Gogo Inc.

Good day, and welcome to the GoGo, Inc. second quarter conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Will Davis, Vice President, Investor Relations. Please go ahead.

Thank you, Michelle. Good morning, everyone. Welcome to GoGo's second quarter of 2024 earnings conference call. Joining me today to talk about our results are Oakley Thorne, Chairman and CEO, Jesse Betjeman, 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 this conference call. Those risk factors are described in earnings release filed this morning and are more fully detailed under risk factors in our annual report on 10-K and 10-Q and other documents that we have filed with the SEC. In addition, please note that the date of this conference call is August 7, 2024. Any forward-looking statements that we make today are based on assumptions as of this date, and we undertake no obligation to update these statements as a result. of more information or future events. During this call, we'll present both GAAP and non-GAAP financial measures. We have included a reconciliation and explanation of adjustments and other considerations of our non-GAAP measures to the most comparable GAAP measures in our second quarter earnings release call that's 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's now my great pleasure to turn the call over to Oakley.

Thanks, Will. Good morning, everyone, and thanks for joining us today. GOGO's second quarter performance reflects the strength of our recurring cash-generative service revenue model. Even as we navigate a product lifecycle transition, and continue to invest in bringing out our next generation GOGO Galileo LEO satellite product and our GOGO 5G North American air-to-ground product. GOGO is approaching an exciting inflection point in our product lineup. In the months ahead, we will have the most complete product portfolio in the business aviation IFC industry, with products that offer the right performance, the right coverage, at the right total cost of ownership, and with great customer support for every segment of the highly unpenetrated 40,000 plus aircraft global business aviation market. We believe 5G and Galileo will accelerate our revenue growth beginning next year as they deliver order of magnitude improvements in the speed of GoGo service, expand our total addressable market by 60%, and extend customer lifetimes by providing easy and compelling upgrade paths for our advanced install base. It's worth noting that because of record upgrade activity in the second quarter, Avance now makes up 60% of GoGo's fleet. Consider every Avance installation a strategic win because it provides that customers with easier and cheaper paths to upgrade to new technologies like 5G and Leo with GoGo today and new network technologies in the future, rather than to move to another connectivity provider. As we get close to launch, We're seeing our aftermarket customers adjust their purchasing behavior in anticipation of the GoGo 5G and Galileo products. This dynamic is reflected in our second quarter equipment revenue and in our revised guidance expectations for 2024. And this customer behavior isn't unique to GoGo. It's typical of what you see at other companies as they launch next generation products. Just look at Apple when it debuts a new iPhone. Sales of the older products start to slow, as customers anticipate the arrival of newer, superior technologies. This morning, I'm going to start by highlighting some demand trends we're seeing in the BA market that underpin our bullish outlook, then provide an overview of our Q2 results, and finally dive into progress on our strategic initiatives, which are aimed at reigniting our growth by launching products that meet the unique needs of every segment of the BA market. Jesse will then walk through the numbers and discuss our 2024 and long-term guidance, which now reflects our most current expectations for 5G launch timing. Overall demand for business aviation flights and demand for connectivity on those flights remain strong and continues to support our growth trajectory. Demographic trends bode well for connectivity penetration as younger flyers are coming into the market. Though all ages want better in-flight connectivity, demand for connectivity increases as the age of the flyer decreases. The good news is that GOGO has different products to satisfy all types of flyers, depending on their connectivity needs. In the second quarter, GOGO equipped BA flight counts were up slightly at 1.1% year over year, and more importantly, flights remained significantly elevated from pre-COVID levels, with Q2 flight hours per day up 35% from Q2 2019. As for data demand, average megabyte consumption per day on our networks has risen 165% from Q2 2019, demonstrating a step change in passenger demand and average megabytes consumed per flight hour, which has risen 96% over that same period and ran at 17% annual growth in Q2. We're seeing the biggest surge in demand at the high end of the market, where cloud data storage and video conferencing are driving demand for much higher bandwidth than our traditional products were designed to provide, and where Galileo and 5G are well-positioned to meet that demand. Finally, on demand, we see OEM order books and fractional sales of aircraft looking very strong, and those trends will continue to drive growth in GoGo units online. The trend towards increasingly voracious data usage on aircraft is important to GoGo in two ways. First, of course, it creates a strong demand tailwind for our products. And second, it highlights the importance of the decisions we made when we sold our commercial aviation business four years ago to invest heavily in new technologies to dramatically improve the capacity and quality of our products for our customers. GOGO's continuous focus on future-proofing our technology and infrastructure will be patient and will continue to remain key to our long-term success. Now let me turn to our Q2 performance. Revenue was slightly down, about 1% year-over-year, as record service revenue was offset by a decline in equipment revenue. On the equipment side, we saw a decrease in revenues of 17% year-over-year and 11% sequentially in the second quarter. We attribute much of this to the product lifecycle dynamic I described earlier. Customers are delaying purchases in anticipation of GoGo 5G and GoGo Galileo. With that said, we still expect our second highest year for advanced shipments ever, and grew total advanced units online at quarter end 17% over the prior year to 4,215 aircraft, or approximately 60% of our ATG install base. Our advanced base will only grow faster as we incent our almost 3,000 GOGO Classic customers to migrate to LTE as part of our FCC secure networks program over the next 20 months. As a reminder, we also warned on our last call that our usual pattern of higher second-half shipments might be reversed this year, as we saw a boost in equipment orders last quarter, driven by NetJet's pull-through demand and a shift of a few OEM annual bulk shipments into Q1 from later in the year. Within service, we achieved record revenue. This is the fuel of our long-term business model, driven by advanced upgrades even as total ATGU and its online total declined, slightly due to modest net deactivations in our classic product line. On the earnings side, Q2 EBITDA decreased 30% sequentially, mostly due to lower equipment revenues and increased operating expenses, mostly in legal fees as a result of the SmartSky litigation and a series of vendor financing issues, almost all of which will go away over the next year. On a positive note, As we invest deeply in the 5G and Galileo programs, free cash flow remains solid. Now for our progress on strategic initiatives. GoGo is focused on accelerating growth with a three-pronged strategy. First, we want to expand our addressable market by expanding globally. and by leveraging the flexibility of our advanced platform to deliver products at pricing that suits each segment of the highly unpenetrated 40,000 business aircraft global business aviation market. Second, we want to drive customer loyalty by continually improving our ATG networks to drive conversion of classic customers to the advanced platform so that they then have easy upgrade paths to new technologies such as 5G, KU band LEO networks, and other new network technologies as they emerge. And third, we're focused on offering the best product and customer support to each segment of the market at the lowest total cost of ownership. We're making great strides in our strategic initiatives to achieve these goals. Let me start with GoGoGalileo. This is a very exciting time at GoGo as we ramp up our go-to-market plan, our regulatory approval process, and production to support the Galileo HDX and FDX launches. As a reminder, this product category was born out of two conclusions during a deep dive strategic planning process in 2020 and 2021 after we sold the Commercial Aviation Division. that ESA antennas and LEO satellite constellations were going to change everything in business aviation connectivity. They would support lightning-fast connectivity with extremely low latency critical to supporting applications like video conferencing. They would have high capacity to support heavy data applications like cloud-based file sharing. They would enable small antennas that would fit well on all business aviation aircraft. They could be cheaper and easier to install than geo antennas. They would provide truly global broadband coverage for the first time ever. They would enable service pricing that is very competitive with geo satellite pricing. And perhaps most important, that the dramatic increase in value created by these offerings would accelerate IFC penetration dramatically in the global BA market. The second thing we anticipated in that planning process was that Starlink would become a significant competitor, which has become evident as they ramped up installations in Q2. Though we will launch a little later than Starlink, we will launch with a product that addresses much more of the market than they're offering. And they have done us a big favor. They've made the BA market aware of how much better ESA LEO technology is for BA inflight connectivity than traditional geosatellite solutions. Our head of sales captured it well. when he displays a picture of a fat mouse eating the cheese out of an already sprung mousetrap and observes that the second mouse gets the cheese. And we feel that GOGO is incredibly well positioned to get the cheese. Business aviation customers tend to be demanding. Reliability is critical. Space on the aircraft is at a premium. Ease of installation is important. And customer support is imperative. It's clear that Starlink's offering is just a repurposing of their consumer off-the-shelf products for aviation use and does not meet those demands. And that opens the door for meaningful product differentiation on our part, centered in three areas. Our equipment is aviation-grade and designed from the aircraft up and satellite down for the specific needs of the business aviation market. Theirs is consumer-grade. You can buy it at Best Buy. and is repurposed and poorly suited for aviation. Second, our business model is business aviation focused, with the type of personal customer support someone who just bought an $80 million, just spent $80 million on an aircraft would expect from a service provider, while theirs is a web-based, appointment-only chat service that does not allow customers direct access to aviation technicians. And finally, our partner OneWeb network is an enterprise-grade network designed to serve B2B customers with service-level guarantees, while theirs is a consumer-grade network aimed at 5 billion global consumers and many other markets with highly variable speed levels, a best efforts-only service obligation, and no commitment to fixed pricing. Galileo comes in two versions, a smaller HDX terminal and a larger FDX terminal. So I should add, LFDX is still dramatically smaller than the Starlink terminal. The Galileo HDX terminal is our first to market midsize and smaller aircraft antenna and will deliver a very consistent almost 60 megabits per second, 12 to 60 times our current product offerings. It primarily targets two market segments. the roughly 12,000 midsize jets, small jets, and turboprops registered outside North America that have absolutely no broadband solution today, and those aircraft in the roughly 11,000 midsize and smaller size range that domicile inside North America that often fly international missions or want faster, mean connectivity speeds than the 25 megabits per second that our 5G product will provide. The Galileo AFDX terminal is our best in class antenna and targets the roughly 9,700 super midsize and larger jets that fly global missions with a product that will deliver very consistent speeds in 145 to 195 megabits per second range, 40 to 200 times faster than our current product offerings. A huge advantage for us that is really resonating with advanced customers right now is that Galileo is a simple upgrade from any advanced installed plane. We only need to add our HDX or FDX antenna on top of the fuselage and then run data to the already installed advanced box on the aircraft and power cabling from the aircraft to the Galileo terminal, and you are done, cutting roughly $100,000 off the cost of a Galileo installation. Another advantage is that Advance is already both a line fit option at every OEM and an STC option on every currently produced model of aircraft in the aftermarket, rendering it relatively easy from an engineering and certification perspective for OEMs and dealers to offer Galileo. We've already signed eight STC agreements for Galileo, covering 11 popular models of aircraft, and have another 21 verbally committed, covering another 17 unique aircraft models. which in total, these will all have a global service addressable market of 17,585 aircraft. And I should note, we started taking orders from many of the dealers that have committed to developing SCCs. We've already signed one OEM to LineFit on four models of aircraft, and they've already set cut-in dates for three of those models next year. And those aircraft account for more than 100 deliveries a year. And we're actively engaged with several other OEMs on line fit deals. We remain on track to start shipping HDX terminals in Q4 and FDX terminals in the first half of 2025. We achieved a number of exciting milestones since our last conference call. We've announced our equipment and service pricing with a modest premium to our competitor, justified by our superior aviation grade equipment, our superior network reliability, and our superior levels of customer support. We're finishing up our go-to-market campaign, and we'll launch our sales force this month focused on aggressively driving market penetration in order to capture the lifetime value of every Galileo customer and drive long-term value creation for GOGO. In July, we started aircraft installation on our Challenger 300, and the next big certification milestones will be engineering flight testing in August and parts manufacturing authority, or PMA, in Q4. To conclude on Galileo, we're very excited. It will be a game changer for the business aviation industry and will be a major accelerant to GOGO's growth. Now let me turn to GOGO 5G, which is targeted at segments of the 21,000 midsize and smaller business aircraft market that fly predominantly in North America and want a good connectivity experience at a more affordable price than satellite solutions. GOGO 5G should achieve mean speeds of around 25 megabits per second, 5 to 25 times our current product lines, and peak speeds of 75 to 80 megabits per second. On the aircraft, it consists of two belly-mounted MB-13 antennas in an internal box containing a 5G air cord. On the ground, it consists of 150 GOGO-installed 5G base stations installed at towers across the United States and southern Canada. As you'll all probably recall, on a Q1 call, we discussed a minor chip hardware redesign issue that would further delay our 5G launch. And we announced that we would provide guidance on the timing of our 5G launch on this call. That chip is going back into pattern and mass generation now, and we have recalibrated all of our milestones and plan shipping 5G in the second quarter of 2025. We're continuing to work very closely with our vendor partners to smooth the path towards fabrication and launch. Importantly, the market continues to respond enthusiastically to the 5G value proposition, with ongoing pre-provisioning programs and a flood of STC programs that position us for a highly successful launch. We've already shipped 292 5G pre-provision kits with MV13 5G antennas, which is up from 240 kits last quarter, and 105 of those kits have already been installed and are flying using our 4G network with an L5 4G LRU. We've commitments from five OEMs, with one already installing the MB13s with the L5 line fit today. Because the L5 is the same form factor as the LX5, once the 5G chip is certified, those customers that have installed L5s with MB13s can simply swap the LX5 in for the L5, and they'll be on the 5G network. On the certification front, we have 16 STCs, for MB-13s completed with one version of the advance or another, covering 18 unique models of aircraft and 16 more in the works, covering 15 unique models of aircraft. And in total, all of those representing 8,700 North American registered aircraft. We're confident that between our FPGA flights and a virtual simulator our team has built that replicates our entire 5G network, that we will be able to test and validate 90% of our 5G functionality network before we receive the final 5G chip. Now turning briefly to the FCC Secured Networks Program, which we refer to as GOGO Evolution. As a reminder, GOGO was awarded a $334 million grant from the FCC under this program to incent us to accelerate the removal of Chinese telecom equipment from our 4G network. Overall, and we're making great progress upgrading our customers from the old classic product line to LTE versions of the hardware and our advanced L3 and L5 products. This program has considerable benefits for GOGO and its customers. It will improve the speed of our 4G network 40% for customers using our value-oriented advanced L3 product. It will double the number of aircraft that the ATG4G network can simultaneously manage. And it will accelerate the number of go-go classic customers upgrading to advance, which has the strategic benefit of extending go-go customer lifetimes due to the ease of upgrade to 5G and Galileo and other new technologies. We have a little under 3,000 customers still in our old classic product line that will need to convert from EVDO to LTE versions of the hardware before year-end 2025. A little more than 900 of which are in fleets and a little more than 2000 of which are smaller customers. We've had conversations with all about 150 of our customers and how they plan to convert. The vast majority have already indicated they will move to one advanced product or another. We currently have customer promotions in place to incent conversions and our dealers are doing a great job configuring their operations to transition customers at scale. We also have a special product we'll introduce later this year called C1, which will house both an EVDO and an LTE air card in a form factor that is an exact replica of our classic product. This will not improve service levels like upgrading to Avance, but will allow customers who delay swapping to Avance before we cut over networks more time to convert to Avance after the cutover. As I mentioned at the outset, GoGo is continuing to deliver outstanding service and solid performance as we invest and prepare to launch GoGo 5G in Galileo. I want to thank the GoGo team. They've done an incredible job getting us to this point. Our long-term outlook is supported by strong demand trends, and we're strategically, operationally, and technologically well-positioned to continue to meet and exceed the needs of IFC passengers for the long term with the most complete product portfolio in the business aviation market. GoGo has the right strategy in place to continue to capitalize on the significant opportunity in our market and deliver long-term value creation. And now I will turn it over to Jessie for the numbers.