LOS ANGELES– Global Eagle Entertainment Inc. (Nasdaq: ENT) (“Global Eagle,” the “Company” or “we”), a leading provider of media, content, connectivity and data analytics to markets across air, sea and land, today announced financial results for the third quarter ended September 30, 2019. For the third quarter of 2019, Global Eagle recorded record revenue of $170 million; incurred a net loss of $41.3 million and generated record Adjusted EBITDA* of $25.4 million despite the headwind due to the Boeing 737 MAX grounding.
“We are excited about generating record revenue and Adjusted EBITDA during the third quarter,” commented Josh Marks, CEO of Global Eagle. “We are building a culture of continuous improvement that is positively impacting our results. We achieved our goal of $25 million of Adjusted EBITDA a quarter earlier than our guidance. Our third quarter performance highlights our success balancing product innovation with meaningful improvements in our cost structure.”
Financial Results
During the third quarter, Global Eagle continued its significant improvement in financial performance. Record revenue of $170 million was up 3.6% over the prior-year period driven by 170.4% growth in Connectivity equipment revenue led by increased aircraft installations. Our revenue growth was partially offset by an intentional decline in distribution revenue within the Media & Content segment as the Company continues to exit unprofitable business activities with unfavorable cash flow profiles. Gross margin improved 1.3 percentage points sequentially driven by the improvement in Media & Content gross margin. Media & Content gross margin improvement was mainly driven by higher revenue due to the timing of content refresh cycles and the initiation of a large new content service provider (CSP) customer. Net loss was $41.3 million for the third quarter. Adjusted EBITDA of $25.4 million increased 37.7% versus the prior-year period. With our Phase II cost savings initiatives successfully implemented, we have identified Phase III cost initiatives that we plan to implement in the first half of 2020. Our Phase III initiatives will target business process reengineering and procurement initiatives. We continue to expect to generate a minimum of $25 million of Adjusted EBITDA in the fourth quarter of 2019. We expect to transition to positive free cash flow on a sustainable basis upon the return of the Boeing 737 MAX. As of September 30, 2019, the Company had approximately $68 million of liquidity which includes cash and unused revolver capacity.
“Our improved financial performance, evident in our third quarter results, is mirrored by operational improvements throughout our organization. We plan to build on this foundation in 2020,” said Christian Mezger, CFO of Global Eagle. “I am particularly enthusiastic about the progress we continue to make toward generating free cash flow on a sustainable basis, and with Phase III actions identified, we are confident we can achieve this milestone in 2020 independent of Boeing 737 MAX service re-entry.”
Connectivity
Global Eagle’s Connectivity segment is a leading provider of satellite-based passenger connectivity for single-aisle airliners and broadcaster of live television to aviation and maritime markets. Connectivity segment revenue was up 6.5% year-over-year despite the impact of the Boeing 737 MAX grounding as discussed below. Inflight connectivity installations and activations continue at Air France powered by Global Eagle’s Ku high-throughput satellite (HTS) network. We operate the first EMEA HTS inflight connectivity network to provide consistent coverage and up to 500 Mbps throughput in Europe, Russia, Scandinavia, and North Africa. The Company has also now executed the service and equipment contracts with our previously announced new connectivity customer, Turkish Airlines.
Boeing 737 MAX Impact
Based on current information, the Company expects the Boeing 737 MAX aircraft in its fleet of connected aircraft to resume normal operations in the first quarter of 2020. Due to regulatory actions beyond our control and unrelated to passenger connectivity systems, our MAX-connected aircraft remained grounded during the third quarter. We continue to forecast that MAX program issues will impact services revenue, including both Connectivity and Media & Content revenue, by approximately $3 million per quarter, with an Adjusted EBITDA impact of approximately $2 million per quarter. For the full year 2019, we continue to estimate the impact on services revenue to be approximately $8 million, with an Adjusted EBITDA impact of approximately $5 million. We remain focused on working with our airline partners and with Boeing to be ready when the MAX returns to service.
Media & Content
During the third quarter, Media & Content revenue was up 0.6% over the prior-year quarter primarily due to two factors. First, our CSP business grew $6.2 million driven by new customers, including the large new CSP customer that we announced in March 2019. Second, we continued to intentionally exit certain unprofitable activities in our distribution business with unfavorable cash flow profiles, which had a $5.7 million adverse impact on revenue in the third quarter.
Global Eagle’s digital content supply chain technology platform, branded Open™, is now active. We will continue to transition customers onto Open™ throughout 2020. Our Open™ platform is unique to the industry and optimizes workflow for the cloud environment, tracks content from acquisition to delivery, all while collecting data throughout to improve analytics. To date, Open™ has delivered 250,000 media assets to airlines. The platform will enable new efficiencies and capabilities for 4K/HD content, broader content selection and greater content customization.
Phase III Cost Savings Initiatives
In the third quarter, the Company began planning its Phase III cost savings initiatives. Phase III will target business process reengineering and procurement initiatives across all business units. Implementation of the initiatives will begin in early 2020. These savings are expected to benefit both cost of sales and operating expenses. We will provide additional details regarding the amount and timing of our Phase III cost savings initiatives on our fourth quarter 2019 earnings call.
Strategic Initiatives
The Company continues to work with its financial advisor, Barclays Capital Inc., to evaluate offers for all or a portion of the non-aviation components of our Connectivity business. We continue to expect the evaluation process to conclude by the end of year. Separately, the Company also continues to evaluate the potential sale of certain joint venture interests also by the end of year.
Third Quarter Summary
Webcast
We will host a live webcast on Thursday, November 7, 2019 at 5:00 p.m. EDT (2:00 p.m. PDT). We will make the webcast and an accompanying slide presentation available on the Investor Relations section of our website at http://investors.geemedia.com/events-and-presentations. We will maintain an archive of the webcast on our website for 30 days following the event.
About Global Eagle
Global Eagle is a leading provider of media, content, connectivity and data analytics to markets across air, sea and land. Global Eagle offers a fully integrated suite of rich media content and seamless connectivity solutions to airlines, cruise lines, commercial ships, high-end yachts, ferries and land locations worldwide. With approximately 1,100 employees and 35 offices on six continents, the Company delivers exceptional service and rapid support to a diverse customer base. Find out more at: www.GlobalEagle.com.