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): February 22, 2018
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 February 22, 2018, Gogo Inc. (the “Company”) issued a press release announcing its results of operations for the fourth quarter ended December 31, 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 February 22, 2018, the Company will use the attached fourth 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 February 22, 2018 | |
| 99.2 | Fourth 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: February 22, 2018
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 Fourth Quarter and Full-Year 2017 Financial Results
| • | Record quarterly revenue of $188 million, up 18% from prior year |
| • | Record full-year revenue of $699 million exceeds guidance |
| • | 2Ku was installed on more than 470 aircraft in 2017 and is now flying on 620 aircraft |
| • | LATAM Airlines and Cathay Pacific Group selected 2Ku for satellite inflight connectivity |
CHICAGO, February 22, 2018 – Gogo (NASDAQ: GOGO), the leading global provider of broadband connectivity products and services for aviation, today announced its financial results for the fourth quarter and full-year ended December 31, 2017.
Fourth Quarter 2017 Consolidated Financial Results
| • | Revenue increased to a record $188.0 million, up 18% from Q4 2016. Service revenue increased to $164.0 million, up 18% from Q4 2016, driven by a 10% increase in commercial aircraft online to 3,231, a 12% increase in ATG business aircraft online to 4,678, and increased customer usage across all segments. |
| • | Net loss increased to $41.1 million, a 53% increase from Q4 2016, and Adjusted EBITDA(1) grew to a record $24.9 million, up 8% from Q4 2016. |
| • | Capital expenditures increased to $66.0 million from $48.2 million in Q4 2016. Cash CAPEX (1) increased to $43.1 million from $33.5 million in Q4 2016, primarily 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 $409.1 million as of December 31, 2017. |
“During the fourth quarter, we executed on our strategic initiatives: installing 2Ku rapidly, engaging more passengers, and winning aircraft,” said Michael Small, Gogo’s President and CEO. “Our continued rapid deployment of high-bandwidth technologies in 2018 is the catalyst for delivering a great customer experience and long-term revenue and profitability growth.”
“Our record financial results for the quarter lay a strong foundation for 2018 financial performance,” said Barry Rowan, Gogo’s Executive Vice President and CFO. “With 2Ku aircraft online scaling in 2018 and continued rapid growth of our Business Aviation division, we look forward to delivering another strong year of financial performance as we target achieving positive free cash flow in 2019.”
Fourth Quarter 2017 Business Segment Financial Results
Commercial Aviation - North America (CA-NA)
CA-NA aircraft equivalents increased to nearly 2,900 aircraft in the quarter, of which approximately 15% were satellite-equipped aircraft. The annualized average monthly service revenue per aircraft, or ARPA, for CA-NA satellite-equipped aircraft was $223,000, and the annualized ARPA for CA-NA ATG-equipped aircraft was $131,000. The weighted average peak speed to an aircraft in CA-NA increased to nearly 20 Mbps, approximately doubling from Q4 2016.
| • | Aircraft online reached 2,840, up 164 aircraft from December 31, 2016. As of December 31, 2017, CA-NA had more than 650 awarded but not yet installed 2Ku aircraft, of which approximately 75 are net new aircraft. |
| • | Take rate reached a record 9.9%, up 36% from 7.3% in Q4 2016, due to increased passenger adoption resulting from airline and third party paid offerings. |
| • | Total revenue increased to $105.1 million, up 4% from Q4 2016, driven primarily by increased aircraft online equivalents and higher ARPA. |
| • | Segment profit decreased to $23.5 million, down 6% from Q4 2016, and segment profit margin was 22%. |
Commercial Aviation - Rest of World (CA-ROW)
CA-ROW revenue doubled year-over-year for the fourth consecutive quarter. Annualized ARPA grew 17% to $201,000 year-over-year. Compared to the third quarter of 2017, CA-ROW ARPA declined as a result of more aircraft from new airline partners coming online during Q4 2017. Annualized ARPA for airlines on which Gogo service was commercially launched prior to 2017 grew 66% year-over-year.
| • | Aircraft online reached 391, up 124 aircraft from December 31, 2016. CA-ROW had approximately 770 net new 2Ku awarded but not yet installed aircraft as of December 31, 2017. |
| • | Total revenue increased to $16.9 million, up 127% from Q4 2016, driven primarily by higher ARPA and an increase in aircraft online. |
| • | Segment loss of $24.9 million increased slightly from Q4 2016. |
Business Aviation (BA)
BA service revenue grew 25% year-over-year to $45.5 million. ATG aircraft online increased to 4,678, up 12% year-over-year, as demand for inflight connectivity grew across all market segments, including a 19% increase in light jets and turboprop aircraft online. ATG average monthly service revenue per unit, or ARPU, grew 13% to $2,953.
| • | Equipment revenue increased to $20.6 million, up 36% from Q4 2016, as demand for the new AVANCE platform continued to build. |
| • | Total segment revenue increased to $66.0 million, up 28% from Q4 2016. |
| • | Segment profit increased to a record $26.8 million, up 16% from Q4 2016, and segment profit margin was 41%. |
Full-Year 2017 Consolidated Financial and Operating Results
| • | Gogo was within or exceeded full-year 2017 guidance, including total revenue, Adjusted EBITDA, Cash CAPEX, and 2Ku installations. |
| • | 2Ku was installed on more than 470 aircraft in 2017, including more than 130 in CA-ROW, to end the year with more than 550 2Ku equipped aircraft online. For the fourth consecutive year, Gogo installed its inflight connectivity equipment on more than 1,000 combined BA and CA aircraft, substantially more than any other company in the industry. |
| • | Revenue increased to $699.1 million, up 17% from $596.6 million in 2016. Service revenue increased to $617.9 million, up 20% from $514.3 million in 2016. |
| • | CA-NA revenue increased to $400.6 million, up 8% from $371.5 million in 2016. |
| • | BA revenue increased to $240.6 million, up 21% from $199.6 million in 2016. |
| • | CA-ROW revenue increased to $57.9 million, up 128% from $25.4 million in 2016. |
| • | Net loss increased to $172.0 million, up 38% from 2016, and Adjusted EBITDA was $58.5 million compared to $67.2 million in 2016. Excluding $4.5 million in charges in Q3 2017 related to write-downs of legacy product lines and the retirement of Gogo test aircraft, net loss was $167.5 million and Adjusted EBITDA was $63.0 million. |
| • | Capital expenditures increased to $280.2 million from $176.9 million in 2016. Cash CAPEX increased to $220.5 million, up 66% from $133.1 million in 2016, primarily due to increased success-based airborne equipment purchases for 2Ku installations. |
| • | For the year ended December 31, 2017, we recorded approximately $3.0 million of income tax benefits due to a reduction in our deferred tax liabilities as a result of the Tax Cuts and Jobs Act (“TCJA”). TCJA will not have a material impact on our near term financial results as we had approximately $545 million in federal net operating losses (“NOLs”) and $356 million in state NOLs as of December 31, 2017. |
Business Outlook
Effective January 1, 2018, the Company is adopting the new revenue recognition standard, Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”), pursuant to which equipment revenue will be recognized at the time of installation, rather than deferred over the life of the airline agreement. The Company is providing guidance for the fiscal year ending December 31, 2018, under both ASC 606 and the prior revenue recognition standard (ASC 605) to provide greater comparability with our reported results for the fiscal year ended December 31, 2017.
In our commercial aviation segments, under our contracts with airlines, aircraft operate under either a turnkey or airline-directed commercial arrangement. Starting in 2018, we expect the mix of aircraft operating under the airline-directed model to be significantly higher than in prior years due to the transition of certain existing airlines from the turnkey model to the airline-directed model and new aircraft coming online under the airline-directed model. Our 2018 guidance reflects this business model shift.
Under the airline-directed model, airborne equipment revenue and cost, including the co-investment provided for our airline partners, flow through the income statement and are reflected in Adjusted EBITDA. Under the turnkey model, the impact of airborne equipment co-investment is not included in Adjusted EBITDA because it is recorded as a capital expenditure. As a result, under ASC 605, our Adjusted EBITDA for 2018 is negatively impacted by the shift to the airline-directed model. However, this negative impact is partially offset by certain provisions within ASC 606.
For the full year ending December 31, 2018, the Company expects:
| • | Total revenue of $865 million to $935 million (or $750 million to $790 million under ASC 605, an increase of 7% to 13% from 2017) |
| • | CA-NA revenue of $445 million to $485 million, of which approximately 20% is equipment revenue (or $380 million to $415 million under ASC 605) |
| • | CA-ROW revenue of $125 million to $165 million, of which approximately 50% is equipment revenue (or $75 million to $90 million under ASC 605) |
| • | BA revenue of $285 million to $295 million (same as under ASC 605) |
| • | Adjusted EBITDA of $75 million to $100 million (or $65 million to $90 million under ASC 605, an increase of 11% to 54% from 2017). We estimate that 2018 Adjusted EBITDA under ASC 605 would be approximately $15 million higher when adjusting for the accounting impact of the airline-directed model. |
| • | An increase of 550 to 650 2Ku aircraft online, of which approximately 300 are expected to be in CA-ROW. Total 2Ku aircraft online as of December 31, 2018 of 1,100 to 1,200. |
| • | Gross capital expenditures of $150 million to $170 million and Cash CAPEX of $110 million to $130 million, of which approximately 35% is related to airborne Cash CAPEX. In addition, we expect airborne equipment inventory purchases related to airline-directed installations of $15 million to $30 million. |
Free Cash Flow is expected to improve from 2017 to 2018 driven by Adjusted EBITDA growth and lower Cash CAPEX. The Company reaffirms its target of becoming Free Cash Flow positive in 2019 and for the full year 2020. The Company will provide an update to its other long-term targets under ASC 606 on the Company’s first quarter 2018 earnings conference call in May 2018.
On February 22, 2018, the Company will be providing a pre-recorded webcast on the “Accounting Impact of Business Model Changes and New Revenue Recognition Standard on Commercial Aviation” which will be available on the Investor Relations section of the Company’s website at http://ir.gogoair.com.
| (1) | See Non-GAAP Financial Measures below |
Conference Call
The fourth quarter conference call will be held on February 22, 2018 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 7589067.
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 2018 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 and passenger 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 and the effect of shifts in business models; an inability to compete effectively with other current or future providers of inflight 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; changes as a result of U.S. federal tax reform; 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, cyber-attack or other events that could result in reduced demand for our products and services or 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 properly implement a new revenue recognition standard in 2018 (ASC 606); our ability to successfully implement our new enterprise resource planning system and other improvements to systems and procedures needed to support our growth; and other events beyond our control that may result in unexpected adverse operating results.
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, 2017 filed with the Securities and Exchange Commission on February 22, 2018.
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 inflight 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 | For the Years Ended | |||||||||||||||
| Ended December 31, | Ended December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue: |
||||||||||||||||
| Service revenue |
$ | 163,988 | $ | 138,887 | $ | 617,906 | $ | 514,293 | ||||||||
| Equipment revenue |
24,022 | 21,111 | 81,184 | 82,257 | ||||||||||||
|
|
|
|
|
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|
|
|||||||||
| Total revenue |
188,010 | 159,998 | 699,090 | 596,550 | ||||||||||||
|
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|
|
|
|
|||||||||
| Operating expenses: |
||||||||||||||||
| Cost of service revenue (exclusive of items shown below) |
66,540 | 61,463 | 268,334 | 226,078 | ||||||||||||
| Cost of equipment revenue (exclusive of items shown below) |
16,931 | 11,898 | 58,554 | 48,650 | ||||||||||||
| Engineering, design and development |
30,024 | 24,512 | 133,286 | 96,713 | ||||||||||||
| Sales and marketing |
16,764 | 14,811 | 64,017 | 61,177 | ||||||||||||
| General and administrative |
23,509 | 19,889 | 93,671 | 84,927 | ||||||||||||
| Depreciation and amortization |
48,669 | 29,600 | 145,490 | 105,642 | ||||||||||||
|
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|
|
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|
|||||||||
| Total operating expenses |
202,437 | 162,173 | 763,352 | 623,187 | ||||||||||||
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|
|
|
|
|||||||||
| Operating loss |
(14,427 | ) | (2,175 | ) | (64,262 | ) | (26,637 | ) | ||||||||
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|
|
|
|
|
|
|
|||||||||
| Other (income) expense: |
||||||||||||||||
| Interest income |
(965 | ) | (571 | ) | (2,964 | ) | (1,635 | ) | ||||||||
| Interest expense |
30,190 | 24,946 | 111,944 | 83,647 | ||||||||||||
| Loss on extinguishment of debt |
— | — | — | 15,406 | ||||||||||||
| Adjustment of deferred financing costs |
— | — | — | (792 | ) | |||||||||||
| Other (income) expense |
428 | 65 | 750 | (72 | ) | |||||||||||
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|
|
|
|
|
|
|
|||||||||
| Total other expense |
29,653 | 24,440 | 109,730 | 96,554 | ||||||||||||
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|
|
|
|||||||||
| Loss before income taxes |
(44,080 | ) | (26,615 | ) | (173,992 | ) | (123,191 | ) | ||||||||
| Income tax provision (benefit) |
(2,942 | ) | 317 | (1,997 | ) | 1,314 | ||||||||||
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|
|
|
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|
|||||||||
| Net loss |
$ | (41,138 | ) | $ | (26,932 | ) | $ | (171,995 | ) | $ | (124,505 | ) | ||||
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| Net loss attributable to common stock per share—basic and diluted |
$ | (0.52 | ) | $ | (0.34 | ) | $ | (2.17 | ) | $ | (1.58 | ) | ||||
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|||||||||
| Weighted average number of shares—basic and diluted |
79,603 | 79,067 | 79,407 | 78,915 | ||||||||||||
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Gogo Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
| December 31, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 196,356 | $ | 117,302 | ||||
| Short-term investments |
212,792 | 338,477 | ||||||
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|
|||||
| Total cash, cash equivalents and short-term investments |
409,148 | 455,779 | ||||||
| Accounts receivable, net of allowances of $587 and $499, respectively |
117,896 | 73,743 | ||||||
| Inventories |
45,543 | 50,266 | ||||||
| Prepaid expenses and other current assets |
20,310 | 24,942 | ||||||
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|
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| Total current assets |
592,897 | 604,730 | ||||||
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| Non-current assets: |
||||||||
| Property and equipment, net |
656,038 | 519,810 | ||||||
| Goodwill and intangible assets, net |
87,133 | 85,795 | ||||||
| Other non-current assets |
67,107 | 35,861 | ||||||
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|
|||||
| Total non-current assets |
810,278 | 641,466 | ||||||
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|||||
| Total assets |
$ | 1,403,175 | $ | 1,246,196 | ||||
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| Liabilities and stockholders’ deficit |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 27,130 | $ | 31,689 | ||||
| Accrued liabilities |
201,815 | 147,576 | ||||||
| Deferred revenue |
43,448 | 32,722 | ||||||
| Deferred airborne lease incentives |
42,096 | 36,277 | ||||||
| Current portion capital leases |
1,789 | 2,799 | ||||||
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| Total current liabilities |
316,278 | 251,063 | ||||||
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| Non-current liabilities: |
||||||||
| Long-term debt |
1,000,868 | 800,715 | ||||||
| Deferred airborne lease incentives |
142,938 | 135,879 | ||||||
| Other non-current liabilities |
134,655 | 98,932 | ||||||
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|
|||||
| Total non-current liabilities |
1,278,461 | 1,035,526 | ||||||
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|
|||||
| Total liabilities |
1,594,739 | 1,286,589 | ||||||
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| Commitments and contingencies | — | — | ||||||
| Stockholders’ deficit |
||||||||
| Common stock |
9 | 9 | ||||||
| Additional paid-in-capital |
898,729 | 879,135 | ||||||
| Accumulated other comprehensive loss |
(933 | ) | (2,163 | ) | ||||
| Accumulated deficit |
(1,089,369 | ) | (917,374 | ) | ||||
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|
|||||
| Total stockholders’ deficit |
(191,564 | ) | (40,393 | ) | ||||
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|||||
| Total liabilities and stockholders’ deficit |
$ | 1,403,175 | $ | 1,246,196 | ||||
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|
|
|||||
Gogo Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
| For the Years Ended | ||||||||
| Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Operating activities: |
||||||||
| Net loss |
$ | (171,995 | ) | $ | (124,505 | ) | ||
| Adjustments to reconcile net loss to cash provided by operating activities: |
||||||||
| Depreciation and amortization |
145,490 | 105,642 | ||||||
| Loss on asset disposals/abandonments and assets held for sale |
8,960 | 4,583 | ||||||
| Deferred income taxes |
(2,281 | ) | 839 | |||||
| Stock compensation expense |
19,821 | 17,621 | ||||||
| Amortization of deferred financing costs |
3,743 | 3,803 | ||||||
| Accretion and amortization of debt discount and premium |
18,286 | 17,496 | ||||||
| Loss on extinguishment of debt |
— | 15,406 | ||||||
| Adjustment of deferred financing costs |
— | (792 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(43,798 | ) | (4,265 | ) | ||||
| Inventories |
4,723 | (29,329 | ) | |||||
| Prepaid expenses and other current assets |
4,990 | (14,473 | ) | |||||
| Accounts payable |
3,402 | (3,118 | ) | |||||
| Accrued liabilities |
24,963 | 5,651 | ||||||
| Deferred airborne lease incentives |
20,407 | 14,652 | ||||||
| Deferred revenue |
21,477 | 26,981 | ||||||
| Deferred rent |
624 | (47 | ) | |||||
| Accrued interest |
7,213 | 35,825 | ||||||
| Other non-current assets and liabilities |
(5,769 | ) | (6,982 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
60,256 | 64,988 | ||||||
|
|
|
|
|
|||||
| Investing activities: |
||||||||
| Purchases of property and equipment |
(252,375 | ) | (148,294 | ) | ||||
| Acquisition of intangible assets—capitalized software |
(27,855 | ) | (28,587 | ) | ||||
| Purchases of short-term investments |
(317,418 | ) | (363,436 | ) | ||||
| Redemptions of short-term investments |
443,103 | 244,450 | ||||||
| Other, net |
(2,336 | ) | 308 | |||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(156,881 | ) | (295,559 | ) | ||||
|
|
|
|
|
|||||
| Financing activities: |
||||||||
| Proceeds from the issuance of senior secured notes |
181,754 | 525,000 | ||||||
| Payments on amended and restated credit agreement |
— | (310,132 | ) | |||||
| Payment of debt issuance costs |
(3,630 | ) | (11,474 | ) | ||||
| Payments on capital leases |
(2,961 | ) | (2,612 | ) | ||||
| Stock-based compensation activity |
(227 | ) | 271 | |||||
|
|
|
|
|
|||||
| Net cash provided by financing activities |
174,936 | 201,053 | ||||||
|
|
|
|
|
|||||
| Effect of exchange rate changes on cash |
743 | (522 | ) | |||||
| Increase (decrease) in cash and cash equivalents |
79,054 | (30,040 | ) | |||||
| Cash and cash equivalents at beginning of period |
117,302 | 147,342 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents at end of period |
$ | 196,356 | $ | 117,302 | ||||
|
|
|
|
|
|||||
Gogo Inc. and Subsidiaries
Supplemental Information – Key Operating Metrics
Commercial Aviation North America
| For the Three Months | For the Years Ended | |||||||||||||||
| Ended December 31, | Ended December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Aircraft online (at period end) |
2,840 | 2,676 | 2,840 | 2,676 | ||||||||||||
| Total aircraft equivalents (average during the period) |
2,893 | 2,720 | 2,835 | 2,629 | ||||||||||||
| Satellite |
421 | 103 | 256 | 67 | ||||||||||||
| ATG |
2,472 | 2,617 | 2,579 | 2,562 | ||||||||||||
| Annualized average monthly service revenue per aircraft equivalent (ARPA) (in thousands) |
$ | 144 | $ | 141 | $ | 140 | $ | 137 | ||||||||
| Satellite (in thousands) |
$ | 223 | — | $ | 226 | — | ||||||||||
| ATG (in thousands) |
$ | 131 | — | $ | 132 | — | ||||||||||
| Gross passenger opportunity (GPO) (in thousands) |
105,744 | 99,263 | 420,624 | 398,075 | ||||||||||||
| Total average revenue per session (ARPS) |
$ | 9.14 | $ | 11.98 | $ | 10.33 | $ | 12.31 | ||||||||
| Connectivity take rate |
9.9 | % | 7.3 | % | 8.3 | % | 6.6 | % | ||||||||
| Commercial Aviation Rest of World
|
| |||||||||||||||
| For the Three Months | For the Years Ended | |||||||||||||||
| Ended December 31, | Ended December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Aircraft online (at period end) |
391 | 267 | 391 | 267 | ||||||||||||
| Aircraft equivalents (average during the period) |
322 | 205 | 268 | 196 | ||||||||||||
| Annualized ARPA (in thousands) |
$ | 201 | $ | 172 | $ | 214 | $ | 159 | ||||||||
| • | 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. |
| • | Annualized average monthly service revenue per aircraft equivalent (“ARPA”). We define annualized 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, which is then annualized and rounded to the nearest thousand. Annualized Satellite ARPA is calculated based on satellite revenue and satellite aircraft equivalents, within that segment. Annualized 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 | For the Years Ended | |||||||||||||||
| Ended December 31, | Ended December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Aircraft online (at period end) |
||||||||||||||||
| Satellite |
5,443 | 5,500 | 5,443 | 5,500 | ||||||||||||
| ATG |
4,678 | 4,172 | 4,678 | 4,172 | ||||||||||||
| Average monthly service revenue per aircraft online |
||||||||||||||||
| Satellite |
$ | 251 | $ | 234 | $ | 237 | $ | 221 | ||||||||
| ATG |
2,953 | 2,622 | 2,876 | 2,548 | ||||||||||||
| Units Sold |
||||||||||||||||
| Satellite |
109 | 110 | 412 | 477 | ||||||||||||
| ATG |
235 | 179 | 831 | 737 | ||||||||||||
| Average equipment revenue per unit sold (in thousands) |
||||||||||||||||
| Satellite |
$ | 48 | $ | 38 | $ | 43 | $ | 43 | ||||||||
| ATG |
61 | 57 | 57 | 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. For the year ended December 31, 2017, we recognized revenue on twelve AVANCE (formerly Gogo Biz 4G) units 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 | ||||||||||||
| December 31, 2017 | ||||||||||||
| CA-NA | CA-ROW | BA | ||||||||||
| Service revenue |
$ | 103,224 | $ | 15,299 | $ | 45,465 | ||||||
| Equipment revenue |
1,895 | 1,567 | 20,560 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total revenue |
$ | 105,119 | $ | 16,866 | $ | 66,025 | ||||||
|
|
|
|
|
|
|
|||||||
| Segment profit (loss) |
$ | 23,486 | $ | (24,910 | ) | $ | 26,763 | |||||
|
|
|
|
|
|
|
|||||||
| For the Three Months Ended | ||||||||||||
| December 31, 2016 | ||||||||||||
| CA-NA | CA-ROW | BA | ||||||||||
| Service revenue |
$ | 95,499 | $ | 6,985 | $ | 36,403 | ||||||
| Equipment revenue |
5,565 | 449 | 15,097 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total revenue |
$ | 101,064 | $ | 7,434 | $ | 51,500 | ||||||
|
|
|
|
|
|
|
|||||||
| Segment profit (loss) |
$ | 24,904 | $ | (24,692 | ) | $ | 22,979 | |||||
|
|
|
|
|
|
|
|||||||
| For the Years Ended | ||||||||||||
| December 31, 2017 | ||||||||||||
| CA-NA | CA-ROW | BA | ||||||||||
| Service revenue |
$ | 393,484 | $ | 53,542 | $ | 170,880 | ||||||
| Equipment revenue |
7,129 | 4,323 | 69,732 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total revenue |
$ | 400,613 | $ | 57,865 | $ | 240,612 | ||||||
|
|
|
|
|
|
|
|||||||
| Segment profit (loss) |
$ | 66,802 | $ | (106,978 | ) | $ | 99,409 | |||||
|
|
|
|
|
|
|
|||||||
| For the Years Ended | ||||||||||||
| December 31, 2016 | ||||||||||||
| CA-NA | CA-ROW | BA | ||||||||||
| Service revenue |
$ | 357,250 | $ | 24,198 | $ | 132,845 | ||||||
| Equipment revenue |
14,273 | 1,180 | 66,804 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total revenue |
$ | 371,523 | $ | 25,378 | $ | 199,649 | ||||||
|
|
|
|
|
|
|
|||||||
| Segment profit (loss) |
$ | 71,870 | $ | (87,637 | ) | $ | 82,874 | |||||
|
|
|
|
|
|
|
|||||||
| (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 December 31, | ||||||||
| 2017 | 2016 | |||||||
| CA-NA |
$ | 37,232 | $ | 38,478 | ||||
| BA |
11,345 | 9,336 | ||||||
| CA-ROW |
17,963 | 13,649 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 66,540 | $ | 61,463 | ||||
|
|
|
|
|
|||||
| For the Years Ended | ||||||||
| Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| CA-NA |
$ | 149,671 | $ | 145,545 | ||||
| BA |
40,821 | 35,027 | ||||||
| CA-ROW |
77,842 | 45,506 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 268,334 | $ | 226,078 | ||||
|
|
|
|
|
|||||
| (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 December 31, | ||||||||
| 2017 | 2016 | |||||||
| CA-NA |
$ | 1,425 | $ | 3,031 | ||||
| BA |
12,981 | 8,633 | ||||||
| CA-ROW |
2,525 | 234 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 16,931 | $ | 11,898 | ||||
|
|
|
|
|
|||||
| For the Years Ended | ||||||||
| Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| CA-NA |
$ | 7,071 | $ | 11,366 | ||||
| BA |
46,632 | 36,619 | ||||||
| CA-ROW |
4,851 | 665 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 58,554 | $ | 48,650 | ||||
|
|
|
|
|
|||||
| (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 | For the Years Ended | |||||||||||||||
| Ended December 31, | Ended December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Adjusted EBITDA: |
||||||||||||||||
| Net loss |
$ | (41,138 | ) | $ | (26,932 | ) | $ | (171,995 | ) | $ | (124,505 | ) | ||||
| Interest expense |
30,190 | 24,946 | 111,944 | 83,647 | ||||||||||||
| Interest income |
(965 | ) | (571 | ) | (2,964 | ) | (1,635 | ) | ||||||||
| Income tax provision (benefit) |
(2,942 | ) | 317 | (1,997 | ) | 1,314 | ||||||||||
| Depreciation and amortization |
48,669 | 29,600 | 145,490 | 105,642 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| EBITDA |
33,814 | 27,360 | 80,478 | 64,463 | ||||||||||||
| Stock-based compensation expense |
4,814 | 4,635 | 19,821 | 17,621 | ||||||||||||
| Amortization of deferred airborne lease incentives |
(13,717 | ) | (8,869 | ) | (41,816 | ) | (29,519 | ) | ||||||||
| Loss on extinguishment of debt |
— | — | — | 15,406 | ||||||||||||
| Adjustment of deferred financing costs |
— | — | — | (792 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjusted EBITDA |
$ | 24,911 | $ | 23,126 | $ | 58,483 | $ | 67,179 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Cash CAPEX: |
||||||||||||||||
| Consolidated capital expenditures (GAAP) (1) |
$ | (65,992 | ) | $ | (48,187 | ) | $ | (280,230 | ) | $ | (176,881 | ) | ||||
| Change in deferred airborne lease incentives (2) |
9,264 | 5,876 | 18,120 | 14,550 | ||||||||||||
| Amortization of deferred airborne lease incentives (2) |
13,601 | 8,783 | 41,595 | 29,241 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Cash CAPEX |
$ | (43,127 | ) | $ | (33,528 | ) | $ | (220,515 | ) | $ | (133,090 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
| (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 twelve-month periods ended December 31, 2017 and 2016 as STC costs are expensed as incurred as part of Engineering, Design and Development. |
| For the Year Ending | ||||||||
| December 31, 2018 | ||||||||
| Low | High | |||||||
| Cash CAPEX Guidance: |
||||||||
| Consolidated capital expenditures (GAAP) |
$ | (150,000 | ) | $ | (170,000 | ) | ||
| Deferred airborne lease incentives |
40,000 | 40,000 | ||||||
|
|
|
|
|
|||||
| Cash CAPEX |
$ | (110,000 | ) | $ | (130,000 | ) | ||
|
|
|
|
|
|||||
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 10, “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 2017 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.
4th Quarter 2017 Earnings Results Michael Small – Chief Executive Officer John Wade – Chief Operating Officer Barry Rowan – Chief Financial Officer February 22, 2018 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 2018 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 2018 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.
Record quarterly results 18% Y/Y Growth Total Revenue ($MM) Total revenue up 18% Y/Y Adjusted EBITDA ($MM) Adj. EBITDA up $2M Y/Y to a record $25M 8% Y/Y Growth
Major progress on strategic objectives 4 Weighted avg. peak speed per commercial aircraft increased 30% Q/Q and nearly 100% Y/Y Awarded 200 additional aircraft Now 2,000+ 2Ku awards 225+ Aircraft installed with 2Ku in Q4 ‘17 Next Gen Modem
New products drive increased engagement Messaging passes increasing passenger engagement, take rate up 36% Y/Y GOL launches Gogo TV Gogo Vision Touch on Delta C-Series Lightweight, low-cost seatback solution Unified Portal: Delivering a consistent passenger experience across IFC providers
Business Aviation’s strong growth trajectory 20,000+ Business Aviation Aircraft Complete in-flight internet portfolio to address all business aircraft Ku tail mount antenna to target large, global business jets ATG-NG extends leadership position 2Ku penetrating the VVIP market
Looking ahead to 2018 More bandwidth will drive aircraft awards and ARPA 2Ku installs, modem upgrades, HTS satellites & launch of ATG-NG Bandwidth Growth Win Aircraft Grow ARPA BA: Continued Growth Strong revenue and profitability growth
Strong operational execution 2Ku aircraft installed in Q4 227 New modem increases throughput 16X 16X Installation times less than half of the competition <1/2 2Ku aircraft installed in 2017 473
OEM Progress 9,000 Aircraft expected to be installed with IFC through OEM programs over next 10 years Airbus Expects first 2Ku line-fit order in first half of 2018 Delta Air Lines to take delivery of first 2Ku and Gogo Vision Touch line-fit C-Series in 2018 C-Series Boeing Expects first delivery of 2Ku 737-Max delivery in 2019
Delivering more bandwidth globally Total 2Ku aircraft online at end of 2018 1,200 1,100 to CA-ROW 2Ku aircraft online at end of 2018 450 Growth in 2Ku aircraft online over 2017 ~2X ATG-NG commercially available in late 2018
Business Aviation continues to extend market reach Solutions for every aircraft: AVANCE L3 & L5 ATG-NG Ku tail mount Current customers upgrading and recommitting to Gogo 200 Avance L5 units shipped in 2017 Streaming class internet experience 20,000+ Business Aviation Aircraft
Key takeaways - COO Relationships built on over 25 years of experience Continually enhancing our capabilities Business Aviation set for a strong 2018 and to capitalize on long-term growth opportunities
3 Strong revenue growth 18% Y/Y Growth Q4 ’17 Adjusted EBITDA reaches record $25 million Second half of ‘17 nearly doubled first half of the year Expect increased network utilization, falling unit bandwidth costs & expense management to drive operating leverage Note: Minor differences exist due to rounding. (1) Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. See Appendix for a reconciliation to the comparable GAAP measures. 8% Y/Y Growth Q4 ’17 revenue up 18% Y/Y Service revenue up 18% Y/Y CA-ROW up 119% BA up 25%
CA-NA: Continued service revenue growth 8% Y/Y Growth Service revenue of $103M up 8% 2,840 aircraft online, up 164 aircraft Y/Y Note: Minor differences exist due to rounding Annualized ARPA up 2% Y/Y to $144k Annualized Satellite ARPA $223k Annualized ATG ARPA $131k 2% Y/Y Growth
15 CA-NA: Expanding engagement through multi-payer strategy 36% Y/Y Growth Take rate up 36% Y/Y: Increased passenger engagement with airline paid and third party paid offerings Note: Minor differences exist due to rounding Segment profit of $23 million Up $7 million sequentially Segment profit margin flat Y/Y when adjusting for a positive non-cash adjustment in 2016 6% Y/Y Decrease
CA-ROW: Revenue doubled year-over-year for fourth consecutive quarter 119% Y/Y Growth Note: Minor differences exist due to rounding Service revenue doubled Y/Y for the 4th consecutive quarter to $15.3 million Aircraft equivalents online increased 57% Y/Y $201k annualized ARPA, up 17% Y/Y Aircraft Online up 124 Y/Y Increase of 39 aircraft online Q/Q 138 2Ku aircraft online at year-end 46% Y/Y Growth
CA-ROW: Scaling our international business 17 Note: Minor differences exist due to rounding Annualized ARPA up 17% to $201k Sequentially, growth in ARPA for existing aircraft offset by new aircraft. New aircraft represented ~40% of aircraft online ARPA for airlines launched prior to 2017 grew 66% Y/Y ARPA growth expected in 2019 as new aircraft become seasoned Service revenue margin improved significantly Y/Y Leveraging of global Ku network driving service margin improvement 17% Y/Y Growth Service Revenue Service Revenue Margin
CA-ROW: On path to profitability 18 Note: Minor differences exist due to rounding Segment loss approximately equivalent Y/Y Path to profitability: Expect continued operating leverage as aircraft are brought online 770 awarded but not yet installed aircraft at 12/31/17 Enough awarded aircraft to reach profitability
BA: Continuing strong revenue growth Service revenue increased 25% Y/Y to a record $45 million Total revenue increased 28% Y/Y, to $66 million ATG aircraft online increased 12% Y/Y, to over 4,600 ATG Service ARPU increased 13% Y/Y, to over $2,900 per month Note: Minor differences exist due to rounding 12% Y/Y Growth 28% Y/Y Growth
BA: Strong AVANCE platform adoption Segment profit increased 16% Y/Y, to $27 million Profit margin improved sequentially due to charges recorded in Q3 Note: Minor differences exist due to rounding 16% Y/Y Growth L5 shipments drove 36% growth in equipment revenue ATG units shipped up 31% to 235 108 L5 units shipped in Q4 ’17 36% Y/Y Growth Equipment Revenue ($MM)
21 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. $10MM Y/Y Increase Cash CAPEX Y/Y increase reflects 2Ku installations ~70% of Cash CAPEX related to airborne investment Expected co-investment in airborne equipment to decline to less than $200 thousand per aircraft for 2018 & 2019 Cash, Cash Equivalents & Short-term Investments ($MM) Cash, Cash Equivalents & Short-term investments of $409 million Targeting positive free cash flow in 2019 and for full year 2020
2017 Full Year Highlights Met or exceeded all major full-year 2017 guidance: Revenue$699 million Adjusted EBITDA$ 63 million Cash CAPEX$221 million 2Ku installations473 installs (1) Adjusted EBITDA excludes the $4.5M in charges related to write-downs of legacy product lines and the retirement of Gogo test aircraft we discussed on our Q3 earnings call. $670 - $695 million $60 - $75 million $230 - $260 million 450 - 550 installs 2017 Guidance 1
Revenue Recognition Standard (ASC 606) Adoption of Revenue Recognition Standard 606: No impact to cash flow Record higher equipment revenues in the current period for commercial agreements under the airline directed model Supplemental material on the Gogo IR website
2018 Guidance 24 606 Revenue Standard 605 Revenue Standard Y/Y Growth under 605 Standard Total Revenue $865 - $935 $750 - $790 7% - 13% CA-NA Revenue $445 - $485 $380 - $415 (5%) - 4% CA-ROW Revenue $125 - $165 $75 - $90 30% - 56% BA Revenue $285 - $295 $285 - $295 18% - 23% Adjusted EBITDA $75 - $100 $65 - $90 11% - 54% Adjusted EBITDA is a non-GAAP measures. We are not able to provide a reconciliation for the forecasted range of Adjusted EBITDA for 2018 due to variability in the timing of aircraft installations and de-installations impacting depreciation expense and amortization of deferred airborne leasing proceeds. $ in millions Equipment Revenue ~20% Equipment Revenue ~50% Impact of switch to airline-directed model +$15
2018 Guidance Cash CAPEX $110 - $130 ~35% Related to airborne equipment $15 - $30 Inventory purchases related to airline-directed installations Increase in 2Ku aircraft online 550 - 650 Increase in CA-ROW 2Ku aircraft online ~300 $ in millions
Q&A
Appendix
28 Gogo installed and awarded aircraft as of 12/31/2017 Note: Under the Unified Agreement with American Airlines, the airline has the option to terminate our service, and we expect it to exercise such option, on approximately 550 mainline aircraft on which our ATG/ATG-4 service is provided. We currently expect more than 400 such aircraft to be deinstalled in 2018 and early 2019. Aircraft Online CA-NA CA-ROW Total ATG Aircraft Online 827 - 827 ATG-4 Aircraft Online 1,597 - 1,597 Ku Aircraft Online - 253 253 2Ku Aircraft Online 416 138 554 Total Aircraft Online 2,840 391 3,231 2Ku Aircraft Installed & Awarded But Not Yet Installed CA-NA CA-ROW Total 2Ku aircraft installed 421 146 567 2Ku aircraft awarded but not yet installed, aircraft conversions 590 - 590 2Ku aircraft awarded but not yet installed, new aircraft 75 770 845 Total 2Ku aircraft installed and awarded not yet installed 1,086 916 2,000+
Adjusted EBITDA reconciliation ($MM) 2016 Q1 2016 Q3 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 Net Income (24) (40) (33) (27) (41) (44) (45) (41) Interest Income (0) (0) (1) (1) (1) (1) (1) (1) Interest Expense 16 18 25 25 27 27 28 30 Income Tax Provision (Benefit) – – – – – – – (3) Depreciation & Amortization 24 25 27 30 30 31 36 49 EBITDA 17 2 18 27 16 13 18 34 Stock-based Compensation Expense 4 4 5 5 4 5 5 5 Amortization of Deferred Airborne Lease Incentives (6) (7) (8) (9) (9) (9) (10) (14) Loss on Extinguishment of Debt – 15 – – – – – – Adjustment of deferred financing costs (1) – – – – – – – Adjusted EBITDA 14 14 15 23 11 10 13 25 Note: Minor differences exist due to rounding
Cash CAPEX reconciliation ($MM) 2016 Q1 2016 Q3 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 Purchases of Property and Equipment (31) (40) (36) (41) (64) (65) (62) (62) Acquisition of Intangible Assets (Capitalized Software) (6) (8) (8) (7) (8) (9) (7) (4) Consolidated Capital Expenditures (37) (48) (44) (48) (72) (74) (68) (66) Change in Deferred Airborne Lease Incentives 8 1 0 6 4 (0) 5 9 Amortization of Deferred Airborne Lease Incentives 6 7 8 9 9 9 10 14 Cash CAPEX (24) (40) (36) (34) (59) (66) (53) (43) Note: Minor differences exist due to rounding