Business context and reporting period
Gogo Inc.’s Form 10-K covers the fiscal year ended December 31, 2020; it is an annual report, not a standalone Q4 filing. Gogo is focused on business aviation connectivity. On December 1, 2020, it sold its commercial aviation business to an Intelsat subsidiary for a stated $400 million cash purchase price, subject to adjustments. Accordingly, commercial aviation results are presented as discontinued operations, and continuing-operations figures below reflect the business aviation company.
Key financial results
| Metric | 2020 | 2019 |
|---|---|---|
| Continuing-operations revenue | $269.7 million | $309.0 million |
| Service revenue | $212.0 million | $221.9 million |
| Equipment revenue | $57.7 million | $87.1 million |
| Operating income | $76.4 million | $96.5 million |
| Operating margin | 28.3% | 31.2% |
| Interest expense | $125.8 million | $130.5 million |
| Net loss from continuing operations | $48.6 million | $88.5 million |
| Net loss from discontinued operations | $201.5 million | $57.5 million |
| Consolidated net loss | $250.0 million | $146.0 million |
| Adjusted EBITDA (non-GAAP) | $98.3 million | $121.8 million |
Continuing-operations revenue declined 12.7%. Service revenue fell 4.5%, principally from COVID-related ATG suspensions and deactivations; equipment revenue fell 33.7%, reflecting fewer units sold. Operating income decreased 20.9%. Adjusted EBITDA declined about 19%, and excludes discontinued operations, stock compensation and other specified items; it is not a substitute for GAAP results.
For Q4 2020, revenue was $77.6 million and operating income was $15.7 million, compared with $85.9 million and $29.4 million in Q4 2019. Continuing-operations net loss was $16.1 million, versus $1.0 million. Consolidated Q4 net income was $0.8 million, reflecting $16.9 million of income from discontinued operations.
Cash flow, liquidity and debt
Cash and cash equivalents were $435.3 million at year-end, up from $170.0 million. Continuing-operations operating cash flow was $4.5 million, versus cash use of $12.9 million in 2019; continuing-operations investing cash use was $9.0 million, including capital expenditures of $9.0 million. Cash flow from discontinued operations was $220.1 million, including sale proceeds. Cash paid for interest was $106.1 million.
Consolidated debt was approximately $1.2 billion at year-end: $975 million principal of 9.875% senior secured notes due 2024 and $237.8 million principal of 6.00% convertible notes due May 2022. The company classified $341 million of the 2024 notes as current because certain net proceeds from the business sale must be applied to debt repayment or reinvestment by December 1, 2021, or be subject to a repurchase offer. The $30 million asset-based revolving facility was undrawn, with $21.9 million available subject to agreement conditions. Management said cash, operating cash flow and ABL access were expected to meet operating and capital needs for the next 12 months; this assessment depends on its assumptions and financing access.
Material changes and unusual items
- The commercial aviation sale materially changed Gogo’s scale and business profile. It received initial gross proceeds of $386.3 million; final purchase-price adjustments remained unsettled. Intelsat proposed a $9.4 million reduction, which Gogo was reviewing, and Gogo recorded that amount as deferred.
- Discontinued operations recorded a $47.4 million long-lived asset impairment and $10.7 million of expected credit-loss provisions, partly offset by a $38.0 million pretax gain on the sale. The Delta contract amendment also accelerated approximately $41 million of depreciation and $42 million of amortization in discontinued operations.
- The 2020 continuing-operations tax provision was not significant; deferred tax assets were substantially covered by a valuation allowance. Gogo reported approximately $647 million of federal and $452 million of state net operating loss carryforwards.
Outlook, commentary and principal risks
Management expected service and equipment revenue to increase as the effects of COVID-19 eased and additional ATG aircraft came online. It expected Gogo 5G to be deployed nationwide in 2022; the filing provides no quantified revenue, earnings or cash-flow guidance. Management anticipated higher service-network costs and depreciation as 5G is developed and launched, while continuing to pursue a refinancing to better align the capital structure and reduce annual interest expense.
Key risks include continued or renewed weakness in aviation activity; the ability to execute the standalone business transition and realize benefits of the sale; substantial debt, refinancing and 2022 maturity requirements; restrictions on use of sale proceeds and debt covenants; execution, cost and timing risks for Gogo 5G; competition and spectrum availability; reliance on key OEMs, dealers and single-source suppliers; and regulatory, cybersecurity, privacy and litigation exposure. Gogo reported that the recovery from the pandemic’s April 2020 lows was encouraging but could not be assured. It also disclosed ongoing patent, securities and derivative litigation; potential losses were not accrued where outcomes could not be reasonably predicted.
Important facts for investors to verify
- Final commercial aviation sale adjustment, including whether the proposed $9.4 million payment to Intelsat is due.
- How sale proceeds are applied before the December 1, 2021 deadline and the resulting amount of 2024 notes subject to a repurchase offer.
- Gogo’s ability to refinance or repay the $237.8 million convertible notes due in May 2022, and the terms and timing of any refinancing.
- Business aviation recovery, customer activity and equipment demand, alongside the effect of COVID-19 and Intelsat revenue sharing.
- Gogo 5G deployment progress, cost, required spectrum and regulatory approvals relative to the planned 2022 launch.