GEE Announces Strong Second Quarter 2016 Results

GEE Announces Strong Second Quarter 2016 Results

  • Closed acquisition of Emerging Markets Communications ("EMC"), positioning GEE as a leader in providing connectivity and media to mobile satellite services users (see July 27, 2016 press release)
  • Achieved record aviation Connectivity service revenue and installed the Airconnect system on 30 aircraft, the most quarterly installs since the formation of GEE
  • Signed contract with Avianca Brasil to provide inflight connectivity to the carrier's full fleet utilizing the combined technology and network assets of GEE and EMC
  • Launched new products to the maritime industry, including deploying Airtime, GEE's digital media and Wi-Fi portal, aboard a cruise ship operator utilizing EMC's onboard connectivity system

LOS ANGELES, Aug. 08, 2016 (GLOBE NEWSWIRE) --  Global Eagle Entertainment Inc. (Nasdaq:ENT) ("Global Eagle", "GEE" or the "Company"), a leading provider of satellite-based connectivity and media to fast-growing, global mobility markets across air, sea and land, today announced financial results for its second quarter ended June 30, 2016.  GEE posted revenue of $112.3 million in Q2 2016, up 10% compared to the prior year period, driven by Connectivity revenue growth of 17% to $33.6 million.  The Company recorded a net loss of $38.2 million, driven by accruals for litigation settlement costs, and Adjusted EBITDA* of $11.2 million.

"GEE posted strong results for the second quarter. Aviation Connectivity service revenue reached a record level, driven by higher usage rates, international expansion and a record number of installations of our Airconnect system. In addition, we recently added Avianca Brasil as a new Connectivity customer," said Dave Davis, CEO of GEE. "Our Content segment continues its steady growth by offering new services to customers and winning new contracts."

With the closing of the EMC acquisition, GEE has expanded its addressable market to include satellite-based connectivity and media solutions to the maritime and hard-to-reach land markets.  GEE's revenue base will now be split approximately equally between media content and connectivity sales and it will operate three service lines: Media & Content, Aviation, and Maritime & Land.  Media & Content are part of GEE's Content operating segment, and Aviation and Maritime & Land are part of GEE's Connectivity operating segment.

"The acquisition of EMC positions GEE as a leader in supplying satellite-based connectivity and media to the rapidly growing global mobility market," continued Davis. "The integration process is well underway as we work towards our goal of $40 million in annual cost synergies in 2018 and thereafter.  Further, we've already launched our products into new verticals, such as the installation of GEE's Airtime digital media and Wi-Fi portal onboard an EMC cruise line customer."

Second Quarter 2016 Results Summary

Q2 2016 net loss was $38.2 million and Adjusted EBITDA was $11.2 million.  During the second quarter, GEE increased investment in sales and marketing and product development by $3.5 million year-over-year.  Increases in product development were made to support the Airconnect Global antenna, Boeingline-fit initiatives, new STC certifications, the rollout of new operations solutions products, and the implementation of a new content handling system.  These increased expenses were partially offset by growth in higher margin Connectivity services revenue, driven by higher take rates and passenger volume.  The net loss of $38.2 million was primarily driven by an increase in music litigation settlement reserves of $38.1 million.  This increase in reserves reflects the substantial completion of settlement negotiations with major record labels regarding legacy sound recording liabilities.  We expect to enter into settlement agreements with those labels in Q3 2016.

Capital expenditures for Q2 2016 totaled approximately $14.2 million, inclusive of $4.9 million for satellite transponder purchases announced in Q1 2016 but paid for in Q2 2016. Total capital expenditures year-to-date through Q2 2016 reached $17.6 million.  The Company finished Q2 2016 with approximately $196.7 million in cash and $82.5 million in convertible debt (inclusive of $12.3 million of debt classified as equity).

Segment Results

Content segment revenue grew by $4.9 million, or 7%, to $78.7 million in Q2 2016 versus $73.8 million in Q2 2015. The growth was driven by the addition of new customers and recent acquisitions, offset by a previously anticipated reduction in content distribution revenue. Content distribution revenue is expected to improve to a more normalized level in Q3 2016 as more high value films are delivered to customers. The reduction in Q2 2016 Content revenue relative to Q1 2016 was driven by the seasonal impact of reduced content refresh cycles, which will reverse in Q3 2016 with more billing cycles in that quarter. While Content revenue was up year-over-year, Content segment contribution margin was flat at $25.8 million, largely due to lower content distribution revenue. The Company expects Content contribution margin to improve in the second half of 2016 due to an improved slate of titles. Approximately 95% of GEE's content revenue today is derived from the aviation market. The acquisition of EMC provides a greatly expanded opportunity to provide more media products to the maritime and land verticals.

Connectivity segment revenue increased by $5.0 million, or 17%, to $33.6 million in Q2 2016 versus $28.6 million in Q2 2015. This was driven by a $2.6 million increase in Connectivity service revenue and a $2.4 million increase in Connectivity equipment revenue. The increase in Connectivity service revenue was driven by a number of factors. These include an increase in the number of connected planes, the addition of new services to international customers and higher usage rates for our Wi-Fi Internet services. The increase in Connectivity equipment revenue included new Electronic Flight Bag (EFB) equipment sales and sales of Airtime streaming IFE equipment. Connectivity segment contribution margin in Q2 2016 increased by $0.8 million versus Q2 2015, due to better equipment margin from sales of EFB products and offset by the costs of adding satellite capacity, largely in international regions, as well as a decrease in sponsorship revenue. The combined company expects to derive approximately 40% of its Connectivity service revenue from the aviation market, 40% from maritime markets and the remainder from land-based and other verticals.

Recent Highlights

  • Closed acquisition of Emerging Markets Communications ("EMC") [see separate press release]. The acquisition provides:
    • An unparalleled portfolio of products and services tailored to mobility markets, including global connectivity, media content in 47 languages, live television, travel and entertainment apps, user interface platforms and data capture and operations analytics tools
    • Forecasted annual cost synergies of $40 million in 2018 and thereafter, with the majority expected to come from network efficiencies, including the ability to optimize bandwidth costs through a consolidation of existing network assets, as well as better capacity utilization
    • A global sales force and support organization that reaches all major mobility verticals including aviation, maritime, energy and remote locations
    • A satellite and ground-based network infrastructure that can provide customers with connectivity and media across multiple frequency bands anywhere in the world
    • Proprietary, patented technologies that enhance the connected traveler's user experience and reduce costs across market verticals
    • A diversified revenue base with over 400 customers, balanced between media and connectivity, and over half of all revenue coming from international markets
    • Engineering, technical and managerial resources to effectively drive new product development, program management, product maintenance, and field support
  • Signed contract with Avianca Brasil to provide inflight connectivity to the carrier's full fleet of over 40 aircraft. GEE has been the provider of inflight entertainment content services to Avianca Brasil and its partner airline, Avianca, since June 2015
  • Launched new services and products to the cruise industry:
    • Providing four additional live television channels to EMC's cruise operator customers
    • Deployed Airtime, GEE' s award winning digital media portal, to a cruise operator utilizing EMC's maritime connectivity product
  • Signed new distribution deal with QYou to expand the content distribution portfolio
  • Substantially completed negotiations with major record labels and airlines to settle legacy sound recording liabilities, and expect to enter into settlement agreements in Q3.
  • Launching DASH, an automated content handling system designed to reduce the costs of processing and distributing media
  • Launched fully operational service on flydubai, with a full fleet rollout expected in the next 6-9 months
  • Added four new customers for electronic flight bag (EFB) data interfaces and powered mounting systems and two new customers for operations solutions products
  • Announced the real-time integration of connected aircraft data streams with GEE's masFlight airline operations data platform, providing airline executives and operations managers with the most current and complete views of flight performance
  • GEE continues to forecast over 100 new installations for full-year 2016
    • Ramp expected in the second half of 2016 versus the first half, with GEE forecasting continued record installations in the second half of 2016

For the full report visit http://investors.geemedia.com/releasedetail.cfm?ReleaseID=983494

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