Good day, ladies and gentlemen. And welcome to the Gogo Inc. Second Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded. I’d like to introduce your host for today’s conference, Ms. Varvara Alva, Vice President of Investor Relations and Treasurer. Ma’am, you may begin.

Thank you, Vince. Good morning, everyone. Welcome to Gogo’s second quarter 2014 earnings conference call. Joining me today to talk about our results are Michael Small, President and CEO; and Norm 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 the risk factors that could cause actual results to differ materially from those in the forward-looking statements on the conference call. These risk factors are described in our earnings press release and our more fully detailed under the caption Risk Factors in our 10-K, which was filed with the SEC on March 14th. In addition, please note that the date of this conference call is August 11, 2014. Any forward-looking statements that we may make today are based on assumptions as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we’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 Gogo’s website at ir.gogoair.com. The earnings press release is also available on our website. Finally, after management’s remarks, we’ll host the Q&A session. And now, I’d like to turn the call over to Michael.

Thank you, Varvara. Good morning, everyone. Welcome to Gogo’s second quarter earnings call. Q2 was another great quarter for Gogo. Building on our position at the leading global aero communication service provider, we kept our focus on three main goals for the quarter. First, sign new aircraft, second, create more and lower cost bandwidth, and third, continue to hit our numbers. We made great progress towards all three goals during the quarter, but before I get into that, I want to take a moment to welcome two new directors to our Board, Christopher Payne and Sam Gilliland. Christopher is a 24-year veteran of the technology and e-commerce industry and currently serves as Senior Vice President of North America Marketplaces at eBay. Previously he helped launch Bing for Microsoft and extend Amazon’s product line beyond books. Sam Gilliland was most recently Chairman and CEO for the 10 years at Sabre Holdings, a global travel technology company, prior to that he held various senior leadership positions at Sabre, including President and CEO of Travelocity. Both Christopher and Sam had great and relevant background, and we will bring valuable insights to Gogo’s Board. I’d like to now provide some color on each of our Q2 achievements starting with the financials. This was another great financial quarter for Gogo. We reported record quarterly revenue of $99.5 million and adjusted EBITDA of $3.1 million. Our consolidated revenue grew 25% year-over-year. Segment from CA, North America and BA combined was $21.9 million, which was up 67% year-over-year and resulted in a 22% segment profit margin for the quarter. Our adjusted EBITDA of $3.1 million for the quarter was down $0.7 million versus last year and included nearly $19 million of investment in international, which I am very pleased to say is now up and running. We…

Thank you, Michael. Good morning everyone. As Michael mentioned, we had a great quarter. We achieved record revenue of $99.5 million for the quarter, up 25% versus the second quarter of last year. Our service revenue of $79.2 million was up 28% and our equipment revenue of $20.4 million was up 78%. Our consolidated results include strong growth in segment profit at both CA North America and BA and nearly $90 million investment in our international expansion. As a result of the expansion, our adjusted EBITDA of $3.1 million was down $0.7 million versus last year. In July, we announced $75 million increase in our credit facility at a cost about 4 percentage points lower than our previous borrowings. This reflects the markets recognition of our strong execution track record. Let’s now turn to the performance of our operating segments. CA North America revenue of $62.1 million was up 25% versus last year, driven by an increase in connectivity revenue. We ended the quarter with 2058 aircrafts on line, up 76% versus Q2 of last year. Our average monthly service revenue per aircraft or ARPA reached nearly $10,000, up 18% from last year. This indicates the run rate of nearly $120,000 per aircraft. ARPA growth was driven by -- primarily by 14% increase in take rate to 6.7% and 3% increase in the average revenue per session of $10.70. I’d like to mention that we have revised our reported GTO number for Q1 of this year to $71.3 million from $74.7 million to reflect updated operational data that became available following the filing of our first quarter report. This had only a minor impact on take rate in ARPP. For the quarter, CA North America cost of service declined to 46% of service revenue from 50% last year, driven by…

(Operator Instructions) Our first question comes from Jonathan Schildkraut of Evercore. Your line is open.

Great. Good morning and thank you for taking the questions. Couple, if I may, first ARPA was obviously very strong number in the quarter. Norm, you mentioned the couple of the reasons, driving some of the ARPA increase. Could you let us know if there were any sort of incremental services that were driving some of that growth or was it just purely sort of take rate in a cost per session. And then, I guess, my second question is really around install rates and backlog. And so, could you remind us if there is any seasonality associated with installing equipment onto new aircraft and then just remind us where we are in terms of the backlog of planes both domestically and internationally. Thanks.

Sure. So in ARPA, there was no new particular service that was launched to drive that. It really was our continued organic growth increase in natural adoption in driving take rate up. In terms of install seasonality, there is seasonality in the summer months. The airlines are really deploying every aircraft they have to meet the peak summer travel season. So installations naturally declined in the second or third quarters, pick up back in the fall after the summer travel season.

Great. In terms of backlog of aircraft?

So right now we have a backlog of about 250 aircraft waiting for installation.

And that’s all domestic or it’s put between domestic and the rest of world.

That’s just North America. Overseas, we have Delta and JAL and we’ve only installed about 25 planes in total.

Our of 300?

Right.

All right. Thank you. I will circle back into the queue.

Thank you. Our next question comes from Phil Cusick of J.P. Morgan. Your line is open.

Hi. This is Ava for Phil. I have a question on the EBITDA margin on CA North America. It looks like it is a very pretty good quarter and margin was at 10%. Should we expect margin to stay stable or is that some room for expansion in the second half? Thanks.

Well, we really like to enter margin quarter-by-quarter, but our guidance for the year in terms of EBITDA other than the adjustment for CA Rest Of World, we are maintaining that right now.

Okay. And if I can just ask another question, on the BA side, it looks like you disconnected 11 satellite units in 2Q. Can you give us some color on what might have driven that disconnect?

So there is a natural movement of planes as owner sell their aircraft. When the aircraft get sold, it generally get disconnected and there’s a lag between net point of sale and one of new owner reestablish the service. That fluctuates quarter-to-quarter.

We’re actually learning that way need to increase our, I guess, you call it retention efforts when there is an aircraft transaction to try to minimize the lag. Now that we have such a large installed based planes, it is worth investing more in that.

Okay. Got it. So it was because of aircraft transaction, not because of voluntary churn?

Correct. A very high percentage of the churn is related to aircraft transactions.

Okay. Thank you.

Thank you. Our next question comes from [Armendos Jackvisious] (ph) of Morgan Stanley. Your line is open.

Good morning. Thank you for taking the question. On the international side, can you provide us an update on the Air Canada and AeroMexico contract? And then also any initial takes on the international flights with Delta Airlines and Japan Airlines. How do the take rates and pricing compare to the flights that we see in U.S.? And lastly, on the domestic side, what are your thoughts around Text & Talk? And when we should start to see that come true? Thank you.

Okay. It’s Michael. AeroMexico and Air Canada were in the final stages of negotiating the definitive agreements and we expect those to conclude very, very shortly. The Air Canada agreement is for the domestic fleet, initially with an option for the international fleet. The take rates internationally, we had 19 planes installed at the end of Q2 and then slowly, steadily installing them during the summer months, so it will accelerate in the fourth quarter. We think its way too early to comment on take rates with so few planes installed. What we are very pleased with is the performance, technical performance of the planes. We think our brand of Ku outperforms anything else, we see in the market place from our flight test. So we’re very pleased with how it’s performing. Text & Talk domestically, we do expect a more aggressive launch in CA at this year. Our big launch for new services most recently was Gogo Vision on Delta. We also expect that to continue to deploy across other airlines in more significant ways. We do think in the remainder of the year, both Gogo Vision and Text &Talk will start to combine to add some revenue impact. Up to now, they’ve had minimal but we think that will change during the rest of the year.

Thank you.

Thank you. And our next question comes from Andrew DeGasperi of Macquarie Capital. Your line is open.

Good morning. And thanks for taking my question. So, first question I want to ask you. Global Eagle last week said they signed a sponsorship and ad representation agreement with Delta. Just want to understand if you provide that service and if you do not, do you plan on offering it in the future?

Yeah. We are very gratified that Global Eagle wants to be advertising sales organization for our new platform. It’s the largest deployment in the world of wireless IFE on Delta with over 800 planes. And I think, it’s an exciting new offering and Delta’s put a lot of marketing muscle behind launching that. And we do think there will be lots of opportunities to get sponsorship to our advertising sales around that. But it’s our Gogo Vision powering it. Its Delta’s branded offering tailored to their customers. And I think, there will be lots of ad sale opportunities. Going forward the deal works, we will participate in the economics of any sponsorships that happen.

Great. And secondly, I’ve read that Delta have mentioned retiring its 747 fleet. I believe, they said that 25% of their aircraft will be retired this year. So just wondering if that plays any -- if you know the timing around that for the whole fleet and then in general, would this impact your aircraft online for the Rest of World segment this year, like any volatility or anything to that effect?

Yeah. They have 16 747, so they’re talking about four of them retiring, which could impact -- well impact our plane capital. We will still fall safely within the range of 50 to 100.

Great. Thank you.

Thank you. And our next question comes from John Hodulik of UBS. Your line is open.

Hi. It’s Lisa Friedman for John. I just wanted to see if you could give a little more color around the revenue model for Delta Studio, Gogo Vision and what it may look like with other carriers going forward? Just I know that they’re providing it to some end users for free. They’re charging some end users. Their charges are different depending on where you’re sitting in the cabin. So how do you see that flowing to your financial statements and how material might it be by the end of the year? Thanks.

Good question. We are yet going to disclose before business model there but Delta pays us and then it is Delta’s choice in how they charge their customers. So, we get paid whether Delta gives the service away for free of charges to the customer.

And do you expect there was any other airlines the arrangement would look similar?

We have increasingly moved towards the B2B, particularly with our new services like Gogo Vision, Text & Talk where we’re prepared to do different deals with different airlines and maybe in some cases even with third parties to support those services. So give us a little more time, we’ll be back here on the business model, but I will say, I do expect revenues to become apparent to investors here, starting in the second half of this year as we build those businesses.

Okay. Thanks. And one more if I could. With new financing that you were able to obtain at the more favorable rates, will where we see you repaying some higher rates and debt and apologies if the detail is going to be in the Q? Thanks.

No. We don’t expect to prepay any of the existing debt and we’re still in the very expensive period where calling the debt would engender a hefty premium.

Okay. Thanks so much.

Thank you. And our next question comes from Jonathan Schildkraut with Evercore. Your line is open sir.

Great. I was wondering if we could swing back to some of the commentary around EBITDA pressure relative to prior expectations. You mentioned Norm, in your prepared remarks, I think bird strike applications, STC is covering more different type of planes and the STTs for the Ku aircraft, so just simply kind of run through this. In terms of the ROW, I think, on the last announcement we had about 125 aircrafts in the backlog covered by your current STCs? I just want to make sure that was up-to-date on that number? And then maybe if could gives a little bit more color where the Delta versus your prior set of expectations in terms of the STCs that you are talking about today came from? That would be helpful. Thanks.

Sure. Where we got into the Detail Installation Planning for both Delta and JAL, in apparent there were more variations of the aircraft then we had originally anticipated in our projection for the year. So, we needed to do additional STCs, international STCs or more expansive than domestic ones, so it affected the EBITDA related to rest of world. Likewise, as there's more and more interest in 2Ku and are further along in the development cycle we are beginning to work on STCs with 2Ku earlier, a better earlier than anticipated as well. In terms of clearing the bird strike versus original projections that turned out to be a little more expansive as well, so fact factor all those three things together, we will have an impact on rest of world’s EBITDA for the year which obviously impact the overall guidance

Right. Now in terms of that, two questions, I guess, one, is can you give us a range or quantify the incremental costs that you are now looking at? And then second just in terms of understanding how the middle or the model roles forward, this will not impact or at least, I’m asking, whether this will impact to what your expectations are for operating leverage, it would seem like it wouldn’t impact them at all as we look forward into the model?

Yeah. So, Jonathan, as you know, we only offer guidance on consolidated EBITDA.

Yeah.

We don’t really give guidance on segment profit by division. So I will take the fifth under the question regarding impact on CA rest of world in particular, but since we had a $10 million range and we are now guiding to lower end, you can get a sense of relative impact from rest of world.

That’s helpful

Yeah. And I would also add that, we’re in a totally difference place with the rest of the world, a year ago, we were struggling with those STCs but we’re beyond that, we are up and running, we’re getting real customer feedback, we’re getting real airlines feedback and how it’s going, we’re making improvements daily, we are pleased with the operational performance. I now know that the international business against to ramp in a real way starting in Q4, you will start to see the revenues build, for a long time we were struggling to get out starting blocks and so we’re by that point now. And so to me running the company that’s a major change. The predictability, the visibility of what we are doing in international that are whole different point than it was at the start of this year.

Michael, maybe you could dive a little bit deeper on that, at the Analyst Day, not too long ago, you gave us some updated color on sort of where you thought the company was relative to what had been allocated on ROW bases, what your market share was, have there been any changes in number, is there any incremental color you can offer today?

I -- incremental color I would offer is that, first, our credibility, because we’re flying, that’s changed. People are recognizing that we know how to run this business better than anybody else based on the number of planes we are flying and that matters making it work everyday for every passenger in every airline. We also are seeing phenomenal increase in the interest in 2Ku. It is a better solution. That’s by factor of two and cost and capacity, and by substantial margin coverage around the global, and that’s certain other operational benefits. But those are the two biggies. And the airline industry is beginning to get their heads round it and its very easy for them follow the traffic, heard about the other solutions for years. So that has more brand credibility on the heads, we are over coming that rapidly with the benefits of 2Ku.

Thank for taking the questions.

Thank you. (Operator Instruction) Our next question comes from Carter Mansbach of Jupiter Wealth Strategies. Your line is open.

Gentleman, congratulation on another solid quarter. I want ask you two question regarding Delta Vision. I want to push a little bit on this, because I can’t seem to wrap my head around the revenue base? I know you’ve had Gogo Vision for quarter a while, I know that Delta is really pushing it right now? What I want to understand is, will it be by consumption? So if there, let say hypothetically, there’s 100 people on a plane and 70 use it, do you get paid the same versus if two people use it? Will it be a consistent model? Will it be a consistent revenue stream versus hoping that someone swipes their card and pays 20 bucks for internet access? Will it make -- will it be something that will be consistent for the street to look at on a daily basis, on a quarterly basis, I should say?

I think, I’m not going to give you a direct answer to that, because we are not at that stage, we want to do that, we want couple more deals to take shape before I prepare to explain the underline economics. The -- I still believe that there is substantial increase by multiples of the average revenue per aircraft that will be a function of engaging every passenger over time, the crew and all the aircraft components navigation system, the engines, the breaks, on and on. And the -- and we cannot, just think about this business as internet sessions to passengers. I think you are going to see that model develop in material ways during the first remainder of this year and to next year? But it’s not in our interest to start disclosing that now as we are continue to negotiate additional contracts with other parties.

Okay. Fair enough. One last follow-up on that, in your mind set, if someone actually takes up their iPad and they are watching, let say, Seinfeld and they have it in their hands, they’re already engaged? Do you think you’ll see an increase in people wanting to sign-up for WiFi because they are already holding the product in their hand that may get bored and say, hey, I want to go on twitter or Facebook or whatever?

Yeah. That’s really interesting question. I believe why our penetration is still relatively low at 7% or so that anything that engages passengers with the portable lead to increase take rates cut forward. But you could argue the opposite that new services cannibalize the existing service. But, I think, we, first, we have a lot of levers to control that, I’m sure it happen. But, secondly, I think the answer totally in our favor that stimulating engagement is going to be good for everything.

Okay. Great. Thanks so much for taking my questions and again, congrats on a solid quarter.

Thank you, Carter.

Yeah.

At this time I’m showing no further questions. I’d like to turn the call back over to Mr. Small for any closing remarks.

Okay. Okay. Give one more second for questions, but and if one comes in, while I am doing closing remarks, but I, yeah, in the last -- next last question, I made comment that I feel great about the progress we’ve made this year and that we are now a multi-service, multinational B2B company, where year so ago we were more B3C, one product to North America company and that has been quiet a transformation and of course, year and it’s positions us very well for growth in the future. So, thank you, everyone. We look forward to engaging with you and your other questions in the next few days. Thank you everyone.

Ladies and gentleman, thank you for your participation in today’s conference. This concludes your program. You may all disconnect. Everyone have a great day.