Report of Ernst & Young LLP, Independent Registered Public Accounting Firm (PCAOB ID: 42) 55 Consolidated Balance Sheets 57 Consolidated Statements of Operations and Comprehensive Income (Loss) 58 Consolidated Statements of Changes in Stockholders’ Equity 59 Consolidated Statements of Cash Flows 60 Notes to Consolidated Financial Statements 61 52 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors Iridium Communications Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Iridium Communications Inc. and subsidiaries (the Company) as of December 31, 2022, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 16, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Changes in estimated useful lives of upgraded satellites As discussed in Note 2 to the consolidated financial statements, the Company’s upgraded satellites are depreciated using the straight-line method over their respective estimated useful lives, which are currently estimated to be 12.5 years. The Company applied judgment in determining the useful lives based on factors such as engineering data relating to the operation and performance of its satellite network, the Company’s long-term strategy for using the assets, and the manufacturer’s estimated design life for the assets. As discussed in Note 4, as of December 31, 2022, the Company had recorded $2,112.5 million in total depreciable property and equipment, net of accumulated depreciation, which included its upgraded satellites. We identified the evaluation of the determination of changes in estimated useful lives of upgraded satellites as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate the Company’s estimated useful lives of the upgraded satellites. Specifically, assessing the factors used to determine the estimated useful lives required subjective auditor judgment. Changes to the estimated useful lives of upgraded satellites could have a significant impact on the timing of recognition of depreciation expense and hosted payload revenue. 53 The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control related to the Company’s process to determine changes in the estimated useful lives of its upgraded satellites. We evaluated the factors the Company used to determine the estimated useful lives of the upgraded satellites by: • comparing the Company's useful life estimates to the manufacturer's estimated design life, and the lives of its first-generation satellite constellation • reading publicly available information on the estimated useful lives of similar assets • inquiring of operations and engineering management personnel regarding satellite operation and performance • evaluating the effect of changes, if any, in the Company's long-term strategy for use of the assets on the useful life estimates. Accounting for investment in Aireon As discussed in Note 14 to the consolidated financial statements, in June 2022, the Company entered into a subscription agreement with Aireon and invested $50 million in exchange for an approximate 6% preferred interest. The Company's investment in Aireon is accounted for as an equity method investment. As of December 31, 2022, the Company's fully diluted ownership stake in Aireon Holdings, a related party, was approximately 39.5%, and is subject to redemption provisions contained in the Aireon Holdings LLC Agreement. As of December 31, 2022, the carrying value of the Company's investment in Aireon was $48.8 million. We identified the evaluation of the accounting for the investment in Aireon as an equity method investment as a critical audit matter. A high degree of complex auditor judgment was required to evaluate the unique terms and conditions of the investment, specifically those related to the subscription agreement and acquired preferred interest. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control related to the Company’s process to determine the accounting for investments, including the investment in Aireon. We evaluated the investment structure and terms and conditions of the agreement, including those related to the preferred interest, by obtaining and inspecting the executed subscription agreement and other related documents. We assessed the significant terms and conditions of the investment and evaluated the Company’s application of relevant accounting literature in its determination of whether the investment in Aireon was an equity method investment. /s/ KPMG LLP We have served as the Company’s auditor since 2022. McLean, Virginia February 16, 2023 54 Report of Ernst & Young LLP, Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Iridium Communications Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Iridium Communications Inc. (the Company) as of December 31, 2021, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. 55 Useful life of upgraded satellites Description of the Matter At December 31, 2021, the Company had $2.2 billion in Property and Equipment related to its upgraded satellites. As discussed in Note 2 to the consolidated financial statements, the Company’s upgraded satellites are depreciated on a straight-line basis over their estimated useful life, which is currently estimated to be 12.5 years. The Company’s useful life estimate is based on judgments made by management using the manufacturer’s estimated design life for the assets, engineering data relating to the operation and performance of its satellite network, and the Company’s long-term strategy for use of the assets. Auditing the Company's estimate of the useful life of the upgraded satellites involved a high degree of subjectivity due to the application of management’s judgment when evaluating the available information to determine the estimated useful life. The resulting estimated useful life has a significant effect on the timing of recognition of depreciation expense given the magnitude of the carrying amount of the upgraded satellites. How We Addressed the Matter in Our Audit We tested the design and operating effectiveness of controls over the Company's processes to determine the estimated useful life of its upgraded satellites, including controls over management's evaluation of the available information to determine the estimated useful life. To test the Company's estimated useful life of the upgraded satellites, our audit procedures included, among others, evaluating the application of available information to determine the estimated useful life of the upgraded satellites. For example, we compared management’s useful life estimate to the manufacturer’s estimated design life, publicly available information on the estimated useful life of similar assets, satellite operation and performance, and the life of its first-generation satellite constellation. Additionally, we evaluated the effect of changes, if any, in the Company’s long-term strategy for use of the assets on the useful life estimate. /s/ Ernst & Young LLP We served as the Company’s auditor from 2001 to 2022. Tysons, Virginia February 17, 2022 56 Iridium Communications Inc. Consolidated Balance Sheets (In thousands, except per share data) December 31, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 168,770 $ 320,913 Accounts receivable, net 82,273 63,410 Inventory 39,776 29,044 Prepaid expenses and other current assets 15,385 11,043 Total current assets 306,204 424,410 Property and equipment, net 2,433,305 2,662,336 Equity method investments 49,853 — Other assets 122,072 50,050 Intangible assets, net 42,577 43,999 Total assets $ 2,954,011 $ 3,180,795 Liabilities and stockholders’ equity Current liabilities: Short-term secured debt $ 16,500 $ 16,500 Accounts payable 21,372 16,196 Accrued expenses and other current liabilities 67,963 48,122 Deferred revenue 35,742 28,018 Total current liabilities 141,577 108,836 Long-term secured debt, net 1,470,685 1,581,516 Deferred income tax liabilities, net 151,569 134,279 Deferred revenue, net of current portion 45,265 48,070 Other long-term liabilities 16,360 20,147 Total liabilities 1,825,456 1,892,848 Commitments and contingencies Stockholders’ equity: Common stock, $0.001 par value, 300,000 shares authorized, 125,902 and 131,342 shares issued and outstanding at December 31, 2022 and 2021, respectively 126 131 Additional paid-in capital 1,124,610 1,154,058 Retained earnings (accumulated deficit) ( 47,744 ) 140,810 Accumulated other comprehensive income (loss), net of tax 51,563 ( 7,052 ) Total stockholders’ equity 1,128,555 1,287,947 Total liabilities and stockholders’ equity $ 2,954,011 $ 3,180,795 See notes to consolidated financial statements 57 Iridium Communications Inc. Consolidated Statements of Operations and Comprehensive Income (Loss) (In thousands, except per share amounts) Year Ended December 31, 2022 2021 2020 Revenue: Services $ 534,721 $ 491,991 $ 463,095 Subscriber equipment 134,714 92,071 86,119 Engineering and support services 51,599 30,438 34,225 Total revenue 721,034 614,500 583,439 Operating expenses: Cost of services (exclusive of depreciation and amortization) 115,137 97,020 91,097 Cost of subscriber equipment 86,012 53,376 51,596 Research and development 16,218 11,885 12,037 Selling, general and administrative 123,504 100,474 90,052 Depreciation and amortization 303,484 305,431 303,174 Total operating expenses 644,355 568,186 547,956 Operating income 76,679 46,314 35,483 Other income (expense): Interest expense, net ( 65,089 ) ( 73,906 ) ( 94,271 ) Loss on extinguishment of debt ( 1,187 ) ( 879 ) ( 30,209 ) Loss on equity method investments ( 1,496 ) — — Other income (expense), net 107 ( 417 ) 33 Total other expense ( 67,665 ) ( 75,202 ) ( 124,447 ) Income (loss) before income taxes 9,014 ( 28,888 ) ( 88,964 ) Income tax benefit (expense) ( 292 ) 19,569 32,910 Net income (loss) 8,722 ( 9,319 ) ( 56,054 ) Weighted average shares outstanding - basic 128,255 133,530 133,491 Weighted average shares outstanding - diluted 130,134 133,530 133,491 Net income (loss) attributable to common stockholders per share - basic and diluted $ 0.07 $ ( 0.07 ) $ ( 0.42 ) Comprehensive income (loss): Net income (loss) $ 8,722 $ ( 9,319 ) $ ( 56,054 ) Foreign currency translation adjustments ( 53 ) ( 280 ) ( 3,277 ) Unrealized gain (loss) on cash flow hedges, net of tax (see Note 8 ) 58,668 10,408 ( 7,036 ) Comprehensive income (loss) $ 67,337 $ 809 $ ( 66,367 ) See notes to consolidated financial statements 58 Iridium Communications Inc. Consolidated Statements of Changes in Stockholders’ Equity (In thousands) Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total Stockholders’ Equity Common Stock Shares Amount Balance at December 31, 2019 131,632 $ 132 $ 1,134,048 $ ( 6,867 ) $ 331,969 $ 1,459,282 Stock-based compensation — — 18,322 — — 18,322 Stock options exercised and awards vested 2,588 2 12,713 — — 12,715 Stock withheld to cover employee taxes ( 164 ) — ( 4,513 ) — — ( 4,513 ) Net loss — — — — ( 56,054 ) ( 56,054 ) Cumulative translation adjustments — — — ( 3,277 ) — ( 3,277 ) Unrealized loss on cash flow hedges, net of tax — — — ( 7,036 ) — ( 7,036 ) Balance at December 31, 2020 134,056 134 1,160,570 ( 17,180 ) 275,915 1,419,439 Stock-based compensation — — 29,616 — — 29,616 Stock options exercised and awards vested 1,769 1 7,442 — — 7,443 Stock withheld to cover employee taxes ( 144 ) — ( 5,918 ) — — ( 5,918 ) Repurchases and retirements of common stock ( 4,339 ) ( 4 ) ( 37,652 ) — ( 125,786 ) ( 163,442 ) Net loss — — — — ( 9,319 ) ( 9,319 ) Cumulative translation adjustments — — — ( 280 ) — ( 280 ) Unrealized gain on cash flow hedges, net of tax — — — 10,408 — 10,408 Balance at December 31, 2021 131,342 131 1,154,058 ( 7,052 ) 140,810 1,287,947 Stock-based compensation — — 48,367 — — 48,367 Stock options exercised and awards vested 1,484 2 3,870 — — 3,872 Stock withheld to cover employee taxes ( 130 ) — ( 5,293 ) — — ( 5,293 ) Repurchases and retirements of common stock ( 6,794 ) ( 7 ) ( 59,776 ) — ( 197,276 ) ( 257,059 ) Net income — — — — 8,722 8,722 Dividends declared — — ( 16,616 ) — — ( 16,616 ) Cumulative translation adjustments — — — ( 53 ) — ( 53 ) Unrealized gain on cash flow hedges, net of tax — — — 58,668 — 58,668 Balance at December 31, 2022 125,902 $ 126 $ 1,124,610 $ 51,563 $ ( 47,744 ) $ 1,128,555 See notes to consolidated financial statements 59 Iridium Communications Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2022 2021 2020 Cash flows from operating activities: Net income (loss) $ 8,722 $ ( 9,319 ) $ ( 56,054 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Deferred income taxes ( 1,189 ) ( 21,314 ) ( 33,684 ) Depreciation and amortization 303,484 305,431 303,174 Loss on extinguishment of debt 1,187 879 30,209 Stock-based compensation (net of amounts capitalized) 43,732 26,782 16,714 Amortization of deferred financing fees 4,602 4,201 3,658 All other items, net 2,134 ( 160 ) 1,124 Changes in operating assets and liabilities: Accounts receivable ( 18,712 ) ( 1,823 ) 6,380 Inventory ( 10,183 ) 3,592 7,234 Prepaid expenses and other current assets ( 4,227 ) ( 1,696 ) 1,119 Other assets 3,441 3,911 3,241 Accounts payable 4,730 ( 2,166 ) 7,410 Accrued expenses and other current liabilities 5,929 7,170 ( 15,662 ) Deferred revenue 4,871 ( 7,531 ) ( 21,692 ) Other long-term liabilities ( 3,792 ) ( 5,083 ) ( 3,404 ) Net cash provided by operating activities 344,729 302,874 249,767 Cash flows from investing activities: Capital expenditures ( 71,267 ) ( 42,147 ) ( 38,689 ) Investment in Aireon (see Note 14 ) ( 50,000 ) — ( 152 ) Purchases of other investments — ( 1,635 ) — Purchases of marketable securities — — ( 7,629 ) Sales and maturities of marketable securities — 7,400 — Net cash used in investing activities ( 121,267 ) ( 36,382 ) ( 46,470 ) Cash flows from financing activities: Borrowings under the Term Loan — 179,285 202,000 Payments on the Term Loan ( 116,500 ) ( 195,785 ) ( 12,375 ) Repayments on senior unsecured promissory notes, including extinguishment costs — — ( 383,451 ) Repurchases of common stock ( 257,059 ) ( 163,442 ) — Payment of deferred financing fees — ( 4,052 ) ( 2,562 ) Proceeds from exercise of stock options 3,872 7,443 12,715 Tax payments upon settlement of stock awards ( 5,293 ) ( 5,918 ) ( 4,513 ) Net cash used in financing activities ( 374,980 ) ( 182,469 ) ( 188,186 ) Effect of exchange rate changes on cash and cash equivalents ( 625 ) ( 288 ) ( 1,494 ) Net increase (decrease) in cash and cash equivalents and restricted cash ( 152,143 ) 83,735 13,617 Cash, cash equivalents and restricted cash, beginning of period 320,913 237,178 223,561 Cash, cash equivalents and restricted cash, end of period $ 168,770 $ 320,913 $ 237,178 See notes to consolidated financial statements Iridium Communications Inc. Consolidated Statements of Cash Flows, continued (In thousands) Year Ended December 31, 2022 2021 2020 Supplemental cash flow information: Interest paid, net of amounts capitalized $ 63,880 $ 72,195 $ 98,714 Income taxes paid (refund received), net $ 2,224 $ 1,784 $ ( 661 ) Supplemental disclosure of non-cash investing and financing activities: Property and equipment received but not paid for yet $ 5,697 $ 8,225 $ 3,721 Capitalized amortization of deferred financing costs $ 158 $ 115 $ 115 Capitalized stock-based compensation $ 4,635 $ 2,834 $ 1,608 Dividends accrued on common stock $ 16,616 $ — $ — See notes to consolidated financial statements 60 Iridium Communications Inc. Notes to Consolidated Financial Statements December 31, 2022 1. Organization and Business Iridium Communications Inc. (the “Company”), a Delaware corporation, offers voice and data communications services and products to businesses, U.S. and international government agencies and other customers on a global basis. The Company is a provider of mobile voice and data communications services via a constellation of low earth orbiting satellites. The Company holds various licenses and authorizations from the U.S. Federal Communications Commission (the “FCC”) and from foreign regulatory bodies that permit the Company to conduct its business, including the operation of its satellite constellation. The Company’s operations are conducted through, and its operating assets are owned by, its principal operating subsidiary, Iridium Satellite LLC (“Iridium Satellite”), Iridium Satellite’s immediate parent, Iridium Holdings LLC, and their subsidiaries. As a result, there are no material differences between the information presented in these consolidated financial statements of the Company and the financial information of Iridium Holdings, Iridium Satellite and their subsidiaries, on a consolidated basis, other than as a result of (i) tax provision as a result of Iridium Holdings, Iridium Satellite and their subsidiaries being classified as flow-through entities for U.S. federal income tax purposes and (ii) senior unsecured notes (fully repaid February 15, 2020, see Note 7 ), related interest expense and loss on extinguishment of debt. 2. Significant Accounting Policies and Basis of Presentation Principles of Consolidation and Basis of Presentation The Company has prepared the consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The accompanying consolidated financial statements include the accounts of (i) the Company, (ii) its wholly owned subsidiaries, and (iii) all less than wholly owned subsidiaries that the Company controls. All material intercompany transactions and balances have been eliminated. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to revenue recognition, the useful lives and recoverability of long-lived and intangible assets, income taxes, stock-based compensation, the incremental borrowing rate for its leases, and contingencies, among others. The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenues and expenses. Actual results could differ materially from those estimates. Adopted and Recently Issued Accounting Pronouncements In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The guidance provided optional expedients and exceptions for contracts, hedging relationships, and other transactions that referenced the London Inter-bank Offered Rate (“LIBOR”), which was to be discontinued. ASU 2020-04 was further amended in January 2021 when the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which clarified the applicability of certain provisions. Both ASU 2020-04 and ASU 2021-01 were effective prospectively through December 31, 2022. The guidance in ASU 2020-04 and ASU 2021-01 was optional and could be elected over time as reference rate reform activities occurred. During the year ended December 31, 2022, the Company adopted the amendments required in these ASUs by modifying agreements referencing LIBOR; the initial adoption of these amendments did not have a significant impact on its consolidated financial statements. During the year ended December 31, 2021, the Company applied the optional expedient for hedge accounting specifically to the interest rate cap agreement (the “Cap” (see Note 8 )) which was executed in July 2021. This allowed the Company to assume that the index upon which future interest payments on the hedged portion of the Term Loan will be based matches the index on the Cap. Adoption of this practical expedient had no impact on the Company’s consolidated financial statements upon adoption. 61 Fair Value Measurements The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level to classify them for each reporting period. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. The fair value hierarchy consists of the following tiers: • Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; • Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and • Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair value estimates are based upon certain market assumptions and information available to the Company. The carrying values of the following financial instruments approximated their fair values as of December 31, 2022 and 2021: cash and cash equivalents, prepaid expenses and other current assets, accounts receivable, accounts payable, and accrued expenses and other current liabilities. Fair values approximate their carrying values because of their short-term nature. The Level 2 cash equivalents include money market funds, commercial paper and short-term U.S. agency securities. The Company also classifies its derivative financial instruments as Level 2. In determining fair value of Level 2 assets, the Company uses a market approach utilizing valuation models that incorporate observable inputs such as interest rates, bond yields and quoted prices for similar assets. Leases For new leases, the Company determines if an arrangement is or contains a lease at inception. Leases are included as right-of-use (“ROU”) assets within other assets and ROU liabilities within accrued expenses and other liabilities and within other long-term liabilities on the Company’s consolidated balance sheets. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Certain leases contain variable contractual obligations as a result of future base rate escalations which are estimated based on observed trends and included within the measurement of present value. The Company’s leases do not provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For certain leases, such as teleport network facilities, the Company elected the practical expedient to combine lease and non-lease components as a single lease component. Taxes assessed on leases in which the Company is either a lessor or lessee are excluded from contract consideration and variable payments when measuring new lease contracts or remeasuring existing lease contracts. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and receivables. The majority of cash is invested into a money market fund with U.S. treasuries, Agency Mortgage Backed Securities and/or U.S. government guaranteed debt. While the Company maintains its cash and cash equivalents with financial institutions with high credit ratings, it often maintains those deposits in federally insured financial institutions in excess of federally insured limits. The Company performs credit evaluations of its customers’ financial condition and records reserves to provide for estimated credit losses. Accounts receivable are due from both domestic and international customers. 62 Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of ninety days or less to be cash equivalents. These investments, along with cash deposited in institutional money market funds, regular interest bearing depository accounts and non-interest bearing depository accounts, are classified as cash and cash equivalents on the accompanying consolidated balance sheets. Investments Investments where we have the ability to exercise significant influence, but we do not control, are accounted for under the equity method of accounting and are included in Other assets on our consolidated balance sheets. Significant influence typically exists if we have a 20% to 50% ownership interest in the investee. Under this method of accounting, our share of the net earnings (losses) of the investee is included in loss on equity method investments on our consolidated statement of income. Investments where we have less than 20% ownership interest in the investee and lack the ability to exercise significant influence are accounted for under ASC 321-10-35, Investments - Equity Securities. Under this topic, our investment equals our cost, less impairment, if any. For investments without a readily determinable fair value, we perform a qualitative assessment to determine if any impairment indicator is present. If an indicator is present, we estimate the fair value to determine if the fair value was less than its carrying value. If the fair value is less than its carrying value or if there is an observable price change through a similar security from the same issuer, we would record an impairment. Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and are subject to late fee penalties. Management develops its estimate of an allowance for uncollectible receivables based on the Company’s experience with specific customers, aging of outstanding invoices, its understanding of customers’ current economic circumstances and its own judgment as to the likelihood that the Company will ultimately receive payment. The Company writes off its accounts receivable when balances ultimately are deemed uncollectible. The allowance for doubtful accounts was not material as of December 31, 2022 and 2021. Foreign Currencies Generally, the functional currency of the Company’s foreign consolidated subsidiaries is the local currency. Assets and liabilities of its foreign subsidiaries are translated to U.S. dollars based on exchange rates at the end of the reporting period. Income and expense items are translated at the weighted-average exchange rates prevailing during the reporting period. Translation adjustments are accumulated in a separate component of stockholders’ equity. Transaction gains or losses are classified as other income (expense), net in the accompanying consolidated statements of operations and comprehensive income (loss). In instances where the financial statements of a foreign entity in a highly inflationary economy are material, they are remeasured as if the functional currency were the reporting currency. In these instances, the financial statements of those entities are remeasured into the reporting currency. A highly inflationary economy is one that has cumulative inflation of approximately 100 % or more over a three-year period. Deferred Financing Costs Direct and incremental costs incurred in connection with securing debt financing are deferred and are amortized as additional interest expense using the effective interest method over the term of the related debt. Capitalized Interest During the development and construction periods of a project, such as the financing of the Company’s current satellite constellation, the Company capitalizes interest. Capitalization ceases when the asset is ready for its intended use or when these activities are substantially suspended. If some portions of a project are substantially complete and ready for use and other portions have not yet reached that stage, the Company ceases capitalizing costs on the completed portion of the project but continues to capitalize for the incomplete portion of the project. Inventory Inventory consists primarily of finished goods, although the Company also maintains an inventory of raw materials from third-party manufacturers. The Company outsources manufacturing of subscriber equipment to a third-party manufacturer and purchases accessories from third-party suppliers. The Company’s cost of inventory includes an allocation of overhead, 63 including payroll and payroll-related costs of employees directly involved in bringing inventory to its existing condition, and freight. Inventories are valued using the average cost method and are carried at the lower of cost or net realizable value. The Company’s expense for excess and obsolete inventory was not material during the years ended December 31, 2022, 2021 or 2020. The Company has a manufacturing agreement with Benchmark Electronics Inc. (“Benchmark”) to manufacture most of its subscriber equipment. Pursuant to the agreement, the Company may be required to purchase excess materials at cost plus a contractual markup if the materials are not used in production within the periods specified in the agreement. Benchmark will then repurchase such materials from the Company at the same price paid by the Company, as required for the production of the subscriber equipment. The Company’s inventory balance consisted of the following: December 31, 2022 2021 (In thousands) Finished goods $ 17,964 $ 18,395 Raw materials 23,014 11,850 Inventory valuation reserve ( 1,202 ) ( 1,201 ) Total $ 39,776 $ 29,044 The Company’s raw materials balance includes $9.0 million and $5.8 million at December 31, 2022 and December 31, 2021, respectively, of inventory held on consignment at third-party manufacturers. Stock-Based Compensation The Company accounts for stock-based compensation at estimated fair value. The fair value of stock options is determined at the grant date using the Black-Scholes-Merton option pricing model. The fair value of restricted stock units (“RSUs”) is equal to the closing price of the underlying common stock on the grant date. The fair value of an award that is ultimately expected to vest is recognized on a straight-line basis over the requisite service or performance period and is classified in the consolidated statements of operations and comprehensive income (loss) in a manner consistent with the classification of the recipient’s compensation. The expected vesting of the Company’s performance-based RSUs is based upon the probability that the Company achieves the defined performance goals. The level of achievement of performance goals, if any, is determined by the Compensation Committee. Stock-based awards to non-employee consultants are expensed at their grant-date fair value as services are provided according to the terms of their agreements and are classified in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss). Classification of stock-based compensation by line item on the balance sheet and statement of operations is presented below: As of and For Year Ended December 31, 2022 2021 (In thousands) Property and equipment, net $ 4,018 $ 2,376 Inventory 617 436 Prepaid and other current assets — 22 Cost of subscriber equipment 69 53 Cost of services (exclusive of depreciation and amortization) 12,337 8,037 Research and development 648 333 Selling, general and administrative 30,678 18,359 Total stock-based compensation $ 48,367 $ 29,616 64 Property and Equipment Property and equipment is carried at cost less accumulated depreciation. The Company applies judgment in determining the useful lives based on factors such as engineering data, long-term strategy for using the assets, the manufacturer’s estimated design life for the assets, laws and regulations that could impact the useful lives of the assets and other economic factors. The Company assesses the current estimated operational life of the satellites, including the potential impact of environmental factors on the satellites, ongoing operational enhancements and software upgrades when evaluating the useful lives of its satellites. Additionally, the Company reviews engineering data relating to the operation and performance of its satellite network. Depreciation is calculated using the straight-line method over the following estimated useful lives: Satellites 12.5 years Ground system 5-7 years Equipment 3-5 years Internally developed software and purchased software 3-7 years Building 39 years Building improvements 5-39 years Leasehold improvements shorter of useful life or remaining lease term The Company calculates depreciation expense using the straight-line method and evaluates the appropriateness of the useful life used in this calculation on a quarterly basis or as events occur that require additional assessment. Repairs and maintenance costs are expensed as incurred. Derivative Financial Instruments The Company uses derivatives (interest rate swap, swaption, cap) to manage its exposure to fluctuating interest rate risk on variable rate debt. Its derivatives are measured at fair value and are recorded on the consolidated balance sheets within other current liabilities and other assets. When the Company’s derivatives are designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives are recorded in accumulated other comprehensive income (loss) within the Company’s consolidated balance sheets and subsequently recognized in earnings when the hedged items impact earnings. Any ineffective portion of a derivative’s change in fair value will be recognized in earnings in the same period in which the hedged interest payments affect earnings. Within the consolidated statements of operations and comprehensive income (loss), the gains and losses related to cash flow hedges are recognized within interest income (expense), net, as this is the same financial statement line item associated with the hedged items. Cash flows from hedging activities are included in operating activities within the Company’s consolidated statements of cash flows, which is the same category as the item being hedged. See Note 8 for further information. Long-Lived Assets The Company assesses its long-lived assets for impairment when indicators of impairment exist. Recoverability of assets is measured by comparing the carrying amounts of the assets to the future undiscounted cash flows expected to be generated by the assets. Any impairment loss would be measured as the excess of the assets’ carrying amount over their fair value. Intangible Assets The Company’s intangible assets with finite lives are amortized over their useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If any indicators were present, the Company would test for recoverability by comparing the carrying amount of the asset to the net undiscounted cash flows expected to be generated from the asset. If those net undiscounted cash flows do not exceed the carrying amount (i.e., the asset is not recoverable), the Company would perform the next step, which is to determine the fair value of the asset and record an impairment loss, if any. The Company evaluates the useful lives for these intangible assets each reporting period to determine whether events and circumstances warrant a revision in their remaining useful lives. 65 Amortization is calculated using the straight-line method over the following estimated useful lives: Intellectual property 20 years Assembled workforce 7 years Patents 14 - 20 years The Company’s intangible assets with indefinite lives are not amortized but are tested for impairment annually, or more frequently if events or changes in circumstances indicate the asset may be impaired. The Company’s trade names, spectrum and licenses are expected to generate cash flows indefinitely. Revenue Recognition The Company derives its revenue primarily as a wholesaler of satellite communications products and services. The primary types of revenue include (i) service revenue (access and usage-based airtime fees), (ii) subscriber equipment revenue, and (iii) revenue generated by providing engineering and support services to commercial and government customers. In addition to the discussion immediately below, see Note 11 for further discussion of the Company’s revenue recognition. Wholesaler of satellite communications products and services Pursuant to wholesale agreements, the Company sells its products and services to service providers and recognizes revenue as it fulfills its performance obligations to the service providers, based an amount that reflects the consideration to which it expects to be entitled to in exchange for those products and services. The service providers, in turn, sell the products and services to other distributors or directly to the end users. The Company recognizes revenue when an arrangement exists, services or equipment are transferred, the transaction price is determined, the arrangement has commercial substance, and collection of consideration is probable. Contracts with multiple performance obligations At times, the Company sells services and equipment through arrangements that bundle equipment, airtime and other services. For these revenue arrangements, when the Company sells services and equipment in bundled arrangements and determines that it has separate distinct performance obligations, the Company allocates the bundled contract price among the various performance obligations based on each deliverable’s stand-alone selling price. If the stand-alone selling price is not directly observable, the Company estimates the amount to be allocated for each performance obligation based on observable market transactions or the residual approach. When the Company determines the performance obligations are not distinct, the Company recognizes revenue on a combined basis. To the extent the Company’s contracts include variable consideration, the transaction price includes both fixed and variable consideration. The variable consideration contained within the Company’s contracts with customers may include discounts, credits and other similar items. When a contract includes variable consideration, the Company evaluates the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, the Company includes the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration estimates are updated at the end of each quarter. Service revenue sold on a stand-alone basis Service revenue is generated from the Company’s service providers through usage of its satellite system and through fixed monthly access fees per user charged to service providers. Revenue for usage is recognized when usage occurs and is billed in arrears with payments generally submitted within 30 days. Revenue for fixed-per-user access fees is billed monthly in advance and generally recognized over the month, or related usage period, in which the services are provided to the end user. The Company sells prepaid services in the form of e-vouchers and prepaid cards. A liability is established equal to the cash paid upon purchase for the e-voucher or prepaid card. The Company recognizes revenue from (i) the prepaid services upon the use of the e-voucher or prepaid card by the customer and (ii) the estimated pattern of use. The Company does not offer refunds for unused prepaid services. Services sold to the U.S. government The Company provides airtime and airtime support to U.S. government and other authorized customers pursuant to the Enhanced Mobile Satellite Services (“EMSS”) contract managed by the U.S. Space Force. Under the terms of this agreement, 66 authorized customers continue to utilize airtime services, provided through the U.S. government’s dedicated gateway. These services include unlimited global standard and secure voice, low and high-speed data, paging, broadcast and Distributed Tactical Communications Services (“DTCS”) services for an unlimited number of Department of Defense (“DoD”) and other federal subscribers. Under this contract, revenue is based on the annual fee for the fixed-price contract with unlimited subscribers and is recognized on a straight-line basis over each contractual year, with equal payments submitted monthly. The U.S. government purchases its subscriber equipment from third-party distributors and not directly from the Company. Subscriber equipment sold on a stand-alone basis The Company recognizes subscriber equipment sales and the related costs when title to the equipment (and the risks and rewards of ownership) passes to the customer, typically upon shipment. Customers are billed when inventory is shipped, and payment is generally due within 30 days. Customers do not have rights of return without prior consent from the Company. Government engineering and support services The Company provides maintenance services to the U.S. government’s dedicated gateway. This revenue is recognized ratably over the periods in which the services are provided; the related costs are expensed as incurred. Other government and commercial engineering and support services The Company also provides engineering services to assist customers in developing new technologies for use on the Company’s satellite system. Fees to customers under these agreements are generally based on milestones and payments are submitted as milestones are achieved. The revenue associated with fixed-fee contracts is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying its performance obligation. The Company does not include purchases of goods from a third party in its evaluation of costs incurred. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. The revenue associated with cost-plus-fixed-fee contracts is recognized to the extent of estimated costs incurred plus the applicable fees earned. The Company considers fixed fees under cost-plus-fixed-fee contracts to be earned in proportion to the allowable costs incurred in performance of the contract. Research and Development Research and development costs are charged to expense in the period in which they are incurred. Advertising Costs Costs associated with advertising and promotions are expensed as incurred. Advertising expenses were $ 1.7 million, $ 1.9 million and $ 1.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. Income Taxes The Company accounts for income taxes using the asset and liability approach, which requires the recognition of tax benefits or expenses for temporary differences between the financial reporting and tax bases of assets and liabilities. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company also recognizes a tax benefit from uncertain tax positions only if it is “more likely than not” that the position is sustainable based on its technical merits. The Company’s policy is to recognize interest and penalties on uncertain tax positions as a component of income tax expense. Net Income (Loss) Per Share The Company calculates basic net income (loss) per share by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share takes into account the effect of potentially dilutive common shares when the effect is dilutive. The effect of potentially dilutive common shares, including common stock issuable upon exercise of outstanding stock options, is computed using the treasury stock method. The effect of potentially dilutive common shares from the conversion of outstanding convertible preferred securities was computed using the as-if converted method at the stated conversion rate. The Company’s unvested RSUs awarded to the board of directors contain non-forfeitable rights to dividends and therefore are considered to be participating 67 securities in periods of net income. The calculation of basic and diluted net income (loss) per share excludes net income attributable to these unvested RSUs from the numerator and excludes the impact of these unvested RSUs from the denominator. 3. Cash and Cash Equivalents Cash and Cash Equivalents The following table summarizes the Company’s cash and cash equivalents: December 31, Recurring Fair Value Measurement 2022 2021 (In thousands) Cash and cash equivalents: Cash $ 16,247 $ 28,496 Money market funds 152,523 292,417 Level 2 Total cash and cash equivalents $ 168,770 $ 320,913 4. Property and Equipment Property and equipment consisted of the following: December 31, 2022 2021 (In thousands) Satellite system $ 3,197,460 $ 3,197,460 Ground system 73,890 75,899 Equipment 49,423 46,461 Internally developed software and purchased software 297,538 290,979 Building and leasehold improvements 32,695 30,198 Total depreciable property and equipment 3,651,006 3,640,997 Less: accumulated depreciation ( 1,538,535 ) ( 1,253,354 ) Total depreciable property and equipment, net of accumulated depreciation 2,112,471 2,387,643 Land 8,037 8,037 Construction-in-process: Ground spares 225,254 225,254 Other construction-in-process 87,543 41,402 Total property and equipment, net of accumulated depreciation $ 2,433,305 $ 2,662,336 Other construction-in-process consisted of the following: December 31, 2022 2021 (In thousands) Internally developed and purchased software $ 46,714 $ 29,443 Equipment 40,423 11,558 Ground system 406 401 Total other construction-in-process $ 87,543 $ 41,402 Depreciation expense was $ 301.9 million, $ 303.8 million and $ 301.7 million for the years ended December 31, 2022, 2021 and 2020, respectively. 68 5. Intangible Assets The Company had identifiable intangible assets as follows: December 31, 2022 Useful Life Gross Carrying Value Accumulated Amortization Net Carrying Value (In thousands) Indefinite life intangible assets: Trade names Indefinite $ 21,195 $ — $ 21,195 Spectrum and licenses Indefinite 14,030 — 14,030 Total 35,225 — 35,225 Definite life intangible assets: Intellectual property 20 years 16,439 ( 10,347 ) 6,092 Assembled workforce 7 years 5,678 ( 4,867 ) 811 Patents 14 - 20 years 576 ( 127 ) 449 Total 22,693 ( 15,339 ) 7,352 Total intangible assets $ 57,918 $ ( 15,339 ) $ 42,577 December 31, 2021 Useful Life Gross Carrying Value Accumulated Amortization Net Carrying Value (In thousands) Indefinite life intangible assets: Trade names Indefinite $ 21,195 $ — $ 21,195 Spectrum and licenses Indefinite 14,030 — 14,030 Total 35,225 — 35,225 Definite life intangible assets: Intellectual property 20 years 16,439 ( 9,637 ) 6,802 Assembled workforce 7 years 5,678 ( 4,055 ) 1,623 Patents 14 - 20 years 441 ( 92 ) 349 Total 22,558 ( 13,784 ) 8,774 Total intangible assets $ 57,783 $ ( 13,784 ) $ 43,999 Amortization expense was $ 1.6 million, $ 1.6 million and $ 1.5 million for the years ended December 31, 2022, 2021 and 2020, respectively. Future amortization expense with respect to intangible assets existing at December 31, 2022, by year and in the aggregate, is as follows: Year ending December 31, Amount (In thousands) 2023 $ 1,561 2024 750 2025 750 2026 750 2027 750 Thereafter 2,791 Total estimated future amortization expense $ 7,352 69 6. Leases The Company has operating leases for land, office space, satellite network operations center (“SNOC”) facilities, system gateway facilities, a warehouse and a distribution center. The Company also has operations and maintenance (“O&M”) agreements that include leases associated with two teleport network facilities. Some of the Company’s leases include options to extend the leases for up to 10 years. The Company does not include term extension options as part of its present value calculation of lease liabilities unless it is reasonably certain to exercise those options. As of December 31, 2022, the Company’s weighted-average remaining lease term relating to its operating leases was 5.1 years, and the weighted-average discount rate used to calculate the operating lease liability payment was 6.8 %. The table below summarizes the Company’s lease-related assets and liabilities: Leases Classification December 31, 2022 December 31, 2021 (In thousands) Operating lease assets Noncurrent Other assets $ 16,925 $ 20,369 Total lease assets $ 16,925 $ 20,369 Operating lease liabilities Current Accrued expenses and other current liabilities $ 3,784 $ 3,703 Noncurrent Other long-term liabilities $ 15,801 19,587 Total lease liabilities $ 19,585 $ 23,290 During the years ended December 31, 2022, 2021 and 2020, the Company incurred lease expense of $ 5.2 million, $ 5.6 million and $ 5.6 million, respectively. A portion of rent expense during these comparable periods was derived from leases that were not included within the ROU asset and liability balances shown above as they had terms shorter than twelve months and were therefore excluded from balance sheet recognition under ASU 2016-02. Future payment obligations with respect to the Company’s operating leases in which it was the lessee at December 31, 2022, by year and in the aggregate, are as follows: Year Ending December 31, Amount (In thousands) 2023 $ 5,069 2024 4,959 2025 5,088 2026 3,287 2027 1,755 Thereafter 3,166 Total lease payments $ 23,324 Lessor Arrangements Operating leases in which the Company is a lessor consist primarily of hosting agreements with Aireon LLC (“Aireon”) (see Note 14 ) and L3Harris Technologies, Inc. (“L3Harris”) for space on the Company’s satellites. These agreements provide for a fee that will be recognized over the life of the satellites, currently estimated to be approximately 12.5 years from their in-service date. Lease income related to these agreements was $ 21.4 million for each of the years ended December 31, 2022, 2021 and 2020. Lease income is recorded as hosted payload and other data service revenue within service revenue on the Company’s consolidated statements of operations and comprehensive income (loss). 70 Future income with respect to the Company’s operating leases in which it was the lessor at December 31, 2022, by year and in the aggregate, is as follows: Year Ending December 31, Amount (In thousands) 2023 $ 21,445 2024 $ 21,445 2025 $ 21,445 2026 $ 21,445 2027 $ 21,445 Thereafter $ 56,017 Total lease income $ 163,242 7. Debt Term Loan and Revolving Facility In November 2019 and February 2020, pursuant to a loan agreement (as amended to date, the “Credit Agreement”), the Company entered into a term loan totaling $ 1,650.0 million in aggregate principal amount with various lenders administered by Deutsche Bank AG (the “Term Loan”) and an accompanying $ 100.0 million revolving loan (the “Revolving Facility”). The Term Loan was repriced twice in 2021. In December 2022, the Company amended the Term Loan to replace the original LIBOR base rate with the Secured Overnight Financing Rate (“SOFR”). The Term Loan now bears interest at an annual rate of adjusted SOFR (SOFR plus 0.10%) plus 2.50 %, with a 0.75 % adjusted SOFR floor. The Company typically selects a one-month interest period, with the result that interest is calculated using one-month SOFR. All other terms of the Term Loan remain the same, including maturity in November 2026. The interest rate on the Revolving Facility was also modified to use adjusted SOFR as the base rate beginning December 30, 2022. All other material terms remain unchanged. The Revolving Facility now bears interest at an annual rate of adjusted SOFR plus 3.75 %, but without an adjusted SOFR floor, and a maturity date in November 2024. Principal payments, which are payable quarterly and began on June 30, 2020, equal $ 16.5 million per annum (one percent of the full principal amount of the Term Loan), with the remaining principal due upon maturity. In the fourth quarter of 2022, the Company elected to prepay $ 100.0 million of principal on the Term Loan. This resulted in a $ 1.2 million loss on extinguishment of debt during the year ended December 31, 2022, as the Company wrote off the unamortized debt issuance costs related to this prepayment. In the third quarter of 2021, the Company repriced the Term Loan. This resulted in a $ 0.9 million loss on extinguishment of debt during the year ended December 31, 2021, as the Company wrote off the unamortized debt issuance costs related to the lenders who were fully repaid in an exchange of principal. In February 2020, the Company used the proceeds of the Term Loan, together with cash on hand, to prepay and retire all of the indebtedness outstanding under then outstanding senior unsecured promissory notes, including premiums for early prepayment. This resulted in a $ 30.2 million loss on extinguishment of debt during the year ended December 31, 2020, as the Company wrote off the remaining unamortized debt issuance costs. As of December 31, 2022 and 2021, the Company reported an aggregate of $ 1,504.6 million and $ 1,621.1 million in borrowings under the Term Loan, respectively. These amounts do not include $ 17.4 million and $ 23.1 million of net unamortized deferred financing costs as of December 31, 2022 and 2021, respectively. The net principal balance in borrowings in the accompanying consolidated balance sheets as of December 31, 2022 and 2021 amounted to $ 1,487.2 million and $ 1,598.0 million, respectively. As of December 31, 2022 and 2021, based upon over-the-counter bid levels (Level 2 - market approach), the fair value of the borrowings under the Term Loan due in 2026 was $1,494.3 million and $ 1,622.1 million, respectively. The Company had not borrowed under the Revolving Facility as of December 31, 2022 or 2021. The Credit Agreement restricts the Company’s ability to incur liens, engage in mergers or asset sales, pay dividends, repay subordinated indebtedness, incur indebtedness, make investments and loans, and engage in other transactions as specified in the Credit Agreement. The Credit Agreement provides for specified exceptions, including baskets measured as a percentage of trailing twelve months of earnings before interest, taxes, depreciation and amortization (“EBITDA”) and unlimited exceptions based on achievement and maintenance of specified leverage ratios, for, among other things, incurring indebtedness and liens and making investments, restricted payments for dividends and share repurchases, and payments of subordinated indebtedness. The Credit Agreement also contains a mandatory prepayment sweep mechanism with respect to a portion of the Company’s excess cash flow (as defined in the Credit Agreement), which is phased out based on achievement and maintenance of specified 71 leverage ratios. As of December 31, 2022, the Company was below the specified leverage ratio and a mandatory prepayment sweep was therefore not required. The Credit Agreement contains no financial maintenance covenants with respect to the Term Loan. With respect to the Revolving Facility, the Credit Agreement requires the Company to maintain a consolidated first lien net leverage ratio (as defined in the Credit Agreement) of no greater than 6.25 to 1 if more than 35 % of the Revolving Facility has been drawn. The Credit Agreement contains other customary representations and warranties, affirmative and negative covenants, and events of default. The Company was in compliance with all covenants as of December 31, 2022. The effective interest rate on outstanding principal of the Term Loan was 5.0 % during the year ended December 31, 2022. Interest on Debt Total interest incurred includes amortization of deferred financing fees and capitalized interest. All third-party financing costs incurred during the years ended December 31, 2021 and 2020 were expensed and are included within interest expense on the consolidated statements of operations and comprehensive income (loss). The following table presents the interest and amortization of deferred financing fees related to the Term Loan: Year Ended December 31, 2022 2021 2020 (In thousands) Total interest incurred $ 72,090 $ 72,816 $ 99,155 Amortization of deferred financing fees $ 4,760 $ 4,316 $ 3,773 Capitalized interest $ 2,590 $ 2,146 $ 3,225 As of December 31, 2022 and 2021, accrued interest under the Term Loan was $ 0.3 million and $ 0.1 million, respectively. Total Debt Future minimum principal repayments with respect to the Company’s debt balances existing at December 31, 2022, by year and in the aggregate, are as follows: Year ending December 31, Amount (In thousands) 2023 $ 16,500 2024 16,500 2025 16,500 2026 1,455,125 Total debt commitments 1,504,625 Less: Original issuance discount 17,440 Less: Total short-term debt 16,500 Total long-term debt, net $ 1,470,685 The repayment schedule above excludes future amounts that may be required to be prepaid pursuant to the excess cash flow sweep provision of the Credit Agreement, as those amounts are not determinable in advance. 8. Derivative Financial Instruments The Company is exposed to interest rate fluctuations related to its Term Loan. The Company has reduced its exposure to fluctuations in the cash flows associated with changes in the variable interest rate by entering into offsetting positions through the use of interest rate hedges. This will reduce the negative impact of increases in the variable rate over the term of the derivative contracts. These contracts are not used for trading or other speculative purposes. Historically, the Company has not incurred, and does not expect to incur in the future, any losses as a result of counterparty default. 72 Hedge effectiveness of the current interest rate cap contract is based on a long-haul hypothetical derivative methodology and includes all changes in value. The Company formally assesses, both at the hedge’s inception and on an ongoing quarterly basis, whether the designated derivative instruments are highly effective in offsetting changes in the cash flows of the hedged items. When the hedging instrument is sold, expires, is terminated, is exercised, no longer qualifies for hedge accounting, is de-designated, or is no longer probable, hedge accounting is discontinued prospectively. Interest Rate Cap In July 2021, the Company entered into the Cap, which had an effective date of December 2021 upon the expiration of the Company’s long-term interest rate swap (the “Swap”). The Cap manages the Company’s exposure to interest rate movements on a portion of the Term Loan through the maturity of the Term Loan in November 2026. In December 2022, the Company modified the Cap to replace the LIBOR base rate with SOFR, consistent with the amendment to the Term Loan. With the replacement of LIBOR to SOFR, the Company receives a credit risk adjustment from the counterparty of 0.064 %. The adjusted Cap now provides the Company the right to receive payment from the counterparty if one-month SOFR exceeds 1.436 % ( 1.5 % less 0.064 %). Prior to the amendment, the Company received payment under the terms of the Cap if one-month LIBOR exceeded 1.5 %. Since December 2021, the Company pays a fixed monthly premium based on an annual rate of 0.31 % for the Cap. The Cap carried a notional amount of $ 1.0 billion as of December 31, 2022 and 2021. The Cap is designed to mirror the terms of the Term Loan and to offset the cash flows being hedged. The Company designated the Cap as a cash flow hedge of the variability of the base rate interest payments on the Term Loan. The effective portion of the Cap’s change in fair value will be recorded in accumulated other comprehensive income (loss). Any ineffective portion of the Cap’s change in fair value will be recorded in current earnings as interest expense. Interest Rate Swaps The Company entered into the Swap in November 2019, which had a term through November 2021 and was intended to mitigate variability in forecasted interest payments on a portion of the Term Loan. On the last business day of each month, the Company received variable interest payments based on one-month LIBOR from the counterparty. The Company paid a fixed rate of 1.565 % per annum on the notional amount of $ 1.0 billion on the Swap until its expiration in November 2021. The Company also entered into an interest rate swaption agreement (“Swaption”), for which the Company paid a fixed annual rate of 0.50 % of the notional amount. At inception, the Swap and Swaption (collectively, the “swap contracts”) were designated as cash flow hedges for hedge accounting. The unrealized changes in market value were recorded in accumulated other comprehensive income (loss) and any remaining balance was reclassified into earnings during the period in which the hedged transaction affected earnings. Due to the changes made to the Term Loan as a result of the July 2021 repricing, at that time the Company elected to de-designate the Swap as a cash flow hedge. Accordingly, as the related interest payments were still probable, the accumulated balance within other comprehensive income (loss) as of the de-designation date was amortized into earnings through the November 2021 expiration date. Fair Value of Derivative Instruments As of December 31, 2022, the Company had an asset balance of $ 81.3 million recorded in other assets for the fair value of the Cap. During the years ended December 31, 2022, 2021, and 2020 the Company collectively incurred $ 3.3 million, $ 8.5 million, and $ 9.1 million, respectively, in net interest expense for the Cap and swap contracts. Gains and losses resulting from fair value adjustments to the Cap are recorded within accumulated other comprehensive income (loss) within the Company’s consolidated balance sheet and reclassified to interest expense on the dates that interest payments become due. Cash flows related to the derivative contracts are included in cash flows from operating activities on the consolidated statements of cash flows. Over the next 12 months, the Company expects any gains or losses for cash flow hedges amortized from accumulated other comprehensive income (loss) into earnings to have an immaterial impact on the Company’s consolidated financial statements. 73 The following table presents the amount of unrealized gain or loss and related tax impact associated with the derivative instruments that the Company recorded in its consolidated statements of operations and comprehensive income (loss): Year Ended December 31, 2022 2021 2020 (In thousands) Unrealized gain (loss), net of tax $ 58,668 $ 10,408 $ ( 7,036 ) Tax benefit (expense) $ ( 17,834 ) $ ( 3,316 ) $ 2,464 9. Stock-Based Compensation In May 2019, the Company’s stockholders approved the amendment and restatement of the Company’s 2015 Equity Incentive Plan (as so amended and restated, the “Amended 2015 Plan”). As of December 31, 2022, the remaining aggregate number of shares of the Company’s common stock available for future grants under the Amended 2015 Plan was 7,923,964 . The Amended 2015 Plan provides for the grant of stock-based awards, including nonqualified stock options, incentive stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights and other equity securities to employees, consultants and non-employee directors of the Company and its affiliated entities. The number of shares of common stock available for issuance under the Amended 2015 Plan is reduced by (i) one share for each share of common stock issued pursuant to an appreciation award, such as a stock option or stock appreciation right with an exercise or strike price of at least 100 % of the fair market value of the underlying common stock on the date of grant, and (ii) 1.8 shares for each share of common stock issued pursuant to any stock award that is not an appreciation award, also referred to as a “full value award.” The Amended 2015 Plan allows the Company to utilize a broad array of equity incentives and performance cash incentives in order to secure and retain the services of its employees, directors and consultants, and to provide long-term incentives that align the interests of its employees, directors and consultants with the interests of the Company’s stockholders. The Company accounts for stock-based compensation at estimated fair value. Stock Options The stock option awards granted to employees generally (i) have a term of ten years , (ii) vest over four years with 25 % vesting after the first year of service and the remainder vesting ratably on a quarterly basis thereafter, (iii) are contingent upon employment on the vesting date, and (iv) have an exercise price equal to the fair market value of the underlying shares at the date of grant. The Company used the Black-Scholes-Merton option pricing model to determine the fair value of its stock option awards on the date of grant. The Company will reconsider the use of the Black-Scholes-Merton model if additional information becomes available in the future that indicates another model would be more appropriate or if grants, if any, issued in future periods have characteristics that cannot be reasonably estimated under this model. The Black-Scholes-Merton option pricing model incorporates the following assumptions: • Volatility - The expected volatility of the options granted was estimated based upon historical volatility of the Company’s share price of its common stock through daily observations of its trading history. • Expected life of options - The expected life of options granted to employees was determined from the simplified method. • Risk-free interest rate - The yield on zero-coupon U.S. Treasury strips was used to extrapolate a forward-yield curve. This “term structure” of future interest rates was then input into a numeric model to provide the equivalent risk-free rate to be used in the Black-Scholes-Merton model based on the expected term of the underlying grants. • Dividend yield - The Black-Scholes-Merton valuation model requires an expected dividend yield as an input. The Company does not anticipate paying dividends during the expected term of the grants; therefore, the dividend rate is assumed to be zero. The Company historically granted stock options to newly hired and promoted employees. The Company last granted stock options in 2019. 74 A summary of the activity of the Company’s stock options is as follows: Shares Weighted- Average Exercise Price Per Share Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (In thousands, except years and per share data) Options outstanding at December 31, 2019 4,153 $ 8.78 Cancelled or expired ( 5 ) 20.17 Exercised ( 1,581 ) 8.14 $ 33,836 Forfeited ( 13 ) 18.17 Options outstanding at December 31, 2020 2,554 $ 9.10 3.94 $ 77,182 Cancelled or expired ( 3 ) 10.67 Exercised ( 857 ) 8.51 $ 31,544 Forfeited ( 13 ) 16.07 Options outstanding at December 31, 2021 1,681 $ 9.35 3.28 $ 53,698 Cancelled or expired ( 1 ) 8.28 Exercised ( 494 ) 7.83 $ 18,992 Forfeited ( 1 ) 18.35 Options outstanding at December 31, 2022 1,185 $ 9.97 2.64 $ 49,094 Options exercisable at December 31, 2022 1,177 $ 9.89 2.62 $ 48,851 Options exercisable and expected to vest at December 31, 2022 1,185 $ 9.97 2.64 $ 49,094 The Company recognized $ 0.5 million, $ 0.8 million and $ 1.0 million of stock-based compensation expense related to stock options in the years ended December 31, 2022, 2021 and 2020, respectively. The total fair value of the shares vested during the years ended December 31, 2022, 2021 and 2020 was $ 0.6 million, $ 2.3 million and $ 1.4 million, respectively. As of December 31, 2022, the total unrecognized cost related to non-vested options was less than $ 0.1 million. This cost is expected to be recognized over a weighted-average period of 0.2 years. Restricted Stock Units RSUs represent the right to receive a share of common stock at a future date. RSUs granted to employees for service generally vest over four years , with 25 % vesting on the first anniversary of the grant date and the remainder vesting ratably on a quarterly basis thereafter, subject to continued employment. The RSUs granted to non-employee directors generally vest in full on the first anniversary of the grant date. Some RSUs granted to employees for performance vest upon the completion of defined performance goals, subject to continued employment. RSUs are classified as equity awards because the RSUs will be paid in the Company’s common stock upon vesting. The fair value of RSUs is determined at the grant date based on the closing price of the Company’s common stock on the date of grant. The related compensation expense is recognized over the service period, or shorter periods based on the retirement eligibility of certain grantees, and is based on the grant date fair value of the Company’s common stock and the number of shares expected to vest. The fair value of the awards is not remeasured at the end of each reporting period. RSUs do not carry voting rights until the RSUs are vested and the underlying shares are released in accordance with the terms of the award. 75 RSU Summary A summary of the Company’s activity for RSUs is as follows: RSUs Weighted- Average Grant Date Fair Value Per RSU (In thousands) Outstanding at December 31, 2019 2,702 $ 14.62 Granted 1,061 26.73 Forfeited ( 92 ) 17.72 Released ( 1,007 ) 15.63 Outstanding at December 31, 2020 2,664 $ 18.96 Granted 913 41.55 Forfeited ( 115 ) 29.49 Released ( 912 ) 21.12 Outstanding at December 31, 2021 2,550 $ 25.80 Granted 1,562 40.21 Forfeited ( 150 ) 32.80 Released ( 990 ) 30.05 Outstanding at December 31, 2022 2,970 $ 31.60 Vested and unreleased at December 31, 2022 (1) 775 (1) These RSUs were granted to the Company’s board of directors as a part of their compensation for board and committee service and had vested but had not yet settled, meaning that the underlying shares of common stock had not been issued and released. As of December 31, 2022, the total unrecognized cost related to non-vested RSUs was approximately $ 38.2 million. This cost is expected to be recognized over a weighted-average period of 1.3 years. The Company recognized $ 43.2 million, $ 26.0 million and $ 15.7 million of stock-based compensation expense related to RSUs in the years ended December 31, 2022, 2021 and 2020, respectively. Service-Based RSU Awards The majority of the annual compensation the Company provides to non-employee members of its board of directors is paid in the form of RSUs. In addition, some members of the Company’s board of directors elect to receive the remainder of their annual compensation, or a portion thereof, in the form of RSUs. An aggregate amount of approximately 57,000 , 39,000 and 58,000 service-based RSUs were granted to the Company’s non-employee directors as a result of these payments and elections during the years ended December 31, 2022, 2021 and 2020, respectively, with an estimated grant date fair value of $ 2.2 million, $ 1.6 million and $ 1.4 million, respectively. During the years ended December 31, 2022, 2021 and 2020, the Company granted approximately 1,082,000 , 531,000 and 713,000 service-based RSUs, respectively, to its employees, with an estimated aggregate grant date fair value of $ 44.2 million, $ 22.0 million and $ 19.1 million, respectively. During the years ended December 31, 2022, 2021 and 2020, the Company granted approximately 7,000 , 2,000 and 10,000 service-based RSUs, respectively, to non-employee consultants, with an estimated grant date fair value of $ 0.3 million, $ 0.1 million and $ 0.2 million, respectively. Performance-Based RSU Awards In March 2022, 2021 and 2020, the Company awarded approximately 248,000 , 228,000 and 115,000 performance-based RSUs, respectively, to the Company’s executives and employees (the “Bonus RSUs”), with an estimated grant date fair value of $ 9.7 million, $ 9.5 million and $ 3.1 million, respectively. Vesting of the Bonus RSUs is and was dependent upon the Company’s achievement of defined performance goals for the respective fiscal year in which the Bonus RSUs were granted. The Company 76 records stock-based compensation expense related to performance-based RSUs when it is considered probable that the performance conditions will be met. Management believes it is probable that substantially all of the 2022 Bonus RSUs will vest. The level of achievement, if any, of performance goals will be determined by the compensation committee of the Company’s board of directors and, if such goals are achieved, the 2022 Bonus RSUs will vest, subject to continued employment, in March 2023. Substantially all of the Bonus RSUs awarded in 2020 and 2021 vested in March 2021 and March 2022, respectively, upon the determination of the level of achievement of the respective performance goals. Additionally, during 2022, 2021 and 2020, the Company awarded approximately 167,000 , 110,000 and 144,000 performance-based RSUs, respectively, to the Company’s executives (the “Executive RSUs”). The estimated aggregate grant date fair value of the Executive RSUs for the 2022, 2021 and 2020 grants was $ 6.5 million, $ 4.6 million and $ 3.9 million, respectively. Vesting of the Executive RSUs is and was dependent upon the Company’s achievement of defined performance goals over a two-year period (the year of grant and the following year). The vesting of Executive RSUs will ultimately range from 0 % to 150 % of the number of shares underlying the Executive RSUs granted based on the level of achievement of the performance goals. In 2022, the Company’s compensation committee adjusted the Executive RSUs granted in 2022 to exclude contributions from its Russian subsidiaries, due to the uncertainties surrounding its Russian operations as a result of Russia's invasion of Ukraine and related sanctions. The Company's compensation committee also approved the removal of a performance condition. At the time of each modification, the Company determined achievement of the performance conditions of the Executive RSUs probable. As such, the modifications did not result in incremental compensation expense. If the Company achieves the performance goals for the Executive RSUs at the end of the two-year performance period, 50 % of the number of Executive RSUs earned based on performance will then vest on the second anniversary of the grant date, and the remaining 50 % will then vest on the third anniversary of the grant date, in each case subject to the executive’s continued service as of the vesting date. During March 2022, the Company cancelled shares underlying performance-based RSUs to the Company’s executives for under-achievement of performance targets related to the Executive RSUs originally awarded in 2020 in the amount of 50,000 shares. In March 2021 and 2020, the Company awarded additional shares underlying performance-based RSUs to the Company’s executives for over-achievement of performance targets related to the Executive RSUs originally awarded in 2019 and 2018 in the amounts of 3,000 and 20,000 , respectively. 10. Equity Transactions Preferred Stock The Company is authorized to issue 2.0 million shares of preferred stock with a par value of $ 0.0001 per share. The Company previously issued 1.5 million shares of preferred stock. The remaining 0.5 million authorized shares of preferred stock remain undesignated and unissued as of December 31, 2022 and 2021. As of December 31, 2022 and 2021, there were no outstanding shares of preferred stock, as all previously designated and issued preferred stock was converted into common stock in prior periods. Dividends Stockholders are entitled to receive, when and if declared by the Company’s Board of Directors from time to time, such dividends and other distributions in cash, stock or property from the Company’s assets or funds legally and contractually available for such purposes. In December 2022, the Company’s Board of Directors approved a dividend of $0.13 per share, payable on March 30, 2023 to stockholders of record as of March 15, 2023. As such, the Company accrued a liability of $16.6 million related to the unpaid dividend as of December 31, 2022. This was the first declared dividend on the common stock of the Company. Share Repurchase Program In February 2021, the Company announced that its Board of Directors had authorized the repurchase of up to $ 300.0 million of its common stock through December 31, 2022. In March 2022, the Company expanded the repurchase program to include up to an additional $ 300.0 million of its common stock through December 31, 2023. This time frame can be extended or shortened by the Board of Directors. Repurchases are made from time to time on the open market at prevailing prices or in negotiated transactions off the market. All shares are immediately retired upon repurchase in accordance with the board-approved policy. When treasury shares are retired, the Company’s policy is to allocate the excess of the repurchase price over the par value of shares acquired first, to additional paid-in capital, and then to retained earnings. The portion to be allocated to additional paid-in 77 capital is calculated by applying a percentage, determined by dividing the number of shares to be retired by the number of shares outstanding, to the balance of additional paid-in capital as of the date of retirement. The Company repurchased and subsequently retired 6.8 million and 4.3 million shares of its common stock during the years ended December 31, 2022 and 2021, respectively, for a total purchase price of $ 257.0 million and $ 163.4 million, respectively. As of December 31, 2022, $ 179.6 million remained available and authorized for repurchase under this program. As the share repurchases were authorized in 2021, no shares were repurchased during the year ended December 31, 2020. 11. Revenue The following table summarizes the Company’s services revenue: Year Ended December 31, 2022 2021 2020 (In thousands) Commercial services: Voice and data $ 193,112 $ 175,584 $ 168,668 IoT data 125,015 110,919 96,981 Broadband 51,143 42,990 35,959 Hosted payload and other data 59,451 58,611 60,600 Total commercial services 428,721 388,104 362,208 Government services 106,000 103,887 100,887 Total services $ 534,721 $ 491,991 $ 463,095 The following table summarizes the Company’s engineering and support services revenue: Year Ended December 31, 2022 2021 2020 (In thousands) Commercial $ 7,833 $ 4,613 $ 4,529 Government 43,766 25,825 29,696 Total $ 51,599 $ 30,438 $ 34,225 The Company’s contracts with customers generally do not contain performance obligations with terms in excess of one year. As such, the Company does not disclose details related to the value of performance obligations that are unsatisfied as of the end of the reporting period. The total value of any performance obligations that extend beyond a year is immaterial to the financial statements. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the consolidated balance sheets. The Company bills amounts under its agreed-upon contractual terms at periodic intervals (for services), upon shipment (for equipment), or upon achievement of contractual milestones or as work progresses (for engineering and support services). Billing may occur subsequent to revenue recognition, resulting in unbilled accounts receivable (contract assets). The Company may also receive payments from customers before revenue is recognized, resulting in deferred revenue (contract liabilities). The Company recognized revenue that was previously recorded as deferred revenue in the amounts of $ 26.3 million, $ 43.0 million and $ 41.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Company has also recorded costs of obtaining contracts expected to be recovered in prepaid expenses and other current assets (contract assets or commissions), that are not separately disclosed on the consolidated balance sheets. The commissions are recognized over the estimated usage period. The following table presents contract assets not separately disclosed: Year Ended December 31, 2022 2021 (In thousands) Contract Assets: Commissions $ 1,258 $ 1,190 Other contract costs $ 2,255 $ 2,558 78 12. Income Taxes U.S. and foreign components of income (loss) before income taxes are presented below: Year Ended December 31, 2022 2021 2020 (In thousands) U.S. income (loss) $ 9,013 $ ( 31,352 ) $ ( 89,251 ) Foreign income 1 2,464 287 Total income (loss) before income taxes $ 9,014 $ ( 28,888 ) $ ( 88,964 ) The components of the Company’s income tax provision were as follows: Year Ended December 31, 2022 2021 2020 (In thousands) Current taxes: Federal tax benefit $ — $ ( 537 ) $ ( 688 ) State tax expense 272 42 70 Foreign tax expense 1,209 2,240 1,387 Total current tax (benefit) expense 1,481 1,745 769 Deferred taxes: Federal tax benefit ( 3,354 ) ( 14,109 ) ( 27,701 ) State tax expense (benefit) 1,794 ( 6,686 ) ( 5,869 ) Foreign tax expense (benefit) 371 ( 519 ) ( 109 ) Total deferred tax benefit ( 1,189 ) ( 21,314 ) ( 33,679 ) Total income tax expense (benefit) $ 292 $ ( 19,569 ) $ ( 32,910 ) A reconciliation of the U.S. federal statutory income tax expense to the Company’s effective income tax provision is below. Any amounts that do not have a meaningful impact on this reconciliation are not separately disclosed. Year Ended December 31, 2022 2021 2020 (In thousands) Expected tax benefit at U.S. federal statutory tax rate $ 1,893 $ ( 6,067 ) $ ( 18,811 ) State taxes, net of federal benefit 1,260 ( 9,094 ) ( 6,723 ) State tax valuation allowance 748 711 2,561 Deferred impact of state tax law changes and elections — 1,200 ( 1,684 ) Equity-based compensation ( 6,184 ) ( 9,597 ) ( 8,414 ) Limitation on executive compensation deduction 2,905 3,140 666 Other nondeductible items 33 65 206 Tax credits ( 949 ) ( 1,278 ) ( 1,048 ) Foreign taxes 386 1,100 723 Other adjustments 200 251 ( 386 ) Total income tax expense (benefit) $ 292 $ ( 19,569 ) $ ( 32,910 ) 79 The components of deferred tax assets and liabilities are as follows: December 31, 2022 2021 (In thousands) Deferred tax assets Long-term contracts $ 52,553 $ 57,189 Federal, state and foreign net operating losses, other carryforwards and tax credits 374,767 410,450 Other 24,553 23,236 Total deferred tax assets 451,873 490,875 Valuation allowance ( 34,643 ) ( 34,522 ) Net deferred tax assets 417,230 456,353 Deferred tax liabilities Fixed assets, intangibles and research and development expenditures ( 490,384 ) ( 532,414 ) Investment in joint venture ( 48,754 ) ( 46,070 ) Other ( 27,976 ) ( 11,061 ) Total deferred tax liabilities ( 567,114 ) ( 589,545 ) Net deferred income tax liabilities $ ( 149,884 ) $ ( 133,192 ) Pursuant to ASC 740, the Company nets deferred tax assets and liabilities within the same jurisdiction. As of December 31, 2022, the Company had a net deferred tax asset of $ 1.7 million that is included in other assets on the balance sheet and a net deferred tax liability of $ 151.6 million. The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In assessing the likelihood of realization, management considers: (i) future reversals of existing taxable temporary differences; (ii) future taxable income exclusive of reversing temporary differences and carryforwards; (iii) taxable income in prior carryback year(s) if carryback is permitted under applicable tax law; and (iv) tax planning strategies. The Company had deferred tax assets related to cumulative U.S. federal net operating loss carryforwards and interest expense carryforwards of approximately $ 296.4 million and $ 330.2 million as of December 31, 2022 and 2021, respectively. The 2017 U.S. federal net operating loss carryforward, if unutilized, will expire in 2037. The Company believes that the 2017 U.S. federal net operating losses will be utilized before the expiration date and, as such, no valuation allowance has been established for this deferred tax asset. U.S. federal net operating loss carryforwards for 2018 and thereafter and interest expense carryforwards do not expire. The Company had deferred tax assets related to the state net operating loss carryforwards of approximately $ 60.0 million and $ 61.3 million as of December 31, 2022 and 2021, respectively, some of which expire as early as 2025. The Company does not expect to fully utilize all of its state net operating losses within the respective carryforward periods and as such reflects a partial valuation allowance of $ 33.3 million and $ 32.6 million as of December 31, 2022 and 2021, respectively, against these deferred tax assets on its consolidated balance sheet. The Company had deferred tax assets related to the foreign net operating loss carryforwards of approximately $ 0.7 million and $ 0.6 million, as of December 31, 2022 and 2021, respectively, that do not expire. The Company does not expect to fully utilize all of its foreign net operating losses within the carryforward periods. As such, the Company had recorded a partial valuation allowance of $ 0.4 million and $ 0.5 million as of December 31, 2022 and 2021, respectively, against these deferred tax assets on its consolidated balance sheets. The timing and manner in which the Company will utilize the net operating loss carryforwards in any year, or in total, may be limited in the future as a result of changes in the Company’s ownership and any limitations imposed by the jurisdictions in which the Company operates. The Company had approximately $ 12.1 million and $ 11.1 million of deferred tax assets related to research and development tax credits as of December 31, 2022 and 2021, respectively, that expire in various amounts from 2029 through 2042. The Company had approximately $ 5.2 million and $ 5.6 million of deferred tax assets related to foreign tax credits as of December 31, 2022 and 2021, respectively, that expire in various amounts through 2031. The Company does not expect to utilize all of its foreign tax credits within the respective carryforward periods. As such, the Company had a partial valuation allowance of $ 0.5 million and $ 0.8 million as of December 31, 2022 and 2021, respectively. 80 The Company has provided for U.S. income taxes on all undistributed earnings of its significant foreign subsidiaries since the Company does not indefinitely reinvest these undistributed earnings. The Company measures deferred tax assets and liabilities using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company recognizes the effect on deferred tax assets and liabilities of a change in tax rates in income in the period that includes the enactment date. Uncertain Income Tax Positions The Company is subject to income taxes in the U.S. and various state and foreign jurisdictions. Significant judgment is required in evaluating tax positions and determining the provision for income taxes. The Company establishes liabilities for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes may be due. These liabilities are established when the Company believes that certain positions might be challenged despite its belief that its tax return positions are fully supportable. The Company adjusts these liabilities in light of changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes includes the impact of changes to these liabilities. There were no unrecognized tax benefits as of December 31, 2022 and 2021. Any changes in the next twelve months are not anticipated to have a significant impact on the results of operations, financial position or cash flows of the Company. The Company has elected an accounting policy to classify interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2022 and 2021, there were no interest and penalties on unrecognized tax benefits. The Company is subject to tax audits in all jurisdictions for which it files tax returns. Tax audits by their very nature are often complex and can require several years to complete. Currently, there are no U.S. federal, state or foreign jurisdiction tax audits pending. The Company’s corporate U.S. federal and state tax returns from 2011 to 2021 remain subject to examination by tax authorities and the Company’s foreign tax returns from 2016 to 2021 remain subject to examination by tax authorities. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits which includes related interest and penalties: 2022 2021 (In thousands) Balance at January 1, $ — $ 537 Change attributable to tax positions taken in a prior period — ( 537 ) Balance at December 31, $ — $ — 81 13. Net Income (Loss) Per Share The Company calculates basic net income (loss) per common share by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. In periods of net income, diluted net income per share takes into account the effect of potentially dilutive common shares when the effect is dilutive. Potentially dilutive common shares include (i) common stock issuable upon exercise of outstanding stock options and (ii) contingent RSUs that are convertible into shares of common stock upon achievement of certain service and performance requirements. The effect of potentially dilutive common shares is computed using the treasury stock method. The computations of basic and diluted net loss per common share are set forth below: Year Ended December 31, 2022 2021 2020 (In thousands, except per share data) Numerator: Net income (loss) attributable to common stockholders - basic and diluted $ 8,722 $ ( 9,319 ) $ ( 56,054 ) Denominator: Weighted average common shares - basic 128,255 133,530 133,491 Weighted average common shares - diluted 130,134 133,530 133,491 Net income (loss) attributable to common stockholders per share - basic and diluted $ 0.07 $ ( 0.07 ) $ ( 0.42 ) For the year ended December 31, 2022 , 0.2 million unvested service-based RSUs were excluded from the computation of basic net income per share and not included in the computation of diluted net income per share, as the effect would be anti-dilutive, and 0.2 million unvested performance-based RSUs were not included in the computation of basic and diluted net income per share, as certain performance criteria have not been satisfied. Due to the Company’s net loss position for the years ended December 31, 2021 and 2020 all potential common stock equivalents were anti-dilutive and therefore excluded from the calculation of diluted net loss per share. The incremental number of shares underlying stock options and RSUs outstanding with anti-dilutive effects are presented below: Year Ended December 31, 2022 2021 2020 (In thousands) Performance-based RSUs 210 183 127 Service-based RSUs — 536 567 Stock options — 1,189 1,946 82 14. Related Party Transactions Aireon LLC and Aireon Holdings LLC The Company’s satellite constellation hosts the Aireon system, which provides a global air traffic surveillance service through a series of automatic dependent surveillance-broadcast (“ADS-B”) receivers. The Company formed Aireon in 2011, with subsequent investments from the air navigation service providers (“ANSPs”) of Canada, Italy, Denmark, Ireland and the United Kingdom, to develop and market this service. The Company and the other Aireon investors hold their interests in Aireon Holdings LLC (“Aireon Holdings”) through an amended and restated LLC agreement (the “Aireon Holdings LLC Agreement”). Aireon Holdings holds 100% of the membership interests in Aireon LLC (“Aireon”), which is the operating entity. In June 2022, the Company entered into a subscription agreement with Aireon Holdings and invested $ 50.0 million in exchange for an approximate 6 % preferred membership interest. The Company’s investment in Aireon Holdings is accounted for as an equity method investment. The carrying value of the Company’s investment in Aireon Holdings was $ 48.8 million as of December 31, 2022. The original investments by the Company were previously written down to a carrying value of zero. At December 31, 2022 and 2021, the Company’s fully diluted ownership stake in Aireon Holdings was approximately 39.5 % and 35.7 %, respectively, and is subject to redemption provisions contained in the Aireon Holdings LLC Agreement. Aireon has contracted to pay the Company a fee to host the ADS-B receivers on its constellation, as well as fees for power and data services in connection with the delivery of the air traffic surveillance data. Pursuant to an agreement with Aireon (the “Hosting Agreement”), Aireon will pay the Company fees of $ 200.0 million to host the ADS-B receivers, of which $ 78.5 million had been paid as of December 31, 2022. These fees will be recognized over the life of the satellites, or approximately $16.0 million per year. Additionally, Aireon pays power fees of up to approximately $ 3.7 million per year. Aireon also pays data services fees of approximately $ 19.8 million per year for the delivery of the air traffic surveillance data under a data transmission services agreement. Pursuant to ASU 2016-02, the Company considers the Hosting Agreement an operating lease. The Company recognized $ 16.1 million of hosting fee revenue under the Hosting Agreement for each of the years ended December 31, 2022, 2021 and 2020. There were no receivables due under the Hosting Agreement as of December 31, 2022 and 2021. The Company recorded power fee and data service fee revenue from Aireon of $ 23.5 million, $ 23.5 million and $ 23.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. Under two services agreements, the Company also provides Aireon with administrative services and support services, the fees for which are paid monthly. Aireon receivables due to the Company under these two agreements totaled $ 2.2 million at each of the years ended December 31, 2022 and 2021. The Company and the other Aireon investors have agreed to participate pro rata, based on their respective fully diluted ownership stakes, in funding an investor bridge loan to Aireon. The Company’s maximum commitment under the investor bridge loan is $ 10.7 million. In December 2020, the Company loaned $ 0.2 million to Aireon, which was subsequently repaid in June 2021. 15. Segments, Significant Customers, Supplier and Service Providers and Geographic Information The Company operates in one business segment, providing global satellite communications services and products. The Company derived approximately 21 %, 21 % and 22 % of its total revenue in the years ended December 31, 2022, 2021 and 2020, respectively, from prime contracts or subcontracts with agencies of the U.S. government. For the years ended December 31, 2022, 2021 and 2020, no single commercial customer accounted for more than 10 % of the Company’s total revenue. Approximately 25 % and 34 % of the Company’s accounts receivable balance at December 31, 2022 and 2021, respectively, was due from prime contracts or subcontracts with agencies of the U.S. government. As of December 31, 2022 and 2021, no single commercial customer accounted for more than 10 % of the Company’s total accounts receivable balance. The Company contracts for the manufacture of its subscriber equipment primarily from a limited number of manufacturers and utilizes other sole source suppliers for certain component parts of its devices. Should events or circumstances prevent the manufacturer or the suppliers from producing the equipment or component parts, the Company’s business could be adversely affected until the Company is able to move production to other facilities of the manufacturer or secure a replacement manufacturer or an alternative supplier for such component parts. 83 Net property and equipment by geographic area was as follows: December 31, 2022 2021 (In thousands) United States $ 461,820 $ 429,888 Satellites in orbit 1,968,999 2,228,644 All others 2,486 3,804 Total $ 2,433,305 $ 2,662,336 Revenue by geographic area was as follows: Year Ended December 31, 2022 2021 2020 (In thousands) United States $ 374,687 $ 330,948 $ 323,605 Other countries (1) 346,347 283,552 259,834 Total $ 721,034 $ 614,500 $ 583,439 (1) No single country in this group represented more than 10 % of revenue. Revenue is attributed to geographic area based on the billing address of the distributor. Service location and the billing address are often not the same. The Company’s distributors sell services directly or indirectly to end users, who may be located or use the Company’s products and services elsewhere. The Company cannot provide the geographical distribution of end users because it does not contract directly with them. The Company is exposed to foreign currency exchange fluctuations as foreign currency exchange rate movements create a degree of risk by affecting the U.S. dollar value of sales made and costs incurred in foreign currencies. 16. Employee Benefit Plan The Company sponsors a defined-contribution 401(k) retirement plan (the “Plan”) that covers all employees. Employees are eligible to participate in the Plan on the first day of the month following the date of hire, and participants are 100 % vested from the date of eligibility. The Company matches employees’ contributions equal to 100 % of the salary deferral contributions up to 5 % of the employees’ eligible compensation each pay period. The Company’s matching contributions to the Plan were $ 3.5 million, $ 3.5 million and $ 3.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. 84 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.