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 ) 61 Consolidated Balance Sheets 63 Consolidated Statements of Operations 64 Consolidated Statements of Comprehensive Income 65 Consolidated Statements of Cash Flows 66 Consolidated Statements of Stockholders’ Equity 67 Notes to Consolidated Financial Statements 68 60 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, 2024 and 2023, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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 March 14, 2025, expressed an adverse opinion on the Company's internal control over financial reporting because of material weaknesses. 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. Acquisition of Satcom Direct, LLC and certain of its affiliates and subsidiaries (collectively, “Satcom Direct”) — Refer to Note 1 and Note 2 to the financial statements Critical Audit Matter Description The Company completed the acquisition of Satcom Direct for $440.7 million on December 3, 2024. The Company accounted for the acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including software of $55.2 million and service customer relationships of $144.6 million (the "acquired intangible assets"). Management estimated the fair value of the software using the relief from royalty method. Management estimated the fair value of the service customer relationships using the multi-period excess earnings method, which is a discounted cash flow method. The fair value determination of software and service customer relationships required management to make significant estimates and assumptions related to future cash flows and the selection of the discount rates. We identified the fair value of acquired software and service customer relationships from the Satcom Direct acquisition as a critical audit matter because of the significant assumptions and estimates used in the valuation of the acquired intangible assets that possess higher degrees of complexity and sensitivity to the valuations. This required a high degree of audit judgment and an increased extent of effort, including the need to involve our internal fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s assumptions. The significant assumptions and estimates management makes to fair value the acquired intangible assets primarily relate to the future projected revenue and the discount rates applied to the future cash flows. 61 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to future projected revenue and the selection of the discount rates applied to the future cash flows for the acquired intangible assets included the following, among others: • We assessed the reasonableness of management’s future projected revenue by comparing the projections to historical results, certain peer companies, industry data, and Board of Directors presentations. • We evaluated whether the future projected revenue was consistent with evidence obtained in other areas of the audit. • With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rates by: • Testing the source information underlying the determination of the discount rates and testing the mathematical accuracy of the calculation. • Developing a range of independent estimates and comparing those to the discount rates selected by management. /s/ Deloitte & Touche, LLP March 14, 2025 We have served as the Company’s auditor since 2007. 62 Gogo Inc. and Subsidiaries Consolidated B alance Sheets (in thousands, except share and per share data) December 31, December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 41,765 $ 139,036 Accounts receivable, net of allowances of $ 4,467 and $ 2,091 , respectively 111,513 48,233 Inventories 97,934 63,187 Assets held for sale 16,625 — Prepaid expenses and other current assets 55,256 64,138 Total current assets 323,093 314,594 Non-current assets: Property and equipment, net 119,125 98,129 Intangible assets, net 275,331 55,027 Goodwill 184,831 620 Operating lease right-of-use assets 68,465 70,552 Investment in convertible note 4,207 — Other non-current assets, net of allowances of $ 861 and $ 591 , respectively 36,870 25,979 Deferred income taxes 217,309 216,638 Total non-current assets 906,138 466,945 Total assets $ 1,229,231 $ 781,539 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 67,231 $ 16,094 Accrued liabilities 81,889 47,649 Deferred revenue 30,408 1,003 Current portion of long-term debt 2,500 7,250 Total current liabilities 182,028 71,996 Non-current liabilities: Long-term debt 831,581 587,501 Non-current operating lease liabilities 68,178 73,047 Other non-current liabilities 78,120 8,270 Total non-current liabilities 977,879 668,818 Total liabilities 1,159,907 740,814 Commitments and contingencies (Note 17) Stockholders’ equity Common stock, par value $ 0.0001 per share; 500,000,000 shares authorized at December 31, 2024 and December 31, 2023; 144,095,996 and 137,632,284 shares issued at December 31, 2024 and December 31, 2023, respectively; and 130,918,997 and 128,462,343 shares outstanding at December 31, 2024 and December 31, 2023, respectively 14 14 Additional paid-in capital 1,460,270 1,402,003 Accumulated other comprehensive income 5,567 15,796 Treasury stock, at cost ( 196,382 ) ( 163,197 ) Accumulated deficit ( 1,200,145 ) ( 1,213,891 ) Total stockholders’ equity 69,324 40,725 Total liabilities and stockholders’ equity $ 1,229,231 $ 781,539 See the Notes to Consolidated Financial Statements 63 Gogo Inc. and Subsidiaries Consolidated Statem ents of Operations (in thousands, except per share amounts) For the Years Ended December 31, 2024 2023 2022 Revenue: Service revenue $ 364,270 $ 318,015 $ 296,329 Equipment revenue 80,439 79,562 107,738 Total revenue 444,709 397,577 404,067 Operating expenses: Cost of service revenue (exclusive of items shown below) 99,042 69,568 64,427 Cost of equipment revenue (exclusive of items shown below) 67,561 63,383 71,473 Engineering, design and development 44,772 36,683 29,587 Sales and marketing 38,020 29,797 25,471 General and administrative 125,071 57,280 58,203 Depreciation and amortization 18,972 16,701 12,580 Total operating expenses 393,438 273,412 261,741 Operating income 51,271 124,165 142,326 Other expense (income): Interest income ( 8,336 ) ( 7,403 ) ( 2,386 ) Interest expense 38,431 33,056 38,872 Loss on extinguishment of debt — 2,224 — Other (income) expense, net 3,042 ( 1,315 ) 123 Total other expense 33,137 26,562 36,609 Income before income taxes 18,134 97,603 105,717 Income tax provision (benefit) 4,388 ( 48,075 ) 13,658 Net income $ 13,746 $ 145,678 $ 92,059 Net income attributable to common stock per share: Basic $ 0.11 $ 1.12 $ 0.75 Diluted $ 0.10 $ 1.09 $ 0.71 Weighted average number of shares Basic 128,533 129,753 123,268 Diluted 131,455 133,283 133,923 See the Notes to Consolidated Financial Statements 64 Gogo Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (in thousands) For the Years Ended December 31, 2024 2023 2022 Net income $ 13,746 $ 145,678 $ 92,059 Other comprehensive income (loss), net of tax Currency translation adjustments ( 823 ) 291 ( 265 ) Cash flow hedges: Amount recognized in other comprehensive income 4,413 4,579 34,765 Less: income realized and reclassified to earnings 13,819 19,202 6,161 Changes in fair value of cash flow hedges ( 9,406 ) ( 14,623 ) 28,604 Other comprehensive income (loss), net of tax ( 10,229 ) ( 14,332 ) 28,339 Comprehensive income $ 3,517 $ 131,346 $ 120,398 See the Notes to Consolidated Financial Statements 65 Gogo Inc. and Subsidiaries Consolidated Statem ents of Cash Flows (in thousands) For the Years Ended December 31, 2024 2023 2022 Operating activities: Net income $ 13,746 $ 145,678 $ 92,059 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 18,972 16,701 12,580 Loss on asset disposals, abandonments and write-downs 2,932 362 1,577 Provision for expected credit losses 3,803 1,233 1,047 Deferred income taxes 3,245 ( 49,172 ) 13,170 Stock-based compensation expense 20,777 21,288 19,065 Amortization of deferred financing costs and interest rate caps 5,147 3,894 3,215 Accretion of debt discount 510 403 456 Change in fair value of convertible note and gain on sale of equity investment 793 ( 1,343 ) — Loss on extinguishment of debt — 2,224 — Changes in operating assets and liabilities: Accounts receivable 2,971 4,833 ( 17,482 ) Inventories ( 16,224 ) ( 13,694 ) ( 15,517 ) Prepaid expenses and other current assets ( 13,417 ) ( 49,891 ) 8,351 Contract assets ( 7,138 ) 3,217 ( 2,164 ) Accounts payable ( 11,295 ) 3,658 ( 2,540 ) Accrued liabilities 11,153 4,351 ( 12,031 ) Deferred revenue 3,621 ( 2,411 ) 1,589 Accrued interest 1,715 ( 9,409 ) 3,647 Other non-current assets and liabilities 110 ( 2,952 ) ( 3,617 ) Net cash provided by operating activities 41,421 78,970 103,405 Investing activities: Purchases of property and equipment ( 13,504 ) ( 16,267 ) ( 43,914 ) Acquisition of intangible assets—capitalized software ( 13,551 ) ( 7,821 ) ( 6,000 ) Acquisition of Satcom Direct, net of cash acquired ( 332,724 ) — — Proceeds from FCC Reimbursement Program for property, equipment and intangibles 4,395 1,130 — Proceeds from interest rate caps 23,181 26,675 4,292 Redemptions of short-term investments — 74,179 — Purchases of short-term investments — ( 49,383 ) ( 24,796 ) Purchases of convertible note and equity investment ( 5,000 ) ( 5,000 ) — Proceeds from sale of equity investment — 6,343 — Net cash (used in) provided by investing activities ( 337,203 ) 29,856 ( 70,418 ) Financing activities: Proceeds from term loan, net of discount 245,000 — — Payment of debt issuance costs ( 4,020 ) — — Repurchases of common stock ( 33,185 ) ( 4,822 ) ( 18,375 ) Payments on term loan ( 6,063 ) ( 107,250 ) ( 7,250 ) Payments on finance leases ( 31 ) ( 132 ) ( 184 ) Stock-based compensation activity ( 3,010 ) ( 8,230 ) ( 2,579 ) Net cash provided by (used in) financing activities 198,691 ( 120,434 ) ( 28,388 ) Effect of foreign exchange rate changes on cash 29 94 13 Increase (decrease) in cash, cash equivalents and restricted cash ( 97,062 ) ( 11,514 ) 4,612 Cash, cash equivalents and restricted cash at beginning of period 139,366 150,880 146,268 Cash, cash equivalents and restricted cash at end of period $ 42,304 $ 139,366 $ 150,880 Cash, cash equivalents and restricted cash at end of period $ 42,304 $ 139,366 $ 150,880 Less: current restricted cash 70 — — Less: non-current restricted cash 469 330 330 Cash and cash equivalents at end of period $ 41,765 $ 139,036 $ 150,550 Supplemental cash flow information: Cash paid for interest $ 56,150 $ 68,145 $ 41,209 Cash paid for taxes, net $ 3,098 $ 1,004 $ 377 Non-cash investing activities: Fair value of shares issued in acquisition of Satcom Direct $ 40,500 $ — $ — Purchases of property and equipment in current liabilities $ 5,139 $ 4,801 $ 10,688 See the Notes to Consolidated Financial Statements 66 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 Deficit Shares Amount Total Balance at January 1, 2022 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 Net income — — — — 13,746 — — 13,746 Currency translation adjustments, net of tax — — — ( 823 ) — — — ( 823 ) Fair value adjustments of cash flow hedges, net of tax — — — ( 9,406 ) — — — ( 9,406 ) Stock-based compensation expense — — 20,777 — — — — 20,777 Issuance of common stock upon exercise of stock options 236,979 — 630 — — — — 630 Issuance of common stock upon vesting of restricted stock units 1,190,029 — — — — — — — Tax withholding related to vesting of restricted stock units — — ( 3,903 ) — — — — ( 3,903 ) Issuance of common stock in connection with employee stock purchase plan 36,704 — 263 — — — — 263 Shares issued in acquisition of Satcom Direct 5,000,000 — 40,500 — — — — 40,500 Repurchase of common stock ( 4,007,058 ) — — — — 4,007,058 ( 33,185 ) ( 33,185 ) Balance at December 31, 2024 130,918,997 $ 14 $ 1,460,270 $ 5,567 $ ( 1,200,145 ) 13,176,999 $ ( 196,382 ) $ 69,324 See the Notes to Consolidated Financial Statements 67 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. As a result of the Company’s acquisition of Satcom Direct on December 3, 2024, as described in Note 2, “Acquisition of Satcom Direct,” the Company has two reportable segments as of December 31, 2024: the legacy pre-acquisition operations of the Company, (“Gogo BA”) and the acquired entities, Satcom Direct. The Gogo BA segment provides in-flight connectivity for business aviation via air-to-ground and satellite networks. The Satcom Direct segment provides global satellite-based communication solutions primarily for business, military and government aircraft. Satcom Direct is managed as a separate reportable segment, but in the future, we may realign our reportable segments after integrating the Satcom Direct business. 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. Reclassifications - Certain reclassification adjustments and updates have been made to the prior periods’ financial statements and notes to conform to the current period’s presentation. 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, contract assets and other receivables within the scope of ASC 326, Financial Instruments - Credit Losses , for expected credit losses. Our current expected credit 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. We also record an estimate of expected credit loss associated with the New Revolving Credit Facility, as defined and described in Note 17, “Commitments and Contingencies.” The current expected credit loss allowance methodology is developed using an estimate of future borrowings under the agreement and specific credit risk profile of the borrow. While the New Revolving Credit Facility is undrawn as of December 31, 2024, the current expected credit allowance is included in Accrued liabilities on the Consolidated Balance Sheets. Upon drawdown of the revolver, the liability will be classified as an allowance against the loan receivable. 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. Our restricted cash balances were $ 0.5 million and $ 0.3 million as of December 31, 2024 and 2023 , respectively, and consisted of letters of credit issued for the benefit of the landlord of our office location in Chicago, IL and the tower operator for certain of our cell sites in Canada. 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. 68 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Income Tax - We use an asset- and liability-based approach in accounting for income taxes. Deferred income tax assets and liabilities are recorded for tax attributes and are based on the differences between the financial statement and tax basis of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the tax differences are expected to reverse. We regularly assess the need for a valuation allowance related to our deferred income tax assets to determine, based on the weight of the available positive and negative evidence, whether it is more likely than not that some or all of such deferred assets will not be realized. We also consider the existence of any uncertain tax positions and, as necessary, provide a reserve for any uncertain tax positions at each reporting date. See Note 15, “Income Tax,” for further details. Inventories - Inventories consist primarily of telecommunications systems and parts and are recorded at the lower of average cost or net realizable value. We evaluate the need for write-downs associated with obsolete, slow-moving and nonsalable inventory by reviewing net realizable inventory values on a periodic basis. See Note 6, “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 $ 15.1 million , $ 14.7 million and $ 7.9 million for the years ended December 31, 2024, 2023 and 2022. 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 Buildings 39 years Network equipment 5 - 25 years See Note 6, “Composition of Certain Balance Sheet Accounts,” for further details. Improvements to leased property are depreciated over the shorter of the useful life of the improvement or the term of the related lease. We reassess the useful lives of leasehold improvements when there are changes to the terms of the underlying lease. Such reassessment has resulted in the useful life of specific assets being adjusted to a shorter period than originally estimated, resulting in an increase in annual depreciation expense for those assets. Repairs and maintenance costs are expensed as incurred. 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. Goodwill and Other Intangible Assets - Intangible assets with indefinite lives are not amortized but are reviewed for impairment at least annually or whenever events or circumstances indicate the carrying value of the asset may not be recoverable. Our FCC Licenses, as defined in Note 8, “Intangible Assets,” and the goodwill related to the acquisition of Satcom Direct are our only material indefinite-lived intangible assets. We perform our annual impairment tests during the fourth quarter of each fiscal year. We assess qualitative factors to determine the likelihood of impairment. Our qualitative analysis includes, but is not limited to, assessing the changes in macroeconomic conditions, regulatory environment, industry and market conditions, financial performance versus budget and any other events or circumstances specific to the indefinite-lived intangible assets. If it is more likely than not that the fair value of the indefinite-lived intangible assets 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. The results of our annual indefinite-lived intangible asset impairment assessments for 2024, 2023 and 2022 indicated no impairment. 69 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 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 8 - 10 years Service customer relationships 5 - 7 years Tradename and other intangible assets 5 - 8 years See Note 8, “Intangible Assets,” for further details. Long-Lived Assets - We review our long-lived assets to determine potential impairment whenever events indicate that the carrying amount of such assets may not be recoverable. We do this by comparing the carrying value of the long-lived assets with the estimated future undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. If we determine an impairment exists, the asset is written down to estimated fair value. There were no impairments of long-lived assets in 2024, 2023 or 2022 . Business Combinations - The Company uses its best estimates and assumptions to determine the fair value of tangible and intangible assets acquired and liabilities assumed, as well as the uncertain tax positions and tax-related valuation allowances that are initially recorded in connection with a business combination. These estimates and assumptions are uncertain and may require adjustment. During the measurement period of one year from the acquisition date, the Company continues to collect information and reevaluates these estimates and assumptions, and records adjustments to these estimates to goodwill. Any adjustments to the acquired assets and liabilities assumed that are identified subsequent to the measurement period are recorded in earnings. See Note 2, “Acquisition of Satcom Direct,” for further information. Revenue Recognition - Our revenue is primarily earned from providing connectivity and entertainment services and through sales of equipment. The Company has three main connectivity solutions, each with its own equipment solution: Satellite Broadband, ATG and Narrowband. 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 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 satellite connectivity equipment and is recognized when control of the equipment is transferred to the customer, which generally occurs when the equipment is shipped. In all cases, we evaluate whether a contract exists as it relates to collectability of the contract. Once a contract is deemed to exist, we evaluate the transaction price and deliverables under the contract. A limited number of contracts contain multiple equipment and service deliverables. For these contracts, we account for each distinct good or service as a separate performance obligation. We allocate the contract’s transaction price to each performance obligation using the relative standalone selling price, which is based on the actual selling price for any good or service sold separately to a similar class of customer. See Note 4, “Revenue Recognition,” for further information. 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 5, “Government Assistance,” for additional information. 70 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Research and Development Costs - Expenditures for research and development are charged to expense as incurred and totaled $ 44.8 million , $ 36.7 million and $ 29.6 million for the years ended December 31, 2024, 2023 and 2022 , respectively. Research and development costs are reported as engineering, design and development expenses in our consolidated statements of operations. Warranty - We provide warranties on parts and labor related to our products. Our warranty terms range from two to five years. Warranty reserves are established for costs that are estimated to be incurred after the sale, delivery and installation of the products under warranty. The warranty reserves are determined based on known product failures, historical experience and other available evidence, and are included in accrued liabilities in our consolidated balance sheets. See Note 7, “Composition of Certain Reserves and Allowances,” for the details of the changes in our warranty reserve. Asset Retirement Obligations - We have certain asset retirement obligations related to contractual commitments to remove our network equipment and other assets from leased cell sites upon termination of the site leases. The asset retirement obligations are classified as a noncurrent liability in our consolidated balance sheets. See Note 6, “Composition of Certain Balance Sheet Accounts,” for the details of the changes in our asset retirement obligations. Fair Value of Financial Instruments - We group financial assets and financial liabilities measured at fair value into three levels of hierarchy based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. 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. See Note 12, “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 a portion of our exposure to interest rate changes, and have designated these interest rate caps as cash flow hedges for accounting purposes. We account for these interest rate caps in accordance with ASC 815, Derivatives and Hedging , which requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. We record the effective portion of changes in the fair value of our cash flow hedges to other comprehensive income (loss), net of tax, and subsequently reclassify these amounts into earnings in the period during which the hedged transaction is recognized. See Note 10, “Derivative Instruments and Hedging Activities,” for further information. Earnings 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 3, “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 and performance share units (“PSUs”). 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. The fair value of PSUs are determined using a Monte Carlo simulation, which requires assumptions such as expected term, volatility, risk-free interest rate 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 14, “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, data centers 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 71 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) reasonably certain to be exercised. Our data center leases have original terms between one to four years with unlimited one-year renewal options, some of which are reasonably certain to be exercised. Our building leases have original terms of ten years , with renewal options for an additional five years . We 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 Facilities contain certain restrictions on our ability to enter into new finance lease arrangements. See Note 16, “Leases,” for further information. Advertising Costs - Costs for advertising are expensed as incurred. Debt Issuance Costs - We defer loan origination fees and financing costs related to our various debt offerings as deferred financing costs. Additionally, we defer fees paid directly to the lenders related to amendments of our debt offerings as deferred financing costs. We amortize these costs over the term of the underlying debt obligation using the effective interest method and include them in interest expense in the consolidated statement of operations. The fees incurred but not paid directly to the lenders in connection with amendments are expensed as incurred to interest expense. Deferred financing costs associated with future debt issuances are written off in the period during which we determine that the debt will no longer be issued. See Note 9, “Long-Term Debt and Other Liabilities,” for further information. Comprehensive Income - Comprehensive income for the years ended December 31, 2024, 2023 and 2022 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 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. We adopted this standard for the annual period ended December 31, 2024 using a retrospective method. See Note 13, “Business Segments,” for further information. Accounting standards not yet adopted: 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. As this guidance only impacts disclosures, we do not expect the adoption to have a material impact on our consolidated financial statements. In November 2024, the FASB issues ASU No. 2024-03, Income Statement - Reporting Comprehensive Income (Subtopic 220-40): Disaggregation of Income Statement Expenses which requires disclosure about specific types of expenses included in the expense captions presented in the Consolidated Statements of Operations. This guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. 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. Acquisition of Satcom Direct On December 3, 2024 (the “Closing”), the Company completed the previously announced acquisition of 100 % of the issued and outstanding equity interests in Satcom Direct , LLC, a Delaware limited liability company (f/k/a Satcom Direct, Inc., a Florida corporation) and certain of its affiliates and their collective subsidiaries (collectively, “Satcom Direct”), pursuant to the terms of the purchase agreement, dated as of September 29, 2024 (the “Purchase Agreement”). Founded in 1997, Satcom Direct primarily engages in providing business, military and government in-flight connectivity services as a value-added reseller of satellite services. Satcom Direct operates worldwide with an international sales and service team based in nine countries. Satcom Direct sells services and equipment globally through their international sales force to OEMs, governments, military, and private fleet companies among others. Satcom Direct manages a network operating center and maintains their own data center in Melbourne, Florida with licensed data sites strategically placed around the world. The acquisition will create the only in-flight connectivity provider able to satisfy the performance and cost needs of every segment of the global business aviation and military/government mobility markets. 72 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) In accordance with the terms of the Purchase Agreement, on the Closing the Company purchased all of the issued and outstanding equity interests in Satcom Direct in exchange for: (i) an aggregate cash purchase amount of $ 375 million, subject to customary post-closing adjustments (the “Cash Consideration”), (ii) five million restricted shares (the “Stock Consideration”) of the Company’s common stock, par value of $ 0.0001 per share (“Common Stock”), and (iii) up to an additional $ 225 million in potential earnout payments of cash and/or Common Stock tied to realizing certain financial performance milestones over the next four years (the “Earnout Consideration” and, together with the Cash Consideration and Stock Consideration, the “Acquisition Consideration”). The Cash Consideration was financed via the Company’s $ 250 million HPS Credit Agreement (as defined below) and the remainder with cash on hand. The Earnout Consideration has an estimated fair value of $ 53 million and is included in Other non-current liabilities on the Consolidated Balance Sheets as of December 31, 2024. The fair value of the Earnout Consideration was calculated using a Monte Carlo simulation based on future gross profit projections of Satcom Direct, gross profit volatility rates of comparable companies and a risk adjusted discount rate. The fair value measurement was based on significant unobservable inputs and thus represents a Level 3 measurement. The following table summarizes Closing fair value of the Acquisition Consideration ( in thousands ): Estimated Aggregate Acquisition Consideration Share consideration Common Stock issued per the Purchase Agreement 5,000 Share price on December 2, 2024 8.10 Stock Consideration $ 40,500 Cash Consideration $ 346,785 Settlement of pre-existing relationship $ 393 Estimated fair value of Earnout Consideration $ 53,000 Preliminary fair value of estimated aggregate Acquisition Consideration $ 440,678 The Company allocated the purchase price to the net identifiable tangible and intangible assets acquired and liabilities assumed based on their preliminary estimated fair values as of the date of acquisition using the acquisition method of accounting for business combinations. The excess of the purchase price over the estimated fair value of the net assets and liabilities was allocated to goodwill. The Company determined the preliminary estimated fair values after review and consideration of relevant information as of the acquisition date, including discounted cash flows, quoted market prices and estimates made by management. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are preliminary based on management's estimates and assumptions and may be subject to change as additional information is received. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the Closing. The following table summarizes the fair values of assets acquired and liabilities assumed as of the Closing based on the preliminary purchase price allocation ( in thousands ): 73 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Preliminary Aggregate Purchase Price Allocation Preliminary fair value of estimated total Acquisition Consideration $ 440,678 Assets acquired Cash and cash equivalents $ 12,563 Accounts receivable, net of allowances 67,841 Inventories 18,528 Prepaid expenses and other current assets 13,636 Assets held for sale 16,625 Property and equipment, net 26,633 Intangible assets, net 213,300 Operating lease right-of-use assets 3,202 Other non-current assets, net of allowances 5,601 Deferred income taxes 980 Total assets acquired $ 378,909 Liabilities assumed Accounts payable 61,856 Accrued liabilities 17,568 Deferred revenue 25,790 Non-current operating lease liabilities 2,706 Other non-current liabilities 14,522 Total liabilities assumed $ 122,442 Net assets acquired $ 256,467 Goodwill $ 184,211 The allocation of the purchase price presented above was based on management's preliminary estimate of the fair values of the acquired assets and assumed liabilities using valuation techniques including income, cost and market approaches. These valuation techniques incorporate the use of future projected revenues and cash flows as well as estimated discount rates. Current and noncurrent assets and liabilities are valued at historical carrying values, which approximate fair value, except as described below. The fair value measurements discussed below were based on significant inputs that are not observable and thus represent a Level 3 measurement. Inventories were valued using a combination of the comparative sales method, which estimated the expected sales price of the products, reduced by all costs expected to be incurred to complete the inventory, as well as a profit on the sale and estimated replacement cost. Assets held for sale represent the main corporate facility of Satcom Direct and associated land in Melbourne, Florida. The Company engaged a broker and expects to sell the assets within the next twelve months. Assets held for sale were valued using the income approach less the direct costs associated with selling the assets. Property and equipment, net were valued using a combination of the cost and market approaches. Customer relationships represent the fair value of future projected revenue that will be derived from sales of connectivity services and equipment to existing customers of Satcom Direct. Customer relationships were valued using the multi-period excess earnings method. This method of valuation reflects the present value of the projected cash flows that are expected to be generated by these existing customers less charges representing the contribution of other assets to those cash flows. Software and the tradename were valued under the relief from royalty method, which is equal to the present value of the after-tax royalty savings attributable to owning the software or tradename as opposed to paying a third party for its use. The estimated fair value of operating leases was determined based on current market terms, which resulted in a net unfavorable adjustment to the right-of-use asset. After assessing the preliminary fair value of the net assets acquired and liabilities assumed, the Company recorded goodwill of $ 184.2 million . Of the total goodwill amount, $ 173.8 million is attributable to the U.S. entities and is deductible for U.S. income tax purposes. The goodwill is attributable to the assembled workforce, synergies, and economies of scale. The following table summarizes the key information underlying identifiable finite lived intangible assets related to the Satcom Direct acquisition ( in thousands ): Weighted Average Estimated Useful Life (In Years) Estimated Fair Value Software 8 $ 55,200 Service customer relationships 5 144,600 OEM customer relationships 8 10,300 Tradename 5 3,200 Total intangible assets 213,300 74 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) The amounts of revenue and loss before income taxes of Satcom Direct since the Closing included in the Consolidated Statements of Operations for the year ended December 31, 2024 are $ 40.2 million and $ 21.5 million, respectively. Transaction costs for the year ended December 31, 2024 were $ 19.8 million and were recorded in General and Administrative expense on the Consolidated Statements of Operations. Additionally, pre-existing change of control bonuses with the Satcom Direct seller were modified during negotiations of the Purchase Agreement in favor of the Company. The modification resulted in certain change of control bonus payments at closing, which were expensed. The remainder of the change in control bonus payments relating to certain senior leaders of the Company vest over a two-year period post-closing. The change of control bonus payments made at closing were $ 29.7 million and included in General and Administrative expense on the Consolidated Statements of Operations. Supplemental Pro-Forma Information (Unaudited) The following table presents supplemental pro-forma information for the years ended December 31, 2024 and 2023 as if the acquisition of Satcom Direct had occurred on January 1, 2023 ( in thousands ). The amounts have been calculated after applying the Company’s accounting policies and are based upon currently available information. The unaudited pro-forma information for all periods presented includes the following adjustments, where applicable, for business combination accounting effects resulting from the acquisition: (i) the change in Cost of Equipment to reflect the fair value change in inventory, (ii) incremental stock compensation expense, and adjustments for change in control bonuses that vest after close as post-combination compensation expense, (iii) additional Depreciation and amortization expense related to the step up in fair value for finite-lived intangible assets and property and equipment acquired, (iv) removal of historical interest expense associated with Satcom Direct’s historical indebtedness which was extinguished upon consummation of the acquisition and additional interest expense related to financing the acquisition (refer to Note 9, “Long-Term Debt and Other Liabilities,” for additional information), and (v) the related tax effects assuming the acquisition occurred on January 1, 2023. Pre-acquisition revenue and net income amounts for Satcom Direct were derived from the books and records prepared prior to the acquisition and are presented for informational purposes only and do not purport to be indicative of the results of future operations or of the results that would have occurred had the acquisition taken place as of the dates noted below. For the Year Ended December 31, (in thousands) 2024 2023 Total revenue $ 897,284 $ 845,177 Net income $ 17,579 $ 140,196 3. 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. Contingently issuable shares are only included in the diluted earnings per share computation once all necessary conditions have been satisfied. The shares of common stock effectively repurchased in connection with the Forward Transactions (as defined and described in Note 9, “Long-Term Debt and Other Liabilities”) 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 9, “Long-Term Debt and Other Liabilities,” for further information. The diluted earnings per share calculations exclude the effect of stock options, deferred stock units, RSUs, PSUs, convertible notes and the potential Earnout Consideration when the computation is anti-dilutive. For the years ended December 31, 2024, 2023 and 2022, the weighted average number of shares excluded from the computation was 4.6 million , 1.8 million and 0.5 million shares, respectively. The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2024, 2023 and 2022; 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 ): 75 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) For the Years Ended December 31, 2024 2023 2022 Income (Numerator) Shares (Denominator) Per Share Amount Income (Numerator) Shares (Denominator) Per Share Amount Income (Numerator) Shares (Denominator) Per Share Amount Net income $ 13,746 $ 145,678 $ 92,059 Less: Participation rights on Forward Transactions — — 171 Basic Earnings Per Share Undistributed income $ 13,746 128,533 $ 0.11 $ 145,678 129,753 $ 1.12 $ 91,888 123,268 $ 0.75 Effect of Dilutive Securities Stock-based compensation — 2,922 — 3,530 — 4,881 2022 Convertible Notes — — — — 2,770 5,774 Diluted Earnings Per Share Undistributed income and assumed conversions $ 13,746 131,455 $ 0.10 $ 145,678 133,283 $ 1.09 $ 94,658 133,923 $ 0.71 Earnings per share - basic $ 0.11 $ 1.12 $ 0.75 Earnings per share - diluted $ 0.10 $ 1.09 $ 0.71 4. Revenue Recognition Remaining Performance Obligations As of December 31, 2024, the aggregate amount of the transaction price in our contracts allocated to the remaining unsatisfied performance obligations (“RPO”) was approximately $ 620 million and excludes consideration from contracts that have an original duration of one year or less. Approximately $ 604 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 . We expect to recognize approximately 44 % of our connectivity and entertainment service RPO within the next year, approximately 42 % in one to five years and the remaining 14 % in five to ten years . The remaining $ 16 million of the RPO represents future equipment revenue that is expected to be recognized primarily within the next three years as equipment is shipped. Disaggregation of revenue The following table presents our revenue disaggregated by category (in thousands) : For the Year Ended December 31, 2024 2023 2022 Gogo BA Satcom Direct Total Gogo BA Gogo BA Service revenue Satellite broadband $ 4,040 $ 23,948 $ 27,988 $ 3,626 $ 2,394 ATG broadband 310,860 — 310,860 302,226 281,894 Narrowband and other 12,156 13,266 25,422 12,163 12,041 Total service revenue $ 327,056 $ 37,214 $ 364,270 $ 318,015 $ 296,329 Equipment revenue Satellite broadband $ 233 $ 1,768 $ 2,001 $ 1,030 $ 426 ATG broadband 66,607 — 66,607 64,585 91,152 Narrowband and other 10,610 1,221 11,831 13,947 16,160 Total equipment revenue $ 77,450 $ 2,989 $ 80,439 $ 79,562 $ 107,738 Contract balances Our current and non-current contract asset balances totaled $ 25.0 million and $ 16.6 million as of December 31, 2024 and 2023, respectively. Contract assets represent the aggregate amount of revenue recognized in excess of billings and recoverable contract costs primarily for certain sales programs. 76 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Our current and non-current deferred revenue balances totaled $ 41.3 million and $ 1.0 million as of December 31, 2024 and 2023 , respectively. Deferred revenue includes, among other things, prepayments for equipment and subscription connectivity products. 5. 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 an initial 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. Following passage of the FY 2025 NDAA, the Company expects to be allocated its full approved amount of approximately $ 334 million. 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 engaged to help administer the program, submitted and received its first reimbursement claim in July 2023. Due to a number of factors, including supply chain disruptions, the insufficiency of FCC funding prior to the passage of the FY 2025 NDAA, and the operational and logistical complexity of replacing airborne equipment, the Company was unable to complete the program by July 21, 2024. As a result, the Company sought and has been granted two six-month extensions by the FCC, currently extending the program completion deadline to July 21, 2025, but the Company expects to require additional extensions past that date. 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, 2024 and 2023, we have recorded a $ 9.7 million and $ 18.3 million receivable from the FCC, respectively, 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. The following are the deductions to the carrying value of asset balances in our Consolidated Balance Sheets as of December 31, 2024 and 2023 (in thousands): As of December 31, 2024 2023 Assets: Inventories $ ( 4,560 ) $ ( 4,970 ) Prepaid expenses and other current assets ( 4,420 ) ( 1,542 ) Property and equipment, net ( 5,921 ) ( 2,094 ) Intangible assets, net ( 298 ) ( 58 ) Other non-current assets ( 11,852 ) ( 5,542 ) The following are the increases to Net income in our Consolidated Statements of Operations for the years ended December 31, 2024 and 2023 (in thousands) : For the year ended December 31, 2024 2023 Revenue: Service revenue $ 3,428 $ 825 Operating expenses: Cost of service revenue 624 720 Cost of equipment revenue 13,603 3,931 Engineering, design and development 144 — General and administrative 296 257 77 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 6. Composition of Certain Balance Sheet Accounts Inventories as of December 31, 2024 and 2023 were as follows ( in thousands ): December 31, 2024 2023 Work-in-process component parts $ 53,633 $ 34,692 Finished goods 44,301 28,495 Total inventory (1) $ 97,934 $ 63,187 (1) See Note 5, “Government Assistance,” for additional information. Prepaid expenses and other current assets as of December 31, 2024 and 2023 were as follows ( in thousands ): December 31, 2024 2023 Interest rate caps and receivable $ 9,519 $ 23,227 FCC reimbursement receivable (1) 9,732 18,274 Contract assets (1) 7,609 6,939 Prepaid inventories 3,512 2,606 Tax indemnification receivable (2) 5,044 — Other 19,840 13,092 Total prepaid expenses and other current assets $ 55,256 $ 64,138 (1) See Note 5, “Government Assistance,” for additional information. (2) See Note 17, “Commitments and Contingencies,” for additional information. Property and equipment as of December 31, 2024 and 2023 were as follows ( in thousands ): December 31, 2024 2023 Office equipment, furniture, fixtures and other $ 41,731 $ 19,153 Leasehold improvements 16,193 16,132 Land and buildings 6,540 — Network equipment (1) 189,198 184,176 253,662 219,461 Accumulated depreciation ( 134,537 ) ( 121,332 ) Property and equipment, net $ 119,125 $ 98,129 (1) See Note 5, “Government Assistance,” for additional information. Other non-current assets as of December 31, 2024 and 2023 were as follows ( in thousands ): December 31, 2024 2023 Interest rate caps $ 6,660 $ 10,295 Contract assets, net of allowances of $ 861 and $ 591 , respectively (1) 17,422 9,625 Revolving credit facility deferred financing costs 2,344 1,011 Other 10,444 5,048 Total other non-current assets $ 36,870 $ 25,979 (1) See Note 5, “Government Assistance,” for additional information. Accrued liabilities as of December 31, 2024 and 2023 were as follows ( in thousands ): 78 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) December 31, 2024 2023 Employee compensation and benefits $ 20,669 $ 10,386 Operating leases 12,676 10,284 Customer credit reserve 9,935 6,027 Network equipment 4,437 4,533 Warranty reserve 4,100 3,420 Gogo Galileo development costs 2,000 2,432 Taxes 8,966 2,170 Accrued interest 2,184 469 Other 16,922 7,928 Total accrued liabilities $ 81,889 $ 47,649 Asset retirement obligations are included in Other non-current liabilities in our consolidated balance sheets and changes for the years ended December 31, 2024 and 2023 consist of the following ( in thousands ): Asset Retirement Obligation Balance – January 1, 2023 $ 6,032 Liabilities incurred 51 Liabilities settled ( 2 ) Accretion expense 558 Foreign exchange rate adjustments 10 Balance – December 31, 2023 6,649 Liabilities incurred 197 Liabilities settled ( 8 ) Accretion expense 641 Foreign exchange rate adjustments ( 35 ) Balance – December 31, 2024 $ 7,444 7. Composition of Certain Reserves and Allowances Credit Losses — Changes in our allowances for credit losses for the years ended December 31, 2024 and 2023 were as follows ( in thousands ): Other Accounts Non-Current Accrued Receivable Assets Liabilities Balance at January 1, 2023 $ 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 — Additions from acquisition 1,712 — — Provision for expected credit losses 1,533 270 2,000 Write-offs charged against the allowances ( 1,234 ) — — Other 365 — — Balance at December 31, 2024 $ 4,467 $ 861 $ 2,000 Warranties — Changes in our warranty reserve for the years ended December 31, 2024 and 2023 were as follows ( in thousands ): 79 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Warranty Reserve Balance – January 1, 2023 $ 2,300 Accruals for warranties issued 3,107 Settlements and adjustments to warranties ( 1,987 ) Balance – December 31, 2023 3,420 Additions from acquisition 430 Accruals for warranties issued 2,804 Settlements and adjustments to warranties ( 2,554 ) Balance – December 31, 2024 $ 4,100 8. Goodwill and Other 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 2024, 2023 and 2022 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. Changes in the carrying value of goodwill by reportable segment during the years ended December 31, 2024 and 2023 were as follows ( in thousands ): Gogo BA Satcom Direct Total Balance at January 1, 2023 $ 620 $ — $ 620 Activity in 2023 — — — Balance at December 31, 2023 620 — 620 Activity in 2024 Acquisitions — 184,211 184,211 Balance at December 31, 2024 $ 620 $ 184,211 $ 184,831 Our goodwill balance was $ 184.8 million and $ 0.6 million as of December 31, 2024 and 2023, respectively. Refer to Note 2, “Acquisition of Satcom Direct,” for further information on the 2024 change in goodwill. We have preliminarily allocated goodwill to segments of the Company. As the Company finalizes the estimation of the fair value of assets acquired and liabilities assumed, additional adjustments to the amount of goodwill and the allocation to each segment may be necessary. 80 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Our intangible assets, other than goodwill, as of December 31, 2024 and 2023 were as follows ( in thousands ): As of December 31, 2024 As of December 31, 2023 Gross Net Gross Net Carrying Accumulated Carrying Carrying Accumulated Carrying Amount Amortization Amount Amount Amortization Amount Amortized intangible assets (1) : Software $ 132,673 $ ( 47,225 ) $ 85,448 $ 68,155 $ ( 45,910 ) $ 22,245 Tradename and other intangible assets 5,270 ( 53 ) 5,217 499 — 499 Service customer relationships 152,681 ( 10,491 ) 142,190 8,081 ( 8,081 ) — OEM and dealer relationships 17,024 ( 6,831 ) 10,193 6,724 ( 6,724 ) — Total amortized intangible assets 307,648 ( 64,600 ) 243,048 83,459 ( 60,715 ) 22,744 Unamortized intangible assets: FCC Licenses 32,283 — 32,283 32,283 — 32,283 Total intangible assets $ 339,931 $ ( 64,600 ) $ 275,331 $ 115,742 $ ( 60,715 ) $ 55,027 (1) See Note 5, “Government Assistance,” for additional information . Amortization expense for the years ended December 31, 2024, 2023 and 2022 was $ 3.9 million , $ 2.0 million and $ 4.7 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 2025 $ 39,912 2026 $ 42,134 2027 $ 42,016 2028 $ 41,953 2029 $ 39,338 Thereafter $ 37,695 Actual future amortization expense could differ from the estimated amount as the result of future investments and other factors. 9. Long-Term Debt and Other Liabilities Long-term debt as of December 31, 2024 and 2023 was as follows ( in thousands ): December 31, December 31, 2024 2023 2021 Term Loan Facility $ 599,776 $ 604,797 HPS Term Loan Facility 244,469 — Less: deferred financing costs ( 10,164 ) ( 10,046 ) Less: current portion of long-term debt ( 2,500 ) ( 7,250 ) Total long-term debt $ 831,581 $ 587,501 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 “2021 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 2021 Term Loan Facility, the “2021 Facilities”) of up to $ 100.0 million, which includes a letter of credit sub-facility. The 2021 Term Loan Facility matures on April 30, 2028. On December 3, 2024, Gogo and GIH entered into a second amendment to the 2021 Credit Agreement, by and among, Gogo, GIH, guarantors party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent, and the lenders party thereto, among other purposes, (a) increase the aggregate principal amount of revolving commitments available under the 2021 Credit Agreement to an aggregate amount of revolving commitments equal to $ 122 million and (b) extend the maturity date of the revolving facility to December 3, 2029 (subject to such maturity date springing to the date that is 90 days prior to the then-current maturity date of (a) the 81 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 2021 Term Loan Facility under the 2021 Credit Agreement and (b) the HPS Term Loan Facility under the HPS Credit Agreement under certain conditions). The 2021 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 2021 Term Loan Facility. There are no amortization payments under the Revolving Facility. The 2021 Term Loan Facility bears annual interest at a floating rate measured by reference to, at GIH’s option, either (i) an adjusted term secured overnight financing rate as administered by the Federal Reserve Bank of New York (“SOFR”) (subject to a floor of 0.75 %) plus an applicable margin of 3.75 % and a credit spread adjustment of approximately 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 3.50 % to 4.00 % per annum depending on GIH’s senior secured first lien net leverage ratio or (ii) an alternate base rate plus an applicable margin ranging from 2.50 % to 3.00 % 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, 2024 , the fee for unused commitments under the Revolving Facility was 0.25 % and the applicable margin was 4.00 % for SOFR rate loans and 3.00 % for alternate base rate loans. The 2021 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 2021 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 in our Consolidated Statements of Operations for the year ended December 31, 2023. This prepayment satisfied the required amortization payments for the remaining term of the 2021 Term Loan Facility. Subject to certain exceptions and de minimis thresholds, the 2021 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 2021 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 2021 Facilities to be due and payable immediately and the commitments under the Revolving Facility to be terminated. The Revolving Facility is available for working capital and general corporate purposes of GIH and its subsidiaries and was undrawn as of December 31, 2024 and 2023. As of December 31, 2024 and 2023, the outstanding principal amount of the 2021 Term Loan Facility was $ 601.4 million and $ 606.9 million, respectively, the unaccreted debt discount was $ 1.7 million and $ 2.1 million, respectively, and the net carrying amount was $ 599.8 million and $ 604.8 million, respectively. We paid approximately $ 21.6 million of loan origination and financing costs related to the 2021 Facilities, of which $ 1.9 million related to the second amendment to the 2021 Credit Agreement, which are being accounted for as deferred financing costs on our 82 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) consolidated balance sheets and are amortized over the terms of the 2021 Facilities. Total amortization expense was $ 2.5 million , $ 2.4 million and $ 2.6 million, respectively, for the years ended December 31, 2024, 2023 and 2022 and is included in interest expense in our consolidated statements of operations. As of December 31, 2024 and 2023, the balance of unamortized deferred financing costs related to the 2021 Facilities was $ 10.4 million and $ 11.1 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 2021 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 2021 Facilities and certain other secured obligations as set forth in the Collateral Agreement. The liens granted under the 2021 Term Loan Facility are subject to an intercreditor agreement and are pari passu with the liens granted under the HPS Term Loan Facility (as defined below). HPS Credit Agreement On December 3, 2024, the Company and GIH entered into a credit agreement (the “HPS Credit Agreement” and together with the 2021 Credit Agreement, the “Credit Agreements”) with HPS Investment Partners, LLC, as the administrative agent, and the lenders party thereto, which provides for a term loan credit facility (the “HPS Term Loan Facility”) in an aggregate principal amount of $ 250 million. The HPS Term Loan Facility amortizes in 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 HPS Term Loan Facility on April 30, 2028. The HPS Term Loan Facility bears annual interest at a floating rate measured by reference to, at the Company’s option, either (i) an adjusted term SOFR (subject to a floor of 1.00 %) plus an initial applicable margin of 6.00 %, which is subject to two leverage-based step-downs of up to 0.25 % each or (ii) an alternate base rate plus an applicable margin of 5.00 %, which is subject to two leverage-based step-downs of up to 0.25 % each. The HPS Term Loan Facility may be prepaid at the Company’s option, at any time, without premium or penalty (other than customary breakage costs, and except that (a) during the first 12 months following the closing of the HPS Credit Agreement, certain prepayments of the HPS Term Loan Facility are subject to a 3.00% prepayment premium and (b) during the period from 12 months to 24 months following the closing of the HPS Credit Agreement, certain prepayments of the HPS Term Loan Facility are subject to a 1.00% prepayment premium), subject to minimum principal repayment amount requirements. Subject to certain exceptions and de minimis thresholds, the HPS 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; • 100 % of the net cash proceeds of certain debt offerings; and • 75 % of annual excess cash flow (as defined in the HPS Credit Agreement), subject to reduction to 50 % if specified senior secured first lien net leverage ratio targets are met. The HPS Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants include restrictions on, among other things: the incurrence of indebtedness or issuance of disqualified equity interests; the incurrence or existence of liens; consolidations or mergers; activities of the Company; the making of investments, loans, advances, guarantees or acquisitions; asset sales; the making of dividends or other distributions on equity; the purchase, redemption or retirement of capital stock; payment or redemption of certain junior indebtedness; activities of Federal Communications Commission license holders; entry into other agreements that restrict the ability to incur liens securing the HPS Term Loan Facility. The HPS 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 HPS Term Loan Facility to be due and payable immediately. As of December 31, 2024, the outstanding principal amount of the HPS Term Loan Facility was $ 249.4 million , the unaccreted debt discount was $ 4.9 million and the net carrying amount was $ 244.5 million . We paid approximately $ 2.2 million of loan origination and financing costs related to the HPS Credit Agreement which are being accounted for as deferred financing costs on our consolidated balance sheets and are amortized over the term of the HPS Credit Agreement. Total amortization expense was less than $ 0.1 million for the year ended December 31, 2024 and is included in interest 83 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) expense in our consolidated statements of operations. As of December 31, 2024, the balance of unamortized deferred financing costs related to the HPS Credit Agreement was $ 2.1 million . On December 3, 2024, Gogo, GIH, and the Guarantors entered into a guarantee agreement (the “HPS Guarantee Agreement”) in favor of HPS Investment Partners, LLC, as collateral agent (the “HPS Collateral Agent”), whereby GIH and the Guarantors guarantee the obligations under the HPS Term Loan Facility and certain other secured obligations as set forth in the HPS Guarantee Agreement, and GIH and the Guarantors entered into a collateral agreement (the “HPS 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 HPS Term Loan Facility and certain other secured obligations as set forth in the HPS Collateral Agreement. The liens granted under the HPS Term Loan Facility are subject to an intercreditor agreement and are pari passu with the liens granted under the 2021 Term Loan Facility. 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 of 1933, as amended (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 Executive Chair of the Board, 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 for the year ended December 31, 2022 and is included in Interest expense in the consolidated statements of operations. See Note 11, “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. 10. Derivative Instruments and Hedging Activities We are exposed to interest rate risk on our variable rate borrowings. We currently use interest rate caps to manage our exposure to interest rate changes, and have designated these interest rate caps as cash flow hedges for accounting purposes. Accordingly, the earnings impact of the derivatives designated as cash flow hedges is recorded upon the recognition of the variable interest payments related to the hedged debt. 84 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 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 9, “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, 2024 and 2022 . We estimate that approximately $ 2.0 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. For the year ended December 31, 2024, we recorded a decrease in fair value on the interest rate caps of $ 12.0 million, net of tax of $ 3.0 million. 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. 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 2024 2023 Current portion of interest rate caps Prepaid expenses and other current assets $ 7,351 $ 18,801 Non-current portion of interest rate caps Other non-current assets $ 6,660 $ 10,295 Fair Value Measurement Our derivative assets and liabilities consist principally of interest rate caps, which are carried at fair value based on significant observable inputs (Level 2 inputs). Derivatives entered into by us are typically executed over-the-counter and are valued using discounted cash flows along with fair value models that primarily use market observable inputs. These models take into account a variety of factors including, where applicable, maturity, interest rate yield curves, and counterparty credit risks. 85 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 11. Interest Costs We capitalize a portion of our interest on funds borrowed during the active construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and amortized over the useful lives of the assets. The following is a summary of our interest costs for the years ended December 31, 2024, 2023 and 2022 (in thousands) : For the Years Ended December 31, 2024 2023 2022 Interest costs charged to expense $ 53,697 $ 55,823 $ 43,530 Amortization of deferred financing costs 2,508 2,385 3,058 Accretion of debt discount 510 403 456 Amortization of the purchase price of interest rate caps 2,639 1,509 157 Interest rate cap benefit ( 20,923 ) ( 27,064 ) ( 8,329 ) Interest expense 38,431 33,056 38,872 Interest costs capitalized to property and equipment 2,787 2,156 920 Interest costs capitalized to software 1,398 768 472 Total interest costs $ 42,616 $ 35,980 $ 40,264 12. Fair Value of Financial Assets and Liabilities Refer to Note 2, “Acquisition of Satcom Direct,” for fair value information relating to the Satcom Direct acquisition. Refer to Note 10, “Derivative Instruments and Hedging Activities,” for fair value information relating to our interest rate caps. Investment in Convertible Note: On February 26, 2024, Gogo invested $ 5 million in a convertible note offering (“Investment in Convertible Note”). The Investment in Convertible Note accrues interest at 5 % per annum, payable upon maturity of the note or upon conversion, and matures two years after the date of issuance. We have elected to measure our Investment in Convertible Note using the fair value option and record changes in fair value, including accrued interest, in Other (income) expense, net on the Consolidated Statements of Operations. The Company elected the fair value option for the Investment in Convertible Note to eliminate complexities of applying certain accounting models. The fair value of the Investment in Convertible Note is measured using Level 3 (unobservable) inputs. The Company, with the assistance of a third-party valuation specialist, determined the fair value using a binomial lattice model. The significant assumptions used in the model include the yield, equity volatility, outstanding principal, remaining term, stated interest rate, risk-free interest rate and the current publicly available stock price. The yield is estimated using similar security yields for companies with similar credit ratings. Equity volatility is estimated based on observed equity volatility for similar companies. The outstanding principal, remaining term and stated interest rate are all determined based on contractually defined terms and the risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of measurement for time periods approximately equal to the remaining time to maturity. The reconciliation of beginning and ending balances of the Investment in Convertible Note as of December 31, 2024 were as follows (in thousands) : For the Year Ended December 31, 2024 Balance at beginning of period $ — Investment 5,000 Change in fair value ( 793 ) Balance at end of period $ 4,207 Long-Term Debt: As of December 31, 2024, our only financial assets and liabilities disclosed but not measured at fair value are the 2021 Term Loan Facility and the HPS Term Loan Facility, which are reflected on the consolidated balance sheets at cost. As of December 31, 2023, only the 2021 Term Loan Facility was disclosed but not measured at fair value. The fair value measurements are classified as Level 2 within the fair value hierarchy since they are based on quoted market prices of our instruments in markets that are not active. 86 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) We estimated the fair values of the 2021 Term Loan Facility and the HPS Term Loan Facility by calculating the upfront cash payments a market participant would require to assume these obligations. The upfront cash payments used in the calculations of fair values on our consolidated balance sheets, excluding any issuance costs, are the amounts 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 2021 Term Loan Facility and HPS Term Loan Facility. The fair value and carrying value of long-term debt as of December 31, 2024 and 2023 was as follows (in thousands) : December 31, 2024 December 31, 2023 Fair Value (1) Carrying Value Fair Value (1) Carrying Value 2021 Term Loan Facility $ 572,000 $ 599,776 (2) $ 610,000 $ 604,797 (2) HPS Term Loan Facility $ 244,000 $ 244,469 (3) $ — $ — (1) Fair value amounts are rounded to the nearest million. (2) Carrying value of the 2021 Term Loan Facility reflects the unaccreted debt discount of $ 1.7 million and $ 2.1 million, respectively, as of December 31, 2024 and 2023. See Note 9, “Long-Term Debt and Other Liabilities,” for further information. (3) Carrying value of the HPS Term Loan Facility reflects the unaccreted debt discount of $ 4.9 million as of December 31, 2024. See Note 9, “Long-Term Debt and Other Liabilities,” for further information. 13. Business Segments As a result of the Company’s acquisition of Satcom Direct, as described in Note 2, “Acquisition of Satcom Direct,” the Company has two reportable segments as of December 31, 2024: Gogo BA and Satcom Direct. The Gogo BA segment provides in-flight connectivity for business aviation via air-to-ground and satellite networks. The Satcom Direct segment provides global satellite-based communication solutions primarily for business, military and government aircraft. Corporate costs are primarily included within the Gogo BA segment. The accounting policies of the operating segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.” Intercompany transactions between segments are excluded as they are not included in management’s performance review of the segments. The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer (“CEO”). The CODM makes resource and operating decisions by evaluating performance and business results of the segments’ net income (loss). Results attributable to the Satcom Direct segment are for the period beginning on the Closing through December 31, 2024. Information regarding our reportable segments is as follows ( in thousands ): 87 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) For the Years Ended December 31, 2024 2023 2022 Gogo BA Satcom Direct Total Gogo BA Gogo BA Revenue: Service revenue $ 327,056 $ 37,214 $ 364,270 $ 318,015 $ 296,329 Equipment revenue 77,450 2,989 80,439 79,562 107,738 Total revenue 404,506 40,203 444,709 397,577 404,067 Operating expenses: Cost of service revenue (exclusive of items shown below) 74,927 24,115 99,042 69,568 64,427 Cost of equipment - product 45,575 46,672 56,676 Cost of equipment - other 18,146 16,711 14,797 Total cost of equipment revenue (exclusive of items shown below) 63,721 3,840 67,561 63,383 71,473 Engineering, design and development 43,465 1,307 44,772 36,683 29,587 Sales and marketing 36,082 1,938 38,020 29,797 25,471 General and administrative 98,231 26,840 125,071 57,280 58,203 Depreciation and amortization 15,287 3,685 18,972 16,701 12,580 Total operating expenses 331,713 61,725 393,438 273,412 261,741 Operating income (loss) 72,793 ( 21,522 ) 51,271 124,165 142,326 Other expense (income): Interest income ( 8,336 ) — ( 8,336 ) ( 7,403 ) ( 2,386 ) Interest expense 38,431 — 38,431 33,056 38,872 Loss on extinguishment of debt — — — 2,224 — Other (income) expense, net 3,042 — 3,042 ( 1,315 ) 123 Total other expense 33,137 — 33,137 26,562 36,609 Income (loss) before income taxes 39,656 ( 21,522 ) 18,134 97,603 105,717 Income tax provision (benefit) 4,388 — 4,388 ( 48,075 ) 13,658 Net income (loss) $ 35,268 $ ( 21,522 ) $ 13,746 $ 145,678 $ 92,059 Other segment disclosures: Total assets $ 663,024 $ 566,207 $ 1,229,231 $ 781,539 $ 759,526 Consolidated capital expenditures $ 26,640 $ 415 $ 27,055 $ 24,088 $ 49,914 Information regarding consolidated revenues by geographic area is as follows (in thousands) : For the Years Ended December 31, 2024 2023 2022 United States $ 397,375 $ 372,246 $ 378,116 International 47,334 25,331 25,951 Total $ 444,709 $ 397,577 $ 404,067 Information regarding consolidated long-lived assets by geographic area, which consist of property and equipment, net and operating lease right-of-use assets is as follows (in thousands) : As of December 31, 2024 2023 2022 United States $ 166,518 $ 159,489 $ 171,117 International 21,072 9,192 8,739 Total $ 187,590 $ 168,681 $ 179,856 No customer accounted for more than 10 % of total revenue for the years ended December 31, 2024, 2023 and 2022 and no customer accounted for more than 10 % of accounts receivable as of December 31, 2024 or 2023 . 14. Stock-Based Compensation and 401(k) Plan 88 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) As of December 31, 2024, we maintained the 2024 Omnibus Equity Incentive Plan (the “2024 Plan”), which replaced the Second Amended and Restated Gogo Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”). The 2024 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”). Concurrent with the effectiveness of the 2024 Plan on June 4, 2024, no further grants are being made under the 2016 Plan. The 2016 Plan remains in effect for all awards outstanding thereunder on or after June 4, 2024. The majority of our equity grants are awarded on an annual basis. Additionally, in connection with the Company’s acquisition of Satcom Direct on December 3, 2024, 2,275,000 shares were granted, consisting of a combination of RSUs and performance-based restricted stock units (“PSUs”) (together, the “Inducement Awards”) by the Compensation Committee. The RSUs will vest in equal annual installments over the five-year period following the grant date. The PSUs are subject to performance-based vesting and will vest when the performance-based vesting conditions are met. Though not awarded pursuant to the 2024 Plan, the Inducement Awards have been issued subject to the terms and conditions of the 2024 Plan. Upon effectiveness of the 2024 Plan on June 4, 2024 , 6,940,644 shares of common stock were reserved for issuance. As of December 31, 2024 , 6,934,107 shares remained available for grant under the 2024 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 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. The following is a summary of our stock-based compensation expense included in the consolidated statements of operations, for the years December 31, 2024, 2023 and 2022 (in thousands) : For the Years Ended December 31, 2024 2023 2022 Cost of service revenue $ 1,927 $ 1,701 $ 1,073 Cost of equipment revenue 1,535 1,363 1,022 Engineering, design and development 4,064 3,569 2,532 Sales and marketing 4,010 3,678 2,628 General and administrative 9,241 10,977 11,810 Total stock-based compensation expense $ 20,777 $ 21,288 $ 19,065 A summary of stock option activity for the year ended December 31, 2024 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, 2024 3,769,590 $ 4.35 4.20 $ 23,190 Granted — $ — Exercised ( 236,979 ) $ 2.66 Forfeited — $ — Expired ( 63,895 ) $ 18.00 Options outstanding – December 31, 2024 3,468,716 $ 4.22 2.97 $ 15,134 Options exercisable – December 31, 2024 3,468,716 $ 4.22 2.97 $ 15,134 89 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) The total grant date fair value of stock options vested in 2024, 2023 and 2022 was approximately $ 0.1 million, $ 0.3 million and $ 18 million, respectively. The following table summarizes the activities for our unvested RSUs, PSUs and DSUs for the year ended December 31, 2024: Number of Underlying Shares Weighted Average Grant Date Fair Value Unvested – January 1, 2024 3,739,689 $ 14.25 Granted 5,069,203 $ 8.17 Vested ( 1,800,257 ) $ 12.00 Forfeited/canceled ( 889,374 ) $ 12.17 Unvested – December 31, 2024 6,119,261 $ 10.13 As of December 31, 2024, there was approximately $ 47 million of unrecognized compensation cost related to unvested employee RSUs and PSUs. This amount is expected to be recognized over a weighted-average period of approximately 2.6 years. The total grant date fair value of RSUs and DSUs vested in 2024 was approximately $ 22 million . In connection with the acquisition of Satcom Direct discussed in Note 2, “Acquisition of Satcom Direct,” the Company issued PSUs to certain executives that vest upon the achievement of pre-established metrics tied to the price of the Company’s common stock. The PSUs have an indefinite contractual life and are expensed over the estimated expected life of the award. We estimate the fair value of PSUs using a Monte Carlo simulation. The significant assumptions used in the Monte Carlo simulation were as follows: For the Years Ended December 31, 2024 Approximate risk-free interest rate 4.4 % Average expected life (years) 3.21 Dividend yield N/A Volatility 67.2 % Weighted average grant date fair value of PSUs granted $ 7.91 The risk-free interest rate assumption was based on the U.S. Treasury yield curve for the term that mirrored the Monte Carlo simulation term. The expected life of the PSUs represents the derived service period that is inferred from the median of the distribution of share price paths on which the PSU conditions are satisfied. The dividend yield was based on expected dividends at the time of grant. Volatility was calculated using the historical volatility of the Company’s common stock. ESPP - In 2024, the Board of Directors and stockholders approved the 2024 Employee Stock Purchase Plan (the “ESPP”), which became effective June 4, 2024. The prior ESPP expired during 2023. The ESPP allows eligible employees to purchase a limited number of shares of common stock during pre-specified offering periods at a discount established by the Compensation Committee which may not exceed 15 % of the fair market value of the common stock at the beginning or end of the offering period (whichever was lower). Under the ESPP, 700,000 shares were reserved for issua nce and 36,704 shares of common stock were issued during the year ended December 31, 2024. As of December 31, 2024 , 663,296 sh ares remained available for purchase under the ESPP. 401(k) Plan - Under our 401(k) plan, all employees who are eligible to participate are entitled to make tax-deferred contributions, subject to Internal Revenue Service limitations. We match 100 % of the employee’s first 4 % of contributions made, subject to annual limitations. Our matching contributions were $ 2.8 million , $ 2.3 million, and $ 2.1 million for the years ended December 31, 2024, 2023 and 2022 , respectively. 15. Income Tax For financial reporting purposes, the income before income taxes included the following components for the years ended December 31, 2024, 2023, and 2022 ( in thousands ): For the Years Ended December 31, 2024 2023 2022 United States $ 20,239 $ 97,212 $ 105,450 Foreign ( 2,105 ) 391 267 Income before income taxes $ 18,134 $ 97,603 $ 105,717 90 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) Significant components of the provision (benefit) for income taxes for the years ended December 31, 2024, 2023, and 2022 are as follows ( in thousands ): For the Years Ended December 31, 2024 2023 2022 Current: Federal $ — $ — $ — State 1,137 1,097 488 Foreign 6 — — 1,143 1,097 488 Deferred: Federal 3,533 ( 40,743 ) 11,830 State ( 9 ) ( 7,971 ) 2,464 Foreign ( 279 ) ( 458 ) ( 1,124 ) 3,245 ( 49,172 ) 13,170 Total $ 4,388 $ ( 48,075 ) $ 13,658 The provision (benefit) for income taxes differs from income taxes computed at the federal statutory tax rates for the years ended December 31, 2024, 2023, and 2022 as a result of the following items: For the Years Ended December 31, 2024 2023 2022 Federal statutory rate 21.0 % 21.0 % 21.0 % Effect of: Change in valuation allowance 1.2 ( 74.5 ) ( 10.9 ) State income taxes-net of federal tax benefit 4.9 5.0 4.0 R&D credit ( 12.9 ) ( 1.2 ) ( 0.4 ) Nondeductible officer's compensation 6.5 1.2 0.1 Excess tax benefits on stock-based compensation 8.3 ( 0.4 ) ( 2.0 ) Foreign branch income (loss) ( 2.1 ) — — Basis adjustment ( 3.6 ) ( 0.3 ) 0.9 Other 0.9 ( 0.1 ) 0.2 Effective tax rate 24.2 % ( 49.3 )% 12.9 % In addition to the Deferred income taxes on the consolidated balance sheets, the Company has a deferred tax liability of $ 4.7 million related to foreign entities included in Other non-current liabilities as of December 31, 2024. Components of the net deferred income tax asset as of December 31, 2024 and 2023 are as follows ( in thousands ): December 31, December 31, 2024 2023 Deferred income tax assets: Federal net operating loss (NOL) $ 76,249 $ 93,610 State NOL 20,667 22,167 Foreign NOL 11,632 14,243 Interest carryforward 70,679 68,225 Operating lease liability 19,496 20,664 Section 174 costs 18,112 10,093 Other 50,043 46,445 Total deferred income tax assets 266,878 275,447 Deferred income tax liabilities: Indefinite-lived intangible assets ( 11,123 ) ( 10,108 ) Right-of-use asset ( 16,455 ) ( 17,495 ) Interest rate cap valuation ( 2,366 ) ( 5,478 ) Other ( 1,199 ) ( 127 ) Total deferred income tax liabilities ( 31,143 ) ( 33,208 ) Total deferred income tax 235,735 242,239 Valuation allowance ( 23,160 ) ( 25,601 ) Net deferred income tax asset $ 212,575 $ 216,638 91 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 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, as of December 31, 2024 and 2023 , the Company had valuation allowances of $ 23.2 million and $ 25.6 million, respectively, against its deferred tax assets. The Company’s valuation allowance decreased by $ 2.4 million. The decrease primarily related to the expiration of an unused state tax attribute and a reduction in certain foreign net operating losses. This decrease was partially offset by valuation allowances established through the opening balance sheet for Canadian deferred tax assets acquired from Satcom Direct of $ 3.7 million. Refer to Note 2, “Acquisition of Satcom Direct,” for further information. Management believes the remaining deferred tax assets are more likely than not to be realized based on the weight of available positive and negative evidence. The valuation allowances pertain to certain state tax credits, foreign net operating losses (NOLs), and capital loss carryforwards. Management believes it is more likely than not that these deferred tax assets will not be realized as of December 31, 2024. If our current operating performance continues, further reversals of our valuation allowance could occur within the next twelve months. As of December 31, 2024, the federal net operating loss (“NOL”) carryforward, state NOL carryforward and Canadian NOL carryforward were approximately $ 363 million , $ 356 million , and $ 44 million , respectively. We have recorded a deferred tax asset of $ 76.2 million , $ 20.7 million , and $ 11.6 million for federal NOLs, state NOLs, and foreign NOLs, respectively, reflecting the benefit of these loss carryforwards. The foreign NOLs are primarily comprised of Canadian NOLs of $ 43.6 million. The federal and state NOLs begin to expire in 2035 and 2025, respectively. The Canadian NOL carryforward begins to expire in 2034. On December 3, 2024, Gogo Direct Holdings LLC completed its acquisition of Satcom Direct. See Note 2, “Acquisition of Satcom Direct,” for further information on the Purchase Agreement. For U.S. income tax purposes, the acquisition of the U.S group was treated as a deemed asset acquisition whereby the Company received a step up in basis of the acquired assets and liabilities. The acquisition of the foreign operations was treated as a stock acquisition for local income tax purposes, whereby the Company acquired the carryover tax basis in the foreign operations' assets and liabilities. The Company recorded a net deferred tax liability of $ 3.8 million through the opening balance sheet related to this acquisition. Uncertain Tax Positions - As of December 31, 2024, the total amount of gross unrecognized tax benefits was $ 1.7 million. As of December 31, 2023 , the total amount of gross unrecognized tax benefits was $ 1.9 million. We do not expect a change in the unrecognized tax benefits within the next 12 months. The aggregate change in the balance of gross unrecognized tax benefits, which excludes interest and penalties for the years ended December 31, 2024 and 2023 is as follows (in thousands) : For the Year Ended December 31, For the Year Ended December 31, 2024 2023 Beginning balances $ 1,934 $ 799 Increases related to tax positions taken during a prior year 149 798 Decreases related to tax positions taken during a prior year ( 782 ) — Increases related to tax positions taken during the current year 401 337 Decreases related to settlements with taxing authorities — — Decreases related to expiration of the statute of limitations — — Ending balances $ 1,702 $ 1,934 We are subject to taxation and file income tax returns in the United States federal jurisdiction, various states and several foreign jurisdictions including, but not limited to, Canada, Switzerland, United Kingdom, Australia, Brazil and Singapore. With few exceptions, as of December 31, 2024, we are no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2021. The total amount of unrecognized tax benefits that, if recognized, would reduce the Company’s effective tax rate is $ 1.7 million and $ 1.2 million as of December 31, 2024 and 2023 , 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, 2024, 2023 or 2022. We do no t expect a change in the unrecognized tax benefits within the next 12 months. 92 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 16. Leases The following is a summary of our lease expense included in the consolidated statement of operations (in thousands) : For the Years Ended December 31, 2024 2023 2022 Operating lease cost $ 16,692 $ 15,961 $ 14,964 Finance lease cost: Amortization of leased assets 55 112 156 Interest on lease liabilities 13 9 40 Total lease cost $ 16,760 $ 16,082 $ 15,160 Other information regarding our leases is as follows (in thousands, except lease terms and discount rates) : For the Years Ended December 31, 2024 2023 2022 Supplemental cash flow information Cash paid for amounts included in measurement of lease liabilities: Operating cash flows used in operating leases $ 17,392 $ 16,422 $ 15,194 Operating cash flows used in finance leases $ 13 $ 9 $ 40 Financing cash flows used in finance leases $ 31 $ 132 $ 184 Non-cash items: Operating leases obtained $ 9,325 $ 5,231 $ 13,547 Finance leases obtained $ 170 $ — $ 11 Weighted average remaining lease term Operating leases 6 years 7 years 8 years Finance leases 2 years 2 years 1 year Weighted average discount rate Operating leases 7.0 % 6.8 % 6.7 % Finance leases 9.0 % 4.7 % 17.0 % Annual future minimum lease payments as of December 31, 2024 (in thousands) : Years ending December 31, Operating Leases Financing Leases 2025 $ 17,737 $ 82 2026 18,277 60 2027 16,496 15 2028 14,173 — 2029 12,608 — Thereafter 19,423 — Total future minimum lease payments 98,714 157 Less: Amount representing interest ( 17,860 ) ( 12 ) Present value of net minimum lease payments $ 80,854 $ 145 Reported as of December 31, 2024 Accrued liabilities $ 12,676 $ 74 Non-current operating lease liabilities 68,178 — Other non-current liabilities — 71 Total lease liabilities $ 80,854 $ 145 As of December 31, 2024, there were no significant leases which had not yet commenced . 17. Commitments and Contingencies Contractual Commitments – We have agreements with various vendors under which we have remaining commitments to purchase hardware components and development services. Such commitments will become payable as we receive the hardware components or as development services are provided. 93 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) On September 18, 2024, we entered into an amendment (the “Amendment”) to that certain OneWeb Distribution Partner Agreement by and between Gogo Business Aviation LLC and Network Access Associates Limited (“Eutelsat OneWeb”), dated as of May 19, 2022 and as previously amended on October 5, 2022 (the “Original Agreement”). Pursuant to the Original Agreement, Gogo partners with Eutelsat OneWeb to utilize its global low earth orbit satellite network. Pursuant to the Amendment, Gogo has made a total guaranteed minimum commitment of $ 52.5 million over a four-year term, with an option to extend. Following the initial term, the Amendment will automatically renew for successive one-year periods unless one party provides written notice of its intent not to renew, and either party may terminate the Amendment for breach or for insolvency rights. The Amendment also contains customary terms regarding confidentiality, indemnification and limitation of liability. On May 17, 2024, Airspan Networks Holdings Inc. (“Airspan”) filed a plan supplement to its Joint Prepackaged Chapter 11 Plan of Reorganization, Case No. 24-10621 (the “Plan”), whereby the Company and Fortress Credit Corp. (“Fortress”) agreed in principle to each provide fifty percent (50%) of a new first lien revolving facility in an aggregate committed principal amount of $ 20.0 million (the “New Revolving Credit Facility”). Unless otherwise extended by the parties, any amounts outstanding under the New Revolving Credit Facility shall be due and payable in full on the first anniversary of the closing date of the New Revolving Credit Facility. The Plan, including the Company’s participation in the New Revolving Credit Facility, was approved by the Bankruptcy Court for the District of Delaware on June 28, 2024. On June 27, 2024, Airspan and the Company amended the Master Service Agreement, dated November 25, 2019. Further, on October 11, 2024, in connection with Airspan becoming a private company, the Company, Airspan and Fortress executed the necessary documents for the New Revolving Credit Facility to become effective . The New Revolving Credit Facility was undrawn as of December 31, 2024. On January 23, 2025, Airspan borrowed $ 5.0 million under the New Revolving Credit Facility, of which $ 2.5 million was the Company’s obligation. 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 began on completion of a project milestone that occurred 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. The Company accrued a contingent liability of $ 5.0 million in Accrued liabilities in the Consolidated Balance Sheets as of December 31, 2024 for state and local taxes in a variety of jurisdictions for periods between 2010 and 2023 related to Satcom Direct’s pre-acquisition business activities. While the Company believes that the reserve represents the best current estimate of any potential liability in the area of state and local taxes, there can be no assurance that the outcome of discussions with any state taxing authority will not result in the payment of state sales taxes for prior periods, or that the amount of any such payments will not be materially different than the liability currently recorded. Pursuant to the terms of the Purchase Agreement, the Company has accrued a $ 5.0 million indemnification receivable in Prepaid expenses and other current assets in the Consolidated Balance Sheets as of December 31, 2024. See Note 2, “Acquisition of Satcom Direct,” for further information on the Purchase Agreement. 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 compensatory damages as well as treble damages for alleged willful infringement and reimbursement of plaintiff's costs, disbursements and attorneys' fees. On May 29, 2024, Gogo Inc. and its subsidiary Gogo Business Aviation LLC amended its answer and counterclaims in the same suit, alleging that three of the six patents asserted by SmartSky are unenforceable due to inequitable conduct before the U.S. Patent Office. A trial date has been scheduled for November 17, 2025. Claim construction proceedings, fact discovery and expert discovery are completed. Dispositive motions were filed on October 25, 2024 and await resolution. We continue to vigorously defend our position in the infringement suit. The outcome of the underlying litigation is 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. On March 5, 2024, Gogo Inc. and its subsidiary Gogo Business Aviation LLC filed counterclaims in the same suit, alleging that SmartSky’s ATG network, Flagship equipment, and LITE ATG equipment infringe three patents owned by Gogo. Gogo’s counterclaim suit seeks an unspecified amount of compensatory damages as well as reimbursement of Gogo's costs and attorneys' fees. On April 10, 2024, the Court held that Gogo's counterclaims would proceed under a separate schedule and would be tried separately from SmartSky's claims. The court entered a scheduling order for Gogo’s counterclaims on January 14, 2025 with a trial date of March 8, 2027. On December 16, 2024, SmartSky Networks, LLC sued Gogo Inc. and its subsidiaries alleging that Gogo maintains an illegal monopoly over air-to-ground broadband inflight connectivity products and services and has blocked SmartSky from entering the market in violation of antitrust laws. SmartSky also alleges claims of false advertising, unfair and deceptive trade practices, and tortious interference. The suit seeks actual damages, treble damages, punitive damages, disgorgement of profits, reimbursement of plaintiff's 94 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) costs, attorneys' fees, pre- and post-judgment interest, and interest on actual damages. We will vigorously defend our position in this lawsuit. The outcome of the litigation is 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. With respect to such legal proceedings, we accrue a loss when it is probable and its amount can be reasonably estimated. 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. 18. Accumulated Other Comprehensive Income (Loss) The following is a summary of changes in accumulated other comprehensive income (loss) by component (in thousands): Change in Currency Fair Value of Translation Cash Flow Adjustment Hedge Total Balance at January 1, 2022 $ ( 960 ) $ 2,749 $ 1,789 Other comprehensive income (loss) before reclassifications ( 265 ) 34,765 34,500 Less: income realized and reclassified to earnings — 6,161 6,161 Net current period comprehensive income (loss) ( 265 ) 28,604 28,339 Balance at December 31, 2022 $ ( 1,225 ) $ 31,353 $ 30,128 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 Other comprehensive income (loss) before reclassifications ( 823 ) 4,413 3,590 Less: income realized and reclassified to earnings — 13,819 13,819 Net current period comprehensive income (loss) ( 823 ) ( 9,406 ) ( 10,229 ) Balance at December 31, 2024 $ ( 1,757 ) $ 7,324 $ 5,567 19. Common Stock and Preferred Stock Common Stock – We have one class of common stock outstanding as of December 31, 2024 and 2023. 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 of 1934, 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 considerations. We do not expect to incur debt to fund the share repurchase program. During the years ended December 31, 2024 and 2023 , we repurchased an aggregate 4.0 million shares and 0.5 million shares, respectively, of our common stock for $ 33.2 million and $ 4.8 million, respectively. As of December 31, 2024, approximately $ 12.1 million remains available under the share repurchase program. 95 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 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. 96 Gogo Inc. and Subsidiaries Notes to Consolidated Financial Statements – (Continued) 20. 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, 2024 2023 Assets: Cash and cash equivalents $ 1,001 $ 17,286 Prepaid expenses and other current assets 1,796 74 Deferred income taxes 216,926 222,043 Total assets $ 219,723 $ 239,403 Liabilities and stockholders’ equity: Other current liabilities $ 37 $ 189 Investments and payables with subsidiaries 150,362 198,489 Total liabilities 150,399 198,678 Total stockholders’ equity 69,324 40,725 Total liabilities and stockholders’ equity $ 219,723 $ 239,403 Gogo Inc. Condensed Statements of Operations and Comprehensive Income (in thousands) For the Years Ended December 31, 2024 2023 2022 Total operating expenses $ 105 $ — $ — Other (income) expense Interest income ( 198 ) ( 1,280 ) ( 455 ) Interest expense — — 2,770 Other 1 ( 1,344 ) 1 Total other (income) expense ( 197 ) ( 2,624 ) 2,316 Income (loss) before income taxes 92 2,624 ( 2,316 ) Income tax provision (benefit) 4,662 ( 48,075 ) 13,658 Equity (gains) losses of subsidiaries ( 18,316 ) ( 94,979 ) ( 108,033 ) Net income $ 13,746 $ 145,678 $ 92,059 Comprehensive income $ 13,746 $ 145,678 $ 92,059 97 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, 2024 2023 2022 Operating activities: Net income $ 13,746 $ 145,678 $ 92,059 Amortization of deferred financing costs — — 418 Subsidiary equity (gains) losses ( 18,316 ) ( 94,979 ) ( 108,033 ) Deferred income taxes 3,511 ( 49,172 ) 13,170 Gain on sale of equity investment — ( 1,343 ) — Other operating activities ( 1,874 ) 2 ( 627 ) Net cash (used in) provided by operating activities ( 2,933 ) 186 ( 3,013 ) Investing activities: Investments and advances with subsidiaries 22,843 ( 8,365 ) 6,047 Purchase of equity investment — ( 5,000 ) — Proceeds from sale of equity investment — 6,343 — Net cash provided by (used in) investing activities 22,843 ( 7,022 ) 6,047 Financing activities: Repurchase of common stock ( 33,185 ) ( 4,822 ) ( 18,375 ) Stock-based compensation activity ( 3,010 ) ( 8,230 ) ( 2,579 ) Net cash used in financing activities ( 36,195 ) ( 13,052 ) ( 20,954 ) Decrease in cash, cash equivalents and restricted cash ( 16,285 ) ( 19,888 ) ( 17,920 ) Cash, cash equivalents and restricted cash at beginning of period 17,286 37,174 55,094 Cash, cash equivalents and restricted cash at end of period $ 1,001 $ 17,286 $ 37,174 Cash, cash equivalents and restricted cash at end of period $ 1,001 $ 17,286 $ 37,174 Less: current restricted cash — — — Less: non-current restricted cash — — — Cash and cash equivalents at end of period $ 1,001 $ 17,286 $ 37,174 98 Item 9. Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure None.