Global Eagle Reports Financial Results for the Second Quarter of 2018
Reiterates 2018 Adjusted EBITDA guidance
Strong revenue growth and gross-margin improvement in Media & Content segment
Aviation Connectivity on track to accelerate growth in second half of 2018
During the second quarter, Global Eagle’s market-leading Media & Content segment benefitted from strong growth in revenue and gross-margin improvement. Media & Content segment revenue grew period-over-period by 11.9%, with a second-quarter-2018 gross margin of 30.0%. This growth was primarily due to a ramp up in content programming for previously-announced new customer contracts as well as expanded content programming with several of our existing airline partners. We continue to believe that over the long term we can maintain gross margins similar to those generated in the second quarter of 2018 while growing Media & Content segment revenue by 3-5% per year on average.
Global Eagle’s Connectivity segment remains the leading provider of satellite-based passenger connectivity for single-aisle airliners and the leading broadcaster of live television to the aviation and maritime markets. Our aviation connectivity business continued to benefit from our substantial economies of scale, which helped to generate gross margins during the quarter in excess of our Company’s overall average gross margin. We believe that our aviation connectivity business continues to demonstrate the highest levels of service reliability for our customers and elevate their passenger experience. We expect to accelerate our aviation connectivity installations in the second half of 2018. Our cruise business also experienced significant growth during the second quarter of 2018.
“We continue to execute on our plan for a healthy core business, profitable growth and transformation,” commented
“Our second-quarter results demonstrate that our commercial success is driving improved revenue growth,” said
Second Quarter Summary
- Total revenue for the second quarter of 2018 was
$166 million, a 6.6% increase over the prior-year period. This increase was driven by growth in both our Media & Content and Connectivity segments. Revenue growth in our Media & Content segment was driven by a ramp up of new customer contracts as well as expanded content programming for existing customers as outlined above. In our Connectivity segment, service revenue from new aircraft, marine-vessel and land-site installations drove revenue growth.
- Net loss for the second quarter of 2018 was
$45.9 million. The larger net loss over the prior-year period was primarily driven by higher interest expense in the second quarter of 2018, and was partially offset by revenue growth and lower operating expenses as outlined above. Higher interest expense was driven by our issuance of new Second Lien Notes due 2023 to Searchlight Capital Partnersin March of this year. As outlined above, our operating-expense improvement was driven by our continued integration of our prior acquisitions, including facilities rationalization, headcount reductions, labor insourcing and our implementation of additional technology supporting our business.
- Adjusted EBITDA for the second quarter of 2018 was
$20.4 million, which was a 23.4% increase over the prior-year period. Adjusted EBITDA growth was primarily driven by both revenue growth and lower operating expenses as outlined above.
We continue to expect a minimum of 25% Adjusted EBITDA growth year-over-year in 2018.
We will host a live webcast on
About Global Eagle
Global Eagle is a leading provider of media, content, connectivity and data analytics to markets across air, sea and land. Global Eagle offers a fully integrated suite of rich media content and seamless connectivity solutions to airlines, cruise lines, commercial ships, high-end yachts, ferries and land locations worldwide. With approximately 1,400 employees and 52 offices on six continents, the Company delivers exceptional service and rapid support to a diverse customer base. Find out more at: www.GlobalEagle.com.
* About Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in
Adjusted EBITDA is one of the primary measures used by our management and Board of Directors to understand and evaluate our financial performance and operating trends, including period to period comparisons, to prepare and approve our annual budget and to develop short and long term operational plans. Additionally, Adjusted EBITDA is one of the primary measures used by the Compensation Committee of our Board of Directors to establish the funding targets for (and subsequent funding of) our Annual Incentive Plan bonuses for our employees. We believe our presentation of Adjusted EBITDA is useful to investors both because it allows for greater transparency with respect to key metrics used by our management in their financial and operational decision-making and because our management frequently uses it in discussions with investors, commercial bankers, securities analysts and other users of our financial statements.
We define Adjusted EBITDA as net income (loss) before (a) interest expense (income), (b) income tax expense (benefit) and (c) depreciation and amortization (including relating to equity-method investments) and (gain) loss on disposal and impairment of fixed assets, and we then further adjust that result to exclude (when applicable in the period) (1) change in fair value of financial instruments, (2) other (income) expense, including primarily, (gains) losses from investments and foreign-currency-transaction (gains) losses, (3) goodwill impairment expense, (4) stock-based compensation expense, (5) strategic-transaction, integration and realignment expenses (as described below), (6) auditor and third-party professional fees and expenses related to our internal-control deficiencies (and the remediation thereof) and complications in our audit process relating to our control environment, (7) excess content expenses (as described below), (8) securities class-action expenses (as described below), (9) losses on significant customer bankruptcies (as described below) and (10) restructuring expenses pursuant to our September 2014 integration plan. Management does not consider these items to be indicative of our core operating results.
“Excess content expenses” includes the additional purchasing costs that we incurred in 2017 to procure movie content for our customers, notwithstanding that we could have procured equivalent content under our (preferential-pricing) output arrangements with major studios. We incurred these additional costs because we could not timely identify and measure our movie-content expenditures and procurement during the period due to weaknesses in our control environment.
“Losses on significant customer bankruptcies” includes (1) our provision for bad debt associated with the bankruptcies of Air Berlin and Alitalia (two of our Media & Content customers) in 2017, together with (2) the costs (e.g., content acquisition fees) that we incurred to maintain service to those customers during their bankruptcy proceedings in order to preserve the customer relationship.
“Securities class-action expenses” includes third-party professional fees and expenses associated with the securities class-action lawsuits filed against us in 2017.
“Strategic-transaction, integration and realignment expenses” includes (1) transaction-related expenses and costs (including third-party professional fees) attributable to acquisition, financing, investment and other strategic-transaction activities, (2) integration and realignment expenses and allowances, (3) employee-severance, -retention and -relocation expenses, (4) purchase-accounting adjustments for deferred revenue, costs and credits associated with companies and businesses that we have acquired through our M&A activities, (5) service-level-agreement penalties incurred during our Eagle-1 migration and setup in its new orbital slot in 2017, and (6) claims at companies or businesses that we acquired through our M&A activities for underlying liabilities that pre-dated our acquisition of those companies or businesses. In respect of clause (6) in this definition, we include (i.e., exclude from net income (loss)) any estimated loss contingencies and provisions for legal settlements relating to those liabilities.
Cautionary Note Concerning Forward-Looking Statements
Certain statements in this press release 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 with respect to our expected Adjusted EBITDA, revenue and margin growth in future periods, our aviation-connectivity installations in future periods, our business and financial-performance outlook, industry, business strategy, plans, business and M&A integration activities, operating-expense and cost-structure improvements and reductions, future operations, margins, profitability, future efficiencies and other financial and operating information. The words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “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 press release.
Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following:
- our ability to remediate material weaknesses in our internal control over financial reporting and to complete such remediation in a timely manner, and the effect of those weaknesses on our ability to report and forecast our operations and financial performance;
- our ability to maintain effective disclosure controls and internal control over financial reporting;
- our efforts to remediate our material weaknesses in our internal control over financial reporting may divert management’s attention from our business, reduce our liquidity and have an adverse effect on our financial performance;
- any future restructuring activities may prove detrimental to our operations and sales and our ability to achieve our operating-expense and cost-structure improvements and reductions;
- our dependence on the travel industry;
- future acts or threats of terrorism;
- our dependence on our existing relationship and agreement with Southwest Airlines;
- our ability to obtain new customers and renew agreements with existing customers;
- our customers’ inability to pay us for our services;
- our ability to retain and effectively integrate and train key members of senior management;
- our ability to recruit, train and retain highly skilled technical employees, particularly in our finance and IT functions;
- our ability to receive the anticipated cash distributions or other benefits from our investment in the Wireless Maritime Services joint venture;
- customer attrition due to direct arrangements between satellite providers and customers;
- the effect of a variety of complex U.S. and foreign tax laws and regimes due to the global nature of our business;
- our need to invest in and develop new broadband technologies and advanced communications and secure networking systems, products and services and antenna technologies as well as their market acceptance;
- our ability to continue to be able to make claims for investment tax credits in Canada;
- our exposure to foreign currency risks and a lack of a formalized hedging strategy;
- increased demand by customers for greater bandwidth, speed and performance and increased competition from new technologies and market entrants;
- our reliance on “sole source” service providers and other third parties for key components and services that are integral to our product and service offerings;
- the potential need to materially increase our investments in product development and equipment beyond our current investment expectations;
- our ability to expand our international operations and the risks inherent in our international operations, especially in light of current trade and national-security disputes between the United States and China (which may adversely impact our ability to conduct business in that market);
- service interruptions or delays, technology failures, damage to equipment or software defects or errors and the resulting impact on our reputation and ability to attract, retain and serve our customers;
- equipment failures or software defects or errors that may damage our reputation or result in claims in excess of our insurance or warranty coverage;
- satellite failures or degradations in satellite performance;
- our ability to integrate businesses or technologies we have acquired or may acquire in the future;
- increased on-board use of personal electronic devices and content accessed and downloaded prior to travel, and our ability to compete as a content provider against “over the top” download services and other companies that offer in-flight entertainment products;
- pricing pressure from suppliers and customers in our Media & Content segment and a reduction in the aviation industry’s use of intermediary content service providers (such as us);
- a reduction in the volume or quality of content produced by studios, distributors or other content providers;
- a reduction or elimination of the time between our receipt of content and it being made available to the rental or home viewing market (i.e., the “early release window”);
- increased competition in the in-flight entertainment and in-flight connectivity system supply chain;
- our ability to plan expenses and forecast revenue due to the long sales cycle of many of our Media & Content segment’s products;
- our use of fixed-price contracts for satellite bandwidth and potential cost differentials that may lead to losses if the market price for our services declines relative to our committed cost;
- our use of fixed-price contracts in our Media & Content segment that may lead to losses in the future if the market price for our services declines relative to our committed cost;
- our ability to develop new products or enhance those we currently provide in our Media & Content segment;
- our ability to successfully implement a new enterprise resource planning system;
- our ability to protect our intellectual property;
- the effect of cybersecurity attacks, data or privacy breaches, data or privacy theft, unauthorized access to our internal systems or connectivity or media and content systems, or phishing or hacking, especially in light of recently publicized security incidents affecting our industry and our systems;
- the costs to defend and/or settle current and potential future civil intellectual property lawsuits (including relating to music and other content infringement) and related claims for indemnification;
- changes in regulations and our ability to obtain regulatory approvals to provide our services or to operate our business in particular countries or territorial waters;
- compliance with U.S. and foreign regulatory agencies, including the Federal Aviation Administration and Federal Communications Commission and their foreign equivalents in the jurisdictions in which we and our customers operate;
- changes in government regulation of the Internet, including e-commerce or online video distribution;
- our ability to comply with trade, export, anti-money laundering and anti-bribery practices and data protection laws, especially the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act;
- uninsured or underinsured costs associated with stockholder litigation and any uninsured or underinsured indemnification obligations with respect to current and former executive officers and directors;
- limitations on our cash flow available to make investments due to our substantial indebtedness and our ability to generate sufficient cash flow to make payments thereon;
- our ability to repay the principal amount of our bank debt, Second Lien Notes and/or convertible notes at maturity, to raise the funds necessary to settle conversions of our convertible notes or to repurchase our convertible notes upon a fundamental change or on specified repurchase dates or due to future indebtedness;
- the conditional conversion of our convertible notes;
- the effect on our reported financial results of the accounting method for our convertible notes;
- the impact of the fundamental change repurchase feature and change of control repurchase feature of the securities purchase agreement governing our Second Lien Notes on our price or potential as a takeover target;
- the dilution or price depression of our common stock that may occur as a result of the conversion of our convertible notes and/or Searchlight warrants;
- our ability to meet the continued listing requirements of The Nasdaq Stock Market, in particular given our recent history of delinquent periodic filings with the U.S. Securities and Exchange Commission and the need to maintain a minimum $1.00 per share stock price pursuant to Nasdaq rules;
- our eligibility to use Form S-3 to register the offer and sale of securities, which Form we are not currently eligible to use;
- conflicts between our interests and the interests of our largest stockholders;
- volatility of the market price of our securities;
- anti-takeover provisions contained in our charter and bylaws;
- the dilution of our common stock if we issue additional equity or convertible debt securities; and
- other risks and factors listed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the SEC on April 2, 2018 and in any subsequently filed Quarterly Reports on Form 10-Q.
The forward-looking statements herein speak only as of the date the statements are made (which is the date of this press release). You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
The table below presents financial results for the three and six months ended June 30, 2018 and 2017.
|Global Eagle Entertainment Inc.|
|Condensed Consolidated Statements of Operations|
|(In thousands, except per share amounts)|
|Three Months Ended June 30,||Six Months Ended June 30,|
|Licensing and services||156,428||146,148||302,954||289,790|
|Cost of sales:|
|Licensing and services||122,304||108,923||234,795||211,795|
|Total cost of sales||126,731||118,090||245,210||228,630|
|Sales and marketing||10,877||10,029||20,492||21,041|
|General and administrative||29,799||34,929||68,235||70,250|
|Provision for legal settlements||(141||)||-||375||475|
|Amortization of intangible assets||10,357||10,860||20,920||21,868|
|Total operating expenses||60,764||63,760||128,228||207,225|
|Loss from operations||(21,533||)||(26,108||)||(50,979||)||(127,521||)|
|Other income (expense):|
|Interest expense, net||(19,755||)||(14,807||)||(35,352||)||(25,697||)|
|Loss on extinguishment of debt||-||-||-||(14,463||)|
|Income from equity method investments||428||601||1,589||2,140|
|Change in fair value of derivatives||(655||)||(445||)||(91||)||2,475|
|Other (expense) income, net||(673||)||653||(347||)||165|
|Loss before income taxes||(42,188||)||(40,106||)||(85,180||)||(162,901||)|
|Income tax (benefit) expense||3,722||4,024||(987||)||6,840|
|Net loss per share – basic and diluted||(0.50||)||(0.52||)||(0.93||)||(1.99||)|
|Weighted average shares outstanding – basic and diluted||91,057||85,496||90,925||85,468|
|Global Eagle Entertainment Inc.|
|Condensed Consolidated Balance Sheets|
|June 30,||December 31,|
|Cash and cash equivalents||$||37,403||$||48,260|
|Accounts receivable, net||103,415||113,545|
|Other current assets||21,482||20,923|
|TOTAL CURRENT ASSETS:||217,358||228,174|
|Property, plant and equipment, net||190,716||195,029|
|Intangible assets, net||101,659||122,582|
|Equity method investments||135,430||137,299|
|Other non-current assets||11,603||9,118|
|Liabilities and Stockholders' Equity|
|Accounts payable and accrued liabilities||188,231||205,036|
|Current portion of long-term debt||19,595||20,106|
|Other current liabilities||9,661||7,785|
|TOTAL CURRENT LIABILITIES:||225,959||239,435|
|Deferred revenue, non-current||1,089||1,079|
|Deferred tax liabilities||8,590||16,247|
|Other non-current liabilities||34,455||30,340|
|Treasury stock, 3,053,634 shares at March 31, 2018 and December 31, 2017||(30,659||)||(30,659||)|
|Additional paid-in capital||809,369||779,565|
|Accumulated other comprehensive loss||(221||)||(22||)|
|Total Stockholder's Deficit||(79,143||)||(25,475||)|
|Total Liabilties and Stockholders' Equity||$||824,477||$||860,584|
|Global Eagle Entertainment Inc.|
|Reconciliation of GAAP to Non-GAAP Measure|
|Three Months Ended
|Net loss to Adjusted EBIDTA reconciliation||2018||2017|
|Interest expense, net||19,755||14,807|
|Income tax expense||3,722||4,024|
|Depreciation and amortization and loss on disposal and impairment of fixed assets||29,657||24,456|
|Change in fair value of financial instruments||655||445|
|Other (income) expense||673||(653||)|
|Goodwill impairment expense||-||-|
|Stock-based compensation expense||2,230||992|
|Strategic-transaction, integration and realignment expenses||5,775||6,588|
|Internal-control and delayed audit expenses||3,847||6,650|
|Excess content expenses||-||677|
|Securities class-action expenses||-||168|
|Losses on significant customer bankruptcies||-||2,537|
See “About Non-GAAP Financial Measures” above, including our definition of Adjusted EBITDA described therein.
Source: Global Eagle Entertainment Inc.