Good day ladies and gentlemen and welcome to the Q3 2016 Gogo 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 call maybe recorded. I would now like to introduce your host for today’s conference Miss Alva, Vice President of Investor Relations and Treasurer. Ma’am, you may begin.

Thank you. Good morning, every1. Welcome to Gogo's third quarter 2016 earnings conference call. Joining me today to talk about our results are Michael Small, President and CEO, and Norman Smagley, Executive Vice President and CFO. Before we get started, I would like to take this opportunity to remind you that during the course of this call, we 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 this conference call. These risk factors are described in our earnings press release and are more fully detailed under the caption Risk Factors in our 10-K, which was filed with the SEC on February 25, 2016 and our other documents filed with the SEC. In addition, please note that the date of this conference call is November 3, 2016. Any forward-looking statements that we may make today are based on assumptions as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. We include an explanation of adjustments and reconciliations of our non-GAAP to the most comparable GAAP measure in our third quarter 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. After management's remarks, we will host a Q&A session. And now it’s my great pleasure to turn this call over to Michael.

Thanks, Vavara. Good morning, every1. Congratulations to the Chicago hub. We had another strong quarter and continue to build momentum around 2Ku. I cannot emphasize enough the importance of this technology as it is the fuel powering our continued growth. As of today, 2Ku is installed on 47 planes across five airlines. We remain on track to meet our guidance of 75 to 100 installs by the end of the year. More importantly, we are spearheading an unprecedented operational ramp up to bring more than 500 2Ku aircraft to the sky by the end of 2017. Quite simply 2Ku is the best performing solution in the world. We are seeing streaming class connectivity speeds of more than 50 megabits per second today and we will more than double that figure next year with our new proprietary modem in the availability of high throughput satellites. This market leading performance in all regions not just certain parts of the United States is why we have grown our backlog to more than 1,500 aircraft, 1,000 of which were awarded this year al1 including additional aircraft with Delta. The more high bandwidth 2Ku aircraft we have in flight to higher ARPA. Therefore, we remain keenly focused on reducing 2Ku. We expect to ramp up to an annual install rate of about 750 planes in 2018 and to maintain that level in subsequent years. We expect CapEx to decline in 2019 both in aggregate dollars and more significantly as a percentage of revenue. We expect to be solidly generating cash in 2020. During the quarter, we announced our next gen North American ground network that will launch in 2018. It will deliver a ground like experience for business aviation and commercial regional aircraft operating in the United States and Canada. With our regional next gen…

Thank you Michael and good morning everyone. We had a great third quarter, total revenue was up 17% to $147 million. Service revenue grew 20% to record $129 million. Adjusted EBITDA increased 57% to over $15 million representing 10% margin. Turning to segment results, CA North America service revenue increased 14% to nearly 89 million, driven largely by an increase in aircraft online over 2,600. This reflects 70 installs and 37 retirements. As Michael mentioned, we started production 2Ku installs for American Airlines partners this quarter and are rapidly deploying 2Ku or more aircraft. We had approximately 170 net new awarded or not yet installed aircraft at quarter end. We expect to install most of these aircraft by the end of 2018. In addition, number of CA-NA aircraft to be converted to 2Ku is now about 800. Remember the last of these planes are mainline high bandwidth aircraft, and while they currently account for approximately a third of our North American connected fleet, these aircraft more significant portion of current annual consumption. We expect to see meaningful growth in CA-NA aircraft and these aircraft converts to 2Ku. For the quarter, we achieved annualized ARPU of $134,000 compared to the third quarter of last year. ARPU grew 8% year over year adjusting for the dilution from additional RJs and aircraft aided by new airline partners. We expect to be largely done with RJ installs by the end of this year. We also expect about three quarters of our 2Ku aircraft installs in 2017 to be in North America, both of these factors would start fueling ARPA growth later in 2017. CA North America segment profit was up 23%, $15 million representing 16% margin. This is up 1 percentage point from last year despite incurring some one-time costs associated with the ramp-up…

[Operator Instructions] And our first question comes from Dick Ryan with Dougherty. Your line is open.

Hey Michael, it looks like you've added a nice number of orders just shy of maybe 200 since the Analyst Day. Can you discuss where those are going and maybe an extension you talk about ramping installs pretty significantly next year and 2018 as well, what if any supplies challenges - supply chain challenges are you seeing and how confident are you in that installation capability?

The primary increase in 2Ku backlog comes from fleet decision at Delta and the supply chain confidence is rising dramatically every day, you’ve seen the pace of installs over the last month and we are often doing about one a day right now. So, we have very good confidence that we will exceed 500 2Ku installs by the end of next year.

With a month gone in Q4, you've got a pretty broad range 11 million and 21 million EBITDA. What happens to get either to the low end of that range or to the upper end of the range?

We feel really good about our ability to deliver consistent results during the quarters and we feel that's a very comfortable range for us. So we don’t see significant swing [indiscernible] change in the quarter.

And one last one from me, Norman, Gogo Vision revenue, Delta and American are offering free movies, I think we were kind of looking for maybe a sequential increase in that number, came in at 7.8 million what's driving Vision at this point?

What’s driving Vision, is converting as you know converted to the wholesale model with some of our key airline partners and we’re getting very good adoption from passengers driving a lot of users.

American went free just on at the start of this month. So, that will kick in the fourth quarter.

Maybe one last one, China, it looks like you got the flyover rights, what's left to get for certifications there and what's the status with Shareco.

So we did get the right to operate the Ku bands for China and now our partners can fly over there, most often being Delta to maintain service over China and we're making great progress towards our launch with Shareco.

Thank you. And our next question comes from Phil Cusick with JPMorgan. Your line is open.

Norm, thanks for the preview of CapEx, but can you add some more detail, how should we think about the cash CapEx structure of your new 2Ku contracts versus historical?

Well, we're seeing - overall economics are attractive in all the deals, we are seeing a trend toward lower co-investment per aircraft and we’re focusing very closely on bring cost of equipment and installs down to further improve those.

So, the cost for aircraft goes two ways, the strength of 2Ku is the leading solution in the marketplace becomes clear every day and then we continue to drive cost out of the system.

I just want to make sure I understand. So trend toward lower co-investments means that they're putting in less, smaller percent of return?

No, we put in less.

Got it. What is your eRFP pipeline look like today Michael?

It continues strong and again 2Ku is clearly the superior global solution in the marketplace and I would expect to be able to continue to add to our back box.

And last, you said that Gol was free the first day. Are they now charging and how does that look, also Aeroméxico charge you? Thanks.

So at this stage of the 2Ku deployment we are focused on network performance, technical performance and it's been extraordinary not only in speed but also in reliability and availability. We continue to begin charging which is either getting regulatory approvals or deploying the platforms or just getting agreement with the airlines, it’s the path we’re moving out of data and then to follow customer mode and that’s happening steadily, but it’s premature across 47 aircraft is across five airlines, it’s way too early to begin talking about financial performance but the technical performance is off the chart is good.

Thank you. Our next question comes from Louie DiPalma with William Blair. Your line is open.

When you gave the high level target generating cash in 2020, is that on a levered basis?

Yes.

And secondly I have a high level question regarding an alternative perspective of valuing Gogo on many of the investors on this call also follow the telecom tower operators which have 10 to 20 year contracts with their customers and you're one of those customers and many of the investors on the call also cover wholesale data center operators which have 10 to 20 year contracts. Traditionally Gogo has had ten-year contracts with its airline partners and because of these long term contracts, the high switching cost and how successful base investments such as building a new tower or installing a new 2Ku on the aircraft because those comprise most of CapEx, one of the key investor metrics that some investor uses adjusted funds from operation which focuses on maintenance CapEx. So along those lines, I was wondering, I mean, if you could provide any color into what like maintenance CapEx would be for 2017, 2018 or 2019 if you were to strip away some of the success based CapEx associated with 2Ku?

We have made that forecast to the market but you are absolutely right that significant maturity of our capital expenditures are success based for installing 2Ku. There is very, very minimal maintenance CapEx.

CapEx is really driven by expansion rather than maintenance.

Great. Is there anything definitive that you could say if, like hypothetically assuming that installation decreased from like the 700 installation target down to like 100, how much CapEx would decrease?

Well, let me help you think about it this way. CapEx has three components to it. Success based airborne CapEx, capitalized software and network infrastructure. So we’re not -- barring 2.4G aside from that, we're not spending a lot of money on network infrastructure because we’ve established. On the capitalized software piece, the bulk of that is really development of new technologies and deploying them into the field. So, there's a portion of it for maintenance and enhancements and those kinds of things are existing technology. So the lion's share of our CapEx is really success based airborne spending.

Got you. Thank you very much, Norman.

Thank you. And our next question comes from Denny Galindo with Morgan Stanley. Your line is open.

Hi, there. Good morning. This is Denny Galindo calling in for Simon. I had a question on the activity rate in North America and also the price procession, it looks like there's kind of a trade-off for the activity rates going up and the price processions going down. Is there any -- is there anything that's happening there in North America. You mentioned some international activity, but is there anything on revenue model that’s happening in North America that's causing that and you know do you expect these trends to go in the same direction or kind of reverse back to the previous direction?

Yeah. I mean, you're saying the impact of the promotion we've been doing with T-Mobile. As we've talked about in lots of previous calls, and we do large sponsorships for promotions, it can have the effect of having an impact on our peers down and usage up and that’s what you’re seeing this quarter with T-Mobile.

I think it looks like the margins were a little bit lower, is that the direction, maybe, is there a better direction to go the other way or this is just kind of one quarter and it’s going to bounce around a lot?

North American margins were lower because of the cost of installed lines for 2Ku. It wasn’t driven by fundamental business changes.

Okay. And then on a different direction, on the 75 to 100 2Ku installs, I mean it seems like you're on pace to be very close to 100, if not over 100 and I'm curious why you didn't adjust that guidance 75 to 100, is this kind of monthly install rates, something that you expect to bounce around quite a bit with airline schedules or is October a kind of a steady state rate that you can keep getting in the future?

We have the capability to install this rate, but you have to marry that up with aircraft availability and so you don't install continuously. The summer months being the prime example, we rarely get aircraft during the summer travel season. So this is our capability, plus we’ve married up with the availability of the aircraft that leads for the forecast.

And that's it for me. Thank you.

Thank you. And our next question comes from Andrew De Gasperi with Macquarie. Your line is open.

Hi, guys. Thanks. First question, I was wondering, can you maybe go into this durable Phasor antenna that you’ve announced I guess two weeks ago.

Sure. The Phasor antennas, Phasor fully electronic durable antennas, this is early stage R&D, it’s been done to make sure we're always leading the marketplace with new technology and future proof that 2Ku and actually the ACT platform, we actually think that’s the effective way to extend the life of both those platforms. So early stage, that can happen fast in that area. But we think it's important long run, it's where kind of technology is going over the next decade.

Very interesting. And then secondly, I'm not sure, have you had talk with American Airlines as far as next year's pace of activity as far as 2Ku or potential churn coming from the legacy aircraft?

Yes. We’re in discussions every day about getting our 2Ku installed on American and that program going very well, as are the ATG4 upgrades and we expect our installs of 2Ku to begin next year. We have no further information on the installations, but we do not expect a lot of activity in that regard in 2017.

Got it. And last question for me. Your Business Aviation obviously had great revenue growth, but I'm noticing that your air-to-ground shipments were down significantly in 3Q or decelerated significantly in 2Q to be exact. I was wondering, is there a trend as far as on the top market level side or just some business due to competition? Thanks.

Yeah. It’s related to the deferral of the end of the sales program for Gogo Biz 4G.

So what's going on there is a lot of -- the customers that walk out of this 4G are taking our current system now and then we will upgrade the system next year when Gogo Biz 4G is available. We do not put for sale until the final delivery of the upgraded Gogo Biz 4G.

Yes. 25 units were deferred in the third quarter.

Thank you. [Operator Instructions] And our next question comes from John Hodulik with UBS. Your line is open.

Hi. It’s Lisa Friedman for John. Just wanted to see if, Norman, you could give some more color on what you actually have to do to get the next gen ATG up and running? What is the equipment that needs to be bought down on the planes or on the towers, what to be reduced and whether you can sort of front-load any of that as you're doing ATG4 upgrades, so those planes are ready to go when the system is operational?

Hi, Lisa. This is Michael. I’ll take that question. We have to upgrade our 250 cell sites with basically new antennas and radio equipment and other networking equipment. And that takes advantage of the existing power and power and backhaul that we have. So relatively low, fast upgrade for cell site. And then we have to add a new antenna and radio to the aircraft, so we take advantage of the existing server and wireless access points that are already on the plane. All that works are underway. We have very good visibility to exceeding 100 megabits per second and we have very good visibility to exceeding 99% availability and reliability as a system, we think both us or the industry leading solution, this will be deployed in 2018.

Okay. And then you're not the only ones who are using unlicensed spectrum for next gen ATG, I know there are some competitors in the BA space that don't have this licensed spectrum that you do, but I'm just wondering as those competitors start to make more noise and I guess there's also a company that’s promoting a microwave based point-to-point solution, are you seeing any impact from those in the marketplace or are your customers considering those options. Any color you can provide on sort of the competitive landscape would be great?

Yeah. We're feeling great about the competitive landscape. It's a real risk to put something unproven on, on your plane. We have 6,500 planes flying on our ATG network and we will only enhance that proven network with the 2.4G upgrade to the network. So this is dramatically less risky, it’s going to be way lower cost for us to do it, it’s going to be way lower costs for the -- our existing customers, who want to upgrade and to go to a totally new system. So we think we’re going to have a lower cost, higher speed, more reliable solution from a proven operator than anything else in the marketplace. We see -- we're seeing very little impact.

Okay. And just one more, which is any progress on line-fit with Boeing and Airbus?

Great progress with both of them. As we build our order book, airline technology, they're going to see how well to perform and it's only going to perform better as the new modem comes down in the high throughput satellite, we're actively working to get 2Ku online, that’s going to come in very well.

And any sense of when you might reach that milestone?

Well as we said at Investor Day, the first factory install should happen in 2017, we still expect that and we expect to be ultimately OEM installable on all major aircraft types.

Thank you. And our next question comes from Andrew Spinola with Wells Fargo. Your line is open.

Hi. Thanks. I just want to follow-up on that prior question about the business jet market, two new technologies coming both the 4G and the next gen. It seems like a lot of change for that market and maybe there would be some decision making pauses and things like that. Do you think some of the people that are looking at adding Wi-Fi to their business jets might pause until the next gen network is available or are you going to do something similar with what you do with 4G where you’ll provide a hardware solution and upgrade them when the next gen is available?

I don't think there will be -- there will be limited freezing of decision making. The 4G is going to be most affluent to the larger business jets, almost all of which have our service today. So this is an upgrade decision, not a new purchase in most cases. And the primary use in commercial aviation is going to be the regional jets where satellite solutions are offered in some cases. So I don't feel a lot of freeze. The primary process in business aviation is general market at the moment and then as Norm explained, the quarter and a tiny bit earlier in the year was just deferral of recognition of the sale as we sell until we ultimately upgrade the sales of Gogo Biz 4G.

Right. And the second question, just wanted to ask, when you’re talking about the competitive advantage you're going to have the next gen network, you referenced how having the two networks, the license, and the unlicensed will give you a competitive advantage. It's unclear to me why the existing network will provide you an advantage with the future network, I mean clearly you're the established operator, you have certain benefits, but what I don't understand is, how the two networks will be better than one network and I was wondering if you could elaborate on that, because I'm just trying to figure out what your competitive advantage looks like in the next gen world? Thanks.

Yeah. So the primary factor, fair and simple, is we're building on what we have today. So if your 4G phone, there is no 3G network anywhere, you would go to and service. If you offload to Wi-Fi and there was no 4G network behind it, you would go to service. So this is the upgrade path that the wireless industry uses generally to maintain backward compatibility and cross-network availability to ensure the call always goes through. There are also more subtle technical issues, the nature of the 850 megahertz network for instance, a 2.4 gigahertz that allow us to more easily locate the aircraft space, but nowhere it is and how did you hand off. We have significant advantages technically, but I'd also point out the cost issue is highly relevant with all the existing callers and airborne equipment is already out there and the backhaul network is already out there. So this is -- as an integrated solution, it is dramatically favored, dramatically more reliable and it's also going to allow us to get to 100 megabits per second, which we don't see others being able to achieve.

To make it really tangible, if you're flying over New York City with a high noise floor and then life in spectrum, there's a reasonable probability that the quality of the current call goes dramatically down from 2.4gig. If you don't have the backup network that we have, we can assure the reliability and connection, you're running into a potential issue there. We avoid that issue by having the -- placing spectrum to back up the 2.4G.

Thank you. And our next question comes from Lance Vitanza from Cowen. Your line is open.

Hey, hi, guys. Thanks for taking the questions, I had a couple. The first, Norm, I think you touched on this in your prepared remarks, but could you walk me through the rationale for adjusting ARPA to exclude the regional jets and the aircraft operated by new airline partners that you've been -- that have been added since 2015?

Yes, sure. So generally speaking, the ARPA of RJs is lower than that of mainline. So as you add additional RJs into the mix, you'll have a natural dilutive impact on the overall ARPA. So we take those out to get effectively like a same store sales type of approach and that's the rationale behind doing that. So you can get a real sense of underlying what’s happening with ARPA, on a meaningful apples-to-apples basis. Excluding that impact, we saw an 8% increase year-over-year for the quarter. Right. On new airlines, as new airlines that came on board that fleets haven’t matured yet as well, so they had more aircraft as the second dilutive impact from those. So we take those out as well.

Okay. Thanks for that. And then on the claim that the 2Ku is the superior global solution in the marketplace, others are arguing that Ka is a better solution, what are the data points that you're looking at or that you can point us to that confirm that this is really the superior global solution or is it just a function of the fact that you've got more installs than anyone else or is there something else that we should be thinking about?

That we have installs that are flying allows us to collect the data, but we are seeing superior exceeds, we’re seeing more consistent streaming across larger number of customers and very importantly, we are seeing reliability and availability numbers that are dramatic higher than anything else we see in the marketplace.

Okay. Thanks. Last one for me, could you talk a little bit about the recent Verizon announcement and if you did already, I apologize for missing it. But clearly that appears to be focused on drones for now, but there was certainly a lot of confusion I think around that release, but do you envision Verizon as an eventual competitor in the NACA marketplace?

No. Verizon will not compete with at least the current contemplated solution. It’s four drones which are much lower altitude, much slower speed, network architecture that works for that will not work for 500 plus mile an hour aircraft at over 30,000 feet.

Thank you. And our next question comes from Louie DiPalma with William Blair. Your line is open.

Thank you. You have provided a tremendous amount of marketing commentary regarding 2018 and 2019 and I was just wondering, as more aircraft are upgraded from ATG to 2Ku, do you still expect that the business aviation segment margin will remain in the low-40% range?

Yes. The fuel for the growth of our business is bandwidth and the more bandwidth you bring to air, the better everything gets. So this is all good news financially as to bring to keep upgrading the network.

The ATG network will maintain high utilization, so I think the question you’re getting.

Great. Is there going to be a headwind, I guess, as the 800 aircraft are upgraded from ATG to 2Ku and are some of those costs going to be transferred from the commercial segment to the business aviation segment?

I think there will be an increased amount of the network capacity of the air-to-ground going to business aviation over time. We’re already seeing that trend, but we have with 4000 planes flying in VA, we have plenty of scale to support that and more bandwidth equals more revenue. But I think your question is, if you're asking that question about us with 4,000 planes and growing, imagine a new competitor trying to support an air-to-ground network. Even if they claim, they might have a possible intention to get to 300 aircraft, it does take 1000s of aircraft to support it. Regional air-to-ground network and we have them and I'm very comfortable with the economics in our case.

Great. And how far away do you envision low profile antennas such as the Phasor antenna that you're working on, how far away do you think those are from becoming more mainstream in the business aviation market?

There may be some applications in the next few years, but it is several years before even possibly the primary solution to the marketplace.

Thank you. And our last question comes from Carter Mansbac with Jupiter Wealth. Your line is open.

Good morning, gentlemen. Congratulations on another solid quarter. So I don't believe you answered the first question directly. So since the Analyst Day, it seems like you’ve had an increase of about 150 to 200 planes. Who are the airlines that you signed with?

There have been no unannounced signings in that. We said primarily it’s an increase in the aircraft count. But our airline mergers make decisions on a regular basis about which aircraft to upgrade now and that's a result of those conversations and decisions by airlines.

Got you. So no new airlines just increased the airlines you currently have, yeah.

Correct.

Okay. So listen I've been involved with the company for three years and I'm sure you would agree that the company is in the best position for growth going forward. However, stock is down 10%, 50% of the company is sold short. The perception of the product in the public eye is weak and the stock clearly is negative. What is the mission and how are you going to go about changing that perception?

We've created this business group and air-to-ground solution that became congestive. We’ve acknowledged that for some time. The answer is bandwidth and we have to 2Ku coming to market right now. Top on a plane, fly 2Ku, you will change your perception of the company, we have the winning position for the next stage of growth in this industry.

Thank you. I would like to turn the call back to Michael Small for any closing remarks.

Okay. Thank you. We’re again thrilled that 2Ku is getting installed on planes every day. It is a superior solution and now that we’re seeing it go on planes, we've removed one more, we've gone over one more step on the journey to delivering bandwidth for the sky and we’re in great shape and stronger than we've ever been and we look forward to a great 2017 and beyond. So thank you all for joining the call today.