Earnings call transcript Q2 2023

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Operator

Good morning and thank you for standing by. Welcome to the Second Quarter 2023 Gogo Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to turn the conference over to your speaker today, Will Davis, Vice President of Investor Relations. ahead. go Please

Will Davis

and quarter Catherine everyone. to Welcome Thank earnings good conference second XXXX call. Gogo’s you, morning

Joining me Vice today Thorne, to talk about our CEO Jessi CFO. Chairman results and Betjemann, and Executive President and are Oakleigh

and that We we the and remind that cause we materially the more the from we that release factors in of to could statements may future on risk started, those with XX-Q this filed this statements risk forward-looking filed company. in the course you would to have XX-K performance our during like detailed Before to earnings fully take conference caution are SEC. get and forward-looking on results in other our are regarding consider opportunity risk call. report differ factors make of factors Those the you to call, documents and the I actual under future this morning the annual described events Form

the this of these this we a undertake that based more as as make assumptions note that future of please obligation or to on events. no date information today statements result is addition, conference August date. XXXX. forward-looking of statements In are Any X, update call We

the During non-GAAP will GAAP financial both and we call, present measures.

financial After is a comments, Investor host the community available a we on on our second included quarter available broadcast at the release. and non-GAAP have earnings comparable website. The session being press and reconciliation website management and measures of adjustments the our with in only. Q&A also We Internet ir.gogoair.com. earnings call on the measures Relations explanation most other considerations of GAAP to release will the This is

Oakleigh. to my over call now great turn the is It pleasure to

Oakleigh Thorne

not to our to Though XXXX up the Will our were results Gogo executed and call. high own well in QX, expectations. Thanks earnings welcome QX

key milestones and strong The Gogo some LEO on Galileo. platform broadband our dubbed On we objectives such for install of our base side, now the strategic than we XX% as AVANCE accounts activations. positive global new now hit achieved more product, our

we in detail in of high have in flipside, in which chip, further for the we the we take delay suffered guidance suspensions, delivery us down On caused our unusually which model. of to a both And a suffered our year moment. will long-term and XG cover

There with our that travelers XXXX are demanding is in a serve choosing We aviation for growth and business of a to flying without headwinds those few today. highly beyond. world’s do a We not surge with market, and view connectivity. change broadband Gogo unpenetrated of solution unprecedented fly demand explosive private the aircraft see travelers XX% poised post-COVID

recurring We that revenue attractive business strong on cash model, flow. an have service based drives

deliver And We addressable that position. enables to us our to are to technologies. and into make of dramatically magnitude new a incorporating balance market technologies orders to total service built substantial minutes. rip-and-replace in the Gogo The Gogo price the of and growth is seen have in. have cycle deep which a return will project, few X-year we driving for now XG, investments have deliver new we increase those that execute and where platform necessary and we explosive to competitive dive investment our all enhance strong improvements I FCC They are our the sheet shareholders developed Galileo,

many the the guidance which I competitive temporary year the behind the of for by our to spend you context And nature. executing finally, Jessi morning, rationale initiatives. will this initiatives. on Then a into numbers strategic to moment to will in update I are those are over our headwinds will then the turn we start quarter update. This going I and data it dive faced am on into deep in we getting to I the that demonstrate

X% frankly gap of be at the maintenance could aircraft small May demand on in the will QX and XXXX In demand. little suspensions to in month caught XXXX, flew touch rebound flight I counts. more traps gap currently measured detail, in a minus X% a minus in the as which fewer minus April actually by with start me each QX than equipped let but flights we a explained June X% that in to in in by narrowed So, aircraft discuss number and I when Gogo quarter, from moment. dealers, saw in X%

latest plan counts, More the Comparisons, importantly, private future. Private QX those the COVID the during to hour new XX.X% continue usage QX thinking XXXX passengers in up we surged said a over from started of demand have That see where for they of that privately flying Meanwhile, indicating travel XX% XX% grow. per XXXX, survey who air Card from that flight by from continues from and flight with QX continue indicating XX% to private aircraft flight XXXX, growth pre-COVID demand. and supported Wi-Fi up reached sustainable to Gollan’s Jet strong annual XXXX we of plateau Doug

as Now, online I was Service aircraft margin as a QX AOL. ARPA strong were revenue came record offset in AVANCE X% slowed over shift more from up LXs. drivers QX high a down of will our online, growth than mix new the product service LXs for per AOL. quarter the weighed plant suspensions average was for revenue, flat by to aircraft, and and revenue ARPA XXXX. turn continuing as set But relatively recurring quarter upgrades

on on AOL, for having activations. having a AOL, putting But suspensions record As we for also year in record year we sadly, more downward are that moment. a are are feel that a for we temporary pressure

from from ever, This XXXX manifest and revenue customers had XXXX. best AVANCE time in XX% QX opposed in recurring easily systems. spending up second networks customer lifetimes Gogo. technologies with enables up itself primary On activations strategic and XX% it We our XXX high-margin activations should driving to Gogo our installing activation upgrade is for competitive to money service because more shop more extended as and new new in and to objective, the front, QX, quarter QX spending the more

from more a and in are projecting a XXXX new XX% units record XX% year, activations for We XXX jump online. the plus than AVANCE up

We really QX of AVANCE revenue support. feel terms stability also that pleased total units growth in in All service as XX% how said, our further modestly, customers activations we the product are new perform to in ATG our XG see that has may and for potential Galileo units to adding portfolio. first exceeded online competitors online, time, see wait and slowed what offer Gogo customer of that and

suspensions temporary a believe Now we and which for issue. growth bad the is deactivations, in news,

transactions clear, company include of they and reactivations in time. considered time, going some and called management maintenance these For are deactivations events, purposes our because about of aircraft that are of of clarity customer about that in the of into XX% are am lump suspensions this conversation, category I Suspensions, one change the to nature. system temporary XX% be about XX% all and in management the sold transactions To considered time,

quarter QX from aircraft are was XX% a our a suspended, suspensions ever, suspension by maintenance. XXXX suspensions lasting increase the longer, more management only and being maintenance up driven XX% especially are XX% in QX changes. in there highest Not increase

tunnel. down days. to be XXXX, XX% suspensions hard engine of fly flown testing again driver check, less the primary usually and and In logjam around maintenance. to was volume been of apart have example, suspensions year, aircrafts a major a they until replacing passengers wind involves for the XX%. XX last get January which the few appears in it entire that a For cannot worn parts, June it then years taking rebuilding seat than The engine Many in duration of this in ended of and

asked demand, labor how could Last parts answer, shortages Because and of soon shortages. we week, seat largest high our the one dealers check, book of Why? XXXX. QX we a

of so In normal the engines. when this work. engines them, for temporary logjam that the the continue of to replacement can flying often example Another in customer dealers is times, duration engines remove the they install work replacement

stuck aircraft We tarmacs many in be that once new news country. for there on with the The which are say, they or or literally aircraft to in shop change to the customer the internet. don’t need back aircrafts the no are the storm scores that is management owner, leaving done good decides is those had, a This have get on usually leading their standard are ground, is aircraft online. hearing engines. of they engines across replacement no complete when sitting perfect tarmacs to reports pay Needless coming to

XXX X% We very money, further January been Since XX XXX to is rest in to so for or a were had to had out suspension stating tails tails owed of return stuck QX. trends noted is returned by a respondents of confirmed of in with suspensions those and still of XXXX, good. reaching still scrapped the that important very X% days XX% the sold. XX% none us than maintenance, agent. were that more gone leasing XX% I service, returned competitor. they all The What is rate just to suspended XX% were responded, to within note had that days, returned

a believe suspensions normalize, when the should unusually high aircraft ‘XX pool. these return that now were ‘XX aircraft As we conditions and that see analyze this into roughly active phenomenon, in and we and online we unusually low of XXX are

rose regularly XXX. good customer is soon. to the maybe order the quarter field lot having system grew a Now, inventory news roughly wanting XX% actually see are install quarter which it the this let in one-third of where creates are the from XXX smaller a tailwind risk risk, percentage supply field of the to by chain COVID that – hold and in shipments and about to which during quarter, me crisis that turn systems some that units came for and a inventory. field in in committed in an a units installed there we ordered last dealers there inventory in inventory anytime field Two-thirds case dealers Inventory Roughly, a roughly the to low us. and XX at of to are saw of of But have XX% customer nice uncommitted. not

inventory moment include particular in and America not fly yet for if the they the don’t either other ago. I a is ATG customer new good the in of One connectivity. we occurs internet where OEMs, current don’t installed not about equipment our have care North owner, they line connectivity aircraft installed, generally The a because or news if inventory note, accounts activation a for we want fit that by want This at for This those are or account decides but does account. equipment standard activated all. customer ready XX% for mentioned the

Though units XX% XXX shipped, in with now, we up had a in and focus from equipment revenue. QX, increase me behind generating pickup XXXX’s plan, revenue. shipments XX% on a So equipment let QX, nice

units for but blowout look good X,XXX over trend pales we to historical ship compared a the year, line We basis, year. units which shipped to last expect will on the XXXX

and being Given our slow QX we XXXX, see may start from our are we cautious in recent though think announcement. QX projections some LXX we uplift about

turn our three-pronged Now, intend an initiatives to and how strategy. me on to with let our we growth update accelerate strategic

want market globally. to broadening First, the adding of by we product service offering addressable of platform needs the AVANCE to meet expand BA each and segment our networks market the

to we best segment customer of by And offering the are leveraging networks lowest improving AVANCE as for the support new third, want we upgrade and continually cost market the of Second, at easy drive total and provide on technologies ownership. the platform each our loyalty and customer paths focused to product networks emerge.

in our great are will our including replacement to XG FCC I those our network We and start LEO strides our initiatives the offering. FCC. GBB goals, strategic program, achieve making with

$XXX all XG were to a You Chinese to back of program a million. trusted awarded technology will last Gogo Because grant expenses which year, more cut and accelerating original the communication cutback reimburse million was the planned, associated grants removal that of secure with reward, XG networks qualified our FCC than in it and under Gogo’s the for to telecom networks. XX% $XXX from were originally is recall there case grants

so. of of XG as networks we ground-based some will fully this today, SEC our waiting replacement we point, expected Congress XX% refresh, its connectivity the significant recipients program, from see better other of the for to doing almost for and Because part solve. part aircraft which reauthorization network a can most is will as including fund simultaneously. Gogo of doubling meantime, in and equipment of network program ATG XG in LX and reimbursement of performance in improvement funds manage to installed benefits this started AVANCE received get authority, it small – than working are customers grant be federal equipment At auction number and will In the an the a the the if the of functionality

this goal to the X,XXX next with is On side air transaction, with classic of the our all product line over customer tails of to the our convert cards few LAUs, years. flying LTE new

actually guidance have leaning them. in guidance incorporating with provide a very until will almost except are towards been the of we program have it later excluded the all have more exact capital drain from that And long-term that few to our to Jessi of predict. overwhelming a that the spoken touch be reimbursements overlay though be those now, this you this of and quarter and upgrade. into and AVANCE preference to an to we inventory. Up We as cost those than our detail customers XX% this it an program our financial majority working we minutes already created this of model say warn build difficult begin as we in will on can timing year reimbursements and will a must more on

turn of XG our to chip. disappointing most me second year the let the news the delay of Now,

me issue. start Let describing the by

GCT, technology XG focused supplier airborne a firms developing have and in GCT. those use chip supplier They chips. ground XG Samsung few standard XG is designed to our to station chips. and the fabricate Samsung turn outside They Airspan. XG blocks of sub-design radio of on turn designates a blocks develop in more the a And First, chip house the by of one

in sub-block the not detailed a chip As chip, in being A after were related brought all cause, three block identified was the the issue fabrication that Samsung, chip. and block. conducted ascertained issues software by analysis in the there peripheral it XG three by same an up the system were cause issues of the the root issue root to was of GCT

chip, of working of still is two. our release has of options a minus but action product us considering, are plan exact made GCT the on aware month fix XXXX the all to to point they the a XG which all or or plus midyear

of will peak. in megabits mean con competitor, per much faster competitor, potential borne second speeds and any enable very risk the XX chips to customers. because chip While design so. at and ATG the than XX current great transistors to to that can and XXx speeds that those us one enable of pre-provisioning difficult benefit build to that The this faster the has technology to to to making and have on speeds speeds. to doing are of we certify us kits increases surface XX deliver megabits is Meanwhile, than but ATG with today we understand XG progress in densification faster in and some the second we Much dramatic disappointing, this our around megabits is per technology ATG Xx it than dealers at any in is certifying are OEMs selling equipment

out LAU units two intense have two and LAU or XX-inch new wanted a On we XG the the support space LAU. our LXX the install they and until same same the news install front, and for current into that if the and are to the antennas. MBXX cuts form factor LXX customers. location LAU, old our add go X,XXX new for announce as week. XG cabling install same the the popular to would now, simplifies antennas to The the the out exact LX LX the line customer with is current can LXX this boxes the Up replaceable then our that old down as LX install LXX dramatically swap last to antennas upgrades our excited inside good product, They harness into same as AVANCE plus because one pull and their aircraft exact

year. MBXX only an ship And if LXX can pre-provision finally, two, to upgrades our we is LXX cheaper and than and LX adoption, drive can the box well To XG is customer and ready. swap because year customer XG on finally, and box encourage example next for is two operate have our pre-provisioning previous this today and to easy MBXX strategy configuration. the a great to because MBXXs, LX box it’s as technologies. our considerably networks to AVANCE LX of the And our when will This our new them it and not a platform one part LXX chip for box box, swap the enabling free the XG the Now an installs Gogo upgrade network, XG as Next AVANCE of antennas

to are missions to perfect satellite XG product excited that midsized fly it’s market North Gogo for We the jets products. down to speed better great than want value and on competitive and believe bring a American

global particularly altitude aviation, with enables less LEOs fit have thereby Now, electronically Galileo antenna turn OneWeb AVANCE can on steerable well Galileo. constellation business broadband earth I and than that global to to link an offerings. satellites, network power almost will antenna business initiative, suited GEO their we enabling orbit with with our the coverage are our which LEO-based now platform branded a to aircraft. satellite because to low adds all budget equivalent low adds the an smaller

all fly year, and We return. larger business have the and and big a North show FDX it b) jets HDX target the to a) and we a announced The a bandwidth aircraft inside QX in America terminal, are megabits often of news delivers and larger XXX mid-size and solid today aviation that fly international antenna was the small jets domiciled XXX North Galileo our mid-size are that antenna Galileo introduction where per the America second broadband on Geneva, business that outside Last terminal, and a to fits megabits delivered no almost second higher of domiciled exciting per EBACE, missions. the link that up in missions. smaller global prototype XX plane solutions FDX and demonstrated super at targets significantly on

will when Even more OneWeb dramatically increase a Gen network exciting speeds years. X few is those that just its in launches

Our aircraft of are to the Gogo. market incremental furniture our thousands all addressable to stickiness America satellite superman North XX,XXX that our the jets to for and expand size global drive drive the product family of They business American a goals smaller Galileo path and if to offering more products heavy growth registered LEO enhance add U.S. outside an already include total for North segments medium easy core and desire our to in third have ATG today, aircraft add by they capacity. a for

of example AVANCE cabling aircraft. AVANCE penetration advantage expanding when AVANCE that on one to only huge is great into aircraft our any of add another is ours data easy is of and making run simple This FDX HDX product either plan cornerstone A platform for the power strategy. and installed a our customers a Galileo or antenna AVANCE then our another to from upgrade for why fuselage it is the upgrade needs and

underway very and customers have track discussions others. antenna from Our enhancements enthusiastic well environment. its OneWeb, has ground satellite on very Gen to with signed and completing launch platform in And We several in we feel XXXX already our HDX the one to before partner, is completed we line-fit its deliver remain a way competitive with to these OEM AVANCE us constellation of and a with in position our the to Hughes, satellite Galileo have received HDX. FDX half first We second XXXX. our well X partner its of half and that on network they response XXX the strategic agreement

only will the size large GEO Most to performance have technology who the connectivity can down of the competitors improvements of doubled XG dramatic traditional serve to of jets, LEO antennas their no on aviation business GEO have and our because market. satellite answer and provide

competitor business markets than larger seems other be support focused to Our less in much customer one potential mostly that satellite aviation. far require LEO

profitable better to finally, profit chance than on And what capital will And I been in of financing millions offering that positive I margin they offerings, it’s future, like service. a competitor Gogo making Though demo XG the face disappointing customer normalized has that down market daunting of that a they drive note, have extend drive tailwinds but a their offer. task should drive our service ATG TAM, system product classic launches potential revenue. take high great on suggest should with nowhere guidance, ATG a to hundreds a to will and performance customer would where competitor close a have performs a in to our face which product superior old including lifetimes lot take a business flights end a we would which and that is in of

inventory that investments reduced we the should the increased and should suspension and/or as that, drive of installed field after free in We activated. levels aircraft online cash XX% and have out the have flow named normalized gets

with and I – end in people Gogo team centers, service experience. finance, customers, support thank that Delivering the and by thanking managing innovating, to and in on they’ve to and Gogo the the supports I all and want great new legal us data field. building great our keeps work team to to team also frontline shipping the products, networks our rails developing, and and thank for distribution want that Gogo I frontline partners done. want the customers working

And I’ll the over for to with Jessi numbers. turn that, it

Jessi Betjemann

our good products Oak for position. a to services Thanks, continues markets strong quarter morning, and and demonstrate everyone. robust demand Gogo’s second and performance

line Gogo While quarter, at we undertake as especially metrics and strategic even below such Galileo, performance. we for was it as Gogo our significant on in performance line XG, expectations certain top delivered solid financial bottom the operational investments, the

start capital remarks allocation I our financial to quarter performance. turn Gogo Then priority. walking balance and through today, will my second In by I’ll sheet

revived an XXXX and program. targets. an I’ll will FCC with impact the finish on our for provide I up financial the overview guidance Next, of update long-term and And context additional

comprises of prior was service X% year million online quarter aircraft delivered an up in sequentially. the and and record units Gogo over Total increase $XXX.X of $XX.X ATG second up revenue of quarter, million, as X% the up quarter, X% sequentially, end X% X% for X,XXX versus year-over-year second increase the a the XX% service the online We record of XX% X,XXX ATG units AVANCE a Exceeding and important of and which XXX year grew for fleet the XX% up quarter, our prior the revenue. our of slightly new to this total quarter had activations. is second over generates sequentially. milestone and in evolution business. now the activations our revenue is an second reached

was and and However, discussed, offset dynamics increase cycle due temporary the in in this an units ATG classic by store be online suspension the which units quarter. to second both incremental AVANCE other to maintenance muted caused

Additional growth service is key view creation for the our aircraft of driver online business. value in the and revenue

rate accelerate the three next progress on quarters factors. We over growth aircraft due expect online to AVANCE several to

First, which brought challenges are in to online. more be to contributing currently dealers addressing staffing the that shift equipment will slower of installation rates, result

The product. but high have further year, Galileo and ATG expand time return due suspension to levels, normal grew mix secondhand aircraft X% getting product to by offset quarter opportunity and X% sales reactivated. Gogo and partially XG similarly to $X,XXX to into ARPA margin, higher reducing time, growth service catalysts over starting of our from decreased which the prior LX sold aircraft, third events LX maintenance ARPA inventory smaller lower continued to ARPA. and Second, of are next the year-over-year AVANCE launch

We position a to driven $XX.X to dealer coupled the and XX% XXX revenue our of second XG shipments AVANCE half down due discussed. year-over-year increase in a that decrease equipment X% will totaled increase future. global line with in the equipment. that that up in in our of sales Galileo to Gogo in performance the Oak of demand and the year inventory by slightly confident shipments. top in delivered strong the sequentially year-over-year, we’re and XX% second in market inside equipment to Moving Gogo connectivity sequentially, and second the propel year, expecting XX% activations channel only and penetrated XXXX quarter, million the more next XX% Overall, reflecting quarter, changing dynamics remain the continue our shipments. launch is with Gogo AVANCE

of for quarter. Turning Gogo XX% the the to in service second growth. was delivered the driver gross and quarter X% year-over-year up profit X% in the profitability, margins year-over-year was EBITDA main second Service

with modem costs relatively write-off that AVANCE the FCC in to incurred number large a second inventory include dual with cash of Equipment FCC due related and second continue costs expect XX range percentage program, aircards. costs service creation. the the in-line margins in and million quarter increased was production $X.X The program to generation quarter margins the in expectations. fixed in the increase and the sequentially to free equipment lever replacing we long-term Equipment EVDO long-term with to flow points by in value the to quarter. in quarter be first costs the aircards our primary and higher revenue equipped for We the aircraft XX% XX% driven

profit second up XX% in was was and growth. gross sequential the EBITDA quarter the Equipment the sequentially, main driver XXX% for to

to equipment for margins level planned this XX% Our XX% the is year. in range

in accrual, fluctuate the FCC quarters the FCC will I implications reimbursement the this could next details of program However, a the financial two more bit. little expected due to discuss over in

operating to on expenses. Moving

offset quarter and engineering sequentially. and development, lower X% Second by administrative and combined general Galileo reduction sales of a X% tied design and costs for costs increase increased personnel bonus marketing This year-over-year to year-over-year and and includes $XX expense. expenses million

Galileo, XXXX XG to expect be year our core ramp XXXX sustained Once program complete top We for for XXXX growth the causing in and flow operating strong in be these and spending completed, combined we investments benefit and as will ramp years we continue line point to investment high our investments. these expect to see of a free cash business. the through that

CapEx. in of Gogo million the second in million of $X and was our of spending XG, terms in approximately quarter $X OpEx In XG comprised million $X

in by is press mid-year our of July further Oak, at non-XG the launch the described delayed XG XXXX. a release until As a XX, commercial chip, approximately and to noted on XG due error component in design

total cost and million for revenue our $X We into XG $X push XXXX the million program. will million OpEx CapEx approximately estimate delay planned of million But $XXX of maintain our to and XXXX. reduce in in $X XG

free this We dampen to XXXX for revenue our revenue reflected also XXXX. XG revised shift in delay is guidance. in cash and and financial impact costs flow of and EBITDA expect the The timing

related to the on Gogo initiative. Now Galileo operating to $X.X incurred million our expenses second Galileo. quarter, in In

expect Galileo development less We to than $XX total. costs external million for be in

XX% costs and external development Gogo profile $XX adjusted We return costs free Galileo $XX it cash The on in and guidance. and reflected is in attractive Galileo OpEx investment. XXXX XXXX. an approximately believe XXXX to expect million we be will spending of and EBITDA with in our deliver asset-light approximately million will be flow

Moving expense. to increased $X.XX to to EBITDA result quarter a reduction income year-over-year X% delivered per earnings income in improved related a of tied benefit. that and of translating profit $X.XX an line, $XX.X bottom lower earlier to million service as gross share bonus earnings per and to net which diluted Gogo quarter, in million $X.XX the tax in Gogo personnel on second of basic share second I $XX.X described as adjusted costs our

losses. $XX.X state to net Section XXX(i) partial interest of remaining the allowance allowance operating the net in valuation limitation for required an carried the tax capital and is the due related $XX of to – million quarter, losses deferred income tax our The certain tax foreign valuation income forward. benefit still assets to credits, the release assets related million deferred reported second Our on includes of income

increased year-over-year $XX million taxes income second quarter. to Gogo’s in before XX% the

operating interest million XXXX, had XX, December million $XXX forward. carry of operating state losses million in Gogo net in $XXX losses in XXX(j) net federal $XXX and limitation Section As

tax reflect statements our a pre-tax to as financial income generate you positive expense As non-cash income. continue reminder,

cash not Based NOL extended position, by on we But a do taxes modest our meaningful to pay an expect horizon. we may our of substantial the period. pay end planning X-year for amount

voted plan. NOLs has set shareholders In to September, in and is designed the to addition, Directors expire our plan of rights not Board to our that preserve is renew

base the current lapse. As affect status. our changes This not in will shareholder period a NOL X-year will over

in to compared increase election an $X.X down lower costs interest net the of X-months sequentially capital. to and $XX.X at QX in costs by In million Free the flow in offset partially switching increase X-month partially we second cash offset from cap And was due benefit. in interest SOFR $X.X to to interest resulting quarter, higher by higher rates. paid generated the working CapEx, cash due our free million XXXX, flow, million interest interest down

lowered to investments $XXX.X million X.Xx I million remaining with leverage slightly in turn to in-line our $XXX and range X.Xx. Now and in a $XX.X cash ended X.Xx quarter net of to our on sheet. outstanding term loan of revolver the was We our with short-term principal target with discussion Gogo’s undrawn. million our balance

our facility. May term announced strategic As on X, principal Gogo loan outstanding on million $XXX a to an aggregate debt down decision of made amount pay

to in As first the previously mentioned, place and step July. hedge in we have $XXX down a million agreement occurred

to end of Gross Now leverage at approximately X.Xx costs approximately $X.X down reduced XX% XXXX, $X of SOFR foregone income. July it occurs is million the forward pay our from first be X.Xx interest will $XXX $XXX July hedged strike curve, X.XX% end of loan million to an with was after quarter of until was interest increase by the based the and million the on and X.XX%. the when the net step down. second reduced to rate XXXX the at quarter million in next

conservative executing stable June in outlook and and outlook BX Moody’s target pay-down S&P a financial to policy As a credit of lower a leverage to result debt, rating a positive outlook. with May more from improved with B+ our credit stable in upgraded B+ of its

generated was company’s in release of the in evaluation history Another item to of shareholder primarily positive quarter notable first the million, time $X.X we that allowance. equity the for the due second

not priorities strategic changed aligned allocation and are have goals. capital our with Our

the Gogo’s allocation a following. priorities As are reminder capital

First, liquidity. maintaining adequate

Second, investing and in strategic positioning including opportunities XG to drive competitive value Galileo. and financial

for as capital Third, maintaining level leverage X.Xx. economic of And the fourth, returning in shareholders a X.Xx with net ratio leverage an to appropriate appropriate of target future. environment the to

on cash focused million cash debt as on are surplus over May flow. the quarters continue the our positive we generate to we building few position free next $XXX paid For a in

anticipate until However, decisions major allocation we capital any don’t XXXX.

like million. secure communications Gogo to to the $XXX which reimbursement now the impacts receive network expects would funded, financial program expected a and partially FCC I from provide of summary trusted of

$XXX our first process. significantly the retained increase has waiting complete an we reimbursement total the to we and The own. if reimbursement would our waiting program July that multiple the coming on full external our the In July will application, submitted up our that are to company X-year are assist extensions advisors and a complete We the we will as recently will Congress or which will million. to stated in to funding us to see received have grant value, FCC clock need extension the approve XX, to in see request granted if in were We blanket extension the months claim reimbursement to XXXX. trigger by we of program start

and incur for this has three continue Gogo incurred program costs will areas. to in

equipment network cell for data First, sites centers. and

and expenses. network, aircraft of to third replace including and customer to Second, enable costs new related to swaps aircards airborne existing communicate BDO operating LX equipment the aircards,

funded, purchases our equipment be is program income that grant balance to reduction corresponding quarter, property we In second $X.X by included of and a network the and money FCC currently is we will which what balance could expect for reimbursement million and have optionality to the primarily We sheet. impact receivable and we on partially in offset spend assets expenses received our equipment. current to recorded reimbursement the FCC, reimbursement. some the other statement prepaid for be Since partially between the from request sheet, recorded a in the

and At in flow program specific the we impacted complex, cash In XXXX our that documentation may assumptions reimbursement expect a and XXXX proceeds. with overall addition, free by level, a accruals to high our timing in benefit the to due requirements process XXXX of the on be reimbursement forecasts. negatively FCC is change

unpredictable as we’re this timing bit the a is However, still in process. early

equipment expects reductions total to expected $XXX service Oak in Now, revenue the fiscal impact by program market Gogo XXXX the XG our outlook. in XXXX targets to guidance participation financial This Gogo’s and I’ll million to of million. financial be to to is decrease delay. reflect both the is dynamics long-term the revenue. now and described FTC our the and turn that driven range the Gogo of updating $XXX

side, On the the drivers twofold. equipment are

seen as usual from adjust we times to inventory channel in First, time. our the have excess long lead COVID we very lead shor

shipping a Then XXXX. in anticipated orders delayed of of XXXX QX. now $X backlog we we’ll million XG large be pushing XG Second, equipment from to revenue

account our the revenue side, for is aircraft year. service reducing driven online the issues earlier, the we for the On depth suspension activation by expectations discussed in and decrease

of be adjusted in million to range million. $XXX We XXXX continue to $XXX expect the to EBITDA

delay, remains connectivity operational the maintaining which of to on that global the guidance of of XG and from We EBITDA able million down chip million million as million the spend $X including the XXXX are despite $X $XX $XX to initiatives, untapped strategic operating includes operational and aviation our guidance, to competitiveness. approximately in shift approximately delay, $XX of maintain initiatives market push previously employee now lower to costs we adjusted long-term and reflects to the as million, revenue XG expenses XX% $X due spend, million Galileo as delay. development related This approximately XXXX penetrating focused prudently well additional manage business an compared out for expected

FCC million costs $XXX reimbursement. also guidance EBITDA by of million adjusted $XX accruals includes the FCC related to the approximately Our offset expected program of for

end XG to for shifting to including million, XXXX. We $X range program, to $XX from CapEx previously XXXX the expect the at of Gogo million our our $XX be low million announced reflects million which $XX

approximately a and of the program. FCC As the related to result $X million delay, XG

flow We are by $XX a increased and the expected additional million free to of FCC cash including guidance purchases, inventory lag range driven FCC of to related spend, the XXXX our $XX revising million reimbursements.

the for financial issued to revised provide morning, trajectory like I’d the review on XXXX. I Before long-term this targets expected some color

to an with be continue These causing year year. now expense out trust previously push year, launch burdened XXXX we investment spend. anticipated, our online lower stated, aircraft Gogo with XG and this a Galileo increase flow investments free the coupled delay due impact as lower to XXXX will to As in cash XG and but negatively a of an financials, shipments will further in be

follows. the discussed, have I updated Given long-term near-term and as Oak targets headwinds we our

to XXXX through a at expected compound With revenue revising We approximately XXXX. of revenue our annual rate a broadband growth to growth in to XXXX. range XX% materially contribute global are from to XX%

be expect XXXX. margin We XX% adjusted EBITDA continue to the in annual range by mid to

growth be we in impact XXXX to flow negatively $XXX XXXX positively and to in XXXX beyond, cash are to target, of FCC flow in the free We million our the FCC program excluding range revising of cash the free solid XXXX. $XXX With impact expected And impact to million.

reimbursements However, the of timing is unpredictable.

we then, launch this our invest lower with in now aircraft target. XG we I million initiatives set launch free to range we our business of include feel targets, investment, have Galileo delay, not expected of of our an assumption, year, the provide for Since included the disappointing like the the flow been cash able lower delivering second XXXX. in At time, remind it was since investing XG and September the operational first flow you of the to to absorb online in it’s delay Galileo. free and target Gogo While $XXX to prudent that XXXX evolution cash would but target the did

potential assess plan. continue make our the we progress and impacts As long-term to to

Gogo under-penetrated our long-term grow customers to for and expect XG proposition value benefit cash current we and is we strategy headwinds our business. we and free services is by this that growth generate the and global position, revenue market believe Galileo strong We value new and determined and We future from our will near-term investments confident reverse. continue deliver our to growth and complete success and shareholders and as and in Gogo are market. products our underpinned flow our support

we this our concludes Operator, the the call unparalleled team Gogo to remarks. want service to and questions, Before I customers. for up open continued prepared thank their to entire for our providing commitment

question. first our for ready now are We

Operator

Instructions] [Operator with from comes Richard Raymond question Thank Our Prentiss you. first Financial. James

line is open. Your

Richard Prentiss

everybody. good morning, Hey,

Jessi Betjemann

morning. Good

Oakleigh Thorne

Good Ric. morning,

Richard Prentiss

release sub date what the you get out disappointment comfortable to to chip laid issue that the they the steps How design the Samsung GCT some that taking are specific we to Obviously, on delay Yes. they mid-’XX pretty Airspan shop. XG is you them have to comfortable got are identified? now? well, And

Oakleigh Thorne

the very plan think cause. comfortable. exact actually I They’ve We my that I said next for still week. expect as in remediation. the root they’re identified comments, Yes, developing we’re And

design GCT them. Right too And we were that There two of in in there. very others few small significant think world producing great XG now, there. two and are they’re And runner they going coming play one MediaTek. the are players companies along We’re we to these front for the a very, deliver to really are chips, one behind very they and competent confident world. two, house is I there’s those that And them. mean, enough XG XG that and were chip did job Qualcomm of the are

for of in the confident familiar we’re gives both design can They’re have a lineup are also them. this, us in a so we steady that eye in management keep a That GCT point, worked in is because They’ve has sub past. now. more made pulling their transparent sub the some in on more opened things a that us Airspan a sort changes So designated terms that And at combined really manage guess to working with design nature acute I up before how really going. with of of lot very with confidence. GCT this house Gogo’s project of and Samsung team to in this team house manner and the

projects. risk So develop. and we you in know two, will updated week more these always as in kinds that we’ll there’s And a people know, as things we’re or confident if of keep

Richard Prentiss

that. little your a prepared you elaborate Can is further of take offers talked Great, to people LEOs, that might marketplace. to Also, competitors about understand customers me air Kind the at what that looking that, are GEOs, saying? ground? might that let look be the is at competitive where into the thanks offering? that is Well, on wanting for were the were you in some a that remarks, come there that

Oakleigh Thorne

do vertical. that – I replace LEOs and a GEOs been delivering has market of to service everybody seem want GEOs kind a that point. less But is think focused, And of And profitable, better frankly, where demand, customer just front easier is right who frankly, there are probably because SmartSky I an I still not is customer publicity. terms opportunity are this their great is think product had, to they don’t going for presence they luck lot serve, a at about, that that’s their some has the convinced in it ViaSat than are – in them, path and terribly of last very I curious at of quite other overtime a are verticals a think player, I bad around, of revenue then this but has reputation hard product XG probably is service to in we Starlink service, going making win. their that is the now half risk vertical. about more been we lot curious has more this And is that really be, think but established customer think and product. speak frankly, one the more to the this will on in noise is would Starlink. our there for in market a I GEO in while. them. not People And think I about to more a of have due of that recently is, And there. the And speed then are where

So, that’s how we view the competitive environment.

Richard Prentiss

you kind the handle to side, way kind for us on And the me for suspensions trends? a the we found monitor – and get what’s suspensions, obviously, of suspensions? to finally, that the then on somewhat best what’s think way have And of external all how to the should off-guard, from best Okay.

Oakleigh Thorne

track we deactivation I that shared by of every cause. call. data Well, have and some a the And on suspension

suspended by our reaching top had the of ones just were and days that more chested we So, of XXX then the data. were were for – we accounts on maintenance. Most out in second basically still the suspended tracking corroborated been in XX tracking And actually all, quarter. reality than are own that it on quarter to that

So, are I of I how tarmac on what’s can mean there in on. I – is asking like aren’t track think the data best it it’s you the probably or hard shop, published terms dealers And from outside them aircraft in just or there to mean that. and really anything calling track not it, many anecdotally. going Rick.

back else anomaly will have quarter fleet, people those will they somewhere little aircraft one already end that is So, drove was cases, turn are bankrupt, went one which we that XX things small But in bit, Most those somewhere one those installed. and on. up else, a in and the aircraft did owned by and fractional fleet deactivations.

what’s that of be sometimes you the see an in So, of can on that indicator and happening fleets, watching would potential some news impact us.

Richard Prentiss

it. appreciate Thank Well, Great. you. I well. Stay

Oakleigh Thorne

Thanks a lot.

Operator

[Operator from Lance a Cowen. you. question We have with Thank Instructions] TD Vitanza

Your line is open.

Lance Vitanza

questions. Thanks Thanks. taking guys for the

there here. in disappointing sense get talked Are question, is are obviously is intensifying for in our impact I but from or a and about owners what wake you delay, your its hearing, the that the aircraft XG complaining? the your they guess delay products some but the just questions, customers, investors, up competitive on demand it of XG competitive trying the pent the anything Gogo I the frustrated? and/or they dealers, for of for on of are sense kind to First are are around know competition in taking am last questions I stride? people you

Oakleigh Thorne

about XG. in excited of and competitive of and And NDA. lot big that pretty LXX that don’t I OEMs A was think actually finally dynamic No, are changing of the to coming aware announced coincide and our – the Yes. were the would date with having customers the dealers under public. People any. delivery on most it’s this, I say launch along LXX

I install we much an configuration box really it’s that this LX so where XX mean and than box. to – had product. they the former and So love easier

happy that. really about are people So,

a continuing that some think a And while are XX who LXX orders behind catch are as this orders. up, divisions chance them a and are of kind the well. of STCs. of of to relief take some to people their because are to relieved There couple relieved gives has they there are them of bit from out people LX there OEM dealers were We And are are already. I changing that aftermarket disappointed, on the kind

So, I big don’t a think we impact. see

is the and to the loss meanwhile, count so. impact course, the us unit in Of but revenue

Lance Vitanza

Sure, of course.

the needed Can paying But they to pay are that a that to our us, are you that know, much just commented because planes that you to the ownership, investment on cost maybe of vary for the say, what want has you if when fraction of plane? you Internet that’s I of you suspension don’t thesis are whether of are month $X,XXX, aircraft costs pretty at kind was small paying Internet. a hangar let’s how cost least the to a paying side, kind want maintain been probe that bit Internet, and more, ancillary $X,XXX part of But no So, other grounded, you Gogo, the aircraft the not, for GOEs, of total it flying that little are depending perhaps longer expenses to concept, are of I type are remind claim if and discuss have. the on going obviously case. you or

Oakleigh Thorne

exact are aircraft. I that’s you without hangar that for you breakdown sure. with pay most these what aircraft, you more, give are lot engines. paying I the a to mean they an of stuck can’t Well,

the trying probably exactly is. right For of what director be they money what make repairing flight months, charging. they taking it. sitting is them, an be are this, to am use, I to well, part that’s is going for be money to on. doing the the some They are going out reduce shouldn’t there. just I in temporary some department – make fee. is the to use paying we plane, of of aware on off, if six to able by dealer pilot operating I I happy. we are going dealer engines for to in engines Internet, they we to want would when not the out yes, people, their getting the not make shutdown able much dealer able doubt that here And expense my say, it But am flight are not They owner probably the sitting have the most we tarmac, which that. that are think or for not The back instance, they charged find of the why And are ask, putting which now. hard them the And leasing are to are to owners departments sitting But

here. So, while actually we money sitting saving are you are

for So it’s and the customers have us. like we always of offered maintenance. things suspensions one And about

So, it’s very common for that.

you back go huge number for if it’s, a this, to had instance, COVID, of we suspensions. For

I think suspended XX% of the customer service. base

for turn frankly, Starlink off their people says want if look the ground. pay that, isn’t, this So, would for when don’t then to as it says. what And something period Internet people anytime. I in just of are down start not times a maintenance plane very suspended, unusual also on Starlink suspend. are can for long they it’s We your gone you making when at you when we to is for them say view

Lance Vitanza

we excess do is are it forth? and problem? that more want – engines of seeing have that more industry your period we Sure. capacity coming we see that, online, through online, parts certainly In sort going responding to suffer logjam and the to any ultimately, just, case, it right, capacity will demand And or going of to is think or for the are to the is removed, sense we and sort of have come you so we are no, just this

Oakleigh Thorne

And have And the of engines a pretty activity then lease are has Well, as same they there the hit supply. driving additional their they to There for the things. parts at in engine where fast high with That’s I been is dramatic up, increase unusually is in been production they business a where can. really OEMs, maintenance business are shortages demand at impacting is aircraft as OEMs, think the cranking couple are engines. time. wanting orders events which in people

on of big the would get C be we through that next over they it increase. will checks, through a the imagine in that And will couple also we hard of to go And and when of will decrease. quarter those. that not all will expect that working turn us the a pace these quarters. that so going predict will we for take to are demand to for aircraft And it’s around. though, it So, quarters It’s putting supply I that their need couple

Lance Vitanza

one maybe for Sure. one just And Jesse. then quick

have you some the EBITDA like EBITDA, sounds on items again that like you those from me? call benefited. sounds the on the non-recurring, Thanks. quarter. it for quarter Could this mentioned and benefited go non-cash You quickly over you perhaps just in

Jessi Betjemann

the EBITDA, net Not income. it was

net And expenses personnel EBITDA a because our due lower reversal tax income benefited So, reduction we from of side, the then to bonus our on had a a there allowance. expense. benefit was valuation in

in going quarter not necessarily that’s the to was EBITDA. be benefit for recurring. So, But the that a

Lance Vitanza

Great. so Thanks much.

Jessi Betjemann

Lance. Thanks

Operator

Thank a you. from from [Operator question Instructions] We will have JPMorgan. Cusick Phil

is line Your open.

Phil Cusick

Hi, guys. Thank you.

net not why heard I – path? number last now? trend great terms second in now. understand about we is maintenance the talked this of if And doesn’t of don’t XQ. to stark. Thank half. inventory on you we for you So, better think quarters pretty a you do inventory wonder But have addressed quarter. where a it’s happening but You the two, adds, have deceleration one, the And look is you. about issues could just Jessi, I XQ couple issues? this ATG number I you. somewhat I right in me, already. And these But had that in how drawdown are should about for it And hit You explain Thank heard why talking

Oakleigh Thorne

it the a taking pace enough jets And in check you helping over rapid meet large terms did type go nothing we we quarter. to time such in off it the whatever. now charter now in should demand I fractionals inspections and a charter a we to this C the then they out have take the think. operators maintenance these demand. We couple frequent events. want talk the to pressure so don’t the the don’t didn’t But say, relieve more well, to they extent a be and market you climbing, seen short different, different that that don’t maintain it’s it I or are ways to it delayed be we put just go for that steadily, quarter this But that what that numbers has But is We of when it’s for of in are honest, reduces the it understand years, shutting happens on they have mean short OEMs. yes, really amount in think And I deliveries of have Well, what more Yes. going or okay, And started maintenance those take and real an have revenue of can to look are you in what huge it, to from because and optional, of big maintain didn’t maintenance of terms intervals, are One of accelerate are have the event. events delay. to sky dead, They that’s fractional we and of way. would last demand. full of number there has competitors, aircraft. had at – of kind and what, of let’s demand, year. But of in have first you really have that a taking is lot that, when at climb a sort got Internet got, have. for you out because jet Number people, it’s they that now, more different that’s nothing hit.

go get we that’s that I some up tell in predict going QX that got. think that’s around C started hey, can’t we last dealers now. and we But QX. saying, wanted when I Phil, why I to the a real check I terms week, it’s one answer of calling into exactly was can going if get to, the and in you can So, cause, where

were XXXX. answer couple was we more First quarter year. dealers got QX this the other fourth A in

second the – people question, and there are there was So, is What so…? are of your part booked. demand

Phil Cusick

trying driving, to the have option. inventory inventory, we was other back you on to just your sort go the was no where of – comment. are to the But I

see see do August, a current or easing just get you to this am fourth the a idea low quarter? and I you level. should about third where in sort trying quarter think the So, then in we sort about of of July of an very into and

Oakleigh Thorne

be, know give X,XXX I I than could what’s Yes, you. any terms claims go We can’t of sitting there need given into you in maintenance. have that more don’t out to

can’t we mean just question. I out. I that to answer I that trying frankly, figure calling But cannot predict. So, I are around and

is and inventory front, out And think to of inventory up feeling pretty how the there that, the spoken is XX% the for we sitting much went thing for much that that’s On isn’t. biggest amount how because are I about in QX. good spoken

I things. So, about of a couple think

about are basically that activated, because are they on all, it’s already, those of in standard XXX are where of units First inventory we not at units account, installed are that OEMs, aircraft about fit. but XXX line

aircraft. overseas, to others, every company. they turn it on. Not some want we was So, order really just the go American wants Internet, North we the didn’t They aircraft out just don’t And use the it can’t part are standard. aircraft everybody ATG come on it of however, it, overseas, because

XXX of units. So, that’s the

are an to that during there are about the then there is units those dealers churn of is inventory. so don’t good COVID, our XXX feel through just somebody in down install, came churn XX inventory units. and they that ordered we XX So, for at units right another dealers XXX spoken then in that And that regularly but of units, not those, inventory, vast And basically getting but we or that are wanted case installed. that now. that the XXX And majority regularly so through are are

might at solid. think while. pretty being rest are installed risk those for But a the So, be I for not

activations. on a are having The year we other record are thing good. is mean I activations

pace really the aircraft, pace it’s into hurting not at equipments going it’s us, So, of it’s the suspensions. which

Phil Cusick

Thank you.

Oakleigh Thorne

Phil. Thanks

Operator

Thank come you. from question Our Flannery Instructions] will [Operator Stanley. with next Morgan Simon

line Your is open.

Simon Flannery

back is couple fairly product early that, the great. to material flying It and of see will any morning. actually the of that the would any working going developments. Galileo it’s Thank revenues product. getting out us to to the it color embed of then start revenues quarters of Does real out and this, you really very ramp will XG start to wanted come of that Good steadily much. properly? help more QX? new XXXX to it from we be get with be Are really product this before from I really from timing see sort there, around a And we a or of aircraft

Oakleigh Thorne

backlog get we think if when orders, year. we slowly. equipment service QX, boost QX, in those revenue, there that a to I so then get launched, next Service a little is Yes. revenue first could in of and more so I have revenue, a installed, mean often see you ramps

Simon Flannery

When installed will do that Is start these on aircraft the services you for them? actually of event you QX revenues? both generating have think actually a and

Oakleigh Thorne

or would mid-year exact launching be months remediation the depending part, they on it launched on plus side, one but implements. all the depending one month now, minus either we plus with. mid-year right up us XG GCT which end have they on minus said, Well, or options two or are that would one four There two months, the or plan

week. in We a will that about know

QX So, we you could to see that maybe first installed is in those start shipments then got And up delay when there in ‘XX. as for QX, revenue service or the ramp over ship. if a Xg, would or

the and with say won’t the would of Galileo. it’s It of same until ‘XX, the terminal kind course. on On I – HDX be

Simon Flannery

estimates the links stack the inter on there. Big versus going Is does the speed gave and that? comparable? Thank OneWeb performance be Starlink Galileo, things you. up And satellite product? for it How some to pretty like differences, you performance then on

Oakleigh Thorne

I it FDX the be Gen bit. may announcement, a be little ahead is the earlier the X, comparable. Yes, new our which then was think will To announcement even ESA antenna, than was which And around larger one clear, move a HDX.

to XXX alright. it’s XXX I designed mean comparable. still performance megabits of Starlink’s there And And for performance, megabits heavier megabits than JSX, antenna. XXX per we was an second, the in they I second. the it’s FDX have XXX aircraft. doing shared per Starlink, terms on that’s of megabits to think performance, So, smaller are

So that. is very about and everybody happy

actually be comes and X, or XXX to out, which per comparable. satellite So, will speed will second we all is and even. megabits When per we have XXX viewed that doubling that, think second tripling, megabits Gen OneWeb speed as great links see

obviously that be be It will out, years performance. will but few a really great So, a be it great. will

Simon Flannery

Great. Thank you.

Operator

Thank our And from William Louie Blair. comes you. question with next DiPalma

is line Your open.

Louie DiPalma

Oakleigh, morning. Jessi and good Will,

Oakleigh Thorne

Louie. Hey

Jessi Betjemann

Good morning.

Louie DiPalma

is risk the Oakleigh, significant is Galileo? the to launch Galileo change planned there timing for And chip there any product? commercial for

Oakleigh Thorne

product. the no for is Galileo there No, risk chip

has did two of it. is already, delivery why that is pulled which Galileo is, timing ago. demo been actually were there a that the down, to able timing the working HDX the smaller but in of we we And All antenna, quarter we or so months,

in nothing this new quarter. So,

Louie DiPalma

Okay.

still it track further…? ‘XX second and is So, half for of the on

Oakleigh Thorne

exactly. Yes,

one. smaller the for half of Second the for first half one, larger ‘XX ‘XX

Louie DiPalma

engine aviation. well for engine Sounds MRO is logjam business, good. in the And industry issue the documented

that the are leaving engine or is a competitors, of However, deactivations customers the signs it related pinpoint able there you significant logjam to to for any you to issue? portion are are

Oakleigh Thorne

going who XX% and responded not it. been in days, XX of for I had to are QX more we suspended think I XXX customers able odd pinpoint to was actually one competitor. we those mean to out than reached a some

Louie DiPalma

reimbursement been be plan? good. able upgrade, Sounds your And with from for you that AVANCE. to is FCC strategic Has there some to the to plan, the going your this are classic customers or you pushback the have Gogo strategic customers, do all strategy of visibility upgrade any customers of essentially to

Oakleigh Thorne

Yes. And need product do don’t they strongly programs upgrades. so off putting to been classic to mean anymore, number and are like have of and need still leaning I it all They the they them them are upgrade. their a upgrade to customers anyhow. flying

there, making are we progress Louie. So, good

Louie DiPalma

everyone. Thanks. me. That’s for Thanks it good. Sounds

Oakleigh Thorne

Thank Alright. you.

Will Davis

Thanks Louie.

Operator

to Davis no the showing turn in closing remarks. am the questions other would like to back queue. I Will I for call

Will Davis

second our earnings quarter concludes This Katherine. you, conference Thank call.

may You disconnect.

Gogo (GOGO) 7 Aug 232023 Q2 Earnings call transcript