Gogo Announces First Quarter 2019 Financial Results

CHICAGO, May 9, 2019 /PRNewswire/ -- Gogo (NASDAQ: GOGO), the leading global provider of broadband connectivity products and services for aviation, today announced its financial results for the quarter ended March 31, 2019.

First Quarter 2019 Consolidated Financial Results

• Consolidated revenue of $200 million:
• Service revenue of $165 million increased nearly 10% from Q1 2018, primarily due to positive business fundamentals across both Commercial Aviation and Business Aviation, and includes $6.8 million in product development-related revenue from one of our airline partners.
• Service revenue grew despite the cumulative effect of the de-installations of American Airlines ATG aircraft, which totaled 527 de-installations at the end of the first quarter of 2019.
• Equipment revenue of $34.5 million declined from $81.1 million in Q1 2018, primarily due to a $45 million equipment revenue benefit in Q1 2018 related to one airline partner's transition to the airline-directed model.
• Net loss of $16.8 million improved 39% year-over-year.
• Adjusted EBITDA⁽¹⁾ increased to $38 million, an increase of nearly 220% over Q1 2018. 
• Cash, cash equivalents and short-term investments were $189 million as of March 31, 2019 as compared with $223 million at December 31, 2018, which reflects $46 million in interest payments made by the Company during the first quarter.

"Our focus on operational execution, improving business fundamentals and cost control within our CA business led to a strong start in 2019," said Oakleigh Thorne, Gogo's President and CEO.  "Based on our excellent first quarter financial performance, we are raising our 2019 Adjusted EBITDA guidance to a range of $90 million to $105 million, representing over 35% year-over-year growth at the mid-point of Adjusted EBITDA."

"We expect that Gogo will improve its Free Cash Flow by at least $100 million in 2019," said Barry Rowan, Gogo's Executive Vice President and CFO.   "Following the successful refinancing of our entire balance sheet and based on our current plans and projected cash flow trajectory, we do not anticipate requiring additional capital except as needed to refinance our debt maturing in 2022 and 2024."

First Quarter 2019 Business Segment Financial Results

Business Aviation (BA)          

• Total revenue increased to $70.5 million, up 2% from Q1 2018.
• Service revenue increased to $53.2 million, up 12% from Q1 2018, driven primarily by an 11% increase in ATG units online.
• Equipment revenue decreased to $17.3 million, down 18% from Q1 2018, largely attributable to timing delays in the aftermarket channel due to the FAA-mandated December 31, 2019 deadline for installation of ADS-B safety systems.
• Segment profit increased to $33.5 million, up 4% from the prior-year period, with segment profit margin of 47.5% versus 47% in the prior-year period.

Commercial Aviation - North America (CA-NA)

• Total revenue decreased to $96.1 million from the prior-year period due to the decline in equipment revenue discussed below.
• Service revenue increased to $92 million up 4% from the prior-year period, primarily due to $6.8 million of product development-related revenue from one of our airline partners and increased usage from other airlines, partially offset by the de-installations described above.
• Equipment revenue decreased to $4 million as compared with $55 million for the prior-year period, due to the transition of one airline partner to the airline-directed model in Q1 2018.
• Segment profit increased to $23.5 million from $1.7 million in Q1 2018, reflecting stronger CA-NA service revenue, including $6.8 million of product development-related revenue from one of our airline partners, and $4 million in delayed timing of operating expenses.
• Take rates increased to 13.9% in Q1 2019, up from 10.5% in the prior-year period.
• Net annualized ARPA increased to $115,000 excluding the positive impact of $6.8 million of product development-related revenue discussed above.
• Aircraft online decreased to 2,412 from 2,840 at March 31, 2018 due to the de-installations, which are expected to be completed at the end of June 2019. Under Gogo's agreements with other airlines, nearly all of our mainline ATG aircraft will be upgraded to Gogo's 2Ku satellite solution.

Commercial Aviation - Rest of World (CA-ROW)

• Total revenue increased to $33 million, up 72% from $19.2 million in Q1 2018.
• Service revenue increased to $19.8 million, up 39% from Q1 2018, driven by an increase in aircraft online.
• Equipment revenue increased to $13.2 million, up from $4.9 million in the prior-year period, due to an increase in net aircraft installations in the first quarter of 2019 as compared with the prior-year period.
• Segment loss of $19.1 million improved 15% compared with Q1 2018, due primarily to improved satcom network utilization.
• Take rates increased to 13.6% in Q1 2019, up from 12.2% in the prior-year period.
• Net annualized ARPA of $136,000 in Q1 2019 declined from $159,000 in the prior-year period, reflecting dilution from the significant growth in new aircraft fleets online, which typically generate initially lower net annualized ARPA.
• Aircraft online increased to 641, up 55% from 414 on March 31, 2018.

Recent Developments

• 2Ku aircraft online reached more than 1,100 as of March 31, 2019, an increase of 100 aircraft in Q1 2019. Gogo had a 2Ku backlog of approximately 900 aircraft as of March 31, 2019.⁽²⁾
• As of May 1, 2019, Gogo had experienced no incidents of de-icing related 2Ku system degradation on aircraft fitted with Gogo's recent de-icing modifications. Gogo estimates that aircraft with Gogo de-icing modifications have now flown over 22,000 de-iced flights, based on Federal Aviation Administration (FAA) data listing airports under de-icing conditions.
• Gogo's 2Ku availability in the first quarter of 2019 was 97% up from 88% in the prior year period.
• Alaska Airlines launched Gogo 2Ku connectivity and Gogo Vision wireless IFE on an A321neo aircraft featuring the airline's redesigned cabin interior.

Business Outlook

The Company updates its 2019 financial guidance as follows:

• Total consolidated revenue of $800 million to $850 million (no change from prior guidance)
• CA-NA revenue of $355 million to $380 million (no change from prior guidance), with approximately 5% from equipment revenue (changed from prior guidance of 10%) due to the impact of one airline that has transitioned from the airline-directed model to the turnkey business model and another airline that is expected to do so during 2019.
• CA-ROW revenue of $135 million to $150 million, with approximately 30% from equipment revenue (no change from prior guidance for either measure).
• BA revenue of $310 million to $320 million (no change from prior guidance

Note that CA equipment revenue is affected by the number of installations completed under the airline-directed business model in the period.

• Adjusted EBITDA⁽¹⁾ of $90 million to $105 million (increased from prior guidance of $75 million to $95 million).
• Free Cash Flow improvement of at least $100 million versus 2018 (changed from prior guidance of an improvement of approximately $100 million).
• Increase of 400 to 475 in 2Ku aircraft online (no change from prior guidance).

Conference Call

The Company will host its first quarter conference call on May 9, 2019 at 8:30 a.m. ET. A live webcast of the conference call, as well as a replay, will be available online on the Investor Relations section of the Company's website at http://ir.gogoair.com. Participants can access the call by dialing (844) 464-3940 (within the United States and Canada) or (765) 507-2646 (international dialers) and entering conference ID number 9529728.

Non-GAAP Financial Measures

We report certain non-GAAP financial measurements, including Adjusted EBITDA, Free Cash Flow and Unlevered Free Cash Flow,  in the supplemental tables below.  Management uses Adjusted EBITDA, Free Cash Flow and Unlevered Free Cash Flow for business planning purposes, including managing our business against internally projected results of operations and measuring our performance and liquidity. These supplemental performance measures also provide another basis for comparing period to period results by excluding potential differences caused by non-operational and unusual or non-recurring items. These supplemental performance measurements may vary from and may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA, Free Cash Flow and Unlevered Free Cash Flow are not recognized measurements under accounting principles generally accepted in the United States, or GAAP; when analyzing our performance with Adjusted EBITDA or liquidity with Free Cash Flow or Unlevered Free Cash Flow, as applicable, investors should (i) evaluate each adjustment in our reconciliation to the corresponding GAAP measure, and the explanatory footnotes regarding those adjustments, (ii) use Adjusted EBITDA in addition to, and not as an alternative to, net loss attributable to common stock as a measure of operating results, (iv) use Free Cash Flow or Unlevered Free Cash Flow in addition to, and not as an alternative to, consolidated net cash provided by (used in) operating activities when evaluating our liquidity. No reconciliation of the forecasted range for Adjusted EBITDA and Free Cash Flow  for fiscal 2019 is included in this release because we are unable to quantify certain amounts that would be required to be included in the corresponding GAAP measure without unreasonable efforts and we believe such reconciliation would imply a degree of precision that would be confusing or misleading to investors. In particular, we are not able to provide a reconciliation for the forecasted range of Adjusted EBITDA due to variability in the timing of aircraft installations and deinstallations impacting depreciation expense and amortization of deferred airborne leasing proceeds.