Gogo Announces Third Quarter 2017 Financial Results

Nov. 2, 2017

Gogo announced its financial results for the quarter ended September 30, 2017.

Third Quarter 2017 Consolidated Financial Results

• Revenue increased to $172.9 million, up 17% from Q3 2016. Service revenue increased to $153.3 million, up 19% from Q3 2016, due to a 10% increase in commercial aircraft online to 3,169, a 15% increase in ATG business aircraft online to 4,567, and increased customer usage across all segments.
• Net loss increased to $45.3 million, a 36% increase from Q3 2016, and Adjusted EBITDA⁽¹⁾ decreased to $13.0 million, down 15% from Q3 2016. Excluding $4.5 million in charges related to write-downs of legacy product lines and the retirement of Gogo test aircraft, net loss increased to $40.8 million and Adjusted EBITDA increased to $17.5 million.
• Capital expenditures increased to $68.5 million from $43.7 million in Q3 2016. Cash CapEx⁽¹⁾ increased to $53.1 million from $35.6 million in Q3 2016 due to the planned increase in success-based airborne equipment purchases during this period of heavy 2Ku installations.
• Cash, cash equivalents and short-term investments were $410.9 million as of September 30, 2017. Gogo issued an additional $100.0 million of senior secured notes at 113% of par value on September 25, 2017 raising $110.0 million in net proceeds.

"With 2Ku installations accelerating, high bandwidth is arriving in North America and globally," said Michael Small, Gogo's President and CEO. "More bandwidth enables us to improve customer experience, engage more users, and offer new products and services."

"North American satellite aircraft generated a robust $220,000 in annualized ARPA in our commercial aviation business with take rates increasing across our fleet," said Barry Rowan, Gogo's Executive Vice President and CFO. "We expect Adjusted EBITDA to increase substantially in Q4 2017 and in 2018 as we execute on our plan."

Third Quarter 2017 Business Segment Financial Results

Commercial Aviation - North America (CA-NA)

CA-NA aircraft online increased to more than 2,800 aircraft in the quarter, of which approximately 9% utilize the satellite network. CA-NA Satellite ARPA grew to more than $220,000 on an annualized basis and CA-NA ATG ARPA was approximately $125,000 on an annualized basis. High bandwidth is rapidly arriving in North America with satellite equipment installations accelerating and our next generation ATG network on track for 2018 commercial availability.

• Aircraft online reached 2,817, up 188 aircraft from September 30, 2016. As of September 30, 2017, CA-NA had approximately 900 awarded but not yet installed 2Ku aircraft of which 100 are net new aircraft.
• Take rate reached 7.5%, up from 6.5% in Q3 2016 driven by an increase in passenger engagement from airline and third party paid offerings.
• Total revenue increased to $95.7 million, up 6% from Q3 2016, driven primarily by more aircraft online.
• Segment profit increased to $16.0 million, up 10% from Q3 2016, representing a 17% segment profit margin. Excluding $2.4 million in charges related to the write-down of a legacy product line and the retirement of Gogo test aircraft, segment profit margin would have been approximately 19% in Q3 2017.

Commercial Aviation - Rest of World (CA-ROW)

CA-ROW revenue doubled year-over-year for the third quarter in a row and ARPA grew 30% to approximately $226,000 on an annualized basis as passenger demand continued to grow, with take rate reaching 13.5% in Q3 2017. Sequentially, CA-ROW ARPA remained flat as growth in ARPA on existing aircraft was offset by lower ARPA on newly installed fleets.

• Aircraft online reached 352, up 96 aircraft from September 30, 2016. CA-ROW currently has approximately 680 net new 2Ku awarded but not yet installed aircraft including the 100 aircraft recently awarded by LATAM Airlines.
• Total revenue increased to $16.6 million, up 119% from Q3 2016, driven primarily by higher ARPA and an increase in aircraft online.
• Segment loss increased to $24.1 million from $19.9 million in Q3 2016, but improved by more than $7.0 million from Q2 2017. The sequential improvement was driven by lower spend on OEM programs in the quarter and increased utilization of satellite network capacity.

Business Aviation (BA)

BA service revenue grew 30% year-over-year to $43.2 million with demand continuing to build for ATG systems across customer segments. In the quarter, BA ATG aircraft online increased to 4,567, up 15% year-over-year with ATG average monthly ARPA rising 13% to $2,874. As of September 30, 2017, BA had more than 10,000 narrowband satellite and ATG systems online.

• Equipment revenue increased to $17.3 million, up 11% from Q3 2016.
• Total segment revenue increased to $60.5 million, up 24% from Q3 2016.
• Segment profit increased to $21.3 million, up 3% from Q3 2016, representing a 35% segment profit margin. Excluding a $2.1 million charge related to the write-down of a legacy product line, segment profit margin would have been approximately 39% in Q3 2017, down from 42% in Q3 2016. Segment profit was also impacted by increased support from engineering, design and development as well as sales and marketing for new market and technology launches.

Recent Developments

• Alaska Airlines selected 2Ku for in-flight connectivity on more than 200 of its existing Boeing and Airbus aircraft and 50 additional aircraft which include replacement of a competitor's systems. Installations will begin in the first half of 2018 and be completed by early 2020.
• LATAM Airlines Brazil selected 2Ku for in-flight connectivity on 100 of its A320 aircraft. The inflight connectivity service will begin in the first half of 2018 with full roll-out expected to be completed in the first half of 2019.
• Gogo conducted the first successful test flight on its Next Generation ATG network and began nationwide network rollout. Our Next Generation ATG network is on track for 2018 commercial availability.
• Gogo announced Gogo Vision Touch, its new product line to be initially launched on Delta Air Lines. Gogo Vision Touch delivers in-flight entertainment wirelessly to a seat back screen, enabling a low cost, light weight solution and disrupting the legacy in-flight entertainment market.
• Gogo Business Aviation's AVANCE L5 system, formerly Gogo Biz 4G, was selected by Dassault Aviation and Embraer as a factory option on a number of their new production aircraft. Gogo AVANCE seamlessly integrates connectivity and entertainment offerings, smart cabin control, and connected aircraft applications into one highly configurable technology platform.
• Gogo Business Aviation announced a global high throughput satellite solution for business aircraft. The service is expected to be available in the second half of 2018.

Business Outlook

For the full year ending December 31, 2017, the Company expects:

• 2Ku installations of 450 to 550
• Total revenue at the high end of the $670 million to $695 million guidance range
• Adjusted EBITDA at the low end of the $60 million to $75 million guidance range, excluding $4.5 million in charges incurred in Q3 2017
• Gross capital expenditures of $290 million to $330 million. Cash CapEx at the low end of the $230 million to $260 million guidance range, of which approximately 70% is related to success-based airborne equipment purchases.

Gogo reaffirms all long-term guidance previously provided in the fourth quarter 2016 earnings press release.