Q3 2020 Gogo Inc Earnings Call

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Excuse me, ladies and gentlemen didn't see operator today's conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.

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Ladies and gentlemen, thank you for standing by welcome to the Q3, Twentytwenty Gogo Inc. Ernie.

This conference call.

Time, all participants are in a listen only mode. After the speakers presentation, there will be a question and answer session.

Ask a question during the session you will need to press star one on your telephone if you require further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today Mr. William Davis VP of Investor Relations. Thank you Sir Please go ahead.

Thank you poly and good morning, everyone welcome to Gogos.

Third quarter.

2020 earnings Conference call joining me today to talk about our results are locally for president and CEO.

Barry Rowan's 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 press release filed this morning.

No more fully detailed under risk factors in our annual report on form 10-K.

And 10-Q and other documents, we have filed with the FCC.

In addition, please note that the date of this conference call is November nine 2020 any forward looking statements that we make today are based on assumptions as of the state.

We undertake no obligation to update these statements as a result of more information or future events. During the call. We'll present, both GAAP and non-GAAP financial measures. We've included a reconciliation an explanation of adjustments and other considerations are non-GAAP measures.

To the most comparable GAAP measures in our third quarter.

Earnings Press release this call is being broadcast on the Internet and available in the Investor Relations section of the Gogo website at IR Dot Gogo Air Dot com the.

The earnings press release is also available on the website at.

After management comments, we'll host a QNX session with the financial community only it.

It is now my great pleasure to turn the call over to Oakley.

Thank you will and good morning, everyone.

Welcome to our third quarter conference call.

[noise] given the impact of Cove. It on the aviation industry Gogo delivered a solid quarter and made significant progress on our strategic operating and financial initiatives capped off with the late August announcement that we signed an agreement to sell its commercial aviation Division Intelsat, the world's largest satellite company.

Having achieved that milestone we're now focused on three priorities first close.

Closing, the aforementioned transaction and successfully migrating T.A. into Intelsat.

You.

We launching their remaining gogo to investors as a profitable communications provider focused on the business aviation industry.

And three.

Strengthening our balance sheet, and improving cash flow by reducing leverage lowering our cost of capital and lowering our debt service.

Excuse me have.

Have you probably saw the earnings release results from our commercial aviation segment will now be accounted for as discontinued operations and assets held for sale. So my comments on the quarter will primarily focus on business aviation.

Overall, we're encouraged by the recovery, we seen the aviation industry, particularly in the BA market.

We also believe that this morning's announcement of what appears to be a highly effective covert vaccine from Pfizer bodes very well for a rebound of the commercial aviation industry next year.

Today I'll give you an overview of the quarter and report on our progress against the three priorities I just mentioned.

Nader Barry will go over the Q3 numbers, it's got the $50 million tack on facility and provide an update on opportunities to refinance our debt.

Let me comment on the tack on for a moment that we still feel very good about our transactions, but intelsat. It currently live in a very uncertain world and feel that adding some buffer capital our balance sheet is the prudent thing to do.

Before I get started I want to get a huge shout out to our T.A.B.A. and corporate teams. This has been an extremely trying year not only due to covance and the actions we've had to take to respond to that challenge, but also because of all the hard work, we've done and are still doing as part of the Intelsat transaction.

Thank you.

[noise], let me start with our first primary priority, which is closing the commercial aviation transaction.

I didn't know if that goes teams are really excited about the synergies and innovation. This combination will bring to the in flight connectivity market.

He built a robot program management structure with representatives from both companies oversee 11 functional teams working on plans to quickly separate the Gogo Theater division from Gogo and integrated end to end off that as soon as we clear the regulatory process and closed the deal.

From a regulatory standpoint, we've made substantial progress we've already cleared the U.S. Hart, Scott Rodino process, and all foreign jurisdiction and I Trust requirements.

And we have received all but one for telecommunications approval.

We're continuing to work closely with Intelsat to complete our review by 50, yes and to secure FCC approval for the transfer of two workstation licenses and an experimental license.

The public comment period for the Air station licenses ended last Friday, but we won't know until later today, whether anyone filed a comment or not.

So we've made a lot of progress since announcing the transaction and though it's hard to predict the exact timing of what happens in the regulatory process, we feel on schedule to close before the end of Q1 2021, as we guided at the time to deal with them now.

Now, let me move on to third quarter results for a moment continuing operations, which represent our former business aviation segment and our former on allocated corporate costs.

Reflect encouraging continued service demand recovery.

Generally speaking the BA market had a shallow our cobot related bottom and that had a faster recovery than the commercial aviation market.

In Q3, our customers were back to flying 81% of the number of flights they flew in the prior year.

Up from 47% in Q2 and in October that grew to 83% of prior year flights.

Interestingly, a large fleet operators ran much higher at 100% of prior year for the quarter, which we hope will push demand for more aircraft in market activity in that segment.

As a result of these trends we saw significant sequential improvement in service and equipment demand compared to Q2 2020.

Let me start with service revenue.

Service revenue grew 21% over Q2, but was still down 4% from Q3 2019 told.

Total 80, D. aircraft online reached 5577 up more than 3% from prior quarter and ARPU grew to $2996 per month.

More than 17% from prior quarter.

In the pandemic world, where less bad can be good I would note that the 5577 A.O.L. number is down only 2% from our all time high in Q1 2020.

And that the $2996 ARPU number is down only 6% from our all time high in Q4 of 2019.

We had just over 500 gross 80, g. activations in the quarter of which 231 or 46% were new accounts.

As we discussed on our Q Tof Q2 call.

What hurt our AOL and ARPU numbers, and the Covance room, where the large numbers of suspensions in downgrades as planned downgrades, we experienced back in April and May.

Of the approximately 1100 suspensions are we experienced in that timeframe, 75% have now come back online and 92% of those returned to their old plan or a higher price plant.

Of the 928 downgrades, we experienced in that period, 71% of upgraded and 87% of those who upgraded returned to the same plan or purchase the higher price plan to compare to the plan they had before they downgraded.

We think all these service trends and the fact that many industry pundits think the pandemic will be a catalyst for BA bode well for our BA service revenue in the future.

Now, let me turn to equipment revenue, but we're seeing signs of recovery of 25% growth in Q3 over Q2, though that's still down 49% from Q3 2019.

That revenue growth was entirely driven by shipments of 80, G. events units, which is considerably higher monthly service ARPU than satellite units.

<unk> hundred 67 units for the quarter, 67% from prior quarter, but still down 43% from prior year.

Satellite units have not had such a positive trend 28 satellite units were shipped in Q3 down 58% from prior quarter and down 80% from same quarter prior year [laughter].

On the earnings side.

Our continued operation our continuing operations generated 30.2 million of adjusted EBITDA in the quarter, even when including the full cost of our corporate overhead that.

That's a 9% decrease compared to this period last year, but represents a 45% adjusted EBITDA margin.

The pace of recovery and be a excites us and gives us even greater confidence in our ability to drive growth as a more focused stronger gogo once the transaction with Intelsat is complete.

I'll quickly touch on discontinued operations, our former see a in a and C A.R.W. segment.

We're also starting to see some encouraging signs of recovery.

We saw a 34% sequential increase in combined CA revenue in Q3 over Q2.

Q3 was still down 61% versus prior year.

A number of unusual events, which Barry will describe in more detail elevated costs and payments for discontinued operations in Q3, including.

Including catch up on delayed satellite payments salary the depreciation for delta deferred lease payments bonus related stock based compensation expense inventory reserves in expenses from the Intelsat transaction.

We believe that as the world recovers from the pandemic demand for CA I. If these services will explode as airlines compete for passengers by providing free high quality wildfire and we believe that I see a business vertically integrated with Intelsat, the world's largest satellite operator will be extremely well positioned.

To compete in that exciting mark.

Now, let me turn to the relaunch of Gogo as a communications provider focused on the business aviation industry, that's priority too.

I'd be a business operates in an industry with relatively little customer concentration.

70% of the U.S. market still does not have broadband connectivity.

It offers the industry's leading IC product at an attractive price relative to competitive solutions and it has unique advantages due to its proprietary spectrum. Its strong 80, G. network and the exceptionally talented and knowledgeable employees who work there.

Our recurring revenue model and the owner economics of our 80 G. network generate strong cash flow, but for the last several years has been used to service the negative cash flow and debt associated with our CA business.

Finally, I would note that BA has demonstrated a strong history of successful product introductions, such as our advanced platform and our Gogo vision Entertainment products.

We're in the midst of revitalizing our five year strategic plan factoring in new data, notably that will now have more capital to invest in product initiatives like Gogo fiveg that will enable us to defend and grow our strong franchise.

As part of our planning we're also looking for ways to optimize the corporate infrastructure that will need to support our BA business.

Initially, we'll need to over invest in corporate infrastructure in order to support transition services for Intelsat and to ensure the remaining gogo can function as a standalone company.

We'll also take time to appropriately sized and renegotiate some vendor contracts and our support infrastructure for a smaller size business.

So we did not see corporate expense expenses coming down much in 2021, and well discuss changes in the future when we complete our transition plans.

Which leads me to our third priority rebuilding our balance sheet.

Barry will provide more detail on the process, we're going through the optimize this opportunity, but I'll state the obvious which is that reorganizing our capital structure is very important to driving shareholder value for gogo.

Toward that end.

We're focused on refinancing our debt to significantly reduce our leverage.

Our debt service and provide flexibility for further de levering in the future.

As part of that plan.

Well also want to make sure we optimize the use of the net operating losses and other tax assets that weve accrued over the past several years.

As I mentioned at the start today, we announced a 50 million dollar tack onto our senior secured notes and provide buffer capital as we work through our refinancing plans in these uncertain times.

Before I turn the call over to Barry I want to again, thank our Gogo team for their continued hard work dedication and creativity you really shown your metal this year.

And with that let me turn it over to Barry do the numbers.

I think so.

For clarity as we walk through this quarters results I'd like to start my comments by describing the impact on our financial statements from the planned sale of our commercial Aviation Division.

Right.

We're very pleased to report that the transaction with Intelsat is on track as I've described.

As a result, Gogos financial statements will look very different this quarter.

The commercial aviation business meet the accounting criteria to be classified as assets held for sale and as such the impact and balance sheet accounts have been presented this way.

In parallel the CA divisions results have been presented as discontinued operations on the income statement and cash flow statement.

In the 10-Q, we discussed we see a business in a footnote produced discontinued operations.

As a result, our continuing operations include our business Aviation Division and the expenses that were formally categorized as unallocated corporate costs.

These figures for continuing operations will be comparable to the former BA segment reporting through the cost of service and equipment lines.

Expenses previously categorized as unallocated corporate costs will be included in DNA.

Before getting into a summary of our operational results I'd like to highlight several points at the corporate level.

First is our cash position and cash flow.

We exited the third quarter with $117 million in cash, which was down from 156 million at the end of the second quarter.

And represents a $39 million reduction in our cash position.

There are some important time aspects reflected in the negative cash flow before interest from continuing and discontinued operations this quarter.

In contrast to the breakeven level reported for the second quarter of this year.

During the second quarter, we were in the middle of negotiations with many of our satcom suppliers to provide us with economic relief as a co good crisis emerged.

Because of the delicate stage of those discussions we held back payments during that period.

As we mentioned on our second quarter call. Our satellite providers took a very partnership like approach with us and we reached agreements with all of them saving at least 50% on most of our satellite contracts.

During the third quarter, we paid these outstanding invoices degree I'm correct.

This resulted in us paying $47 million to satcom vendors during the third quarter.

This was an increase of $37 million in the second quarter and explains virtually all of the difference of the cash flow between these two quarters.

The cash flow before interest expense from continuing operations during the third quarter was strongly positive and approximately equal to the level achieved during the second quarter.

As we look to the fourth quarter, we expect to achieve modestly positive cash flow before interest expenses, we gotta look as a whole.

We expect to exit 2020, with approximately $70 million in cash before considering the proceeds to my 50 million dollar tack on financing, but reflecting the impact of over $53 million semiannual interest payment in November.

As you know we've been very judicious about managing our liquidity through kind of it.

With the continuing uncertainty of depend damage and its impact, especially on your commercial aviation business, we deemed it prudent to add some buffer capital to our balance sheet this quarter.

In partnership with our creditors, we increased our senior secured note facility.

Which we were able to do on favorable terms due to the companys improved credit profile.

We announced this morning that we have executed a $50 million or financing that's a tack on to our existing senior secured notes, which will be financed by three of our bondholders.

We expect the funding to occurring this week.

We have also committed to issue additional equity securities with net proceeds of at least $20 million by May 15 2021.

In the unlikely event that the Intelsat transaction has not closed by that date.

We're continuing to manage expenses very tightly during this period.

For reference in the extremely unlikely event that the Intelsat transaction were to not closed during 2021.

We would manage the 20, <unk> 21 cash burn to be less than $40 million.

Based on the 16 cost management levers that we have described on previous calls.

Excluding the impact of the tack on and related equity proceeds. This would mean, we'd exit 2021 with $30 million in available cash.

And we have other levers we could pull to maintain adequate liquidity in the event of this highly unlikely scenario.

A final point I'd like to touch on at the corporate level stock compensation expense.

As noted on our last earnings call. We have planned for annual operating bonuses to be paid in stock unless determine otherwise been our compensation Committee.

Based on our expected financial results employees will earn a bonus for 2020 performance.

And $13.2 million in stock compensation expense was recorded during the quarter.

[noise] approximately $8.5 million of this expense was for CA and is included in discontinued operations.

And $4.7 million as reflected in continuing operations.

I'll now turn to a discussion of like third quarter operating results beginning with our continuing operations.

Again. These results include the former BA segment and unallocated corporate costs.

As I've described in some detail our business aviation business was not hit as hard by Kroger to see and it has recovered more quickly.

The rebound in D.A. is reflected in its financial performance.

Total revenue from continuing operations was $66.5 million.

Well this was down 18% from the Juergen quarter June Colgate total revenue grew 22% sequentially roughly.

Reflecting the rebound in business aviation and the low point in the second quarter of this year.

This revenue improvement occurred in both service and equipment revenue.

On a year over year basis service revenue of $53.3 million decline just 4%.

And was up 21% sequentially, reflecting strong customer reactivation.

As Oak mentioned, 92% previously sipping suspended accounts renewed at equivalent or upgraded subscription plans as compared to pre committed plans.

Equipment revenue of $13.2 million was down 49% same quarter a year gross profit grew 25% over the second quarter of this year.

We're seeing a strong pickup in equipment sales from our flagship events hcg product platforms I mentioned.

Notably September equipment sales were higher than January.

In September service revenue was over 90% of the January pretty cool good levels.

The primary driver of the sequential increase in service revenue was 80 G. ARPU.

This accounts for approximately 80% of the revenue increased as the vast majority of customers reinstated their service plans and equivalent or upgraded levels.

After dropping over 18% sequentially in the second quarter due to covered 80 GRP rebounded during the third quarter $2996, which is up 17% sequentially.

An important indicator of the B a recovery is at 82 or two for the third quarter was 97% a year ago level of $3087.

The balance of the $8.8 million sequential increase in revenue was due to higher units online, which reached 5577 for the quarter up 3% sequentially.

The solid recovery in Da's topline has carried through to the bottom line to our continuing operations as we have managed expenses tightly across the company.

Adjusted EBITDA from continuing operations was $30 million during the third quarter.

This is up 36% sequentially from 22 million in the second quarter to 20.

And is down just $3 million from the third quarter of 2019.

As a reference point the annualized 2020, adjusted EBITDA from continuing operations.

Approximately equal to the full year adjusted EBITDA for 2019, which was $122 million.

He has also maintained attractive gross profit margins during the cold in tandem it well.

Service gross margin of 78% for the third quarter of 2020.

This compares to 81% achieved for the past two full years.

Equipment margins have decreased somewhere in the 41% achieved for each of the past two full years to 35% this quarter.

The 6% decline reflects the fixed costs associated with our manufacturing operations with the lower equipment shipments during the pandemic.

The combined expense categories of engineering design, and development sales and marketing and Gionee for continuing operations decreased to $20.8 million down 18% from the third quarter 2019.

During the third quarter of this year, we spent roughly $2.4 million less on fiveg development versus the year ago quarter.

Somewhat due to the timing of this you de standing adjusted EBITDA margins for the continuing operations came in at 45% for the quarter.

The highest level achieved for at least the past seven quarters.

Finally cash flow from operating activities for continuing operations was $20.3 million in the first three quarters of 2020.

Which included 53 main <unk> million dollars of interest payments.

By this measure continuing operations cash flow, excluding interest has been relatively consistent by quarter throughout the year.

You will see from the significantly revise 10-Q filing that interest expense is assigned to continuing operations.

So cash flow from continuing operations will reflect our sandy semiannual interest payments in May and November.

Well, our commercial aviation business is treated as discontinued operations and actual statements. Let me offer a couple of comments and RCM business.

See a continues to be quite hard hit by Tobin although.

Although service revenue exceeded our internal forecast during the third quarter.

See a service revenue was $40.5 million, reflecting a 61% decline from the third quarter a year ago.

However service revenue grew 34% sequentially from the second quarter. This year when the impact of Cobiz first emerged.

We see a business generated a net loss of $71.2 million. This.

This included includes $27 million and accelerated depreciation offset by $18 million of accelerated amortization of deferred these proceeds.

Both related to the Delta contract Amendment signed in the second quarter of 2020.

The net loss also includes approximately $20 million.

Stock based compensation expense inventory.

Inventory reserves and transaction expenses.

As we look ahead I thought it might be helpful to offer some perspective on the transformational Intelsat transaction as well as our retained to be a business.

In our view the Intelsat transaction represents a rare win win win opportunity and the world of deal making.

We believe it should be good for Gogo, good for Intelsat and for the city employees.

We have long said, we believe see a would benefit from being a part of a larger entity and the industrial logic to the Intelsat acquisition is very compelling.

We're glad to see Intelsats interest in establishing are going to see as a strategic platform built.

Built on strong market position and talent of the Gogo employees.

We are enthusiastic about the business and cash flow generation capability business aviation as a standalone business.

As I've described in some detail there are multiple compelling factors, which contribute to be is cash flow generation capability.

Let me amplify on Tuesdays, which will contribute directly to be is cash flow generation in the years ahead.

These include the significant tax benefits retained it be a post the Intelsat transaction.

And the opportunities to significantly reduced interest rate expense through a comprehensive refinancing.

As of September Thirtyth, 2020, Gogo had over $700 million in federal and over $450 million in state net operating loss carry forwards.

In addition, we had approximately $170 million in federal and because the expense carry forwards.

At today's corporate tax rate these benefits reduce the future federal tax liability by over $175 million.

Well, we expect the closing of the CA sale to utilize a portion of these tax benefits.

It's tough to attributes will benefit the company for years into the future.

Now I'll turn to the refinancing opportunity, we see in things like.

As you know from a structure to see a transaction all of the company's debt will remain with Gogo.

In parallel with pursuing the close of the Intelsat transaction, we have been evaluating a range of financing refinancing alternatives as one of the three key priorities oak outline.

We had been performing this analysis with several considerations in mind.

Gogos optimal capital structure.

Secondly, the appropriate timing for that refinancing.

And thirdly, achieving is not strategic and operational flexibility as possible.

Given the enhanced credit worthiness and be a on a standalone basis we.

We believe we will be able to significantly reduce our interest expense through comprehensive refinancing of our balance sheet.

Well, we cannot predict the future state of the capital markets. They are currently very strong.

If these conditions persist we would expect to refinance our senior secured notes by no later than their first call date in May of 2021.

We think it is likely that go could achieve a ratings upgrade which would enable us to tap into more attractive capital sources at significantly lower rates than we are paying today.

If we were to do this refinancing in today's markets. We believe we could cut our interest expense by nearly half saving as much as $50 million annually. After the balance sheet, it's fully refinanced.

Now I'd like to offer a couple of additional comments regarding future.

Expectations.

We will not be providing guidance on this call, but because we have not closed the intelsat transaction and there were still meaningful uncertainty around the around the ongoing impact of Coca donor business.

Also as I've described we're in the middle of developing strategic and long term financial plans to be as a standalone business.

However, I will offer a couple of comments on our continuing operations as we look forward to 2021.

First is regarding our expectations for what were previously classified as unallocated corporate costs and are now included as part of DNA for continuing operations.

We brought these costs down from $46 million in 28 T to approximately $35 million in 2020.

As a result of the integrated business planning process, we launched in 2018.

We see opportunities to further reduce these expenses overtime as D.A., it's a smaller organization.

However, we expect these costs to remain at approximately the 2020 level 320 21.

You want to ensure stability and these functions post the Intelsat transaction.

We would expect these expenses to reduce beginning in 2022.

For the fourth quarter of this year, we expect to see some sequential increase in expenses versus the third quarter due to increased E.D. and D. project spending and the foregone CEO bonus which was reversed in the third quarter.

As a result, we expect lower adjusted EBITDA from continuing operations for the fourth quarter of 2020 from the third quarter were 2020.

As I mentioned, we're in the middle of conducting a deep dive review of our beer business, which will result in a refreshed strategic and long term financial plan.

As a part of this process, we will assess Q capital allocation alternatives, including the timing or Fiveg rollout long term leverage targets adjacent product and market opportunities and the like.

During the years of investing heavily in our seed business and more recently during the cold dependent we've.

We've had to be very judicious about the levels of investment and BA.

As a result, we have probably under invested relative to what we might have Dan will be a standalone business.

We will certainly bring our culture of planning rigor and financial discipline to this process.

But we also believe there are opportunities within this attractive market, which we want to aggressively pursue as we work to drive value.

As I conclude my prepared remarks, I want to again join OIC in thanking our fellow employees for their tremendous commitment creativity and work ethic. During these challenging times.

Not only have we had to navigate to the turbulence of the cobot pending.

You have enabled us to successfully reach an agreement on the CA sale and are now working tirelessly through the many integration activities.

The strength and dedication.

Through it all you have demonstrated a spirit of partnership and even adventure for what lies ahead.

Thank you so much.

Operator, we're ready for our first question.

Thank you.

If you would like to ask a question simply press Star then the number one on your telephone keypad, where possibly just a moment to compile became my name roster.

Thank you. Your first question comes from the line of fuel Chem Tech with JP Morgan.

Hi, guys Hi, this is sebastiano EPS.

It's Oh I got it I'm sorry.

Thanks for your time guys. How do you think about balancing the a free cash flow versus investing to grow and what's the optimal leverage and then I have a couple of follow ups.

Yeah, Phil this is mostly.

No actually that's all part of our financial planning and I think we'll give more guidance on that in our Q4 call.

You know we look at this with the number of sources of ER that none of the things will drive cash flow, including Indiana Health, obviously the business itself.

We want to reinvest in order to develop five g. and other new products to continue to strengthen the franchise and we want to de lever. So as you say, it's a balancing act between all those things.

And.

You know as we finish up our planning will look though to have that optimal balance figured out part of what we're doing.

Okay, and what's the ability to retain flexibility on those tax assets on any kind of sale of the business.

Oh, I think it's fairly limited as well so I think you.

You know we would you.

You know what I think the best thing for our shareholders may be to make sure we use those ah and all else and use that as a source of de levering and Barry do you have anything any color you want to add to that that would.

Any different.

No no.

As I mentioned, Phil It is typically is difficult to retain that value there may be some situations under which they can be retained but but then also as part of the comprehensive look that we're taking to be [laughter] is the first priority is to really drive the value of the business see the cash flow generative capability.

The horizon I'm going over the next several years, we'll certainly be able to take advantage of those anywhere else.

Okay and last thing Oh, how do you think about D.A. being a you know better in a larger entity as well see a does this business have enough scale to remain independent over time.

Yeah, I think it does have enough scale that span and independent because you know its very cash flow generative and it can invest.

And developing highly specialized products for a niche market.

So I think.

Is that it can remain independent obviously, there are a lot of strategic players who would love to own. It. So that's always a good thing.

You know we are we are focused on driving shareholder value and you know in the end will do whatever we.

We think optimizes that so when you know we don't have any right now we're planning to stay up you know a public company and.

And and manage ourselves as we sort of outlined and and and so there's no change in that plan, but it could change over time.

Okay. Thanks, guys.

And your next question comes from the line up for Ric Prentiss with Raymond James.

Thanks, where are you guys glad to hear you immediately used a couple times a well.

Couple of questions Oh up on Phil's question, maybe a little bit there how should we think about the C.A.B.A. reimbursements have those been fully reflected in this continuing discontinuing operations and what's the potential in the future as you roll out the five G. They TG network to get more reimburse.

Elements from the sea business once its over until faster.

Rick I just want to make sure you are you talking about the ATP revenue share.

Yeah.

[laughter].

Yep.

You know that that HM.

Isn't it starts out relatively modestly it goes up a level once we get five g. lobsters that says there's an incentive to get five g. out in the market.

And I I don't think we're going to give anymore guidance that we gave at the time of the deal with is that.

There's there's two components to that.

One is the rupture itself and then the other is the minimum revenue gap our team.

That they would have to pay us if they want to maintain exclusivity.

Barry I think that that over the 10 years that we I think we guided that that was roughly $170 million for the revenue guarantees.

That right, yes, that's right Yep hundred 70, so yeah.

Yeah. So.

Got it.

I had there.

So I was just going to address the first part of your question also which is related to this seemed to be a reimbursements and to your question. We have not finalized those and as I've mentioned, we were very active in that transition planning process with these 11 teams there is the capabilities.

I'm transition service agreement. So we're working through all the details of those by function and as those get finalized over the coming weeks. Okay. Seaway gives reimburses look like but generally that contract provides for those to be reimbursed on a cost plus basis.

Okay.

So and then I think you mentioned also very that there was a little bit of a year over year difference on fiveg to costs. How should we think about what you have left to spend on the five g.'s, both opex and Capex and what timeframe you might start spending are you going to wait for the deal to close or.

How should we think about the spreading of those by GE They TG costs.

Yeah, we're in the middle of the Opex spend even as we're doing the development. There are three primary partners. So we're well along in that but that will continue certainly through next year.

We have not started spending in real meaningful ways on the capex side, rather than capitalizing the software portion of that development. So as you know the real op expenses starts when we start them in selling the towers and equipment on the towers not the towers to the equipment on the towers. So you know we were.

I would expect to start seeing that happen on next year, and then it'll get rolled out.

Corporate sequencing and timeframe and again as a as we've said the exact timing of that will be a part of this strategic planning process that we're going through.

Okay, and then if we were a high level strategic standpoint, how do you view whats happening in the competitive dynamics of the seat of the BA business any update as far as more direct competitors or keeps kind of sitting on the edge.

You know they have a new CEO I think you're asking about smart guy.

No. They still have I think a lot of technology challenges tens of being able to launch a network.

And and now they're going to need to fund.

You know a lot of operating losses, while they try and ramp revenue.

So our view is that product is going to be better is better than theirs and will be better than theirs are five D product.

Well not only use the 60 megahertz of.

Unlicensed spectrum that they'll use that we will have our four megahertz of life clean spectrum.

Well, you know make the product a lot better where where wherever there was interference with the unlicensed spectrum. So that the fact that you know.

Yeah, we've been doing this a long time you know.

We have a much longer distance between the tower and the aircraft or just because of the way we've been able to engineer the products.

We still haven't figured that out.

So that capex is going to have to be a lot higher than ours are going to have higher power density than we have that's it and you know on a competitive front.

I guess I'm not really as worried about them.

As I am you know the the guys that compete with us at the top of the market. You know we've got we face very strong competitors today, a bias that inmarsat.

And you know there. They obviously are trying to be a market as a as a as a growth opportunity for them. So those are the ones, we really focus on.

And I guess, the last point I'll make about.

The competitive situation is that this is just a really unpenetrated market I mean, 70% of the U.S. market doesn't have any broadband yet so and a lot of that is frankly in smaller fuselage airplanes that that you know we're better prepared to serve them Inmarsat a virus that are so we think it's a growth market.

We're not that focused on share as we are an absolute growth and.

And frankly, you know right now I think we're uniquely positioned by virtue of having a product that is.

Performs better than anybody else's product with a low latency right now.

Also you know, particularly suited to be a market because of the size of the fuselage and the equipment, we have as much easier to put on cheaper.

You know more more conducive to the size of the fuselage.

In the DJ market.

And you know of our and our proprietary affect them. So you know we view ourselves very competitive.

Frankly.

Frankly, I'm not that worried about smart sky on trends you know my focus on competing hard with the big guys and I sat and buy us out at the top of the market.

Great. Thanks, guys well to continue to be well.

Thank you Vic sending it so.

Please go to <unk>.

Your next question comes from the line of Scott parallel with Roth capital.

Good morning, Thanks for taking my questions. He congrats on the HSR I'm rolling and a nice job on the B a result.

Yeah, My lawyers, the Tommy to make very clear it wasn't a ruling it's just that we got the 30 to 30 to 32 30 day period, but I've got a follow up request [laughter], Okay fair enough [laughter]. He I I know you've mentioned a couple of times in the call, but I just want to be clear in terms of the corporate overhead allocation that is fully reflected in the numbers as reported.

Today and the difference is like a little less spending in terms of fiveg. It looks like in the current quarter. So as we go into 2021 that is kind of normalized base level, depending on what happens depending lodging.

Yes, I was it correct.

Stanley.

<unk> expenses and the expectations, we set there as we look to next year, what were really trying to be clear about is that than the corporate spend that was.

<unk> costs minus on allocated corporate spend was approximately $35 million throw up 2020.

Has come down as you know substantially over the last several years that we expected to remain in about that same ZIP code as we want to be.

Thoughtful about ensuring that we have just transition one of them. We can provide the transition services. So on during the course of 2021, we will be actively looking at that set of expenses and certainly the smaller size would be anyone who's it concluded that we ought to be able to spend less on on that path.

So you know honestly is not as complex and those kinds of things. So so we would expect those costs to come down beginning in 2022, but for the 20.

2021, we would expect them to kind of being a general same area that are there for 2020, great. Thank you and just following up on some of the BA metrics. You provided aircraft utilization is starting to come back I think you said larger fleets are at 100% I was wondering if you had any view in terms of your regional may.

Mix of your business northeast has certainly been a little bit more constrained than others, such as Florida, Colorado, Southern California can help us understand that a little bit and the the units sold in the quarter. I think were 167 that you indicated but I think you also indicated a number over 200 in terms of our new new customers and new aircraft Wonder if you could reconcile that for us.

Is that 200, plus number how should we be thinking about things on a more normalized basis going forward and then I had one last final question.

Yeah that that book to Bill I'll answer the last but not by a handle the first part, but the 200 plus numbers activation not shipments right. So [laughter].

We shipped units to dealers and put them in a little bit employ to Oems, who also put them in inventories. So you know those are installed on planes over time and then later activated so the the 500 number of lives 200, and some odd about 46% with new customers as Activations.

Not a units shipped okay that makes sense that does do but so does that mean then the channel is pretty clear at this point in time, there's not a lot of inventories smelter dealers.

No there's not much inventory sitting at the yard that sorta, it's getting out you know second noting it will dry up a bit because the units are heading the same unit shipped aren't as high the activations and that's a good a good indicator.

Indicator of future demand, so yeah, I think you're right about that.

And I'm sorry.

Yeah.

Yeah, I'm going to have to take them well.

Well, yeah, I mean I.

Frankly, we are I don't have data for you on the BA market in that regard I will say, though.

People are flying further this year, so about a month.

I don't sound like much but if you think the avid flight as seen on our in a quarter or something like that it's up about eight minutes. Overall, so people are flying further which would indicate that.

To me that they are hunkered down somewhere and when they fly business that that summer is further away from the business that was was up pretty covered in terms of the commercial aviation market.

The North East has that over the the second call that hit the northeast came down in terms of the the number flight departure and you know the south and the West went up and that continues to hold that hasn't changed.

Great and lastly, if I could can you just give us an updated number in terms of the number violence or fiveg ready our aircraft that are out there at the current time and in general as it relates to Fiveg, you've got an opportunity to present advantage, you're being certainly cautious in the near term now until we get the closure of the CIA sale from a cash perspective, but.

Assuming that close at the end of the first quarter do you guys get more aggressive in pushing on that front to a pusher competitive advantage. Thanks.

I'll answer the last part you know, yes is the answer obviously we.

You know says we have money in the bank, we're going to try and move as fast as we can on five game, but well update people on our five he plans at a later date.

In terms of the data by that.

I'd say that.

It's about a 50 I remember that we've got a press release on that not too long ago that maybe another 20 or 30 planes on top of that now.

Great. Thank you.

And your next question comes from the line of Louie Dipalma with William Blair.

Okay very good real good morning.

Really I like it.

Mm mm.

Intelsat and grill rationale as discussed the benefits of going direct and the C.A. asset would have likely is that right.

Many other.

Sat com owners and operators as well that the deal how Intelsat mean <unk>.

Competitive with vertically integrated Inmarsat and bias that Intelsat also indicated that the deal.

Protect high margin revenue if someone else would have acquired here so with that being said.

Under what scenarios.

As the deal not to close the deal is consummated in the middle of the pandemic and after you already.

Disclose the need to read the gors the delicate free contract so like.

What could possibly trigger zero termination and is there anything that you are overly concerned about.

Well I think you.

No we're not gonna deal and in Hypotheticals. The deal is constructed pretty tightly you can read that the T I say.

You know in the SEC filings.

I think that.

We don't see any major risks to the deal closing at this point.

Sounds good and fair for Barry you mentioned like different puts and takes with.

The cash flows this quarter do you have any estimate on what the ballpark net debt will be when the transaction closes in the first quarter.

Uh huh.

As you know the movie the transaction is subject to the customary working capital adjustments from the transaction cost to come out of that and so on so I wouldn't speculate on what that number is going to be at this point and you know what that number is on the $400 million, but I think an important part of all this is that as we think about the.

The refinancing and the transaction.

On the heels of the transaction is that that will have a meaningful amount of cash that gives us a lot of flexibility when it comes to the the refinancing them, what we do with the with the balance sheet. So so we'll certainly have more to say about that as we get closer and see what the actual net cash position is as a result.

Yeah, I think you can obviously do the math and see the that it's going to have a very significant positive impact from our cash position.

Great. That's it for me thanks, guys.

Thank you.

Your next question comes from the line of Craig TV [laughter] Norton Northland Securities.

Hey, Greg Great. Thank you good morning, welcome Mary Thanks for taking the questions. Just a couple of quick ones first regarding the 1100, I guess suspensions on the BA side that came from Cove. It you said, 75% back online just wondering how many of those you expect to fully recover.

And then quickly if you could just elaborate on kind of the pace of the recovery month by month I know you said in the quarter was 81% of flights.

On a year over year and that kind of bumped up to 83% than October any.

Any sense, you can give us on how fast that maybe move month over month within the quarter.

Oh.

You know, it's that's a little hard to say I mean, it came back very quickly instead of the May June July timeframe.

So I think it was probably relatively consistent in the corridor you have to remember in April you know typically were flying 3000 to 3500 flights a day and we got down I think our low point was.

[noise] something crazy like 90 flights one day. So you know they are so I would say that about that was very quick and it probably went up gradually over the quarter, but you know was back up to those levels pretty soon in the quarter tens of protecting the rate of recovery going forward I think that's very hard to do so.

You can tell me what's gone on with Covidien three months I can give you an answer maybe but without without knowing a lot my certainly what's going to happen I'm not going to make any any guesses on that front.

The suspensions you know almost back to just the normal suspension level, yeah. We get yes, I'm you know don't hold me to the exact numbers, but we didn't get the 100 150 suspensions every month or people, who are taking aircraft out of service and and Ah you know don't want to pay for the for the service while there clay.

Gains are in the shop and that's the typical reason they suspend and and now were under 300 now.

And then from the timeframe that we talked about well then I'm if they had a period. So you know that we're not that much higher frankly than our normal rate. If you will so yeah, maybe we have maybe double the number we normally have.

It's not very high but you know call. It another 150, we'd be right down at the normal level. So [noise].

Yeah, they're coming back the company back at this point, it's starting to slow that but were also signing new customers and we're getting a lot of new growth. So we think that we're pretty bullish on being able to grow unit continued to grow units from here.

I mean, it online sort of burden.

Yeah, Thanks for the clarity there.

I guess, one other follow up would just kind of relating to the unallocated corporate costs, you mentioned going from 46 and 2018 to 35 million. This year what was the reasoning I guess for those being flat in 2021 as well.

Yeah, Hi, the reason is Oh go ahead.

Well I was just going to say that it's a couple of things number one we are going to have to perform transition services.

For Intelsat, we don't have that we're still working on those as Barry discussed.

Discussed earlier with 11 functional teams et cetera, et cetera, and the exact reimbursement scheme is still being worked on et cetera. So we don't want to get over our skis on on that and also you know we have a lot of legacy work to do as a Standalone company.

That you know by virtue of having on C.A., we're still going to have a fair amount of tax work and other types of work to do through a certainly through 2021.

And so you know.

Our our planning around that.

If somebody were going through right now and we expect we'll start to see some saving 2022. So now we'll give more a sense of direction on that and in future calls when we have our transition plan simply.

Okay, great. Thank you.

And your final question will come from the line of Simon Flannery with Morgan Stanley.

Great. Thank you and good morning, everybody. So Oh give a talk a little bit about the the satellite space, maybe you could just comment on the Leo's, we've gotta Spacex public beta.

How do you see the Leo's, playing and the business aviation World going forward.

Yeah, I think we think that's an opportunity for us and.

You know one of the virtues of having coming out of.

Staying in that satellite world is that we've learned a lot about it and so.

So I think you know leo's will enable smaller form factors in the future and stuff. He has yet to antennas done along and and so we find that all interesting in that in a good market our opportunity for us.

Okay, great and on the.

The delivery side.

What are you hearing from the textron's or the world I mean, how how are they getting past cobot on their side in terms of your new shipments coming on and filling up your pipeline over the next few quarters.

Yeah, I don't you know I don't want to start angering all the Oems by talking about what's going on in that business [laughter] I'm not going to do that but I think that everybody would agree there's still a good deal of uncertainty and exactly what is going to look like for next year.

And you know as clarity comes.

About in terms of what's going to happen or the pandemic you know I think that the that the Oems will start nailing down there that production schedules, but right now I think everybody is in a in a wait and see mode.

And what percent of your kinda activations come from Oems versus retrofits or whatever.

Oh, the map retrofit markets much larger than the Oh, yeah Monika.

Yeah, you know great look at the number of deliveries. There you know you measure the number of deliveries and the only market in the hundreds and you know there are literally no more than 10000.

You know any more than 10000 aircraft out there without broadband and the aftermarket right.

Right, but in terms of the yeah. The end to flow share do you how is there a split of how many of your yeah.

Last quarter, how many of them went on new planes versus on existing plant.

Almost everything last quarter would have gone on a [noise] on it.

Great Good morning.

Looking backward.

Oh, yes.

Great. Thanks.

Okay. Thanks.

Thanks, Simon that's our last question operator.

[laughter], Yeah, well now turn the call back over to Mr. Huh.

Oh, please join for closing remarks.

Thank you Todd look.

Thank you for attending our Q3 earnings call I think we're making significant progress on the crop priorities I outlined earlier that is closing Intelsat transaction.

We are launching a new gogo as a profitable communications provider to the business aviation industry.

And strengthening our balance sheet and improving cash flow by reducing our leverage lowering our cost of capital and lowering our debt service.

We look forward to sharing more of our progress with you in the future as our strategic transition and refinancing plans come together to drive future Gogo shareholder value. Thanks again.

[noise] [noise] and thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.

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Uh-huh [noise].

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Ladies and gentlemen, thank you for standing by and welcome to be Q3, Twentytwenty Gogo Inc. earnings conference call at this time.

Hi, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you all need to press star one on your telephone if you require further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today Mr., William Datas VP of Investor Relations. Thank you Sir.

Sir Please go ahead.

Thank you Paul and good morning, everyone welcome to Gogos.

Third quarter two.

2020 earnings Conference call joining me today to talk about our results are locally for president and CEO.

Barry Rowan's 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 press release filed this morning.

No more fully detailed under risk factors in our annual report on form 10-K.

And 10-Q and other documents, we have filed with the FCC.

In addition, please note that the date of this conference call is November 19, 2020 any forward looking statements that we make today are based on assumptions as of the state.

We undertake no obligation to update these statements as a result of more information or future events. During the call we'll present, both GAAP and non-GAAP financial measures.

We've included a reconciliation an explanation of adjustments at another considerations are non-GAAP measures to.

To the most comparable GAAP measures in our.

Third quarter.

Earnings Press release this call is being broadcast on the Internet and available on the Investor Relations section of the Gogo website at <unk> Dot Gogo Air Dot com the.

The earnings press release is also available on the website at.

After management comments, we'll host a Q1, I, especially want the financial community only it.

It is now my great pleasure to turn the call over to Oakley.

Thank you will and good morning, everyone.

Welcome to our third quarter conference call.

[noise] given the impact of Cove. It on the aviation industry Gogo delivered a solid quarter and made significant progress on our strategic operating and financial initiatives.

First off with the late August announced that.

We signed an agreement to sell it commercial aviation Division Intelsat, the world's largest satellite.

Having achieved that milestone we're now focused on three priorities first.

I think the aforementioned transaction and successfully migrating Intelsat Q.

We launching their remaining Gaba adapters as a profitable communications provider focused on the business aviation industry.

Okay.

Strengthening our balance sheet and improving cash flow by reducing leverage long got caught the capital and lowering our debt service.

Excuse me.

You probably saw the earnings release results from our commercial aviation segment will now be accounted for as discontinued operations and assets held for sale. So my comments on the quarter, but primarily focused on business aviation.

Overall, we're encouraged by the recovery, we've seen the aviation industry, particularly in the BA market.

We also believe that this morning's announcement of what appears to be a highly effective covert vaccine from Pfizer bodes very well for a rebound of the commercial aviation industry next year.

Today I'll give you an overview of the quarter and report on our progress against the three priorities I just mentioned.

Peter Barry will go over the Q3 numbers, it's got the $50 million tack on facility and provide an update on opportunities to refinance our debt.

Let me comment on the tack on for a moment that we still feel very good about our transaction for the adults that it currently live in a very uncertain world and feel that adding some buffer capital our balance sheet is the prudent thing to do.

Before I get started I want to get a huge shout out to our T.A.B.A. and corporate teams. This is bad and extremely dry year, not only do they called it and the actions we've had to take to respond to that challenge, but also because of all the hard work, we've done and are still doing as part of the Intelsat transaction.

Thank you.

Let me start with our first primary priority, which is closing the commercial aviation transaction.

No that does teams are really excited about the synergies and innovation. This combination will bring to the in flight connectivity market.

Still a robot program management structure with representatives from both companies oversee 11 functional teams working on plans to quickly separate the Gogo CA division from Gogo and integrated end to end off that as soon as we clear the regulatory process and closed the deal.

From a regulatory standpoint, we've made substantial progress we've already cleared the U.S. Hart, Scott Rodino process, and all foreign jurisdiction and I Trust departments.

And Weve I think all but one for telecommunications approval.

We're continuing to work closely with Intelsat to complete our review by Jeff Yes.

And just the cure FCC approval for the transfer of two workstation licenses and an experimental life.

The public comment period for their station licenses ended last Friday, but we won't know until later today, whether anyone filed a comment or not.

So we've made a lot of progress since announcing the transaction and though it's hard to predict exact timing of what happens in the regulatory process, we feel well scheduled to close before the end of Q1 2021, as we guided at the time to deal with it now.

Now, let me move on to third quarter results for a moment I continue.

Continuing operations, which represent our former business aviation segment, and our former on allocated corporate costs.

Black encouraging continued service demand recovery.

Generally speaking the BA market had a shallow workover related bottom and that had a faster recoveries on the commercial aviation market.

In Q3, our customers were back to flying 81% of the number of flights they flew in the prior year up from 47% in Q2.

And in October that grew to 83% of prior year flights.

Interestingly, a large fleet operators ran much higher at 100% of prior year for the quarter, which we hope will push demand for more aircraft in market activity in that segment.

As a result of these trends we saw significant sequential improvement in service and equipment demand compared to Q2 20.8, let me start with service revenue.

Service revenue grew 21% over Q2.

Still down 4% from Q3 2019.

Total 80 aircraft online reached 5577 up more than 3% from prior quarter.

And ARPU moved to $2996 per month.

More than 17% from prior quarter.

In the pandemic world, where less bad can be good I would note that the 5577 AOL number is down only 2% from our all time high in Q1 2020.

And at the $2996 ARPU number is down almost 6% from our all time high in Q4 of 2019.

We had just over 500 gross 80, g. activations in the quarter of which 231 or 46% or new accounts.

As we discussed on our Q Tof Q2 call.

What hurt our AOL and ARPU numbers in the Covance wrong, where the large numbers of suspensions in downgrades as planned downgrades, we experienced back in April and May.

Approximately 1100 suspension is oh, we experienced in that timeframe, 75% of now come back online and 92% of those return to their old plan or a higher price plans.

Of the 928 downgrades, we experienced in that period, 71% of upgraded and 87% of those who upgraded returned to the same plan or purchase the higher price plans compared to the plan they had before they downgraded.

We think all these service trends and the fact that many industry pundits think the pandemic will be a catalyst for BA Oh, well for our BA service revenue in the future.

Now, let me turn to equipment revenue, where we're seeing signs of recovery, but 25% growth in Q3 over Q2, though that's still down 49% from Q3 2019.

That revenue growth was entirely driven by shipments of 80, g. events units, which have considerably higher monthly service ARPU than satellite units she.

The 257 units for the quarter up 67% from prior quarter, that's still down 43% from prior year.

Satellite units have not had such a positive trend 28 satellite units were shipped in Q3 down 58% from prior quarter and down 80% from same quarter prior year.

On the earnings side.

Continued operation our continuing operations generated 30.2 million of adjusted EBITDA in the quarter, even when including the full cost of our corporate overhead.

That's a 9% decrease compared to this period last year, but represents a 45% adjusted EBITDA margin.

The pace of recovery in BA excites us and gives us even greater confidence in our ability to drive growth as a more focused stronger gogo once the transaction with Intelsat is complete.

I'll quickly touch on discontinued operations, our former C.A. and see a R.W. segment.

We're also starting to see some encouraging signs of recovery.

We saw a 34% sequential increase in combined CA revenue in Q3 over Q2 Q.

Q3 was still down 61% versus prior year.

A number of unusual events, which Barry will describe in more detail elevated costs in payments for discontinued operations in Q3.

Including catch up on the late satellite payments salary the depreciation for delta deferred lease payments bone.

Bonus related stock based compensation expense.

Inventory reserves in expenses from the Intelsat transaction.

We believe that as the roll recovers from the pandemic.

Demand for tea I. If these services will explode as airlines compete for passengers by providing free high quality wildfire and we believe that I see a business vertically integrated with Intelsat the world's largest satellite operator will be extremely well positioned to compete in that exciting mark.

Now, let me turn to the relaunch of Gogo as a communications provider focused on the business aviation anything that's priority too.

I B. I business operates in an industry with relatively little customer concentration.

Or 70% of the U.S. markets still does not have broadband connectivity.

That offers the industry's leading IC product at an attractive price relative to competitive solutions and it has unique advantage as did with proprietary spectrum and strong 80, G. network and the exceptionally talented and knowledgeable employees who work there.

Our recurring revenue model and the owner economics of our 80 G. network generates strong cash flow. That's for the last several years has been used to service the negative cash flow associated with our CA business.

Finally, I would note that VCA has demonstrated a strong history of successful product introductions, such as our advanced platform.

Gogo vision entertainment products.

We're in the midst of revitalizing our five year strategic plan factoring in new data, notably that will now have more capital to invest in product initiatives like Gogo fiveg that will enable us to defend and grow our strong franchise.

As part of our planning we're also looking for ways to optimize the corporate infrastructure that will need to support our VA business.

Initially, we'll need to over invest in corporate infrastructure in order to support transition services for Intelsat and to ensure the remaining gogo can function as a standalone company.

We'll also take time to appropriately size and renegotiating vendor contracts and our support infrastructure for our smaller sized business.

So we did not see corporate expense expenses coming down much in 2021, and well discuss changes in the future when we complete our transition plans.

Which leads me to our third priority rebuilding our balance sheet.

Larry will provide more detail on the process, we're going through the optimize this opportunity, but I'll state the obvious which is that reorganizing our capital structure is very important to driving shareholder value for go.

Towards that end.

We're focused on refinancing our debt to significantly reduce our leverage.

Our debt service and provide flexibility for further de levering in the future.

As part of that plan.

Well also want to make sure we optimize the use of the net operating losses and other tax assets that weve accrued over the past several years.

As I mentioned at the start today, we announced a $50 million tack onto our senior secured notes and provide buffer capital as we work through our refinancing plans in these uncertain times.

Before I turn the call over to Barry I want to again, thank our Gogo team for their continued hard work dedication and creativity, you really showing your metal this year.

And with that let me turn it over to Barry do than others.

Thanks.

For clarity, we walk through this quarters results I'd like to start my comments by describing the impact on our financial statements from the planned sale of our commercial Aviation Division.

Right.

We're very pleased to report that the transaction with Intelsat is on track as I described.

As a result, Gogos financial statements will look very different this quarter.

The commercial aviation business meets the accounting criteria to be classified as assets held for sale and as such the impact and balance sheet accounts have been presented this way.

In parallel the CA divisions results have been presented as discontinued operations on the income statement and cash flow statement.

In the 10-Q, we discuss the seed business in a footnote produced discontinued operations.

As a result, our continuing operations include our business Aviation Division and the expenses that were formally categorized as unallocated corporate costs.

These figures for continuing operations will be comparable to the former BA segment reporting through the cost of service and equipment lines.

Expenses previously categorized as unallocated corporate costs will be included in DNA.

Before getting into a summary of our operational results I'd like to highlight several points at the corporate level.

First is our cash position and cash flow.

We exited the third quarter was $117 million in cash, which was down from 156 million at the end of the second quarter and represents a $39 million reduction in our cash position.

There are some important timing aspects reflected in the negative cash flow before interest from continuing and discontinued operations this quarter.

In contrast to the breakeven level reported for the second quarter of this year.

During the second quarter, we are in the middle of negotiations with many of our satcom suppliers to provide us with economic relief as it Kogan crisis emerged.

Because of the delicate stage of those discussions we held back payments during that period.

As we mentioned on our second quarter call. Our satellite providers took a very partnership like approach with us and we reached agreements with all of them saving at least 50% I most of our satellite contracts.

During the third quarter, we paid these outstanding invoices to bring them correct.

This resulted in us paying $47 million to satcon vendors during the third quarter.

This was an increase of $37 million in the second quarter and explains virtually all of the difference in the cash flow between these two quarters.

The cash flow before interest expense from continuing operations during the third quarter was strongly positive and approximately equal to the level achieved during the second quarter.

As we look to the fourth quarter, we expect to achieve modestly positive cash flow before interest expense, but we got to look as a whole.

We expect to exit 2020, with approximately $70 million in cash before considering the proceeds from our $50 million tack on financing.

Reflecting the impact of our $53 million semiannual interest payment in November.

As you know we have been very judicious about managing our liquidity through cobot.

With the continuing uncertainty independently and its impact, especially on your commercial aviation business, we deemed it prudent to add some buffer capital to our balance sheet this quarter.

In partnership with our creditors, we increased our senior secured note facility.

Which we were able to do on favorable terms you give the companys improved credit profile.

We announced this morning that we have executed a 50 million dollar financing that's a tack on to our existing senior secured notes, which will be financed by three of our bondholders we've.

We expect the funding to occurring this week.

We have also committed to issue additional equity securities with net proceeds of at least $20 million by May 15, 2021 Indeed.

In the unlikely event that the Intelsat transaction has not closed by that date.

We're continuing to manage expenses very tightly during this period.

For reference in extremely unlikely event that the Intelsat transaction, which are not closed during 2021.

We would manage the 2021 cash burn to be less than $40 million based on the 16 cost management levers. We have described on previous calls.

Excluding the impact of the tack on and related equity proceeds. This would mean, we'd exit 2021 with $30 million in available cash.

And we have other levers we can pull to maintain adequate liquidity in the event of this highly unlikely scenario.

A final point I'd like to touch on at the corporate level stock compensation expense.

As noted on our last earnings call. We have planned for our annual operating bonuses to be paid in stock less determined otherwise been our compensation Committee.

Based on our expected financial results employees will earn a bonus for our 2020 performance and $13.2 million in stock compensation expense was recorded during the quarter.

[noise] approximately $8.5 million of this expense was for CA and is included in discontinued operations and.

$4.7 million as reflected in continuing operations.

I'll now turn to a discussion of like third quarter operating results beginning with our continuing operations.

Again. These results include the form of the BA segment and unallocated corporate costs.

As Joe described in some detail our business aviation business was not hit as hard by Kroger to CA and it has recovered more quickly.

The rebound in D.A. is reflected in its financial performance.

Total revenue from continuing operations was $66.5 million.

Well this was down 18% from juergen quarter due to Colgate total revenue grew 22% sequentially.

Reflecting the rebound in business aviation and the low point in the second quarter of this year.

This revenue improvement occurred in both service and equipment revenue.

On a year over year basis service revenue of $53.3 million decline just 4%.

And it was up 21% sequentially, reflecting strong customer reactivation.

As I mentioned, 92% previously said pets suspended accounts renewed at equivalent or upgraded subscription plans as compared to pre come to class.

Equipment revenue of $13.2 million was down 49% over the same quarter, a year ago, but grew 25% over the second quarter of this year.

We're seeing a strong pickup in equipment sales from our flagship that's hcg product platform as I mentioned.

Notably September equipment sales were higher than January.

In September service revenue was over 90% of the January pre co good levels.

The primary driver of the sequential increase in service revenue was 80 G. ARPU.

This accounts for approximately 80% of the revenue increased as the vast majority of customers reinstated their service plans at equivalent or upgraded levels.

After dropping over 18% sequentially in the second quarter due to Kroger 80, G. ARPU rebounded during the third quarter to $2996, which is up 17% sequentially.

An important indicator of the B a recovery is that 80 June ARPU for the third quarter was 97% a year ago level of $3087.

The balance of the $8.8 million sequential increase in revenue was due to higher units online, which reached 5577 for the quarter up 3% sequentially.

The solid recovery in Da's topline has carried through to the bottom line for our continuing operations as we have managed expenses tightly across the company.

Adjusted EBITDA from continuing operations was $30 million during the third quarter.

This is up 36% sequentially from 22 million in the second quarter of 2020.

And is down just $3 million from the third quarter of 2019.

As a reference point the annualized 2020, adjusted EBITDA from continuing operations.

Approximately equal to the full year adjusted EBITDA after 29 team, which was $122 million.

Da has also maintained attractive gross profit margins during the Kobin pandemic.

Service gross margin of 78% to the third quarter of 2020.

This compares to 81% achieved for the past two full years.

Equipment margins have decreased somewhat from a 41% achieved for each of the past two full years to 35% this quarter.

The 6% decline reflects the fixed costs associated with our manufacturing operations with the lower equipment shipments during the pandemic.

The combined expense categories of engineering design, and development sales and marketing and Gionee for continuing operations decreased to $20.8 million down 18% from the third quarter of 2019.

During the third quarter of this year, we spent roughly $2.4 million less on fiveg development versus the year ago quarter.

Somewhat due to the timing of this you didn't do spending adjusted EBITDA margins for the continuing operations came in at 45% for the quarter.

The highest level achieved for at least the past seven quarters.

Finally cash flow from operating activities for continuing operations was $20.3 million in the first three quarters of 2020.

Which included $53 million of interest payments.

By this measure continuing operations cash flow, excluding interest has been relatively consistent by quarter throughout the year.

You will see from the significantly revise 10-Q filing that interest expense is assigned to continuing operations.

So cash flow from continuing operations will reflect our sandy semiannual interest payments in May and November.

Well, our commercial aviation business is treated as discontinued operations in our financial statements. Let me offer a couple of comments on her CA business.

CA continues to be quite hard hit by Cohen, although.

Although service revenue exceeded our internal forecast during the third quarter.

See a service revenue it was $40.5 million, reflecting a 61% decline from the third quarter a year ago.

However service revenue grew 34% sequentially in the second quarter of this year when the impact of Cobiz first emerged.

The CA business generated a net loss of $71.2 million. This.

This included includes $27 million of accelerated depreciation offset by $18 million of accelerated amortization of deferred lease proceeds.

Both related to the Delta contract Amendment signed in the second quarter of 2020.

The net loss also includes approximately $20 million.

Stock based compensation expense inventory.

Inventory reserves and transaction expenses.

As we look ahead I thought it might be helpful to offer some perspective on the transformational Intelsat transaction as well as our retained to be a business.

In our view the Intelsat transaction represents a rare win win win opportunity in the world of deal making.

We believe it should be good for Gogo, good for Intelsat and for the CA employees.

We have long said, we believe see a it would benefit from being a part of a larger entity and the industrial logic to the Intelsat acquisition is very compelling.

We're glad to see Intelsats interest in establishing are going to see as a strategic platform built on strong market position and talent of the Gogo employees.

We actually did you ask about the business and cash flow generation capability business aviation as a standalone business.

As I've described in some detail there are multiple compelling factors, which contribute to be it is cash flow generation capability.

Let me ask a follow on to these which will contribute directly to be as cash flow generation in the years ahead.

These include the significant tax benefits retained it be a post the Intelsat transaction.

And the opportunities to significantly reduced interest rate expense through a comprehensive refinancing.

As of September Thirtyth, 2020, Gogo had over $700 million in federal and over $450 million in state net operating loss carry forwards.

In addition, we had approximately $170 million in federal and just expense carry forwards.

At today's corporate tax rate these benefits reduce the future federal tax liability by over $175 million.

Well, we expect the closing of the CA sale to utilize a portion of these tax benefits. These tax attributes will benefit the company for years into the future.

Now I'll turn to the refinancing opportunity, we see in things like.

As you know from a structure to see a transaction all of the company's debt will remain with Ganja.

In parallel with pursuing the close of the Intelsat transaction, we have been evaluating a range of financing refinancing alternatives as one of the three key priorities oak outline.

We have been performing this analysis with several considerations in mind.

Gogos optimal capital structure.

Secondly, the appropriate timing for that refinancing.

And thirdly, achieving as much strategic and operational flexibility as possible.

Given the enhanced credit worthiness of D.A. on a standalone basis.

We believe we will be able to significantly reduce our interest expense through comprehensive refinancing of our balance sheet.

Well, we cannot predict a future state of the capital markets. They are currently very strong.

If these conditions persist we would expect to refinance our senior secured notes by no later than their first call date in May of 2021.

We think it is likely that go could achieve a ratings upgrade which would enable us to tap into more attractive capital sources.

Significantly lower rates than we are paying today.

If we were to do this refinancing in today's markets. We believe we could cut our interest expense by nearly half.

Saving as much as $50 million annually after the balance sheet is fully refinanced.

Now I'd like to hop off for a couple of additional comments regarding future.

Dictation.

We will not be providing guidance on this call, but because we have not closed the intelsat transaction and there is still a meaningful uncertainty around the around the ongoing impact of coconut on her business.

Also as I've described we're in the middle of developing strategic and long term financial plans for BA as a standalone business.

However, I will offer a couple of comments on our continuing operations as we look forward to 2021.

First is regarding our expectations for what were previously classified as unallocated corporate costs and are now included as part of DNA for continuing operations.

We brought these costs down from $46 million in 2018 to approximately $35 million in 2020.

As a result of the integrated business planning process, we launched in 2018.

We see opportunities to further reduce expenses overtime as D.A. is a smaller organization.

However, we expect these costs to remain at approximately the 2020 level drink 2021, you want to ensure stability in these functions post the Intelsat transaction.

We would expect these expenses to reduce beginning in 2022.

For the fourth quarter of this year, we expect to see some sequential increase in expenses versus the third quarter due to increased E.D. and D. project spending and the foregone CEO bonus which was reversed in the third quarter.

As a result, we expect lower adjusted EBITDA from continuing operations for the fourth quarter of 2020 from a third quarter 2020.

As I've mentioned, we're in the middle of conducting a deep dive review of our business, which will result, refreshed strategic and long term financial plan.

As a part of this process, we will assess key capital allocation alternatives, including the timing of our Fiveg rollout long term leverage targets adjacent product and market opportunities and the like.

During the years of investing heavily in our CA business and more recently during the cobot pandemic we've.

We've had to be very judicious about the levels of investment and BA.

As a result, we have probably under invested relative to what we might have Dan will be a standalone business.

We will certainly bring our culture of planning rigor and financial discipline to this process.

But we also believe there are opportunities within this attractive market, which we want to aggressively pursue as we work to drive value.

As I conclude my prepared remarks, I want to again join OIC in thanking our fellow employees for their tremendous commitment creativity and work ethic. During these challenging times.

Not only have we had to navigate to the turbulence of the cobot pandemic.

You have enabled us to successfully reach an agreement on the CA sale and are now working tirelessly through the many integration activities.

The strength and dedication.

Through it all you have demonstrated a spirit of partnership and even adventure for what lies ahead.

Thank you so much.

Operator, we're ready for our first question.

Thank you.

If you would like to ask a question simply press Star then the number one on your telephone keypad, where possibly just a moment to compile the <unk> roster.

[laughter] there.

Your first question comes from the line, Phil Cusick with JP Morgan.

Hi, guys I referenced sebastiano.

Hi itself, so I got it I'm sorry.

Yeah.

Thanks for your time guys. How do you think about balancing he a free cash flow versus investing to grow and what's the optimal leverage and then I have a couple of follow ups.

Yeah, Phil this is only.

No actually that's all part of our financial planning and I think we'll give more guidance on that in our Q4 call.

You know we look at this with the number of sources of that none of the things will drive cash flow thing, Indiana Wells, obviously the business itself.

We want to reinvest in order to develop five g. and other new products to continue to strengthen the franchise and we want to de lever. So as you say, it's a balancing act between all those things.

And.

You know as we finish up our planning will look though to have that optimal balance figured out that's part of what we're doing.

Okay, and what's the ability to retain flexibility on those tax assets on any kind of sale of the business.

Oh, I think it's fairly limited as well so I think you.

You know we would you.

You know what I think the best thing for our shareholders may be to make sure we use those and all else and use that as a source of Delevering and Barry do you have anything any color you want to add to that that would.

Any different.

No no.

As I mentioned, Phil It is typically is difficult to retain that value there may be some situations in which they can be working on that.

Also as part of the comprehensive look that we're taking the business [laughter]. The first priority is to really drive the value of the business see the cash flow generative capability that horizon.

Over the next several years, we'll certainly be able to take advantage of those anywhere else.

Okay and last thing Oh, how do you think about D.A. being.

You know better in a larger entity as well see a does this business have enough scale to remain independent over time.

Well I think it does have enough scale that span independent because you know.

It's very cash flow generative and it can invest and developing highly specialized products great niche market.

So I think.

You got it can remain on the path. Obviously, there are a lot of strategic players who would love to all that so that's always a good thing.

You know we are we are focused on driving shareholder value and you know in the end will do whatever.

We think optimizes that so when you know we don't have any right now we're planning to stay up you know a public company and.

And and manage ourselves a massive sort of outlined them and and so there's no change in that plan, but it could change over time.

Okay. Thanks, guys.

And your next question comes from the line up for Ric Prentiss with Raymond James.

Thanks, where you guys glad to hear you made it through these difficult times Oh well.

Couple of questions Hello up until his question, maybe a little bit there how should we think about the C.A.B.A. reimbursements are those been fully reflected in this continuing discontinuing operations and what's the potential in the future as you rollout the fiveg they TG network to get more reimburse.

Worse minutes from the sea business once it's over and Intelsat.

Rick I just want to make sure you are you talking about the 18 he revenue share.

Yeah.

[laughter].

Yep.

You know that that.

Let me start out relatively modestly it goes up a level once we get five g. lobsters that says there's an incentive to get five g. out in the market.

And I I don't think we're going to give anymore guidance that we gave at the time of the deal with that.

There's there's two components to that.

One is the rupture itself and then the other is the minimum revenue guarantees.

That they would have to pay us if they want to maintain exclusivity.

Barry I think that that over the 10 years that we I think we guided that that was roughly $170 million for the revenue guarantees.

That right, yes, that's right Yep hundred 70 <unk> yeah.

Yeah. So.

Got it.

I have there.

So I was just going to address the first part of your question also which is related to the CA to be a reimbursements and to your question. We have not finalized again as I mentioned, we were very active in that transition planning process with these 11 teams there is.

The capability to have transition service agreements. So we're working through all the details of those by function.

And as those get finalized over the coming.

The coming weeks and we'll see what those revisions look like but generally the contract provides for those to be reimbursed on a cost plus basis.

Okay.

So.

And then I think you mentioned also bear that there was a little bit of a year over year difference on Fiveg too.

<unk> costs, how should we think about what you have left to spend on the five g.'s, both opex and Capex and what timeframe you might start spending are you going to wait for the deal to close or how should we think about the spreading of those five G 80 g. costs.

Yeah, we're in the middle of the Opex spend even as we're doing the development with 33 primary partners. So we're well along in that but that will continue certainly through next year.

We have not started spending in <unk>.

Real meaningful ways on the Capex side, rather than capitalizing the software portion of that development. So as you know the the real Opex spend is starts when we started them in selling the towers and equipment on the towers not the towers the equipment on the towers. So you know, we will and would expect to start seeing that happen.

Next year.

Don't get rolled off.

Appropriate.

Sequencing and timeframe and again as a as he said the exact timing of that will be a part of this strategic planning process that we're going through.

Okay, and then if we were a high level strategic standpoint, how do you view whats happening in the competitive dynamics of the C.I. I would be a business any update as far as more direct competitor keeps kind of sitting on the edge.

You know they have a new CEO I think you're asking about smart guy.

No. They still have I think a lot of technology challenges tens of being able to launch a network.

And now they're going to need to fund.

A lot of operating losses, while they try and ramp revenue.

No our view of that product is going to be better is better than theirs that will be better than theirs I five D product.

Well not only use the 60 megahertz of.

License that from that they'll use that we will have our four megahertz of life clean spectrum.

Well, you know to make the product a lot better where where wherever there was interference with the unlicensed spectrum. So that the fact that you know.

Yeah, we've been doing this a long time you know.

We have a much longer distance between the tower and the aircraft or just because of the way we've been able to engineer the products.

Hey, good thought out and said that Capex is going to have to be a lot higher than ours are going to have higher power density than we have and that's it you know on a competitive front.

I I guess I'm, not really as worried about them.

As I am you know the the guys that compete with us at the top of the market you know Weve got me they say strong competitors today, a bias that inmarsat.

And you know there. They obviously are trying to be a market as a as a as a growth opportunity for them. So those are the ones, we really focus on.

And I guess, the last point I'll make about.

Competitive situation is if this is just a really unpenetrated market, having 70% of the U.S. market doesn't have any broadband yet so and a lot of out of frankly in smaller fuselage airplanes that but you know we're better prepared to serve them Inmarsat involved that are so we think it's a growth market.

We're not that focused on share as we are an absolute growth.

And.

And frankly, you know right now I think we're uniquely positioned by virtue of having a product that is.

Performs better than anybody else's product with a low latency right now.

Also you know, particularly suited to the BA market because of the size of the fuselage and liquidity, we have as much easier to put on cheaper more more conducive to the size of the fuselage or the.

The market.

And however, I end up at a price that them. So you know we view ourselves very competitive.

Thank.

Frankly, I'm not that worried about smartstyle and trying to focus.

Focused on competing hard, we'll see but the big guys unless that bias out at the top of the market.

Great. Thanks, guys look to continue to be well.

Thank you Sandy I was pushing it.

And your next question comes from the line of Scott Burell with Roth capital.

Good morning, Thanks for taking my questions Hey, Congrats on the HSR I'm rolling and nice job on the B a result.

Yeah, My lawyers, the Tommy to make very clear wasn't a ruling it certainly got that 30 day period.

They do 30 day period without a follow up request [laughter], Okay fair enough [laughter]. He I I know you've mentioned a couple of times in the call, but I just want to be clear in terms of the corporate overhead allocation that is fully reflected in the numbers as reported today and the difference is like a little less spending in terms of fiveg. It looks like in the current quarter. So as we go.

Into 2021 that is kind of normalized base level, depending on what how it wasn't any logic.

Yes, I was it correct understanding.

Expenses and the expectations, we set there as we look to next year, what were really trying to be clear about is that the the corporate spend that was.

Considered cost mine is on allocated corporate spend was approximately $35 million for all of 2020 has.

It has come down as you know substantially over the last several years that we expected to remain in about that same ZIP code as we want to be thoughtful about ensuring that we have just transition one of them. We can provide the transition services and so on during the course of 2021, we will be actively looking at.

That set of expenses and certainly the smaller size would be a win lose that concluded that we ought to be able to spend less on on the external costs. You know honestly is not just complex and those kinds of things. So so we would expect as those costs come down beginning in 2022, but for.

2021, we would expect them to kind of being a general same area that are there for 2020, great. Thank you and just following up on some of the BA metrics. You provided aircraft utilization is starting to come back I think you said larger fleets are at 100% I was wondering if you had any view in terms of your regional.

Mix of your business northeast has certainly been a little bit more constrained than others, such as Florida, Colorado, Southern California could help us understand that a little bit and the the units sold in the quarter. I think were 167 that you indicated but I think you also indicated a number over 200 in terms of new new customers or new aircraft Wonder if you could reconcile that for us.

Is that 200, plus number how should we be thinking about things on a more normalized basis going forward and then I had one last final question.

Yeah that that book to Bill I'll answer the last part and then that by a handle the first part, but the 200 plus numbers activation not shipments right. So.

We shipped unit two deals that put them in a little bit employ to Oems, who also put them in inventories. So you know those are installed on planes over time and then later activated so the the 500 number of lives 200, and some odd about 46% with new customers as Activations.

Not that.

It's shipped okay that makes that it does do but so does that mean then the channel is pretty clear at this point in time, there is not a lot of inventory sitting out there are dealers.

Oh, no there's not much inventory sitting a deal or is that sort of getting out you know second voting it'll dry up a bit because the units are heading the same unit shipped aren't as high the activation and that's a good a good indicator.

Indicator of future demand, so yeah, I think you're right about that.

And I'm sorry.

Yeah.

Yeah go ahead of it though as well.

Well, yeah I mean.

Finally, we are I don't have data for you on the BA market in that regard I will close out.

People are flying further this year, so about a month.

Sound like much but if you think the avid flight as seen on our in a quarter or something like that it's up about eight minutes overall, so all people offline further which would indicate that.

To me that they are hunkered down somewhere out when they find business that that summer is further away from the business that was was up pretty close to that in terms of the commercial aviation market.

The North East has oh, the the second call that hit the northeast came down in terms of the number of flight departure, and the south and the West went up and that continues to hold that hasn't changed.

Great and lastly, if I could can you just give us an updated number in terms of the number of avant sort of fiveg ready aircraft that are out there at the current time and in general as it relates to Fiveg, you've got an opportunity to present advantage, you're being certainly cautious in the near term now until we get the closure of the CIA sale from a cash perspective, but.

Assuming that closed at the end of the first quarter do you guys get more aggressive in pushing on that front to push your competitive advantage. Thanks.

I'll answer the last part you know, yes is the answer obviously we.

You know says we have money in the bank, we're going to try and move as fast as we can on five game, but well update people on a five year plans at a later date.

In terms of the data by that.

I'd say that it's about <unk>.

Got a press release on that not too long ago that maybe another 20 or 30 planes on top of that now.

Great. Thank you.

And your next question comes from the line of Louie Dipalma with William Blair.

Okay Berrian real good morning.

Really I like it.

Well in [laughter] Intelsat and then your rationale discuss the benefits of going direct and the C.A. asset would have likely fit right.

Many other.

Sat com owners and operators as well that the deal how Intelsat main <unk>.

Competitive with vertically integrated Inmarsat and bias that Intelsat also indicated that the deal.

Protect high margin revenue if someone else would have acquired here so with that being said under.

Under what scenarios.

The deal not to close the deal is consummated in the middle of the pandemic and after you are ready.

Globally, the need to relive gertsch, the adult that free contract so I.

What could possibly trigger a zero termination and is there anything that you are overly concerned about.

Well I think you.

No, we're not going to deal and in hypothetical the deal is constructed pretty tightly you can read that the T I say.

You know <unk> SEC filings.

I think that.

We don't see any major risks to the deal closing at this point.

Sounds good and fair for Barry you mentioned like different puts and takes with.

The cash flows this quarter do you have any estimate on when or what the ballpark net debt will be when the transaction closes in the first quarter.

Uh huh.

As you know the movie the transaction is subject to the customary working capital adjustments from the transaction cost to come out of that and so on so I wouldn't speculate on what that number is going to be at this point and you know what that number is on the $400 million, but I think an important part of all this is that as we think about the weak demand.

Seeing that and the transaction.

On the heels of the transaction.

That that will have a meaningful amount of cash that gives us a lot of flexibility when it comes to the refinancing them, what we do with the with the balance sheet. So so we'll certainly have more to say about that as we get closer and see what the actual.

Net cash position is as a result.

You can obviously do the math and see the that it's going to have a positive impact from our cash position.

Great. That's it for me thanks, guys.

Thanks [laughter].

And your next question comes from the line of Craig team It slipped that Northen Northland Securities.

Hey, Greg Great. Thank you good morning, welcome Mary Thanks for taking the questions. Just a couple of quick ones first regarding the 1100, I guess suspensions on the VA side that came from coal that you said, 75% back online just wondering how many of those you expect to fully recover.

And then quickly if you could just elaborate on kind of the pace of the recovery month by month I know you said in the quarter was 81% of flights a day kind of year over year and that kind of bumped up to 83% than October.

Any sense, you can give us on how fast that maybe move month over month within the quarter.

[noise] Oh.

You know, it's that's a little hard to say I mean, it came back very quickly in sort of the May June July timeframe.

So I think it was probably relatively consistent in the quarter.

You have to remember in April you know typically were flying 3000 to 3500 flights a day and we got down I think our low point was.

[noise] something crazy like 90 flights one day. So you know they are so I would say that about that was very quick and it probably went up gradually over the quarter, but I.

I was back up to those levels pretty soon in the quarter times are projecting the rate of recovery going forward I think that's very hard to do or if you can tell me what's gone on with Covidien three mobs I can give you an answer maybe but without without knowing a lot. Most certainly what's going to happen I'm not going to make any any guesses on that front.

Suspensions, you know almost back to just the normal suspension level, yeah. When you get in there you know don't hold me to the exact numbers, but we didn't get the 100 150 suspensions every month or people are taking aircraft out of service and and you know don't want to pay for the for the service while their planes.

They are in the shop and that's the typical reason they suspend and you know were under 300 now suspended from the timeframe that we talked about well, but not as if they had a period. So you know that we're not that much higher frankly than our normal rate. If you will so maybe we have maybe double that.

The number we normally have but it's not very high but you know call. It another 150, we'd be right down at the normal level. So [laughter].

They're coming back the company back at this point, it's starting to slow that but were also signing new customers and I'm getting a lot of new growth. So now we think that we're pretty bullish on being able to grow unit continued to grow units from here.

Hi sort of Baird.

Yeah, Thanks for the clarity there.

I guess one other follow up we're just kind of relating to the unallocated corporate costs, you mentioned going from 46 and 2018 to 35 million. This year what was the reasoning I guess for those being flat in 2021 as well.

Yes, Hi, the reason is Oh go ahead.

Well I was just going to say that it's a couple of things number one we are going to have to perform transition services.

Boy I felt that we don't have that we're still working on those is that I discussed.

Discussed earlier with 11 functional teams et cetera, et cetera, and the exact reimbursement scheme is still being worked on et cetera. So we don't want to get over our skis on on that and also you know we have a lot of legacy work to do as a Standalone company.

HM.

You know by virtue of having on C.A., we're still going to have a fair amount of tax work and others.

Other types of work to do through us certainly through 2021.

And so you know.

Our our planning around that.

If somebody were going through right now and we expect we'll start to see some saving 2022, so well give more a sense of direction on that and in future calls when we have our transition plan simply.

Okay, great. Thank you.

And your final question will come from the line of Simon Flannery with Morgan Stanley.

Great. Thank you good morning, everybody. So Oh, you were talking a little bit about the the satellite space, maybe you could just comment on the Leo's, we gotta Spacex public beta and how do you see the leo's playing in the business aviation World going forward.

Yeah, I think we think that's an opportunity for us and.

You know one of the virtues of having coming out of Australia.

Saying that satellite world is that we've learned a lot about it and.

So I think you know leo's will enable smaller form factors in the future and discuss it yet they antennas done along and and so we find that all interesting in that in a good market opportunity for us.

Okay, great and on the.

The delivery side, what are you hearing from the textron's or the world on that how how are they getting pass code on their side in terms of your new shipments coming on and filling up your pipeline over the next few quarters.

Yeah, I don't know I don't want to start angling all the Oems by talking about what's going on in that business [laughter] I'm not going to do that but I think that everybody would agree there's still a good deal of uncertainty and exactly what is going to look like for next year.

And you know as as clarity comes.

About in terms of what's going to happen or the pandemic you know I think that the that the Oems will start nailing down there that production schedules, but right now I think everybody's in a in a wait and see mode.

And what percent of your kind of activations come from Oems versus retrofits or whatever.

Oh, the map retrofit markets much larger than the Oh, yeah Monika.

Yeah, you know great look at the number of deliveries there you know you measure the never deliveries.

The market in the hundreds and you know there are literally no more than 10000.

You know any more than 10000 aircraft out there without broadband in the aftermarket right.

Right, but in terms of the yeah. The end the flow share do you how is there a spread of how many of your.

Yeah last quarter, how many of them went on new planes versus on existing plant.

Almost everything last quarter would have gone on a [noise] on it.

Great runway.

If you look at the last quarter.

Yes.

Many thanks.

Okay.

Thanks, Simon that's our last question operator.

[laughter] and well now turn the call back over to Mr. Huh.

Oh, please join for closing remarks.

Thank you Paul I look.

Well. Thank you for attending our Q3 earnings call I think we're making significant progress on the crop priorities I outlined earlier that is closing without that transaction.

We are launching a new gogo as a profitable communications provider to the business aviation industry.

And strengthening our balance sheet and improving cash flow by reducing our leverage lowering our cost of capital and lowering our debt service.

We look forward to show more of our progress with you in the future as our strategic transition and refinancing plans come together to drive future Gogo shareholder value. Thanks again.

[noise] [noise] and thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.