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
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page |
|
|
|
EXPLANATORY NOTES
|
|
|
|
|
|
|
|
|
|
ITEM 1. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 2. |
|
|
|
|
|
ITEM 3. |
|
|
|
|
|
ITEM 4. |
|
|
|
|
|
|
|
|
|
|
|
ITEM 1. |
|
|
|
|
|
ITEM 6. |
|
|
|
|
|
|
|
|
|
|
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.
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.
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.
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.
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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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) |
|
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.
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.
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.
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”).
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.
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
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
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.
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.
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) |
|
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.
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.
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.
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.
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.
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.
(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
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.
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 |
|
|
$ |
|