Gogo Announces Second Quarter 2016 Financial Results

CHICAGO, Aug. 4, 2016 /PRNewswire/ -- Gogo Inc. (Nasdaq: GOGO), the global leader in providing broadband connectivity solutions and wireless entertainment to the aviation industry, today announced its financial results for the quarter ended June 30, 2016.

Second Quarter 2016 Highlights

• Revenue increased to $147.5 million, up 22% from $121.2 million in Q2 2015.  Service revenue increased to $127.6 million, up 26% from $101.4 million in Q2 2015.
• Net loss increased to $40.2 million ($0.51 per share) from $24.8 million in Q2 2015 ($0.32 per share), driven by a $15.4 million ($0.20 per share) charge for the extinguishment of debt.
• Adjusted EBITDA increased to $14.4 million, up 33% from $10.8 million in Q2 2015.
• Approximately 600 new 2Ku aircraft were awarded, bringing total 2Ku aircraft awards to more than 1,200.
• Gogo issued $525 million of senior secured notes, repaid its existing senior term credit facility and ended Q2 with cash and cash equivalents of $508.6 million.
• Capital expenditures of $47.6 million were up from $37.4 million in Q2 2015. Cash CAPEX of $39.8 million was up from $22.8 million in Q2 2015, primarily due to increased 2Ku airborne equipment purchases.

"We are very pleased to announce that our next generation 2Ku technology is now flying on Aeromexico, Delta, and Virgin Atlantic aircraft," said Gogo's President and CEO Michael Small. "We are focused on installing our 1,200 2Ku awarded aircraft, continuing our global expansion, and winning new international airlines."

Second Quarter 2016 Business Segment Financial Results

Commercial Aviation - North America (CA-NA)

• Total revenue increased to $92.7 million, up 23% from $75.6 million in Q2 2015.
• Aircraft online increased to 2,596, up 96 aircraft from March 31, 2016. This segment had approximately 200 net new awarded but not yet installed aircraft as of June 30, 2016.
• Average monthly service revenue per aircraft equivalent, or ARPA, increased to $11,483, up 2% year-over-year, driven primarily by increased passenger usage. Q2 2016 ARPA increased an estimated 14% year-over-year excluding aircraft added since the beginning of 2015, which primarily include regional jets and aircraft operated by new airline partners.
• Segment profit increased to $18.6 million, up 66% from $11.2 million in Q2 2015. Segment profit as a percentage of segment revenue was 20% in Q2 2016, up from 15% in Q2 2015.

Business Aviation (BA)

• Service revenue increased to $32.4 million, up 36% from $23.8 million in Q2 2015, driven primarily by a 20% increase in ATG systems online and a 14% increase in average monthly service revenue per ATG unit online.
• Equipment revenue decreased to $16.7 million from $19.5 million in Q2 2015, driven primarily by a decrease in satellite and ATG units shipped, consistent with trends in the business aviation market.
• Total segment revenue increased to $49.1 million, up 13% from $43.3 million in Q2 2015.
• Segment profit increased to $19.0 million, up 8% from $17.5 million in Q2 2015. Segment profit as a percentage of segment revenue was 39% in Q2 2016, down from 41% in Q2 2015.

Commercial Aviation - Rest of World (CA-ROW)

• Total revenue increased to $5.7 million, up 149% from $2.3 million in Q2 2015, driven primarily by an increase in aircraft online and higher revenue per aircraft.
• Aircraft online increased to 249, up 12 aircraft from March 31, 2016. This segment had approximately 500 net new awarded but not yet installed aircraft as of June 30, 2016.
• ARPA increased to $12,065, up 30% year-over-year, primarily driven by increased passenger usage.
• Segment loss increased to $23.3 million from $18.0 million in Q2 2015, primarily due to higher engineering, design and development expenses related to the roll out of 2Ku and increased satellite capacity costs.

Recent Developments

• New awards from Delta Air Lines, International Airlines Group and American Airlines have increased total 2Ku awards to more than 1,200. 2Ku is now installed on 10 aircraft.
• Gogo's 2Ku technology enabled Aeromexico to offer its passengers free in-flight streaming of Netflix content.
• Delta Private Jets announced it will equip its fleet of more than 70 aircraft with Gogo Biz 4G, which provides in-flight connectivity, Gogo Vision and Gogo Text and Talk and enables real time in-flight applications that include weather and flight tracker.
• Gogo partnered with leading aerospace software specialist PACE, enabling real-time analysis of flight data metrics to drive fuel savings and improve airlines' on-time performance.
• Gogo Business Aviation partnered with The Weather Company to enable real-time turbulence reports and alerts to pilots, furthering the realization of the connected aircraft.
• Gogo Business Aviation partnered with Garmin, JetFuelX and FltPlan.com to give pilots of light jets and turboprops the ability to lower fuel costs by giving them the information needed to adjust flight plans due to changing weather conditions.

Business Outlook

For the full year ending December 31, 2016, we are raising our installation guidance and expect 2016 consolidated revenue to be above the midpoint of our guidance range.

Accordingly, our updated guidance is as follows:

• In-flight connectivity installations
  • CA-NA net new installations of approximately 300 aircraft in 2016, including approximately 600 ATG-4 aircraft installations and upgrades
  • CA-ROW net new installations of approximately 75 aircraft in 2016 and more than 200 aircraft in 2017
  • 2Ku installations of 75 to 100 aircraft in 2016 and 350 to 450 aircraft in 2017
• Total revenue of $575 million to $595 million
  • CA-NA revenue of $350 million to $365 million
  • BA revenue of $190 million to $205 million
  • CA-ROW revenue of $25 million to $30 million
• Adjusted EBITDA¹ of $55 million to $65 million
• Capital expenditures of $150 million to $185 million and Cash CAPEX of $110 million to $135 million in 2016
• Capital expenditures of $220 million to $265 million and Cash CAPEX of $140 million to $165 million in 2017

"We expect 2016 consolidated revenue to be above the midpoint of our guidance range following strong year-to-date financial performance," said Gogo's Executive Vice President and CFO, Norman Smagley. "With more than $500 million of cash on the balance sheet, we are well positioned to more aggressively roll out 2Ku and continue our international expansion."

(1)  See Non-GAAP Financial Measures below

Conference Call

The second quarter conference call will be held on August 4^th, 2016 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 also 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 54378034.

Non-GAAP Financial Measures

We report certain non-GAAP financial measurements, including Adjusted EBITDA and Cash CAPEX in the supplemental tables below.  Management uses Adjusted EBITDA and Cash CAPEX 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 by other companies. Adjusted EBITDA and Cash CAPEX are not recognized measurements under accounting principles generally accepted in the United States, or GAAP, and when analyzing our performance with Adjusted EBITDA or liquidity with Cash CAPEX, as applicable, investors should (i) evaluate each adjustment in our reconciliation to net loss attributable to common stock, 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, and (iii) use Cash CAPEX in addition to, and not as an alternative to, consolidated capital expenditures when evaluating our liquidity. No reconciliation of the forecasted range for Adjusted EBITDA for fiscal 2016 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.

Cautionary Note Regarding Forward-Looking Statements

Certain disclosures in this press release and related comments by our management include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements include, without limitation, statements regarding our business outlook, industry, business strategy, plans, goals and expectations concerning our market position, international expansion, future technologies, future operations, margins, profitability, future efficiencies, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words "anticipate," "assume," "believe," "budget," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "will," "future" and the negative of these or similar terms and phrases are intended to identify forward-looking statements in this press release.

Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following: the loss of, or failure to realize benefits from, agreements with our airline partners or any failure to renew any existing agreements upon expiration or termination; the failure to maintain airline satisfaction with our equipment or our service; any inability to timely and efficiently roll out our 2Ku service or other components of our technology roadmap for any reason, including regulatory delays or failures, or delays on the part of any of our suppliers, some of whom are single source, or the failure by our airline partners to roll out equipment upgrades, new services or adopt new technologies in order to support increased network capacity demands; the timing of deinstallation of our equipment from aircraft, including deinstallations resulting from aircraft retirements and other deinstallations permitted by certain airline contract provisions; the loss of relationships with original equipment manufacturers or dealers; our ability to develop or purchase ATG and satellite network capacity sufficient to accommodate current and expected growth in passenger demand in North America and internationally as we expand; our reliance on third-party suppliers, some of whom are single source, for satellite capacity and other services and the equipment we use to provide services to commercial airlines and their passengers and business aviation customers; unfavorable economic conditions in the airline industry and/or the economy as a whole; our ability to expand our international or domestic operations, including our ability to grow our business with current and potential future airline partners; an inability to compete effectively with other current or future providers of in-flight connectivity services and other products and services that we offer, including on the basis of price, service performance and line-fit availability; our ability to successfully develop and monetize new products and services such as Gogo Vision, Gogo Text & Talk and Gogo TV, including those that were recently released, are currently being offered on a limited or trial basis, or are in various stages of development; our ability to deliver products and services, including newly developed products and services, on schedules consistent with our contractual commitments to customers; the effects, if any, on our business of past or future airline mergers, including the merger of American Airlines and U.S. Airways; the failure of our equipment or material defects or errors in our software resulting in recalls or substantial warranty claims; a future act or threat of terrorism, cyber-security attack or other events that could result in a prohibition or restriction of the use of Wi-Fi enabled devices on aircraft; a revocation of, or reduction in, our right to use licensed spectrum, the availability of other air-to-ground spectrum to a competitor or the repurposing by a competitor of other spectrum for air-to-ground use; our use of open source software and licenses; the effects of service interruptions or delays, technology failures and equipment failures or malfunctions arising from defects or errors in our software or defects in or damage to our equipment; the limited operating history of our CA-NA and CA-ROW segments; increases in our projected capital expenditures due to, among other things, unexpected costs incurred in connection with the roll-out of our technology roadmap or our international expansion; compliance with U.S. and foreign government regulations and standards, including those related to regulation of the Internet, including e-commerce or online video distribution changes, and the installation and operation of satellite equipment and our ability to obtain and maintain all necessary regulatory approvals to install and operate our equipment in the United States and foreign jurisdictions; our, or our technology suppliers', inability to effectively innovate; costs associated with defending pending or future intellectual property infringement and other litigation or claims; our ability to protect our intellectual property; breaches of the security of our information technology network, resulting in unauthorized access to our customers' credit card information or other personal information; any negative outcome or effects of pending or future litigation; limitations and restrictions in the agreements governing our indebtedness and our ability to service our indebtedness; our ability to obtain additional financing on acceptable terms or at all; fluctuations in our operating results; our ability to attract and retain customers and to capitalize on revenue from our platform; the demand for and market acceptance of our products and services; changes or developments in the regulations that apply to us, our business and our industry; the attraction and retention of qualified employees, including key personnel; the effectiveness of our marketing and advertising and our ability to maintain and enhance our brands; our ability to manage our growth in a cost-effective manner and integrate and manage acquisitions; compliance with anti-corruption laws and regulations in the jurisdictions in which we operate, including the Foreign Corrupt Practices Act and the (U.K.) Bribery Act 2010; restrictions on the ability of U.S. companies to do business in foreign countries, including, among others, restrictions imposed by the U.S. Office of Foreign Assets Control; difficulties in collecting accounts receivable. 

Additional information concerning these and other factors can be found under the caption "Risk Factors" in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission

Any one of these factors or a combination of these factors could materially affect our financial condition or future results of operations and could influence whether any forward-looking statements contained in this report ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and you should not place undue reliance on them. All forward-looking statements speak only as of the date made and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

About Gogo

With more than two decades of experience, Gogo is the leader in in-flight connectivity and wireless entertainment services for commercial and business aircraft around the world.  Gogo connects aircraft, providing its aviation partners with the world's most powerful network and platform to help optimize their operations.  Gogo's superior technologies, best-in-class service, and global reach help planes fly smarter, our aviation partners perform better, and their passengers travel happier.

Today, Gogo has partnerships with 16 commercial airlines and is now installed on more than 2,800 commercial aircraft. Approximately 7,000 business aircraft are also flying with its solutions, including the world's largest fractional ownership fleets. Gogo also is a factory option at every major business aircraft manufacturer.  Gogo has more than 1,000 employees and is headquartered in Chicago, IL, with additional facilities in Broomfield, CO, and various locations overseas. Connect with us at www.gogoair.com and business.gogoair.com.