Gogo Inc.

Good day and thank you for standing by. Welcome to the third quarter 2024 GoGo, Inc. earnings 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. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today. Will Davis, please go ahead.

Thank you, Kevin, and good morning, everyone. Welcome to GoGo's third 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 call. Those risk factors are described in our 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 November 5, 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 third 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 welcome to our Q3 2024 call. GOGO delivered improved performance in the third quarter, but far from the robust growth we've had in the past and far from the growth we think will drive in the near future in what remains a highly unpenetrated global business aviation connectivity market. This is largely because many of our current products are late in their product lifecycle. Fortunately, several years ago, we began investing in a new generation of products, our GOGO Galileo Low Earth Orbit Satellite product and our GOGO 5G product. It will soon hit the market, and based on the overwhelmingly positive customer response we're receiving now, we believe we'll reaccelerate our growth. And we anticipate this acceleration will be significantly augmented by our planned acquisition of SATCOM Direct, leveraging their attractive install base, their strong sales and service organization outside North America, and their strong position in the MilGov market. With such a full and innovative pipeline and robust business combination, it's an exciting time at GOGO and SATCOM Direct. I remain inspired by and grateful for both the outstanding GOGO and SATCOM teams who are moving quickly to build a world-class competitor in an increasingly competitive industry. Combined with SATCOM Direct, GOGO will be able to serve every segment of the BA market with the very best solutions for that segment. from our proprietary air-to-ground networks, including GOGO 5G, that deliver excellent, reliable, and cost-effective connectivity for the thousands of aircraft that fly regionally in North America, to integrated multi-orbit LEO-GEO solutions to meet the high bandwidth, high reliability, and white-glove service needs of the most demanding global heavy jet customer. This morning, I'm going to start by highlighting some demand trends we're seeing in the BA market that underpin our Q3 results and our future outlook, and then dive into progress on our strategic initiatives, including the SATCOM direct acquisition. Jesse will then walk through the numbers and discuss our 2024 guidance. Overall demand for business aviation flights remains strong, up 2% for the quarter from prior year and up 30% from pre-COVID Q3 2019. Demand for connectivity on those flights also remains strong, with Q3 data usage per hour up 17% from prior year and up 106% from pre-COVID Q3 2019. 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. We believe this trend also demonstrates clear market opportunity for an integrated LEO, GEO, GOGO, SATCOM direct solution to support both enhanced capacity and redundancy for the most premium BA market segments. Finally, on demand, we see OEM order books and fractional sales of aircraft looking very strong, which should continue to drive demand in the future. According to Honeywell's annual Global Business Aviation Outlook, Aircraft owners and operators will invest an estimated $280 billion in an estimated 8,500 new business jets between now and 2033, with the fastest growth in heavy jets, a part of the market which we believe our SATCOM direct acquisition positions us well to serve. Now let me turn to our Q3 performance. Revenue is up a modest 3% year-over-year, driven by ARPA growth and an increase in advanced units online. On the equipment side, for the quarter, we saw an increase in revenue of 1% year-over-year and a decrease of 7% sequentially as many customers delayed purchases in anticipation of the launch of GoGo 5G and GoGo Galileo. Advance growth continues to be strong, and we had record upgrades in the third quarter. We consider every Advance installation a strategic win because Advance allows customers to upgrade to new networks or technologies with a simple software upgrade and or addition of a new antenna on the outside of the aircraft. Because these upgrades require no change in equipment inside the aircraft, they're cheaper and faster than installing a competitor's entire new system. We expect 2024 to be our second highest year of advanced shipments ever. We grew total advanced units online in the quarter 16% over the prior year to 4,379 aircraft, representing 62% of our ATG install base. We anticipate our advanced base will only grow faster as we incent our roughly 2,600 remaining GoGo Classic customers to migrate to LTE over the next 14 months as part of our FCC secure networks program, which I will discuss in more detail in a few minutes. Our service revenue remained strong, driven by new advanced installations and upgrades, even though total ATG units online declined modestly. On the earnings side, Q3 EBITDA increased 14% sequentially, mostly due to lower legal fees. Importantly, even as we invest deeply in the 5G and Galileo programs, free cash flow remains solid. Now for our progress on strategic initiatives. which are each in support of our three-prong now and next strategy. First prong, we want to expand our addressable market globally by addressing the needs of the 14,000 business aircraft outside the U.S. Second, we want to drive advanced penetration so that over an aircraft's lifetime, owners have upgrade paths to new networks and technologies that are cheaper and faster than moving to competitive products. And third, We're focused on expanding into every segment of the BA and now MilGov markets by offering the products, customer support, and economics suited to the unique needs of that segment. We're making great strides in our strategic initiative to achieve those goals, which I'll touch on in a minute. But first, let me describe the many ways SATCOM Direct is expected to accelerate all three prongs of that strategy. the SATCOM 30-person international sales force and 15-person support organization, located in eight offices around the world, is expected to dramatically accelerate Galileo penetration outside North America. Second, with a minor development effort, the SATCOM direct router will join the advanced family of form factors in enabling faster and cheaper upgrades to Galileo than moving to a competitive product to access LEO networks. And third, SATCOM will add two very attractive market segments that GOGO has not historically had the right product mix to address, the lucrative heavy jet intercontinental segment and the fast-growing MilGov mobility segment. In the business aviation segment, SATCOM's 1,300 broadband geocustomers are prime targets to add our Galileo offering to their existing geoconnectivity systems, and we look forward to launching that effort as soon as we close. In the MilGov vertical, we see many opportunities for Gogo Galileo, integrated with the SATCOM's GEO offerings. Today, most MilGov fleets find themselves with either no connectivity or very dated technology on their mobility aircraft. And they're now rushing to catch up, creating a tailwind for MilGov connectivity suppliers. One example is the PLEO program. under which the Department of Defense recently increased its projected spending on LEO satellite service more than tenfold, from $900 million over the next 10 years to $13 billion over that same 10 years. Another example is the U.S. Air Force's 25 by 25 program, under which they are targeting to have 25% of their 1,100 mobility aircraft equipped with satellite communications by the end of 2025. That still leaves 75% that will not have satellite connectivity and that the Air Force believes still must be connected. Another key driver for our GOGO, SATCOM, MILGOV solutions is that we expect to be able to offer combined LEO, GEO, LBAN solutions that meet the military's dictate of having primary, alternate, contingency, and emergency connectivity systems on every aircraft. Besides these three strategic benefits, we believe SATCOM also brings financial benefits. It more than doubles the size of our business, which should drive scale advantages. It's expected to be immediately accretive to earnings. And it should deliver $25 to $30 million in annual recurring synergies over the next two years. Many investors ask whether this combination will bring down our operating and EBITDA margins. And my answer is yes. but we believe it will significantly grow free cash flow per share, and that is what ultimately should drive shareholder value. To sum it up, we believe our acquisition of SatCom Direct is a key step in accelerating our LEO strategy and achieving the global scale to compete in an increasingly competitive segment of the aviation IFC market. We look forward to closing the transaction by the end of 2024 and welcoming the talented SATCOM Direct team to GOGO. Now let me turn to GOGO Galileo. We believe this product line will be a game changer for the business aviation industry. And given the strong demand we're seeing, the market seems to agree with us. In fact, the demand for GOGO Galileo HDX is greater than it was for GOGO Advance L5. which launched in 2017 and quickly became the fastest-selling in-flight connectivity system in business aviation history. As a reminder, Galileo comes in two versions, a smaller HDX terminal and a larger FDX terminal. The Galileo HDX terminal is our first-to-market all-aircraft product, sized to fit on any size of aircraft, and will deliver peak speeds approaching 60 megabits per second That's 12 times to 60 times our current product offerings. HDX is targeted at two segments, the 12,000 midsize and smaller aircraft that fly outside North America and have no broadband solution today, and those aircraft among the 11,000 midsize and smaller aircraft registered inside North America that often fly regionally outside CONUS or want faster mean speeds than 5G alone can provide. The Galileo FDX terminal is our best-in-class product, sized for larger jets, and will deliver very consistent speeds approaching 200 megabits per second, 40 to 200 times faster than our current product offerings. It's targeted at the 9,700 super mid and larger jets that fly long-range intercontinental missions or long-range missions inside North America. Our HDX achieved a major milestone last week when it passed FAA DO-160 testing, certifying that it's safe for use and will operate reliably in the harsh environmental conditions encountered in flight, including temperature volatility, intense vibration, radio wave penetration, lightning strikes, moisture penetration, and flight aerodynamics, among others. This approval keeps us on track to receive parts manufacturing authority in December, which would authorize us to begin shipping HDX commercially to customers by year end. Since launching our Galileo Catalyst marketing program in August, we've seen unprecedented demand from end customers. We've had more than 1,000 customers sign up for HDX webcasts. We've had unprecedented traffic on our HDX webpages, And we had large crowds at our booth and the HDX demos we did at the Business Aviation Airfield during the National Business Aviation Association, NBAA, convention in Las Vegas two weeks ago. During the demos, we conducted live Zoom and Teams meetings between customers on the ground and our engineers in the air flying in our Challenger 300 equipped with HDX and running over the OneWeb network. We also ran demos of FDX inside our mobile demo room semi-truck trailer. We're up to a dozen simultaneous users. We're running Zoom meetings, Teams meetings, gaming applications, cloud-based applications, and much more with great success. I might add that the mobile demo room semi-truck departed Las Vegas and is headed for a 33-stop tour of business airports across the country, where large numbers of aircraft owners, operators, flight departments, management companies, and others have already signed up for demonstration sessions. We've also had great success with dealers. So far, we've signed 27 SDC agreements for HDX, covering 34 popular models of aircraft, and have another 12 verbally committed. covering another 10 unique models of aircraft, which brings us to a total global service addressable market of 18,500 aircraft. On the OEM front at NBAA, we finally announced that it is Textron Aviation that awarded us line fit position on three models of aircraft last year, and that those models are the Latitude, Longitude, and Ascend, and that they will cut those in on the line later this year. We've also signed another large OEM contract that will be announced shortly, this time for line fit on all of their models. And this one is for the FDX antenna. And we're having a lot of successful fleet customers. As wheels up announced at the NBAA convention that they'll add HDX to their entire fleet in the near future. And we're seeing pull through at the dealers as NetJets starts planning their rollout of HDX for this coming year. As a result of this demand, we recently announced that we're doubling our projections for HDX demand in 2025 and have tripled our purchase order from our partner, Hughes Networks. We believe the advantages of Galileo over new market entrants is resonating in the market. Customers appreciate that our equipment is aviation grade and designed from the aircraft up and satellite down for the specific needs of the business aviation market. Our business model is business aviation focused with the type of personal customer support someone who just spent $20 to $80 million on an aircraft would expect from a service provider. Our partner, OneWeb Network, is an enterprise-grade network designed to serve B2B customers with service-level guarantees. And finally, customers believe that we are reliable and trustworthy. We don't change pricing at the drop of a hat. We don't change business terms, nor change our focus on which parts of the market we serve. Now, let me turn to our 5G ATG network, which is targeted at large segments of the roughly 21,000 midsize and smaller business aircraft that fly predominantly in North America. and want an exceptional connectivity experience at a more affordable price than satellite solutions. We're pleased to share that the 5G chip is in fabrication, and we still expect to ship 5G late in the second quarter of 2025. We're continuing to work very closely with our vendor partners to smooth the path through fabrication and into launch. We're confident that between our FPGA flights and a virtual simulator our term is built that replicates our entire 5G network, we will be able to test and validate 90% of our 5G functionality and network before we receive the final 5G chip. 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. At the end of Q3, we had already shipped 342 5G provision kits with MB13 5G antennas, which is up from 292 last quarter. And 153 of those kits have already been installed and are flying using our 4G network and an L5 4G LRU. To be clear, our LX5 5G LRU, which is what awaits the 5G chip, is the exact same form factor as the L5 4G LRU. So once the 5G chip is certified, those customers with 5G MB13 antennas and a 4G L5 LRU can simply swap the LX5 in for the L5, and they will be on the 5G network. We also have line fit commitments with five OEMs, with one already installing the MB-13's line fit with the advanced L5-4 GLRUs on the assembly line today. On the certification front, we have 21 SDCs for MB-13s completed, with one version of the advance or another, covering 18 unique models of aircraft, and eight more in the works, covering 15 unique models of aircraft. and a total representing roughly 8,500 North American registered aircraft. We look forward to bringing this product to market next year, which will serve a core part of the GOGO customer base. Now turning briefly to the FCC Secured Networks Program, what we call 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 technology from our 4G ground network. Because Congress has only funded 39% of this program, we currently stand to receive $132 million of reimbursements, but believe that the federal government should fully fund at some point. As a reminder, to fulfill our obligations under this grant, GOGO must replace all of our EVDO ground equipment with new American LTE equipment, and our classic customers will need to replace their airborne equipment with new LTE equipment to be compatible with that new ground network. As of quarter end, we had roughly 2,600 customers still on our old classic product, down from roughly 3,000 at the beginning of the year. Roughly 8,000 of those are fleet aircraft already on track for advanced upgrades. We've had conversations with almost all of the remaining customers on how they plan to convert, with the vast majority indicating that they will upgrade to one advanced product or another. We also have customer promotions in place to incent conversion, and our dealers are doing a great job configuring their operations to transition customers at scale. Finally, for those customers who delay, we also introduced what I will call a special transitional product 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. C1 will not improve service levels like upgrading to Advance, but it will allow customers more time to convert to Advance after the cutover. To wrap up, GoGo is continuing to deliver outstanding service and solid cash flow performance as we invest in and prepare to launch GoGo 5G in Galileo. We believe that in the month ahead, GOGO combined with SATCOM Direct will have the most complete product portfolio in the business aviation IFC industry with products that offer the right performance, with the right coverage, at the right total cost, with great customer support for every segment of the highly unpenetrated 40,000-plus aircraft global business aviation market. And now I'll turn it over to Jesse to do the numbers.