Gogo Inc. 10-K

Item 8. Financial Statements and Supplementary Data Gogo Inc. Index to Consolidated Financial Statements Page No. Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 55 Consolidated Balance Sheets 57 Consolidated Statements of Operations 58 Consolidated Statements of Comprehensive Income (Loss) 59 Consolidated Statements of Cash Flows 60 Consolidated Statements of Stockholders’ Equity (Deficit) 61 Notes to Consolidated Financial Statements 62 54 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Gogo Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Gogo Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with the accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Income Taxes — Realizability of Deferred Tax Assets — Refer to Notes 2 and 15 to the financial statements The Company recognizes deferred income tax assets and liabilities for tax attributes and are based on the differences between the financial statement and tax basis of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the tax differences are expected to reverse. The Company regularly assesses the need for a valuation allowance related to deferred income tax assets to determine, based on the weight of the available positive and negative evidence, whether it is more likely than not that some or all of such deferred assets will not be realized. The Company’s assessment considers recent financial operating results, the scheduled expiration of its net operating losses, potential sources of taxable income, the reversal of existing taxable differences, taxable income in prior carryback years, if permitted under tax law, and tax planning strategies. Management has determined that it is more likely than not that sufficient taxable income will be generated in the future to realize $162.7 million of its deferred income tax assets as of December 31, 2022. We identified management’s determination that it is more likely than not that sufficient taxable income will be generated in the future to realize deferred income tax assets as a critical audit matter because of the significant judgments management makes related to taxable income. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates of taxable income. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the determination that it is more likely than not that sufficient taxable income will be generated in the future to realize deferred income tax assets included the following, among others, which were performed with the assistance of our income tax specialists: 55 • We tested the effectiveness of controls over deferred income tax assets, including management’s controls over the estimates of taxable income and the determination of whether it is more likely than not that the deferred income tax assets will be realized. • We evaluated the reasonableness of the methods, assumptions, and judgments used by management to determine whether it was more likely than not that certain tax attributes and deferred income tax assets could be realized. • We evaluated whether the sources of management’s estimated taxable income were of the appropriate character and sufficient to utilize the deferred income tax assets under the relevant tax law. This included evaluating management’s assessment of the scheduling of the reversal of existing temporary taxable differences and carryforward lives of the deferred income tax assets, and the availability of tax planning strategies as a source of future taxable income. • We tested the reasonableness of management’s adjusted historical taxable income to project sources of future taxable income, and performed the following procedures related to historical taxable income: • Compared the historical taxable income to the amounts disclosed in the Company’s historical financial statements. • Evaluated the recurring permanent differences included in the historical taxable income for reasonableness. • Tested the adjustments made to historical taxable income for nonrecurring items to assess if they were objectively verifiable. • Compared the historical taxable income to internal budgets and information communicated internally, to the Board of Directors and in Company press releases related to fiscal year 2023 and forward. • We evaluated whether there was taxable income in prior carryback years that was of the appropriate character and available under the tax law. /s/ Deloitte & Touche LLP Chicago, Illinois February 28, 2023 We have served as the Company’s auditor since 2007. 56 Gogo Inc. and Subsidiaries Consolidated B alance Sheets (in thousands, except share and per share data) December 31, December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 150,550 $ 145,913 Short-term investments 24,796 — Total cash, cash-equivalents and short-term investments 175,346 145,913 Accounts receivable, net of allowances of $ 1,778 and $ 894 , respectively 54,210 37,730 Inventories 49,493 33,976 Prepaid expenses and other current assets 45,100 32,295 Total current assets 324,149 249,914 Non-current assets: Property and equipment, net 104,595 63,672 Intangible assets, net 49,509 49,554 Operating lease right-of-use assets 75,261 70,989 Other non-current assets, net of allowances of $ 501 and $ 455 , respectively 43,355 28,425 Deferred income taxes 162,657 185,133 Total non-current assets 435,377 397,773 Total assets $ 759,526 $ 647,687 Liabilities and stockholders’ deficit Current liabilities: Accounts payable $ 13,646 $ 17,203 Accrued liabilities 60,056 59,868 Deferred revenue 3,418 1,825 Current portion of long-term debt 7,250 109,620 Total current liabilities 84,370 188,516 Non-current liabilities: Long-term debt 690,173 694,760 Non-current operating lease liabilities 79,241 77,329 Other non-current liabilities 7,611 7,236 Total non-current liabilities 777,025 779,325 Total liabilities 861,395 967,841 Commitments and contingencies (Note 17) Stockholders’ deficit Common stock, par value $ 0.0001 per share; 500,000,000 shares authorized at December 31, 2022 and 2021; 136,531,362 and 117,407,468 shares issued at December 31, 2022 and 2021, respectively; and 127,840,813 and 110,791,954 shares outstanding at December 31, 2022 and 2021, respectively 14 11 Additional paid-in capital 1,385,933 1,258,477 Accumulated other comprehensive income 30,128 1,789 Treasury stock, at cost ( 158,375 ) ( 128,803 ) Accumulated deficit ( 1,359,569 ) ( 1,451,628 ) Total stockholders’ deficit ( 101,869 ) ( 320,154 ) Total liabilities and stockholders’ deficit $ 759,526 $ 647,687 See the Notes to Consolidated Financial Statements 57 Gogo Inc. and Subsidiaries Consolidated Statem ents of Operations (in thousands, except per share amounts) For the Years Ended December 31, 2022 2021 2020 Revenue: Service revenue $ 296,329 $ 259,583 $ 211,987 Equipment revenue 107,738 76,133 57,731 Total revenue 404,067 335,716 269,718 Operating expenses: Cost of service revenue (exclusive of items shown below) 64,427 56,103 45,073 Cost of equipment revenue (exclusive of items shown below) 71,473 46,092 39,299 Engineering, design and development 29,587 24,874 25,227 Sales and marketing 25,471 20,985 15,135 General and administrative 58,203 51,554 54,467 Depreciation and amortization 12,580 15,482 14,166 Total operating expenses 261,741 215,090 193,367 Operating income 142,326 120,626 76,351 Other (income) expense: Interest income ( 2,386 ) ( 191 ) ( 722 ) Interest expense 38,872 67,472 125,787 Loss on extinguishment of debt and settlement of convertible notes — 83,961 — Other (income) expense, net 123 25 ( 9 ) Total other expense 36,609 151,267 125,056 Income (loss) from continuing operations before income taxes 105,717 ( 30,641 ) ( 48,705 ) Income tax provision (benefit) 13,658 ( 187,230 ) ( 146 ) Net income (loss) from continuing operations 92,059 156,589 ( 48,559 ) Net loss from discontinued operations, net of tax — ( 3,854 ) ( 201,477 ) Net income (loss) $ 92,059 $ 152,735 $ ( 250,036 ) Net income (loss) attributable to common stock per share—basic: Continuing operations $ 0.75 $ 1.50 $ ( 0.59 ) Discontinued operations — ( 0.04 ) ( 2.45 ) Net income (loss) attributable to common stock per share—basic $ 0.75 $ 1.46 $ ( 3.04 ) Net income (loss) attributable to common stock per share—diluted: Continuing operations $ 0.71 $ 1.28 $ ( 0.59 ) Discontinued operations — — ( 2.45 ) Net income (loss) attributable to common stock per share—diluted $ 0.71 $ 1.28 $ ( 3.04 ) Weighted average number of shares Basic 123,268 103,400 82,266 Diluted 133,923 127,205 82,266 See the Notes to Consolidated Financial Statements 58 Gogo Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (in thousands) For the Years Ended December 31, 2022 2021 2020 Net income (loss) $ 92,059 $ 152,735 $ ( 250,036 ) Other comprehensive income (loss), net of tax Currency translation adjustments $ ( 265 ) $ 53 $ 1,243 Cash flow hedges: Amount recognized in other comprehensive income (loss) 34,765 2,747 — Less: income (loss) realized and reclassified to earnings 6,161 ( 2 ) — Changes in fair value of cash flow hedges 28,604 2,749 — Other comprehensive income (loss), net of tax 28,339 2,802 1,243 Comprehensive income (loss) $ 120,398 $ 155,537 $ ( 248,793 ) See the Notes to Consolidated Financial Statements 59 Gogo Inc. and Subsidiaries Consolidated Statem ents of Cash Flows (in thousands) For the Years Ended December 31, 2022 2021 2020 Operating activities from continuing operations: Net income (loss) $ 92,059 $ 156,589 $ ( 48,559 ) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 12,580 15,482 14,166 Loss on asset disposals, abandonments and write-downs 1,577 141 64 Provision for expected credit losses 1,047 284 1,071 Deferred income taxes 13,170 ( 187,320 ) ( 232 ) Stock-based compensation expense 19,065 13,345 7,808 Amortization of deferred financing costs and interest rate caps 3,215 4,661 5,892 Accretion of debt discount 456 419 13,908 Loss on extinguishment of debt and settlement of convertible notes — 83,961 — Changes in operating assets and liabilities: Accounts receivable ( 17,482 ) 1,925 1,315 Inventories ( 15,517 ) ( 5,862 ) 7,091 Prepaid expenses and other current assets 8,351 ( 20,844 ) ( 277 ) Contract assets ( 2,164 ) ( 5,638 ) ( 9,439 ) Accounts payable ( 2,540 ) 3,806 4,963 Accrued liabilities ( 12,031 ) 14,099 4,470 Deferred revenue 1,589 ( 1,282 ) 898 Accrued interest 3,647 ( 8,604 ) 787 Other non-current assets and liabilities ( 3,617 ) 1,535 587 Net cash provided by operating activities from continuing operations 103,405 66,697 4,513 Investing activities from continuing operations: Proceeds from sale of property and equipment — 1,000 — Purchases of property and equipment ( 43,914 ) ( 4,264 ) ( 1,818 ) Acquisition of intangible assets—capitalized software ( 6,000 ) ( 4,396 ) ( 7,172 ) Proceeds from (purchase of) interest rate caps 4,292 ( 8,629 ) — Purchases of short-term investments ( 24,796 ) — — Net cash used in investing activities from continuing operations ( 70,418 ) ( 16,289 ) ( 8,990 ) Financing activities from continuing operations: Proceeds from credit facility draw — — 26,000 Repayments of amounts drawn from credit facility — — ( 26,000 ) Repurchase of convertible notes — — ( 2,498 ) Proceeds from issuance of senior secured notes — — 51,750 Redemption of senior secured notes — ( 1,023,146 ) — Proceeds from term loan, net of discount — 721,375 — Payment of debt issuance costs — ( 21,103 ) — Repurchases of common stock ( 18,375 ) — — Payments on term loan ( 7,250 ) ( 3,625 ) — Payments on finance leases ( 184 ) ( 145 ) ( 546 ) Stock-based compensation activity ( 2,579 ) ( 4,393 ) ( 4,227 ) Net cash provided by (used in) financing activities from continuing operations ( 28,388 ) ( 331,037 ) 44,479 Cash flows from discontinued operations: Net cash used in operating activities — ( 1,211 ) ( 137,200 ) Net cash provided by (used in) investing activities — ( 7,802 ) 357,393 Net cash used in financing activities — — ( 54 ) Net cash provided by (used in) discontinued operations — ( 9,013 ) 220,139 Effect of foreign exchange rate changes on cash 13 40 ( 1,946 ) Increase (decrease) in cash, cash equivalents and restricted cash 4,612 ( 289,602 ) 258,195 Cash, cash equivalents and restricted cash at beginning of period 146,268 435,870 177,675 Cash, cash equivalents and restricted cash at end of period $ 150,880 $ 146,268 $ 435,870 Cash, cash equivalents and restricted cash at end of period $ 150,880 $ 146,268 $ 435,870 Less: current restricted cash — 25 525 Less: non-current restricted cash 330 330 — Cash and cash equivalents at end of period $ 150,550 $ 145,913 $ 435,345 Supplemental Cash Flow Information: Cash paid for interest $ 41,209 $ 71,114 $ 106,051 Cash paid for taxes 377 376 401 Non-cash investing activities: Purchases of property and equipment in current liabilities $ 10,688 $ 6,126 $ 84 See the Notes to Consolidated Financial Statements 60 Gogo Inc. and Subsidiaries Consolidated Statements of St ockholders’ Equity (Deficit) (in thousands, except share data) Accumulated Additional Other Common Stock Paid-In Comprehensive Accumulated Treasury Stock Shares Par Value Capital Income (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 — — — — ( 250,036 ) — — ( 250,036 ) Currency translation adjustments, net of tax — — — 1,243 — — — 1,243 Stock-based compensation expense — — 14,458 — — — — 14,458 Issuance of common stock upon exercise of stock options 87,104 — 262 — — 262 Issuance of common stock upon vesting of restricted stock units and restricted stock awards 2,376,709 — — — — — — — Tax withholding related to vesting of restricted stock units — — ( 5,470 ) — — — — ( 5,470 ) Issuance of common stock in connection with employee stock purchase plan 363,209 1 983 — — — — 984 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 December 31, 2020 85,990,499 9 1,088,590 ( 1,013 ) ( 1,629,843 ) 5,077,400 ( 98,857 ) ( 641,114 ) Net income — — — — 152,735 — — 152,735 Currency translation adjustments, net of tax — — — 53 — — — 53 Fair value adjustments of cash flow hedge, net of tax — — — 2,749 — — — 2,749 Stock-based compensation expense — — 37,318 — — — — 37,318 Issuance of common stock upon exercise of stock options 591,930 — 1,780 — — — — 1,780 Issuance of common stock upon vesting of restricted stock units and restricted stock awards 1,346,008 — — — — — — — Tax withholding related to vesting of restricted stock units — — ( 6,708 ) — — — — ( 6,708 ) Issuance of common stock in connection with employee stock purchase plan 48,560 — 535 — — — — 535 Settlement of convertible notes 24,353,006 2 154,439 — — — — 154,441 Settlement of prepaid forward shares ( 1,538,049 ) — 29,946 — — 1,538,049 ( 29,946 ) — Impact of the adoption of ASU 2020-06 — — ( 47,423 ) — 25,480 — — ( 21,943 ) Balance at December 31, 2021 110,791,954 11 1,258,477 1,789 ( 1,451,628 ) 6,615,449 ( 128,803 ) ( 320,154 ) Net income — — — — 92,059 — — 92,059 Currency translation adjustments, net of tax — — — ( 265 ) — — — ( 265 ) Fair value adjustments of cash flow hedges, net of tax — — — 28,604 — — — 28,604 Stock-based compensation expense — — 19,065 — — — — 19,065 Issuance of common stock upon exercise of stock options 758,681 — 2,023 — — — — 2,023 Issuance of common stock upon vesting of restricted stock units 1,181,457 1 — — — — — 1 Tax withholding related to vesting of restricted stock units — — ( 8,257 ) — — — — ( 8,257 ) Issuance of common stock in connection with employee stock purchase plan 52,489 — 642 — — — — 642 Settlement of convertible notes 17,131,332 2 102,786 — — — — 102,788 Settlement of prepaid forward shares ( 575,100 ) — 11,197 — — 575,100 ( 11,197 ) — Repurchase of common stock ( 1,500,000 ) — — — — 1,500,000 ( 18,375 ) ( 18,375 ) Balance at December 31, 2022 127,840,813 $ 14 $ 1,385,933 $ 30,128 $ ( 1,359,569 ) 8,690,549 $ ( 158,375 ) $ ( 101,869 ) See the Notes to Consolidated Financial Statements 61 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. Background Gogo (“we”, “us,” or “our”) is the world’s largest provider of broadband connectivity services for the business aviation market. We have served this market for more than 25 years. Our mission is to enrich the lives of passengers and the efficiency of operators with the world’s best business aviation in-flight connectivity and customer support. We have always sought to provide the best connectivity for the business aviation market regardless of technology, and we have a successful history of doing so. Until recently, we focused primarily on business aviation aircraft in North America, which comprise approximately 63% of the worldwide business aviation fleet, and we are the leading provider of in-flight connectivity in that market. Gogo started in analogue air-to-ground (“ATG”) technology in the late 1990s, then, as analogue cellular backhaul disappeared, migrated to narrowband satellite connectivity in the early 2000s, then back to ATG with our digital broadband 3G and 4G networks beginning in 2010. We expect to commercially launch our fourth ATG network – Gogo 5G – in the fourth quarter of 2023. We also continue to provide narrowband satellite services to customers in North America and internationally through distribution agreements with satellite providers. In May 2022, in order to further serve our existing customers and expand our target market, we announced plans to expand our broadband offerings beyond ATG by launching the first global broadband service designed for business aviation (“Global Broadband”). The service will use an electronically steered antenna, specifically designed to address a broad range of business aviation aircraft, operating on a low earth orbit (“LEO”) satellite network. The antenna will be designed with Hughes Network Systems, LLC (“Hughes”) and deployed on a LEO satellite network operated by Network Access Associates Limited (“OneWeb”). On December 1, 2020, we completed the previously announced sale of our commercial aviation (“CA”) business to a subsidiary of Intelsat Jackson Holdings S.A. (“Intelsat”) for a purchase price of $ 400.0 million in cash, subject to certain adjustments (the “Transaction”). At the closing of the Transaction, the parties entered into certain ancillary agreements, including a transition services agreement, an intellectual property license agreement and commercial agreements. The transition services agreement has been terminated. The commercial agreements include an ATG network sharing agreement with a 10-year term, pursuant to which we provide certain in-flight connectivity services on our current ATG network and, when available, our Gogo 5G network, subject to certain revenue sharing obligations. Under the ATG network sharing agreement, Intelsat has exclusive access to the ATG network for commercial aviation in North America, subject to minimum revenue guarantees. As a result of the Transaction, the CA business is reported in discontinued operations and financial statements for the years ended December 31, 2021 and 2020 have been conformed to present the CA business as a discontinued operation. There was no discontinued operations activity for the CA business after December 31, 2021. We report the financial results of discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations reporting occurs only when the disposal of a component or a group of components (i) meets the held-for-sale classification criteria or is disposed of by sale or other than by sale, and (ii) represents a strategic shift that will have a major effect on our operations and financial results. Unless otherwise noted, discussion in these Notes to Consolidated Financial Statements refers to our continuing operations. Refer to Note 20, “Discontinued Operations,” for further information. 2 . Summary of Significant Accounting Policies Principles of Consolidation – The consolidated financial statements include our wholly owned subsidiaries. All intercompany transactions and account balances have been eliminated. Prior to the closing of the Transaction, we historically reported our results of operations in three segments: Commercial Aviation-North America (“CA-NA”), Commercial Aviation-Rest of World (“CA-ROW”) and Business Aviation. We managed and reported these businesses separately, as they generally did not share the same customer base, had different products, pricing and expense structures, and measured operating performance and allocated resources on different bases. As a result of the Transaction, we operate in a single distinct business segment, Business Aviation, for which operating performance is measured and resources are allocated on a consolidated basis, consistent with the financial information regularly reviewed by the chief operating decision maker, our CEO. Therefore, we now report one business segment, comprised of our continuing operations. As we do not have multiple segments, we do not present segment information in this Annual Report on Form 10-K. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 revenues and expenses during the reporting period. On an ongoing basis, management evaluates the significant estimates and bases 62 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. Significant Risks and Uncertainties - Our operations are subject to certain risks and uncertainties, including without limitation those associated with fluctuations in operating results, implementation of our technology roadmap, strategic alliances, relationships with customers, suppliers and dealers, supply chain disruptions, funding of our growth, financing terms that may restrict operations, regulatory issues, competition, the economy, te chnology trends, evolving industry standards and other events that may impact the demand for air travel. Cash, Cash Equivalents and Short-Term Investments - We consider cash and cash equivalents to be short-term, highly liquid investments that have the following characteristics: readily convertible to known amounts of cash, so near their maturities that there is insignificant risk of changes in value due to any changes in market interest rates, and having maturities of three months or less when purchased. We continually monitor positions with, and the credit quality of, the financial institutions with which we invest. The carrying amounts reported in the balance sheets for cash and cash equivalents approximate the fair market value of these assets. We consider short-term investments to be investments with maturities of twelve months or less (but greater than three months). Restricted Cash - Certain cash amounts are restricted as to use and are classified outside of cash and cash equivalents. Cash amounts with restrictions of twelve months or less are included in Prepaid expenses and other current assets and amounts restricted for greater than twelve months are included in Other non-current assets in our consolidated balance sheets. Our restricted cash balances were $ 0.3 million and $ 0.4 million , respectively, as of December 31, 2022 and 2021 , and consisted primarily of a letter of credit issued for the benefit of the landlord of our office location in Chicago, IL. Concentrations of Credit Risk - Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash and cash equivalents. All cash and cash equivalents are invested with creditworthy financial institutions. Our revenue from customers domiciled outside of the United States accounted for less than 10% of our total revenue for the years ended December 31, 2022, 2021 and 2020. Our long-lived assets outside of the United States were less than 10% of our consolidated long-lived assets as of December 31, 2022 and 2021 . Income Tax - We use an asset- and liability-based approach in accounting for income taxes. Deferred income tax assets and liabilities are recorded for tax attributes and are based on the differences between the financial statement and tax basis of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the tax differences are expected to reverse. We regularly assess the need for a valuation allowance related to our deferred income tax assets to determine, based on the weight of the available positive and negative evidence, whether it is more likely than not that some or all of such deferred assets will not be realized. We also consider the existence of any uncertain tax positions and, as necessary, provide a reserve for any uncertain tax positions at each reporting date. See Note 15, “Income Tax,” for further details. Inventories - Inventories consist primarily of telecommunications systems and parts and are recorded at the lower of average cost or net realizable value. 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. See Note 5, “Inventories,” for further details. Property and Equipment and Depreciation - Property and equipment, including leasehold improvements, are stated at historical cost, less accumulated depreciation. Network asset inventory and construction in progress, which include materials, transmission and related equipment, interest and other costs relating to the construction and development of our network, are not depreciated until they are put into service. Network equipment consists of switching equipment, antennas, base transceiver stations, site preparation costs, and other related equipment used in the operation of our network. Depreciation expense totaled $ 7.9 million for each of the years ended December 31, 2022, 2021 and 2020. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives for owned assets, which are as follows: Office equipment, furniture, fixtures and other 3 - 5 years Leasehold improvements 7 - 13 years Network equipment 5 - 25 years See Note 6, “Composition of Certain Balance Sheet Accounts,” for further details. Improvements to leased property are depreciated over the shorter of the useful life of the improvement or the term of the related lease. We reassess the useful lives of leasehold improvements when there are changes to the terms of the underlying lease. Such reassessment has resulted in the useful life of specific assets being adjusted to a shorter period than originally estimated, resulting in an increase in annual depreciation expense for those assets. Repairs and maintenance costs are expensed as incurred. 63 Software Development Costs - We capitalize costs for network and non-network software developed or obtained for internal use during the application development stage. These costs include purchased software and direct costs associated with the development and configuration of internal use software that supports the operation of our service offerings. These costs are included in Intangible assets, net, in our consolidated balance sheets and, when the software is placed in service, are amortized on a straight-line basis over their estimated useful lives. Costs incurred in the preliminary project and post-implementation stages, as well as maintenance and training costs, are expensed as incurred. With respect to software sold as part of our equipment sales, we capitalize software development costs once technological feasibility has been established. Such capitalized software costs are amortized on a product-by-product basis over the remaining estimated economic life of the product, based on the greater of the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or the straight-line method. Intangible Assets - Intangible assets with indefinite lives are not amortized but are reviewed for impairment at least annually or whenever events or circumstances indicate the carrying value of the asset may not be recoverable. Our FCC Licenses, as defined in Note 8, “Intangible Assets,” are our only material indefinite-lived intangible assets. We perform our annual impairment test of our FCC Licenses 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, financial performance versus budget and any other events or circumstances specific to the FCC Licenses. If it is more likely than not that the fair value of the FCC Licenses is greater than the carrying value, no further testing is required. If our qualitative analysis indicates more testing is required, or if we elect not to perform a qualitative analysis, we will apply the quantitative impairment test method. Our quantitative impairment testing of the FCC Licenses uses the Greenfield method, an income-based approach. When performing this quantitative impairment testing, 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 fair value of the FCC licenses. The estimate takes into account all costs and expenses necessary to build the Company’s infrastructure during the start-up period, projected revenue, and cash flows once the infrastructure is completed. Since there is limited 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, based on our historical weighted average cost of capital, adjusted to reflect the cost of capital for a new market participant. Although we believe our projected future operating results and cash flows and related estimates regarding fair values are based on reasonable assumptions, projected operating results and cash flows may not always be achieved. The failure to achieve one or more of our assumptions regarding projected operating results and cash flows in the near term or long term could reduce the estimated fair value below carrying value and result in the recognition of an impairment charge. The results of our annual indefinite-lived intangible asset impairment assessments for 2022, 2021 and 2020 indicated no impairment. Intangible assets that are deemed to have a finite life are amortized over their useful lives as follows: Software 3 - 8 years OEM and dealer relationships 10 years Service customer relationships 5 - 7 years Other intangible assets 8 years See Note 8, “Intangible Assets,” for further details . Long-Lived Assets - We review our long-lived assets to determine potential impairment whenever events indicate that the carrying amount of such assets may not be recoverable. We do this 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, including cash flows from disposition. If we determine an impairment exists, the asset is written down to estimated fair value. There were no impairments of long-lived assets in 2022, 2021 or 2020 . Revenue Recognition - Our revenue is primarily earned from providing connectivity and entertainment services and through sales of equipment. We account for revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). We determine revenue recognition through the following steps: • Identification of the contract, or contracts, with a customer; • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and 64 • Recognition of revenue as we satisfy the performance obligations. Service revenue primarily consists of monthly subscription and usage fees paid by aircraft owners and operators for telecommunication, data, and in-flight entertainment services and is recognized as the services are provided to the customer. Equipment revenue primarily consists of proceeds from the sale of ATG and narrowband satellite connectivity equipment and is recognized when control of the equipment is transferred to OEMs and dealers, which generally occurs when the equipment is shipped. In all cases, we evaluate whether a contract exists as it relates to collectability of the contract. Once a contract is deemed to exist, we evaluate the transaction price and deliverables under the contract. A limited number of contracts contain multiple equipment and service deliverables. 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. See Note 4, “Revenue Recognition,” for further information. Research and Development Costs - Expenditures for research and development are charged to expense as incurred and totaled $ 29.6 million , $ 24.9 million and $ 25.2 million for the years ended December 31, 2022, 2021 and 2020 , respectively. Research and development costs are reported as engineering, design and development expenses in our consolidated statements of operations. Warranty - We provide warranties on parts and labor related to our products. Our warranty terms range from two to five 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 consolidated balance sheets. See Note 7, “Composition of Certain Reserves and Allowances,” for the details of the changes in our warranty reserve. Asset Retirement Obligations - We have certain asset retirement obligations related to contractual commitments to remove our network equipment and other assets from leased cell sites upon termination of the site leases. The asset retirement obligations are classified as a noncurrent liability in our consolidated balance sheets. See Note 6, “Composition of Certain Balance Sheet Accounts,” for the details of the changes in our asset retirement obligations. Fair Value of Financial Instruments - We group financial assets and financial liabilities measured at fair value into three levels of hierarchy based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. See Note 13, “Fair Value of Financial Assets and Liabilities,” for further information. Derivatives - We are exposed to interest rate risk on our variable rate borrowings. We currently use interest rate caps to manage our exposure to interest rate changes, and have designated these interest rate caps as cash flow hedges for accounting purposes. We account for these interest rate caps in accordance with ASC 815, Derivatives and Hedging , which requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. We record the effective portion of changes in the fair value of our cash flow hedges to other comprehensive income (loss), net of tax, and subsequently reclassify these amounts into earnings in the period during which the hedged transaction is recognized. See Note 10, “Derivative Instruments and Hedging Activities,” for further information. Earnings (Loss) Per Share - We calculate basic earnings (loss) per share using the weighted-average number of common shares outstanding during the period. We calculate diluted earnings (loss) per share using the weighted-average number of common shares outstanding and all dilutive potential common shares outstanding. See Note 3, “Earnings (Loss) Per Share,” for further information. Stock-Based Compensation Expense - Compensation cost is measured and recognized at fair value for all stock-based payments, including stock options. For time-based vesting stock options, we estimate fair value using the Black-Scholes option-pricing model, which requires assumptions, such as expected volatility, risk-free interest rate, expected life, and dividends. Forfeitures are recognized when they occur. Restricted stock units (“RSUs”) and restricted stock are measured based on the fair market value of the underlying stock on the date of grant. For awards with a market condition (which we have used on a limited basis), we estimate fair value using the Monte Carlo Simulation model, which requires assumptions, such as volatility, risk-free interest rate, expected life and dividends. Our stock-based compensation expense is recognized over the applicable vesting period and is included in the same operating expense line items in the consolidated statements of operations as the base cash compensation paid to the underlying employees . See Note 14, “Stock-Based Compensation and 401(k) Plan,” for further information. 65 Leases – We account for leases in accordance with Accounting Standards Codification Topic 842, Leases (“ASC 842”). We have operating lease agreements for which w e have recorded lease liabilities and right-of-use assets for leases primarily related to cell sites and office buildings. We determine whether a contract contains a lease at contract inception and calculate the lease liability and right-of-use asset using our incremental borrowing rate. Our cell site leases generally have terms of five to ten years , with renewal options for an additional five to 25 years . For certain cell sites, the renewal options are deemed to be reasonably certain to be exercised. Our building leases have original terms of ten years , with renewal options for an additional five years . We recognize operating lease expense on a straight-line basis over the lease term. We have finance leases for computer and office equipment. Covenants within the Term Loan Facility contain certain restrictions on our ability to enter into new finance lease arrangements. See Note 16, “Leases,” for further information. Advertising Costs - Costs for advertising are expensed as incurred. Debt Issuance Costs - We defer loan origination fees and financing costs related to our various debt offerings as deferred financing costs. Additionally, we defer fees paid directly to the lenders related to amendments of our various debt offerings as deferred financing costs. We amortize these costs over the term of the underlying debt obligation using the effective interest method and include them in interest expense in the consolidated statement of operations. The fees incurred but not paid directly to the lenders in connection with amendments are expensed as incurred to interest expense. Deferred financing costs associated with future debt issuances are written off in the period during which we determine that the debt will no longer be issued. See Note 9, “Long-Term Debt and Other Liabilities,” for further information. Comprehensive Income (Loss) - Comprehensive income for the years ended December 31, 2022 and 2021 is net income plus or minus unrealized gains and losses on foreign currency translation adjustments and the changes in fair value of cash flow hedges. Comprehensive loss for the year ended December 31, 2020 is net loss plus unrealized gains on foreign currency translation adjustments. Recently Issued Accounting Pronouncements The Company considers the applicability and impact of all Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB). ASUs not listed below were assessed and determined to be either not applicable or expected to have minimal impact on our consolidated financial statements. Accounting standards adopted: On January 1, 2022, we adopted ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance to increase the transparency of transactions with a government accounted for by applying a grant or contribution accounting model by analogy. ASU 2021-10 requires an entity to disclose information about the nature of the transactions, including the significant terms and conditions, accounting policy used to account for the transactions, and the effect of the transactions on the financial statements. Adoption of this standard did not have a material impact on our consolidated financial statements. 3 . Earnings (Loss) Per Share Basic and diluted earnings (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 9, “Long-Term Debt and Other Liabilities”) are considered participating securities requiring the two-class method to calculate basic and diluted earnings per share. Net earnings will be allocated between shares of common stock and participating securities on a one-to-one basis. 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. Additionally, the calculation of weighted average shares outstanding as of December 31, 2021 and 2020 excludes approximately 0.6 million and 2.1 million shares, respectively, associated with the Forward Transactions. The diluted earnings (loss) per share calculations exclude the effect of stock options, deferred stock units, restricted stock units and convertible notes when the computation is anti-dilutive. For the years ended December 31, 2022 and 2021, the weighted average number of shares excluded from the computation was 0.5 million and 5.7 million shares, respectively. As a result of the net loss for the year ended December 31, 2020, all of the outstanding shares of common stock underlying stock options, deferred stock units, restricted stock units and convertible notes were excluded from the computation of diluted shares outstanding because they were anti-dilutive. 66 During September 2022, we repurchased 1.5 million shares of common stock in a private transaction for an aggregate purchase price of $ 18,345,000 , or $ 12.23 per share (the “Repurchase”). The Repurchase decreased the weighted average shares outstanding for the year ended December 31, 2022. The following tables sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2022, 2021 and 2020; however, for the reasons described above, the shares associated with the Forward Transactions are excluded from the computation of basic earnings per share ( in thousands, except per share amounts ): 2022 2021 Income (Numerator) Shares (Denominator) Per Share Amount Income (Numerator) Shares (Denominator) Per Share Amount Net income from continuing operations $ 92,059 $ 156,589 Less: Participation rights on Forward Transactions allocated to continuing operations 171 1,484 Basic Earnings Per Share from Continuing Operations Undistributed income from continuing operations $ 91,888 123,268 $ 0.75 $ 155,105 103,400 $ 1.50 Effect of Dilutive Securities from Continuing Operations Stock-based compensation — 4,881 — 6,674 2022 Convertible Notes 2,770 5,774 7,221 17,131 Diluted Earnings Per Share from Continuing Operations Undistributed income from continuing operations and assumed conversions $ 94,658 133,923 $ 0.71 $ 162,326 127,205 $ 1.28 Net loss from discontinued operations $ — $ ( 3,854 ) Less: Participation rights on Forward Transactions allocated to discontinued operations — ( 36 ) Basic Loss Per Share from Discontinued Operations Undistributed loss from discontinued operations $ — 123,268 $ — $ ( 3,818 ) 103,400 $ ( 0.04 ) Effect of Dilutive Securities from Discontinued Operations Stock-based compensation — 4,881 3,615 6,674 2022 Convertible Notes — 5,774 — 17,131 Diluted Loss Per Share from Discontinued Operations Undistributed loss from discontinued operations and assumed conversions $ — 133,923 $ — $ ( 203 ) 127,205 $ — Earnings per share - basic $ 0.75 $ 1.46 Earnings per share - diluted $ 0.71 $ 1.28 For the Year Ended December 31, 2020 Net loss from continuing operations $ ( 48,559 ) Net loss from discontinued operations ( 201,477 ) Net loss ( 250,036 ) Less: Participation rights of the Forward Transactions — Undistributed losses $ ( 250,036 ) Weighted-average common shares outstanding-basic and diluted 82,266 Net loss attributable to common stock per share-basic and diluted: Net loss from continuing operations $ ( 0.59 ) Net loss from discontinued operations ( 2.45 ) Net loss $ ( 3.04 ) 67 4. Revenue Recognition Remaining Performance Obligations As of December 31, 2022, the aggregate amount of the transaction price in our customer contracts allocated to unsatisfied performance obligations was approximately $ 102 million . We have excluded from this amount consideration from contracts that have an original duration of one year or less. Approximately $ 80 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. The remaining $ 22 million of such amount represents future equipment revenue that is expected to be recognized primarily within the next two years . Disaggregation of revenue The following table presents our revenue disaggregated by category (in thousands) : For the Year Ended December 31, 2022 2021 2020 Service revenue Connectivity $ 291,444 $ 255,786 $ 209,160 Entertainment and other 4,885 3,797 2,827 Total service revenue $ 296,329 $ 259,583 $ 211,987 Equipment revenue ATG $ 91,152 $ 61,780 $ 45,200 Satellite 9,992 11,048 11,746 Other 6,594 3,305 785 Total equipment revenue $ 107,738 $ 76,133 $ 57,731 Customer type Aircraft owner/operator/service provider $ 296,329 $ 259,583 $ 211,987 OEM and aftermarket dealer 107,738 76,133 57,731 Total revenue $ 404,067 $ 335,716 $ 269,718 Contract balances Our current and non-current contract asset balances totaled $ 19.9 million and $ 17.8 million as of December 31, 2022 and 2021, respectively. Contract assets represent the aggregate amount of revenue recognized in excess of billings primarily for certain sales programs. Our current and non-current deferred revenue balances totaled $ 3.4 million and $ 1.8 million as of December 31, 2022 and 2021, respectively. Deferred revenue includes, among other things, fees paid for equipment and subscription connectivity products. Major Customers No customer accounted for more than 10 % of total revenue for the years ended December 31, 2022, 2021 and 2020 and no customer accounted for more than 10 % of accounts receivable as of December 31, 2022 or 2021 . 5 . Inventories Inventories consist primarily of telecommunications systems and parts and are recorded at the lower of average cost or net realizable value. 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 December 31, 2022 and 2021 were as follows ( in thousands ): December 31, 2022 2021 Work-in-process component parts $ 34,840 $ 21,570 Finished goods 14,653 12,406 Total inventory $ 49,493 $ 33,976 68 6. Composition of Certain Balance Sheet Accounts Prepaid expenses and other current assets as of December 31, 2022 and 2021 were as follows ( in thousands ): December 31, 2022 2021 Interest rate caps and receivable $ 28,496 $ 925 Contract assets 6,494 4,533 Prepaid inventories 2,901 2,525 Insurance receivable (1) — 17,300 Tenant improvement allowance receivables — 1,936 Other 7,209 5,076 Total prepaid expenses and other current assets $ 45,100 $ 32,295 (1) See Note 17, “Commitments and Contingencies,” for additional information. Property and equipment as of December 31, 2022 and 2021 were as follows ( in thousands ): December 31, 2022 2021 Office equipment, furniture, fixtures and other $ 17,242 $ 12,759 Leasehold improvements 15,357 13,545 Network equipment 179,363 142,601 211,962 168,905 Accumulated depreciation ( 107,367 ) ( 105,233 ) Property and equipment, net $ 104,595 $ 63,672 Other non-current assets as of December 31, 2022 and 2021 were as follows ( in thousands ): December 31, 2022 2021 Interest rate caps $ 25,578 $ 11,359 Contract assets, net of allowances of $ 501 and $ 455 , respectively 13,376 13,217 Revolving credit facility deferred financing costs 1,445 1,879 Other 2,956 1,970 Total other non-current assets $ 43,355 $ 28,425 Accrued liabilities as of December 31, 2022 and 2021 were as follows ( in thousands ): December 31, 2022 2021 Employee compensation and benefits $ 19,235 $ 13,791 Accrued interest 9,878 6,231 Operating leases 9,094 7,444 Network equipment 8,748 3,179 Warranty reserve 2,300 2,450 Taxes 2,282 1,997 Litigation settlement accrual (1) — 17,300 Other 8,519 7,476 Total accrued liabilities $ 60,056 $ 59,868 (1) See Note 17, “Commitments and Contingencies,” for additional information. Other non-current liabilities as of December 31, 2022 and 2021 consist of the following ( in thousands ): 69 December 31, 2022 2021 Asset retirement obligations $ 6,032 $ 4,861 Other 1,579 2,375 Total other non-current liabilities $ 7,611 $ 7,236 Changes in our non-current asset retirement obligations for the years ended December 31, 2022 and 2021 consist of the following ( in thousands ): Asset Retirement Obligation Balance – January 1, 2021 $ 4,401 Liabilities incurred — Liabilities settled — Accretion expense 460 Foreign exchange rate adjustments — Balance – December 31, 2021 4,861 Liabilities incurred 682 Liabilities settled ( 43 ) Accretion expense 553 Foreign exchange rate adjustments ( 21 ) Balance – December 31, 2022 $ 6,032 7 . 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 to our current and non-current contract asset balances. However, due to the inherent additional risk associated with a long-term receivable, an additional provision for credit loss is applied to contract asset balances that will diminish over time as the contract nears its expiration date. 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 of COVID-19, which could cause us to record additional material credit losses in future periods. Changes in our allowances for credit losses for the years ended December 31, 2022 and 2021 were as follows ( in thousands ): Other Accounts non-current Receivable assets Balance at January 1, 2021 $ 1,044 $ 375 Provision for expected credit losses 204 80 Write-offs charged against the allowances ( 371 ) — Other 17 — Balance at December 31, 2021 894 455 Provision for expected credit losses 1,001 46 Write-offs charged against the allowances ( 326 ) — Other 209 — Balance at December 31, 2022 $ 1,778 $ 501 Warranties — We provide warranties on parts and labor related to our products. Our warranty terms range from two to five 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 consolidated balance sheets. 70 Changes in our warranty reserve for the years ended December 31, 2022 and 2021 were as follows ( in thousands ): Warranty Reserve Balance – January 1, 2021 $ 2,400 Accruals for warranties issued 126 Settlements and adjustments to warranties ( 76 ) Balance – December 31, 2021 2,450 Accruals for warranties issued 1,583 Settlements and adjustments to warranties ( 1,733 ) Balance – December 31, 2022 $ 2,300 8 . Intangible Assets Our intangible assets are comprised of indefinite- and finite-lived intangible assets and goodwill. We own the rights to 3 MHz of ATG spectrum in the nationwide 800 MHz Commercial Air-Ground Radiotelephone band (the “3 MHz FCC License”), which is used in the operation of our ATG network, and the license for 1 MHz of ATG spectrum in the nationwide 800MHz Commercial Air-Ground Radiotelephone band (the “1 MHz FCC License”) acquired as part of our acquisition of LiveTV Airfone, LLC. Together we refer to the 3 MHz FCC License and the 1 MHz FCC License as the “FCC Licenses.” The FCC Licenses were originally issued with 10-year terms and we have renewed both licenses for subsequent 10-year terms. Such licenses are subject to further renewal by the FCC, and renewals of licenses held by others have occurred routinely and at nominal cost. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic, or other factors that limit the useful life of the FCC Licenses. As a result, the FCC Licenses are treated as indefinite-lived intangible assets which we do not amortize. We reevaluate the useful life of the FCC Licenses each year to determine whether events and circumstances continue to support an indefinite useful life. Our annual impairment assessment of the FCC Licenses for 2022, 2021 and 2020 indicated no impairment. Our software relates to the development of internal use software which is used to run our network and support our service offerings. Software also includes software embedded in the equipment that we sell to our customers. Our goodwill balance was $ 0.6 million as of December 31, 2022 and 2021. Our intangible assets, other than goodwill, as of December 31, 2022 and 2021 were as follows ( in thousands, except for weighted average remaining useful life ): Weighted Average As of December 31, 2022 As of December 31, 2021 Remaining Gross Net Gross Net Useful Life Carrying Accumulated Carrying Carrying Accumulated Carrying (in years) Amount Amortization Amount Amount Amortization Amount Amortized intangible assets: Software 6.4 $ 59,932 $ ( 43,950 ) $ 15,982 $ 54,128 $ ( 39,289 ) $ 14,839 Other intangible assets 8.0 624 — 624 1,812 — 1,812 Service customer relationships 8,081 ( 8,081 ) — 8,081 ( 8,081 ) — OEM and dealer relationships 6,724 ( 6,724 ) — 6,724 ( 6,724 ) — Total amortized intangible assets 75,361 ( 58,755 ) 16,606 70,745 ( 54,094 ) 16,651 Unamortized intangible assets: FCC Licenses 32,283 — 32,283 32,283 — 32,283 Total intangible assets $ 107,644 $ ( 58,755 ) $ 48,889 $ 103,028 $ ( 54,094 ) $ 48,934 Amortization expense for the years ended December 31, 2022, 2021 and 2020 was $ 4.7 million , $ 7.5 million and $ 6.3 million , respectively. 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 2023 $ 2,447 2024 $ 2,369 2025 $ 2,192 2026 $ 2,094 2027 $ 1,930 Thereafter $ 5,574 Actual future amortization expense could differ from the estimated amount as the result of future investments and other factors. 71 9. Long-Term Debt and Other Liabilities Long-term debt as of December 31, 2022 and 2021 was as follows ( in thousands ): December 31, December 31, 2022 2021 Term Loan Facility $ 711,263 $ 718,057 2022 Convertible Notes — 102,788 Total debt 711,263 820,845 Less: deferred financing costs ( 13,840 ) ( 16,465 ) Less: current portion of long-term debt ( 7,250 ) ( 109,620 ) Total long-term debt $ 690,173 $ 694,760 2021 Credit Agreement On April 30, 2021, Gogo and Gogo Intermediate Holdings LLC (“GIH”) (a wholly owned subsidiary of Gogo) entered into a credit agreement (the “Original 2021 Credit Agreement,” and, as it may be amended, supplemented or otherwise modified from time to time , the “2021 Credit Agreement”) among Gogo, GIH, the lenders and issuing banks party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent, which provides for (i) a term loan credit facility (the “Term Loan Facility”) in an aggregate principal amount of $ 725.0 million, issued with a discount of 0.5 %, and (ii) a revolving credit facility (the “Revolving Facility” and together with the Term Loan Facility, the “Facilities”) of up to $ 100.0 million, which includes a letter of credit sub-facility. On February 2, 2023, Gogo and GIH entered into an amendment to the Original 2021 Credit Agreement with Morgan Stanley Senior Funding, Inc., as administrative agent, which replaced all references in the Original 2021 Credit Agreement to LIBOR in respect of the applicable interest rates for the Facilities with an adjusted term secured overnight financing rate as administered by the Federal Reserve Bank of New York (“SOFR”), plus a credit spread adjustment based on the Alternative Reference Rates Committee recommended spread adjustment. The Term Loan Facility amortizes in nominal quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity of the Term Loan Facility on April 30, 2028 . There are no amortization payments under the Revolving Facility, and all borrowings under the Revolving Facility mature on April 30, 2026 . The Term Loan Facility bears annual interest at a floating rate measured by reference to, at GIH’s option, either (i) an adjusted term SOFR rate (subject to a floor of 0.75 %) plus an applicable margin of 3.75 % and a credit spread adjustment based on the Alternative Reference Rates Committee recommended spread adjustments or (ii) an alternate base rate plus an applicable margin of 2.75 %. Loans outstanding under the Revolving Facility bear annual interest at a floating rate measured by reference to, at GIH’s option, either (i) an adjusted term SOFR rate (subject to a floor of 0.00 %) plus an applicable margin ranging from 3.25 % to 3.75 % per annum depending on GIH’s senior secured first lien net leverage ratio and a credit spread adjustment based on the Alternative Reference Rates Committee recommended spread adjustments or (ii) an alternate base rate plus an applicable margin ranging from 2.25 % to 2.75 % per annum depending on GIH’s senior secured first lien net leverage ratio. Additionally, unused commitments under the Revolving Facility are subject to a fee ranging from 0.25 % to 0.50 % per annum depending on GIH’s senior secured first lien net leverage ratio. The Facilities may be prepaid at GIH’s option at any time without premium or penalty (other than customary breakage costs), subject to minimum principal payment amount requirements. Subject to certain exceptions and de minimis thresholds, the Term Loan Facility is subject to mandatory prepayments in an amount equal to: • 100 % of the net cash proceeds of certain asset sales, insurance recovery and condemnation events, subject to reduction to 50 % and 0 % if specified senior secured first lien net leverage ratio targets are met; • 100 % of the net cash proceeds of certain debt offerings; and • 50 % of annual excess cash flow (as defined in the 2021 Credit Agreement), subject to reduction to 25 % and 0 % if specified senior secured first lien net leverage ratio targets are met. The 2021 Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants include restrictions on, among other things: incurrence of indebtedness or issuance of disqualified equity interests; incurrence or existence of liens; consolidations or mergers; activities of Gogo and any subsidiary holding a license issued by the Federal Communications Commission; investments, loans, advances, guarantees or acquisitions; asset sales; dividends or 72 other distributions on equity; purchase, redemption or retirement of capital stock; payment or redemption of certain junior indebtedness; entry into other agreements that restrict the ability to incur liens securing the Facilities; and amendment of organizational documents; in each case subject to customary exceptions. The Revolving Facility includes a financial covenant set at a maximum senior secured first lien net leverage ratio of 7.50 :1.00, which will apply if the outstanding amount of loans and unreimbursed letter of credit drawings thereunder at the end of any fiscal quarter exceeds 35 % of the aggregate of all commitments thereunder. The 2021 Credit Agreement contains customary events of default, which, if any of them occurred, would permit or require the principal, premium, if any, and interest on all of the then outstanding obligations under the Facilities to be due and payable immediately and the commitments under the Revolving Facility to be terminated. The proceeds of the Term Loan Facility were used, together with cash on hand, (i) to redeem in full and pay the outstanding principal amount of the 2024 Senior Secured Notes (as defined below) together with accrued and unpaid interest and redemption premiums and to pay fees associated with the termination of the ABL Credit Agreement (as defined below and, together with the redemption of the 2024 Senior Secured Notes, the “Refinancing”), and (ii) to pay fees and expenses incurred in connection with the Refinancing and the Facilities. The Revolving Facility is available for working capital and general corporate purposes of GIH and its subsidiaries and was undrawn as of December 31, 2022 and 2021. As of December 31, 2022 and 2021, the outstanding principal amount of the Term Loan Facility was $ 714.1 million and $ 721.4 million, respectively, the unaccreted debt discount was $ 2.8 million and $ 3.3 million, respectively, and the net carrying amount was $ 711.3 million and $ 718.1 million, respectively. We paid approximately $ 19.7 million of loan origination and financing costs related to the Facilities which are being accounted for as deferred financing costs on our consolidated balance sheets and are amortized over the terms of the Facilities. Total amortization expense was $ 2.6 million and $ 1.8 million, respectively, for the years ended December 31, 2022 and 2021 and is included in Interest expense in our consolidated statements of operations. As of December 31, 2022 and 2021, the balance of unamortized deferred financing costs related to the Facilities was $ 15.3 million and $ 17.9 million, respectively. On April 30, 2021, Gogo, GIH, and each direct and indirect wholly-owned U.S. restricted subsidiary of GIH (Gogo and such subsidiaries collectively, the “Guarantors”) entered into a guarantee agreement (the “Guarantee Agreement”) in favor of Morgan Stanley Senior Funding, Inc., as collateral agent (the “Collateral Agent”), whereby GIH and the Guarantors guarantee the obligations under the Facilities and certain other secured obligations as set forth in the Guarantee Agreement, and GIH and the Guarantors entered into a collateral agreement (the “Collateral Agreement”), in favor of the Collateral Agent, whereby GIH and the Guarantors grant a security interest in substantially all of their respective tangible and intangible assets (including the equity interests in each direct material wholly-owned U.S. restricted subsidiary owned by GIH or any Guarantor, and 65% of the equity interests in any non-U.S. subsidiary held directly by GIH or any Guarantor), subject to certain exceptions, to secure the obligations under the Facilities and certain other secured obligations as set forth in the Collateral Agreement. 2022 Convertible Notes On November 21, 2018, we issued $ 215.0 million aggregate principal amount of 6.00 % Convertible Senior Notes due 2022 (the “2022 Convertible Notes”) in private offerings to qualified institutional buyers, including pursuant to Rule 144A under the Securities Act, and in concurrent private placements. We granted an option to the initial purchasers to purchase up to an additional $ 32.3 million aggregate principal amount of 2022 Convertible Notes to cover over-allotments, of which $ 22.8 million was subsequently exercised during December 2018, resulting in a total issuance of $ 237.8 million aggregate principal amount of 2022 Convertible Notes. In January 2021, $ 1.0 million aggregate principal amount of 2022 Convertible Notes was converted by holders and settled through the issuance of 166,666 shares of common stock. On March 17, 2021, Gogo entered into separate, privately negotiated exchange agreements (the “March 2021 Exchange Agreements”) with certain holders of the 2022 Convertible Notes. Pursuant to the March 2021 Exchange Agreements, such holders exchanged a total of $ 28,235,000 aggregate principal amount of 2022 Convertible Notes for 5,121,811 shares of our common stock on March 24, 2021. The negotiated exchange rate under the March 2021 Exchange Agreements was 181.40 shares of common stock per $ 1,000 principal amount of the 2022 Convertible Notes, which resulted in a loss on settlement of $ 4.4 million, which is included in Loss on extinguishment of debt and settlement of convertible notes in our consolidated statements of operations for the year ended December 31, 2021. On April 1, 2021, Gogo entered into a privately negotiated exchange agreement (the “GTCR Exchange Agreement”) with an affiliate of funds managed by GTCR LLC (“GTCR”). Pursuant to the GTCR Exchange Agreement, GTCR exchanged $ 105,726,000 aggregate principal amount of 2022 Convertible Notes for 19,064,529 shares of our common stock on April 9, 2021. The negotiated exchange rate under the GTCR Exchange Agreement was 180.32 shares of common stock per $ 1,000 principal amount of 2022 Convertible Notes, which resulted in a loss on settlement of $ 14.6 million, which is included in Loss on extinguishment of debt and settlement of convertible notes in our consolidated statements of operations for the year ended December 31, 2021. 73 As of December 31, 2021, the outstanding principal amount of the 2022 Convertible Notes was $ 102.8 million and was classified as Current portion of long-term debt in the consolidated balance sheets. In May 2022, the remaining $ 102,788,000 aggregate principal amount of 2022 Convertible Notes was converted by holders into 17,131,332 shares of common stock. Thorndale Farm Private Equity Fund 2, LLC, an entity affiliated with our Chairman and Chief Executive Officer, held $ 8,000,000 aggregate principal amount of 2022 Convertible Notes that was converted into 1,333,333 shares of common stock. As of December 31, 2022, there were no outstanding 2022 Convertible Notes. We incurred approximately $ 8.1 million of issuance costs related to the issuance of the 2022 Convertible Notes that were amortized over the term of the 2022 Convertible Notes using the effective interest method. Total amortization expense was $ 0.4 million, $ 1.4 million and $ 1.8 million, respectively, for the years ended December 31, 2022, 2021 and 2020. Amortization expense is included in Interest expense in the consolidated statements of operations. As of December 31, 2021, the balance of unamortized deferred financing costs related to the 2022 Convertible Notes was $ 0.4 million and was included as a reduction to the carrying amount of the debt in our consolidated balance sheets. See Note 11, “Interest Costs,” for additional information. The 2022 Convertible Notes had an initial conversion rate of 166.6667 shares of common stock per $ 1,000 principal amount of 2022 Convertible Notes, which was equivalent to an initial conversion price of approximately $ 6.00 per share of our common stock. Prior to conversion, the shares of common stock subject to conversion were considered in the diluted earnings per share calculations under the if-converted method if their impact was dilutive. Forward Transactions In connection with the issuance of our 3.75 % Convertible Senior Notes due 2020 (the “2020 Convertible Notes”), we paid approximately $ 140.0 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. As a result of the Forward Transactions, total shareholders’ equity within our consolidated balance sheets was reduced by approximately $ 140.0 million. In March, 2020, approximately 5.1 million shares of common stock were delivered to us in connection with the Forward Transactions. In April 2021, approximately 1.5 million shares of common stock were delivered to us in connection with the Amended and Restated Forward Transaction. In May 2022, the approximately 0.6 million shares that were remaining under the Amended and Restated Forward Transactions were delivered to us. As of December 31, 2022, there were no prepaid forward stock repurchase transactions outstanding. 2024 Senior Secured Notes On April 25, 2019, GIH and Gogo Finance Co. Inc. (a wholly owned subsidiary of GIH) (“Gogo Finance” and, together with GIH, the “Issuers”) issued $ 905.0 million aggregate principal amount of 9.875 % senior secured notes due 2024 (the “2024 Senior Secured Notes”), at a price equal to 99.512 % of their face value, under an indenture, dated as of April 25, 2019, among the Issuers, Gogo, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee. On May 7, 2019, the Issuers issued an additional $ 20.0 million of 2024 Senior Secured notes, which were issued at a price equal to 100.5 % of their face value, and $ 50.0 million of 2024 Senior Secured Notes on November 13, 2020, which were issued at a price equal to 103.5 % of their face value. The 2024 Senior Secured Notes were guaranteed on a senior secured basis by Gogo 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 related guarantees were secured by certain liens on the Company’s collateral, which were released upon the closing of the Transaction. We paid approximately $ 22.6 million of origination fees and financing costs related to the issuance of the 2024 Senior Secured Notes, which were accounted for as deferred financing costs on our consolidated balance sheets and were being amortized over the contractual term of the 2024 Senior Secured Notes using the effective interest method. Total amortization expense was $ 1.4 million and $ 3.7 million, respectively, for the years ended December 31, 2021 and 2020. Amortization expense is included in Interest expense in the consolidated statements of operations. 74 The 2024 Senior Secured Notes were redeemed on May 1, 2021 (the “Redemption Date”) at a redemption price equal to 104.938 % of the principal amount of the 2024 Senior Secured Notes redeemed, plus accrued and unpaid interest to (but not including) the Redemption Date. The make-whole premium paid in connection with the redemption was $ 48.1 million. We wrote off the remaining unamortized deferred financing costs of $ 15.2 million and the remaining debt discount of $ 1.3 million, which together are included in Loss on extinguishment of debt and settlement of convertible notes in our consolidated statements of operations for the year ended December 31, 2021. ABL Credit Facility On August 26, 2019, Gogo, GIH and Gogo Finance entered into a credit agreement (the “ABL Credit Agreement”) with the other loan parties party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Morgan Stanley Senior Funding, Inc., as syndication agent, which provided for an asset-based revolving credit facility (the “ABL Credit Facility”) of up to $ 30.0 million, subject to borrowing base availability, and includes letter of credit and swingline sub-facilities. The obligations under the ABL Credit Agreement were guaranteed by Gogo and all of its existing and future subsidiaries, subject to certain exceptions and secured by collateral of the Company. On April 30, 2021, the ABL Credit Agreement and all commitments thereunder were terminated. As a result of the termination, the remaining unamortized deferred financing costs of $ 0.3 million were written off as of May 1, 2021 and included in Loss on extinguishment of debt and settlement of convertible notes in our consolidated statements of operations for the year ended December 31, 2021. 2020 Convertible Notes In March 2015, we issued $ 361.9 million aggregate principal amount of 3.75 % Convertible Senior Notes due 2020 (the “2020 Convertible Notes”) in a private offering to qualified institutional buyers, pursuant to Rule 144A under the Securities Act. In 2018 and 2019, we repurchased a total of $ 359.4 million aggregate principal amount of the 2020 Convertible Notes, and on March 1, 2020, the remaining $ 2.5 million aggregate principal amount of the 2020 Convertible Notes matured. 10. Derivative Instruments and Hedging Activities We are exposed to interest rate risk on our variable rate borrowings. We currently use interest rate caps to manage our exposure to interest rate changes, and have designated these interest rate caps as cash flow hedges for accounting purposes. Accordingly, the earnings impact of the derivatives designated as cash flow hedges is recorded upon the recognition of the variable interest payments related to the hedged debt. In May 2021, we purchased interest rate caps with an aggregate notional amount of $ 650.0 million for $ 8.6 million. The cost of the interest rate caps will be amortized to interest expense using the caplet method, from the effective date through termination date. We receive payments in the amount calculated pursuant to the caps for any period in which the three-month USD LIBOR rate increases beyond the applicable strike rate . The notional amounts of the interest rate caps periodically decrease over the life of the caps. The notional amounts, strike rates and end dates of the cap agreements are as follows (notional amounts in thousands) : Start Date End Date Notional Amounts Strike Rate 7/31/2021 7/31/2023 $ 650,000 0.75 % 7/31/2023 7/31/2024 525,000 0.75 % 7/31/2024 7/31/2025 350,000 1.25 % 7/31/2025 7/31/2026 250,000 2.25 % 7/31/2026 7/31/2027 200,000 2.75 % We record the effective portion of changes in the fair value of our cash flow hedges to other comprehensive income (loss), net of tax, and subsequently reclassify these amounts into earnings in the period during which the hedged transaction is recognized. The amounts included in accumulated other comprehensive income will be reclassified to interest expense in the event the hedges are no longer considered effective, in accordance with ASC 815, Derivatives and Hedging . No gains or losses of our cash flow hedges were considered to be ineffective and reclassified from other comprehensive income (loss) to earnings for the years ended December 31, 2022 and 2021 . We estimate that approximately $ 1.5 million currently recorded in accumulated other comprehensive income (loss) will be recognized in earnings over the next 12 months. We assess the effectiveness of the hedge on an ongoing basis. Cash flows from interest rate caps are classified in the consolidated statement of cash flows as investing activities from continuing operations. For the year ended December 31, 2022, we recorded an unrealized gain on the interest rate caps of $ 28.4 million, net of tax of $ 9.3 million. For the year ended December 31, 2021, we recorded an unrealized gain on the interest rate caps of $ 2.7 million, net of tax of $ 0.9 million. Unrealized gains and losses on interest rate caps exclude amortization of the purchase price paid for the interest rate caps. 75 When derivatives are used, we are exposed to credit loss in the event of non-performance by the counterparties; however, non-performance is not anticipated. ASC 815, Derivatives and Hedging , requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. The fair values of the interest rate derivatives are based on quoted market prices for similar instruments from commercial banks (based on significant observable inputs - Level 2 inputs). The following table presents the fair value of our interest rate derivatives included in the consolidated balance sheets for the periods presented (in thousands): December 31, Derivatives designated as hedging instruments Balance sheet location 2022 2021 Current portion of interest rate caps Prepaid expenses and other current assets $ 24,459 $ 92 5 Non-current portion of interest rate caps Other non-current assets $ 25,578 $ 11,359 Fair Value Measurement Our derivative assets and liabilities consist principally of interest rate caps, which are carried at fair value based on significant observable inputs (Level 2 inputs). Derivatives entered into by us are typically executed over-the-counter and are valued using discounted cash flows along with fair value models that primarily use market observable inputs. These models take into account a variety of factors including, where applicable, maturity, interest rate yield curves, and counterparty credit risks. 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 years ended December 31, 2022, 2021 and 2020 (in thousands) : For the Years Ended December 31, 2022 2021 2020 Interest costs charged to expense $ 43,530 $ 62,390 $ 105,988 Amortization of deferred financing costs 3,058 4,661 5,892 Accretion of debt discount 456 419 13,907 Amortization of the purchase price of interest rate caps 157 2 — Interest rate cap benefit ( 8,329 ) — — Interest expense 38,872 67,472 125,787 Interest costs capitalized to property and equipment 920 4 — Interest costs capitalized to software 472 311 885 Total interest costs $ 40,264 $ 67,787 $ 126,672 12. Common Stock and Preferred Stock Common Stock – We have one class of common stock outstanding as of December 31, 2022 and 2021. Our common stock is junior to our preferred stock, if and when issued. Our Third Amended and Restated Certificate of Incorporation authorizes a total of 500,000,000 shares of common stock with a par value of $ 0.0001 per share. Preferred Stock – Our Third Amended and Restated Certificate of Incorporation authorizes 100,000,000 shares of new preferred stock with a par value of $ 0.01 per share. No shares of this new preferred stock have been issued. The preferred stock may be issued, from time to time, in one or more series as authorized by the Board of Directors, which has the authority to designate the terms of any series of preferred stock issued, including, without limitation, the number of shares to be included in such series of preferred stock, any dividend, redemption, conversion rights or voting powers and the designations, preferences and relative participating, optional or other special rights. Shareholder Rights Plan – On September 23, 2020, our Board of Directors adopted a Section 382 Rights Agreement (as amended, the “Rights Agreement”), between the Company and Computershare Trust Company, N.A., as rights agent (the “Rights Agent”), and declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock of the Company, outstanding on the record date of October 2, 2020, to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Preferred Stock, par value $ 0.01 per share, of the Company (the “Preferred Shares”) at a price of $ 38.40 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment. In December 2022, the Company entered into Amendment No. 1 to the Rights Agreement with the Rights Agent, which, among other things, changed the Distribution Date (as defined below) from the close of business on the tenth to the thirtieth day after the Stock Acquisition Date (as defined in the Rights Agreement), with certain exceptions. 76 The purpose of the Rights Agreement is to facilitate the Company’s ability to preserve its net operating losses (“NOLs”) and certain other tax attributes in order to be able to offset potential future income taxes for federal income tax purposes. The Company’s ability to use its NOLs and other tax attributes would be substantially limited if it experiences an “ownership change,” as such term is defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). A company generally experiences an ownership change if the percentage of the value of its stock owned by certain “5-percent shareholders,” as such term is defined in Section 382 of the Code, increases by more than 50 percentage points over a rolling three-year period. The Rights Agreement is intended to reduce the likelihood of an ownership change under Section 382 of the Code by deterring any person or group from acquiring beneficial ownership of 4.9% or more of the shares of the Company’s common stock then-outstanding. The Rights are attached to all shares of the Company’s common stock, and until the Distribution Date (as defined below), the Rights will be transferred with and only with the common stock. As long as the Rights are attached to the common stock, the Company will issue one Right with each new share of common stock so that all such shares of common stock will have Rights attached (subject to certain limited exceptions). The Rights will separate and begin trading separately from the common stock, and Right certificates will be caused to evidence the Rights, on the earlier to occur of (i) the close of business on the thirtieth day following public disclosure of facts indicating that a person or group has acquired beneficial ownership of 4.9% or more of the outstanding common stock (an “Acquiring Person”) (or, in the event the Board of Directors determines to effect an exchange in accordance with Section 24 of the Rights Agreement and the Board of Directors determines that a later date is advisable, then such later date) and (ii) the close of business on the tenth business day (or such later date as may be determined by action of the Board of Directors prior to such time as any person becomes an Acquiring Person) following the commencement of a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 4.9% or more of the outstanding common stock (the earlier of such dates, the “Distribution Date”). The Rights are not exercisable until the Distribution Date. The Rights will expire on the earlier to occur of (i) the date on which the Board of Directors determines in its sole discretion that (x) the Rights Agreement is no longer necessary for the preservation of material valuable NOLs or tax attributes or (y) the NOLs and tax attributes have been fully utilized and may no longer be carried forward and (ii) the close of business on September 23, 2023. The Rights Agreement was approved by the Company's stockholders at the Company's 2021 annual meeting of stockholders. On September 15, 2022, pursuant to the Rights Agreement and following approval by the Board of Directors, the Company requested that BlackRock, Inc. (together with its subsidiaries and funds under management, “BlackRock”), as promptly as practicable, divest sufficient shares of the Company’s common stock to take BlackRock’s beneficial ownership below 4.9% so as to not be deemed an “Acquiring Person” under the Rights Agreement. On September 28, 2022, following confirmation that it had divested sufficient shares of the Company’s common stock so as to not be deemed an “Acquiring Person” under the Rights Agreement, the Board of Directors granted a request by BlackRock that it be deemed an “Exempt Person” under the Rights Agreement, subject to BlackRock satisfying certain ownership conditions, including that neither BlackRock, Inc. nor any subsidiary or individual fund will have an economic interest of 4.9% or more of the Company’s common stock. Additionally, on December 29, 2022, the Board of Directors determined another shareholder not to be deemed an “Acquiring Person” under the Rights Agreement and granted a request from the shareholder that it be deemed an “Exempt Person” under the Rights Agreement, subject to such shareholder satisfying certain ownership conditions. 13. 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 for identical assets or liabilities in active markets; • Level 2 - defined as observable inputs other than Level 1 inputs 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. Refer to Note 10, “Derivative Instruments and Hedging Activities,” for fair value information relating to our interest rate caps. Long-Term Debt: As of December 31, 2022 and 2021, our financial assets and liabilities that are disclosed but not measured at fair value include the Term Loan Facility, and solely as of December 31, 2021, the 2022 Convertible Notes, which are reflected on the consolidated balance sheets 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 Term Loan Facility, and 77 solely as of December 31, 2021, the 2022 Convertible Notes, by calculating the upfront cash payment a market participant would require to assume these obligations. The upfront cash payments used in the calculations of fair value on our consolidated balance sheets, excluding any issuance costs, are the amount that a market participant would be willing to lend at such date 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 Term Loan Facility, and solely as of December 31, 2021, the 2022 Convertible Notes. The fair value and carrying value of long-term debt as of December 31, 2022 and 2021 was as follows (in thousands) : December 31, 2022 December 31, 2021 Fair Value (1) Carrying Value Fair Value (1) Carrying Value Term Loan Facility $ 708,000 $ 711,263 (2) $ 723,000 $ 718,057 (2) 2022 Convertible Notes $ — $ — $ 230,000 $ 102,788 (1) Fair value amounts are rounded to the nearest million. (2) Carrying value of the Term Loan Facility reflects the unaccreted debt discount of $ 2.8 million and $ 3.3 million, respectively, as of December 31, 2022 and 2021. See Note 9, “Long-Term Debt and Other Liabilities,” for further information. 14. Stock-Based Compensation and 401(k) Plan As of December 31, 2022 , we maintained three stock-based incentive compensation plans: the Second Amended and Restated Gogo Inc. 2016 Omnibus Incentive Plan (the “2016 Omnibus Plan”), the Gogo Inc. 2013 Omnibus Incentive Plan (the “2013 Omnibus Plan”), and The Aircell Holdings Inc. Stock Option Plan, collectively referred to as the “Stock Plans,” as well as an Employee Stock Purchase Plan (“ESPP”), as discussed below. Our Stock Plans provide for the grant of both equity and cash awards, including non-qualified stock options, incentive stock options, stock appreciation rights, performance awards (shares and units), restricted stock, RSUs, deferred share units (“DSUs”) and other stock-based awards and dividend equivalents to eligible employees, directors and consultants, as determined by the Compensation Committee of our Board of Directors (the “Compensation Committee”). Under the Stock Plans, 33,234,128 shares of common stock were reserved for issuance. As of December 31, 2022 , 6,941,586 shares remained available for grant under our Stock Plans. The contractual life of granted options is 10 years . Except as otherwise approved by the Compensation Committee, all options that are unvested as of the date on which a recipient’s employment terminates, as well as vested options that are not exercised within a prescribed period following termination, are forfeited and become available for future grants. Options granted beginning in 2010 but prior to the Option Exchange (as defined below) include options that (a) vest in specified increments over a four-year period, (b) vest on the date of grant for certain options granted to non-employee members of our Board of Directors or (c) vest on the first anniversary of the date of grant for certain options granted to non-employee members of our Board of Directors. In June 2020, we consummated an option exchange program that was approved by our stockholders at the annual meeting held on April 29, 2020 in which previously outstanding eligible options (which excluded options granted for service by non-executive members of our Board of Directors) to purchase 6,664,773 shares of common stock were surrendered and cancelled and we granted replacement options (the “Replacement Options”) in exchange for the tendered options. Of the 4,168,455 options we granted in 2020, 2,896,383 w ere Replacement Options. The Replacement Options vested in a single installment on December 31, 2022. Beginning in 2013, we granted RSUs, which generally vest in equal annual increments over a four-year period. Vested RSUs will be settled, at the discretion of the Compensation Committee, in shares of our common stock or in cash equal to the value of the applicable number of shares of our common stock on the vesting date. We also granted DSUs to directors, some of which vest on the grant date and others on the first anniversary of the grant date. DSUs will be settled in shares of our common stock 90 days after the director ceases to serve as a director. We intend to settle RSU and DSU awards in stock and we have the shares available to do so. The following is a summary of our stock-based compensation expense included in the consolidated statements of operations, excluding the stock-based compensation expense for discontinued operations, for the years December 31, 2022, 2021 and 2020 (in thousands) : For the Years Ended December 31, 2022 2021 2020 Cost of service revenue $ 1,073 $ 472 $ 119 Cost of equipment revenue 1,022 523 235 Engineering, design and development 2,532 1,358 560 Sales and marketing 2,628 1,615 880 General and administrative 11,810 9,377 6,014 Total stock-based compensation expense $ 19,065 $ 13,345 $ 7,808 78 A summary of stock option activity for the year ended December 31, 2022 is as follows: Number of Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life Aggregate Intrinsic Value (in thousands) Options outstanding – January 1, 2022 4,802,342 $ 4.18 6.57 $ 45,927 Granted — $ — Exercised ( 758,681 ) $ 2.67 Forfeited — $ — Expired ( 30,900 ) $ 17.78 Options outstanding – December 31, 2022 4,012,761 $ 4.36 5.38 $ 42,396 Options exercisable – December 31, 2022 3,708,974 $ 4.51 5.32 $ 38,696 As of December 31, 2022, total unrecognized compensation costs related to unvested stock options were approximately $ 0.4 million which is expected to be recognized over a weighted average period of approximately 1 year. The total grant date fair value of stock options vested in 2022, 2021 and 2020 was approximately $ 18 million , $ 10 million and $ 16 million, respectively. We estimate the fair value of stock options using the Black-Scholes option-pricing model. No stock options were granted during the year ended December 31, 2022. Weighted average assumptions used and weighted average grant date fair value of stock options granted for the years ended December 31, 2021 and 2020 were as follows: For the Years Ended December 31, 2021 2020 Approximate risk-free interest rate 1.0 % 0.5 % Average expected life (years) 5.50 6.20 Dividend yield N/A N/A Volatility 77.0 % 66.8 % Weighted average grant date fair value of common stock underlying options granted $ 9.66 $ 2.59 Weighted average grant date fair value of stock options granted $ 6.22 $ 1.56 The risk-free interest rate assumptions were based on the U.S. Treasury yield curve for the term that mirrored the expected term in effect at the time of grant. The expected life of our stock options was determined based upon a simplified assumption that the stock options will be exercised evenly from vesting to expiration, as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected life. The dividend yield was based on expected dividends at the time of grant. Beginning in 2020, we calculated volatility based exclusively on our common stock. The following table summarizes the activities for our unvested RSUs and DSUs for the year ended December 31, 2022: Number of Underlying Shares Weighted Average Grant Date Fair Value Unvested – January 1, 2022 3,998,688 $ 7.40 Granted 1,513,287 $ 17.21 Vested ( 1,897,299 ) $ 6.50 Forfeited/canceled ( 148,451 ) $ 10.32 Unvested – December 31, 2022 3,466,225 $ 12.46 As of December 31, 2022, there was approximately $ 30 million of unrecognized compensation cost related to unvested employee RSUs. This amount is expected to be recognized over a weighted-average period of approximately 2.6 years. The total grant date fair value of RSUs and DSUs vested in 2022 was approximately $ 12 million . ESPP - In June 2013, the Board of Directors and stockholders approved the ESPP, which became effective on June 26, 2013, and in 2017 and 2020, the ESPP was amended to increase the number of shares reserved thereunder. The ESPP allows eligible employees to purchase a limited number of shares of common stock during pre-specified offering periods at a discount established by the Compensation Committee which may not exceed 15 % of the fair market value of the common stock at the beginning or end of the offering period (whichever is lower). Under the ESPP, 2,200,000 shares were reserved for issuance and 52,489 shares of common stock were issued during the year ended December 31, 2022. As of December 31, 2022 , 714,091 shares remained available for purchase under the ESPP. 401(k) Plan - Under our 401(k) plan, all employees who are eligible to participate are entitled to make tax-deferred contributions, subject to Internal Revenue Service limitations. We match 100 % of the employee’s first 4 % of contributions made, subject to annual 79 limitations. Our matching contributions were $ 2.1 million , $ 1.8 million, and $ 1.5 million for the years ended December 31, 2022, 2021 and 2020 , respectively. 15. Income Tax For financial reporting purposes, the income (loss) from continuing operations before income taxes included the following components for the years ended December 31, 2022, 2021, and 2020 ( in thousands ): For the Years Ended December 31, 2022 2021 2020 United States $ 105,450 $ ( 27,557 ) $ ( 45,840 ) Foreign 267 ( 3,084 ) ( 2,865 ) Income (loss) before income taxes $ 105,717 $ ( 30,641 ) $ ( 48,705 ) Significant components of the provision (benefit) for income taxes from continuing operations for the years ended December 31, 2022, 2021, and 2020 are as follows ( in thousands ): For the Years Ended December 31, 2022 2021 2020 Current: Federal $ — $ — $ — State 488 90 86 Foreign — — — 488 90 86 Deferred: Federal 11,830 ( 166,706 ) ( 318 ) State 2,464 ( 20,614 ) 86 Foreign ( 1,124 ) — — 13,170 ( 187,320 ) ( 232 ) Total $ 13,658 $ ( 187,230 ) $ ( 146 ) The provision (benefit) for income taxes from continuing operations differs from income taxes computed at the federal statutory tax rates for the years ended December 31, 2022, 2021, and 2020 as a result of the following items: For the Years Ended December 31, 2022 2021 2020 Federal statutory rate 21.0 % 21.0 % 21.0 % Effect of: Change in valuation allowance ( 10.9 ) 595.5 ( 48.9 ) State income taxes-net of federal tax benefit 4.0 3.2 14.0 R&D credit ( 0.4 ) 8.3 — Excess tax benefits on stock-based compensation ( 2.0 ) ( 3.0 ) 1.2 Loss on settlement of 2022 Convertible Notes — ( 12.9 ) — Other 1.2 ( 1.1 ) 13.0 Effective tax rate 12.9 % 611.0 % 0.3 % 80 Components of the net deferred income tax asset as of December 31, 2022 and 2021 are as follows ( in thousands ): December 31, December 31, 2022 2021 Deferred income tax assets: Compensation accruals $ 2,912 $ 2,492 Stock options 8,483 7,839 Inventory 990 823 Warranty reserves 565 609 Fixed assets 6,438 5,821 Capital loss 10,425 10,425 Deferred revenue 18 184 Federal net operating loss (NOL) 118,043 144,591 State NOL 26,033 29,690 Foreign NOL 14,430 15,478 Interest carryforward 67,644 71,778 UNICAP adjustment 4,739 1,070 Finite-lived intangible assets 3,334 3,374 Operating lease liability 21,744 21,118 R&D credit 3,005 2,538 Section 174 costs 4,624 — Other 4,802 4,983 Total deferred income tax assets 298,229 322,813 Deferred income tax liabilities: Indefinite-lived intangible assets ( 9,138 ) ( 8,043 ) Right-of-use asset ( 18,525 ) ( 17,684 ) Interest rate cap valuation ( 10,213 ) ( 909 ) Other ( 226 ) ( 324 ) Total deferred income tax liabilities ( 38,102 ) ( 26,960 ) Total deferred income tax 260,127 295,853 Valuation allowance ( 97,470 ) ( 110,720 ) Net deferred income tax asset $ 162,657 $ 185,133 We regularly assess the need for a valuation allowance related to our deferred income tax assets to determine, based on the weight of the available positive and negative evidence, whether it is more likely than not that some or all of such deferred assets will not be realized. In our assessments, the Company considers recent financial operating results, the scheduled expiration of our net operating losses, potential sources of taxable income, the reversal of existing taxable differences, taxable income in prior carryback years, if permitted under tax law, and tax planning strategies. Based on our most recent assessment, for the year ended December 31, 2022, we released $ 11.4 million of the valuation allowance for the portion of our deferred income tax assets that we are more likely than not going to utilize. As of December 31, 2022, we can demonstrate an estimate of objectively verifiable future income based on the prior three years of pre-tax income from continuing operations, adjusted for the change in interest expense resulting from the Refinancing and the settlement of the 2022 Convertible Notes. This estimate of future income, along with our assessment of the other positive and negative evidence considered, supports the release of a portion of the valuation allowance. The remaining valuation allowance is still required for deferred tax assets related to certain state and foreign NOLs, capital losses, and the Section 163(j) interest limitation carryforward as it was more likely than not as of December 31, 2022 that these deferred tax assets will not be realized. If we continue to sustain our current operating performance, additional reversals of our valuation allowance could occur within the next twelve months. As of December 31, 2022, the federal net operating loss (“NOL”) carryforward amount was approximately $ 562 million, the state NOL carryforward amount was approximately $ 448 million and the Section 163(j) interest limitation carryforward amount was $292 million. The federal NOLs will begin to expire in 2032. The state NOLs expire in various tax years beginning in 2023. The interest carryforward does not expire. As of December 31, 2022 , the Canadian NOL carryforward amount was approximately $ 54 million, and it will begin to expire in 2032. Utilization of our NOL, interest and tax credit carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such annual limitations could result in the expiration of the NOL and tax credit carryforwards before their utilization. The interest carryforward arises from the Tax Cuts and Jobs Act and generally limits the interest expense deduction to 30 % of income (loss) attributable to common stock before interest expense, interest income, income taxes and depreciation and amortization for tax years 2018 to 2021 and 30 % of income (loss) attributable to common stock before interest expense, interest income and income taxes for 2022 and subsequent years. The interest carryforward will not expire as it may be carried forward indefinitely. 81 Uncertain Tax Positions - As of December 31, 2022, the total amount of gross unrecognized tax benefits was $ 0.8 million, which, if recognized, would impact the Company's effective tax rate. As of December 31, 2021 , we did no t have any gross unrecognized tax benefits. The aggregate change in the balance of gross unrecognized tax benefits, which excludes interest and penalties for the year ended December 31, 2022 is as follows (in thousands) : For the Year Ended December 31, 2022 Beginning balances $ — Increases related to tax positions taken during a prior year 555 Decreases related to tax positions taken during a prior year — Increases related to tax positions taken during the current year 244 Decreases related to settlements with taxing authorities — Decreases related to expiration of the statute of limitations — Ending balances $ 799 We are subject to taxation and file income tax returns in the United States federal jurisdiction and many states and Canada. With few exceptions, as of December 31, 2022, we are no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2019. We record penalties and interest relating to uncertain tax positions in the income tax provision line item in the consolidated statement of operations. No penalties or interest related to uncertain tax positions were recorded for the years ended December 31, 2022, 2021 or 2020. As of December 31, 2022 and 2021 , we did no t have a liability recorded for interest or potential penalties. We do no t expect a change in the unrecognized tax benefits within the next 12 months. 16. Leases The following is a summary of our lease expense included in the consolidated statement of operations (in thousands) : For the Years Ended December 31, 2022 2021 2020 Operating lease cost $ 14,964 $ 13,203 $ 11,688 Finance lease cost: Amortization of leased assets 156 35 230 Interest on lease liabilities 40 50 113 Total lease cost $ 15,160 $ 13,288 $ 12,031 Other information regarding our leases is as follows (in thousands, except lease terms and discount rates) : For the Years Ended December 31, 2022 2021 2020 Supplemental cash flow information Cash paid for amounts included in measurement of lease liabilities: Operating cash flows used in operating leases $ 15,194 $ 13,930 $ 12,733 Operating cash flows used in finance leases $ 40 $ 51 $ 113 Financing cash flows used in finance leases $ 184 $ 145 $ 546 Non-cash items: Operating leases obtained $ 13,547 $ 43,148 $ 5,342 Finance leases obtained $ 11 $ — $ 428 Weighted average remaining lease term Operating leases 8 years 9 years 7 years Finance leases 1 year 2 years 2 years Weighted average discount rate Operating leases 6.7 % 7.0 % 11.2 % Finance leases 17.0 % 18.6 % 10.5 % 82 Annual future minimum lease payments as of December 31, 2022 (in thousands) : Years ending December 31, Operating Leases Financing Leases 2023 $ 14,499 $ 141 2024 15,087 4 2025 14,227 2 2026 14,048 — 2027 13,191 — Thereafter 42,630 — Total future minimum lease payments 113,682 147 Less: Amount representing interest ( 25,347 ) ( 9 ) Present value of net minimum lease payments $ 88,335 $ 138 Reported as of December 31, 2022 Accrued liabilities $ 9,094 $ 133 Non-current operating lease liabilities 79,241 — Other non-current liabilities — 5 Total lease liabilities $ 88,335 $ 138 As of December 31, 2022 , there were no significant leases which had not yet commenced. 17. Commitments and Contingencies Contractual Commitments – We have agreements with various vendors under which we have remaining commitments to purchase hardware components and development services. Such commitments will become payable as we receive the hardware components or as development services are provided. In June 2022, we and Hughes entered into a supply and product support agreement (the “SPSA”), providing for our purchase from Hughes of airborne antennas for use on a LEO satellite network, and the performance by Hughes of services related thereto. Under the SPSA, we commit to purchase, over a seven-year period that will begin on completion of a project milestone currently expected to occur at the end of 2024, antennas with an estimated aggregate purchase price of approximately $ 170 million. During that seven-year period, Hughes may not sell substantially similar equipment to other purchasers in our primary target market. 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 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. 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 (the “Court”) styled Pierrelouis v. Gogo Inc., naming the Company, its former Chief Executive Officer and Chief Financial Officer, its current Chief Financial Officer and its then-current President, Commercial Aviation, as defendants purportedly on behalf of all purchasers of our securities from February 27, 2017 through May 4, 2018. The complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, alleging misrepresentations or omissions by us purporting to relate to the reliability of and installation and remediation costs associated with CA’s 2Ku antenna. The plaintiffs sought 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 the plaintiffs failed to plausibly allege that the defendants made materially false or misleading statements and that the plaintiffs failed to plead with particularity that the defendants acted with scienter. The amended complaint was dismissed without prejudice, and in December 2019, the defendants filed a second amended complaint. In July 2020, the plaintiffs filed a motion requesting leave to file a proposed third amended complaint, which was granted by the Court. The plaintiffs proceeded to file the third amended complaint in July 2020 and we filed a motion to dismiss in September 2020. In April 2021, the Court denied our motion to dismiss, and the defendants filed their answer and affirmative defenses to the third amended complaint in June 2021. 83 The parties engaged in mediation and reached a tentative resolution that included a cash payment of $ 17.3 million (funded by our Directors’ and Officers’ (“D&O”) insurance policy) in exchange for a dismissal with prejudice of the class claims and full releases. As a result of this development, the Company accrued a $ 17.3 million liability within Accrued liabilities and a corresponding insurance receivable in Prepaid expenses and other current assets in the consolidated balance sheets as of December 31, 2021. On April 12, 2022, the parties entered into a Stipulation and Agreement of Settlement memorializing these terms (the “Class Action Settlement”). On May 3, 2022, the Court signed an order (i) preliminarily approving the Class Action Settlement; (ii) certifying the settlement class; (iii) approving the notice to be sent to members of the settlement class; and (iv) scheduling a final hearing for August 30, 2022, and the insurance carriers subsequently deposited the settlement amount into escrow. On August 31, 2022, the Court issued a final judgment approving the Class Action Settlement and dismissing all claims against the defendants with prejudice. The Company released the $ 17.3 million liability and corresponding insurance receivable after the Court approved the Class Action Settlement. Derivative Litigation – On September 25, 2018 and September 26, 2018 , two purported stockholders of the Company filed substantively identical derivative lawsuits in the Court, 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 then-current member of the Company’s Board of Directors, its former Chief Executive Officer and Chief Financial Officer, its then-current President, Commercial Aviation, and its current Chief Executive Officer and Chief Financial Officer. 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 the 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 plaintiffs seek to recover, on our behalf, an unspecified amount of damages from the individual defendants. The two lawsuits were consolidated and were stayed pending a final disposition of the motion to dismiss in the class action suit and remain stayed. In addition, a purported stockholder has sent a letter to the Company’s Board of Directors, dated June 21, 2021, demanding based on substantially the same allegations, that the Company sue certain current and former Officers for, inter alia , breach of fiduciary duty. The two derivative lawsuits and the litigation demand letter are collectively referred to herein as the “Derivative Matters” and the plaintiffs in the two derivative lawsuits and the purported stockholder who sent the litigation demand letter are collectively referred to herein as the “Stockholders.” On January 5, 2023, following mediation, the defendants and the Stockholders entered into Stipulation and Agreement of Settlement (the “Derivative Settlement”) under which the Company, in consideration of dismissal of the two derivative lawsuits with prejudice and a release of all claims asserted against the Company and the individual defendants in the Derivative Matters, will implement certain corporate governance initiatives and cause its D&O insurance carrier to pay the Stockholders’ attorneys’ fees. Under the terms of the Derivative Settlement, the defendants will not be required to pay any damages. We have accrued a liability for attorneys’ fees within Accrued liabilities and a corresponding receivable in Prepaid expenses and other current assets in the consolidated balance sheets. On February 1, 2023, the Court granted preliminary approval of the proposed Derivative Settlement, approved various notices to be disseminated to the Company’s stockholders and the schedule for dissemination, and scheduled a final hearing for April 11, 2023. The Derivative Settlement is conditioned on final Court approval. We believe that the claims are without merit and will continue to defend them vigorously should the Derivative Settlement for any reason not become final. SmartSky Litigation – On February 28, 2022 , SmartSky Networks, LLC brought suit against Gogo Inc. and its subsidiary Gogo Business Aviation LLC in the U.S. District Court for the District of Delaware alleging that Gogo 5G infringes four patents owned by the plaintiff. On February 21, 2023, the plaintiff amended its complaint to allege that Gogo 5G infringes two additional patents recently issued to the plaintiff. The suit seeks an unspecified amount of compensatory damages as well as treble damages for alleged willful infringement and reimbursement of plaintiff's costs, disbursements and attorneys' fees. Under a schedule agreed upon by the parties, fact discovery and claim construction proceedings will be substantially completed by the end of 2023 or early 2024, and expert discovery by early-to-mid 2024, with dispositive motions to follow. A trial date has been scheduled for April 14, 2025. Also on February 28, 2022, the plaintiff filed a motion (the “PI Motion”) requesting that the Court preliminarily enjoin the Company from making, using, offering to sell or selling the Gogo 5G system. On September 26, 2022, the Court issued an order denying the PI Motion. The plaintiff has appealed the denial to the U.S. Court of Appeals for the Federal Circuit. We expect that briefing for the appeal will be completed by early March of 2023, after which the appellate court will schedule oral argument. We believe that the plaintiff’s claims are without merit and intend to continue to vigorously defend our position in the infringement suit and defend against the appeal. The outcomes of the appeal and the underlying litigation are 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 legal proceedings arising in the ordinary course of our business. We cannot predict with certainty the outcome of any litigation or the potential for 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. 84 18. Accumulated Other Comprehensive Income (Loss) The following is a summary of changes in accumulated other comprehensive income (loss) by component (in thousands): Change in Currency Fair Value of Translation Cash Flow Adjustment Hedge Total Balance at January 1, 2020 $ ( 2,256 ) $ — $ ( 2,256 ) Other comprehensive income before reclassifications 1,243 — 1,243 Less: income (loss) realized and reclassified to earnings — — — Net current period comprehensive income 1,243 — 1,243 Balance at December 31, 2020 $ ( 1,013 ) $ — $ ( 1,013 ) Other comprehensive income before reclassifications 53 2,747 2,800 Less: loss realized and reclassified to earnings — ( 2 ) ( 2 ) Net current period comprehensive income 53 2,749 2,802 Balance at December 31, 2021 $ ( 960 ) 2,749 $ 1,789 Other comprehensive income (loss) before reclassifications ( 265 ) 34,765 34,500 Less: income realized and reclassified to earnings — 6,161 6,161 Net current period comprehensive income (loss) ( 265 ) 28,604 28,339 Balance at December 31, 2022 $ ( 1,225 ) $ 31,353 $ 30,128 85 19 . Condensed Financial Information of Registrant The following presents the condensed financial information of our parent company on a standalone basis. Gogo Inc. Condensed Balance Sheets (in thousands) December 31, December 31, 2022 2021 Assets: Cash and cash equivalents $ 37,174 $ 55,069 Prepaid expenses and other current assets — 25 Deferred income taxes 172,871 186,041 Total assets $ 210,045 $ 241,135 Liabilities and stockholders’ deficit: Other current liabilities $ 113 $ 740 Current portion of long-term debt — 102,370 Investments and payables with subsidiaries 311,801 458,179 Total liabilities 311,914 561,289 Total stockholders’ deficit ( 101,869 ) ( 320,154 ) Total liabilities and stockholders’ deficit $ 210,045 $ 241,135 Gogo Inc. Condensed Statements of Operations and Comprehensive Income (Loss) (in thousands) For the Years Ended December 31, 2022 2021 2020 Interest income $ ( 455 ) $ ( 6 ) $ ( 451 ) Interest expense 2,770 9,504 29,318 Loss on extinguishment of debt — 18,948 — Other 1 ( 4 ) 4 Total other expense 2,316 28,442 28,871 Loss before income taxes ( 2,316 ) ( 28,442 ) ( 28,871 ) Income tax provision (benefit) 13,658 ( 187,230 ) ( 146 ) Equity (gains) losses of subsidiaries ( 108,033 ) 6,053 221,311 Net income (loss) $ 92,059 $ 152,735 $ ( 250,036 ) Comprehensive income (loss) $ 92,059 $ 152,735 $ ( 250,036 ) 86 Gogo Inc. Condensed Statements of Cash Flows (in thousands) For the Years Ended December 31, 2022 2021 2020 Net income (loss) $ 92,059 $ 152,735 $ ( 250,036 ) Accretion of debt discount — — 13,255 Amortization of deferred financing costs 418 1,387 1,781 Loss on extinguishment of debt — 18,948 — Subsidiary equity (gains) losses ( 108,033 ) 6,053 221,311 Deferred income taxes 13,170 ( 187,220 ) ( 232 ) Other operating activities ( 627 ) 1,819 ( 114 ) Net cash used in operating activities ( 3,013 ) ( 6,278 ) ( 14,035 ) Investments and advances with subsidiaries 6,047 11,552 ( 45,097 ) Net cash provided by (used in) investing activities 6,047 11,552 ( 45,097 ) Financing activities: Repurchase of convertible notes — — ( 2,498 ) Repurchase of common stock ( 18,375 ) — — Stock-based compensation activity ( 2,579 ) ( 5,245 ) ( 4,227 ) Net cash used in financing activities ( 20,954 ) ( 5,245 ) ( 6,725 ) Increase (decrease) in cash, cash equivalents and restricted cash ( 17,920 ) 29 ( 65,857 ) Cash, cash equivalents and restricted cash at beginning of period 55,094 55,065 120,922 Cash, cash equivalents and restricted cash at end of period $ 37,174 $ 55,094 $ 55,065 Cash, cash equivalents and restricted cash at end of period $ 37,174 $ 55,094 $ 55,065 Less: current restricted cash — 25 — Less: non-current restricted cash — — — Cash and cash equivalents at end of period $ 37,174 $ 55,069 $ 55,065 20. Discontinued Operations As discussed in Note 1, “Background,” on December 1, 2020, we completed the sale of our CA business to Intelsat. As a result of the Transaction, the CA business is reported for all periods as discontinued operations. The following table summarizes the results of discontinued operations which are presented as Net loss from discontinued operations, net of tax, in our consolidated statements of operations (in thousands) : 87 For the Years Ended December 31, 2022 2021 2020 Revenue: Service revenue $ — $ — $ 192,616 Equipment revenue — — 40,483 Total revenue — — 233,099 Operating expenses: Cost of service revenue (exclusive of items shown below) — — 145,958 Cost of equipment revenue (exclusive of items shown below) — — 33,978 Engineering, design and development — — 57,167 Sales and marketing — — 24,121 General and administrative — 6,283 40,551 Impairment of long-lived assets — — 47,375 Depreciation and amortization — — 119,827 Total operating expenses — 6,283 468,977 Operating loss — ( 6,283 ) ( 235,878 ) Other (income) expense: Gain on sale of CA business — ( 1,598 ) ( 37,958 ) Other (income) expense — — 3,134 Total other (income) expense: — ( 1,598 ) ( 34,824 ) Loss before income taxes — ( 4,685 ) ( 201,054 ) Income tax provision (benefit) — ( 831 ) 423 Net loss from discontinued operations, net of tax $ — $ ( 3,854 ) $ ( 201,477 ) The following discussion relates entirely to discontinued operations. Gain on Sale – Upon the closing of the Transaction on December 1, 2020, we received initial gross proceeds of $ 386.3 million, which reflects the $ 400.0 million purchase price, adjusted for cash, debt, transaction expenses and working capital. The final purchase price was subject to change due to customary post-closing purchase price adjustment procedures set forth in the purchase and sale agreement between Gogo and Intelsat, that were not yet complete. As the post-closing purchase price adjustment was not yet finalized and therefore represented a contingent gain, $ 9.4 million was recorded as a deferred gain on sale included within Accrued liabilities as of December 31, 2020. During December 2020, we recognized within Gain on sale of CA business a pretax gain on sale of $ 38.0 million, computed as the $ 386.3 million of initial gross proceeds less (i) the potential $ 9.4 million post-closing purchase price adjustment not yet finalized, (ii) the carrying value of the assets and liabilities transferred in the Transaction and (iii) Transaction-related costs. In October 2021, the independent accounting firm engaged to resolve a dispute between the parties regarding the working capital matter determined the final amount of the working capital adjustments to be $ 7.8 million. In the fourth quarter of 2021, Gogo paid Intelsat the $ 7.8 million and recognized an additional Gain on sale of CA business of $ 1.6 million. Stock-Based Compensation – In August 2020, the Compensation Committee approved modifications to the vesting conditions and exercise periods of outstanding equity compensation awards held by certain of our then-current employees who became employees of Intelsat in the Transaction. These modifications became effective upon the consummation of the Transaction. Pursuant to such modifications, the options and restricted stock units (“RSUs”) held by Intelsat employees generally vested on the earlier of (i) the original vesting date and (ii) December 1, 2021; provided that the employee did not voluntarily resign from and was not terminated for cause by Intelsat prior to such date. Certain of these awards vested based on conditions that are not classified as a service, market or performance condition and as a result such awards were classified as a liability. Other than mark-to-market adjustments, a ll costs related to stock-based compensation for our prior employees who became employees of Intelsat in the Transaction were recognized as of December 31, 2020. For the year ended December 31, 2021, $ 24.0 million was reclassified from Accrued liabilities to Additional paid-in capital as the awards vested during the period. As of December 31, 2021, there were no remaining liability-classified awards. The following is a summary of our stock-based compensation expense by operating expense line contained within the results of discontinued operations for the years December 31, 2022, 2021 and 2020 (in thousands) : 2022 2021 2020 Cost of service revenue $ — $ — $ 7,647 Cost of equipment revenue — — — Engineering, design and development — — 5,836 Sales and marketing — — 7,911 General and administrative — 4,817 4,413 Total stock-based compensation expense $ — $ 4,817 $ 25,807 See Note 14, “Stock-Based Compensation and 401(k) Plan,” for additional information on our stock-based compensation plans. 88 Other Costs Classified to Discontinued Operations – During the year ended December 31, 2021, we incurred $ 1.5 million of additional costs (exclusive of the gain on sale, stock-based compensation expense noted above and income tax benefit) primarily due to employer-paid taxes arising from the exercise of stock options by former employees then employed by Intelsat. Change in Estimates – During the second quarter of 2020, our agreement with Delta Air Lines, Inc. (“Delta”) to provide 2Ku service on certain Delta aircraft was amended to change the contract expiration date from February 2027 with respect to all aircraft to a staggered, fleet by fleet expiration schedule under which expiration dates will occur between November 2020 and July 2022 (the “Delta amendment”). As a result, the useful lives of the equipment installed on these fleets were shortened to align with the expiration dates in the amended agreement. The change in estimated useful lives resulted in approximately $ 41.0 million of accelerated depreciation during the year ended December 31, 2020. We ceased depreciating these assets and other depreciable assets included as part of discontinued operations when the CA business was classified as held for sale. Additionally, the amortization periods for the remaining deferred airborne lease incentives associated with the equipment installed on the 2Ku fleets were shortened to align with the new expiration dates, which resulted in approximately $ 42.0 million of accelerated amortization during the year ended December 31, 2020. Amortization of deferred airborne lease incentives is a reduction to cost of service revenue. Credit Losses – During the year ended December 31, 2020, we recorded $ 10.7 million of provisions for expected credit losses, primarily related to one international airline partner entering bankruptcy administration, while we had recoveries of approximately $ 0.6 million. Arrangements with Commercial Airlines – For our divested CA business, pursuant to contractual agreements with our airline partners, we placed our equipment on commercial aircraft operated by the airlines in order to deliver our service to passengers on the aircraft. We had two types of commercial airline arrangements: turnkey and airline-directed. Under the airline-directed model, we transferred control of the equipment to the airline and therefore the airline was our customer in these transactions. Under the turnkey model, we had not transferred control of our equipment to our airline partner and, as a result, the airline passenger was deemed to be our customer. Transactions with our airline partners under the turnkey model were accounted for as an operating lease of space on an aircraft. We recognized $ 71.2 million for the year ended December 31, 2020 as a reduction to our cost of service revenue from the amortization of deferred airborne lease incentives. Under the turnkey model, the revenue share paid to our airline partners represented operating lease payments. These payments were deemed to be contingent rental payments as the payments due to each airline were based on a percentage of our CA service revenue generated from that airline’s passengers, which was unknown until realized. Therefore, we estimated 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. Due to the accelerated amortization resulting from the Delta amendment and a significant reduction in revenue share as a result of COVID-19, the amortization of deferred airborne lease incentives exceeded our revenue share expense by $ 49.1 million for the year ended December 31, 2020. Asset Impairment – We reviewed our long-lived assets, including property and equipment, right-of-use assets, and other non-current assets, for potential impairment whenever events indicated that the carrying amount of such assets might not be recoverable. We performed 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 grouped certain long-lived assets by airline contract and by technology. If we determined that an impairment existed, the amount of the impairment was computed as the difference between the asset group’s carrying value and its estimated fair value, following which the assets were written down to their estimated fair values. In light of the COVID-19 pandemic 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 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 and right-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 conducted another review as of June 30, 2020 due to the continuation of the COVID-19 pandemic as well as the signing of the Delta amendment and determined that $ 1.0 million of deferred STC costs was impaired due to the bankruptcy of three airline partners. As such, we recorded a $ 1.0 million charge for impairment of long-lived assets for the three-month period ended June 30, 2020. For the year ended December 31, 2020, charges recorded for impairments of long-lived assets totaled $ 47.4 million. Revenue Recognition We account for revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). CA’s 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 accounted for each distinct good or 89 service as a separate performance obligation. We allocated the contract’s transaction price to each performance obligation using the relative standalone selling price, which was 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 was not sold separately, we used our best estimate of the standalone selling price and maximized the use of observable inputs. The primary method we used to estimate the standalone selling price was 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 CA’s airline contracts include megabyte overages and pay-per-use sessions. We constrained our estimates to reduce the probability of a significant revenue reversal in future periods, allocated variable consideration to the identified performance obligations and recognized revenue in the period the services were provided. Our estimates were based on historical experience, anticipated future performance, market conditions and our best judgment at the time. For 2020, our estimates included management’s best assumptions for the continued impact of COVID-19, which included decreased flights and gross passenger opportunity (“GPO”). A significant change in one or more of these estimates could have affected estimated contract value. For example, estimates of variable revenue within certain contracts required estimation of the number of sessions or megabytes that would 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 anticipated increases in take rates over time and assumed an average revenue per session consistent with our historical experience. We regularly reviewed and updated our estimates, especially in light of COVID-19, and recognized adjustments under the cumulative catch-up method. Any adjustments under this method were recorded as a cumulative adjustment in the period identified and revenue for future periods was recognized using the new adjusted estimate. 90 Item 9. Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure None.