Connectivity

Equipment Sales Drive Gogo’s Q1 Revenue After Leadership Shake-Up

By Nick Zazulia | May 6, 2018

Aircraft connectivity provider Gogo released its financial results for the first quarter 2018, including a consolidated revenue of $232 million, up 40% year over year.

First Quarter 2018 Consolidated Financial Results

  • Consolidated revenue increased to $231.8 million, up 40% from Q1 2017. Service revenue increased to $150.7 million, up 3% year over year (YOY). Equipment revenue increased to $81.1 million, up 329% from Q1 2017.
  • Q1 2018 financial results reflect the adoption of the new revenue recognition standard, ASC 606, and the transition of one of our airline partners to the airline-directed model, which resulted in the recognition of $45.4 million of incremental equipment revenue and $19.3 million of incremental net income.
  • Excluding the $45.4 million accounting impact of incremental equipment revenue, consolidated revenue increased to $186.4 million, up 13% YOY, and equipment revenue increased to $35.7 million, up 89% from Q1 2017.
  • Net loss decreased to $27.4 million, down 34% from Q1 2017, primarily due to the $19.3 million accounting impact of incremental net income. Adjusted earnings before interest, depreciation and amortization (EBITDA) increased to $11.9 million, up 11% from Q1 2017.
  • Capital expenditures decreased to $62.7 million from $71.6 million YOY.

"While 2018 will be a transitional year for Gogo, we have continued to aggressively install 2Ku and made significant progress in improving 2Ku performance," said new Gogo CEO Oakleigh Thorne. "We believe 2Ku is the industry-leading satellite connectivity technology and are excited about the long-term prospects of our business."

First Quarter 2018 Business Segment Financial Results

Business Aviation

  • Total revenue increased to a record $68.8 million, up 22% from Q1 2017.
  • Segment profit increased to $32.3 million, up 24% from Q1 2017, with segment profit margin expanding to a record 47% for the quarter.
  • Service revenue increased to $47.7 million, a 19% YOY increase.
  • Equipment revenue increased to $21.2 million, up 30% from Q1 2017, driven by continuing strong demand for AVANCE systems.

Commercial Aviation - North America

  • Total revenue increased to $143.8 million, up 46% YOY.
  • Service revenue decreased to $88.8 million, a YOY decrease of 8.6.
  • Aircraft online increased to 2,840, up 126 aircraft from March 31, 2017, with approximately 17% of the aircraft operating on our satellite network. As of March 31, 2018, this group had approximately 640 aircraft awarded for installation or conversion to 2Ku, 115 of which are net new aircraft.
  • Segment profit decreased to $1.7 million, down from $11.2 million YOY. Segment profit was impacted primarily by increased satellite capacity costs to support the roll-out of 2Ku, increased operational costs to improve 2Ku performance, and lower service revenue.

Commercial Aviation - Rest of World

  • Total revenue increased to $19.2 million, up 86% from Q1 2017.
  • Service revenue increased to $14.2 million, up 52% YOY, on a 47% increase in aircraft online.
  • Aircraft online increased to 414, up 133 aircraft from March 31, 2017. This group had approximately 760 net new 2Ku awarded but not yet installed aircraft as of March 31, 2018.

 Recent Developments

  • On March 4, 2018, Gogo's Board of Directors appointed Oakleigh Thorne as President and Chief Executive Officer.
  • On April 20, 2018, Gogo announced the following leadership changes: John Wade was appointed President, Commercial Aviation Division, Sergio Aguirre was appointed President, Business Aviation Division, and Jon Cobin was appointed Chief Strategy Officer and EVP Corporate Development.
  • Gogo Business Aviation received an STC and parts manufacturer approval from the FAA for Gogo AVANCE L3.
  • In January 2018, Gogo became the first in-flight connectivity provider to integrate and provide service using SES-15, a hybrid satellite providing Ku-band wide beam and spot-beam capacity over the North and Central America region.

Business Outlook

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

  • An increase in 2Ku aircraft online of 550 to 650.
  • Total 2Ku aircraft online as of December 31, 2018 of 1,100 to 1,200.
  • Total revenue of $865 million to $935 million.
    • Business revenue of $285 million to $295 million.
    • North American revenue of $445 million to $485 million.
    • Rest of world revenue of $125 million to $165 million.
    • Equipment revenue as a percentage of North American and rest of world revenue is expected to be higher than prior guidance.
  • Adjusted EBITDA below the previously provided range of $75 million to $100 million.
  • Gross capital expenditures of $150 million to $170 million.

Gogo announced that it is withdrawing its previously provided 2018 guidance for adjusted EBITDA, airborne cash CAPEX, and airborne equipment inventory purchases related to airline-directed installations, as well as Free Cash Flow guidance. It said it plans to provide updated guidance no later than its Q2 2018 earnings conference call.

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