ITEM 1. FINANCIAL STATEMENTS
Notes to Unaudited Condensed Consolidated Financial Statements
The Business - Gogo Inc. (“Gogo,” the “Company,” “we,” “us,” “our”) is the world’s largest provider of broadband connectivity services for the business aviation market. Our mission is to provide ground-like connectivity to every passenger on every flight around the globe, enabling superior passenger experiences and efficient flight operations. To accomplish our mission, we design, build and operate dedicated air-to-ground (“ATG”) networks, engineer and maintain in-flight systems of proprietary hardware and software, and deliver customizable connectivity and wireless entertainment services and global support capabilities to our aviation partners. Our services include satellite-based voice and data services through our strategic alliances with satellite providers.
On December 1, 2020, we completed the previously announced sale of our Commercial Aviation (“CA”) business to a subsidiary of Intelsat Jackson Holdings S.A. (“Intelsat
”) for a purchase price of $400 million in cash, subject to certain adjustments (the “Transaction”).
At the closing of the Transaction, the parties entered into certain ancillary agreements, including a transition services agreement, an intellectual property license agreement and commercial agreements. These agreements include an ATG network sharing agreement, pursuant to which we provide certain in-flight connectivity services on our current ATG network and, when available, our Gogo 5G network, subject to certain revenue sharing obligations. Under the ATG network sharing agreement, Intelsat will have exclusive access to the ATG network for commercial aviation in North America, subject to minimum revenue guarantees starting at $5 million in the first year of the agreement.
As a result of the Transaction, the CA business is reported in discontinued operations and all periods presented in this Form 10-Q have been conformed to present the CA business as a discontinued operation. We report the financial results of discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations reporting occurs only when the disposal of a component or a group of components (i) meets the held-for-sale classification criteria or is disposed of by sale or other than by sale, and (ii) represents a strategic shift that will have a major effect on our operations and financial results. The results of operations and cash flows of a discontinued operation are restated for all comparative periods presented.
Unless otherwise noted, discussion in these Notes to Unaudited Condensed Consolidated Financial Statements refers to our continuing operations. Refer to Note 2, “Discontinued Operations” for further information.
Basis of Presentation - The accompanying Unaudited Condensed Consolidated Financial Statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with Article 10 of Regulation S-X promulgated under the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with our annual audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the Securities and Exchange Commission (“SEC”) on March 11, 2021 (the “2020 10-K”). These Unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include normal recurring adjustments) necessary to fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented.
The results of operations and cash flows for the three- and six-month periods ended June 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021.
We had one class of common stock outstanding as of June 30, 2021 and December 31, 2020.
Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities as of 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 various other assumptions believed to be reasonable under the circumstances. However, actual results could differ materially from those estimates.
8
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
|
2.
|
Discontinued Operations
|
As discussed in Note 1, “Basis of Presentation,” on December 1, 2020, we completed the sale of our CA business to Intelsat. As a result of the Transaction, the CA business is reported for all periods as discontinued operations.
The following table summarizes the results of discontinued operations which are presented as Net loss from discontinued operations in our Unaudited Condensed Consolidated Statements of Operations (in thousands):
|
|
|
For the Three Months
|
|
|
|
For the Six Months
|
|
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue
|
|
$
|
-
|
|
|
$
|
30,246
|
|
|
$
|
-
|
|
|
$
|
123,302
|
|
|
|
Equipment revenue
|
|
|
-
|
|
|
|
11,762
|
|
|
|
-
|
|
|
|
32,254
|
|
|
|
Total revenue
|
|
|
-
|
|
|
|
42,008
|
|
|
|
-
|
|
|
|
155,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service revenue
|
|
|
-
|
|
|
|
32,056
|
|
|
|
-
|
|
|
|
91,804
|
|
|
|
Cost of equipment revenue
|
|
|
-
|
|
|
|
8,394
|
|
|
|
-
|
|
|
|
25,923
|
|
|
|
Engineering, design and development
|
|
|
-
|
|
|
|
9,911
|
|
|
|
-
|
|
|
|
25,417
|
|
|
|
Sales and marketing
|
|
|
-
|
|
|
|
3,364
|
|
|
|
-
|
|
|
|
8,566
|
|
|
|
General and administrative
|
|
|
2,754
|
|
|
|
13,372
|
|
|
|
4,555
|
|
|
|
25,832
|
|
|
|
Impairment of long-lived assets
|
|
|
-
|
|
|
|
987
|
|
|
|
-
|
|
|
|
47,376
|
|
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
45,472
|
|
|
|
-
|
|
|
|
74,563
|
|
|
|
Total operating expenses
|
|
|
2,754
|
|
|
|
113,556
|
|
|
|
4,555
|
|
|
|
299,481
|
|
|
|
Operating loss
|
|
|
(2,754
|
)
|
|
|
(71,548
|
)
|
|
|
(4,555
|
)
|
|
|
(143,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (income) expense
|
|
|
-
|
|
|
|
253
|
|
|
|
-
|
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(2,754
|
)
|
|
|
(71,801
|
)
|
|
|
(4,555
|
)
|
|
|
(147,175
|
)
|
|
|
Income tax provision (benefit)
|
|
|
100
|
|
|
|
(23
|
)
|
|
|
100
|
|
|
|
(7
|
)
|
|
|
Net loss from discontinued operations, net of tax
|
|
$
|
(2,854
|
)
|
|
$
|
(71,778
|
)
|
|
$
|
(4,655
|
)
|
|
$
|
(147,168
|
)
|
|
Gain on sale – Upon the closing of the Transaction on December 1, 2020, we received initial gross proceeds of $386.3 million, which reflects the $400.0 million purchase price, adjusted for cash, debt, transaction expenses and working capital. The final purchase price remains subject to change due to customary post-closing purchase price adjustment procedures set forth in the purchase and sale agreement between Gogo and Intelsat that are not yet complete. In February 2021, Intelsat delivered a draft closing statement that would reduce the working capital portion of the purchase price computation by $9.4 million, which would result in Gogo returning to Intelsat $9.4 million of the initial gross proceeds. Gogo has disputed certain items in Intelsat’s draft closing statement and in accordance with the terms of the purchase and sale agreement the parties have agreed to submit the disputed items to an independent accounting firm for resolution. As the post-closing purchase price adjustment is not yet finalized and therefore represents a contingent gain, $9.4 million has been recorded as a deferred gain on sale included within Accrued liabilities. As a result, during December 2020, we recognized within Gain on sale of CA business a pretax gain on sale of $38.0 million, computed as the $386.3 million of initial gross proceeds less (i) the potential $9.4 million post-closing purchase price adjustment not yet finalized, (ii) the carrying value of the assets and liabilities transferred in the Transaction and (iii) Transaction-related costs.
Stock-based compensation – In August 2020, the Compensation Committee of our Board of Directors (the “Compensation Committee”) approved modifications to the vesting conditions and exercise periods of outstanding equity compensation awards held by certain of our then-current employees who became employees of Intelsat in the Transaction. These modifications became effective upon the consummation of the Transaction. Pursuant to such modifications, the options and restricted stock units (“RSUs”) held by Intelsat employees generally vest on the earlier of (i) the original vesting date or (ii) November 30, 2021; provided that the employee does not voluntarily resign from and is not terminated for cause by Intelsat prior to such date. Certain of these awards vest based on conditions that are not classified as a service, market or performance condition and as a result such awards are classified as a liability. Other than mark-to-market accounting adjustments, all costs related to stock-based compensation for our prior employees who became employees of Intelsat in the Transaction were recognized as of December 31, 2020. During the three- and six-month periods ended
9
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
June 30, 2021, $0.5 million and $6.6 million, respectively, was reclassified from Accrued liabilities to Additional paid-in capital as the awards vested during the respective periods.
The following is a summary of our stock-based compensation expense by operating expense line contained within the results of discontinued operations (in thousands):
|
|
|
For the Three Months
|
|
|
|
For the Six Months
|
|
|
|
|
Ended June 30,
|
|
|
|
Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Cost of service revenue
|
$
|
-
|
|
$
|
363
|
|
|
$
|
-
|
|
|
$
|
807
|
|
|
Engineering, design and development
|
|
-
|
|
|
426
|
|
|
|
-
|
|
|
|
1,023
|
|
|
Sales and marketing
|
|
-
|
|
|
393
|
|
|
|
-
|
|
|
|
816
|
|
|
General and administrative
|
|
2,802
|
|
|
701
|
|
|
|
3,855
|
|
|
|
910
|
|
|
Total stock-based compensation expense
|
$
|
2,802
|
|
$
|
1,883
|
|
|
$
|
3,855
|
|
|
$
|
3,556
|
|
For additional information on our stock-based compensation plans, see Note 17, “Stock-Based Compensation and 401(k) Plan.”
Other Costs Classified to Discontinued Operations – During the three- and six-month periods ended June 30, 2021, we incurred $0.1 million and $0.8 million, respectively, of additional costs (exclusive of the stock-based compensation expense noted above) primarily due to employer-paid taxes arising from the exercise of stock options by former employees now employed by Intelsat.
|
3.
|
Recent Accounting Pronouncements
|
Accounting standards adopted:
On January 1, 2021, we adopted ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU 2020-06 amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The treasury stock method is no longer available. This standard is effective beginning on January 1, 2022, with early adoption permitted. Adoption of the standard requires using either a modified retrospective or a full retrospective approach. We elected to early adopt ASU 2020-06 using the modified retrospective approach.
The cumulative impact of using the modified retrospective approach for the adoption of ASU 2020-06 on our Unaudited Condensed Consolidated Balance Sheets as of January 1, 2021 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
|
|
|
Impact of
ASU 2020-06
|
|
|
Balances with
Adoption of
|
|
|
|
|
2020
|
|
|
|
|
ASU 2020-06
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
827,968
|
|
|
$
|
21,943
|
|
|
$
|
849,911
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
$
|
1,088,590
|
|
|
$
|
(47,423
|
)
|
|
$
|
1,041,167
|
|
|
Accumulated deficit
|
|
$
|
(1,629,843
|
)
|
|
$
|
25,480
|
|
|
$
|
(1,604,363
|
)
|
On January 1, 2021, we adopted Accounting Standards Update No. 2019-12 – Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The amendments in ASU 2019-12 eliminate certain exceptions to the incremental approach for intraperiod tax allocation and interim period income tax accounting for year-to-date losses that exceed projected losses. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. Adoption of this standard did not have a material impact on our Unaudited Condensed Consolidated Financial Statements.
10
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
Remaining performance obligations
As of June 30, 2021, the aggregate amount of the transaction price in our contracts allocated to the remaining unsatisfied performance obligations was approximately $92 million. The remaining unsatisfied performance obligations represent connectivity and entertainment service revenues which are recognized as services are provided, which is expected to occur through the remaining term of the contract. We have excluded from this amount consideration from contracts that have an original duration of one year or less.
Disaggregation of revenue
The following table presents our revenue disaggregated by category (in thousands):
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Service revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connectivity
|
|
$
|
64,053
|
|
|
$
|
43,447
|
|
|
$
|
122,456
|
|
|
$
|
100,422
|
|
|
Entertainment and other
|
|
714
|
|
|
586
|
|
|
|
1,666
|
|
|
|
1,337
|
|
|
Total service revenue
|
|
$
|
64,767
|
|
|
$
|
44,033
|
|
|
$
|
124,122
|
|
|
$
|
101,759
|
|
|
Equipment revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATG
|
|
$
|
13,854
|
|
|
$
|
6,876
|
|
|
$
|
24,451
|
|
|
$
|
16,500
|
|
|
Satellite
|
|
|
2,823
|
|
|
|
3,518
|
|
|
|
6,526
|
|
|
|
6,892
|
|
|
Other
|
|
931
|
|
|
205
|
|
|
1,145
|
|
|
|
408
|
|
|
Total equipment revenue
|
|
$
|
17,608
|
|
|
$
|
10,599
|
|
|
$
|
32,122
|
|
|
$
|
23,800
|
|
|
Customer type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft owner/operator/service provider
|
|
$
|
64,767
|
|
|
$
|
44,033
|
|
|
$
|
124,122
|
|
|
$
|
101,759
|
|
|
OEM and aftermarket dealer
|
|
|
17,608
|
|
|
|
10,599
|
|
|
|
32,122
|
|
|
|
23,800
|
|
|
Total revenue
|
|
$
|
82,375
|
|
|
$
|
54,632
|
|
|
$
|
156,244
|
|
|
$
|
125,559
|
|
Contract balances
Our current and non-current deferred revenue balances totaled $2.5 million and $3.1 million as of June 30, 2021 and December 31, 2020, respectively. Deferred revenue includes, among other things, fees paid for equipment and subscription connectivity products.
Our current and non-current contract asset balances totaled $15.5 million and $12.2 million as of June 30, 2021 and December 31, 2020, respectively. Contract assets represent the aggregate amount of revenue recognized in excess of billings primarily for certain sales programs.
Major Customers
No customer accounted for more than 10% of revenue during the three- and six-month periods ended June 30, 2021 and 2020 and no customer accounted for more than 10% of accounts receivable as of June 30, 2021 or December 31, 2020.
Basic and diluted net loss per share have been calculated using the weighted average number of common shares outstanding for the period.
The shares of common stock effectively repurchased in connection with the Forward Transactions (as defined and described in Note 10, “Long-Term Debt and Other Liabilities”) are considered participating securities requiring the two-class method to calculate basic and diluted earnings per share. Net earnings in future periods will be allocated between common shares and participating securities. In periods of a net loss, the shares associated with the Forward Transactions will not receive an allocation of losses, as the
11
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
counterparties to the Forward Transactions are not required to fund losses. Additionally, the calculation of weighted average shares outstanding as of June 30, 2021 and 2020 excludes approximately 0.6 million and 2.1 million shares, respectively, associated with the Forward Transactions.
As a result of the net loss for the three- and six-month periods ended June 30, 2021 and 2020, all of the outstanding shares of common stock underlying stock options, deferred stock units and restricted stock units were excluded from the computation of diluted shares outstanding because they were anti-dilutive.
The following table sets forth the computation of basic and diluted earnings per share for the three- and six-month periods ended June 30, 2021 and 2020; however, for the reasons described above, the shares of common stock associated with the Forward Transactions are excluded from the computation of basic earnings per share (in thousands, except per share amounts):
|
|
|
For the Three Months
Ended June 30,
|
|
|
For the Six Months
Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Net loss from continuing operations
|
|
$
|
(66,394
|
)
|
|
$
|
(14,201
|
)
|
|
$
|
(72,278
|
)
|
|
$
|
(23,589
|
)
|
|
Net loss from discontinued operations
|
|
|
(2,854
|
)
|
|
|
(71,778
|
)
|
|
|
(4,655
|
)
|
|
|
(147,168
|
)
|
|
Net loss
|
|
|
(69,248
|
)
|
|
|
(85,979
|
)
|
|
|
(76,933
|
)
|
|
(170,757
|
)
|
|
Less: Participation rights of the Forward Transactions
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Undistributed losses
|
|
$
|
(69,248
|
)
|
|
$
|
(85,979
|
)
|
|
$
|
(76,933
|
)
|
|
$
|
(170,757
|
)
|
|
Weighted-average common shares outstanding-basic and diluted
|
|
|
109,060
|
|
|
|
81,757
|
|
|
|
96,884
|
|
|
|
81,482
|
|
|
Net loss attributable to common stock per share from continuing operations-basic and diluted
|
|
$
|
(0.61
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.74
|
)
|
|
$
|
(0.29
|
)
|
|
Net loss attributable to common stock per share from discontinued operations-basic and diluted
|
|
|
(0.02
|
)
|
|
|
(0.88
|
)
|
|
|
(0.05
|
)
|
|
|
(1.81
|
)
|
|
Net loss attributable to common stock per share -basic and diluted
|
|
$
|
(0.63
|
)
|
|
$
|
(1.05
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(2.10
|
)
|
Inventories consist primarily of telecommunications systems and parts and are recorded at the lower of average cost or market price. 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.
Inventories as of June 30, 2021 and December 31, 2020 were as follows (in thousands):
|
|
|
|
June 30,
|
|
|
|
December 31,
|
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Work-in-process component parts
|
|
$
|
11,605
|
|
|
$
|
15,405
|
|
|
Finished goods
|
|
|
15,817
|
|
|
|
12,709
|
|
|
Total inventory
|
|
$
|
27,422
|
|
|
$
|
28,114
|
|
|
7.
|
Composition of Certain Balance Sheet Accounts
|
Prepaid expenses and other current assets as of June 30, 2021 and December 31, 2020 were as follows (in thousands):
|
|
|
June 30,
|
|
December 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
Contract assets
|
|
$
|
3,508
|
|
|
$
|
2,417
|
|
|
Prepaid inventories
|
|
|
2,233
|
|
|
|
124
|
|
|
Other
|
|
|
6,061
|
|
|
|
6,393
|
|
|
Total prepaid expenses and other current assets
|
|
$
|
11,802
|
|
|
$
|
8,934
|
|
12
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
Property and equipment as of June 30, 2021 and December 31, 2020 were as follows (in thousands):
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Office equipment, furniture, fixtures and other
|
|
$
|
11,786
|
|
|
$
|
10,986
|
|
|
Leasehold improvements
|
|
|
12,012
|
|
|
|
12,012
|
|
|
Network equipment
|
|
|
137,552
|
|
|
|
139,884
|
|
|
|
|
|
161,350
|
|
|
|
162,882
|
|
|
Accumulated depreciation
|
|
|
(102,143
|
)
|
|
|
(99,389
|
)
|
|
Total property and equipment, net
|
|
$
|
59,207
|
|
|
$
|
63,493
|
|
Other non-current assets as of June 30, 2021 and December 31, 2020 were as follows (in thousands):
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Contract assets, net of allowances of $397 and $375,
respectively
|
|
$
|
11,976
|
|
|
$
|
9,775
|
|
|
Interest rate cap
|
|
|
8,028
|
|
|
|
-
|
|
|
Revolving credit facility deferred financing costs
|
|
|
2,097
|
|
|
|
-
|
|
|
Other
|
|
|
1,728
|
|
|
|
1,711
|
|
|
Total other non-current assets
|
|
$
|
23,829
|
|
|
$
|
11,486
|
|
Accrued liabilities as of June 30, 2021 and December 31, 2020 were as follows (in thousands):
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Accrued interest
|
|
$
|
6,259
|
|
|
$
|
17,836
|
|
|
Employee compensation and benefits (1)
|
|
|
25,144
|
|
|
|
35,516
|
|
|
Operating leases
|
|
|
8,292
|
|
|
|
8,089
|
|
|
Deferred gain on sale of CA business (2)
|
|
|
9,400
|
|
|
|
9,400
|
|
|
Warranty reserve
|
|
|
2,400
|
|
|
|
2,400
|
|
|
Taxes
|
|
|
2,336
|
|
|
|
2,022
|
|
|
Other
|
|
|
8,012
|
|
|
|
7,746
|
|
|
Total accrued liabilities
|
|
$
|
61,843
|
|
|
$
|
83,009
|
|
|
(1)
|
Includes $16.4 million and $19.2 million as of June 30, 2021 and December 31, 2020, respectively, expected to be paid in shares of Gogo common stock upon the vesting of certain equity awards issued to former employees now employed by Intelsat and classified within discontinued operations.
|
|
(2)
|
Relates to sale of CA business. See Note 2, “Discontinued Operations,” for additional information.
|
Other non-current liabilities as of June 30, 2021 and December 31, 2020 were as follows (in thousands):
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Asset retirement obligations
|
|
$
|
4,643
|
|
|
$
|
4,401
|
|
|
Deferred tax liabilities
|
|
|
2,054
|
|
|
|
2,108
|
|
|
Other
|
|
|
2,875
|
|
|
|
4,072
|
|
|
Total other non-current liabilities
|
|
$
|
9,572
|
|
|
$
|
10,581
|
|
13
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
Our intangible assets are comprised of both indefinite-lived and finite-lived intangible assets. Intangible assets with indefinite lives are not amortized; rather, they are reviewed for impairment at least annually or whenever events or circumstances indicate the carrying value of the asset may not be recoverable. We perform our annual impairment tests of our indefinite-lived intangible assets during the fourth quarter of each fiscal year, and the results from the test performed in the fourth quarter of 2020 indicated no impairment. We also reevaluate the useful life of indefinite-lived intangible assets each reporting period to determine whether events and circumstances continue to support an indefinite useful life.
As of both June 30, 2021 and December 31, 2020, our goodwill balance was $0.6 million.
Our intangible assets, other than goodwill, as of June 30, 2021 and December 31, 2020 were as follows (in thousands, except for weighted average remaining useful life):
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
As of June 30, 2021
|
|
|
As of December 31, 2020
|
|
|
|
|
|
Remaining
|
|
|
|
Gross
|
|
|
|
|
|
|
|
Net
|
|
|
|
Gross
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Useful Life
|
|
|
|
Carrying
|
|
|
|
Accumulated
|
|
|
|
Carrying
|
|
|
|
Carrying
|
|
|
|
Accumulated
|
|
|
|
Carrying
|
|
|
|
|
|
(in years)
|
|
|
|
Amount
|
|
|
|
Amortization
|
|
|
|
Amount
|
|
|
|
Amount
|
|
|
|
Amortization
|
|
|
|
Amount
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
2.2
|
|
|
$
|
50,557
|
|
|
$
|
(35,507)
|
|
|
$
|
15,050
|
|
|
$
|
50,029
|
|
|
$
|
(31,739)
|
|
|
$
|
18,290
|
|
|
Other intangible assets
|
|
|
8.0
|
|
|
|
1,500
|
|
|
|
-
|
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
-
|
|
|
|
1,500
|
|
|
Service customer relationships
|
|
|
|
|
|
|
8,081
|
|
|
|
(8,081
|
)
|
|
|
-
|
|
|
|
8,081
|
|
|
|
(8,081
|
)
|
|
|
-
|
|
|
OEM and dealer relationships
|
|
|
|
|
|
|
6,724
|
|
|
|
(6,724
|
)
|
|
|
-
|
|
|
|
6,724
|
|
|
|
(6,724
|
)
|
|
|
-
|
|
|
Total amortized intangible assets
|
|
|
|
|
|
|
66,862
|
|
|
|
(50,312)
|
|
|
|
16,550
|
|
|
|
66,334
|
|
|
|
(46,544)
|
|
|
|
19,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCC Licenses
|
|
|
|
|
|
|
32,283
|
|
|
|
-
|
|
|
|
32,283
|
|
|
|
32,283
|
|
|
|
-
|
|
|
|
32,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
99,145
|
|
|
$
|
(50,312)
|
|
|
$
|
48,833
|
|
|
$
|
98,617
|
|
|
$
|
(46,544
|
)
|
|
$
|
52,073
|
|
Amortization expense was $1.9 million and $3.8 million, respectively, for the three- and six-month periods ended June 30, 2021 and $1.5 million and $3.0 million, respectively, for the prior-year periods.
Amortization expense for the remainder of 2021, each of the next four years and thereafter is estimated to be as follows (in thousands):
|
|
Amortization
|
|
|
Years ending December 31,
|
Expense
|
|
|
2021 (period from July 1 to December 31)
|
$
|
3,698
|
|
|
2022
|
$
|
4,937
|
|
|
2023
|
$
|
2,467
|
|
|
2024
|
$
|
923
|
|
|
2025
|
$
|
923
|
|
|
Thereafter
|
$
|
3,602
|
|
Actual future amortization expense could differ from the estimated amount as a result of future investments and other factors.
14
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
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 Unaudited Condensed Consolidated Balance Sheets. Our warranty reserve balance was $2.4 million as of both June 30, 2021 and December 31, 2020.
|
10.
|
Long-Term Debt and Other Liabilities
|
Long-term debt as of June 30, 2021 and December 31, 2020 was as follows (in thousands):
|
|
|
June 30,
|
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Term Loan Facility
|
$
|
721,451
|
|
|
$
|
-
|
|
|
2024 Senior Secured Notes
|
|
-
|
|
|
|
973,539
|
|
|
2022 Convertible Notes
|
|
102,788
|
|
|
|
215,122
|
|
|
Total debt
|
|
824,239
|
|
|
|
1,188,661
|
|
|
Less deferred financing costs
|
|
(18,124
|
)
|
|
|
(19,693
|
)
|
|
Less current portion of long-term debt
|
|
(109,080
|
)
|
|
|
(341,000
|
)
|
|
Total long-term debt
|
$
|
697,035
|
|
|
$
|
827,968
|
|
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 “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 “Term Loan Facility”) in an aggregate principal amount of $725 million, issued with a discount of 0.5%, and (ii) a revolving credit facility (the “Revolving Facility” and together with the Term Loan Facility, the “Facilities”) of up to $100 million, which includes a letter of credit sub-facility. The 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 Term Loan Facility on April 30, 2028. There are no amortization payments under the Revolving Facility, and all borrowings under the Revolving Facility mature on April 30, 2026.
The Term Loan Facility bears annual interest at a floating rate measured by reference to, at GIH’s option, either (i) an adjusted London inter-bank offered rate (subject to a floor of 0.75%) plus an applicable margin of 3.75% 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 London inter-bank offered rate (subject to a floor of 0.00%) plus an applicable margin ranging from 3.25% to 3.75% 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 2.25% to 2.75% 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.
The Facilities may be prepaid at GIH’s option at any time without premium or penalty (other than customary breakage costs and except during the first six months following the closing of the Facilities during which certain prepayments of the Term Loan Facility are subject to a prepayment premium), subject to minimum principal payment amount requirements.
Subject to certain exceptions and de minimis thresholds, the Term Loan Facility is subject to mandatory prepayments in an amount equal to:
|
|
•
|
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;
|
|
|
•
|
100% of the net cash proceeds of certain debt offerings; and
|
|
|
•
|
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.
|
15
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
The 2021 Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants include restrictions on, among other things: incurrence of indebtedness or issuance of disqualified equity interests; incurrence or existence of liens; consolidations or mergers; activities of Gogo and any subsidiary holding a license issued by the Federal Communications Commission; investments, loans, advances, guarantees or acquisitions; asset sales; dividends or other distributions on equity; purchase, redemption or retirement of capital stock; payment or redemption of certain junior indebtedness; entry into other agreements that restrict the ability to incur liens securing the Facilities; and amendment of organizational documents; in each case subject to customary exceptions.
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 Facilities to be due and payable immediately and the commitments under the Revolving Facility to be terminated.
The proceeds of the 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 (as defined below) together with accrued and unpaid interest and redemption premiums and to pay fees associated with the termination of the ABL Credit Agreement (as defined below and, together with the redemption of the 2024 Senior Secured Notes, the “Refinancing”), and (ii) to pay fees and expenses incurred in connection with the Refinancing and the Facilities (the “Transaction Costs”). The Revolving Facility is available for working capital and general corporate purposes of Gogo and its subsidiaries and was undrawn as of June 30, 2021.
As of June 30, 2021, the outstanding principal amount of the Term Loan Facility was $725 million, the unaccreted debt discount was $3.5 million and the net carrying amount was $721.5 million.
We paid approximately $19.7 million of loan origination and financing costs related to the Facilities which are being accounted for as deferred financing costs on our Unaudited Condensed Consolidated Balance Sheets and are amortized over the terms of the Facilities. Total amortization expense was $0.4 million for both the three- and six-month periods ended June 30, 2021 and is included in interest expense in our Unaudited Condensed Consolidated Statements of Operations. As of June 30, 2021, the balance of unamortized deferred financing costs related to the Facilities was $19.3 million.
On April 30, 2021, Gogo, GIH, and each direct and indirect wholly-owned U.S. restricted subsidiary of GIH (Gogo and such subsidiaries collectively, the “Guarantors”) entered into a guarantee agreement (the “Guarantee Agreement”) in favor of Morgan Stanley Senior Funding, Inc., as collateral agent (the “Collateral Agent”), whereby GIH and the Guarantors guarantee the obligations under the Facilities and certain other secured obligations as set forth in the Guarantee Agreement, and GIH and the Guarantors entered into a collateral agreement (the “Collateral Agreement”), in favor of the Collateral Agent, whereby GIH and the Guarantors grant a security interest in substantially all of their respective tangible and intangible assets (including the equity interests in each direct material wholly-owned U.S. restricted subsidiary owned by GIH or any Guarantor, and 65% of the equity interests in any non-U.S. subsidiary held directly by GIH or any Guarantor), subject to certain exceptions, to secure the obligations under the Facilities and certain other secured obligations as set forth in the Collateral Agreement.
2022 Convertible Notes
On November 21, 2018, Gogo issued $215.0 million aggregate principal amount of 6.00% Convertible Senior Notes due 2022 (the “2022 Convertible Notes”). Gogo granted an option to the initial purchasers to purchase up to an additional $32.3 million aggregate principal amount of 2022 Convertible Notes to cover over-allotments, of which $22.8 million was subsequently exercised during December 2018, resulting in a total issuance of $237.8 million aggregate principal amount of 2022 Convertible Notes. The 2022 Convertible Notes mature on May 15, 2022, unless earlier repurchased or converted into shares of our common stock under certain circumstances described below. Upon conversion, Gogo has the option to settle its obligation through cash, shares of common stock, or a combination of cash and shares of common stock. Gogo pays interest on the 2022 Convertible Notes semi-annually in arrears on May 15 and November 15 of each year, beginning on May 15, 2019.
Under the accounting standards applicable at the time of issuance, the $237.8 million of proceeds received from the issuance of the 2022 Convertible Notes was initially allocated between long-term debt (the liability component) at $188.7 million and additional paid-in capital (the equity component) at $49.1 million, within the consolidated balance sheet. The fair value of the liability component was measured using rates determined for similar debt instruments without a conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from
16
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
the aggregate face value of the 2022 Convertible Notes. If Gogo or the note holders elect not to settle the 2022 Convertible Notes through conversion, at maturity Gogo must repay the principal amount at face value in cash. Therefore, the liability component will be accreted up to the face value of the 2022 Convertible Notes, which will result in additional non-cash interest expense being recognized in the consolidated statements of operations through the 2022 Convertible Notes maturity date (see Note 12, “Interest Costs,” for additional information). The effective interest rate on the 2022 Convertible Notes, including accretion of the notes to par and debt issuance cost amortization, was approximately 13.6%. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.
As of December 31, 2020, the outstanding principal amount of the 2022 Convertible Notes was $237.8 million, the unaccreted debt discount was $22.7 million and the net carrying amount of the liability component was $215.1 million.
Upon adoption of ASU 2020-06 on January 1, 2021 (see Note 3, “Recent Accounting Pronouncements,” for more information), the 2022 Convertible Notes are accounted for as a single liability. The adoption of this standard resulted in the $49.1 million initially recorded to additional paid-in capital being reclassified and recorded as an increase to long-term debt in the Unaudited Condensed Consolidated Balance Sheets. Additionally, the $26.5 million of accretion recognized life-to-date was reversed and recorded as a reduction to long-term debt and a reduction to accumulated deficit in the Unaudited Condensed Consolidated Balance Sheets.
During January 2021, $1.0 million aggregate principal amount of 2022 Convertible Notes were converted by holders and settled through the issuance of 166,666 shares of common stock.
On March 17, 2021, Gogo entered into separate, privately negotiated exchange agreements (the “March 2021 Exchange Agreements”) with certain holders of the 2022 Convertible Notes. Pursuant to the March 2021 Exchange Agreements, such holders exchanged a total of $28,235,000 aggregate principal amount of 2022 Convertible Notes for 5,121,811 shares of our common stock on March 24, 2021. The negotiated exchange rate under the March 2021 Exchange Agreements was 181.40 shares of common stock per $1,000 principal amount of the 2022 Convertible Notes, which resulted in a loss on settlement of $4.4 million, which is included in Other (income) expense in our Unaudited Condensed Consolidated Statements of Operations for the six-month period ended June 30, 2021.
On April 1, 2021, Gogo entered into a privately negotiated exchange agreement (the “GTCR Exchange Agreement”) with an affiliate of funds managed by GTCR LLC (“GTCR”). Pursuant to the GTCR Exchange Agreement, GTCR exchanged $105,726,000 aggregate principal amount of 2022 Convertible Notes for 19,064,529 shares of our common stock on April 9, 2021. The negotiated exchange rate under the GTCR Exchange Agreement was 180.32 shares of common stock per $1,000 principal amount of 2022 Convertible Notes, which resulted in a loss on settlement of $14.6 million, which is included in Other (income) expense in our Unaudited Condensed Consolidated Statements of Operations for the three- and six-month periods ended June 30, 2021.
As of June 30, 2021, the outstanding principal amount of the 2022 Convertible Notes was $102.8 million and was classified as Current portion of long-term debt in the Unaudited Condensed Consolidated Balance Sheets.
We incurred approximately $8.1 million of issuance costs related to the 2022 Convertible Notes, of which $6.4 million and $1.7 million were recorded to deferred financing costs and additional paid-in capital, respectively, in proportion to the allocation of the proceeds of the 2022 Convertible Notes. However, upon adoption of ASU 2020-06 on January 1, 2021, the $1.7 million that was initially recorded to additional paid-in capital was reclassified and recorded as deferred financing costs, with catch-up amortization of $1.0 million recorded to accumulated deficit in the Unaudited Condensed Consolidated Balance Sheets. The deferred financing costs are being amortized over the term of the 2022 Convertible Notes using the effective interest method. Total amortization expense was $0.2 million and $0.8 million, respectively, for the three- and six-month periods ended June 30, 2021, and $0.4 million and $0.9 million, respectively, for the prior-year periods. Amortization expense is included in interest expense in the Unaudited Condensed Consolidated Statements of Operations. As of June 30, 2021 and December 31, 2020, the balance of unamortized deferred financing costs related to the 2022 Convertible Notes was $1.0 million and $2.7 million, respectively, and is included as a reduction to the carrying amount of the debt in our Unaudited Condensed Consolidated Balance Sheets. See Note 12, “Interest Costs,” for additional information.
The 2022 Convertible Notes had an initial conversion rate of 166.6667 shares of common stock per $1,000 principal amount of 2022 Convertible Notes, which is equivalent to an initial conversion price of approximately $6.00 per share of our common stock. Upon conversion, Gogo currently expects to settle in shares for the amount of the 2022 Convertible Notes then outstanding. Gogo may elect to deliver cash in lieu of all or a portion of such shares, and borrowings under the Revolving Facility are permitted to be used for this purpose. The shares of common stock subject to conversion are excluded from diluted earnings per share calculations under the if-converted method as their impact is anti-dilutive.
17
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
Holders may convert the 2022 Convertible Notes, at their option, in multiples of $1,000 principal amount at any time prior to January 15, 2022, but only in the following circumstances:
|
|
•
|
during any fiscal quarter beginning after the fiscal quarter ended December 31, 2018, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the 2022 Convertible Notes on each applicable trading day (the “Stock Price Condition”);
|
|
|
•
|
during the five-business day period following any five consecutive trading day period in which the trading price for the 2022 Convertible Notes is less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the 2022 Convertible Notes on each such trading day (the “Notes Price Condition”); or
|
|
|
•
|
upon the occurrence of specified corporate events.
|
The Stock Price Condition was triggered for the periods from October 1, 2020 through December 31, 2020, January 1, 2021 through March 31, 2021 and April 1, 2021 through June 30, 2021. Regardless of whether any of the foregoing circumstances occurs, a holder may convert its 2022 Convertible Notes, in multiples of $1,000 principal amount, at any time on or after January 15, 2022 until the second scheduled trading day immediately preceding May 15, 2022.
In addition, if Gogo undergoes a fundamental change (as defined in the indenture governing the 2022 Convertible Notes), holders may, subject to certain conditions, require us to repurchase their 2022 Convertible Notes for cash at a price equal to 100% of the principal amount of the 2022 Convertible Notes to be purchased, plus any accrued and unpaid interest. In addition, following a make-whole fundamental change, Gogo will increase the conversion rate in certain circumstances for a holder who elects to convert its 2022 Convertible Notes in connection with such make-whole fundamental change.
Forward Transactions
In connection with our issuance of 3.75% Convertible Senior Notes due 2020 (the “2020 Convertible Notes”), we paid approximately $140 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. In the future, we may request that the 2022 Forward Counterparty modify the settlement terms of the Amended and Restated Forward Transaction to provide that, in lieu of the delivery of the applicable number of shares of our common stock to us to settle a portion of the Amended and Restated Forward Transaction in accordance with its terms, the 2022 Forward Counterparty would pay to us the net proceeds from the sale by the 2022 Forward Counterparty (or its affiliate) of a corresponding number of shares of our common stock in a registered offering (which may include block sales, sales on the NASDAQ Global Select Market, sales in the over-the-counter market, sales pursuant to negotiated transactions or otherwise, at market prices prevailing at the time of sale or at negotiated prices). Any such sales could potentially decrease (or reduce the size of any increase in) the market price of our common stock. The 2022 Forward Counterparty is not required to effect any such settlement in cash in lieu of delivery of shares of our common stock and, if we request that the 2022 Forward Counterparty effect any such settlement, it will be entered into in the discretion of the 2022 Forward Counterparty on such terms as may be mutually agreed upon at the time. As a result of the Forward Transactions, total shareholders’ equity within our consolidated balance sheet was reduced by approximately $140 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. The approximately 0.6 million shares of common stock remaining under the Amended and Restated Forward Transaction are treated as retired shares for basic and diluted EPS purposes although they remain legally outstanding.
2024 Senior Secured Notes
On April 25, 2019, GIH and Gogo Finance Co. Inc. (a wholly owned subsidiary of GIH) (“Gogo Finance” and, together with GIH, the “Issuers”) issued $905 million aggregate principal amount of 9.875% senior secured notes due 2024 (the “2024 Senior Secured Notes”), at a price equal to 99.512% of their face value, under an indenture (as supplemented, the “Indenture”), dated as of April 25, 2019, among the Issuers, Gogo, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee.
18
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
The Issuers issued an additional $20 million of 2024 Senior Secured Notes on May 7, 2019, which were issued at a price equal to 100.5% of their face value, and $50 million of 2024 Senior Secured Notes on November 13, 2020, which were issued at a price equal to 103.5% of their face value.
The 2024 Senior Secured Notes were guaranteed on a senior secured basis by Gogo and all of GIH’s existing and future restricted subsidiaries (other than Gogo Finance), subject to certain exceptions. The 2024 Senior Secured Notes and the related guarantees were secured by certain liens on the Company’s collateral, which were released upon the closing of the Transaction.
We paid approximately $22.6 million of origination fees and financing costs related to the issuance of the 2024 Senior Secured Notes, which were accounted for as deferred financing costs on our Unaudited Condensed Consolidated Balance Sheets and were being amortized over the contractual term of the 2024 Senior Secured Notes using the effective interest method. Total amortization expense was $0.4 million and $1.4 million for the three- and six-month periods ended June 30, 2021, respectively, and $0.9 million and $1.8 million, respectively, for the prior-year periods. Amortization expense is included in interest expense in the Unaudited Condensed Consolidated Statements of Operations. As of December 31, 2020, the balance of unamortized deferred financing costs related to the 2024 Senior Secured Notes was $16.6 million. The remaining unamortized deferred financing costs were written off as of May 1, 2021.
The 2024 Senior Secured Notes were redeemed on May 1, 2021 (the “Redemption Date”) at a redemption price equal to 104.938% of the principal amount of the 2024 Senior Secured Notes redeemed, plus accrued and unpaid interest to (but not including) the Redemption Date. The make-whole premium paid in connection with the redemption was $48.1 million and we wrote off the remaining unamortized deferred financing costs of $15.2 million and the remaining debt discount of $1.3 million, which together are included in Loss on extinguishment of debt and settlement of convertible notes in our Unaudited Condensed Consolidated Statements of Operations for the three- and six-month periods ended June 30, 2021.
ABL Credit Facility
On August 26, 2019, Gogo, GIH and Gogo Finance entered into a credit agreement (the “ABL Credit Agreement”) with the other loan parties party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Morgan Stanley Senior Funding, Inc., as syndication agent, which provided for an asset-based revolving credit facility (the “ABL Credit Facility”) of up to $30 million, subject to borrowing base availability, and included letter of credit and swingline sub-facilities. The obligations under the ABL Credit Agreement were guaranteed by Gogo and all of its existing and future subsidiaries, subject to certain exceptions and secured by certain collateral of the Company. On April 30, 2021, the ABL Credit Agreement and all commitments thereunder were terminated. As a result of the termination, the remaining unamortized deferred financing costs of $0.3 million were written off as of May 1, 2021 and included in Loss on extinguishment of debt and settlement of convertible notes in our Unaudited Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 2021.
|
11.
|
Derivative Instruments and Hedging Activities
|
We are exposed to interest rate risk on our variable rate borrowings. We currently use interest rate caps to manage our exposure to interest rate changes, and have designated these interest rate caps as cash flow hedges for accounting purposes. Accordingly, the earnings impact of the derivatives designated as cash flow hedges is recorded upon the recognition of the variable interest payments related to the hedged debt.
In May 2021, we purchased interest rate caps with an aggregate notional amount of $650 million for $8.6 million. We receive payments in the amount calculated pursuant to the caps for any period in which the three-month USD LIBOR rate increases beyond the applicable strike rate. The notional amounts of the interest rate caps periodically decrease over the life of the caps.
The notional amounts, strike rates and end dates of the cap agreements are as follows (notional amounts in thousands):
|
Start Date
|
End Date
|
|
Notional Amounts
|
Strike Rate
|
|
7/31/2021
|
7/31/2023
|
$
|
650,000
|
0.75%
|
|
7/31/2023
|
7/31/2024
|
|
525,000
|
0.75%
|
|
7/31/2024
|
7/31/2025
|
|
350,000
|
1.25%
|
|
7/31/2025
|
7/31/2026
|
|
250,000
|
2.25%
|
|
7/31/2026
|
7/31/2027
|
|
200,000
|
2.75%
|
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. The amounts included in accumulated other comprehensive income will be reclassified to interest expense in the event the hedges are no longer considered effective, in accordance with ASC 815, Derivatives and Hedging. No gains or losses of our cash flow hedges were
19
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
considered to be ineffective and reclassified from other comprehensive income (loss) to earnings for the three-month period ended June 30, 2021. We estimate that approximately $28 thousand currently recorded in accumulated other comprehensive income (loss) will be recognized in earnings over the next 12 months. We assess the effectiveness of the hedge on an ongoing basis. Cash flows from interest rate caps are classified in the Unaudited Condensed Consolidated Statement of Cash Flows as investing activities from continuing operations.
For the three-month period ended June 30, 2021, we recorded an unrealized loss on the interest rate caps of $0.4 million, net of tax of $0.1 million. The cost of the interest rate caps will be amortized to interest expense over the life using the caplet method, from the effective date through termination date.
When derivatives are used, we are exposed to credit loss in the event of non-performance by the counterparties; however, non-performance is not anticipated. ASC 815, Derivatives and Hedging, requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. The fair values of the interest rate derivatives are based on quoted market prices for similar instruments from commercial banks (based on significant observable inputs - Level 2 inputs).
The following table presents the fair value of our interest rate derivatives included in the unaudited condensed consolidated balance sheets for the periods presented (in thousands):
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
Derivatives designated as hedging instruments
|
Balance sheet location
|
|
2021
|
|
|
2020
|
|
|
Current portion of interest rate caps
|
Prepaid expenses and other current assets
|
$
|
28
|
|
$
|
-
|
|
|
Non-current portion of interest rate caps
|
Other non-current assets
|
$
|
8,028
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
Our derivative assets and liabilities consist principally of interest rate caps, which are carried at fair value based on significant observable inputs (Level 2 inputs). Derivatives entered into by us are typically executed over-the-counter and are valued using discounted cash flows along with fair value models that primarily use market observable inputs. These models take into account a variety of factors including, where applicable, maturity, interest rate yield curves, and counterparty credit risks.
We capitalize a portion of our interest on funds borrowed during the active construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and amortized over the useful lives of the assets.
The following is a summary of our interest costs for the three- and six-month periods ended June 30, 2021 and 2020 (in thousands):
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest costs charged to expense
|
|
$
|
15,158
|
|
|
$
|
26,365
|
|
|
$
|
42,665
|
|
|
$
|
52,763
|
|
|
Amortization of deferred financing costs
|
|
|
1,078
|
|
|
|
1,453
|
|
|
|
2,781
|
|
|
|
2,872
|
|
|
Amortization of interest rate cap premium
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Accretion of debt discount
|
|
|
104
|
|
|
|
3,435
|
|
|
|
188
|
|
|
|
6,761
|
|
|
Interest expense
|
|
|
16,340
|
|
|
|
31,253
|
|
|
|
45,634
|
|
|
|
62,396
|
|
|
Interest costs capitalized to software
|
|
|
67
|
|
|
|
95
|
|
|
|
179
|
|
|
|
184
|
|
|
Total interest costs
|
|
$
|
16,407
|
|
|
$
|
31,348
|
|
|
$
|
45,813
|
|
|
$
|
62,580
|
|
20
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
13.Leases
Operating and Financing Leases — We determine whether a contract contains a lease at contract inception. For leases subsequent to adoption of ASC 842, lease liabilities are calculated using a discount rate based on our incremental borrowing rate at lease commencement. We have operating lease agreements for certain facilities and equipment as well as tower space and base stations. Certain tower space leases have renewal option terms that have been deemed to be reasonably certain to be exercised. These renewal options extend a lease up to 20 years. We recognize operating lease expense on a straight-line basis over the lease term. Operating lease liabilities recorded in the Unaudited Condensed Consolidated Balance Sheets exclude $68 million of undiscounted minimum lease payments over 10 years pursuant to leases signed but not yet commenced for new and modified rights to use tower space and $2 million of undiscounted non-cancellable lease payments pursuant to a new real estate lease for office space in Chicago that has been signed but which has not yet commenced.
The following is a summary of our lease expense included in the Unaudited Condensed Consolidated Statements of Operations (in thousands):
|
|
|
For the Three
|
|
|
|
For the Three
|
|
|
|
|
Months Ended
|
|
|
|
Months Ended
|
|
|
|
|
June 30, 2021
|
|
|
|
June 30, 2020
|
|
|
Operating lease cost
|
|
$
|
3,086
|
|
|
$
|
2,765
|
|
|
Financing lease cost:
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets
|
|
|
2
|
|
|
|
-
|
|
|
Interest on lease liabilities
|
|
|
13
|
|
|
|
-
|
|
|
Total lease cost
|
|
$
|
3,101
|
|
|
$
|
2,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
|
|
|
|
For the Six
|
|
|
|
|
Months Ended
|
|
|
|
Months Ended
|
|
|
|
|
June 30, 2021
|
|
|
|
June 30, 2020
|
|
|
Operating lease cost
|
|
$
|
6,164
|
|
|
$
|
5,880
|
|
|
Financing lease cost:
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets
|
|
|
5
|
|
|
|
-
|
|
|
Interest on lease liabilities
|
|
|
28
|
|
|
|
-
|
|
|
Total lease cost
|
|
$
|
6,197
|
|
|
$
|
5,880
|
|
|
|
|
|
|
|
|
|
|
|
Other information regarding our leases is as follows (in thousands, except lease terms and discount rates):
|
|
|
For the Six
|
|
|
For the Six
|
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
|
Operating cash flows used in operating leases
|
|
$
|
6,785
|
|
|
$
|
6,172
|
|
|
Operating cash flows used in financing leases
|
|
$
|
28
|
|
|
$
|
-
|
|
|
Financing cash flows used in financing leases
|
|
$
|
154
|
|
|
$
|
-
|
|
|
Non-cash items:
|
|
|
|
|
|
|
|
|
|
Operating leases obtained
|
|
$
|
1,016
|
|
|
$
|
3,137
|
|
|
Financing leases obtained
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Weighted average remaining lease term
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
7 years
|
|
|
|
7 years
|
|
|
Financing leases
|
|
|
2 years
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
10.5
|
%
|
|
|
10.4
|
%
|
|
Financing leases
|
|
|
16.5
|
%
|
|
|
-
|
|
21
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
Annual future minimum lease payments as of June 30, 2021 (in thousands):
|
|
|
Operating
|
|
|
Financing
|
|
|
Years ending December 31,
|
|
Leases
|
|
|
Leases
|
|
|
2021 (period from July 1 to December 31)
|
|
$
|
5,799
|
|
|
$
|
308
|
|
|
2022
|
|
|
12,086
|
|
|
|
428
|
|
|
2023
|
|
|
8,213
|
|
|
|
187
|
|
|
2024
|
|
|
6,425
|
|
|
|
-
|
|
|
2025
|
|
|
5,003
|
|
|
|
-
|
|
|
Thereafter
|
|
|
25,494
|
|
|
|
-
|
|
|
Total future minimum lease payments
|
|
|
63,020
|
|
|
|
923
|
|
|
Less: Amount representing interest
|
|
|
(20,139
|
)
|
|
|
(55
|
)
|
|
Present value of net minimum lease payments
|
|
$
|
42,881
|
|
|
$
|
868
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as of June 30, 2021
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
8,292
|
|
|
$
|
325
|
|
|
Non-current operating lease liabilities
|
|
|
34,589
|
|
|
|
-
|
|
|
Other non-current liabilities
|
|
|
-
|
|
|
|
543
|
|
|
Total lease liabilities
|
|
$
|
42,881
|
|
|
$
|
868
|
|
|
14.
|
Commitments and Contingencies
|
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.
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.
Linksmart Litigation - On April 20, 2018, Linksmart Wireless Technology, LLC filed suit against Gogo Inc., Gogo LLC, our former subsidiary and the entity that operated our CA business (“Gogo LLC”), and eight CA airline partners in the U.S. District Court for the Central District of California alleging that CA’s redirection server and login portal infringe a patent owned by the plaintiff. The suits seek an unspecified amount of damages. Intelsat is required under its contracts with these airlines, which it assumed in the Transaction, to indemnify them for defense costs and any liabilities resulting from the suit. The Court has stayed the suits against the airline customers pending resolution of the suit against Gogo. Linksmart has also filed suit against other defendants asserting the same patent. Following the filing by one of those defendants of a petition to commence an inter partes review against the asserted patent in the U.S. Patent and Trademark Office, the Court stayed the litigation against such other defendant, Gogo Inc. and Gogo LLC, but such stay was lifted in July 2019 when the U.S. Patent and Trademark Office determined that the petitioner had not met the standard of proof required to commence the inter partes review. Since the stay was lifted, discovery has been completed and motion practice continues. No date has been set for trial. We believe that the plaintiff’s claims are without merit and intend to continue to defend our position vigorously. The outcome of this litigation is inherently uncertain. No amounts have been accrued for any potential losses under this matter, as we cannot reasonably predict the outcome of the litigation or any potential losses.
Securities Litigation - On June 27, 2018, a purported stockholder of the Company filed a putative class action lawsuit in the United States District Court for the Northern District of Illinois, Eastern Division styled Pierrelouis v. Gogo Inc., naming the Company, its former Chief Executive Officer and Chief Financial Officer, its current Chief Financial Officer and its then-current President, Commercial Aviation as defendants purportedly on behalf of all purchasers of our securities from February 27, 2017
22
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
through May 4, 2018. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, alleging misrepresentations or omissions by us purporting to relate to the reliability of and installation and remediation costs associated with CA’s 2Ku antenna. The plaintiffs seek to recover from us and the individual defendants an unspecified amount of damages. In December 2018 the plaintiffs filed an amended complaint and in February 2019, we filed a motion to dismiss such amended complaint. In October 2019 the judge granted the motion to dismiss on two independent grounds, finding that plaintiffs failed to plausibly allege that defendants made materially false or misleading statements and that plaintiffs failed to plead with particularity that defendants acted with scienter. The amended complaint was dismissed without prejudice, and in December 2019, defendants filed a second amended complaint. In July 2020, plaintiffs filed a motion requesting leave to file a proposed third amendment complaint, which was granted by the Court. Plaintiffs proceeded to file the third amended complaint in July 2020 and we filed a motion to dismiss in September 2020. In April 2021, the Court denied our motion to dismiss. We believe that the claims are without merit and intend to continue to defend them vigorously. In accordance with Delaware law, we will indemnify the individual named defendants for their defense costs and any damages they incur in connection with the suit. We have filed a claim under our Directors’ and Officers’ insurance policy with respect to this suit. No amounts have been accrued for any potential losses under this matter, as we cannot reasonably predict the outcome of the litigation or any potential losses. We expect any material financial exposure for this suit, whether for defense costs or, if applicable, any damages, judgements or settlements, to be borne by our insurance carriers, although they have reserved their rights under the policies.
Derivative Litigation - On September 25, 2018 and September 26, 2018, two purported stockholders of the Company filed substantively identical derivative lawsuits in the United States District Court for the Northern District of Illinois, Eastern Division, styled Nanduri v. Gogo Inc. and Hutsenpiller v. Gogo Inc., respectively. Both lawsuits were purportedly brought derivatively on behalf of us and name us as a nominal defendant and name as defendants each member of the Company’s Board of Directors, its former Chief Executive Officer and Chief Financial Officer and its current Chief Executive Officer, Chief Financial Officer and President, Commercial Aviation. The complaints assert claims under Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duty, unjust enrichment, and waste of corporate assets, and allege misrepresentations or omissions by us purporting to relate to the 2Ku antenna’s reliability and installation and remediation costs, as well as allegedly excessive bonuses, stock options, and other compensation paid to current Officers and Directors and excessive severance paid to former Officers. The plaintiffs seek to recover, on our behalf, an unspecified amount of damages from the individual defendants. The two lawsuits were consolidated and were stayed pending a final disposition of the motion to dismiss in the class action suit. Since, as discussed above, the court in the class action suit denied the motion to dismiss, the stay has been lifted and the litigation has resumed. In addition, a purported stockholder has sent a letter to the Company’s Board of Directors, dated June 21, 2021, demanding based on substantially the same allegations, that the Company sue certain current and former Officers for, inter alia, breach of fiduciary duty.
We believe that the claims are without merit and intend to defend them vigorously. No amounts have been accrued for any potential costs under these matters, as we cannot reasonably predict the outcome or the potential costs. We have filed a claim under our Directors’ and Officers’ insurance policy with respect to these suits and the demand from the purported stockholder. We expect any material financial exposure for these matters to be borne by our insurance carriers, although they have reserved their rights under the policies.
|
15.
|
Fair Value of Financial Assets and Liabilities
|
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.
|
Refer to Note 11 “Derivative Instruments and Hedging Activities,” for fair value information relating to our interest rate caps.
Long-Term Debt:
As of June 30, 2021 and December 31, 2020, our financial assets and liabilities that are disclosed but not measured at fair value include the Term Loan Facility, the 2022 Convertible Notes, and, while outstanding, the 2024 Senior Secured Notes, which are reflected on the consolidated balance sheets at cost. The fair value measurements are classified as Level 2 within the fair value
23
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
hierarchy since they are based on quoted market prices of our instruments in markets that are not active. We estimated the fair value of the Term Loan Facility, the 2022 Convertible Notes, and, while outstanding, the 2024 Senior Secured Notes by calculating the upfront cash payment a market participant would require to assume these obligations. The upfront cash payments used in the calculations of fair value on our June 30, 2021 Unaudited Condensed Consolidated Balance Sheets, excluding any issuance costs, are the amount that a market participant would be willing to lend at June 30, 2021 to an entity with a credit rating similar to ours and that would allow such an entity to achieve sufficient cash inflows to cover the scheduled cash outflows under the Term Loan Facility and the 2022 Convertible Notes. The calculated fair value of each of the 2022 Convertible Notes is correlated to our stock price and as a result, significant changes to our stock price could have a significant impact on the calculated fair values.
The fair value and carrying value of long-term debt as of June 30, 2021 and December 31, 2020 were as follows (in thousands):
|
|
June 30, 2021
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
Fair Value (1)
|
|
|
Carrying
Value
|
|
|
|
|
|
Fair Value (1)
|
|
|
Carrying
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan Facility
|
$
|
725,000
|
|
|
$
|
721,451
|
|
|
(2
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
2022 Convertible Notes
|
$
|
194,000
|
|
|
$
|
102,788
|
|
|
|
|
|
$
|
404,000
|
|
|
$
|
215,122
|
|
|
(3
|
)
|
|
2024 Senior Secured Notes
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
$
|
1,045,000
|
|
|
$
|
973,539
|
|
|
(4
|
)
|
(1) Fair value amounts are rounded to the nearest million.
(2) Carrying value of the Term Loan Facility reflects the unaccreted debt discount of $3.5 million as of June 30, 2021. See Note 10, “Long-Term Debt and Other Liabilities,” for further information.
(3) Carrying value of the 2022 Convertible Notes reflects the unaccreted debt discount of $22.6 million as of December 31, 2020. See Note 10, “Long-Term Debt and Other Liabilities,” for further information.
(4) Carrying value of the 2024 Senior Secured Notes reflects the unaccreted debt discount of $1.5 million as of December 31, 2020. See Note 10, “Long-Term Debt and Other Liabilities,” for further information.
The effective income tax rates for continuing operations for the three- and six-month periods ended June 30, 2021 were (0.4)% and (0.4)%, respectively, compared to (1.0)% and (1.2)%, respectively, for the prior-year periods. For the three- and six-month periods ended June 30, 2021 and 2020, our income tax expense was not significant primarily due to the full valuation allowance against our net deferred tax assets.
We are subject to income taxation in the United States and Canada. With few exceptions, as of June 30, 2021, we are no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2017.
We record penalties and interest relating to uncertain tax positions in the income tax provision line item in the Unaudited Condensed Consolidated Statements of Operations. No penalties or interest related to uncertain tax positions were recorded for the three- and six-month periods ended June 30, 2021 and 2020. As of June 30, 2021 and December 31, 2020, we did not have a liability recorded for interest or potential penalties.
As a result of the Refinancing and the exchange of certain outstanding 2022 Convertible Notes for our common stock, our interest expense will decrease. We will consider the decrease in interest expense and the resulting impact on pre-tax results as we continue to assess whether we need to maintain all, or part, of the valuation allowance on our deferred tax assets. A reversal of our valuation allowance may occur within the next twelve months.
Presently, we do not require a reserve for unrecognized tax benefits, nor do we foresee any change to that position during the next 12 months.
|
17.
|
Stock-Based Compensation and 401(k) Plan
|
Stock-Based Compensation — As of June 30, 2021, we maintained three stock-based incentive compensation plans (“Stock Plans”), as well as an Employee Stock Purchase Plan (“ESPP”). See Note 14, “Stock-Based Compensation,” in our 2020 10-K for further information regarding these plans. The majority of our equity grants are awarded on an annual basis.
For the six-month period ended June 30, 2021, options to purchase 26,726 shares of common stock were granted, options to purchase 212,397 shares of common stock were exercised, 9,147 options to purchase shares of common stock were forfeited and no options to purchase shares of common stock expired. The fair value of the options granted during the six-month period ended June 30, 2021 was approximately $0.2 million, which will be recognized over a period of one year.
24
Gogo Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
For the six-month period ended June 30, 2021, 2,189,126 RSUs were granted, 927,738 RSUs vested and 129,643 RSUs were forfeited. The fair value of the RSUs granted during the six-month period ended June 30, 2021 was approximately $20.6 million, which will be recognized over a period of four years.
For the six-month period ended June 30, 2021, 63,797 deferred stock units were granted and 131,147 vested. The fair value of the deferred stock units granted during the six-month period ended June 30, 2021 was approximately $0.7 million, which will be recognized over a period of one year.
For the six-month period ended June 30, 2021, 23,669 shares of common stock were issued under our Employee Stock Purchase Plan.
The following is a summary of our stock-based compensation expense by operating expense line in the Unaudited Condensed Consolidated Statements of Operations, excluding stock-based compensation expense for discontinued operations (in thousands):
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Cost of service revenue
|
|
$
|
124
|
|
|
$
|
27
|
|
|
$
|
155
|
|
|
$
|
60
|
|
|
Cost of equipment revenue
|
|
|
148
|
|
|
|
62
|
|
|
|
195
|
|
|
|
135
|
|
|
Engineering, design and development
|
|
|
380
|
|
|
|
162
|
|
|
|
487
|
|
|
|
318
|
|
|
Sales and marketing
|
|
|
388
|
|
|
|
196
|
|
|
|
536
|
|
|
|
525
|
|
|
General and administrative
|
|
|
1,852
|
|
|
|
834
|
|
|
|
3,368
|
|
|
|
2,565
|
|
|
Total stock-based compensation expense
|
|
$
|
2,892
|
|
|
$
|
1,281
|
|
|
$
|
4,741
|
|
|
$
|
3,603
|
|
401(k) Plan — Under our 401(k) plan, all employees who are eligible to participate are entitled to make tax-deferred contributions, subject to Internal Revenue Service limitations. We match 100% of the employee’s first 4% of contributions made, subject to annual limitations. Our matching contributions were $0.5 million and $0.9 million, respectively, during the three- and six-month periods ended June 30, 2021 and $0.3 million and $0.6 million, respectively, for the prior-year periods.
|
18.
|
Research and Development Costs
|
Expenditures for research and development are charged to expense as incurred and totaled $6.5 million and $12.0 million, respectively, during the three- and six-month periods ended June 30, 2021 and $5.5 million and $12.9 million, respectively, for the prior-year periods. Research and development costs are reported as engineering, design and development expenses in our Unaudited Condensed Consolidated Statements of Operations.
|
19.
|
Accumulated Other Comprehensive Income (Loss)
|
The following is a summary of changes in accumulated other comprehensive income (loss) by component (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Cash Flow
|
|
|
|
|
|
|
|
|
|
Adjustment
|
|
|
Hedge
|
|
|
Total
|
|
|
Balance at December 31, 2020
|
|
|
$
|
(1,013
|
)
|
|
$
|
-
|
|
|
$
|
(1,013
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
|
138
|
|
|
|
(430
|
)
|
|
|
(292
|
)
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net current period comprehensive income (loss)
|
|
|
|
138
|
|
|
|
(430
|
)
|
|
|
(292
|
)
|
|
Balance at June 30, 2021
|
|
|
$
|
(875
|
)
|
|
$
|
(430
|
)
|
|
$
|
(1,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Cash Flow
|
|
|
|
|
|
|
|
|
|
Adjustment
|
|
|
Hedge
|
|
|
Total
|
|
|
Balance at December 31, 2019
|
|
|
$
|
(2,256
|
)
|
|
$
|
-
|
|
|
$
|
(2,256
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
|
(2,602
|
)
|
|
|
-
|
|
|
|
(2,602
|
)
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net current period comprehensive loss
|
|
|
|
(2,602
|
)
|
|
|
-
|
|
|
|
(2,602
|
)
|
|
Balance at June 30, 2020
|
|
|
$
|
(4,858
|
)
|
|
$
|
-
|
|
|
$
|
(4,858
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report may constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, international expansion, future technologies, future operations, margins, profitability, future efficiencies, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “future” and the negative of these or similar terms and phrases are intended to identify forward-looking statements in this Quarterly Report on Form 10-Q.
Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following:
|
|
•
|
our ability to attract and retain customers and generate revenue from the provision of our connectivity and entertainment services;
|
|
|
•
|
our reliance on our key OEMs and dealers for equipment sales;
|
|
|
•
|
our ability to develop and deploy Gogo 5G on a timely basis;
|
|
|
•
|
our ability to compete effectively with other current or future providers of in-flight connectivity services and other products and services that we offer, including on the basis of price and performance;
|
|
|
•
|
the impact of the COVID-19 pandemic and the measures implemented to combat it;
|
|
|
•
|
our ability to evaluate or pursue strategic opportunities;
|
|
|
•
|
our reliance on third parties for equipment and services;
|
|
|
•
|
our ability to recruit, train and retain highly skilled employees;
|
|
|
•
|
the achievement of the anticipated benefits of the sale of the CA business or our ability to operate as a standalone business;
|
|
|
•
|
the impact of adverse economic conditions;
|
|
|
•
|
a revocation of, or reduction in, our right to use licensed spectrum, the availability of other air-to-ground spectrum to a competitor or the repurposing by a competitor of other spectrum for air-to-ground use;
|
|
|
•
|
our use of open source software and licenses;
|
|
|
•
|
the availability of additional ATG spectrum in the United States or internationally;
|
|
|
•
|
the effects of service interruptions or delays, technology failures and equipment failures or malfunctions arising from defects or errors in our software or defects in or damage to our equipment;
|
|
|
•
|
the impact of assertions by third parties of infringement, misappropriation or other violations; our ability to innovate and provide products and services;
|
|
|
•
|
the impact of government regulation of the internet;
|
|
|
•
|
our possession and use of personal information;
|
|
|
•
|
the extent of expenses or liabilities resulting from litigation;
|
|
|
•
|
our ability to protect our intellectual property;
|
|
|
•
|
our substantial indebtedness, limitations and restrictions in the agreements governing our current and future indebtedness and our ability to service our indebtedness;
|
26
|
|
•
|
fluctuations in our operating results;
|
|
|
•
|
the utilization of our tax losses; and
|
|
|
•
|
other risks and factors listed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (“SEC”) on March 11, 2021 (the “2020 10-K”), in Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as filed with the SEC on May 6, 2021 (the “2021 Q1 10-Q”), and in Item 1A of this Report.
|
Any one of these factors or a combination of these factors could materially affect our financial condition or future results of operations and could influence whether any forward-looking statements contained in this report ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and you should not place undue reliance on them. All forward-looking statements speak only as of the date made and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
In addition, while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts, or opinions, such reports are not our responsibility.
27