Gogo Inc

Previous wording

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” in the 2023 10-K, in Item 1A of the 2024 Q1 10-Q and in Item 1A and “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Current wording

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” in the 2023 10-K, in Item 1A of the 2024 Q1 10-Q, in Item 1A of the 2024 Q2 10-Q and in Item 1A and “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Previous wording

Gogo is the world’s largest provider of broadband connectivity services for the business aviation market. We have served this market for more than 25 years. Our mission is to enrich the lives of passengers and the efficiency of operators with the world’s best business aviation in-flight connectivity and customer support. We have always sought to provide the best connectivity for the business aviation market regardless of technology, and we have a successful history of doing so. Until recently, we focused primarily on business aviation aircraft in North America, which comprise approximately 63% of the worldwide business aviation fleet, and we are the leading provider of in-flight connectivity in that market. Gogo started in analogue air-to-ground (“ATG”) technology in the late 1990s, then, as analogue cellular backhaul disappeared, migrated to narrowband satellite connectivity in the early 2000s, then back to ATG with our digital broadband 3G and 4G networks beginning in 2010. We are currently developing our fourth ATG network – Gogo 5G – that we expect to commercially launch in the second quarter of 2025. Simultaneous with the development of Gogo 5G, we are actively working with a subset of AVANCE customers and customers utilizing our legacy Gogo Biz ATG airborne system operating on our ground 3G and 4G networks to upgrade to an AVANCE system compatible with a new LTE network. We anticipate this subset of customers will see improved performance because of this network transition, which is expected to occur in early 2026. The cost for the transition to the new LTE network is partially being reimbursed through our participation in the FCC Reimbursement Program.

Current wording

Gogo is a leading provider of broadband connectivity services for the business aviation market. We have served this market for more than 25 years. Our mission is to enrich the lives of passengers and the efficiency of operators with the world’s best business aviation in-flight connectivity and customer support. We have always sought to provide the best connectivity for the business aviation market regardless of technology, and we have a successful history of doing so. Until recently, we focused primarily on business aviation aircraft in North America, which comprise approximately 63% of the worldwide business aviation fleet, and we are the leading provider of in-flight connectivity in that market. Gogo started in analogue air-to-ground (“ATG”) technology in the late 1990s, then, as analogue cellular backhaul disappeared, migrated to narrowband satellite connectivity in the early 2000s, then back to ATG with our digital broadband 3G and 4G networks beginning in 2010. We are currently developing our fourth ATG network – Gogo 5G – that we expect to commercially launch late in the second quarter of 2025. Simultaneous with the development of Gogo 5G, we are actively working with a subset of AVANCE customers and customers utilizing our legacy Gogo Biz ATG airborne system operating on our ground 3G and 4G networks to upgrade to an AVANCE system compatible with a new LTE network. We anticipate this subset of customers will see improved performance because of this network transition, which is expected to occur in early 2026. The cost for the transition to the new LTE network is partially being reimbursed through our participation in the Federal Communications Commission (“FCC”) Secure and Trusted Communications Networks Reimbursement Program (the “FCC Reimbursement Program”).

Previous wording

We also continue to provide narrowband satellite services to customers in North America and internationally through distribution agreements with satellite providers. In May 2022, in order to further serve our existing customers and expand our target market, we announced plans to expand our broadband offerings beyond ATG by launching the first global broadband service designed for all models of business aircraft (“Gogo Galileo”). The service will use an electronically steered antenna (“ESA”), specifically designed to address a broad range of business aviation aircraft, operating on a low earth orbit (“LEO”) satellite network and is targeted for commercial launch in the fourth quarter of 2024.

Current wording

We also continue to provide narrowband satellite services to customers in North America and internationally through distribution agreements with satellite providers. In May 2022, in order to further serve our existing customers and expand our target market, we announced plans to expand our broadband offerings beyond ATG by launching the first global broadband service designed for all models of business aircraft (“Gogo Galileo”). The service will use electronically steered antennas (“ESAs”), specifically designed to address a broad range of business aviation aircraft, operating on a low earth orbit (“LEO”) satellite network. The half duplex (“HDX”) antenna is designed to fit on any size business aircraft and is targeted for commercial launch in the fourth quarter of 2024. The full duplex (“FDX”) antenna is designed for larger aircraft and is targeted for commercial launch in the second quarter of 2025. We believe that Gogo Galileo, in combination with, or as an alternative to, our ATG systems will allow us to increase our penetration of the North American market and provide an upgrade path for our existing ATG customer base. In addition, we believe that Gogo Galileo will allow us to penetrate the business aviation market outside of North America, where only approximately 6% of business aviation aircraft are installed with in-flight connectivity systems.

Previous wording

costs associated with the implementation of, and our ability to implement on a timely basis, our technology roadmap, including upgrades to and installation of the ATG technologies we currently offer, Gogo 5G, Gogo Galileo, LTE and any other next generation or other new technology;

Current wording

costs associated with the implementation of, and our ability to implement on a timely basis, our technology roadmap, including upgrades to and installation of the ATG technologies we currently offer, Gogo 5G, Gogo Galileo, LTE and any other next generation or other new technology or technology that we acquire;

Previous wording

Average monthly connectivity service revenue per ATG aircraft online (“ARPU”). We define ARPU as the aggregate ATG connectivity service revenue for the period divided by the number of months in the period, divided by the number of

Current wording

Average monthly connectivity service revenue per ATG aircraft online (“ARPU”). We define ARPU as the aggregate ATG connectivity 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). Revenue share earned from Intelsat is excluded from this calculation.

Previous wording

Total revenue decreased to $102.1 million for the three-month period ended June 30, 2024 as compared with $103.2 million for the prior-year period, due to a decrease in equipment revenue, partially offset by an increase in service revenue. Total revenue increased to $206.4 million for the six-month period ended June 30, 2024 as compared with $201.8 million for the prior-year period due to an increase in service revenue, partially offset by a decrease in equipment revenue.

Current wording

Total revenue increased to $100.5 million for the three-month period ended September 30, 2024 as compared with $97.9 million for the prior-year period, due to an increase in service revenue. Total revenue increased to $306.9 million for the nine-month period ended September 30, 2024 as compared with $299.8 million for the prior-year period due to an increase in service revenue, partially offset by a decrease in equipment revenue.

Previous wording

Service revenue increased to $81.9 million and $163.6 million, respectively, for the three- and six-month periods ended June 30, 2024, as compared with $79.1 million and $157.6 million, respectively, for the prior-year periods, due to increases in ARPU.

Current wording

Service revenue increased to $81.9 million and $245.5 million, respectively, for the three- and nine-month periods ended September 30, 2024, as compared with $79.5 million and $237.1 million, respectively, for the prior-year periods, due to increases in ARPU.

Previous wording

Equipment revenue decreased to $20.1 million and $42.8 million, respectively, for the three- and six-month periods ended June 30, 2024, as compared with $24.2 million and $44.3 million, respectively, for the prior-year periods, due to a decrease in the number of ATG units sold, with 231 units and 489 units, respectively, sold during the three- and six-month periods ended June 30, 2024 as compared with 277 units and 500 units, respectively, sold during the prior-year periods.

Current wording

Equipment revenue increased to $18.7 million for the three-month period ended September 30, 2024 as compared with $18.4 million for the prior-year period, due to an increase in the number of ATG units sold, with 214 units sold during the three-month period ended September 30, 2024 as compared with 192 units sold during the prior-year period. Equipment revenue decreased to $61.5 million for the nine-month period ended September 30, 2024 as compared with $62.7 million for the prior-year period due to a decrease in equipment repair revenue.

Previous wording

We expect service revenue to remain relatively flat in the near term as we prepare to launch Gogo 5G and Gogo Galileo and increase in the future as additional aircraft come online after the launch of those products. We expect equipment revenue to increase in the future driven by growth in sales of ATG units including Gogo 5G, and Gogo Galileo units.

Current wording

We expect service revenue to decline in the near term as a result of expected decline in ATG services sold to Intelsat for commercial aviation and increase in the future as additional aircraft come online after the launch of Gogo 5G and Gogo Galileo. We expect equipment revenue to increase in the future driven by growth in sales of ATG units including Gogo 5G, and Gogo Galileo units.

Previous wording

Cost of revenue and percent change for the three- and six-month periods ended June 30, 2024 and 2023 were as follows(in thousands, except for percent change):

Current wording

Cost of revenue and percent change for the three- and nine-month periods ended September 30, 2024 and 2023 were as follows(in thousands, except for percent change):

Previous wording

Cost of service revenue increased 12% and 9% to $18.9 million and $36.7 million, respectively, for the three- and six-month periods ended June 30, 2024, as compared with $16.8 million and $33.6 million, respectively, for the prior-year periods due to an increase in ATG network costs.

Current wording

Cost of service revenue increased 5% and 8% to $19.1 million and $55.8 million, respectively, for the three- and nine-month periods ended September 30, 2024, as compared with $18.1 million and $51.7 million, respectively, for the prior-year periods due to an increase in ATG network costs.

Previous wording

We expect cost of service revenue to increase over time, due to service revenue growth and increasing network costs, including those for Gogo 5G, Gogo Galileo, and increased data center costs.

Current wording

We expect cost of service revenue to increase over time, due to service revenue growth and increasing network costs, including those for Gogo 5G, Gogo Galileo, and our data center.

Previous wording

We expect that our cost of equipment revenue will increase with growth in units sold, including Gogo 5G and Gogo Galileo units, following the launch of those products. Additionally, we expect to incur additional costs associated with the FCC Reimbursement Program which we expect to be partially offset by the reimbursements from the FCC.

Current wording

We expect that our cost of equipment revenue will increase with growth in units sold, including Gogo 5G and Gogo Galileo units, following the launch of those products.

Previous wording

Engineering, design and development expenses increased 12% and 14% to $10.3 million and $19.5 million, respectively, for the three- and six-month periods ended June 30, 2024, as compared with $9.2 million and $17.1 million, respectively, for the prior-year periods due to personnel costs.

Current wording

Engineering, design and development expenses increased 7% and 12% to $9.8 million and $29.3 million, respectively, for the three- and nine-month periods ended September 30, 2024, as compared with $9.2 million and $26.3 million, respectively, for the prior-year periods due to personnel costs.

Previous wording

Other expense (income) and percent change for the three- and six-month periods ended June 30, 2024 and 2023 were as follows(in thousands, except for percent change):

Current wording

Other expense (income) and percent change for the three- and nine-month periods ended September 30, 2024 and 2023 were as follows(in thousands, except for percent change):

Previous wording

Total other expense increased to $20.7 million for the three-month period ended June 30, 2024 as compared with $8.0 million for the prior-year period, due to the unrealized holding loss on the Investment in Convertible Note, partially offset by the loss on extinguishment of debt in the prior year resulting from the $100 million prepayment of the outstanding principal amount of the Term Loan Facility on May 3, 2023. Total other expense decreased to $14.0 million for the six-month period ended June 30, 2024 as compared with $15.1 million for the prior-year period, due to the loss on extinguishment of debt in the prior year, partially offset by the unrealized holding loss on the Investment in Convertible Note.

Current wording

Total other expense increased to $6.9 million for the three-month period ended September 30, 2024 as compared with $5.7 million for the prior-year period, due to interest expense, partially offset by an increase in interest income. Total other expense increased to $20.9 million for the nine-month period ended September 30, 2024 as compared with $20.8 million for the prior-year period, due to the unrealized holding loss on the Investment in Convertible Note in the current-year period as compared with an unrealized holding gain on investment in an equity investment in the prior-year period and increased interest expense, partially offset by the loss on extinguishment of debt in the prior year and an increase in interest income.

Previous wording

The effective income tax rates for the three- and six-month periods ended June 30, 2024 were 13.6% and 26.1%, respectively, as compared to (245.3)% and (116.9)%, respectively, for the prior-year periods. For the three- and six-month periods ended June 30, 2024, our income tax provision was $0.1 million and $11.1 million, respectively, due to pre-tax income. For the three- and six-month periods ended June 30, 2023, our income tax benefit was $63.8 million and $59.4 million, respectively, due to a partial release of the valuation allowance on our deferred income tax assets. See Note 13, “Income Tax,” to our Unaudited Condensed Consolidated Financial Statements for additional information.

Current wording

The effective income tax rates for the three- and nine-month periods ended September 30, 2024 were 12.5% and 23.1%, respectively, as compared to 24.3% and (67.1)%, respectively, for the prior-year periods. For the three- and nine-month periods ended September 30, 2024, our income tax provision was $1.5 million and $12.6 million, respectively, due to pre-tax income. For the three-month period ended September 30, 2023, our income tax provision was $6.7 million due to pre-tax income and for the nine-month period ended September 30, 2023, our income tax benefit of $52.7 million was primarily due to a partial release of the valuation allowance on our deferred income tax assets, partially offset by pre-tax income. See Note 13, “Income Tax,” to our Unaudited Condensed Consolidated Financial Statements for additional information.

Previous wording

Adjusted EBITDA represents EBITDA adjusted for (i) stock-based compensation expense, (ii) change in fair value of Investment in Convertible Note and (iii) loss on extinguishment of debt. 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.

Current wording

Adjusted EBITDA represents EBITDA adjusted for (i) stock-based compensation expense, (ii) acquisition-related costs, (iii) change in fair value of Investment in Convertible Note and equity investment and (iv) loss on extinguishment of debt. 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.

Previous wording

We believe it is useful for an understanding of our operating performance to exclude from Adjusted EBITDA the changes in fair value of Investment in Convertible Note because this activity is not related to our operating performance.

Current wording

We believe it is useful for an understanding of our operating performance to exclude from Adjusted EBITDA the changes in fair value of Investment in Convertible Note and an equity investment because this activity is not related to our operating performance.

Previous wording

Adjusted EBITDA does not reflect unrealized holding gains or losses on investments in convertible notes;

Current wording

Adjusted EBITDA does not reflect unrealized holding gains or losses on equity investments and investments in convertible notes;

Previous wording

Based on our current plans, we expect our cash and cash equivalents, cash flows provided by operating activities and access to capital markets will be sufficient to meet the cash requirements of our business, including capital expenditure requirements, debt maturities and share repurchases, if any, for at least the next twelve months and thereafter for the foreseeable future.

Current wording

Based on our current plans, we expect our cash and cash equivalents, cash flows provided by operating activities and access to the Revolving Facility and capital markets will be sufficient to meet the cash requirements of our business, including the acquisition of Satcom Direct, capital expenditure requirements, debt maturities and share repurchases, if any, for at least the next twelve months and thereafter for the foreseeable future.

Previous wording

On September 5, 2023, we announced a share repurchase program that grants the Company authority to repurchase up to $50 million of shares of the Company’s common stock. Repurchases may be made at management's discretion from time to time on the open market, through privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act, as amended, in accordance with applicable securities laws and other restrictions, including Rule 10b-18 under the Securities Exchange Act. The repurchase program has no time limit and may be suspended for periods or discontinued at any time and does not obligate us to purchase any shares of our common stock. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. We do not expect to incur debt to fund the share repurchase program. During the six-month period ended June 30, 2024, we repurchased an aggregate 2.6 million shares of our common stock for $23.2 million. As of June 30, 2024, the remaining amount available to be repurchased under the program was $22.1 million.

Current wording

On September 5, 2023, we announced a share repurchase program that grants the Company authority to repurchase up to $50 million of shares of the Company’s common stock. Repurchases may be made at management's discretion from time to time on the open market, through privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act, as amended, in accordance with applicable securities laws and other restrictions, including Rule 10b-18 under the Securities Exchange Act. The repurchase program has no time limit and may be suspended for periods or discontinued at any time and does not obligate us to purchase any shares of our common stock. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. We do not expect to incur debt to fund the share repurchase program. During the nine-month period ended September 30, 2024, we repurchased an aggregate 3.6 million shares of our common stock for $30.8 million. As of September 30, 2024, the remaining amount available to be repurchased under the program was $14.5 million.

Previous wording

In May 2021, we purchased interest rate caps with an aggregate notional amount of $650.0 million for $8.6 million. We receive payments in the amount calculated pursuant to the caps for any period in which the daily compounded SOFR rate plus a credit spread adjustment recommended by the Alternative Reference Rates Committees of 0.26% increases beyond the applicable strike rate. The termination date of the cap agreements is July 31, 2027. The notional amounts of the interest rate caps periodically decrease over the life of the caps with the first reduction of $125.0 million having occurred on July 31, 2023. The aggregate notional amount of the interest rate caps as of June 30, 2024 is $525.0 million. While the interest rate caps are intended to limit our interest rate exposure under our variable rate indebtedness, which includes the Facilities, if our variable rate indebtedness does not decrease in proportion to the periodic decreases in the notional amount hedged under the interest rate caps, then the portion of such indebtedness that will be effectively hedged against possible increases in interest rates will decrease. In addition, the strike prices periodically increase over the life of the caps. As a result, the extent to which the interest rate caps will limit our interest rate exposure will decrease in the future.

Current wording

In May 2021, we purchased interest rate caps with an aggregate notional amount of $650.0 million for $8.6 million. We receive payments in the amount calculated pursuant to the caps for any period in which the daily compounded SOFR rate plus a credit spread adjustment recommended by the Alternative Reference Rates Committees of 0.26% increases beyond the applicable strike rate. The termination date of the cap agreements is July 31, 2027. The notional amounts of the interest rate caps periodically decrease over the life of the caps with the latest reduction of $175.0 million having occurred on July 31, 2024. The aggregate notional amount of the interest rate caps as of September 30, 2024 is $350.0 million. While the interest rate caps are intended to limit our interest rate exposure under our variable rate indebtedness, which includes the Facilities, if our variable rate indebtedness does not decrease in proportion to the periodic decreases in the notional amount hedged under the interest rate caps, then the portion of such indebtedness that will be effectively hedged against possible increases in interest rates will decrease. In addition, the strike prices periodically increase over the life of the caps. As a result, the extent to which the interest rate caps will limit our interest rate exposure will decrease in the future.

Previous wording

For the six-month period ended June 30, 2024, net cash provided by operating activities was $54.6 million as compared with $34.1 million in the prior-year period. The principal contributors to the year-over-year change in operating cash flows were:

Current wording

For the nine-month period ended September 30, 2024, net cash provided by operating activities was $79.7 million as compared with $52.8 million in the prior-year period. The principal contributors to the year-over-year change in operating cash flows were:

Previous wording

A $8.7 million decrease in net income and non-cash charges and credits, as noted above under “Results of Operations.”

Current wording

A $25.0 million decrease in net income and non-cash charges and credits, as noted above under “Results of Operations.”

Previous wording

A $29.1 million improvement in cash flows related to operating assets and liabilities resulting from:

Current wording

A $51.9 million improvement in cash flows related to operating assets and liabilities resulting from:

Previous wording

Changes in accrued interest due to the change in timing of payments;

Current wording

Changes in accrued interest due to the change in timing of payments; and

Previous wording

Changes in accounts payable due to the timing of payments; and

Current wording

Changes in accounts payable due to the timing of payments.

Previous wording

Cash flows (used in) provided by Investing Activities:

Current wording

Cash flows used in Investing Activities:

Previous wording

Cash used in investing activities was $2.7 million for the six-month period ended June 30, 2024, due to $10.7 million of capital expenditures noted below and a $5.0 million convertible note investment, partially offset by $12.9 million of proceeds from interest rate caps and $0.1 million of proceeds received from the FCC Reimbursement Program associated with the reimbursement of capital expenditures.

Current wording

Cash used in investing activities was $3.2 million for the nine-month period ended September 30, 2024, due to $18.9 million of capital expenditures noted below and a $5.0 million convertible note investment, partially offset by $19.5 million of proceeds from interest rate caps and $1.2 million of proceeds received from the FCC Reimbursement Program associated with the reimbursement of capital expenditures.

Previous wording

Cash provided by investing activities was $23.9 million for the six-month period ended June 30, 2023, due to $24.8 million of net proceeds from short-term investments and $12.5 million of proceeds from interest rate caps, partially offset by $13.4 million of capital expenditures noted below.

Current wording

Cash used in investing activities was $3.4 million for the nine-month period ended September 30, 2023, due to $18.7 million of capital expenditures noted below and a $5.0 million equity investment, partially offset by $20.2 million of proceeds from interest rate caps.

Previous wording

Cash used in financing activities for the six-month period ended June 30, 2024 was $29.5 million due to share repurchases, principal payments on the Term Loan Facility and stock-based compensation activities.

Current wording

Cash used in financing activities for the nine-month period ended September 30, 2024 was $38.9 million due to share repurchases, principal payments on the Term Loan Facility and stock-based compensation activities.

Previous wording

Cash used in financing activities for the six-month period ended June 30, 2023 was $111.5 million, due to principal payments on the Term Loan Facility and stock-based compensation activities.

Current wording

Cash used in financing activities for the nine-month period ended September 30, 2023 was $113.9 million, due to principal payments on the Term Loan Facility and stock-based compensation activities.

Previous wording

Capital expenditures for the six-month periods ended June 30, 2024 and 2023 were $10.7 million and $13.4 million, respectively.

Current wording

Capital expenditures for the nine-month periods ended September 30, 2024 and 2023 were $18.9 million and $18.7 million, respectively.