Gogo Inc (GOGO) 2013 Q4 法說會逐字稿

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'll 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 statement 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 will 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 will 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 communication service provider for global aviation. In just over five 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 profit 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 and now nearly breakeven segment profit, and with the technology and operational roadmap 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 Airline 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 wide-bodied domestic aircraft with a mix of ATG and our next-gen ATG4, 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 ATG4 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 arrow 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 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 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 rule making.

In the interim we are rapidly expanding our aircraft with ATG4 technology, which triples the peak speed to the aircraft to 10 megabits per second. In 2013, we installed ATG4 on 436 aircraft. As of today, we just completed our 500th retrofit and are targeting 800 ATG4 aircraft online by the end of the year, focusing on those aircraft that need it most.

In addition, we continue to add cell sites, rollout 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 ATG4 than ATG, demonstrating significant improvement in quality and passenger experience. More ATG4 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 hours of flight time and 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 staffed by highly specialized and dedicated professionals who 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 in-air 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 Aeromexico, exceeds the current install base.

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 STC for a 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 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 requirement, 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 product introductions such as 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 am 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 opportunity to expand our global communications infrastructure for aviation. Our aviation partners count on us to deliver, because a 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 third quarter of 2012.

Our service revenue of $69.7 million was up 44% and comprised 75% of our total revenue. Our equipment revenue of $22.9 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 of 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 non-retail 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 ARPA was driven by a 21% increase in the connectivity take rate to 6.9%, reflecting continued strong growth in demand for our connectivity products, slightly offset by a $0.38 decline in 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 -- 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 in 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 [boost] systems during the quarter, up 56% from 159 shipped in the third quarter of 2012.

Our average equipment revenue per unit shipped for the ATG system of $61,000 benefited from the sales of recently launched Text & Talk products. The number of ATG equipped 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, ending 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 $162, driven by price increases we implemented for [read-in] service in January of 2013 and the introduction of swift broadband service, which has a much higher ARPU than our read-in service.

BA segment profit increased an impressive 91% to $16.1 million for the quarter, as the increase of high margin service revenue coupled with Text & Talk product drove the segment profit margin from 35% to 43% -- the highest on record. As of December 31, 2013, we've sold 552 Text & Talk units. Finally, let's move on to CA Rest of World, which, as you know, is still in the start-up 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 increased spending on satellite capacity, extensive engineering activities from 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 for the loss of $0.3 million.

That was attributable to Common Stock decrease of $22.1 million for the quarter or $0.26 per share versus 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 ATG4 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 primarily by a $9.7 million decrease in airborne equipment proceeds. Now turning to full-year consolidated results.

We generated revenue of $328.1 million, up 41% from 2012. Service revenue of $250.4 million was up 50%, while equipment revenue of $77.7 million was up 17%. Service revenue comprised 76% of total revenue 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 20% increase in ARPA.

The CA North America segment loss narrowed by $10.9 million, or almost 90%, to $1.3 million while we continued to invest in our next generation technology. CA 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 in ATG units shipped and an 8% increase in average equipment revenue per ATG unit shipped. BA 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 to 40%, driven largely by a shift in mix to higher margin service revenue. Service revenue comprised 41% 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 widened to $41 million from $14.3 million, driven by our increased investment in international activities. 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 in 2013, roughly $36 million was due to the conversion of preferred stock into Common Stock at the time 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 was due to upgrading certain aircraft to ATG4, 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 for 2013, up 81% versus the $57.6 million for 2012. In conclusion, we are very pleased with the financial and operating performance of the business.

We ended the year with $266.3 million of cash on hand. We're well capitalized to aggressively go after the large international opportunity Michael spoke about earlier and to continue to invest in next generation technology to expand our leadership position in the market. I'd now like to spend a few minutes on the business outlook for 2014. We are providing total revenue guidance of $400 million to $422 million, reflecting growth of 22% 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 are seeing from our STCs, we are 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 are 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 ATG4 upgrades, continued investments in our ATG network, and airborne equipment purchases. We expect GAAP CapEx for the year to range from $170 million to $210 million. Operator, we're now ready to take our first question.

Thank you.

(Operator Instructions)

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

Great. 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, you know 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. Thanks.

Okay, good morning, Jonathan. 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, that we hear from our customers -- fell in half when we introduced ATG-4 on the busier flights. We see that in all our customer satisfaction metrics.

Having that additional capacity will allow us to continue our growth rates. Overnight, it does not mean that you 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 stats 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 occurring 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, as it relates to the question about the EBITDA range: at this point our revenue within a 12-month view is fairly predictable. CA has pretty well established trends; BA fluctuation is not that significant. We have good control of our operating expenses, so not that hard to get to a reasonable range on EBITDA. The timing on CapEx, particularly proceeds, is a little tougher to get your arms around, but that doesn't really affect EBITDA, so we're comfortable with that range.

All right. Thanks, Norm.

Sure.

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

First, just to follow-up on the ATG-4 question. Michael, are you guys able to target -- I know that the planes sometimes change -- but the highest-used 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. What drove that dislocation in the fourth quarter? and then how do you see that progressing in 2014?

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 two biggest fleets; 737s and 8320s 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 you're really going after. So, by the end of this year, we will have the aircraft installed that do the significant majority of the flights with 25 or more users.

Great.

The answer on ARPS reflects the adoption of time passes during 2013. We introduced those in a significant way at the beginning -- at the very end of 2012 coming to 2013. So, those are, as you know, buy a shorter period of time for a different price point. So, as that mix changed, it brought the ARPS down a bit.

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

Is that going to hurt comps through until we anniversary the change in 2014?

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

Okay, thanks.

I will add -- 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 will generate lower revenue per session. But it's very efficient bandwidth wise, so we're going to like that product.

Next question comes from the line of Philip Cusick with JP Morgan.

Hi, thanks for taking the question. This is Ava for Phil. I have two 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 through 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? Thanks.

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 was -- 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 a quarter of our install base. So, we're past the 500 mark on keys that the monthly fee is a minimum of $135 a month. That includes text/talk as well as use of your corded or wireless phone in the cabin -- you know, the phone associated with the plane, not your own personal phone.

So, the cost of the product feature up front is almost full margin; and the monthly service fee, because the Text & Talk solution is so bandwidth efficient, it's very, very high margin. So, most of it drops to the bottom line. As we sell more ATG units, we'll sell more of the Text & Talk feature, and so we should have a positive benefit from that going forward.

On the snow thing -- on the weather-related question, we do 7,500 flights a day on the commercial side. There were several days where there were cancelled flights, a thousand here, a couple thousand there. But in the course of a month, we are doing well over 200,000 flights. So the impact in any month would be de minimus.

I mean, we can safely say it'll be less than $1 million impact in the first quarter. There's -- the issues of calculating the number are: cancelled flights versus normal amount of cancelled flights; and then a lot of people re-book, so the load factor goes up on the flights that weren't cancelled. 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.

Okay, thanks.

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

Great, thanks very much. Good morning. Norm, I wonder 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 into sort of the change of the relative contribution by the three 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'd suggested last week that perhaps the logjam was starting to clear.

Looks like, I think, just roughly you've got about 300 planes in backlog. Can you just talk about how you see the year proceeding? 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, thanks.

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 -- they have a 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--

On the segment EBITDA, yes.

Well, I'll do CapEx first.

Okay.

On 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 rest of world so that we can do the installs in the first and second quarters of 2014. So it'll 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 other than 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? You've got good growth. You've got increase in penetration, but obviously you're still at a segment loss. And I understand there's some corporate overhead in that number and so forth, but are we going to see that improve nicely during 2014?

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 US, in the commercial aviation business, the number-one driver of profitability will be revenue per aircraft over time. As I think you are 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.

Thank you.

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

Thanks for taking the question. Just a couple questions. One, from a competitive standpoint, where do you see yourselves positioned relative to Panasonic and ENT and VSAT on sort of the satellite? Do you feel like, as you're getting approvals, like with Japan Airlines, and hopefully others come soon, the product set will be on par with everyone else's out there?

And then, secondly, a little bit of a take-off 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%? Thanks.

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 and pure play on that issue. We are, at our core, a telecommunications Company, bringing telecom to in-flight aviation, and that really does -- is driven, like all telecommunication services, by scale.

And it's a global scale gain, because the minimum service area that's viable is somewhere between a superpower and a continent -- you can not have a municipal in-flight Wi-Fi company. You need to cover a large serving area. We also concluded there simply weren't enough commercial planes in the United States to maintain global scale.

There's about 4,000 business -- I mean, sorry, commercial aircraft in the US 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 sets; that's -- it's nice to have all of the 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 two ways. One, we've seen very clear growth in our take rates over the last few years. Every year it keeps notching up, even as we've raised prices. Lately, we've explicitly raised prices, and a couple 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 see 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 re-book flights, to get connecting gate information, to track bags, to provide information to the crew about passengers and their needs. It's just be -- so, ultimately we're going to engage the whole plane.

Thanks. And just around Norm's comments on some of the newer 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, the Text & Talk will have a much higher margin than the basic connectivity product. So that will have an impact on overall margins. But a texting session -- we don't have pricing yet, but if it's $2 or $3 versus an average of $10, you need a good number of texting sessions to have a 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 US market and think about 2,200, 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 yield more revenue per flight because of longer routes, but you get more flights per plane per day domestically. So that the variance is definitely there. You'd 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 and a couple planes 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 US.

I know we're doing it six or so years later, when the certainty about the business opportunity is a lot higher, but -- and 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 weigh 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.

Great, thanks.

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

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

Those are the only two 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? Thanks.

Yes, it's 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 for 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 there and our pricing structure be out there.

So, we have increasingly shown more flexibility in how we deal with the airlines over time. I 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 for the bags; and most airlines charge for the bags. And I think most airlines are going to want to charge for 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 changing 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. 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 -- 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.

Great. Thank you for taking the questions, Michael.

You're welcome. Thanks, Jon.

And now, 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.