GOGO – Gogo Inc – June 16, 2022

For some time now, Wi-Fi on planes has been considered by travelers as more important than food. According to global in-flight surveys, more than half of passengers say broadband connectivity trumps food, which is only a top priority for less than one-fifth of travelers. Whether for work, life, or entertainment, demand for broadband in the sky has reached such unprecedented levels around the world, that airlines, as well as those in the business aviation and aircraft rental markets, need to meet passenger expectations or risk losing out to their competitors.

At the forefront of innovative solutions, Gogo Inc created an inflight connectivity revolution and for over 30 years has been a driving force behind breakthrough ideas and technology that keeps aviation passengers, pilots, and operators connected to the world.

Gogo is the world’s largest provider of broadband connectivity products and services for the business aviation market. The company offers a customizable suite of smart cabin systems for integrated connectivity, inflight entertainment, and voice solutions, as well as global support capabilities, with products and services installed on thousands of business aircraft of all sizes, from turboprops to the largest global jets. They also design, build and operate dedicated air-to-ground (ATG) networks and engineer and maintain in-flight systems of proprietary hardware and software. Complementing this infrastructure, Gogo holds the exclusive license to 4MHz of U.S. nationwide spectrum dedicated to ATG use, as well as exclusive rights to the same spectrum in Canada.

In its goal to continually innovate to maintain a leading global market share, Gogo announced plans to build the Gogo 5G network for use on business aviation aircraft, commercial regional jets, and smaller mainline jets operating within the continental United States and Canada, which it expects to be commercially launched in the second half of 2022. In addition, the company’s technology roadmap includes plans for continued rapid improvement in the performance of in-flight systems to take advantage of its superior network upgrades.

Gogo began in 1991 in a barbecue restaurant in Denison, Texas, where company founder Jimmy Ray sketched his idea for an affordable telephone system for private airplanes on a paper napkin. Initially known as Aircell, the company started providing analog-based voice communications on private aircraft in North America via a partnership with cellular providers by the late 1990s. Innovations continued with Iridium satellite phone service turning Aircell into a global solution provider, while its Axxess products were business aviation’s first all-digital, multi-channel communications system.

The next step was to devise a way to bring in-air connectivity to a larger market. And in a historic event for the airborne telecommunications industry, Aircell was awarded the U.S. Federal Communications Commission’s exclusive ATG 3 GHz broadband frequency license in 2006. Two years later, the company made its debut on commercial aircraft, after launching the Gogo Biz ATG nationwide network, and American Airlines and Virgin America commence the Gogo internet service for its passengers.

Inflight internet demand accelerated, bringing with it the first installation of Gogo’s ATG 5000 High-Speed Internet unit, quickly becoming the dominant broadband solution aboard thousands of business aircraft. The Gogo Vision inflight entertainment (IFE) was also launched on American Airlines and has become the U.S.’ most popular IFE solution for both commercial and business aircraft.

A full corporate rebrand to Gogo occurred in 2011, prior to the company’s public listing on the Nasdaq in 2013. Soon after, in addition to expanding its ATG service into Canada, Gogo made its international debut on Delta Airlines, allowing passengers to stay connected across the globe. It also announced 2Ku, its next-generation inflight connectivity technology. In 2017, the company released a massive suite of solutions to take in-flight performance to new levels. Gogo 2Ku hit 100+ Mbps during test flights. The launch of Gogo Biz 4G enabled inflight streaming for the first time in history. While Gogo AVANCE created business aviation’s first and only software-driven connectivity platform.

In December 2020, Gogo completed the sale of its Commercial Aviation division to Intelsat for $400 million, returning to its roots to exclusively serve business aviation connectivity.

In April, Gogo announced it is on track to deliver aviation’s first 5G ATG network, which is expected to deliver “unparalleled” inflight internet speeds.

Long-term Gogo director, Oakleigh Thorne currently serves as chairman of the board and has been the chief executive officer and president since 2018. Thorne has almost three decades of leadership experience with significant operational and financial expertise including serving as CEO of Nasdaq-listed, CCH Inc, and eCollege.com. He has served on the Gogo board of directors since 2006 and was a member of the Aircell board from 2003.

Thorne is joined by Sergio Aguirre, president and chief operating officer of Gogo Business Aviation. Having joined Gogo in 2007, Aguirre has led the company during the time it developed some of the company’s most significant connectivity solutions. Aguirre is an aviation industry veteran with more than 35 years of experience, serving in a variety of positions from A&P mechanic to sales, product development, marketing, and senior-level management.

Gogo focuses exclusively on aviation, offering a comprehensive portfolio consisting of in-flight networks, systems, services, aviation partner support, and production operations functions. Gogo’s solutions are utilized by a range of customer types including the largest fractional ownership and charter operators, corporate flight departments, and even individuals. At the end of December, the company had approximately 6,400 ATG business aircraft online representing around 30% of the available business market.

While 3,900 aircraft are using Gogo Biz, the company’s legacy ATG broadband system, approximately 2,500 are equipped with Gogo AVANCE. The AVANCE software-centric platform enables Gogo to offer a broad range of products and features and employ multiple spectrum frequencies and networks as new technologies emerge. In addition, Gogo had over 850 paid subscribers to Gogo Vision, its in-flight video-on-demand entertainment service, along with 4,600 aircraft online equipped with narrow band satellite solutions in conjunction with other providers.

Gogo sells directly to every original equipment manufacturer of business aviation aircraft including Bombardier, Dassault Falcon, Embraer, Gulfstream, Pilatus, and Textron Aviation. In the aftermarket, they sell through a global distribution network of approximately 120 FAA-certified independent dealers. In total, Gogo has over 4,000 customers, none of which accounted for more than 10% of total revenue in 2021.

The COVID pandemic catalyzed significant new demand for public and private air travel. Business travelers are increasingly reliant on technologies enabling the “new normal” work environment including video conferences, collaboration, and remote work. While leisure travelers expect streaming, internet browsing, and social media access while in-flight. Customers are increasingly expecting in-air connectivity standards that Gogo is uniquely positioned to provide, evidenced by a more than 50% increase in total Gogo ATG network data consumption in the last two years.

Currently, 85% of all broadband-connected business aviation aircraft in North America use Gogo, while 70% of the total available market remains untapped. Looking ahead, the company expects approximately 50% growth to over 11,000 aircraft with connectivity by 2025 driven by new aircraft line-fit with Gogo’s in-flight solutions and growing expectations of connectivity driving aftermarket installations.

Benefitting from several distinct competitive advantages including its proprietary ATG network with an exclusive license to the only dedicated air-to-ground spectrum in North America, that provides higher speeds and lower latency than satellite alternatives. Its differentiated go-to-market strategy takes advantage of a vast network of deeply embedded relationships with OEMs and 120+ aftermarket dealers. While its future-proof AVANCE platform provides a solid barrier to entry, as software-based, over-the-air updates enable easy upgrades without expensive or time-consuming hardware changes.

In its goal to continually innovate to maintain a leading global market share, the soon-to-be complete Gogo 5G network will be in use on business aviation aircraft, commercial regional jets, and smaller mainline jets operating within the continental United States and Canada. The new network is expected to be commercially launched on a nationwide basis in the second half of 2022 and will support licensed and unlicensed spectrum, allowing Gogo to take advantage of new advances in technology as they are developed. They will continue to provide 3G and 4G services to augment performance and provide redundancy to the 5G network.

Gogo’s long-term opportunities include further global expansion via a low earth orbit (LEO) satellite partnership. Which with its AVANCE platform, would allow them to enter the global LEO market at a significantly lower cost than competitors. The company also has the opportunities to expand network capabilities and service offerings across the broader general aviation market including recreational and personal jets, opening up a further 200k+ aircraft. Traction has already been made in this space, as Cirrus Aircraft has selected Gogo’s AVANCE system to be installed as a factory option on new production G2+ Vision JetTM personal aircraft. “Gateway to Cockpit” services also present an opportunity to improve connectivity to the “front of plane”, which is highly desired by OEMs and operators to provide machine-to-machine and Internet-of-Things capabilities.

Gogo’s attractive financial profile consists of a 95% subscription-based, recurring ATG service revenue business model with profitable equipment sales. The company’s robust cash flow generation from recurring service revenue and low ongoing CAPEX have provided a track record of strong financial performance and a clear path for continued growth.

In the first quarter of 2022, the company announced record results with total revenue of $92.8 million, up 26% year-over-year, fueled by strong growth in both service and equipment revenue. Record service revenue of $70.7 million increased 19% compared to the first quarter of 2021, while Equipment revenue of $22.1 million increased 52% on the prior-year period. Gogo’s total ATG aircraft online reached 6,526, up 11% year-over-year, while its average monthly revenue per aircraft hit $3,321, also increasing by 8%.

The strong performance resulted in a record operating income of $34.9 million, leading to a net income of $22.2 million. The result was the third consecutive profitable quarter as the company’s effort to de-leverage has lowered interest expenses.

Looking ahead, Gogo expects total revenue to be in the range of $390 million to $400 million representing year-over-year growth of almost 18%. While earnings per share consensus estimates of $0.62 appear significant down on the $1.28 achieved in 2021, the prior year was materially impacted by an income tax benefit of $1.71 per share.

Gogo competes against both equipment and geosynchronous equatorial orbit (GEO) satellite-based telecommunications service providers in the business aviation market, including Honeywell Aerospace, Collins Aerospace, Satcom Direct, Inmarsat, and ViaSat. In addition, SmartSky Networks, which in 2014 announced that it planned to launch an ATG network in the continental United States in 2016, has announced that it is currently targeting the second quarter of 2022 as the completion date for its nationwide network.

The company may in the future face competition from operators of LEO or other non-GEO satellite networks, including OneWeb, Starlink, and Telesat, all of which have announced that they are developing in-flight connectivity systems. However, Gogo believes that it is highly advanced on the principal points of competition in the market, specifically, technological capabilities, price, geographic coverage, product development, and quality of before and after-sales service.

As the largest pure-play business aviation connectivity provider, Gogo provides a compelling opportunity for exposure to the sector. With a market-leading share of existing broadband-connected business aviation aircraft coupled with an enormous market that remains untapped, Gogo is uniquely positioned to continue its strong track record of growth, as it exploits new geographies and adjacent markets.