Global Eagle says no “fraud or misconduct” behind recent exec departures
WASHINGTON — Content and satellite-connectivity provider Global Eagle Entertainment shot down swirling concerns that its recent changes in executive leadership and concurrent overdue financial statements were the result of any misbehavior on the company’s part.
In a call with investors last week, newly appointed Chief Executive Jeff Leddy sought early to dispel any suggestion that the Marina del Rey, California-based company had engaged in unlawful activity — a question he said had dogged him during his first eight weeks of leadership.
“My replacement of the previous CEO and the CFO was not a result of any fraud or misconduct by my predecessors, but rather belief by the board that based upon the opportunities and challenges we face today, my track record as a CEO and experience in the industry, that I am best qualified to lead the company going forward,” Leddy said in the April 18 call.
Leddy, who founded Hughes Telematics and sold it to Verizon in 2012 for $612 million, took over as Global Eagle CEO on a tumultuous Feb. 21 that began with the disclosure that the Dave Davis and his CFO, Tom Severson, had left the company the day before. On Leddy’s first day, Global Eagle also warned that it would miss U.S. Securities and Exchange Commission’s March 16 deadline for submitting an annual 10-K report for its 2016 results. Global Eagle’s stock took an immediate beating and has continued to fall. The stock is currently trading for about a third of its 52-week high of $9.73 a share.
At least six law firms have launched class-action lawsuits on behalf investors who bought Global Eagle shares since last summer.
Paul Rainey, Global Eagle’s new CFO who left Harris CapRock to join the company, told investors on the April 18 call that Global Eagle’s 2016 audit needed for the annual report “is taking significantly longer than normal” because of the number of acquisitions Global Eagle conducted in recent years, most notably last May’s $550 million purchase of maritime and remote-connectivity provider EMC. Leadership changes, Global Eagle’s diminished market capitalization, and “material weaknesses in internal controls of our financial reporting” are also slowing the process, he said.
“The audit remains ongoing, and to reiterate [Leddy’s] earlier point, we have not discovered — and have no reason to believe that we will discover — any fraud associated with our financials or EMC historical stand-alone financials,” he said. “Similarly, based on the information available to us as of today, we do not believe that we will have to restate our financials or EMC stand-alone financials for any prior period.”
Rainey said Global Eagle expects it will be able to file to file its overdue 10-K report by June 30. This is past the Nasdaq stock exchange’s May 19 deadline, which puts the company at risk of being delisted. Rainey said Global Eagle submitted a request for more time and a compliance plan that would avert that outcome if accepted.
Global Eagle added auditing specialist KPMG’s former Lead Audit Partner Ron Steger to its board of directors and audit committee April 17, increasing the company’s board to eight members.
Leddy said Global Eagle is consolidating its aviation, maritime, land-connectivity business activities into a single service line, essentially dividing the company into connectivity and media content halves.
Along with these organizational changes, Leddy said Global Eagle has added more new leadership, including:
- Glenn Latta, former Thales LiveTV president, as Global Eagle’s chief operations officer for connectivity services;
- Per Norén, formerly chief customer officer of Boeing’s digital aviation division, as senior vice president of aviation solutions;
- And Josh Marks, Global Eagle’s executive vice president of connectivity, who will lead all of the company’s connectivity business, Leddy said.
“We’re addressing the underlying business processes throughout the organization to make sure that the business and the financial organization team[s] [work] together to address any deficiencies we have so that this experience will never be repeated again,” said Leddy.
In an April 21 SEC filing, Global Eagle said that Abel Avellan, the CEO of EMC who stayed on as president and chief strategy officer after last year’s acquisition, resigned April 18. Avellan will continue to advise Global Eagle part time under a $15,000 a month consulting agreement.
Global Eagle also promoted Ole Sivertsen, a maritime executive from EMC, to senior vice president of Global Eagle’s maritime solutions.
Leddy said Global Eagle still anticipates posting 2016 full year revenues at or near the low end of its previously stated $530 million to $538 million guidance.
Joshua Benegal Marks, executive vice president of aviation connectivity at Global Eagle, said the company had completed in-flight connectivity installations on 831 aircraft as of March 31.
U.S. halts Chinese JV
Among other developments, Global Eagle’s proposed joint venture with the Chinese conglomerate Beijing Shareco Technologies Co., which would see Global Eagle providing hardware and connectivity to more than 500 HNA Group aircraft, has been rebuffed by U.S. regulators.
Leddy said the U.S. government’s Committee on Foreign Investment in the United States, or CFIUS, “concluded that the deal, as originally constructed, presented unresolved national security concerns.”
“Both parties agreed to withdraw the application with the intent to refile, and exercised our CFIUS extension option under the terms of the original agreement. With the new application that we intend to file shortly, we’re exploring mitigation alternatives to address the national security issues raised by the committee. In parallel, we’re also evaluating modifications to the investment structure that may enable us to alleviate the CFIUS concerns,” Leddy said.
He added that Global Eagle continues to work closely with Shareco and is providing shipsets to China for installation on HNA aircraft. The Civil Aviation Administration of China in March granted Global Eagle a vendor supplemental type certificate to install its Airconnect Global Satellite Connectivity System on Boeing 737 Next Generation aircraft in China.