Gogo Inc.

Good morning, ladies and gentlemen, and welcome to the second quarter 2019 GoGo, Inc. earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require operator assistance, please press star then zero on your touchtone telephone. I would now like to introduce your host for today's conference, Will Davis, Vice President of Investor Relations. Mr. Davis, please proceed.

Thank you and good morning, everyone. Welcome to GoGo's second quarter 2019 earnings conference call. Joining me today to talk about our results are Oakley Thorne, President and CEO, and Barry Rowan, Executive Vice President and CFO. Before we get started, I would like to take this opportunity to remind you that during the course of this call, we may make forward-looking statements regarding future events and the future financial performance of the company. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements on this conference call. These risk factors are described in our press release filed this morning and are more fully detailed under the caption risk factors in our annual report on Form 10-K and 10-Q and other documents we have filed with the SEC. In addition, please note that the date of this conference call is August 8, 2019. Any forward-looking statements that we make today are based on assumptions as of this date. We undertake no obligation to update these statements as a result of new information or future events. During the call, we will present both GAAP and non-GAAP financial measures. Thank you very much. Thank you. After management comments, we will host a Q&A session with the financial community only. It is now my great pleasure to turn the call over to Oakley. Thanks, Will.

We're pleased to announce a very strong quarter, exceeding our own revenue, adjusted EBITDA, and cash flow expectations. Quarterly service revenue grew in all three business segments and reached $174 million, up 9% over Q2 2018. Adjusted EBITDA exceeded our expectations and grew to $37.8 million, up 100% over the prior year period, driven mostly by service revenue and IBP-related cost savings. There are also a couple of quote-unquote good guys that helped adjusted EBITDA in the quarter, and I'll describe those in just a minute. Free cash flow also exceeded expectations at negative $3 million in the quarter versus negative $35 million in the year-ago quarter, and negative 37 million for the first half 2019 versus negative 144 million in the first half a year ago. I'm very proud of my GOGO teammates for delivering such a great quarter. We've worked hard together over the past year to improve our operations and achieve our financial goals and we're on track with both. So thank you very much. I'm going to quickly touch on strategic developments and then dive into the quarter. I'll leave the heavy number lifting to Barry. As I look ahead, I feel very good about where we are strategically. As I've said before, our model is to grow as demand for in-flight connectivity grows, and I think that demand is poised for accelerating growth as airlines increasingly look at providing free IFC to passengers and as the aviation ecosystem looks for cheaper and faster ways to access operational data. A key enabler of our ability to scale and meet this demand on our satellite network is our open architecture asset light operating model. And key enablers of our ability to scale in the ATG world are our proprietary spectrum and our ATG infrastructure, which can provide redundancy and cost savings as we deploy GoGo 5G. Turning back to satellite, today we work with 12 satellite providers and use 30 satellites to create a seamless global network. Because we use multiple satellites for multiple operators and operate in the KU band where there are some 200 communication satellites, we can layer capacity where it's needed because 80% of the world's air traffic flies over only 20% of the Earth's surface. We can provide more redundancy than closed KA constellations, which is especially important given the increasing risks posed to satellites by space debris. And we can scale as demand grows with the provision of free in-flight Wi-Fi. Today, GOGO supports two airlines providing free Wi-Fi to passengers. In May, Delta conducted two weeks of market tests on 55 daily flights of 2K equipped aircraft. And in the quarter, we made substantial progress on our plans to ramp up operational support for airlines to provide free Wi-Fi to passengers. A key benefit of our asset light model is that we have the flexibility to move to new, higher quality, lower cost technologies as they come along in the future. Towards that end, we're working with satellite partners in several new technologies. We're working with a geo-operator on a satellite specifically designed for aerial mobility and more specifically for efficient utilization with our 2KU antenna. We're working with other satellite operators on smaller, more versatile software-defined satellites that could vastly enhance capacity utilization. and we're working with future LEO providers to see if we could potentially employ their networks to enhance latency and reduce costs. Given our position as the leading provider of broadband in-flight connectivity and given that in-flight connectivity is one of the fastest growing markets for the satellite industry, we feel we are very well positioned to partner with satellite companies as they develop these new technologies. On the ATG front, we made substantial progress and our GoGo 5G product in the quarter. We're partnering with a leading US 5G solutions provider and are nearing the completion of the system design phase of the project. We'll be building our network on the latest 5G technology and be able to deliver higher throughput and lower latency for a better passenger experience than our potential competitive ATG, than other potential ATG products.