Gogo Announces Fourth Quarter and Full-Year 2017 Financial Results

Feb. 22, 2018 /PRNewswire/ -- Gogo (NASDAQ: GOGO), the leading global provider of broadband connectivity products and services for aviation, today announced its financial results for the fourth quarter and full-year ended December 31, 2017.

Fourth Quarter 2017 Consolidated Financial Results

Revenue increased to a record $188.0 million, up 18% from Q4 2016. Service revenue increased to $164.0 million, up 18% from Q4 2016, driven by a 10% increase in commercial aircraft online to 3,231, a 12% increase in ATG business aircraft online to 4,678, and increased customer usage across all segments.

Net loss increased to $41.1 million, a 53% increase from Q4 2016, and Adjusted EBITDA(1) grew to a record $24.9 million, up 8% from Q4 2016.

Capital expenditures increased to $66.0 million from $48.2 million in Q4 2016. Cash CAPEX (1) increased to $43.1 million from $33.5 million in Q4 2016, primarily 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 $409.1 million as of December 31, 2017.

"During the fourth quarter, we executed on our strategic initiatives: installing 2Ku rapidly, engaging more passengers, and winning aircraft," said Michael Small, Gogo's President and CEO. "Our continued rapid deployment of high-bandwidth technologies in 2018 is the catalyst for delivering a great customer experience and long-term revenue and profitability growth."

"Our record financial results for the quarter lay a strong foundation for 2018 financial performance," said Barry Rowan, Gogo's Executive Vice President and CFO. "With 2Ku aircraft online scaling in 2018 and continued rapid growth of our Business Aviation division, we look forward to delivering another strong year of financial performance as we target achieving positive free cash flow in 2019."

Fourth Quarter 2017 Business Segment Financial Results

Commercial Aviation - North America (CA-NA)

CA-NA aircraft equivalents increased to nearly 2,900 aircraft in the quarter, of which approximately 15% were satellite-equipped aircraft. The annualized average monthly service revenue per aircraft, or ARPA, for CA-NA satellite-equipped aircraft was $223,000, and the annualized ARPA for CA-NA ATG-equipped aircraft was $131,000. The weighted average peak speed to an aircraft in CA-NA increased to nearly 20 Mbps, approximately doubling from Q4 2016.

Aircraft online reached 2,840, up 164 aircraft from December 31, 2016. As of December 31, 2017, CA-NA had more than 650 awarded but not yet installed 2Ku aircraft, of which approximately 75 are net new aircraft.

Take rate reached a record 9.9%, up 36% from 7.3% in Q4 2016, due to increased passenger adoption resulting from airline and third party paid offerings.

Total revenue increased to $105.1 million, up 4% from Q4 2016, driven primarily by increased aircraft online equivalents and higher ARPA.

Segment profit decreased to $23.5 million, down 6% from Q4 2016, and segment profit margin was 22%.

Commercial Aviation - Rest of World (CA-ROW)

CA-ROW revenue doubled year-over-year for the fourth consecutive quarter. Annualized ARPA grew 17% to $201,000 year-over-year. Compared to the third quarter of 2017, CA-ROW ARPA declined as a result of more aircraft from new airline partners coming online during Q4 2017. Annualized ARPA for airlines on which Gogo service was commercially launched prior to 2017 grew 66% year-over-year.

Aircraft online reached 391, up 124 aircraft from December 31, 2016. CA-ROW had approximately 770 net new 2Ku awarded but not yet installed aircraft as of December 31, 2017.

Total revenue increased to $16.9 million, up 127% from Q4 2016, driven primarily by higher ARPA and an increase in aircraft online.

Segment loss of $24.9 million increased slightly from Q4 2016.

Business Aviation (BA)

BA service revenue grew 25% year-over-year to $45.5 million. ATG aircraft online increased to 4,678, up 12% year-over-year, as demand for inflight connectivity grew across all market segments, including a 19% increase in light jets and turboprop aircraft online. ATG average monthly service revenue per unit, or ARPU, grew 13% to $2,953.

Equipment revenue increased to $20.6 million, up 36% from Q4 2016, as demand for the new AVANCE platform continued to build.

Total segment revenue increased to $66.0 million, up 28% from Q4 2016.

Segment profit increased to a record $26.8 million, up 16% from Q4 2016, and segment profit margin was 41%.

Full-Year 2017 Consolidated Financial and Operating Results

Gogo was within or exceeded full-year 2017 guidance, including total revenue, Adjusted EBITDA, Cash CAPEX, and 2Ku installations.

2Ku was installed on more than 470 aircraft in 2017, including more than 130 in CA-ROW, to end the year with more than 550 2Ku equipped aircraft online. For the fourth consecutive year, Gogo installed its inflight connectivity equipment on more than 1,000 combined BA and CA aircraft, substantially more than any other company in the industry.

Revenue increased to $699.1 million, up 17% from $596.6 million in 2016. Service revenue increased to $617.9 million, up 20% from $514.3 million in 2016.

CA-NA revenue increased to $400.6 million, up 8% from $371.5 million in 2016.

BA revenue increased to $240.6 million, up 21% from $199.6 million in 2016.

CA-ROW revenue increased to $57.9 million, up 128% from $25.4 million in 2016.

Net loss increased to $172.0 million, up 38% from 2016, and Adjusted EBITDA was $58.5 million compared to $67.2 million in 2016. Excluding $4.5 million in charges in Q3 2017 related to write-downs of legacy product lines and the retirement of Gogo test aircraft, net loss was $167.5 million and Adjusted EBITDA was $63.0 million.

Capital expenditures increased to $280.2 million from $176.9 million in 2016. Cash CAPEX increased to $220.5 million, up 66% from $133.1 million in 2016, primarily due to increased success-based airborne equipment purchases for 2Ku installations.

For the year ended December 31, 2017, we recorded approximately $3.0 million of income tax benefits due to a reduction in our deferred tax liabilities as a result of the Tax Cuts and Jobs Act ("TCJA"). TCJA will not have a material impact on our near term financial results as we had approximately $545 million in federal net operating losses ("NOLs") and $356 million in state NOLs as of December 31, 2017.

Business Outlook

Effective January 1, 2018, the Company is adopting the new revenue recognition standard, Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers" ("ASC 606"), pursuant to which equipment revenue will be recognized at the time of installation, rather than deferred over the life of the airline agreement. The Company is providing guidance for the fiscal year ending December 31, 2018, under both ASC 606 and the prior revenue recognition standard (ASC 605) to provide greater comparability with our reported results for the fiscal year ended December 31, 2017.

In our commercial aviation segments, under our contracts with airlines, aircraft operate under either a turnkey or airline-directed commercial arrangement. Starting in 2018, we expect the mix of aircraft operating under the airline-directed model to be significantly higher than in prior years due to the transition of certain existing airlines from the turnkey model to the airline-directed model and new aircraft coming online under the airline-directed model. Our 2018 guidance reflects this business model shift.

Under the airline-directed model, airborne equipment revenue and cost, including the co-investment provided for our airline partners, flow through the income statement and are reflected in Adjusted EBITDA. Under the turnkey model, the impact of airborne equipment co-investment is not included in Adjusted EBITDA because it is recorded as a capital expenditure.  As a result, under ASC 605, our Adjusted EBITDA for 2018 is negatively impacted by the shift to the airline-directed model. However, this negative impact is partially offset by certain provisions within ASC 606.

For the full year ending December 31, 2018, the Company expects:

Total revenue of $865 million to $935 million (or $750 million to $790 million under ASC 605, an increase of 7% to 13% from 2017)

CA-NA revenue of $445 million to $485 million, of which approximately 20% is equipment revenue (or $380 million to $415 million under ASC 605)

CA-ROW revenue of $125 million to $165 million, of which approximately 50% is equipment revenue (or $75 million to $90 million under ASC 605)

BA revenue of $285 million to $295 million (same as under ASC 605)

Adjusted EBITDA of $75 million to $100 million (or $65 million to $90 million under ASC 605, an increase of 11% to 54% from 2017). We estimate that 2018 Adjusted EBITDA under ASC 605 would be approximately $15 million higher when adjusting for the accounting impact of the airline-directed model.

An increase of 550 to 650 2Ku aircraft online, of which approximately 300 are expected to be in CA-ROW. Total 2Ku aircraft online as of December 31, 2018 of 1,100 to 1,200.

Gross capital expenditures of $150 million to $170 million and Cash CAPEX of $110 million to $130 million, of which approximately 35% is related to airborne Cash CAPEX. In addition, we expect airborne equipment inventory purchases related to airline-directed installations of $15 million to $30 million.

Free Cash Flow is expected to improve from 2017 to 2018 driven by Adjusted EBITDA growth and lower Cash CAPEX. The Company reaffirms its target of becoming Free Cash Flow positive in 2019 and for the full year 2020. The Company will provide an update to its other long-term targets under ASC 606 on the Company's first quarter 2018 earnings conference call in May 2018.