Q4 2019 Earnings Call
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Ladies and gentlemen, today's conference scheduled to begin shortly please continue to standby. Thank you for patients.
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Fourth quarter and full year 2019 earnings conference call.
At this time up it doesn't like Sarno smelling right. After the speakers presentation. There will be a question answer session lots of questions and especially when you press star one of your telephone.
Please be advised for today's call does this mean recording if your question first assistance. Please press star zero.
I'd now like to hand, the call so to your speaker today, Peter Lopez, Vice President Finance and Investor Relations. Thank you. Please go ahead Sir.
Thank you Ken Good morning, and welcome to Global Eagles earnings call. It a fourth quarter and full year of 2019.
Peter Lopez Global Eagle VP of finance and Investor Relations.
Before we start I would like to remind you that our discussion today will include forward looking statement.
Within the meaning of the private Securities Litigation Reform Act of 1995.
These statements are based on management's current expectations and beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied in such forward looking statements due to various factors that we disclose in our earnings release issued earlier today as well as in our upcoming 2019.
And your report on form 10-K.
We did we disclaim any obligation to update those statements whether as a result of new information future events or otherwise.
Our discussion today, we'll also referenced EBITDA adjusted EBITDA net debt to adjusted EBITDA and free cash flow, which are non-GAAP financial measures. We have included the definition of these non-GAAP financial measure <unk> as well as a reconciliation to the most directly comparable GAAP financial measures in the earnings release and in the slide presentation that.
Opening this webcast now I'd like to turn it over to Josh marks Chief Executive Officer of Global Eagle Josh.
Thank you Pete good morning, everyone and thank you for joining our call today.
Turning to slide three Pete and I are joined by Christian message to our CFO and Christian I are going to focus on four point today.
First I mean to update you on our strategic review of our Maritime enterprise and government business or Meg as we call it as well as our joint venture in true up we're keeping Meg as we believe the fastest path to de leverage it to continued improvement in that business that we started in 2019.
Scale and vertical market diversity, our advantages in the current environment and in parallel we continue to work on the sale of our joint venture interest.
Second I'm going to recap our 2019 business progress, we improved both earnings and cash flow and we're confident that as our customers ramp up after krona buyers are solution will be core did their services.
Third we are going to cover the revenue and cost model for our major business mine generally how we are mitigating corona virus impact we are working around the clock with our customers and our suppliers to reduce costs, while preserving flexibility.
We're not going to give specific guidance at this time because the situation is changing very rapidly.
And fourth Christian is going to cover our 29 key financial which demonstrate clear execution.
Christine will also update you on our restructuring activities.
So turning to slide four.
The travel industry has never seen concurrent challenges.
What we see now with current a virus on top of the Boeing 737, Max grounding.
Last year, we mitigated the impact of the Max which reduced our service revenue.
And now we are building on our cost control experience from last year to ship capacity in our network and conserve cash because we have team in Hong Kong. We knew from early February that the kroner virus impact was going to be significant and we built work from home capability at that time that we have now rolled out companywide.
On slide five you can see our mission, we provide solutions that connect entertain and inform passengers and remote workers.
We enriched the time they spend in the air at sea or add remote location with fast Internet Entertainment and application and we serve the strongest most valuable airlines and cruise line in the world. Our customers are entering the Corona virus prices from physicians of strength they have consumer brand loyalty.
That will accelerate their ultimate recovery, so we need to whether the current storm with our customers while preparing ourselves for the rebound that we hope will come this summer.
Turning to slide six I now want to update you on our strategic initiatives.
A year ago, we started the strategic review as Meg evaluating the sale of some or all of the business.
Since that time, we executed on our operational plan.
Last year, we renegotiated bandwidth contract to reduce our satellite costs, we deployed new SD Wan technologies, the drive gigabit class throughput on passenger cruises with higher network efficiency, and we focus our commercial activity accrued yacht and government.
We also targeted our capital investment.
So next earnings generation and cash flow improve.
And while we expect Corona virus to impact our crews revenue through the summer.
Next long term potential remains compelling.
Our largest met competitors are in the midst of restructuring our M&A property and indeed market condition, having scale for both aviation and Meg in the same network is very important for optimization.
Examples we respond to credit virus, we can't ship capacity between airline crude that yachts relief organization government agencies and even military operations.
So with mix improved performance and with a narrowing field of competitors. We concluded the keeping Meg was our fastest path the leverage diversification and scale.
Now in addition to Meg we had been evaluating options for our joint venture, which provide cellular roaming services.
Our JV partner has driven this process, which remains active if they transaction closes we anticipate using proceeds to pay down debt.
I'll now review our business progress during 2019 and turning to slide seven we'll start with in flight connectivity or I see.
So last year, we launched our new three at Santana and high speed mode, and we sold over half of our air France Fleet.
We completed that 50 aircraft incremental order with a major IC customer.
And we won Turkish airlines to install our connectivity on their Airbus Athree 21, and Boeing 737 fleet.
We had an outstanding year of installation.
And we expect installation momentum to resume in late 2020. After 737 backs production reasons and after airlines get back to normal posts Corona virus.
Our IC strategy remains clear, we serve Boeing 737, and Airbus Athree 20 aircraft in North America and EMEA.
We bundle entertainment with connectivity to provide passengers with movies TV game content and broadband Internet and let me reiterate why we focus on the 737 athree 21st they are and remains the largest available cool of candidate aircraft. We estimate there are over 11.
2000 single aisle aircraft that are not currently committed to when I see program about half of those are in service now and the other half will be delivered by 2024.
Second these aircraft type stay within specific geography with limited flight route variability, so we could be very efficient, where we provisioned capacity.
As you know we use capacity from multiple operators and we don't risks our aviation operation on a close network with single satellite dependency.
Our large fleet all operate within an art from North America to the Middle East and that's where our do installation will also occur.
We expect to leverage infrastructure that we've already built and bandwidth bandwidth, it's largely already provision. So Turkish airlines is a great that they need high performance between Africa, Russia and year Eastern Europe, and our network is uniquely capable of serving them.
In addition, the areas, where we have the highest in flight connectivity utilization are increasingly the areas hi, its demand for our maritime in government application.
At the year end of 2019, we had a total of 1028 installed satellite connected aircraft. Now. This includes 83 Boeing 737, Max aircraft that were grounded.
Note that we eliminated 81 wireless IP in IC aircraft from jet Airways and obviously.
Bill from our 2019 count.
Several of these aircraft have now been placed with new operators and were in commercial discussions to reactivate service.
Average revenue per aircraft during 2019 with steady at approximately $120000 per year per aircraft.
We expect run of ours will change installation schedule this year.
Some of the remaining airprint installations will differ into 2021.
At this time Turkish Airlines Dill expect installation to commence later this year ramping up in 2021.
Turning to Meg.
We saw strong year over year growth Incruse, where our Wi Fi TV services are thriving.
At year end, we had 60 cruise ships with only connectivity 56 cruise ship with both connectivity and television services and 176 ship with only television services.
Cruise revenue was 17.7 million in the fourth quarter up $2.1 million sequentially and $2.7 million year over year.
In addition, we had 206 contracted yachts at year end of which 159 were active and we renewed over 95% of our yacht contract during 2019.
Toward year end consistent with our seasonal expectations, we did the uptake in from active service for maintenance or sale.
And finally, we have 3275 land buys at year end.
And finally for media and content, we finished 2019 with our cloud content platform open in operation.
We've onboarded audio movies television movie trailers and music videos onto the open platform integrating with third party data sources and our in house Paul analytics platform.
We have loaded about 60000 media title in the system.
And we've delivered about 300000 media assets to airlines and while we successfully onboarded our major airlines to open during 2020, we expect move the rest of those customers across to the platform. We will use any downtime from corona virus to accelerate this transition.
Yes.
During 2019.
We saw our CFC business growth, while we reduced our cash and efficient third party distribution business.
Our major news the accounts in Asia Pacific Middle East and North America drove our growth.
We have focused our in house distributors on premium content.
While year over year, our third party distribution revenue decreased to 20 to 22.7 million in 2019 from 33.5 million at 2018.
We actually increased the quality of our title, which translates to better cash flow. In fact, we will benefit in 2020 from distribution right for three Oscar winning film parasite, Judy and 1917 held by our emphasis and entertainment in motion subsidiary.
These property differentiate our CSP services were airlines.
And help us mitigate decreasing cost a blockbuster content and manage a potentially weaker slate later this year as studios delay new releases until theaters reopen this fall.
So turning to slide eight in the absence of Corona virus, we would've capitalize on our commercial land cost momentum during 2020, so how does corona virus change this outlook.
As I said earlier, we're not going to give guidance. At this time is the situation is just to fluid. However, I do want to give you a general idea of what business lines are impacted and how we're responding.
So first which of our vertical markets are impacted by Corona buyers.
So the impact is negative for airlines and for cruise line. We're traveler demand is severely depressed it's neutral to positive in yacht.
It's likely positive for our relief agency and government businesses.
It is unclear at this time, how commercial shipping and energy will be impacted which obviously depend on resumption of global supply chain and energy price recovery respectively.
Starting with airline.
We expect passenger demand to be severely impacted into July.
For media and content Airlines are cutting flight schedule and in response, we are cutting the volume of content that we acquired.
In 2019, our media and content revenue was $311 billion.
Now of that 311 million.
35% was based on fixed revenue contracts that are independent of flight volume, while the remaining 65%.
Our margin dollars, we certainly will be leveraging our in house distribution capabilities.
And our global content purchasing scale defined win win solutions with our airline.
So at this time, we see more Corona virus risk to revenue then to gross margin in media and content.
Turning to inflight connectivity over 95% of our IC service revenue comes from monthly subscriptions with airlines airline pay us regardless of flight segments operated or passengers flown with very limited out to reduce those fees for government mandate.
The ground it.
This is a different revenue model from our largest competitors, who build the airline per passenger session or build the passenger directly.
Our cost structure was already leaner than our competitors due to our action from the Max grounding.
We had maintained maximum flexibility into 2020 to adjust our satellite capacity as the Max recovery timing was unknown. So.
So as we sort through the impact of temporary flight suspensions from Corona buyers, we will work with our customers to pass through savings as we shift or cancel bandwidth commitment.
As of today, we have yet to find contract for about 20% of our bandwidth requirements. This year mainly in maritime.
That gives us some near term near term flexibility to shift our network, depending on what happened in flight connectivity.
We also await indication about how federal financial support might benefit the aviation industry supply chain.
Now in addition, we expect that aviation equipment installation will be delayed in deferred into the second half of the year.
Our customers are currently furloughing maintenance team that would otherwise have installed antenna.
Similarly, we expect our supply chain of antennas radon and other components will be impacted.
But because Max production stopped in July we are carrying slightly more inventory than normal. So we do have reasonable ability to absorb this a supplier disruption at least into the second half of this year.
Finally in our Mic business, we're seeing a mixed bag in cruise passengers are mostly off ships by now but.
Cruise remain onboard.
His line, we'll use the downtime maintain ships and prepare for the summer season.
So we expect bandwidth requirements to go down but not stop.
The situation here at the very fluid now as our customers are rescheduling cruises and Reprioritizing.
I want to note that approximately 85%.
Of our cruise line revenue, including both TV and Wi Fi services.
Comes from monthly recurring charge contract.
While the remainder of 15% comes from revenue share activities with passengers and from temporary bandwidth upgrades.
Having cruise ship and yacht in the same portfolio does help us we expect yacht requirements to increase as owners spend more time away from shore and we plan to shift network capacity to serve these yacht.
We expect neutral impact from Corona virus on commercial shipping NRG and enterprise as I mentioned earlier.
And we expect some upside to our U.S. government and UN relief operations this year.
Also we do expect that our joint venture EBITDA will be impacted though with deferral of capital expenditures and a healthy cash balance held by the JV, but.
The distributions that would benefit our liquidity may not be significantly impacted.
So clearly we must mitigate corona buyers impact through spend reductions and liquidity management.
We expect to reduce satellite bandwidth and content spend we're re timing inventory deliveries as we deplete inventories on hand, and we expect to further reduce our capital expenditures.
We expect we will see significant operating expense reduction in travel and entertainment and sales and marketing and professional services.
We will also accelerate our faith reaction using downtime from Corona virus to accelerate these transition so by the fourth quarter, we should see these benefits flow through to earnings and cash flows.
We will come back to you with an updated view of Corona buyers impact once the dust settles on flight schedule government bailout fund and arrangement with our content and bandwidth customers and suppliers.
Now in the meantime, having drawn our revolver in full we believe we have adequate cash to weather the storm.
Of course, we're also highly concerned about our employees and their health. We're in a work from home configuration, which is working well so far.
I'm proud of how our team stepped up to address this event.
I'd now like turn the call over to Christian to cover our 2019 financial result.
Thank you, Josh and good morning, everyone.
Let's turn to slide 11.
Before I discuss our financials for the fourth quarter and full year of 29 team.
I want to provide the key takeaways for the year.
First in the fourth quarter, we delivered another quarter, where we met our operational and financial goals.
We continued our strong year over year improvements in both earnings and cash flow.
Second we continue to demonstrate our ability to improve cash generation and manage liquidity.
Excluding the change in working capital our fourth quarter free cash flow was breakeven.
Exactly where we wanted it to be.
And we accomplished this without the Max returning to service as to full benefits of phase two actions were realized.
Third we made real progress and the remediation of material weaknesses remediating another four during the year.
And for.
Our phase three actions are underway with savings in cost of goods sold and operating expenses.
Let's turn to slide 12, and 13 to discuss our financial performance for the fourth quarter and full year 2019.
Global Eagle reported fourth quarter 2019 revenue of $162.9 million.
In full year 2019 revenue of $656.9 billion.
In prior quarters, we did not include any connectivity service revenue for the Boeing 737, Max in the fourth quarter.
So last year only the first quarter recognize Mac service revenues.
Our adjusted EBITDA was $24.6 million during the fourth quarter and 91.2 million during the full year of 29 team.
Compared to $17 million and $73.1 million doing the same periods of 2018.
Turning to free cash flow, our cash flow from operating activities was negative zero point $9 million for the fourth quarter.
Capital expenditures were approximately $2.5 million.
Therefore, including working capital our free cash flow was negative 3.4 million.
Excluding the working capital use during the fourth quarter, according to $3.3 million, our free cash flow was essentially essentially breakeven.
For the full year 2019, our cash flow from operating activities was minus $8.9 million, an improvement of 65.2 million versus the prior year.
Capital expenditures for the full year by 20.2 million versus 2018 capital expenditures of $43.5 million, which included certain network related growth investments.
Free cash flow, including working capital changes was negative $29.2 million in 2019 versus minus 117.6 million in 2018.
Our fourth quarter 2090 cash flows.
And with straight our successful turnaround during 2019 as we continue Casper.
Yes.
Turning to gross margin as our gross margin for the fourth quarter was 18.1% up 4.6 percentage points over the prior year fourth quarter driven by the improvement in connected cost margin year over year connectivity gross margin improvement both in flight connectivity and mix.
The improvement was driven by the activation of additional aircraft on the company's network.
Growth in services to close markets and improved management of network cost.
The full year 2019, gross margin was 20.3% down 50 basis points from 2018.
The company gross margin declined in 2019, driven by a change in product mix in our media and content segment.
Operating expenses in the fourth quarter were $43.9 million down 15.3 year over year.
Operating expenses benefited from the full implementation of our phase two cost savings initiatives in the fourth quarter.
We continue to demonstrate progress in reducing operating expenses the sequential reductions each quarter. This year with an adjusted for the onetime legal items that we discussed during our third quarter vet test.
For the full year 2019, operating expenses were $197.9 million any kind of 46.6 million versus full year 2018.
By the fourth quarter, we fully executed our phase two operational improvements in savings, realizing more and $50 million of annualized benefits.
EBITDA before adjustments was 8.9 million for the fourth quarter and $31.1 million for the full year EBITDA before adjustments, we delivered on our adjusted EBITDA targets for the fourth quarter shown continued and significant improvement year over year.
Adjusted EBITDA for the fourth quarter was up 44.7% to $24.6 million was 15.1% of revenue a 450 basis points improvement over the prior year period.
If you annualize the second half of 2019, our annual run rate of adjusted EBITDA was $100 million.
Full year 2019, adjusted EBITA was $91.2 million 18.1 million or 24.7% improvement or 2018.
Finally, our net loss for the fourth quarter or 29 team was negative 36.1 million for earnings per share of minus 39 cents.
This includes 89.7 million of accrued interest expense.
Our improvement of adjusted EBITDA combined with our breakeven cash flow adjustment progressing capital our focus Rtwenty 19 of cost containment and are contingent transformation. It integration has set a solid foundation for Twentytwenty.
Let's now cover our segment results.
Let's start as usual with the connectivity segment credit activity revenues increased to $87 million in fourth quarter or 3.3% year over year growth.
Full year, our connectivity revenues increased to $345.8 million in 2019 versus 331.7 billion in 2018.
Productivity gross margins were 15.9% in fourth quarter, showing year over year improvement of 14.9 percentage points.
We continue to believe that our connectivity gross margins on a normalized basis, we'll move towards 25% clearly the Max returns to service remains an important driver of generating cash flow to deliver that business.
Our primary endpoint Centsthirty, seven bucks customers, our southwest by Dubai and that Polish.
During the first quarter of Twentytwenty, owing suspended production up to 737 Max.
This will impact our revenue and EBITDA in the first quarter of Twentytwenty.
We are currently carrying an additional quarter of inventory valued at approximately $4 million.
While this negatively impacted first quarter. It may help us navigate corona virus related supply chain disruption in near term.
We expect inventory levels to normalize approximately one quarter. After December 37, Max listens production, which likely depends on when the impact of core on the virus begins to abate.
We expect lower equipment revenue, while Max production suspended on the order of 10 to 15 installations for the quarter.
Four to 5 million dollar impact to quarterly revenue.
And approximately 1 million dollar EBITDA impact per quarter.
We do expect installations to accelerate once production resumes.
So we expect equipment revenue to be back loaded.
During twentytwenty.
Turning to our Mek business as trust covered we made the strategic decision to retain the business and deeply integration with our evolution of Asian connectivity business.
A major driver of this decision was to improve performance measured in both earnings and cash flow generation of the met business. During the course of 29 team. In addition to the ability of acquires defined as a transaction.
Bruce revenue in the fourth quarter was $18.6 million.
An increase of 2.8 million year over year.
It's in the fourth quarter of full year has passed since we reset our crews contracts.
Revenue in the fourth quarter, 218% year over year for the full year 2019 boost revenue was 69.9 million.
In Q4 revenue was 4.6 million inline with our seasonality in space patients.
Commercial shipping in energy revenue was 5.6 million in the quarter and these verticals continued to perform about with improving unit revenue and profitability.
Okay.
Turning to our enterprise business fourth quarter revenue was $9.8 million as we continue our wind down of the legacy enterprise businesses.
Our government revenue was 4.1 million in the fourth quarter, a business that continues to exhibit nice growth for us.
Finally, let's cover our media and content segment's fourth quarter revenue was $75.9 million a decrease of 0.5 million versus same period of 2018.
As we guided in our third quarter call, our second and fourth quarter, our seasonally lower than the first and third quarters during the timing of our customer delivery cycles.
Gross margin for our media and content business in the fourth quarter was 20.5% declining year over year due to changes of our product mix and seasonality as mentioned earlier.
Let's turn now to slide 14 and cover operating expenses.
Which we improved 44 $46.6 million year over year.
We reduced our labor.
National services, and our travel and entertainment expenses throughout the full year.
In addition, significant sequential improvement quarter over quarter through 2019, and we continue to optimize our cost structure through phase three initiatives.
As discussed last quarter with deepening the integration of our business teams simplifying book flows in outer meeting various functions into business.
We have appointed cross functional teams across multiple initiatives around the company focusing on using data analytics to drive spend optimization in both content and productivity.
Based on our strong IP backlog and new content technologies, we're improving our supply chain activities to tetra margin opportunities, while improving customer value.
Identified substantial new opportunities reduce cost while improving our product is delivery.
Coding moving operational roles to our customers around the world.
This is well underway, we expect in year twentytwenty benefits of more than $10 million in which 60% is related to Cox and 40% related topics.
We expect these phase three benefits to build quarterly through the year, However, given the core.
Corona virus situation.
We expect to accelerate these actions.
We finished 2019 were 61 million in total liquidity.
We have 24 million in cash at year end with the remainder available to draw under our revolver.
On February 28.
In face of Big Corona virus crisis, we fully dual available funds in our revolver out of abundance of caution as of yesterday, our cash balance was about 57 million versus year end liquidity of 61 million.
Let's turn to slide 15.
To summarize we continue to deliver our operational and financial objectives in the midst of compound challenges.
We achieved our adjusted EBITDA guidance and break even free cash flow.
Adjusted for working capital.
We continue to make sequential improvements in both gross margin and operating expenses.
While the current of Iris represent significant challenges we entered this period from a position of relative strength in.
In the far better position to whether this crisis than we would have been a year ago.
Throughout our financial transformation, we continue to deliver on our operational promises to customers really solid relationships with Blue Chip Airlines cruise lines Global enterprises in government agencies.
A few our recovery later this year.
As always I want to thank our employees put incredible work, which led to very solid results in the fourth quarter of 29 keep.
With that I'd like to turn it back to Josh.
Thank you Christian.
I want to reiterate the while the current of ours has created a true black Swan event. The an unanticipated once in a generation event that threatens the travel industry in at suppliers, we are well positioned to weather the storm.
We did real heavy lifting in 2019 that improved our cash flow grew our earning and started to deleverage our business.
And as an organization, we built the teamwork and aggressive posture that we needed to take action quickly.
Second last year, we deepened our relationship with financially solid brand name Airlines cruise line enterprises and government agencies worldwide. Our customers will survive. This crisis of Wednesday resume full operation.
Our entertainment and connectivity will be core to their past your experience and third our global scale and breadth of vertical market helps us in this environment.
While our airlines and cruise lines are under pressure, we're seeing new opportunity in yacht government market.
Provisioning a connectivity network to serve multiple vertical allows us to ship capacity from airlines tee up or from cruise ship to government based on demand and it gives us the flexibility to reduce our network bandwidth spend as needed it insulates us against the full impact of current a virus in any one sector.
So we remain focused on managing liquidity on partnering with our customers in our suppliers.
And our on driving cost efficiencies to maintain our operating margin and especially our cash flow.
With that I'll turn the call back to seat for QNX.
Thank you Josh Shannon.
Lets open up the Kunaev. Please.
As a reminder to ask the question you need to press Star one of your telephone to withdraw your question test accounting.
Please similarly compiled acuity roster.
Our first question comes from Rich Valera with Needham and company. Your line is open.
Thank you good morning.
Question on the content business, you mentioned that 65% or that revenue is variable can you give us what you're saying, how you're thinking about that business over the near term how much of that 65% you think kind of goes away due to to what's happening right now with Kobin.
Any color there would be helpful.
Sure I'd be happy to thank you rich.
As I mentioned, 65% of our media and content revenue is variable, but 90% of our media and content.
Cogs are our content acquisition is variable so we have more flexibility to reduce to spend on the backend.
Then we are customers have variability on the front end and this is this is critically important because it opens up opportunities to work with our customers and with our studios.
The leverage our in house distribution capability, and our preferred studio deals to really drive the right level of spend for our airline while maintaining our margin.
What we're seeing from our airline immediate content falls into two different categories.
On one hand.
We're seeing airline just requesting to keep content onboard aircraft for another cycle as soon as the what's on the aircraft now will stay on the aircraft into the summer.
Now from our perspective, while we lose a little bit of of lab services and technical revenue on it the core licensing revenue that makes up the bulk of our CSP business continues in that scenario. So that's not a death sentence for us that just means that we continue to to serve our customers with a content on board.
The second category or airlines that are under very significant pressure right effectively putting their fleet on the ground for the next couple of months and in those cases were working with them to reshape what content they use across their network.
To reduce their spend but to leverage our in house distribution capability and and change the mix of content on the plane to preserve our Martin dollars. We go through so we feel like the breadth and scale that we have being by far the majority player in the content services business.
The us them unique ways to work with our airlines and with our studios to adapt to that lower revenue environment, while still maintaining margin dollars on our side.
Got it Thats very helpful and then on the connectivity side. It sounds like you have a lot more.
Kind of contracted committed revenue there the 995% number im just curious how much.
Sort of Wiggle room do you feel those your customers have there and or might you Grantham, particularly for the airlines that are as you noted really under duress.
What kind of relief might you look to give them.
Given the extraordinary circumstances.
Yes, let me start by putting out again that 95%.
Of our revenue in our inflight connectivity business is on what we call a monthly recurring charged model MRC and that business model is very different from how our competitors work.
Our if you look at our average revenue per aircraft it can be a little bit lower than our competitors.
But we don't have the downside risks.
So as we look at at the current environment. There are very limited exceptions by our customers contractually to avoid that MRC.
Are we going to be good partners of course, right. We're going to look at ways that we can work with our airlines and IC to.
Reduced the amount of bandwidth is required to look at how we can work with them on on the product in the offer for the aircraft that are flying how we can continue to be ready to school backup went when aircraft returned to service, we will do that with our customers. Because we are good partners and because we are very clear.
That the future of our business and in flight connectivity fit with our execution and program management with the largest airlines that we serve so we do obviously see the potential over the next month on one hand that.
Airlines are going to put aircraft on the ground and that may impact our.
The request the come from airline to work with us even if it doesnt trigger a contractual right.
On the other hand, we're waiting to see what the structure of any government bailout funds may look like and we expect that the packaging of the government bailout will take into account the broader supply chain and aviation industry. So until we settle on those two things partly to give you a precise answer at what a D.
We start to make contractual structure, where the vast majority of the revenue I see is under contractual.
Contractual structures contractual right that that favor us in that kind of environment.
But again, we want to be good partners for our airline.
Want to work with them given the extraordinary circumstances that we're all under.
Got it. Thanks, that's very helpful and one last one from probably for your Christian.
You gave us the update on where your current cash stands I think Thats 57 million just wondering how you're thinking about kind of the arc of your cash position as the year progresses, and what do you view as kind of the minimum.
Amount of cash you should have on the balance sheet to run the business.
Yes, Hey look at I think similar like his heart risk to give a guidance in rollout liquidity going forward I think I can tell you.
We on purpose put in where we are sitting today, you see that that the businesses.
With very little variation very stable from from our liquidity perspective right.
We look at this very carefully.
We look at days from both decide on how we pay our vendors but also.
At that our customers continue to date.
So this is a core focused and that is how we manage liquidity today, but it's hard yet to say, how it will evolve and in general you will see.
Cash flow fluctuate depending on the revenue variation that we see in India and media and content business.
Fair enough. Thank you good luck gentlemen.
Thank you.
Thank you. Our next question comes from Greg Dennis Nelson Securities. Your line is open.
Good morning, guys. Thanks for taking my questions first from a high level what percentage of your overall or combine businesses set of those contracted rates and maybe what percent is more usage base, that's kind of exposed to that decreased global travel.
And then I guess secondly is Q the attempt to quantify I guess the level of variable cost that you are targeting two I guess temporarily reduced.
Thanks, Greg I think let me start off with the basic metrics that that will help frame that answer for you.
So about 85% of our revenue.
Comes from airline increasing.
And of that 85% of our total revenue about 50% of that is media and content, which is almost exclusively airlines.
25% in flight connectivity is 10% is cruise okay. So, let's let's take the media content blocks start off with.
As I said earlier about 65% of our revenue in media and content is.
Is built on contract.
That our per flight segment dates right were the licensing fees.
We charge.
Services that we offer our targeted against the volume general volume of flight number of aircraft that have given airline operators.
Now as I just said.
That earlier, we have more flexibility on the provisioning Bob that more of our cost structure is variable than our revenue structure. So as we worked through the dynamics that how to manage a reduction in slightly currency. We can use the purchasing scale and the relationships that we have on the backend.
Provisioning in order to adapt to that environment.
On the inflight connectivity side, we have we have flexibility in our network. So to give you a couple of data point.
This year will then give or take about $100 million on bond satellite bandwidth.
And of that $100 million on satellite bandwidth.
Roughly 20% of that right now is either drafted we can terminate or capacity, which we expect to use this year, but have not yet on contract money. So as we look at how bandwidth will be required across our network with airlines that accrues, having fewer passengers on board, but potentially seeing increases.
In our release agency in UN work in our government business in our yacht segment, we are going to need to work with our satellite operators to ship that capacity and I do believe that there are some good win win opportunities to reduce our network stent on one side, but also help our satellite operators use.
Capacity, there may be coming available from other customers in order to serve the market and the unique customer relationships that we have a global eagle. So when you think about sort of the overall variability the network. It is both a function of how much of our cost structure it variable as well as how we can use.
What is on the media content side, the scale economics of being the largest content service lottery world.
And on the satellite connectivity side being a diversified.
Integrator across multiple verticals across mobility verticals like aviation accrued and against terrestrial verticals like enterprise or NGL, all of which have very different dynamics in the current environment. So as we look through kind of what that means for how we manage the cost structure on the Bakken we have to be on top.
What our customers need right, both both positive and negative in the current Corona environment and that we need to move very quickly in these key relationships with suppliers and make sure that we can target our spend and their capacity their content into the right applications going forward. So that we don't get caught middle of that and it's still a win.
Win for our customers and our suppliers at the same time.
I hope that gives you some color as to how we're thinking about it.
And let me exited from a from a cost perspective.
I think as you've seen and 2019.
The company made made a lot of progress when it comes at a cost structure.
Not only absolute amount, but I think variabilizing our cost structure was critical right.
So now you're going to go into phase three and Thats going to go and we further reduced operating expenses right and I think that debt is.
[music] today on a question from rich as well to maintain sufficient liquidity, Brett and I think we have shown a good track record executing plans and where were in implementation modal phase three.
Got it was extremely helpful guys. Thanks for the color.
And then secondly.
What range now are you targeting with respect to total IC installations. This year and maybe how does that breakdown between Turkish air France, and then other customers.
That's a difficult question to answer as we said earlier. This morning, we do expect installations to be heavily back loaded at the end of this year.
As well as some installations, we would have had this year will shift into into early 2021, Thats just the practical reality of a close 737 Max production line.
Bind with the fact that that airlines are furloughing maintenance team that otherwise would the retrofitting our equipment on the aircraft.
The challenging part of that answer is we still are working through what that needs for winter equipment is actually sold and shipped to airlines. So we're looking at what's the Pocketable change and equipment revenue as for this year.
At this point, we're not seeing significant change on that it really does depend on when the the Max production line resumed.
And as Christian said earlier, we do have inventory on hand in order to support that ramp up even if we do see some minor disruption from from our supply chain due to grown of ours.
As we look at sort of the tempo of.
How airlines come back.
From the current of ours crisis, and I guess I do expect the V shaped recovery here I think.
Business demand is going to be incredibly pent up coming out of that where we're going to see a surge of airlines putting capacity back in the summer.
I think we'll have to work through the retrofit schedules on aircraft.
To answer your question about about air, France, and Turkish in particular.
With air France. They previously expressed the desire to use any downtime to try to catch up on retrofit and complete Wi Fi installations.
I think realistically that may pick up again mid year, we have about a third of the fleet.
Still to go in terms of installation.
And I see that is as occurring in the back half of this year.
With Turkish.
It still in the engineering phase.
Configuring the shipsets for their their aircraft type. It is a complex program because it involves both the 737 and the Athree 20 family aircraft.
At this time, we don't see indication that the timetable there is slipping.
Obviously, we'll get into a very prolonged impact from kuroda buyers that could have an impact, but we still target first installations in the second half of this year, where they real ramp up starting towards the end of year.
Hello.
Very helpful. Thanks, Josh and then I guess last one from me would just be.
Is it safe to assume that talks on the strategic sale of the JV at this point of and slowing as a result of coated and maybe when should we expect an update there.
To be clear, we're not the ones running that they'll process, our joint venture partner is doing it.
Working with their financial advisors.
We believe that that in the current environment.
Yes.
We're all assessing kind of what this means in the very near term, but when you look towards the summer and beyond the cruise lines will be getting back to normal. So it's really too early to tell if we're going to see a real delay on that as it slipped to the right a little longer than we would've liked yet and that's understandable in the current environment.
Say, it as being big battle to the process.
Fair enough thanks, guys.
Thank you on you mentioned, we'll finish this question at this time consistent one I anticipate telecom. Our next question comes from your encouraging with RG <unk>. Your line is open.
Thank you.
Earlier this week at Universal announced to point to make movies available on demand at home.
In the same day. They are released in theaters that is due to the changing consumer behavior as corona virus spread.
On of course, it's certainly possible to other studios will follow it given the Hollywood and traditionally disallowed streaming apparently window movie content for passengers on devices is global Eagle planning for the possibility that covered 19 might change the game for IC on air travel resumed and how might that impact global eagle, whether the wireless business or the embedded IC content.
Business.
Thank you very the great question.
I see the potential.
Impacted these decisions hitting the media and content business.
And frankly, it's too early to tell whether this is sort of net positive or negative my gut is probably net positive.
Look the the stratification of release window.
Has been in place for a long time and I think we're starting to see between shift in studio strategies around their own proprietary streaming services.
We are starting to see changes in how studios approach the Africa windows all of that create opportunity to partner with airline with new release content even earlier.
In the release cycle.
So as we look at our brands our airline that we serve.
These are fantastic venues, so put movies out at a very early stage in order to get traction of word of mouth, you want the exposure that our airline spring in terms of of.
Of premium pastors onboard mass market exposure for these new titles so as the studios.
I think have needed some reinvention of business model and as they start rethinking release when does it create opportunities for us to use the premium brands that we serve to work with them to help actually the earlier promotional basis.
The movie releases to get these movies out in front of more people and build word of mouth.
At the same time, we also recognize that in a world of streaming services, we need differentiation in our content, we're going to have the traditional Hollywood content on aircraft, that's going to happen now and in the future, but it's up to us to continued innovative about how we source content and if you look at what comp.
And property, we've been acquiring properties like parasites and 1917, Judy right, we're making the right there and I think that.
The dynamic changes that we're seeing on the studio side create opportunity for players like us that understand.
Aviation audiences on board have the sufficient sophistication to be able to know what content to acquire and our disciplined about how we do it.
Those are the sort of the three areas of focus for US now and I think a studio start to rethink their distribution plan to create some real opportunities for us.
To partner with them and with our airline is an interesting new way.
Great thank him.
Yeah.
Okay.
Thank you another tool showing no further questions at this time I turn the call back over to Peter Lopez for closing remarks.
Thank you Shannon and thank you all for participating on our fourth quarter and full year 2019 earnings call. We look forward to updating you on our continued progress Shannon.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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