Global Eagle Entertainment Reports Second Quarter 2013 Results
07 Aug, 2013
- Company Reports Positive Adjusted EBITDA for Second Quarter 2013
- Sequential Improvement in Revenue and Contribution Margin in Content and Connectivity Businesses on a Pro Forma Basis
- Closes Second Quarter with
$110 millionin Cash
- Southwest Airlines offers "TV Flies Free" Sponsored by DISH, with Content and Connectivity Services Provided by Global Eagle
- Company Closes Previously Announced Acquisition of PMG; Extends Global Leadership in Delivering Content to Airlines
Global Eagle provides entertainment and information content and satellite-delivered connectivity services and hardware to commercial airline passengers and other out-of-home viewers. We do business primarily through our subsidiaries Row 44, Inc. and
"Our second quarter performance reflects our continuing progress in executing our strategic plan," said
"Our financial results continued to improve in the second quarter, as Adjusted EBITDA turned positive," commented
Our summary consolidated financial information for the three months ended
For the second quarter of 2013, revenues were
Capital expenditures for the first half of 2013 totaled
Pro Forma Financial Information
The table below presents financial results for the three-month period ended June 30, 2013(1) and pro forma financial information for the three-month periods ended
|Revenue, Contribution Margin, and Adjusted EBITDA* Continue to Improve (1)|
|Q1 '13 (2)||Q2 '13|
|Revenue ($ millions)|
|Cost of Sales ($ millions)|
|Total Cost of Sales||(48.7)||(52.9)|
|Contribution Profit ($ millions)|
|Total Contribution Profit||6.9||10.0|
|Contribution Margin (%)|
|Total Contribution Margin||12%||16%|
|(1) Reflects 100% of AIA's results; GEE owns approximately 94% of AIA's outstanding shares.|
|(2) Actual Contribution Profit for the Content segment for the period
|(3) Represents sales of satellite based connectivity equipment at our Row 44 subsidiary.|
|(4) Represents Wi-Fi, TV, VOD, shopping and travel-related revenue at our Row 44 subsidiary.|
|(5) Represents revenue principally generated through the sale or license of media content, video and music programming, applications, and video games to customers.|
|(6) Content services revenue includes various services generally billed on a time and materials basis such as encoding and editing of media content.|
Contribution margin in the Company's Connectivity segment improved from 1% in the first quarter of 2013 on a pro forma basis, to 9% in the second quarter of 2013, due to higher Wi-Fi revenue and lower bandwidth costs. Contribution margin in the Company's Content segment improved from 17% in the first quarter of 2013 on a pro forma basis, to 19% in the second quarter of 2013.
Adjusted EBITDA* during the second quarter of 2013 was
Content and services revenue was 90% of consolidated revenue in the second quarter of 2013. The Company expects continued growth in content and services revenue to drive improved profitability in future periods.
As will be described in more detail in the Company's Form 10-Q for the quarterly period ended
- During the second quarter we closed on our acquisition of substantially all the assets of
Post Modern Edit, LLCand related companies (PMG) for up to approximately $24.0 millionin a combination of cash and stock. The acquisition expands and strengthens GEE's relationships with airlines around the world and provides entry into the cruise line industry and other non-theatrical markets.
- Southwest Airlines® and DISH® entered into a partnership, with connectivity and content services provided by Global Eagle, which makes available a new inflight offering called "TV Flies Free." For the first time, passengers will be able to watch free live TV and more than 50 on-demand shows streamed directly to personal devices. The offering is sponsored by DISH. The new program reflects the ability of the Company's unique Ku-band broadband technology to cost-effectively deliver and support live television programming to airlines. A sampling of new networks being offered through the program includes Bravo, Food Network, Golf Channel, Travel Channel and HGTV.
- AIA continues to leverage its IFE software development expertise with WISE (
Wireless Inflight Services & Entertainment), a hardware-agnostic, wireless IFE software and content solution featuring rich audio-video on demand (AVOD) and digital rights management (DRM) functionalities. During the second quarter, AIA partnered with three major hardware integrators in the IFE/connectivity market for the use of WISE on commercial airlines. Deliveries are scheduled for the first quarter of 2014. AIA has also entered into a software & content deal with Honeywell for WISE, enabling it to offer a new HD AVOD in-flight entertainment upgrade for Honeywell's business jet cabin management system.
- Global Eagle signed a memorandum of understanding (MOU) with
China Telecom Satellite Communications Co. Ltd, a wholly-owned subsidiary of China Telecom, to jointly develop, implement and support in-flight connectivity solutions for Chinese airlines. The MOU also contemplates offering support to non-Chinese airlines that fly into and over the People's Republic of China. In addition, we signed an agreement with China Satellite Communications Co. Ltd., a core operating subsidiary of China Aerospace Scienceand Technology Corporation. These agreements will support the Company's development plan in China.
- AIA subsidiary IFP successfully renewed its multi-year agreement to provide content services for Air New Zealand while continuing to win business in new markets such as Congo,
Bangladeshand Turkmenistan. IFP reached an extended content agreement with Air France and will now be managing Air France's entire catalogue of in-flight movies on board all the airline's international flights. IFP also reached an extension to its multi-year agreement with Alitalia to provide a full suite of in-flight entertainment services.
- AIA subsidiary DTI, the world's leading provider of in-flight games, signed an agreement with entertainment giant SEGA® of
America, Inc.to supply some of the world's most well-known gaming titles to airlines. DTI signed a licensing agreement for over a dozen of SEGA®'s games which can all be played on the industry's latest Android-based seat-back and portable in-flight entertainment platforms, as well as legacy systems.
- Global Eagle repurchased 500,000 warrants to purchase shares of our common stock at a price of
$1.60per warrant. The total consideration paid was $800,000plus brokerage commissions. In the Company's first quarter 2013 earnings release the Company announced that its board of directors has authorized the Company to repurchase in aggregate up to $10 millionof our warrants pursuant to a warrant repurchase program. Under this program, there is no time limit for warrant repurchases, nor is there a minimum number of warrants that we may repurchase. The repurchase program may be suspended or discontinued at any time without prior notice.
- Added new members to our management team including
Michael Zemetraas Senior Vice President and Chief Accounting Officer and Lee O'Donovanas Vice President of Product Marketing.
- We completed a tender offer in
Germanyfor shares of AIA, increasing our ownership to more than 94% of AIA. In addition, in July, we commenced a process under German law to acquire the remaining 6% of AIA.
We expect our financial performance to continue to improve for the remainder of the year. We expect sequential improvements in results in the third quarter driven by modest gains in Wi-Fi usage and a substantial increase in television revenue due to the Dish sponsorship of live TV at Southwest Airlines, offset by a seasonal reduction in equipment revenue and higher investment spending related to our geographic expansion and new product rollouts. We expect third quarter Adjusted EBITDA to be in the mid-single digit million dollar range. In the fourth quarter, we expect continued strong growth in Wi-Fi and TV usage, coupled with a significant increase in equipment revenue related to new international aircraft installations. We expect fourth quarter Adjusted EBITDA to be in the high single digit million dollar range. We expect capital expenditures in the second half of 2013 to be approximately
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* 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 the primary measure used by the Company's management and board of directors to understand and evaluate its financial performance and operating trends, including period to period comparisons, to prepare and approve its annual budget and to develop short and long term operational plans. Additionally, Adjusted EBITDA is the primary measure used by the compensation committee of the Company's board of directors to establish the funding targets for and fund its annual bonus pool for the Company's employees and executives. We believe our presentation of Adjusted EBITDA is useful to investors both because (1) it allows for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) management frequently uses it in its discussions with investors, commercial bankers, securities analysts and other users of its financial statements.
We define Adjusted EBITDA as net income (loss) before income tax expense, other income (expense), interest expense (income), depreciation and amortization, stock-based compensation, acquisition and realignment costs, F/X gain (loss) on intercompany loans and any gains or losses on certain asset sales or dispositions. Acquisition and realignment costs include such items, when applicable, as (1) legal, accounting and other professional fees directly attributable to acquisition activity, (2) employee severance payments attributable to acquisition or corporate realignment activities, and (3) expenditures related to the business combination in January 2013. Management does not consider these expenses to be indicative of the Company's ongoing operating results or future outlook.
With respect to projected third quarter Adjusted EBITDA and projected fourth quarter Adjusted EBITDA, a quantitative reconciliation is not available without unreasonable efforts, and we are unable to address the probable significance of the unavailable information.
Cautionary Note Concerning Forward-Looking Statements
We make forward-looking statements in this earnings release within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to expectations or forecasts for future events, including without limitation our earnings, revenues, expenses or other future financial or business performance or strategies, or the impact of legal or regulatory matters on our business, results of operations or financial condition. These statements may be preceded by, followed by or include the words "may," "might," "will," "will likely result," "should," "estimate," "plan," "project," "forecast," "intend," "expect," "anticipate," "believe," "seek," "continue," "target" or similar expressions. These forward-looking statements are based on information available to us as of the date of this earnings release, and involve substantial risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements as a result of as a result of new information, future events or developments or otherwise.
Among the factors that could cause actual results to differ materially from past results and future plans and projected future results are the following: our ability to integrate the Row 44 and AIA businesses, the ability of the combined business to grow, including through acquisitions which we are able to successfully integrate, and the ability of our executive officers to manage growth profitably; the outcome of any legal proceedings pending or that may be instituted against us, Row 44 or AIA; changes in laws or regulations that apply to us or our industry; our ability to recognize and timely implement future technologies in the satellite connectivity space, including Ka-band system development and deployment; our ability to deliver end-to-end network performance sufficient to meet increasing airline customer and passenger demand; our ability to obtain and maintain international authorizations to operate our service over the airspace of foreign jurisdictions our customers utilize; our ability to expand our service offerings and deliver on our service roadmap; our ability to timely and cost-effectively identify and license television and media content that passengers will purchase; general economic and technological circumstances in the satellite transponder market, including access to transponder space in capacity limited regions and successful launch of replacement transponder capacity where applicable; our ability to obtain and maintain licenses for content used on legacy installed in-flight entertainment systems; the loss of, or failure to realize benefits from, agreements with our airline partners; the loss of relationships with original equipment manufacturers or dealers; unfavorable economic conditions in the airline industry and economy as a whole; our ability to expand our domestic or international operations, including our ability to grow our business with current and potential future airline partners or successfully partner with satellite service providers, including Hughes Network Systems; our reliance on third-party satellite service providers and equipment and other suppliers, including single source providers and suppliers; the effects of service interruptions or delays, technology failures, material defects or errors in our software, damage to our equipment or geopolitical restrictions; the limited operating history of our connectivity and in-flight television and media products; costs associated with defending pending or future intellectual property infringement actions and other litigation or claims; increases in our projected capital expenditures due to, among other things, unexpected costs incurred in connection with the roll out of our technology roadmap or our international plan of expansion; fluctuation in our operating results; the demand for in-flight broadband internet access services and market acceptance for our products and services; and other risks and uncertainties set forth in this earnings release and in our most recent Annual Report on Form 10-K and any subsequently filed Quarterly Reports on Form 10-Q.
|Unaudited Condensed Consolidated Statements of Operations|
|(In thousands, except per share amounts)|
|Three months ended||Six months ended|
|Cost of sales||52,870||18,722||85,569||36,604|
|Sales and marketing||2,399||777||4,686||1,992|
|General and administrative||9,695||3,030||36,804||5,928|
|Amortization of intangible assets||3,016||6||4,249||12|
|Total operating expenses||70,307||23,386||134,972||46,034|
|Loss from operations||(7,476)||(6,549)||(29,628)||(10,961)|
|Other income (expense), net:|
|Interest income (expense, net)||(282)||(7,132)||(459)||(10,399)|
|Change in fair value of financial instruments||(4,725)||_||(9,340)||_|
|Other income (expense), net||13||(92)||(30)||(119)|
|Loss before income taxes||(12,470)||(13,773)||(39,457)||(21,209)|
|Income tax expense||(559)||_||(593)||_|
|Net loss (income) attributable to non-controlling interests||(108)||_||(69)||_|
|Cumulative preferred stock dividends||_||(1,772)||(942)||(3,148)|
|Net loss attributable to common stockholders||(15,545)||$(41,061)||(24,357)|
|Net loss per share — basic and diluted|
|Weighted average shares — basic and diluted||54,843||20,352||49,094||20,352|
|Unaudited Condensed Consolidated Balance Sheets|
|Cash and cash equivalents|
|Accounts receivable, net||47,046||7,797|
|Content library, net||10,560||--|
|Prepaid and other current assets||11,024||3,344|
|Property, plant and equipment, net||14,099||4,639|
|Other non-current assets||8,234||614|
|Liabilities and Stockholders' Equity (Deficit)|
|Accounts payable and accrued liabilities|
|Derivative warrant liabilities||30,220||8,178|
|Notes payable and accrued interest||7,944||14|
|Deferred tax liabilities||22,903||--|
|Total current liabilities||146,040||27,527|
|Redeemable preferred stock||--||122,540|
|Stockholders' Equity (Deficit):|
|Common stock and additional paid-in capital||366,940||8,240|
|Accumulated OCI (loss)||(522)||--|
|Total stockholders equity (deficit)||196,921||(121,125)|
|Total liabilities and stockholders equity (deficit)|
|Reconciliations of Non-GAAP Measures to Unaudited Consolidated Statements of Operations|
|Three months||Three months||Six months|
|ended March||ended June||ended June|
|Adjusted EBITDA:||31, 2013||30, 2013||30, 2013|
|Income tax expense/(benefit)||34||559||593|
|Other income (expense) (1)||4,835||4,994||9,829|
|Depreciation and amortization||4,702||6,977||11,679|
|Stock-based compensation (2)||1,647||880||2,528|
|Acquisition and realignment costs(3)||12,752||1,594||14,346|
|F/X gain (loss) on intercompany loan (4)||1,378||(533)||845|
|Pro-forma Adjusted EBITDA|
|(1) Other income (expense) principally includes the change in fair value of the Company's derivative financial instruments.|
|(2) Included in stock-based compensation for the three months ended
|(3) Acquisition and realignment costs include such items, when applicable, as (a) non-cash GAAP purchase accounting adjustments for certain deferred revenue and costs, (b) legal, accounting and other professional fees directly attributable to acquisition activity, (c) employee severance payments attributable to acquisition or corporate realignment activities, and (d) expenditures related to the
|(4) F/X gain (loss) on intercompany loan includes the change in value of certain intercompany loans that are included in the Company's operating results.|
|(5) Comprises formation expenses directly related to the Company's business combination in 2013 that did not generate associated revenue in Q1 of 2013.|
|Unaudited Segment Revenue and Contribution Profit|
Segmental revenue, expenses and contribution profit for the three and six month periods ended
|Three Months Ended||Six Months Ended|
|Cost of Sales||16,975||35,895||52,870||32,221||53,348||85,569|
|Other Operating Expenses||17,437||49,403|
|Loss from Operations|
Note: After consummation of the business combination in
CONTACT: For Investors
Dave DavisChief Financial Officer Global Eagle Entertainment(818) 706-3111 email@example.com -or- Chris Plunkettor Brad Edwards Brainerd Communicators, Inc.(212) 986-6667 firstname.lastname@example.org email@example.com For Press Nancy Zakhary Brainerd Communicators, Inc.(212) 986-6667 firstname.lastname@example.org
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