- Company Name
- Gogo Inc.
- Stock Symbol
- Class Period
- February 27, 2017 to May 7, 2018
- Motion Deadline
- August 26, 2018
- Northern District of Illinois
The complaint charges Gogo and certain of its officers with violations of the Securities Exchange Act of 1934. Gogo, through its subsidiaries, provides inflight broadband connectivity and wireless entertainment services to the aviation industry. Gogo’s 2Ku system is an antenna and satellite-based system that provides additional bandwidth and improved speeds for wi-fi on airplanes.
The complaint alleges that throughout the Class Period, defendants made false and misleading statements and/or failed to disclose adverse facts regarding Gogo’s business, operations and prospects, including that Gogo’s 2Ku system antenna had more reliability issues than the public was led to believe, required costly installation and had remediation challenges or required replacement due to infiltration by plane de-icing fluids, as well as manufacturing and software issues. And, as a consequence of these issues, Gogo would not be able to meet its 2018 guidance. As a result of defendants’ false statements and/or omissions, Gogo shares traded at artificially inflated prices during the Class Period, with its stock price reaching a high of more than $14 per share.
On March 5, 2018, Gogo announced the sudden departure of its long-time CEO, defendant Michael J. Small. Gogo replaced defendant Small with defendant Oakleigh Thorne, a director of the Company since 2003. Less than two months later, on May 4, 2018, Gogo revealed additional information about its 2Ku system problems and withdrew its 2019 free cash flow guidance. In a thinly veiled rebuke of his predecessor’s conduct, the Company’s new CEO began his earnings call remarks by proclaiming that his goal was “to develop an open relationship with the financial community so that investors can make informed decisions about investing in Gogo.” The Company disclosed, in relevant part, that it had “discovered that while deicing was the biggest [2Ku] issue, there are also some manufacturing issues and software issues at fault. We also discovered the deicing fluid entered the antenna array down through far more pathways than we originally thought.” These issues resulted in increased operational costs, maintenance expenses and capital expenses for new antenna inventory, and lower service revenues. And despite Gogo’s repeated, albeit false, assurances throughout the Class Period that it was on target to become free cash flow positive in 2019, Gogo disclosed that it was “withdrawing its previously provided 2018 guidance for Adjusted EBITDA, airborne Cash CAPEX, and airborne equipment inventory purchases related to airline-directed installations, as well as Free Cash Flow guidance.” On this news, Gogo’s stock price fell more than 13%.
Finally, on May 7, 2018, after the market closed, Moody’s downgraded Gogo, moving it from “highly speculative” to “substantial risks,” with a negative outlook that could lead to even further rating cuts in the near term. Moody’s credit rating downgrades were due, in large part, to the 2Ku system’s “performance degradation.” On this news, Gogo’s stock price plummeted, falling from a close of $7.86 per share on May 7, 2018 to a close of $5.06 per share on May 8, 2018 – a nearly 36% decline.