Gogo Inc.

Good day and thank you for standing by. Welcome to the GoGoInks first quarter 2022 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to speaker today, Mr. William Davis, Vice President of Investor Relations. Sir, please go ahead.

Thank you, Renz, and good morning, everyone. Welcome to GOGO's first quarter 2022 earnings conference call. Joining me today to talk about our results are Oakley Thorne, Chairman 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 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 the conference call. Those risk factors are described in our earnings release filed this morning and are more fully detailed under the 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 May 5th, 2022. 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 more information of future events. During the call, we'll present both GAAP and non-GAAP financial measures. We've included a reconciliation and explanation of adjustments and other considerations of our non-GAAP measures to the most comparable GAAP measures in our first quarter earnings release. This call is being broadcast on the Internet and available on the Investor Relations website at ir.gogoair.com. The earnings press release is also available on the website. After management comments, we'll 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, and thank you all for joining us this morning. The first quarter results we announced today reflect our continued strong momentum as we execute on our strategies, and capitalize on the unprecedented demand for broadband connectivity solutions in business aviation. I'll focus my remarks today on three buckets. BA industry demand for connectivity, GOGO's strong first quarter results, and our progress in two of GOGO's key strategic initiatives. Barry will then walk through the details of our quarterly performance and update our 2022 outlook. And then we'll open up the call to your questions. In the first quarter, GOGO delivered record top line revenue of nearly $93 million, up 26% year over year, fueled by strong service and equipment revenue. Our results demonstrate that demand for BA travel and connectivity continues to accelerate. The three variables driving that demand are, first, the growth over the last decade of the number of high net worth individuals who can afford to fly privately. Second, the COVID pandemic, which led many in that cohort to try private aviation. And third, the acceleration of the digital transformation brought on partly by COVID, as demonstrated by growing usage of video-intense social and work-related applications like TikTok, Zoom, Office 365, and the like. These are all trends we believe will continue. In a recent survey, 91% of business jet passengers said they will fly privately either the same or more in 2022 versus 2021, with 51% of those saying they will actually fly more flights in 2022 than 2021. We also believe the propensity of these flyers to demand in-flight connectivity will continue to grow, driven partly by passenger demographics shifting to younger age groups. Traditionally, Business aircraft passengers skewed more towards baby boomers or older. But in our recent GOGO brand survey, 67% of all respondents identified as members of gens X, Y, and Z. We've seen the impact of these trends play out in usage, as data consumed by business aircraft on our network in Q1 grew 50% year over year, and more than doubled over pre-COVID Q1 2019. We've also seen these trends play out in rate plans, as more than twice as many customers upgraded plans as downgraded plans in the quarter, driving an 8% year-over-year increase in GOGO's first quarter ARPU. And we've seen these trends play out in flight counts, with flights across our entire fleet up 33% from Q1 2021 and 29% from pre-COVID Q1 2019. What's more, Flights by corporate aircraft, which had lagged fractional and charter fleets and account for about 50% of our fleet, surged in Q1, up 23% from Q1 2019 and 47% from Q1 2021, signaling a strong comeback in demand from that very important segment. This demand for travel is having huge repercussions in the business aviation industry. Some fractional operators have suspended sales in order to meet their service commitments to owners. Used aircraft for sale are at an all-time low at 2% of the U.S. fleet. Many operators have turned to buying jets overseas and bringing them back to the U.S. to bolster supply. Fortunately for us, almost always those jets require installation of an in-flight connectivity system. And order books at the OEMs continue to grow. On its recent earnings call, Textron, a very significant partner for GOGO, announced a $5.1 billion absolute backlog. up 53% from Q1 2021. All this activity is driving broader go-go adoption. We ended this Q1 with 6,526 ATG units online, an 11% increase over Q1 2021, and we shipped 246 new advanced units in the quarter, which is seasonally usually a low quarter for us, but not this year. That 246 units shipped number is the highest Q1 in our history, 64% higher than any prior Q1. As you may recall, we entered this year projecting 25% growth in advanced unit sales. And on our last call, indicated that we may be able to exceed that number if we could access enough supply to do so. The good news is that our amazing supply chain team has managed to secure more supply And we're now raising our committed deliveries for the year to around 1,300 units, almost 50% over the prior year, with 95% of that demand number already spoken for. Almost all units we ship are tied to a particular customer order from a dealer or OEM, so a very high percentage are installed and activated, even in an economic downturn. So this increase in unit shipment is a very good harbinger of future growth in high-margin service revenue. Despite the dire circumstances currently surrounding supply in the telecom industry, our supply chain team has displayed tremendous creativity, deep knowledge of our products, and deep knowledge of international logistics. They've leveraged our common componentry strategy and our strong balance sheet to work with our suppliers and our supplier's suppliers and even our supplier's supplier's suppliers to get the thousands of individual components we need to meet this tremendous surge in demand. The efforts of our supply chain team have not only allowed us to increase our committed deliveries, but they've also built up buffer stock that allows us to meet drop-in orders so that we never miss an opportunity to install a plane. They've also enabled us to pull in the outdate on committed shipments from December to October, again, helping ensure we do not ever miss an installation opportunity on a plane. As a result of this boost in supply, We're now able to raise our revenue guidance from a range of 380 million to 390 million, up to a range of 390 million to 400 million. And I would note, we continue to see signs of even further increased demand later in the year, and we're working on supply to meet that demand. This boost in equipment sales bodes well for our virtuous circle growth strategy. Equipment sales drive future high margin service revenue, which is the primary engine of our ongoing value creation. The gross margin dollars from this service revenue in turn provide capital that allows us to invest in leveraging the advanced platform to pursue adjacent markets and deliver higher bandwidth solutions, which in turn will drive more equipment sales and high-emergence service plans and so on and so forth. On the earnings front, despite this being an investment year, we showed nice growth in Q1, delivering adjusted EBITDA of $42.8 million, an increase of 26% over Q1 2021, driven by an increase in service revenue and gross profit. Q1 came in better than we expected due to some timing related issues Barry will talk about later, but also due to higher average equipment selling prices than we anticipated and scale benefits in manufacturing as we ramp production. At this point, we're not raising our adjusted EBITDA guidance range of $150 million to $160 million. But we now expect to be at the high end of that range, and I would note that our new guidance includes an estimated $5 million of legal fees in Q3 related to our patent litigation with SmartSky Networks. Now, let me turn to our strategic initiatives, which are aimed at deepening our competitive moat and driving long-term shareholder value. First, enhancing our ATG network to keep pace with customers' on-ground connectivity expectations. And second, driving adoption of our flexible future-proof advanced platform in our existing customer base among the approximately 70% of the U.S. business aircraft that do not yet have connectivity and ultimately among the 14,000 business aircraft outside the United States. I'll start with enhancing our ATG network. The first step in the successful execution of this objective is the commercial launch of our GOGO 5G network in the second half of this year. We remain on track, on time, and on budget. We've now passed all development risks and are focused on 5G chipset tracking and building towers. We had previously communicated that GOGO's 5G chipset supplier had delayed delivery of that critical component. but they have now almost completed their production build and are on track to deliver that chipset in time for us to hit our current launch schedule. On the tower front, we've had to manage through many supply chain challenges in Southeast Asia, but also remain on track for our scheduled launch. As of this morning, we completed 35 of the 150 tower sites we're going to build, and we're picking up the pace. You can watch our progress on a map at our website, www.business.gogoair.com. Later this summer, once we have our chip and deploy most of our towers, we'll begin end-to-end testing and fine-tuning of the network. From a regulatory standpoint, we're also on track. We recently announced receipt of our parts manufacturing authorization from the FAA for our 5G MB-13 antenna, which enables us to begin installing that equipment on customers' aircraft. On the commercial side, we're continuing to take orders for 5G, and we're making progress towards getting line fit with major OEMs. And we're extremely encouraged by the response from existing customers and dealers. GOGO 5G will be a huge advance for BA in-flight connectivity, as it will achieve average speeds of approximately 25 megabits per second, with peaks up to 75 to 80 megabits per second, faster than any IFC product available for business aviation today. and at a lower cost than competing geo-satellite solutions. GOGO 5G will enable multiple streaming and video conference applications to be open at the same time on the same aircraft and deliver a quality home or office-like connectivity experience in flight. That leads me to our second strategic objective, driving advanced penetration. Our advanced platform gives us opportunities to improve equipment stickiness, introduce adjacent products, and grow into adjacent markets. And for those reasons, growing the advanced installed base is core to our strategy. So far, we've been very successful at this and reached an exciting milestone this quarter. GOGO's advanced system reached 1 million business aviation flights since launching in August 2017. It's the most successful broadband product launch ever in business aviation, with just over 2,700 aircraft online as of the end of Q1, and is installed on more aircraft than our two biggest competitors combined. Today, I want to touch on just one very important feature of Avance, its multi-bearer capability, which gives GOGO the ability to partner with a global LEO provider under a managed services model to build a global broadband offering. GOGO Global Broadband will allow us to, first, pursue the 14,000 business aircraft outside North America, second, Pursue large North American jets that fly global missions and use geosatellite connectivity outside the U.S. today. And third, drive stickiness in our core North American medium-sized and smaller aircraft segments by offering a unique dual ATG LEO solution. That latter solution will aggregate our ATG capacity with the LEO network satellite capacity in North American markets. making our offering very competitive with offerings that rely on LEO capacity alone. For customers that already have a Vance, the upgrade to add LEO would be simple. They would just install an ESA antenna on top of the plane and run two wires inside, one for data and one for power. And then they would have access to all the functionality of Vance offers, including our fleet management and entertainment products, along with a LEO offering. To pursue this tremendous opportunity, GOGO would design and fund development of the airport hardware required to access a LEO network, and then partner with a LEO operator for network access. We expect external development costs would be less than half the investment required for our GOGO 5G network, and that that investment would be spread over approximately three years. We also believe that our Global Broadband Initiative, or GBB we call it, will significantly accelerate our revenue and free cash flow after we launch and would generate a very high return on capital relative to our other capital allocation priorities. We are in active discussions with LEO and Antenna partners, and once we're ready to proceed, we'll provide more details on this very important project. To wrap up, these two key strategic initiatives, ATG network enhancements and advanced penetration, will dramatically improve the performance of our network for our customers. They'll provide adjacent product opportunities and provide new market opportunities, all of which should build GoGo's competitive advantage and shareholder value in the future. Before turning it over to Barry, I want to thank the entire GoGo team for their exceptional work and dedication to GoGo and our continued success. I also want to note that like so many across the world, We're horrified by the war in Ukraine and deeply saddened for all those affected, both in the region and beyond. In particular, I'd like to take a few moments to acknowledge and share my deep appreciation and support for ten Ukrainian software engineers in Lviv that work for GOGO, supporting our flight tracking and data pool tools. One of them has left us for the Army, and the other nine have continued to work almost every day since the war began. despite the destruction and brutality all around them. We're inspired by their fortitude and sacrifice, and we'll continue to support them and their extended families throughout this crisis. Now, I'll turn it over to Barry. Thank you.