UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 2, 2017
GOGO INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-35975 | 27-1650905 | ||
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| 111 North Canal, Suite 1500 Chicago, IL |
60606 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
312-517-5000
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02 | RESULTS OF OPERATIONS AND FINANCIAL CONDITION. |
On November 2, 2017, Gogo Inc. (the “Company”) issued a press release announcing its results of operations for the third quarter ended September 30, 2017. A copy of the press release is attached hereto as Exhibit 99.1.
| Item 7.01 | REGULATION FD DISCLOSURE. |
In connection with its quarterly earnings conference call to be held on November 2, 2017, the Company will use the attached third quarter 2017 supplemental package. Please visit the Company’s investor relations website at http://ir.gogoair.com for Webcast access information regarding this conference call. A copy of the supplemental package is attached hereto as Exhibit 99.2.
| Item 9.01 | FINANCIAL STATEMENTS AND EXHIBITS. |
| Exhibit No. |
Description | |
| 99.1 | Press Release dated November 2, 2017 | |
| 99.2 | Third Quarter 2017 Supplemental Package | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| GOGO INC. | ||
| By: | /s/ Barry Rowan | |
| Barry Rowan | ||
| Executive Vice President and Chief Financial Officer | ||
Date: November 2, 2017
Exhibit 99.1
| Investor Relations Contact: |
Media Relations Contact: | |
| Varvara Alva |
Meredith Payette | |
|
312-517-6460 |
312-517-6216 | |
| ir@gogoair.com |
pr@gogoair.com |
Gogo Announces Third Quarter 2017 Financial Results
| • | Quarterly revenue of $173 million, up 17% from prior year |
| • | Alaska Airlines and LATAM Airlines select 2Ku for satellite in-flight connectivity |
| • | 2Ku awards now exceed 1,900 across 14 airlines |
| • | 2Ku installed on 416 aircraft as of October 31st, including 322 in 2017 |
| • | Business Aviation launches Gogo AVANCE platform and introduces new global satellite service |
CHICAGO, November 2, 2017 – Gogo (NASDAQ: GOGO), the leading global provider of broadband connectivity products and services for aviation, today announced its financial results for the quarter ended September 30, 2017.
Third Quarter 2017 Consolidated Financial Results
| • | Revenue increased to $172.9 million, up 17% from Q3 2016. Service revenue increased to $153.3 million, up 19% from Q3 2016, due to a 10% increase in commercial aircraft online to 3,169, a 15% increase in ATG business aircraft online to 4,567, and increased customer usage across all segments. |
| • | Net loss increased to $45.3 million, a 36% increase from Q3 2016, and Adjusted EBITDA(1) decreased to $13.0 million, down 15% from Q3 2016. Excluding $4.5 million in charges related to write-downs of legacy product lines and the retirement of Gogo test aircraft, net loss increased to $40.8 million and Adjusted EBITDA increased to $17.5 million. |
| • | Capital expenditures increased to $68.5 million from $43.7 million in Q3 2016. Cash CapEx(1) increased to $53.1 million from $35.6 million in Q3 2016 due to the planned increase in success-based airborne equipment purchases during this period of heavy 2Ku installations. |
| • | Cash, cash equivalents and short-term investments were $410.9 million as of September 30, 2017. Gogo issued an additional $100.0 million of senior secured notes at 113% of par value on September 25, 2017 raising $110.0 million in net proceeds. |
“With 2Ku installations accelerating, high bandwidth is arriving in North America and globally,” said Michael Small, Gogo’s President and CEO. “More bandwidth enables us to improve customer experience, engage more users, and offer new products and services.”
“North American satellite aircraft generated a robust $220,000 in annualized ARPA in our commercial aviation business with take rates increasing across our fleet,” said Barry Rowan, Gogo’s Executive Vice President and CFO. “We expect Adjusted EBITDA to increase substantially in Q4 2017 and in 2018 as we execute on our plan.”
Third Quarter 2017 Business Segment Financial Results
Commercial Aviation - North America (CA-NA)
CA-NA aircraft online increased to more than 2,800 aircraft in the quarter, of which approximately 9% utilize the satellite network. CA-NA Satellite ARPA grew to more than $220,000 on an annualized basis and CA-NA ATG ARPA was approximately $125,000 on an annualized basis. High bandwidth is rapidly arriving in North America with satellite equipment installations accelerating and our next generation ATG network on track for 2018 commercial availability.
| • | Aircraft online reached 2,817, up 188 aircraft from September 30, 2016. As of September 30, 2017, CA-NA had approximately 900 awarded but not yet installed 2Ku aircraft of which 100 are net new aircraft. |
| • | Take rate reached 7.5%, up from 6.5% in Q3 2016 driven by an increase in passenger engagement from airline and third party paid offerings. |
| • | Total revenue increased to $95.7 million, up 6% from Q3 2016, driven primarily by more aircraft online. |
| • | Segment profit increased to $16.0 million, up 10% from Q3 2016, representing a 17% segment profit margin. Excluding $2.4 million in charges related to the write-down of a legacy product line and the retirement of Gogo test aircraft, segment profit margin would have been approximately 19% in Q3 2017. |
Commercial Aviation - Rest of World (CA-ROW)
CA-ROW revenue doubled year-over-year for the third quarter in a row and ARPA grew 30% to approximately $226,000 on an annualized basis as passenger demand continued to grow, with take rate reaching 13.5% in Q3 2017. Sequentially, CA-ROW ARPA remained flat as growth in ARPA on existing aircraft was offset by lower ARPA on newly installed fleets.
| • | Aircraft online reached 352, up 96 aircraft from September 30, 2016. CA-ROW currently has approximately 680 net new 2Ku awarded but not yet installed aircraft including the 100 aircraft recently awarded by LATAM Airlines. |
| • | Total revenue increased to $16.6 million, up 119% from Q3 2016, driven primarily by higher ARPA and an increase in aircraft online. |
| • | Segment loss increased to $24.1 million from $19.9 million in Q3 2016, but improved by more than $7.0 million from Q2 2017. The sequential improvement was driven by lower spend on OEM programs in the quarter and increased utilization of satellite network capacity. |
Business Aviation (BA)
BA service revenue grew 30% year-over-year to $43.2 million with demand continuing to build for ATG systems across customer segments. In the quarter, BA ATG aircraft online increased to 4,567, up 15% year-over-year with ATG average monthly ARPA rising 13% to $2,874. As of September 30, 2017, BA had more than 10,000 narrowband satellite and ATG systems online.
| • | Equipment revenue increased to $17.3 million, up 11% from Q3 2016. |
| • | Total segment revenue increased to $60.5 million, up 24% from Q3 2016. |
| • | Segment profit increased to $21.3 million, up 3% from Q3 2016, representing a 35% segment profit margin. Excluding a $2.1 million charge related to the write-down of a legacy product line, segment profit margin would have been approximately 39% in Q3 2017, down from 42% in Q3 2016. Segment profit was also impacted by increased support from engineering, design and development as well as sales and marketing for new market and technology launches. |
Recent Developments
| • | Alaska Airlines selected 2Ku for in-flight connectivity on more than 200 of its existing Boeing and Airbus aircraft and 50 additional aircraft which include replacement of a competitor’s systems. Installations will begin in the first half of 2018 and be completed by early 2020. |
| • | LATAM Airlines Brazil selected 2Ku for in-flight connectivity on 100 of its A320 aircraft. The inflight connectivity service will begin in the first half of 2018 with full roll-out expected to be completed in the first half of 2019. |
| • | Gogo conducted the first successful test flight on its Next Generation ATG network and began nationwide network rollout. Our Next Generation ATG network is on track for 2018 commercial availability. |
| • | Gogo announced Gogo Vision Touch, its new product line to be initially launched on Delta Air Lines. Gogo Vision Touch delivers in-flight entertainment wirelessly to a seat back screen, enabling a low cost, light weight solution and disrupting the legacy in-flight entertainment market. |
| • | Gogo Business Aviation’s AVANCE L5 system, formerly Gogo Biz 4G, was selected by Dassault Aviation and Embraer as a factory option on a number of their new production aircraft. Gogo AVANCE seamlessly integrates connectivity and entertainment offerings, smart cabin control, and connected aircraft applications into one highly configurable technology platform. |
| • | Gogo Business Aviation announced a global high throughput satellite solution for business aircraft. The service is expected to be available in the second half of 2018. |
Business Outlook
For the full year ending December 31, 2017, the Company expects:
| • | 2Ku installations of 450 to 550 |
| • | Total revenue at the high end of the $670 million to $695 million guidance range |
| • | Adjusted EBITDA at the low end of the $60 million to $75 million guidance range, excluding $4.5 million in charges incurred in Q3 2017 |
| • | Gross capital expenditures of $290 million to $330 million. Cash CapEx at the low end of the $230 million to $260 million guidance range, of which approximately 70% is related to success-based airborne equipment purchases. |
Gogo reaffirms all long-term guidance previously provided in the fourth quarter 2016 earnings press release.
| (1) | See Non-GAAP Financial Measures below |
Conference Call
The third quarter conference call will be held on November 2nd, 2017 at 8:30 a.m. ET. A live webcast of the conference call, as well as a replay, will be available online on the Investor Relations section of the company’s website at http://ir.gogoair.com. Participants can also access the call by dialing (844) 464-3940 (within the United States and Canada) or (765) 507-2646 (international dialers) and entering conference ID number 99717327.
Non-GAAP Financial Measures
We report certain non-GAAP financial measurements, including Adjusted EBITDA and Cash CapEx in the supplemental tables below. Management uses Adjusted EBITDA and Cash CapEx for business planning purposes, including managing our business against internally projected results of operations and measuring our performance and liquidity. These supplemental performance measures also provide another basis for comparing period to period results by excluding potential differences caused by non-operational and unusual or non-recurring items. These supplemental performance measurements may vary from and may not be comparable to similarly titled measures by other companies. Adjusted EBITDA and Cash CapEx are not recognized measurements under accounting principles generally accepted in the United States, or GAAP, and when analyzing our performance with Adjusted EBITDA or liquidity with Cash CapEx, as applicable, investors should (i) evaluate each adjustment in our reconciliation to net loss attributable to common stock, and the explanatory footnotes regarding those adjustments, (ii) use Adjusted EBITDA in addition to, and not as an alternative to, net loss attributable to common stock as a measure of operating results, and (iii) use Cash CapEx in addition to, and not as an alternative to, consolidated capital expenditures when evaluating our liquidity. No reconciliation of the forecasted range for Adjusted EBITDA for fiscal 2017 is included in this release because we are unable to quantify certain amounts that would be required to be included in the corresponding GAAP measure without unreasonable efforts and we believe such reconciliation would imply a degree of precision that would be confusing or misleading to investors. In particular, we are not able to provide a reconciliation for the forecasted range of Adjusted EBITDA due to variability in the timing of aircraft installations and deinstallations impacting depreciation expense and amortization of deferred airborne leasing proceeds.
Cautionary Note Regarding Forward-Looking Statements
Certain disclosures in this press release and related comments by our management include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding our business outlook, industry, business strategy, plans, goals and expectations concerning our market position, international expansion, future technologies, future operations, margins, profitability, future efficiencies, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “future” and the negative of these or similar terms and phrases are intended to identify forward-looking statements in this press release.
Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following: the loss of, or failure to realize benefits from, agreements with our airline partners or any failure to renew any existing agreements upon expiration or termination; the failure to maintain airline satisfaction with our equipment or our service; any inability to timely and efficiently deploy our 2Ku service or develop and deploy our next-generation ATG solution or other components of our technology roadmap for any reason, including regulatory delays or failures, or delays on the part of any of our suppliers, some of whom are single source, or the failure by our airline partners to roll out equipment upgrades, new services or adopt new technologies in order to support increased network capacity demands; the timing of deinstallation of our equipment from aircraft, including deinstallations resulting from aircraft retirements and other deinstallations permitted by certain airline contract provisions; the loss of relationships with original equipment manufacturers or dealers; our ability to develop or purchase ATG and satellite network capacity sufficient to accommodate current and expected growth in passenger demand in North America and internationally as we expand; our reliance on third-party suppliers, some of whom are single source, for satellite capacity and other services and the equipment we use to provide services to commercial airlines and their passengers and business aviation customers; unfavorable economic conditions in the airline industry and/or the economy as a whole; our ability to expand our international or domestic operations, including our ability to grow our business with current and potential future airline partners; an inability to compete effectively with other current or future providers of in-flight connectivity services and other products and services that we offer, including on the basis of price, service performance and line-fit availability; our ability to successfully develop and monetize new products and services such as Gogo Vision and Gogo TV, including those that were recently released, are currently being offered on a limited or trial basis, or are in various stages of development; our ability to certify and install our equipment and deliver our products and services, including newly developed products and services, on schedules consistent with our contractual commitments to customers; the failure of our equipment or material defects or errors in our software resulting in recalls or substantial warranty claims; a revocation of, or reduction in, our right to use licensed spectrum, the availability of other air-to-ground spectrum to a competitor or the repurposing by a competitor of other spectrum for air-to-ground use; our use of open source software and licenses; the effects of service interruptions or delays, technology failures and equipment failures or malfunctions arising from defects or errors in our software or defects in or damage to our equipment; the limited operating history of our CA-ROW segment; contract changes and implementation issues resulting from decisions by airlines to transition from the retail model to the airline directed model; increases in our projected capital expenditures due to, among other things, unexpected costs incurred in connection with the roll-out of our technology roadmap or our international expansion; compliance with U.S. and foreign government regulations and standards, including those related to regulation of the Internet, including e-commerce or online video distribution changes, and the installation and operation of satellite equipment and our ability to obtain and maintain all necessary regulatory approvals to install and operate our equipment in the United States and foreign jurisdictions; our, or our technology suppliers’, inability to effectively innovate; costs associated with defending pending or future intellectual property infringement and other litigation or claims; our ability to protect our intellectual property; breaches of the security of our information technology network, resulting in unauthorized access to our customers’ credit card information or other personal information; any negative outcome or effects of future litigation; our substantial indebtedness; limitations and restrictions in the agreements governing our indebtedness and our ability to service our indebtedness; our ability to obtain additional financing on acceptable terms or at all; fluctuations in our operating results; our ability to attract and retain customers and to capitalize on revenue from our platform; the demand for and market acceptance of our products and services; changes or developments in the regulations that apply to us, our business and our industry, including changes or developments affecting the ability of passengers or airlines to use our in-flight connectivity services, including the recent U.S. and U.K. bans on the use of certain personal devices such as laptops and tablets on certain aircraft flying certain routes; a future act or threat of terrorism, cyber-security attack or other events that could result in adverse regulatory changes or developments as referenced above, or otherwise adversely affect our business and industry; our ability to attract and retain qualified employees, including key personnel; the effectiveness of our marketing and advertising and our ability to maintain and enhance our brands; our ability to manage our growth in a cost-effective manner and integrate and manage acquisitions; compliance with anti-corruption laws and regulations in the jurisdictions in which we operate, including the Foreign Corrupt Practices Act and the (U.K.) Bribery Act 2010; restrictions on the ability of U.S. companies to do business in foreign countries, including, among others, restrictions imposed by the U.S. Office of Foreign Assets Control; difficulties in collecting accounts receivable; our ability to successfully implement our new enterprise resource planning system and other improvements to systems and procedures needed to support our growth.
Additional information concerning these and other factors can be found under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on February 27, 2017 and in our quarterly report on Form 10-Q for the quarter ended March 31, 2017 as filed with the SEC on May 4, 2017.
Any one of these factors or a combination of these factors could materially affect our financial condition or future results of operations and could influence whether any forward-looking statements contained in this report ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and you should not place undue reliance on them. All forward-looking statements speak only as of the date made and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
About Gogo
Gogo is the in-flight internet company. We are the leading global provider of broadband connectivity products and services for aviation. We design and source innovative network solutions that connect aircraft to the Internet, and develop software and platforms that enable customizable solutions for and by our aviation partners. Once connected, we provide industry leading reliability around the world. Our mission is to help aviation go farther by making planes fly smarter, so our aviation partners perform better and their passengers travel happier.
You can find Gogo’s products and services on thousands of aircraft operated by the leading global commercial airlines and thousands of private aircraft, including those of the largest fractional ownership operators. Gogo is headquartered in Chicago, IL with additional facilities in Broomfield, CO and locations across the globe. Connect with us at gogoair.com.
Gogo Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue: |
||||||||||||||||
| Service revenue |
$ | 153,347 | $ | 129,099 | $ | 453,918 | $ | 375,406 | ||||||||
| Equipment revenue |
19,527 | 18,168 | 57,162 | 61,146 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total revenue |
172,874 | 147,267 | 511,080 | 436,552 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Operating expenses: |
||||||||||||||||
| Cost of service revenue (exclusive of items shown below) |
67,854 | 56,365 | 201,794 | 164,615 | ||||||||||||
| Cost of equipment revenue (exclusive of items shown below) |
15,326 | 10,527 | 41,623 | 36,752 | ||||||||||||
| Engineering, design and development |
31,313 | 25,835 | 103,262 | 72,201 | ||||||||||||
| Sales and marketing |
16,294 | 14,874 | 47,253 | 46,366 | ||||||||||||
| General and administrative |
24,064 | 21,661 | 70,162 | 65,038 | ||||||||||||
| Depreciation and amortization |
35,824 | 26,779 | 96,821 | 76,042 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
190,675 | 156,041 | 560,915 | 461,014 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Operating loss |
(17,801 | ) | (8,774 | ) | (49,835 | ) | (24,462 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Other (income) expense: |
||||||||||||||||
| Interest income |
(683 | ) | (852 | ) | (1,999 | ) | (1,064 | ) | ||||||||
| Interest expense |
27,585 | 24,848 | 81,754 | 58,701 | ||||||||||||
| Loss on extinguishment of debt |
— | — | — | 15,406 | ||||||||||||
| Adjustment of deferred financing costs |
— | — | — | (792 | ) | |||||||||||
| Other (income) expense |
228 | 34 | 322 | (137 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total other expense |
27,130 | 24,030 | 80,077 | 72,114 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Loss before income taxes |
(44,931 | ) | (32,804 | ) | (129,912 | ) | (96,576 | ) | ||||||||
| Income tax provision |
350 | 469 | 945 | 997 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net loss |
$ | (45,281 | ) | $ | (33,273 | ) | $ | (130,857 | ) | $ | (97,573 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net loss attributable to common stock per share—basic and diluted |
$ | (0.57 | ) | $ | (0.42 | ) | $ | (1.65 | ) | $ | (1.24 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
| Weighted average number of shares—basic and diluted |
79,543 | 79,003 | 79,340 | 78,864 | ||||||||||||
|
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|
|
|
|
|
|
|
|||||||||
Gogo Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
| September 30, 2017 |
December 31, 2016 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 222,378 | $ | 117,302 | ||||
| Short-term investments |
188,496 | 338,477 | ||||||
|
|
|
|
|
|||||
| Total cash, cash equivalents and short-term investments |
410,874 | 455,779 | ||||||
| Accounts receivable, net of allowances of $729 and $499, respectively |
112,029 | 73,743 | ||||||
| Inventories |
48,621 | 50,266 | ||||||
| Prepaid expenses and other current assets |
20,414 | 24,942 | ||||||
|
|
|
|
|
|||||
| Total current assets |
591,938 | 604,730 | ||||||
|
|
|
|
|
|||||
| Non-current assets: |
||||||||
| Property and equipment, net |
614,311 | 519,810 | ||||||
| Intangible assets, net |
90,661 | 85,175 | ||||||
| Goodwill |
620 | 620 | ||||||
| Long-term restricted cash |
6,873 | 7,773 | ||||||
| Other non-current assets |
58,508 | 28,088 | ||||||
|
|
|
|
|
|||||
| Total non-current assets |
770,973 | 641,466 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 1,362,911 | $ | 1,246,196 | ||||
|
|
|
|
|
|||||
| Liabilities and Stockholders’ deficit |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 23,845 | $ | 31,689 | ||||
| Accrued liabilities |
148,264 | 132,055 | ||||||
| Accrued airline revenue share |
16,714 | 15,521 | ||||||
| Deferred revenue |
39,062 | 32,722 | ||||||
| Deferred airborne lease incentives |
39,071 | 36,277 | ||||||
| Current portion of capital leases |
2,149 | 2,799 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
269,105 | 251,063 | ||||||
|
|
|
|
|
|||||
| Non-current liabilities: |
||||||||
| Long-term debt |
995,546 | 800,715 | ||||||
| Deferred airborne lease incentives |
121,588 | 135,879 | ||||||
| Deferred tax liabilities |
9,001 | 8,264 | ||||||
| Other non-current liabilities |
123,198 | 90,668 | ||||||
|
|
|
|
|
|||||
| Total non-current liabilities |
1,249,333 | 1,035,526 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
1,518,438 | 1,286,589 | ||||||
|
|
|
|
|
|||||
| Stockholders’ deficit |
||||||||
| Common stock |
9 | 9 | ||||||
| Additional paid-in-capital |
893,713 | 879,135 | ||||||
| Accumulated other comprehensive loss |
(1,018 | ) | (2,163 | ) | ||||
| Accumulated deficit |
(1,048,231 | ) | (917,374 | ) | ||||
|
|
|
|
|
|||||
| Total stockholders’ deficit |
(155,527 | ) | (40,393 | ) | ||||
|
|
|
|
|
|||||
| Total liabilities and stockholders’ deficit |
$ | 1,362,911 | $ | 1,246,196 | ||||
|
|
|
|
|
|||||
Gogo Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
| For the Nine Months Ended September 30, |
||||||||
| 2017 | 2016 | |||||||
| Operating activities: |
||||||||
| Net loss |
$ | (130,857 | ) | $ | (97,573 | ) | ||
| Adjustments to reconcile net loss to cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
96,821 | 76,042 | ||||||
| Loss on asset disposals, abandonments and write-downs |
7,540 | 1,619 | ||||||
| Deferred income taxes |
737 | 630 | ||||||
| Stock-based compensation expense |
15,007 | 12,986 | ||||||
| Loss of extinguishment of debt |
— | 15,406 | ||||||
| Amortization of deferred financing costs |
2,718 | 2,981 | ||||||
| Accretion and amortization of debt discount and premium |
13,872 | 12,940 | ||||||
| Adjustment of deferred financing costs |
— | (792 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(38,130 | ) | 6,874 | |||||
| Inventories |
1,645 | (14,653 | ) | |||||
| Prepaid expenses and other current assets |
4,928 | (18,106 | ) | |||||
| Accounts payable |
(1,246 | ) | 2,174 | |||||
| Accrued liabilities |
20,521 | 2,750 | ||||||
| Deferred airborne lease incentives |
11,722 | 8,635 | ||||||
| Deferred revenue |
11,080 | 19,690 | ||||||
| Deferred rent |
336 | 317 | ||||||
| Accrued airline revenue share |
1,169 | 1,525 | ||||||
| Accrued interest |
(17,742 | ) | 16,025 | |||||
| Other non-current assets and liabilities |
(4,330 | ) | (4,322 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by (used in) operating activities |
(4,209 | ) | 45,148 | |||||
|
|
|
|
|
|||||
| Investing activities: |
||||||||
| Proceeds from the sale of property and equipment |
— | 84 | ||||||
| Purchases of property and equipment |
(190,479 | ) | (107,108 | ) | ||||
| Acquisition of intangible assets—capitalized software |
(23,759 | ) | (21,586 | ) | ||||
| Purchases of short-term investments |
(213,651 | ) | (278,961 | ) | ||||
| Redemptions of short-term investments |
363,632 | 159,727 | ||||||
| Other, net |
(2,486 | ) | 136 | |||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(66,743 | ) | (247,708 | ) | ||||
|
|
|
|
|
|||||
| Financing activities: |
||||||||
| Proceeds from the issuance of senior secured notes |
181,843 | 525,000 | ||||||
| Payments on amended and restated credit agreement |
— | (310,132 | ) | |||||
| Payment of issuance costs |
(3,602 | ) | (10,610 | ) | ||||
| Payments on capital leases |
(2,340 | ) | (1,875 | ) | ||||
| Stock-based compensation activity |
(429 | ) | 43 | |||||
|
|
|
|
|
|||||
| Net cash provided by financing activities |
175,472 | 202,426 | ||||||
|
|
|
|
|
|||||
| Effect of exchange rate changes on cash |
556 | (378 | ) | |||||
| Increase (decrease) in cash and cash equivalents |
105,076 | (512 | ) | |||||
| Cash and cash equivalents at beginning of period |
117,302 | 147,342 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents at end of period |
$ | 222,378 | $ | 146,830 | ||||
|
|
|
|
|
|||||
Gogo Inc. and Subsidiaries
Supplemental Information – Key Operating Metrics
| Commercial Aviation North America | ||||||||||||||||
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Aircraft online (at period end) |
2,817 | 2,629 | 2,817 | 2,629 | ||||||||||||
| Total aircraft equivalents (average during the period) |
2,859 | 2,663 | 2,816 | 2,599 | ||||||||||||
| Satellite |
252 | 55 | 201 | 55 | ||||||||||||
| ATG |
2,607 | 2,608 | 2,615 | 2,544 | ||||||||||||
| Average monthly service revenue per aircraft equivalent (ARPA) (in thousands) |
$ | 11.1 | $ | 11.1 | $ | 11.6 | $ | 11.3 | ||||||||
| Satellite (in thousands) |
$ | 18.4 | — | $ | 19.1 | — | ||||||||||
| ATG (in thousands) |
$ | 10.4 | — | $ | 11.0 | — | ||||||||||
| Gross passenger opportunity (GPO) (in thousands) |
110,792 | 108,351 | 314,880 | 298,812 | ||||||||||||
| Total average revenue per session (ARPS) |
$ | 10.49 | $ | 11.46 | $ | 10.83 | $ | 12.43 | ||||||||
| Connectivity take rate |
7.5 | % | 6.5 | % | 7.8 | % | 6.4 | % | ||||||||
| Commercial Aviation Rest of World | ||||||||||||||||
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Aircraft online (at period end) |
352 | 256 | 352 | 256 | ||||||||||||
| Aircraft equivalents (average during the period) |
295 | 209 | 250 | 193 | ||||||||||||
| ARPA (in thousands) |
$ | 18.8 | $ | 14.5 | $ | 18.3 | $ | 12.8 | ||||||||
| • | Aircraft online. We define aircraft online as the total number of commercial aircraft on which our equipment is installed and service has been made commercially available as of the last day of each period presented. We assign aircraft to CA-NA or CA-ROW at the time of contract signing as follows: (i) all aircraft operated by North American airlines and under contract for ATG or ATG-4 service are assigned to CA-NA, (ii) all aircraft operated by North American airlines and under a contract for satellite service are assigned to CA-NA or CA-ROW based on whether the routes flown by such aircraft under the contract are anticipated to be predominantly within or outside of North America at the time the contract is signed, and (iii) all aircraft operated by non-North American airlines and under a contract are assigned to CA-ROW. |
| • | Aircraft equivalents. We define aircraft equivalents for a segment as the number of commercial aircraft online (as defined above) multiplied by the percentage of flights flown by such aircraft within the scope of that segment, rounded to the nearest whole aircraft and expressed as an average of the month end figures for each month in the period. This methodology takes into account the fact that during a particular period certain aircraft may fly routes outside the scope of the segment to which they are assigned for purposes of the calculation of aircraft online. |
| • | Average monthly service revenue per aircraft equivalent (“ARPA”). We define ARPA as the aggregate service revenue plus monthly service fees, some of which are reported as a reduction to cost of service revenue for that segment for the period divided by the number of months in the period, and further divided by the number of aircraft equivalents (as defined above) for that segment during the period. Satellite ARPA is calculated based on satellite revenue and satellite aircraft equivalents, within that segment. ATG ARPA is calculated based on ATG revenue and ATG aircraft equivalents. |
| • | Gross passenger opportunity (“GPO”). We define GPO as the aggregate number of passengers who board commercial aircraft on which Gogo service has been available at any time during the period presented. When actual passenger counts are available directly from our airline partners, we aggregate such counts across flights on Gogo-equipped aircraft. When not available directly from our airline partners, we estimate GPO. Estimated GPO is |
| calculated by first estimating the number of flights occurring on each Gogo-equipped aircraft, then multiplying by the number of seats on that aircraft, and finally multiplying by a seat factor that is determined from historical information provided to us in arrears by our airline partners. The estimated number of flights is derived from real-time flight information provided to our front-end systems by Air Radio Inc. (ARINC), direct airline feeds and supplementary third-party data sources. These aircraft-level estimates are then aggregated with any available airline-provided passenger counts to obtain total GPO. |
| • | Total average revenue per session (“ARPS”). We define ARPS as revenue from Passenger Connectivity, excluding non-session related revenue, divided by the total number of sessions during the period. A session, or a “use” of Passenger Connectivity, is defined as the use by a unique passenger of Passenger Connectivity on a flight segment. Multiple logins or purchases under the same user name during one flight segment count as only one session. |
| • | Connectivity take rate. We define connectivity take rate as the number of sessions during the period expressed as a percentage of GPO. Included in our connectivity take-rate calculation are sessions for which we did not receive revenue, including those provided pursuant to free promotional campaigns and, to a lesser extent, as a result of complimentary passes distributed by our customer service representatives for unforeseen technical issues. For the periods listed above, the number of sessions for which we did not receive revenue was not material. |
| Business Aviation | ||||||||||||||||
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Aircraft online (at period end) |
||||||||||||||||
| Satellite |
5,474 | 5,473 | 5,474 | 5,473 | ||||||||||||
| ATG |
4,567 | 3,974 | 4,567 | 3,974 | ||||||||||||
| Average monthly service revenue per aircraft online |
||||||||||||||||
| Satellite |
$ | 235 | $ | 211 | $ | 232 | $ | 217 | ||||||||
| ATG |
2,874 | 2,535 | 2,848 | 2,521 | ||||||||||||
| Units Sold |
||||||||||||||||
| Satellite |
116 | 126 | 303 | 367 | ||||||||||||
| ATG |
210 | 165 | 596 | 558 | ||||||||||||
| Average equipment revenue per unit sold (in thousands) |
||||||||||||||||
| Satellite |
$ | 38 | $ | 45 | $ | 42 | $ | 44 | ||||||||
| ATG |
58 | 54 | 55 | 57 | ||||||||||||
| • | Satellite aircraft online. We define satellite aircraft online as the total number of business aircraft for which we provide satellite services as of the last day of each period presented. |
| • | ATG aircraft online. We define ATG aircraft online as the total number of business aircraft for which we provide ATG services as of the last day of each period presented. |
| • | Average monthly service revenue per satellite aircraft online. We define average monthly service revenue per satellite aircraft online as the aggregate satellite service revenue for the period divided by the number of months in the period, divided by the number of satellite aircraft online during the period (expressed as an average of the month end figures for each month in such period). |
| • | Average monthly service revenue per ATG aircraft online. We define average monthly service revenue per ATG aircraft online as the aggregate ATG service revenue for the period divided by the number of months in the period, divided by the number of ATG aircraft online during the period (expressed as an average of the month end figures for each month in such period). |
| • | Units sold. We define units sold as the number of satellite or ATG units for which we recognized revenue during the period. In the three and nine months ended September 30, 2017, we recognized revenue on four and seven Gogo Biz 4G units, respectively, that were previously deferred. |
| • | Average equipment revenue per satellite unit sold. We define average equipment revenue per satellite unit sold as the aggregate equipment revenue earned from all satellite units sold during the period, divided by the number of satellite units sold. |
| • | Average equipment revenue per ATG unit sold. We define average equipment revenue per ATG unit sold as the aggregate equipment revenue from all ATG units sold during the period, divided by the number of ATG units sold. |
Gogo Inc. and Subsidiaries
Supplemental Information – Segment Revenue and Segment Profit (Loss)(1)
(in thousands, Unaudited)
| For the Three Months Ended September 30, 2017 |
||||||||||||
| CA-NA | CA-ROW | BA | ||||||||||
| Service revenue |
$ | 94,436 | $ | 15,687 | $ | 43,224 | ||||||
| Equipment revenue |
1,291 | 953 | 17,283 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total revenue |
$ | 95,727 | $ | 16,640 | $ | 60,507 | ||||||
|
|
|
|
|
|
|
|||||||
| Segment profit (loss) |
$ | 15,966 | $ | (24,110 | ) | $ | 21,329 | |||||
|
|
|
|
|
|
|
|||||||
| For the Three Months Ended September 30, 2016 |
||||||||||||
| CA-NA | CA-ROW | BA | ||||||||||
| Service revenue |
$ | 88,534 | $ | 7,235 | $ | 33,330 | ||||||
| Equipment revenue |
2,191 | 360 | 15,617 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total revenue |
$ | 90,725 | $ | 7,595 | $ | 48,947 | ||||||
|
|
|
|
|
|
|
|||||||
| Segment profit (loss) |
$ | 14,509 | $ | (19,924 | ) | $ | 20,655 | |||||
|
|
|
|
|
|
|
|||||||
| For the Nine Months Ended September 30, 2017 |
||||||||||||
| CA-NA | CA-ROW | BA | ||||||||||
| Service revenue |
$ | 290,260 | $ | 38,243 | $ | 125,415 | ||||||
| Equipment revenue |
5,234 | 2,756 | 49,172 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total revenue |
$ | 295,494 | $ | 40,999 | $ | 174,587 | ||||||
|
|
|
|
|
|
|
|||||||
| Segment profit (loss) |
$ | 43,316 | $ | (82,068 | ) | $ | 72,646 | |||||
|
|
|
|
|
|
|
|||||||
| For the Nine Months Ended September 30, 2016 |
||||||||||||
| CA-NA | CA-ROW | BA | ||||||||||
| Service revenue |
$ | 261,751 | $ | 17,213 | $ | 96,442 | ||||||
| Equipment revenue |
8,708 | 731 | 51,707 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total revenue |
$ | 270,459 | $ | 17,944 | $ | 148,149 | ||||||
|
|
|
|
|
|
|
|||||||
| Segment profit (loss) |
$ | 46,966 | $ | (62,945 | ) | $ | 59,895 | |||||
|
|
|
|
|
|
|
|||||||
| (1) | Segment profit (loss) is defined as net income (loss) attributable to common stock before interest expense, interest income, income taxes, depreciation and amortization, certain non-cash charges (including amortization of deferred airborne lease incentives and stock compensation expense) and other income (expense). |
Gogo Inc. and Subsidiaries
Supplemental Information – Segment Cost of Service Revenue(1)
(in thousands, Unaudited)
| For the Three Months Ended September 30, |
||||||||
| 2017 | 2016 | |||||||
| CA-NA |
$ | 37,738 | $ | 36,696 | ||||
| BA |
10,090 | 8,374 | ||||||
| CA-ROW |
20,026 | 11,295 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 67,854 | $ | 56,365 | ||||
|
|
|
|
|
|||||
| For the Nine Months Ended September 30, |
||||||||
| 2017 | 2016 | |||||||
| CA-NA |
$ | 112,439 | $ | 107,067 | ||||
| BA |
29,476 | 25,691 | ||||||
| CA-ROW |
59,879 | 31,857 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 201,794 | $ | 164,615 | ||||
|
|
|
|
|
|||||
(1) Excludes depreciation and amortization expense.
Gogo Inc. and Subsidiaries
Supplemental Information – Segment Cost of Equipment Revenue(1)
(in thousands, Unaudited)
| For the Three Months Ended September 30, |
||||||||
| 2017 | 2016 | |||||||
| CA-NA |
$ | 1,065 | $ | 1,526 | ||||
| BA |
13,414 | 8,820 | ||||||
| CA-ROW |
847 | 181 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 15,326 | $ | 10,527 | ||||
|
|
|
|
|
|||||
| For the Nine Months Ended September 30, |
||||||||
| 2017 | 2016 | |||||||
| CA-NA |
$ | 5,646 | $ | 8,335 | ||||
| BA |
33,651 | 27,986 | ||||||
| CA-ROW |
2,326 | 431 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 41,623 | $ | 36,752 | ||||
|
|
|
|
|
|||||
(1) Excludes depreciation and amortization expense.
Gogo Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, except per share amounts)
(unaudited)
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Adjusted EBITDA: |
||||||||||||||||
| Net loss attributable to common stock (GAAP) |
$ | (45,281 | ) | $ | (33,273 | ) | $ | (130,857 | ) | $ | (97,573 | ) | ||||
| Interest expense |
27,585 | 24,848 | 81,754 | 58,701 | ||||||||||||
| Interest income |
(683 | ) | (852 | ) | (1,999 | ) | (1,064 | ) | ||||||||
| Income tax provision |
350 | 469 | 945 | 997 | ||||||||||||
| Depreciation and amortization |
35,824 | 26,779 | 96,821 | 76,042 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| EBITDA |
17,795 | 17,971 | 46,664 | 37,103 | ||||||||||||
| Stock-based compensation expense |
5,283 | 5,000 | 15,007 | 12,986 | ||||||||||||
| Amortization of deferred airborne lease incentives |
(10,121 | ) | (7,765 | ) | (28,099 | ) | (20,650 | ) | ||||||||
| Loss on extinguishment of debt |
— | — | — | 15,406 | ||||||||||||
| Adjustment of deferred financing costs |
— | — | — | (792 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjusted EBITDA |
$ | 12,957 | $ | 15,206 | $ | 33,572 | $ | 44,053 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Cash CAPEX: |
||||||||||||||||
| Consolidated capital expenditures (GAAP) (1) |
$ | (68,495 | ) | $ | (43,653 | ) | $ | (214,238 | ) | $ | (128,694 | ) | ||||
| Change in deferred airborne lease incentives (2) |
5,351 | 330 | 8,856 | 8,674 | ||||||||||||
| Amortization of deferred airborne lease incentives (2) |
10,077 | 7,697 | 27,994 | 20,458 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Cash CAPEX |
$ | (53,067 | ) | $ | (35,626 | ) | $ | (177,388 | ) | $ | (99,562 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | See unaudited condensed consolidated statements of cash flows. |
| (2) | Excludes deferred airborne lease incentives and related amortization associated with STCs for the three and nine-month periods ended September 30, 2017 and 2016 as STC costs are expensed as incurred as part of Engineering, Design and Development. |
| For the Year Ending December 31, 2017 |
||||||||
| Cash CapEx Guidance: | Low | High | ||||||
| Consolidated capital expenditures (GAAP) |
$ | (290,000 | ) | $ | (330,000 | ) | ||
| Deferred airborne lease incentives |
60,000 | 70,000 | ||||||
|
|
|
|
|
|||||
| Cash CapEx |
$ | (230,000 | ) | $ | (260,000 | ) | ||
|
|
|
|
|
|||||
Definition of Non-GAAP Measures
EBITDA represents net income (loss) attributable to common stock before income taxes, interest income, interest expense, depreciation expense and amortization of other intangible assets.
Adjusted EBITDA represents EBITDA adjusted for (i) stock-based compensation expense, (ii) amortization of deferred airborne lease incentives (iii) loss on extinguishment of debt and (iv) adjustment of deferred financing costs. Our management believes that the use of Adjusted EBITDA eliminates items that, management believes, have less bearing on our operating performance, thereby highlighting trends in our core business which may not otherwise be apparent. It also provides an assessment of controllable expenses, which are indicators management uses to determine whether current spending decisions need to be adjusted in order to meet financial goals and achieve optimal financial performance.
We believe the exclusion of stock-based compensation expense from Adjusted EBITDA is appropriate given the significant variation in expense that can result from using the Black-Scholes model to determine the fair value of such compensation. The fair value of our stock options is determined using the Black-Scholes model and varies based on fluctuations in the assumptions used in this model, including inputs that are not necessarily directly related to the performance of our business, such as the expected volatility, the risk-free interest rate and the expected life of the options. Therefore, we believe the exclusion of this cost provides a clearer view of the operating performance of our business. Further, stock option grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular time. While we believe that investors should have information about any dilutive effect of outstanding options and the cost of that compensation, we also believe that stockholders should have the ability to consider our performance using a non-GAAP financial measure that excludes these costs and that management uses to evaluate our business.
We believe the exclusion of the amortization of deferred airborne lease incentives from Adjusted EBITDA is useful as it allows an investor to view operating performance across time periods in a manner consistent with how management measures segment profit and loss (see Note 14, “Business Segments and Major Customers,” for a description of segment profit (loss) in our unaudited condensed consolidated financial statements). Management evaluates segment profit and loss in this manner, excluding the amortization of deferred airborne lease incentives, because such presentation reflects operating decisions and activities from the current period, without regard to the prior period decision or the form of connectivity agreements. See “—Key Components of Consolidated Statements of Operations—Cost of Service Revenue—Commercial Aviation North America and Rest of World” in our 2016 10-K for a discussion of the accounting treatment of deferred airborne lease incentives.
We believe it is useful to an understanding of our operating performance to exclude the loss on extinguishment of debt and adjustment of deferred financing costs from Adjusted EBITDA because of the non-recurring nature of these charges.
We also present Adjusted EBITDA as a supplemental performance measure because we believe that this measure provides investors, securities analysts and other users of our financial statements with important supplemental information with which to evaluate our performance and to enable them to assess our performance on the same basis as management.
Cash CAPEX represents capital expenditures net of airborne equipment proceeds received from the airlines and incentives paid to us by landlords under certain facilities leases. We believe Cash CAPEX provides a more representative indication of our liquidity requirements with respect to capital expenditures, as under certain agreements with our airline partners we are reimbursed for all or a substantial portion of the cost of our airborne equipment, thereby reducing our cash capital requirements.
3rd Quarter 2017 Earnings Results Michael Small – Chief Executive Officer John Wade – Chief Operating Officer Barry Rowan – Chief Financial Officer November 2, 2017 Exhibit 99.2
Safe harbor statement Safe Harbor Statement This presentation contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are based on management’s beliefs and assumptions and on information currently available to management. Most forward-looking statements contain words that identify them as forward-looking, such as “anticipates,” “believes,” “continues,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms that relate to future events. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Gogo’s actual results, performance or achievements to be materially different from any projected results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements represent the beliefs and assumptions of Gogo only as of the date of this presentation and Gogo undertakes no obligation to update or revise publicly any such forward-looking statements, whether as a result of new information, future events or otherwise. As such, Gogo’s future results may vary from any expectations or goals expressed in, or implied by, the forward-looking statements included in this presentation, possibly to a material degree. Gogo cannot assure you that the assumptions made in preparing any of the forward-looking statements will prove accurate or that any long-term financial or operational goals and targets will be realized. In particular, the availability and performance of certain technology solutions yet to be implemented by the Company set forth in this presentation represent aspirational long-term goals based on current expectations. For a discussion of some of the important factors that could cause Gogo’s results to differ materially from those expressed in, or implied by, the forward-looking statements included in this presentation, investors should refer to the disclosures contained under the headings “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Note to Certain Operating and Financial Data In addition to disclosing financial results that are determined in accordance with U.S. generally accepted accounting principles (“GAAP”), Gogo also discloses in this presentation certain non-GAAP financial information, including Adjusted EBITDA, Adjusted EBITDA margin and Cash CapEx. These financial measures are not recognized measures under GAAP, and when analyzing our performance or liquidity, as applicable, investors should (i) use Adjusted EBITDA and Adjusted EBITDA margin in addition to, and not as an alternative to, net loss attributable to common stock as a measure of operating results, and (ii) use Cash CapEx in addition to, and not as an alternative to, consolidated capital expenditures when evaluating our liquidity. See the Appendix for a reconciliation of each of Adjusted EBITDA and Cash CapEx to the comparable GAAP measure. No reconciliation of the forecasted range for Adjusted EBITDA for fiscal 2017 is included in this release because we are unable to quantify certain amounts that would be required to be included in the respective corresponding GAAP measure without unreasonable efforts and we believe such reconciliations would imply a degree of precision that would be confusing or misleading to investors. In particular, we are not able to provide a reconciliation for the forecasted range of Adjusted EBITDA for 2017 due to variability in the timing of aircraft installations and de-installations impacting depreciation expense and amortization of deferred airborne leasing proceeds. In addition, this presentation contains various customer metrics and operating data, including numbers of aircraft or units online, that are based on internal company data, as well as information relating to the commercial and business aviation market, and our position within those markets. While management believes such information and data are reliable, they have not been verified by an independent source and there are inherent challenges and limitations involved in compiling data across various geographies and from various sources.
2Ku transforming our business 1. Improves customer experience across the North American networks 2. Accelerates take rate growth 3. Enables new products and services Increased bandwidth: This transformation will drive revenue growth and long-term profitability Review table and footnote in 2Ku table w/ V
Strong execution continues 17% Y/Y Growth Total Revenue ($MM) Added $110M in cash, on the strength of airline wins Total revenue up 17% Y/Y Adjusted EBITDA ($MM) Adj. EBITDA up $3M sequentially 30% Q/Q Growth Cash ($MM) 8% Q/Q Growth * Note: Cash includes cash, cash equivalents and short-term investments
Expanding our leading market position More than 1,900+ awards for 2Ku Awarded Alaska & Virgin America fleets, totaling 250+ aircraft Awarded 100 aircraft with largest airline in South America
High bandwidth is arriving 6 Y/Y growth in bandwidth per aircraft in CA-NA 47% CA-NA fleet will be 2Ku by end of 2018 ~1/3 On target to hit 2Ku install guidance 550 450 to Y/Y growth in bandwidth per aircraft in BA 20% 2Ku aircraft installed year-to-date 320+ 2Ku aircraft installed in October 76
Engaging more passengers 7 15% Y/Y increase in CA-NA take rate to 7.5% Expanding partnerships to deliver free connectivity to the passenger Gogo Vision Touch leverages our existing connectivity system
Business Aviation growing and innovating 30% Y/Y Growth BA Service Revenue ($MM) Service revenue up 30% Y/Y Launched Gogo AVANCE platform L3 and L5 connectivity systems
Key takeaways - CEO Dedicated networks delivering leading bandwidth, coverage and reliability Performance driving wins Engaging more passengers with more bandwidth enables cutting-edge products and services Setting records for getting more aircraft online
Strong operational execution 10 2Ku aircraft installed in year-to-date 322 Hour 2Ku installation achieved 36 2Ku aircraft installed in October 76
Progress with OEMs 11 3 A350s installed and delivered by Airbus with 2Ku installed B787 Expect first Boeing 2Ku installation to be completed around year-end C Series Expect first Bombardier production installation in May of 2018
Gogo Vision Touch evolved from our customer’s need Seatback entertainment solution Without the weight, cost and complexity of legacy solutions Engages even more passengers Simplicity and cost savings are driving interest from other carriers
Business Aviation continues to expand market share L5 units sold is 86 YTD check w/ Leigh and Shannon to verify Announced a global Ku band connectivity solution Strong market demand for Gogo Avance L5 connectivity system 86 sold year to date Selected as a factory option by Dassault and Embraer
Key takeaways - COO Industry-leading operational execution On track with OEM installed aircraft deliveries and accelerating Business Aviation market position and competitive strengths are formidable advantage
15% Y/Y Decrease Strong revenue growth 17% Y/Y Growth Q3 ’17 revenue up 17% Y/Y Service revenue up 19% Y/Y Growth across all segments Q3 ’17 Adjusted EBITDA up $3 million sequentially Includes $4.5 million write-down of legacy product lines and retirement of test aircraft Note: Minor differences exist due to rounding. (1) Adjusted EBITDA is a non-GAAP measure. See Appendix for a reconciliation to the comparable GAAP measure.
16 CA-NA: Continued service revenue growth 7% Y/Y Growth Service revenue up 7% 2,817 aircraft online, up 188 aircraft Y/Y Note: Minor differences exist due to rounding ARPA flat Y/Y at $133k Satellite ARPA $220k ATG ARPA $125k
17 CA-NA: Expanding engagement through multi-payer strategy 15% Y/Y Growth Take rate up 15%: Increased passenger engagement due to airline and 3rd party paid offerings Note: Minor differences exist due to rounding Segment profit of $16 million Includes: $2.4 million write-down of legacy products and retirement of test aircraft $3.0 million next gen ATG milestone payment 10% Y/Y Growth
CA-ROW: Revenue doubled for third consecutive quarter year-over-year 18 117% Y/Y Growth Note: Minor differences exist due to rounding Service revenue of $15.7 million, up 117% from Q3 ’16 $226k annualized ARPA, up 30% Y/Y Aircraft equivalents online increased 41% Y/Y 13.5% take rate Annualized ARPA up 30% to $226k Growth in ARPA of existing aircraft offset by new aircraft, which represented 25% of aircraft online 30% Y/Y Growth
CA-ROW: Scaling our international business Note: Minor differences exist due to rounding Aircraft online up 96 Y/Y, to 352 680 2Ku awarded but not yet installed as of 10/24/17 Segment loss improved $7 million from Q2 ‘17 Lower spending on OEM programs Increased utilization of global Ku network 38% Y/Y Growth
BA: Continuing strong revenue growth Total revenue increased 24% Y/Y, to $61 million Service revenue increased 30% Y/Y to $43 million ATG aircraft online increased 15% Y/Y, to over 4,500 ATG Service ARPU increased 13% Y/Y, to nearly $2,900 per month Note: Minor differences exist due to rounding 15% Y/Y Growth 24% Y/Y Growth
BA: Strong AVANCE platform adoption Segment profit increased 3% Y/Y, to $21 million $2 million charges related to write-down of legacy product line One Phone Increased ED&D and sales and marketing to further drive market penetration Note: Minor differences exist due to rounding 3% Y/Y Growth 27% Y/Y Growth L5 shipments drove 11% growth in equipment revenue 66 L5 units sold in Q3 ’17 Opportunity to expand: Further penetrate light & turbo jet markets Serve business aircraft flying globally
Investing in rapid 2Ku installations Note: Minor differences exist due to rounding. Note: Cash CAPEX is a non-GAAP measure. See Appendix for a reconciliation to the most comparable GAAP measure. $17MM Y/Y Increase Cash CapEx Y/Y increase reflects investment in installing aircraft with 2Ku
Outlook Expect Adjusted EBITDA to be significantly higher in 2018 than 2017 Expect 2017 revenue to be at the high end of $670-$695 million guidance range Adjusted EBITDA expected to approximately double in the second half of 2017 compared to the first half of 2017 and to be at the low end of $60-$75 million guidance range, excluding the $4.5 million in charges we incurred this quarter 2017 Cash CapEx expected to be at the low end of $230-$260 million range, with approximately 70% related to success-based airborne equipment purchases
Q&A
Appendix
Gogo installed and awarded aircraft as of 9/30/2017 Note: On May 27, 2016, we entered into a letter agreement with American Airlines whereby American exercised its option to terminate its agreement with Gogo on approximately 550 Gogo-installed mainline aircraft and we currently expect such aircraft to be deinstalled or retired over the next several years.
Adjusted EBITDA reconciliation ($MM) 2016 Q1 2016 Q3 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 Net Income (24) (40) (33) (27) (41) (44) (45) Interest Income (0) (0) (1) (1) (1) (1) (1) Interest Expense 16 18 25 25 27 27 28 Depreciation & Amortization 24 25 27 30 30 31 36 EBITDA 17 2 18 27 16 13 18 Stock-based Compensation Expense 4 4 5 5 4 5 5 Amortization of Deferred Airborne Lease Incentives (6) (7) (8) (9) (9) (9) (10) Loss on Extinguishment of Debt – 15 – – – – – Adjustment of deferred financing costs (1) – – – – – – Adjusted EBITDA 14 14 15 23 11 10 13 Note: Minor differences exist due to rounding
Cash CapEx reconciliation ($MM) 2016 Q1 2016 Q3 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 Purchases of Property and Equipment (31) (40) (36) (41) (64) (65) (62) Acquisition of Intangible Assets (Capitalized Software) (6) (8) (8) (7) (8) (9) (7) Consolidated Capital Expenditures (37) (48) (44) (48) (72) (74) (68) Change in Deferred Airborne Lease Incentives 8 1 0 6 4 (0) 5 Amortization of Deferred Airborne Lease Incentives 6 7 8 9 9 9 10 Cash CapEx (24) (40) (36) (34) (59) (66) (53) Note: Minor differences exist due to rounding