CEO Thorne says "several parties" have expressed interest in Gogo's Commercial Aviation business
Shares of Gogo (GOGO) are on the rise on Monday after the in-flight internet company reported quarterly results and announced that it has retained investment bankers as Gogo looks to sell its commercial aviation division. Commenting on the news, Roth Capital analyst Scott Searle said he believes the opportunity for a positive deal outcome has "greatly improved" given the "dramatically" improved profitability beyond prior COVID trough expectations. Further, he believes this continues to unlock Business Aviation shareholder value.
RESULTS: Gogo reported second quarter losses per share of ($1.05), with consensus at (88c), and second quarter revenue of $96.6M, which was better than the expected $90.34M. The company achieved break-even unlevered free cash flow for the quarter. Gogo did not provide 2020 financial guidance given the continued significant impact of COVID-19 on global air travel.
"While COVID-19 has significantly impaired global commercial aviation travel and our results for the second quarter, we are encouraged by the strong recovery in business aviation as well as the beginnings of a recovery in global commercial aviation which has continued into August," said Oakleigh Thorne, Gogo's President and CEO.
SALE OF CA DIVISION: Gogo also said that it has retained investment bankers and is in a process to sell its Commercial Aviation division. "We've long talked about the strategic benefits of combining our CA division, either a, with another service provider in driving scale economics; or b, with a satellite operator and driving utilization economics; or c, with an avionics company in facilitating data transfer as the connected aircraft becomes a reality. COVID has accelerated consolidation discussions as industry players look to emerge from the crisis with the strongest portfolio of assets they can to capture future industry growth. Gogo Commercial Aviation brings an attractive and unique set of assets to such a combination for both strategic and financial buyers sponsoring such consolidation ideas," Thorne explained.
"Several parties expressed interest in our CA business in the second quarter. And as a result, we retained BDT & Company as our primary advisers and launched a formal process this summer to evaluate our strategic options for that business. We've been in extensive discussions with multiple parties and feel optimistic that a deal may happen. However, we cannot be sure that we will be able to consummate a transaction," the executive added.
OPPORTUNITY FOR POSITIVE OUTCOME 'GREATLY' IMPROVED: Following the news, Roth Capital analyst Scott Searle raised his price target on Gogo to $8 from $7, while keeping a Buy rating on the shares. The analyst noted that despite "unprecedented" downturn in global travel, the company's results were ahead of expectations and June seems to have marked the bottom. Furthermore, Searle highlighted that both Business Aviation and Commercial Aviation showed signs of stabilization and improvement.
Commenting on the Gogo's announcement that it has formally engaged bankers to pursue strategic alternatives for its Commercial Aviation business, the analyst said he believes that the opportunity for a positive outcome has "greatly improved" given the "dramatically" improved profitability beyond prior COVID trough expectations. Importantly, this continues to unlock Business Aviation shareholder value which he values at $4-$9, Searle added.
PRICE ACTION: In afternoon trading, shares of Gogo have gained over 12% to $3.65.