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 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, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2024, 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. Deferred Income Tax Assets — Realizability of certain deferred tax assets and the release of certain valuation allowances — Refer to Notes 1 and 13 to the financial statements Critical Audit Matter Description 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 all 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 future 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 the Company’s assessment for the year ended December 31, 2023, the Company released valuation allowances related to its Section 163(j) interest limitation carryforward and certain state net operating losses (“NOLs”) and state credits. 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, excluding capital losses and foreign NOL deferred income tax assets, and the release of certain valuation allowances as a critical audit matter because of the significant judgments and estimates management makes related to projected future 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 projected future taxable income. 55 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 certain deferred income tax assets and the release of certain valuation allowances included the following, among others, which were performed with the assistance of our income tax specialists: • We tested the effectiveness of controls over the valuation allowance for income taxes, including management’s controls over the estimates of future taxable income and the determination of whether it is more likely than not that the deferred tax assets will be realized. • We compared the three-year historical taxable income to the amounts disclosed in the Company’s historical financial statements. • We evaluated the reasonableness of the methods, assumptions, and judgments used by management to determine whether it was more likely than not that certain deferred income tax assets could be realized. • We evaluated whether the sources of management’s projected future taxable income were of the appropriate character and sufficient to utilize certain 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 certain deferred income tax assets, and the availability of tax planning strategies as a source of future taxable income. • We evaluated management’s ability to accurately project future taxable income by comparing actual results to management’s historical estimates and evaluating whether there have been any changes that would affect management’s ability to continue accurately projecting future taxable income. We tested the reasonableness of management’s projections of future taxable income by comparing the projections to: ▪ Internal budgets ▪ Historical pre-tax income ▪ Internal communications to management and the Board of Directors ▪ Forecasted information included in Company press releases as well as in analyst reports for the Company • We evaluated whether the projections used to estimate future taxable income were consistent with evidence obtained in other areas of the audit. /s/ Deloitte & Touche LLP Chicago, Illinois February 28, 2024 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, 2023 2022 Assets Current assets: Cash and cash equivalents $ 139,036 $ 150,550 Short-term investments — 24,796 Total cash, cash-equivalents and short-term investments 139,036 175,346 Accounts receivable, net of allowances of $ 2,091 and $ 1,778 , respectively 48,233 54,210 Inventories 63,187 49,493 Prepaid expenses and other current assets 64,138 45,100 Total current assets 314,594 324,149 Non-current assets: Property and equipment, net 98,129 104,595 Intangible assets, net 55,647 49,509 Operating lease right-of-use assets 70,552 75,261 Other non-current assets, net of allowances of $ 591 and $ 501 , respectively 25,979 43,355 Deferred income taxes 216,638 162,657 Total non-current assets 466,945 435,377 Total assets $ 781,539 $ 759,526 Liabilities and stockholders’ equity (deficit) Current liabilities: Accounts payable $ 16,094 $ 13,646 Accrued liabilities 47,649 60,056 Deferred revenue 1,003 3,418 Current portion of long-term debt 7,250 7,250 Total current liabilities 71,996 84,370 Non-current liabilities: Long-term debt 587,501 690,173 Non-current operating lease liabilities 73,047 79,241 Other non-current liabilities 8,270 7,611 Total non-current liabilities 668,818 777,025 Total liabilities 740,814 861,395 Commitments and contingencies (Note 15) Stockholders’ equity (deficit) Common stock, par value $ 0.0001 per share; 500,000,000 shares authorized at December 31, 2023 and December 31, 2022; 137,632,284 and 136,531,362 shares issued at December 31, 2023 and December 31, 2022, respectively; and 128,462,343 and 127,840,813 shares outstanding at December 31, 2023 and December 31, 2022, respectively 14 14 Additional paid-in capital 1,402,003 1,385,933 Accumulated other comprehensive income 15,796 30,128 Treasury stock, at cost ( 163,197 ) ( 158,375 ) Accumulated deficit ( 1,213,891 ) ( 1,359,569 ) Total stockholders’ equity (deficit) 40,725 ( 101,869 ) Total liabilities and stockholders’ equity (deficit) $ 781,539 $ 759,526 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, 2023 2022 2021 Revenue: Service revenue $ 318,015 $ 296,329 $ 259,583 Equipment revenue 79,562 107,738 76,133 Total revenue 397,577 404,067 335,716 Operating expenses: Cost of service revenue (exclusive of items shown below) 69,568 64,427 56,103 Cost of equipment revenue (exclusive of items shown below) 63,383 71,473 46,092 Engineering, design and development 36,683 29,587 24,874 Sales and marketing 29,797 25,471 20,985 General and administrative 57,280 58,203 51,554 Depreciation and amortization 16,701 12,580 15,482 Total operating expenses 273,412 261,741 215,090 Operating income 124,165 142,326 120,626 Other expense (income): Interest income ( 7,403 ) ( 2,386 ) ( 191 ) Interest expense 33,056 38,872 67,472 Loss on extinguishment of debt and settlement of convertible notes 2,224 — 83,961 Other (income) expense, net ( 1,315 ) 123 25 Total other expense 26,562 36,609 151,267 Income (loss) from continuing operations before income taxes 97,603 105,717 ( 30,641 ) Income tax (benefit) provision ( 48,075 ) 13,658 ( 187,230 ) Net income from continuing operations 145,678 92,059 156,589 Net loss from discontinued operations, net of tax — — ( 3,854 ) Net income $ 145,678 $ 92,059 $ 152,735 Net income (loss) attributable to common stock per share—basic: Continuing operations $ 1.12 $ 0.75 $ 1.50 Discontinued operations — — ( 0.04 ) Net income attributable to common stock per share—basic $ 1.12 $ 0.75 $ 1.46 Net income attributable to common stock per share—diluted: Continuing operations $ 1.09 $ 0.71 $ 1.28 Discontinued operations — — — Net income attributable to common stock per share—diluted $ 1.09 $ 0.71 $ 1.28 Weighted average number of shares Basic 129,753 123,268 103,400 Diluted 133,283 133,923 127,205 See the Notes to Consolidated Financial Statements 58 Gogo Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (in thousands) For the Years Ended December 31, 2023 2022 2021 Net income $ 145,678 $ 92,059 $ 152,735 Other comprehensive income (loss), net of tax Currency translation adjustments 291 ( 265 ) 53 Cash flow hedges: Amount recognized in other comprehensive income 4,579 34,765 2,747 Less: income (loss) realized and reclassified to earnings 19,202 6,161 ( 2 ) Changes in fair value of cash flow hedges ( 14,623 ) 28,604 2,749 Other comprehensive income (loss), net of tax ( 14,332 ) 28,339 2,802 Comprehensive income $ 131,346 $ 120,398 $ 155,537 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, 2023 2022 2021 Operating activities from continuing operations: Net income $ 145,678 $ 92,059 $ 156,589 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 16,701 12,580 15,482 Loss on asset disposals, abandonments and write-downs 362 1,577 141 Provision for expected credit losses 1,233 1,047 284 Deferred income taxes ( 49,172 ) 13,170 ( 187,320 ) Stock-based compensation expense 21,288 19,065 13,345 Amortization of deferred financing costs and interest rate caps 3,894 3,215 4,661 Accretion of debt discount 403 456 419 Gain on sale of equity investment ( 1,343 ) — — Loss on extinguishment of debt and settlement of convertible notes 2,224 — 83,961 Changes in operating assets and liabilities: Accounts receivable 4,833 ( 17,482 ) 1,925 Inventories ( 13,694 ) ( 15,517 ) ( 5,862 ) Prepaid expenses and other current assets ( 49,891 ) 8,351 ( 20,844 ) Contract assets 3,217 ( 2,164 ) ( 5,638 ) Accounts payable 3,658 ( 2,540 ) 3,806 Accrued liabilities 4,351 ( 12,031 ) 14,099 Deferred revenue ( 2,411 ) 1,589 ( 1,282 ) Accrued interest ( 9,409 ) 3,647 ( 8,604 ) Other non-current assets and liabilities ( 2,952 ) ( 3,617 ) 1,535 Net cash provided by operating activities from continuing operations 78,970 103,405 66,697 Investing activities from continuing operations: Proceeds from sale of property and equipment — — 1,000 Purchases of property and equipment ( 16,267 ) ( 43,914 ) ( 4,264 ) Acquisition of intangible assets—capitalized software ( 7,821 ) ( 6,000 ) ( 4,396 ) Proceeds from FCC Reimbursement Program for property, equipment and intangibles 1,130 — — Proceeds from (purchase of) interest rate caps 26,675 4,292 ( 8,629 ) Redemptions of short-term investments 74,179 — — Purchases of short-term investments ( 49,383 ) ( 24,796 ) — Purchase of equity investment ( 5,000 ) — — Proceeds from sale of equity investment 6,343 — — Net cash provided by (used in) investing activities from continuing operations 29,856 ( 70,418 ) ( 16,289 ) Financing activities from continuing operations: 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 ( 4,822 ) ( 18,375 ) — Payments on term loan ( 107,250 ) ( 7,250 ) ( 3,625 ) Payments on finance leases ( 132 ) ( 184 ) ( 145 ) Stock-based compensation activity ( 8,230 ) ( 2,579 ) ( 4,393 ) Net cash used in financing activities from continuing operations ( 120,434 ) ( 28,388 ) ( 331,037 ) Cash flows from discontinued operations: Net cash used in operating activities — — ( 1,211 ) Net cash used in investing activities — — ( 7,802 ) Net cash used in financing activities — — — Net cash used in discontinued operations — — ( 9,013 ) Effect of foreign exchange rate changes on cash 94 13 40 Increase (decrease) in cash, cash equivalents and restricted cash ( 11,514 ) 4,612 ( 289,602 ) Cash, cash equivalents and restricted cash at beginning of period 150,880 146,268 435,870 Cash, cash equivalents and restricted cash at end of period $ 139,366 $ 150,880 $ 146,268 Cash, cash equivalents and restricted cash at end of period $ 139,366 $ 150,880 $ 146,268 Less: current restricted cash — — 25 Less: non-current restricted cash 330 330 330 Cash and cash equivalents at end of period $ 139,036 $ 150,550 $ 145,913 Supplemental cash flow information: Cash paid for interest $ 68,145 $ 41,209 $ 71,114 Cash paid for taxes 1,004 377 376 Non-cash investing activities: Purchases of property and equipment in current liabilities $ 4,801 $ 10,688 $ 6,126 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, 2021 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 ) Net income — — — — 145,678 — — 145,678 Currency translation adjustments, net of tax — — — 291 — — — 291 Fair value adjustments of cash flow hedges, net of tax — — — ( 14,623 ) — — — ( 14,623 ) Stock-based compensation expense — — 21,288 — — — — 21,288 Issuance of common stock upon exercise of stock options 218,585 — 565 — — — — 565 Issuance of common stock upon vesting of restricted stock units 853,080 — — — — — — — Tax withholding related to vesting of restricted stock units — — ( 6,188 ) — — — — ( 6,188 ) Issuance of common stock in connection with employee stock purchase plan 29,257 — 405 — — — — 405 Repurchase of common stock ( 479,392 ) — — — — 479,392 ( 4,822 ) ( 4,822 ) Balance at December 31, 2023 128,462,343 $ 14 $ 1,402,003 $ 15,796 $ ( 1,213,891 ) 9,169,941 $ ( 163,197 ) $ 40,725 See the Notes to Consolidated Financial Statements 61 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. 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. Unless otherwise noted, discussion in these Notes to Consolidated Financial Statements refers to our continuing operations. Refer to Note 19, “Discontinued Operations,” for further information. 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 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 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. As a result of our determination to participate in the FCC Reimbursement Program (as defined below), we reassessed and shortened the estimated useful lives of affected network equipment to be consistent with our estimated date to complete the program. This change in accounting estimate was effective beginning the second quarter of 2023 and resulted in increased depreciation expense of $ 5.7 million for the year ended December 31, 2023. Net income per basic and diluted share decreased by $ 0.04 for the year ended December 31, 2023. See Note 6, “Composition of Certain Reserves and Allowances,” for further details. 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). Allowance for 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 which could cause us to record additional material credit losses in future periods. 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. 62 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Our restricted cash balances were $ 0.3 million as of both December 31, 2023 and 2022 , 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, 2023, 2022 and 2021. Our long-lived assets outside of the United States were less than 10% of our consolidated long-lived assets as of December 31, 2023 and 2022 . 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 13, “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, “Composition of Certain Balance Sheet Accounts,” 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 $ 14.7 million for the year ended December 31, 2023 and $ 7.9 million for both of the years ended December 31, 2022 and 2021. 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 5, “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. 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 included in Intangible assets, net, in our consolidated balance sheets and 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 7, “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, 63 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 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 2023, 2022 and 2021 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 7, “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 2023, 2022 or 2021 . Revenue Recognition - Our revenue is primarily earned from providing connectivity and entertainment services and through sales of equipment. 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 • 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 3, “Revenue Recognition,” for further information. 64 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Government Assistance - In July 2023, the Company elected to participate in the Federal Communications Commission (“FCC”) Secure and Trusted Communications Networks Reimbursement Program (the “FCC Reimbursement Program”). There is no applicable authoritative guidance under GAAP to account for this government grant. Therefore, we have elected to apply International Accounting Standard (“IAS”) 20 Accounting for Government Grants and Disclosure of Government Assistance by analogy. Under IAS 20, government grants related to assets are presented as either deferred income that is recognized on a systematic basis over the useful life of the asset or by deducting the grant from the carrying value of the asset. The Company has elected to deduct the grant from the carrying value of the asset. For grants related to income, the Company has elected to recognize these grants as a deduction from the related expense. Grant receivables from the FCC are recorded by the Company once there is reasonable assurance that the Company will comply with the conditions of the grant and the grant will be received. See Note 4, “Government Assistance,” for additional information. Research and Development Costs - Expenditures for research and development are charged to expense as incurred and totaled $ 36.7 million , $ 29.6 million and $ 24.9 million for the years ended December 31, 2023, 2022 and 2021 , 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 6, “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 5, “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 11, “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 9, “Derivative Instruments and Hedging Activities,” for further information. Earnings Per Share - We calculate basic earnings per share using the weighted-average number of common shares outstanding during the period. We calculate diluted earnings per share using the weighted-average number of common shares outstanding and all dilutive potential common shares outstanding. See Note 2, “Earnings 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. 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 12, “Stock-Based Compensation and 401(k) Plan,” for further information. Leases – 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 65 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) recogni ze 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 14, “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 8, “Long-Term Debt and Other Liabilities,” for further information. Comprehensive Income - Comprehensive income for the years ended December 31, 2023, 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. 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 and related notes. Accounting standards not yet adopted: In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This guidance is effective retrospectively for fiscal years beginning after December 15, 2023 and interim periods after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact that this guidance will have upon our consolidated financial statements and related notes. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures, most notably in the tax rate reconciliation and income taxes paid. This guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted and the amendments should be applied on a prospective basis, however, retrospective application is permitted. We are currently evaluating the impact that this guidance will have upon our consolidated financial statements and related notes. 2. Earnings Per Share Basic and diluted earnings per share have been calculated using the weighted-average number of common shares outstanding for the period. Diluted earnings per share was computed using the treasury stock method for stock-based compensation and the if-converted method for the 2022 Convertible Notes. The shares of common stock effectively repurchased in connection with the Forward Transactions (as defined and described in Note 8, “Long-Term Debt and Other Liabilities”) were considered participating securities requiring the two-class method to calculate basic and diluted earnings per share. Net earnings were allocated between shares of common stock and participating securities on a one-to-one basis. Refer to Note 8, “Long-Term Debt and Other Liabilities,” for further information. 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, 2023, 2022 and 2021, the weighted average number of shares excluded from the computation was 1.8 million , 0.5 million and 5.7 million shares, respectively. The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2023, 2022 and 2021; 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 ): 66 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) For the Years Ended December 31, 2023 2022 2021 Income (Numerator) Shares (Denominator) Per Share Amount Income (Numerator) Shares (Denominator) Per Share Amount Income (Numerator) Shares (Denominator) Per Share Amount Net income from continuing operations $ 145,678 $ 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 $ 145,678 129,753 $ 1.12 $ 91,888 123,268 $ 0.75 $ 155,105 103,400 $ 1.50 Effect of Dilutive Securities from Continuing Operations Stock-based compensation — 3,530 — 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 $ 145,678 133,283 $ 1.09 $ 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 $ — 129,753 $ — $ — 123,268 $ — $ ( 3,818 ) 103,400 $ ( 0.04 ) Effect of Dilutive Securities from Discontinued Operations Stock-based compensation — 3,530 — 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 $ — 133,283 $ — $ — 133,923 $ — $ ( 203 ) 127,205 $ — Earnings per share - basic $ 1.12 $ 0.75 $ 1.46 Earnings per share - diluted $ 1.09 $ 0.71 $ 1.28 3 . Revenue Recognition Remaining Performance Obligations As of December 31, 2023, the aggregate amount of the transaction price in our contracts allocated to the remaining unsatisfied performance obligations (“RPO”) was approximately $ 253 million and excludes consideration from contracts that have an original duration of one year or less. Approximately $ 234 million of the RPO 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 contracts. Our contracts vary in length and generally have terms of two to ten years . The remaining $ 19 million of the RPO represents future equipment revenue that is expected to be recognized primarily within the next three years. 67 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Disaggregation of revenue The following table presents our revenue disaggregated by category (in thousands) : For the Year Ended December 31, 2023 2022 2021 Service revenue Connectivity $ 312,898 $ 291,444 $ 255,786 Entertainment and other 5,117 4,885 3,797 Total service revenue $ 318,015 $ 296,329 $ 259,583 Equipment revenue ATG $ 64,585 $ 91,152 $ 61,780 Narrowband satellite 7,956 9,992 11,048 Other 7,021 6,594 3,305 Total equipment revenue $ 79,562 $ 107,738 $ 76,133 Customer type Aircraft owner/operator/service provider $ 318,015 $ 296,329 $ 259,583 OEM and aftermarket dealer 79,562 107,738 76,133 Total revenue $ 397,577 $ 404,067 $ 335,716 Contract balances Our current and non-current contract asset balances totaled $ 16.6 million and $ 19.9 million as of December 31, 2023 and 2022, respectively. Contract assets represent the aggregate amount of revenue recognized in excess of billings and recoverable contract costs primarily for certain sales programs. Our current and non-current deferred revenue balances totaled $ 1.0 million and $ 3.4 million as of December 31, 2023 and 2022, respectively. Deferred revenue includes, among other things, prepayments for equipment and subscription connectivity products. Major Customers No customer accounted for more than 10 % of total revenue for the years ended December 31, 2023, 2022 and 2021 and no customer accounted for more than 10 % of accounts receivable as of December 31, 2023 or 2022 . 4. Government Assistance FCC Reimbursement Program On July 15, 2022, the Company was notified that it was approved for participation in the FCC Reimbursement Program, designed to reimburse providers of advanced communications services for reasonable costs incurred in the required removal, replacement, and disposal of covered communications equipment or services, that have been deemed to pose a national security risk, from their networks. Pursuant to the FCC Reimbursement Program, the FCC approved up to approximately $ 334 million in reimbursements to the Company to cover documented and approved costs to (i) remove and securely destroy all ZTE communications equipment and services in the Company’s terrestrial U.S. networks and replace such equipment and (ii) remove and replace certain equipment installed on aircraft operated by the Company’s ATG customers that is not compatible with the terrestrial equipment that will replace ZTE equipment. Due to a shortfall in the amount appropriated by Congress to fund the FCC Reimbursement Program, approximately $ 132 million of the approved amount is currently allocated to the Company under the program. If Congress appropriates additional funds for this purpose, the allocations of the Company and other approved applicants will be increased pro rata . Program participants are subject to a number of conditions and requirements under the FCC’s rules including a requirement that they submit their first reimbursement request by July 17, 2023 and certify that they have developed a plan to permanently remove, replace and dispose of covered equipment or services within one year following the first reimbursement request. The rules permit participants to petition the FCC for one or more six-month extensions of the completion deadline. The Company, with the assistance of an advisor we engaged to help administer the program, submitted and received its first reimbursement claim in July 2023. The Company’s one year term to complete the program is set for July 21, 2024, however, based on discussions with our vendors supporting the program regarding lead times for network equipment, we plan to petition the FCC for multiple extensions, as outlined in our application for the FCC Reimbursement Program. As of December 31, 2023, we have recorded a $ 18.3 million receivable from the FCC, which is included in Prepaid expenses and other current assets in our Consolidated Balance Sheets. See Note 1, “Summary of Significant Accounting Policies,” for additional information on our accounting policy for government grants. 68 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) The following are the deductions to the carrying value of asset balances in our Consolidated Balance Sheets as of December 31, 2023 (in thousands): As of December 31, 2023 Assets: Inventories $ ( 4,970 ) Prepaid expenses and other current assets ( 1,542 ) Property and equipment, net ( 2,094 ) Intangible assets, net ( 58 ) Other non-current assets ( 5,542 ) The following are the increases to Net income in our Consolidated Statements of Operations for the year ended December 31, 2023 (in thousands) : For the year ended December 31, 2023 Revenue: Service revenue $ 825 Operating expenses: Cost of service revenue 720 Cost of equipment revenue 3,931 General and administrative 257 5 . Composition of Certain Balance Sheet Accounts Inventories as of December 31, 2023 and 2022 were as follows ( in thousands ): December 31, 2023 2022 Work-in-process component parts $ 34,692 $ 34,840 Finished goods 28,495 14,653 Total inventory (1) $ 63,187 $ 49,493 (1) See Note 4, “Government Assistance,” for additional information. As a result of our determination to participate in the FCC Reimbursement Program (as defined and described in Note 1, “Summary of Significant Accounting Policies” ), the Company wrote down the net realizable value of certain inventory by approximately $ 1.3 million for the year ended December 31, 2023. The write-off charge is included in Cost of equipment revenue in our Consolidated Statements of Operations. Prepaid expenses and other current assets as of December 31, 2023 and 2022 were as follows ( in thousands ): December 31, 2023 2022 Interest rate caps and receivable $ 23,227 $ 28,496 FCC reimbursement receivable (1) 18,274 — Contract assets (1) 6,939 6,494 Prepaid inventories 2,606 2,901 Other 13,092 7,209 Total prepaid expenses and other current assets $ 64,138 $ 45,100 (1) See Note 4, “Government Assistance,” for additional information. 69 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Property and equipment as of December 31, 2023 and 2022 were as follows ( in thousands ): December 31, 2023 2022 Office equipment, furniture, fixtures and other $ 19,153 $ 17,242 Leasehold improvements 16,132 15,357 Network equipment (1) 184,176 179,363 219,461 211,962 Accumulated depreciation ( 121,332 ) ( 107,367 ) Property and equipment, net $ 98,129 $ 104,595 (1) See Note 4, “Government Assistance,” for additional information. Other non-current assets as of December 31, 2023 and 2022 were as follows ( in thousands ): December 31, 2023 2022 Interest rate caps $ 10,295 $ 25,578 Contract assets, net of allowances of $ 591 and $ 501 , respectively (1) 9,625 13,376 Revolving credit facility deferred financing costs 1,011 1,445 Other 5,048 2,956 Total other non-current assets $ 25,979 $ 43,355 (1) See Note 4, “Government Assistance,” for additional information. Accrued liabilities as of December 31, 2023 and 2022 were as follows ( in thousands ): December 31, 2023 2022 Employee compensation and benefits $ 10,386 $ 19,235 Operating leases 10,284 9,094 Customer credit reserve 6,027 1,958 Network equipment 4,533 8,748 Warranty reserve 3,420 2,300 Taxes 2,170 2,282 Accrued interest 469 9,878 Other 10,360 6,561 Total accrued liabilities $ 47,649 $ 60,056 Asset retirement obligations are included in Other non-current liabilities in our consolidated balance sheets and changes for the years ended December 31, 2023 and 2022 consist of the following ( in thousands ): Asset Retirement Obligation Balance – January 1, 2022 $ 4,861 Liabilities incurred 682 Liabilities settled ( 43 ) Accretion expense 553 Foreign exchange rate adjustments ( 21 ) Balance – December 31, 2022 6,032 Liabilities incurred 51 Liabilities settled ( 2 ) Accretion expense 558 Foreign exchange rate adjustments 10 Balance – December 31, 2023 $ 6,649 6. Composition of Certain Reserves and Allowances Credit Losses — Changes in our allowances for credit losses for the years ended December 31, 2023 and 2022 were as follows ( in thousands ): 70 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Other Accounts Non-Current Receivable Assets Balance at January 1, 2022 $ 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 Provision for expected credit losses 1,143 90 Write-offs charged against the allowances ( 1,152 ) — Other 322 — Balance at December 31, 2023 $ 2,091 $ 591 Warranties — Changes in our warranty reserve for the years ended December 31, 2023 and 2022 were as follows ( in thousands ): Warranty Reserve Balance – January 1, 2022 $ 2,450 Accruals for warranties issued 1,583 Settlements and adjustments to warranties ( 1,733 ) Balance – December 31, 2022 2,300 Accruals for warranties issued 3,107 Settlements and adjustments to warranties ( 1,987 ) Balance – December 31, 2023 $ 3,420 7. 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”). 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 2023, 2022 and 2021 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, 2023 and 2022. Our intangible assets, other than goodwill, as of December 31, 2023 and 2022 were as follows ( in thousands, except for weighted average remaining useful life ): Weighted Average As of December 31, 2023 As of December 31, 2022 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 7.2 $ 68,155 $ ( 45,910 ) $ 22,245 $ 59,932 $ ( 43,950 ) $ 15,982 Other intangible assets 8.0 499 — 499 624 — 624 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 83,459 ( 60,715 ) 22,744 75,361 ( 58,755 ) 16,606 Unamortized intangible assets: FCC Licenses 32,283 — 32,283 32,283 — 32,283 Total intangible assets $ 115,742 $ ( 60,715 ) $ 55,027 $ 107,644 $ ( 58,755 ) $ 48,889 71 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Amortization expense for the years ended December 31, 2023, 2022 and 2021 was $ 2.0 million , $ 4.7 million and $ 7.5 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 2024 $ 1,401 2025 $ 3,320 2026 $ 3,250 2027 $ 3,033 2028 $ 2,879 Thereafter $ 8,861 Actual future amortization expense could differ from the estimated amount as the result of future investments and other factors. 8. Long-Term Debt and Other Liabilities Long-term debt as of December 31, 2023 and 2022 was as follows ( in thousands ): December 31, December 31, 2023 2022 Term Loan Facility $ 604,797 $ 711,263 Less: deferred financing costs ( 10,046 ) ( 13,840 ) Less: current portion of long-term debt ( 7,250 ) ( 7,250 ) Total long-term debt $ 587,501 $ 690,173 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 recommended by the Alternative Reference Rates Committee. We elected to apply the optional expedient within ASC 848, Facilitation of the Effects of Reference Rate Reform on Financial Reporting , to conclude that this modification was not substantial and did not have a material impact to our consolidated financial statements. 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 recommended by the Alternative Reference Rates Committee of 0.11%, 0.26% or 0.43% per annum based on 1-month, 3-month or 6-month term SOFR, respectively 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 recommended by the Alternative Reference Rates Committee of 0.11 %, 0.26 % or 0.43 % per annum based on 1-month, 3-month or 6-month term SOFR, respectively 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. As of December 31, 2023 , the fee for the unused commitments under the Revolving Facility was 0.25 % and the applicable margin was 3.25 %. 72 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 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. On May 3, 2023, the Company prepaid $ 100 million of the outstanding principal amount of the Term Loan Facility. As a result, we wrote off $ 2.2 million of the deferred financing costs and unaccreted debt discount, which 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, 2023. 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 FCC; investments, loans, advances, guarantees or acquisitions; asset sales; dividends or 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. As of December 31, 2023 and 2022, the outstanding principal amount of the Term Loan Facility was $ 606.9 million and $ 714.1 million, respectively, the unaccreted debt discount was $ 2.1 million and $ 2.8 million, respectively, and the net carrying amount was $ 604.8 million and $ 711.3 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 $ 2.4 million , $ 2.6 million and $ 1.8 million, respectively, for the years ended December 31, 2023, 2022 and 2021 and is included in Interest expense in our consolidated statements of operations. As of December 31, 2023 and 2022, the balance of unamortized deferred financing costs related to the Facilities was $ 11.1 million and $ 15.3 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 In 2018, we issued $ 237.8 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. In 2021, $ 135.0 million aggregate principal amount of 2022 Convertible Notes was converted by holders and settled through the issuance of 24,353,006 shares of common stock. In May 2022, the remaining $ 102.8 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 Chair of the Board and 73 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Chief Executive Officer, held $ 8.0 aggregate principal amount of 2022 Convertible Notes that was converted into 1,333,333 shares of common stock. 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 and, $ 1.4 million , respectively, for the years ended December 31, 2022 and 2021 and is included in Interest expense in the consolidated statements of operations. See Note 10, “Interest Costs,” for additional information. The 2022 Convertible Notes had an initial conversion rate of 166.6667 common shares 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 Transaction were delivered to us. There are no longer any additional 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 for the year ended December 31, 2021. Amortization expense is included in Interest expense in the consolidated statements of operations. 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 74 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 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. 9. 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 daily compounded SOFR rate plus a credit spread adjustment recommended by the Alternative Reference Rate Committee of 0.26% 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 7/30/2023 $ 650,000 0.75 % 7/31/2023 7/30/2024 525,000 0.75 % 7/31/2024 7/30/2025 350,000 1.25 % 7/31/2025 7/30/2026 250,000 2.25 % 7/31/2026 7/30/2027 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 . During the year ended December 31, 2023, fully offsetting unrealized gains and losses were incurred from our cash flow hedges that were considered ineffective as a result of a voluntary partial de-designation of the hedge relationship related to a prepayment of our existing variable-rate debt discussed in Note 8, “Long-Term Debt and Other Liabilities.” 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 $ 2.6 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 hedges on an ongoing basis, and the remaining outstanding caps are still considered to be highly effective, and remain designated as a cash flow hedge. Cash flows from interest rate caps are classified in the consolidated statements of cash flows as investing activities from continuing operations. For the year ended December 31, 2023, we recorded a decrease in fair value on the interest rate caps of $ 16.1 million, net of tax of $ 4.8 million. For the year ended December 31, 2022, we recorded an increase in fair value on the interest rate caps of $ 28.4 million, net of tax of $ 9.3 million. Increases and decreases in fair value on interest rate caps above exclude amortization of the purchase price paid for the interest rate caps. 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 2023 2022 Current portion of interest rate caps Prepaid expenses and other current assets $ 18,801 $ 24,459 Non-current portion of interest rate caps Other non-current assets $ 10,295 $ 25,578 Fair Value Measurement 75 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 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. Reference Rate Reform In March 2020, the FASB issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . ASU 2020-04, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope . The amendments in ASU 2021-01 provide optional expedients to the current guidance on contract modification and hedge accounting from the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance generally can be applied to applicable contract modifications through December 31, 2024. The Company evaluated the impact of ASU 2020-04 and 2021-01, both of which were previously adopted by the Company, and has made necessary changes to its affected contracts in order to capture the market transition from LIBOR to SOFR. On February 2, 2023 the Company modified its 2021 Credit Agreement to use the Secured Overnight Financing Rate (“SOFR”) as a reference rate rather than LIBOR (see Note 8, “Long-Term Debt and Other Liabilities”). In conjunction with the amendment of the debt, the Company’s derivative positions automatically transitioned to SOFR, the designated fallback as determined by the International Swaps and Derivatives Association on July 31, 2023. Concurrently, the Company updated its hedge documentation to reflect the changing of the benchmark index, which changed solely as a result of reference rate reform. Under ASC 848, Reference Rate Reform, hedge accounting may continue without de-designation if certain criteria are met. For cash flow hedges in which the designated hedged risk is LIBOR (or another rate that is expected to be discontinued), the guidance allows an entity to assert that it remains probable that the hedged forecasted transaction will occur. The Company has assessed the effectiveness of the amended hedge relationship and concluded that the hedge relationship remains highly effective. The Company applied the optional expedient within ASC 848 to conclude the updates to the hedge relationship due to reference rate reform did not have a material impact on the Company's consolidated financial statements . 10. 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, 2023, 2022 and 2021 (in thousands) : For the Years Ended December 31, 2023 2022 2021 Interest costs charged to expense $ 55,823 $ 43,530 $ 62,390 Amortization of deferred financing costs 2,385 3,058 4,661 Accretion of debt discount 403 456 419 Amortization of the purchase price of interest rate caps 1,509 157 2 Interest rate cap benefit ( 27,064 ) ( 8,329 ) — Interest expense 33,056 38,872 67,472 Interest costs capitalized to property and equipment 2,156 920 4 Interest costs capitalized to software 768 472 311 Total interest costs $ 35,980 $ 40,264 $ 67,787 76 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 11. 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 9, “Derivative Instruments and Hedging Activities,” for fair value information relating to our interest rate caps. Long-Term Debt: As of December 31, 2023 and 2022, our only financial asset and liability disclosed but not measured at fair value is the Term Loan Facility, which is reflected on the consolidated balance sheets at cost. The fair value measurement is classified as Level 2 within the fair value hierarchy since it is based on quoted market prices of our instrument in markets that are not active. We estimated the fair value of the Term Loan Facility by calculating the upfront cash payment a market participant would require to assume this obligation. The upfront cash payment used in the calculation of fair value on our consolidated balance sheets, excluding any issuance costs, is 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. The fair value and carrying value of long-term debt as of December 31, 2023 and 2022 was as follows (in thousands) : December 31, 2023 December 31, 2022 Fair Value (1) Carrying Value Fair Value (1) Carrying Value Term Loan Facility $ 610,000 $ 604,797 (2) $ 708,000 $ 711,263 (2) (1) Fair value amounts are rounded to the nearest million. (2) Carrying value of the Term Loan Facility reflects the unaccreted debt discount of $ 2.1 million and $ 2.8 million, respectively, as of December 31, 2023 and 2022. See Note 8, “Long-Term Debt and Other Liabilities,” for further information. 12. Stock-Based Compensation and 401(k) Plan As of December 31, 2023, we maintained the Second Amended and Restated Gogo Inc. 2016 Omnibus Incentive Plan (the “2016 Omnibus Plan”). The 2016 Omnibus Plan provides 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”). The Gogo Inc. 2013 Omnibus Incentive Plan (the “2013 Omnibus Plan”), The Aircell Holdings Inc. Stock Option Plan, and the Employee Stock Purchase Plan (“ESPP”) have all expired. Under the 2016 Omnibus Plan, 33,234,128 shares of common stock were reserved for issuance. As of December 31, 2023 , 4,432,317 shares remained available for grant under the 2016 Omnibus Plan. 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 77 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 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 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, 2023, 2022 and 2021 (in thousands) : For the Years Ended December 31, 2023 2022 2021 Cost of service revenue $ 1,701 $ 1,073 $ 472 Cost of equipment revenue 1,363 1,022 523 Engineering, design and development 3,569 2,532 1,358 Sales and marketing 3,678 2,628 1,615 General and administrative 10,977 11,810 9,377 Total stock-based compensation expense $ 21,288 $ 19,065 $ 13,345 A summary of stock option activity for the year ended December 31, 2023 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, 2023 4,012,761 $ 4.36 5.38 $ 42,396 Granted — $ — Exercised ( 218,585 ) $ 2.58 Forfeited ( 1,875 ) $ 2.14 Expired ( 22,711 ) $ 23.75 Options outstanding – December 31, 2023 3,769,590 $ 4.35 4.20 $ 23,190 Options exercisable – December 31, 2023 3,673,715 $ 4.41 4.16 $ 22,424 As of December 31, 2023, total unrecognized compensation costs related to unvested stock options were immaterial. The total grant date fair value of stock options vested in 2023, 2022 and 2021 was approximately $ 0.3 million , $ 18 million and $ 10 million, respectively. We estimate the fair value of stock options using the Black-Scholes option-pricing model. No stock options were granted during the years ended December 31, 2023 and 2022. Weighted average assumptions used and weighted average grant date fair value of stock options granted for the years ended December 31, 2021 were as follows: For the Years Ended December 31, 2021 Approximate risk-free interest rate 1.0 % Average expected life (years) 5.50 Dividend yield N/A Volatility 77.0 % Weighted average grant date fair value of common stock underlying options granted $ 9.66 Weighted average grant date fair value of stock options granted $ 6.22 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. 78 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) The following table summarizes the activities for our unvested RSUs and DSUs for the year ended December 31, 2023: Number of Underlying Shares Weighted Average Grant Date Fair Value Unvested – January 1, 2023 3,466,225 $ 12.46 Granted 1,899,140 $ 15.31 Vested ( 1,472,594 ) $ 11.18 Forfeited/canceled ( 153,082 ) $ 13.98 Unvested – December 31, 2023 3,739,689 $ 14.25 As of December 31, 2023, there was approximately $ 37 million of unrecognized compensation cost related to unvested employee RSUs. This amount is expected to be recognized over a weighted-average period of approximately 2.3 years. The total grant date fair value of RSUs and DSUs vested in 2023 was approximately $ 17 million . ESPP - We had an ESPP which expired during 2023. The ESPP allowed 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 could not exceed 15 % of the fair market value of the common stock at the beginning or end of the offering period (whichever was lower). Under the ESPP, 2,200,000 shares were reserved for issuance and 29,257 shares of common stock were issued during the year ended December 31, 2023. 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 limitations. Our matching contributions were $ 2.3 million , $ 2.1 million, and $ 1.8 million for the years ended December 31, 2023, 2022 and 2021 , respectively. 13. 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, 2023, 2022, and 2021 ( in thousands ): For the Years Ended December 31, 2023 2022 2021 United States $ 97,212 $ 105,450 $ ( 27,557 ) Foreign 391 267 ( 3,084 ) Income (loss) before income taxes $ 97,603 $ 105,717 $ ( 30,641 ) Significant components of the provision (benefit) for income taxes from continuing operations for the years ended December 31, 2023, 2022, and 2021 are as follows ( in thousands ): For the Years Ended December 31, 2023 2022 2021 Current: Federal $ — $ — $ — State 1,097 488 90 Foreign — — — 1,097 488 90 Deferred: Federal ( 40,743 ) 11,830 ( 166,706 ) State ( 7,971 ) 2,464 ( 20,614 ) Foreign ( 458 ) ( 1,124 ) — ( 49,172 ) 13,170 ( 187,320 ) Total $ ( 48,075 ) $ 13,658 $ ( 187,230 ) 79 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 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, 2023, 2022, and 2021 as a result of the following items: For the Years Ended December 31, 2023 2022 2021 Federal statutory rate 21.0 % 21.0 % 21.0 % Effect of: Change in valuation allowance ( 74.5 ) ( 10.9 ) 595.5 State income taxes-net of federal tax benefit 5.0 4.0 3.2 R&D credit ( 1.2 ) ( 0.4 ) 8.3 Nondeductible officer's compensation 1.2 0.1 ( 1.5 ) Excess tax benefits on stock-based compensation ( 0.4 ) ( 2.0 ) ( 3.0 ) Loss on settlement of 2022 Convertible Notes — — ( 12.9 ) Other ( 0.4 ) 1.1 0.4 Effective tax rate ( 49.3 )% 12.9 % 611.0 % Components of the net deferred income tax asset as of December 31, 2023 and 2022 are as follows ( in thousands ): December 31, December 31, 2023 2022 Deferred income tax assets: Federal net operating loss (NOL) $ 93,610 $ 118,043 State NOL 22,167 26,033 Foreign NOL 14,243 14,430 Interest carryforward 68,225 67,644 Operating lease liability 20,664 21,744 Other 56,538 50,335 Total deferred income tax assets 275,447 298,229 Deferred income tax liabilities: Indefinite-lived intangible assets ( 10,108 ) ( 9,138 ) Right-of-use asset ( 17,495 ) ( 18,525 ) Interest rate cap valuation ( 5,478 ) ( 10,213 ) Other ( 127 ) ( 226 ) Total deferred income tax liabilities ( 33,208 ) ( 38,102 ) Total deferred income tax 242,239 260,127 Valuation allowance ( 25,601 ) ( 97,470 ) Net deferred income tax asset $ 216,638 $ 162,657 We regularly assess the need for a valuation allowance related to our deferred income tax assets to determine, based on the weight of all 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, future taxable income, the reversal of existing taxable differences, and tax planning strategies. Based on our most recent assessment, for the year ended December 31, 2023, we released $ 72.8 million of the valuation allowance for the portion of our deferred income tax assets that we expect will ultimately be more likely than not to be realized. As of December 31, 2023, we can demonstrate an estimate of objectively verifiable future income based on the prior three years of pre-tax income from continuing operations. This estimate of future income, along with our assessment of the other available 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 credits, foreign NOLs and capital loss carryforwards as it is more likely than not as of December 31, 2023 that these deferred tax assets will not be realized. As of December 31, 2023, the federal net operating loss (“NOL”) carryforward, state NOL carryforward and Canadian NOL carryforward were approximately $ 446 million , $ 377 million , and $ 54 million , respectively. We have recorded a deferred tax asset of $ 93.6 million , $ 22.2 million , and $ 14.2 million for federal NOLs, state NOLs, and Canadian NOLs, respectively, reflecting the benefit of these loss carryforwards. Certain of the federal and state NOLs begin to expire in 2034 and 2024, respectively. The Canadian NOL carryforward begins to expire in 2033. 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. 80 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Uncertain Tax Positions - As of December 31, 2023, the total amount of gross unrecognized tax benefits was $ 1.9 million. As of December 31, 2022 , the total amount of gross unrecognized tax benefits was $ 0.8 million. The aggregate change in the balance of gross unrecognized tax benefits, which excludes interest and penalties for the years ended December 31, 2023 and 2022 is as follows (in thousands) : For the Year Ended December 31, For the Year Ended December 31, 2023 2022 Beginning balances $ 799 $ — Increases related to tax positions taken during a prior year 798 555 Decreases related to tax positions taken during a prior year — — Increases related to tax positions taken during the current year 337 244 Decreases related to settlements with taxing authorities — — Decreases related to expiration of the statute of limitations — — Ending balances $ 1,934 $ 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, 2023, we are no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2020. The total amount of unrecognized tax benefits that, if recognized, would reduce the Company’s effective tax rate is $ 1.2 million and $ 0.8 million as of December 31, 2023 and 2022 , respectively. 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, 2023, 2022 or 2021. We do no t expect a change in the unrecognized tax benefits within the next 12 months. 14. 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, 2023 2022 2021 Operating lease cost $ 15,961 $ 14,964 $ 13,203 Finance lease cost: Amortization of leased assets 112 156 35 Interest on lease liabilities 9 40 50 Total lease cost $ 16,082 $ 15,160 $ 13,288 Other information regarding our leases is as follows (in thousands, except lease terms and discount rates) : For the Years Ended December 31, 2023 2022 2021 Supplemental cash flow information Cash paid for amounts included in measurement of lease liabilities: Operating cash flows used in operating leases $ 16,422 $ 15,194 $ 13,930 Operating cash flows used in finance leases $ 9 $ 40 $ 51 Financing cash flows used in finance leases $ 132 $ 184 $ 145 Non-cash items: Operating leases obtained $ 5,231 $ 13,547 $ 43,148 Finance leases obtained $ — $ 11 $ — Weighted average remaining lease term Operating leases 7 years 8 years 9 years Finance leases 2 years 1 year 2 years Weighted average discount rate Operating leases 6.8 % 6.7 % 7.0 % Finance leases 4.7 % 17.0 % 18.6 % 81 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Annual future minimum lease payments as of December 31, 2023 (in thousands) : Years ending December 31, Operating Leases Financing Leases 2024 $ 15,393 $ 4 2025 15,552 2 2026 15,334 — 2027 14,376 — 2028 12,687 — Thereafter 31,456 — Total future minimum lease payments 104,798 6 Less: Amount representing interest ( 21,467 ) — Present value of net minimum lease payments $ 83,331 $ 6 Reported as of December 31, 2023 Accrued liabilities $ 10,284 $ 4 Non-current operating lease liabilities 73,047 — Other non-current liabilities — 2 Total lease liabilities $ 83,331 $ 6 As of December 31, 2023, there were no significant leases which had not yet commenced . 15. 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 entered into a supply and product support agreement (the “SPSA”) with Hughes Network Systems, LLC (“Hughes”), providing for our purchase from Hughes of airborne half duplex (“HDX”) 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 in the second half of 2024, HDX antennas with an estimated aggregate purchase price of approximately $ 170 million. During the contractual seven-year period, Hughes may not sell substantially similar equipment to other purchasers in our primary target market. In March 2023, we amended the SPSA, pursuant to which, we committed to purchase, over a seven-year period that will begin on completion of a project milestone currently expected to occur in mid-2025, full duplex (“FDX”) antennas with an estimated aggregate purchase price of approximately $ 102 million. On February 26, 2024, Gogo invested $ 5 million in a convertible note offering issued by one of our suppliers. 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. On January 5, 2023, following mediation, the Company entered into a Stipulation and Agreement of Settlement (the “Derivative Settlement”) with the plaintiffs named in the foregoing derivative lawsuits and a stockholder that made substantially the same allegations via a letter sent to the Company’s then-Board of Directors, dated June 21, 2021 (collectively, the “Stockholders”). Pursuant to the terms of the Derivative Settlement, the Company implemented certain corporate governance initiatives (the “Governance Initiatives”) and caused its D&O insurance carrier to pay the attorneys’ fees for the Stockholders 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 named in the derivative lawsuits. Under the terms of the Derivative Settlement, the defendants were not required to pay any damages. We had 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 as of December 21, 2022. On April 11, 2023, the Court issued final judgment approving the Derivative Settlement. The Company released the accrued liability and corresponding receivable for attorneys’ fees as of March 31, 2023 and pursuant to the terms of the Derivative Settlement, has implemented the Governance Initiatives. 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 (the “Court”) 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 82 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 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 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 appealed the denial to the U.S. Court of Appeals for the Federal Circuit. Briefing for the appeal is complete and the appellate court heard oral arguments on June 5, 2023. On January 31, 2024, the U.S. Court of Appeals for the Federal Circuit affirmed the decision of the Court to deny the PI Motion. We 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. 16. 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, 2021 $ ( 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 ( 265 ) 28,604 28,339 Balance at December 31, 2022 $ ( 1,225 ) 31,353 $ 30,128 Other comprehensive income before reclassifications 291 4,579 4,870 Less: income realized and reclassified to earnings — 19,202 19,202 Net current period comprehensive income (loss) 291 ( 14,623 ) ( 14,332 ) Balance at December 31, 2023 $ ( 934 ) $ 16,730 $ 15,796 17. Common Stock and Preferred Stock Common Stock – We have one class of common stock outstanding as of December 31, 2023 and 2022. 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. Share Repurchases – On September 5, 2023, we announced a share repurchase program that grants the Company authority to repurchase up to $ 50 million of shares of the Company’s common stock. Repurchases may be made at management's discretion from time to time on the open market, through privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act, as amended, in accordance with applicable securities laws and other restrictions. The repurchase program has no time limit and may be suspended for periods or discontinued at any time and does not obligate us to purchase any shares of our common stock. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other 83 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) considerations. We do not expect to incur debt to fund the share repurchase program. During the year ended December 31, 2023 , we repurchased an aggregate 0.5 million shares of our common stock for $ 4.8 million. During September 2022, we repurchased 1.5 million shares of common stock in a private transaction for an aggregate purchase price of $ 18.3 million. 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 Agreement was intended to reduce the likelihood of an ownership change under Section 382 of the Internal Revenue Code of 1986, as amended, 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 Agreement expired on September 23, 2023 and the Board of Directors voted not to renew the agreement. 84 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 18. 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, 2023 2022 Assets: Cash and cash equivalents $ 17,286 $ 37,174 Prepaid expenses and other current assets 74 — Deferred income taxes 222,043 172,871 Total assets $ 239,403 $ 210,045 Liabilities and stockholders’ deficit: Other current liabilities $ 189 $ 113 Investments and payables with subsidiaries 198,489 311,801 Total liabilities 198,678 311,914 Total stockholders’ equity (deficit) 40,725 ( 101,869 ) Total liabilities and stockholders’ deficit $ 239,403 $ 210,045 Gogo Inc. Condensed Statements of Operations and Comprehensive Income (Loss) (in thousands) For the Years Ended December 31, 2023 2022 2021 Interest income $ ( 1,280 ) $ ( 455 ) $ ( 6 ) Interest expense — 2,770 9,504 Loss on extinguishment of debt and settlement of convertible notes — — 18,948 Other ( 1,344 ) 1 ( 4 ) Total other expense ( 2,624 ) 2,316 28,442 Income (loss) before income taxes 2,624 ( 2,316 ) ( 28,442 ) Income tax (benefit) provision ( 48,075 ) 13,658 ( 187,230 ) Equity (gains) losses of subsidiaries ( 94,979 ) ( 108,033 ) 6,053 Net income (loss) $ 145,678 $ 92,059 $ 152,735 Comprehensive income (loss) $ 145,678 $ 92,059 $ 152,735 85 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Gogo Inc. Condensed Statements of Cash Flows (in thousands) For the Years Ended December 31, 2023 2022 2021 Operating activities: Net income $ 145,678 $ 92,059 $ 152,735 Amortization of deferred financing costs — 418 1,387 Settlement of convertible notes — — 18,948 Subsidiary equity (gains) losses ( 94,979 ) ( 108,033 ) 6,053 Deferred income taxes ( 49,172 ) 13,170 ( 187,220 ) Gain on sale of equity investment ( 1,343 ) — — Other operating activities 2 ( 627 ) 1,819 Net cash provided by (used in) operating activities 186 ( 3,013 ) ( 6,278 ) Investing activities: Investments and advances with subsidiaries ( 8,365 ) 6,047 11,552 Purchase of equity investment ( 5,000 ) — — Proceeds from sale of equity investment 6,343 — — Net cash provided by (used in) investing activities ( 7,022 ) 6,047 11,552 Financing activities: Repurchase of common stock ( 4,822 ) ( 18,375 ) — Stock-based compensation activity ( 8,230 ) ( 2,579 ) ( 5,245 ) Net cash used in financing activities ( 13,052 ) ( 20,954 ) ( 5,245 ) Increase (decrease) in cash, cash equivalents and restricted cash ( 19,888 ) ( 17,920 ) 29 Cash, cash equivalents and restricted cash at beginning of period 37,174 55,094 55,065 Cash, cash equivalents and restricted cash at end of period $ 17,286 $ 37,174 $ 55,094 Cash, cash equivalents and restricted cash at end of period $ 17,286 $ 37,174 $ 55,094 Less: current restricted cash — — 25 Less: non-current restricted cash — — — Cash and cash equivalents at end of period $ 17,286 $ 37,174 $ 55,069 19 . Discontinued Operations 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, financial results related to the CA business were reported as discontinued operations for the year ended December 31, 2021. 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. 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) : 86 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) For the Year Ended December 31, 2021 Operating expenses: General and administrative 6,283 Total operating expenses 6,283 Operating loss ( 6,283 ) Other income: Gain on sale of CA business ( 1,598 ) Total other income: ( 1,598 ) Loss before income taxes ( 4,685 ) Income tax benefit ( 831 ) Net loss from discontinued operations, net of tax $ ( 3,854 ) 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, 2023, 2022 and 2021 (in thousands) : 2023 2022 2021 Cost of service revenue $ — $ — $ — Cost of equipment revenue — — — Engineering, design and development — — — Sales and marketing — — — General and administrative — — 4,817 Total stock-based compensation expense $ — $ — $ 4,817 See Note 12, “Stock-Based Compensation and 401(k) Plan,” for additional information on our stock-based compensation plans. 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. 87 Item 9. Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure None.