Good day, and thank you for standing by and welcome to the Third Quarter 2021 Gogo Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Vice President of Investor Relations, Will Davis. Thank you. Please go ahead.

Thank you, Mika, and good morning, everyone. Welcome to Gogo’s third quarter 2021 earnings conference call. Joining me today to talk about our results are Oakleigh 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 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 the conference call. These risk factors are described in our earnings press 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 November 4, 2021. 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 or 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 third quarter earnings release. This call has been 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 Oakleigh.

Thanks Will, and thanks all of you for joining us this morning. A few weeks ago we hosted a call to discuss our recently updated long-term financial targets, so I won’t repeat those today. But instead we’ll focus on Gogo’s third quarter and why we believe it provides further evidence that we’re on track to deliver the long-term financial targets we recently discussed. Q3 was a quarter record performance. Gogo delivered record total revenue, record service revenue, record service gross profit, record AVANCE shipments and record adjusted EBITDA. We also achieved a couple of notable first, generating both positive net income and positive earnings per share for the first time. We were certainly helped by the powerful tailwind driving demand for private jet travel but we were also well prepared to capitalize on that strong demand and deliver excellent top and bottom line growth. Our AVANCE platform and 4G network are well positioned to meet the needs of our growing customer base and take advantage of the accelerating demand for BA connectivity and a vertically integrated and scalable business model is converting that demand into shareholder value. I’ll begin with a summary of the highlights of our third quarter results, then provide some context on the current competitive landscape and Gogo’s competitive advantages and finally introduce our updated 2021 financial guidance, which reflects the impact of continued strong equipment sales and the high margin recurring subscription service revenue that tracks those sales. Barry will then walk through our quarterly performance and latest 2021 guidance before we open the call up to your questions. So let me start on Q3 with our demand drivers. As has been written about in the media extensively recently, the business aviation industry is on fire. Flight counts continue to grow, with third quarter flight counts…

Thanks, Oak and good morning, everyone. As Oak mentioned, the tailwinds driving the business aviation market are strong, and by all indications are sustaining and picking up momentum. This coupled with Gogo’s business execution creates a strong foundation for continued profitable growth. As we have demonstrated, our financial model is a virtuous circle. Strong equipment shipments drive high margin recurring service revenue, leading to strong cash flow that we can invest in enhancing our network, which in turn attracts new customers, generates more usage and drives more equipment shipments. Our record third quarter results demonstrate that our model is firing on all cylinders, as we reached an exciting inflection point for the company, which was a Gogo generate positive net income and EPS for the first time, as Oak mentioned. Strong equipment shipments are de-risking our long-term targets. And we continue to strengthen our balance sheet to enhance our foundation for innovation, investment in future success and eventually capital returns. I will walk through the key results of the quarter starting with the top line, which are a reflection of the accelerating strength of the business aviation market and Gogo’s unique ability to capitalize on that growing demand. Total revenue for the third quarter was a record $87.2 million increasing 31% year-over-year and 6% sequentially, fueled by strong growth in both service and equipment revenue, as demand continues to exceed our expectations. Our record service revenue of $66.2 million in the third quarter represents an increase of 24% year-over-year, and was driven mainly by more AVANCE units coming online. On a sequential basis, our third quarter service revenue grew 5%, excluding the one-time benefit of $1.8 million in our second quarter from recognizing deferred revenue from a specific customer contract. Growth of our recurring subscription-based service revenue is a key…

[Operator Instructions] Your first question comes from the line of Phil Cusick from J.P. Morgan. Your line is now open.

Good morning, guys. This is [indiscernible] for Phil. I wanted to know when you’re looking at your 2022 goal for the 5G launch what were the puts and takes into hitting that and how does the supply chain kind of work today for that? And then in addition to that, another one if I may, are you guys -- can you confirm that you’re seeing revenues from that Intelsat agreement and should that ramp as airlines start to come back and flight counts back [ph]? Thank you.

Thanks. I’ll take the first part and let Barry deal with the Intelsat part. I wouldn’t say that we have any puts and takes on when we’re going to deliver, we’re very confident in delivering the second half of 2022. As you know we had a 5G chip issue that’s been resolved that’s being delivered on schedule. There was a six month delay in that chip, but we actually managed the project to still stay on schedule and we’re very confident in that. And the other -- the second part of that question was supply chain, in terms of supply chain, we are in very good shape, we have secured all the supply, all parts required to meet our commitments this year, and for the first quarter next year and second quarter next year. And for Q3 and Q4 next year, we have secured all parts needed to meet our current projections of 25% unit growth. If we have -- we are actually putting demand into our systems now for greater than 25% unit growth, in case we see a similar surge in orders as we have this year, next year and so we still are a bit yellow on that surge and additional demand, if that occurs in Q3, Q4, but we’re working that down and I think we feel pretty confident we can handle it. And then we are ordering already -- we’re ordering 18 months ahead right now in order to secure supply and so we’re now actually placing orders for demand for 2023. So we were feeling pretty good about that and we I think we performed really well in that area. As far as 5G itself most of the supply right now is around the network and the actual equipment to run the network, that’s coming in right now on schedule. In terms of the airborne equipment, that’s all on the certification process right now. But we don’t see a lot of -- any supply chain issues there as that we are -- we have very focused vendors – I will put that way, three very good vendors who are supplying us on that project and there are no alarm bells whatsoever. Remember, it also leverages a lot of the same componentry that we use for our AVANCE L5 and L3 products. So the supply chain is pretty consistent across 5G and AVANCE. So, we feel good.

And on your second question regarding the Intelsat revenue, yes, that is on track. As a reminder, we have a 10-year contract with them and the amount of the minimums grow over time to total $177 million over that 10-year period. We are on track for that and there is a step up in that rev share amount as the 5G deployment takes place.

Great. Thank you, guys. Congrats on the quarter.

Thanks a lot.

Your next question comes from the line of Scott Searle from Roth Capital. Your line is now open.

Hey, good morning. Nice quarter. Thanks for the color, as always, and thanks for taking my questions. Just a real quick clarification, looking to ‘22, talking about 20% plus unit growth, it sounds like you’ve got the supply chain well in order. I’m wondering what you have in terms of visibility to order coverage at this point in time and kind of how that breaks down when you think about the attach rate on new aircraft coming off versus retrofits. And I had a couple follow ups.

Yeah, I’ll take the beginning of that. And right now about 6% of our units are committing to our aftermarket, about 40% line-fit and that’s been kind of a skew we’ve seen develop here as I think we get more penetration in older aircraft in the market. So that is a trend we would anticipate to continue. Barry, do you want to talk about the order flow?

Yeah, and in terms of the orders, Scott, we have a strong backlog, actually the highest we’ve had in our company’s history and the lead times are a bit longer than where they had been. They’d normally run from the time that somebody start the shipment, one to two months. Those are stretching out closer to six months now as the demand has so significantly outstripped our previous expectations. So we’re now taking orders to be delivered in the May timeframe. But with supply chain work, we’re continuing to work that down and expect to be able to return to those shorter lead times over time, but it’s really based on the booming demand for the equipment that we’ve seen.

Great, thanks very helpful. And lastly, if I could, looking at the equipment gross margins are very high 40% but then you start to talk about how AVANCE is growing both for the L3 and the L5, and then the low churn rates, which translates to basically aircraft, 18 years in the field. And what you can do with the AVANCE in terms of the easy upgrade to 5G, so basically, you’re securing that customer. So I’m wondering how you’re thinking about being more aggressive on the AVANCE front because that really locks in your customer effectively for the next 10 to 15 plus years. If you accelerate that, do you get more aggressive on the gross margin or if you don’t have to, at this point in time, simply because of the supply demand balance within the industry. And also, as part of that, I’m kind of wondering what you think the overall installation capacity from an industry standpoint is in 2022? Thanks.

Yeah, I’ll jump in at the start of that. I mean, driving AVANCE penetration for all the reasons you mentioned, Scott, is a central pillar of our strategy. And right now, frankly, yes, we don’t need to drive a lot more orders, just because there are some supply chain constraints. Now we are trying to manage ourselves to -- well, first of all, we have managed ourselves to 25% growth above this year, next year and we are actually trying to now, make sure we can satisfy demand in case it’s greater than that. We do -- we have in our guidance, you talked about lower equipment margins over the next couple of years and that is built in partly, in order to take account of incentives we might create in order to get people to upgrade from the classic products to AVANCE products. The one thing I would add to what you mentioned is benefit to the AVANCE because of its multiple bearer capabilities, we think that we could add a global broadband LEO product relatively easily as an add-on to that which we think gives us the kind of advantage in our space and is a way we can fend off potential other satellite competitors coming into our space. So, yeah, getting people to move with AVANCE is a major thrust, it’s growing 46% [ph] this year, which is great. We hope that by the end of next year, it’s 50% of our -- roughly 50% of our install base and growing, and we’re going to keep driving that.

And Scott, to your question on the margins, as you know, service margin is really the driver of the overall economics in accounts for about 90% of the gross margin dollars. So that’s really the factor that drives the value creation for Gogo. And in terms of the margins on equipment, they were high this quarter. As we said, we expect those to come down even as we launch Gobo 5G because it’s very much worth it to us to invest in driving the conversion to 5G and also driving the AVANCE penetration because for all the reasons we’ve talked about. So, as we get more AVANCE products online, it adds to the stickiness of the customers, its future proof enables people to operate as we described. So -- but even as we see those equipment, gross margin percentages, compressing somewhat over the next couple of years, it’s very good for the overall business model.

Thanks. Yeah, then in terms of the MRO capacity, I think there’s plenty of MRO capacity to go up to now to install, I don’t think that’s really an issue. Now, the thing is that you have to be a compelling product for the MROs to sell that something that they make money on and that makes our customers happy. And, right now, we’re really in the catbird seat on that and the distributors are very happy with their relationships with Gogo. So that’s the way to keep another sort of weapon in driving that penetration. And right now, we don’t really see that as a limiting factor.

Great. Thanks, guys. Nice quarter.

Thanks, Scott.

Thanks, guys.

Your next question comes from the line of Ric Prentiss from Raymond James, your line is now open.

Hey, guys, this is Brent on for Ric. Good morning. ED&D came in a little bit lower than you expected this quarter. Were there any deferred costs within that category or one timers? And how should we think about that trending going forward?

Yes, it did come in a little bit lower, there were a couple of reasons, some of which we pointed out. One was that we were able to capitalize more of the cost than we had previously anticipated because of having crossed the technical feasibility proof and milestones for the Gogo 5G products and that certainly helped. There was a couple million dollars that will be deferred, some of which will be deferred into next year. So we do expect ED&D spending to ramp in the next quarter, as we continue to invest in the Gogo 5G product.

Got it. Thanks. And then my other question is, you guys have talked about some of these new markets that could provide upside to your expectations, general aviation and international and connectivity to the cockpit? Just could you provide an update on where you’re most encouraged and which of these markets you think could provide the most upside to your long term expectations?

Yeah, I’ll take that. I think the one that would have the most upside would be the global broadband initiative. However, that’s still in the business case stage and we have not formed any formal relationships with external parties or gotten Board approval to move ahead with that. That’s something we’ll talk about in more detail when we get there. Where we’re having the most success right now, of course, is moving down market and by that I mean into smaller aircraft that’s both general aviation aircraft like the Cirrus Vision Jet and small business aircraft like the HondaJet STC; STC we announced a couple of weeks ago. So, right now we’re having good success. We are in an area where it’s hard for our competitors to compete, and that is aircraft that requires small form factors like our AVANCE L5 and we’re going to keep driving and we keep looking at other ways, we can modify our products to further drive penetration there. The two big things were so far have been the small form factor L3 and then the lowering of the flight floor or altitude floor for getting connectivity to 3000 feet, because smaller planes tend to fly shorter routes and not get over 10,000 feet very often. So there’s other things we can do that we’re working on, to further drive that. So those would be the two big ones. [indiscernible] by far the biggest, that would drive -- probably wouldn’t start driving revenue until the second half of the decade, but we think accelerate growth dramatically for the second half of the decade.

Great, thanks.

Your next question comes from the line of Louie DiPalma from William Blair. Your line is now open.

Both, Barry and Oak, good morning.

Hi, Louie. Good morning. Good morning, Louie. How are you doing?

Great. Have you been able to test the bonding of your licensed four megahertz of 850 megahertz band spectrum with the unlicensed 60 megahertz of Wi-Fi spectrum and have the results been positive? Does the bonding work?

Yeah, it’s actually aggregation and not bonding, there’s an engineering difference between the two of them. That’s actually -- we right now have our first end to end all the way aircraft through tower to -- through tower equipment to data center setup and we’re testing that right now, Louie, so more to come on that in the next call.

Great. And Oak, you also mentioned how the existing AVANCE system will easily support future LEO broadband antennas and systems. Will AVANCE also supports the new Iridium Certus L-band service? And are you still working on developing your own Iridium Certus antennas?

It could support Certus or any other with a new antenna just like the LEO. LEO installation was required to get a antenna. We’re not a Certus dealer, I don’t think, so we have -- we still sell a lot of iridium product and we have plans around, what I’ll call, the narrow band that I don’t think we’re really ready to talk about yet but that would not add a lot of bandwidth for us like LEO’s would, so we’re not focused on that.

Right. And one final one financially for Barry. Even with this quarter’s upside, do you still project that your 2022 revenue growth will be at the upper end of your 10% to 15% long-term guidance growth range?

Well, we – yeah, actually going to increase the expectations for service revenue growth, saying that we expect it to be 15% each year compounding from ‘22 forward, so, yes, we do expect it to be up at that 50% range for next year.

Awesome. Thanks, guys.

Thank you.

Your next question comes from the line of Jonnathan Navarrete from Cowen. Your line is now open.

Hey, good morning. This is Jonnathan in for Lance. Congrats on the quarter. My first question is, what are the trends that the company is seeing terms of unit expansion and pricing into the fourth quarter? And perhaps any viewpoint on how the beginning of 2022 will look in terms of expansion and pricing?

Barry, you want to take it.

Are you talking Jonnathan about basically what we see happening in the ARPU over time. That’s your question in the fourth quarter going forward?

Right, like, what are the trends that you’re seeing right now, and maybe what we can expect in ‘22, the beginning of it, at least?

Yeah, just to put it in context, our ARPU has grown over the last number of years and a big part of that is people have this insatiable demand for more bandwidth that they are upgrading plans. So we have seen that and expect that to continue going forward. As you look at the longer term, there are kind of two upward pressures on ARPU and one downward pressure, but also for a good reason. The two upward pressures are the continued migration to higher value -- higher megabyte plans, which we have seen, including with the addition of the full streaming plan, so we expect that trend to continue as people want to consume more megabytes. The second uplift is from Gogo 5G and so we are confident that we’re going to be able to charge more for Gogo 5G because of the increased performance. So those two things will lift ARPU over time. The downward pressure is, as we get into the light jet turboprop market, as we talked about, those planes, as you know, fly shorter routes, the average revenue per user tends to be lower as a result, but very, very importantly, the revenue from in-flight is comparable to the other, so it’s very quality business, but that will have a double [ph] effect on ARPU going forward. But as we go forward from this point over the longer term, we expect ARPU to continue to increase.

Understood. Thank you. Very helpful. And just two more on my end, how many L5s were installed during the quarter and the last one is in terms of the 15% revenue CAGR from 2020 through ‘25, what percent of the market share does that imply? Thank you.

Yeah. Oak, do you want to take the second part of that question and I we see unit volume market share growing over time and I can comment that.

Yeah, I will take that one. We’ll pick up the data point on installs. We don’t really look at market share as an internal measure, to be honest it’s more something that investors are concerned in with, we focus on unit growth and growth in the number of service plans we have and pricing of those service plans. So there is a lot of room in this market, if there are other entrants, 70%, roughly, of the market is unpenetrated today, and frankly we project, we’ve shared our projections through the end of ‘25 and at the end of ‘25, assuming success of a potential APG entrant and assuming that our geo competitors succeed on their plans and continue their current growth trajectories, the 50% of the market is still unpenetrated in 2025. So there’s enough whitespace for everybody and some market shares and what we focus on as much as unit growth and our own growth.

And then to answer your question, Jonnathan, about the shipments that were 139 shipped in last quarter.

That’s shipments, I think he was asking about installs. Total there, yeah, 244 AVANCE platforms shipped. You gave a five number. I don’t have the install number handy but it would be simply the growth in units online for L5.

Yeah, 107 units online growth for L5.

Yeah.

Thank you.

Your next question comes from the line of Chris Sakai from Singular Research. Your line is now open.

Hi, good morning. I got -- I have a question on your marketing spend. You recently talked about, you’re going to increase it going forward and I wanted to see do you have a metric state that of your spend for new customer and how is that going to increase in the near term.

Your marketing spend was artificially low during COVID for obvious reasons where it didn’t make sense to do marketing during that period of time, really. So, marketing spend is coming back up. We see it remaining relatively constant as a percentage of revenue going forward but it will grow as the overall top line grows. As we look to 2022, as I mentioned, we expect the marketing spend to grow during that year as we, one, normalize it back to those levels but, secondly, as we invest in marketing and promoting the exciting Gogo 5G product.

Okay, great. And then for when would you expect L3 sales to really pick up and maybe become higher than L5 sales?

We don’t necessarily see it getting higher than L5 but they certainly have picked up and when you look at the relative percentages of L3 versus L5, if you go back a couple years ago, it was about half the number of L3 versus L5 and now it’s over 80%. So, we see that ratio continuing to grow but we also expect L5s to be very strong going forward and particularly because you have the upgrade capability directly from L5 to go 5G for example. Oak, did you want to add something there?

Yeah, we do see L3 sales to be projected they will narrow with L5 sales over the four year plan, they don’t quite reach that level though, the L5 level.

Okay, great. Thanks.

There are no further question, at this time. I’ll turn it over back to William Davis.

Thank you, Mika and thank you everyone for joining our third quarter conference call. This call is now concluded and you may disconnect.

This concludes today’s conference call. Thank you for participating. You may now disconnect.