10-Q 1 gogo-20240331.htm 10-Q 10-Q
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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 March 31, 2024

 

OR

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

 

 

img235756030_0.jpg 

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.)

 

 

105 Edgeview Dr., Suite 300

Broomfield, CO 80021

(Address of principal executive offices)

Telephone Number (303) 301-3271

(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

Preferred Stock Purchase Rights

 

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). YesNo

As of May 2, 2024, 127,104,716 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 Income

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

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

 

Part II.

Other Information

 

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 3.

Defaults Upon Senior Securities

36

Item 4.

Mine Safety Disclosures

36

Item 5.

Other Information

36

Item 6.

Exhibits

37

Signatures

38

 

 

 

1


 

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)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

152,820

 

 

$

139,036

 

Accounts receivable, net of allowances of $1,855 and $2,091, respectively

 

 

49,405

 

 

 

48,233

 

Inventories

 

 

69,298

 

 

 

63,187

 

Prepaid expenses and other current assets

 

 

63,782

 

 

 

64,138

 

Total current assets

 

 

335,305

 

 

 

314,594

 

Non-current assets:

 

 

 

 

 

 

Property and equipment, net

 

 

96,042

 

 

 

98,129

 

Intangible assets, net

 

 

57,870

 

 

 

55,647

 

Operating lease right-of-use assets

 

 

69,804

 

 

 

70,552

 

Investment in convertible note

 

 

18,132

 

 

 

 

Other non-current assets, net of allowances of $614 and $591, respectively

 

 

25,577

 

 

 

25,979

 

Deferred income taxes

 

 

206,223

 

 

 

216,638

 

Total non-current assets

 

 

473,648

 

 

 

466,945

 

Total assets

 

$

808,953

 

 

$

781,539

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

22,823

 

 

$

16,094

 

Accrued liabilities

 

 

47,643

 

 

 

47,649

 

Deferred revenue

 

 

2,150

 

 

 

1,003

 

Current portion of long-term debt

 

 

7,250

 

 

 

7,250

 

Total current liabilities

 

 

79,866

 

 

 

71,996

 

Non-current liabilities:

 

 

 

 

 

 

Long-term debt

 

 

586,274

 

 

 

587,501

 

Non-current operating lease liabilities

 

 

71,784

 

 

 

73,047

 

Other non-current liabilities

 

 

8,590

 

 

 

8,270

 

Total non-current liabilities

 

 

666,648

 

 

 

668,818

 

Total liabilities

 

 

746,514

 

 

 

740,814

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Common stock, par value $0.0001 per share; 500,000,000 shares authorized at March 31, 2024 and December 31, 2023; 138,253,311 and 137,632,284 shares issued at March 31, 2024 and December 31, 2023, respectively; and 128,227,127 and 128,462,343 shares outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

14

 

 

 

14

 

Additional paid-in capital

 

 

1,404,217

 

 

 

1,402,003

 

Accumulated other comprehensive income

 

 

14,966

 

 

 

15,796

 

Treasury stock, at cost

 

 

(173,357

)

 

 

(163,197

)

Accumulated deficit

 

 

(1,183,401

)

 

 

(1,213,891

)

Total stockholders’ equity

 

 

62,439

 

 

 

40,725

 

Total liabilities and stockholders’ equity

 

$

808,953

 

 

$

781,539

 

 

See the Notes to Unaudited Condensed Consolidated Financial Statements

2


 

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

 

 

 

For the Three Months
Ended March 31,

 

 

 

2024

 

 

2023

 

Revenue:

 

 

 

 

 

 

Service revenue

 

$

81,673

 

 

$

78,499

 

Equipment revenue

 

 

22,649

 

 

 

20,098

 

Total revenue

 

 

104,322

 

 

 

98,597

 

Operating expenses:

 

 

 

 

 

 

Cost of service revenue (exclusive of amounts shown below)

 

 

17,871

 

 

 

16,797

 

Cost of equipment revenue (exclusive of amounts shown below)

 

 

15,786

 

 

 

18,126

 

Engineering, design and development

 

 

9,216

 

 

 

7,879

 

Sales and marketing

 

 

8,283

 

 

 

6,877

 

General and administrative

 

 

14,651

 

 

 

14,199

 

Depreciation and amortization

 

 

3,841

 

 

 

2,791

 

Total operating expenses

 

 

69,648

 

 

 

66,669

 

Operating income

 

 

34,674

 

 

 

31,928

 

Other expense (income):

 

 

 

 

 

 

Interest income

 

 

(2,048

)

 

 

(1,916

)

Interest expense

 

 

8,410

 

 

 

8,976

 

Other (income) expense, net

 

 

(13,099

)

 

 

31

 

Total other (income) expense

 

 

(6,737

)

 

 

7,091

 

Income before income taxes

 

 

41,411

 

 

 

24,837

 

Income tax provision

 

 

10,921

 

 

 

4,388

 

Net income

 

$

30,490

 

 

$

20,449

 

 

 

 

 

 

 

Net income attributable to common stock per share:

 

 

 

 

 

 

Basic

 

$

0.24

 

 

$

0.16

 

Diluted

 

$

0.23

 

 

$

0.15

 

Weighted average number of shares:

 

 

 

 

 

 

Basic

 

 

129,272

 

 

 

129,136

 

Diluted

 

 

132,441

 

 

 

133,602

 

 

See the Notes to Unaudited Condensed Consolidated Financial Statements

3


 

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Income

(in thousands)

 

 

 

For the Three Months
Ended March 31,

 

 

 

2024

 

 

2023

 

Net income

 

$

30,490

 

 

$

20,449

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

Currency translation adjustments

 

 

(155

)

 

 

75

 

Cash flow hedges:

 

 

 

 

 

 

Amount recognized in other comprehensive income

 

 

3,553

 

 

 

(2,439

)

Less: income realized and reclassified to earnings

 

 

4,228

 

 

 

4,721

 

Changes in fair value of cash flow hedges

 

 

(675

)

 

 

(7,160

)

Other comprehensive loss, net of tax

 

 

(830

)

 

 

(7,085

)

Comprehensive income

 

$

29,660

 

 

$

13,364

 

 

See the Notes to Unaudited Condensed Consolidated Financial Statements

4


 

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

For the Three Months
Ended March 31,

 

 

 

2024

 

 

2023

 

Operating activities:

 

 

 

 

 

 

Net income

 

$

30,490

 

 

$

20,449

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

3,841

 

 

 

2,791

 

Loss on asset disposals, abandonments and write-downs

 

 

15

 

 

 

107

 

Provision for expected credit losses

 

 

(132

)

 

 

93

 

Deferred income taxes

 

 

10,641

 

 

 

4,273

 

Stock-based compensation expense

 

 

4,840

 

 

 

5,041

 

Amortization of deferred financing costs and interest rate caps

 

 

1,375

 

 

 

764

 

Accretion of debt discount

 

 

100

 

 

 

108

 

Change in fair value of convertible note investment

 

 

(13,132

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,017

)

 

 

7,405

 

Inventories

 

 

(6,111

)

 

 

(5,003

)

Prepaid expenses and other current assets

 

 

(5,904

)

 

 

(8,632

)

Contract assets

 

 

6

 

 

 

557

 

Accounts payable

 

 

4,809

 

 

 

1,191

 

Accrued liabilities

 

 

(1,442

)

 

 

(9,620

)

Deferred revenue

 

 

1,146

 

 

 

(1,054

)

Accrued interest

 

 

(2

)

 

 

130

 

Other non-current assets and liabilities

 

 

134

 

 

 

(86

)

Net cash provided by operating activities

 

 

29,657

 

 

 

18,514

 

Investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,451

)

 

 

(3,112

)

Acquisition of intangible assets—capitalized software

 

 

(2,720

)

 

 

(1,484

)

Proceeds from FCC Reimbursement Program for property, equipment and intangibles

 

 

28

 

 

 

 

Proceeds from interest rate caps

 

 

6,539

 

 

 

6,087

 

Redemptions of short-term investments

 

 

 

 

 

24,796

 

Purchases of short-term investments

 

 

 

 

 

(24,728

)

Purchase of convertible note investment

 

 

(5,000

)

 

 

 

Net cash (used in) provided by investing activities

 

 

(2,604

)

 

 

1,559

 

Financing activities:

 

 

 

 

 

 

Payments on term loan

 

 

(1,813

)

 

 

(1,813

)

Repurchases of common stock

 

 

(10,137

)

 

 

 

Payments on financing leases

 

 

(3

)

 

 

(57

)

Stock-based compensation activity

 

 

(1,343

)

 

 

(5,575

)

Net cash used in financing activities

 

 

(13,296

)

 

 

(7,445

)

Effect of exchange rate changes on cash

 

 

27

 

 

 

88

 

Increase in cash, cash equivalents and restricted cash

 

 

13,784

 

 

 

12,716

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

139,366

 

 

 

150,880

 

Cash, cash equivalents and restricted cash at end of period

 

$

153,150

 

 

$

163,596

 

Cash, cash equivalents and restricted cash at end of period

 

$

153,150

 

 

$

163,596

 

Less: non-current restricted cash

 

 

330

 

 

 

330

 

Cash and cash equivalents at end of period

 

$

152,820

 

 

$

163,266

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

14,207

 

 

$

15,014

 

Cash paid for taxes

 

 

11

 

 

 

12

 

Non-cash investing activities:

 

 

 

 

 

 

Purchases of property and equipment in current liabilities

 

$

6,520

 

 

$

9,973

 

 

See the Notes to Unaudited Condensed Consolidated Financial Statements

5


 

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(in thousands, except share data)

 

 

 

For the Three Months Ended March 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Treasury Stock

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Shares

 

 

Amount

 

 

Total

 

Balance at January 1, 2024

 

 

128,462,343

 

 

$

14

 

 

$

1,402,003

 

 

$

15,796

 

 

$

(1,213,891

)

 

 

9,169,941

 

 

$

(163,197

)

 

$

40,725

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,490

 

 

 

 

 

 

 

 

 

30,490

 

Currency translation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

(155

)

 

 

 

 

 

 

 

 

 

 

 

(155

)

Fair value adjustments of cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

(675

)

 

 

 

 

 

 

 

 

 

 

 

(675

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,840

 

Issuance of common stock upon exercise of stock options

 

 

31,136

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

80

 

Issuance of common stock upon vesting of restricted stock units

 

 

872,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax withholding related to vesting of restricted stock units

 

 

 

 

 

 

 

 

(2,706

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,706

)

Repurchase of common stock

 

 

(1,138,681

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,138,681

 

 

 

(10,160

)

 

 

(10,160

)

Balance at March 31, 2024

 

 

128,227,127

 

 

$

14

 

 

$

1,404,217

 

 

$

14,966

 

 

$

(1,183,401

)

 

 

10,308,622

 

 

$

(173,357

)

 

$

62,439

 

 

 

 

For the Three Months Ended March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Treasury Stock

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Shares

 

 

Amount

 

 

Total

 

Balance at January 1, 2023

 

 

127,840,813

 

 

$

14

 

 

$

1,385,933

 

 

$

30,128

 

 

$

(1,359,569

)

 

 

8,690,549

 

 

$

(158,375

)

 

$

(101,869

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,449

 

 

 

 

 

 

 

 

 

20,449

 

Currency translation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

75

 

 

 

 

 

 

 

 

 

 

 

 

75

 

Fair value adjustments of cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

(7,160

)

 

 

 

 

 

 

 

 

 

 

 

(7,160

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,041

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,041

 

Issuance of common stock upon exercise of stock options

 

 

68,520

 

 

 

 

 

 

179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

179

 

Issuance of common stock upon vesting of restricted stock units

 

 

664,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax withholding related to vesting of restricted stock units

 

 

 

 

 

 

 

 

(5,037

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,037

)

Issuance of common stock in connection with employee stock purchase plan

 

 

12,582

 

 

 

 

 

 

179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

179

 

Balance at March 31, 2023

 

 

128,585,935

 

 

$

14

 

 

$

1,386,295

 

 

$

23,043

 

 

$

(1,339,120

)

 

 

8,690,549

 

 

$

(158,375

)

 

$

(88,143

)

See the Notes to Unaudited Condensed Consolidated Financial Statements

6


Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

1.
Basis of Presentation

The Business – Gogo Inc. (“Gogo,” the “Company,” “we,” “us,” or “our”) 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 a few months later than the previously stated fourth quarter 2024 launch date, and we are working with our vendors to finalize the schedule. 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”).

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 business aviation (“Gogo Galileo”). The service will use an electronically steered antenna, 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. 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 heavy jet 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.

Basis of Presentation – The accompanying Unaudited Condensed Consolidated Financial Statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with Article 10 of Regulation S-X promulgated under the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with our annual audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2024 (the “2023 10-K”). These Unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include normal recurring adjustments) necessary to fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented.

The results of operations and cash flows for the three-month period ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2024.

We had one class of common stock outstanding as of March 31, 2024 and December 31, 2023.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates the significant estimates and bases such estimates on historical experience and various other assumptions believed to be reasonable under the circumstances. However, actual results could differ materially from those estimates.

As a result of our determination to participate in the FCC Reimbursement Program, we reassessed and shortened the estimated useful lives of affected network equipment to be consistent with our estimated date to complete the program. This change in accounting estimate was effective beginning the second quarter of 2023 and resulted in increased depreciation expense of $1.2 million for the three-month period ended March 31, 2024. Net income per basic share was unchanged, while net income per diluted share decreased by $0.01 for the three-month period ended March 31, 2024.

Recently Issued Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not listed below were assessed and determined to be either not applicable or expected to have minimal impact on our consolidated financial statements and related notes.

7


Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

 

Accounting standards not yet adopted:

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This guidance is effective retrospectively for fiscal years beginning after December 15, 2023 and interim periods after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact that this guidance will have upon our consolidated financial statements and related notes.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures, most notably in the tax rate reconciliation and income taxes paid. This guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted and the amendments should be applied on a prospective basis, with retrospective application permitted. We are currently evaluating the impact that this guidance will have upon our consolidated financial statements and related notes.

2.
Earnings Per Share

Basic and diluted earnings per share have been calculated using the weighted average number of common shares outstanding for the period. Diluted earnings per share was computed using the treasury stock method for stock-based compensation.

The diluted earnings per share calculations exclude the effect of stock options, deferred stock units and restricted stock units when the computation is anti-dilutive. For the three-month periods ended March 31, 2024 and 2023, the weighted average number of shares excluded from the computation was 2.8 million and 0.6 million, respectively.

The following table sets forth the computation of basic and diluted earnings per share for the three-month periods ended March 31, 2024 and 2023 (in thousands, except per share amounts):

 

 

For the Three Months
Ended March 31,

 

Basic

 

2024

 

 

2023

 

Net income

 

$

30,490

 

 

$

20,449

 

Weighted average shares outstanding

 

 

129,272

 

 

 

129,136

 

Earnings per share - basic

 

 

0.24

 

 

 

0.16

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended March 31,

 

Diluted

 

2024

 

 

2023

 

Net income

 

$

30,490

 

 

$

20,449

 

Average shares

 

 

 

 

 

 

Weighted average shares outstanding

 

 

129,272

 

 

 

129,136

 

Effect of dilutive securities - stock-based compensation

 

 

3,169

 

 

 

4,466

 

Total weighted average diluted shares outstanding

 

 

132,441

 

 

 

133,602

 

Earnings per share - diluted

 

$

0.23

 

 

$

0.15

 

 

8


Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

 

3.
Revenue Recognition

Remaining performance obligations

As of March 31, 2024, the aggregate amount of the transaction price in our contracts allocated to the remaining unsatisfied performance obligations (“RPO”) was approximately $292 million and excludes consideration from contracts that have an original duration of one year or less. Approximately $276 million of the RPO primarily represents connectivity and entertainment service revenues which are recognized as services are provided, which is expected to occur through the remaining term of the contracts. Our contracts vary in length and generally have terms of two to ten years. We expect to recognize approximately 20% of our connectivity and entertainment service RPO within the next year, approximately 45% in one to five years and the remaining 35% in five to ten years. The remaining $16 million of the RPO represents future equipment revenue that is expected to be recognized primarily within the next three years as equipment is shipped.

Disaggregation of revenue

The following table presents our revenue disaggregated by category (in thousands):

 

 

 

For the Three Months
Ended March 31,

 

 

 

2024

 

 

2023

 

Service revenue

 

 

 

 

 

 

Connectivity

 

$

80,358

 

 

$

77,246

 

Entertainment and other

 

 

1,315

 

 

 

1,253

 

Total service revenue

 

$

81,673

 

 

$

78,499

 

Equipment revenue

 

 

 

 

 

 

ATG

 

$

19,347

 

 

$

15,556

 

Narrowband satellite

 

 

1,694

 

 

 

2,651

 

Other

 

 

1,608

 

 

 

1,891

 

Total equipment revenue

 

$

22,649

 

 

$

20,098

 

Customer type

 

 

 

 

 

 

Aircraft owner/operator/service provider

 

$

81,673

 

 

$

78,499

 

OEM and aftermarket dealer

 

 

22,649

 

 

 

20,098

 

Total revenue

 

$

104,322

 

 

$

98,597

 

Contract balances

Our current and non-current contract asset balances totaled $16.5 million and $16.6 million as of March 31, 2024 and December 31, 2023, respectively. Contract assets represent the aggregate amount of revenue recognized in excess of billings and recoverable contract costs primarily for certain sales programs.

Our current and non-current deferred revenue balances totaled $2.2 million and $1.0 million as of March 31, 2024 and December 31, 2023, respectively. Deferred revenue includes, among other things, prepayments for equipment and subscription connectivity products.

4.
Government Assistance

FCC Reimbursement Program

On July 15, 2022, the Company was notified that it was approved for participation in the FCC Reimbursement Program, designed to reimburse providers of advanced communications services for reasonable costs incurred in the required removal, replacement, and disposal of covered communications equipment or services, that have been deemed to pose a national security risk, from their networks. Pursuant to the FCC Reimbursement Program, the FCC approved up to approximately $334 million in reimbursements to the Company to cover documented and approved costs to (i) remove and securely destroy all ZTE communications equipment and services in the Company’s terrestrial U.S. networks and replace such equipment and (ii) remove and replace certain equipment installed on aircraft operated by the Company’s ATG customers that is not compatible with the terrestrial equipment that will replace ZTE equipment. Due to a shortfall in the amount appropriated by Congress to fund the FCC Reimbursement Program, approximately $132 million of the approved amount is currently allocated to the Company under the program. If Congress appropriates additional funds for this purpose, the allocations of the Company and other approved applicants will be increased pro rata. Program participants are subject to a number of conditions and requirements under the FCC’s rules including a requirement that they submit their first reimbursement request by July 17, 2023 and certify that they have developed a plan to permanently remove, replace and dispose of covered equipment or services within one year following the first reimbursement request. The rules permit

9


Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

 

participants to petition the FCC for one or more six-month extensions of the completion deadline. The Company, with the assistance of an advisor engaged to help administer the program, submitted and received its first reimbursement claim in July 2023. The Company’s original one year term to complete the program is set for July 21, 2024, however, based on discussions with our vendors supporting the program regarding lead times for network equipment, we plan to petition the FCC for multiple extensions, as outlined in our application for the FCC Reimbursement Program. On March 29, 2024 the Company was granted its first six-month extension by the FCC extending the program completion deadline to January 21, 2025.

As of March 31, 2024 and December 31, 2023, we have recorded a $15.2 million and $18.3 million receivable from the FCC, respectively, which is included in Prepaid expenses and other current assets in our Unaudited Condensed Consolidated Balance Sheets.

The following are the deductions to the carrying value of asset balances in our Unaudited Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 (in thousands):

 

 

 

As of March 31,

 

 

As of December 31,

 

 

 

2024

 

 

2023

 

Assets:

 

 

 

 

 

 

Inventories

 

$

(6,240

)

 

$

(4,970

)

Prepaids expenses and other current assets

 

 

(2,042

)

 

 

(1,542

)

Property and equipment, net

 

 

(3,690

)

 

 

(2,094

)

Intangible assets, net

 

 

(651

)

 

 

(58

)

Other non-current assets

 

 

(7,105

)

 

 

(5,542

)

No amounts were recorded to Net income during the three-month period ended March 31, 2023. The following are the increases to Net income in our Unaudited Condensed Consolidated Statements of Operations for the three-month period ended March 31, 2024 (in thousands):

 

 

 

For the Three Months
Ended March 31,

 

 

 

2024

 

Revenue:

 

 

 

Service revenue

 

$

687

 

Operating expenses:

 

 

 

Cost of service revenue

 

 

112

 

Cost of equipment revenue

 

 

2,284

 

General and administrative

 

 

181

 

 

5.
Composition of Certain Balance Sheet Accounts

Inventories consist primarily of telecommunications systems and parts and are recorded at the lower of average cost or net realizable value. We evaluate the need for write-downs associated with obsolete, slow-moving and nonsalable inventory by reviewing net realizable inventory values on a periodic basis.

Inventories as of March 31, 2024 and December 31, 2023 were as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Work-in-process component parts

 

$

34,687

 

 

$

34,692

 

Finished goods

 

 

34,611

 

 

 

28,495

 

Total inventory(1)

 

$

69,298

 

 

$

63,187

 

(1) See Note 4, “Government Assistance,” for additional information.

10


Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

 

Prepaid expenses and other current assets as of March 31, 2024 and December 31, 2023 were as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Interest rate caps and receivable

 

$

21,469

 

 

$

23,227

 

FCC reimbursement receivable(1)

 

 

15,197

 

 

 

18,274

 

Contract assets(1)

 

 

6,694

 

 

 

6,939

 

Prepaid inventories

 

 

2,543

 

 

 

2,606

 

Other

 

 

17,879

 

 

 

13,092

 

Total prepaid expenses and other current assets

 

$

63,782

 

 

$

64,138

 

(1) See Note 4, “Government Assistance,” for additional information.

Property and equipment as of March 31, 2024 and December 31, 2023 were as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Office equipment, furniture, fixtures and other

 

$

19,788

 

 

$

19,153

 

Leasehold improvements

 

 

16,187

 

 

 

16,132

 

Network equipment(1)

 

 

184,705

 

 

 

184,176

 

 

 

220,680

 

 

 

219,461

 

Accumulated depreciation

 

 

(124,638

)

 

 

(121,332

)

Total property and equipment, net

 

$

96,042

 

 

$

98,129

 

(1) See Note 4, “Government Assistance,” for additional information.

Other non-current assets as of March 31, 2024 and December 31, 2023 were as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Interest rate caps

 

$

10,239

 

 

$

10,295

 

Contract assets, net of allowances of $614 and $591, respectively(1)

 

 

9,840

 

 

 

9,625

 

Revolving credit facility deferred financing costs

 

 

903

 

 

 

1,011

 

Other

 

 

4,595

 

 

 

5,048

 

Total other non-current assets

 

$

25,577

 

 

$

25,979

 

(1) See Note 4, “Government Assistance,” for additional information.

Accrued liabilities as of March 31, 2024 and December 31, 2023 were as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Operating leases

 

$

10,679

 

 

$

10,284

 

Employee compensation and benefits

 

 

7,377

 

 

 

10,386

 

Customer credit reserve

 

 

6,847

 

 

 

6,027

 

Network equipment

 

 

4,613

 

 

 

4,533

 

Warranty reserve

 

 

3,470

 

 

 

3,420

 

Gogo Galileo development costs

 

 

4,323