Annual Report
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2019Annual report UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One): È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 2019 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: 001-35975 Gogo Inc. (Exact name of registrant as specified in its charter) Delaware 27-1650905 (State or other jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 111 North Canal St., Suite 1500 Chicago, IL 60606 (Address of principal executive offices) Telephone Number (312) 517-5000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Class Trading Symbol Name of Each Exchange on Which Registered Common stock, par value $0.0001 per share GOGO NASDAQ Global Select Market Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ‘ No È Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No È 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 È 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes È No ‘ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting 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 È 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 Exchange Act). Yes ‘ No È The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was $226,694,957 based upon the closing price reported for such date on the NASDAQ Global Select Market. As of March 9, 2020, 83,318,003 shares of $0.0001 par value common stock were outstanding. Documents Incorporated By Reference Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders scheduled to be held April 29, 2020 are incorporated by reference into Part III of this Form 10-K. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2019. Gogo Inc. INDEX Page Part I. Item 1. Business 2 Item 1A. Risk Factors 18 Item 1B. Unresolved Staff Comments 54 Item 2. Properties 54 Item 3. Legal Proceedings 55 Item 4. Mine Safety Disclosures 56 Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 57 Item 6. Selected Financial Data 59 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 61 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 99 Item 8. Financial Statements and Supplementary Data 101 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 152 Item 9A. Controls and Procedures 152 Item 9B. Other Information 152 Part III. Item 10. Directors, Executive Officers and Corporate Governance 154 Item 11. Executive Compensation 154 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 154 Item 13. Certain Relationships and Related Transactions, and Director Independence 154 Item 14. Principal Accounting Fees and Services 155 Part IV. Item 15. Exhibits, Financial Statement Schedules 156 Item 16. Form 10-K Summary 165 1 INTRODUCTORY NOTE Unless the context otherwise indicates or requires, as used in this Annual Report on Form 10-K for the fiscal year ended December 31, 2019 references to: (i) “we,” “us,” “our,” “Gogo,” or the “Company” refer to Gogo Inc. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated or where it is clear that the term means only Gogo Inc. exclusive of its subsidiaries; (ii)“CA,” “CA business” or “commercial aviation” refer to our Commercial Aviation North America, or CA-NA, segment and our Commercial Aviation Rest of World, or CA-ROW, segment, taken as a whole and (iii) “fiscal,” when used in reference to any twelve-month period ended December 31, refers to our fiscal year ended December 31. Unless otherwise indicated, information contained in this Annual Report is as of December 31, 2019. We have made rounding adjustments to reach some of the figures included in this Annual Report and, unless otherwise indicated, percentages presented in this Annual Report are approximate. Cautionary Note Regarding Forward-Looking Statements Certain statements in this report may constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, international expansion, future technologies, future operations, margins, profitability, future efficiencies, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “future” and the negative of these or similar terms and phrases are intended to identify forward-looking statements in this Annual Report on Form 10-K. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially under “Risk Factors,” “Quantitative and Qualitative Disclosures about Market Risk,” and “Management’s Discussion and Analysis” in this report. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise. Item 1. Business Who We Are Gogo is the in-flight Internet company. Our mission is to provide ground-like connectivity to every device on every flight around the globe, enabling superior passenger experiences and efficient flight operations. To accomplish our mission, we design, build and operate dedicated satellite and air-to-ground (“ATG”) networks, engineer, install and maintain in-flight systems of proprietary hardware and software, and deliver customizable connectivity and wireless entertainment services and global support capabilities to our aviation partners. We are the leading global provider of in-flight broadband connectivity and wireless entertainment services, with our equipment installed and services provided on approximately 3,200 commercial aircraft and approximately 5,700 business aircraft as of December 31, 2019. Our industry is characterized by rapid technological development, and we continually invest in research and development to maintain our leading global market share and support our aviation partners’ needs. Since we announced our next-generation 2Ku global satellite system (“2Ku”) in 2014, 20 domestic and international airlines have selected 2Ku for installation, and as of December 31, 2019, our 2Ku system had been installed on more than 1,400 aircraft with approximately 900 additional 2Ku aircraft in our backlog (as defined below under the heading “Contracts with Airline Partners”). Of the aircraft installed with 2Ku as of December 31, 2019, approximately 540 were upgrades from previously installed Gogo systems. The 2Ku system is capable of delivering peak speeds of 100 Mbps to the aircraft. We also continue to innovate and improve our North American terrestrial networks. In May 2019, we announced our plans to build our Gogo 5G network for use on business aviation aircraft, commercial regional 2 jets and smaller mainline jets operating within the continental United States and Canada. We expect the new network to be available in 2021. Gogo 5G will support licensed, shared and unlicensed spectrum and high, low and middle bands and will allow us to take advantage of new advances in technology as they are developed. We will continue to provide service over our 3G and 4G networks in North America to provide redundancy to the Gogo 5G network when needed. Our leading global market share supports our continued investment in ongoing research and development and the global operating capabilities required to support our aviation partners’ needs. Our technology roadmap includes plans for continued rapid improvement in bandwidth speeds and other performance metrics of our in-flight systems. Our Customers We have served the aviation industry for nearly 30 years and are the only provider in our industry that is focused exclusively on in-flight connectivity and entertainment. Our customers are airlines in the commercial aviation market and aircraft owners/operators in the business aviation market.