SEC Filing | Gogo Inc.

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gogo-10q_20200630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One):

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the quarterly period ended June 30, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the transition period from __________ to __________

Commission File Number: 001-35975

Gogo Inc.

(Exact name of registrant as specified in its charter)

Delaware

27-1650905

(State or other jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

111 North Canal St., Suite 1500

Chicago, IL 60606

(Address of principal executive offices)

Telephone Number (312) 517-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Class		Trading Symbol		Name of Each Exchange on Which Registered
Common stock, par value $0.0001 per share		GOGO		NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☑
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of August 7, 2020, 85,063,638 shares of $0.0001 par value common stock were outstanding.

Gogo Inc.

INDEX

		Page
Part I.	Financial Information
Item 1.	Financial Statements	2
	Unaudited Condensed Consolidated Balance Sheets	2
	Unaudited Condensed Consolidated Statements of Operations	3
	Unaudited Condensed Consolidated Statements of Comprehensive Loss	4
	Unaudited Condensed Consolidated Statements of Cash Flows	5
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)	6
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	60

Part II.	Other Information
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	63
Item 5.	Other Information	63
Item 6.	Exhibits	64
Signatures		65

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

	June 30,			December 31,
	2020			2019
Assets
Current assets:
Cash and cash equivalents	$	156,286		$	170,016
Accounts receivable, net of allowances of $5,048 and $686, respectively		71,684			101,360
Inventories		130,092			117,144
Prepaid expenses and other current assets, net of allowances of $1,491 and $0, respectively		32,411			36,305
Total current assets		390,473			424,825
Non-current assets:
Property and equipment, net		463,147			560,318
Goodwill and intangible assets, net		74,407			76,499
Operating lease right-of-use assets		56,173			63,386
Other non-current assets, net of allowances of $9,568 and $0, respectively		80,615			89,672
Total non-current assets		674,342			789,875
Total assets	$	1,064,815		$	1,214,700
Liabilities and Stockholders’ deficit
Current liabilities:
Accounts payable	$	41,412		$	17,160
Accrued liabilities		147,344			174,111
Deferred revenue		29,689			34,789
Deferred airborne lease incentives		73,166			26,582
Total current liabilities		291,611			252,642
Non-current liabilities:
Long-term debt		1,118,602			1,101,248
Deferred airborne lease incentives		89,283			135,399
Non-current operating lease liabilities		80,983			77,808
Other non-current liabilities		53,353			46,493
Total non-current liabilities		1,342,221			1,360,948
Total liabilities		1,633,832			1,613,590
Commitments and contingencies (Note 13)		-			-
Stockholders’ deficit
Common stock, par value $0.0001 per share; 500,000,000 shares authorized at June 30, 2020 and December 31, 2019; 84,058,310 and 88,292,821 shares issued at June 30, 2020 and December 31, 2019, respectively; and 84,032,343 and 88,240,877 shares outstanding at June 30, 2020 and December 31, 2019, respectively		8			9
Additional paid-in-capital		1,085,254			979,499
Accumulated other comprehensive loss		(4,858	)		(2,256	)
Treasury stock, at cost		(98,857	)		-
Accumulated deficit		(1,550,564	)		(1,376,142	)
Total stockholders’ deficit		(569,017	)		(398,890	)
Total liabilities and stockholders’ deficit	$	1,064,815		$	1,214,700

See the Notes to Unaudited Condensed Consolidated Financial Statements

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2020			2019			2020			2019
Revenue:
Service revenue	$	74,279		$	173,731		$	225,061		$	338,743
Equipment revenue		22,361			39,954			56,054			74,491
Total revenue		96,640			213,685			281,115			413,234
Operating expenses:
Cost of service revenue (exclusive of items shown below)		42,223			71,494			112,978			139,615
Cost of equipment revenue (exclusive of items shown below)		15,376			35,571			41,416			65,302
Engineering, design and development		15,409			26,912			38,272			51,640
Sales and marketing		5,880			12,994			15,532			25,312
General and administrative		22,505			27,081			49,671			49,535
Impairment of long-lived assets		987			-			47,376			-
Depreciation and amortization		48,690			29,967			81,360			60,716
Total operating expenses		151,070			204,019			386,605			392,120
Operating income (loss)		(54,430	)		9,666			(105,490	)		21,114
Other (income) expense:
Interest income		(81	)		(1,230	)		(687	)		(2,379	)
Interest expense		31,280			36,150			62,454			68,704
Loss on extinguishment of debt		-			57,962			-			57,962
Other (income) expense		233			443			3,226			(2,922	)
Total other expense		31,432			93,325			64,993			121,365
Loss before income taxes		(85,862	)		(83,659	)		(170,483	)		(100,251	)
Income tax provision		117			304			274			511
Net loss	$	(85,979	)	$	(83,963	)	$	(170,757	)	$	(100,762	)
Net loss attributable to common stock per share—basic and diluted	$	(1.05	)	$	(1.04	)	$	(2.10	)	$	(1.25	)
Weighted average number of shares—basic and diluted		81,757			80,702			81,482			80,575

See the Notes to Unaudited Condensed Consolidated Financial Statements

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

		For the Three Months						For the Six Months
		Ended June 30,						Ended June 30,
		2020			2019			2020			2019
Net loss	$	(85,979	)	$	(83,963	)	$	(170,757	)	$	(100,762	)
Currency translation adjustments, net of tax		269			927			(2,602	)		1,337
Comprehensive loss	$	(85,710	)	$	(83,036	)	$	(173,359	)	$	(99,425	)

See the Notes to Unaudited Condensed Consolidated Financial Statements

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

	For the Six Months
	Ended June 30,
	2020			2019
Operating activities:
Net loss	$	(170,757	)	$	(100,762	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization		81,360			60,716
Loss on asset disposals, abandonments and write-downs		1,403			4,425
Provision for expected credit losses		11,875		4,825
Impairment of long-lived assets		47,376			-
Impairment of cost-basis investment		3,000			-
Deferred income taxes		89			89
Stock-based compensation expense		7,159			8,645
Amortization of deferred financing costs		2,872			2,573
Accretion and amortization of debt discount and premium		6,762			8,374
Loss on extinguishment of debt		-			57,962
Changes in operating assets and liabilities:
Accounts receivable		24,961			15,905
Inventories		(12,948	)		(5,297	)
Prepaid expenses and other current assets		5,720			6,409
Contract assets		(13,152	)		(20,313	)
Accounts payable		25,689			5,736
Accrued liabilities		(24,053	)		(6,877	)
Deferred airborne lease incentives		(11,711	)		(1,486	)
Deferred revenue		(1,500	)		(3,858	)
Accrued interest		(5	)		(28,375	)
Warranty reserves		(715	)		948
Right-of-use assets and operating lease liabilities		3,205			(1,756	)
Other non-current assets and liabilities		4,814			(2,348	)
Net cash provided by (used in) operating activities		(8,556	)		5,535

Investing activities:
Purchases of property and equipment		(13,931	)		(33,598	)
Acquisition of intangible assets—capitalized software		(7,170	)		(8,647	)
Redemptions of short—term investments		-			39,323
Other, net		89			360
Net cash used in investing activities		(21,012	)		(2,562	)

Financing activities:
Proceeds from credit facility draw		22,000			-
Repayments of amounts drawn from credit facility		(5,000	)		-
Repurchase of convertible notes		(2,498	)		(158,954	)
Proceeds from issuance of senior secured notes		-			920,683
Redemption of senior secured notes		-			(741,360	)
Payment of debt issuance costs		-			(22,645	)
Payments on financing leases		(310	)		(383	)
Stock-based compensation activity		(262	)		(178	)
Net cash provided by (used in) financing activities		13,930			(2,837	)

Effect of exchange rate changes on cash		(90	)		(378	)

Decrease in cash, cash equivalents and restricted cash		(15,728	)		(242	)
Cash, cash equivalents and restricted cash at beginning of period		177,675			191,116
Cash, cash equivalents and restricted cash at end of period	$	161,947		$	190,874

Cash, cash equivalents and restricted cash at end of period	$	161,947		$	190,874
Less: current restricted cash		560			1,035
Less: non-current restricted cash		5,101			7,972
Cash and cash equivalents at end of period	$	156,286		$	181,867

Supplemental Cash Flow Information:
Cash paid for interest	$	53,080		$	86,420
Cash paid for taxes		56			412

Noncash Investing and Financing Activities:
Purchases of property and equipment in current liabilities	$	5,637		$	16,014
Purchases of property and equipment paid by commercial airlines		6,086			9,914

See the Notes to Unaudited Condensed Consolidated Financial Statements

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(in thousands, except share data)

For the Three Months Ended June 30, 2020

Accumulated

Additional

Other

Common Stock

Paid-In

Comprehensive

Accumulated

Treasury Stock

Par Value

Capital

Loss

Deficit

Amount

Total

Balance at March 31, 2020

83,773,648

1,081,955

(5,127

)

(1,464,585

)