000151207712/31falseQ22020us-gaap:AccountingStandardsUpdate201602MemberP4YP5YP1YP1YP1Y.0400015120772020-01-012020-06-30xbrli:shares00015120772020-08-12iso4217:USD00015120772020-06-3000015120772019-12-31iso4217:USDxbrli:shares0001512077us-gaap:LicenseAndServiceMember2020-04-012020-06-300001512077us-gaap:LicenseAndServiceMember2019-04-012019-06-300001512077us-gaap:LicenseAndServiceMember2020-01-012020-06-300001512077us-gaap:LicenseAndServiceMember2019-01-012019-06-300001512077us-gaap:ProductMember2020-04-012020-06-300001512077us-gaap:ProductMember2019-04-012019-06-300001512077us-gaap:ProductMember2020-01-012020-06-300001512077us-gaap:ProductMember2019-01-012019-06-3000015120772020-04-012020-06-3000015120772019-04-012019-06-3000015120772019-01-012019-06-300001512077us-gaap:CommonStockMember2019-12-310001512077us-gaap:TreasuryStockMember2019-12-310001512077us-gaap:AdditionalPaidInCapitalMember2019-12-310001512077ent:SubscriptionsMember2019-12-310001512077us-gaap:RetainedEarningsMember2019-12-310001512077us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001512077us-gaap:CommonStockMember2020-01-012020-03-310001512077us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-3100015120772020-01-012020-03-3100015120772019-01-012019-12-310001512077srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2019-12-310001512077srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2019-12-310001512077us-gaap:RetainedEarningsMember2020-01-012020-03-310001512077us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310001512077us-gaap:CommonStockMember2020-03-310001512077us-gaap:TreasuryStockMember2020-03-310001512077us-gaap:AdditionalPaidInCapitalMember2020-03-310001512077ent:SubscriptionsMember2020-03-310001512077us-gaap:RetainedEarningsMember2020-03-310001512077us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-3100015120772020-03-310001512077us-gaap:CommonStockMember2020-04-012020-06-300001512077us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300001512077srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2020-03-310001512077srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2020-03-310001512077us-gaap:RetainedEarningsMember2020-04-012020-06-300001512077us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300001512077us-gaap:CommonStockMember2020-06-300001512077us-gaap:TreasuryStockMember2020-06-300001512077us-gaap:AdditionalPaidInCapitalMember2020-06-300001512077ent:SubscriptionsMember2020-06-300001512077us-gaap:RetainedEarningsMember2020-06-300001512077us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300001512077us-gaap:CommonStockMember2018-12-310001512077us-gaap:TreasuryStockMember2018-12-310001512077us-gaap:AdditionalPaidInCapitalMember2018-12-310001512077ent:SubscriptionsMember2018-12-310001512077us-gaap:RetainedEarningsMember2018-12-310001512077us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-3100015120772018-12-310001512077us-gaap:CommonStockMember2019-01-012019-03-310001512077us-gaap:AdditionalPaidInCapitalMember2019-01-012019-03-3100015120772019-01-012019-03-310001512077us-gaap:RetainedEarningsMember2019-01-012019-03-310001512077us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-03-310001512077us-gaap:CommonStockMember2019-03-310001512077us-gaap:TreasuryStockMember2019-03-310001512077us-gaap:AdditionalPaidInCapitalMember2019-03-310001512077ent:SubscriptionsMember2019-03-310001512077us-gaap:RetainedEarningsMember2019-03-310001512077us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-3100015120772019-03-310001512077us-gaap:CommonStockMember2019-04-012019-06-300001512077us-gaap:AdditionalPaidInCapitalMember2019-04-012019-06-300001512077us-gaap:RetainedEarningsMember2019-04-012019-06-300001512077us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-04-012019-06-300001512077us-gaap:CommonStockMember2019-06-300001512077us-gaap:TreasuryStockMember2019-06-300001512077us-gaap:AdditionalPaidInCapitalMember2019-06-300001512077ent:SubscriptionsMember2019-06-300001512077us-gaap:RetainedEarningsMember2019-06-300001512077us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-3000015120772019-06-30ent:segment0001512077us-gaap:RevolvingCreditFacilityMember2020-02-012020-02-29xbrli:pure0001512077us-gaap:SubsequentEventMember2020-07-220001512077us-gaap:SubsequentEventMembersrt:MinimumMember2020-07-220001512077ent:DebtorInPossessionTermLoanCreditFacilityMemberus-gaap:SubsequentEventMemberus-gaap:SecuredDebtMember2020-07-240001512077ent:DebtorInPossessionTermLoanCreditFacilityMemberus-gaap:SubsequentEventMemberus-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-07-242020-07-240001512077us-gaap:SubsequentEventMemberent:DebtorInPossessionTermLoanCreditFacilityMembersrt:MinimumMemberus-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-07-242020-07-240001512077ent:DebtorInPossessionTermLoanCreditFacilityMemberus-gaap:SubsequentEventMemberus-gaap:SecuredDebtMember2020-07-242020-07-240001512077ent:ExitFacilityMemberus-gaap:SubsequentEventMember2020-07-242020-07-240001512077ent:ExitFacilityMemberus-gaap:SubsequentEventMemberus-gaap:LetterOfCreditMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-07-242020-07-240001512077ent:ExitFacilityMemberus-gaap:SubsequentEventMembersrt:MinimumMemberus-gaap:LetterOfCreditMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-07-242020-07-240001512077us-gaap:SubsequentEventMember2020-07-240001512077us-gaap:SubsequentEventMemberent:TakebackFinancingFacilityMember2020-07-240001512077us-gaap:SubsequentEventMemberent:TakebackFinancingFacilityMember2020-07-242020-07-240001512077us-gaap:SubsequentEventMemberus-gaap:LondonInterbankOfferedRateLIBORMemberent:TakebackFinancingFacilityMember2020-07-242020-07-240001512077us-gaap:SubsequentEventMembersrt:MinimumMemberus-gaap:LondonInterbankOfferedRateLIBORMemberent:TakebackFinancingFacilityMember2020-07-242020-07-240001512077us-gaap:SubsequentEventMemberent:DIPLCFacilityMemberus-gaap:LetterOfCreditMember2020-08-050001512077ent:WirelessMaritimeServicesMember2020-06-30ent:reportingUnit0001512077ent:MaritimeLandConnectivityMember2020-01-012020-03-3100015120772020-06-012020-06-30ent:member0001512077ent:SantanderMember2020-06-300001512077ent:WirelessMaritimeServicesMember2020-01-012020-06-300001512077ent:SantanderMember2020-01-012020-06-300001512077srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2020-01-010001512077srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember2020-01-010001512077ent:ContentMemberus-gaap:LicenseAndServiceMember2020-04-012020-06-300001512077ent:ContentMemberus-gaap:LicenseAndServiceMember2019-04-012019-06-300001512077ent:ContentMemberus-gaap:LicenseAndServiceMember2020-01-012020-06-300001512077ent:ContentMemberus-gaap:LicenseAndServiceMember2019-01-012019-06-300001512077ent:ContentMember2020-04-012020-06-300001512077ent:ContentMember2019-04-012019-06-300001512077ent:ContentMember2020-01-012020-06-300001512077ent:ContentMember2019-01-012019-06-300001512077ent:AviationServicesMemberent:AviationConnectivityMember2020-04-012020-06-300001512077ent:AviationServicesMemberent:AviationConnectivityMember2019-04-012019-06-300001512077ent:AviationServicesMemberent:AviationConnectivityMember2020-01-012020-06-300001512077ent:AviationServicesMemberent:AviationConnectivityMember2019-01-012019-06-300001512077ent:AviationEquipmentMemberent:AviationConnectivityMember2020-04-012020-06-300001512077ent:AviationEquipmentMemberent:AviationConnectivityMember2019-04-012019-06-300001512077ent:AviationEquipmentMemberent:AviationConnectivityMember2020-01-012020-06-300001512077ent:AviationEquipmentMemberent:AviationConnectivityMember2019-01-012019-06-300001512077ent:AviationConnectivityMemberent:MaritimeandLandServicesMember2020-04-012020-06-300001512077ent:AviationConnectivityMemberent:MaritimeandLandServicesMember2019-04-012019-06-300001512077ent:AviationConnectivityMemberent:MaritimeandLandServicesMember2020-01-012020-06-300001512077ent:AviationConnectivityMemberent:MaritimeandLandServicesMember2019-01-012019-06-300001512077ent:AviationConnectivityMemberent:MaritimeandLandEquipmentMember2020-04-012020-06-300001512077ent:AviationConnectivityMemberent:MaritimeandLandEquipmentMember2019-04-012019-06-300001512077ent:AviationConnectivityMemberent:MaritimeandLandEquipmentMember2020-01-012020-06-300001512077ent:AviationConnectivityMemberent:MaritimeandLandEquipmentMember2019-01-012019-06-300001512077ent:AviationConnectivityMember2020-04-012020-06-300001512077ent:AviationConnectivityMember2019-04-012019-06-300001512077ent:AviationConnectivityMember2020-01-012020-06-300001512077ent:AviationConnectivityMember2019-01-012019-06-300001512077us-gaap:ServiceMember2020-04-012020-06-300001512077us-gaap:ServiceMember2019-04-012019-06-300001512077us-gaap:ServiceMember2020-01-012020-06-300001512077us-gaap:ServiceMember2019-01-012019-06-300001512077ent:ContractObtainmentCostsMember2019-12-310001512077ent:ContractFulfillmentCostsMember2019-12-310001512077ent:ContractObtainmentCostsMember2020-01-012020-06-300001512077ent:ContractFulfillmentCostsMember2020-01-012020-06-300001512077ent:ContractObtainmentCostsMember2020-06-300001512077ent:ContractFulfillmentCostsMember2020-06-300001512077us-gaap:RealEstateMember2020-04-012020-06-300001512077us-gaap:RealEstateMember2019-04-012019-06-300001512077us-gaap:RealEstateMember2020-01-012020-06-300001512077us-gaap:RealEstateMember2019-01-012019-06-300001512077srt:MinimumMemberus-gaap:RealEstateMember2020-01-012020-06-300001512077srt:MaximumMemberus-gaap:RealEstateMember2020-01-012020-06-300001512077ent:CoLocationPropertiesMembersrt:MinimumMember2020-01-012020-06-300001512077srt:MaximumMemberent:CoLocationPropertiesMember2020-01-012020-06-300001512077ent:CoLocationPropertiesMember2020-04-012020-06-300001512077ent:CoLocationPropertiesMember2019-04-012019-06-300001512077ent:CoLocationPropertiesMember2020-01-012020-06-300001512077ent:CoLocationPropertiesMember2019-01-012019-06-300001512077ent:BandwidthOperatingLeasesMembersrt:MinimumMember2020-01-012020-06-300001512077srt:MaximumMemberent:BandwidthOperatingLeasesMember2020-01-012020-06-300001512077ent:BandwidthOperatingLeasesMember2020-04-012020-06-300001512077ent:BandwidthOperatingLeasesMember2019-04-012019-06-300001512077ent:BandwidthOperatingLeasesMember2020-01-012020-06-300001512077ent:BandwidthOperatingLeasesMember2019-01-012019-06-300001512077us-gaap:RealEstateMember2020-06-300001512077ent:CoLocationPropertiesMember2020-06-300001512077ent:SatelliteCapacityLeasesMember2020-06-300001512077us-gaap:EquipmentLeasedToOtherPartyMember2020-06-300001512077us-gaap:EquipmentLeasedToOtherPartyMember2019-12-310001512077us-gaap:LeaseholdImprovementsMember2020-06-300001512077us-gaap:LeaseholdImprovementsMember2019-12-310001512077us-gaap:FurnitureAndFixturesMember2020-06-300001512077us-gaap:FurnitureAndFixturesMember2019-12-310001512077us-gaap:EquipmentMember2020-06-300001512077us-gaap:EquipmentMember2019-12-310001512077us-gaap:ComputerEquipmentMember2020-06-300001512077us-gaap:ComputerEquipmentMember2019-12-310001512077us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2020-06-300001512077us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2019-12-310001512077us-gaap:AutomobilesMember2020-06-300001512077us-gaap:AutomobilesMember2019-12-310001512077us-gaap:BuildingMember2020-06-300001512077us-gaap:BuildingMember2019-12-310001512077ent:AirplaneMember2020-06-300001512077ent:AirplaneMember2019-12-310001512077ent:SatelliteTransponderMember2020-06-300001512077ent:SatelliteTransponderMember2019-12-310001512077us-gaap:OtherIntangibleAssetsMember2020-06-300001512077us-gaap:OtherIntangibleAssetsMember2019-12-310001512077us-gaap:CostOfSalesMember2020-04-012020-06-300001512077us-gaap:CostOfSalesMember2019-04-012019-06-300001512077us-gaap:CostOfSalesMember2020-01-012020-06-300001512077us-gaap:CostOfSalesMember2019-01-012019-06-300001512077us-gaap:SellingAndMarketingExpenseMember2020-04-012020-06-300001512077us-gaap:SellingAndMarketingExpenseMember2019-04-012019-06-300001512077us-gaap:SellingAndMarketingExpenseMember2020-01-012020-06-300001512077us-gaap:SellingAndMarketingExpenseMember2019-01-012019-06-300001512077us-gaap:ResearchAndDevelopmentExpenseMember2020-04-012020-06-300001512077us-gaap:ResearchAndDevelopmentExpenseMember2019-04-012019-06-300001512077us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-06-300001512077us-gaap:ResearchAndDevelopmentExpenseMember2019-01-012019-06-300001512077us-gaap:GeneralAndAdministrativeExpenseMember2020-04-012020-06-300001512077us-gaap:GeneralAndAdministrativeExpenseMember2019-04-012019-06-300001512077us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-06-300001512077us-gaap:GeneralAndAdministrativeExpenseMember2019-01-012019-06-300001512077us-gaap:OperatingExpenseMember2020-01-012020-06-300001512077ent:ReportingUnitsForGoodwillImpairmentTestingMember2020-01-012020-06-300001512077ent:AviationConnectivityMember2019-12-310001512077ent:MaritimeLandConnectivityMember2019-12-310001512077ent:ContentMember2019-12-310001512077ent:MaritimeLandConnectivityMember2020-01-012020-06-300001512077ent:AviationConnectivityMember2020-06-300001512077ent:MaritimeLandConnectivityMember2020-06-300001512077ent:ContentMember2020-06-300001512077ent:MaritimeLandConnectivityMember2020-01-012020-03-310001512077srt:MinimumMember2020-01-012020-06-300001512077srt:MaximumMember2020-01-012020-06-300001512077srt:WeightedAverageMember2020-01-012020-06-300001512077us-gaap:ComputerSoftwareIntangibleAssetMember2020-01-012020-06-300001512077us-gaap:ComputerSoftwareIntangibleAssetMember2020-06-300001512077us-gaap:InProcessResearchAndDevelopmentMember2020-01-012020-06-300001512077us-gaap:InProcessResearchAndDevelopmentMember2020-06-300001512077us-gaap:CustomerRelationshipsMember2020-01-012020-06-300001512077us-gaap:CustomerRelationshipsMember2020-06-300001512077us-gaap:OrderOrProductionBacklogMember2020-01-012020-06-300001512077us-gaap:OrderOrProductionBacklogMember2020-06-300001512077us-gaap:OtherIntangibleAssetsMember2020-01-012020-06-300001512077us-gaap:OtherIntangibleAssetsMember2020-06-300001512077us-gaap:ComputerSoftwareIntangibleAssetMember2019-01-012019-12-310001512077us-gaap:ComputerSoftwareIntangibleAssetMember2019-12-310001512077us-gaap:InProcessResearchAndDevelopmentMember2019-01-012019-12-310001512077us-gaap:InProcessResearchAndDevelopmentMember2019-12-310001512077us-gaap:CustomerRelationshipsMember2019-01-012019-12-310001512077us-gaap:CustomerRelationshipsMember2019-12-310001512077us-gaap:OrderOrProductionBacklogMember2019-01-012019-12-310001512077us-gaap:OrderOrProductionBacklogMember2019-12-310001512077us-gaap:OtherIntangibleAssetsMember2019-01-012019-12-310001512077us-gaap:OtherIntangibleAssetsMember2019-12-31ent:airline0001512077ent:InternationalAirlinePartnerMember2020-01-012020-06-300001512077ent:OtherAirlinePartnerMember2020-01-012020-06-300001512077us-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2020-06-300001512077us-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2019-12-310001512077us-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2020-04-012020-06-300001512077us-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2019-04-012019-06-300001512077us-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2020-01-012020-06-300001512077us-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2019-01-012019-06-3000015120772016-07-272016-07-270001512077ent:TermLoanMember2020-06-300001512077ent:TermLoanMember2019-12-310001512077us-gaap:RevolvingCreditFacilityMember2020-06-300001512077us-gaap:RevolvingCreditFacilityMember2019-12-310001512077us-gaap:ConvertibleDebtMember2020-06-300001512077us-gaap:ConvertibleDebtMember2019-12-310001512077ent:SecondLienNotesDue2023Member2020-06-300001512077ent:SecondLienNotesDue2023Member2019-12-310001512077us-gaap:OtherDebtSecuritiesMember2020-06-300001512077us-gaap:OtherDebtSecuritiesMember2019-12-310001512077us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMember2020-06-300001512077us-gaap:LineOfCreditMemberus-gaap:LetterOfCreditMember2020-06-300001512077ent:A2017CreditAgreementMember2020-06-300001512077ent:PennyWarrantsMemberent:SecondLienCreditAgreementMember2020-06-300001512077ent:SecondLienCreditAgreementMemberent:MarketWarrantsMember2020-06-300001512077ent:TransponderEquipmentFinancingMember2020-06-300001512077ent:WirelessMaritimeServicesMemberent:DemandPromissoryNoteWithRelatedPartyMember2020-04-300001512077ent:WirelessMaritimeServicesMemberent:DemandPromissoryNoteWithRelatedPartyMember2020-04-012020-04-300001512077ent:WirelessMaritimeServicesMember2020-02-282020-02-280001512077ent:WirelessMaritimeServicesMemberent:DemandPromissoryNoteWithRelatedPartyMember2020-06-300001512077ent:WirelessMaritimeServicesMember2020-06-300001512077ent:SantanderMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2016-07-270001512077ent:SantanderMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2020-01-012020-06-300001512077ent:SantanderMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2019-01-012019-06-300001512077ent:SantanderMember2020-06-300001512077ent:SantanderMember2019-12-310001512077ent:PutnamInvestmentsandPARMember2018-02-072018-02-070001512077ent:FormerOfficerMemberent:Row44IncMember2011-07-150001512077ent:FormerOfficerMemberent:Row44IncMember2011-07-152011-07-150001512077ent:FormerOfficerMemberent:Row44IncMember2019-12-310001512077ent:FormerOfficerMemberent:Row44IncMember2020-06-300001512077ent:FormerOfficerMemberent:Row44IncMember2020-02-242020-02-240001512077ent:FormerOfficerMemberent:Row44IncMember2020-05-062020-05-060001512077ent:MovieLicenseandInternetProtocolTelevisionIPTVCommitmentsMember2020-06-300001512077ent:SatelliteServiceProviderMember2020-06-300001512077us-gaap:SettledLitigationMemberent:UMGRecordingsMember2016-08-012016-08-310001512077us-gaap:SettledLitigationMemberent:UMGRecordingsMember2017-01-012017-03-310001512077ent:PricePerShareScenarioOneMemberus-gaap:CommonStockMemberent:UMGRecordingsMember2017-01-012017-03-310001512077ent:PricePerShareScenarioOneMemberus-gaap:CommonStockMemberent:UMGRecordingsMember2017-03-310001512077ent:PricePerShareScenarioTwoMemberus-gaap:CommonStockMemberent:UMGRecordingsMember2017-01-012017-03-310001512077ent:PricePerShareScenarioTwoMemberus-gaap:CommonStockMemberent:UMGRecordingsMember2017-03-310001512077us-gaap:SettledLitigationMemberent:BMGRightsManagementUSLLCMember2019-12-032019-12-030001512077us-gaap:SettledLitigationMemberent:PaymentTermsOneMemberent:BMGRightsManagementUSLLCMember2019-12-032019-12-030001512077ent:PaymentTermsTwoMemberus-gaap:SettledLitigationMemberent:BMGRightsManagementUSLLCMember2019-12-032019-12-030001512077ent:PaymentTermsThreeMemberus-gaap:SettledLitigationMemberent:BMGRightsManagementUSLLCMember2019-12-032019-12-030001512077us-gaap:SettledLitigationMemberent:BMGRightsManagementUSLLCMember2019-12-310001512077us-gaap:PendingLitigationMemberent:SwiftAirLLCMember2014-08-012014-08-310001512077us-gaap:SettledLitigationMemberent:SwiftAirLLCMember2020-03-022020-03-0200015120772020-03-302020-03-3000015120772020-04-1400015120772020-04-150001512077ent:TwentyThirteenEquityIncentivePlanMember2018-01-180001512077us-gaap:EmployeeStockOptionMemberent:TwentySeventeenEquityIncentivePlanMember2017-12-210001512077ent:TwentySeventeenEquityIncentivePlanMember2017-12-210001512077ent:TwentySeventeenEquityIncentivePlanMember2018-06-252018-06-2500015120772016-03-310001512077ent:ServiceCostMember2020-04-012020-06-300001512077ent:ServiceCostMember2019-04-012019-06-300001512077ent:ServiceCostMember2020-01-012020-06-300001512077ent:ServiceCostMember2019-01-012019-06-300001512077srt:MaximumMember2020-04-152020-04-150001512077ent:ContentMemberus-gaap:OperatingSegmentsMemberus-gaap:LicenseAndServiceMember2020-04-012020-06-300001512077ent:ContentMemberus-gaap:OperatingSegmentsMemberus-gaap:LicenseAndServiceMember2019-04-012019-06-300001512077ent:ContentMemberus-gaap:OperatingSegmentsMemberus-gaap:LicenseAndServiceMember2020-01-012020-06-300001512077ent:ContentMemberus-gaap:OperatingSegmentsMemberus-gaap:LicenseAndServiceMember2019-01-012019-06-300001512077ent:AviationConnectivityMemberus-gaap:ServiceMemberus-gaap:OperatingSegmentsMember2020-04-012020-06-300001512077ent:AviationConnectivityMemberus-gaap:ServiceMemberus-gaap:OperatingSegmentsMember2019-04-012019-06-300001512077ent:AviationConnectivityMemberus-gaap:ServiceMemberus-gaap:OperatingSegmentsMember2020-01-012020-06-300001512077ent:AviationConnectivityMemberus-gaap:ServiceMemberus-gaap:OperatingSegmentsMember2019-01-012019-06-300001512077ent:AviationConnectivityMemberus-gaap:OperatingSegmentsMemberus-gaap:ProductMember2020-04-012020-06-300001512077ent:AviationConnectivityMemberus-gaap:OperatingSegmentsMemberus-gaap:ProductMember2019-04-012019-06-300001512077ent:AviationConnectivityMemberus-gaap:OperatingSegmentsMemberus-gaap:ProductMember2020-01-012020-06-300001512077ent:AviationConnectivityMemberus-gaap:OperatingSegmentsMemberus-gaap:ProductMember2019-01-012019-06-300001512077ent:ContentMemberus-gaap:OperatingSegmentsMember2020-04-012020-06-300001512077ent:ContentMemberus-gaap:OperatingSegmentsMember2019-04-012019-06-300001512077ent:ContentMemberus-gaap:OperatingSegmentsMember2020-01-012020-06-300001512077ent:ContentMemberus-gaap:OperatingSegmentsMember2019-01-012019-06-300001512077ent:AviationConnectivityMemberus-gaap:OperatingSegmentsMember2020-04-012020-06-300001512077ent:AviationConnectivityMemberus-gaap:OperatingSegmentsMember2019-04-012019-06-300001512077ent:AviationConnectivityMemberus-gaap:OperatingSegmentsMember2020-01-012020-06-300001512077ent:AviationConnectivityMemberus-gaap:OperatingSegmentsMember2019-01-012019-06-300001512077ent:ContentMemberus-gaap:OperatingSegmentsMember2020-06-300001512077ent:ContentMemberus-gaap:OperatingSegmentsMember2019-12-310001512077ent:AviationConnectivityMemberus-gaap:OperatingSegmentsMember2020-06-300001512077ent:AviationConnectivityMemberus-gaap:OperatingSegmentsMember2019-12-310001512077us-gaap:OperatingSegmentsMember2020-06-300001512077us-gaap:OperatingSegmentsMember2019-12-310001512077us-gaap:CorporateNonSegmentMember2020-06-300001512077us-gaap:CorporateNonSegmentMember2019-12-310001512077us-gaap:FairValueMeasurementsRecurringMember2020-06-300001512077us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2020-06-300001512077us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-06-300001512077us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001512077us-gaap:FairValueMeasurementsRecurringMember2019-12-310001512077us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2019-12-310001512077us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2019-12-310001512077us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001512077us-gaap:FairValueMeasurementsRecurringMemberent:CashSettledPhantomStockOptionsMember2020-06-300001512077us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberent:CashSettledPhantomStockOptionsMember2020-06-300001512077ent:SecondLienCreditAgreementMember2020-06-300001512077ent:SecondLienCreditAgreementMember2019-12-310001512077ent:SecondLienCreditAgreementMember2020-04-012020-06-300001512077us-gaap:NonUsMember2020-06-300001512077us-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueSegmentMember2020-01-012020-06-300001512077us-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueSegmentMember2019-01-012019-06-300001512077us-gaap:CustomerConcentrationRiskMemberent:AviationConnectivityMemberus-gaap:SalesRevenueSegmentMember2020-01-012020-06-300001512077us-gaap:CustomerConcentrationRiskMemberent:AviationConnectivityMemberus-gaap:SalesRevenueSegmentMember2019-01-012019-06-300001512077us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-06-300001512077us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-03-310001512077us-gaap:StockOptionMember2020-04-012020-06-300001512077us-gaap:StockOptionMember2019-04-012019-06-300001512077us-gaap:StockOptionMember2020-01-012020-06-300001512077us-gaap:StockOptionMember2019-01-012019-06-300001512077us-gaap:RestrictedStockUnitsRSUMember2020-04-012020-06-300001512077us-gaap:RestrictedStockUnitsRSUMember2019-04-012019-06-300001512077us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-06-300001512077us-gaap:RestrictedStockUnitsRSUMember2019-01-012019-06-300001512077us-gaap:ConvertibleDebtSecuritiesMember2020-04-012020-06-300001512077us-gaap:ConvertibleDebtSecuritiesMember2019-04-012019-06-300001512077us-gaap:ConvertibleDebtSecuritiesMember2020-01-012020-06-300001512077us-gaap:ConvertibleDebtSecuritiesMember2019-01-012019-06-300001512077ent:ContingentlyIssuedCommonStockMember2020-04-012020-06-300001512077ent:ContingentlyIssuedCommonStockMember2019-04-012019-06-300001512077ent:ContingentlyIssuedCommonStockMember2020-01-012020-06-300001512077ent:ContingentlyIssuedCommonStockMember2019-01-012019-06-300001512077ent:PennyWarrantsMember2020-04-012020-06-300001512077ent:PennyWarrantsMember2019-04-012019-06-300001512077ent:PennyWarrantsMember2020-01-012020-06-300001512077ent:PennyWarrantsMember2019-01-012019-06-300001512077ent:MarketWarrantsMember2020-04-012020-06-300001512077ent:MarketWarrantsMember2019-04-012019-06-300001512077ent:MarketWarrantsMember2020-01-012020-06-300001512077ent:MarketWarrantsMember2019-01-012019-06-300001512077us-gaap:SubordinatedDebtMember2018-03-272018-03-270001512077us-gaap:SubsequentEventMemberus-gaap:SecuredDebtMember2020-07-092020-07-090001512077srt:ChiefExecutiveOfficerMemberus-gaap:SubsequentEventMember2020-07-142020-07-140001512077srt:ChiefFinancialOfficerMemberus-gaap:SubsequentEventMember2020-07-142020-07-140001512077us-gaap:SubsequentEventMembersrt:PresidentMember2020-07-142020-07-14


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ________

COMMISSION FILE NUMBER 001-35176
ENT-20200630_G1.JPG
GLOBAL EAGLE ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)
Delaware 27-4757800
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
6080 Center Drive, Suite 1200
Los Angeles, California 90045
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (310) 437-6000
Securities Registered pursuant to Section 12(b) of the Act:
Title of each class
Ticker Name of exchange on which registered
Common Stock, $0.0001 par value ENT *
*On August 4, 2020, the Company’s common stock was suspended from trading on The Nasdaq Stock Market (the “Nasdaq”) because of the Debtors’ (defined below) filing of the Chapter 11 Cases (defined below). Effective August 4, 2020, trades in the Company’s common stock began being quoted on the OTC Pink Marketplace under the symbol “GEENQ.” On August 11, 2020, the Nasdaq filed a Form 25-NSE to delist the Company’s common stock and to remove it from registration under Section 12(b) of the Exchange Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
(Class) (Outstanding as of August 12, 2020)
COMMON STOCK, $0.0001 PAR VALUE
3,754,482    SHARES


GLOBAL EAGLE ENTERTAINMENT INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2020

TABLE OF CONTENTS



EXPLANATORY NOTES


On July 22, 2020, the Company and 16 of its wholly owned U.S. subsidiaries (together with the Company, the “Debtors”) commenced voluntary Chapter 11 proceedings under Chapter 11 of the United States, (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Chapter 11 proceedings are jointly administered under the caption In re Global Eagle Entertainment Inc., et al. (the “Chapter 11 Cases”), Case No. 20-11835. The Debtors continue to operate their business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. On July 23, 2020, the Debtors sought and the Bankruptcy Court granted on an interim basis, approval of various “first day” motions containing customary relief intended to assure the Debtors’ ability to continue their ordinary course operations.

On August 10, 2020, Nasdaq announced that it will delist the common stock of the Company and that the Company’s common stock was suspended on August 4, 2020 and has not traded on Nasdaq since that time. The trading of the Company’s common stock has transitioned to the OTC Bulletin Board or “pink sheets” market. The transition to over-the-counter markets is not expected to affect the Company’s operations or business. On August 11, 2020, Nasdaq filed a Form 25-NSE with the Securities and Exchange Commission (the “SEC”) to complete the delisting of the Company’s common stock from Nasdaq, which delisting will be effective ten calendar days later, at which time the Company will cease to file current and periodic reports with the SEC.

2

PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL EAGLE ENTERTAINMENT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
June 30, 2020 December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 31,255    $ 23,964   
Restricted cash 4,863    498   
Short-term investment 3,315    —   
Accounts receivable, net 66,385    88,219   
Inventories, net 24,972    26,695   
Prepaid expenses 5,574    6,753   
Other current assets 10,513    12,839   
TOTAL CURRENT ASSETS 146,877    158,968   
Content library 2,825    3,645   
Property and equipment, net 116,996    145,295   
Right-of-use assets, net 32,797    39,187   
Goodwill 137,400    159,607   
Intangible assets, net 43,097    55,483   
Equity method investments 62,284    78,886   
Other non-current assets 25,705    27,509   
TOTAL ASSETS $ 567,981    $ 668,580   
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 181,679    $ 178,930   
Deferred revenue 8,359    12,317   
Current portion of long-term debt and finance leases 810,887    15,678   
Current portion of operating lease liabilities 7,265    8,319   
Other current liabilities 9,927    7,081   
TOTAL CURRENT LIABILITIES 1,018,117    222,325   
Deferred revenue, non-current 86    86   
Long-term debt and finance leases 16,138    757,384   
Long-term operating lease liabilities 20,856    23,636   
Deferred tax liabilities 2,496    5,894   
Other non-current liabilities 23,146    34,409   
TOTAL LIABILITIES 1,080,839    1,043,734   
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ DEFICIT:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized, no shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
—    —   
Common stock, $0.0001 par value; 375,000,000 shares authorized, 3,876,801 and 3,837,920 shares issued, 3,754,656 and 3,715,775 shares outstanding, at June 30, 2020 and December 31, 2019, respectively
10    10   
Treasury stock, 122,145 shares at June 30, 2020 and December 31, 2019
(30,659)   (30,659)  
Additional paid-in capital 821,224    818,961   
Subscriptions receivable (597)   (597)  
Accumulated deficit (1,303,146)   (1,162,901)  
Accumulated other comprehensive income 310    32   
TOTAL STOCKHOLDERS’ DEFICIT (512,858)   (375,154)  
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $ 567,981    $ 668,580   

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

GLOBAL EAGLE ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Revenue:
Licensing and services $ 77,457    $ 145,129    $ 213,102    $ 295,607   
Equipment 5,584    12,338    14,104    28,479   
Total revenue 83,041    157,467    227,206    324,086   
Cost of sales:
Licensing and services 67,772    116,308    181,056    239,577   
Equipment 4,107    7,909    11,630    18,834   
Total cost of sales 71,879    124,217    192,686    258,411   
Gross margin 11,162    33,250    34,520    65,675   
Operating expenses:
Sales and marketing 4,303    7,365    9,643    15,614   
Product development 3,749    6,125    9,712    13,104   
General and administrative 24,962    27,161    55,538    55,141   
Provision for legal settlements —    25    —    533   
Amortization of intangible assets 6,241    7,800    12,383    15,599   
Goodwill and long-lived asset impairment 3,374    —    25,504    —   
Total operating expenses 42,629    48,476    112,780    99,991   
Loss from operations (31,467)   (15,226)   (78,260)   (34,316)  
Other (expense) income:
Interest expense, net (22,884)   (22,329)   (45,471)   (43,606)  
(Loss) income from equity method investments including impairment losses (2,015)   2,517    (12,873)   4,646   
Change in fair value of derivatives (18)   —    189    938   
Other expense, net (1,495)   (105)   (1,263)   (284)  
Loss before income taxes (57,879)   (35,143)   (137,678)   (72,622)  
Income tax expense 154    3,317    1,280    3,447   
Net loss $ (58,033)   $ (38,460)   $ (138,958)   $ (76,069)  
Net loss per share – basic and diluted
$ (15.47)   $ (10.42)   $ (37.24)   $ (20.65)  
Weighted average shares outstanding – basic and diluted 3,751    3,690    3,731    3,682   

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

GLOBAL EAGLE ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands)
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Net loss $ (58,033)   $ (38,460)   $ (138,958)   $ (76,069)  
Other comprehensive income:
Unrealized foreign currency translation adjustments 41    10    278    243   
Comprehensive loss $ (57,992)   $ (38,450)   $ (138,680)   $ (75,826)  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


5

GLOBAL EAGLE ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (UNAUDITED)
(in thousands)
Common Stock  Treasury Stock Additional Subscriptions Accumulated Accumulated Other Total
Shares Amount Shares  Amount Paid-in Capital Receivable Deficit Comprehensive Income Stockholders’ Deficit
Balance at December 31, 2019 3,838    $ 10    (122)   $ (30,659)   $ 818,961    $ (597)   $ (1,162,901)   $ 32    $ (375,154)  
Restricted stock units vested and distributed, net of tax 29    —    —    —    (61)   —    —    —    (61)  
Stock-based compensation —    —    —    —    1,339    —    —    —    1,339   
Impact of adoption of ASU 2016-02 —    —    —    —    —    —    (1,287)   —    (1,287)  
Net loss —    —    —    —    —    —    (80,925)   —    (80,925)  
Unrealized foreign currency translation adjustments —    —    —    —    —    —    —    237    237   
Balance at March 31, 2020 3,867    $ 10    (122)   $ (30,659)   $ 820,239    $ (597)   $ (1,245,113)   $ 269    $ (455,851)  
Restricted stock units vested and distributed, net of tax 10    —    —    —    (67)   —    —    —    (67)  
Stock-based compensation —    —    —    —    1,052    —    —    —    1,052   
Impact of adoption of ASU 2016-02 —    —   
Net loss —    —    —    —    —    —    (58,033)   —    (58,033)  
Unrealized foreign currency translation adjustments —    —    —    —    —    —    —    41    41   
Balance at June 30, 2020 3,877    $ 10    (122)   $ (30,659)   $ 821,224    $ (597)   $ (1,303,146)   $ 310    $ (512,858)  






















6



GLOBAL EAGLE ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (UNAUDITED) (continued)
(In thousands)



Common Stock  Treasury Stock Additional Subscriptions Accumulated Accumulated Other Total
Shares Amount Shares  Amount Paid-in Capital Receivable Deficit Comprehensive Income (Loss) Stockholders’ Deficit
Balance at December 31, 2018 3,793    $ 10    (122)   $ (30,659)   $ 814,488    $ (597)   $ (1,009,458)   $ (119)   $ (226,335)  
Restricted stock units vested and distributed, net of tax 13    —    —    —    (117)   —    —    —    (117)  
Stock-based compensation —    —    —    —    2,389    —    —    —    2,389   
Tax effect relating to the beneficial conversion feature of Second Lien Notes —    —    —    —    (2,688)   —    —    —    (2,688)  
Net loss —    —    —    —    —    —    (37,609)   —    (37,609)  
Unrealized foreign currency translation adjustments —    —    —    —    —    —    —    233    233   
Balance at March 31, 2019 3,806    10    (122)   (30,659)   814,072    (597)   (1,047,067)   114    (264,127)  
Restricted stock units vested and distributed, net of tax 21    —    —    —    (147)   —    —    —    (147)  
Stock-based compensation —    —    —    —    2,194    —    —    —    2,194   
Net loss —    —    —    —    —    —    (38,460)   —    (38,460)  
Unrealized foreign currency translation adjustments —    —    —    —    —    —    —    10    10   
Balance at Balance as of June 30, 2019 3,827    $ 10    (122)   $ (30,659)   $ 816,119    $ (597)   $ (1,085,527)   $ 124    $ (300,530)  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

GLOBAL EAGLE ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)

Six Months Ended June 30,
2020 2019
OPERATING ACTIVITIES:
Net loss $ (138,958)   $ (76,069)  
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization
38,266    43,477   
Amortization of right-of-use asset
4,039    2,557   
Amortization of content library
3,773    3,570   
Non-cash interest expense, net
16,402    14,220   
Change in fair value of derivatives
(189)   (938)  
         Change in fair value of equity security investments 1,357    —   
Stock-based compensation
2,180    3,616   
Impairment of goodwill and long-lived assets
26,611    —   
Tax effect of Second Lien Notes’ beneficial conversion feature
—    (2,688)  
Loss on disposal of fixed assets
—    357   
         Proceeds from equity method investments 3,675    —   
(Gain) loss on equity method investments including impairment losses
12,873    (4,646)  
Provision for expected credit losses
2,447    830   
Deferred income taxes
(1,911)   (624)  
Other non-cash adjustments
—    388   
Changes in operating assets and liabilities:
Accounts receivable
14,212    4,992   
Inventories
1,722    (1,420)  
Prepaid expenses and other current assets
1,179    4,087   
Content library
(3,792)   (1,647)  
Other non-current assets
1,631    (12,463)  
Accounts payable and accrued liabilities
3,397    11,474   
Deferred revenue
(3,958)   2,378   
Other liabilities
(9,660)   10,521   
Net cash (used in) provided by operating activities (24,704)   1,972   
INVESTING ACTIVITIES:
Purchases of property and equipment (2,142)   (13,442)  
Net cash used in investing activities (2,142)   (13,442)  
FINANCING ACTIVITIES:
 Proceeds from borrowings on revolving credit facility 44,300    34,650   
Repayment of revolving credit facility
(7,000)   (46,250)  
Repayments of indebtedness
(4,094)   (10,109)  
Borrowings from related party
5,000    7,350   
 Payment of satellite purchase financing —    (2,300)  
Net cash provided by (used in) financing activities 38,206    (16,659)  
Effects of exchange rate changes on cash, cash equivalents and restricted cash 296    199   
Net increase (decrease) in cash, cash equivalents and restricted cash 11,656    (27,930)  

8

GLOBAL EAGLE ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)
(In thousands)
Cash, cash equivalents and restricted cash at beginning of period 24,462    39,955   
Cash, cash equivalents and restricted cash at end of period $ 36,118    $ 12,025   
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Taxes $ 706    $ 1,256   
Interest $ 28,767    $ 28,417   
SIGNIFICANT NON-CASH ACTIVITIES:
Purchase consideration for equipment included in accounts payable $ 195    $ 1,530   
Conversion of PIK interest on our Second Lien Notes to additional principal $ 10,682    $ 9,507   
Financing of purchased satellite transponders included in property and equipment $ —    $ 8,500   
Distribution from equity method investments offset against demand promissory note $ —    $ 4,410   

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

9

GLOBAL EAGLE ENTERTAINMENT INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Overview

Global Eagle Entertainment Inc. is a Delaware corporation headquartered in Los Angeles, California. Global Eagle (together with its subsidiaries, “Global Eagle” or the “Company”, “we”, “us” or “our”) is a leading provider of media and satellite-based connectivity to the global mobility markets across air, land and sea. Global Eagle offers a fully integrated suite of rich media content and seamless connectivity solutions around the globe.

Our Chief Executive Officer, the Company’s chief operating decision-maker (“CODM”), evaluates financial performance and allocates resources by reviewing revenue, costs of sales and contribution profit separately for our two operating segments: (i) Media & Content, and (ii) Connectivity.

The Company’s Annual Report on Form 10-K for the year ended December 31, 2019, (the “Annual Report”) included the Company’s conclusion that, factors evaluated by the Company, including historical losses and negative cash flows from operations, government and industry-imposed travel restrictions in the aviation and maritime industries the Company services, ability to maintain and meet debt covenants in future periods, and the Company’s ability to satisfy existing debt obligations and paydown past due accounts payable over the next year, raised substantial doubt as to the Company’ ability to continue as a going concern for a period within 12 months following May 15, 2020. In the Annual Report, the Company’s independent auditors also included a “going concern” explanatory paragraph in their report as of and for the year ended December 31, 2019. As a result, the Company was required to seek covenant amendments from its lenders as well as temporary deferral of principal and interest payments. Please refer to Note 2. Basis of Presentation and Summary of Significant Accounting Policies for the Company’s going concern assessment with respect to the period ended June 30, 2020 and additional details on covenant compliance and amendments.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

The Company considered the COVID-19 pandemic and the Chapter 11 Cases (see below under "Liquidity, Going Concern and Management’s Plan") related impacts to its estimates, as appropriate, within its unaudited Interim Consolidated Financial Statements and there may be changes to those estimates in future periods. The Company believes that the accounting estimates are appropriate at this time, after giving consideration to the increased uncertainties surrounding the severity and duration of the COVID-19 pandemic and the Chapter 11 Cases. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.

Voluntary Petition for Reorganization
As discussed further in Note 19, Subsequent Events, on July 22, 2020 (the “Petition Date”), the Company and certain of its U.S. subsidiaries commenced voluntary cases under chapter 11 of title 11 of the United States Code in the Bankruptcy Court. The commencement of the Chapter 11 Cases constituted an event of default or termination event under all debt agreements of the Company. Accordingly, the Company has classified virtually all of its outstanding debt as a current liability on its unaudited Interim Consolidated Balance Sheets as of June 30, 2020.

Pursuant to Section 362 of the Bankruptcy Code, and subject to certain exceptions under the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed most legal proceedings and other actions against the Debtors, including (i) actions to collect indebtedness incurred prior to the Petition Date; (ii) the filing of most legal proceedings; and (iii) other actions against or on behalf of the Debtors or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Debtors' bankruptcy estates. The automatic stay shall remain in place unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim.

Additionally, as the Chapter 11 Cases commenced on July 22, 2020, during the Company's third quarter, the current financial statements have not been prepared on the basis of ASC Subtopic 852-10, Reorganizations.

The following is a summary of the significant accounting policies consistently applied in the preparation of the accompanying unaudited condensed consolidated financial statements.

10


Basis of Presentation
In the opinion of the Company's management, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company's audited consolidated financial statements for the year ended December 31, 2019, and include normal recurring adjustments necessary for the fair presentation of the Company's interim unaudited condensed consolidated financial statements for the three and six months ended June 30, 2020. The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results expected for the full 2020 fiscal year. The consolidated balance sheet as of December 31, 2019 has been derived from the Company's audited balance sheet included in the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the "SEC") on May 15, 2020 (the "2019 Form 10-K").

The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to SEC Form 10-Q and Article 10 of SEC Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete audited financial statements. Therefore, these interim unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the 2019 Form 10-K.

Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Liquidity, Going Concern and Management’s Plan
The unaudited Interim Consolidated Financial Statements included in this Quarterly Report on Form 10-Q have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to significant uncertainty. While operating as a debtor-in-possession pursuant to the Bankruptcy Code, the Debtors may sell, or otherwise dispose of or liquidate, assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business, for amounts other than those reflected in the accompanying unaudited Interim Consolidated Financial Statements. Further, a sale under section 363 of the Bankruptcy Code is likely to materially change the amounts and classifications of assets and liabilities reported in our unaudited Interim Consolidated Balance Sheet as of June 30, 2020. In addition, the COVID-19 pandemic has, and continues to have, a material impact on the Company’s business operations, financial position, liquidity, capital resources and results of operations. The risks and uncertainties surrounding the Chapter 11 Cases, the defaults under our debt agreements (see Note 19), and our financial condition, raise substantial doubt as to the Company’s ability to continue as a going concern. Our future plans, including those in connection with the Chapter 11 Cases, are not yet finalized, fully executed or approved by the Bankruptcy Court, and therefore cannot be deemed probable of mitigating this substantial doubt within 12 months of the date of issuance of these financial statements. Our consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

The impact of the COVID-19 pandemic on the global travel industry created an urgent liquidity crisis for the airline, cruise ship and other maritime industries, which created follow-on impact for the Company. As of June 30, 2020, our principal source of liquidity was our cash and cash equivalents of approximately $31.3 million. In addition, we had approximately $4.9 million of restricted cash, which amount is excluded from the $31.3 million of cash and cash equivalents, and was attached to letters of credit between our subsidiaries and certain customers. Our cash is invested primarily in cash and money market funds in banking institutions in the U.S., Canada and Europe and to a lesser extent in Asia Pacific. Our total debt balance increased from $773.1 million at December 31, 2019 to $827.0 million at June 30, 2020. This was primarily driven by the February 2020 draw down of the remaining $41.8 million under our Senior Secured Revolving Credit Facility (“Revolving Credit Facility”) with a corresponding increase in our cash on hand.

Our customers in the airline, cruise ship and other maritime industries, have been heavily impacted by the COVID-19 pandemic, through travel restrictions, government and business-imposed shutdowns or other operating issues resulting from the pandemic. We continue to analyze the potential impacts of the conditions and events arising from the ongoing COVID-19 pandemic.


11


The Company’s principal sources of liquidity have historically been its debt and equity issuances, and its cash and cash equivalents. The Company’s long-term ability to continue as a going concern is dependent on its ability to comply with the covenants in its indebtedness, increase revenue, reduce costs and deliver satisfactory levels of profitable operations. A substantial amount of the Company's cash requirements is for debt service obligations. The Company has generated substantial historic operating losses.

The Company has incurred net losses and had negative cash flows from operations for the six months ended June 30, 2020 primarily as a result of the negative operating impact of the COVID-19 pandemic. Net cash used in operations was $24.7 million for the six months ended June 30, 2020 which included cash paid for interest of $28.8 million. Working capital deficiency “(defined as current assets less current liabilities)” increased by $807.9 million, to $871.2 million as of June 30, 2020, compared to $63.4 million as of December 31, 2019, primarily due to the classification of all applicable long term debt as current liabilities at June 30, 2020.

Significant Bankruptcy Court Actions
On July 22, 2020, the Debtors entered into a Restructuring Support Agreement (together with all exhibits and schedules thereto, the “RSA”) with creditors holding, in the aggregate, approximately 78.8% of the aggregate outstanding principal amount of the First Lien Loans (the “Consenting First Lien Lenders” or the “Investor Group”). Capitalized terms used but not otherwise defined in this “Significant Bankruptcy Court Actions” section of this Form 10Q have the meanings given to them in the RSA.

As contemplated in the RSA, the Company will pursue a going concern sale of the business of the Debtors pursuant to Section 363 of the Bankruptcy Code (either through a sale to the stalking horse bidder or to the highest or otherwise best sale offer, if not the stalking horse bidder, pursuant to this sale process, the “Sale Transaction”), which is based on a stalking horse bid from an entity formed by or at the direction of the Investor Group, (“the Purchaser”) and/or other co-investors and/or their respective designees on terms and in accordance with a purchase agreement, which has been agreed by the Company and the Consenting First Lien Lenders (the “Stalking Horse Bid”). Pursuant to the RSA, each of the Debtors and the Consenting First Lien Lenders has made customary commitments to each other. The Debtors have agreed to, among other things, seek to implement the Sale Transaction and other matters contemplated by the RSA and to satisfy certain other covenants. The Consenting First Lien Lenders have also committed to support and to use commercially reasonable efforts to take, or refrain from taking, certain actions in furtherance of the Sale Transaction and other matters contemplated in the RSA. The RSA also provides that certain of the Consenting First Lien Lenders will also be providing debtor-in-possession financing pursuant to the DIP Credit Agreement.

Among other dates set forth in the RSA, the agreement contemplates: (i) the Debtors will have filed a motion to approve the Sale Transaction and associated bidding procedures; and (ii) the Bankruptcy Court will have entered the interim order approving the DIP Credit Agreement (the “Interim DIP Order”) and associated credit facility no later than five days after the Petition Date, and the final order approving the DIP Credit Agreement and associated credit facility no later than 40 days after the Petition Date and the Sale Order no later than 85 days after the Petition Date, and that the satisfaction of all Closing Date conditions (other than regulatory consents and approvals) shall have occurred by no later than 100 days after the Petition Date, subject in each case to an extension or waiver of such dates by the requisite Consenting First Lien Lenders under the terms of the RSA. Each of the parties to the RSA may terminate the agreement under certain limited circumstances. Any Debtor may terminate the RSA upon, among other circumstances:

its board of directors, after consultation with counsel, determining (i) that performance under the RSA would be inconsistent with its fiduciary duties or (ii) in the exercise of its fiduciary duties to pursue an Alternative Transaction;
the failure of the Consenting First Lien Lenders to hold, in the aggregate at least 50.01% of the aggregate principal amount outstanding of the First Lien Loans; and
Certain actions by the Bankruptcy Court, including dismissing the Chapter 11 Cases or converting the Chapter 11 Cases into cases under Chapter 7 of the Bankruptcy Code.

On July 23, 2020, the Bankruptcy Court entered the Interim DIP Orders. On July 24, 2020, the Debtors filed a motion seeking entry of orders, among other things, authorizing and approving the bidding procedures, scheduling an auction and sale hearing, and granting related relief (the “Bid Procedures Motion”).


12


Debtor-in-Possession Credit Agreement
On July 24, the Company and the wholly-owned domestic subsidiaries of the Company, as guarantors, entered into: a Senior Secured Super-Priority Term Loan Debtor-In-Possession Credit Agreement (the “DIP Credit Agreement”) with Citibank, N.A., as DIP agent (in such capacity, the “DIP Agent”) and escrow agent (in such capacity, the “Escrow Agent”) and the lenders party thereto (collectively, the “DIP Lenders”).

Under the DIP Credit Agreement, the DIP Lenders have agreed to provide a senior secured super-priority DIP term loan facility in an aggregate principal amount of $80 million (the “DIP Term Loan Facility”), which term loan shall accumulate interest based on an interest rate of LIBOR rate plus 10.00%, with a 1.25% LIBOR floor. The term loans were funded on July 24, 2020, $30 million of the term loan proceeds were made immediately available to the Company on the funding date, and the remaining $50 million of proceeds are held in escrow with the Escrow Agent and are subject to release to the Company upon the satisfaction of certain customary conditions precedent. The DIP Lenders are entitled to receive cash interest payments on term loans during the pendency of the Chapter 11 Cases and prior to the maturity date. The scheduled maturity of the DIP Term Loan Facility is six months from the closing date thereof, subject to an extension of 30 days to the extent necessary if the Sale Order has been entered and the parties are awaiting Federal Communications Commission consents and approvals. Fees payable in connection with the DIP Term Loan Facility included (i) a 5.00% backstop payment and (ii) a 3.00% upfront payment, which, in each case, were paid on the funding date of the term loans. All principal on the term loans under the DIP Term Loan Facility is due on the maturity date under the DIP Credit Agreement.

The RSA also contemplates that, in the event the Stalking Horse Bidder is the successful purchaser in connection with the Sale Transaction, certain Consenting First Lien Lenders will fund a new money credit facility, plus a letter of credit facility, at the option of the Purchaser (the “Exit Facility”), to be incurred by the Purchaser on the closing date of the Sale Transaction (the “Closing Date”). The Exit Facility contemplates a four-year maturity with an initial interest rate of LIBOR plus 10.00% with a 1.25% LIBOR floor. The Exit Facility will be secured by a first-priority lien on substantially all of the assets of the Purchaser and any guarantors, subject to usual and customary exceptions for excluded assets. Following the Closing Date, in the event that the Stalking Horse Bidder is the successful purchaser, the Purchaser will have total debt of not more than $400 million (plus letters of credit), between the Exit Facility, inclusive of takeback debt of $275 million (the “Takeback Financing Facility” and, together with the Exit Facility, the “Newco Facilities”). The Takeback Financing Facility contemplates a five-year maturity with an initial interest rate of LIBOR plus 7.50% with a 1.25% LIBOR floor. At the Purchaser’s option, if liquidity of the Purchaser and its subsidiaries is less than $40 million on a pro forma basis, up to 500 bps of interest may be paid-in-kind during the first 24 months after the closing date of the Takeback Financing Facility. Borrowings under the Takeback Financing Facility will be secured by a second priority lien on the collateral under the Exit Facility.

The DIP Term Loan Facility is subject to final approval by the Bankruptcy Court, which has not been obtained at this time. The Debtors have, however, sought and obtained interim approval of the DIP Term Loan Facility, and were granted the authority, on an interim basis, to draw up to $30 million of the DIP Term Loan Facility (as noted above, the remaining $50 million in term loan proceeds remains on deposit with the Escrow Agent). The Debtors are seeking final approval to access the remaining amounts available under the DIP Term Loan Facility at a final hearing.

Letter of Credit Reimbursement Agreement
On August 5, 2020, the Company entered into a Senior Secured Super-Priority Letter of Credit Reimbursement Agreement (the “L/C Reimbursement Agreement”) with Citibank, N.A., as the issuing bank (the “Issuing Bank”).

Under the L/C Reimbursement Agreement, the Issuing Bank provides a super-priority letter of credit facility (the “DIP L/C Facility”) in an amount equal to $10 million less the aggregate face amount of then issued and outstanding letters of credit provided by Citibank, N.A. in its capacity as issuing bank under the 2017 Credit Agreement (the “DIP L/C Facility Limit”). Pricing of the DIP L/C Facility is substantially consistent with the terms applicable to existing letters of credit issued under the 2017 Credit Agreement. Letters of credit issued under the DIP L/C Facility will be fully cash collateralized in 102% of the face amount of such letters of credit. The proceeds of the DIP Term Loan Facility will be available for use as cash collateral in respect of letters of credit issued under the DIP L/C Facility.


13


Asset Purchase Agreement
As provided for in the RSA, the Company, the other Debtors and the Consenting First Lien Lenders have agreed upon a form of the Asset Purchase Agreement (the “Asset Purchase Agreement”) by and between the Company and the Purchaser. Pursuant to the terms of the Asset Purchase Agreement, the Debtors will agree to sell substantially all of their assets, (the “Assets,” and such sale, the “Sale”) to the Purchaser and the Purchaser will agree to assume from the Debtors, certain specified liabilities (the “Assumed Liabilities”), subject to Bankruptcy Court approval and pursuit of the Sale process or a sale determined to be higher or otherwise better by the Company in accordance with the Bid Procedures Motion.

The purchase price under the Asset Purchase Agreement is comprised of (a) a credit bid pursuant to Section 363(k) of the Bankruptcy Code against (i) up to 100% of the obligations owed by Debtors under the First Lien Loans as of the closing of the transactions contemplated by the Asset Purchase Agreement (the “Closing”) and (ii) to the extent necessary to acquire any DIP Collateral (as defined in the DIP Credit Agreement), up to $5.0 million of the Obligations (as defined in the DIP Credit Agreement), (b) the payment of an amount in cash equal to (i) the amount of a budget to be agreed by the Debtors and Purchaser for the wind-down of the Debtors’ estates plus (ii) an amount equal to the Obligations (as defined in the DIP Credit Agreement) outstanding as of the Closing, less the amount described in foregoing clause (a)(ii), and (c) the assumption of certain liabilities as more fully set forth therein (the “Purchase Price”).

The Asset Purchase Agreement may be terminated upon the occurrence of certain events, including if the Closing has not occurred prior to October 30, 2020 (subject to extension in certain cases to no later than December 29, 2020). The Asset Purchase Agreement provides for an “expense reimbursement” to the extent not otherwise covered by the DIP Facility.

The Bid Procedures Motion, seeks Bankruptcy Court approval of certain Bid Procedures including the potential for an auction that allows other qualified bidders to submit higher or otherwise better offers to purchase all or substantially all of the Assets (any such offer, a “Competing Transaction”).

The Bid Procedures Motion seeks a Bankruptcy Court order setting (i) a deadline to submit initial acceptable bids (“Initial Acceptable Bids”) as 42 calendar days following the Petition Date (the “Initial Acceptable Bid Deadline”), and (ii) assuming adequate Initial Acceptable Bids are received by the Initial Acceptable Bid Deadline, will set the deadline (the “Bid Deadline”) to submit qualified bids for the Debtors’ assets as 75 days following the Petition Date. Under the Bidding Procedures, upon the receipt of at least one qualified offer from other bidders proposing a Competing Transaction by the Bid Deadline, the Debtors propose to hold an auction with respect to the Assets on or about 80 calendar days following the Petition Date. Additional information regarding the proposed auction and the requirements for qualified bids with respect to a Competing Transaction can be found in the Restructuring Term Sheet and the Bid Procedures Motion.

Other Mitigation Plans
Mitigating actions implemented in the six months ended June 30, 2020 include temporary salary reductions for all employees, including executive officers and the Company’s Board of Directors, negotiations with both customers and vendors to revise existing contracts to current activity levels and executing substantial reductions in capital expenditures and overall costs. Mitigating actions that continue to be implemented include:

Continue reduction of overall workforce to match revenue streams;
Deferral of annual merit increases;
Relocation of worldwide operating facilities to reduce ongoing costs;
Renegotiation of satellite lease terms, bandwidth terminations and payment deferrals;
Negotiation of studio rate reductions and airline relief packages;
Pursue complete restructuring of our capital-and-cost structure;
Accelerate Wireless Maritime Services, LLC (“WMS”) dividend payments; and
Continue to pursue the disposition of the Company’s 49% interest in WMS.

In addition, the Company’s management is continue to pursue actions to maximize cash available to meet our obligations as they become due in the ordinary course of business, including (i) executing additional substantial reductions in expenses, capital expenditures and overall costs; and (ii) applying for all eligible global government and other initiatives available to businesses or employees impacted by the COVID-19 pandemic, primarily through payroll and wage subsidies and deferrals. These actions are intended to mitigate those conditions which raise substantial doubt of the Company’s ability to continue as a going concern. While the Company continues to work toward completing these items and taking other actions to create

14


additional liquidity and comply with the payment and other covenants set forth in its debt agreements, there is no assurance that the Company will be able to do so. The Company’s ability to meet its obligations as they become due in the ordinary course of business for the next 12 months will depend on its ability to achieve improved results, its ability to generate and conserve cash, its ability to obtain necessary waivers from lenders and other equity stakeholders to achieve sufficient cash interest savings therefrom and its ability to complete other liquidity-generating transactions. Based on the uncertainty of achieving these actions the Company’s management has determined that the substantial doubt about the Company’s ability to continue as a going concern within one year from the issuance date of this Quarterly Report on Form 10-Q has not been alleviated. The unaudited condensed consolidated financial statements do not include any adjustments that may result from the possible inability of the Company to continue as a going concern for at least the next 12 months from the issuance of these financial statements.

Revenue Recognition
The Company accounts for a contract with a customer when an approved contract exists, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and the collectability of substantially all of the consideration is probable. Revenue is recognized as the Company satisfies performance obligations by transferring a promised good or service to a customer (see further discussion in Note 3. Revenue Recognition).

Deferred revenue consists substantially of amounts received from customers in advance of the Company’s performance service period and of fees deferred for future support services. Deferred revenue is recognized as revenue on a systematic basis that is proportionate to the period that the underlying services are rendered, which in a majority of arrangements is straight line over the remaining contractual term.

Certain of the Company’s revenue contracts contains variable consideration that require management estimates. The Company’s management constrains the estimates to reduce the probability of a significant revenue reversal in future periods, allocates variable consideration to the identified performance obligations and recognizes revenue in the period the services are provided. Estimates are based on historical experience, anticipated future performance, market conditions and the best judgment at the time. For the three and six months ended June 30, 2020, the Company’s estimates included management’s assumptions for the impact of COVID-19, which includes significant decline in flight levels. A significant change in one or more of these estimates could affect the estimated contract value. For example, estimates of variable revenue within certain contracts require estimation of the number of sessions or megabytes that will be purchased over the contract term and the average revenue per connectivity session, which varies based on the connectivity options available to passengers on each airline. Estimated revenue under these contracts anticipates increases in take rates over time and assumes an average revenue per session consistent with our historical experience. The estimated contract revenue may differ significantly from the initial estimates to the extent actual take rates and average revenue per session differ from the Company’s historical experience.

Valuation of Goodwill and Intangible Assets
The Company performs valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and allocates the purchase price of each acquired business to its respective net tangible and intangible assets and liabilities. Acquired intangible assets principally consist of technology, customer relationships, backlog and trademarks. Liabilities related to intangibles principally consist of unfavorable vendor contracts. The Company determines the appropriate useful life by performing an analysis of expected cash flows based on projected financial information of the acquired businesses. Intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the majority of the economic benefits are expected to be consumed. Intangible liabilities are amortized into cost of sales ratably over their expected related revenue streams over their useful lives.

Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. The Company does not amortize goodwill but evaluates it for impairment at the reporting unit level annually during the fourth quarter of each fiscal year (as of December 31 of that quarter) or when an event occurs or circumstances change that indicates the carrying value may not be recoverable. An impairment loss will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill in that reporting unit.

For the period ended March 31, 2020, the Company identified a triggering event due to a significant decline in the market capitalization of the Company and results of operations as result of the uncertainty related to the COVID-19 pandemic. Accordingly, the Company assessed the fair value of its six reporting units as of March 31, 2020 and recorded a goodwill impairment charge of $22.1 million related to its Maritime & Land Connectivity reporting unit. This impairment was primarily due to current year net operating loss which triggered a revised forecast for the reporting unit, due primarily to impacts of

15


COVID-19 outbreak on our cruise and yacht channels, coupled with the loss of a Brazilian government customer and continuation of exiting the mobile network operation channel. Given these indicators, the Company then determined that there was a higher degree of uncertainty in achieving its original financial projections for this unit and as such, performed a full revision of its forecasted cash flows to consider the impacts of COVID-19 (as further discussed below) and increased its discount rate, which reduced the fair value of the reporting unit. There was no additional impairment of goodwill identified by Management as of the end of June 30, 2020, based on a qualitative assessment.

To determine the fair value of our reporting units and test for impairment, we utilized an income approach (discounted cash flow method), as we believe this is the most direct approach to incorporate the specific economic attributes and risk profiles of our reporting units into our valuation model. Historically we have used the market approach, however, due to the uncertainty related to COVID-19, management did not use this method in the current year to date analysis. However, to the extent market indicators of fair value become available, we consider such market indicators as well as market participant assumptions in our discounted cash flow analysis and determination of fair value. The discounted cash flow methodology is based, to a large extent, on assumptions about future events, which may or may not occur as anticipated, and such deviations could have a significant impact on the calculated estimated fair values of our reporting units. These assumptions included the use of significant unobservable inputs, representative of a Level 3 fair value measurement (further defined in Footnote 16. Fair Value Measurements), and included, but were not limited to, estimates of discount rates, future growth rates and terminal values for each reporting unit.
The discounted cash flow analysis for each of our reporting units included forecasted cash flows over a four-year forecast period (2020 through 2023), with our 2020 management budget used as the basis for our projections. These forecasted cash flows took into consideration historical and recent results, and near-term prospects and management’s outlook for the future. A terminal value was also calculated using a terminal value growth assumption to derive the annual cash flows after the discrete forecast period. A reporting unit specific discount rate was applied to the forecasted cash flows and terminal cash flows to determine the discounted future cash flows, or fair value, of each reporting unit. Our assessment took into consideration the changes in the projections discussed above and reflected the increased market risk surrounding the execution of those projections and adjusted our cost of capital assumptions to be in-line with recent market indicators for our company and industry. These increases in cost of capital and risk premium assumptions resulted in a significant increase in our discount rates utilized for purposes of determining our discounted cash flows and reduced the estimated fair values of our reporting units.

Short-term investment
The Company carry short-term investments on the balance sheet at fair value. In June 2020, the Company acquired 11.4 million shares of common stock of a non-US airline customer in full settlement of $4.7 million of over-due trade receivable through a non-cash debt conversion arrangement offered by the customer. As of June 30, 2020, the shares are carried on the condensed consolidated balance sheet at fair value of $3.3 million. The loss of $1.4 million is included in other income/(expense) in the condensed consolidated statements of operations.
Investments in Equity Affiliates

Wireless Maritime Services, LLC (“WMS”)
In connection with the EMC Acquisition, the Company acquired a 49% equity interest in WMS, which interest EMC owned at the time of the EMC Acquisition. The remaining 51% equity interest in WMS is owned by an unaffiliated U.S. company (the “WMS third-party investor”), which is the managing member of WMS and is responsible for its day-to-day management and operations. Certain matters, including determination of capital contributions and distributions and business plan revisions, require approval of WMS’s board of directors, which consists of five voting members, three of which are appointed by the WMS third-party investor and two of which are appointed by the Company. Profits and losses for any fiscal year are allocated between the Company and the WMS third-party investor in proportion to their respective ownership interests, after giving effect to any special allocations made pursuant to the WMS operating agreement. EMC’s carrying value of the investment in WMS was adjusted to fair value as a result of the EMC Acquisition. The excess of the fair value over the underlying equity in net assets of WMS is primarily comprised of amortizable intangible assets and nonamortizable goodwill. The Company’s carrying value in its investment in WMS was subsequently adjusted for contributions, distributions, net income (loss) attributable to WMS, the amortization of the cost basis difference associated with the amortizable intangible assets, and impairment.


16


Santander Teleport S.L. (“Santander”)
Also in connection with the EMC Acquisition, the Company acquired an equity interest in a teleport in Santander, Spain, which provides various telecommunication services, including teleport and terrestrial services (EMC owned this interest at the time of the EMC Acquisition). The Company is a significant customer of, and holds a 49% equity interest in Santander, and the remaining 51% is held by an unaffiliated Spanish company (the “Santander third-party investor”). The Santander third-party investor is responsible for the day-to-day management and operations of Santander. Some matters—such as the determination of capital contributions, capital expenditures over budget and distributions—require approval of Santander’s board of directors, which consists of five voting members, three of which are appointed by the Santander third-party investor and two of which are appointed by the Company. Profits and losses for any fiscal year are allocated between the Company and the Santander third-party investor in proportion to their respective ownership interests. The carrying value of the Company’s investment in Santander approximated its fair value on the date the Company acquired EMC and was subsequently adjusted for contributions, distributions, and net income (loss) attributable to Santander, and impairment. As a result of decreased demand due to COVID-19 and seeking additional cost savings initiatives, the Company is evaluating its ongoing participation in the equity method investment from an operating and ownership perspective.

Impairment of Equity Method Investments
To determine the fair value of our equity method investments and test for impairment, we utilized an income approach (discounted cash flow method), as we believe this is the most direct approach to incorporate the specific economic attributes and risk profiles of our businesses into our valuation model. We generally do not utilize a market approach given the lack of relevant information generated by market transactions involving comparable businesses. However, to the extent market indicators of fair value become available, we consider such market indicators as well as market participant assumptions in our discounted cash flow analysis and determination of fair value. The discounted cash flow methodology is based, to a large extent, on assumptions about future events, which may or may not occur as anticipated, and such deviations could have a significant impact on the calculated estimated fair values of our equity method investments. These assumptions included the use of significant unobservable inputs, representative of a Level 3 fair value measurement, and included, but were not limited to, estimates of discount rates, future growth rates and terminal values for each equity method investment.

During the three months ended March 31, 2020, in accordance with ASC 323, Investments-Equity Method and Joint Ventures, the Company’s management completed an assessment of the recoverability of the equity method investments. They determined the carrying value of the interests in the WMS and Santander joint ventures exceeded their estimated fair value of the Company’s interests, which management concluded was other than temporary. The Company recorded an impairment charge of $10.1 million and $3.0 million relating to its WMS and Santander equity investments, respectively. This WMS impairment was primarily the result of lower than expected financial results for three month ended March 31, 2020 due to the uncertainty related to the impacts of the COVID-19 pandemic on the cruise industry. This resulted in a decline in operating performance which is not expected to be recovered in the foreseeable future, causing Company’s management to reduce the financial projections for the WMS business for the remainder of 2020 and beyond. The Santander impairment was primarily the result of a reduction in forecasted financial results for Santander due to the Company’s efforts to reduce costs by shifting certain teleport and related network operations support services away from this joint venture to other vendors. This resulted in a reduction in the financial projections for the remainder of 2020 and beyond. The other than temporary impairments recognized are in addition to the MEG Connectivity reporting unit goodwill impairment recognized for the three months ended March 31, 2020. There was no additional impairment identified by Management during the three months ended June 30, 2020, based on a qualitative assessment.

The discounted cash flow analysis for each of our equity method investments included forecasted cash flows over a long-term forecast period (2020 through 2030). These forecasted cash flows took into consideration historical and recent results, a lack of sustained earnings, a deterioration of market conditions, primarily as a result of COVID-19, and management's prospective outlook. A terminal value was calculated using a terminal value growth assumption to derive the annual cash flows after the discrete forecast period. A specific discount rate was applied to the forecasted cash flows and terminal cash flows to determine the discounted future cash flows, or fair value, of each equity method investment. Our assessment took into consideration probability weighted scenarios using the above assumptions. We utilized an independent analysis to assist in our determination of fair value of our equity method investments.


17


Cash Equivalents
We consider all liquid investments purchased within 90 days of their original maturity to be cash equivalents. The carrying value of cash equivalents equals the fair value as all investments have original maturities of less than three months. As of June 30, 2020, cash equivalents amount was approximately $5.0 million.

Income Taxes
Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts of assets and liabilities and the amounts that are reported in the income tax returns. Deferred taxes are evaluated for realization on a jurisdictional basis. The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In making this assessment, management analyzes future taxable income, reversing temporary differences and ongoing tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company will adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the Company’s position. The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized. The amount of unrecognized tax benefits (UTBs) is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax laws, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. The Company recognizes both accrued interest and penalties associated with uncertain tax positions as a component of Income tax (benefit) expense in the Condensed Consolidated Statements of Operations.

Adoption of New Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The purpose of ASU 2020-04 is to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. More specifically, the amendments in ASU 2020-04 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022. This guidance was effective upon issuance, as a result the Company adopted the guidance in the first quarter of fiscal 2020 and there was no financial impact on the Condensed Consolidated Financial Statements upon adoption.
On January 1, 2020, we adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which revises the methodology for the measurement and timing of the recognition of expected credit losses for financial assets held at amortized cost. The Company adopted Topic 326 using a modified retrospective approach with a cumulative effect adjustments to the opening balance of accumulated deficit.
The cumulative effect adjustment from using the modified retrospective approach for the adoption of ASC 326 impacted our unaudited condensed consolidated balance sheet as of January 1, 2020 by the recognition of allowance for credit losses as summarized below:
Balances at December 31, 2019 Impact of ASC 326 Balances Following Adoption of ASC 326
Assets
Accounts Receivable $ 88,219    $ (503)   $ 87,716   
Other current assets $ 12,839    $ (111)   $ 12,728   
Other non-current assets $ 27,509    $ (672)   $ 26,837   
Equity
Accumulated deficit $ (1,162,901)   $ (1,286)   $ (1,164,187)  

Refer to Note 8. Credit Loss Reserve and Allowances for further details.

18



In November 2019, the FASB issued ASU No. 2019-8, Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements - Share-Based Consideration Payable to a Customer, which expedites the improvement process of the amendments and increase stakeholder awareness in ASU 2018-07, Compensation - Stock Compensation (Topic 718); Improvements to Nonemployee Share-Based Payment Accounting. The Company adopted ASU No. 2019-18 beginning January 1, 2020. The adoption of this standard did not have a material impact on its unaudited condensed consolidated financial statements.

In March 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842): Codification Improvements, to provide clarifications on ASC 842 and to correct unintended application of the guidance. The amendments in this update include the following items brought to FASB’s attention through those interactions with stakeholders: (i) determining the fair value of the underlying asset by lessors that are not manufacturers or dealers; (ii) presentation on the statement of cash flows—sales-type and direct financing leases; and (iii) transition disclosures related to Topic 250, Accounting Changes and Error Corrections. The Company adopted ASU No. 2019-01 beginning January 1, 2020. The adoption of this standard did not have a material impact on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures for fair value measurements. The Company adopted ASU No. 2018-13 beginning January 1, 2020. The adoption of this standard did not have a material impact on its condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt—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. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity's own equity, and also improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2021 and interim periods within those annual periods and early adoption is permitted. We are assessing the impact of ASU 2020-06 on our condensed consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force). The new guidance clarifies the application of measurement alternatives and the accounting for certain forward contracts and purchased options to acquire investments. The ASU is effective for the Company beginning December 15, 2020, with early adoption permitted. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which identifies, evaluates and improves areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The ASU is effective for the Company beginning January 1, 2021, with early adoption permitted. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

Note 3. Revenue Recognition

The Company accounts for a contract with a customer when an approved contract exists, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and the collectability of substantially all of the consideration is probable. Revenue is recognized as the Company satisfies performance obligations by transferring a promised good or service to a customer.

Deferred revenue consists substantially of amounts received from customers in advance of the Company’s performance service period and of fees deferred for future support services. Deferred revenue is recognized as revenue on a systematic basis that is proportionate to the period that the underlying services are rendered, which in a majority of arrangements is straight line over the remaining contractual term.


19


Our assessments regarding the timing of transfer of control and revenue recognition for our two operating segments are summarized below:

Media & Content – specific to the sale and/or licensing of media content and the related technical services, such as digital delivery of media advertising, encoding of video and music products, development of graphical interfaces and provision of materials, we consider control to have transferred when: (i) the content has been delivered, and (ii) the services required under the contract have been performed. Revenue recognition is dependent on the nature of the customer contract. Content licenses to customers are typically categorized into usage-based or flat fee-based fee structures. For usage-based fee structures, revenue is recognized as the usage occurs. For flat-fee based structures, revenue is recognized upon the available date of the license, typically at the beginning of each cycle, or straight-line over the license period.

Connectivity – we provide satellite-based Internet services and related technical and network support services, as well as the physical equipment to enable connectivity.

(i) For Aviation, the revenue is recognized over time as control is transferred to the customer (i.e. the airline), which occurs continuously as customers receive the bandwidth services. Equipment revenue is recognized when control passes to the customer, which is at the later of shipment of the equipment to the customer or obtaining regulatory certification for the operation of such equipment, as applicable.

(ii) For Maritime and Land, revenue is recognized over time as the customer receives the bandwidth services. Equipment revenue is recognized when control passes to the customer, which is typically from shipment of the equipment to the customer. In bandwidth arrangements where the equipment is leased, equipment revenue is determined and recognized in accordance with the assessed lease classification.

Certain of the Company’s contracts involve a revenue sharing or reseller arrangement to distribute the connectivity services. The Company assesses these services under the principal versus agent criteria and determined that the Company acts in the role of an agent and accordingly records such revenues on a net basis.

The following table represents a disaggregation of the Company’s revenue from contracts with customers (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
Revenue: 2020 2019 2020 2019
Media & Content
Licensing and Services $ 20,757    $ 74,013    $ 89,142    $ 154,023   
Total Media & Content 20,757    74,013    89,142    154,023   
Connectivity
Aviation Services 27,742    30,621    58,448    61,862   
Aviation Equipment 3,679    8,719    10,082    22,779   
Maritime & Land Services 28,958    40,495    65,512    79,722   
Maritime & Land Equipment 1,905    3,619    4,022    5,700   
Total Connectivity 62,284    83,454    138,064    170,063   
Total revenue $ 83,041    $ 157,467    $ 227,206    $ 324,086   

Contract Assets and Liabilities
Aviation connectivity contracts involve performance obligations primarily relating to the delivery of equipment and services. Equipment is delivered upfront with payment due upon delivery. Services are rendered to the customer over time and are typically paid for upfront or as the services are delivered. Aviation connectivity revenue is allocated based upon standalone selling price (“SSP”). The primary method used to estimate the SSP is the expected cost-plus margin approach. When the SSP exceeds the revenue allocation, the revenue to which the Company is entitled is contingent on performing the ongoing connectivity services and the Company records a contract asset accordingly.

20


The following table summarizes the significant changes in the balance for contract assets during the six months ended June 30, 2020 (in thousands):
Contract Assets
Balance as of December 31, 2019 $ 14,431   
Costs deferred for revenue recognized in excess of billings 4,628   
Costs included in the beginning balance recognized during the period (5,638)  
Balance as of June 30, 2020
$ 13,421   
Current contract assets $ 2,757   
Non-current contract assets 10,664   
Balance as of June 30, 2020
$ 13,421   

The Company may invoice upfront for services recognized over time or for contracts in which it has unsatisfied performance obligations. Contract payment terms are generally 30 to 45 days. When the timing of invoicing differs from the timing of revenue recognition, the Company determines its contracts to include a financing component when the contractual term is for more than a year.

The following table summarizes the significant changes in the balance for contract liabilities, included within “Other non-current liabilities” in our unaudited condensed consolidated balance sheet, during the six months ended June 30, 2020 (in thousands):
Contract Liabilities
Balance as of December 31, 2019 $ 12,403   
Revenue recognized including amount in contract liability balance at the beginning of the period (7,446)  
Increase due to cash received, excluding amounts recognized as revenue during the period 3,488   
Balance as of June 30, 2020
$ 8,445   
Deferred revenue, current $ 8,359   
Deferred revenue, non-current 86   
Balance as of June 30, 2020
$ 8,445   

As of June 30, 2020, the Company had $899.1 million of remaining performance obligations, which it also refers to as total backlog. The Company expects to recognize approximately 14% of its remaining performance obligations as revenue in 2020 approximately 21% in 2021, 17% by 2022, and the remaining balance thereafter. $1.4 million and $1.5 million of services revenue was recognized during the three months ended June 30, 2020 and 2019, respectively, and $3.9 million and $5.0 million during the six months ended June 30, 2020 and 2019, respectively, and was included in the deferred revenue balances at the beginning of the respective period.


21


Accounts Receivable, net
The Company extends credit to its customers from time to time. The Company maintains an allowance for doubtful accounts for estimated losses resulting from its customers’ inability to make required payments. Management analyzes the age of customer balances, historical bad debt experience, customer creditworthiness and changes in customer payment terms when making estimates of the collectability of its accounts receivable balances. If management determines that the financial condition of any of its customers has deteriorated, whether due to customer specific or general economic issues, an increase in the allowance may be made. After all attempts to collect a receivable have failed, the receivable is written off.
Accounts receivable consist of the following (in thousands):
June 30, December 31,
2020 2019
Accounts receivable, gross $ 74,193    $ 94,995   
Less: Allowance for doubtful accounts (7,808)   (6,776)  
Accounts receivable, net $ 66,385    $ 88,219   

Refer to Note 8. Credit Loss Reserve and Allowances for further details.

Capitalized Contract Costs
Certain of the Company’s sales incentive programs meet the requirements to be capitalized as incremental costs of obtaining a contract. The Company recognizes an asset for the incremental costs if it expects the benefit of those costs to be longer than one year and amortize those costs over the expected customer life. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less.

Additionally, the Company capitalizes assets associated with costs incurred to fulfill a contract with a customer. For example, the Company capitalizes the costs incurred to obtain necessary Supplemental Type Certificates or other customer-specific certifications for its aviation, maritime and land customers.

The following table summarizes the significant changes in the contract assets balances during the period ended June 30, 2020 (in thousands):
Contract Assets
Costs to Obtain Costs to Fulfill Total
Balance as of December 31, 2019 $ 387    $ 5,256    $ 5,643   
Capitalization (reversal) during the period 127    (132)   (5)  
Amortization during the period (57)   (221)   (278)  
Balance as of June 30, 2020
$ 457    $ 4,903    $ 5,360   

Contract assets are included within Other non-current assets on the Company’s Condensed Consolidated Balance Sheets. Capitalization in the six months ended June 30, 2020 was $0.9 million, offset by $1.0 million of refunds received from vendors for Supplemental Type Certificate deposits, which were previously capitalized as a part of costs incurred to fulfill contracts.

Practical Expedients, Policy Elections and Exemptions
In circumstances where shipping and handling activities occur subsequent to the transfer of control, the Company has elected to treat shipping and handling as a fulfillment activity rather than a service to the customer. 

The Company has made a policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (e.g., sales, use, value added, and some excise taxes).

The Company applies a practical expedient to expense costs as incurred for incremental costs to obtain a contract when the amortization period would have been one year or less and did not evaluate contracts of one year or less for variable consideration.

22



Note 4. Leases

Our leasing operations consist of various arrangements, where we act either (i) as the lessee (primarily related to our corporate and regional offices, teleport co-location arrangements and a commitment for satellite bandwidth capacity), or (ii) as the lessor (for our owned equipment rented to connectivity customers). The following describes the nature of our various leasing arrangements and the impact to our statement of operations for the three and six months ended June 30, 2020:


Real Estate Operating Leases (as a Lessee)
The Company has operating leases for office facilities throughout the United States and around the world. Upon inception of a contract, the Company evaluates if the contract, or part of the contract, contains a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases include both a right-of-use asset and a lease liability. The right-of-use asset represents the Company’s right to use the underlying asset in the lease, and it also includes prepaid lease payments. The lease liability represents the present value of the remaining lease payments discounted using the incremental borrowing rate (“IBR”). Maintenance and property tax expenses are accounted for on an accrual basis as variable lease cost. The Company has elected to combine lease and non-lease components, if applicable.

The Company records lease expense on a straight-line basis over the lease term in general and administrative expense. Total lease expense for the three months ended June 30, 2020 and 2019, was $1.4 million and $1.6 million, respectively and for the six months ended June 30, 2020 and 2019, was $2.8 million and $3.2 million, respectively.

The Company’s leases have remaining lease terms of one year to 10.0 years. Lease terms include renewal or termination options that the Company is reasonably certain to exercise. For leases with a term of 12 months or less, the Company has made an accounting policy election to not record a right-of-use asset and associated lease liability on its condensed consolidated balance sheet.

Teleport Co-Location Operating Leases (as a Lessee)
The Company engages certain bandwidth providers for teleport co-location services to deliver bandwidth to our network. These co-location service agreements typically include provisions for physical rack space at a third-party teleport facility. We have determined that the space provided for our equipment constitutes an operating lease.

These leases have remaining lease terms of one year to 8.0 years as of June 30, 2020. The Company records lease expense on a straight-line basis over the lease term as part of cost of sales -- licensing and services. Total lease expense for the three months ended June 30, 2020 and 2019, was $0.5 million and $0.4 million, respectively, and $1.0 million and $0.4 million for six months ended June 30, 2020 and 2019, respectively.

Satellite Bandwidth Finance Lease (as a Lessee)
The Company maintains agreements with satellite service providers to provide for satellite bandwidth capacity. The Company evaluates these arrangements for embedded leases when the Company has the right to control the use of a significant portion of the identified asset. The Company has elected to separate the lease and non-lease components.

Bandwidth Operating Leases
The Company records right-of-use assets and lease liabilities for certain bandwidth capacity arrangements meeting the operating lease classification. These leases have remaining lease terms of one year to 2.0 years as of June 30, 2020. The Company records lease expense on a straight-line basis over the lease term as part of Cost of Sales - Licensing and Services. Total lease expense for the three months ended June 30, 2020 and 2019, was $0.3 million and $0, respectively, and for the six months ended June 30, 2020 and 2019, was $0.6 million and $0.6 million, respectively.

For leases with a term of 12 months or less, the Company has made an accounting policy election to not record a right-of-use asset and associated lease liability on its condensed consolidated balance sheet.


23


Bandwidth Finance Lease
During the six months ended June 30, 2019, the Company modified an existing arrangement for bandwidth capacity that provided us with the right to control a significant portion of the identified asset. The modified agreement met the criteria of finance lease classification.

This finance lease has a remaining lease term of 6.25 years as of June 30, 2020. The Company records amortization of right-of-use assets and interest accretion on finance lease liabilities as part of cost of sales - licensing and services and interest expense, net, respectively. The following table provides the components of the finance lease cost for the three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Amortization of right-of-use asset, net of lease incentive and contract liability credits $ 420    $ 675    $ 840    $ 675   
Interest accretion on finance lease liabilities 371    470    754    470   
Total finance lease cost $ 791    $ 1,145    $ 1,594    $ 1,145   

Other Arrangements (as a Lessee)
The Company leases certain computer software, equipment and co-location facilities under finance leases that expire on various dates through 2022, for which the outstanding lease liability balance was assessed as not material as of June 30, 2020.

The Company reviews the carrying value of its right-of-use assets for impairment whenever events or changes in circumstances indicate that the recorded value may not be recoverable. Recoverability of assets is measured by comparing the carrying amounts of the assets to the estimated future undiscounted cash flows, excluding financing costs. If the Company determines that an impairment exists, any related impairment loss is estimated based on fair values.

Equipment Held by Customers (as a Lessor)
The Company either sells or leases certain equipment (including antennas, modems and routers, among others) as part of the bandwidth service to our Maritime and Land Connectivity customers. We account for existing equipment lease transactions as operating leases. We recognize lease payments for operating leases as licensing and services revenue in its condensed consolidated statement of operations on a straight-line basis over the lease term.

We assess new equipment lease arrangements or modifications to existing equipment lease arrangements for operating or sales-type lease classification. We recognize investments in leases for sales-type leases when the risk and rewards of ownership are not fully transferred to the customer due to our continued involvement with the equipment. We allocate the total consideration in a contract assessed with a sales-type lease using the expected cost-plus margin and residual methods for the lease and non-lease components, respectively.

The service revenues (with embedded operating equipment leases) and recognized revenues on sales-type equipment leases in which the Company acts as the lessor for the three and six months ended June 30, 2020 and 2019, is presented in the following table (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Bandwidth service and equipment revenues(1)
$ 20,281    $ 36,154    $ 46,304    $ 70,261   
Earned revenues on sales-type leases at commencement(2)
812    977    915    1,310   
Total Licensing and Service Revenues -- Maritime and Land Connectivity $ 21,093    $ 37,131    $ 47,219    $ 71,571   
(1) This is presented as part of Revenues -- Licensing and services in our condensed consolidated statement of operations, and includes the equipment lease component that is embedded in the overall bandwidth service arrangement. Since we adopted the practical expedient to not separate the lease and non-lease components as allowed with the ASC 842 implementation as of January 1, 2019, we will continue to classify existing embedded equipment arrangements as operating leases, to the extent unmodified.

24


(2) This includes the equipment lease revenues recognized at commencement date of the customer equipment arrangements classified as sales-type leases. As equipment leasing is a standard component in our connectivity business model, we present equipment revenues relating to these sales-type leases on a gross basis, and recognize a corresponding cost of sales equal to the net book value of the leased equipment. Interest income component is considered immaterial.

Supplemental Cash Flow Information, Weighted-Average Remaining Lease Term and Discount Rate
Because the rate implicit in each lease is not readily determinable, the Company uses its IBR to determine the present value of the lease payments. The following table discloses the weighted-average remaining lease term and IBR, as well as supplemental cash flow information (in thousands):
Six Months Ended June 30, 2020
Supplemental cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities $ 3,800   
Cash paid for amounts included in the measurement of finance lease liabilities $ 1,800   
Right-of-use-assets obtained in exchange for operating lease obligations $ 194,000   
Right-of-use-assets obtained in exchange for finance lease obligations $ —   
Weighted average remaining lease term -- real estate operating leases
6.77 years
Weighted average remaining lease term -- teleport co-location operating leases
4.43 years
Weighted average remaining lease term -- satellite capacity operating leases
0.50 years
Weighted average remaining lease term -- finance lease
6.00 years
Weighted average IBR -- real estate operating leases
9.91  %
Weighted average IBR -- teleport co-location operating leases
8.92  %
Weighted average IBR -- teleport satellite capacity operating leases
7.24  %
Weighted average IBR -- finance lease
8.30  %

Annual Future Minimum Lease Payments
The following table reflects a summary of Annual future minimum lease payments and the Company’s lease assets as of June 30, 2020 (in thousands):
As a Lessee As a Lessor
Real Estate Satellite Capacity Satellite Capacity Teleport
Co-Location
Total Equipment Held by Customers
Lease Classification Operating Finance Operating Operating Sales-Type
2020 (remaining six months) $ 2,975    $ 1,879    $ 689    $ 937    $ 6,480    $ 472   
2021 5,270    3,758    —    1,777    10,805    940   
2022 4,574    3,758    —    1,452    9,784    585   
2023 3,620    3,758    —    561    7,939    261   
2024 3,625    3,758    —    550    7,933    180   
Thereafter 10,896    5,638    —    1,013    17,547    43   
Total Future Lease Payments $ 30,960    $ 22,549    $ 689    $ 6,290    $ 60,488    $ 2,481   
Less: Imputed interest (8,699)   (4,712)   (10)   (1,110)   (14,531)   (298)  
Present Value of Lease Liabilities $ 22,261    $ 17,837    $ 679    $ 5,180    $ 45,957   
Net Investment in Sales-Type Leases $ 2,183   

In response to the COVID-19 pandemic and related government restrictions negatively impacting our operations, subsequent to March 31, 2020, we began renegotiating certain lease agreements to obtain rent relief in the near term, in order to help offset the negative financial impacts of COVID-19. On April 10, 2020, the Financial Accounting Standards Board ("FASB") staff issued a question-and-answer document providing guidance for lease concessions provided to lessees in response to the effects of COVID-19. Such guidance allows lessees to make an election not to evaluate whether a lease concession provided by a lessor

25


should be accounted for as a lease modification in the event the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. We elected to adopt the practical expedient for all lease concessions provided for our real estate lease agreements. As of the six months ended June 30, 2020, rent concession received was $0.7 million.

The book value of the equipment held by customers under operating leases, which are classified as “Equipment” in Note 5- Property & Equipment, is as follows:
June 30, 2020 December 31, 2019
Equipment
Gross balance $ 53,884    $ 57,369   
Accumulated depreciation (33,623)   (30,692)  
Net Book Value $ 20,261    $ 26,677   

Note 5. Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):
June 30, 2020 December 31, 2019
Leasehold improvements $ 8,767    $ 11,319   
Furniture and fixtures 2,408    2,683   
Equipment 156,524    157,259   
Computer equipment 15,425    16,993   
Computer software 53,246    51,939   
Automobiles 298    301   
Buildings 7,087    7,088   
Albatross (Company-owned aircraft) 456    456   
Satellite transponders 70,100    70,100   
Construction in-progress 1,194    1,499   
Total property and equipment $ 315,505    $ 319,637   
Accumulated depreciation (198,509)   (174,342)  
Property and equipment, net $ 116,996    $ 145,295   

Depreciation expense, including software amortization expense, by classification consisted of the following (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Cost of sales $ 8,616    $ 8,662    $ 18,244    $ 17,596   
Sales and marketing 419    912    941    1,914   
Product development 377    772    948    1,607   
General and administrative 2,966    3,378    5,750    6,760   
Total depreciation expense $ 12,378    $ 13,724    $ 25,883    $ 27,877   

During the three and six months ended June 30, 2020, the Company recognized $3.4 million impairment loss relating primarily to re-valuation of our office facilities during our initiatives of relocation of worldwide operating facilities to reduce ongoing costs and $1.0 million relating to decommissioned vessels which primarily due to the impact of COVID-19 pandemic. The $3.4 million was reported in operating expenses and the $1.0 million in cost of sales in the accompanying Condensed Consolidated Statements of Operations.

26


Note 6. Goodwill
        
We have three separate reporting units for purposes of our goodwill impairment testing. The changes in the carrying amount of goodwill by reporting unit were as follows (in thousands):
Aviation Connectivity Maritime & Land Connectivity Media & Content Total
 
Gross carrying amount $ 98,022    $ 209,130    $