Vavara Alva - VP, IR & Treasurer Michael Small - President & CEO Norman Smagley - EVP & CFO

Simon Flannery - Morgan Stanley Jonathan Schildkraut - Evercore ISI Phil Cusick - JPMorgan Dick Ryan - Dougherty & Company Lisa Friedman - UBS Louie DiPalma - William Blair Andrew De Gasperi - Macquarie

Good day ladies and gentlemen and welcome to the Gogo Second Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference Miss Alva, Vice President of Investor Relations and Treasurer. Ma’am, you may begin.

Thank you. Good morning, everyone. Welcome to Gogo's second quarter 2016 earnings conference call. Joining me today to talk about our results are Michael Small, President and CEO, and Norman Smagley, 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 will 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 this conference call. These risk factors are described in our earnings press release and are more fully detailed under the caption Risk Factors are described in our earnings press release and our are more fully detailed under the caption Risk Factors in our 10-K, which was filed with the SEC on February 25, 2016. In addition, please note that the date of this conference call is August 4, 2016. Any forward-looking statements that we may make today are based on assumptions as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. This call is being broadcast on the Internet and is available in the Investor Relations section of Gogo's website at IR.Gogoair.com. The earnings press release is also available on our website. After management's remarks, we will host a Q&A session. And now it’s my great pleasure to turn the call over to Michael.

Thanks, Vavara. Good morning, everyone. We had a great quarter and continued to build significant momentum behind our 2Ku technology. The service is now flying on three airlines. We also made considerable progress in the development of our Gogo Biz 4G product for business aviation. With flight test to the technology and announced the launch partner in Delta private jets. We also now got groundbreaking new partnership with IBM and The Weather Company that serves to set another example of how we continue to move the on-passenger connectivity and to helping our aviation partners realize the benefits of the connected aircraft. In June, we closed a $525 million bond deal. With this financing, we extended debt maturities and added more than $200 million of cash on our balance sheet to support 2Ku installs. This investment will pay off. We see a revenue lift every time we bring more bandwidth to the plane based on Q2, average mainline ARPU, we achieved a two to three year gross margin payback on our 2Ku installs. Finally, and very importantly, our financial results were strong. Revenue for the quarter was nearly $148 million, up 22% year-over-year. Adjusted EBITDA was up 33% to just over $14 million. Now I want to point out a few highlights within each of our operating segments. In Commercial Aviation, during the quarter, we grew our 2Ku backlog to more than 1200 awards from IAG, Delta and American. 2Ku is now flying on AeroMexico, Delta and Virgin Atlantic and we’ve installed the technology on ten aircrafts. We received six supplemental flight certificates to install 2Ku on various aircraft types including the narrow body Airbus A-319 and the Boeing 737-800 and the wide body A-330 and A-340. In July, the first factory retrofit of a 2Ku system was installed on the A-350 aircraft. Now that we had some key STCs, in hand, and with the summer travel season nearing an end, we will start to see installs pick up. We expect to end the year with between 75 and 100 2Ku installs. We plan to have an additional 350 to 450 2Ku installs in 2017. With the new funding, we are building our supply chain capacity to install at least 750 2Ku aircrafts annually. Increasingly, our CapEx is success base driven by the number of planes installed with 2Ku. We’ve now flown over 3500 flights with 2Ku. Its vastly increased bandwidth has provided airlines with the ability to develop new in-flight connectivity experiences for the customers. For example, AeroMexico is offering passengers free NetFlix streaming on 2Ku flights. As we deliver more and more bandwidth, we expect that we will continue to see a whole new range of opportunities from our airline partners. One of the key attributes of 2Ku is that it can be upgraded remotely without taking an aircraft out of surface. For example, we recently introduced a software upgrade that more than double throughputs that seat without us ever touching the plane. We expect to see 2Ku performance to improve even more to over 100 megabits per second in 2017. Moving on to the BA side of the business. We are on track to launch our new GOGO Biz 4G technologies in the second quarter of 2017. This technology will offer enough bandwidth to bring a ground like experience to the business aviation market including the ability to stream video. As I mentioned, Delta Private Jets selected us as a launch partner for this new technology, further strengthening our ties with a key airline partner. Our ATG network continues to be a powerful asset in the BA market. As I mentioned, we are partnering with The Weather Channel to cloud source data off of GOGO equipped business aviation aircrafts. This allows us to offer pilots real-time turbulence information resulting in a safer more comfortable flying experience. It also decreases wear and tear on the aircrafts and will contribute to lower fuel cost over time, which translates into lower operating cost for the aircraft owner. Looking through to the end of the year, I want to highlight our key priorities. First, our goal is to get 2Ku installed as quickly as possible. On this front, we have made great progress and that is why we are increasing our 2Ku guidance for 2016 and 2017. Second, we are very focused on scaling our operating capabilities to support our airline partners around the globe. And this includes continuing to invest in aircraft certification and installation talent and processes, aircraft maintenance and supply chain. Third, we will continue to focus on getting GOGO Biz 4G into the market ramping up sales of the new technology. With more than $500 million in cash on the balance sheet, a strong backlog, a robust sales pipeline, and continued strong performance, we have great momentum moving into the second half of the year. With that, I’d like to turn it over to Norm.

Thank you, Michael, and good morning, everyone. We had a great second quarter. Total revenue was up 22% to $148 million. Service revenue grew 26% to a record $128 million. Adjusted EBITDA increased 33% to over $14 million, representing a 10 margin. CA North America – I am sorry, now turning to segment results, CA North America service revenue increased 19% to nearly $90 million, driven largely by an increase in aircraft online and to a lesser extend ARPU growth. We ended the quarter with nearly 2600 North American aircrafts online, which reflects 132 installs and 36 retirements. We also had nearly 200 net awarded, but not yet installed aircrafts at quarter end. During the quarter, we installed or upgraded over 180 ATG-4 aircrafts. This brings our total ATG aircrafts online to over 1300, representing more than half of our North American installed flights. We are increasing our ATG-4 install guidance to approximately 600 aircrafts for the year, up from 400 previously. For the quarter, annualized ARPA of 138,000 was slightly ahead of prior year or grew 14% year-over-year when excluding aircrafts we added since the beginning of 2015, primarily regional jets and aircrafts with new airline partners. Regional jets now represent 34% of our North American fleet. Looking ahead, we expect ARPA growth to remain modest over the next couple of quarters as we finish installing regional jets and launch new airline partners. The dilution from this aircraft will start to diminish as these new fleets become season and as we install 2Ku on more mainline aircrafts. CA North America segment profit was up 66% to $18.6 million, representing a 20% margin. Now turning to BA, service revenue was up 36% to $32 million. Total revenue for the quarter were up 13% to $49 million. Consistent with the overall business aviation markets, BA equipment revenue of $17 million was down from the prior year, due to lower ATG and satellite units shipped. ATG aircrafts online increased 20% to nearly 3800 and ATG’s service ARPU increased nearly 14% to over 2500 per month. Segment profit was up 8% to $19 million representing nearly 39% segment profit margin. Turning to CA rest of world, we added 12 aircrafts during the quarter as we near completion of Ku installs with Delta and Japan Airlines ending with 249 aircrafts online. Total revenue for the quarter was $5.7 million, more than double to prior year. For the quarter, we generated annualized ARPA of $145,000, up 30% from the prior year. The strong growth from connectivity and services. We expect second half ARPA growth to moderate as we launch new airline partners but to reaccelerate as we get closer to full fleet installations and increased passenger awareness. Our CA rest of world awarded, but not yet installed aircrafts stands at approximately 500. We expect to install the majority of our awarded aircrafts by the end of 2018. Rest of world segment launch for the quarter increased to $23.3 million from $18 million last year. We continue to invest in the rollout of 2Ku including STC and line fit activities and added more satellite capacity. Year-to-date results remain on track, our STC expenses vary quarter-to-quarter. Q2 cash CapEx of $40 million was $17 million higher than the prior year, due to increases in the airborne equipment purchases for 2Ku as we prepare for increased installations in the fall. We ended Q2 with $509 million of cash on hand. As Michael mentioned, we completed a $525 million bond financing in June and retired existing senior debt. This resulted in a one-time $16 million debt extinguishment charge impacting EPS by $0.20. With that, let me now turn to guidance starting with aircrafts installed. In addition to the guidance Michael provided on 2Ku, we now expect to install approximately 300 net new CA NA aircrafts in 2016, up from previous guidance of more than 200. In CA rest of world, we continue to expect to install approximately net new 75 aircrafts in 2016 and more than 200 in 2017 unchanged from our previous guidance. Based on these estimates and increased guidance for 2Ku installs, we expect our cash CapEx to be in the range of $110 million to $135 million for 2016 consistent with prior guidance and from $140 million to $165 million for 2017. For 2016, we expect consolidated revenues to be above the midpoint of the guidance range of $575 million to $595 million. Finally, we expect our adjusted EBITDA to range between $55 million and $65 million for 2016. Operator we are now ready for our first question.

[Operator Instructions] Our first question comes from the line of Simon Flannery with Morgan Stanley. Your line is open.

Great. Thanks very much. So, nice to see the increasing install targets. Michael, can you just talk about what’s behind that? What gives you the confidence that you are going to accelerate those installs? And how should we be thinking about this year your Q3 and you’ve talked about the fall, we are going to see much in Q3 as most of being this year still in Q4. And then any updated comments on next-gen air to ground? Thanks.

Okay. What gives us confidence, first, how well 2Ku is working, secondly, how badly the airlines want it on their planes. We also have confidence from having received the six STCs very important to start clearing on the path and we made substantial investments in our supply chain that now gives us confidence that we actually do up to 750 per year. The next-gen ATG, as I said before, we are working on a next-gen solution. We move beyond 14G that’s taking too long and no longer it’s compelling an alternative to us given how well 2Ku is doing and before the end of this year, we will announce that next-gen ATG solution.

And any broad comments just about the pipeline out there and potential future awards?

We remain confident that we will continue to add airlines to our roster.

Great. Thank you.

Our next question comes from the line of Jonathan Schildkraut with Evercore, your line is open.

Hi, this is Rob for Jonathan. I was wondering if – where do you stand in terms of the number of STC programs now that you received some STCs, how many are still ongoing and how does the timing of the expenses related to that look going forward? And secondly, I am just – I was wondering if you could provide some color on how your expenses fall between segments. This quarter it looks like margin on the NA side was very strong and ROW came in lower than we had expected net about the same. Is the margin on the NA side at this point from here sustainable?

Okay, so I will answer the first part of your question and Norm will take the second half. The number of STCs as we said were going about 15 this year and a similar number next year and we are still very much on track for that. And the first ones are always hardest. So we are so pleased to have six in our pocket, particularly for those aircrafts with large fleets which is 737-800 and the A-319. Norm?

In terms of how expenses fall between the segments, it’s really based on, on the work that’s being done and the programs that are being addressed by that work. So, as we’ve talked about before in general, ED&D will flow through a catalog very significantly from quarter-to-quarter based on how many STC milestones we hit. In this particular quarter, the 2Ku activity going on. We had a bunch of installs and increased lines of spending in rest of world for the expenses with there. In terms of CA NA margin is sustainable, yes, we believe it is sustainable. And you will see in terms of rest of the world during the first two quarters in the average it represents a reasonable run rate.

Great, thank you very much. Thanks for taking the question.

Our next question comes from the line of Phil Cusick with JPMorgan. Your line is open.

Hi guys, thanks. Following up on Simon’s questions, how should we think about the RFP pipeline today? And how many of the awards that we’ve seen in the last few months for competitors that you’ve been competing for?

We remain, as I just said, very confident that we will continue to add airlines to our roster. In general, we focus on the larger fleets. We think that’s more efficient way to grow the company and have complete confidence. We aren’t - in every deal as we look at probably the most, say in the industry, but we don’t said every single deal.

Okay, and how is 2Ku on AeroMexico shaping up and Delta as well? What have you learned so far?

We learned that it’s a great technology. It’s exceeded even our expectations. It’s the fastest, the most reliable and the best coverage in the marketplace and for this early stage of its deployment, it’s doing extraordinarily well. And it will keep getting better over time.

Are we at the point yet where AeroMexico is charging for this?

No, we have not yet started charging. That should happen soon and that’s only for regulatory issues that that day is coming here very shortly.

Thank you.

Our next question comes from the line of Dick Ryan with Dougherty. Your line is open.

Thank you. See, Michael, just look at China for a second, you had an announcement with Shareco a while back for a 50 airplanes. Could you give us an update there? And has that moved to firm contract yet?

We are making great progress with Shareco as we would expect with any new relationships. So I have no concerns there and we should have the service going with Shareco next year. The other comment I’d make about China is we expect the four of the years out to have fly over rates which will be extremely helpful for the Delta International fleet, particularly.

Okay. Is there any update with American, kind of less as 400 or so aircrafts to be determined, any updates you can provide us as to what the timing of that decision might be?

No update as to the timing. We still will compete for those 400 aircrafts and we think the best thing we can do is, earn the right for those 400 aircrafts by doing extraordinarily well with the 140 planes that have been awarded to us and we are actively working to get 2Ku on those planes.

Okay. And maybe just a broader question, I think you’ve said in the past, you’ve taken capacity on OneWeb, you’ve got a lot going on out the aerospace SACS has a pretty ambitions plan, multiple thousands of deals going up over the next few years. Is that a constellation that interests you or are you considering capacity on that constellation at this point?

We consider all our options in the long run. Right now, we are very confident 2Ku is the best solution in the marketplace today and if an airline making a decision today, that’s the right alternative. We will continue to monitor the market and go wherever the best bandwidth is available over time.

Okay, thank you.

Our next question comes from the line of John Hodulik with UBS. Your line is open.

Hi, it’s Lisa for John. I just wanted if you could give us an update on progress with line fit with both Airbus and Boeing?

Yes, we are making great progress with both those OEMs and across all of the major aircraft types. As we announced in the script, we are the factory retrofit. So there is two ways to do it to get in the line when they are making the plane and we install then or after comes off the end of line. The OEMs can then install our equipment. So, the first approach is, the factory retrofit where thy do it after it comes off the line and that’s going to be sooner, but we are actively involved in the full line fit and believe it’s going to happen on all – due course on across all aircraft types.

Is that something we could see by the end of the year?

You will continue to see a stream of announcements such as we just made about the ability to factory retrofit the A-350. This will be a multi-year effort by the time we have all aircraft types on across both OEMs.

And then, with the recent jet deal and your plans to ramp up installation capacity, at this point are you fully funded to install all 1200 of the planes that are in the 2Ku backlog?

Yes, we are.

Okay, thank you.

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

Thank you. Good morning. Regarding 2Ku price elasticity, and passenger willingness to pay, I was wondering what your studies have shown that the average revenue per aircraft could potentially be if there were no capacity constraints?

With 100 million sessions served at this stage and we obviously have a lot of data on price elasticity, and we are so thankful with 2Ku that we can now analyze what it means to take down prices rather than what it means to increase prices. Bandwidth helps as we said many times upgrades ATG to ATG-4 produce double-digit increases. ATG-4 2Ku not only due to more bandwidth but more coverage produce substantial kind of 30% like increases and average revenue per aircraft. So, we see a substantial opportunity to increase ARPA with the more bandwidth, ultimately bandwidth drives ARPA.

And do you think that it could reach as high as 25% or 30%?

Well, we just said that, 30% was what we saw going from ATG-4 to Ku. So, those are certainly reasonable, now we are not making a prediction, but there is a – this is not a tiny impact, it’s a big impact bringing this amount of additional bandwidth to an aircraft.

Okay and by 30% now it’s referring to the take rate, I was wondering,

Okay.

I was wondering, like pricing were reduced like $5 or $7 and you had unlimited bandwidth as we could see jumps as high as the current 6% rate as high as 20% or 30%.

We will make a prediction there, but we routinely see big jumps in take rates as you change price or in the extreme make it for free. So I think there will be a lot of to the passenger. So, we just saw in Japan Airlines, they introduced that 15 minute free session to their passengers on all the planes and that’s been extraordinarily successful and we’ve seen pretty dramatic increase in take rates as a result of that. So the passengers are happy. The airline is happier and we are happier, that was a win, win, win.

Great. And regarding your commentary that the first STCs are always the hardest and the fact that you’ve obtained a lot of STCs this year and you projected to obtain a lot of STCs next year. I was wondering what is, like your long-term projections for how ED&D should scale? And should that flat line at some point as you obtain all of these more difficult STCs or should that continue to scale as you invest in newer technologies?

There are two aspects to it. The investment in new technology and then there is begetting that technology on to aircrafts. We will get a lot of leverage out of both. It’s more consistent spend against technology over time, but there is no doubt there is a heavy upfront investment in the certification process. So we should see significant leverage by the end of next year, with approximately 30 STCs. We will have an STC for most of the major – not all the major plane types.

Great, thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Andrew De Gasperi with Macquarie. Your line is open.

Thanks. So first quick question, can you remind us of your comments to the regional jets generally, would it be an American do you think if those remaining aircrafts that you can potentially lose went away due to competitive bidding. Do you think the 2Ku can make up for that loss? And secondly, are you seeing overall industry-wide a decrease in the number of flights flown by airline partners?

On the last question on number of flights, minor changes in their flight schedules and our early growth stage of the company don’t have a meaningful impact on us one way or the other. The RJs they are very profitable. Every plane we add is accretive to our economics. They do have lower ARPA, but they are in some ways the ATG technology is already on there and some cost in the network and it’s – they are very profitable on the margins and your last question was, oh, can you make up. Yes, so, right now, there is 400 planes up for ground with American and we have 1200 in backlog for 2Ku. So there is no doubt that the opportunity to sell 2Ku is much, much larger than what’s the progress at American.

Got it. And I had one last question. SS in June mentioned that some RFPs are requiring, asking for per aircraft speeds that over 200 megabits per second. Are you seeing that as well?

I don’t know, I don’t think we are seeing that a lot, I can say that as I am showing up somewhere, but with our clear visibility to go in north of 100 megabits per second per plane, we’ve taken the issue off of the table. And you can talk about higher numbers though and you can matter to anybody in all purposes. We hit the bogie that is going to matter, but half of the issue is off the table as far as I am concerned.

Got it. Thank you.

Thank you and our next question – I am showing no further questions at this time. I’d like to turn the call back to Mr. Small for closing remarks.

Okay, thank you operator. As you can tell we are extraordinarily pleased with the progress that 2Ku is making and the visibility that we will have it on a lot of aircrafts. Really starting right after Labor Day is looking good to us and we think that drives a lot of good stuff for GOGO in this industry. Thank you everybody.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone have a wonderful day.