Gogo Inc. (GOGO) Q4 2013 Earnings Report, Transcript and Summary

Good morning. My name is Lindsay, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Fourth Quarter and Full Year 2013 Earnings Conference Call. [Operator Instructions] Thank you. I will now turn the call over to Ms. Alva, Vice President of Investor Relations and Treasurer.

Good morning, everyone, and welcome to Gogo's Fourth Quarter and Full Year 2013 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 may make forward-looking statements regarding future events and the future financial performance of the company. We caution you to consider those risk factors that could cause actual results to differ materially from those in the forward-looking statements on this conference call. The risk factors are described in our press release and are more fully detailed under the caption Risk Factors in our previously filed registration statements on the Form S-1 and in our 10-K, which is going to be filed with the SEC by March 14, 2014. In addition, please note that the date of this conference call is March 13, 2014. Any forward-looking statements that we may make today are based on assumptions as of this date. We undertake no responsibility or obligation to update these statements as a result of new information or future events. During this call, we'll 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 on the Investor Relations section of the Gogo website at ir.gogoair.com. The earnings press release is also available on our website. After management's remarks, we'll host a Q&A session. And now I'd like to turn the call over to Michael.

Thank you, Varvara. I want to welcome everyone to our fourth quarter and full year 2013 earnings call. Gogo is the leading in-flight communications service provider for global aviation. In just over 5 years since our commercial launch, our broadband service is on more than 2,000 business jets and more than 2,000 commercial aircraft. Last year, approximately 300 million, or about 1 in 10 commercial passenger boardings globally, were on Gogo-equipped aircraft. Already it is widely accepted that broadband communications are an inevitable part of aviation everywhere. We reported record quarterly revenue of $92.6 million, up 46%, and adjusted EBITDA of negative $0.3 million after a $14.4 million segment loss for CA-Rest of World as we continue to invest in our international expansion. For the full year, we generated consolidated revenue of $328.1 million, up 41% over 2012, and adjusted EBITDA of $8.4 million. Combined segment profits from CA-North America and BA reached $14.1 million in the fourth quarter of 2013, up 164% versus the fourth quarter of 2012, on revenue growth of 46% over the same period. I am extremely pleased with our financial and operating performance for the year. BA exited 2013 with $150 million annualized revenue run rate, a 43% segment profit margin and a substantial runway for growth. Our CA-North America business finished the year with strong revenue growth, improving a now nearly breakeven segment profit, and with the technology and operational roadmaps to drive long-term growth and profitability. Finally, we gained traction in CA-Rest of World business and entered 2014 fully expecting to win more aircraft and to launch Delta International and Japan Airlines service. In short, we are firing on all cylinders. We bring mission-critical communications infrastructure to the global aviation industry. This is our only focus. Our formula for growth is simple: grow the number of aircraft online and increase revenue per aircraft. To be successful, we must have superior and complete communication solutions that operate with exceptional reliability. We offer the broadest suite of telecommunications solutions, including Air-to-Ground, or ATG, satellite and hybrid ATG-satellite technologies, to accommodate various aircraft sizes, route structures, demographics and airline economics. Delta is a good example. We equipped their regional jets with our first-generation ATG technology, their narrow and widebody domestic aircraft with a mix of ATG and our next-gen ATG-4 and we are equipping their international fleet with our global Ku satellite technology. Only Gogo has full fleet deployments in North America. We have always been at the forefront of technological innovation in this industry. Our scale allows us to have an R&D budget that is comparable to the combined broadband connectivity service revenue of the rest of the industry. We are developing technology today that will leapfrog current solutions and ensure that we continue to meet the strategic and operational needs of our airline partners. Our GTO technology, our latest innovation in North America, is a great example of this. GTO augments our ATG core solution with a satellite antenna. We really like how it stacks up against competitive alternatives in North America. Initially, it will deliver peak speeds of 70 megabits per second to the plane, providing excellent connectivity to every passenger on the plane while accommodating streaming video. GTO is also more cost-effective than Ka for broadcast TV. Its low profile and receive-only antenna is twice as spectrally efficient as any other aero antenna in North America. Importantly, the GTO system uses dedicated satellite capacity compared to competitive solutions, which share capacity with terrestrial subscribers. Moreover, given the large number of Ku satellites, it avoids the single failure risk -- single point-of-failure risk that currently plagues Ka solutions in North America. Further enhancing reliability, our ATG system backs up the satellite component of the GTO solution. Also GTO's performance is consistent across its entire geographic coverage area, while the latest-generation Ka satellite covers only about half of the United States. We expect GTO's peak speeds to exceed 100 megabits per second when Ku spot-beam satellites arrive in a few years. I would also like to add that we are focusing more attention on the 14 gigahertz band that is the subject of a current FCC proposed rulemaking. In the interim, we are rapidly expanding our aircraft with ATG-4 technology, which triples the peak speed to the aircraft to 10 megabits per second. In 2013, we installed ATG-4 on 436 aircraft. As of today, we just completed our 500th retrofit and are targeting 800 ATG-4 aircraft online by the end of the year, focusing on those aircraft that need it most. In addition, we continue to add cell sites, roll out fiber backhaul and otherwise further optimize our network and bandwidth management. On our busiest flights, the volume of network-related customer in-flight chats is 50% less with ATG-4 than ATG, demonstrating significant improvement in quality and passenger experience. More ATG-4 planes are critical for us in 2014. Also key to our success is our operational expertise. We've learned to solve a lot of problems and gained valuable experience from the millions of flight hours -- hours of flight time in the more than 50 million passenger connectivity sessions to date. It's easy to underestimate the time and investment needed to meet the airlines' reliability requirements. We monitor more than 7,500 commercial flights 24/7, 365 days per year, for usage speed and numerous quality metrics. We have over 20 maintenance hubs to service aircraft on the ground. We also have redundant data centers to ensure failover capabilities, and a sophisticated network operations center are staffed by highly specialized and dedicated professionals to ensure the continued focus on service, quality and reliability. Our 70-person customer care team helps passengers solve connectivity issues in real time by using our live Internet chat, and provides incredibly valuable information to us about how we can improve our service. Developing, deploying and operating a global communications infrastructure for aviation is a scale game. Of the 13,000 commercial aircraft outside of North America, only a few hundred have broadband technology installed today. Our backlog of 332 international aircraft, including Delta International fleet, Japan Airlines and Aeroméxico, exceeds the current installed base. We believe our large number of aircraft -- we believe a large number of airlines will commit to a connectivity solution this year and next. We are committed to gaining significant share in the international market. Let me now give you an update on the progress of our international deployment. We received our milestone STCs for our Delta 747-400 aircraft and had our first Ku plane flying by the end of the year. We are pleased with the performance of our service on this plane. Yesterday, we announced our STC of Japan Airlines' 777-200 aircraft. This is a major milestone for Gogo and a big step in clearing the way for connectivity service on JAL aircraft. We expect to launch service for both JAL and Delta later this year, and finish the year with between 50 and 100 international aircraft. Finally, let me turn to BA. BA's revenue of $37.1 million for the quarter grew 52%. Segment profit reached $16.1 million for a 43% segment profit margin. With very low CapEx requirements, this business is generating strong and growing cash flow. With 2,000 ATG aircraft online against an addressable market of 20,000, and with our recent products introduction such us Text & Talk, universal cabin system and Gogo Vision, we are very excited about the prospects for increasing both aircraft count and revenue per aircraft in BA. To wrap up, I'm very pleased with our results and achievements to date. We had an outstanding fourth quarter and full year 2013. As we look to 2014 and beyond, we are excited about the opportunities to expand our global communications infrastructure for aviation. Our aviation partners count on us to deliver, because the connected aircraft is the future of their industry. Now I'd like to turn the call over to Norm to take you through the numbers. Norm?

Thank you, Michael. Good morning, everyone. I'm happy to report that we had another great quarter with record revenue levels realized in both the CA-North America and BA segments, as well as solid profitability improvement in these segments. On a consolidated basis, we generated revenue of $92.6 million for the quarter, up 46% versus the fourth quarter of 2012. Our service revenue of $69.7 million was up 44% and comprised 75% of our total revenue. Our equipment revenue of $23.9 million was up 52% versus 2012. Our adjusted EBITDA of negative $0.3 million was down from $0.5 million in the fourth quarter of 2012, driven by our increased investment in CA-Rest of World. The segment loss at CA-Rest of World for the fourth quarter was $14.4 million. Let me now give you some additional color by business segment, starting with CA-North America. Revenue of $55.4 million was up 41% versus the fourth quarter of 2012, driven by 40% growth in connectivity revenue with across-the-board increases in single, subscription and nonretail revenues. Our aircraft online increased to 2,032 at year end, up 12% versus year-end 2012, and our average revenue per aircraft online, or ARPA, increased 21%, just under $9,000 per month in the fourth quarter, indicating an annual run rate of more than $107,000. The growth in our ARPA was driven by a 21% increase in connectivity take rates to 6.9%, reflecting continued strong growth and demand for our connectivity products, slightly offset by a $0.38 decline in our average revenue per session to $10.29. We generated a segment loss of $2 million in CA-North America for the quarter versus a segment loss of $3.1 million in 2012 for the fourth quarter of last year. CA-North America operating expenses continued to increase on a nominal basis, as we invested in our next-generation technologies and incurred additional G&A expense to support the growth of the business and becoming a public company. However, our cost of service as a percent of revenue declined by 6 percentage points to 52%, demonstrating the inherent scalability of our network infrastructure. Let's now turn to BA. As Michael mentioned, BA had a sensational quarter. Revenue of $37.1 million was up 52% versus the fourth quarter of 2012, driven by a 50% increase in service revenue and a 54% increase in equipment revenue. During the fourth quarter, we continued to see strong demand for our ATG broadband equipment, including our recently introduced Text & Talk product. We shipped 248 ATG Gogo Biz systems during the quarter, up 56% from 159 shipped in the fourth quarter of 2012. Our average equipment revenue per unit shipped for the ATG system of $61,000 benefited from the sales of the recently launched Text & Talk product. The number of ATG aircraft online at year end increased to 2,047, up 41% versus year-end 2012, and our average monthly service revenue for ATG aircraft increased 5% to just under $2,000 per month. On the satellite side, we shipped 167 satellite dish systems during the quarter and ended the year with 5,175 satellite aircraft online, up 145 aircraft versus year-end 2012. Average monthly service revenue for satellite aircraft online in the fourth quarter increased 23% to $163, driven by price increases we implemented for Iridium services in January of 2013 and the introduction of SwiftBroadband service, which has a much higher ARPU than our Iridium service. BA's segment profit increased an impressive 91% to $16.1 million for the quarter as the increase in high-margin service revenue, coupled with the Text & Talk product, drove the segment profit margin from 35% to 43%, our highest on record. As of December 31, 2013, we sold 552 Text & Talk units. Finally, let's move on to CA-Rest of World, which as you know, is still in the startup phase. For the quarter with essentially no revenue, Rest of World generated a $14.4 million segment loss, an increase of $9.6 million versus the fourth quarter of 2012, primarily driven by the increase in our satellite capacity, extensive engineering activities for satellite systems development and certification, and increased sales and regulatory activity. On a consolidated basis, our fourth quarter adjusted EBITDA decreased by $800,000 versus prior year to a loss of $0.3 million. Net loss attributable to common stock decreased to $22.1 million for the quarter or $0.26 per share compared to a $36 million net loss attributable to common stock or $5.29 per share for the fourth quarter of 2012. Adjusted net loss per share in the fourth quarter of 2012 was $19.1 million or $0.22 per share. Capital expenditures increased to $27.4 million for the quarter, up from $25 million for the fourth quarter of 2012. The increase in CapEx was due largely to higher airborne equipment spending for ATG-4 upgrades and higher capitalized software spend. Cash CapEx, defined as capital expenditures net of airborne equipment proceeds received from the airlines, increased to $23.9 million for the quarter, compared with $11.8 million for the same period in 2012, driven by primarily by a $9.7 million decrease in airborne equipment proceeds. Now turning to the full year consolidated results. We generated revenue of $328.1 million, up 41% from 2012. Service revenue of $250.4 million was up 50%. Equipment revenue of $77.7 million was up 17%. Service revenue comprised 76% of total revenues compared to 72% in 2012. Revenue growth was driven by a 48% increase in CA-North America and a 30% increase in BA. CA-North America revenue growth was driven by a 12% increase in aircraft online and a 20% increase in ARPA. The CA-North America segment loss narrowed by $10.9 million or almost 90% to $1.3 million, while we continue to invest in our next-generation technology. BA revenue growth was driven by a 52% increase in service revenue and an 18% increase in equipment revenue. Service revenue growth was driven largely by a 41% increase in ATG aircraft online, coupled with a 5% increase in the average monthly service revenue for ATG aircraft to just under $2,000 per month. Equipment revenue growth was boosted by a 28% increase from ATG units shipped and an 8% increase in average equipment revenue per ATG unit shipped. BA's segment profit increased by $14.9 million or 42% to $50.7 million. This reflected a 4-percentage-point improvement in the BA segment profit margin of 40%, driven largely by a shift in mix to higher-margin service revenue. Service revenue comprised 31% of BA revenue in 2013 compared with 35% in 2012. CA-Rest of World generated revenue of $1.6 million in 2013. The CA-Rest of World segment loss rose [ph] to $41 million from $14.3 million, driven by our increased investment in international activity. Our adjusted EBITDA decreased slightly to $8.4 million from $9.3 million, including a $26.7 million increase in CA-Rest of World segment loss. Net loss attributable to common stock increased to $145.9 million for the year or $3.05 per share versus a $95.6 million net loss attributable to common stock or $14.07 per share for 2012. Of the $145.9 million net loss for 2013, up to $36 million was due to the conversion of preferred stocks into common stocks at the start of our IPO. Adjusted net loss attributable to common stock in 2013 was $75 million or $0.88 per share, while adjusted net loss attributable to common stock in 2012 was $42.4 million or $0.50 per share. Capital expenditures increased to $121.4 million for 2013, up 53% from $79.5 million in 2012. The increase in CapEx is due to upgrading several aircraft to ATG-4, increased investments in our ATG network, capitalized software and the purchase of airborne equipment for CA-Rest of World to prepare for 2014 installation. Cash CapEx, defined as CapEx net of airborne equipment proceeds received from the airlines, increased to $104 million in 2013, up 81% versus $57.6 million for 2012. In conclusion, we're very pleased with the financial and operating performance of the business. We ended the year with $266.3 million of cash on hand and are well capitalized to gradually go to [ph] the large international opportunity Michael spoke about earlier, and to continue to invest in next-generation technology to extend our leadership position in the market. I'd now like to spend a few minutes on the business outlook for 2014. We're providing total revenue guidance of $400 million to $422 million, reflecting growth of 23% to 29% as our strong momentum continues to build. This includes CA-North America revenue of $240 million to $250 million, reflecting growth of 21% to 26%; and BA revenue of $157 million to $167 million, reflecting growth of 24% to 31%. As a result of certification delays we're seeing from our STCs, we're now projecting $3 million to $5 million in revenue for CA-Rest of World, as we expect to launch international service for Delta and Japan Airlines later this year. We're providing adjusted EBITDA guidance of $8 million to $18 million. Finally, we expect our cash CapEx to range from $105 million to $125 million, reflecting a similar pace of ATG-4 upgrades, continued investments in our ATG network and more equipment purchases. We expect CapEx for the year to range from $170 million to $210 million. Operator, we're now ready to take our first question.

[Operator Instructions] Your first question comes from the line of Jonathan Schildkraut from Evercore.

I have a bunch of questions. I'll ask a couple here, and then I'll circle back, I think. But I was wondering if you could give us some color on maybe the performance of the ATG-4 planes, take rates or ARPA on those planes versus sort of the broader base. And then if you could just kind of take us through some updated numbers. During your prepared remarks, you talked about ATG planes installed, but maybe give us the Gogo Vision numbers in terms of installs and how many are active. And then finally, your EBITDA guidance range is really narrow. And just wondering how you thought about developing that range and how you were able to pinpoint such a narrow range.

Okay. I'll take the first couple of questions and Norm will take the third. So the benefit of ATG-4 instantly is in customer satisfaction. On our more -- busiest flights, they will see a better experience, our passengers will. And as we mentioned in the script, chat rates, which we find highly indicative of service levels, we hear from our customers, fell in half when we introduced ATG-4 on the busier flights. We see that all in our customer satisfaction metrics. Having additional capacity will allow us to continue our growth rates. Overnight, it does not mean that you'll have a meaningful step-up in the number of users. You just improve the satisfaction and have the capacity to keep growing. And we're very pleased with that. It's been optimized. Again, this is a proprietary technology that was developed by Gogo uniquely, so not only is it on more planes, it's performing better every day. Our engineering staff say so, but more importantly, our customers say so. On Gogo Vision, we now have our equipment installed on well over 1,000 aircraft across the new American, combining American and US Airways, and Delta. It is active on the old American fleet. Today, we're incurring revenue -- seeing revenues from that fleet. And we will have all those planes, well over 1,000, activated here in the next few months. And we'll end the year with about 1,700 aircraft with Gogo Vision installed.

Jonathan, with your question of EBITDA range, at this point, our revenue over a 12-month view is fairly predictable. CA has more established trends. BA fluctuated, but not that significant. We have good control of our operating expenses, so not that hard to do a reasonable range on the EBITDA. Finally, on CapEx, particularly with proceeds, it's a little tougher to get your arms around, but that doesn't reflect [ph] the EBITDA. So we're comfortable with that range.

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

First, just a follow-up on the ATG-4 question. Michael, are you guys able to target the -- I know the planes sometimes change, but the highest-use routes with the ATG-4 upgrades just so that you can put the capacity where it's needed and alleviate those bottlenecks as soon as possible? And then just on the revenue per session, obviously it fell a little bit year-over-year and you have been getting high single-digit increases. I mean, what drove that dislocation in the fourth quarter? And then how do you see that progressing in '14?

Yes, okay. So again I'll take the first one and Norm will take the second one. We are increasingly targeting our ATG-4 deployments to the aircraft that need it most. The initial deployment was across US Airways' entire fleet, when we signed them up and did the initial install. But now the subsequent installations of ATG-4 are the most targeted. The 757s, 767s are probably the 2 biggest fleets, 737s and A320s are after that. And we know by aircraft type how often you will see flights with, say, 25 users or more. And those are the flights we're really going after. So by the end of this year, we will have the aircraft installed in the significant majority of the flights with 25 or more users.

The answer on ARPS reflects the adoption of [indiscernible] during 2013. We introduced those in a significant way at the beginning of -- at the very end of 2012 coming through 2013. So those are, as you know, used by short period of time for different price points. So that mix change is what the ARPS [indiscernible].

Well, even though we raised prices significantly at the end of 2012 and modestly or even moderately during the course of 2013, it's just strictly a mix issue that causes that number to fall.

Is that going to hurt comps until we sort of anniversary the change in '14?

No, it should not. It should not. The adjustment was made in 2013, so comp should be reasonable in 2014.

Yes. I will -- even though you didn't quite ask the question, when we introduce, which we expect to during the course of the year, our text product into commercial aviation, that would generate lower revenue per session. But it's very efficient bandwidth-wise, so we're going to like that product.

Next question comes from Phil Cusick with JPMorgan.

This is Ava for Phil. I have 2 questions, if I may. First, it looks like Talk & Text has a nice contribution to BA in 4Q. So if you can give us some sense how sustainable that is and just the revenue impact to 2014, that will be great. And then my second question is can you give us some color on the impact of snowstorms in 1Q? There have been just a lot. And did the weather also affect installation schedule on both the CA and BA side?

Okay. So once again, we keep asking one for me and one for Norm. Norm will give you the snow report and I will talk about Text & Talk. Text & Talk has been very well received in Business Aviation. Our list price for Text & Talk for the activation key is $10,000, some of which is shared with the distribution channel. And for our larger fleet operators, there's some discounts that we extend. And we have now sold keys to more than -- representing more than 1/4 of our installed base. So we've passed the 500 mark on keys. The monthly fee is minimum of $135 a month. That includes text, talk, as well as use of your corded or wireless phone in the cabin, the phone associated with the plane, not your own personal phone.

So across our product feature [ph] upfront was almost full margin and the monthly share is [indiscernible] because the Text & Talk solution is so bandwidth-efficient, it's very, very high margin, so mostly drops to the bottom line. As we sell more ATG units, we'll sell more of the Text & Talk features, and so we should have a positive [indiscernible] from that going forward. On the snow thing, the weather-related question, we do 7,500 flights a day on the commercial side. There were several days where there were canceled flights, 1,000 here, a couple of thousand there, but over the course of a month, we're doing well over 200,000 flights. So the impact on any month will be de minimis.

We can safely say it will be less than $1 million impact in the first quarter. There's -- I mean, the issues of calculating the number, our canceled flights versus normal amount of canceled flights, and a lot of people rebook, so load factor goes up on the flights that weren't canceled. So it's not as obvious a calculation. But we also benefit from -- in the BA side, it's per plane, per month. We have our subscription product in the CA side, which is also billed per month, independent of the weather. So it won't be a huge impact on us.

Your next question comes from the line of Simon Flannery with Morgan Stanley.

Norm, I wondered if you could just give us a little bit of color around the margins by segment implied by your 2014 guidance. Are we going to see much in the sort of change with the relative contribution by the 3 units? And if you can provide any more color around the drivers of cash OpEx, where the big things driving that are. And then Michael, maybe on the installs in the Rest of the World, you talked about some of the delays. But I think you had suggested last week that perhaps the logjam was starting to clear. Look, I think roughly, you've got about 300 planes in backlog. Can you just talk about how you see the year proceeding? And what gets you to 100 planes? What gets you to 50? Are we going to see much in the first half here? Just any color around -- and how much is JAL? How much is Delta? Any color around that would be really helpful.

Okay. So continuing with our format here, I'll go first and Norm will go second. So 50 to 100 is what we expect to install this year. In general, you will see the STC activity, the certification process, happen in the first half of the year before the summer flying season. And then after the summer flying season, when aircraft aren't available to us during the summer, you will see the production installs happen after the summer. We have the 747 fleet going right now in production install with Delta, happening before the summer. There's 16 planes in that fleet. And you will maybe see a few other installs before the summer, the rest after the summer. We expect to have substantially the entire backlog done by the end of 2015. So we will have essentially almost 332 done by the end of next year.

Okay, great.

Simon, on the CapEx piece.

Yes, segment EBITDA. Yes.

Yes. Well, the CapEx first. The CapEx piece, it was ATG-4 installs that we were on the hook for under the original couple of contracts, that will continue into 2014. It was also building the equipment inventory for the Rest of World so that we can do the installs in the first and second quarter of the year of 2014. So it will be those same things that drive 2014 CapEx as well. In terms of segment margins, we really don't give guidance at the segment margin level, just consolidated EBITDA.

Okay. Well, just maybe we'll just take on -- you're obviously at 2,000 planes on your CA-North America. When do we start to see those margins starting to turn up from here? We've got good growth. You've got good increasing penetration. But obviously, you still had a segment loss. I understand there's some corporate overhead in that number and so forth. But are we going to see that improve nicely during 2014?

Yes. So Simon, I'll take this. We are running about a 50% consolidated gross margin. We think that's an industry-leading number. And we think sustaining a 50% gross margin allows us to be a very profitable company long run. As we've described in the past, we've stepped up our investment to become global, to support multiple technologies and even a little bit as part of the going-public process. We think there will be significant leverage in our operating expenses over time. In the U.S., in the Commercial Aviation business, the #1 driver of profitability will be revenue per aircraft over time. As I think you're implying, there isn't a lot of incremental opportunity to drive total number of aircraft and we can add a few hundred more, but we can't add thousands more in CA. But we can make substantial improvement in the revenue per aircraft. And that will have, in our view, very good incremental economics.

Our next question comes from the line of James Breen with William Blair.

Just a couple of questions. One, from a competitive standpoint, where do you see yourselves positioned relative to Panasonic and ENT on sort of the satellite? Do you feel like as you're getting the approvals, like Japan Airlines and hopefully others coming soon, the product set will be on par with everyone else's out there? And then secondly, a little bit of a pickup on Simon's question. As we think about the model and we think about take rates, which was particularly strong this quarter at 6.9%, is there a certain take rate number that you think about, whether it's 11%, 12%, that's where you should start seeing more mature EBITDA margins, north of 25% or 30%?

Okay. I'll take both of those. So we believe this is a global communications infrastructure play. And we believe we are the only ones that have a sole focus, a pure-play on that issue. We are, at our core, a telecommunications company bringing telecom to in-flight aviation. And that really is driven, like all telecommunication services, by scale. And it's a global scale game because the minimum servicing area that's viable is somewhere between a superpower and a continent. You cannot have a municipal in-flight Wi-Fi company, you need to cover a large serving area. We also concluded that there simply weren't enough commercial planes in the United States to maintain global scale. There's about over 4,000 business -- I mean, sorry, commercial aircraft in the U.S. and 13,000 outside. So the company that has the most planes will be the strongest competitor in this business across most every front. And so that's why it's not product set. That's nice to have all incremental features on the side, but you won't win the game that way. You'll win the game by signing up a lot of airplanes and delivering world-class communications to those planes. On the take rate, answer it 2 ways. One, we've seen very clear growth in our take rates over the last few years. Every year it keeps matching up, even as we've raised prices. Lately, we've explicitly raised prices. And a couple of years ago, we were reducing the number of free sessions we gave to people. But either way, that number has risen, so there's a very strong underlying trend there. That trend will keep going. We've seen nothing that will slow that down. In the long run, it is our vision and, I think, almost an inevitability that every passenger on the plane, as well as the crew, as well as the aircraft, will be using communication services. And so like Text & Talk will be the next one that will engage a lot more of the plane. But ultimately, the airlines will engage with their passengers in lots of ways, to rebook flights, to get connecting gate information, to track bags, to provide information to the crew about passengers and their needs. So ultimately, we're going to engage the whole plane.

And around Norm's comments on some of the new services like the text, that will obviously drive up the take rates at a lower absolute revenue level. But sort of based on Norm's comments about that being a higher EBITDA margin product, although it may dilute the ARPU a little bit, does it seem like it should keep margins relatively high?

Correct. So ultimately, it's revenue per plane that you really need to keep your eye on.

Yes. I mean, the texting part will have a much higher margin than the basic connectivity part. So that will have an impact on overall margins. But texting sessions, with our pricing at $2, $3 versus an average of $10, you need a good number of texting sessions to have real impact on overall margin. But it will have a positive margin contribution, raising the average.

Okay. And then just one last question just in terms of the global scale. If you look at the U.S. market and think about 2,200 to 2,300 planes for you guys, as you look globally, where do you feel like that scale number is in terms of aircraft? Is it 1,300, 1,500? Because it seems like some of the global aircraft tend to yield more revenue per plane because of the long-haul routes?

Well, first, the global aircraft clearly yields more revenue per flight because of longer routes, but you get more flights per plane per day domestically. So the variance is definitely there. You prefer bigger planes flying longer, but not by quite as wide a margin as you might first think. Since we went into the international business in summer of 2012 with the Delta contract, we have signed up nearly 50% of all the aircraft that have been awarded. There's been a bunch of trials, a couple of plane here or there. But the deals we've announced have been 75 aircraft or larger. So I think the opportunity outside the United States is to sign up ultimately more planes than we have in the United States. I also think we are investing -- I don't think, I know we're investing a lot less to go global than we did in the U.S. I know we're doing it 6 or so years later, when the certainty about the business opportunity is a lot higher. But it's clearly going to be more competitive outside the United States, because people have seen what we've done in the United States and they want in. But when you lay out more upside opportunity, less investment, less risk about what the business looks like against a more competitive environment, I feel very good about our international expansion.

Your next question comes from the line of Jonathan Schildkraut with Evercore.

I just wanted to go over some additional items. It sounds like you've got about 93, 95 planes with Ku satellite STCs between the Delta 747s and the Japan Airlines flights. Am I missing other portions of the fleet or the backlog that have Ku STCs?

Those are the only 2 that have been awarded so far. We obviously have numerous others in process and said earlier, we expect to be able to announce more STCs before the summer.

Okay, great. I'd like to ask a question about the wholesale versus retail dynamic in the marketplace. You guys have talked that your retail approach has been a competitive advantage in attracting carriers to your platform. And I'm just wondering, when you go out there and speak to existing and potential carrier customers, what factors are they weighing when they think about the retail model with you versus a wholesale model with one of your competitors?

Yes. So a very good question. We did start with the retail model in the United States, it's working very well. You can see from our projections for next year, our guidance of next year for Commercial Aviation of nearly $0.25 billion of revenue from the passenger, most all that from the passengers. So it's really airlines have to think about whether they want that revenue stream. We don't think anybody else can manage collecting revenue from the passenger as well as we can. So I think the retail model versus the wholesale model comes down to the airlines, whether they prefer to get a check or write a check. But that runs against some of their instincts over control and controlling the passenger experience and keeping it versus letting Gogo's brand be out here and our pricing structure be out there. So we have increasingly shown more flexibility on how we deal with the airlines over time, I'd expect that trend to continue. But I also expect, at the end of the day, airlines are going to choose the Gogo model because you can either have bags fly free or you can charge the bags. And most airlines charge the bags. And I think most airlines are going to want to change charge the connectivity service, too.

All right, that's very helpful. One last question, if I may. JetBlue sold LiveTV to a third party today. I know that that's a business which is still primarily in-flight entertainment versus connectivity. But any thoughts on that change in ownership and prospective implications for the competitive landscape?

So one is I think, once again, it reflects how valuable people are seeing the opportunity to connect aircraft. And so it's, I guess, value-affirming. Two, we think it has very little impact on the competitive landscape as we see it today. So we're not -- yes, we see very little change there. And we've come to the conclusion that organic growth is the most efficient way for Gogo to grow at this time.

And I would like to turn the conference back over to the presenters for closing remarks.

Okay. Well, thank you very much. I'm very pleased with our quarter and we look forward to continuing dialogue with all of you. Thanks. Bye.

This concludes today's conference call. You may now disconnect.