Gogo(GOGO) - 2021 Q3 - Quarterly Report

Part I. Financial Information Financial Statements This section presents Gogo Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and stockholders' equity, with accompanying notes on key accounting policies and events Unaudited Condensed Consolidated Balance Sheets As of September 30, 2021, total assets decreased to $443.2 million from $673.6 million, liabilities decreased to $1.00 billion from $1.31 billion, and stockholders' deficit improved to $(560.2) million Condensed Consolidated Balance Sheet Data (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $133,233 | $435,345 | | Total current assets | $240,472 | $512,226 | | Total assets | $443,205 | $673,588 | | Liabilities & Stockholders' Deficit | | | | Current portion of long-term debt | $109,348 | $341,000 | | Long-term debt | $695,894 | $827,968 | | Total liabilities | $1,003,442 | $1,314,702 | | Total stockholders' deficit | $(560,237) | $(641,114) | Unaudited Condensed Consolidated Statements of Operations Q3 2021 total revenue increased 31% to $87.2 million, resulting in $19.7 million net income from continuing operations, while nine-month revenue grew 26.7% to $243.4 million with a $52.5 million net loss due to debt extinguishment Q3 2021 vs Q3 2020 Performance (in thousands, except EPS) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Total Revenue | $87,172 | $66,525 | | Operating Income | $30,913 | $22,220 | | Net Income (Loss) from Continuing Operations | $19,730 | $(8,890) | | Diluted EPS from Continuing Operations | $0.16 | $(0.11) | Nine Months 2021 vs 2020 Performance (in thousands, except EPS) | Metric | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Total Revenue | $243,416 | $192,084 | | Operating Income | $88,299 | $60,655 | | Net Loss from Continuing Operations | $(52,548) | $(32,479) | | Loss on extinguishment of debt | $83,961 | $0 | | Diluted EPS from Continuing Operations | $(0.52) | $(0.40) | Unaudited Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, operating cash flow increased to $36.4 million, while significant financing activities, primarily debt redemption, led to a $302.3 million decrease in cash and cash equivalents Cash Flow Summary - Nine Months Ended Sept 30 (in thousands) | Cash Flow Activity (Continuing Operations) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $36,355 | $20,315 | | Net cash used in investing activities | $(11,633) | $(6,363) | | Net cash provided by (used in) financing activities | $(326,223) | $16,041 | | Decrease in cash, cash equivalents and restricted cash | $(302,282) | $(54,531) | Notes to Unaudited Condensed Consolidated Financial Statements Key notes include the sale of the Commercial Aviation business as a discontinued operation, adoption of ASU 2020-06, a $725 million debt refinancing, and a tentative $17.3 million securities class action settlement - On December 1, 2020, the company completed the sale of its Commercial Aviation (CA) business to Intelsat for $400 million. The CA business is now reported as a discontinued operation in all presented periods[32][33] - In April 2021, the company entered into a new credit agreement for a $725 million Term Loan Facility and a $100 million Revolving Facility. Proceeds were used to redeem the 9.875% Senior Secured Notes due 2024, resulting in a loss on extinguishment of debt of $84.0 million for the nine-month period[85][91][114] - The company reached a tentative settlement in a securities class action lawsuit for a cash payment of $17.3 million, which will be funded by D&O insurance carriers. A corresponding liability and insurance receivable have been accrued[141] - The company adopted ASU 2020-06 for convertible instruments, which simplified the accounting by removing the separation of liability and equity components. This resulted in a reclassification on the balance sheet as of January 1, 2021[45][46] Management's Discussion and Analysis (MD&A) Management discusses the company's performance, highlighting strong recovery and revenue growth in business aviation, covering key metrics, results of operations, non-GAAP measures, and liquidity, including the 2021 debt refinancing Key Business Metrics Key operating metrics for Q3 2021 show strong growth, with ATG aircraft online increasing to 6,154, ARPU rising to $3,264, and ATG units sold reaching 266 Key Operating Metrics (Q3 2021 vs Q3 2020) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | ATG aircraft online (at period end) | 6,154 | 5,577 | | Average monthly service revenue per ATG aircraft | $3,264 | $2,996 | | ATG Units Sold | 266 | 167 | Results of Operations Q3 2021 total revenue increased 31.0% to $87.2 million, driven by 24.2% service revenue growth and 58.8% equipment revenue growth, leading to improved operating income and lower other expenses - Q3 2021 service revenue grew to $66.2 million, up 24.2% YoY, due to an increase in ATG aircraft online and higher average monthly service revenue per aircraft[197][198] - Q3 2021 equipment revenue increased 58.8% YoY to $21.0 million, primarily due to selling 266 ATG units compared to 167 units in the prior-year period[197][199] - Total other expense for Q3 2021 decreased to $11.1 million from $31.2 million in Q3 2020, mainly due to lower interest expense after the debt refinancing[211] Non-GAAP Measures Key non-GAAP measures show Q3 2021 Adjusted EBITDA at $40.8 million and nine-month free cash flow at $32.4 million, both significantly improved year-over-year Adjusted EBITDA Reconciliation (in thousands) | | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net income (loss) attributable to common stock | $10,959 | $(80,124) | | Adjustments (Interest, Taxes, D&A, etc.) | $15,200 | $34,418 | | EBITDA | $26,159 | $(45,706) | | Other Adjustments (Stock Comp, Discontinued Ops, etc.) | $14,624 | $75,914 | | Adjusted EBITDA | $40,783 | $30,208 | Free Cash Flow (in thousands) | | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $36,355 | $20,315 | | Consolidated capital expenditures | $(4,004) | $(6,363) | | Free cash flow | $32,351 | $13,952 | Liquidity and Capital Resources As of September 30, 2021, the company had $133.2 million in cash, with sufficient liquidity for the next twelve months, following a $725 million debt refinancing, and anticipates increased capital expenditures for Gogo 5G - The company believes its cash of $133.2 million and operating cash flows are sufficient to meet its operating and capital obligations for at least the next twelve months[228][229] - In April 2021, the company refinanced its debt, entering into a $725 million Term Loan Facility and a $100 million Revolving Facility, using the proceeds to redeem its 2024 Senior Secured Notes[230][244] - Capital expenditures are expected to increase in the near-term to fund the build-out of the Gogo 5G network[245] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on variable rate debt, mitigated by $650 million in interest rate caps, with a 1% LIBOR increase estimated to raise annual interest expense by $0.3 million - The main market risk is interest rate risk from variable rate debt. This is partially hedged by interest rate cap agreements with a notional value of $650 million[252] - A hypothetical 1 percentage point increase in the three-month LIBOR rate would increase annual interest expense by an estimated $0.3 million, including the impact of the interest rate caps[253] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[255] - No material changes were made to the internal control over financial reporting during the most recent fiscal quarter[255] Part II. Other Information Legal Proceedings The company is subject to various lawsuits arising from its business operations; detailed discussion is provided in Note 14 of the financial statements - The company is subject to a number of lawsuits. For a detailed discussion, refer to Note 14, "Commitments and Contingencies," in the financial statements[257] Risk Factors There have been no material changes to the risk factors previously disclosed in the 2020 Annual Report on Form 10-K and subsequent quarterly reports - There have been no material changes to the risk factors previously disclosed in the 2020 10-K and subsequent 10-Q filings[258] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101 series)[262]