11. Business Segments and Major Customers

Effective January 1, 2013, we realigned our business into the following three segments: Commercial Aviation North America, or “CA-NA,” Commercial Aviation Rest of World, or “CA-ROW,” and Business Aviation, or “BA”. We previously reported three segments: commercial aviation or CA, International, and BA. The realignment is intended to better align our reporting structure to the way in which we manage our business. The BA segment was not impacted by the realignment. Prior period segment disclosures have been restated to conform to the current year presentation.

CA-NA Segment: Our CA-NA segment provides in-flight connectivity and wireless digital entertainment solutions to commercial airline passengers flying routes that generally begin and end within North America, which for this purpose includes the continental United States (including Alaska), Canada and Mexico.

CA-ROW Segment: Through our CA-ROW segment we intend to provide in-flight connectivity and wireless digital entertainment solutions to passengers flying on foreign-based commercial airlines and international flights of North American based commercial airlines. This includes routes that begin and/or end outside of North America (as defined above) for which our international service will be provided. Our CA-ROW business is in the start-up phase as we initiated our international expansion efforts in the first quarter of 2012.

BA Segment: Our BA business provides equipment for in-flight connectivity along with voice and data services to the business aviation market. BA services include Gogo Biz, our in-flight broadband service that utilizes both our ATG network and our ATG spectrum, and satellite-based voice and data services through strategic alliances with satellite companies. Customers include business aircraft manufacturers, owners, and operators, as well as government and military entities.

The accounting policies of the operating segments are the same as those described in Note 2, “Summary of Significant Accounting Policies.” Transactions between segments are eliminated in consolidation. There are no revenue transactions between segments. We currently do not generate a significant amount of foreign revenue. We do not segregate assets between segments for internal reporting. Therefore, asset-related information has not been presented.

Management evaluates performance and allocates resources to each segment based on segment profit (loss), which is calculated internally as net income (loss) attributable to common stock before interest expense, interest income, income taxes, depreciation and amortization, and certain non-cash charges (including amortization of deferred airborne lease incentives, stock compensation expense, write off of deferred equity financing costs, and, for periods prior to the IPO, fair value derivative adjustments, Class A and Class B Senior Convertible Preferred Stock Return, and accretion of preferred stock). Segment profit (loss) is a measure of performance reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and evaluating segment performance. In addition, segment profit (loss) is included herein in conformity with ASC 280-10, Segment Reporting. Management believes that segment profit (loss) provides useful information for analyzing and evaluating the underlying operating results of each segment. However, segment profit (loss) should not be considered in isolation or as a substitute for net income (loss) attributable to common stock or other measures of financial performance prepared in accordance with GAAP. Additionally, our computation of segment profit (loss) may not be comparable to other similarly titled measures computed by other companies.

Information regarding our reportable segments is as follows (in thousands):


	For the Year Ended December 31, 2013
	CA-NA			CA-ROW			BA		Total
Service revenue	$	196,732		$	1,392		$	52,257	$	250,381
Equipment revenue		2,336			168			75,239		77,743

Total revenue	$	199,068		$	1,560		$	127,496	$	328,124

Segment profit (loss)	$	(1,328	)	$	(41,004	)	$	50,721	$	8,389


	For the Year Ended December 31, 2012
	CA-NA			CA-ROW			BA		Total
Service revenue	$	132,607		$	—		$	34,460	$	167,067
Equipment revenue		1,833			670			63,945		66,448

Total revenue	$	134,440		$	670		$	98,405	$	233,515

Segment profit (loss)	$	(12,211	)	$	(14,261	)	$	35,816	$	9,344

	For the Year Ended December 31, 2011
	CA-NA			CA-ROW			BA		Total
Service revenue	$	83,421		$	—		$	20,497	$	103,918
Equipment revenue		2,539			—			53,699		56,238

Total revenue	$	85,960		$	—		$	74,196	$	160,156

Segment profit (loss)	$	(25,820	)	$	—		$	25,008	$	(812	)

A reconciliation of segment profit (loss) to the relevant consolidated amounts is as follows (in thousands):


	For the Years Ended December 31,
	2013			2012			2011
CA-NA segment loss ⁽¹⁾	$	(1,328	)	$	(12,211	)	$	(25,820	)
CA-ROW segment loss ⁽¹⁾		(41,004	)		(14,261	)		—
BA segment profit ⁽¹⁾		50,721			35,816			25,008

Total segment profit (loss)		8,389			9,344			(812	)
Interest income		64			77			72
Interest expense		(29,272	)		(8,913	)		(280	)
Depreciation and amortization		(55,509	)		(36,907	)		(32,673	)
Amortization of deferred airborne lease incentives ⁽²⁾		8,074			3,671			1,456
Stock compensation expense		(5,621	)		(3,545	)		(1,795	)
Fair value derivative adjustments		(36,305	)		9,640			58,740
Write off of deferred equity financing costs		—			(5,023	)		—
Other income		(2	)		(22	)		(40	)

Income (loss) before income taxes	$	(110,182	)	$	(31,678	)	$	24,668

(1)

Starting in January 2012 we began allocating to our BA and CA-ROW segments certain corporate operating expenses included in the CA-NA segment but shared by our CA-NA, BA and CA-ROW segments. We did not allocate these expenses prior to January 2012 because they were not deemed material to the CA-NA or BA segment or our consolidated results.

(2)

Amortization of deferred airborne lease incentive only relates to our CA-NA segment. See Note 15, “Leases” for further information.

Major Customers and Airline Partnerships—During the years ended December 31, 2013, 2012 and 2011, no customer accounted for more than 10% of our consolidated revenue. No customer accounted for more than 10% of consolidated accounts receivable as of December 31, 2013. In CA-NA, one party made up approximately 15% of consolidated accounts receivable as of December 31, 2012.

In our CA-NA segment, revenue from passengers using the Gogo service while flying on aircraft operated by Delta Air Lines and American Airlines accounted for approximately 41%, 39% and 34% of consolidated revenue for the years ended December 31, 2013, 2012 and 2011, respectively.