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[00:00:02] Ladies and gentlemen, thank you for standing by and welcome to the two three Twenty twenty Gogo Inc earnings conference call. At this time, all participants are in listen only mode. After the speakers presentation, there will be a question and answer session to ask a question. During the session, you will need to press star one on your telephone. If you require further assistance, please. Press Star zero. I would now like to hand the conference over to your speaker today. Mr. William Davis, VP of Investor Relations. Thank you, sir. Please go ahead.

[00:00:38] Thank you, Polly. And good morning, everyone. Welcome to Gorgas. Third quarter Twenty twenty earnings conference call. Joining me today to talk about our results, our Thorn president, CEO Barrero and 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 in 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 press release filed this morning and are more fully detailed under the risk factors in our annual report on Form, 10K and Tinku and other documents we have filed with the S.E.C.. In addition, please note that the date of this conference call is November 9th, twenty twenty. Any forward looking statements that we make today are based on assumptions as of the state. We undertake no obligation to update these statements as a result of more information or future events during the call will present both gap and non gap financial measures. We've included a reconciliation and explanation of adjustments and other considerations of our not gap measures to the most comparable gap measures in our third quarter earnings press release. This call is being broadcast on the Internet and available in the Investor Relations section of the Gojko website at I Agogo Eircom. The earnings press release is also available on the website after management comments will host a Q&A session with the financial community only. It is now my great pleasure to turn the call over to hopefully.

[00:02:30] Thank you, Will. And good morning everyone. Welcome to our third quarter conference call. And given the impact of covid on the aviation industry, Gobo delivered a solid quarter and made significant progress on our strategic operating and financial initiatives capped off at the late August announcement that we signed an agreement to sell commercial aviation division Intelsat, the world's largest satellite company. Having achieved that milestone, we're now focused on three priorities first, closing the aforementioned transaction and successfully migrating s.A into Intelsat to relaunching the remaining Gobodo investors as a profitable communications provider focused on the business, aviation industry and three, strengthening our balance sheet and improving cash flow by reducing leverage, lowering our cost of capital and lowering our debt service. Excuse me. As you probably saw in our earnings release, results from our commercial aviation segment will now be accounted for as discontinued operations and assets held for sale. So my comments on the quarter will primarily focus on business aviation. Overall, we're encouraged by the recovery we've seen in the aviation industry, particularly in the VA market. We also believe that this morning's announcement of what appears to be a highly effective covid vaccine from Pfizer bodes very well for a rebound of the commercial aviation industry next year. Today, I'll give you an overview of the quarter and report on our progress against the three priorities I just mentioned. [00:04:08] Later, Barry will go over the Q3 numbers, discuss the 50 million dollar attack on facility, and provide an update on opportunities to refinance our debt. Let me comment on the tack on for a moment that we still feel very good about our transaction for the bills, that we currently live in a very uncertain world and feel that adding some buffer capital to our balance sheet is the prudent thing to do. Before I get started, I want to give a huge shout out to our seet bay and corporate teams. This has been an extremely dry year, not only due to covet and the actions we've had to take to respond to that challenge, but also because of all the hard work we've done and are still doing as part of the Intelsat transaction. Thank you. Let me start with our first primary priority, which is closing the commercial aviation transaction, both Intelsat and Gogol's teams are really excited about the synergies and innovation this combination will bring to the in-flight connectivity market. We've built a robust program management structure with representatives from both companies to oversee 11 functional teams working on plans to quickly separate the go go a division from Gogo and integrate it into Intelsat as soon as we clear the regulatory process and close the deal. From a regulatory standpoint, we've made substantial progress, we've already cleared the US House, Scott Rodino process and all foreign jurisdiction antitrust requirements, and we received all but one foreign telecommunications approval. [00:05:42] We're continuing to work closely with Intelsat to complete a review by CFIUS and to secure FCC approval for the transfer of two Earth station licenses and an experimental license. The public comment period for their station licenses ended last Friday, but we won't know until later today whether anyone filed a comment or not. So we've made a lot of progress since announcing the transaction, and though it's hard to predict the exact timing of what happens in the regulatory process, we feel on schedule to close before the end of Q1 Twenty twenty one as we guided at the time the deal was announced. Now, let me move on to the third quarter results for a moment. Continuing operations, which represent our former business aviation segment and our former unallocated corporate costs. Reflect encouraging continued service, demand recovery, generally speaking, the VA market had a shallow recovery and hit bottom and has had a faster recovery than the commercial aviation market. In Q3, our customers were back to flying eighty one percent of the number of flights they flew in the prior year, up from forty seven percent in Q2. And in October that grew to eighty three percent of prior year flights. Interestingly, a large fleet operators ran much higher at one hundred percent of the prior year for the quarter, which we hope will push demand for more aircraft and more connectivity in that segment. [00:07:08] As a result of these trends, we saw significant sequential improvement in service and equipment demand compared to Twenty twenty. Let me start with service revenue. Service revenue grew 21 percent over Q2, still down four percent from Q3, twenty nineteen total eighty aircraft online reach five thousand five hundred and seventy seven, up more than three percent from prior quarter and up to two thousand nine hundred ninety six dollars per month, up more than 17 percent from prior quarter. In the pandemic world where less bad can be good, I would note that the five thousand five hundred seventy seven AOL number is down only two percent from our all time high in Q1 twenty twenty, and that the two thousand nine hundred ninety six dollar output number is down only six percent from our all time high in Q4 of twenty nineteen. We had just over 500 gross activations in the quarter of which two hundred and thirty one or forty six percent were new accounts. As we discussed in our to talk to you, to call what hurt our AOL and our food numbers in the Koven swoon were the large numbers of suspensions and downgrades, plan downgrades we experienced back in April and May of the approximately 1100 suspensions we experienced in that time frame. [00:08:33] Seventy five percent have now come back online and ninety two percent of those returned to their old plan or a higher priced plan. Of the nine hundred and twenty eight downgrades we experienced in that period. Seventy one percent of upgraded and 87 percent of those who upgraded returned to the same plan or purchased a higher price plan compared to the plan they had before they downgraded. We think all these service trends and the fact that many industry pundits think the pandemic will be a catalyst for B.A. bode well for our VA service revenue in the future. Now, let me turn to equipment revenue where we're seeing signs of recovery. Twenty five percent growth in Q3 over Q2, though, that's still down. Forty nine percent from Q3. Twenty nineteen. That revenue growth was entirely driven by shipments of ag events units which have considerably higher monthly service, our food and satellite units shipments hit one hundred and sixty seven units for the quarter. Sixty seven percent from prior quarter, but still down forty three percent from prior year. That light units have not had such a positive trend, 28 satellite units were shipped in Q3, down 58 percent from prior quarter and down 80 percent from the same quarter prior year. On the earnings side, our continued our continuing operations generated thirty point two million of adjusted EBITDA on the quarter, even when including the full costs of our corporate overhead. [00:10:03] That's a nine percent decrease compared to this period last year, but represents a forty five percent adjusted EBITDA margin. The pace of recovery in VA excites us and gives us even greater confidence in our ability to drive growth as a more focused, stronger go once the transaction was Intelsat is complete. Quickly, touch on discontinued operations are former CIA, NSA and CIA RW segments, where we're also starting to see some encouraging signs of recovery. We saw 30, 40 percent sequential increase in combined revenue in Q3 over Q2 and Q3 was still down 61 percent versus prior year. A number of unusual events, which Barry will describe in more detail elevated costs and payments for discontinued operations in Q3, including catch up on delayed satellite payments, the depreciation for Delta deferred lease payments, bonus related stock based compensation, expense inventory reserves and expenses from the Intelsat transaction. We believe that as the world recovers from the pandemic, demand for KFC services will explode as airlines compete for passengers by providing free, high quality Wi-Fi. And we believe that I see a business vertically integrated with Intelsat. The world's largest satellite operator will be extremely well positioned to compete in that exciting market. Now, let me turn to the relaunch of Google as a communications provider focused on the business aviation industry. [00:11:39] That's priority to be a business operates in an industry with relatively little customer concentration, or 70 percent of the US market still does not have broadband connectivity that offers the industry's leading EPS product at an attractive price relative to competitive solutions. And it has unique advantages due to its proprietary spectrum and strong network. And the exceptionally talented and knowledgeable employees who work there are recurring revenue model and the owner economics of our ag network generate strong cash flow, which for the last several years has been used to service the negative cash flow and debt associated with our seet business. Finally, I would note that VA has demonstrated a strong history of successful product introductions such as our advanced platform and I go go vision entertainment products. We're in the midst of revitalizing our five year strategic plan, factoring in new data notably that will now have more capital to invest in product initiatives like Google 5G that will enable us to defend and grow our strong franchise as part of our planning. We're also looking for ways to optimize the corporate infrastructure that we'll need to support our business. Initially, we'll need to invest in corporate infrastructure in order to support transition services for Intelsat and to ensure the remaining Gozo can function as a standalone company will also take time to appropriately size and renegotiates vendor contracts and our support infrastructure for a smaller sized business. [00:13:17] We do not see corporate expense expenses coming down much in twenty twenty one, and we'll discuss changes in the future when we complete our transition plans. Which leads me to our third priority, rebuilding our balance sheet. Barry will provide more detail on the process we're going through to optimize this opportunity. But I'll state the obvious, which is that reorganizing our capital structure is very important to driving shareholder value for go go towards that and more focus on refinancing our debt to significantly reduce our leverage, our debt service and provide flexibility for further deleveraging in the future as part of that plan. We'll also want to make sure we optimize the use of the net operating losses and other tax assets that we've accrued over the past several years. As I mentioned at the start today, we announced a 50 million dollar attack on to our senior secured notes to provide buffer capital as we work through our refinancing plans in these uncertain times. The far right turn, the call over to Barry, I want to again thank our go go team for their continued hard work, dedication and creativity. You've really shown your mettle this year. And with that, let me turn it over to Barry to do the numbers.

[00:14:35] And so for clarity, as we walk through this quarter's results, I'd like to start my comments by describing the impact on our financial statements from the planned sale of our commercial aviation division. We're very pleased to report that the transaction with Intelsat is on track as described as a result, Logo's financial statements will look very different this quarter. The commercial aviation business meets the accounting criteria to be classified as assets held for sale. And as such, the impacted balance sheet accounts have been presented this way. In parallel, the CIA division's results have been presented as discontinued operations on the income statement and cash flow statement. In the to we discussed the a business in a footnote for discontinued operations. As a result, our continuing operations include our business aviation division and the expenses that were formerly categorized as unallocated corporate cost. These figures for continuing operations will be comparable to the former BA segment reporting through the cost of service and equipment lines, the expenses previously categorized as unallocated corporate costs will be included in Jenay. Before getting into a summary of our operational results, I'd like to highlight several points at the corporate level. [00:15:57] The first is our cash position and cash flow. We exited the third quarter with one hundred and seventeen dollars million in cash, which was down from one hundred and fifty six million at the end of the second quarter and represents a thirty nine million dollar reduction in our cash position. There are some important time aspects reflected in the negative cash flow before interest from continuing and discontinued operations this quarter. In contrast to the breakeven level reported for the second quarter of this year. During the second quarter, we were in the middle of negotiations with many of our satcom suppliers to provide us with economic relief as it covered crisis emerged because of the delicate stage of those discussions, we held back payments during that period. As we mentioned on our second quarter call, our satellite providers took a very partnership like approach with us and we reached agreements with all of them saving at least 50 percent on most of our satellite contracts. During the third quarter, we paid these outstanding invoices to bring them current. This resulted in us paying forty seven million dollars to Satcom vendors during the third quarter. [00:17:12] This was an increase of thirty seven million dollars in the second quarter and explains virtually all of the difference in the cash flow between these two quarters. The cash flow before interest expense from continuing operations during the third quarter was strongly positive and approximately equal to the level achieved during the second quarter. As we look to the fourth quarter, we expect to achieve modestly positive cash flow before interest expense for government as a whole. We expect to exit Twenty twenty with approximately 70 million dollars in cash before considering the proceeds from our 50 million dollar attack on financing, but reflecting the impact of our fifty three million dollar semiannual interest payment in November. As you know, we've been very judicious about managing our liquidity through covid. With the continuing uncertainty of the pandemic and its impact, especially on a commercial aviation business, we deemed it prudent to add some buffer capital to our balance sheet this quarter. In partnership with our creditors, we increased our senior secured notes facility, which we were able to do on favorable terms to the company's improved credit profile. We announced this morning that we have executed a 50 million dollar financing as a tack onto our existing senior secured notes, which will be financed by three of our bondholders. We expect the funding to occur this week. We have also committed to issue additional equity securities with net proceeds of at least 20 million dollars by May 1st, twenty twenty one in the unlikely event that the Intelsat transaction has not closed by that date. [00:18:58] We are continuing to manage expenses very tightly during this period for reference in the extremely unlikely event that the Intelsat transaction were to not close during Twenty twenty one, we would manage the twenty twenty one cash burn to be less than 40 million dollars based on the 16 cost management levers that we have described on previous calls. Excluding the impact of the attack on and related equity proceeds, this would mean that we'd exit twenty, twenty one with thirty million dollars in available cash and we have other levers we could pull to maintain adequate liquidity in the event of this highly unlikely scenario. A final point I'd like to touch on at the corporate level is stock compensation expense. As noted on our last earnings call, we have planned for our annual operating bonuses to be paid in stock unless determined otherwise by our compensation committee based on our expected financial results, employees will earn a bonus for our Twenty twenty performance and thirteen point two dollars million in stock compensation expense was recorded during the quarter. Approximately eight point five million dollars of this expense was for CIA and is included in discontinued operations and four point seven million dollars is reflected in continuing operations. I'll now turn to a discussion of our third quarter operating results, beginning with our continuing operations. [00:20:29] Again, these results include the former VA segment and an allocated corporate class, as described in some detail, our business aviation business that was not hit as hard by Coglianese and it has recovered more quickly. The rebound in VA is reflected in its financial performance. Total revenue from continuing operations with sixty six point five dollars million. Well, this was down 18 percent from the year ago quarter due to covid, total revenue grew twenty two percent sequentially reflecting the rebound in business aviation from the low point and the second quarter of this year. This revenue improvement occurred in both service and equipment revenue. On a year over year basis, service revenue at fifty three point three million dollars declined just four percent and was up twenty one percent sequentially reflecting strong customer reactivations. As OK mentioned, ninety two percent of previously suspended accounts renewed at equivalent or upgraded subscription plans as compared to pre covered plans. Equipment revenue of thirteen point two dollars million was down forty nine percent over the same quarter a year ago, but group twenty five percent over the second quarter of this year, we're seeing a strong pickup in equipment sales from our flagship product platform, as mentioned, notably September, equipment sales that were higher than January and September. Service revenue was over 90 percent of the January pre covered levels. The primary driver of the sequential increase in service revenue was Heg Arthur. [00:22:14] This accounts for approximately 80 percent of the revenue increase as the vast majority of customers reinstated their service plans that are equivalent or upgraded levels after dropping over 18 percent sequentially in the second quarter due to covered up rebounded during the third quarter to two thousand nine hundred ninety six dollars, which is up 17 percent sequentially. An important indicator of the recovery is that 82 are for the third quarter was ninety seven percent of the year ago, level of three thousand eighty seven dollars. The balance of the eight point eight million dollars sequential increase in revenue was due to higher units online, which reached five thousand five hundred seventy seven for the quarter, up three percent sequentially. The solid recovery, India's top line has carried through to the bottom line for our continuing operations as we have managed expenses tightly across the company, adjusted EBITDA for continuing operations was 30 million dollars through the third quarter. This is up thirty six percent sequentially from twenty two million and the second quarter of Twenty twenty and is down just three million dollars from the third quarter of twenty nineteen. As a reference point, the annualized twenty twenty adjusted EBITDA for continuing operations is approximately equal to the full year adjusted EBITDA for 2019, which was one hundred and twenty two dollars million. DEA has also maintained attractive growth, profit margins during the covid pandemic service gross margin of seventy eight percent for the third quarter of Twenty twenty. [00:23:59] This compares to eighty one percent achieved for the past two full years, equipment margins have decreased somewhat from the forty one percent achieved for each of the past two full years to thirty five percent this quarter. This six percent decline reflects the fixed costs associated with our manufacturing operations, with the lower equipment shipments during the pandemic. The combined expense categories of engineering, design and development, sales and marketing and Jenay for continuing operations decreased to twenty point eight dollars million, down 18 percent from the third quarter of twenty nineteen during the third quarter of this year. We spent roughly two point four million dollars less on 5G development versus the year ago quarter. Somewhat due to the timing of this distending adjusted EBITDA margins for the continuing operations came in at forty five percent for the quarter, the highest level achieved for at least the past seven quarters. Finally, cash flow from operating activities for continuing operations was twenty point three dollars million for the first three quarters of Twenty twenty, which included fifty three million dollars of interest payments. By this measure, continuing operations, cash flow, excluding interest, has been relatively consistent by quarter throughout the year. You will see from the significantly revised 10 to filing that interest expense is assigned to continuing operations so cash flow for continuing operations will reflect our semiannual interest payments in May and November. [00:25:43] Well, our commercial aviation business is treated as discontinued operations in our financial statements. Let me offer a couple of comments on our business continues to be quite hard hit by Cauvin, although service revenue exceeded our internal forecast during the third quarter. CIA service revenue was forty point five million dollars, reflecting a 61 percent decline from the third quarter a year ago. However, service revenue grew thirty four percent sequentially from the second quarter of this year when the impact of covid first emerged. The CIA business generated a net loss of seventy one point two dollars million, this included includes twenty seven million dollars of accelerated depreciation, offset by eighteen dollars million of accelerated amortization of deferred lease proceeds. Both related to the Delta Contract Amendment signed in the second quarter of Twenty twenty. The net loss also includes approximately 20 million dollars of stock based compensation, expense, inventory reserves and transaction expenses. As we look ahead, I thought it might be helpful to offer some perspective on both the transformational Intelsat transaction as well as a return to business. In our view, the Intelsat transaction represents a rare win win, win opportunity and the world of dealmaking, we believe it should be good for Agogo, good for Intelsat and for the CIA employees. We have long said we believe Seet would benefit from being a part of a larger entity. [00:27:25] And the industrial logic to the Intelsat acquisition is very compelling. We're glad to see Intelsat interest in establishing the CIA as a strategic platform built on strong market position and talent of the Gogo employees. We are enthusiastic about the business and cash flow generation capability, business, aviation as a standalone business, as I described in some detail. There are multiple compelling factors which contribute to base cash flow generation capability. Let me amplify until these which will contribute directly to base cash flow generation in the years ahead. These include the significant tax benefits retained at the post, the Intelsat transaction, and the opportunity to significantly reduce interest rate expense through a comprehensive refinancing. As of September 30th, Twenty twenty Gogo had over seven hundred million dollars in federal and over four hundred and fifty million dollars in state net operating loss carryforwards. In addition, we had approximately one hundred seventy million dollars in federal and interest expense carryforwards at today's corporate tax rate. These benefits reduce these future federal tax liability by over one hundred and seventy five million dollars. What we expect the closing of the sale to utilize a portion of these tax benefits. These tax attributes will benefit the company four years into the future. Now, I'll turn to the refinancing opportunity we see in front of us, as you know, from the structure of the transaction. [00:29:06] All of the company's debt will remain with going up. In parallel with pursuing the close of the Intelsat transaction, we have been evaluating a range of financing, refinancing alternatives as one of the three key priorities outlined. We have been performing this analysis with several considerations in mind. Dojos optimal capital structure. Secondly, the appropriate timing for the refinancing, and thirdly, achieving as much strategic and operational flexibility as possible, given the enhanced credit worthiness of being on a standalone basis, we believe we will be able to significantly reduce our interest expense through a comprehensive refinancing of our balance sheet. Well, we cannot predict the future state of the capital markets. They are currently very strong. If these conditions persist, we would expect to refinance our senior secured notes by no later than their first date in May of twenty one. We think it is likely that we could achieve a ratings upgrade, which would enable us to tap into more attractive capital sources at significantly lower rates than we were paying today. If we were to do this refinancing in today's markets, we believe we could cut our interest expense by nearly half, saving as much as 50 million dollars annually after the balance sheet is fully refinanced. Now, I'd like to offer a couple of additional comments regarding future rotations. We will not be providing guidance on this call because we have not closed the Intelsat transaction and there is still meaningful uncertainty around the ongoing impact of covid on our business. [00:30:53] Also, as I described, we are in the middle of developing strategic and long term financial plans for be as a standalone business. However, I will offer a couple of comments on our continuing operations as we look forward to 20 21. First is regarding our expectations for what we're previously classified as unallocated corporate costs and are now included as part of Jenay for continuing operations. We've brought these costs down from forty six million dollars in 2018 to approximately thirty five dollars million and Twenty twenty as a result of the integrated business planning process we launched in 2018. We see opportunities to further reduce the expenses over time, as is a smaller organization. However, we expect these costs to remain at approximately the Twenty twenty level during Twenty twenty one, as we want to ensure stability in these functions post Intelsat transaction. We would expect these expenses to reduce beginning in Twenty twenty to. For the fourth quarter of this year, we expect to see some sequential increase in expenses versus the third quarter due to increased media project spending and the forgone CEO bonus, which is reversed in the third quarter. As a result, we expect lower adjusted EBITDA from continuing operations for the fourth quarter of Twenty twenty from the third quarter Twenty twenty. As I mentioned, we are in the middle of conducting a deep dove review of our beer business, which will result in a refreshed strategic and long term financial plan. [00:32:35] As a part of this process, we will assess key capital allocation alternatives, including the timing of our five rollout, long term leverage targets, adjacent product and market opportunities and the like. During the years of investing heavily in our business and more recently during the covid pandemic, we've had to be very judicious about the levels of investment. And B.A., as a result, we have probably under invested relative to what we might have done would be a standalone business. We will certainly bring our culture of planning, rigor and financial discipline to this process, but we also believe there are opportunities within this attractive market which we want to aggressively pursue as we work to drive value. As I conclude my prepared remarks, I want to again join in thanking our fellow employees for their tremendous commitment, creativity and work ethic during these challenging times, not only have we had to navigate through the turbulence of the covid pandemic, you have enabled us to successfully reach an agreement on the sale and they are now working tirelessly through the many integration activities. The strength and dedication through it all, you have demonstrated a spirit of partnership and even adventure for what lies ahead. Thank you so much. Operator, we're ready, sir. First question.

[00:34:05] Thank you. If you would like to ask a question, simply put, a star, then the number one on your telephone keypad will pass for just a moment to compile the Q&A roster. [00:34:19] And your first question comes from the line of field thick with JP Morgan.

[00:34:28] Hey, guys, this is Sebastiano. It's so I got to start. [00:34:36] Thanks for your time, guys. How do you think about balancing the free cash flow versus investing to grow and what's the optimal leverage? And then I have a couple of follow ups.

[00:34:49] So this is ugly. You know, actually, that's all part of our financial planning, and I think we'll get more guidance on that in our Q4 call. You know, we look at this with a number of sources of that. None of those things will drive cash flow, including in the house, obviously, the business itself. We want to really invest in order to develop 5G and other new products to continue to strengthen the franchise. And we want to do so. As you say, it's a balancing act between all those things. And, you know, as we finish up, our planning will go to have that optimal balance, figure it out. That's part of what we're doing.

[00:35:34] Ok, and what's the ability to retain flexibility on those tax assets, on any kind of sale of the business?

[00:35:43] I think it's fairly limited at point. I think, you know, we would you know what, I think the best thing for our shareholders may be to make sure we use those animals and use that as a source of delivering varied. You have any color you want to add to that? That would be any different?

[00:36:06] No, not as a match until it is typically is difficult to retain that value. There may be some situations on which they could be retained, but that also is part of the comprehensive look that we're taking the business. I think the first priority is to really drive the value the business, see the cash flow generative capability that has come in over the next several years will certainly be able to take advantage of those, you know, else.

[00:36:35] Ok. And last thing, OK, how do you think about the being better in a larger entity as well as she does this business have enough scale to remain independent over time?

[00:36:50] And I think it does have enough scale independent because it's very cash flow generative and it can invest in developing highly specialized products for its niche market. So I think that it can remain independent. Obviously, there are a lot of strategic players who would love to own it. So that's always a good thing. We are we are focused on driving shareholder value. And, you know, in the end, we'll do whatever we think optimizes that. So when we don't have any right now, we're planning to stay as a public company and and and manage ourselves as we've sort of outlined. And and so there's no change in that plan. But it could change over time.

[00:37:40] Ok, thanks, guys.

[00:37:44] And the next question comes from the line of Rick Prentiss with Raymond James.

[00:37:50] Thanks for you guys. Glad to hear you make it through these difficult times. Well, a couple questions up until this question, maybe a little bit there. How should we think about the CIA to be a reimbursements that has been fully reflected in this continuing discontinuing operations? And what's the potential in the future as you roll out the 5G ETG network to get more reimbursements from the CI a. business once it's over? And Intelsat?

[00:38:23] I just want to make sure are talking about the revenue share.

[00:38:27] Yeah.

[00:38:32] You know, that that starts out relatively modestly, it goes up a level once you get five G is that there's an incentive to get five G out in the market. And I don't think we're going to get any more guidance than we gave at the time of the deal, which is that, you know, there's two components to this. One is the Russia itself, and then the other is the minimum revenue guarantee that they would have to pay us if they want to maintain exclusivity. And I think that over the 10 years, I think we got to that that was roughly one hundred seventy dollars million for the revenue guarantees.

[00:39:13] That right? Yes, that's right. Yeah. Yeah.

[00:39:17] Yeah, so and so

[00:39:23] I was just getting to address the first part of your question also, which is related to the V.A., the VA reimbursements and to your question, we have not finalized those yet. As I mentioned, we were very active in the transition planning process with these 11 teams. There is the capability to have transition service agreements. So we're working through all the details of those by function. And as those get finalized over the coming weeks, we'll see what those reimbursements look like. But generally, the contract provides for those to be reimbursed on a cost plus basis. [00:39:59] Ok, and then I think you mentioned also very that there was a little bit of you over a year difference on five G costs, how should we think about what you have left to spend on the five G. Both OpEx and CapEx and what time frames you might start spending? And are you going to wait for the deal to close? Or how should we think about the spread of those five G g costs?

[00:40:27] We're in the middle of the OpEx spend even as we're doing the development with our three primary partners. So we're well along in that. But that will continue certainly through next year. We have not started spending in real meaningful ways on the CapEx side other than capitalizing the software portion of that development. So as you know, the the real OpEx spend is starts when we start installing that towers and equipment on the towers, not the towers, but the equipment on the towers. [00:40:58] So we would expect to start seeing that happen next year and then it'll get rolled out in an appropriate sequence and time frame. [00:41:08] And again, as we've said, the exact timing of that will be a part of this strategic planning process that we're going through.

[00:41:16] Ok, and safe, more more high level strategic standpoint, how do you view what's happening in the competitive dynamics of the Sea of the Bay business? Any update as far as the more direct competitor that keeps of being on the edge?

[00:41:34] You know, they have a new CEO. I think you're asking about smart guy. They still have, I think a lot of technology challenges comes of being able to launch a network and then they're going to need to fund a lot of operating losses while they try and ramp revenue. So our view is our products are going to be better, is better than theirs and will be better than theirs. Our five product will not only use the 60 megahertz of unlicensed spectrum, the values that we will have our our four megahertz of licensed clean spectrum, which will make the product a lot better, where, where, wherever there's interference with the unlicensed spectrum. So that the fact that we've been doing this a long time, we have a much longer distance between the tower and the aircraft just because of the way we've been able to engineer the products. We still haven't figured that out. And so that CapEx is going to have to be a lot higher than ours are going to have higher tower density than we have in a competitive front. I guess I'm not really as worried about them as I am the guys that compete with us at the top of the market. We've got we face very strong competitors today and ViaSat and Inmarsat. And, you know, they're they obviously are trying to be a market as a as a as a growth opportunity for them. So those are the ones we really focus on. And I guess the last point I'll make about. [00:43:09] The competitive situation is that this is just a really unscientific market, I mean, 70 percent of the US market doesn't have any broadband yet. [00:43:17] So and a lot of that is, frankly, in smaller fuselage airplanes that that, you know, we're better prepared to serve than Inmarsat of that are. So we think it's a growth market. We're not that focused on share as we are on absolute growth. And in frankly, right now, I think we're uniquely positioned by virtue of having a product that is performs better than anybody else's product. Is a low latency right now also particularly suited to the VA market because of the size of the fuselage and the equipment we have is much easier to put on, cheaper, you know, more more conducive to the size of the fuselage in the bear market and, you know, have a proprietary system. [00:44:06] So, you know, we are very competitive and frankly are not that worried about the smart sky entrants. And I'll focus on competing hard with the big guys. Inmarsat and I sat at the top of the market.

[00:44:21] Things are going to continue to be well.

[00:44:22] Thank you.

[00:44:27] And your next question comes from the line of Scott Sparrow with Roth Capital.

[00:44:34] Good morning. Thanks for taking my questions. Hey, congrats on the HSR ruling and nice job on the VA result.

[00:44:43] Yeah, my lawyers would tell me to make very clear it wasn't a ruling. It's just that we got the 30 day period, 30 to 30 day period without a follow up request.

[00:44:52] Ok, fair enough. I know you've mentioned this a couple of times in the call, but I just want to be clear in terms of the corporate overhead allocation that is fully reflected in the numbers as reported today. And the difference is like a little less spending in terms of 5G, it looks like in the current quarter. So as we go into Twenty twenty one, that is kind of normalized base level, depending on what happens, depending on you.

[00:45:18] Yes, I'm correct, extending expenses and the expectations we set there as we look to next year, what we're really trying to be clear about is that the corporate spend was considered classified as under allocated corporate spend. Approximately thirty five million dollars for Twenty twenty has come down, as you know, substantially over the last several years. But we expect it to remain in about that same zip code as we want to be thoughtful about ensuring that we have this transition well done. We can provide the transition services and so on. During the course of Twenty twenty one, we will be actively looking at that set of expenses and certainly the smaller size of when it is concluded that we ought to be able to spend less on external costs, on a business complex and those kinds of things. [00:46:10] So so we would expect those costs to come down beginning in 2022. But for twenty, twenty one, we would expect them to kind of be in that general same area that they are for Twenty twenty.

[00:46:22] Great. Thank you. And just following up on some of the metrics you provided, aircraft utilization is starting to come back. I think you said larger fleets are at 100 percent. I was wondering if you had any view in terms of your regional mix of your business. Northeast has certainly been a little bit more constrained in other areas, such as Florida, Colorado, Southern California, kind of help us understand that a little bit. And the the units sold in the quarter, I think, were 167 that you indicated. But I think you also indicated a number over two hundred in terms of new new customers and new aircraft. I wonder if you could reconcile that for us. Is that 200 plus number, how should we think about things on a more normalized basis going forward? And then I had one last final question to answer.

[00:47:06] The last part that they had on the first part. But the 200 plus number is activations, not shipments. Right. So we ship unit to dealers and put them on the inventory to OEM to also put them in inventory. So, you know, those are installed on planes over time and then later activated. [00:47:27] So the 500 number of 200 and some odd about forty six percent of new customers, those activations, not units shipped. OK, that makes sense.

[00:47:38] It does. So OK. Does that mean then the channel is pretty clear at this point in time. There's not a lot of inventory sitting out there.

[00:47:44] Dealers are now, there's not much inventory sitting at dealers. And it's sort of it's getting you know, it'll dry up a bit because the units are heading the same units shipped aren't as high as the activations, and that's a good indicator of future demand. [00:48:03] So, you know, I think you're right about that.

[00:48:10] And I'm sorry, yeah, go ahead and take them.

[00:48:16] Well, yeah, I mean, frankly, we I don't have data for you on the VA market in that regard. [00:48:21] I will say that. People are flying further this year, so it won't sound like much, but if you think the average flight is, you know, an hour and a quarter or something like that, it's up about eight minutes overall. So people are flying further, which would indicate that to me that they are hunkered down somewhere. And when they fly in business, that that summer is further away from the business than it was was pretty covered in terms of the commercial aviation market in the Northeast. Has the second blow that hit the Northeast came down in terms of the number of flight departures and the south and West went up and that continues to hold. That hasn't changed.

[00:49:09] Great. And lastly, if I could, could you just give us an updated number in terms of the number of events or 5G ready aircraft that are out there at the current time? And in general, as it relates to 5G, you've got an opportunity to press an advantage. You're being certainly cautious in the near term now until we get the closure of the scale from a cash perspective. But assuming that close at the end of the first quarter, do you guys get more aggressive in pushing on that front to push your competitive advantage?

[00:49:38] I'll answer the last part, you know. Yes. Is the answer. Obviously, we you know, as soon as we have money in the bank, we're going to try and move as fast as we can on 5G and we'll update people on our 5G plans at a later date in terms of the advanced side. [00:49:59] And it's about, I think that a press release on that not too long ago, maybe another 20 to 30 planes on top of that now. Great. Thank you.

[00:50:10] Next question comes from the line of Louis Dipalma with William Blair.

[00:50:17] Bearing in real good morning. In Intelsat and real rationale discuss the benefits of going direct and the CIA asset would have likely fit with many other Satcom owners and operators as well. The deal helped Intelsat main competitor with vertically integrated Inmarsat and ViaSat Intelsat also indicated that the deal helps them protect high margin revenue if someone else were to have acquired you. So with that being said, under what scenarios the deal not to close the deal was consummated in the middle of the pandemic and after you already disclosed the need to renegotiate the Delta three contract. So what could possibly trigger a termination? And is there anything that you are overly concerned about?

[00:51:23] I think, you know, we're not going to deal in hypotheticals. The deal is constructed pretty tightly. You can read the TSA and the SEC filings, but I think that we don't see any major risks to the deal closing at this point.

[00:51:42] Sounds good and fair for Barry, you mentioned different puts and takes with the cash flows this quarter. [00:51:54] Do you have any estimate on what the ballpark net debt will be when the transaction closes in the first quarter?

[00:52:09] As you know, the way the transaction is subject to the customary working capital adjustments to the transaction costs to come out of that and so on, so I wouldn't speculate on what that number is going to be at this point and what the net number is on the four hundred million dollars. But I think an important part of all this is that as we think about the refinancing and the transaction on the Hill, that the transaction is that we'll have a meaningful amount of cash. That gives us a lot of flexibility when it comes to the refinancing and what we do with the with the balance sheet. So so we'll certainly have more to say about that as we get closer and see what the actual net cash position is as a result. But you can obviously do the math and see that it's going to have a very significant positive impact on our cash position.

[00:52:58] Great. That's it for me. Thanks, guys.

[00:53:01] Thanks for your next question comes from the line of Greg Jarvis with the Northern Northland Securities.

[00:53:11] Hey, Greg, great, thank you. Good morning, Loganberry, thanks for taking the questions. Just a couple of quick ones. First, regarding the 11 hundred, I guess, suspensions on the bay side that came from covid, you said seventy five percent back online. Just wondering how many of those you expect to fully recover. And then quickly, if you could just elaborate on kind of the pace of the recovery month by month. I know you said in the quarter it was eighty one percent of flights kind of year over year, and that kind of bumped up to eighty three percent in October. Any sense you can give us on how fast that maybe moved month over month within the quarter?

[00:53:46] Oh, you know, that's a little hard to say, I mean, it came back very quickly in the May, June, July timeframe, so I think it was probably relatively consistent in the quarter. You have to remember in April, typically we're flying 3000 to 3500 flights a day and we got down. I think our low point was something crazy, like 90 flights one day. So, you know, the. So I would say that the bounce back is very quick and it probably went up gradually over the quarter. But, you know, it was back up to those levels pretty soon in the quarter in terms of projecting the rate of recovery going forward. And that's very hard to do if you can tell me what's going on with covid in three months. I can give you an answer maybe. But without that, without knowing a lot more certainty what's going to happen, I'm not going to make any any guesses on that front of the suspension's, you know, almost back to just the normal suspension level. You know, we get. Yes. Don't hold me to the exact numbers, but we get 100, 150 suspensions every month for people who are taking aircraft out of service and and, you know, don't want to pay for the for the service while their planes are in the shop. And that's the typical reason they suspend. [00:55:05] And, you know, we're under three hundred now suspended from the time frame that we talked about what went under 300 period. So, you know, we're not that much higher, frankly, than our normal rate, if you will. So maybe we have maybe doubled the number we normally have, but it's not very high. Got another hundred and fifty. We'd be right down at the normal level. So they're coming back. They're coming back. At this point, it's starting to slow a bit. But we're also finding new customers are getting a lot of new growth. So, you know, we think we're pretty bullish on being able to grow and continue to grow units from here.

[00:55:46] Yeah, thanks for the clarity there. I guess one other follow up, just kind of relating to the unallocated corporate costs you mentioned going from forty six to twenty nineteen to thirty five million this year. What was the reasoning, I guess, for those being flat in Twenty twenty one as well.

[00:56:06] Know, the reason is go ahead.

[00:56:10] Well, I was just going to say there's a couple of things going on. Number one, we are going to have to perform physician services for Intelsat. We don't have that. We're still working on those, as I discussed earlier, with the relevant functional teams, et cetera, et cetera. And the exact reimbursement scheme is still being worked on, etc. So we don't want to get over our skis on that. And also we have a lot of legacy work to do as a standalone company that, you know, by virtue of having own CIA, we're still going to have a fair amount of tax work and other types of work to do through certainly through twenty, twenty one. And so, you know, our planning around this is something we're going through right now and we expect we'll start to see some sales in twenty, twenty two. So, you know, we'll give more sense of direction on that in future calls when we have our transition plan complete.

[00:57:08] Ok, thank you.

[00:57:10] And your final question will come from the line of Simon Flannery with Morgan Stanley.

[00:57:16] Great, thank you. Good morning, everybody. So, OK, we talk a little bit about the satellite space, maybe you could just comment on the LEOs without a space. That's public data. And how do you see the LEOs playing and the business aviation world going forward?

[00:57:31] Yeah, I think we think that's an opportunity for us and. You know, one of the virtues of having coming out of China in this satellite world is that we've learned a lot about it. [00:57:43] And so I think LEOs will enable smaller form factors in the future and discuss the N.S.A. come along. And and so we find that all interesting and a good market opportunity for us.

[00:58:00] Ok, great. And on the delivery side, what are you hearing from the tech strawn's of the world and how are they getting past covid on their side in terms of, you know, new shipments coming on and filling up your pipeline over the next few quarters?

[00:58:17] Yeah, I don't you know, I don't want to start angering all the OEMs by talking about what's going on in their business. So I'm not going to do that. But I think that everybody would agree there's still a good deal of uncertainty on exactly what lawyers are going to look like for next year. [00:58:33] And, you know, as clarity comes about in terms of what's going to happen with the pandemic, you know, I think that that the OEMs will start nailing down their production schedules. But right now, I think everybody's in a wait and see mode.

[00:58:49] And what percent of your activations come from OEM versus, you know, retrofits or whatever?

[00:58:57] The retrofit market is much larger than the market. If you look at the number of deliveries, you know, you measure the number of deliveries in the market in the hundreds. And, you know, there are literally more than 10000 and, you know, many more than 10000 aircraft out there without broadband in the aftermarket.

[00:59:19] Right. But in terms of the underflow share, do you have if there are a split of how many of your you know, last quarter, how many of them went on new planes versus on existing planes?

[00:59:29] Almost everything last quarter would have gone on great, but when you look at the last quarter, many thanks. OK, thanks. And that's our last question.

[00:59:44] Operator And we will now turn the call back over to Mr. Oakley Thorne for remarks.

[00:59:54] Thank you, Paula. Well, thank you for attending our Q3 earnings call. I think we're making significant progress on the priorities I outlined earlier. That is closing the Intelsat transaction, relaunching the new Gobo as a profitable communications provider that the business, aviation industry and strengthening our balance sheet and improving cash flow by reducing our leverage, lowering our cost of capital and lowering our debt service. We look forward to sharing more of our progress with you in the future as a strategic transition and refinancing plans come together to drive future gogo shareholder value. Thank thanks again and thank you. [01:00:35] Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.