Business Context and Reporting Period
This Form 8-K, dated April 6, 2021, reports on Gogo Inc.'s commencement of a refinancing process announced on April 1, 2021. The filing provides operational metrics and financial data to prospective lenders, covering historical performance through 2020 and the fourth quarter of 2020.
Key Financial Metrics
| Metric | 2018 | 2019 | 2020 | Q4 2020 |
|---|---|---|---|---|
| Total Revenue ($ millions) | $290 | $309 | $270 | N/A |
| Service Revenue ($ millions) | $196 | $222 | $212 | N/A |
| Equipment Revenue ($ millions) | $94 | $87 | $58 | N/A |
| GAAP Net Loss ($ millions) | $(162) | $(146) | $(250) | $1 |
| Adjusted EBITDA ($ millions) | $105 | $122 | $98 | $19 |
| Adjusted EBITDA Margin | 36% | 39% | 36% | 24% |
| Service Profitability Margin | 81% | 81% | 79% | N/A |
| Equipment Profitability Margin | 41% | 41% | 32% | N/A |
| Capital Expenditures ($ millions) | $(11) | $(6) | $(9) | $(3) |
Debt and Liquidity (as of April 30, 2021 estimate):
- Gross Debt: $1,079 million (comprising $975 million in 2024 Senior Secured Notes and $104 million in 2022 Convertible Notes).
- Cash and Cash Equivalents: $445 million.
- Net Debt: $634 million.
- Net Leverage Ratio: 4.6x (based on Q4 2020 LQA Credit Agreement Adjusted EBITDA of $138 million).
Material Changes and Operational Highlights
- Revenue Decline: Total revenue decreased 13% in 2020 compared to 2019, driven by a 33% drop in equipment revenue.
- Profitability Pressure: Equipment profitability margin declined from 41% in 2019 to 32% in 2020. Service profitability margin remained relatively stable at 79%.
- Operational Metrics:
- More than 95% of service revenue from 2018-2020 was subscription-based.
- Monthly aircraft churn averaged approximately 0.5% from 2017-2020.
- Average per sale price of ATG connectivity equipment in 2020 was $68,000.
Guidance, Outlook, and Risks
Strategic Targets: The Company targets at least 10% compounded annual revenue growth from 2020 to 2025. This includes approximately 8% aircraft online growth and 3% average service revenue per unit online growth.
Refinancing Context: The filing includes "Preliminary Credit Agreement Adjusted EBITDA" metrics ($35 million for Q4 2020; $138 million annualized) to assist lenders in evaluating covenant measures. These figures include adjustments for non-indicative items such as 5G project costs, inventory reserves, and expected G&A savings from the sale of the CA business.
Risks and Contingencies:
- Success of the proposed refinancing transaction is not guaranteed.
- Significant reliance on key OEMs and dealers for equipment sales.
- Impact of the COVID-19 pandemic on travel and revenue.
- Substantial indebtedness and restrictions on current and future debt agreements.
- Regulatory risks regarding spectrum usage and government regulation of the internet.
Investor Verification Checklist
- Verify the final terms and closing of the refinancing transaction.
- Confirm the realization of the $10 million run-rate G&A savings from the CA business sale.
- Monitor the trajectory of equipment revenue and profitability margins given the 2020 decline.
- Assess the impact of 5G deployment costs on future operating expenses and capital expenditures.
- Review the Company's ability to service $1,079 million in gross debt under current market conditions.