Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our consolidated financial statements and the related notes contained in this Annual Report on Form 10-K.
The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” in this report. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Our fiscal year ends December 31 and, unless otherwise noted, references to years or fiscal are for fiscal years ended December 31. See “— Results of Operations.”
Company Overview
The Company’s acquisition of Satcom Direct created a combined organization which currently is the only multi-orbit, multi-band in-flight connectivity provider offering connectivity technology purpose-built for business and military/government aviation. The Transaction united two industry-leading brands, creating a product portfolio that offers best-in-class solutions for small to large aircraft and heavy jets. As a combined organization, the Company has a holistic approach of providing broadband connectivity services to its customers through Gogo’s air-to-ground (“ATG”) technology and multiple satellite constellations aiming to deliver consistent, global tip-to-tail connectivity with a suite of software, hardware, and advanced infrastructure supported by a 24/7/365 in-person customer support team.
Segments
As a result of the Company’s acquisition of Satcom Direct, as described in Note 2, “Acquisition of Satcom Direct,” the Company has two reportable segments as of December 31, 2024: (i) the legacy pre-acquisition operations of the Company (“Gogo BA”) and (ii) the acquired entity, Satcom Direct. The consolidated financial statements and the related notes contained elsewhere in this Annual Report on Form 10-K report the results of the Gogo BA segment and, from December 3, 2024 until December 31, 2024 (the period after the Closing of the Satcom Direct acquisition), the Satcom Direct segment. The Gogo BA segment provides in-flight connectivity for business aviation via air-to-ground and satellite networks. The Satcom Direct segment primarily provides global satellite-based communication solutions for business, military and government aircraft. Satcom Direct is managed as a separate reportable segment, but in the future, we may realign our reportable segments after integrating the Satcom Direct business. This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses the results of both segments for the periods in which they are covered by the consolidated financial statements, except that, for the reasons described below, it does not reflect the impact of the Satcom Direct segment in “Key Business Metrics” and “Results of Operations—Comparison of Years Ended December 31, 2024 and 2023.”
Factors and Trends Affecting Our Results of Operations
We believe that our operating and business performance is driven by various factors that affect the business aviation industry, including trends affecting the travel industry and trends affecting the customer bases that we target, as well as factors that affect wireless Internet service providers and general macroeconomic factors. Key factors that may affect our future performance include:
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costs associated with the implementation of, and our ability to implement on a timely basis, our technology roadmap, including upgrades to and installation of the ATG Broadband technologies we currently offer, Gogo 5G, Gogo Galileo, LTE and any other next generation or other new technology that we develop or acquire;
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our ability to manage issues and related costs that may arise in connection with the implementation of our technology roadmap, including technological issues and related remediation efforts and failures or delays on the part of antenna, chipset, and other equipment developers and providers or satellite network providers, some of which are single-source;
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our ability to license additional spectrum and make other improvements to our ATG network and operations as technology and user expectations change;
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the number of aircraft in service in our markets, including consolidations or changes in fleet size by one or more of our large-fleet customers;
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the economic environment and other trends that affect both business and leisure aviation travel;
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disruptions to supply chains in the aviation industry and installations of our equipment driven by, among other things, labor shortages;
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the extent of our customers’ adoption of our products and services, which is affected by, among other things, willingness to pay for the services that we provide, the quality and reliability of our products and services, changes in technology and competition from current competitors and new market entrants;
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our ability to engage suppliers of equipment components and network services on a timely basis and on commercially reasonable terms;
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our ability to fully utilize portions of our deferred income tax assets;
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changes in laws, regulations and interpretations affecting telecommunications services globally, including those affecting our ability to maintain our licenses for ATG spectrum in the United States, obtain sufficient rights to use additional ATG spectrum and/or other sources of broadband connectivity to deliver our services, including Gogo Galileo, expand our service offerings and manage our network; and
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changes in laws, regulations and policies affecting our business or the business of our customers and suppliers globally, including changes that impact the design of our equipment and our ability to obtain required certifications for our equipment.
Key Business Metrics
Our management regularly reviews financial and operating metrics, including the following key operating metrics, to evaluate the performance of our business and our success in executing our business plan, make decisions regarding resource allocation and corporate strategies, and evaluate forward-looking projections. The metrics below are only for the Gogo BA segment and do not include metrics for the Satcom Direct segment for the period in which it is reflected in the Company’s consolidated financial statements (namely, from the Closing on December 3, 2024 until December 31, 2024), with the exception of the GEO aircraft online (which includes the Satcom Direct business aviation broadband GEO aircraft online but excludes military/government GEO aircraft online), because this reporting period provided insufficient time for management to review, test and select meaningful metrics that would be useful on a standalone basis to both management and investors. Additionally, these metrics are slightly broader in scope than those previously presented for the Gogo BA segment, due to an ongoing transition after the acquisition of Satcom Direct in management’s view of which financial and operating metrics of the Gogo BA business are most important to the combined Company. In future periods, after management has integrated the Satcom Direct business and has sufficient information to determine meaningfully which financial and operating metrics are useful to both management and investors, management expects to present such metrics reflecting the major aspects of all of the Company’s businesses, including those in the Gogo BA segment and the Satcom Direct segment.
For the Years Ended December 31,
ATG aircraft online (at period end)
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AVANCE aircraft online. We define AVANCE aircraft online as the total number of business aircraft equipped with our AVANCE L5 or L3 system for which we provide ATG services as of the last day of each period presented.
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Gogo Biz aircraft online. We define Gogo Biz aircraft online as the total number of business aircraft not equipped with our AVANCE L5 or L3 system for which we provide ATG services as of the last day of each period presented. This number excludes commercial aircraft operated by Intelsat’s airline customers receiving ATG service.
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GEO aircraft online. We define GEO aircraft online as the total number of aircraft for which we provide GEO broadband services to business aviation customers as of the last day of each period presented. This number excludes aircraft receiving services through GEO satellite networks that are end-of-life.
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Average monthly connectivity service revenue per ATG aircraft online (“ARPU”). We define ARPU as the aggregate ATG connectivity service revenue for the period divided by the number of months in the period, divided by the number of ATG aircraft online during the period (expressed as an average of the month end figures for each month in such period). Revenue share earned from Intelsat is excluded from this calculation.
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ATG units sold. We define units sold as the number of ATG units for which we recognized revenue during the period.
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Key Components of Consolidated Statements of Operations
The following briefly describes certain key components of revenue and expenses as presented in our consolidated statements of operations.
Revenue:
We generate two types of revenue: service revenue and equipment revenue. The Company has three main connectivity solutions, each with its own equipment solution: Satellite Broadband, ATG Broadband and Narrowband.
Service revenue primarily consists of subscription and usage fees paid by aircraft owners and operators for telecommunication, data, and in-flight entertainment services. Service revenue is recognized as the services are provided to the customer.
Equipment revenue primarily consists of proceeds from the sale of ATG and satellite connectivity equipment and is recognized when control of the equipment is transferred to the customer, which generally occurs when the equipment is shipped.
Cost of Revenue:
Cost of service revenue consists of ATG network costs, satellite network provider service costs, transaction costs and costs related to network operations.
Cost of equipment revenue primarily consists of the costs of purchasing component parts used in the manufacture of our equipment and the production, installation, technical support and quality assurance costs associated with the equipment sales.
Engineering, Design and Development Expenses:
Engineering, design and development expenses include the costs incurred to design and develop our technologies and products. This includes the design, development and integration of our ATG Broadband and satellite network technologies, the design and development of products and enhancements thereto, and program management activities. Engineering, design and development expenses also include costs associated with enhancements to existing products.
Sales and Marketing Expenses:
Sales and marketing expenses consist of costs associated with activities related to customer sales (including sales commissions), digital marketing and lead generation, advertising and promotions, product management, trade shows and customer service support for end users.
General and Administrative Expenses:
General and administrative expenses include personnel and related operating costs of the business support functions, including finance and accounting, legal, human resources, administrative, information technology and cybersecurity, facilities and executive groups.
Depreciation and Amortization:
Depreciation expense includes expense associated with the depreciation of our network equipment, buildings, office equipment and furniture, fixtures and leasehold improvements, which is recorded over their estimated useful lives. Amortization expense includes the amortization of our finite-lived intangible assets on a straight-line basis over their estimated useful lives.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related exposures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. In some instances, we could reasonably use different accounting estimates, and in some instances actual results could differ significantly from our estimates. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
We believe that the assumptions and estimates associated with the fair value of service customer relationships and software acquired in the Transaction have the greatest potential impact on and are the most critical to fully understanding and evaluating our reported financial results, and that they require our most difficult, subjective or complex judgments. For a discussion of our significant
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accounting policies to which many of these estimates relate, see Note 1, “Summary of Significant Accounting Policies,” to our consolidated financial statements.
Fair Value – Acquired Service Customer Relationships and Software
We account for the Transaction under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Accordingly, we allocate the purchase price to the identifiable assets and liabilities based on their respective fair value, including acquired service customer relationships and software (the “acquired intangible assets”). Service customer relationships were valued at $144.6 million using the multi-period excess earning method. This method of valuation reflects the present value of the projected cash flows that are expected to be generated by these existing customers less charges representing the contribution of other assets to those cash flows. Software was valued at $55.2 million using the relief from royalty method, which is equal to the present value of the after-tax royalty savings attributable to owning the software as opposed to paying a third party for its use.
We make significant estimates and assumptions to determine the fair value of the acquired intangible assets. Critical estimates in valuing the acquired intangible assets include, but are not limited to, future projected revenue and discount rates applied to future cash flows.
The Company engaged third-party valuation advisors to assist in estimating the fair value of identifiable assets and liabilities, including the selection of valuation methodologies. Our estimates are based on assumptions the Company believes to be reasonable and are inherently uncertain. Any material changes in these assumptions could result in significant fluctuations in the fair value of acquired service customer relationships and software, potentially affecting amortization expense and future impairment assessments. Such adverse impacts may be material.
See Note 2, “Acquisition of Satcom Direct,” to our consolidated financial statements for additional information.
Recent Accounting Pronouncements
See Note 1, “Summary of Significant Accounting Policies,” to our consolidated financial statements for additional information.
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Results of Operations
The following table sets forth, for the periods presented, certain data from our consolidated statements of operations. The information contained in the table below should be read in conjunction with our consolidated financial statements and related notes.
Consolidated Statements of Operations
(in thousands)
For the Years Ended December 31,
Gogo BA Satcom Direct Total Gogo BA Gogo BA
Revenue:
Operating expenses:
Other expense (income):
Loss on extinguishment of debt — — — 2,224 —
Comparison of Years Ended December 31, 2024 and 2023
Below is a discussion of changes in the results in operations for the years ended 2024 and 2023, which as discussed above are for the Gogo BA segment only. The acquisition of Satcom Direct was completed on December 3, 2024 and is reflected in the combined Company’s consolidated financial statements only for the 29-day period from the Closing until December 31, 2024. As a result, there is no meaningful prior period comparison point. Unless otherwise noted below, we expect consolidated revenue and expenses to increase in 2025 as a result of a full year of activity for Satcom Direct.
Revenue
Revenue and percent change for the years ended December 31, 2024 and 2023 were as follows (in thousands, except for percent change):
For the Years Ended
December 31, % Change
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Total Gogo BA revenue increased to $404.5 million for the year ended December 31, 2024, as compared with $397.6 million for the prior year, due to an increase in service revenue, partially offset by a decrease in equipment revenue.
Gogo BA’s service revenue increased to $327.1 million for the year ended December 31, 2024, as compared with $318.0 million for the prior year, due to increases in ARPU.
Gogo BA’s equipment revenue decreased to $77.5 million for the year ended December 31, 2024, as compared with $79.6 million for the prior year, due to a decrease in equipment repair revenue.
Cost of Revenue
Cost of service revenue and percent change for the years ended December 31, 2024 and 2023 were as follows (in thousands, except for percent change):
For the Years Ended
December 31, % Change
Gogo BA’s cost of service revenue increased 8% to $74.9 million for the year ended December 31, 2024, as compared with $69.6 million for the prior year, due to an increase in ATG network costs.
Gogo BA’s cost of equipment revenue increased 1% to $63.7 million for the year ended December 31, 2024, as compared with $63.4 million for the prior year.
Engineering, Design and Development Expenses
Gogo BA’s engineering, design and development expenses increased 18% to $43.5 million for the year ended December 31, 2024, as compared with $36.7 million for the prior year, due to $2.6 million of personnel costs and a $2.5 million integration-related product write-off.
Sales and Marketing Expenses
Gogo BA’s sales and marketing expenses increased 21% to $36.1 million for the year ended December 31, 2024, as compared with $29.8 million for the prior year, due to a $4.2 million increase in personnel costs, including $1.3 million of severance.
General and Administrative Expenses
Gogo BA’s general and administrative expenses increased 71% to $98.2 million for the year ended December 31, 2024, as compared with $57.3 million for the prior year, due to increased acquisition and integration-related costs of $26.7 million and legal expense of $13.2 million.
Depreciation and Amortization
Gogo BA’s depreciation and amortization expense decreased 8% to $15.3 million for the year ended December 31, 2024, as compared with $16.7 million for the prior year, due to a decrease in amortization of intangible assets.
Other (Income) Expense
Other (income) expense and percent change for the years ended December 31, 2024 and 2023 were as follows (in thousands, except for percent change):
For the Years % Change
Loss on extinguishment of debt — 2,224 nm
Percentage changes that are considered not meaningful are denoted with nm.
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Total other expense increased to $33.1 million for the year ended December 31, 2024, as compared with $26.6 million for the prior year, due to interest expense, including a reduced benefit from the interest rate caps, the unrealized holding loss on the Investment in Convertible Note in the current-year period as compared with gain on sale of an equity investment in the prior-year period and an expected credit loss reserve recorded in the current year. These increases were partially offset by the loss on extinguishment of debt in the prior year.
Income Taxes
The effective income tax rate for the year ended December 31, 2024 was 24.2%, as compared with (49.3)% for the prior year. The income tax provision was $4.4 million for the year ended December 31, 2024 due to pre-tax income. The income tax benefit of $48.1 million for the year ended December 31, 2023 was due to a partial release of the valuation allowance on our deferred income tax assets, partially offset by pre-tax income. See Note 15, “Income Tax,” to our consolidated financial statements for additional information.
We expect our income tax provision to increase in the long term as we continue to generate positive pre-tax income.
Comparison of Years Ended December 31, 2023 and 2022
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 28, 2024 and incorporated by reference herein, includes a discussion of changes in our results of operations from fiscal year 2022 to fiscal year 2023. These include only the results of operations of the Gogo BA segment, as they precede the Company’s acquisition of Satcom Direct in 2024.
Non-GAAP Measures
In our discussion below, we discuss EBITDA, Adjusted EBITDA and Free Cash Flow, as defined below, which are non-GAAP financial measures. Management uses EBITDA, Adjusted EBITDA and 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 measures may vary from and may not be comparable to similarly titled measures used by other companies. EBITDA, Adjusted EBITDA and Free Cash Flow are not recognized measurements under GAAP; when analyzing our performance with EBITDA or Adjusted EBITDA or liquidity with 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 EBITDA or Adjusted EBITDA in addition to, and not as an alternative to, net income attributable to common stock as a measure of operating results and (iii) use Free Cash Flow in addition to, and not as an alternative to, consolidated net cash provided by operating activities when evaluating our liquidity.
Definition and Reconciliation of Non-GAAP Measures
EBITDA represents net income attributable to common stock before interest expense, interest income, income taxes and depreciation and amortization expense.
Adjusted EBITDA represents EBITDA adjusted for (i) stock-based compensation expense, (ii) acquisition and integration-related costs, (iii) change in fair value of convertible note and gain on sale of equity investment and (iv) loss on extinguishment of debt. Our management believes that the use of Adjusted EBITDA eliminates items that management believes have less bearing on our operating performance, thereby highlighting trends in our core business which may not otherwise be apparent. It also provides an assessment of controllable expenses, which are indicators management uses to determine whether current spending decisions need to be adjusted in order to meet financial goals and achieve optimal financial performance.
We believe that the exclusion of stock-based compensation expense from Adjusted EBITDA provides a clearer view of the operating performance of our business and is appropriate given that grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular time. While we believe that investors should have information about any dilutive effect of outstanding options and the cost of that compensation, we also believe that stockholders should have the ability to consider our performance using a non-GAAP financial measure that excludes these costs and that management uses to evaluate our business.
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Acquisition and integration-related costs include direct transaction costs, such as due diligence and advisory fees, and certain compensation and integration-related expenses as well as the amortization of acquisition-related inventory step-up costs. We believe it is useful for an understanding of our operating performance to exclude acquisition and integration-related costs from Adjusted EBITDA because they are infrequent, are outside of the ordinary course of our operations and do not reflect our operating performance.
We believe it is useful for an understanding of our operating performance to exclude the change in fair value of convertible note and gain on sale of equity investment from Adjusted EBITDA because this activity is not related to our operating performance.
We believe it is useful for an understanding of our operating performance to exclude the loss on extinguishment of debt from Adjusted EBITDA because of the infrequently occurring nature of this activity.
We also present Adjusted EBITDA as a supplemental performance measure because we believe that this measure provides investors, securities analysts and other users of our consolidated financial statements with important supplemental information with which to evaluate our performance and to enable them to assess our performance on the same basis as management.
Free Cash Flow represents net cash provided by operating activities, plus the proceeds received from the FCC Reimbursement Program and the interest rate caps, less purchases of property and equipment and the acquisition of intangible assets. We believe that Free Cash Flow provides meaningful information regarding our liquidity. Management believes that Free Cash Flow is useful for investors because it provides them with an important perspective on the cash available for strategic measures, after making necessary capital investments in property and equipment to support the Company’s ongoing business operations and provides them with the same measures that management uses as the basis of making capital allocation decisions.
Gogo Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, unaudited)
For the Years Ended December 31,
Adjusted EBITDA:
Acquisition and integration-related costs(1) 53,476 — —
Amortization of acquisition-related inventory step-up costs 249 — —
Loss on extinguishment of debt — 2,224 —
Free Cash Flow:
(1) Consists of change-in-control bonuses of $29.7 million, severance and other compensation-related costs of $3.8 million, and due diligence and advisory fees of $20.0 million.
Material limitations of Non-GAAP measures
Although EBITDA, Adjusted EBITDA and Free Cash Flow are measurements frequently used by investors and securities analysts in their evaluations of companies, EBITDA, Adjusted EBITDA and Free Cash Flow each have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for, or more meaningful than, amounts determined in accordance with GAAP.
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Some of these limitations include:
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EBITDA and Adjusted EBITDA do not reflect interest income or expense;
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EBITDA and Adjusted EBITDA do not reflect cash requirements for our income taxes;
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EBITDA and Adjusted EBITDA do not reflect depreciation and amortization, which are significant and unavoidable operating costs given the level of capital expenditures needed to maintain our business;
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Adjusted EBITDA does not reflect non-cash components of employee compensation;
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Adjusted EBITDA does not reflect acquisition and integration-related costs;
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Adjusted EBITDA does not reflect amortization of acquisition-related inventory step-up costs;
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Adjusted EBITDA does not reflect the change in fair value of convertible note and gain on sale of equity investment;
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Adjusted EBITDA does not reflect the loss on extinguishment of debt;
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Free Cash Flow does not represent the total increase or decrease in our cash balance for the period; and
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since other companies in industries related to ours may calculate these measures differently from the way we do, their usefulness as comparative measures may be limited.
Liquidity and Capital Resources
We have historically financed our growth and cash needs primarily through the issuance of common stock, debt and cash from operating activities. We continually evaluate our ongoing capital needs in light of increasing demand for our services, capacity requirements, evolving user expectations regarding the in-flight connectivity experience, evolving technologies in our industry and related strategic, operational and technological opportunities. Our capital management activities include the assessment of opportunities to raise additional capital in the public and private markets, utilizing one or more of the types of capital raising transactions through which we have historically financed our growth and cash needs, as well as other means of capital raising not previously used by us.
See the disclosure below under the heading “Debt Instruments” for the definitions of the debt and convertible debt instruments to which we refer in this section, as well as the indentures and other agreements that govern them.
Based on our current plans, we expect our cash and cash equivalents, cash flows provided by operating activities and access to the Revolving Facility and capital markets will be sufficient to meet the cash requirements of our business, including the acquisition and integration of Satcom Direct, capital expenditure requirements and debt maturities for at least the next twelve months and thereafter for the foreseeable future.
On September 5, 2023, we announced a share repurchase program that grants the Company authority to repurchase up to $50 million of shares of the Company’s common stock. Repurchases may be made at management's discretion from time to time on the open market, through privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act in accordance with applicable securities laws and other restrictions, including Rule 10b-18 under the Exchange Act. The repurchase program has no time limit and may be suspended for periods or discontinued at any time and does not obligate us to purchase any shares of our common stock. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. We do not expect to incur debt to fund the share repurchase program. During the years ended December 31, 2024 and 2023, we repurchased an aggregate 4.0 million shares and 0.5 million shares, respectively, of our common stock for $33.2 million and $4.8 million, respectively. As of December 31, 2024, approximately $12.1 million remains available under the share repurchase program.
As detailed in Note 9, “Long-Term Debt and Other Liabilities,” on April 30, 2021, GIH entered into the 2021 Credit Agreement with Gogo, the lenders and issuing banks party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent, which provides for the 2021 Term Loan Facility in an aggregate principal amount of $725.0 million, issued with a discount of 0.5%, and the Revolving Facility, which includes a letter of credit sub-facility. The 2021 Term Loan Facility matures on April 30, 2028.
On December 3, 2024, Gogo and GIH entered into a second amendment to the 2021 Credit Agreement with Morgan Stanley Senior Funding, Inc., as administrative agent, and the lenders party thereto to, among other purposes, (a) increase the aggregate principal amount of revolving commitments available under the 2021 Credit Agreement to an aggregate amount of revolving commitments equal to $122 million and (b) extend the maturity date of the Revolving Facility to December 3, 2029 (subject to such maturity date springing to the date that is 90 days prior to the then-current maturity date of (a) the 2021 Term Loan Facility under the 2021 Credit Agreement and (b) the HPS Term Loan Facility under the HPS Credit Agreement under certain conditions).
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The 2021 Term Loan Facility amortizes in nominal quarterly installments equal to 1% of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity of the 2021 Term Loan Facility. There are no amortization payments under the Revolving Facility.
As detailed in Note 9, “Long-Term Debt and Other Liabilities,” on December 3, 2024, Gogo and GIH entered into a credit agreement (the “HPS Credit Agreement” and together with the 2021 Credit Agreement, the “Credit Agreements”) with the lenders party thereto and HPS Investment Partners, LLC, as the administrative agent, which provides for a term loan credit facility (the “HPS Term Loan Facility”) in an aggregate principal amount of $250 million. The HPS Term Loan Facility amortizes in quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity of the HPS Term Loan Facility on April 30, 2028.
The Credit Agreements contain customary events of default, which, if any of them occurred, would permit or require the principal, premium, if any, and interest on all of the then outstanding obligations under the Facilities to be due and payable immediately and the commitments under the Revolving Facility to be terminated.
The Credit Agreements contain covenants that limit the ability of GIH and its subsidiaries to incur additional indebtedness. Further, market conditions and/or our financial performance may limit our access to additional sources of equity or debt financing, or our ability to pursue potential strategic alternatives. As a result, we may be unable to finance the growth of our business to the extent that our cash, cash equivalents and short-term investments and cash generated through operating activities prove insufficient or we are unable to raise additional financing through the issuance of equity, permitted incurrences of debt (by us or by GIH and its subsidiaries), or the pursuit of potential strategic alternatives.
In May 2021, we purchased interest rate caps with an aggregate notional amount of $650.0 million for $8.6 million. We receive payments in the amount calculated pursuant to the caps for any period in which the daily compounded secured overnight financing rate as administered by the Federal Reserve Bank of New York (“SOFR”) plus a credit spread adjustment of 0.26% increases beyond the applicable strike rate. The termination date of the cap agreements is July 31, 2027. The notional amounts of the interest rate caps periodically decrease over the life of the caps with the latest reduction of $175.0 million having occurred on July 31, 2024. The aggregate notional amount of the interest rate caps as of December 31, 2024 is $350.0 million. While the interest rate caps are intended to limit our interest rate exposure under our variable rate indebtedness, which includes the Facilities, if our variable rate indebtedness does not decrease in proportion to the periodic decreases in the notional amount hedged under the interest rate caps, then the portion of such indebtedness that will be effectively hedged against possible increases in interest rates will decrease. In addition, the strike prices periodically increase over the life of the caps. As a result, the extent to which the interest rate caps will limit our interest rate exposure will decrease in the future. For additional information on the interest rate caps, see Note 10, “Derivative Instruments and Hedging Activities,” to our consolidated financial statements.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations, comprised of our material future cash requirements and deferred revenue arrangements, as of December 31, 2024 (in thousands).
Less than 1-3 3-5 More than
Total 1 year years years 5 years
Contractual Obligations:
(1)
See Note 16, “Leases,” to our consolidated financial statements for more information.
(2)
As of December 31, 2024, our outstanding purchase obligations represented obligations to vendors incurred in order to meet operational requirements in the normal course of business, including the build out of Gogo 5G, Gogo Galileo, information technology, research and development, sales and marketing, general and administrative and production related activities.
(3)
See Note 9, “Long-Term Debt and Other Liabilities,” to our consolidated financial statements for more information.
(4)
Interest on our variable rate debt is calculated for future periods using the interest rate in effect as of December 31, 2024 and excludes the impact of our interest rate caps.
(5)
Amounts represent obligations to provide services for which we have already received cash from our customers.
(6)
Other long-term obligations consist of estimated payments (undiscounted) for our asset retirement obligations, network transmission services and monthly payments of C$0.1 million (using the December 31, 2024 exchange rate) to the licensor of
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our Canadian ATG spectrum license over the estimated 25-year term of the agreement. Other long-term obligations exclude tax liability payments due to the uncertainty of their timing.
Contractual Commitments: We have agreements with various vendors under which we have remaining commitments to purchase hardware components and development services. Such commitments will become payable as we receive the hardware components or as development services are provided. See Note 17, “Commitments and Contingencies,” to our consolidated financial statements for additional information.
Leases and Cell Site Contracts: We have lease agreements relating to certain facilities and equipment, which are considered operating leases. See Note 16, “Leases,” to our consolidated financial statements for additional information.
Indemnifications and Guarantees: In accordance with Delaware law, we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under this indemnification is uncertain and may be unlimited, depending upon circumstances. However, our Directors’ and Officers’ insurance does provide coverage for certain of these losses.
In the ordinary course of business, we may occasionally enter into agreements pursuant to which we may be obligated to pay for the failure of the performance of others, such as the use of corporate credit cards issued to employees. Based on historical experience, we believe that the risk of sustaining any material loss related to such guarantees is remote.
We have entered into a number of agreements pursuant to which we indemnify the other party for losses and expenses suffered or incurred in connection with any patent, copyright, or trademark infringement or misappropriation claim asserted by a third party with respect to our equipment or services. The maximum potential amount of future payments we could be required to make under these indemnification agreements is uncertain and is typically not limited by the terms of the agreements.
Cash Flows
The following table presents a summary of our consolidated cash flow activity, including the Satcom Direct segment, for the periods set forth below (in thousands):
For the Years Ended December 31,
Effect of foreign exchange rate changes on cash 29 94 13
Supplemental information:
Less: current restricted cash 70 — —
Following is a discussion of the year-over-year changes in cash flow activities.
Net cash provided by operating activities:
The following table presents a summary of our cash flows from operating activities from operations for the periods set forth below (in thousands):
For the Years Ended December 31,
For the year ended December 31, 2024, cash provided by operating activities was $41.4 million, as compared with $79.0 million for the prior year. The principal contributors to the decrease in operating cash flows were:
•
A $71.3 million decrease in net income and non-cash charges and credits, as noted above under “—Results of Operations.”
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•
A $33.8 million improvement in cash flows related to operating assets and liabilities resulting from:
o
An increase in cash flows due to the following:
▪
Changes in prepaid expenses and other current assets related to the FCC Reimbursement Program; and
▪
Changes in accrued interest due to the change in timing of payments.
o
Partially offset by a decrease in cash flows due to the following:
▪
Changes in accounts payable due to the timing of payments; and
▪
Changes in contract assets due to additional promotional sales programs in the current year as compared to the prior year.
For the year ended December 31, 2023, cash provided by operating activities was $79.0 million, as compared with $103.4 million for the prior year. The principal contributors to the decrease in operating cash flows were:
•
A $1.9 million decrease in net income and non-cash charges and credits, as noted above under “—Results of Operations.”
•
An $22.5 million decrease in cash flows related to operating assets and liabilities resulting from:
o
A decrease in cash flows due to the following:
▪
Changes in prepaid expenses and other current assets due to interest rate caps receivable and receivables related to the FCC Reimbursement Program; and
▪
Changes in accrued interest due to the change in timing of payments.
o
Partially offset by an increase in cash flows due to changes in accounts receivable due to the timing of collections.
Net cash (used in) provided by investing activities:
Cash used in investing activities was $337.2 million for the year ended December 31, 2024, due to $332.7 million of cash consideration for the acquisition of Satcom Direct as well as $27.1 million of capital expenditures noted below and a $5.0 million convertible note investment, partially offset by $23.2 million of proceeds from interest rate caps and $4.4 million received from the FCC Reimbursement Program for capital expenditures.
Cash provided by investing activities was $29.9 million for the year ended December 31, 2023, due to $26.7 million of proceeds from interest rate caps, $24.8 million in net redemptions of short-term investments, $1.3 million in net proceeds from the sale of an equity investment and $1.1 million received from the FCC Reimbursement Program for capital expenditures, partially offset by $24.1 million of capital expenditures noted below.
Cash used in investing activities was $70.4 million for the year ended December 31, 2022, due to $49.9 million of capital expenditures noted below and $24.8 million purchase of short-term investments, partially offset by $4.3 million of proceeds from interest rate caps.
Net cash provided by (used in) financing activities:
Cash provided by financing activities for the year ended December 31, 2024 was $198.7 million, due to $245.0 million of gross proceeds from the HPS Term Loan Facility, offset in part by debt principal payments, share repurchases, payments of deferred financing fees and stock-based compensation activities.
Cash used in financing activities for the year ended December 31, 2023 was $120.4 million, due to principal payments on the 2021 Term Loan Facility, stock-based compensation activities and share repurchases.
Cash used in financing activities for the year ended December 31, 2022 was $28.4 million, due to the repurchase of 1.5 million shares of common stock in a private transaction and principal repayments on the 2021 Term Loan Facility.
Capital Expenditures
Our business requires significant capital expenditures, primarily for technology development, equipment and capacity expansion. Capital spending for the periods presented in this report is associated with the expansion of our ATG network and data centers. We capitalized software development costs related to network technology solutions and new product/service offerings. We also capitalized costs related to the build-out of our office locations.
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Capital expenditures for the years ended December 31, 2024, 2023 and 2022 were $27.1 million, $24.1 million and $49.9 million, respectively. The increase in capital expenditures in 2024 as compared to 2023 was due to capitalized software development costs related to Gogo Galileo. The decrease in capital expenditures in 2023 as compared to 2022 was due to the build out of the Gogo 5G network during 2022.
We expect that our capital expenditures will increase in the near term due to the build out of the LTE network related to the FCC Reimbursement Program and capital expenditures related to Gogo 5G. The increase related to the LTE network may be partially offset by reimbursements from the FCC. We expect that our capital expenditures will decrease starting in 2026 as these programs are completed.
Debt Instruments
Following is a discussion of the debt instruments we had in place as of December 31, 2024 as well as those we utilized during the years ended December 31, 2024, 2023 and 2022.
2021 Credit Agreement
On April 30, 2021, Gogo and Gogo Intermediate Holdings LLC (“GIH”) (a wholly owned subsidiary of Gogo) entered into a credit agreement (the “Original 2021 Credit Agreement,” and, as it may be amended, supplemented or otherwise modified from time to time, the “2021 Credit Agreement”) among Gogo, GIH, the lenders and issuing banks party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent, which provides for (i) a term loan credit facility (the “2021 Term Loan Facility”) in an aggregate principal amount of $725.0 million, issued with a discount of 0.5%, and (ii) a revolving credit facility (the “Revolving Facility” and together with the 2021 Term Loan Facility, the “2021 Facilities”) of up to $100.0 million, which includes a letter of credit sub-facility. The 2021 Term Loan Facility matures on April 30, 2028.
On December 3, 2024, Gogo and GIH entered into a second amendment to the 2021 Credit Agreement, by and among, Gogo, GIH, guarantors party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent, and the lenders party thereto, among other purposes, (a) increase the aggregate principal amount of revolving commitments available under the 2021 Credit Agreement to an aggregate amount of revolving commitments equal to $122 million and (b) extend the maturity date of the Revolving Facility to December 3, 2029 (subject to such maturity date springing to the date that is 90 days prior to the then-current maturity date of (a) the 2021 Term Loan Facility under the 2021 Credit Agreement and (b) the HPS Term Loan Facility under the HPS Credit Agreement under certain conditions).
The 2021 Term Loan Facility amortizes in nominal quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity of the 2021 Term Loan Facility. There are no amortization payments under the Revolving Facility.
The 2021 Term Loan Facility bears annual interest at a floating rate measured by reference to, at GIH’s option, either (i) an adjusted term secured overnight financing rate as administered by the Federal Reserve Bank of New York (“SOFR”) (subject to a floor of 0.75%) plus an applicable margin of 3.75% and a credit spread adjustment of approximately 0.11%, 0.26% or 0.43% per annum based on 1-month, 3-month or 6-month term SOFR, respectively or (ii) an alternate base rate plus an applicable margin of 2.75%.
Loans outstanding under the Revolving Facility bear annual interest at a floating rate measured by reference to, at GIH’s option, either (i) an adjusted term SOFR rate (subject to a floor of 0.00%) plus an applicable margin ranging from 3.50% to 4.00% per annum depending on GIH’s senior secured first lien net leverage ratio or (ii) an alternate base rate plus an applicable margin ranging from 2.50% to 3.00% per annum depending on GIH’s senior secured first lien net leverage ratio. Additionally, unused commitments under the Revolving Facility are subject to a fee ranging from 0.25% to 0.50% per annum depending on GIH’s senior secured first lien net leverage ratio. As of December 31, 2024, the fee for unused commitments under the Revolving Facility was 0.25% and the applicable margin was 4.00% for SOFR rate loans and 3.00% for alternate base rate loans.
The 2021 Facilities may be prepaid at GIH’s option at any time without premium or penalty (other than customary breakage costs), subject to minimum principal payment amount requirements. On May 3, 2023, the Company prepaid $100 million of the outstanding principal amount of the 2021 Term Loan Facility. As a result, we wrote off $2.2 million of the deferred financing costs and unaccreted debt discount, which are included in Loss on extinguishment of debt in our Consolidated Statements of Operations for the year ended December 31, 2023. This prepayment satisfied the required amortization payments for the remaining term of the 2021 Term Loan Facility.
Subject to certain exceptions and de minimis thresholds, the 2021 Term Loan Facility is subject to mandatory prepayments in an amount equal to: (i) 100% of the net cash proceeds of certain asset sales, insurance recovery and condemnation events, subject to reduction to 50% and 0% if specified senior secured first lien net leverage ratio targets are met; (ii) 100% of the net cash proceeds of certain debt offerings; and (iii) 50% of annual excess cash flow (as defined in the 2021 Credit Agreement), subject to reduction to 25% and 0% if specified senior secured first lien net leverage ratio targets are met.
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The Revolving Facility includes a financial covenant set at a maximum senior secured first lien net leverage ratio of 7.50:1.00, which will apply if the outstanding amount of loans and unreimbursed letter of credit drawings thereunder at the end of any fiscal quarter exceeds 35% of the aggregate of all commitments thereunder.
The 2021 Credit Agreement contains customary events of default, which, if any of them occurred, would permit or require the principal, premium, if any, and interest on all of the then outstanding obligations under the 2021 Facilities to be due and payable immediately and the commitments under the Revolving Facility to be terminated.
The 2021 Credit Agreement contains covenants that limit the ability of GIH and its subsidiaries to incur certain non-permitted indebtedness.
The proceeds of the 2021 Term Loan Facility were used, together with cash on hand, (i) to redeem in full and pay the outstanding principal amount of the 2024 Senior Secured Notes together with accrued and unpaid interest and redemption premiums and to pay fees associated with the termination of the ABL Credit Agreement (together with the redemption of the 2024 Senior Secured Notes, the “Refinancing”), and (ii) to pay the other fees and expenses incurred in connection with the Refinancing and the 2021 Facilities. The Revolving Facility is available for working capital and general corporate purposes of GIH and its subsidiaries and was undrawn as of December 31, 2024 and 2023.
HPS Credit Agreement
On December 3, 2024, the Company and GIH entered into a credit agreement (the “HPS Credit Agreement” and together with the 2021 Credit Agreement, the “Credit Agreements”) with HPS Investment Partners, LLC, as the administrative agent, and the lenders party thereto, which provides for a term loan credit facility (the “HPS Term Loan Facility” and together with the 2021 Facilities, the “Facilities”) in an aggregate principal amount of $250 million. The HPS Term Loan Facility amortizes in quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity of the HPS Term Loan Facility on April 30, 2028.
The HPS Term Loan Facility bears annual interest at a floating rate measured by reference to, at the Company’s option, either (i) an adjusted term SOFR (subject to a floor of 1.00%) plus an initial applicable margin of 6.00%, which is subject to two leverage-based step-downs of up to 0.25% each or (ii) an alternate base rate plus an applicable margin of 5.00%, which is subject to two leverage-based step-downs of up to 0.25% each.
The HPS Term Loan Facility may be prepaid at the Company’s option, at any time, without premium or penalty (other than customary breakage costs, and except that (a) during the first 12 months following the closing of the HPS Credit Agreement, certain prepayments of the HPS Term Loan Facility are subject to a 3.00% prepayment premium and (b) during the period from 12 months to 24 months following the closing of the HPS Credit Agreement, certain prepayments of the HPS Term Loan Facility are subject to a 1.00% prepayment premium), subject to minimum principal repayment amount requirements.
Subject to certain exceptions and de minimis thresholds, the HPS Term Loan Facility is subject to mandatory prepayments in an amount equal to: (i) 100% of the net cash proceeds of certain asset sales, insurance recovery and condemnation events; (ii) 100% of the net cash proceeds of certain debt offerings; and (iii) 75% of annual excess cash flow (as defined in the HPS Credit Agreement) commencing in 2026, subject to reduction to 50% if specified senior secured first lien net leverage ratio targets are met.
The HPS Credit Agreement contains customary events of default, which, if any of them occurred, would permit or require the principal, premium, if any, and interest on all of the then outstanding obligations under the HPS Term Loan Facility to be due and payable immediately.
The HPS Credit Agreement contains covenants that limit the ability of GIH and its subsidiaries to incur certain non-permitted indebtedness.
The proceeds of the HPS Term Loan Facility were used to finance a portion of the cash consideration for the acquisition of Satcom Direct.
2022 Convertible Notes
In 2018, we issued $237.8 million aggregate principal amount of 6.00% Convertible Senior Notes due 2022 (the “2022 Convertible Notes”) in private offerings to qualified institutional buyers, including pursuant to Rule 144A under the Securities Act, and in concurrent private placements.
In 2021, $135.0 million aggregate principal amount of 2022 Convertible Notes was converted by holders and settled through the issuance of 24,353,006 shares of common stock.
In May 2022, the remaining $102.8 million aggregate principal amount of 2022 Convertible Notes was converted by holders into 17,131,332 shares of common stock.
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Forward Transactions
In connection with the issuance of our 3.75% Convertible Senior Notes due 2020 (“the 2020 Convertible Notes”), we paid approximately $140.0 million to enter into prepaid forward stock repurchase transactions (the “Forward Transactions”) with certain financial institutions (the “Forward Counterparties”), pursuant to which we purchased approximately 7.2 million shares of common stock for settlement on or around the March 1, 2020 maturity date for the 2020 Convertible Notes, subject to the ability of each Forward Counterparty to elect to settle all or a portion of its Forward Transactions early.
On December 11, 2019, we entered into an amendment to one of the Forward Transactions (the “Amended and Restated Forward Transaction”) to extend the expected settlement date with respect to approximately 2.1 million shares of common stock held by one of the Forward Counterparties, JPMorgan Chase Bank, National Association (the “2022 Forward Counterparty”), to correspond with the May 15, 2022 maturity date for the 2022 Convertible Notes. As a result of the Forward Transactions, total shareholders’ equity within our consolidated balance sheets was reduced by approximately $140.0 million. In March 2020, approximately 5.1 million shares of common stock were delivered to us in connection with the Forward Transactions. In April 2021, approximately 1.5 million shares of common stock were delivered to us in connection with the Amended and Restated Forward Transaction. In May 2022, the approximately 0.6 million shares that were remaining under the Amended and Restated Forward Transaction were delivered to us. There are no longer any additional prepaid forward stock repurchase transactions outstanding.
Restricted Cash
Our restricted cash balances were $0.5 million and $0.3 million, respectively, as of December 31, 2024 and 2023, and consisted of letters of credit issued for the benefit of the landlord of our office location in Chicago, IL and the tower operator for certain of our cell sites in Canada.
For additional information on the 2021 Credit Agreement, HPS Credit Agreement and the 2022 Convertible Notes, see Note 9, “Long-Term Debt and Other Liabilities,” to our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk is currently confined to our cash and cash equivalents, short-term investments and debt. We have not used derivative financial instruments for speculation or trading purposes. The primary objectives of our investment activities are to preserve our capital for the purpose of funding operations while maximizing the income we receive from our investments without significantly increasing risk. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash equivalents and short-term investments through a variety of securities, including U.S. Treasury securities, U.S. government agency securities, and money market funds. Our cash and cash equivalents as of both December 31, 2024 and December 31, 2023 primarily included amounts in bank deposit accounts, U.S. Treasury securities and money market funds with U.S. Government and U.S. Treasury securities. The primary objective of our investment policy is to preserve capital and maintain liquidity while limiting concentration and counterparty risk.
The risk inherent in our market risk sensitive instruments and positions is the potential loss arising from interest rates as discussed below. The sensitivity analyses presented do not consider the effects that such adverse changes may have on the overall economic activity, nor do they consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ.
Interest Rate Risk: We are exposed to interest rate risk on our variable rate indebtedness, which includes borrowings under each of the Facilities (if any). We assess our market risks based on changes in interest rates utilizing a sensitivity analysis that measures the potential impact on earnings and cash flows based on a hypothetical one percentage point change in interest rates. As of December 31, 2024, we had interest rate cap agreements to hedge a portion of our exposure to interest rate movements of our variable rate debt and to manage our interest expense. Currently, we receive payments in the amounts calculated pursuant to the caps for any period in which the daily compounded SOFR rate plus a credit spread adjustment recommended by the Alternative Reference Rates Committee of 0.26% increases beyond the applicable strike rate. The termination date of the cap agreements is July 31, 2027. Over the life of the interest rate caps, the notional amounts of the caps periodically decrease, while the applicable strike prices increase.
The notional amount of outstanding debt associated with interest rate cap agreements as of December 31, 2024 was $350.0 million. Based on our December 31, 2024 outstanding variable rate debt balance, a hypothetical one percentage point change in the applicable interest rate would impact our annual interest expense by approximately $5.4 million for the next twelve-month period, which includes the impact of our interest rate caps at a strike rate of 1.25% and the $100 million reduction in the notional amount and an increase of the strike rate to 2.25% that will occur on July 31, 2025. Excluding the impact of our interest rate caps, a hypothetical one percentage point change in the applicable interest rate would impact our annual interest expense by approximately $8.5 million for the next twelve-month period.
Our earnings are affected by changes in interest rates due to the impact those changes have on interest income generated from our cash, cash equivalents and short-term investments. We believe we have minimal interest rate risk as a 10% decrease in the average
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interest rate on our portfolio would have reduced interest income for the years ended December 31, 2024, 2023 and 2022 by immaterial amounts.
Inflation: We do not believe that inflation has had a material effect on our results of operations. However, there can be no assurance that our business will not be affected by inflation in the future.
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Item 8. Financial Statements and Supplementary Data
Gogo Inc.
Index to Consolidated Financial Statements
Page No.
Consolidated Balance Sheets 63
Consolidated Statements of Operations 64
Consolidated Statements of Comprehensive Income 65
Consolidated Statements of Cash Flows 66
Consolidated Statements of Stockholders’ Equity 67
Notes to Consolidated Financial Statements 68
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Gogo Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Gogo Inc. and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with the accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2025, expressed an adverse opinion on the Company's internal control over financial reporting because of material weaknesses.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Acquisition of Satcom Direct, LLC and certain of its affiliates and subsidiaries (collectively, “Satcom Direct”) — Refer to Note 1 and Note 2 to the financial statements
Critical Audit Matter Description
The Company completed the acquisition of Satcom Direct for $440.7 million on December 3, 2024. The Company accounted for the acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including software of $55.2 million and service customer relationships of $144.6 million (the "acquired intangible assets"). Management estimated the fair value of the software using the relief from royalty method. Management estimated the fair value of the service customer relationships using the multi-period excess earnings method, which is a discounted cash flow method. The fair value determination of software and service customer relationships required management to make significant estimates and assumptions related to future cash flows and the selection of the discount rates.
We identified the fair value of acquired software and service customer relationships from the Satcom Direct acquisition as a critical audit matter because of the significant assumptions and estimates used in the valuation of the acquired intangible assets that possess higher degrees of complexity and sensitivity to the valuations. This required a high degree of audit judgment and an increased extent of effort, including the need to involve our internal fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s assumptions. The significant assumptions and estimates management makes to fair value the acquired intangible assets primarily relate to the future projected revenue and the discount rates applied to the future cash flows.
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How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to future projected revenue and the selection of the discount rates applied to the future cash flows for the acquired intangible assets included the following, among others:
•
We assessed the reasonableness of management’s future projected revenue by comparing the projections to historical results, certain peer companies, industry data, and Board of Directors presentations.
•
We evaluated whether the future projected revenue was consistent with evidence obtained in other areas of the audit.
•
With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rates by:
•
Testing the source information underlying the determination of the discount rates and testing the mathematical accuracy of the calculation.
•
Developing a range of independent estimates and comparing those to the discount rates selected by management.
/s/ Deloitte & Touche, LLP
March 14, 2025
We have served as the Company’s auditor since 2007.
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Gogo Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31, December 31,
Assets
Current assets:
Assets held for sale 16,625 —
Prepaid expenses and other current assets 55,256 64,138
Non-current assets:
Investment in convertible note 4,207 —
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt 2,500 7,250
Non-current liabilities:
Non-current operating lease liabilities 68,178 73,047
Commitments and contingencies (Note 17)
Stockholders’ equity
Accumulated other comprehensive income 5,567 15,796
See the Notes to Consolidated Financial Statements
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Gogo Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
For the Years Ended December 31,
Revenue:
Operating expenses:
Cost of service revenue (exclusive of items shown below) 99,042 69,568 64,427
Cost of equipment revenue (exclusive of items shown below) 67,561 63,383 71,473
Other expense (income):
Loss on extinguishment of debt — 2,224 —
Net income attributable to common stock per share:
Weighted average number of shares
See the Notes to Consolidated Financial Statements
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Gogo Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
For the Years Ended December 31,
Other comprehensive income (loss), net of tax
Currency translation adjustments (823 ) 291 (265 )
Cash flow hedges:
Amount recognized in other comprehensive income 4,413 4,579 34,765
See the Notes to Consolidated Financial Statements
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Gogo Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the Years Ended December 31,
Operating activities:
Adjustments to reconcile net income to cash provided by operating activities:
Loss on asset disposals, abandonments and write-downs 2,932 362 1,577
Loss on extinguishment of debt — 2,224 —
Changes in operating assets and liabilities:
Other non-current assets and liabilities 110 (2,952 ) (3,617 )
Investing activities:
Acquisition of Satcom Direct, net of cash acquired (332,724 ) — —
Redemptions of short-term investments — 74,179 —
Purchases of short-term investments — (49,383 ) (24,796 )
Purchases of convertible note and equity investment (5,000 ) (5,000 ) —
Proceeds from sale of equity investment — 6,343 —
Financing activities:
Proceeds from term loan, net of discount 245,000 — —
Payment of debt issuance costs (4,020 ) — —
Payments on finance leases (31 ) (132 ) (184 )
Effect of foreign exchange rate changes on cash 29 94 13
Less: current restricted cash 70 — —
Supplemental cash flow information:
Non-cash investing activities:
Fair value of shares issued in acquisition of Satcom Direct $ 40,500 $ — $ —
See the Notes to Consolidated Financial Statements
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Gogo Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)
(in thousands, except share data)
Accumulated
Additional Other
Common Stock Paid-In Comprehensive Accumulated Treasury Stock
Shares Par Value Capital Income Deficit Shares Amount Total
Currency translation adjustments, net of tax — — — (265 ) — — — (265 )
Fair value adjustments of cash flow hedges, net of tax — — — 28,604 — — — 28,604
Stock-based compensation expense — — 19,065 — — — — 19,065
Currency translation adjustments, net of tax — — — 291 — — — 291
Stock-based compensation expense — — 21,288 — — — — 21,288
Currency translation adjustments, net of tax — — — (823 ) — — — (823 )
Stock-based compensation expense — — 20,777 — — — — 20,777
See the Notes to Consolidated Financial Statements
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Gogo Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include our wholly owned subsidiaries. All intercompany transactions and account balances have been eliminated.
As a result of the Company’s acquisition of Satcom Direct on December 3, 2024, as described in Note 2, “Acquisition of Satcom Direct,” the Company has two reportable segments as of December 31, 2024: the legacy pre-acquisition operations of the Company, (“Gogo BA”) and the acquired entities, Satcom Direct. The Gogo BA segment provides in-flight connectivity for business aviation via air-to-ground and satellite networks. The Satcom Direct segment provides global satellite-based communication solutions primarily for business, military and government aircraft. Satcom Direct is managed as a separate reportable segment, but in the future, we may realign our reportable segments after integrating the Satcom Direct business.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates the significant estimates and bases such estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. However, actual results could differ materially from those estimates.
Reclassifications - Certain reclassification adjustments and updates have been made to the prior periods’ financial statements and notes to conform to the current period’s presentation.
Cash, Cash Equivalents and Short-Term Investments - We consider cash and cash equivalents to be short-term, highly liquid investments that have the following characteristics: readily convertible to known amounts of cash, so near their maturities that there is insignificant risk of changes in value due to any changes in market interest rates, and having maturities of three months or less when purchased. We continually monitor positions with, and the credit quality of, the financial institutions with which we invest. The carrying amounts reported in the balance sheets for cash and cash equivalents approximate the fair market value of these assets.
We consider short-term investments to be investments with maturities of twelve months or less (but greater than three months).
Allowance for Credit Losses - We regularly evaluate our accounts receivable, contract assets and other receivables within the scope of ASC 326, Financial Instruments - Credit Losses, for expected credit losses. Our current expected credit loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions, and a review of the current status of each customer’s trade accounts receivables. Due to the short-term nature of such receivables, the estimated amount of accounts receivable that may not be collected is based on the aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. Our monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of each customer’s financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. We apply a similar methodology to our current and non-current contract asset balances. However, due to the inherent additional risk associated with a long-term receivable, an additional provision for credit loss is applied to contract asset balances that will diminish over time as the contract nears its expiration date. We also record an estimate of expected credit loss associated with the New Revolving Credit Facility, as defined and described in Note 17, “Commitments and Contingencies.” The current expected credit loss allowance methodology is developed using an estimate of future borrowings under the agreement and specific credit risk profile of the borrow. While the New Revolving Credit Facility is undrawn as of December 31, 2024, the current expected credit allowance is included in Accrued liabilities on the Consolidated Balance Sheets. Upon drawdown of the revolver, the liability will be classified as an allowance against the loan receivable.
Estimates are used to determine the expected loss allowances. Such allowances are based on management’s assessment of anticipated payment, taking into account available historical and current information as well as management’s assessment of potential future developments. We are continuously monitoring our assumptions used to determine our expected credit losses which could cause us to record additional material credit losses in future periods.
Restricted Cash - Certain cash amounts are restricted as to use and are classified outside of cash and cash equivalents. Cash amounts with restrictions of twelve months or less are included in Prepaid expenses and other current assets and amounts restricted for greater than twelve months are included in Other non-current assets in our consolidated balance sheets.
Our restricted cash balances were $0.5 million and $0.3 million as of December 31, 2024 and 2023, respectively, and consisted of letters of credit issued for the benefit of the landlord of our office location in Chicago, IL and the tower operator for certain of our cell sites in Canada.
Concentrations of Credit Risk - Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash and cash equivalents. All cash and cash equivalents are invested with creditworthy financial institutions.
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Gogo Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
Income Tax - We use an asset- and liability-based approach in accounting for income taxes. Deferred income tax assets and liabilities are recorded for tax attributes and are based on the differences between the financial statement and tax basis of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the tax differences are expected to reverse. We regularly assess the need for a valuation allowance related to our deferred income tax assets to determine, based on the weight of the available positive and negative evidence, whether it is more likely than not that some or all of such deferred assets will not be realized. We also consider the existence of any uncertain tax positions and, as necessary, provide a reserve for any uncertain tax positions at each reporting date.
See Note 15, “Income Tax,” for further details.
Inventories - Inventories consist primarily of telecommunications systems and parts and are recorded at the lower of average cost or net realizable value. We evaluate the need for write-downs associated with obsolete, slow-moving and nonsalable inventory by reviewing net realizable inventory values on a periodic basis.
See Note 6, “Composition of Certain Balance Sheet Accounts,” for further details.
Property and Equipment and Depreciation - Property and equipment, including leasehold improvements, are stated at historical cost, less accumulated depreciation. Network asset inventory and construction in progress, which include materials, transmission and related equipment, interest and other costs relating to the construction and development of our network, are not depreciated until they are put into service. Network equipment consists of switching equipment, antennas, base transceiver stations, site preparation costs, and other related equipment used in the operation of our network. Depreciation expense totaled $15.1 million, $14.7 million and $7.9 million for the years ended December 31, 2024, 2023 and 2022. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives for owned assets, which are as follows:
Office equipment, furniture, fixtures and other 3-5 years
Leasehold improvements 7-13 years
Buildings 39 years
Network equipment 5-25 years
See Note 6, “Composition of Certain Balance Sheet Accounts,” for further details.
Improvements to leased property are depreciated over the shorter of the useful life of the improvement or the term of the related lease. We reassess the useful lives of leasehold improvements when there are changes to the terms of the underlying lease. Such reassessment has resulted in the useful life of specific assets being adjusted to a shorter period than originally estimated, resulting in an increase in annual depreciation expense for those assets. Repairs and maintenance costs are expensed as incurred.
Software Development Costs - We capitalize costs for network and non-network software developed or obtained for internal use during the application development stage. These costs include purchased software and direct costs associated with the development and configuration of internal use software that supports the operation of our service offerings. These costs are included in Intangible assets, net, in our consolidated balance sheets and, when the software is placed in service, are amortized on a straight-line basis over their estimated useful lives. Costs incurred in the preliminary project and post-implementation stages, as well as maintenance and training costs, are expensed as incurred.
With respect to software sold as part of our equipment sales, we capitalize software development costs once technological feasibility has been established. Such capitalized software costs are included in Intangible assets, net, in our consolidated balance sheets and amortized on a product-by-product basis over the remaining estimated economic life of the product, based on the greater of the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or the straight-line method.
Goodwill and Other Intangible Assets - Intangible assets with indefinite lives are not amortized but are reviewed for impairment at least annually or whenever events or circumstances indicate the carrying value of the asset may not be recoverable. Our FCC Licenses, as defined in Note 8, “Intangible Assets,” and the goodwill related to the acquisition of Satcom Direct are our only material indefinite-lived intangible assets. We perform our annual impairment tests during the fourth quarter of each fiscal year. We assess qualitative factors to determine the likelihood of impairment. Our qualitative analysis includes, but is not limited to, assessing the changes in macroeconomic conditions, regulatory environment, industry and market conditions, financial performance versus budget and any other events or circumstances specific to the indefinite-lived intangible assets. If it is more likely than not that the fair value of the indefinite-lived intangible assets is greater than the carrying value, no further testing is required. If our qualitative analysis indicates more testing is required, or if we elect not to perform a qualitative analysis, we will apply the quantitative impairment test method. The results of our annual indefinite-lived intangible asset impairment assessments for 2024, 2023 and 2022 indicated no impairment.
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Notes to Consolidated Financial Statements – (Continued)
Intangible assets that are deemed to have a finite life are amortized over their useful lives as follows:
Software 3-8 years
OEM and dealer relationships 8-10 years
Service customer relationships 5-7 years
Tradename and other intangible assets 5-8 years
See Note 8, “Intangible Assets,” for further details.
Long-Lived Assets - We review our long-lived assets to determine potential impairment whenever events indicate that the carrying amount of such assets may not be recoverable. We do this by comparing the carrying value of the long-lived assets with the estimated future undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. If we determine an impairment exists, the asset is written down to estimated fair value. There were no impairments of long-lived assets in 2024, 2023 or 2022.
Business Combinations - The Company uses its best estimates and assumptions to determine the fair value of tangible and intangible assets acquired and liabilities assumed, as well as the uncertain tax positions and tax-related valuation allowances that are initially recorded in connection with a business combination. These estimates and assumptions are uncertain and may require adjustment. During the measurement period of one year from the acquisition date, the Company continues to collect information and reevaluates these estimates and assumptions, and records adjustments to these estimates to goodwill. Any adjustments to the acquired assets and liabilities assumed that are identified subsequent to the measurement period are recorded in earnings.
See Note 2, “Acquisition of Satcom Direct,” for further information.
Revenue Recognition - Our revenue is primarily earned from providing connectivity and entertainment services and through sales of equipment. The Company has three main connectivity solutions, each with its own equipment solution: Satellite Broadband, ATG and Narrowband.
We determine revenue recognition through the following steps:
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Identification of the contract, or contracts, with a customer;
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Identification of the performance obligations in the contract;
•
Determination of the transaction price;
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Allocation of the transaction price to the performance obligations in the contract; and
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Recognition of revenue as we satisfy the performance obligations.
Service revenue primarily consists of subscription and usage fees paid by aircraft owners and operators for telecommunication, data, and in-flight entertainment services and is recognized as the services are provided to the customer.
Equipment revenue primarily consists of proceeds from the sale of ATG and satellite connectivity equipment and is recognized when control of the equipment is transferred to the customer, which generally occurs when the equipment is shipped.
In all cases, we evaluate whether a contract exists as it relates to collectability of the contract. Once a contract is deemed to exist, we evaluate the transaction price and deliverables under the contract.
A limited number of contracts contain multiple equipment and service deliverables. For these contracts, we account for each distinct good or service as a separate performance obligation. We allocate the contract’s transaction price to each performance obligation using the relative standalone selling price, which is based on the actual selling price for any good or service sold separately to a similar class of customer.
See Note 4, “Revenue Recognition,” for further information.
Government Assistance - In July 2023, the Company elected to participate in the Federal Communications Commission (“FCC”) Secure and Trusted Communications Networks Reimbursement Program (the “FCC Reimbursement Program”). There is no applicable authoritative guidance under GAAP to account for this government grant. Therefore, we have elected to apply International Accounting Standard (“IAS”) 20 Accounting for Government Grants and Disclosure of Government Assistance by analogy. Under IAS 20, government grants related to assets are presented as either deferred income that is recognized on a systematic basis over the useful life of the asset or by deducting the grant from the carrying value of the asset. The Company has elected to deduct the grant from the carrying value of the asset. For grants related to income, the Company has elected to recognize these grants as a deduction from the related expense. Grant receivables from the FCC are recorded by the Company once there is reasonable assurance that the Company will comply with the conditions of the grant and the grant will be received.
See Note 5, “Government Assistance,” for additional information.
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Notes to Consolidated Financial Statements – (Continued)
Research and Development Costs - Expenditures for research and development are charged to expense as incurred and totaled $44.8 million, $36.7 million and $29.6 million for the years ended December 31, 2024, 2023 and 2022, respectively. Research and development costs are reported as engineering, design and development expenses in our consolidated statements of operations.
Warranty - We provide warranties on parts and labor related to our products. Our warranty terms range from two to five years. Warranty reserves are established for costs that are estimated to be incurred after the sale, delivery and installation of the products under warranty. The warranty reserves are determined based on known product failures, historical experience and other available evidence, and are included in accrued liabilities in our consolidated balance sheets.
See Note 7, “Composition of Certain Reserves and Allowances,” for the details of the changes in our warranty reserve.
Asset Retirement Obligations - We have certain asset retirement obligations related to contractual commitments to remove our network equipment and other assets from leased cell sites upon termination of the site leases. The asset retirement obligations are classified as a noncurrent liability in our consolidated balance sheets.
See Note 6, “Composition of Certain Balance Sheet Accounts,” for the details of the changes in our asset retirement obligations.
Fair Value of Financial Instruments - We group financial assets and financial liabilities measured at fair value into three levels of hierarchy based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
A three-tier fair value hierarchy has been established which prioritizes the inputs used in measuring fair value. These tiers include:
•
Level 1 - defined as observable inputs such as quoted prices for identical assets or liabilities in active markets;
•
Level 2 - defined as observable inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•
Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
See Note 12, “Fair Value of Financial Assets and Liabilities,” for further information.
Derivatives - We are exposed to interest rate risk on our variable rate borrowings. We currently use interest rate caps to manage a portion of our exposure to interest rate changes, and have designated these interest rate caps as cash flow hedges for accounting purposes. We account for these interest rate caps in accordance with ASC 815, Derivatives and Hedging, which requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. We record the effective portion of changes in the fair value of our cash flow hedges to other comprehensive income (loss), net of tax, and subsequently reclassify these amounts into earnings in the period during which the hedged transaction is recognized.
See Note 10, “Derivative Instruments and Hedging Activities,” for further information.
Earnings Per Share - We calculate basic earnings per share using the weighted-average number of common shares outstanding during the period. We calculate diluted earnings per share using the weighted-average number of common shares outstanding and all dilutive potential common shares outstanding.
See Note 3, “Earnings Per Share,” for further information.
Stock-Based Compensation Expense - Compensation cost is measured and recognized at fair value for all stock-based payments, including stock options and performance share units (“PSUs”). For time-based vesting stock options, we estimate fair value using the Black-Scholes option-pricing model, which requires assumptions such as expected volatility, risk-free interest rate, expected life, and dividends. The fair value of PSUs are determined using a Monte Carlo simulation, which requires assumptions such as expected term, volatility, risk-free interest rate and dividends. Forfeitures are recognized when they occur. Restricted stock units (“RSUs”) and restricted stock are measured based on the fair market value of the underlying stock on the date of grant. Our stock-based compensation expense is recognized over the applicable vesting period and is included in the same operating expense line items in the consolidated statements of operations as the base cash compensation paid to the underlying employees.
See Note 14, “Stock-Based Compensation and 401(k) Plan,” for further information.
Leases – We have operating lease agreements for which we have recorded lease liabilities and right-of-use assets for leases primarily related to cell sites, data centers and office buildings. We determine whether a contract contains a lease at contract inception and calculate the lease liability and right-of-use asset using our incremental borrowing rate. Our cell site leases generally have terms of five to ten years, with renewal options for an additional five to 25 years. For certain cell sites, the renewal options are deemed to be
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Notes to Consolidated Financial Statements – (Continued)
reasonably certain to be exercised. Our data center leases have original terms between one to four years with unlimited one-year renewal options, some of which are reasonably certain to be exercised. Our building leases have original terms of ten years, with renewal options for an additional five years. We recognize operating lease expense on a straight-line basis over the lease term. We have finance leases for computer and office equipment. Covenants within the Facilities contain certain restrictions on our ability to enter into new finance lease arrangements.
See Note 16, “Leases,” for further information.
Advertising Costs - Costs for advertising are expensed as incurred.
Debt Issuance Costs - We defer loan origination fees and financing costs related to our various debt offerings as deferred financing costs. Additionally, we defer fees paid directly to the lenders related to amendments of our debt offerings as deferred financing costs. We amortize these costs over the term of the underlying debt obligation using the effective interest method and include them in interest expense in the consolidated statement of operations. The fees incurred but not paid directly to the lenders in connection with amendments are expensed as incurred to interest expense. Deferred financing costs associated with future debt issuances are written off in the period during which we determine that the debt will no longer be issued.
See Note 9, “Long-Term Debt and Other Liabilities,” for further information.
Comprehensive Income -Comprehensive income for the years ended December 31, 2024, 2023 and 2022 is net income plus or minus unrealized gains and losses on foreign currency translation adjustments and the changes in fair value of cash flow hedges.
Recently Issued Accounting Pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not listed below were assessed and determined to be either not applicable or expected to have minimal impact on our consolidated financial statements and related notes.
Accounting standards adopted:
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This guidance is effective retrospectively for fiscal years beginning after December 15, 2023 and interim periods after December 15, 2024. We adopted this standard for the annual period ended December 31, 2024 using a retrospective method. See Note 13, “Business Segments,” for further information.
Accounting standards not yet adopted:
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures, most notably in the tax rate reconciliation and income taxes paid. This guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted and the amendments should be applied on a prospective basis, however, retrospective application is permitted. As this guidance only impacts disclosures, we do not expect the adoption to have a material impact on our consolidated financial statements.
In November 2024, the FASB issues ASU No. 2024-03, Income Statement - Reporting Comprehensive Income (Subtopic 220-40): Disaggregation of Income Statement Expenseswhich requires disclosure about specific types of expenses included in the expense captions presented in the Consolidated Statements of Operations. This guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted and the amendments should be applied on a prospective basis, however, retrospective application is permitted. We are currently evaluating the impact that this guidance will have upon our consolidated financial statements and related notes.
2. Acquisition of Satcom Direct
On December 3, 2024 (the “Closing”), the Company completed the previously announced acquisition of 100% of the issued and outstanding equity interests in Satcom Direct, LLC, a Delaware limited liability company (f/k/a Satcom Direct, Inc., a Florida corporation) and certain of its affiliates and their collective subsidiaries (collectively, “Satcom Direct”), pursuant to the terms of the purchase agreement, dated as of September 29, 2024 (the “Purchase Agreement”). Founded in 1997, Satcom Direct primarily engages in providing business, military and government in-flight connectivity services as a value-added reseller of satellite services. Satcom Direct operates worldwide with an international sales and service team based in nine countries. Satcom Direct sells services and equipment globally through their international sales force to OEMs, governments, military, and private fleet companies among others. Satcom Direct manages a network operating center and maintains their own data center in Melbourne, Florida with licensed data sites strategically placed around the world. The acquisition will create the only in-flight connectivity provider able to satisfy the performance and cost needs of every segment of the global business aviation and military/government mobility markets.
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Notes to Consolidated Financial Statements – (Continued)
In accordance with the terms of the Purchase Agreement, on the Closing the Company purchased all of the issued and outstanding equity interests in Satcom Direct in exchange for: (i) an aggregate cash purchase amount of $375 million, subject to customary post-closing adjustments (the “Cash Consideration”), (ii) five million restricted shares (the “Stock Consideration”) of the Company’s common stock, par value of $0.0001 per share (“Common Stock”), and (iii) up to an additional $225 million in potential earnout payments of cash and/or Common Stock tied to realizing certain financial performance milestones over the next four years (the “Earnout Consideration” and, together with the Cash Consideration and Stock Consideration, the “Acquisition Consideration”). The Cash Consideration was financed via the Company’s $250 million HPS Credit Agreement (as defined below) and the remainder with cash on hand. The Earnout Consideration has an estimated fair value of $53 million and is included in Other non-current liabilities on the Consolidated Balance Sheets as of December 31, 2024. The fair value of the Earnout Consideration was calculated using a Monte Carlo simulation based on future gross profit projections of Satcom Direct, gross profit volatility rates of comparable companies and a risk adjusted discount rate. The fair value measurement was based on significant unobservable inputs and thus represents a Level 3 measurement.
The following table summarizes Closing fair value of the Acquisition Consideration (in thousands):
Estimated Aggregate Acquisition Consideration
Share consideration
Common Stock issued per the Purchase Agreement 5,000
Stock Consideration $ 40,500
Settlement of pre-existing relationship $ 393
Estimated fair value of Earnout Consideration $ 53,000
The Company allocated the purchase price to the net identifiable tangible and intangible assets acquired and liabilities assumed based on their preliminary estimated fair values as of the date of acquisition using the acquisition method of accounting for business combinations. The excess of the purchase price over the estimated fair value of the net assets and liabilities was allocated to goodwill. The Company determined the preliminary estimated fair values after review and consideration of relevant information as of the acquisition date, including discounted cash flows, quoted market prices and estimates made by management. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are preliminary based on management's estimates and assumptions and may be subject to change as additional information is received. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the Closing.
The following table summarizes the fair values of assets acquired and liabilities assumed as of the Closing based on the preliminary purchase price allocation (in thousands):
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Notes to Consolidated Financial Statements – (Continued)
Preliminary Aggregate Purchase Price Allocation
Preliminary fair value of estimated total Acquisition Consideration $ 440,678
Assets acquired
Cash and cash equivalents $ 12,563
Accounts receivable, net of allowances 67,841
Prepaid expenses and other current assets 13,636
Assets held for sale 16,625
Property and equipment, net 26,633
Operating lease right-of-use assets 3,202
Other non-current assets, net of allowances 5,601
Deferred income taxes 980
Total assets acquired $ 378,909
Liabilities assumed
Accrued liabilities 17,568
Non-current operating lease liabilities 2,706
Other non-current liabilities 14,522
Total liabilities assumed $ 122,442
The allocation of the purchase price presented above was based on management's preliminary estimate of the fair values of the acquired assets and assumed liabilities using valuation techniques including income, cost and market approaches. These valuation techniques incorporate the use of future projected revenues and cash flows as well as estimated discount rates. Current and noncurrent assets and liabilities are valued at historical carrying values, which approximate fair value, except as described below. The fair value measurements discussed below were based on significant inputs that are not observable and thus represent a Level 3 measurement. Inventories were valued using a combination of the comparative sales method, which estimated the expected sales price of the products, reduced by all costs expected to be incurred to complete the inventory, as well as a profit on the sale and estimated replacement cost. Assets held for sale represent the main corporate facility of Satcom Direct and associated land in Melbourne, Florida. The Company engaged a broker and expects to sell the assets within the next twelve months. Assets held for sale were valued using the income approach less the direct costs associated with selling the assets. Property and equipment, net were valued using a combination of the cost and market approaches. Customer relationships represent the fair value of future projected revenue that will be derived from sales of connectivity services and equipment to existing customers of Satcom Direct. Customer relationships were valued using the multi-period excess earnings method. This method of valuation reflects the present value of the projected cash flows that are expected to be generated by these existing customers less charges representing the contribution of other assets to those cash flows. Software and the tradename were valued under the relief from royalty method, which is equal to the present value of the after-tax royalty savings attributable to owning the software or tradename as opposed to paying a third party for its use. The estimated fair value of operating leases was determined based on current market terms, which resulted in a net unfavorable adjustment to the right-of-use asset. After assessing the preliminary fair value of the net assets acquired and liabilities assumed, the Company recorded goodwill of $184.2 million. Of the total goodwill amount, $173.8 million is attributable to the U.S. entities and is deductible for U.S. income tax purposes. The goodwill is attributable to the assembled workforce, synergies, and economies of scale.
The following table summarizes the key information underlying identifiable finite lived intangible assets related to the Satcom Direct acquisition (in thousands):
Weighted Average Estimated Useful Life (In Years) Estimated Fair Value
Service customer relationships 5 144,600
OEM customer relationships 8 10,300
Total intangible assets 213,300
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Notes to Consolidated Financial Statements – (Continued)
The amounts of revenue and loss before income taxes of Satcom Direct since the Closing included in the Consolidated Statements of Operations for the year ended December 31, 2024 are $40.2 million and $21.5 million, respectively. Transaction costs for the year ended December 31, 2024 were $19.8 million and were recorded in General and Administrative expense on the Consolidated Statements of Operations. Additionally, pre-existing change of control bonuses with the Satcom Direct seller were modified during negotiations of the Purchase Agreement in favor of the Company. The modification resulted in certain change of control bonus payments at closing, which were expensed. The remainder of the change in control bonus payments relating to certain senior leaders of the Company vest over a two-year period post-closing. The change of control bonus payments made at closing were $29.7 million and included in General and Administrative expense on the Consolidated Statements of Operations.
Supplemental Pro-Forma Information (Unaudited)
The following table presents supplemental pro-forma information for the years ended December 31, 2024 and 2023 as if the acquisition of Satcom Direct had occurred on January 1, 2023 (in thousands). The amounts have been calculated after applying the Company’s accounting policies and are based upon currently available information. The unaudited pro-forma information for all periods presented includes the following adjustments, where applicable, for business combination accounting effects resulting from the acquisition: (i) the change in Cost of Equipment to reflect the fair value change in inventory, (ii) incremental stock compensation expense, and adjustments for change in control bonuses that vest after close as post-combination compensation expense, (iii) additional Depreciation and amortization expense related to the step up in fair value for finite-lived intangible assets and property and equipment acquired, (iv) removal of historical interest expense associated with Satcom Direct’s historical indebtedness which was extinguished upon consummation of the acquisition and additional interest expense related to financing the acquisition (refer to Note 9, “Long-Term Debt and Other Liabilities,” for additional information), and (v) the related tax effects assuming the acquisition occurred on January 1, 2023. Pre-acquisition revenue and net income amounts for Satcom Direct were derived from the books and records prepared prior to the acquisition and are presented for informational purposes only and do not purport to be indicative of the results of future operations or of the results that would have occurred had the acquisition taken place as of the dates noted below.
For the Year Ended December 31,
3. Earnings Per Share
Basic and diluted earnings per share have been calculated using the weighted-average number of common shares outstanding for the period. Diluted earnings per share was computed using the treasury stock method for stock-based compensation and the if-converted method for the 2022 Convertible Notes. Contingently issuable shares are only included in the diluted earnings per share computation once all necessary conditions have been satisfied.
The shares of common stock effectively repurchased in connection with the Forward Transactions (as defined and described in Note 9, “Long-Term Debt and Other Liabilities”) were considered participating securities requiring the two-class method to calculate basic and diluted earnings per share. Net earnings were allocated between shares of common stock and participating securities on a one-to-one basis. Refer to Note 9, “Long-Term Debt and Other Liabilities,” for further information.
The diluted earnings per share calculations exclude the effect of stock options, deferred stock units, RSUs, PSUs, convertible notes and the potential Earnout Consideration when the computation is anti-dilutive. For the years ended December 31, 2024, 2023 and 2022, the weighted average number of shares excluded from the computation was 4.6 million, 1.8 million and 0.5 million shares, respectively.
The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2024, 2023 and 2022; however, for the reasons described above, the shares associated with the Forward Transactions are excluded from the computation of basic earnings per share (in thousands, except per share amounts):
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Notes to Consolidated Financial Statements – (Continued)
For the Years Ended December 31,
Less: Participation rights on Forward Transactions — — 171
Basic Earnings Per Share
Effect of Dilutive Securities
Diluted Earnings Per Share
Earnings per share - basic $ 0.11 $ 1.12 $ 0.75
Earnings per share - diluted $ 0.10 $ 1.09 $ 0.71
4. Revenue Recognition