UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

(Mark One):

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended ~~September 30, 2017~~March 31, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission File Number:001-35975

LOGO

Gogo Inc.

(Exact name of registrant as specified in its charter)

Delaware

27-1650905

(State or other jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

111 North Canal St., Suite 1500

Chicago, IL 60606

(Address of principal executive offices)

Telephone Number(312) 517-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Class

Trading

Symbol

Name of Each Exchange

on Which Registered

Common stock, par value $0.0001 per share

GOGO

NASDAQ Global Select Market

Indicate by check mark 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ~~Yes~~Ye ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October 30, 2017, 86,772,729~~May 7, 2020, 83,770,421 shares of $0.0001 par value common stock were outstanding.

Gogo Inc.

INDEX


		Page
Part I.	Financial Information
Item 1.	Financial Statements		2
	Unaudited Condensed Consolidated Balance Sheets		2
	Unaudited Condensed Consolidated Statements of Operations		3
	Unaudited Condensed Consolidated Statements of Comprehensive Loss		4
	Unaudited Condensed Consolidated Statements of Cash Flows		5
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)		6
	Notes to Unaudited Condensed Consolidated Financial Statements		67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2735
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4754
Item 4.	Controls and Procedures		4855

Part II.	Other Information
Item 1.	Legal Proceedings		4956
Item 1A.	Risk Factors		4957
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		4962
Item 3.	Defaults Upon Senior Securities		4962
Item 4.	Mine Safety Disclosures		4962
Item 5.	Other Information		4962
Item 6.	Exhibits		4962
Signatures			5164

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


	September 30,			December 31,			March 31,			December 31,
	2017			2016			2020			2019
Assets
Current assets:
Cash and cash equivalents	$	222,378		$	117,302		$	214,229		$	170,016
Short-term investments		188,496			338,477

Total cash, cash equivalents and short-term investments		410,874			455,779
Accounts receivable, net of allowances of $729 and $499, respectively		112,029			73,743
Accounts receivable, net of allowances of $3,970 and $686, respectively								92,619			101,360
Inventories		48,621			50,266			123,179			117,144
Prepaid expenses and other current assets		20,414			24,942
Prepaid expenses and other current assets, net of allowances of $997 and $0, respectively								36,462			36,305

Total current assets		591,938			604,730			466,489			424,825

Non-current assets:
Property and equipment, net		614,311			519,810			505,584			560,318
Intangible assets, net		90,661			85,175
Goodwill		620			620
Long-term restricted cash		6,873			7,773
Othernon-current assets		58,508			28,088
Goodwill and intangible assets, net								75,083			76,499
Operating leaseright-of-use assets								58,085			63,386
Othernon-current assets, net of allowances of $6,111 and $0, respectively								86,229			89,672

Totalnon-current assets		770,973			641,466			724,981			789,875

Total assets	$	1,362,911		$	1,246,196		$	1,191,470		$	1,214,700

Liabilities and Stockholders’ deficit
Current liabilities:
Accounts payable	$	23,845		$	31,689		$	35,995		$	17,160
Accrued liabilities		148,264			132,055			176,238			174,111
Accrued airline revenue share		16,714			15,521
Deferred revenue		39,062			32,722			28,472			34,789
Deferred airborne lease incentives		39,071			36,277			30,718			26,582
Current portion of capital leases		2,149			2,799

Total current liabilities		269,105			251,063			271,423			252,642

Non-current liabilities:
Long-term debt		995,546			800,715			1,124,713			1,101,248
Deferred airborne lease incentives		121,588			135,879			145,172			135,399
Deferred tax liabilities		9,001			8,264
Non-current operating lease liabilities								82,975			77,808
Othernon-current liabilities		123,198			90,668			53,793			46,493

Totalnon-current liabilities		1,249,333			1,035,526			1,406,653			1,360,948

Total liabilities		1,518,438			1,286,589			1,678,076			1,613,590

Commitments and contingencies (Note 11)		—			—
Commitments and contingencies (Note 13)								—			—
Stockholders’ deficit
Common stock, par value $0.0001 per share; 500,000,000 shares authorized at September 30, 2017 and December 31, 2016; 87,000,688 and 86,529,907 shares issued at September 30, 2017 and December 31, 2016, respectively; and 86,772,729 and 86,295,870 shares outstanding at September 30, 2017 and December 31, 2016, respectively		9			9
Common stock, par value $0.0001 per share; 500,000,000 shares authorized at March 31, 2020 and December 31, 2019; 83,825,592 and 88,292,821 shares issued at March 31, 2020 and December 31, 2019, respectively; and 83,773,648 and 88,240,877 shares outstanding at March 31, 2020 and December 31, 2019, respectively								8			9
Additionalpaid-in-capital		893,713			879,135			1,081,955			979,499
Accumulated other comprehensive loss		(1,018	)		(2,163	)		(5,127	)		(2,256	)
Treasury stock, at cost								(98,857	)		—
Accumulated deficit		(1,048,231	)		(917,374	)		(1,464,585	)		(1,376,142	)

Total stockholders’ deficit		(155,527	)		(40,393	)		(486,606	)		(398,890	)

Total liabilities and stockholders’ deficit	$	1,362,911		$	1,246,196		$	1,191,470		$	1,214,700

See the Notes to Unaudited Condensed Consolidated Financial Statements

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)


	For the Three Months						For the Nine Months						For the Three Months
	Ended September 30,						Ended September 30,						Ended March 31,
	2017			2016			2017			2016			2020			2019
Revenue:
Service revenue	$	153,347		$	129,099		$	453,918		$	375,406		$	150,782		$	165,012
Equipment revenue		19,527			18,168			57,162			61,146			33,693			34,537

Total revenue		172,874			147,267			511,080			436,552			184,475			199,549

Operating expenses:
Cost of service revenue (exclusive of items shown below)		67,854			56,365			201,794			164,615			70,755			68,121
Cost of equipment revenue (exclusive of items shown below)		15,326			10,527			41,623			36,752			26,040			29,731
Engineering, design and development		31,313			25,835			103,262			72,201			22,863			24,728
Sales and marketing		16,294			14,874			47,253			46,366			9,652			12,318
General and administrative		24,064			21,661			70,162			65,038			27,166			22,454
Impairment of long-lived assets														46,389			—
Depreciation and amortization		35,824			26,779			96,821			76,042			32,670			30,749

Total operating expenses		190,675			156,041			560,915			461,014			235,535			188,101

Operating loss		(17,801	)		(8,774	)		(49,835	)		(24,462	)
Operating income (loss)														(51,060	)		11,448

Other (income) expense:
Interest income		(683	)		(852	)		(1,999	)		(1,064	)		(606	)		(1,149	)
Interest expense		27,585			24,848			81,754			58,701			31,174			32,554
Loss on extinguishment of debt		—			—			—			15,406
Adjustment of deferred financing costs		—			—			—			(792	)
Other (income) expense		228			34			322			(137	)		2,993			(3,365	)

Total other expense		27,130			24,030			80,077			72,114			33,561			28,040

Loss before income taxes		(44,931	)		(32,804	)		(129,912	)		(96,576	)		(84,621	)		(16,592	)
Income tax provision		350			469			945			997			157			207

Net loss	$	(45,281	)	$	(33,273	)	$	(130,857	)	$	(97,573	)	$	(84,778	)	$	(16,799	)

Net loss attributable to common stock per share—basic and diluted	$	(0.57	)	$	(0.42	)	$	(1.65	)	$	(1.24	)	$	(1.04	)	$	(0.21	)

Weighted average number of shares—basic and diluted		79,543			79,003			79,340			78,864			81,205			80,446

See the Notes to Unaudited Condensed Consolidated Financial Statements

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(in thousands)


	For the Three Months						For the Nine Months						For the Three Months
	Ended September 30,						Ended September 30,						Ended March 31,
	2017			2016			2017			2016			2020			2019
Net loss	$	(45,281	)	$	(33,273	)	$	(130,857	)	$	(97,573	)	$	(84,778	)	$	(16,799	)
Currency translation adjustments		655			(100	)		1,145			376
Currency translation adjustments, net of tax														(2,871	)		410

Comprehensive loss	$	(44,626	)	$	(33,373	)	$	(129,712	)	$	(97,197	)	$	(87,649	)	$	(16,389	)

See the Notes to Unaudited Condensed Consolidated Financial Statements

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	For the Nine Months						For the Three Months
	Ended September 30,						Ended March 31,
	2017			2016			2020			2019
Operating activities:
Net loss	$	(130,857	)	$	(97,573	)	$	(84,778	)	$	(16,799	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization		96,821			76,042			32,670			30,749
Loss on asset disposals, abandonments and write-downs		7,540			1,619			1,098			1,241
Provision for expected credit losses								6,764			84
Impairment of long-lived assets								46,389			—
Impairment of cost-basis investment								3,000			—
Deferred income taxes		737			630			45			44
Stock-based compensation expense		15,007			12,986			3,995			4,327
Loss of extinguishment of debt		—			15,406
Amortization of deferred financing costs		2,718			2,981			1,419			1,249
Accretion and amortization of debt discount and premium		13,872			12,940			3,326			4,774
Adjustment of deferred financing costs		—			(792	)
Changes in operating assets and liabilities:
Accounts receivable		(38,130	)		6,874			5,085			10,551
Inventories		1,645			(14,653	)		(6,035	)		(1,118	)
Prepaid expenses and other current assets		4,928			(18,106	)		1,038			3,015
Contract assets								(10,622	)		(6,175	)
Accounts payable		(1,246	)		2,174			16,399			2,843
Accrued liabilities		20,521			2,750			(18,291	)		(19,381	)
Deferred airborne lease incentives		11,722			8,635			2,345			(3,923	)
Deferred revenue		11,080			19,690			1,378			2,257
Deferred rent		336			317
Accrued airline revenue share		1,169			1,525
Accrued interest		(17,742	)		16,025			26,413			(19,514	)
Warranty reserves								(526	)		(588	)
Othernon-current assets and liabilities		(4,330	)		(4,322	)		6,915			208

Net cash provided by (used in) operating activities		(4,209	)		45,148			38,027			(6,156	)

Investing activities:
Proceeds from the sale of property and equipment		—			84
Purchases of property and equipment		(190,479	)		(107,108	)		(13,202	)		(23,154	)
Acquisition of intangible assets—capitalized software		(23,759	)		(21,586	)		(2,108	)		(4,557	)
Purchases of short-term investments		(213,651	)		(278,961	)
Redemptions of short-term investments		363,632			159,727			—			39,323
Other, net		(2,486	)		136			89			95

Net cash used in investing activities		(66,743	)		(247,708	)
Net cash provided by (used in) investing activities								(15,221	)		11,707

Financing activities:
Proceeds from the issuance of senior secured notes		181,843			525,000
Payments on amended and restated credit agreement		—			(310,132	)
Payment of issuance costs		(3,602	)		(10,610	)
Payments on capital leases		(2,340	)		(1,875	)
Proceeds from credit facility draw								22,000			—
Repurchase of convertible notes								(2,498	)		—
Payment of debt issuance costs								—			(557	)
Payments on financing leases								(247	)		(125	)
Stock-based compensation activity		(429	)		43			(397	)		(58	)

Net cash provided by financing activities		175,472			202,426
Net cash provided by (used in) financing activities								18,858			(740	)

Effect of exchange rate changes on cash		556			(378	)		51			(276	)
Increase (decrease) in cash and cash equivalents		105,076			(512	)
Cash and cash equivalents at beginning of period		117,302			147,342
Increase in cash, cash equivalents and restricted cash								41,715			4,535
Cash, cash equivalents and restricted cash at beginning of period								177,675			191,116

Cash, cash equivalents and restricted cash at end of period							$	219,390		$	195,651

Cash, cash equivalents and restricted cash at end of period							$	219,390		$	195,651
Less: current restricted cash								560			1,535
Less:non-current restricted cash								4,601			5,426

Cash and cash equivalents at end of period	$	222,378		$	146,830		$	214,229		$	188,690

Supplemental Cash Flow Information:
Cash paid for interest	$	86,359		$	27,535		$	66		$	46,163
Cash paid for taxes		35			291			1			41
Noncash Investing and Financing Activities:
Purchases of property and equipment in current liabilities	$	46,817		$	31,062		$	6,411		$	19,951
Purchases of property and equipment paid by commercial airlines		7,987			10,993			5,580			5,016
Purchases of property and equipment under capital leases		1,174			1,531
Acquisition of intangible assets in current liabilities		1,100			1,390
Asset retirement obligation incurred and adjustments		778			(36	)

See the Notes to Unaudited Condensed Consolidated Financial Statements

Gogo Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(in thousands, except share data)


	For the Three Months Ended March 31, 2020
										Accumulated
							Additional			Other
	Common Stock						Paid-In			Comprehensive			Accumulated			Treasury Stock
	Shares			Par Value			Capital			Loss			Deficit			Shares		Amount			Total
Balance at January 1, 2020		88,240,877		$	9		$	979,499		$	(2,256	)	$	(1,376,142	)		—	$	—		$	(398,890	)
Net loss		—			—			—			—			(84,778	)		—		—			(84,778	)
Currency translation adjustments, net of tax		—			—			—			(2,871	)		—			—		—			(2,871	)
Stock-based compensation expense		—			—			3,995			—			—			—		—			3,995
Issuance of common stock upon vesting of restricted stock units and restricted stock awards		522,490			—			—			—			—			—		—			—
Tax withholding related to vesting of restricted stock units		—			—			(682	)		—			—			—		—			(682	)
Issuance of common stock in connection with employee stock purchase plan		87,681			—			285			—			—			—		—			285
Settlement of prepaid forward shares		(5,077,400	)		(1	)		98,858									5,077,400		(98,857	)		—
Impact of the adoption of new accounting standards		—			—			—			—			(3,665	)		—		—			(3,665	)

Balance at March 31, 2020		83,773,648		$	8		$	1,081,955		$	(5,127	)	$	(1,464,585	)		5,077,400	$	(98,857	)	$	(486,606	)


	For the Three Months Ended March 31, 2019
								Accumulated
					Additional			Other
	Common Stock				Paid-In			Comprehensive			Accumulated			Treasury Stock
	Shares		Par Value		Capital			Loss			Deficit			Shares		Amount		Total
Balance at January 1, 2019		87,560,694	$	9	$	963,458		$	(3,554	)	$	(1,228,674	)		—	$	—	$	(268,761	)
Net loss		—		—		—			—			(16,799	)		—		—		(16,799	)
Currency translation adjustments, net of tax		—		—		—			410			—			—		—		410
Stock-based compensation expense		—		—		4,327			—			—			—		—		4,327
Issuance of common stock upon vesting of restricted stock units and restricted stock awards		161,667		—		—			—			—			—		—		—
Tax withholding related to vesting of restricted stock units		—		—		(351	)		—			—			—		—		(351	)
Issuance of common stock in connection with employee stock purchase plan		75,253		—		293			—			—			—		—		293
Impact of the adoption of new accounting standards		—		—		—			—			(3,093	)		—		—		(3,093	)

Balance at March 31, 2019		87,797,614	$	9	$	967,727		$	(3,144	)	$	(1,248,566	)		—	$	—	$	(283,974	)

See the Notes to Unaudited Condensed Consolidated Financial Statements

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation

The ~~Business—~~Business-Gogo ~~Inc.~~ (“~~we”, “us”,~~we,” “us,” “our”) is ~~a holding company, which through its operating subsidiaries is a provider of~~the global leader in providing broadband connectivity solutions and wirelessin-flight ~~connectivity and wirelessin-cabin~~ ~~digital~~ entertainment ~~solutions.~~to the aviation industry. We operate through the following three reportable segments: Commercial Aviation North America, or“~~CA-NA”,~~CA-NA,” Commercial Aviation Rest of World, or“~~CA-ROW”~~CA-ROW,” and Business Aviation, or ~~“BA”.~~“BA.” Services provided by ourCA-NA andCA-ROW businesses include Passenger Connectivity, which allows passengers to connect to the Internet from their personalWi-Fi-enabled devices; Passenger Entertainment, which offers passengers the opportunity to enjoy a broad selection ofin-flight entertainment options on their personal~~Wi-Fi-enabled~~Wi-Fi enabled devices; and Connected Aircraft Services (“CAS”), which offers airlines connectivity for various operations and currently include, among ~~others,~~other services, real-time credit card transaction processing, electronic flight bags and real-time weather information. Services are provided byCA-NA on commercial aircraft flying routes that generally begin and end within North America, which for this purpose includes the United States, Canada and Mexico.CA-ROW provides service on commercial aircraft operated by foreign-based commercial airlines and flights outside of North America for North American-based commercial airlines. The routes included in ourCA-ROW segment are those that begin and/or end outside of North America (as defined above) on which our international service is provided. BA providesin-flight Internet connectivity and other voice and data communications products and services and sells equipment forin-flight telecommunications to the business aviation market. BA services include Gogo Biz, ourin-flight broadband service, Passenger Entertainment, ourin-flight entertainment service, and satellite-based voice and data services through our strategic alliances with satellite companies.

Basis of Presentation— - The accompanying unaudited condensed consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with Article 10 of RegulationS-X promulgated under the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with our annual audited consolidated financial statements and the notes thereto included in our Annual Report on Form10-K for the year ended December 31, ~~2016~~2019 as filed with the Securities and Exchange Commission (“SEC”) on ~~February 27, 2017~~March 13, 2020 (the ~~“2016~~“201910-K”). These unaudited condensed consolidated financial statements reflect, in the opinion of management, all material adjustments (which include normal recurring adjustments) necessary to fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented.

The results of operations and cash flows for the ~~nine~~three month period ended ~~September 30, 2017~~March 31, 2020, including the impact ofCOVID-19, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2017.~~2020.

We have one class of common stock outstanding as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016.~~2019.

During March 2020, approximately 5.1 million shares of common stock were delivered to us in connection with the Forward Transactions (as defined and described in Note 10, “Long-Term Debt and Other Liabilities”). We accounted for these shares as Treasury Stock and reclassified $98.9 million from AdditionalPaid-In Capital to Treasury Stock, at cost, in our unaudited condensed consolidated balance sheet. See Note 10, “Long-Term Debt and Other Liabilities,” for additional information.

Reclassifications –To conform with the current year presentation, $84 thousand of bad debt expense has been reclassified to a separate line from accounts receivable for the three month period ended March 31, 2019.

Use of Estimates— - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of ~~revenue~~revenues and expenses during the reporting period. On an ongoing basis, management evaluates the significant estimates and bases such estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. However, actual results could differ materially from those estimates.

~~Under agreements with certain~~2. Impact ofCOVID-19 Pandemic

In December 2019, a novel strain of coronavirus(“COVID-19”) was reported in Wuhan, China, and the World Health Organization (the “WHO”) subsequently declaredCOVID-19 a “Public Health Emergency of International Concern.” TheCOVID-19 pandemic has caused a significant decline in commercial and business air travel, which has materially and adversely affected our business. Approximately 60% of our ~~airline partners to upgrade~~revenue comes from our equipment on certain aircraft or decommission certain aircraft on which our equipment is installed, on a quarterly basis we reassess the useful life of the affected equipment. As a result, we shorten the useful lives of the affected equipment to be consistent with the estimated upgrade date or aircraft decommissioning date, as applicable. We also shorten the remaining amortization period for deferred airborne lease incentives for certain equipment on aircraft to be decommissioned. The change in estimated useful lives related to these events resulted in increases in depreciation expense of $8.6 million and $14.9 million, respectively, in the three and nine month periods ended September 30, 2017 and increases in the amortization of deferred airborne lease incentives, which reduced our cost of service revenue, of $1.3 million and $3.5 million, respectively, in the three and nine month periods ended September 30, 2017. As a result, net loss per basic and fully diluted share increased by $0.09 and $0.14, respectively, for the three and nine month periods ended September 30, 2017.

two

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

commercial airline segments,CA-NA andCA-ROW. Passenger traffic declined significantly in April 2020 compared to March 2020, resulting in an expected significant reduction in service revenue in April 2020 as compared to the monthly service revenue in the first quarter of 2020. The approximate remaining 40% of our revenue comes from our business aviation segment, BA, which has also seen a sharp decrease in flight activity. Additionally, since many business aircraft are flying less frequently, there was an increase in requests forone-month account suspensions and a significant decrease in new plan activations in April 2020 compared to March 2020.

In response to theCOVID-19 pandemic and resulting developments, we developed, and continue to refine on an ongoing basis, a range of projections based on estimated market conditions, and have implemented measures to protect our employees, ensure the business has adequate liquidity and maintain the value of our business segments, while at the same time continuing to make the interest payments on our outstanding debt. These measures include, but are not limited to, the following:

•

Employee and customer safety – Our employees are our most important resource and we are focused on the safety of our people and our customers. Every country in which we operate has issued work from home orders and over 1,000 of our employees are working remotely, with limited personnel in place for certain location-specific activities.

~~2. Recent Accounting Pronouncements~~

•

Personnel actions – We implemented several cost-cutting measures related to personnel, including implementing a hiring freeze, suspending 2020 merit salary increases and deferring the Chief Executive Officer’s 2019 bonus payout.

Additionally, we furloughed approximately 54% of our workforce and reduced compensation for most other employees, starting May 4, 2020. The furloughs impact approximately 600 employees across the entire company. The time and duration of the furloughs will vary based on workload in individual departments. Salary reductions begin at 30% for the Chief Executive Officer, then 20% for the executive leadership team and reducing downward by staff level from there. In addition, the compensation for the members of our Board of Directors has been reduced by 30%. Certain types of employees, such as hourly workers, have not had their compensation reduced.

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)~~

•

Expense management – We have identified responsive action plans / levers that we are implementing, or considering implementing as needed, to dramatically reduce costs in order to ensure our long-term viability, including the following:

Renegotiating terms with suppliers, including satellite capacity providers;

Deferring purchases of capital equipment;

Delaying aircraft equipment installations;

Reducing marketing, travel and other~~2014-09,~~~~Revenue From Contracts With Customers~~ ~~(“ASU2014-09”).~~non-essential ~~This pronouncement outlines~~spend; and

Renegotiating terms with airline partners.

•

Financing– In March 2020, we drew $22 million under the ABL Credit Facility.

•

Government assistance – We applied for an $81 million grant and a $150 million loan under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). If we receive such assistance, we will be subject to certain restrictions and will be required to modify the personnel actions discussed above to comply with the terms of the government assistance. Additionally, receipt of funds may require the consent of a majority of the holders of the 2024 Senior Secured Notes and the consent of the lenders under the ABL Credit Agreement to amend the terms governing such indebtedness.

We expectCOVID-19 to continue to have a ~~single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of ASU2014-09~~ is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, the FASB issued several amendments to the standard, including clarificationsignificant negative impact on accounting for licenses of intellectual property and identifying performance obligations. This new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within the annual reporting periods; we will adopt this guidance as of January 1, 2018. We are continuing to evaluate our revenue ~~contracts under the new guidance. Based on our preliminary understanding~~and we are unable to predict how long that impact will continue. The extent of the impact ~~the adoption~~ of ~~this standard will have~~COVID-19 on our CA and BA businesses and our financial ~~statements, we reassessed~~ and ~~now plan to adopt~~operational performance will depend on future developments, including the ~~standard using~~duration, spread and severity of the ~~modified retrospective method. Under~~outbreak, the ~~modified retrospective method, revenue~~duration and ~~expenses that would have been recognized in~~geographic scope of related travel advisories and restrictions and the ~~future will be recorded to equity as a cumulative adjustment at the date~~extent of ~~adoption. While we are continuing to evaluate~~ the impact of ~~the adoption of this guidance~~COVID-19 on ~~our consolidated financial statements, we currently believe that the measurement~~overall demand for commercial and ~~timing of recognition of revenue and related costs from certain of our customer contracts will be impacted in the following ways, primarily from our Airline Directed contracts inCA-NA~~ ~~andCA-ROW~~ ~~(cash flows and cash and cash equivalents will not be impacted):~~

~~Under the current revenue recognition standard, the sale ofCA-NA~~ ~~andCA-ROW~~ ~~airborne connectivity equipment does not meet~~business aviation travel, all of ~~the requirements for being recognized as a separate unit of accounting, resulting in the deferral of equipment revenue (and the related equipment cost) over the life of the contract. Under ASU2014-09,~~ we have concluded that the sale of airborne connectivity equipment for Airline Directed arrangements will represent a separate performance obligation as it is both capable of being distinct and distinct within the context of the arrangement. As such, the recognition of all airborne equipment revenue and related costs will be accelerated and recognized upon installation.

Our contracts with customers generate service revenue that varies based on usage of our service. Under the current revenue recognition standard, these revenues are recognized as services are provided. Under ASU~~2014-09,~~ ~~our preliminary conclusion is that we will be required to use a variable consideration model~~ which requires us to estimate (and constrain) variable service revenue, and allocate total contract consideration among all performance obligations. Additionally, estimates used in the recognition of revenue under the new standard will be updated as new facts and circumstances warrant, which may cause differences in the trend of revenue recognition as compared to that reported under the current standard.are

We have assessed the treatment of costs to obtain or fulfill a contract with a customer, including costs to obtain Supplemental Type Certificates (“STCs”) issued by the FAA that are required to install our equipment on aircraft. Such costs are expensed as incurred under the current standard. Under ASU~~2014-09,~~ we have concluded that under our Airline Directed model these costs require capitalization and subsequent amortization over the anticipated service period. Conversely, STC costs incurred in connection with our airline partners operating under our Turnkey model are not subject to the same guidance and will continue to be expensed as incurred under ASU~~2014-09.~~

~~Penalties are recorded under the current standard when incurred. Under ASU2014-09,~~ ~~anticipated penalties will be accounted for as a reduction of revenue when or at the time the related performance obligation is satisfied.~~

~~The impact upon adoption of ASU2014-09~~ is subject to change based on new contracts or contractual amendments executed prior to the date of adoption, including contractual amendments that change and arrangement from a Turnkey model to an Airline Directed model. Such changes could have a significant effect on the transition adjustment recorded upon adoption of the new standard.

~~In March 2016, the FASB issued ASU2016-02,~~~~Leases~~ ~~(“ASU2016-02”),~~ ~~which introduces a lessee model that records most leases on the balance sheet. ASU2016-02~~ ~~also aligns certain underlying principles of the new lessor model with those in Accounting Standards Codification (“ASC”) 606,~~~~Revenue from Contracts with Customers~~~~(“ASC 606”), the FASB’s new revenue recognition standard. Furthermore, ASU2016-02~~ ~~eliminates the required use of bright-line tests used in current GAAP for determining lease classification. It also requires lessors to provide~~

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

highly uncertain and cannot be predicted. We are unable to predict how long the pandemic and its negative impact will persist, what additional ~~transparency into their exposure~~measures may be introduced by governments or private parties or what effect any such additional measures may have on air travel, our business partners and our business. Not only is the duration of the pandemic and future combative measures unknown, the overall situation is extremely fluid, and it is impossible to predict the timing of future material changes in ~~value of their residual~~the situation and whether the Company’s actions in response will be sufficient or successful.

Impairment assessments -We review our long-lived assets and ~~how they manage~~indefinite-lived intangible assets for potential impairment whenever events indicate that ~~exposure.~~the carrying amount of such assets may not be recoverable. We conducted a review as of March 31, 2020 in light of theCOVID-19 outbreak and its impact on air travel, and recorded an impairment charge with respect to certain long-lived assets. We are continuously monitoring theCOVID-19 pandemic and its impact. If the impact of the pandemic exceeds management’s estimates, we could incur additional material impairment charges in future periods. See Note 7, “Composition of Certain Balance Sheet Accounts,” for additional information on our long-lived assets and Note 8, “Intangible Assets,” for additional information on our indefinite-lived assets.

Credit Losses—We regularly evaluate our accounts receivable and contract assets for expected credit losses and recorded credit losses for the three month period ended March 31, 2020. We are continuously monitoring our assumptions used to determine our expected credit losses, including the impact of theCOVID-19 pandemic, which could cause us to record additional material credit losses in future periods. See Note 9, “Composition of Certain Reserves and Allowances,” for additional information.

3. Recent Accounting Pronouncements

Accounting standards adopted:

On January 1, 2020, we adopted ASU~~2016-02~~2016-13,Financial Instruments-Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments (“ASU2016-13”), ~~is effective~~which requires the measurement and recognition of expected credit losses for ~~annual reporting periods beginning after December 15, 2018, including interim periods within those annual reporting periods. We will adopt this as guidance~~financial assets held at amortized cost.

The cumulative effect adjustment from using the modified retrospective approach for the adoption of ASC 326 impacted our unaudited condensed consolidated balance sheet as of January 1, ~~2019~~2020 by the recognition of allowance for credit losses as summarized below:


							Balances
	Balance at						with
	December 31,			Impact of			Adoption of
	2019			ASC 326			ASC 326
Assets
Accounts receivable		101,360			(1,386	)		99,974
Prepaid and other current assets		36,305			(356	)		35,949
Othernon-current assets		89,672			(1,923	)		87,749
Equity
Accumulated deficit		(1,376,142	)		(3,665	)		(1,379,807	)

See Note 9, “Composition of Certain Reserves and Allowances,” for additional information.

On January 1, 2020, we ~~are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.~~

~~In March 2016, the FASB issued~~adopted ASU~~2016-04,~~2018-15,~~Recognition of Breakage~~ Intangibles – Goodwill and Other –Internal-Use Software (Subtopic350-40): Customer’s Accounting for ~~Certain Prepaid Stored-Value Products~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“(“ASU~~2016-04”~~2018-15”), which ~~amends~~requires an entity in a hosting arrangement that is a service contract to follow the guidance ~~on extinguishing financial liabilities for certain prepaid stored-value products by requiring that entities that sell prepaid stored-value products recognize breakage proportionally~~in Subtopic350-40 to determine which implementation costs to capitalize as ~~the prepaid stored-value product is being redeemed rather than immediately upon sale of the product. If~~ an entity is unable to estimate breakage, the amount would be recognized when the likelihood becomes remote that the holder will exercise the remaining rights. Entities are required to reassess their estimates of breakage each reporting period. Any change in this estimate would be accounted for as a change in an accounting estimate. An entity that recognizes breakage is required to disclose the methodology used to recognize breakage and significant judgments made in applying the breakage methodology. ASU~~2016-04~~ ~~is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is permitted. We can apply ASU2016-04~~ by using either a modified retrospective transition approach or a full retrospective transition approach. We will adopt this as guidance as of January 1, 2018 and we are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

~~In August 2016, the FASB issued ASU2016-15,~~~~Classification of Certain Cash Receipts and Cash Payments~~ ~~(“ASU2016-15”),~~ ~~which amends ASC 230,~~~~Statement of Cash Flows~~~~, the FASB’s standards for reporting cash flows in general-purpose financial statements. The amendments address the diversity in practice~~asset related to the ~~classification~~service contract and which costs to expense. Adoption of ~~certain cash receipts and payments including debt prepayment or debt extinguishment costs. ASU2016-15~~ is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is permitted. We will adopt this guidance as of January 1, 2018 and we expect to apply this standard ~~using the full retrospective method. We do~~did not ~~believe adoption of this guidance will have a material effect on our cash flows as we have historically reported debt prepayment and debt extinguishment costs in a manner consistent with ASU2016-15.~~

~~In October 2016, the FASB issued ASU2016-16,~~~~Intra-Entity Transfers of Assets Other Than Inventory~~ ~~(“ASU2016-16”),~~ ~~which removes the prohibition in ASC 740,~~~~Income Taxes~~, against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. This is intended to reduce the complexity of GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property. ASU~~2016-16~~ is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. We will adopt this guidance as of January 1, 2018 and we are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

~~In November 2016, the FASB issued ASU2016-18,~~~~Restricted Cash – A Consensus of the FASB Emerging Issues Task Force~~~~, (“ASU2016-18”),~~ ~~which amends ASC 230,~~~~Statement of Cash Flows~~~~, to clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. ASU2016-18~~ is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. We will adopt this guidance as of January 1, 2018 and do not believe the adoption of this guidance will have a material impact on our unaudited condensed consolidated financial statements.

InOn January ~~2017,~~1, 2020, we adopted ASU2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the ~~FASB issued~~ Disclosure Requirements for Fair Value Measurement(“ASU~~2017-04,~~~~Simplifying the Test for Goodwill Impairment~~ ~~(“ASU2017-04”~~2018-13”), which ~~simplifies~~modifies the ~~accounting for goodwill impairments by eliminatingStep-2~~ ~~from the goodwill impairment test. ASU2017-04~~ ~~is effective for annual reporting periods beginning after December 15, 2019 and early adoption is permitted for interim~~disclosure requirements related to recurring or ~~annual goodwill impairment tests performed on testing dates after January 1, 2017. We will adopt this guidance as part~~nonrecurring fair value measurements. Currently all of our ~~annual goodwill impairment test in October 2017~~fair value measurements are classified as Level 2 within the fair value hierarchy, and ~~do not believe~~as such, the adoption of this ~~guidance will~~standard did not have ~~a material~~an impact on our unaudited condensed consolidated financial statements. See Note 14, “Fair Value of Financial Assets and Liabilities,” for additional information.

~~In May 2017, the FASB issued ASU2017-09,~~~~Scope of Modification Accounting~~~~(“ASU2017-09”),~~ which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718,~~Compensation – Stock Compensation~~~~.Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. ASU2017-09~~ is effective for annual reporting periods beginning after December 15, 2017 and early adoption is permitted. We will adopt this guidance as of January 1, 2018 and do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

New pronouncements:

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard UpdateNo. 2020-04,Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU2020-04”), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) and other interbank offered rates. This guidance is effective beginning on March 12, 2020 through December 31, 2022. We do not currently believe that the adoption of this standard will have a material impact on our consolidated financial statements.

4. Revenue Recognition

Arrangements with commercial airlines

ForCA-NA andCA-ROW, pursuant to contractual agreements with our airline partners, we place our equipment on commercial aircraft operated by the airlines in order to deliver our service to passengers on the aircraft. We currently have two types of commercial airline arrangements: turnkey and airline-directed. Under the airline-directed model, we have transferred control of the equipment to the airline and therefore the airline is our customer in these transactions. Under the turnkey model, we have not transferred control of our equipment to our airline partner and, as a result, the airline passenger is deemed to be our customer. Transactions with our airline partners under the turnkey model are accounted for as an operating lease of space on an aircraft. See Note 12, “Leases,” for additional information on the turnkey model.

Remaining performance obligations

As of March 31, 2020, the aggregate amount of the transaction price in our contracts allocated to the remaining unsatisfied performance obligations was approximately $585 million, most of which relate to our commercial aviation contracts. Approximately $109 million represents future equipment revenue that is expected to be recognized within the next one to three years. The remaining $476 million primarily represents connectivity and entertainment service revenues which are recognized as services are provided, which is expected to occur through the remaining term of the contract (approximately5-10 years). We have excluded from this amount: all variable consideration derived from our connectivity or entertainment services that is allocated entirely to our performance of obligations related to such services; consideration from contracts that have an original duration of one year or less; revenue from passenger service on airlines operating under the turnkey model; and revenue from contracts that have been executed but under which have not yet met the accounting definition of a contract since the airline has not yet determined which products in our portfolio it wishes to select, and, as a result we are unable to determine which products and services will be transferred to the customer.

Disaggregation of revenue

The following table presents our revenue disaggregated by category(in thousands):


	For the Three Months Ended
	March 31, 2020
	CA-NA		CA-ROW		BA		Total
Service revenue
Connectivity	$	68,869	$	18,029	$	56,975	$	143,873
Entertainment, CAS and other		4,959		1,199		751		6,909

Total service revenue	$	73,828	$	19,228	$	57,726	$	150,782

Equipment revenue
ATG	$	4,396	$	—	$	9,624	$	14,020
Satellite		1,832		14,184		3,374		19,390
Other		80		—		203		283

Total equipment revenue	$	6,308	$	14,184	$	13,201	$	33,693

Customer type
Airline passenger and aircraft owner/operator	$	43,702	$	6,517	$	57,726	$	107,945
Airline, OEM and aftermarket dealer		26,258		25,399		13,201		64,858
Third party		10,176		1,496		—		11,672

Total revenue	$	80,136	$	33,412	$	70,927	$	184,475

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)


	For the Three Months Ended
	March 31, 2019
	CA-NA		CA-ROW		BA		Total
Service revenue
Connectivity	$	79,818	$	18,854	$	52,685	$	151,357
Entertainment, CAS and other		12,209		918		528		13,655

Total service revenue	$	92,027	$	19,772	$	53,213	$	165,012

Equipment revenue
ATG	$	2,872	$	—	$	11,335	$	14,207
Satellite		630		13,159		5,235		19,024
Other		540		—		766		1,306

Total equipment revenue	$	4,042	$	13,159	$	17,336	$	34,537

Customer type
Airline passenger and aircraft owner/operator	$	54,349	$	5,851	$	53,213	$	113,413
Airline, OEM and aftermarket dealer		30,913		25,491		17,336		73,740
Third party		10,807		1,589		—		12,396

Total revenue	$	96,069	$	32,931	$	70,549	$	199,549

Contract balances

Our current andnon-current deferred revenue balances totaled $57.9 million and $56.7 million as of March 31, 2020 and December 31, 2019, respectively. Deferred revenue includes, among other things, equipment, multi-pack and subscription connectivity products, sponsorship activities and airline-directed equipment and connectivity and entertainment service.

Our current andnon-current contract asset balances totaled $70.8 million and $64.2 million as of March 31, 2020 and December 31, 2019, respectively. The contract asset balance as of March 31, 2020 was net of allowances of $7.1 million. See Note 9, “Composition of Certain Reserves and Allowances,” for additional information regarding allowances. Contract assets represent the aggregate amount of revenue recognized in excess of billings for our airline-directed contracts.

Capitalized STC balances for our airline-directed contracts were $16.5 million and $17.5 million as of March 31, 2020 and December 31, 2019, respectively. The capitalized STC costs are amortized over the life of the associated airline-directed contracts as part of our engineering, design and development costs in our unaudited condensed consolidated statements of operations. Total amortization expense was $0.8 million and $0.3 million, respectively, for the three month periods ended March 31, 2020 and 2019.

5. Net Loss Per Share

Basic and diluted net loss per share have been calculated using the weighted average number of common shares outstanding for the period.

The shares of common stock effectively repurchased in connection with the Forward Transactions (as defined and described in Note 8,10, “Long-Term Debt and Other Liabilities”) are considered participating securities requiring thetwo-class method to calculate basic and diluted earnings per share. Net earnings in future periods will be allocated between common shares and participating securities. In periods of a net loss, the shares associated with the Forward Transactions will not receive an allocation of losses, as the counterparties to the Forward Transactions are not required to fund losses. ~~Accordingly,~~Additionally, the calculation of weighted average shares outstanding as of ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 excludes approximately 2.1 million shares and 7.2 million shares, ~~that will be repurchased as a result of~~respectively, associated with the Forward Transactions.

As a result of the net loss for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, all of the outstanding shares of common stock underlying stock options, deferred stock units and restricted stock units were excluded from the computation of diluted shares outstanding because they were anti-dilutive.

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

The following table sets forth the computation of basic and diluted earnings per share for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016;~~2019; however, because of the undistributed losses, the shares of common stock associated with the Forward Transactions are excluded from the computation of basic earnings per share in ~~2017~~2020 and ~~2016~~2019 as undistributed losses are not allocated to these shares (in thousands, except per share amounts):


	For the Three Months						For the Nine Months						For the Three Months
	Ended September 30,						Ended September 30,						Ended March 31,
	2017			2016			2017			2016			2020			2019
Net loss	$	(45,281	)	$	(33,273	)	$	(130,857	)	$	(97,573	)	$	(84,778	)	$	(16,799	)
Less: Participation rights of the Forward Transactions		—			—			—			—			—			—

Undistributed losses	$	(45,281	)	$	(33,273	)	$	(130,857	)	$	(97,573	)	$	(84,778	)	$	(16,799	)

Weighted-average common shares outstanding-basic and diluted		79,543			79,003			79,340			78,864			81,205			80,446

Net loss attributable to common stock per share-basic and diluted	$	(0.57	)	$	(0.42	)	$	(1.65	)	$	(1.24	)	$	(1.04	)	$	(0.21	)

4.6. Inventories

Inventories consist primarily of telecommunications systems and parts and are recorded at the lower of average cost ~~(average cost)~~ or market. We evaluate the need for write-downs associated with obsolete, slow-moving and nonsalable inventory by reviewing net realizable inventory values on a periodic basis.

Inventories as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016, all of which were included within the BA segment,~~2019 were as follows (in thousands):


	September 30,		December 31,		March 31,		December 31,
	2017		2016		2020		2019
Work-in-process component parts	$	37,462	$	39,150	$	23,585	$	23,141
Finished goods		11,159		11,116		99,594		94,003

Total inventory	$	48,621	$	50,266	$	123,179	$	117,144

7. Composition of Certain Balance Sheet Accounts

Prepaid expenses and other current assets as of March 31, 2020 and December 31, 2019 were as follows (in thousands):


	March 31,		December 31,
	2020		2019
Contract assets, net of allowances of $997 and $0, respectively(1)	$	14,319	$	12,364
Prepaid satellite services		7,970		11,299
Restricted cash		560		560
Other		13,613		12,082

Total prepaid expenses and other current assets	$	36,462	$	36,305

(1)

Allowance for contract assets as of March 31, 2020 is due to the adoption of ASC 326. See Note 9, “Composition of Certain Reserves and Allowances,” for additional information.

Property and equipment as of March 31, 2020 and December 31, 2019 were as follows (in thousands):


	March 31,			December 31,
	2020			2019
Office equipment, furniture, fixtures and other	$	56,482		$	56,205
Leasehold improvements		44,403			44,389
Airborne equipment(1)		709,980			737,593
Network equipment		225,169			229,451

		1,036,034			1,067,638
Accumulated depreciation		(530,450	)		(507,320	)

Total property and equipment, net	$	505,584		$	560,318

(1)

Decrease in Airborne equipment is due primarily to the impairment of airborne equipment associated with three of our airline agreements. See below for additional information.

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

~~5. Composition of Certain Balance Sheet Accounts~~

~~Property and equipment~~Othernon-current assets as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 were as follows (in thousands):

   September 30,    December 31,
   2017    2016
Office equipment, furniture, fixtures and other
   $ 45,230    $ 49,529
Leasehold improvements
   42,413    42,143
Airborne equipment
   702,414    557,196
Network equipment
   186,650    168,121




   976,707    816,989
Accumulated depreciation
   (362,396 )    (297,179 )




Property and equipment, net
   $ 614,311    $ 519,810


	March 31,		December 31,
	2020		2019
Contract assets, net of allowances of $6,111 and $0, respectively(1)	$	56,516	$	51,829
Deferred STC costs		16,475		17,453
Restricted cash		4,601		7,099
Other(2)		8,637		13,291

Total othernon-current assets	$	86,229	$	89,672

(1)

Allowances for contract assets as of March 31, 2020 is due to the adoption of ASC 326. See Note 9, “Composition of Certain Reserves and Allowances,” for additional information.

(2)

Decrease due in part to the $3.0 million impairment of a cost-basis investment which is included in Other (income) expense within our unaudited condensed consolidated statements of operations for the three month period ended March 31, 2020.

We review our long-lived assets, including property and equipment,right-of-use assets, and othernon-current assets, for potential impairment whenever events indicate that the carrying amount of such assets may not be recoverable. We perform this review by comparing the carrying value of the long-lived assets to the estimated future undiscounted cash flows expected to result from the use of the assets. We group certain long-lived assets by airline contract and by connectivity technology. If we determine an impairment exists, the amount of the impairment is computed as the difference between the asset group’s carrying value and its estimated fair value, following which the assets are written down to their estimated fair value.

In light of theCOVID-19 outbreak and its impact on air travel, including decreased flights, decreased gross passenger opportunity and our airline partners’ temporary parking of a significant number of their aircraft, we conducted a review as of ~~September 30, 2017~~March 31, 2020 and determined that the carrying values for the asset groups related to three of our airline agreements for the CA business exceeded their estimated undiscounted cash flows, which triggered the need to estimate the fair value of these assets. Fair value reflects our best estimate of the discounted cash flows of the impaired assets. For the airborne assets andright-of-use assets associated with the three airline agreements (the “impaired assets”), we recorded an impairment charge of $46.4 million for the three month period ended March 31, 2020, reflecting the difference between the carrying value and the estimated fair value of the impaired assets.

We are continuously monitoring theCOVID-19 pandemic and its impact. If the negative impact of the pandemic on the assets related to our airline agreements continues, including as a result of airline partners’ decisions to temporarily park certain aircraft to reduce capacity, we could incur additional material impairment charges in future periods.

Accrued liabilities as of March 31, 2020 and December 31, ~~2016~~2019 were as follows (in thousands):

   September 30,    December 31,
   2017    2016
Deferred cost of equipment revenue
   $ 40,493    $ 14,159
Deposits on satellite and airborne equipment
   8,371    10,800
Other
   9,644    3,129




Total othernon-current assets
   $ 58,508    $ 28,088


	March 31,		December 31,
	2020		2019
Airline related accrued liabilities	$	40,882	$	43,592
Accrued interest		43,461		17,048
Employee compensation and benefits		15,136		29,954
Accrued satellite network costs		19,438		13,843
Warranty reserve		12,639		13,165
Operating leases		9,484		12,241
Airborne equipment and installation costs		4,293		11,466
Other		30,905		32,802

Total accrued liabilities	$	176,238	$	174,111

~~Accrued~~

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Othernon-current liabilities as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 were as follows (in thousands):

   September 30,    December 31,
   2017    2016
Employee compensation and benefits
   $ 23,831    $ 21,008
Airborne equipment and installation costs
   35,459    22,442
Airborne partner related accrued liabilities
   16,226    14,307
Accrued interest
   22,694    40,436
Other
   50,054    33,862




Total accrued liabilities
   $ 148,264    $ 132,055


	March 31,		December 31,
	2020		2019
Deferred revenue	$	29,433	$	21,889
Asset retirement obligations		11,773		11,560
Deferred tax liabilities		2,384		2,340
Other		10,203		10,704

Total othernon-current liabilities	$	53,793	$	46,493

~~Othernon-current~~ ~~liabilities as of September 30, 2017 and December 31, 2016 were as follows (~~~~in thousands~~):

   September 30,    December 31,
   2017    2016
Deferred revenue
   $ 67,048    $ 38,976
Deferred rent
   37,101    36,538
Asset retirement obligations
   9,935    8,527
Other
   9,114    6,627




Total othernon-current liabilities
   $ 123,198    $ 90,668

6.8. Intangible Assets

Our intangible assets are comprised of both indefinite-lived and finite-lived intangible assets. Intangible assets with indefinite lives and goodwill are not ~~amortized, but~~amortized; rather, they are reviewed for impairment at least annually or whenever events or circumstances indicate the carrying value of the asset may not be recoverable. We perform our annual impairment tests of our indefinite-lived intangible assets and goodwill during the fourth quarter of each fiscal year. We also reevaluate the useful life of ~~the~~ indefinite-lived intangible assets each reporting period to determine whether events and circumstances continue to support an indefinite useful life. The results of our annual indefinite-lived intangible assets and goodwill impairment assessments in the fourth quarter of ~~2016~~2019 indicated no impairment.

~~Gogo Inc.~~ As of March 31, 2020, as a result ofCOVID-19, we reviewed the carrying value of our indefinite-lived intangible assets and ~~Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)~~

goodwill and concluded there were no impairments.

As of ~~September 30, 2017~~both March 31, 2020 and December 31, ~~2016,~~2019, our goodwill balance, all of which related to our BA segment, was $0.6 million.

Our intangible assets, other than goodwill, as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 were as follows (in thousands, except for weighted average remaining useful life):


	Weighted																Weighted
	Average		As of September 30, 2017							As of December 31, 2016							Average		As of March 31, 2020							As of December 31, 2019
	Remaining		Gross					Net		Gross					Net		Remaining		Gross					Net		Gross					Net
	Useful Life		Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying		Useful Life		Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	(in years)		Amount		Amortization			Amount		Amount		Amortization			Amount		(in years)		Amount		Amortization			Amount		Amount		Amortization			Amount
Amortized intangible assets:
Software		2.2	$	140,818	$	(85,490	)	$	55,328	$	118,836	$	(70,127	)	$	48,709		2.5	$	180,568	$	(139,943	)	$	40,625	$	177,190	$	(135,154	)	$	42,036
Service customer relationship		2.5		8,081		(5,534	)		2,547		8,081		(4,773	)		3,308
Other intangible assets		1.3		1,500		(997	)		503		1,500		(682	)		818		7.8		3,000		(1,445	)		1,555		3,000		(1,440	)		1,560
Service customer relationships																				8,081		(8,081	)		—		8,081		(8,081	)		—
OEM and dealer relationships				6,724		(6,724	)		—		6,724		(6,667	)		57				6,724		(6,724	)		—		6,724		(6,724	)		—

Total amortized intangible assets				157,123		(98,745	)		58,378		135,141		(82,249	)		52,892				198,373		(156,193	)		42,180		194,995		(151,399	)		43,596

Unamortized intangible assets:
FCC Licenses				32,283		—			32,283		32,283		—			32,283				32,283		—			32,283		32,283		—			32,283

Total intangible assets			$	189,406	$	(98,745	)	$	90,661	$	167,424	$	(82,249	)	$	85,175			$	230,656	$	(156,193	)	$	74,463	$	227,278	$	(151,399	)	$	75,879

Amortization expense was ~~$4.9~~$4.8 million and ~~$16.5~~$5.3 million, respectively, for the three ~~and nine~~ month periods ended ~~September 30, 2017,~~March 31, 2020 and ~~$6.0 million~~2019.

Gogo Inc. and ~~$15.8 million, respectively, for the prior year periods.~~Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Amortization expense for each of the next five years and thereafter is estimated to be as follows (in thousands):

   Amortization
Years ending December 31,    Expense
2017 (period from October 1 to December 31)
   $ 7,137
2018
   $ 24,284
2019
   $ 14,427
2020
   $ 8,382
2021
   $ 2,425
Thereafter
   $ 1,723


	Amortization
Years ending December 31,	Expense
2020 (period from April 1 to December 31)	$	13,092
2021	$	14,451
2022	$	9,670
2023	$	2,808
2024	$	547
Thereafter	$	1,612

Actual future amortization expense could differ from the estimated amount as a result of future investments and other factors.

~~7. Warranties~~9. Composition of Certain Reserves and Allowances

Credit Losses—We regularly evaluate our accounts receivable and contract assets for expected credit losses. Our expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions, and a review of the current status of each customer’s trade accounts receivables. Due to the short-term nature of such receivables, the estimated amount of accounts receivable that may not be collected is based on the aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. Our monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of each customer’s financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. We apply a similar methodology towards our current andnon-current contract asset balances. However, due to the inherent additional risk associated with a long-term receivable, an additional provision is applied towards contract asset balances that will diminish over time as the contract nears its expiration date. For the three months ended March 31, 2020, we also considered the current and estimated future economic and market conditions resulting from theCOVID-19 pandemic in the determination of our estimated credit losses.

Estimates are used to determine the expected loss allowances. Such allowances are based on management’s assessment of anticipated payment, taking into account available historical and current information as well as management’s assessment of potential future developments. We are continuously monitoring our assumptions used to determine our expected credit losses, including the impact ofCOVID-19, which could cause us to record additional material credit losses in future periods.

A summary of our allowances for credit losses were as follows (in thousands):


				Prepaid		Other
	Accounts			and other		non-current
	receivable			current assets		assets
Balance at January 1, 2020	$	686		$	—	$	—
Cumulative-effect adjustment of ASC 326 adoption		1,386			356		1,923
Current-period provision for expected credit losses⁽¹⁾		1,935			641		4,188
Write-offs charged against the allowances		—			—		—
Other, including dispositions and foreign currency		(37	)		—		—

Balance at March 31, 2020	$	3,970		$	997	$	6,111

(1)

The current-period provision for expected credit losses was due primarily to the impact ofCOVID-19. One international airline partner in particular accounted for approximately 70% of the provision recorded during the three month period ended March 31, 2020. Subsequent to March 31, 2020, such airline partner’s financial condition continued to deteriorate and we expect to record additional credit losses during the three month period ending June 30, 2020.

Warranties— We provide warranties on parts and labor related to our products. Our warranty terms range from two to ~~five~~ten years. Warranty reserves are established for costs that are estimated to be incurred after the sale, delivery and installation of the products under warranty. The warranty reserves are determined based on known product failures, historical experience and other available evidence, and are included in accrued liabilities in our unaudited condensed consolidated balance sheets. Our warranty reserve balance was ~~$2.7~~$12.6 million and ~~$2.6~~$13.2 million, respectively, as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016.~~2019.

~~8. Long-Term Debt and Other Liabilities~~

~~Long-term debt as of September 30, 2017 and December 31, 2016 was as follows (~~~~in thousands~~):

   September 30,    December 31,
   2017    2016
Senior Secured Notes
   $ 706,277    $ 525,000
Convertible Notes
   306,462    292,024




Total debt
   1,012,739    817,024
Less deferred financing costs
   (17,193 )    (16,309 )




Total long-term debt
   $ 995,546    $ 800,715

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

10. Long-Term Debt and Other Liabilities

Long-term debt as of March 31, 2020 and December 31, 2019 was as follows (in thousands):


	March 31,			December 31,
	2020			2019
2024 Senior Secured Notes	$	921,310		$	921,137
2022 Convertible Notes		205,020			201,868
ABL Credit Facility		22,000			—
2020 Convertible Notes		—			2,498

Total debt		1,148,330			1,125,503
Less deferred financing costs		(23,617	)		(24,255	)

Total long-term debt	$	1,124,713		$	1,101,248

2024 Senior Secured Notes– - On ~~June 14, 2016~~April 25, 2019 (the “Issue Date”), Gogo Intermediate Holdings LLC (“GIH”) (a wholly owned subsidiary of Gogo Inc.) and Gogo Finance Co. Inc. (a wholly owned subsidiary of GIH) ~~(the“Co-Issuer”~~(“Gogo Finance” and, together with GIH, the “Issuers”), issued ~~$525~~$905 million aggregate principal amount of ~~12.500%~~9.875% senior secured notes due ~~2022~~2024 (the ~~“Original Senior Secured~~“Initial Notes”) under an ~~Indenture,~~indenture (the “Base Indenture”), dated as of ~~June 14, 2016 (the “Original Indenture”),~~April 25, 2019, among the Issuers, us, as guarantor, certain subsidiaries of GIH, as guarantors (the ~~“Subsidiary~~“Initial 2024 Subsidiary Guarantors” and, together with us, the ~~“Guarantors”~~“Initial 2024 Guarantors”), and U.S. Bank National Association, as trustee ~~(in such capacity, the~~(the “Trustee”) and as collateral agent ~~(in such capacity, the~~(the “Collateral Agent”). On ~~January~~May 3, ~~2017,~~2019, the Issuers, issued $65 million aggregate principal amount of additional senior secured notes due 2022 (the “January 2017 Additional Notes”). The January 2017 Additional Notes were issued at a price equal to 108% of their face value resulting in gross proceeds of $70.2 million. On September 20, 2017, the ~~Issuers, the~~Initial 2024 Guarantors and the Trustee entered into the first supplemental indenture (the ~~“Supplemental~~“First Supplemental Indenture”) to increase the amount of indebtedness that may be incurred under Credit Facilities (as defined in the 2024 Indenture) by GIH or its subsidiaries that are 2024 Guarantors (as defined below) by $20 million in aggregate principal amount. On March 6, 2020, the Issuers, the Initial 2024 Guarantors, Gogo Air International GmbH (an indirect subsidiary of GIH) (“Gogo International” and, together with the ~~Original~~Initial 2024 Guarantors, the “2024 Guarantors”) and the Trustee entered into a second supplemental indenture (together with the Base Indenture and the First Supplemental Indenture, the ~~“Indenture”~~“2024 Indenture”) to ~~modify certain covenants,~~add Gogo International as ~~discussed below.~~a guarantor to the 2024 Indenture. On ~~September 25, 2017,~~May 7, 2019, the Issuers issued ~~$100~~an additional $20 million aggregate principal amount of ~~additional~~9.875% senior secured notes due ~~2022~~2024 (the ~~“September 2017 Additional~~“Additional Notes”). We refer to the Initial Notes and the Additional Notes collectively as the “2024 Senior Secured Notes”. The ~~September 2017~~Initial Notes were issued at a price equal to 99.512% of their face value, and the Additional Notes were issued at a price equal to ~~113%~~100.5% of their face value, resulting in aggregate gross proceeds of ~~$113.0~~$920.7 million. Additionally, we received approximately ~~$2.9~~$0.1 million for interest that accrued from ~~July 1, 2017~~April 25, 2019 through ~~September 24, 2017, which will be paid out when we make~~May 7, 2019 with respect to the Additional Notes that was included in our ~~next~~ interest payment ~~in January 2018. We refer to the Original~~on November 1, 2019. The 2024 Senior Secured Notes ~~the January 2017 Additional~~are guaranteed on a senior secured basis by Gogo Inc. and all of GIH’s existing and future restricted subsidiaries (other than Gogo Finance), subject to certain exceptions. The 2024 Senior Secured Notes and the ~~September 2017 Additional~~related guarantees are secured by second-priority liens on the ABL Priority Collateral (as defined below) and by first-priority liens on the Cash Flow Priority Collateral (as defined below), including pledged equity interests of the Issuers and all of GIH’s existing and future restricted subsidiaries guaranteeing the 2024 Senior Secured Notes, ~~collectively as the “Senior Secured Notes.”~~except for certain excluded assets and subject to permitted liens.

As ~~noted above, on September 20, 2017, the Issuers, the Guarantors~~of March 31, 2020 and the Trustee entered into the Supplemental Indenture to (i) increase the amount of additional secured indebtedness under Credit Facilities (as defined in the Indenture) that may be incurred by the Issuer and its Restricted Subsidiaries (as defined in the Indenture) under the Indenture by $100 million (from $75 million to $175 million in aggregate principal amount), (ii) permit the Issuer and its Restricted Subsidiaries to incur additional secured indebtedness in connection with vendor financing arrangements not to exceed $50 million in aggregate principal amount at any time outstanding and (iii) permit the Issuer and its Restricted Subsidiaries to make additional dividends or distributions to Gogo in an aggregate amount of up to $15 million during any twelve-month period to pay interest on any indebtedness or preferred stock with a maturity later than July 1, 2022. The Supplemental Indenture became effective immediately upon execution, following our receipt of consents from holders of a majority ofDecember 31, 2019, the outstanding principal amount of the Existing Notes (excluding Existing Notes held by the Issuers or any affiliates of the Issuers) to the Supplemental Indenture and amendments to the collateral agency agreement governing the Senior Secured Notes (the “Consent”). In connection with the Consent, GIH paid $1.4 million in fees (“Consent Fees”) to holders of Existing Notes who validly offered (and did not revoke) their consents prior to the expiration of the Consent.

~~As of September 30, 2017 and December 31, 2016, the outstanding principal amount of the~~2024 Senior Secured Notes was ~~$690.0~~$925.0 million for both dates, the unaccreted debt discount was $3.7 million and ~~$525.0~~$3.9 million, ~~respectively. The unamortized debt premium and Consent fees were $16.3 million as of September 30, 2017~~respectively, and the net carrying amount was ~~$706.3~~$921.3 million asand $921.1 million, respectively.

We used a portion of ~~September 30, 2017. The~~the net ~~carrying amount was $525.0 million as~~proceeds from the issuance of ~~December 31, 2016.~~

~~Interest on~~ the 2024 Senior Secured Notes ~~accrues~~to fund the redemption of all the outstanding 2022 Senior Secured Notes (as defined below) and to repurchase $159 million aggregate principal amount of the 2020 Convertible Notes (as defined below).

The 2024 Senior Secured Notes will mature on May 1, 2024. The 2024 Senior Secured Notes bear interest at ~~the~~a rate of ~~12.500%~~9.875% per ~~annum and is~~year, payable ~~semi-annually~~semiannually in arrears on ~~July~~May 1 and ~~January~~November 1 ~~commencing on January~~of each year, beginning November 1, ~~2017 (other than the January 2017 Additional~~ 2019.

Gogo Inc. and Subsidiaries

Notes for which interest payments commenced on July 1, 2017, and the September 2017 Additional Notes, for which interest payments will commence on January 1, 2018). The Senior Secured Notes mature on July 1, 2022. The January 2017 Additional Notes and September 2017 Additional Notes have the same terms as the Original Senior Secured Notes, except with respect to ~~the issue date and issue price, and are treated as a single series for all purposes under the Indenture and the security documents that govern the Senior Secured Notes.~~Unaudited Condensed Consolidated Financial Statements – (Continued)

We paid approximately ~~$11.4~~$22.0 million ~~$2.0 million and $2.5 million, respectively,~~ of ~~aggregate~~ origination fees and financing costs related to the issuance of the ~~Original~~2024 Senior Secured ~~Notes, the January 2017 Additional Notes and the September 2017 Additional~~ Notes, which have been accounted for as deferred financing costs. ~~Additionally, as noted above, we paid approximately $1.4 million of Consent fees, which offset the net carrying value of the Senior Secured Notes.~~ The deferred financing costs on our unaudited condensed consolidated balance sheet are being amortized over the contractual term of the 2024 Senior Secured Notes using the effective interest method. Total amortization expense was ~~$0.5~~$0.9 million ~~and $1.6 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017, and $0.4 million and $0.5 million, respectively, for~~March 31, 2020. Amortization expense is included in interest expense in the ~~prior year periods.~~unaudited condensed consolidated statements of operations. As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the balance of unamortized deferred financing costs related to the 2024 Senior Secured Notes was ~~$13.2~~$18.9 million and ~~$11.2~~$19.7 million, respectively, and iswas included as a reduction to long-term debt in our unaudited condensed consolidated balance sheet. See Note 9,11, “Interest ~~Costs”~~Costs,” for additional information.

~~Gogo Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)~~

The 2024 Senior Secured Notes are the senior secured indebtedness of the Issuers and are:

effectively senior to (i) all of the Issuers’ existing and future senior unsecured indebtedness to the extent of the value of the collateral securing the 2024 Senior Secured Notes and (ii) the Issuers’ indebtedness secured on a junior priority basis by the same collateral securing the 2024 Senior Secured Notes ~~if any, in each case~~to the extent of the value of such collateral, including the obligations under the ABL Credit Facility (as defined below) to the extent of the value of the ~~collateral securing the Senior Secured Notes;~~Cash Flow Priority Collateral;

~~effectively senior in right of payment to all of the Issuers’ future indebtedness that is subordinated in right of payment to the Senior Secured Notes;~~

effectively equal in right of payment with the Issuers’ existing and future (i) unsecured indebtedness that is not subordinated in right of payment to the 2024 Senior Secured Notes and (ii) indebtedness secured on a junior priority basis by the same collateral securing the 2024 Senior Secured Notes, if any, in each case to the extent of any insufficiency in the collateral securing the 2024 Senior Secured Notes;

structurally senior to all of our existing and future indebtedness, including our 2022 Convertible Notes (as defined below); ~~and~~

senior in right of payment to any and all of the Issuers’ future indebtedness that is subordinated in right of payment to the 2024 Senior Secured Notes;

structurally subordinated to all of the indebtedness and other liabilities of any~~non-Guarantors~~non-2024 Guarantors (other than the Issuers).; and

~~The~~

effectively subordinated to all of our existing and future indebtedness secured on a senior priority basis by the same collateral securing the 2024 Senior Secured Notes ~~are guaranteed, on a senior secured basis, by us and all~~to the extent of ~~GIH’s existing and future domestic restricted subsidiaries (other than~~ the~~Co-Issuer),~~ ~~subject to certain exceptions. The Issuers’~~ value of such collateral, including the obligations under the ~~Senior Secured Notes are not guaranteed by Gogo International Holdings LLC, a subsidiary~~ABL Credit Facility to the extent of ~~ours that holds no material assets other than equity interests in our foreign subsidiaries.~~ the value of ABL Priority Collateral.

Each guarantee is a senior secured obligation of such 2024 Guarantor and is:

effectively senior in right of payment to all ~~of such Guarantor’s~~ existing and future (i) senior unsecured indebtedness ~~and such Guarantor’s indebtedness secured on a junior priority basis by the same collateral, if any, securing the guarantee of such Guarantor, in each case~~ to the extent of the value of the collateral securing such ~~guarantee;~~

~~effectively senior in right of payment to all of~~guarantee owned by such ~~Guarantor’s future indebtedness that is subordinated in right of payment to such Guarantor’s guarantee;~~

~~effectively equal in right of payment with all of such Guarantor’s existing and future (i) unsecured indebtedness that is not subordinated in right of payment to such Guarantor’s guarantee,~~2024 Guarantor and (ii) indebtedness secured on a junior priority basis by the same collateral ~~if any,~~ securing the guarantee owned by such 2024 Guarantor to the extent of the value of the collateral securing the guarantee, including the obligations under the ABL Credit Facility to the extent of the value of the Cash Flow Priority Collateral;

effectively equal in right of payment with all existing and future unsubordinated indebtedness and indebtedness secured on a junior priority basis by the same collateral securing the guarantee owned by such 2024 Guarantor, if any, in each case to the extent of any insufficiency in the collateral securing such guarantee; ~~and~~

effectively subordinated to the obligations under the ABL Credit Facility of each 2024 Guarantor to the extent of the value of the ABL Priority Collateral owned by such 2024 Guarantor;

effectively senior in right of payment to all existing and future subordinated indebtedness, if any, of such 2024 Guarantor; and

structurally subordinated to all indebtedness and other liabilities of any~~non-Guarantor~~non-2024 Guarantor subsidiary of such 2024 Guarantor (excluding, in the case of our guarantee, the Issuers).

~~The Senior Secured~~

Gogo Inc. and Subsidiaries

Notes ~~and the related guarantees are secured by first-priority liens, subject~~ to permitted liens, on substantially all of the Issuers’ and the Guarantors’ assets, except for certain excluded assets, including pledged equity interests of the Issuers and all of our existing and future domestic restricted subsidiaries guaranteeing the Senior Secured Notes.Unaudited Condensed Consolidated Financial Statements – (Continued)

The security interests in certain collateral may be released without the consent of holders of the 2024 Senior Secured Notes if such collateral is disposed of in a transaction that complies with the 2024 Indenture and related security agreements, and if any grantor of such security interests is released from its obligations with respect to the 2024 Senior Secured Notes in accordance with the applicable provisions of the 2024 Indenture and related security agreements. ~~In addition, under~~Under certain circumstances, weGIH and the 2024 Guarantors have the right to transfer certain intellectual property assets that on the Issue Date constitute collateral securing the 2024 Senior Secured Notes or the guarantees to a restricted subsidiary organized under the laws of Switzerland, resulting in the release of such ~~collateral without consent~~collateral. In addition, the 2024 Indenture permits indebtedness incurred under the ABL Credit Facility to be secured on a first-priority basis by certain of the ~~holders of~~same collateral that secures the 2024 Senior Secured Notes.

~~On or after July 1, 2019, the~~The Issuers may ~~at their option, at any time or from time to time,~~ redeem ~~any of~~ the 2024 Senior Secured Notes, in whole or in ~~part. The~~part, at any time prior to May 1, 2021, at a redemption price equal to 100% of the principal amount of the 2024 Senior Secured Notes redeemed plus the make-whole premium set forth in the 2024 Indenture as of, and accrued and unpaid interest, if any, to (but not including) the applicable redemption date.

On or after May 1, 2021, the 2024 Senior Secured Notes will be redeemable at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest, if any, to (but not including) the redemption date (subject to the right of holders of record on the relevant regular record date on or prior to the redemption date to receive interest due on an interest payment date), if redeemed during the twelve-month period commencing on ~~July~~May 1 of the following years:

~~Gogo Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)~~

   Redemption
Year    Price
2019
   106.250 %
2020
   103.125 %
2021 and thereafter
   100.000 %


	Redemption
Year	Price
2021		104.938	%
2022		102.469	%
2023 and thereafter		100.000	%

In addition, at any time prior to ~~July~~May 1, ~~2019,~~2021, the Issuers may redeem up to ~~35%~~40% of the aggregate principal amount of the 2024 Senior Secured Notes with the proceeds of certain equity offerings at a redemption price of ~~112.500%~~109.875% of the principal amount redeemed, plus accrued and unpaid interest, if any, to (but not including) the date of redemption;provided, however, that 2024 Senior Secured Notes representing at least ~~65%~~50% of the principal amount of the 2024 Senior Secured Notes remain outstanding immediately after each such redemption.

~~The Issuers may redeem~~In addition, if GIH receives cash proceeds in connection with the ~~Senior Secured Notes,~~entry into or continuation of a strategic relationship, or equity from us in ~~whole or in part,~~connection with the sale of stock to a complimentary business (in each case, a “strategic investment”) at any time prior to ~~July~~May 1, ~~2019,~~2020, the Issuers may redeem up to $150 million of the aggregate principal amount of the 2024 Senior Secured Notes at ~~a redemption price equal to 100%~~103% of the principal amount of the 2024 Senior Secured Notes to be redeemed, plus ~~the make-whole premium set forth in the Indenture as of, and~~ accrued and unpaid interest, if any, to (but not including) the ~~applicable~~ redemption ~~date.~~date with the proceeds from such strategic investment.

The 2024 Indenture contains covenants that, among other things, limit the ability of the Issuers and the 2024 Subsidiary Guarantors and, in certain circumstances, our ability, to: incur additional indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of ~~our~~GIH’s restricted subsidiaries to pay dividends to the Issuers or make other intercompany transfers; create liens; transfer or sell assets; merge or consolidate; and enter into certain transactions with the Issuers’ ~~affiliates, including us.~~affiliates. Most of these covenants will cease to apply if, and for as long as, the 2024 Senior Secured Notes have investment grade ratings from both Moody’s Investment Services, Inc. and Standard & Poor’s.

If we or the Issuers undergo specific types of change of control accompanied by a downgrade in the rating of the 2024 Senior Secured Notes prior to ~~July~~May 1, ~~2022,~~2024, GIH is required to make an offer to repurchase for cash all of the 2024 Senior Secured Notes at a repurchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to (but not including) the payment date.

The 2024 Indenture provides for events of default, which, if any of them occur, would permit or require the principal, premium, if any, and interest on all of the then outstanding 2024 Senior Secured Notes issued under the 2024 Indenture to be due and payable immediately. As of ~~September 30, 2017,~~March 31, 2020, no event of default had occurred.

ABL Credit Facility – On August 26, 2019, Gogo Inc., GIH and Gogo Finance (together GIH and Gogo Finance are referred to as the “Borrowers”) entered into a credit agreement (the “ABL Credit Agreement”) among the Borrowers, the other loan parties party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and Morgan Stanley Senior Funding, Inc., as syndication agent, which provides for an asset-based revolving credit facility (the “ABL Credit Facility”) of up to $30 million, subject to borrowing base availability, and includes letter of credit and swinglinesub-facilities.

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Borrowing availability under the ABL Credit Facility is determined by a monthly borrowing base collateral calculation that is based on specified percentages of the value of eligible accounts receivable (including eligible unbilled accounts receivable) and eligible credit card receivables, less certain reserves and subject to certain other adjustments as set forth in the ABL Credit Agreement. Availability is reduced by issuance of letters of credit as well as any borrowings. As of March 31, 2020 and December 31, 2019, $22.0 million and zero, was outstanding under the ABL Credit Facility, respectively.

The final maturity of the ABL Credit Facility is August 26, 2022, unless the aggregate outstanding principal amount of our 2022 Convertible Notes (as defined below) has not, on or prior to December 15, 2021, been repaid in full or refinanced with a new maturity date no earlier than February 26, 2023, in which case the final maturity date shall instead be December 16, 2021.

Loans outstanding under the ABL Credit Facility bear interest at a floating rate measured by reference to, at the Borrowers’ option, either (i) an adjusted London inter-bank offered rate plus an applicable margin ranging from 1.50% to 2.00% per annum depending on a fixed charge coverage ratio, or (ii) an alternate base rate plus an applicable margin ranging from 0.50% to 1.00% per annum depending on a fixed charge coverage ratio. Unused commitments under the ABL Credit Facility are subject to a per annum fee ranging from 0.25% to 0.375% depending on the average quarterly usage of the revolving commitments.

The obligations under the ABL Credit Agreement are guaranteed by Gogo Inc. and all of its existing and future subsidiaries, subject to certain exceptions (collectively, the “ABL Guarantors”), and such obligations and the obligations of the ABL Guarantors are secured on a (i) senior basis by a perfected security interest in all present and after-acquired inventory, accounts receivable, deposit accounts, securities accounts, and any cash or other assets in such accounts and other related assets owned by each ABL Guarantor and the proceeds of the foregoing, subject to certain exceptions (the “ABL Priority Collateral”) and (ii) junior basis by a perfected security interest in substantially all other tangible and intangible assets owned by each ABL Guarantor (the “Cash Flow Priority Collateral”).

The ABL Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants include restrictions on, among other things: the incurrence of additional indebtedness; the incurrence of additional liens; dividends or other distributions on equity; the purchase, redemption or retirement of capital stock; the payment or redemption of certain indebtedness; loans, guarantees and other investments; entering into other agreements that create restrictions on the ability to pay dividends or make other distributions on equity, make or repay certain loans, create or incur certain liens or guarantee certain indebtedness; asset sales; sale-leaseback transactions; swap agreements; consolidations or mergers; amendment of certain material documents; certain regulatory matters; Canadian pension plans; and affiliate transactions. The negative covenants are subject to customary exceptions and also permit dividends and other distributions on equity, investments, permitted acquisitions and payments or redemptions of indebtedness upon satisfaction of the “payment conditions.” The payment conditions are deemed satisfied upon Specified Availability (as defined in the ABL Credit Agreement) on the date of the designated action and Specified Availability for the prior30-day period exceeding agreed-upon thresholds, the absence of the occurrence and continuance of any default and, in certain cases, pro forma compliance with a fixed charge coverage ratio of no less than 1.10 to 1.00.

The ABL Credit Agreement includes a minimum fixed charge coverage ratio test of no less than 1.00 to 1.00, which is tested only when Specified Availability is less than the greater of (A) $4.5 million and (B) 15.0% of the then effective commitments under the ABL Credit Facility, and continuing until the first day immediately succeeding the last day of the calendar month which includes the thirtieth (30th) consecutive day on which Specified Availability is in excess of such threshold so long as no default has occurred and is continuing and certain other conditions are met. As of March 31, 2020, Specified Availability had not fallen below the amount specified and therefore the minimum fixed charge coverage ratio test was not applicable. Full availability under the ABL Credit Facility may be limited by our ability to comply with the fixed charge coverage ratio in future periods.

The ABL Credit Agreement provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, and interest on all of the then outstanding obligations under the ABL Credit Facility to be due and payable immediately and the commitments under the ABL Credit Facility to be terminated.

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

On August 26, 2019, the Borrowers and the ABL Guarantors entered into an ABL collateral agreement (the “ABL Collateral Agreement”), in favor of the Administrative Agent, whereby the Borrowers and the ABL Guarantors granted a security interest in substantially all tangible and intangible assets of each Borrower and each ABL Guarantor, to secure all obligations of the Borrowers and the ABL Guarantors under the ABL Credit Agreement, and U.S. Bank National Association, as cash flow collateral representative, and JPMorgan Chase Bank, N.A., as ABL agent, entered into a crossing lien intercreditor agreement (the “Intercreditor Agreement”) to govern the relative priority of liens on the collateral that secures the ABL Credit Agreement and the 2024 Senior Secured Notes and certain other rights, priorities and interests.

We paid approximately $0.9 million of origination fees and financing costs related to the issuance of the ABL Credit Facility, which have been accounted for as deferred financing costs. The deferred financing costs on our unaudited condensed consolidated balance sheet are being amortized over the contractual term of the ABL Credit Facility using the effective interest method. Total amortization expense was $0.1 million for the three month period ended March 31, 2020. Amortization expense is included in interest expense in the unaudited condensed consolidated statements of operations. As of March 31, 2020 and December 31, 2019, the balance of unamortized deferred financing costs related to the ABL Credit Facility was $0.7 million and $0.8 million, respectively, and is included as a reduction to long-term debt in our unaudited condensed consolidated balance sheet. See Note 11, “Interest Costs,” for additional information.

2022 Senior Secured Notes– On ~~March 3, 2015, we~~June 14, 2016, the Issuers issued ~~$340.0~~$525 million aggregate principal amount of ~~3.75%~~12.500% senior secured notes due 2022 (the “Original 2022 Senior Secured Notes”) under an Indenture, dated as of June 14, 2016 (as amended and supplemented thereafter, the “Indenture”), among the Issuers, us, as guarantor, certain subsidiaries of GIH, as guarantors (the “2022 Subsidiary Guarantors” and, together with us, the “2022 Guarantors”), and U.S. Bank National Association, as Trustee and as Collateral Agent. On January 3, 2017, the Issuers issued $65 million aggregate principal amount of additional 12.500% senior secured notes due 2022 (the “January 2017 Additional Notes”). The January 2017 Additional Notes were issued at a price equal to 108% of their face value resulting in gross proceeds of $70.2 million. On September 25, 2017, the Issuers issued $100 million aggregate principal amount of additional 12.500% senior secured notes due 2022 (the “September 2017 Additional Notes”). We refer to the Original 2022 Senior Secured Notes, the January 2017 Additional Notes and the September 2017 Additional Notes collectively as the “2022 Senior Secured Notes.”

On April 15, 2019, the Issuers elected to call for redemption in full all $690 million aggregate principal amount outstanding of the 2022 Senior Secured Notes in accordance with the terms of the Indenture. The redemption was conditioned, among other things, upon the incurrence of indebtedness in connection with the issuance of the 2024 Senior Secured Notes or from one or more other sources, in an amount satisfactory to the Issuers which condition was satisfied by the issuance of the 2024 Senior Secured Notes. On April 25, 2019, the Issuers irrevocably deposited, or caused to be irrevocably deposited, with the Trustee funds solely for the benefit of the holders of the 2022 Senior Secured Notes, cash in an amount sufficient to pay principal, premium, if any, and accrued interest on the 2022 Senior Secured Notes to, but not including, the date of redemption and all other sums payable under the Indenture. The Trustee executed and delivered an acknowledgement of satisfaction, discharge and release, dated as of April 25, 2019, among other documents, with respect to the satisfaction and discharge of the 2022 Senior Secured Notes. On May 15, 2019, the 2022 Senior Secured Notes were fully redeemed in accordance with the terms of the Indenture, and the amount deposited with the Trustee on April 25, 2019 was paid to the holders of the 2022 Senior Secured Notes. The make-whole premium paid in connection with the redemption was $51.4 million and we wrote off the remaining unamortized deferred financing costs of $9.1 million and the remaining debt premium of $11.7 million relating to the 2022 Senior Secured Notes in connection with the redemption thereof, which together are included in the loss on extinguishment of debt in our consolidated statements of operations for the year ended December 31, 2019.

We paid approximately $15.9 million of aggregate origination fees and financing costs related to the issuance of the 2022 Senior Secured Notes, which were accounted for as deferred financing costs. Additionally, we paid approximately $1.4 million of consent fees in connection with the Supplemental Indenture, which partially offset the net carrying value of the 2022 Senior Secured Notes. Total amortization expense was $0.8 million for the three month period ended March 31, 2019. Amortization expense is included in interest expense in the unaudited condensed consolidated statements of operations. As noted above, the remaining unamortized deferred financing costs were written off as of May 15, 2019.

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Convertible Notes

2022 Convertible Notes

On November 21, 2018, we issued $215.0 million aggregate principal amount of 6.00% Convertible Senior Notes due ~~2020~~2022 (the ~~“Convertible~~“2022 Convertible Notes”) in a private ~~offering~~offerings to qualified institutional buyers, including pursuant to Rule 144A under the Securities ~~Act.~~Act, and in concurrent private placements. We granted an option to the initial purchasers to purchase up to an additional ~~$60.0~~$32.3 million aggregate principal amount of 2022 Convertible Notes to cover over-allotments, of which ~~$21.9~~$22.8 million was subsequently exercised during ~~March 2015,~~December 2018, resulting in a total issuance of ~~$361.9~~$237.8 million aggregate principal amount of 2022 Convertible Notes. The 2022 Convertible Notes mature on ~~March 1, 2020,~~May 15, 2022, unless earlier repurchased or converted into shares of our common stock under certain circumstances described below. Upon maturity, we have the option to settle our obligation through cash, shares of common stock, or a combination of cash and shares of common stock. We pay interest on the 2022 Convertible Notes semi-annually in arrears on ~~March 1~~May 15 and ~~September 1~~November 15 of each ~~year. Interest payments began~~year, beginning on ~~September 1, 2015.~~May 15, 2019.

The ~~$361.9~~$237.8 million of proceeds received from the issuance of the 2022 Convertible Notes was initially allocated between long-term debt (the liability component) at ~~$261.9~~$188.7 million and additional~~paid-in-capital~~paid-in capital (the equity component) at ~~$100.0~~$49.1 million, within the consolidated balance sheet. The fair value of the liability component was measured using rates determined for similar debt instruments without a conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the aggregate face value of the 2022 Convertible Notes. If we or the note holders elect not to settle the debt through conversion, we must settle the 2022 Convertible Notes at face value. Therefore, the liability component will be accreted up to the face value of the 2022 Convertible Notes, which will result in additionalnon-cash interest expense being recognized in the ~~unaudited condensed~~ consolidated statements of operations through the 2022 Convertible Notes maturity date (see Note 9,11, “Interest ~~Costs”~~Costs,” for additional information). The effective interest rate on the 2022 Convertible Notes, including accretion of the notes to par and debt issuance cost amortization, was approximately ~~11.5%~~13.6%. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.

As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the outstanding principal on the 2022 Convertible Notes was ~~$361.9~~$237.8 million on both dates, the ~~unamortized~~unaccreted debt discount was ~~$55.4~~$32.7 million and ~~$69.9~~$35.9 million, respectively, and the net carrying amount of the liability component was ~~$306.5~~$205.0 million and ~~$292.0~~$201.9 million, respectively.

~~Gogo Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)~~

We incurred approximately ~~$10.4~~$8.1 million of issuance costs related to the issuance of the 2022 Convertible Notes, of which ~~$7.5~~$6.4 million and ~~$2.9~~$1.7 million were recorded to deferred financing costs and additionalpaid-in capital, respectively, in proportion to the allocation of the proceeds of the 2022 Convertible Notes. The ~~$7.5~~$6.4 million recorded as deferred financing costs on our ~~unaudited condensed~~ consolidated balance sheet is being amortized over the term of the 2022 Convertible Notes using the effective interest method. Total amortization expense ~~of the deferred financing costs~~ was $0.4 million ~~and $1.1 million, respectively,~~ for each of the three ~~and nine months~~month periods ended ~~September 30, 2017,~~March 31, 2020 and ~~$0.4 million and $1.0 million, respective, for the prior year periods.~~2019. Amortization expense is included in interest expense in the ~~unaudited condensed~~ consolidated statements of operations. As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the balance of unamortized deferred financing costs related to the 2022 Convertible Notes was ~~$4.0~~$4.1 million and ~~$5.1~~$4.5 million, respectively, and is included as a reduction to long-term debt in our ~~unaudited condensed~~ consolidated balance sheets. See Note 9,11, “Interest ~~Costs”~~Costs,” for additional information.

The 2022 Convertible Notes had an initial conversion rate of ~~41.9274~~166.6667 shares of common ~~shares~~stock per $1,000 principal amount of 2022 Convertible Notes, which is equivalent to an initial conversion price of approximately ~~$23.85~~$6.00 per share of our common stock. Upon conversion, we currently expect to deliver cash up to the principal amount of the 2022 Convertible Notes then outstanding. With respect to any conversion value in excess of the principal amount, we currently expect to deliver shares of our common stock. We may elect to deliver cash in lieu of all or a portion of such shares. The shares of common stock subject to conversion are excluded from diluted earnings per share calculations under theif-converted method as their impact is anti-dilutive.

Holders may convert the 2022 Convertible Notes, at their option, in multiples of $1,000 principal amount at any time prior to ~~December 1, 2019,~~January 15, 2022, but only in the following circumstances:

during any fiscal quarter beginning after the fiscal quarter ended ~~June 30, 2015,~~December 31, 2018, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the 2022 Convertible Notes on each applicable trading day;

during the ~~five business~~five-business day period following any five consecutive trading day period in which the trading price for the 2022 Convertible Notes is less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the 2022 Convertible Notes on each such trading day; or

upon the occurrence of specified corporate events.

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

None of the above events allowing for conversion prior to ~~December 1, 2019~~January 15, 2022 occurred during the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017.~~March 31, 2020 or the year ended December 31, 2019. Regardless of whether any of the foregoing circumstances occurs, a holder may convert its 2022 Convertible Notes, in multiples of $1,000 principal amount, at any time on or after ~~December 1, 2019~~January 15, 2022 until ~~maturity.~~the second scheduled trading day immediately preceding May 15, 2022.

In addition, if we undergo a fundamental change (as defined in the indenture governing the 2022 Convertible Notes), holders may, subject to certain conditions, require us to repurchase their 2022 Convertible Notes for cash at a price equal to 100% of the principal amount of the 2022 Convertible Notes to be purchased, plus any accrued and unpaid interest. In addition, ~~if specific corporate events occur prior to the maturity date,~~following a make-whole fundamental change, we will increase the conversion rate in certain circumstances for a holder who elects to convert its 2022 Convertible Notes in connection with such make-whole fundamental change.

2020 Convertible Notes

On March 3, 2015, we issued $340.0 million aggregate principal amount of 3.75% Convertible Senior Notes due 2020 (the “2020 Convertible Notes”) in a ~~corporate event~~private offering to qualified institutional buyers, pursuant to Rule 144A under the Securities Act. We granted an option to the initial purchasers to purchase up to an additional $60.0 million aggregate principal amount of 2020 Convertible Notes to cover over-allotments, of which $21.9 million was subsequently exercised during March 2015, resulting in ~~certain circumstances.~~a total issuance of $361.9 million aggregate principal amount of 2020 Convertible Notes. The 2020 Convertible Notes that were not repurchased prior to maturity, as described below, matured on March 1, 2020. We paid interest on the 2020 Convertible Notes semi-annually in arrears on March 1 and September 1 of each year from September 1, 2015 through March 1, 2020. In November 2018, in connection with the issuance of the 2022 Convertible Notes, we repurchased $199.9 million outstanding principal amount of the 2020 Convertible Notes at par value. As a result of the repurchase, the carrying value of the 2020 Convertible Notes was adjusted by $17.9 million to face value and included in the loss on extinguishment of debt in our consolidated statements of operations for the year ended December 31, 2018.

On April 18, 2019, we commenced a cash tender offer (the “Tender Offer”) to purchase any and all of the outstanding 2020 Convertible Notes for an amount equal to $1,000 per $1,000 principal amount of 2020 Convertible Notes purchased, plus accrued and unpaid interest from the last interest payment date on the 2020 Convertible Notes to, but not including, the date of payment for the 2020 Convertible Notes accepted in the Tender Offer. The Tender Offer expired on May 15, 2019, resulting in the purchase of $159.0 million of outstanding 2020 Convertible Notes. As a result of the Tender Offer, the carrying value of the 2020 Convertible Notes was adjusted by $8.5 million to face value and unamortized deferred financing costs of $0.6 million were expensed. These two items are included in the loss on extinguishment of debt in our consolidated statements of operations for the year ended December 31, 2019. During September 2019, we purchased an additional $0.5 million of outstanding 2020 Convertible Notes. The remaining $2.5 million of outstanding 2020 Convertible Notes matured on March 1, 2020 and we repaid the remaining outstanding aggregate principle amount of the 2020 Convertible Notes, plus accrued and unpaid interest, in order to satisfy our obligations in full and retire the securities.

The $361.9 million of proceeds received from the issuance of the 2020 Convertible Notes was initially allocated between long-term debt (the liability component) at $261.9 million and additionalpaid-in capital (the equity component) at $100.0 million, within the consolidated balance sheet. The fair value of the liability component was measured using rates determined for similar debt instruments without a conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the aggregate face value of the 2020 Convertible Notes. If we or the holders of 2020 Convertible Notes elected not to settle the debt through conversion, we were required to settle the 2020 Convertible Notes at face value. Therefore, the liability component was accreted up to the face value of the 2020 Convertible Notes, which resulted in additionalnon-cash interest expense being recognized in the consolidated statements of operations (see Note 11, “Interest Costs,” for additional information). The effective interest rate on the 2020 Convertible Notes, including accretion of the notes to par and debt issuance cost amortization, was approximately 11.5%.

As noted above, the 2020 Convertible Notes were no longer outstanding upon maturity on March 1, 2020. As of December 31, 2019, the outstanding principal on the 2020 Convertible Notes and the net carrying amount of the liability component was $2.5 million and the unamortized debt discount was zero.

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

We incurred approximately $10.4 million of issuance costs related to the issuance of the 2020 Convertible Notes, of which $7.5 million and $2.9 million were recorded to deferred financing costs and additionalpaid-in capital, respectively, in proportion to the allocation of the proceeds of the 2020 Convertible Notes. The $7.5 million recorded as deferred financing costs on our consolidated balance sheet was amortized over the term of the 2020 Convertible Notes using the effective interest method. As of December 31, 2019, the balance of unamortized deferred financing costs related to the 2020 Convertible Notes was zero. Total amortization expense of the deferred financing costs was $0.2 million for the three month period ended March 31, 2019 and is included in interest expense in the unaudited condensed consolidated statements of operations. See Note 11, “Interest Costs,” for additional information.

The 2020 Convertible Notes had an initial conversion rate of 41.9274 common shares per $1,000 principal amount of 2020 Convertible Notes, which was equivalent to an initial conversion price of approximately $23.85 per share of our common stock. The shares of common stock subject to conversion were excluded from diluted earnings per share calculations under theif-converted method as their impact was anti-dilutive.

Forward Transactions

In connection with the issuance of the 2020 Convertible Notes, we paid approximately $140 million to enter into prepaid forward stock repurchase transactions (the “Forward Transactions”) with certain financial institutions (the “Forward Counterparties”), pursuant to which we purchased approximately 7.2 million shares of common stock for settlement on or around the March 1, 2020 maturity date for the 2020 Convertible Notes, subject to the ability of each Forward Counterparty to elect to settle all or a portion of its Forward Transactions early.

On December 11, 2019, we entered into an amendment to one of the Forward Transactions (the “Amended and Restated Forward Transaction”) to extend the expected settlement date with respect to approximately 2.1 million shares of common stock held by one of the Forward Counterparties, JPMorgan Chase Bank, National Association (the “2022 Forward Counterparty”), to correspond with the May 15, 2022 maturity date for the 2022 Convertible Notes. In the future, we may request that the 2022 Forward Counterparty modify the settlement terms of the Amended and Restated Forward Transaction to provide that, in lieu of the delivery of the applicable number of shares of our common stock to us to settle a portion of the Amended and Restated Forward Transaction in accordance with its terms, the 2022 Forward Counterparty would pay to us the net proceeds from the sale by the 2022 Forward Counterparty (or its affiliate) of a corresponding number of shares of our common stock in a registered offering (which may include block sales, sales on the NASDAQ Global Select Market, sales in theover-the-counter market, sales pursuant to negotiated transactions or otherwise, at market prices prevailing at the time of sale or at negotiated prices). Any such sales could potentially decrease (or reduce the size of any increase in) the market price of our common stock. The 2022 Forward Counterparty is not required to effect any such settlement in cash in lieu of delivery of shares of our common stock and, if we request that the 2022 Forward Counterparty effect any such settlement, it will be entered into in the discretion of the 2022 Forward Counterparty on such terms as may be mutually agreed upon at the time. As a result of the Forward Transactions, total shareholders’ equity within our ~~unaudited condensed~~ consolidated balance sheet was reduced by approximately $140 million. ~~Approximately 7.2~~During March 2020, approximately 5.1 million shares of common stock ~~that will be effectively repurchased through~~were delivered to us in connection with the Forward Transactions ~~are treated~~(as defined and described in Note 10, “Long-Term Debt and Other Liabilities”). We accounted for these shares as ~~retired shares for basic~~Treasury Stock and ~~diluted EPS purposes although they remain legally outstanding.~~

~~Gogo Inc. and Subsidiaries~~

~~Notes~~reclassified $98.9 million from AdditionalPaid-In Capital to ~~Unaudited Condensed Consolidated Financial Statements – (Continued)~~

~~Amended and Restated Senior Term Facility~~–On July 30, 2014, GIH, Gogo Business Aviation LLC, f/k/a Aircell Business Aviation Services LLC (“GBA”), and Gogo LLC, as borrowers (collectively, the “Borrowers”), entered into an Amendment and Restatement Agreement (the “Amendment”) to the Credit Agreement dated as of June 21, 2012 and amended on April 4, 2013 (the “Amended Senior Term Facility”) among the Borrowers, the lenders named therein, and Morgan Stanley Senior Funding, Inc., as Administrative Agent and Collateral Agent. We refer to the Amendment and the Amended Senior Term Facility collectively as the “Amended and Restated Senior Term Facility.”

On June 14, 2016, the outstanding principal balance of $287.7 million, together with accrued and unpaid interest, was paid in full, and the Amended and Restated Senior Term Facility was terminated in accordance with its terms on such date (subject to the survival of provisions expressly stated therein to survive the termination thereof). Additionally, we paid the voluntary prepayment premium of 3.0%, or $8.6 million, and wrote off all of the remaining unamortized deferred financing costs of $6.8 million. Both of these items are included in loss on extinguishment of debtTreasury Stock, at cost, in our unaudited condensed consolidated ~~financial statements. See Note 6, “Long-Term Debt and Other Liabilities,” in our 201610-K~~ ~~for additional information on the Amended and Restated Senior Term Facility.~~

We paid $22.2 million of loan origination fees and financing costs related to the Amended and Restated Senior Term Facility, all but $4.1 million of which were accounted for as deferred financing costs. Total amortization expense of the deferred financing costs was $1.4 million for the nine month period ended September 30, 2016. Amortization expense is included in interest expense in the unaudited condensed consolidated statements of operations. As noted above, deferred financing costs related to the Amended and Restated Senior Term Facility were written off as of June 14, 2016.balance sheet.

Restricted Cash - Our restricted cash balances were ~~$7.4~~$5.2 million and ~~$7.9~~$7.7 million, respectively, as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 and primarily consist of letters of credit. Certain of the letters of credit require us to maintain restricted cash accounts in a similar amount, and are issued for the benefit of the landlords at our current office locations in Chicago, IL, Bensenville, IL and Broomfield, CO.

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

11. Interest Costs

We capitalize a portion of our interest on funds borrowed during the active construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and amortized over the useful lives of the assets.

The following is a summary of our interest costs for the three ~~and nine~~ month periods ended ~~September 30, 2017~~Mach 31, 2020 and ~~2016~~2019(in thousands):


	For the Three Months					For the Nine Months					For the Three Months
	Ended September 30,					Ended September 30,					Ended March 31,
	2017			2016		2017			2016		2020		2019
Interest costs charged to expense	$	21,936		$	19,598	$	65,164		$	42,780	$	26,429	$	26,531
Amortization of deferred financing costs		919			818		2,718			2,981		1,419		1,249
Accretion of debt discount on Convertible Notes		4,945			4,432		14,438			12,940
Amortization of debt premium on Senior Secured Notes		(215	)		—		(566	)		—
Accretion of debt discount												3,326		5,534
Amortization of debt premium												—		(760	)

Interest expense		27,585			24,848		81,754			58,701		31,174		32,554
Interest costs capitalized to property and equipment		9			34		15			187		—		4
Interest costs capitalized to software		193			279		804			961		89		125

Total interest costs	$	27,787		$	25,161	$	82,573		$	59,849	$	31,263	$	32,683

~~10.~~12. Leases

~~Arrangements with Commercial Airlines~~Operating and Financing Leases— ~~Pursuant~~We determine whether a contract contains a lease at contract inception. For leases subsequent to ~~contractual~~adoption of ASC 842, lease liabilities are calculated using a discount rate based on our incremental borrowing rate at lease commencement. We have operating lease agreements ~~with~~for certain facilities and equipment as well as tower space and base stations. Certain tower space leases have renewal option terms that have been deemed to be reasonably certain to be exercised. These renewal options extend a lease up to 20 years. We recognize operating lease expense on a straight-line basis over the lease term. As of March 31, 2020, there are no significant leases which have not commenced.

The following is a summary of our ~~airline partners, we place our equipment on commercial aircraft operated by~~lease expense included in the ~~airlines for the purpose~~unaudited condensed consolidated statements of ~~delivering the Gogo service to passengers on the aircraft. There are currently two types of commercial airline arrangements: Turnkey and Airline Directed.~~operations(in thousands):


	For the Three		For the Three
	Months Ended		Months Ended
	March 31, 2020		March 31, 2019
Operating lease cost	$	4,857	$	4,918
Financing lease cost
Amortization of leased assets		91		205
Interest on lease liabilities		26		11

Total lease cost	$	4,974	$	5,134

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Other information regarding our leases is as follows(in thousands, except lease terms and discount rates):


	For the Three			For the Three
	Months Ended			Months Ended
	March 31, 2020			March 31, 2019
Supplemental cash flow information
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows used in operating leases	$	5,700		$	6,117
Operating cash flows used in financing leases		26			11
Financing cash flows used in financing leases		247			125
Non-cash items:
Operating leases obtained		7,274			279
Weighted average remaining lease term
Operating leases		8 years			9 years
Financing leases		2 years			1 year
Weighted average discount rate
Operating leases		9.4	%		10.3	%
Financing leases		8.3	%		8.7	%

Annual future minimum lease payments as of March 31, 2020(in thousands):


	Operating			Financing
Years ending December 31,	Leases			Leases
2020 (period from April 1 to December 31)	$	12,456		$	529
2021		20,566			530
2022		18,994			451
2023		15,023			—
2024		11,451			—
Thereafter		56,550			—

Total future minimum lease payments		135,040			1,510
Less: Amount representing interest		(42,581	)		(124	)

Present value of net minimum lease payments	$	92,459		$	1,386

Reported as of March 31, 2020
Accrued liabilities	$	9,484		$	543
Non-current operating lease liabilities		82,975			—
Othernon-current liabilities		—			843

Total lease liabilities	$	92,459		$	1,386

Arrangements with Commercial Airlines— Under the ~~Turnkey~~turnkey model, we account for equipment transactions as operating leases of space for our equipment on the aircraft. We may be responsible for the costs of installing and/or deinstalling the equipment. ~~The majority of~~Under the turnkey model, the equipment transactions involve the transfer of legal title but do not meet sales recognition for accounting purposes because the risks and rewards of ownership are not fully transferred due to our continuing involvement with the equipment, the length of the term of our agreements with the airlines, and restrictions in the agreements regarding the airlines’ use of the equipment. Under ~~the Turnkey~~this model, we refer to ~~our relationship with~~ the airline as a ~~“partner”.~~“partner.”

Under the ~~Turnkey~~turnkey model, the assets are recorded as airborne equipment on our unaudited condensed consolidated balance sheets, as noted in Note 5,7, “Composition of Certain Balance Sheet Accounts.” Any upfront equipment payments are accounted for as lease incentives and recorded as deferred airborne lease incentives on our unaudited condensed consolidated balance sheets and are recognized as a reduction of the cost of service revenue on a straight-line basis over the term of the agreement with the airline. We recognized ~~$10.1~~$7.1 million and ~~$28.1~~$9.0 million,

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

respectively, for the three ~~and nine~~ month periods ended ~~September 30, 2017,~~March 31, 2020 and ~~$7.8 million and $20.7 million, respectively, for the prior year periods~~2019 as a reduction to our cost of service revenue in our unaudited condensed consolidated statements of ~~operations.~~operations from the amortization of deferred airborne lease incentives. As of ~~September 30, 2017,~~March 31, 2020, deferred airborne lease incentives of ~~$39.1~~$30.7 million and ~~$121.6~~$145.2 million, respectively, are included in current andnon-current liabilities in our unaudited condensed consolidated balance sheet. As of December 31, ~~2016,~~2019, deferred airborne lease incentives of ~~$36.3~~$26.6 million and ~~$135.9~~$135.4 million, respectively, are included in current andnon-current liabilities in our unaudited condensed consolidated balance sheet. The decrease in our deferred airborne lease incentives is due primarily to the transition in the accounting treatment for one of our airline agreements from a Turnkey model in the prior year period to an Airline Directed model in the first quarter of 2017 due to specific provisions elected by the airline.

Under the ~~Turnkey~~turnkey model, the revenue share paid to our airline partners represents operating lease payments. They are deemed to be contingent rental payments, as the payments due to each airline are based on a percentage of ourCA-NA andCA-ROW service revenue generated from that airline’s passengers, which is unknown until realized. Therefore, we cannot estimate the lease payments due to an airline at the commencement of our contract with such airline. This rental expense is included in cost of service revenue and is partially offset by the amortization of the deferred airborne lease incentives discussed above. Such rental expenses totaled a net charge of ~~$7.7~~$4.6 million and ~~$26.9~~$3.7 million, respectively, for the three ~~and nine~~ month periods ended ~~September 30, 2017,~~March 31, 2020 and ~~$10.1 million and $32.3 million, respectively, for the prior year periods.~~2019.

~~A contract with one of our airline partners requires us to provide the airline partner with a cash rebate of $1.8 million in June 2018.~~

Under the Airline Directed model, which we have historically used on a limited basis, equipment transactions qualify for sale treatment due to the specific provisions of the agreement. When all the recognition conditions are met for the equipment, the sale is recognized as equipment revenue. When equipment and services are not separable, equipment revenue is deferred and recognized over the service period. Under the Airline Directed model, we refer to our relationship with the airline as a “customer”. For more information see Note 2, “Summary of Significant Accounting Policies” in our 2016~~10-K.~~

~~Leases and Cell Site Contracts~~— We have lease agreements relating to certain facilities and equipment, which are considered operating leases. Rent expense for such operating leases was $3.0 million and $9.0 million, respectively, for the three and nine month periods ended September 30, 2017, and $3.0 million and $8.9 million, respectively, for the prior year periods. Additionally, we have operating leases with wireless service providers for tower space and base station capacity on a volume usage basis (“cell site leases”), some of which provide for minimum annual payments. Our cell site leases generally provide for an initial noncancelable term with various renewal options. Total cell site rental expense was $2.3 and $7.0 million, respectively, for the three and nine month periods ended September 30, 2017, and $2.3 million and $7.0 million, respectively, for the prior year periods.

~~Gogo Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)~~

Annual future minimum obligations for operating leases for each of the next five years and thereafter, other than the arrangements we have with our commercial airline partners, as of September 30, 2017, are as follows (~~in thousands~~):

   Operating
Years ending December 31,    Leases
2017 (period from October 1 to December 31)
   $ 5,005
2018
   $ 18,832
2019
   $ 17,765
2020
   $ 15,718
2021
   $ 15,478
Thereafter
   $ 95,693

~~Equipment Leases~~ – We lease certain computer and network equipment under capital leases, for which interest has been imputed with annual interest rates in an approximate range of 8% to 14%. As of September 30, 2017 and December 31, 2016 the computer equipment leases were classified as part of office equipment, furniture, and fixtures and other in our unaudited condensed consolidated balance sheet at a gross cost of $5.1 million and $3.9 million, respectively. As of September 30, 2017 and December 31, 2016, the network equipment leases were classified as part of network equipment in our unaudited condensed consolidated balance sheet at a gross cost of $7.5 million and $7.5 million, respectively. Annual future minimum obligations under capital leases for each of the next five years and thereafter, as of September 30, 2017, are as follows (~~in thousands~~):

   Capital
Years ending December 31,    Leases
2017 (period from October 1 to December 31)
   $ 947
2018
   2,030
2019
   1,016
2020
   34
Thereafter
   —


Total minimum lease payments
   4,027
Less: Amount representing interest
   (401 )


Present value of net minimum lease payments
   $ 3,626

The $3.6 million present value of net minimum lease payments as of September 30, 2017 has a current portion of $2.1 million included in the current portion of long-term debt and capital leases and a~~non-current~~ ~~portion of $1.5 million included in othernon-current~~ ~~liabilities.~~

~~11.~~13. Commitments and Contingencies

Contractual Commitments - We have agreements with vendors to provide us with transponder and teleport satellite services. These agreements vary in length and amount and as of ~~September 30, 2017~~March 31, 2020 commit us to purchase transponder and teleport satellite services totaling approximately ~~$21.4~~$101.0 million in ~~2017 (October~~2020 (April 1 through December 31), ~~$75.6 million in 2018, $81.9 million in 2019, $86.2 million in 2020, $75.9~~$129.9 million in 2021, $110.0 million in 2022, $90.8 million in 2023, $85.4 million in 2024 and ~~$303.0~~$259.4 million thereafter.

We have agreements with various vendors under which we have remaining commitments to purchase satellite-based systems, certifications and development services. Such commitments will become payable as we receive the equipment or certifications, or as development services are provided.

Damages and ~~Penalties—~~Penalties -We have entered into a number of agreements with our airline partners that require us to provide a credit or pay penalties or liquidated damages to our airline partners on a per aircraft, per day or per hour basis if we are delayed in delivering our equipment, unable to install our equipment on aircraft by specified timelines or fail to comply with service level commitments. The maximum amount of future credits or payments we could be required to make under these agreements is uncertain because the amount of future credits or payments is based on certain variable inputs.

~~Gogo Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)~~

Indemnifications and Guarantees - In accordance with Delaware law, we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under this indemnification is uncertain and may be unlimited, depending upon circumstances. However, our Directors’ and Officers’ insurance does provide coverage for certain of these losses.

In the ordinary course of business we may occasionally enter into agreements pursuant to which we may be obligated to pay for the failure of the performance of others, such as the use of corporate credit cards issued to employees. Based on historical experience, we believe that the risk of sustaining any material loss related to such guarantees is remote.

We have entered into a number of agreements, including our agreements with commercial airlines, pursuant to which we indemnify the other party for losses and expenses suffered or incurred in connection with any patent, copyright, or trademark infringement or misappropriation claim asserted by a third party with respect to our equipment or services. The maximum potential amount of future payments we could be required to make under these indemnification agreements is uncertain and is typically not limited by the terms of the agreements.

~~12.~~Linksmart Litigation - On April 20, 2018, Linksmart Wireless Technology, LLC filed suit against us and eight of our airline partners in the U.S. District Court for the Central District of California alleging that our redirection server and login portal infringe a patent owned by the plaintiff. The suits seek an unspecified amount of damages. We are required under our contracts with these airlines to indemnify them for defense costs and any liabilities resulting from the suit. The Court has stayed the suits against our airline customers pending resolution of the suit against Gogo. Linksmart has also filed suit against other defendants asserting the same patent. Following the filing by one of those defendants of a petition to commence aninter partes review against the asserted patent in the U.S. Patent and Trademark Office, the Court stayed the litigation against such other defendant and Gogo, but such stay

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

was lifted in July 2019 when the U.S. Patent and Trademark Office determined that the petitioner had not met the standard of proof required to commence theinter partes review. We believe that the plaintiff’s claims are without merit and intend to defend them vigorously. The outcome of this litigation is inherently uncertain. No amounts have been accrued for any potential losses under this matter, as we cannot reasonably predict the outcome of the litigation or any potential losses.

Securities Litigation - On June 27, 2018, a purported stockholder of the Company filed a putative class action lawsuit in the United States District Court for the Northern District of Illinois, Eastern Division styled Pierrelouis v. Gogo Inc., naming the Company, its former Chief Executive Officer and Chief Financial Officer and its current Chief Financial Officer and President, Commercial Aviation as defendants purportedly on behalf of all purchasers of our securities from February 27, 2017 through May 4, 2018. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule10b-5 promulgated thereunder, alleging misrepresentations or omissions by us purporting to relate to our 2Ku antenna’s reliability and installation and remediation costs. The plaintiffs seek to recover from us and the individual defendants an unspecified amount of damages. In December 2018 the plaintiffs filed an amended complaint and in February 2019, we filed a motion to dismiss such amended complaint. In October 2019 the judge granted the motion to dismiss on two independent grounds, finding that plaintiffs failed to plausibly allege that defendants made materially false or misleading statements and that plaintiffs failed to plead with particularity that defendants acted with scienter. The amended complaint was dismissed without prejudice, and in December 2019, defendants filed a second amended complaint. In February 2020 we filed a motion to dismiss such second amended complaint and that motion is pending. We believe that the claims are without merit and intend to continue to defend them vigorously. In accordance with Delaware law, we will indemnify the individual named defendants for their defense costs and any damages they incur in connection with the suit. We have filed a claim with the issuer of our Directors’ and Officers’ insurance policy with respect to this suit. No amounts have been accrued for any potential losses under this matter, as we cannot reasonably predict the outcome of the litigation or any potential losses.

Derivative Litigation - On September 25, 2018 and September 26, 2018, two purported stockholders of the Company filed substantively identical derivative lawsuits in the United States District Court for the Northern District of Illinois, Eastern Division, styled Nanduri v. Gogo Inc. and Hutsenpiller v. Gogo Inc., respectively. Both lawsuits were purportedly brought derivatively on behalf of us and name us as a nominal defendant and name as defendants each member of the Company’s Board of Directors, its former Chief Executive Officer and Chief Financial Officer and its current Chief Executive Officer, Chief Financial Officer and President, Commercial Aviation. The complaints assert claims under Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duty, unjust enrichment, and waste of corporate assets, and allege misrepresentations or omissions by us purporting to relate to our 2Ku antenna’s reliability and installation and remediation costs, as well as allegedly excessive bonuses, stock options, and other compensation paid to current Officers and Directors and excessive severance paid to former Officers. The two lawsuits were consolidated and are stayed until a final disposition of the motion to dismiss in the class action suit. We believe that the claims are without merit and intend to defend them vigorously if the litigation resumes. The plaintiffs seek to recover, on our behalf, an unspecified amount of damages from the individual defendants. We have filed a claim with the issuer of our Directors’ and Officers’ insurance policy with respect to these suits. No amounts have been accrued for any potential costs under this matter, as we cannot reasonably predict the outcome of the litigation or any potential costs.

14. Fair Value of Financial Assets and Liabilities

A three-tier fair value hierarchy has been established which prioritizes the inputs used in measuring fair value. These tiers include:

•

Level 1 - defined as observable inputs such as quoted prices in active markets;

•

Level 2 - defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•

Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Long-Term Debt:

Our financial assets and liabilities that are disclosed but not measured at fair value include the 2024 Senior Secured Notes and the 2022 Convertible Notes, and, while outstanding, the 2020 Convertible Notes, which are reflected on the ~~unaudited condensed~~ consolidated balance sheet at cost. The fair value measurements are classified as Level 2 within the fair value hierarchy since they are based on quoted market prices of our instruments in markets that are not active. We estimated the fair value of the 2024 Senior Secured Notes, the 2022 Convertible Notes, and, while outstanding, the 2020 Convertible Notes, by calculating the upfront cash payment a market participant would require to assume these obligations. The upfront cash ~~payment~~payments used in the calculations of fair value on our ~~September 30, 2017~~March 31, 2020 unaudited condensed consolidated balance sheet, excluding any issuance costs, isare the amount that a market participant would be willing to lend at ~~September 30, 2017~~March 31, 2020 to an entity with a credit rating similar to ours and that would allow such an entity to achieve sufficient cash inflows to cover the scheduled cash outflows under the 2024 Senior Secured Notes, the 2022 Convertible Notes and, while outstanding, the 2020 Convertible Notes. The calculated fair value of ~~our~~each of the 2022 Convertible Notes and, while outstanding, the 2020 Convertible Notes is ~~highly~~ correlated to our stock price and as a result, significant changes to our stock price could have a significant impact on ~~the~~their calculated fair ~~value of our Convertible Notes.~~values.

The fair value and carrying value of long-term debt as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 were as follows(in thousands):

   September 30, 2017 December 31, 2016
   Fair
Value ⁽¹⁾    Carrying
Value Fair
Value ⁽¹⁾    Carrying
Value
Senior Secured Notes
   $ 788,000    $ 706,277 ⁽²⁾ $ 572,000    $ 525,000
Convertible Notes
   333,000    306,462 ⁽³⁾ 275,000    292,024 ⁽³⁾


	March 31, 2020					December 31, 2019
	Fair Value *⁽¹⁾*		Carrying Value			Fair Value *⁽¹⁾*		Carrying Value
2024 Senior Secured Notes	$	731,000	$	921,310	⁽²⁾	$	982,000	$	921,137	⁽²⁾
2022 Convertible Notes		177,000		205,020	⁽³⁾		297,000		201,868	⁽³⁾
2020 Convertible Notes		—		—			2,498		2,498

(1)

Fair value amounts are rounded to the nearest ~~million.~~million, except for the 2020 Convertible Notes, as of December 31, 2019.

(2)

Carrying value of the 2024 Senior Secured Notes ~~includes unamortized~~reflects the unaccreted debt ~~premium~~discount of $3.7 million and ~~Consent Fees of $16.3~~$3.9 million, respectively, as of ~~September 30, 2017.~~March 31, 2020 and December 31, 2019. See Note 8,10, “Long-Term Debt and Other Liabilities,” for further information.

(3)

Carrying value of the 2022 Convertible Notes ~~excludes unamortized~~reflects the unaccreted debt discount of ~~$55.4~~$32.7 million and ~~$69.9~~$35.9 million, respectively, as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016.~~2019. See Note 8,10, “Long-Term Debt and Other Liabilities,” for further information.

~~Gogo Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)~~

We haveheld-to-maturity financial instruments where carrying value approximates fair value. There were no fair value adjustments to these financial instruments during ~~2017~~the three month periods ended March 31, 2020 and ~~2016.~~2019.

~~13.~~15. Income Tax

The effective income tax rates for the three ~~and nine~~ month periods ended ~~September 30, 2017 was (0.8%)~~March 31, 2020 and ~~(0.7%)~~2019 were (0.2)% and (1.2)%, ~~respectively, and (1.4%) and (1.0%), respectively, for the prior year periods. Income tax expense recorded in each period was similar, with differences inpre-tax~~ ~~income causing the change in the effective tax rate. The difference between our effective tax rates and the U.S. federal statutory rate of 35% for~~respectively. For the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019, our income tax expense was not significant primarily due to the ~~recording of a~~full valuation allowance against our net deferred tax assets.

We are subject to income taxation in the United States, various states within the United States, Canada, Switzerland, Japan, Mexico, Brazil, Singapore, the United Kingdom, Hong Kong, Australia, China, India, France, Germany and ~~Germany.~~the Netherlands. With few exceptions, as of ~~September 30, 2017,~~March 31, 2020, we are no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before ~~2013.~~2016.

We record penalties and interest relating to uncertain tax positions in the income tax provision line item in the unaudited condensed consolidated statement of operations. No penalties or interest related to uncertain tax positions were recorded for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016.~~2019. As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, we did not have a liability recorded for interest or potential penalties.

We do not expect a change in the unrecognized tax benefits within the next 12 months.

~~14.~~16. Business Segments and Major Customers

We operate our business through three operating segments: Commercial Aviation North America, or“~~CA-NA”,~~CA-NA,” Commercial Aviation Rest of World, or“CA-ROW,” and Business Aviation, or ~~“BA”.~~“BA.” See Note 1, “Basis of Presentation,” for further information regarding our segments.

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

The accounting policies of the operating segments are the same as those described in Note 2, “Summary of Significant Accounting Policies,” in our ~~2016~~201910-K. Intercompany transactions between segments are excluded as they are not included in management’s performance review of the segments. ~~We currently do not generate a material amount~~For the three month periods ended March 31, 2020 and 2019, our foreign revenue accounted for less than 15% of ~~foreign~~our consolidated revenue. We do not segregate assets between segments for internal reporting. Therefore, asset-related information has not been presented. ~~We do not disclose~~Additionally, assets outside of the United States ~~as these~~totaled less than 15% of our unaudited condensed consolidated assets ~~are not material~~ as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016.~~2019, respectively. For our airborne assets, we consider only those assets installed in aircraft associated with international commercial airline partners to be owned outside of the United States.

Management evaluates performance and allocates resources to each segment based on reportable segment profit (loss), which is calculated internally as net income (loss) attributable to common stock before unallocated corporate costs, interest expense, interest income, income taxes, depreciation and amortization, and certainnon-cash ~~charges~~items (including stock-based compensation expense, amortization of deferred airborne lease incentives, ~~stock-based compensation expense~~amortization of STC costs, impairment of long-lived assets, impairment of cost-basis investment and ~~adjustment to deferred financing costs)~~proceeds from litigation settlement) and other income (expense). ~~Segment~~Reportable segment profit (loss) is a measure of performance reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and evaluating segment performance. In addition, reportable segment profit (loss) is included herein in conformity with ASC280-10,Segment Reporting. Management believes that reportable segment profit (loss) provides useful information for analyzing and evaluating the underlying operating results of each segment. However, reportable segment profit (loss) should not be considered in isolation or as a substitute for net income (loss) attributable to common stock or other measures of financial performance prepared in accordance with GAAP. Additionally, our computation of reportable segment profit (loss) may not be comparable to other similarly titled measures computed by other companies.

~~Gogo Inc.~~As noted in our 201910-K, during the fourth quarter of 2019, we revised the presentation of our reportable segments’ operating results in order to exclude the impact of certain corporate costs from the calculation of total reportable segment profit (loss). As such, all amounts for the three month period ended March 31, 2019 have been recast to conform to the current year’s presentation. Beginning in 2020, we adopted a new allocation methodology for the ATG network costs utilizing aircraft online, pricing and ~~Subsidiaries~~

~~Notes~~usage for each ofCA-NA and BA. Under this new methodology, BA will continue to ~~Unaudited Condensed Consolidated Financial Statements – (Continued)~~

be allocated the majority of the ATG network costs.

Information regarding our reportable segments is as follows (in thousands):


	For the Three Months Ended									For the Three Months Ended
	September 30, 2017									March 31, 2020
	CA-NA		CA-ROW			BA		Total		CA-NA		CA-ROW			BA		Total
Service revenue	$	94,436	$	15,687		$	43,224	$	153,347	$	73,828	$	19,228		$	57,726	$	150,782
Equipment revenue		1,291		953			17,283		19,527		6,308		14,184			13,201		33,693

Total revenue	$	95,727	$	16,640		$	60,507	$	172,874	$	80,136	$	33,412		$	70,927	$	184,475

Segment profit (loss)	$	15,966	$	(24,110	)	$	21,329	$	13,185
Reportable segment profit (loss)										$	15,883	$	(17,371	)	$	35,854	$	34,366


	For the Three Months Ended									For the Three Months Ended
	September 30, 2016									March 31, 2019
	CA-NA		CA-ROW			BA		Total		CA-NA		CA-ROW			BA		Total
Service revenue	$	88,534	$	7,235		$	33,330	$	129,099	$	92,027	$	19,772		$	53,213	$	165,012
Equipment revenue		2,191		360			15,617		18,168		4,042		13,159			17,336		34,537

Total revenue	$	90,725	$	7,595		$	48,947	$	147,267	$	96,069	$	32,931		$	70,549	$	199,549

Segment profit (loss)	$	14,509	$	(19,924	)	$	20,655	$	15,240
Reportable segment profit (loss)										$	30,662	$	(18,193	)	$	33,755	$	46,224


	For the Nine Months Ended
	September 30, 2017
	CA-NA		CA-ROW			BA		Total
Service revenue	$	290,260	$	38,243		$	125,415	$	453,918
Equipment revenue		5,234		2,756			49,172		57,162

Total revenue	$	295,494	$	40,999		$	174,587	$	511,080

Segment profit (loss)	$	43,316	$	(82,068	)	$	72,646	$	33,894


	For the Nine Months Ended
	September 30, 2016
	CA-NA		CA-ROW			BA		Total
Service revenue	$	261,751	$	17,213		$	96,442	$	375,406
Equipment revenue		8,708		731			51,707		61,146

Total revenue	$	270,459	$	17,944		$	148,149	$	436,552

Segment profit (loss)	$	46,966	$	(62,945	)	$	59,895	$	43,916

Gogo Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

A reconciliation of total reportable segment profit (loss) to the relevant consolidated amounts is as follows (in thousands):


	For the Three Months						For the Nine Months						For the Three Months
	Ended September 30,						Ended September 30,						Ended March 31,
	2017			2016			2017			2016			2020			2019
CA-NA segment profit	$	15,966		$	14,509		$	43,316		$	46,966		$	15,883		$	30,662
CA-ROW segment loss		(24,110	)		(19,924	)		(82,068	)		(62,945	)		(17,371	)		(18,193	)
BA segment profit		21,329			20,655			72,646			59,895			35,854			33,755

Total segment profit		13,185			15,240			33,894			43,916
Total reportable segment profit														34,366			46,224
Unallocated corporate costs⁽¹⁾														(8,636	)		(8,333	)
Interest income		683			852			1,999			1,064			606			1,149
Interest expense		(27,585	)		(24,848	)		(81,754	)		(58,701	)		(31,174	)		(32,554	)
Depreciation and amortization		(35,824	)		(26,779	)		(96,821	)		(76,042	)		(32,670	)		(30,749	)
Amortization of deferred airborne lease incentives⁽¹⁾		10,121			7,765			28,099			20,650
Amortization of deferred airborne lease incentives														7,071			8,953
Amortization of STC costs														(807	)		(320	)
Stock-based compensation expense		(5,283	)		(5,000	)		(15,007	)		(12,986	)		(3,995	)		(4,327	)
Adjustment to deferred financing costs		—			—			—			792
Loss of extinguishment of debt		—			—			—			(15,406	)
Other income (expense)		(228	)		(34	)		(322	)		137
Impairment of long-lived assets														(46,389	)		—
Impairment of cost-basis investment														(3,000	)		—
Proceeds from litigation settlement														—			3,215
Other income														7			150

Loss before income taxes	$	(44,931	)	$	(32,804	)	$	(129,912	)	$	(96,576	)	$	(84,621	)	$	(16,592	)

(1)

~~Amortization~~

Represents costs that are not directly attributable to the reportable segments, comprised primarily of ~~deferred airborne lease incentive relates to ourCA-NA~~the costs of corporate functions, including executive, legal, finance and~~CA-ROW~~ ~~segments. See Note 10, “Leases,”~~ human resources, but excluding stock-based compensation expense for ~~further information.~~those functions of $1.6 million and $1.5 million, respectively, for the three month periods ending March 31, 2020 and 2019.

Major Customers and Airline Partnerships— ~~During~~Revenue earned from Delta Air Lines and its passengers accounted for approximately 28% and 29% of consolidated revenue, respectively, for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016, no customer accounted for more than 10% of our consolidated revenue. One airline partner, under the Turnkey model,~~2019. Delta Air Lines accounted for approximately ~~19%~~16% and ~~18%~~11% of consolidated accounts receivable, respectively, as of ~~September 30, 2017~~March 31, 2020 and December 31, 2016, respectively. Two customers, under the Airline Directed model, collectively accounted for approximately 22% of consolidated accounts receivable as of September 30, 2017 while no customer accounted for more than 10% of consolidated accounts receivable as of December 31, 2016.2019.

Revenue earned through Delta Air Lines and American Airlines accounted for approximately 47% of consolidated revenue for both the three and nine month periods ended September 30, 2017, and 50% for both the prior year periods.

~~15.~~17. Employee Retirement and Postretirement Benefits

Stock-Based Compensation —As of ~~September 30, 2017,~~March 31, 2020, we ~~had~~maintained three stock-based ~~employee~~incentive compensation plans (“Stock Plans”), as well as an Employee Stock Purchase Plan (“ESPP”). See Note ~~11,~~12, “Stock-Based Compensation,” in our ~~2016~~201910-K for further information regarding these plans. Most of our equity grants are awarded on an annual basis. ~~The annual grants occurred in~~

Effective March 17, 2020, the ~~first quarter of 2017 whereas they had occurred in the second quarter in prior years.~~

~~For the nine month period ended September 30, 2017,~~performance-vesting conditions for all outstanding options to purchase ~~1,992,595~~ shares of common stock ~~(of which 527,850 are options~~and restricted stock units (“RSUs”) subject to both service and performance vesting requirements that ~~contain a market condition,~~were granted in ~~addition~~2017, 2018, and 2019 were eliminated. The performance modification resulted in the immediate issuance of 186,139 shares of common stock, corresponding to the ~~time-based vesting requirements) were granted,~~portion of RSUs for which service-vesting dates had previously elapsed.

For the three month period ended March 31, 2020, options to purchase ~~48,662~~1,121,402 shares of common stock were granted, no options to purchase shares of common stock were exercised, options to purchase ~~315,140 (of which 33,620 options contain a market condition)~~25,747 shares of common stock were forfeited, and options to purchase ~~265,024~~1,906,849 shares of common stock expired.

For the ~~nine~~three month period ended ~~September 30, 2017, 875,166 Restricted Stock Units (“RSUs”)~~March 31, 2020, 2,953,496 RSUs were granted, 752,342 RSUs vested (of which ~~228,840 are~~186,139 were RSUs that ~~contain a market condition,~~fully and immediately vested in ~~addition to~~connection with the ~~time-based vesting requirements) were granted, 368,506~~performance modification) and 87,138 RSUs ~~vested and 196,167 RSUs (of which 27,940 contained a market condition)~~ were forfeited.

For the ~~nine~~three month period ended ~~September 30, 2017, 92,910~~March 31, 2020, 8,227 restricted shares ~~of restricted stock~~vested and no shares were ~~granted~~cancelled.

Gogo Inc. and ~~98,988 shares vested.~~ Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

These shares are deemed issued as of the date of grant, but not outstanding until they vest.

For the ~~nine~~three month period ended ~~September 30, 2017, 60,972 DSUs~~March 31, 2020, 124,996 Deferred Stock Units were granted and ~~none were released.~~26,508 vested.

For the ~~nine~~three month period ended ~~September 30, 2017, 117,471~~March 31, 2020, 87,681 shares of common stock were issued under the ~~employee~~ESPP.

On April 29, 2020, our stockholders approved a stock ~~purchase plan.~~

~~Gogo Inc.~~option exchange program that, when commenced, will provide eligible employees (which includes all current employees and ~~Subsidiaries~~

~~Notes~~executive officers and excludes allnon-executive members of our board of directors) with the opportunity to ~~Unaudited Condensed Consolidated Financial Statements – (Continued)~~

exchange certain eligible options for a lesser number of replacement options, subject to certain terms and conditions.

The following is a summary of our stock-based compensation expense by operating expense line in the unaudited condensed consolidated statements of operations(in thousands):


	For the Three Months				For the Nine Months				For the Three Months
	Ended September 30,				Ended September 30,				Ended March 31,
	2017		2016		2017		2016		2020		2019
Cost of service revenue	$	542	$	446	$	1,332	$	1,142	$	477	$	428
Cost of equipment revenue		49		34		136		78		73		71
Engineering, design and development		897		970		2,801		2,432		753		774
Sales and marketing		1,305		1,498		3,473		3,799		752		970
General and administrative		2,490		2,052		7,265		5,535		1,940		2,084

Total stock-based compensation expense	$	5,283	$	5,000	$	15,007	$	12,986	$	3,995	$	4,327

401(k) Plan — Under our 401(k) plan, all employees who are eligible to participate are entitled to maketax-deferred contributions, subject to Internal Revenue Service limitations. We match 100% of the employee’s first 4% of contributions made, subject to annual limitations. Our matching contributions were $1.2 million and ~~$4.0~~$1.2 million, respectively, ~~for~~during the three ~~and nine~~ month periods ended ~~September 30, 2017,~~March 31, 2020 and ~~$1.1 million and $3.1 million, respectively, for the prior year periods.~~2019.

~~16.~~18. Research and Development Costs

Expenditures for research and development are charged to expense as incurred and totaled ~~$18.6~~$15.7 million and ~~$57.9~~$14.1 million, respectively, ~~for~~during the three ~~and nine~~ month periods ended ~~September 30, 2017,~~March 31, 2020 and ~~$11.8 million and $34.5 million, respectively, for the prior year periods.~~2019. Research and development costs are reported as a component of engineering, design and development expenses in our unaudited condensed consolidated statements of operations.

~~17. Canadian ATG Spectrum License~~

On July 17, 2012, Industry Canada issued to our Canadian subsidiary a subordinate license that allows us to use the Canadian ATG spectrum of which SkySurf Canada Communications Inc. (“SkySurf”) is the primary licensee. On July 24, 2012 we entered into a subordinate license agreement (the “License Agreement”) with SkySurf and on August 14, 2012 the agreement commenced. The License Agreement provides for our exclusive rights to use SkySurf’s ATG spectrum licenses in Canada. For additional information, see Note 16, “Canadian ATG Spectrum License,” in our 2016~~10-K.~~

~~Amortization expense for theone-time~~ ~~payment for each of the next five years and thereafter is estimated to be as follows~~~~(in thousands~~):

   Canadian
ATG
Spectrum
Years ending December 31,    Amortization
2017 (period from October 1 to December 31)
   $ 26
2018
   $ 104
2019
   $ 104
2020
   $ 104
2021
   $ 104
Thereafter
   $ 1,632

Amortization expense totaled less than $0.1 million during the three month periods ended September 30, 2017 and 2016 and $0.1 million during the nine month periods ended September 30, 2017 and 2016.

The monthly payments are expensed as incurred and totaled approximately $0.3 million and $0.9 million, respectively, during the three and nine month periods ended September 30, 2017, and $0.3 million and $0.9 million, respectively, for the prior year periods.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report may constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding our ~~business outlook,~~ industry, business strategy, plans, goals and expectations concerning our market position, international expansion, future technologies, future operations, margins, profitability, future efficiencies, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “future” and the negative of these or similar terms and phrases are intended to identify forward-looking statements in this Quarterly Report on Form10-Q.

Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following:

the duration for which and the extent to which theCOVID-19 pandemic continues to impact demand for commercial and business aviation travel globally, including as a result of governmental restrictions on travel and business and social gatherings and overall economic conditions;

the failure to successfully implement our cost reduction plan and other measures taken to mitigate the impact ofCOVID-19 on our business and financial condition, including efforts to renegotiate contractual terms with certain suppliers and customers;

the loss of, or failure to realize the anticipated benefits from, agreements with our airline partners or customers on a timely basis or any failure to renew any existing agreements upon expiration or ~~termination;~~termination including the results of our ongoing discussions with Delta Air Lines with respect to its transition to free service, which may involve a decision to pursue supplier diversification for its domestic mainline fleet;

the failure to maintain airline and passenger satisfaction with our equipment or our service;

any inability to timely and efficiently deploy and operate our 2Ku service or ~~develop and deploy our next-generation ATG solution or other components of~~implement our technology roadmap, including developing and deploying upgrades and installations ofour ATG-4 and 2Ku technologies, Gogo 5G, any technology to which our ATG or satellite networks evolve and other new technologies, for any reason, including technological issues and related remediation efforts, changes in regulations or regulatory delays affecting us, or ~~failures, or delays on the part of any of~~ our suppliers, some of whom are single source, or the failure by our airline partners or customers to roll out equipment upgrades or new services or adopt new technologies in order to support increased demand and network capacity ~~demands;~~constraints, including as a result of airline partners shifting toa free-to-passenger business model;

the timing of deinstallation of our equipment from aircraft, including deinstallations resulting from aircraft retirements and other deinstallations permitted by certain airline contract provisions;

the loss of relationships with original equipment manufacturers or dealers;

our ability to make our equipment factory linefit available on a timely basis;

our ability to develop or purchase ATG and satellite network capacity sufficient to accommodate current and expected growth in passenger demand in North America and internationally as we expand;

our reliance on third-party suppliers, some of whom are single source, for satellite capacity and other services and the equipment we use to provide services to commercial airlines and their passengers and business aviation customers;

unfavorable economic conditions in the airline industry and/or the economy as a whole;

governmental action restricting trade with China or other foreign countries;

our ability to expand our international or domestic operations, including our ability to grow our business with current and potential future airline ~~partners;~~partners and customers and the effect of shifts in business models, including a shift toward airlines providing free service to passengers;

an inability to compete effectively with other current or future providers ofin-flight connectivity services and other products and services that we offer, including on the basis of price, service performance and~~line-fit~~ linefit availability;

our ability to successfully develop and monetize new products and services, ~~such as Gogo Vision and Gogo TV,~~ including those that were recently released, are currently being offered on a limited or trial basis, or are in various stages of development;

our ability to certify and install our equipment and deliver our products and services, including newly developed products and services, on schedules consistent with our contractual commitments to customers;

the failure of our equipment or material defects or errors in our software resulting in recalls or substantial warranty claims;

a revocation of, or reduction in, our right to use licensed spectrum, the availability of otherair-to-ground spectrum to a competitor or the repurposing by a competitor of other spectrum forair-to-ground use;

our use of open source software and licenses;

the effects of service interruptions or delays, technology failures and equipment failures or malfunctions arising from defects or errors in our software or defects in or damage to our equipment;

the limited operating history of ourCA-ROW segment;

contract changes and implementation issues resulting from decisions by airlines to transition from the ~~Turnkey~~turnkey model to the ~~Airline Directed model;~~airline-directed model or vice versa;

increases in our projected capital expenditures due to, among other things, unexpected costs incurred in connection with theroll-out of our technology roadmap or our international expansion;

compliance with U.S. and foreign government regulations and standards, including those related to regulation of the Internet, includinge-commerce or online video distribution changes, and the installation and operation of satellite equipment and our ability to obtain and maintain all necessary regulatory approvals to install and operate our equipment in the United States and foreign jurisdictions;

our, or our technology suppliers’, inability to effectively innovate;

obsolescence of, and our ability to access, parts, products, equipment and support services compatible with our existing products and technologies;

costs associated with defending ~~pending~~existing or future intellectual property infringement, securities and derivative litigation and other litigation or ~~claims;~~claims and any negative outcome or effect of pending or future litigation;

our ability to protect our intellectual property;

breaches of the security of our information technology network, resulting in unauthorized access to our customers’ credit card information or other personal information;

~~any negative outcome or effects of future litigation;~~

our substantial indebtedness, including additional borrowings pursuant to the CARES Act, if any;

~~our substantial indebtedness;~~

limitations and restrictions in the agreements governing our current and future indebtedness and our ability to service our indebtedness;

our ability to obtain additional financing for operations, or financing intended to refinance our existing indebtedness, on acceptable terms or at ~~all;~~all, including any loans pursuant to the CARES Act;

fluctuations in our operating results;

our ability to attract and retain customers and to capitalize on revenue from our platform;

the demand for and market acceptance of our products and services;

changes or developments in the regulations that apply to us, our business and our industry, including changes or developments affecting the ability of passengers or airlines to use ourin-flight connectivity ~~services, including the recent U.S. and U.K. bans on the use of certain personal devices such as laptops and tablets on certain aircraft flying certain routes;~~services;

a future act or threat of terrorism, cyber-security attack or other events that could result in adverse regulatory changes or developments as referenced above, or otherwise adversely affect our business and industry;

our ability to attract and retain qualified employees, including key ~~personnel;~~personnel, including in light of recent furloughs and salary reductions;

the effectiveness of our marketing and advertising and our ability to maintain and enhance our brands;

our ability to manage our growth in a cost-effective manner and integrate and manage acquisitions;

compliance with anti-corruption laws and regulations in the jurisdictions in which we operate, including the Foreign Corrupt Practices Act and the (U.K.) Bribery Act 2010;

restrictions on the ability of U.S. companies to do business in foreign countries, including, among others, restrictions imposed by the U.S. Office of Foreign Assets Control;

difficulties in collecting accounts receivable;

our ability to successfully implement ~~our new enterprise resource planning system and other~~ improvements to systems, operations, strategy and procedures needed to support our ~~growth;~~growth and to effectively evaluate and pursue strategic opportunities; and

other risks and factors listed under “Risk Factors” in our Annual Report on Form10-K for the year ended December 31, ~~2016~~2019, as filed with the Securities and Exchange Commission (“SEC”) on ~~February 27, 2017~~March 13, 2020 (the ~~“2016~~“201910-K”) and in Item 1A of ~~our Quarterly Report on Form10-Q~~ ~~for the quarter ended March 31, 2017 as filed with the SEC on May 4, 2017.~~this report.

Any one of these factors or a combination of these factors could materially affect our financial condition or future results of operations and could influence whether any forward-looking statements contained in this report ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and you should not place undue reliance on them. All forward-looking statements speak only as of the date made and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

In addition, while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them any materialnon-public information or other confidential information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts, or opinions, such reports are not our responsibility.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our unaudited condensed consolidated interim financial statements and the related notes contained elsewhere in this Quarterly Report on Form10-Q. Unless the context otherwise indicates or requires, the terms “we,” “our,” “us,” “Gogo,” and the “Company,” as used in this report, refer to Gogo Inc. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated or where it is clear that the terms refer only to Gogo Inc. exclusive of its subsidiaries.

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and othernon-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” in the ~~2016~~201910-K and in Item 1A ~~in this Quarterly Report on Form10-Q,~~and in “Special Note Regarding Forward-Looking Statements” in this report. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Our fiscal year ends December 31 and, unless otherwise noted, references to “years” or “fiscal” are for fiscal years ended December 31. See “— Results of Operations.”

Company Overview

Gogo (“~~we”, “us”,~~we,” “us,” “our”) is the global leader in providing broadband connectivity solutions and wirelessin-flight entertainment to the aviation industry. We operate through the following three segments: Commercial Aviation North America, or“CA-NA,” Commercial Aviation Rest of World, or“CA-ROW,” and Business Aviation, or “BA.”

Services provided by ourCA-NA andCA-ROW businesses include Passenger Connectivity, which allows passengers to connect to the Internet from their personalWi-Fi-enabled devices; Passenger Entertainment, which offers passengers the opportunity to enjoy a broad selection ofin-flight entertainment options on their personalWi-Fi enabled devices; and Connected Aircraft Services (“CAS”), which offers airlines connectivity for various operations and currently include, among others, real-time credit card transaction processing, electronic flight bags and real-time weather information. Services are provided byCA-NA on commercial aircraft flying routes that generally begin and end within North America, which for this purpose includes the United States, Canada and Mexico.CA-ROW provides service on commercial aircraft operated by foreign-based commercial airlines and flights outside of North America for North ~~American based~~American-based commercial airlines. The routes included in ourCA-ROW segment are those that begin and/or end outside of North America (as defined above) on which our international service is provided. BA providesin-flight Internet connectivity and other voice and data communications products and services and sells equipment forin-flight telecommunications to the business aviation market. BA services include Gogo Biz, ourin-flight broadband service, ~~Passenger Entertainment,~~Gogo Vision, ourin-flight entertainment service, and satellite-based voice and data services through our strategic alliances with satellite companies.

Impact ofCOVID-19 Pandemic

In December 2019, a novel strain of coronavirus(“COVID-19”) was reported in Wuhan, China, and the World Health Organization (the “WHO”) subsequently declaredCOVID-19 a “Public Health Emergency of International Concern.” TheCOVID-19 pandemic has caused a significant decline in commercial and business air travel, which has materially and adversely affected our business. Approximately 60% of our revenue comes from our two commercial airline segments,CA-NA andCA-ROW. Passenger traffic declined significantly in April 2020 compared to March 2020, resulting in an expected significant reduction in service revenue in April 2020 as compared to the monthly service revenue in the first quarter of 2020. The approximate remaining 40% of our revenue comes from our business aviation segment, BA, which has also seen a sharp decrease in flight activity. Additionally, since many business aircraft are flying less frequently, there was an increase in requests forone-month account suspensions and a significant decrease in new plan activations in April 2020 compared to March 2020.

•

Renegotiating terms with suppliers, including satellite capacity providers;

Deferring purchases of capital equipment;

Delaying aircraft equipment installations;

Reducing marketing, travel and othernon-essential spend; and

Renegotiating terms with airline partners.

•

Financing– In March 2020, we drew $22 million under the ABL Credit Facility.

•

Government assistance – We applied for an $81 million grant and a $150 million loan under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). If we receive such assistance, we will be subject to certain restrictions and will be required to modify the personnel actions discussed above to comply with the terms of the government assistance. Additionally, receipt of funds may require the consent of a majority of the holders of the 2024 Senior Secured Notes or the consent of the lenders under the ABL Credit Agreement to amend the terms governing such indebtedness.

We expectCOVID-19 to continue to have a significant negative impact on our revenue and we are unable to predict how long that impact will continue. The extent of the impact ofCOVID-19 on our CA and BA businesses and our financial and operational performance will depend on future developments, including the duration, spread and severity of the outbreak, the duration and geographic scope of related travel advisories and restrictions and the extent of the impact ofCOVID-19 on overall demand for commercial and business aviation travel, all of which are highly uncertain and cannot be predicted. We are unable to predict how long the pandemic and its negative impact will persist, what additional measures may be introduced by governments or private parties or what effect any such additional measures may have on air travel, our business partners and our business. Not only is the duration of the pandemic and future combative measures unknown, the overall situation is extremely fluid, and it is impossible to predict the timing of future material changes in the situation and whether the Company’s actions in response will be sufficient or successful.

Impairment assessments -We review our long-lived assets and indefinite-lived intangible assets for potential impairment whenever events indicate that the carrying amount of such assets may not be recoverable. We conducted a review as of March 31, 2020 in light of theCOVID-19 outbreak and its impact on air travel, and recorded an impairment charge with respect to certain long-lived assets. We are continuously monitoring theCOVID-19 pandemic and its impact. If the impact of the pandemic exceeds management’s estimates, we could incur additional material impairment charges in future periods. See Note 7, “Composition of Certain Balance Sheet Accounts,” for additional information on our long-lived assets and Note 8, “Intangible Assets,” for additional information on our indefinite-lived assets.

Factors and Trends Affecting Our Results of Operations

We believe that our operating and business performance is driven by various factors that affect the commercial airline and business aviation industries, including trends affecting the travel industry and trends affecting the customer bases that we target, as well as factors that affect wireless Internet service providers and general macroeconomic factors. Key factors that may affect our future performance include:

the extent to which theCOVID-19 pandemic continues to impact demand for commercial and business air travel globally, including as a result of governmental restrictions on travel and social gatherings and overall economic conditions;

the effectiveness of our cost reduction plan and other measures taken to mitigate the impact ofCOVID-19 on our business and financial stability, including efforts to renegotiate contractual terms with suppliers, and the impact such actions have on our operations and long-term success;

costs associated with the implementation of, and our ability to implement on a timely basis our technology roadmap, upgrades and installation of ourATG-4 and 2Ku ~~next generation~~technologies, Gogo 5G, any technology to which our ATG or satellite networks evolve and other new technologies (including technological issues and related remediation efforts and failures or delays on the part of antenna and other equipment developers and providers, some of which are single source, or delays in obtaining ~~STCs), theroll-out~~STCs including as a result of ~~our satellite services, the use of unlicensed spectrum,~~any government shutdown), the potential licensing of additional spectrum, and the ~~implementation of~~ improvements to our network and operations as technology changes and we experience increased demand and network capacity ~~constraints;~~constraints, including as a result of airline partners deciding to provide free service to passengers;

costs associated with, and our ability to execute, our continued international expansion, including modifications of our network to accommodate satellite technology, development and implementation of new satellite-based technologies, the availability of satellite capacity, costs of satellite capacity to which we may have to commit well in advance, and, our ability to obtain and comply with foreign telecommunications, aviation and other licenses and approvals necessary for our international operations;

~~costs associated with managing a rapidly growing company;~~

~~costs associated with, and~~ our ability to obtain sufficient satellite capacity, including for heavily-trafficked areas, in the United States ~~the~~ and internationally;

costs of satellite capacity in the United States and internationally, to which we may have to commit to well in ~~advance;~~advance, including our ability to renegotiate the terms of such agreements in light of theCOVID-19 pandemic;

the pace and extent of adoption of our service for use on domestic and international commercial aircraft by our current ~~North American~~and new airline partners and ~~new international airline partners;~~customers;

the number of aircraft in service in our markets, including consolidation of the airline industry or changes in fleet size or bankruptcies by one or more of our commercial airline partners or BA ~~fractional ownership~~large-fleet customers;

~~the economic environment and other trends that affect both business and leisure travel;~~

the extent of passengers’~~, airline~~ and aviation partners’ ~~and other aircraft owners’ and operators’~~ adoption of our products and services, which is affected by, among other things, willingness to pay for the services that we provide, the quality and reliability of our products and services, changes in technology and competition from current competitors and new market entrants;

our ability to enter into and maintain long-term connectivity arrangements with airline partners and customers, which depends on numerous factors including the real or perceived availability, quality and price of our services and product offerings as compared to those offered by our competitors;

the impact of a change in business models and contract terms on the profitability of our connectivity agreements with airline partners, including as a result of changes in accounting standards;

the results of our ongoing discussions with Delta Air Lines (“Delta”) with respect to its transition to free service, which may involve seeking to pursue supplier diversification for Delta’s domestic mainline fleet, and our ability to offset the impact of any deinstalled aircraft through increased demand and revenue;

our ability to engage suppliers of equipment components and network services on a timely basis and on commercially reasonable terms;

continued demand for connectivity and proliferation ofWi-Fi enabled devices, including smartphones, tablets and laptops;

changes in domestic or foreign laws, regulations or policies ~~resulting from the 2016 elections~~ that affect our business or the business of our customers and suppliers;

changes in laws, regulations and interpretations affecting telecommunications services, including those affecting our ability to maintain our licenses for ATG spectrum in the United States, obtain sufficient rights to use additional ATG spectrum and/or other sources of broadband connectivity to deliver our services, ~~and~~ expand our service ~~offerings;~~offerings and manage our network; and

changes in laws, regulations and interpretations affecting aviation, including, in particular, changes that impact the design of our equipment and our ability to obtain required certifications for our ~~equipment and changes that affect the ability of passengers and airlines to utilize ourin-flight~~ ~~connectivity services, including the recent U.S. and U.K. bans on the use of certain personal devices, such as laptops and tablets, on certain airlines flying certain routes.~~equipment.

~~Recent Developments~~

~~On September 20, 2017, Gogo Intermediate Holdings LLC (“GIH”) (a wholly owned subsidiary of Gogo Inc.) and Gogo Finance Co. Inc. (a wholly owned subsidiary of GIH) (the“Co-Issuer”~~ and, together with GIH, the “Issuers”), certain subsidiaries of GIH, as guarantors (the “Subsidiary Guarantors” and, together with us, the “Guarantors”), and U.S. Bank National Association, as trustee (in such capacity, the “Trustee”) entered into the first supplemental indenture (the “Supplemental Indenture” and, together with the Original Indenture, the “Indenture”) to modify certain covenants, as discussed below. On September 25, 2017, the Issuers issued $100 million aggregate principal amount of additional senior secured notes due 2022 (the “September 2017 Additional Notes”). The September 2017 Additional Notes were issued at a price equal to 113% of their face value resulting in gross proceeds of $113.0 million. Additionally, we received approximately $2.9 million for interest that accrued from July 1, 2017 through September 24, 2017, which will be paid out when we make our next interest payment in January 2018. We refer to the Original Senior Secured Notes, the January 2017 Additional Notes and the September 2017 Additional Notes collectively as the “Senior Secured Notes.”

As noted above, on September 20, 2017, the Issuers, the Guarantors and the Trustee entered into the Supplemental Indenture to (i) increase the amount of additional secured indebtedness under Credit Facilities (as defined in the Indenture) that may be incurred by the Issuer and its Restricted Subsidiaries (as defined in the Indenture) under the Indenture by $100 million (from $75 million to $175 million in aggregate principal amount), (ii) permit the Issuer and its Restricted Subsidiaries to incur additional secured indebtedness in connection with vendor financing arrangements not to exceed $50 million in aggregate principal amount at any time outstanding and (iii) permit the Issuer and its Restricted Subsidiaries to make additional dividends or distributions to Gogo in an aggregate amount of up to $15 million during any twelve-month period to pay interest on any indebtedness or preferred stock with a maturity later than July 1, 2022. The Supplemental Indenture became effective immediately upon execution, following our receipt of consents from holders of a majority of the outstanding principal amount of the Existing Notes (excluding Existing Notes held by the Issuers or any affiliates of the Issuers) to the Supplemental Indenture and amendments to the collateral agency agreement governing the Senior Secured Notes (the “Consent”). In connection with the Consent, GIH paid $1.4 million in fees (“Consent Fees”) to holders of Existing Notes who validly offered (and did not revoke) their consents prior to the expiration of the Consent.

~~See Note 8, “Long-Term Debt and Other Liabilities” for additional information on the September 2017 Additional Notes.~~

~~Summary Financial Information~~

Consolidated revenue increased 17.4% and 17.1% to $172.9 million and $511.1 million, respectively, for the three and nine month periods ended September 30, 2017, as compared with $147.3 million and $436.6 million, respectively, for the prior year periods. For the three and nine month periods ended September 30, 2017, the~~CA-NA~~ segment had 2,859 and 2,816, respectively, aircraft equivalents providing the Gogo service as compared with 2,663 and 2,599, respectively, for the prior year periods. As of September 30, 2017, the BA segment had 5,474 aircraft online with satellite systems, including our first 2Ku equipped aircraft in BA, and 4,567 ATG systems online as compared with 5,473 and 3,974, respectively, as of September 30, 2016. For the three and nine month periods ended September 30, 2017, the~~CA-ROW~~ ~~segment had 295 and 250, respectively, aircraft equivalents as compared with 209 and 193, respectively, for the prior year periods.~~

Key Business Metrics

Our management regularly reviews financial and operating metrics, including the following key operating metrics for theCA-NA,CA-ROW and BA reportable segments, to evaluate the performance of our business and our success in executing our business plan, make decisions regarding resource allocation and corporate strategies, and evaluate forward-looking projections.


Commercial Aviation North America	Commercial Aviation North America													Commercial Aviation North America
		For the Three Months						For the Nine Months							For the Three Months
		Ended September 30,						Ended September 30,							Ended March 31,
		2017			2016			2017			2016				2020		2019
Aircraft online (at period end)			2,817			2,629			2,817			2,629				2,480		2,412
Total aircraft equivalents (average during the period)			2,859			2,663			2,816			2,599
Satellite			252			55			201			55				925		718
ATG			2,607			2,608			2,615			2,544				1,555		1,694
Average monthly service revenue per aircraft equivalent (ARPA) (in thousands)		$	11.1		$	11.1		$	11.6		$	11.3
Satellite (in thousands)		$	18.4			—		$	19.1			—
ATG (in thousands)		$	10.4			—		$	11.0			—
Gross passenger opportunity (GPO) (in thousands)			110,792			108,351			314,880			298,812
Total average revenue per session (ARPS)		$	10.49		$	11.46		$	10.83		$	12.43
Connectivity take rate			7.5	%		6.5	%		7.8	%		6.4	%
Total aircraft equivalents (average during the period)																2,554		2,519
Net annualized average monthly service revenue per aircraft equivalent (annualized ARPA) (in thousands)															$	99	$	126

Commercial Aviation Rest of World	Commercial Aviation Rest of World													Commercial Aviation Rest of World
		For the Three Months						For the Nine Months							For the Three Months
		Ended September 30,						Ended September 30,							Ended March 31,
		2017			2016			2017			2016				2020		2019
Aircraft online (at period end)			352			256			352			256				833		641
Total aircraft equivalents (average during the period)			295			209			250			193				737		550
ARPA (in thousands)		$	18.8		$	14.5		$	18.3		$	12.8
Net annualized ARPA (in thousands)															$	97	$	136

•

Aircraft online.We define aircraft online as the total number of commercial aircraft on which our equipment is installed and service has been made commercially available as of the last day of each period presented. We assign aircraft toCA-NA orCA-ROW at the time of contract signing as follows: (i) all aircraft operated by North American airlines and under contract for ATG orATG-4 service are assigned toCA-NA, (ii) all aircraft operated by North American airlines and under a contract for satellite service are assigned toCA-NA orCA-ROW based on whether the routes flown by such aircraft under the contract are anticipated to be predominantly within or outside of North America at the time the contract is signed, and (iii) all aircraft operated bynon-North American airlines and under a contract are assigned toCA-ROW.

All aircraft online for theCA-ROW segment are equipped with our satellite equipment. We are aware that, beginning March 2020 and continuing through the date of this filing, our airline partners have parked a significant number of aircraft due to the impact ofCOVID-19 on the aviation industry. We do not know the specific number of such parked aircraft. TheCA-NA andCA-ROW aircraft online disclosed above as of March 31, 2020 still include such aircraft, which is consistent with our historical practice of not removing temporarily parked aircraft from the online count as those have historically been immaterial and temporary. Should the duration of the aircraft being parked extend deeper into 2020, we may revisit this methodology for counting aircraft online.

•

Aircraft equivalents. We define aircraft equivalents for a segment as the number of commercial aircraft online (as defined above) multiplied by the percentage of flights flown by such aircraft within the scope of that segment, rounded to the nearest whole aircraft and expressed as an average of the ~~month end~~month-end figures for each month in the period. This methodology takes into account the fact that during a particular period certain aircraft may fly routes outside the scope of the segment to which they are assigned for purposes of the calculation of aircraft online.

•

~~Average~~Net annualized average monthly service revenue per aircraft equivalent (“ARPA”). We define net annualized ARPA as the aggregate service revenue plus monthly service fees, some of which are reported as a reduction to cost of service revenue for that segment for the period, less revenue share expense and other transactional expenses which are included in cost of service revenue for that segment, divided by the number of months in the period, and further divided by the number of aircraft equivalents (as defined above) for that segment during the ~~period. Satellite ARPA~~period, which is ~~calculated based on satellite revenue~~then annualized and ~~satellite aircraft equivalents, within that segment. ATG ARPA is calculated based on ATG revenue and ATG aircraft equivalents.~~rounded to the nearest thousand.

• ~~Gross passenger opportunity~~~~(“GPO”)~~.~~We define GPO as the aggregate number of passengers who board commercial aircraft on which Gogo service has been available at any time during the period presented~~.When actual passenger counts are available directly from our airline partners, we aggregate such counts across flights on Gogo-equipped aircraft. When not available directly from our airline partners, we estimate GPO. Estimated GPO is calculated by first estimating the number of flights occurring on each Gogo-equipped aircraft, then multiplying by the number of seats on that aircraft, and finally multiplying by a seat factor that is determined from historical information provided to us in arrears by our airline partners. The estimated number of flights is derived from real-time flight information provided to our~~front-end~~ systems by Air Radio Inc. (ARINC), direct airline feeds and supplementary third-party data sources. These aircraft-level estimates are then aggregated with any available airline-provided passenger counts to obtain total GPO.
Business Aviation

   For the Three Months
   Ended March 31,
   2020    2019
Aircraft online (at period end)

Satellite
   4,939    5,135
ATG
   5,713    5,348
Average monthly service revenue per aircraft online

Satellite
   $ 223    $ 237
ATG
   3,143    3,071
Units Sold

Satellite
   56    130
ATG
   125    187
Average equipment revenue per unit sold (in thousands)

Satellite
   $ 60    $ 40
ATG
   77    61

•

~~Total average revenue per session~~~~(“ARPS”). We define ARPS as revenue from Passenger Connectivity, excludingnon-session~~ related revenue, divided by the total number of sessions during the period. A session, or a “use” of Passenger Connectivity, is defined as the use by a unique passenger of Passenger Connectivity on a flight segment. Multiple logins or purchases under the same user name during one flight segment count as only one session.

•

~~Connectivity take rate~~. We define connectivity take rate as the number of sessions during the period expressed as a percentage of GPO. Included in our connectivity take-rate calculation are sessions for which we did not receive revenue, including those provided pursuant to free promotional campaigns and, to a lesser extent, as a result of complimentary passes distributed by our customer service representatives for unforeseen technical issues. For the periods listed above, the number of sessions for which we did not receive revenue was not material.

Business Aviation

   For the Three Months    For the Nine Months
   Ended September 30,    Ended September 30,
   2017    2016    2017    2016
Aircraft online (at period end)

Satellite
   5,474    5,473    5,474    5,473
ATG
   4,567    3,974    4,567    3,974
Average monthly service revenue per aircraft online

Satellite
   $ 235    $ 211    $ 232    $ 217
ATG
   2,874    2,535    2,848    2,521
Units Sold

Satellite
   116    126    303    367
ATG
   210    165    596    558
Average equipment revenue per unit sold (in thousands)

Satellite
   $ 38    $ 45    $ 42    $ 44
ATG
   58    54    55    57

•

Satellite aircraft online. We define satellite aircraft online as the total number of business aircraft for which we provide satellite services as of the last day of each period presented.

•

ATG aircraft online.We define ATG aircraft online as the total number of business aircraft for which we provide ATG services as of the last day of each period presented.

•

Average monthly service revenue per satellite aircraft online. We define average monthly service revenue per satellite aircraft online as the aggregate satellite service revenue for the period divided by the number of months in the period, divided by the number of satellite aircraft online during the period (expressed as an average of the ~~month end~~month-end figures for each month in such period).

•

Average monthly service revenue per ATG aircraft online.We define average monthly service revenue per ATG aircraft online as the aggregate ATG service revenue for the period divided by the number of months in the period, divided by the number of ATG aircraft online during the period (expressed as an average of the ~~month end~~month-end figures for each month in such period).

•

Units sold. We define units sold as the number of satellite or ATG units for which we recognized revenue during the period. ~~In the three and nine months ended September 30, 2017, we recognized revenue on four and seven Gogo Biz 4G units, respectively, that were previously deferred.~~

•

Average equipment revenue per satellite unit sold. We define average equipment revenue per satellite unit sold as the aggregate equipment revenue earned from all satellite units sold during the period, divided by the number of satellite units sold.

•

Average equipment revenue per ATG unit sold.We define average equipment revenue per ATG unit sold as the aggregate equipment revenue from all ATG units sold during the period, divided by the number of ATG units sold.

Key Components of Consolidated Statements of Operations

There have been no material changes to our key components of unaudited condensed consolidated statements of operations and segment profit (loss) as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) in our ~~2016~~201910-K.

Off-Balance Sheet Arrangements

We do not have any obligations that meet the definition of anoff-balance sheet arrangement, other than operating leases, which have or are reasonably likely to have a material effect on our results of operations. See Note 10, “Leases” to our unaudited condensed consolidated financial statements for further information.arrangement.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of our unaudited condensed consolidated financial statements and related disclosures require us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related exposures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. In some instances, we could reasonably use different accounting estimates, and in some instances results could differ significantly from our estimates. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We believe that the assumptions and estimates associated with revenue recognition, long-lived assets, indefinite-lived assets and stock-based compensation have the greatest potential impact on our unaudited condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

~~There have been no material~~Revenue Recognition:

We account for revenue in accordance with Accounting Standards Codification Topic 606,Revenue from Contracts with Customers (“ASC 606”). OurCA-NA andCA-ROW airline-directed contracts contain multiple performance obligations, which primarily include the sale of equipment, installation services, connectivity services and entertainment services. For these contracts, we account for each distinct good or service as a separate performance obligation. We allocate the contract’s transaction price to each performance obligation using the relative standalone selling price, which is based on the actual selling price for any good or service sold separately to a similar class of customer, if available. To the extent a good or service is not sold separately, we use our best estimate of the standalone selling price and maximize the use of observable inputs. The primary method we use to estimate the standalone selling price is the expected cost-plus margin approach.

The contractual consideration used for allocation purposes includes connectivity and entertainment services, which may be based on a fixed monthly fee per aircraft or a variable fee based on the volume of connectivity activity, or a combination of both. Examples of variable consideration within our contracts include megabyte overages andpay-per-use sessions.

We constrain our estimates to reduce the probability of a significant revenue reversal in future periods, allocate variable consideration to the identified performance obligations and recognize revenue in the period the services are provided. Our estimates are based on historical experience, anticipated future performance, market conditions and our best judgment at the time. For the three months ended March 31, 2020, our estimates included management’s best assumptions for the impact ofCOVID-19, which includes decreased flights and gross passenger opportunity (“GPO”).

A significant change in one or more of these estimates could affect our estimated contract value. For example, estimates of variable revenue within certain contracts require estimation of the number of sessions or megabytes that will be purchased over the contract term and the average revenue per connectivity session, which varies based on the connectivity options available to passengers on each airline. Estimated revenue under these contracts anticipates increases in take rates over time and assumes an average revenue per session consistent with our historical experience. Our estimated contract revenue may differ significantly from our initial estimates to the extent actual take rates and average revenue per session differ from our historical experience.

We regularly review and update our estimates, especially in light ofCOVID-19, and recognize adjustments under the cumulativecatch-up method. Any adjustments under this method are recorded as a cumulative adjustment in the period identified and revenue for future periods is recognized using the new adjusted estimate.

See Note 4, “Revenue Recognition,” for additional information.

Long-Lived Assets:

Our long-lived assets (other than goodwill and indefinite-lived assets which are separately tested for impairment) are reviewed for potential impairment whenever events indicate that the carrying amount of such assets may not be recoverable. Within the Commercial Aviation segment, certain certification and installation programs under some of our turnkey airline contracts are still in progress. Accordingly, we evaluate whether an indication of impairment exists for turnkey airline contracts based on our projected future cash flows associated with such contracts. We group certain long-lived assets by airline contract and by connectivity technology.

When an indication of impairment exists, we review long-lived assets for impairment by comparing the carrying value of the long-lived assets with the estimated future undiscounted cash flows expected to result from the use of the assets. If the future undiscounted cash flows are less than the carrying value, we then calculate an impairment loss equal to the difference between the long-lived asset’s carrying value and its estimated fair value following which the long-lived assets are written down to estimated fair value and the adjusted balance becomes the new cost basis and is depreciated (amortized) over the remaining useful life of the assets. We also periodically reassess the useful lives of our long-lived assets due to advances and changes in our technologies.

Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and long-lived asset fair values, including forecasting useful lives of the long-lived assets and selecting discount rates.

In light of theCOVID-19 outbreak and its impact on air travel, including decreased flights, decreased gross passenger opportunity and our airline partners’ temporary parking of a significant number of their aircraft, we conducted a review as of March 31, 2020 and determined that the carrying value for the asset groups related to three of our airline agreements for the CA business exceeded their estimated undiscounted cash flows, which triggered the need to estimate the fair value of these assets. For the airborne assets andright-of-use assets associated with the three airline agreements (the “impaired assets”), we recorded an impairment charge of $46.4 million for the three month period ended March 31, 2020.

We are continuously monitoring theCOVID-19 pandemic and its impact. If the negative impact of the pandemic on the assets related to our ~~critical accounting policies~~airline agreements continues, including as a result of airline partners’ decisions to temporarily park certain aircraft to reduce capacity, we could incur additional material impairment charges in future periods.

Indefinite-Lived Intangible Assets:

Our indefinite-lived intangible assets consist of our FCC spectrum licenses. Indefinite-lived intangible assets are not amortized but are reviewed for impairment at least annually or whenever events indicate that the carrying amount of such assets may not be recoverable. We perform our annual impairment test during the fourth quarter of each fiscal year. We assess qualitative factors to determine the likelihood of impairment. Our qualitative analysis includes, but is not limited to, assessing the changes in macroeconomic conditions, regulatory environment, industry and market conditions or events, such asCOVID-19, financial performance versus budget and any other events or circumstances specific to the FCC licenses. We believed the impact ofCOVID-19 could indicate that the carrying value of our FCC spectrum licenses may not be recoverable and as such we reviewed the FCC spectrum licenses for impairment as of March 31, 2020. If it is more likely than not that the fair value of the FCC spectrum licenses is greater than the carrying value, no further testing is required. Otherwise, we apply the quantitative impairment test method. In determining which quantitative approach is most appropriate, we consider the cost approach, market approach and income approach. We determined that the income approach, utilizing the Greenfield method, is the most appropriate way to value our indefinite-lived assets.

For the Greenfield method we estimate the value of our FCC spectrum licenses by calculating the present value of the cash flows of a hypothetical new market participant whose only assets are such licenses to determine the enterprise value of the entire company. It includes all necessary costs and expenses to build the company’s infrastructure during thestart-up period, projected revenue, and cash flows once the infrastructure is completed. Since there is no corroborating data available in the marketplace that would demonstrate a market participant’s experience in establishing an“air-to-ground” business, we utilize our historic results and future projections as the underlying basis for the application of the Greenfield method. We follow the traditional discounted cash flow method, calculating the present value of a new market participant’s estimated debt free cash flows.

Our impairment calculations contain uncertainties, including the impact ofCOVID-19, because they require management to make assumptions and to apply judgment to estimate future projected cash flows and estimated growth rates and discount rates, as well as new market participant assumptions. Estimates of future projected cash flows used in connection with the discounted cash flow analysis were consistent with the plans and estimates that we used to manage the business, including the impact ofCOVID-19, although there was inherent uncertainty in these estimates. The discount rate used in the calculation was based on our weighted average cost of capital. Our assessment as ~~compared~~of March 31, 2020 indicated no impairment.

We are continuously monitoring theCOVID-19 pandemic and its impact. If the negative impact of the pandemic exceeds management’s estimates, we could incur material impairment charges in future periods.

Credit Losses:

We regularly evaluate our accounts receivable and contract assets for expected credit losses and on January 1, 2020 adopted ASC 326.

Our expected loss methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of each customer’s trade accounts receivables. Due to the ~~critical accounting policies~~short-term nature of such receivables, the estimated amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. Our monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of each customer’s financial condition and macroeconomic conditions.

We apply a similar methodology towards our current andnon-current contract asset balances. However, due to the inherent additional risk associated with a long-term receivable, an additional provision is applied towards contract asset balances that will diminish over time as the contract nears its expiration date.

The estimates ~~described~~used to determine the allowances are based on management’s assessment of anticipated payment, taking into account available historical and current information as well as management’s assessment of potential future developments.

For the three months ended March 31, 2020, we also considered the current and estimated future economic and market conditions resulting from theCOVID-19 pandemic in ~~MD&A~~the determination of our estimated credit losses.

As such, we recorded a noncash cumulative effect adjustment to retained earnings of $3.7 million as a result of the adoption of ASC 326 for estimated credit losses. During the three month period ended March 31, 2020 we recorded an additional $6.8 million of additional estimated credit losses, which was primarily the result ofCOVID-19. One international airline partner in particular accounted for approximately 70% of our ~~2016~~credit losses during the three month period ended March 31, 2020. Subsequent to March 31, 2020, such airline partner’s financial condition continued to deteriorate and we expect to record additional credit losses during the three month period ending June 30, 2020.

We are continuously monitoring our assumptions used to determine our expected credit losses, including the impact of the~~10-K.~~COVID-19 pandemic, which could cause us to record additional material credit losses in future periods.

Recent Accounting Pronouncements

See Note 2,3, “Recent Accounting ~~Pronouncements”~~Pronouncements,” to our unaudited condensed consolidated financial statements for additional information.

Results of Operations

The following table sets forth, for the periods presented, certain data from our unaudited condensed consolidated statements of operations. The information contained in the table below should be read in conjunction with our unaudited condensed consolidated financial statements and related notes.

Unaudited Condensed Consolidated Statement of Operations Data

(in thousands)


	For the Three Months						For the Nine Months						For the Three Months
	Ended September 30,						Ended September 30,						Ended March 31,
	2017			2016			2017			2016			2020			2019
Revenue:
Service revenue	$	153,347		$	129,099		$	453,918		$	375,406		$	150,782		$	165,012
Equipment revenue		19,527			18,168			57,162			61,146			33,693			34,537

Total revenue		172,874			147,267			511,080			436,552			184,475			199,549

Operating expenses:
Cost of service revenue (exclusive of items shown below)		67,854			56,365			201,794			164,615			70,755			68,121
Cost of equipment revenue (exclusive of items shown below)		15,326			10,527			41,623			36,752			26,040			29,731
Engineering, design and development		31,313			25,835			103,262			72,201			22,863			24,728
Sales and marketing		16,294			14,874			47,253			46,366			9,652			12,318
General and administrative		24,064			21,661			70,162			65,038			27,166			22,454
Impairment of long-lived assets														46,389			—
Depreciation and amortization		35,824			26,779			96,821			76,042			32,670			30,749

Total operating expenses		190,675			156,041			560,915			461,014			235,535			188,101

Operating loss		(17,801	)		(8,774	)		(49,835	)		(24,462	)
Operating income (loss)														(51,060	)		11,448

Other (income) expense:
Interest income		(683	)		(852	)		(1,999	)		(1,064	)		(606	)		(1,149	)
Interest expense		27,585			24,848			81,754			58,701			31,174			32,554
Loss on extinguishment of debt		—			—			—			15,406
Adjustment of deferred financing costs		—			—			—			(792	)
Other (income) expense		228			34			322			(137	)		2,993			(3,365	)

Total other expense		27,130			24,030			80,077			72,114			33,561			28,040

Loss before income taxes		(44,931	)		(32,804	)		(129,912	)		(96,576	)		(84,621	)		(16,592	)
Income tax provision		350			469			945			997
Income tax provision (benefit)														157			207

Net loss	$	(45,281	)	$	(33,273	)	$	(130,857	)	$	(97,573	)	$	(84,778	)	$	(16,799	)

Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019

Revenue:

Revenue by segment and percent change for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 were as follows(in thousands, except for percent change):


	For the Three Months				% Change			For the Three Months				% Change
	Ended September 30,				2017 over			Ended March 31,				2020 over
	2017		2016		2016			2020		2019		2019
Service Revenue:
CA-NA	$	94,436	$	88,534		6.7	%	$	73,828	$	92,027		(19.8	)%
BA		43,224		33,330		29.7	%		57,726		53,213		8.5	%
CA-ROW		15,687		7,235		116.8	%		19,228		19,772		(2.8	)%

Total Service Revenue	$	153,347	$	129,099		18.8	%	$	150,782	$	165,012		(8.6	)%

Equipment Revenue:
CA-NA	$	1,291	$	2,191		(41.1	%)	$	6,308	$	4,042		56.1	%
BA		17,283		15,617		10.7	%		13,201		17,336		(23.9	)%
CA-ROW		953		360		164.7	%		14,184		13,159		7.8	%

Total Equipment Revenue	$	19,527	$	18,168		7.5	%	$	33,693	$	34,537		(2.4	)%

Total Revenue:
CA-NA	$	95,727	$	90,725		5.5	%	$	80,136	$	96,069		(16.6	)%
BA		60,507		48,947		23.6	%		70,927		70,549		0.5	%
CA-ROW		16,640		7,595		119.1	%		33,412		32,931		1.5	%

Total Revenue	$	172,874	$	147,267		17.4	%	$	184,475	$	199,549		(7.6	)%


	For the Nine Months				% Change
	Ended September 30,				2017 over
	2017		2016		2016
Service Revenue:
CA-NA	$	290,260	$	261,751		10.9	%
BA		125,415		96,442		30.0	%
CA-ROW		38,243		17,213		122.2	%

Total Service Revenue	$	453,918	$	375,406		20.9	%

Equipment Revenue:
CA-NA	$	5,234	$	8,708		(39.9	%)
BA		49,172		51,707		(4.9	%)
CA-ROW		2,756		731		277.0	%

Total Equipment Revenue	$	57,162	$	61,146		(6.5	%)

Total Revenue:
CA-NA	$	295,494	$	270,459		9.3	%
BA		174,587		148,149		17.8	%
CA-ROW		40,999		17,944		128.5	%

Total Revenue	$	511,080	$	436,552		17.1	%

Commercial Aviation North America:

CA-NA revenue increased to $95.7 million and $295.5 million, respectively, for the three and nine month periods ended September 30, 2017, as compared with $90.7 million and $270.5 million, respectively, for the prior year periods, primarily due to an increase in service revenue driven by increased Passenger Connectivity revenue. The increase in~~CA-NA~~ Passenger Connectivity revenue for the three and nine month periods ended September 30, 2017 was primarily due to an increase in connectivity take rate and an increase in the number of aircraft equivalents, offset in part by a decrease in ARPS. GPO increased to 110.8 million and 314.9 million, respectively, for the three and nine month periods ended September 30, 2017, as compared with 108.4 million and 298.8 million, respectively, for the prior year periods, driven by an increase in aircraft equivalents. The connectivity take rate increased to 7.5%

and 7.8%, respectively, for the three and nine month periods ended September 30, 2017, as compared with 6.5% and 6.4%, respectively, for the prior year periods, reflecting increased passenger adoption including the impact of third party-paid and airline-paid promotions. Passenger Connectivity sessions totaled 8.3 million and 24.6 million, respectively, for the three and nine month periods ended September 30, 2017, as compared with 7.0 million and 19.2 million, respectively, for the prior year periods. ARPS decreased to ~~$10.49 and $10.83, respectively,~~$80.1 million for the three and nine month periods ended September 30, 2017, as compared with $11.46 and $12.43, respectively, for the prior year periods, due to shifts in product mix, third party-paid and airline-paid promotions. Total ARPA was $11.1 thousand for both the three month period ended ~~September 30, 2017 and 2016, and increased to $11.6 thousand for the nine month period ended September 30, 2017,~~March 31, 2020, as compared with ~~$11.3 thousand~~$96.1 million for the prior year period. Total ARPA is comprised of Satellite ARPA of $18.4 thousand and $19.1 thousand, respectively, and ATG ARPA of $10.4 thousand and $11.0 thousand, respectively, for the three and nine month periods ended September 30, 2017.prior-year period, due to a decrease in service revenue offset in part by an increase in equipment revenue.

A summary of the components ofCA-NA’s service revenue for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 is as follows(in thousands, except for percent change):

   For the Three Months    % Change
   Ended September 30,    2017 over
   2017    2016    2016
Passenger Connectivity revenue⁽¹⁾
   $ 88,348    $ 84,323    4.8 %
Passenger Entertainment and CAS revenue
   6,088    4,211    44.6 %






Total service revenue
   $ 94,436    $ 88,534    6.7 %






   For the Nine Months    % Change
   Ended September 30,    2017 over
   2017    2016    2016
Passenger Connectivity revenue⁽¹⁾
   $ 272,351    $ 250,060    8.9 %
Passenger Entertainment and CAS revenue
   17,909    11,691    53.2 %






Total service revenue
   $ 290,260    $ 261,751    10.9 %


	For the Three Months				% Change
	Ended March 31,				2020 over
	2020		2019		2019
Connectivity revenue⁽¹⁾	$	68,869	$	79,818		(13.7	)%
Entertainment and CAS revenue		4,959		12,209		(59.4	)%

Total service revenue	$	73,828	$	92,027		(19.8	)%

(1)

Includesnon-session related revenue of ~~$1.0~~$2.2 million and ~~$5.6~~$1.4 million, respectively, for the three ~~and nine~~ month periods ended ~~September 30, 2017,~~March 31, 2020 and ~~$4.0 million and $11.9 million, respectively, for the prior year periods.~~2019.

CA-NA ~~Passenger~~service revenue decreased to $73.8 million for the three month period ended March 31, 2020, as compared with $92.0 million for the prior-year period, primarily due to a decrease in Connectivity revenue and Entertainment and CAS revenue.

Connectivity revenue decreased to $68.9 million for the three month period ended March 31, 2020, as compared with $79.8 million for the prior-year period primarily due to the full impact of American Airlines switching to the airline-directed model, the deinstallation of Gogo equipment from certain American Airlines aircraft during 2018 and the first half of 2019 and the impact ofCOVID-19, which includes a decrease in flights and gross passenger opportunity (“GPO”).

CA-NA Entertainment and CAS revenue decreased to $5.0 million for the three month period ended March 31, 2020 as compared with $12.2 million for the prior-year period primarily due to the recognition of product development-related revenue for one of our airline partners in the first quarter of 2019 and the impact ofCOVID-19.

Net annualized ARPA decreased to $99 thousand for the three month period ended March 31, 2020, as compared with $126 thousand for the prior-year period primarily due to the full impact of American Airlines’ switch to the airline-directed model, product development-related revenue in the first quarter of 2019 and the impact ofCOVID-19, which includes a decrease in flights and GPO. The connectivity take rate, which is the number of sessions expressed as a percentage of passengers, decreased to 13.3% for the three month period ended March 31, 2020, as compared with 13.9% for the prior-year period primarily due to the impact ofCOVID-19.

Equipment revenue increased to ~~$88.3~~$6.3 million ~~and $272.4 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$84.3~~$4.0 million ~~and $250.1 million, respectively,~~ for the ~~prior year periods. The increase~~prior-year period, primarily due to more installations under the airline-directed model.

We anticipate that service revenue forCA-NA will decrease significantly during the three month period ~~ended September~~ending June 30, ~~2017~~2020 as compared with the ~~prior year period was due to increases in third party-paid and airline-paid revenue, while the increase during the nine~~three month period ended ~~September~~March 31, 2020 as a result of the impact ofCOVID-19, which includes a decrease in flights and GPO.

Additionally, we and some of our airline partners plan to delay the installation of our equipment as a result ofCOVID-19, and, as a result, we anticipate significant declines in our equipment revenue during the three month period ending June 30, ~~2017~~2020 as compared with the prior year period was due to increases in passenger-paid, third party-paid and airline-paid revenue. Third party-paid revenue increased primarily due to increases in sponsorship, roaming, enterprise and wholesale revenue. Our airline-paid revenue increased due to new agreements with certain airline partners under which the airlines pay us for specified data usage, including data used by passengers and by airline crew members using connectivity services while in flight. Passenger-paid revenue increased during the ninethree month period ended ~~September 30, 2017 as compared with the prior year period due to increases in both individual sessions and subscriptions, despite being negatively impacted by the hurricanes during the period.~~March 31, 2020.

The increase in Passenger Entertainment and CAS revenue to $6.1 million and $17.9 million, respectively, for the three and nine month periods ended September 30, 2017, as compared with $4.2 million and $11.7 million, respectively, for the prior year periods, was due to increased usage of CAS operational applications and Passenger Entertainment services under~~business-to-business~~ ~~arrangements with our airline partners.~~

~~The increase inCA-NA~~ service revenue was partially offset by a decrease in equipment revenue to $1.3 million and $5.2 million, respectively, for the three and nine month periods ended September 30, 2017, as compared with $2.2 million and $8.7 million, respectively, in the prior year periods, due primarily to more equipment transactions qualifying for sales treatment (instead of lease treatment) in the prior year period as compared with the current year.

Business Aviation:

BA revenue increased to ~~$60.5~~$70.9 million ~~and $174.6 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$48.9~~$70.5 million ~~and $148.1 million, respectively,~~ for the ~~prior year periods,~~prior-year period, due to an increase in service ~~revenue. BA~~ revenue ~~was also positively impacted~~offset in part by ~~an increase~~a decrease in equipment revenue during the three month period ended September 30, 2017 as compared with the prior year period, while equipment revenue decreased during the nine month period ended September 30, 2017 as compared with the prior year period.revenue.

BA service revenue increased to ~~$43.2~~$57.7 million ~~and $125.4 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$33.3~~$53.2 million ~~and $96.4 million, respectively,~~ for the ~~prior year periods,~~prior-year period primarily due to ~~more~~additional customers subscribing to our Gogo Biz (ATG) service ~~and an increase~~offset in ~~average monthly service revenue per aircraft online.~~part by a decrease in the number of satellite customers. The number of ATG aircraft online increased ~~14.9%~~6.8% to ~~4,567~~5,713 as of ~~September 30, 2017~~March 31, 2020, as compared with ~~3,974~~5,348 as of ~~September 30, 2016.~~March 31, 2019.

BA equipment revenue ~~increased~~decreased to ~~$17.3~~$13.2 million for the three month period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$15.6~~$17.3 million for the ~~prior year~~prior-year period due primarily to ~~an increase~~decrease in the number of ATG ~~equipment revenue partially offset by~~and satellite units sold.

In April 2020,COVID-19 began to impact our BA segment, which included a decrease in ~~satellite~~flights, suspension of subscriptions and fewer activations. We do not currently anticipate nearly as significant of an impact on our BA segment as ourCA-NA orCA-ROW segments but anticipate service and equipment ~~revenue. Equipment revenue decreased~~revenues to ~~$49.2 million for~~decline during the ~~nine~~three month period ending June 30, 2020, as compared with the three month period ended ~~September 30, 2017, as compared with $51.7 million in the prior year period due to decreases in satellite equipment revenue offset in part by an increase in ATG equipment revenue.~~

Under a sales program for Gogo Biz 4G equipment that started in 2016, we have deferred approximately $5.2 million of equipment revenue as of September 30, 2017 in connection with a free upgrade program under which we shipped ATG and UCS equipment to customers who have a right to exchange that equipment for Gogo Biz 4G equipment. In the three and nine months ended September 30, 2017, we shipped four and seven Gogo Biz 4G units, respectively, under this program and recognized $0.3 million and $0.5 million, respectively, of previously deferred equipment revenue. We will recognize the remaining deferred revenue upon the earlier of the shipment of the Gogo Biz 4G equipment or the expiration of the free upgrade period, which is June 30, 2018.March 31, 2020.

Commercial Aviation Rest of World:

CA-ROW revenue increased to ~~$16.6~~$33.4 million ~~and $41.0 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$7.6~~$32.9 million ~~and $17.9 million, respectively,~~ for the ~~prior year periods,~~prior-year period, due to an increase in equipment revenue offset in part by a decrease in service revenue.

CA-ROW equipment revenue ~~and~~increased to ~~a lesser extent~~$14.2 million for the three month period ended March 31, 2020, as compared with $13.2 million for the prior-year period due to an increase in ~~equipment revenue.~~spare parts sold under the airline-directed model, offset in part by fewer installations under the airline-directed model.

CA-ROW service revenue ~~increased~~decreased to ~~$15.7~~$19.2 million ~~and $38.2 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$7.2~~$19.8 million ~~and $17.2 million, respectively,~~ for the ~~prior year periods,~~prior-year period, primarily due to ~~an increase~~the impact ofCOVID-19, which includes a decrease in ~~ARPA~~flights and ~~to a lesser extent~~GPO, partially offset by an increase in aircraft equivalents. Net annualized ARPA for theCA-ROW segment ~~increased~~decreased to ~~$18.8 thousand and $18.3~~$97 thousand for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017, respectively,~~March 31, 2020, as compared with ~~$14.5~~$136 thousand ~~and $12.8 thousand, respectively,~~ for the ~~prior year periods,~~prior-year period due to ~~increased airline-paid passenger usage~~an increase in aircraft online from new airline partners and the ~~transition~~impact ofCOVID-19, which includes a decrease in ~~the accounting treatment~~flights and GPO.

We anticipate that service revenue for one of our airline agreements from an operating lease or Turnkey model in the prior year to a sale or Airline Directed model in the first quarter of the current year due to specific provisions elected by the airline. Take rate was 13.5% and 14.3%, respectively, forCA-ROW will decrease significantly during the three ~~and nine~~ month ~~periods ended September~~period ending June 30, ~~2017.~~

~~CA-ROW~~ ~~generated equipment revenue of $1.0 million and $2.8 million, respectively, for the three and nine month periods ended September 30, 2017,~~2020 as compared with ~~$0.4 million~~the three month period ended March 31, 2020 as a result of the impact ofCOVID-19, which includes a decrease in flights and ~~$0.7 million, respectively, for~~GPO.

Additionally, our airline partners have significantly delayed the ~~prior year periods, due to the transition in the accounting treatment for one~~installation of our ~~airline agreements from an operating lease or Turnkey model~~equipment as a result ofCOVID-19, and, as a result, we anticipate significant declines in our equipment revenue during the ~~prior year to a sale or Airline Directed model in~~three month period ending June 30, 2020 as compared with the ~~first quarter of the current year due to specific provisions elected by the airline.~~three month period ended March 31, 2020.

Cost of Service Revenue:

Cost of service revenue by segment and percent change ~~and cost of service revenue as a percent of service revenue~~ for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 were as follows(in thousands, except for percent change):


	For the Three Months				% Change			For the Three Months				% Change
	Ended September 30,				2017 over			Ended March 31,				2020 over
	2017		2016		2016			2020		2019		2019
CA-NA	$	37,738	$	36,696		2.8	%	$	40,065	$	36,425		10.0	%
BA		10,090		8,374		20.5	%		11,007		13,052		(15.7	)%
CA-ROW		20,026		11,295		77.3	%		19,683		18,644		5.6	%

Total	$	67,854	$	56,365		20.4	%	$	70,755	$	68,121		3.9	%


	For the Nine Months				% Change
	Ended September 30,				2017 over
	2017		2016		2016
CA-NA	$	112,439	$	107,067		5.0	%
BA		29,476		25,691		14.7	%
CA-ROW		59,879		31,857		88.0	%

Total	$	201,794	$	164,615		22.6	%

CA-NA cost of service revenue increased to $40.1 million for the three month period ended March 31, 2020, as compared with $36.4 million for the prior-year period due to increases in satellite service fees, less amortization of deferred airborne lease incentives and an increase in allocated ATG network costs, partially offset by a decrease in revenue share and operational costs.

BA cost of service revenue decreased to $11.0 million for the three month period ended March 31, 2020, as compared with $13.1 million for the prior-year period, primarily due to allocated ATG network costs.

CA-ROW cost of service revenue increased to ~~$20.0~~$19.7 million ~~and $59.9 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$11.3~~$18.6 million ~~and $31.9 million, respectively,~~ for the ~~prior year periods,~~prior-year period primarily due to ~~increases~~an increase in ~~network operations expenses (including~~ satellite ~~service fees), aircraft operations expenses, revenue share expense~~ and billing and transaction related expenses as the business continued to grow. Cost of service revenue was further impacted by decreases in the amortization of our deferred airborne lease incentives, the recognition of monthly servicenetwork fees and ~~maintenance fees paid to us by certain~~revenue share.

A significant portion of ~~our airline partners, all of which reduce our cost of services.~~

CA-NA andCA-ROW cost of service revenue increased to $37.7 million and $112.4 million, respectively, for the three and nine month periods ended September 30, 2017, as compared with $36.7 million and $107.1 million, respectively, for the prior year periods, due to increases in network operations expenses (includingare satellite service ~~fees) and aircraft operations expenses. These increases were partially offset by increases~~fees which are relatively fixed in ~~the amortization of our deferred airborne lease incentives, the recognition of monthly service fees and maintenance fees paid to us by~~nature. We are currently in discussions with certain of our ~~airline partners, all of which~~satellite service providers to reduce our ~~cost of services. See Note 10, “Leases” to our unaudited condensed consolidated financial statements for additional information regarding our deferred airborne lease incentives.~~

BA cost of service revenue increased to $10.1 million and $29.5 million, respectively, for the three and nine month periods ended September 30, 2017, as compared with $8.4 million and $25.7 million, respectively, for the prior year periods. The increases were primarily due to increased ATG units online and an increase in the average network utilization per ATG unit online which resulted in higher ATG network service costs and, to a lesser extent, an increase in satellite service ~~fees.~~charges as a result of the lower utilization from decreased flights and GPO resulting fromCOVID-19.

We expect cost of service revenue for~~CA-NA~~ BA to increase over time, ~~mainly~~primarily due to increased satellite service fees for additional coverage. Additionally, we expect a decrease in the amortization of deferred airborne lease incentives as we anticipate our airline agreements will transition from an operating lease or Turnkey model to a sale or Airline Directed model.

~~As we expand our business internationally, we also expect to incur additional cost of service revenue inCA-ROW,~~ ~~reflecting increased satellite usage, maintenance~~increasing ATG network costs ~~and network related expenses.~~associated with Gogo 5G.

Cost of Equipment Revenue:

Cost of equipment revenue by segment and percent change for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 were as follows(in thousands, except for percent change):


	For the Three Months				% Change			For the Three Months				% Change
	Ended September 30,				2017 over			Ended March 31,				2020 over
	2017		2016		2016			2020		2019		2019
CA-NA	$	1,065	$	1,526		(30.2	%)	$	5,682	$	1,591		257.1	%
BA		13,414		8,820		52.1	%		8,511		11,398		(25.3	)%
CA-ROW		847		181		368.0	%		11,847		16,742		(29.2	)%

Total	$	15,326	$	10,527		45.6	%	$	26,040	$	29,731		(12.4	)%


	For the Nine Months				% Change
	Ended September 30,				2017 over
	2017		2016		2016
CA-NA	$	5,646	$	8,335		(32.3	%)
BA		33,651		27,986		20.2	%
CA-ROW		2,326		431		439.7	%

Total	$	41,623	$	36,752		13.3	%

Cost of equipment revenue ~~increased~~decreased to ~~$15.3~~$26.0 million ~~and $41.6 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$10.5~~$29.7 million ~~and $36.8 million, respectively,~~ for the ~~prior year periods.~~ prior-year period.

The increase ~~occurred primarily within~~inCA-NA for the three month period ended March 31, 2020, as compared with the prior-year period was due to more installations under the airline-directed model during 2020 as compared with the prior-year period.

BA ~~segment and~~cost of equipment decreased for the three month period ended March 31, 2020 as compared with the prior-year period, due to a ~~lesser extent the~~decrease in equipment revenue and changes in product mix.

The decrease inCA-ROW ~~segment,~~during the three month period was due to fewer installations under airline-directed model, offset in part by ~~a decrease in theCA-NA~~ ~~segment. The increase in BA was due to~~ an increase in ~~inventory reserves on certain products,~~ the~~write-off~~ sale of ~~capitalized software, changes in product mix and increases in warranty expense. The increase inCA-ROW~~ ~~was due to additional equipment transactions that qualify for sale treatment. The decrease inCA-NA~~ ~~was due to fewer equipment transactions that qualify for sale treatment.~~ spare parts.

We expect that ~~our~~CA-NA andCA-ROW cost of equipment revenue will decrease significantly during the three month period ending June 30, 2020 as compared with the three month period ended March 31, 2020 due to the delays in ~~future periods~~airline equipment installations, as noted above. BA equipment revenue will vary with changes in equipment revenue.

Engineering, Design and Development Expenses:

Engineering, design and development (“EDD”) expenses ~~increased 21.2% and 43.0%~~decreased to ~~$31.3~~$22.9 million ~~and $103.3 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$25.8~~$24.7 million ~~and $72.2 million, respectively,~~ for the ~~prior year periods, due primarily to increases in all three segments~~prior-year period due to ~~higher personnel expense~~decreased STC and ~~outside services~~project-related spend in ~~connection with the development of new products and technologies and obtaining STCs. Additionally, the increase in the~~CA-NA ~~segment for the three~~andCA-ROW, offset in part by increased Gogo 5G network development costs at BA.

As noted in Note 2, “Impact ofCOVID-19 Pandemic,” we implemented various expense management and ~~nine month periods was due~~personnel actions to ~~the recognition of approximately $3 million~~manage our costs. We are actively working with our vendors and $16 million, respectively, of expenses related to the development of our next generation ATG solution, primarily due to the achievement of major development milestones at different points during the year.

~~We expect consolidated engineering, design~~evaluating projects. The personnel actions, which include furloughs and ~~development expenses to decrease as a percentage of consolidated revenue over time.~~salary reductions, began May 4, 2020.

Sales and Marketing Expenses:

Sales and marketing expenses ~~increased 9.5% and 1.9%~~decreased to ~~$16.3~~$9.7 million ~~and $47.3 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$14.9~~$12.3 million ~~and $46.4 million, respectively,~~ for the ~~prior year periods,~~prior-year period primarily due to ~~increases~~decreased personnel and advertising expenses in ~~the BA andCA-ROW~~ ~~segments, offset in part by a decrease inCA-NA.~~ ~~The increase in BA andCA-ROW~~ ~~was due primarily to an increase in personnel expense to support the growth of the businesses. Sales~~all three segments. Consolidated sales and marketing expenses as a percentage of total consolidated service revenue ~~decreased to 9.4% and 9.2%, respectively,~~was 6.4% for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~10.1% and 10.6%, respectively,~~7.5% for the ~~prior year periods.~~prior-year period.

As noted in Note 2, “Impact ofCOVID-19 Pandemic,” we implemented various expense management and personnel actions to manage our costs. We ~~expect~~are actively working with our ~~sales~~vendors and ~~marketing expenses to increase in future periods as we expand our international marketing initiatives, commence service on aircraft operated by new~~evaluating projects. The personnel actions, which include furloughs and ~~existing airline partners in bothCA-NA~~ ~~andCA-ROW,~~ increase advertising and promotional initiatives for new product offerings (particularly in BA) and expand programs to retain and support our existing users. In addition, the commission component of sales and marketing expenses at BA will fluctuate with equipment revenue. We expect consolidated sales and marketing expenses to decrease as a percentage of consolidated revenue over time.salary reductions, began May 4, 2020.

General and Administrative Expenses:

General and administrative expenses increased ~~11.1% and 7.9%~~ to ~~$24.1~~$27.2 million ~~and $70.2 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$21.7~~$22.5 million ~~and $65.0 million, respectively,~~ for the ~~prior year periods,~~prior-year period, primarily due to ~~increases~~allowances for credit losses of approximately $6.8 million, which was primarily driven by the impact ofCOVID-19 on one international airline partner in ~~all three segments, due primarily to increases~~particular, offset in ~~personnel expense. General~~part by reductions in legal fees. Consolidated general and administrative expenses as a percentage of total consolidated service revenue ~~decreased to 13.9% and 13.7%, respectively,~~was 18.0% for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~14.7% and 14.9%, respectively,~~13.6% for the ~~prior year~~prior-year period.

As noted above in Critical Accounting Policies and Estimates, subsequent to March 31, 2020, such airline partner’s financial condition continued to deteriorate and we expect to record additional credit losses during the three month period ending June 30, 2020. We are continuously monitoring our assumptions used to determine our expected credit losses, including the impact of theCOVID-19 pandemic, which could cause us to record additional material credit losses in future periods.

As noted in Note 2, “Impact ofCOVID-19 Pandemic,” we implemented various expense management and personnel actions to manage our costs. We ~~expect general~~are actively working with our vendors and ~~administrative expenses to decrease as a percentage of consolidated revenue as we realize economies of scale.~~evaluating projects. The personnel actions, which include furloughs and salary reductions, began May 4, 2020.

Segment Profit (Loss):

CA-NA’s segment profit ~~increased 10.0%~~decreased to ~~$16.0~~$15.9 million for the three month period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$14.5~~$30.7 million for the ~~prior year~~prior-year period, ~~while segment profit decreased 7.8% to $43.3 million for the nine month period ended September 30, 2017, as compared with $47.0 million for the prior year period. The increase inCA-NA’s~~ ~~segment profit for the three month period ended September 30, 2017 was~~primarily due to an increase in service revenue and decreases in cost of equipment revenue and sales and marketing expense, offset in part by increases in cost of service revenue, engineering, design and development and general and administrative expenses and a decrease in equipment revenue, as discussed above. The decrease in~~CA-NA’s~~ ~~segment profit for~~ the nine month period ended September 30, 2017 was due to increases in cost of service revenue, engineering, design and development and general and administrative expenses and a decrease in equipment revenue, offset in part by an increase in service revenue and decreases in cost of equipment revenue and sales and marketing expense,changes as discussed above.

BA’s segment profit increased ~~3.3% and 21.3%~~ to ~~$21.3~~$35.9 million ~~and $72.6 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$20.7~~$33.8 million ~~and $59.9 million, respectively,~~ for the ~~prior year periods. The increase in BA’s segment profit for the three and nine month periods ended September 30, 2017 was~~prior-year period, primarily due to ~~an increase in service revenue, partially offset by an increase in operating expenses,~~the changes as discussed above.

CA-ROW’s segment loss ~~increased 21.0% and 30.4%~~decreased to ~~$24.1~~$17.4 million ~~and $82.1 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$19.9~~$18.2 million ~~and $62.9 million, respectively,~~ for the ~~prior year periods. The increase inCA-ROW’s~~ ~~segment loss~~prior-year period, primarily due to the changes as discussed above.

Unallocated corporate costs increased to $10.3 million for the three month period ended March 31, 2020, as compared with $9.8 million for the prior-year period. Unallocated corporate costs are primarily included within general and ~~nine~~administrative expenses.

Impairment of Long-Lived Assets:

We recorded an impairment charge of $46.4 million for the three month ~~periods~~period ended ~~September 30, 2017 was due~~March 31, 2020 for the impaired assets related to ~~an increase~~three of our airline agreements for the CA business, while we had no such charges in ~~operating expenses, offset in part by an increase in service and equipment revenue, as discussed above.~~the prior year. See Note 7, “Composition of Certain Balance Sheet Accounts” for additional information.

Depreciation and Amortization:

Depreciation and amortization expense increased ~~33.8% and 27.3%~~ to ~~$35.8~~$32.7 million ~~and $96.8 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with ~~$26.8~~$30.7 million ~~and $76.0 million, respectively,~~ for the ~~prior year periods,~~prior-year period due to additional aircraft under the ~~increase in the number~~turnkey model and increased amortization of ~~aircraft outfitted with our airborne equipment by ourCA-ROW~~ ~~andCA-NA~~ segments and accelerated depreciation expense for certain upgrade and decommission programs. See Note 1, “Basis of Presentation” to our unaudited condensed consolidated financial statements for additional information on the accelerated depreciation expense.capitalized software.

We expect that our depreciation and amortization expense ~~to increase~~will vary in the future ~~periods as we install our equipment on additional aircraft, install more expensive satellite-based equipment on aircraft and further expand our ground and satellite networks.~~depending upon the number of installations under the turnkey model.

Other (Income) Expense:

Other (income) expense and percent change for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 were as follows(in thousands, except for percent change):


	For the Three Months						% Change			For the Three Months						% Change
	Ended September 30,						2017 over			Ended March 31,						2020 over
	2017			2016			2016			2020			2019			2019
Interest income	$	(683	)	$	(852	)		(19.8	%)	$	(606	)	$	(1,149	)		(47.3	)%
Interest expense		27,585			24,848			11.0	%		31,174			32,554			(4.2	)%
Other expense		228			34			570.6	%		2,993			(3,365	)		n/a

Total	$	27,130		$	24,030			12.9	%	$	33,561		$	28,040			19.7	%


	For the Nine Months						% Change
	Ended September 30,						2017 over
	2017			2016			2016
Interest income	$	(1,999	)	$	(1,064	)		87.9	%
Interest expense		81,754			58,701			39.3	%
Loss on extinguishment of debt		—			15,406			n/a
Adjustment to deferred financing costs		—			(792	)		n/a
Other (income) expense		322			(137	)		n/a

Total	$	80,077		$	72,114			11.0	%

Total other expense ~~was $27.1~~increased to $33.6 million ~~and $80.1 million, respectively,~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017,~~March 31, 2020, as compared with $28.0 million for the prior-year period due primarily to ~~$24.0~~the $3.0 million ~~and $72.1 million, respectively, for~~impairment of a cost-based investment in the current year while the prior year ~~periods. Interest expense increased during the~~had no such activity. The three and nine month periods ended September 30, 2017 as compared with the prior year periods due to higher average debt levels outstanding and higher average interest rates incurred during the current year as compared with the prior year. The increase in interest expense for the three and nine month periods ended September 30, 2017, as compared to the prior year periods, was due to the issuance of the Original Senior Secured Notes in June 2016, the January 2017 Additional Notes in January 2017 and the September 2017 Additional Notes in September 2017. The increase in interest expense associated with the Senior Secured Notes was partially offset by lower interest expense associated with the Amended and Restated Senior Term Facility, which was repaid in full in June 2016. See Note 8, “Long-Term Debt and Other Liabilities,” in our unaudited condensed consolidated financial statements for additional information. See Note 9, “Interest Costs,” in our unaudited condensed consolidated financial statements for additional information related to our interest expense. The nine month period ended ~~September 30, 2016~~March 31, 2019 included $3.2 million in proceeds from a ~~loss on extinguishment of debt related to the repayment of the Amended and Restated Senior Term Facility and adjustment of deferred financing costs,~~litigation settlement, while the current year ~~did not include~~had no such ~~activities.~~activity.

We expect our full-year 2020 interest expense to ~~increase~~be down slightly as compared with 2019, primarily due to ~~higher average debt outstanding and higher average~~the reduction in interest ~~rates because of~~expense related to the ~~issuance of the Senior Secured Notes. Interest expense will also increase due to a full year of amortization of deferred financing fees associated with the~~2022 Senior Secured Notes, ~~offset~~which were redeemed in ~~part by~~full in May 2019, the ~~amortization~~partial repurchase of the ~~debt premium associated with~~2020 Convertible Notes in April 2019 and the ~~Senior Secured Notes.~~maturity of the remaining outstanding principal amount of 2020 Convertible Notes in March 2020. These ~~increases~~decreases will be partially offset by higher average debt outstanding from the ~~extinguishment~~issuances of the ~~Amended~~2024 Senior Secured Notes in April and ~~Restated Senior Term Facility.~~May 2019, the drawdown of the ABL Credit Facility in March 2020 and the associated accretion expense and amortization of deferred financing costs. See Note 8,10, “Long-Term Debt and Other Liabilities,” in our unaudited condensed consolidated financial statements for additional information.

Income Taxes:

The effective income tax ~~rate~~rates for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016 was (0.8%)~~2019 were (0.2)% and ~~(0.7%)~~(1.2)%, ~~respectively, as compared with (1.4%) and (1.0%), respectively, for the prior year periods. Income tax expense recorded in each period was similar, with differences inpre-tax~~ ~~income causing the change in the effective tax rate. The difference between our effective tax rates and the U.S. federal statutory rate of 35% for~~respectively. For the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019, our income tax expense was not significant primarily due to the ~~recording of a~~full valuation allowance against our net deferred tax assets.

We expect our income tax provision to increase in future periods to the extent we become profitable.

Non-GAAP Measures

In our discussion below, we discuss certainnon-GAAP financial measurements, including Adjusted EBITDA, Free Cash Flow and Unlevered Free Cash ~~CAPEX~~Flow as defined below. Management uses Adjusted EBITDA, Free Cash Flow and Unlevered Free Cash ~~CAPEX~~Flow for business planning purposes, including managing our business against internally projected results of operations and measuring our performance and liquidity. These supplemental performance measures also provide another basis for comparing ~~period to period~~period-to-period results by excluding potential differences caused bynon-operational and unusual ornon-recurring items. These supplemental performance measurements may vary from and may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA, Free Cash Flow and Unlevered Free Cash ~~CAPEX~~Flow are not recognized measurements under accounting principles generally accepted in the United States, or ~~GAAP, and~~GAAP; when analyzing our performance with Adjusted EBITDA or liquidity with Free Cash ~~CAPEX,~~Flow or Unlevered Free Cash Flow, as applicable, investors should (i) evaluate each adjustment in our reconciliation to ~~net loss attributable to common stock,~~the corresponding GAAP measure, and the explanatory footnotes regarding those adjustments, (ii) use Adjusted EBITDA in addition to, and not as an alternative to, net loss attributable to common stock as a measure of operating results, and (iii) use Free Cash ~~CAPEX~~Flow or Unlevered Free Cash Flow in addition to, and not as an alternative to, consolidated ~~capital expenditures~~net cash provided by (used in) operating activities when evaluating our liquidity.

Definition and Reconciliation ofNon-GAAP Measures

EBITDA represents net ~~income (loss)~~loss attributable to common stock before interest expense, interest income, income taxes ~~interest income, interest expense,~~and depreciation ~~expense~~ and amortization ~~of other intangible assets.~~expense.

Adjusted EBITDA represents EBITDA adjusted for (i) stock-based compensation expense, (ii) amortization of deferred airborne lease incentives, (iii) ~~loss on extinguishment~~amortization of ~~debt~~STC costs, (iv) impairment of long-lived assets, (v) impairment of cost-basis investment and ~~(iv) adjustment of deferred financing costs.~~(vi) proceeds from litigation settlement. Our management believes that the use of Adjusted EBITDA eliminates items that, management believes, have less bearing on our operating performance, thereby highlighting trends in our core business which may not otherwise be apparent. It also provides an assessment of controllable expenses, which are indicators management uses to determine whether current spending decisions need to be adjusted in order to meet financial goals and achieve optimal financial performance.

We believe that the exclusion of stock-based compensation expense from Adjusted EBITDA is appropriate given the significant variation in expense that can result from using the Black-Scholes model to determine the fair value of such compensation. The fair value of our stock options is determined using the Black-Scholes model and varies based on fluctuations in the assumptions used in this model, including inputs that are not necessarily directly related to the performance of our business, such as the expected volatility, the risk-free interest rate and the expected life of the options. Therefore, we believe that the exclusion of this cost provides a clearer view of the operating performance of our business. Further, stock option grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular time. While we believe that investors should have information about any dilutive effect of outstanding options and the cost of that compensation, we also believe that stockholders should have the ability to consider our performance using anon-GAAP financial measure that excludes these costs and that management uses to evaluate our business.

We believe that the exclusion of the amortization of deferred airborne lease incentives and amortization of STC costs from Adjusted EBITDA is useful as it allows an investor to view operating performance across time periods in a manner consistent with how management measures reportable segment profit and loss (see Note ~~14,~~16, “Business Segments and Major Customers,” for a description of reportable segment profit (loss) in our unaudited condensed consolidated financial statements). Management evaluates reportable segment profit and loss in this manner, excluding the amortization of deferred airborne lease incentives and amortization of STC costs, because such presentation reflects operating decisions and activities from the current period, without regard to the prior period ~~decision~~decisions or the ~~form of~~business model applicable to various connectivity agreements. ~~See “—Key Components of Consolidated Statements of Operations—Cost of Service Revenue—Commercial Aviation North America and Rest of World” in our 201610-K~~ ~~for a discussion of the accounting treatment of deferred airborne lease incentives.~~

We believe ~~it is useful to an understanding~~that the exclusion of ~~our operating performance to exclude~~ the ~~loss on extinguishment~~impairment of ~~debt and adjustment of deferred financing costs~~long-lived assets from Adjusted EBITDA is appropriate because of thenon-recurring nature of ~~these charges.~~the activity to our operating performance.

We believe that the exclusion of the impairment of cost-basis investment from Adjusted EBITDA is appropriate because of thenon-operating andnon-recurring nature of the activity.

We believe that the exclusion of litigation proceeds from Adjusted EBITDA is appropriate as this isnon-recurring in nature and represents an infrequent financial benefit to our operating performance.

We also present Adjusted EBITDA as a supplemental performance measure because we believe that this measure provides investors, securities analysts and other users of our financial statements with important supplemental information with which to evaluate our performance and to enable them to assess our performance on the same basis as management.

Free Cash ~~CAPEX~~Flow represents ~~capital expenditures~~ net cash provided by (used in) operating activities, less purchases of ~~airborne~~property and equipment ~~proceeds received from~~and the ~~airlines.~~acquisition of intangible assets. We believe that Free Cash ~~CAPEX~~Flow provides ~~a more representative indication~~meaningful information regarding the Company’s liquidity.

Unlevered Free Cash Flow represents Free Cash Flow adjusted for cash interest payments and interest income. We believe that Unlevered Free Cash Flow provides an additional view of the Company’s liquidity, excluding the impact of our ~~liquidity requirements with respect to~~ capital expenditures, as under certain agreements with our airline partners we are reimbursed for all or a substantial portion of the cost of our airborne equipment, thereby reducing our cash capital requirements.structure.

~~Gogo Inc. and Subsidiaries~~

~~Reconciliation of GAAP toNon-GAAP~~ ~~Measures~~

~~(in thousands, except per share amounts)~~

~~(unaudited)~~

   For the Three Months    For the Nine Months
   Ended September 30,    Ended September 30,
   2017    2016    2017    2016
Adjusted EBITDA:

Net loss attributable to common stock (GAAP)
   $ (45,281 )    $ (33,273 )    $ (130,857 )    $ (97,573 )
Interest expense
   27,585    24,848    81,754    58,701
Interest income
   (683 )    (852 )    (1,999 )    (1,064 )
Income tax provision
   350    469    945    997
Depreciation and amortization
   35,824    26,779    96,821    76,042








EBITDA
   17,795    17,971    46,664    37,103
Stock-based compensation expense
   5,283    5,000    15,007    12,986
Amortization of deferred airborne lease incentives
   (10,121 )    (7,765 )    (28,099 )    (20,650 )
Loss on extinguishment of debt
   —      —      —      15,406
Adjustment of deferred financing costs
   —      —      —      (792 )








Adjusted EBITDA
   $ 12,957    $ 15,206    $ 33,572    $ 44,053








Cash CAPEX:

Consolidated capital expenditures (GAAP)⁽¹⁾
   $ (68,495 )    $ (43,653 )    $ (214,238 )    $ (128,694 )
Change in deferred airborne lease incentives⁽²⁾
   5,351    330    8,856    8,674
Amortization of deferred airborne lease incentives⁽²⁾
   10,077    7,697    27,994    20,458








Cash CAPEX
   $ (53,067 )    $ (35,626 )    $ (177,388 )    $ (99,562 )


Gogo Inc. and Subsidiaries
Reconciliation of GAAP toNon-GAAP Measures
(in thousands, except per share amounts)
(unaudited)

	For the Three Months
	Ended March 31,
	2020			2019
Adjusted EBITDA:
Net loss attributable to common stock (GAAP)	$	(84,778	)	$	(16,799	)
Interest expense		31,174			32,554
Interest income		(606	)		(1,149	)
Income tax provision		157			207
Depreciation and amortization		32,670			30,749

EBITDA		(21,383	)		45,562
Stock-based compensation expense		3,995			4,327
Amortization of deferred airborne lease incentives		(7,071	)		(8,953	)
Amortization of STC costs		807			320
Impairment of long-lived assets		46,389			—
Impairment of cost-basis investment		3,000			—
Proceeds from litigation settlement		—			(3,215	)

Adjusted EBITDA	$	25,737		$	38,041

Unlevered Free Cash Flow:
Net cash provided by (used in) operating activities (GAAP)⁽¹⁾	$	38,027		$	(6,156	)
Consolidated capital expenditures⁽¹⁾		(15,310	)		(27,711	)

Free cash flow		22,717			(33,867	)
Cash paid for interest⁽¹⁾		66			46,163
Interest income⁽²⁾		(606	)		(1,149	)

Unlevered free cash flow	$	22,177		$	11,147

(1)

See unaudited condensed consolidated statements of cash flows.

(2)

Excludes deferred airborne lease incentives and related amortization associated with STCs for the three and nine month periods ended September 30, 2017 and 2016 as STC costs are expensed as incurred as part

See unaudited condensed consolidated statements of ~~Engineering, Design and Development.~~operations.

Material limitations ofNon-GAAP measures

Although EBITDA, Adjusted EBITDA, Free Cash Flow and Unlevered Free Cash ~~CAPEX~~Flow are measurements frequently used by investors and securities analysts in their evaluations of companies, EBITDA, Adjusted EBITDA, Free Cash Flow and Unlevered Free Cash ~~CAPEX~~Flow each have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for, or more meaningful than, amounts determined in accordance with GAAP.

Some of these limitations include:

EBITDA and Adjusted EBITDA do not reflect interest income or expense;

EBITDA and Adjusted EBITDA do not reflect cash requirements for our income taxes;

EBITDA and Adjusted EBITDA do not reflect depreciation and amortization, which are significant and unavoidable operating costs given the level of capital expenditures needed to maintain our business;

Adjusted EBITDA does not reflectnon-cash components of employee compensation;

Free Cash ~~CAPEX does~~Flow and Unlevered Free Cash Flow do not ~~reflect~~represent the ~~full extent of capital investments we have made~~total increase or decrease in our ~~operations;~~cash balance for the period; and

since other companies in our or related industries may calculate these measures differently from the way we do, their usefulness as comparative measures may be limited.

Liquidity and Capital Resources

The following table presents a summary of our cash flow activity for the periods set forth below(in thousands):

   For the Nine Months
   Ended September 30,
   2017    2016
Net cash provided by (used in) operating activities
   $ (4,209 )    $ 45,148
Net cash used in investing activities
   (66,743 )    (247,708 )
Net cash provided by financing activities
   175,472    202,426
Effect of foreign exchange rate changes on cash
   556    (378 )




Net increase (decrease) in cash and cash equivalents
   105,076    (512 )
Cash and cash equivalents at the beginning of period
   117,302    147,342




Cash and cash equivalents at the end of period
   $ 222,378    $ 146,830




_________________
Supplemental information:

Short-term investments
   $ 188,496    $ 338,725


	For the Three Months Ended March 31,
	2020			2019
Net cash provided by (used in) operating activities	$	38,027		$	(6,156	)
Net cash provided by (used in) investing activities		(15,221	)		11,707
Net cash provided by (used in) financing activities		18,858			(740	)
Effect of foreign exchange rate changes on cash		51			(276	)

Net increase in cash, cash equivalents and restricted cash		41,715			4,535
Cash, cash equivalents and restricted cash at the beginning of period		177,675			191,116

Cash, cash equivalents and restricted cash at the end of period	$	219,390		$	195,651


Supplemental information:
Cash, cash equivalents and restricted cash at the end of period	$	219,390		$	195,651
Less: current restricted cash		560			1,535
Less:non-current restricted cash		4,601			5,426

Cash and cash equivalents at the end of the period	$	214,229		$	188,690

We have historically financed our growth and cash needs primarily through the issuance of common stock,non-convertible debt, senior convertible preferred stock, convertible debt, term facilities and cash from operating activities. We continually evaluate our ongoing capital needs in light of increasing demand for our services, capacity requirements, evolving technologies in our industry and related strategic, operational and technological opportunities. We actively consider opportunities to raise additional capital in the public and private markets utilizing one or more of the types of capital raising transactions through which we have historically financed our growth and cash needs, as well as other means of capital raising not previously used by us.

In April 2020, we applied for an $81 million grant and a $150 million loan under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). If granted, the grant and the loan would be required to be secured by collateral to be determined. Any receipt of funds under the CARES Act may also require the consent of a majority of the holders of the 2024 Senior Secured Notes and the consent of the lenders under the ABL Credit Agreement to amend the terms governing such indebtedness to, among other things, permit the incurrence of additional indebtedness or granting of liens, which we may not be able to obtain on a timely basis or on terms acceptable to us, if at all. To the extent that we were able to obtain a grant and/or loan under the CARES Act (if at all), we would be subject to certain restrictions, including, but not limited to, requirements to maintain certain levels of service and employment (which would require bringing back furloughed employees), limits on certain executive compensation and limits on the use of the funds granted. In addition, we would likely be obligated to issue warrants to the U.S. Department of the Treasury to purchase shares of our common stock.

Liquidity:

~~Although we can provide no assurances, we currently believe that cash, cash equivalents~~As disclosed elsewhere in this report, the extent of the impact ofCOVID-19 on the CA and ~~short-term investments~~BA businesses and our financial and operational performance will depend on ~~hand as~~future developments, including the duration, spread and severity of ~~September 30, 2017 will~~the outbreak, the duration and geographic scope of related travel advisories and restrictions and the extent of the impact ofCOVID-19 on overall demand for commercial and business aviation travel, all of which are highly uncertain and cannot be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months, including costs associated with installing our airborne equipment on certain aircraft operated bypredicted. If our airline partners ~~continuing~~continue to experience significantly reduced demand for passenger traffic for an extended period, our ~~international expansion~~liquidity and ~~developing~~financial condition may be materially adversely affected. The extent to which the outbreak affects our ~~next generation ATG solution.~~ liquidity and financial condition will depend in part on our ability to successfully implement various measures intended to reduce expenses and/or conserve cash, including:

Personnel actions, including the implementation of a hiring freeze, suspending 2020 merit salary increases, deferring the CEO’s bonus payout, a furlough of approximately 54% of our workforce and a reduction in compensation for most other employees;

Expense management, including deferring purchases of capital equipment, delaying equipment installations, renegotiating agreements with suppliers, reducing othernon-essential spend and renegotiating with our airline partners;

In March 2020, we drew $22 million under the ABL Credit Facility; and

Applying for assistance under the CARES Act.

See “Risk Factors —Our business is highly dependent on the airline industry, which is itself affected by factors beyond the airlines’ control, including the novel strain of coronavirus first identified in Wuhan, China. The airline industry is highly competitive and sensitive to changing economic conditions.”

Excluding the impact of our initial public offering, ~~in June 2013,~~our prior credit facility, the ~~Amended and Restated~~2022 Convertible Notes, the 2020 Convertible Notes, the 2024 Senior ~~Term Facility,~~Secured Notes, the ~~Convertible~~2022 Senior Secured Notes and the ~~Senior Secured Notes,~~ABL Credit Facility, to date we have not generated positive cash flows on a consolidated ~~basis, and our ability to do so will depend in large part~~basis. However, based on our ~~ability~~current plans, including the measures outlined in our response to increase revenue in each of our three business segments. In addition, our ability to generate positive cash flows from operating activities and the timing of certain capital and other necessary expenditures are subject to numerous variables, such as costs related to international expansion and execution of our current technology roadmap, including 2Ku, next generation ATG and other potential future technologies. We currentlyCOVID-19, we believe that our cash ~~on hand, comprised of cash,~~and cash equivalents ~~and short-term investments,~~ and cash flows provided by operating activities ~~and, if necessary, additional equity financings or the incurrence of additional debt,~~ will be sufficient to meet our operating obligations, including our capital expenditure requirements, for at least the next twelve months. As detailed in Note 10, “Long-Term Debt and Other Liabilities,” in March 2020, in order to enhance our liquidity ~~needs~~in response to the uncertainty in the ~~longer-term, including~~global markets resulting from theCOVID-19 pandemic, we drew $22.0 million from our ~~continued international expansion~~previously undrawn revolving ABL Credit Facility. Our intent is to continue to access the capital markets to refinance our future debt obligations on anas-needed basis.

The 2024 Indenture and ~~execution of our current technology roadmap. The Indenture governing our Senior Secured Notes contains~~the ABL Credit Agreement contain covenants that limit the ability of GIH and its subsidiaries to incur additional indebtedness. Additionally, the Indenture governing the Senior Secured Notes limits the amount of cash GIH and its subsidiaries may distribute to us, including cash distributed to us to pay interest on the Convertible Notes, to pay any interest on indebtedness incurred, or pay dividends on preferred stock issued by us to refinance, replace, renew or refund the Convertible Notes. Further, market conditions and/or our financial performance may limit our access to additional sources of equity or debt ~~financing.~~financing, or our ability to pursue potential strategic alternatives. As a result, we may be unable to finance growth of our business to the extent that our cash, ~~on hand (including~~cash equivalents and short-term ~~investments)~~investments and cash generated through operating activities prove insufficient ~~and~~or we are unable to raise additional financing through the issuance of ~~our~~additional equity, ~~or through~~ permitted incurrences of debt by us or by GIH and its ~~subsidiaries.~~subsidiaries, or the pursuit of potential strategic alternatives.

For additional information on ~~our~~the 2024 Senior Secured Notes, the ABL Credit Facility, the 2022 Senior Secured Notes, the 2022 Convertible Notes ~~Amended~~ and ~~Restated Credit Agreement and Restricted Cash, please~~the 2020 Convertible Notes, see Note 8,10, “Long-Term Debt and Other ~~Liabilities”~~Liabilities,” to our unaudited condensed consolidated financial statements.

Cash flows provided by (used in) Operating Activities:

The following table presents a summary of our cash flows from operating activities for the periods set forth below(in thousands):


	For the Nine Months
	Ended September 30,						For the Three Months Ended March 31,
	2017			2016			2020			2019
Net loss	$	(130,857	)	$	(97,573	)	$	(84,778	)	$	(16,799	)
Non-cash charges and credits		136,695			121,812			98,706			42,468
Changes in operating assets and liabilities		(10,047	)		20,909			24,099			(31,825	)

Net cash provided by (used in) operating activities	$	(4,209	)	$	45,148		$	38,027		$	(6,156	)

For the ~~nine~~three month period ended ~~September 30, 2017,~~March 31, 2020, cash provided by operating activities was $38.0 million as compared with net cash used in operating activities ~~was $4.2~~of $6.2 million ~~as compared with $45.1 million of cash provided by operating activities~~ in the ~~prior year~~prior-year period. The principal contributors to the year-over-year change in operating cash flows were:

A ~~$18.4~~$55.9 million ~~changes in net loss adjusted fornon-cash~~ ~~charges and credits, and~~

~~A $31.0 million change~~increase in cash flows related to operating assets and liabilities resulting from:

~~A decrease in cash flows due to the following:~~

~~Changes inCA-NA’s,~~ ~~BA’s andCA-ROW’s~~ ~~accounts receivable due to the timing of collections;~~

~~Changes inCA-NA’s~~ ~~and BA’s deferred revenue as deferred revenue balances increased more during 2016 than in 2017;~~

~~Changes inCA-ROW’s~~ ~~deferred airborne lease incentives due to more installations at higher amounts during 2016 as compared with 2017;~~

~~Changes inCA-NA’s~~ ~~accrued liabilities due primarily to the timing of payments; and~~

~~Changes in accrued interest due to the payment of interest on the Senior Secured Notes during 2017 while no such payment was made during 2016, as the Senior Secured Notes were issued in June 2016.~~

~~Offset in part by an~~An increase in cash flows due to the following:

Changes in ~~all three segments’ prepaid expenses and other current assets. The change inCA-NA~~ ~~was~~accrued interest due to changes in the ~~recognition~~timing of ~~development services during 2017 that were paid~~payments as compared to the prior-year;

Changes in ~~2016. The change in BA was~~CA-NA’s and BA’s accounts payable due ~~to deposits made on certain inventory items during the first quarter of 2016, while no such payments were made during 2017. The change inCA-ROW~~ ~~was due~~primarily to the timing of ~~payments on satellite services;~~payments;

Changes in BA’s ~~inventory~~accounts receivable due primarily to ~~inventory builds throughout 2016 while inventory decreased slightly during 2017;~~the timing of collections;

~~Changes inCA-NA’s~~ ~~deferred airborne lease incentives due to more installations at higher amounts during 2017 as compared with 2016; and~~

Changes inCA-ROW’s and BA’s accrued liabilities due primarily to the timing of ~~payments.~~payments; and

~~We anticipate cash flows from changes~~

Changes in ~~operating assets and liabilities to be impacted by~~CA-NA’s deferred airborne lease ~~incentives, which we estimate will range from $60~~proceeds due to more installations under the turnkey model in the current year as compared with the prior year

Offset in part by a decrease in cash flows due to the following:

Changes inCA-ROW’s accounts receivable due to a larger reduction in accounts receivable balances in the first quarter of 2019 as compared with the first quarter of 2020;

Changes inCA-NA’s and BA’s inventories due to the timing of inventory purchases; and

Changes inCA-NA’s deferred revenue due primarily to the timing of customer payments.

An $11.7 million increase in net lossand non-cash charges and credits, primarily due to ~~$70 million for the year ending December 31, 2017~~a decreasein CA-NA reportable segment profit offset in part by an increase in BA reportable segment profit and ~~$40 million to $50 million for the year ended December 31, 2018. See~~a decreasein CA-ROW reportable segment loss, as noted above under “—~~Capital Expenditures” below for further information.~~Results of Operations.”

Cash flows ~~used in~~provided by (used in) Investing Activities:

Cash used in investing activities is primarily for capital expenditures related to airborne equipment, cell site construction, software development, and data center upgrades. See “—Capital Expenditures” below. Additionally, cash used in investing activities includes net changes in our short-term investments of a cash inflow of ~~$150.0~~$39.3 million ~~and a cash outflow $119.2 million, respectively,~~ for the ~~nine~~three month period ended ~~September 30, 2017 and 2016.~~March 31, 2019, while no such activity occurred in the current year as we no longer hold any short-term investments.

Cash flows provided by (used in) Financing Activities:

Cash provided by financing activities for the ~~nine~~three month period ended ~~September 30, 2017~~March 31, 2020 was ~~$175.5~~$18.9 million primarily due to the ~~issuance~~$22.0 million of proceeds from the ~~January 2017 Additional Notes and the September 2017 Additional Notes with gross proceeds of $181.8 million,~~ABL Credit Facility offset in part by the ~~payment~~repayment on maturity of ~~debt issuance costs for~~ the ~~January 2017 Additional~~outstanding $2.5 million in aggregate principal amount of the 2020 Convertible Notes ~~and September 2017 Additional Notes of $3.6 million and capital lease payments of $2.3 million.~~on March 1, 2020.

Cash used in financing activities for the ~~nine~~three month period ended ~~September 30, 2016~~March 31, 2019 was ~~$202.4~~$0.7 million primarily due to deferred financing costs associated with the ~~issuance~~issuances of ~~$525.0 million of~~the 2024 Senior Secured Notes, ~~partially offset by the payment~~which occurred in ~~full of the Amended~~April and Restated Credit Agreement totaling $310.1 million (including the early prepayment penalty of approximately $8.6 million), the payment of debt issuance costs for the Senior Secured Notes of $10.6 millionMay 2019, and ~~capital~~financing lease ~~payments of $1.9 million.~~payments.

Capital Expenditures

Our operations continue to require significant capital expenditures, primarily for technology development, equipment and capacity expansion. Capital expenditures for theCA-NA andCA-ROW segments include the purchase of airborne equipment for the turnkey model, which correlates directly to the roll out and/or upgrade of service to our airline partners’ fleets. Capital spending is also associated with the expansion of our ATG and satellite network and data ~~centers and includes site acquisition, design, permitting, network equipment and construction costs.~~centers. We capitalize software development costs related to network technology solutions, the Gogo platform and new product/service offerings. We also ~~capitalized~~capitalize costs related to the build out of our ~~new~~ office locations.

Capital expenditures for the ~~nine~~three month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 were ~~$214.2~~$15.3 million and ~~$128.7~~$27.7 million, respectively. The ~~increase~~decrease in capital expenditures was primarily due to ~~an increase~~a decrease in airborne equipment purchases ~~(as airborne equipment represents approximately 70% of our capital expense for the current year), primarily for the rollout of 2Ku, and to~~as well as a ~~lesser extent an increase~~decrease in capitalized software.

We ~~anticipate~~expect that our airborne-related capital expenditures ~~for~~will vary in the ~~year ending December 31, 2017 will range from $290 million to $330 million as we increase purchases~~future depending upon the number of ~~airborne equipment (including 2Ku) that when sold to~~installations under the airlines will qualify as an operating lease of space, and begin the buildout of our next generation ATG network. We expect our capital expenditures, net of deferred airborne lease incentives, which we estimate will range from $60 million to $70 million, to range from $230 million to $260 million for the year ending December 31, 2017. We anticipate that capital expenditures for the year ending December 31, 2018 will range from $110 million to $170 million. We expect our capital expenditures, net of deferred airborne lease incentives, which we estimate will range from $40 million to $50 million, to range from $70 million to $120 million for the year ending December 31, 2018. The decrease inturnkey model. Network-related capital expenditures and ~~related deferred airborne lease incentives~~investments in ~~2018~~capitalized software will increase over time as ~~compared with 2016 and 2017 primarily reflects our purchases of equipment in 2018 that, when sold to airlines, will qualify as sales rather than as operating leases of space on aircraft.~~we build out Gogo 5G.

Other

Contractual Commitments:

We have agreements with vendors to provide us with transponder and teleport satellite ~~services. These agreements~~services that vary in length and ~~amount~~amount. See Note 13, “Commitments and ~~as of September 30, 2017 commit us~~Contingencies,” to purchase transponder and teleport satellite services totaling approximately $21.4 million in 2017 (October 1 through December 31), $75.6 million in 2018, $81.9 million in 2019, $86.2 million in 2020, $75.9 million in 2021 and $303.0 million thereafter.our unaudited condensed consolidated financial statements for additional information.

Leases and Cell Site Contracts:We have lease agreements relating to certain facilities and equipment, which are considered operating leases. Additionally, we have operating leases with wireless service providers for tower space and base station capacity on a volume usage basis (“cell site leases”), some of which provide for minimum annual payments. See Note ~~10,~~12, “Leases,” to our unaudited condensed consolidated financial statements for additional information.

~~For the airline agreements where the equipment transactions are accounted for as operating leases of space, the~~The revenue share paid to our airline partners represents operating lease ~~payments. They are~~payments and is deemed to be contingent rental payments, as the payments due to each airline are based on a percentage of ourCA-NA andCA-ROW service revenue generated from that airline’s passengers, which is unknown until realized. As such, we cannot estimate the lease payments due to an airline at the commencement of our contract with such airline. ~~This rental~~Rental expense isrelated to the arrangements with commercial airlines included in cost of service revenue ~~and~~ is primarily comprised of these revenue share payments offset by the amortization of the deferred airborne lease incentive discussed above. See Note ~~10,~~12, “Leases,” to our unaudited condensed consolidated financial statements for additional information.

~~A contract with one of our airline partners requires us to provide the airline partner with a cash rebate of $1.8 million in June 2018.~~

Indemnifications and Guarantees: In accordance with Delaware law, we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under this indemnification is uncertain and may be unlimited, depending upon circumstances. However, our Directors’ and Officers’ insurance does provide coverage for certain of these losses.

In the ordinary course of business we may occasionally enter into agreements pursuant to which we may be obligated to pay for the failure of performance of others, such as the use of corporate credit cards issued to employees. Based on historical experience, we believe that the risk of sustaining any material loss related to such guarantees is remote.

ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is currently confined to our cash and cash equivalents, short-term investments and our debt. We have not used derivative financial instruments for speculation or trading purposes. The primary objectives of our investment activities are to preserve our capital for the purpose of funding operations while at the same time maximizing the income we receive from our investments without significantly increasing risk. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash equivalents and short-term investments through a variety of securities, including U.S. ~~Treasuries,~~Treasury securities, U.S. ~~Government Agency Securities,~~government agency securities, and ~~Money Market Funds.~~money market funds. Our cash and cash equivalents as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 primarily included amounts in bank ~~checking~~deposit accounts and ~~Money Market Funds.~~money market funds. We believe that a change in average interest rates would not ~~materially~~ affect our interest income and results of ~~operations.~~operations by a material amount.

The risk inherent in our market risk sensitive instruments and positions is the potential loss arising from interest rates as discussed below. The sensitivity analyses presented do not consider the effects that such adverse changes may have on the overall economic activity, nor do they consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ.

Interest:Our earnings are affected by changes in interest rates due to the impact those changes have on interest income generated from our cash, cash equivalents and short-term investments. Our cash and cash equivalents as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 included amounts in bank ~~checking~~deposit accounts and money market ~~funds, and our short-term investments consist of U.S. Treasury bills.~~funds. We believe we have minimal interest rate ~~risk;~~risk as a 10% ~~change~~decrease in the average interest rate on our portfolio would have reduced interest income for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 by an immaterial amount.

Inflation:We do not believe that inflation has had a material effect on our results of operations. However, there can be no assurance that our business will not be affected by inflation in the future.

Seasonality:Our results of operations for any interim period are not necessarily indicative of those for any other interim period for the entire year because the demand for air travel, including business travel, is subject to significant seasonal fluctuations. We generally expect overall passenger opportunity to be greater in the second and third quarters compared to the rest of the year due to an increase in leisure travel offset in part by a decrease in business travel during the summer months and holidays. We expect seasonality of the air transportation business to continue, which may affect our results of operations in any one period.

ITEM 4.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Management, with the participation of our Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended) as of ~~September 30, 2017.~~March 31, 2020. Based upon this evaluation, our Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of ~~September 30, 2017.~~March 31, 2020.

(b) Changes in Internal Control over Financial Reporting

There have been no changes to our internal control over financial reporting in connection with the evaluation required by Rules13a-15(f) and15d-15(f) under the Exchange Act during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

Legal Proceedings

Linksmart Litigation - On April 20, 2018, Linksmart Wireless Technology, LLC filed suit against us and eight of our airline partners in the U.S. District Court for the Central District of California alleging that our redirection server and login portal infringe a patent owned by the plaintiff. The suits seek an unspecified amount of damages. We are required under our contracts with these airlines to indemnify them for defense costs and any liabilities resulting from the suit. The Court has stayed the suits against our airline customers pending resolution of the suit against Gogo. Linksmart has also filed suit against other defendants asserting the same patent. Following the filing by one of those defendants of a petition to commence aninter partes review against the asserted patent in the U.S. Patent and Trademark Office, the Court stayed the litigation against such other defendant and Gogo, but such stay was lifted in July 2019 when the U.S. Patent and Trademark Office determined that the petitioner had not met the standard of proof required to commence theinter partes review. We believe that the plaintiff’s claims are without merit and intend to defend them vigorously. The outcome of this litigation is inherently uncertain. No amounts have been accrued for any potential losses under this matter, as we cannot reasonably predict the outcome of the litigation or any potential losses.

From time to time we may become involved in other legal proceedings arising in the ordinary course of our business. We cannot predict with certainty the potential for or outcome of any future litigation. Regardless of the outcome of any particular litigation and the merits of any particular claim, litigation can have a material adverse impact on our company due to, among other reasons, any injunctive relief granted, which could inhibit our ability to operate our business, amounts paid as damages or in settlement of any such matter, diversion of management resources and defense costs.

ITEM 1A.

Risk Factors

“Item 1A. Risk Factors” of our Form10-K includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form10-K.Except as set forth ~~in our Quarterly Report on Form10-Q~~ ~~for the quarter ended March 31, 2017 as filed with the SEC on May 4, 2017,~~below, there have been no material changes to the risk factors previously disclosed in our ~~2016~~201910-K.

TheCOVID-19 pandemic, and the measures implemented to combat it, are having, and are likely to continue to have, a material adverse effect on our business. Moreover, the longer the pandemic persists, the more material the ultimate effects are likely to be. It is likely that there will be future negative effects that we cannot presently predict, including near term effects.

In December 2019, a novel strain of coronavirus(“COVID-19”) was reported in Wuhan, China, and the World Health Organization (the “WHO”) subsequently declaredCOVID-19 a “Public Health Emergency of International Concern.” On March 13, 2020, the U.S. government declared a national emergency and on March 19, 2020, the U.S. Department of State issued a global Level 4 “do not travel” advisory advising U.S. citizens to avoid all international travel due to the global impact ofCOVID-19. The U.S. government has also implemented enhanced screenings, mandatory quarantine requirements and other travel restrictions in connection with theCOVID-19 pandemic, including restrictions on travel from Asia, Europe, Mexico and Canada, and many foreign and U.S. state governments have instituted similar measures (including travel restrictions to and within the European Union) and declared states of emergency. At least 42 states, the District of Columbia and Puerto Rico have issued instructions for their residents to stay home or “shelter in place” and to avoid anynon-essential travel for varied durations of time and may lift, have lifted or will be lifting or easing these instructions at varied times, often with certain restrictions still in place. In addition, depending on the results of any easing or lifting of instructions and other restrictions, federal, state or local governments or authorities may determine to reinstate, enhance or enforce the same or other instructions or restrictions in the future. Governments,non-governmental organizations and entities in the private sector have also issued and may continue to issuenon-binding advisories or recommendations regarding air travel or other social distancing measures, including limitations on the number of persons that should be present at public gatherings.

TheCOVID-19 pandemic has caused a significant decline in international and domestic commercial and business aviation travel, which has materially and adversely affected our business. Passenger traffic on commercial airlines using Gogo’s service declined significantly in April 2020 compared to March 2020. Our airline partners have significantly reduced capacity in response to the reduced demand, both by taking a significant number of aircraft out of service and by reducing the number of flights flown by aircraft that remain in service and we are unable to predict how long such capacity reductions will continue. Our BA business has also seen a sharp decrease in flight activity, which has resulted in an increase in requests forone-month account suspensions and a significant decrease in new plan activations in April 2020 as compared to March 2020.

We expectCOVID-19 to continue to negatively impact our CA and BA businesses and we are unable to predict how long or with what degree of severity that impact will continue. The extent of the impact ofCOVID-19 on our financial and operational performance will depend on future developments, including the duration, spread and severity of the outbreak, the duration and geographic scope of related travel advisories and restrictions and the extent of the impact ofCOVID-19 on overall demand for commercial and business aviation travel, all of which are highly uncertain and cannot be predicted. If our airline partners continue to experience significantly reduced demand for passenger traffic, or continue to keep a significant number of aircraft out of service, for an extended period, our business, results of operations, liquidity and financial condition may be materially adversely affected.

In addition to directly impacting demand for air travel,COVID-19 and related restrictions may have a material and adverse impact on other aspects of our business, including:

enhanced risk of delays or defaults in payments by airline partners and other third parties due to liquidity constraints that extend in some cases to bankruptcy;

delays and difficulties in completing installations on certain aircraft;

delays or shortages in our supply chain;

our competitive position, including with respect to connectivity providers that do not operate exclusively in the aviation industry; and

limitations on our ability to market and grow our business and to promote technological innovation.

At this time we are also not able to predict whether theCOVID-19 pandemic will result in long-term changes to business practices and consumer behavior, with such changes including but not limited to a long-term reduction in travel as a result of increased usage of “virtual” and “teleconferencing” products, a general reluctance to travel by consumers and the impact on demand and capacity, which could result from government mandates on commercial aviation service including, for instance, any requirement for passengers to wear masks while traveling or any limitation on the number of seats that can be occupied on an aircraft to allow for social distancing. Each of these factors could have a material impact on our business. The full extent of the ongoing impact ofCOVID-19 on our longer-term operational and financial performance will depend on future developments, many of which are outside of our control.

The extent to which the outbreak affects our future earnings and liquidity will depend in part on our ability to implement various measures intended to reduce expenses and/or conserve cash, which themselves may have negative consequences with respect to our business and operations. In April 2020, we applied for an $81 million grant and a $150 million loan under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), but we can provide no assurance that we will receive the grant or loan in the amounts for which we applied, or at all. If we do accept relief under the CARES Act, we will be subject to certain restrictions, including, but not limited to, requirements to maintain employment levels through September 30, 2020, requirements to issue warrants for our common stock to the U.S. Treasury Department and certain limitations on executive compensation. The substance and duration of these restrictions may materially affect our operations, and we may not be successful in managing this impact. In addition, effective May 4, 2020, we furloughed approximately 54% of our workforce and implemented various reductions in compensation for other active employees, including salary reductions. Such actions could adversely affect employee morale, reduce overall productivity, lead to departures of key personnel or otherwise adversely impact normal operations. We may also be unsuccessful in amending contracts with certain suppliers and service providers, including satellite service providers. We are implementing and may consider other cost-saving measures, such as delaying aircraft equipment installations, deferring purchases of capital equipment, freezing new hires, reducing marketing and travel expenses and eliminatingnon-essential spend. There can be no assurances that any of the cost-saving measures described above, or any other actions, will successfully mitigate the impact ofCOVID-19 or the related decrease in demand for commercial air travel.

We are unable to predict how long these conditions will persist, what additional measures may be introduced by governments or private parties or what effect any such additional measures may have on air travel and our business. Furthermore, not only is the duration of the pandemic and future measures taken to combat it presently unknown, the overall situation is extremely fluid, and it is impossible to predict the timing of future material changes in the situation. It therefore is impossible to predict whether any such unknown future developments will occur in the near, medium or long term, and depending on the duration of the pandemic, such negative developments may occur over the entirety of the event.

Our business is highly dependent on the airline industry, which is itself affected by factors beyond the airlines’ control, includingCOVID-19. The airline industry is highly competitive and sensitive to changing economic conditions.

Our business is directly affected by the number of passengers flying on commercial aircraft, the financial condition of the airlines and other economic factors. If consumer demand for air travel declines, including due to environmental concerns or regulation, increased use of technology such as videoconferencing for business travelers, or the number of flights shrink due to, among other reasons, reductions in capacity by airlines, the number of passengers available to use the Gogo service will be reduced, which may have a material adverse effect on our business and results of operations. Unfavorable general economic conditions and other events that are beyond the airlines’ control, including higher unemployment rates, higher interest rates, reduced stock prices, reduced consumer and business spending, outbreaks of communicable diseases and terrorist attacks or threats could also have a material adverse effect on the airline industry. In particular, theCOVID-19 outbreak has resulted in widespread and prolonged global travel restrictions, the taking of a significant number of aircraft out of service by our airline partners and the suspension of certain commercial flights by all of our airline partners, which has had, and is expected to continue to have, an adverse impact on our business. See “—TheCOVID-19 pandemic, and the measures implemented to combat it, are having, and are likely to continue to have, a material adverse effect on ourbusiness. Moreover, the longer the pandemic persists, the more material the ultimate effects are likely to be. It is likely that there will be future negative effects that we cannot presently predict, including near term effects.”

A general reduction or shift in discretionary spending could also result in decreased demand for leisure and business travel and lead to a reduction in airline flights offered and the number of passengers flying. Consolidation within the airline industry could also adversely affect our relationships with our existing airline partners or lead to Gogo-equipped aircraft being taken out of service.

Further, unfavorable economic conditions, including conditions associated withCOVID-19, could also limit airlines’ ability to counteract any increased fuel, labor or other costs through raised prices. Our airline partners operate in a highly competitive business market and, as a result, continue to face pressure on offerings and pricing. These unfavorable conditions and the competitiveness of the air travel industry could cause one or more of our airline partners to reduce expenditures on passenger services including deployment of the Gogo service, to be unable to pay the amounts due under our contracts with them in a timely manner or at all or to file for bankruptcy. If one or more of our airline partners were to file for bankruptcy, bankruptcy laws could give them rights to terminate and/or renegotiate their contracts with us, as well as reduce their total fleet size and capacity and/or their total number of flights. For example, due to market conditions caused by theCOVID-19 pandemic, the financial condition of one of the Company’s international airline partners already has deteriorated so significantly that it accounted for approximately 70% of the $6.8 million expected credit loss provision recorded during the three months ended March 31, 2020. Furthermore, we expect to record additional credit losses relating to such airline partner during the three month period ending June 30, 2020. Any of these aforementioned events or circumstances may have a material adverse effect on our business prospects, financial condition and results of operations.

We recorded an impairment charge on certain long-lived assets on March 31, 2020; we could incur additional losses in future periods due to impairment of long-lived assets and goodwill and other intangible assets as a result of theCOVID-19 pandemic or other circumstances.

In accordance with applicable accounting standards, we are required to test our indefinite-lived intangible assets for impairment on an annual basis, or more frequently where there is an indication of impairment. In addition, we are required to test long-lived assets for impairment where there is any indication that an asset may be impaired. We believed that the impact of theCOVID-19 pandemic on our business could be such an indication for both indefinite-lived and long-lived assets and tested such assets for impairment as of March 31, 2020.

Our review of our indefinite-lived intangible assets for impairment, including the impact of theCOVID-19 pandemic, indicated that there were no impairments as of March 31, 2020.

Our review of our long-lived assets, including the impact of theCOVID-19 pandemic, indicated that carrying values related to three of our airline agreements for the CA business exceeded their estimated undiscounted cash flows, which triggered the need to estimate the fair value of these assets. Fair value reflects our best estimate of the discounted cash flows of the impaired assets. For the airborne assets andright-of-use assets associated with the three airline agreements (the “impaired assets”), we recorded an impairment charge of $46.4 million for the three month period ended March 31, 2020, reflecting the difference between the carrying value and the estimated fair value of the impaired assets.

The risk of future additional material impairments has been significantly heightened as result of the effects of theCOVID-19 pandemic on our business and we can provide no assurance that a material impairment loss of long-lived assets or goodwill and other intangible assets will not occur in a future period. Other circumstances that could require us to recognize impairments in the future include, among other factors, tight credit markets, government regulatory changes, decline in the fair values of certain tangible or intangible assets, unfavorable trends in historical or forecasted results of operations and cash flows and an uncertain economic environment, as well as other uncertainties. The value of our equipment could also be impacted in future periods by changes in supply and demand for our services. An impairment loss could have a material adverse effect on our financial condition and results of operations.

We may need additional financing to execute our business plan or new initiatives and we expect that we will need additional financing to refinance or repay our existing indebtedness at maturity; we may not be able to secure additional financing on acceptable terms, or at all.

As of March 31, 2020, our total cash and cash equivalents totaled $214.2 million. However, to date, excluding the impact of financing activities, we have not generated positive cash flows on a consolidated basis. As a result, we may require additional financing at some point in the future to fully execute our business plan, including our technology roadmap, international or domestic expansion plans or other changes. In addition, as a result of the effects ofCOVID-19, we may require additional financing to fund our continuing operations. Our success may depend on our ability to raise such additional financing on reasonable terms and on a timely basis. The amount and timing of our capital needs will depend in part on the resources required to develop our next generation ATG solution, the extent of deployment of 2Ku and our next generation ATG service, the rate of customer penetration, the adoption of our service by airline partners and other factors described in our annual, quarterly or current report filings with the Securities and Exchange Commission that may adversely affect our business. In addition, we may actively consider from time to time other significant technological, strategic and operational initiatives. In order to execute on any of these initiatives, we may require additional financing. Furthermore, we expect that we will require additional financing to refinance, or repay at maturity, our indebtedness, including $237.8 million of 2022 Convertible Notes (as defined below) that mature on May 15, 2022. Conditions in the economy and the financial markets may make it more difficult for us to obtain necessary additional capital or financing on acceptable terms, or at all. In addition, our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes is also limited by the indenture governing the 2024 Senior Secured Notes (as defined below), as amended, and the ABL Credit Agreement (as defined below). As of March 31, 2020, within our existing debt facilities, Gogo Intermediate Holdings LLC and its subsidiaries would have been able to incur approximately $17 million of additional indebtedness of capital leases and borrowing under the ABL Credit Agreement. Though the CARES Act, and other future legislation that may be passed by the U.S. government, may provide for additional potential sources of liquidity, we cannot be assured that we will receive such funding on acceptable terms, or at all. If we do receive funding from the U.S. government, we may be subject to additional restrictions or limitations, including limitations on the use of such funds. See “—TheCOVID-19 pandemic, and the measures implemented to combat it, are having, and are likely to continue to have, a material adverse effect on our business. Moreover, the longer the pandemic persists, the more material the ultimate effects are likely to be. It is likely that there will be future negative effects that we cannot presently predict, including near term effects.” If we cannot secure sufficient additional financing, we may be forced to forego strategic opportunities or delay, scale back or eliminate additional service deployment, operations and investments or employ unplanned internal cost savings measures any of which could have a material adverse effect on our business prospects, financial condition and results of operations.

We and our subsidiaries have substantial debt and may incur substantial additional debt in the future, which could adversely affect our financial health, reduce our profitability, limit our ability to obtain financing in the future and pursue certain business opportunities and reduce the value of your investment.

As of March 31, 2020, we had total consolidated indebtedness of approximately $1,184.8 million, including $925.0 million outstanding of our 9.875% senior secured notes due 2024 (the “2024 Senior Secured Notes”), $237.8 million outstanding of our 6.00% convertible senior notes due 2022 (the “2022 Convertible Notes”) and $22.0 million outstanding under our asset-based revolving credit facility (the “ABL Credit Facility”) pursuant to the credit agreement, dated as of August 26, 2019 (the “ABL Credit Agreement”). Subject to certain limitations set forth in the indenture governing the 2024 Senior Secured Notes, as amended, and the ABL Credit Agreement, we and our subsidiaries may incur additional debt in the future, which could increase the risks described below and lead to other risks.

The amount of our debt or such other obligations could have important consequences for holders of our common stock, including, but not limited to:

a substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes;

our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes is limited, and our ability to satisfy our obligations with respect to our indebtedness may be impaired in the future;

we may be at a competitive disadvantage compared to our competitors with less debt or with comparable debt at more favorable interest rates, or which are subject to fewer limitations or restrictions, and which, as a result, may be better positioned to withstand economic downturns;

our ability to refinance indebtedness may be limited or the associated costs may increase;

our ability to engage in acquisitions without raising additional equity or obtaining additional debt financing may be impaired in the future;

it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on and acceleration of such indebtedness;

we may be more vulnerable to general adverse economic and industry conditions; and

our flexibility to adjust to changing market conditions and our ability to withstand competitive pressures could be limited, or we may be prevented from making capital investments that are necessary or important to our operations in general, growth strategy and efforts to improve operating margins of our business units.

In addition, in April 2020, we applied for a $150 million loan under the CARES Act, which, if received, may subject us to certain restrictions, including, but not limited to, requirements to maintain employment levels through September 30, 2020, requirements to issue warrants for our common stock to the U.S. Treasury Department and certain limitations on executive compensation. The substance and duration of these restrictions may materially affect our operations, and we may not be successful in managing this impact.

We may have future capital needs and may not be able to obtain additional financing to fund our capital needs on acceptable terms, or at all.

We have from time to time evaluated, and we continue to evaluate, our potential capital needs in light of increasing demand for our services, limitations on bandwidth capacity and generally evolving technology in our industry. Additionally, in response to the travel restrictions, decreased demand for our services and other effects ofCOVID-19, we are currently evaluating our capital needs and liquidity position. In connection with our response toCOVID-19, and due to other factors in the future, we may seek to utilize one or more types of capital raising in order to fund any initiative, including the issuance of new equity securities and new debt securities, including debt securities convertible into our common stock. We may also seek to issue such securities to service providers and vendors, in lieu of cash, in order to manage liquidity restraints. Since our IPO, we have obtained debt financing through our entry into our previous credit facility, issuances of convertible notes and issuances of senior secured notes. Excluding the impact of such financing activities, we have not generated positive cash flows on a consolidated basis, and our ability to do so will depend in large part on our ability to increase revenue and manage costs in each of our three business segments. In addition, our ability to generate positive cash flows from operating activities and the timing of certain capital and other necessary expenditures are subject to numerous variables, such as costs related to international expansion and execution of our current technology roadmap, including continuing development of our 2Ku and ATG systems, and other potential future technologies. The market conditions and the macroeconomic conditions that affect the markets in which we operate, ournon-investment grade rating, our substantial indebtedness, the availability of assets as collateral for loans or other indebtedness and other factors, including the impact ofCOVID-19, could have a material adverse effect on our ability to secure financing on acceptable terms, if at all. We may be unable to secure additional financing on favorable terms or at all or our operating cash flow may be insufficient to satisfy our financial obligations under the indenture governing the 2024 Senior Secured Notes, the indenture governing the 2022 Convertible Notes, the ABL Credit Agreement and other indebtedness outstanding from time to time. Our liquidity has been, and may in the future be, negatively affected by the risk factors discussed in Item 1A. Risk Factors in the 201910-K, as updated by this Quarterly Report on Form10-Q, including risks related to future results arising from theCOVID-19 pandemic. If our liquidity is materially diminished, we may not be able to timely pay our debts and obligations as they become due, or otherwise comply with the covenants under the agreements and instruments governing our debt or with other material provisions of our contractual obligations.

Our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes is limited by the indenture governing the 2024 Senior Secured Notes and the ABL Credit Agreement, and additional covenants, restrictions, limitations and provisions could become binding on us as we continue to seek additional liquidity in response to theCOVID-19 pandemic. As of March 31, 2020, within our existing debt facilities, the remaining permitted indebtedness for Gogo Intermediate Holdings LLC (a wholly owned subsidiary of Gogo Inc.) and its subsidiaries was approximately $17 million of capital leases and borrowings under the ABL Credit Agreement. In the future, if our subsidiaries are in compliance with certain incurrence ratios set forth in the indenture governing the 2024 Senior Secured Notes and in the ABL Credit Agreement, our subsidiaries may be able to incur additional indebtedness, which may increase the risks created by our current substantial indebtedness. Neither the indenture governing the 2024 Senior Secured Notes nor the ABL Credit Agreement prohibits Gogo Inc. from incurring additional indebtedness under any circumstances, but they do limit the amount of cash that our subsidiaries may dividend, transfer or otherwise distribute to us, including cash distributed to us to pay interest on the 2022 Convertible Notes or to pay interest on other indebtedness incurred by us, including indebtedness or preferred stock incurred to refinance, replace, renew or refund the 2022 Convertible Notes.

The terms of any additional financing, including any financing obtained through the CARES Act, may further limit our financial and operating flexibility. Our ability to satisfy our financial obligations will depend upon our future operating performance, the availability of credit generally, economic conditions and financial, business and other factors, many of which are beyond our control. Furthermore, if financing is not available when needed, or is not available on acceptable terms, we may be unable to take advantage of business opportunities or respond to competitive pressures, any of which may have a material adverse effect on our business, financial condition and results of operations. Even if we are able to obtain additional financing, we may be required to use the proceeds from any such financing to repay a portion of our outstanding debt.

If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company. In addition, any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock, and we may grant holders of such securities rights with respect to the governance and operations of our business. If we are unable to obtain adequate financing or financing on terms satisfactory to us, if and when we require it, our ability to grow or support our business and to respond to business challenges could be significantly limited.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Sales of Unregistered Securities

None.

Use of Proceeds from Public Offering of Common Stock

None.

ITEM 3.

Defaults Upon Senior Securities

None.

ITEM 4.

Mine Safety Disclosures

None.

ITEM 5.

Other Information

None.

ITEM 6.

Exhibits


Exhibit Number		Description of Exhibits

~~4.10~~4.11		~~First~~Second Supplemental Indenture, dated as of ~~September 20, 2017,~~March 6, 2020, by and among Gogo Air International GmbH, Gogo Intermediate Holdings LLC, Gogo Finance Co. Inc., each of the other guarantors party thereto and U.S. Bank National Association, as trustee ~~(incorporated by reference to Exhibit 4.1 to Form8-K~~ ~~filed on September 20, 2017 (FileNo. 001-35975))~~

~~10.1.51 †~~10.1.43†		Amendment #1#6 to the UnifiedIn-Flight Connectivity Hardware, Services and Maintenance Agreement, ~~dated~~effective as of ~~July 28, 2017,~~December 5, 2019, between Gogo LLC and American Airlines, Inc.

~~10.1.52~~10.1.44†		~~Reaffirmation~~Amendment #7 to the Unified In-Flight Connectivity Hardware, Services and Maintenance Agreement, ~~dated~~effective as of ~~September 25, 2017, among~~December 27, 2019, between Gogo ~~Intermediate Holdings~~ LLC ~~Gogo Finance Co.~~and American Airlines, Inc.~~, Gogo Inc. and the Subsidiary Guarantors party thereto (incorporated by reference to Exhibit 10.1 to Form8-K~~ ~~filed on September 25, 2017 (FileNo. 001-35975))~~

~~10.1.53~~		~~Additional Secured Debt Designation, dated as of September 25, 2017, by and between Gogo Intermediate Holdings LLC and Gogo Finance Co. Inc. (incorporated by reference to Exhibit 10.2 to Form8-K~~ ~~filed on September 25, 2017 (FileNo. 001-35975))~~

~~10.1.54 †~~		~~Amendment No. 3 to the Master Supply and Services Agreement, dated as of July 1, 2017, by and between ZTE USA, Inc. and Gogo LLC~~

~~10.8.9~~		Collateral Agreement Amended, dated as of September 20, 2017, made by Gogo Inc., Gogo Intermediate Holdings LLC, Gogo Finance Co. Inc. and certain of their Subsidiaries in favor of U.S. Bank National Association, as collateral agent (incorporated by reference to Exhibit 4.2 to Form~~8-K~~ ~~filed on September 20, 2017 (FileNo. 001-35975))~~

31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rules13a-14(a) and15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2    Certification of Chief Financial Officer pursuant to Exchange Act Rules13a-14(a) and15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 *    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 *    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Labels Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

†	~~Certain provisions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment.~~

This certification accompanies the Form10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form10-Q), irrespective of any general incorporation language contained in such filing.

†	Certain provisions of this exhibit have been omitted pursuant to Item 601 (b)(10)(iv) of RegulationS-K.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						Gogo Inc.

Date: ~~November 2, 2017~~May 11, 2020

						/s/ ~~Michael Small~~ Oakleigh Thorne
						~~Michael Small~~Oakleigh Thorne
						President and Chief Executive Officer
						(Principal Executive Officer)

						/s/ Barry Rowan
						Barry Rowan
						Executive Vice President and Chief Financial Officer
						(Principal Financial Officer)

5164


	September 30, 2017					December 31, 2016
	Fair Value ⁽¹⁾		Carrying Value			Fair Value ⁽¹⁾		Carrying Value
Senior Secured Notes	$	788,000	$	706,277	⁽²⁾	$	572,000	$	525,000
Convertible Notes		333,000		306,462	⁽³⁾		275,000		292,024	⁽³⁾


	Canadian ATG Spectrum
Years ending December 31,	Amortization
2017 (period from October 1 to December 31)	$	26
2018	$	104
2019	$	104
2020	$	104
2021	$	104
Thereafter	$	1,632


Business Aviation
	For the Three Months
	Ended March 31,
	2020		2019
Aircraft online (at period end)
Satellite		4,939		5,135
ATG		5,713		5,348
Average monthly service revenue per aircraft online
Satellite	$	223	$	237
ATG		3,143		3,071
Units Sold
Satellite		56		130
ATG		125		187
Average equipment revenue per unit sold (in thousands)
Satellite	$	60	$	40
ATG		77		61



31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rules13a-14(a) and15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 *		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 *		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐ ~~(Do not check if smaller reporting company)~~

Smaller reporting company

Emerging growth company