Global Eagle submits overdue SEC filings, details $223 million loss

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WASHINGTON — Satellite connectivity and content provider Global Eagle Entertainment on Jan. 31 handed in the last of its late financial documents to the U.S. Securities and Exchange Commission (SEC), and expects the Nasdaq stock exchange will soon halt its delisting process.

The Los Angeles-based company had received several warnings since March that it was out of compliance with Nasdaq criteria. Global Eagle blamed its tardiness in delivering to the SEC a 2016 annual report and quarterly reports for the first nine months of 2017 on difficulty integrating recent mergers, most notably the $550 million purchase of EMC in May 2016.

For the first nine months of 2017, Global Eagle generated $460 million in revenue, a year-over-year increase of 23 percent. Net loss for the first nine months was $223 million, however, more than 10 times the $21.2 million net loss recorded for the first nine months of 2016. Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, stood at $48.3 million for the nine months ended Sept. 30.

In a Feb. 1 conference call with investors, Global Eagle Chief Financial Officer Paul Rainey said the company incurred “a significant number of one-time cash expenses” in 2017, including audit expenses of approximately $63 million, and $36 million in interest expenses. Rainey said Global Eagle spent $29 million on AMC-3, a 20-year-old SES inclined-orbit satellite since renamed Eagle-1, and roughly $40 million on other capital expenditures.

Jeff Leddy, Global Eagle’s CEO, said the protracted financial filing process “drove extraordinary use of cash and professional services during 2017.”

“We restructured our financial reporting capabilities and other shared services that will positively impact our operational efficiency and timely reporting going forward,” he said. “However, we still have a lot to achieve.”

Leddy said the completed SEC documents “validated the integrity of our financials, and confirmed our position that the company was not subject to any restatements, was not a perpetrator of fraud, and did not commit any other wrongdoing.”

In Global Eagle’s 10-K, the company said three class-action lawsuits were filed in U.S. District Court for the Central District of California following Global Eagle’s financial reporting delays and 2016 CEO and chief financial officer departures. Of those suits, the plaintiffs voluntarily dismissed two, and the third was dismissed by the court.

Capacity costs

Leddy said Global Eagle, freed from the time and expense of catching up on its SEC reports, can now focus on merger efficiencies such as consolidating facilities, and lowering the cost of media content and satellite capacity. Media content, which includes licensing and content services for movies, games and other media, and satellite capacity, are Global Eagle’s two largest costs, he said.

Joshua Marks, Global Eagle’s executive vice president of connectivity, said the company has capacity on 56 satellites in C-, Ku- and Ka-band frequencies, mostly from Intelsat and SES. Purchasing the maritime and land connectivity company EMC doubled Global Eagle’s network bandwidth, he said.

Global Eagle’s average cost per megabit dropped by more than 50 percent since the EMC acquisition, he said. A large driver of that reduced cost, in addition to purchasing scale, “has been the application of EMC’s efficiency technology to our aviation network,” he said.

Though seeking to rein in satellite capacity costs, Global Eagle has continued to purchase more bandwidth, notably a tripling of its capacity on the SES-15 satellite launched last May. Marks said that lease, announced in January, will have a short term negative impact on Global Eagle’s profit margins, but provides room to further grow inflight connectivity (IFC) services.

Vertical moves

Marks said Global Eagle is still working with HNA Group of China on IFC despite the unravelling of a joint venture last year. The Committee on Foreign Investment in the United States raised “unresolved national security concerns” about the deal, which included an HNA Group investment of up to $416 million in Global Eagle for a 34.9 percent ownership stake. Global Eagle expects to begin IFC antenna installations later this year, he said.

Another business opportunity in China has since developed with low-cost airline 9 Air, Marks added. He said Global Eagle completed its first IFC installation in December and is working with the airline to develop IFC products for smartphones.

In maritime, Marks said Global Eagle has more than 200 large yachts under contract and is seeing business grow roughly 10 percent annually through new ships and upgraded services to existing vessels. Government and land connectivity “is our fastest growing segment,” he said, growing at around 20 percent annually. “It’s been a positive surprise from the EMC deal.”

Global Eagle has $50.8 million in cash on hand, essentially the same amount the company had in January 2017 ($50.7 million). Rainey said Global Eagle expects to generate cash from operations for the full year 2017 of approximately $39 million.