Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
o
 
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
https://cdn.kscope.io/30aaa407ea6c649ad50f7ca825aecebe-geelogoa57.jpg
GLOBAL EAGLE ENTERTAINMENT INC.

(Exact name of registrant as specified in its charter)
DELAWARE
 
27-4757800
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
6080 Center Drive, Suite 1200
 
 
Los Angeles, California
 
90045
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (310) 437-6000
Securities Registered pursuant to Section 12(b) of the Act:
Title of each class
 
Ticker
 
Name of exchange on which registered
Common Stock, $0.0001 par value
 
ENT
 
The Nasdaq Stock Market LLC
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 þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 þ No o
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
o
Accelerated filer
þ
Non-accelerated filer
o
Smaller reporting company
þ
Emerging growth company
o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
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 October 31, 2019)
COMMON STOCK, $0.0001 PAR VALUE
 
92,860,448

SHARES


Table of Contents

GLOBAL EAGLE ENTERTAINMENT INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
ITEM 3.
 
 
ITEM 4.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 1.
 
 
ITEM 1A.
 
 
ITEM 5.
 
 
 
 
 
 
 
ITEM 6.
 
 
 
 
 
 



Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS


3

Table of Contents


GLOBAL EAGLE ENTERTAINMENT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
 
September 30, 2019

 
December 31, 2018

ASSETS
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
9,728

 
$
39,154

Restricted cash
908

 
801

Accounts receivable, net
99,132

 
97,623

Inventories, net
31,827

 
34,649

Prepaid expenses
3,307

 
9,104

Other current assets
11,605

 
10,498

TOTAL CURRENT ASSETS
156,507

 
191,829

Content library
4,566

 
6,966

Property and equipment, net
158,931

 
176,577

Right-of-use assets, net
34,921

 

Goodwill
159,591

 
159,562

Intangible assets, net
61,754

 
84,136

Equity method investments
81,514

 
83,135

Other non-current assets
25,624

 
14,882

TOTAL ASSETS
$
683,408

 
$
717,087

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
 
 
 
Accounts payable and accrued liabilities
$
186,159

 
$
177,056

Deferred revenue
10,421

 
7,430

Current portion of long-term debt and finance leases
16,533

 
22,673

Current portion of operating lease liabilities
5,177

 

Other current liabilities
8,533

 
5,032

TOTAL CURRENT LIABILITIES
226,823

 
212,191

Deferred revenue, non-current
86

 
1,116

Long-term debt and finance leases
736,317

 
686,938

Long-term operating lease liabilities
22,258

 

Deferred tax liabilities
7,334

 
8,406

Other non-current liabilities
30,935

 
34,771

TOTAL LIABILITIES
1,023,753

 
943,422

COMMITMENTS AND CONTINGENCIES

 

STOCKHOLDERS’ DEFICIT:
 
 
 
Preferred stock, $0.0001 par value; 1,000,000 shares authorized, no shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

Common stock, $0.0001 par value; 375,000,000 shares authorized, 95,896,901 and 94,835,320 shares issued, 92,843,267 and 91,781,686 shares outstanding, at September 30, 2019 and December 31, 2018, respectively
10

 
10

Treasury stock, 3,053,634 shares at September 30, 2019 and December 31, 2018
(30,659
)
 
(30,659
)
Additional paid-in capital
817,771

 
814,488

Subscriptions receivable
(597
)
 
(597
)
 Accumulated deficit
(1,126,801
)
 
(1,009,458
)
 Accumulated other comprehensive loss
(69
)
 
(119
)
TOTAL STOCKHOLDERS’ DEFICIT
(340,345
)
 
(226,335
)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
$
683,408

 
$
717,087

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


4

Table of Contents

GLOBAL EAGLE ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Licensing and services
$
152,520

 
$
157,604

 
$
448,127

 
$
460,560

Equipment
17,369

 
6,423

 
45,848

 
25,927

Total revenue
169,889

 
164,027

 
493,975

 
486,487

Cost of sales:
 
 
 
 
 
 
 
Licensing and services
117,875

 
123,126

 
357,452

 
357,523

Equipment
13,998

 
5,443

 
32,832

 
15,859

Total cost of sales
131,873

 
128,569

 
390,284

 
373,382

Gross margin
38,016

 
35,458

 
103,691

 
113,105

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
6,675

 
8,989

 
22,289

 
29,499

Product development
6,740

 
7,477

 
19,844

 
25,536

General and administrative
28,275

 
31,620

 
83,416

 
100,384

Provision for (gain from) legal settlements
5,555

 
(509
)
 
6,088

 
(134
)
Amortization of intangible assets
6,778

 
9,447

 
22,377

 
30,367

Total operating expenses
54,023

 
57,024

 
154,014

 
185,652

Loss from operations
(16,007
)
 
(21,566
)
 
(50,323
)
 
(72,547
)
Other (expense) income:
 
 
 
 
 
 
 
Interest expense, net
(23,881
)
 
(20,048
)
 
(67,487
)
 
(55,399
)
Income from equity method investments
3,130

 
2,022

 
7,776

 
3,611

Change in fair value of derivatives
(6
)
 
(196
)
 
932

 
(287
)
Other expense, net
(202
)
 
(588
)
 
(486
)
 
(936
)
Loss before income taxes
(36,966
)
 
(40,376
)
 
(109,588
)
 
(125,558
)
Income tax expense
4,308

 
2,852

 
7,755

 
$
1,865

Net loss
$
(41,274
)
 
$
(43,228
)
 
$
(117,343
)
 
$
(127,423
)
 
 
 
 
 
 
 
 
Net loss per share – basic and diluted
$
(0.45
)
 
$
(0.47
)
 
$
(1.27
)
 
$
(1.40
)
Weighted average shares outstanding – basic and diluted
92,737

 
91,408

 
92,279

 
91,101


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


5

Table of Contents

GLOBAL EAGLE ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net loss
$
(41,274
)
 
$
(43,228
)
 
$
(117,343
)
 
$
(127,423
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized foreign currency translation adjustments
(193
)
 
(79
)
 
50

 
(278
)
Other comprehensive income (loss)
(193
)
 
(79
)
 
50

 
(278
)
Comprehensive loss
$
(41,467
)
 
$
(43,307
)
 
$
(117,293
)
 
$
(127,701
)

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



6

Table of Contents

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 Loss
 
Stockholders’ Deficit
Balance at December 31, 2017
93,835

 
$
10

 
(3,054
)
 
$
(30,659
)
 
$
779,565

 
$
(578
)
 
$
(773,791
)
 
$
(22
)
 
$
(25,475
)
Adoption of ASC 606 - Cumulative Adjustment

 

 

 

 

 

 
933

 

 
933

Equity warrants issued in connection with Second Lien Notes

 

 

 

 
24,196

 

 

 

 
24,196

Restricted stock units vested and distributed, net of tax
62

 

 

 

 
(50
)
 

 

 

 
(50
)
Stock-based compensation

 

 

 

 
3,644

 

 

 

 
3,644

Interest income on subscription receivable

 

 

 

 

 
(6
)
 

 

 
(6
)
Net loss

 

 

 

 

 

 
(38,284
)
 

 
(38,284
)
Balance at March 31, 2018
93,897

 
$
10

 
(3,054
)
 
$
(30,659
)
 
$
807,355

 
$
(584
)
 
$
(811,142
)
 
$
(22
)
 
$
(35,042
)
Restricted stock units vested and distributed, net of tax
440

 

 

 

 
(210
)
 

 

 

 
(210
)
Stock-based compensation

 

 

 

 
2,224

 

 

 

 
2,224

Interest income on subscription receivable

 

 

 

 

 
(7
)
 

 

 
(7
)
Net loss

 

 

 

 

 

 
(45,910
)
 

 
(45,910
)
Comprehensive loss, net of tax

 

 

 

 

 

 

 
(199
)
 
(199
)
Balance at June 30, 2018
94,337

 
$
10

 
(3,054
)
 
$
(30,659
)

$
809,369

 
$
(591
)
 
$
(857,052
)
 
$
(221
)
 
$
(79,144
)
Restricted stock units vested and distributed, net of tax
406

 

 

 

 
(141
)
 

 

 

 
(141
)
Stock-based compensation

 

 

 

 
2,678

 

 

 

 
2,678

Interest income on subscription receivable

 

 

 

 

 
(6
)
 

 

 
(6
)
Net loss

 

 

 

 

 

 
(43,228
)
 

 
(43,228
)
Comprehensive loss, net of tax

 

 

 

 

 

 

 
(79
)
 
(79
)
Balance at September 30, 2018
94,743

 
$
10

 
(3,054
)
 
$
(30,659
)
 
$
811,906

 
$
(597
)
 
$
(900,280
)
 
$
(300
)
 
$
(119,920
)

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


7

Table of Contents
GLOBAL EAGLE ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (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 Loss
 
Stockholders’ Deficit
Balance at December 31, 2018
94,835

 
$
10

 
(3,054
)
 
$
(30,659
)
 
$
814,488

 
$
(597
)
 
$
(1,009,458
)
 
$
(119
)
 
$
(226,335
)
Restricted stock units vested and distributed, net of tax
330

 

 

 

 
(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
95,165

 
$
10

 
(3,054
)
 
$
(30,659
)
 
$
814,072

 
$
(597
)
 
$
(1,047,067
)
 
$
114

 
$
(264,127
)
Restricted stock units vested and distributed, net of tax
515

 

 

 

 
(147
)
 

 

 

 
(147
)
Stock-based compensation

 

 

 

 
2,194

 

 

 

 
2,194

Net loss

 

 

 

 

 

 
(38,460
)
 

 
(38,460
)
Unrealized foreign currency translation adjustments

 

 

 

 

 

 

 
10

 
10

Balance at June 30, 2019
95,680

 
$
10

 
(3,054
)
 
$
(30,659
)
 
$
816,119

 
$
(597
)
 
$
(1,085,527
)
 
$
124

 
$
(300,530
)
Restricted stock units vested and distributed, net of tax
217

 

 

 

 
(11
)
 

 

 

 
(11
)
Stock-based compensation

 

 

 

 
1,663

 

 

 

 
1,663

Net loss

 

 

 

 

 

 
(41,274
)
 

 
(41,274
)
Unrealized foreign currency translation adjustments

 

 

 

 

 

 

 
(193
)
 
(193
)
Balance at September 30, 2019
95,897

 
$
10

 
(3,054
)
 
$
(30,659
)
 
$
817,771

 
$
(597
)
 
$
(1,126,801
)
 
$
(69
)
 
$
(340,345
)

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


8

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


 
Nine Months Ended September 30,
 
2019
 
2018
OPERATING ACTIVITIES:
 
 
 
Net loss
$
(117,343
)
 
$
(127,423
)
Adjustments to reconcile net loss to net cash used in operations:
 
 
 
Depreciation and amortization of property and equipment and intangibles
64,265

 
74,517

Amortization of right-of-use asset
3,905

 

Amortization of content library
5,475

 
9,515

Non-cash interest expense, net
21,540

 
14,782

Change in fair value of derivatives
(932
)
 
287

Stock-based compensation
5,360

 
9,785

Tax effect of Second Lien Notes’ beneficial conversion feature
(2,688
)
 

Loss on disposal of fixed assets
383

 
403

Earnings from equity method investments
(7,776
)
 
(3,611
)
Distributions received from equity method investments
1,789

 

Provision for (recovery of) bad debts
1,501

 
(313
)
Deferred income taxes
(992
)
 
(8,722
)
Others
379

 
(975
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(3,010
)
 
8,459

Inventories
1,937

 
(14,088
)
Prepaid expenses and other current assets
4,690

 
5,167

Content library
(3,607
)
 
(7,665
)
Other non-current assets
(10,715
)
 
(1,634
)
Accounts payable and accrued liabilities
14,959

 
(34,378
)
Deferred revenue
1,961

 
4,604

Other liabilities
10,919

 
1,825

Net cash used in operating activities
$
(8,000
)
 
$
(69,465
)
INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
$
(17,788
)
 
$
(33,523
)
Net cash used in investing activities
$
(17,788
)
 
$
(33,523
)
FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of Second Lien Notes and equity warrants
$

 
$
150,000

Proceeds from additional capacity on term loan
40,000

 

Proceeds from borrowings on revolving credit facility
47,650

 
31,600

Repayment of revolving credit facility
(80,650
)
 
(80,585
)
Debt issuance costs
(3,772
)
 
(6,968
)
Repayments of indebtedness
(11,235
)
 
(10,218
)
Borrowings from related party
7,350

 

Principal payments of finance leases
(663
)
 

Payment of satellite purchase financing
(2,300
)
 

Net cash (used in)/provided by financing activities
(3,620
)
 
83,829

Effects of exchange rate changes on cash, cash equivalents and restricted cash
89

 
$
(177
)
Net decrease in cash, cash equivalents and restricted cash
(29,319
)
 
(19,336
)
Cash, cash equivalents and restricted cash at January 1
39,955

 
51,868

Cash, cash equivalents and restricted cash at September 30
$
10,636

 
$
32,532

SIGNIFICANT NON-CASH ACTIVITIES:
 
 
 


9

Table of Contents



Purchase consideration for equipment included in accounts payable
$
105

 
$
3,576

Conversion of PIK interest on our Second Lien Notes to additional principal
19,584

 
8,450

Financing of purchased satellite transponders included in property and equipment
8,500

 

Distributions from equity method investments offset against demand promissory note
7,350

 
4,900


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


10

Table of Contents



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 fast-growing, 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.

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

The following is a summary of the significant accounting policies consistently applied in the preparation of the accompanying 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, 2018, and include normal recurring adjustments necessary for the fair presentation of the Company's interim unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2019. The results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results expected for the full 2019 fiscal year. The consolidated balance sheet as of December 31, 2018 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 March 18, 2019 (the "2018 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 2018 Form 10-K.

These unaudited condensed consolidated financial statements have been prepared on the basis of the Company having sufficient liquidity to fund its operations for at least the next twelve months from the issuance of these financial statements in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern. The Company’s principal sources of liquidity have historically been its debt and equity issuances and its cash and cash equivalents, which as of September 30, 2019 included cash and cash equivalents of approximately $9.7 million, and available borrowing capacity under our 2017 Revolving Loans (as defined below) of approximately $58.9 million, for a total available liquidity of approximately $68.6 million. The Company’s internal plans and forecasts indicate that it will have sufficient liquidity to continue to fund its business and operations for at least the next twelve months. The Company’s long-term ability to continue as a going concern is dependent on its ability to increase revenue, reduce costs and deliver satisfactory levels of profitable operations. The Company is currently evaluating the potential sale of certain elements of our Maritime, Enterprise and Government business unit, as well as the sale of certain joint venture interests. In addition, the Company's ability to continue its operations may depend on its ability to obtain additional capital through capital raising options, including debt financing. There can be no assurance that management’s attempts at any or all of the endeavors will be successful or consummated. On July 19, 2019, the Company entered into an amendment of its senior secured credit agreement (the “2017 Credit Agreement”) and security agreement (the “2017 Credit Agreement Amendment”), which, among other things, increased the borrowing capacity of the existing senior secured term loan due in 2023 (the “Term Loan”) by $40.0 million, reduced scheduled principal repayments over the next six quarters by an aggregate amount of $25.3 million and provided additional stock pledges (including the remaining 35% of the equity interests of first-tier foreign subsidiaries that was not previously pledged) as collateral. Please refer to Note 8. Financing Arrangements and Note 2. Basis of Preparation and Summary of Accounting Policies in our 2018 Form 10-K for additional details.



11


The Company believes that its current available cash and borrowing capacity will be sufficient to fund planned operations into the third quarter of 2020.

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.

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 presents the disaggregation of the Company’s revenue from contracts with customers for the three and nine months ended September 30, 2019 and 2018:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Media & Content -- Licensing and Services
$
81,122

 
$
80,649

 
$
235,145

 
$
239,020

Connectivity -- Aviation Services
31,495

 
31,113

 
93,357

 
89,862

Connectivity -- Aviation Equipment
15,759

 
3,464

 
38,538

 
17,773

Connectivity -- Maritime & Land Services
39,903

 
45,842

 
119,625

 
131,678

Connectivity -- Maritime & Land Equipment
1,610

 
2,959

 
7,310

 
8,154

Total Revenues
$
169,889

 
$
164,027

 
$
493,975

 
$
486,487


Contract Assets and Liabilities

Aviation connectivity contracts involve performance obligations primarily relating to the delivery of equipment and services. Equipment is delivered upfront and in certain instances provided at a discount. Services are rendered and paid over time. Aviation connectivity revenue is allocated based upon the standalone selling price (“SSP”) methodology. The primary method used to


12


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. As of September 30, 2019, the balance of our current and non-current contract assets amounted to $11.3 million. As of December 31, 2018, the balance was not considered material.

For some customer contracts, 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 contract liabilities during the nine months ended September 30, 2019 (in thousands):
 
September 30, 2019
Opening balance as of January 1
$
8,546

Revenue recognized during the period relating to opening balance
(7,642
)
Increase due to collections, excluding amounts recognized as revenue during the period
9,603

Closing Balance
$
10,507

 
 
Deferred revenue, current
10,421

Deferred revenue, non-current
86

 
$
10,507


As of September 30, 2019, the Company had $1.0 billion of remaining performance obligations, which it also refers to as total backlog. The Company expects to recognize approximately 8% of its remaining performance obligations as revenue during the fourth quarter of 2019, approximately 18% in 2020, 18% by 2021, and the remaining 56% in 2022 and thereafter.

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. The Company may perform an optional qualitative assessment, referred to as “Step 0” to judge indicators as to whether it is more likely than not that impairment exists. In the event that the Company elects to bypass Step 0 or if Step 0 indicates that it is more likely than not that there are qualitative indicators of impairment, the Company will perform a quantitative assessment of the respective fair values of the reporting units to determine the existence and amount of goodwill impairment. An impairment loss is 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.

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


13


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 Consolidated Statements of Operations.

Adoption of New Accounting Pronouncements
On January 1, 2019, the Company adopted ASC 842, Leases (“ASC 842”), using the modified retrospective method. The Company has presented financial results and applied its accounting policies for the period beginning January 1, 2019 under ASC 842, while prior period results and accounting policies have not been adjusted and are reflected under legacy GAAP pursuant to ASC 840. In connection with the adoption of ASC 842, the Company performed an analysis of contracts to ensure proper assessment of leases (or embedded leases) in existence as of January 1, 2019. The Company elected the package of practical expedients permitted under ASC 842, which allows the Company not to reassess the following: (i) whether any expired or existing contracts as of the adoption date are or contain a lease, (ii) lease classification for any expired or existing leases as of the adoption date, and (iii) initial direct costs for any existing leases as of the adoption date. The most significant impact of applying ASC 842 was the recognition of right-of-use assets and lease liabilities for operating leases in its condensed consolidated balance sheet. On January 1, 2019, the Company recognized an initial operating right-of-use asset of $23.0 million and associated operating lease liabilities of $25.9 million relating to real estate leases. See Note 3. Leases for further information regarding the impact of the adoption of ASU 2016-02 on the Company's financial statements.

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope of ASC 718 to include share-based payments granted to non-employees in exchange for goods and services. The guidance largely aligns the accounting for share-based payments to non-employees with the accounting for share-based payments to employees, with certain exceptions. We adopted this standard effective January 1, 2019. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded effects resulting from the Tax Act. We adopted this standard effective January 1, 2019. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

Recently Issued Accounting Pronouncements
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 ASU is effective for the Company beginning January 1, 2020, with early adoption permitted. Management continues to evaluate the impact of this standard on our condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments rather than incurred losses. The new model applies to all financial instruments, including those not accounted for at fair value through net income, thereby bringing consistency in accounting treatment across different types of financial instruments and requiring consideration of a broader range of variables when forming loss estimates. The ASU is effective for the Company beginning January 1, 2020, with early adoption permitted. Management anticipates no significant change in the methodology of estimating credit losses.



14


Note 3.    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 foregoing table summarizes the impact of ASC 842 adoption on the Company’s condensed consolidated balance sheet as of September 30, 2019 (in thousands):
 
Impact of Change in Accounting Policy --
as of September 30, 2019
 
As reported
 
ASC 842 Impact
 
Legacy GAAP
ASSETS
Right-of-use assets, net
 
 
 
 
 
Operating leases(1)(4)
$
24,167

 
$
(24,167
)
 
$

Finance lease(2)(4)
10,754

 
(10,754
)
 

Total Right-of-Use Assets
$
34,921

 
$
(34,921
)
 
$

Net lease investment -- other non-current assets(3)(4)
1,216

 
(1,216
)
 

Total Lease Assets
$
36,137

 
$
(36,137
)
 
$

 
 
 
 
 
 
Property and equipment, net(4)

 
1,065

 
1,065

 
 
 
 
 
 
LIABILITIES
Operating lease liabilities(1) -- current portion
$
5,177

 
$
(5,177
)
 
$

                                           -- long-term
22,258

 
(22,258
)
 

Finance lease liabilities(2) -- current portion
2,115

 
(2,115
)
 

                                      -- long-term
16,819

 
(16,819
)
 

Total Lease Liabilities
$
46,369

 
$
(46,369
)
 
$

(1) This includes arrangements for: (i) corporate and regional office leases, and (ii) teleport co-location leases.
(2) This refers to the satellite bandwidth capacity arrangement assessed as a finance lease during the quarter ended June 30, 2019. The right-of-use asset balance as of September 30, 2019 included the unamortized lease incentive of $0.9 million and unamortized unfavorable contract liability of $7.0 million.
(3) This includes customer equipment arrangements classified as sales-type leases as of September 30, 2019.
(4) All existing arrangements as of January 1, 2019 were not re-assessed as allowed under our ASC 842 implementation. Any new arrangements or modifications to existing contracts after January 1, 2019 adoption date are subject to lease classification assessment in accordance with ASC 842’s new lease accounting model.

The following describes the nature of our various leasing arrangements and the impact to our statement of operations for the three and nine months ended September 30, 2019:

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 and nine months ended September 30, 2019 was $1.5 million and $4.6 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)


15


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 9.0 years as of September 30, 2019. 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 cost recorded for the three and nine months ended September 30, 2019 was $0.2 million and $0.6 million, 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. During the quarter 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. The Company has elected to combine lease and non-lease components, if applicable.

This finance lease has a remaining lease term of 6.75 years as of September 30, 2019. 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 nine months ended September 30, 2019:
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2019
 
2019
Amortization of right-of-use asset, net of lease incentive and contract liability credits
398

 
$
531

Interest accretion on finance lease liabilities
441

 
590

Total lease cost
839

 
$
1,121


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 September 30, 2019.

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 our 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 and recognized revenues on sales-type leases for the three and nine months ended September 30, 2019 is presented in the following table (in thousands):


16


 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2019
 
2019
Bandwidth service and equipment revenues(1)
$
34,244

 
$
104,505

Earned revenues on sales-type leases at commencement(2)

 
1,310

Total Licensing and Service Revenues -- Maritime and Land Connectivity
$
34,244

 
$
105,815

(1) This is presented as part of Revenues -- Licensing and services in our 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):
 
Nine Months Ended September 30, 2019
Supplemental cash flow information
 
Cash paid for amounts included in the measurement of operating lease liabilities
$
4,436

Cash paid for amounts included in the measurement of finance lease liabilities
$
1,253

Right-of-use-assets obtained in exchange for operating lease obligations
$
3,388

Right-of-use-assets obtained in exchange for finance lease obligations
$
19,597

Weighted average remaining lease term -- real estate operating leases
7.4 years

Weighted average remaining lease term -- teleport co-location operating leases
4.9 years

Weighted average remaining lease term -- finance lease
6.8 years

Weighted average IBR -- real estate operating leases
8.94
%
Weighted average IBR -- teleport co-location operating leases
8.92
%
Weighted average IBR -- finance lease
9.30
%



17


Maturity Analysis

Undiscounted Cash Flows and Reconciliation to Consolidated Balance Sheet
The following table reflects a summary of the undiscounted cash flows on an annual basis and reconciliation to the Company’s lease assets and liabilities as of September 30, 2019 (in thousands):
 
As a Lessee
 
As a Lessor
Years Ending December 31,
Real Estate
 
Satellite Capacity
 
Teleport
Co-Location
 
Total
 
Equipment Held by Customers
Lease Classification
Operating
 
Finance
 
Operating
 
 
Sales-Type
2019 (remaining three months)
$
1,197

 
$
940

 
$
272

 
$
2,409

 
$
106

2020
4,867

 
3,758

 
1,046

 
9,671

 
314

2021
4,784

 
3,758

 
803

 
9,345

 
314

2022
4,460

 
3,758

 
438

 
8,656

 
314

2023
3,982

 
3,758

 
438

 
8,178

 
258

Thereafter
15,253

 
9,397

 
829

 
25,479

 
222

Total Future Lease Payments
$
34,543

 
$
25,369

 
$
3,826

 
$
63,738

 
$
1,528

Less: Imputed interest
(10,194
)
 
(6,435
)
 
(740
)
 
(17,369
)
 
(312
)
Present Value of Lease Liabilities
$
24,349

 
$
18,934

 
$
3,086

 
$
46,369

 
 
Net Investment in Sales-Type Leases
 
 
 
 
 
 
 
 
$
1,216


The following is a schedule of future minimum lease payments for our real estate operating leases as of December 31, 2018 (in thousands):
Years Ending December 31,
Amount
2019
$
4,941

2020
4,593

2021
4,359

2022
3,818

2023
3,541

Thereafter
13,115

Total minimum lease payments
$
34,367


Maritime & Land MRC’s
The following is a schedule of future monthly recurring charges (“MRCs”) arising from our contractual arrangements with Maritime & Land Connectivity customers as of September 30, 2019 (in thousands):
Years Ending December 31,
Amount
2019 (remaining three months)
$
30,949

2020
62,344

2021
31,260

2022 and thereafter
9,436

Total Maritime and Land Monthly Recurring Charges
$
133,989


The following is a schedule of future MRCs arising from our contractual arrangements with Maritime and Land Connectivity customers as of December 31, 2018 (in thousands):


18


Years Ending December 31,
Amount
2019
$
89,111

2020
34,885

2021
20,594

2022
4,864

2023
2,396

Total Maritime and Land Monthly Recurring Charges
$
151,850


The book value of the equipment held by customers under operating leases, which are classified as “Equipment” in Note 4 - Property & Equipment, is as follows:
 
September 30, 2019
 
December 31, 2018
Equipment
 
 
 
Gross balance
$
57,162

 
$
62,012

Accumulated depreciation
(27,987
)
 
(25,232
)
Net Book Value
$
29,175

 
$
36,780


Note 4.    Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):
 
September 30, 2019
 
December 31, 2018
Leasehold improvements
$
11,259

 
$
6,579

Furniture and fixtures
2,710

 
2,147

Equipment
157,410

 
156,029

Computer equipment
16,993

 
18,561

Computer software
49,869

 
38,475

Automobiles
302

 
293

Buildings
7,080

 
8,005

Albatross (Company-owned aircraft)
456

 
447

Satellite transponders
70,100

 
62,306

Construction in-progress
3,435

 
7,771

Total property and equipment
$
319,614

 
$
300,613

Accumulated depreciation
(160,683
)
 
(124,036
)
Property and equipment, net
$
158,931

 
$
176,577


Depreciation expense, including software amortization expense, by classification consisted of the following (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Cost of sales
$
9,092

 
$
10,019

 
$
26,688

 
$
29,576

Sales and marketing
784

 
917

 
2,698

 
2,764

Product development
796

 
872

 
2,403

 
2,396

General and administrative
3,339

 
3,227

 
10,099

 
9,413

Total depreciation expense
$
14,011

 
$
15,035

 
$
41,888

 
$
44,149




19


Note 5.    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
Balance as of December 31, 2018, net
$
54,022

 
$
22,130

 
$
83,410

 
$
159,562

Foreign currency translation adjustments

 

 
29

 
29

Balance at September 30, 2019, net
$
54,022

 
$
22,130

 
$
83,439

 
$
159,591


As of September 30, 2019, the cumulative impairment write-offs relating to our Aviation Connectivity and our Maritime & Land Connectivity reporting units were $44.0 million and $187.0 million, respectively.

During the three months ended March 31, 2019, due to a significant decline in our market capitalization, which was considered to be a triggering event by the Company, we conducted an initial test of impairment for our Goodwill based on qualitative factors. Among our considerations, we noted that actual results for our three reporting units aligned with the historical projections used in our most recent quantitative impairment analysis performed as of December 31, 2018. After assessing the totality of events or circumstances, we determined that it is not more likely than not that the fair value of any of our reporting units are less than their respective carrying amounts as of March 31, 2019.

No triggering events were noted by the Company during the three months ended September 30, 2019. No impairments were recorded for the three and nine months ended September 30, 2019 and 2018, respectively.

The Company is required to test goodwill for impairment on an annual basis and, if current events or circumstances require, on an interim basis. Our next annual impairment evaluation is scheduled during the fourth quarter of 2019.



20



Note 6.    Intangible Assets, net

As a result of historical business combinations, the Company acquired finite-lived intangible assets that are primarily amortized on a straight-line basis, which approximate their expected cash flow patterns. The Company’s finite-lived intangible assets have been assigned useful lives ranging from 2.0 to 10.0 years (weighted average of 7.5 years).

Intangible assets, net consisted of the following (dollars in thousands):
 
 
 
September 30, 2019
 
Weighted Average Useful Lives
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Intangible assets:
 
 
 
 
 
 
 
Existing technology -- software
5.2 years
 
$
36,799

 
$
28,647

 
$
8,152

Developed technology
8.0 years
 
7,317

 
5,488

 
1,829

Customer relationships
8.7 years
 
138,358

 
86,980

 
51,378

Backlog
3.0 years
 
18,300

 
18,300

 

Other
5.1 years
 
1,248

 
853

 
395

Total
 
 
$
202,022

 
$
140,268

 
$
61,754


 
 
 
December 31, 2018
 
Weighted Average Useful Lives
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Intangible assets:
 
 
 
 
 
 
 
Existing technology -- software
5.2 years
 
$
36,799

 
$
23,114

 
$
13,685

Developed technology
8.0 years
 
7,317

 
4,802

 
2,515

Customer relationships
8.7 years
 
138,358

 
74,558

 
63,800

Backlog
3.0 years
 
18,300

 
14,742

 
3,558

Other
5.1 years
 
1,249

 
671

 
578

Total
 
 
$
202,023

 
$
117,887

 
$
84,136


We expect to record amortization of intangible assets as follows (in thousands):
Year ending December 31,       
Amount
2019 (remaining three months)
$
6,268

2020
22,263

2021
13,824

2022
7,907

2023
6,890

Thereafter
4,602

Total
$
61,754

    
We recorded amortization expense of $6.8 million and $9.4 million for the three months ended September 30, 2019 and 2018, respectively, and $22.4 million and $30.4 million for the nine months ended September 30, 2019 and 2018, respectively.



21

Table of Contents



Note 7.    Equity Method Investments

In connection with the Company’s acquisition of Emerging Markets Communications (“EMC”) in July 2016 (the “EMC Acquisition”), the Company acquired 49% of the equity interests in each of EMC’s Wireless Maritime Services, LLC (“WMS”) and Santander Teleport S.L. (“Santander”) joint ventures (which equity interests EMC owned at the time of the EMC Acquisition). These investments are accounted for using the equity method of accounting, under which our results of operations include our share of the income of WMS and Santander in income from equity method investments in our condensed consolidated statements of operations.

The following is the summarized balance sheet information for these equity method investments on an aggregated basis as of September 30, 2019 and December 31, 2018 (in thousands):
 
September 30, 2019
 
December 31, 2018
Current assets
$
47,134

 
$
40,224

Non-current assets
25,973

 
26,115

Current liabilities
18,556

 
15,880

Non-current liabilities
2,935

 
2,581


Following is the summarized results of operations information for these equity method investments on an aggregated basis for the three and nine months ended September 30, 2019 and 2018 (in thousands):    
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
41,021

 
$
35,690

 
$
110,610

 
$
100,596

Net income
8,809

 
7,440

 
23,651

 
17,538


The carrying values of the Company’s equity interests in WMS and Santander as of September 30, 2019 and December 31, 2018 were as follows (in thousands):
 
September 30, 2019
 
December 31, 2018
Carrying value in our equity method investments
$
81,514

 
$
83,135


As of September 30, 2019, there was an aggregate difference of $56.2 million between the carrying amounts of these investments and the amounts of underlying equity in net assets in these investments. The difference was determined by applying the acquisition method of accounting in connection with the EMC Acquisition and is being amortized ratably over the life of the related acquired intangible assets. The weighted-average life of the intangible assets at the time of the EMC Acquisition in total was 14.9 years.



22


Note 8.    Financing Arrangements

A summary of our borrowings as of September 30, 2019 and December 31, 2018 is set forth below (in thousands):
 
September 30, 2019
 
December 31, 2018
Senior secured term loan facility, due January 2023(+)
$
507,393

 
$
478,125

Senior secured revolving credit facility, due January 2022(+)(1)
21,015

 
54,015

Convertible senior notes due 2035(2)
82,500

 
82,500

Second Lien Notes, due June 2023(3)
178,034

 
158,450

Other debts(4)
26,792

 
1,707

Unamortized bond discounts, fair value adjustments and issue costs, net
(62,884
)
 
(65,186
)
Total carrying value of debt
752,850

 
709,611

Less: current portion, net
(16,533
)
 
(22,673
)
Total non-current
$
736,317

 
$
686,938

(+) This facility is a component of the 2017 Credit Agreement (as defined below).
(1) As of September 30, 2019, the available balance under our $85.0 million revolving credit facility is $58.9 million (net of outstanding letters of credit). The 2017 Credit Agreement provides for the issuance of letters of credit in the amount equal to the lesser of $15.0 million and the aggregate amount of the then-remaining revolving loan commitment. As of September 30, 2019, we had outstanding letters of credit of $5.1 million under the 2017 Credit Agreement. We expect to draw on the loans under our revolving credit facility (the “2017 Revolving Loans”) from time to time to fund our working capital needs and for other general corporate purposes.
(2) The principal amount outstanding of the 2.75% convertible senior notes due 2035 (the “Convertible Notes”) as set forth in the foregoing table was $82.5 million as of September 30, 2019. The carrying amount, net of debt issuance costs and associated discount, was $70.9 million and $70.4 million as of September 30, 2019 and December 31, 2018, respectively.
(3) The principal amount outstanding of the second lien notes due June 30, 2023 (the “Second Lien Notes”) as set forth in the foregoing table was $178.0 million as of September 30, 2019. The carrying amount, net of debt issuance costs and associated discount, was $149.1 million and $128.2 million as of September 30, 2019 and December 31, 2018, respectively, and it includes approximately $28.0 million of PIK interest converted to principal since issuance. The value allocated to the attached penny warrants and market warrants for financial reporting purposes was $14.9 million and $9.3 million, respectively. These qualify for classification in stockholders’ equity and are included in the condensed consolidated balance sheets within “Additional paid-in capital”.
(4) As of September 30, 2019, Other debts primarily consisted of (i) $6.2 million remaining financed amount for transponder purchases (payable in staggered dates until April 2020); and (ii) $18.9 million of finance lease liability relating to an assessed right-of-use over a satellite bandwidth capacity (refer to Note 3. Leases for further details).

On July 19, 2019, the Company entered into an amendment of its senior secured credit agreement (“2017 Credit Agreement”) and security agreement (the “2017 Credit Agreement Amendment”), which, among other things, increased the borrowing capacity of the existing senior secured term loan due in 2023 (the “Term Loan”) by $40.0 million, reduced scheduled principal repayments over the next six quarters by an aggregate amount of approximately $25.3 million and provided additional stock pledges (including the remaining 35% of the equity interests of first-tier foreign subsidiaries that was previously not pledged) as collateral. As of September 30, 2019, approximately 75% of our total consolidated assets are subject to lien under this 2017 Credit Agreement Amendment.

In relation to the 2017 Credit Agreement Amendment, we incurred total issuance costs of $3.5 million, of which $1.6 million was assessed to be eligible for capitalization and will be amortized over the remaining term of the 2017 Credit Agreement. The remaining $1.9 million was immediately recognized as expense during the quarter ended September 30, 2019. Net of fees and expenses, the 2017 Credit Agreement Amendment is expected to result in approximately $60 million of incremental liquidity until the end of 2020.

Concurrently with entering into the 2017 Credit Agreement Amendment, the Company also entered into a second amendment to the securities purchase agreement and amendment to security agreement (the “Second Lien Amendment”) relating to the Second Lien Notes, which, among other things, removed the ability to make any cash interest payments under the Second Lien Notes so long as such payments are prohibited by the terms of the 2017 Credit Agreement, added collateral for the Second Lien Notes consistent with the additional collateral provided under the 2017 Credit Agreement and modified the prepayment premium schedule to extend through maturity of the Second Lien Notes.




23


The aggregate contractual maturities of all borrowings subsequent to September 30, 2019, factoring in the amendment to its term loan, are as follows (in thousands):
Years Ending December 31,
Amount
2019 (remaining three months)
$
7,056

2020
30,075

2021
27,172

2022
48,187

2023
620,353

Thereafter
82,891

Total
$
815,734


Note 9.    Related Party Transactions

Loan Advances in lieu of Future Payouts from WMS
In February 2019, the Company entered into a demand promissory note with WMS (as an advance against future dividends that WMS may pay the Company) for approximately $7.4 million, bearing interest at 6.5% per annum, and concurrently signed an agreement to waive future dividends or other such distributions by WMS to the Company until such time as the outstanding principal on the demand promissory note has been repaid in full. The outstanding demand promissory note would be reduced dollar-for-dollar by any such distribution amounts waived. The Company may prepay the promissory note at any time without prepayment penalty. The entire principal balance of this promissory note together with all accrued but unpaid interest is due on the earliest to occur of (i) demand by the holder, (ii) December 31, 2020 and (iii) the date of acceleration of the promissory note as a result of the occurrence of an event of default. During the nine months ended September 30, 2019, WMS approved a deemed dividend to the Company totaling $9.2 million, resulting in a full offset of the $7.4 million loan balance and $1.8 million cash distribution.
Due to Santander
In connection with the EMC Acquisition, the Company acquired a 49% equity interest in Santander. The Company accounts for its interest in Santander using the equity method and includes our share of Santander’s profits or losses in Income from equity method investments in the condensed consolidated statements of operations. The Company purchased approximately $1.1 million and $3.5 million during the three and nine months ended September 30, 2019, respectively, and approximately $1.1 million and $2.9 million for the three and nine ended September 30, 2018, respectively, from Santander for their Teleport services and related network operations support services. As of September 30, 2019 and December 31, 2018, the Company owed Santander approximately $1.4 million and $1.3 million, respectively, as remaining payments for these services, which is included in accounts payable and accrued liabilities in the condensed consolidated balance sheets for their teleport services and related network operations support services.

Subscription Receivable with Former Employee
A former employee is party to a Secured Promissory Note dated July 15, 2011, pursuant to which the former employee agreed to pay the Company (as successor to Row 44, Inc., which is a Company subsidiary) a principal sum of approximately $0.4 million, plus interest thereon at a rate of 6% per annum. The former employee granted the Company a security interest in shares of Row 44 held by him (which Row 44 shares were subsequently converted into 223,893 shares of the Company’s common stock) to secure his obligations to repay the loan. As of September 30, 2019 and December 31, 2018, the balance of the note (with interest) was approximately $0.6 million, which is presented as a subscription receivable. We recognize interest income on the note when earned (using the simple interest method) but have not collected any interest payments since the origination of the note. Interest income recognized by the Company during the nine months ended September 30, 2019 and September 30, 2018 was not material. The Company makes ongoing assessments regarding the collectability of this note and the subscription receivable balance, and is currently in litigation with the former employee to recover the loan and to address the former employee’s allegations that we breached related settlement agreements with him in 2014 and 2015.

Amended and Restated Registration Rights Agreement


24


When we consummated our business combination in January 2013 with Row 44 and Advanced Inflight Alliance AG, we entered into an amended and restated registration rights agreement with Par Investment Partners, L.P. (“PAR”), entities affiliated with Putnam Investments, Global Eagle Acquisition LLC (the “Sponsor”) and a current member of our board of directors (“Board of Directors” or “Board”), Harry E. Sloan and our then Board member, Jeff Sagansky, both of whom were affiliated with the Sponsor. Under that agreement, we agreed to register the resale of securities held by such parties (the “registrable securities”) and to sell those registrable securities pursuant to an effective registration statement in a variety of manners, including in underwritten offerings. We also agreed to pay the security holders’ expenses in connection with their exercise of their registration rights.

In addition, the amended and restated registration rights agreement restricts our ability to grant registration rights to a third party on parity with or senior to those held by the “holders” (as defined under that agreement) without the consent of holders of at least a majority of the “registrable securities” under that agreement. In April 2018, we entered into a consent to the amended and restated registration rights agreement with PAR whereby PAR (as a holder of a majority of registrable securities thereunder) consented to the registration rights that we provided to Searchlight Capital Partners, L.P. (“Searchlight”) as part of its investment in us.

According to a Schedule 13G/A filed on February 7, 2018, and a Schedule 13D/A filed on June 6, 2019, respectively, neither Putnam Investments nor PAR hold more than 5% of our outstanding common stock, and as such each has ceased to be a related party. Furthermore, Mr. Sagansky ceased being a related party on June 24, 2019 when he retired from our Board. Mr. Sloan continues to be a related party.

Amendment to Second Lien Notes
Concurrently with entering into the 2017 Credit Agreement Amendment, the Company entered into a second amendment to the securities purchase agreement and amendment to security agreement (the “Second Lien Amendment”), which amended that certain securities purchase agreement, by and among the Company, Searchlight II TBO, L.P., Searchlight II TBO-W, L.P., and the other parties thereto relating to the Second Lien Notes, to, among other things, remove the ability to make any cash interest payments under the Second Lien Notes so long as such payments are prohibited by the terms of the 2017 Credit Agreement, add collateral for the Second Lien Notes consistent with the additional collateral provided under the 2017 Credit Agreement and modify the prepayment premium schedule to extend through maturity of the Second Lien Notes.

Note 10.    Commitments and Contingencies

Movie License and Internet Protocol Television (“IPTV”) Commitments
In the ordinary course of business, we have long-term commitments, such as license fees and guaranteed minimum payments owed to content providers. In addition, we have long-term arrangements with service and television providers to license and provide content and IPTV services that are subject to future guaranteed minimum payments from us to the licensor.

The following is a schedule of future minimum commitments under movie and IPTV arrangements as of September 30, 2019 (in thousands):
Years Ending December 31,
Amount
2019 (remaining three months)
$
12,430

2020
15,410

2021
3,566

2022
818

Total
$
32,224


Satellite Bandwidth Capacity
The Company maintains agreements with satellite service providers to provide for satellite capacity. Except when an arrangement is assessed to meet the definition of a finance lease in accordance with ASC 842, in which case the expensing pattern is front-loaded, the Company expenses these satellite fees in the month the service is provided as a charge to licensing and services cost of sales.



25


The following is a schedule of future minimum satellite costs, across all connectivity end-markets and including the satellite bandwidth arrangement assessed as a finance lease, as of September 30, 2019 (in thousands):
Years Ending December 31,
Amount
2019 (remaining three months)
$
25,527

2020
75,029

2021
46,816

2022
34,473

2023
33,013

Thereafter
91,343

Total Future Payments
$
306,201


Other Commitments
In the normal course of business, we enter into future purchase commitments with some of our connectivity vendors to secure future inventory for our customers and engineering and antenna project developments. As of September 30, 2019, we also had outstanding letters of credit in the amount of $5.6 million, of which $5.1 million was issued under the letter of credit facility under the senior secured credit agreement that the Company entered into on January 6, 2017 (the “2017 Credit Agreement”).

Contingencies
We are subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully and finally adjudicated. We record accruals for loss contingencies when our management concludes it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. On a regular basis, our management evaluates developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously. While it is not possible to accurately predict or determine the eventual outcomes of these matters, an adverse determination in one or more of these matters could have a material adverse effect on our consolidated financial position, results of operations or cash flows. Some of our legal proceedings as well as other matters that our management believes could become significant are discussed below:

Music Infringement and Related Claims. On May 6, 2014, UMG Recordings, Inc., Capitol Records, Universal Music Corp. and entities affiliated with the foregoing (collectively, “UMG”) filed suit in the United States District Court for the Central District of California against us and Inflight Productions Ltd. (“IFP”), our indirect subsidiary, for copyright infringement and related claims and unspecified money damages. In August 2016, we entered into settlement agreements with major record labels and publishers, including UMG, to settle music copyright infringement and related claims (the “Sound Recording Settlements”). As a result of the Sound Recording Settlements, we paid approximately $18.0 million in cash and issued approximately 1.8 million shares of our common stock to settle lawsuits and other claims. Under the settlement agreement with UMG, we paid UMG an additional $5.0 million in cash in March 2017 and agreed to issue 500,000 additional shares of our common stock when and if our closing price of our common stock exceeds $10.00 per share and 400,000 additional shares of our common stock when and if the closing price of our common stock exceeds $12.00 per share.

In 2016, we received notices from several other music rights holders and associations acting on their behalf regarding potential claims that we infringed their music rights and the rights of artists that they represent. To date, none of these rights holders or associations has initiated litigation against us, except for BMG Rights Management (US) LLC (“BMG”) as described in the following paragraph. Other than in respect of the BMG litigation (the loss probability and liability estimate of which we discuss in the following paragraph), we believe that a loss relating to these matters is probable, but we believe that it is unlikely to be material and therefore have accrued an immaterial amount for these loss contingencies. If initiated however, we intend to vigorously defend ourselves against these claims.

On May 3, 2018, BMG filed suit in the United States District Court for the Central District of California against us and IFP for copyright infringement and related claims and unspecified money damages. On September 25, 2019, we agreed to settle the lawsuit with BMG for an aggregate payment of $5.5 million, to be paid over time, as follows: $500,000 within 14 days of the execution of the settlement agreement; $1.5 million on or before each of December 31, 2019, June 30, 2020, and June 30, 2021; and $500,000 on or before June 30, 2022. We have booked an accrual for this legal settlement in the amount of $5.5 million as of September 30, 2019.


26



SwiftAir Litigation. On August 14, 2014, SwiftAir, LLC filed suit against our wholly owned subsidiary Row 44 and Southwest Airlines for breach of contract, quantum meruit, unjust enrichment and several other contract- and tort/statutory-based claims in the Superior Court of California for the County of Los Angeles. SwiftAir and Row 44 had a contractual relationship whereby Row 44 agreed to give SwiftAir access to Row 44’s portal on Southwest Airlines so that SwiftAir could market a destination deal product to Southwest Airlines’ passengers. In 2013, after Southwest Airlines decided not to proceed further with the destination deal product, Row 44 terminated its contract with SwiftAir. In its lawsuit, SwiftAir seeks approximately $9 million in monetary damages (plus punitive and other extra-contractual damages) from Row 44 and Southwest Airlines. In 2017, the court granted Row 44’s motion for summary judgment as to SwiftAir’s tort/statutory-based claims. In January 2018, the court granted Row 44’s motions in limine that limited SwiftAir’s contract damages claims against Row 44 to nominal damages. Southwest Airlines however remained exposed to all of SwiftAir’s compensatory damages claims.  On September 9, 2019, following a three-week trial, the jury returned a full defense verdict in favor of Row 44 and Southwest Airlines. On October 1, 2019, the Court entered judgment against SwiftAir; notice of entry of judgment was given on October 10, 2019. On October 15, 2019, Row 44 filed its memorandum of costs and it intends to file a motion for attorneys’ fees and non-statutory costs and expenses. On October 25 and 28, 2019, SwiftAir filed motions for a new trial and judgment notwithstanding the verdict, respectively. If SwiftAir decides to appeal the judgment, its notice of appeal will be due between December 2019 and March 2020. Separately, Southwest Airlines has sought indemnification from Row 44 in connection with its defense of SwiftAir’s claim (and for any loss that it may face). We intend to vigorously defend against any claims in this matter. We do not believe that a material loss relating to this matter is probable, and due to the speculative nature of SwiftAir’s potential post-trial motions and appeal (and its damages claims), we are currently unable to estimate the amount of any potential loss; as such, we have not accrued any amount for this loss contingency.

In addition, from time to time, we are or may be party to various additional legal matters incidental to the conduct of our business. Some of the outstanding legal matters include speculative claims for indeterminate amounts of damages, for which we have not recorded any contingency accrual. Additionally, we have determined that other legal matters are likely not material to our financial statements, and as such have not discussed those matters above. Although we cannot predict with certainty the ultimate resolution of these speculative and immaterial matters, based on our current knowledge, we do not believe that the outcome of any of these matters will have a material adverse effect on our financial statements.


Note 11.    Equity Transactions    

2013 Equity Plan
Under the Company’s 2013 Amended and Restated Equity Incentive Plan (as amended, the “2013 Equity Plan”), the administrator of the 2013 Equity Plan, which is the Compensation Committee of the Board of Directors, was able to grant up to 11,000,000 shares (through stock options, restricted stock, restricted stock units (“RSUs”)) (including both time-vesting and performance-based RSUs) and other incentive awards) to employees, officers, non-employee directors, and consultants. The Company ceased using the 2013 Equity Plan for new equity issuances in December 2017, upon receiving stockholder approval of the Company’s 2017 Omnibus Long-Term Incentive Plan (the “2017 Omnibus Plan”), although the Company continues to have outstanding previously granted equity awards issued under the 2013 Equity Plan. These previously granted awards represent the right to receive 7,070,298 shares of the Company’s common stock (as of January 18, 2018) if and when they later vest and/or are exercised. See “2017 Equity Plan” immediately below.

2017 Equity Plan
On December 21, 2017, the Company’s stockholders approved the 2017 Omnibus Plan. The Company had 2,097,846 shares remaining shares available for issuance under the 2013 Equity Plan (as of that date) and those shares rolled into the 2017 Omnibus Plan and became available for grant thereunder. The 2017 Omnibus Plan separately made available 6,500,000 shares of the Company’s common stock for new issuance thereunder, in addition to those rolled over from the 2013 Equity Plan. The Administrator of the 2017 Omnibus Plan, which is the Compensation Committee of the Board of Directors, may grant share awards (through stock options, restricted stock, RSUs (including both time-vesting and performance-based RSUs) and other incentive awards) to employees, officers, non-employee directors, and consultants.

On June 25, 2018, the Company’s stockholders approved an amendment and restatement of the 2017 Equity Plan that increased by 2,000,000 the number of shares of the Company’s common stock authorized for issuance thereunder.
 


27


Stock Repurchase Program
In March 2016, our Board of Directors authorized a stock repurchase program under which we may repurchase up to $50.0 million of our common stock. Under the stock repurchase program, we may repurchase shares from time to time using a variety of methods, which may include open-market purchases and privately negotiated transactions. The extent to which we repurchase our shares, and the timing and manner of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by management. We measure all potential buybacks against other potential uses of capital that may arise from time to time. The repurchase program does not obligate us to repurchase any specific number of shares, and may be suspended or discontinued at any time. We expect to finance any purchases with existing cash on hand, cash from operations and potential additional borrowings. We did not repurchase any shares of our common stock during the nine months ended September 30, 2019 and 2018. As of September 30, 2019, the remaining authorization under the stock repurchase plan was $44.8 million.

Stock-Based Compensation Expense
Stock-based compensation expense related to our directors and other personnel for the three and nine months ended September 30, 2019 and 2018 was as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Cost of services
$
87

 
$
169

 
$
203

 
$
428

Sales and marketing
72

 
110

 
159

 
402

Product development
80

 
162

 
260

 
611

General and administrative
1,505

 
3,477

 
4,738

 
8,344

Total
$
1,744

 
$
3,918

 
$
5,360

 
$
9,785

Total stock-based compensation expense includes the revaluation adjustment related to the Company’s cash-settled phantom stock options, which are accounted for as liability awards and are re-measured at fair value each reporting period. Compensation expense is recognized over the requisite service period.

Note 12.    Income Taxes

The Company recorded income tax provision of $4.3 million and $2.9 million for the three months ended September 30, 2019 and 2018, respectively, and an income tax provision of $7.8 million and $1.9 million for the nine months ended September 30, 2019 and 2018, respectively. In general, our effective tax rate differs from the federal income tax rate due to the effects of foreign tax rate differences, foreign withholding taxes, changes in unrecognized tax benefits, changes in valuation allowance, effects of permanent differences and deferred tax expense on amortization of indefinite-lived intangible assets.

During the three months ended March 31, 2019, the Company recorded a $2.7 million adjustment to reduce additional paid-in capital with a corresponding reduction to income tax expense. The adjustment pertains to a difference between the book basis and tax basis of the Second Lien Notes and equity warrants with Searchlight. The initial value assigned to the equity warrants was recorded as an increase to additional paid-in capital, and a corresponding tax implication for the basis difference should have been recorded as an offsetting decrease to additional paid-in capital. This basis difference originated in 2018 and the adjustment was recorded in 2019 to correct an immaterial prior period error.

Due to uncertainty as to the realization of benefits from the Company's U.S. and certain international net deferred tax assets, including net operating loss carryforwards, the Company has a full valuation allowance reserved against such net deferred tax assets. The Company intends to continue to maintain a full valuation allowance on certain jurisdictions’ net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.



28


As of September 30, 2019, and December 31, 2018, the liability for income taxes associated with uncertain tax positions was $7.6 million and $7.9 million, respectively. As of September 30, 2019, and December 31, 2018, the Company had accrued $6.4 million and $6.3 million, respectively, of interest and penalties related to uncertain tax positions. It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions may significantly decrease within the next 12 months. This change may be the result of settlement of ongoing foreign audits.

Note 13.    Segment Information

Our business comprises two operating segments:

Media & Content: selects, manages, provides lab services and distributes wholly owned and licensed media content, video and music programming, advertising, applications and interactive games to the airline, maritime and other “away from home” non-theatrical markets.

Connectivity: provides customers, including their passengers, crew, remote workers and soldiers, as applicable, with (i) Wi-Fi connectivity via C, Ka and Ku-band satellite and terrestrial wireless transmissions that enable access to the Internet, live television, on-demand content, shopping and travel-related information and (ii) operational solutions that allow customers to improve the management of their internal operations and passenger service delivery.

Our Chief Executive Officer, the Company’s CODM, evaluates financial performance and allocates resources by reviewing revenue, costs of sales and contribution profit separately for our two segments. Total segment gross margin provides the CODM a measure to analyze operating performance of each of the Company’s operating segments and its enterprise value against historical data and competitors’ data. However, historical results may not be indicative of future results because operating performance is highly contingent on many factors, including customer tastes and preferences. All other financial information is reviewed by the CODM on a consolidated basis.

The following table summarizes revenue and gross margin by our reportable segments for the three and nine months ended September 30, 2019 and 2018 (in thousands):


29


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Media & Content -- Lic