Business context and reporting period
Gogo Inc.’s unaudited Form 10-Q covers the quarter and nine months ended September 30, 2021. Gogo provides broadband connectivity, equipment and related services to business aviation. Following its December 2020 sale of its commercial aviation business to Intelsat, that business is presented as discontinued operations; comparisons below reflect continuing operations unless noted.
Financial performance and liquidity
Amounts are in millions of dollars except per-share data. Year-over-year comparisons are with the same 2020 period.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $87.2 (+31.0%) | $66.5 | $243.4 (+26.7%) | $192.1 |
| Operating income | $30.9 | $22.2 | $88.3 | $60.7 |
| Net income (loss) from continuing operations | $19.7 | ($8.9) | ($52.5) | ($32.5) |
| Net income (loss), including discontinued operations | $11.0 | ($80.1) | ($66.0) | ($250.9) |
| Adjusted EBITDA | $40.8 | $30.2 | $111.4 | $79.0 |
| Operating cash flow from continuing operations | Not clearly stated for the quarter | Not clearly stated for the quarter | $36.4 | $20.3 |
| Free cash flow | $24.6 | $20.2 | $32.4 | $14.0 |
Q3 operating margin was approximately 35.5%, compared with 33.4% in Q3 2020. Service revenue rose 24.2% in Q3 and equipment revenue rose 58.8%, mainly reflecting higher average service revenue per aircraft, more ATG aircraft online, and increased ATG equipment unit sales. Q3 basic and diluted earnings per share were $0.10 and $0.16, respectively; nine-month diluted loss per share was $0.65.
Cash and cash equivalents were $133.2 million at September 30, down from $435.3 million at year-end 2020. Current assets were $240.5 million and current liabilities $220.4 million. Total debt carrying value was approximately $805.2 million, including $109.3 million classified as current; outstanding principal was $822.5 million. The $100 million revolving facility was undrawn. Management said cash and expected operating cash flows should cover operating needs, committed capital expenditures and the 2022 Convertible Notes for at least the next 12 months.
Material changes and unusual items
- Revenue growth accompanied higher operating income. Aircraft online at quarter-end increased to 6,154 ATG aircraft from 5,577 a year earlier; satellite aircraft online declined to 4,542 from 4,737.
- In April 2021, Gogo refinanced its 2024 senior secured notes with a $725 million term loan facility and cash on hand. It redeemed the notes for approximately $1.023 billion, including a $48.1 million make-whole premium. Nine-month results include an $84.0 million loss on extinguishment of debt and settlement of convertible notes.
- Interest expense fell to $10.9 million in Q3 from $31.2 million, and to $56.6 million for the first nine months from $93.6 million. The remaining $102.8 million principal of 2022 Convertible Notes is due May 15, 2022 unless earlier converted or repurchased. Gogo reported exchanges and conversions of notes for shares during 2021.
- Gogo purchased interest-rate caps covering $650 million of notional debt. Management estimated that a one-percentage-point LIBOR increase would raise annual interest expense by about $0.3 million after the caps, versus $2.7 million without them.
- A securities class action reached a tentative settlement involving a $17.3 million payment expected to be funded by D&O insurers. The settlement remained subject to a definitive agreement and court approval at quarter-end.
- The Intelsat sale’s post-closing working-capital adjustment was resolved in October 2021 at $7.8 million. Gogo said it expected to pay that amount and recognize an additional $1.6 million sale gain in Q4 2021.
Outlook, management commentary and risks
The filing provides directional expectations, but no numerical revenue or earnings guidance. Management expects service revenue to grow as ATG aircraft come online and service revenue per aircraft rises, and equipment revenue to increase with ATG unit sales. It expects near-term engineering and development spending and capital expenditures to increase as it develops and builds out Gogo 5G; costs are expected to decline after the build-out. Management also expects interest expense to decrease following refinancing and note exchanges.
Risks highlighted include COVID-19 effects on business aviation, supply-chain and electronic-component delays, successful and timely Gogo 5G deployment, competition, reliance on suppliers and OEMs, spectrum rights and availability, substantial indebtedness and floating-rate exposure, and litigation. The company reported effective disclosure controls as of September 30, 2021 and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the securities litigation settlement receives final approval and is fully covered by insurance.
- How Gogo plans to address the $102.8 million of 2022 Convertible Notes due in May 2022, and the resulting cash or dilution impact.
- Debt terms, leverage-related covenants, future mandatory repayments and floating-rate exposure.
- Gogo 5G deployment milestones, related spending, component availability and expected commercial contribution.
- The final accounting and cash effects of the Intelsat sale adjustment and continuing network-sharing arrangements.
- Adjusted EBITDA and free cash flow are non-GAAP measures; assess them alongside GAAP results and the reconciliation in the filing.