Ladies and gentlemen, thank you for standing by. And welcome to the Q2 2020 Gogo Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, to Mr. Will Davis, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, and good morning, everyone. Welcome to Gogo’s second quarter 2020 earnings conference call. Joining me today to talk about our results are Oakleigh Thorne, President and CEO; and Barry Rowan, 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 and are more fully detailed under the caption Risk Factors in our annual report on Form 10-K and 10-Q and other documents we have filed with the SEC. In addition, please note that the date of this conference call is August 10, 2020. Any forward-looking statements that we make today are based on assumptions as of this date. 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 and explanation of adjustments and other considerations of our non-GAAP measures to the most comparable GAAP measures in our second quarter earnings press release. This call is being broadcast on the internet and available on the Investor Relations section of the Gogo website. After management comments, we’ll host a Q&A session with the financial community only. It is now my great pleasure to turn the call over to Oakleigh.

Thanks, Will. Good morning and welcome to our Q2 2020 earnings call. It certainly was an extraordinary quarter, but for all the wrong reasons. I think I can sum it up by saying that if you sell internet on airplanes and no one's on the plane, it's tough to deliver results. Our consolidated revenue was down 55% from the prior year. Despite significant cost reductions, our EBITDA fell into negative territory for the first time since Q4 2013. The only positive metric was that we eked out a $1 million profit and unlevered free cash flow for the quarter. That said, there are green shoots starting to emerge. We're seeing a solid bounce back in our business aviation division, and a slower recovery, but a recovery nonetheless in our commercial aviation business. Our commercial aviation gross passenger opportunity numbers tell the story, what we call GPO. In pre-COVID times, we were averaging 37 million passengers a month on Gogo equipped aircraft. In April, that plummeted to 1.9 million passengers, down 95%. It recovered to 3.9 million in May, 7.1 million in June, and while we don't have final GPO numbers for July, we've seen continuous increases in flights, load factors, and user sessions in July and August. Through all this turbulence, we remain laser focused on our liquidity and on driving shareholder value. As outlined on our last earnings call, we've developed a three-track plan we call our value creation plan. The first track is a COVID operating plan focused on preserving our liquidity through the end of the pandemic. The second track is a strategic initiative to combine our commercial aviation division strengths with another enterprise to position the combination for success in the Commercial Aviation IFC market. The third is a financial track aimed at addressing our convertible debt and backstopping the first two tracks should we need to do so. With that said, let me now turn to the COVID operating plan. We now forecast that we will achieve savings greater than the high-end of the range we shared on our last call. Unless there's another major setback from COVID, we believe we have enough liquidity to survive this pandemic. Our financial projections are based on the U.S. domestic passenger traffic market recovering to 50% of 2019 levels by the end of 2020 and 71% of 2019 levels by the end of 2021. The rest of the world air traffic is projected to return to 44% of 2019 levels by the end of 2020 and 72% of 2019 levels by the end of 2021. Now, I'm going to step through each of our three segments and share some operating metrics. The pattern will be a bit repetitive, so I apologize, but I'm trying to share our pre-COVID levels, where we bottomed out, and the recovery we've seen so far. Let me start with our Business Aviation division. Pre-COVID, we averaged about 3,500 flights a day. On April 12, we hit the bottom of the chasm with 397 flights. We view daily flights as an important metric because flight activity drives demand for in-flight connectivity. Since averaging 793 flights per day for the month of April, we’ve seen a nice comeback with 1,600 flights per day in May, 2,500 per day in June, 2,600 in July, and up over 2,700 in August. The big issues for us in the quarter were that 22% of our accounts suspended service and another 22% downgraded their service plans. The good news is that 64% of those who suspended accounts have now unsuspended, and 80% of those that had downgraded plans have now upgraded. The best news is that 90% of those who suspended or downgraded have moved back to their original plans or higher-priced plans, which bodes well for a rebound in our ARPU going forward. We ended the quarter with 5,400 ATG aircraft online, down from a high of 5,700 at the end of Q1. Looking ahead, we expect ATG units online to recover to our prior high in the first half of next year. With the combination of accounts and plans being reinstated, as well as steady growth in aircraft online, we expect service revenue to begin recovering this quarter and remain on a fairly steady recovery track for the next several quarters. ATG units shipped in the quarter fell to 100 units from an average of 227 units a quarter last year. We expect unit shipments to grow this quarter and next, though not to recover to last year's levels this year. On another positive note, in the next week or two, we expect to surpass 1,000 AVANCE L5s installed and in operation, and also surpass 450 L3s installed and operational. Customer satisfaction for this product has been very high, and it is by far our most successful product launch ever. In the longer term, we think that COVID-19 may actually be a catalyst for the business aviation industry. Dealers and fractional operators report a huge surge of sales inquiries, which is encouraging, but we have not yet seen that translate into orders in our order book. In our Commercial Aviation North American segment, we've seen steady growth in passenger traffic since April. Pre-COVID, our GPO was averaging 27 million a month then collapsed to 1.5 million in April, but then started to recover, growing to 3.3 million in May and 6 million in June. Flights per day are another good barometer for the health of our CA market. Pre-COVID, we averaged just over 10,000 flights a day in our North American segment. At the bottom of the chasm in April, we saw a few days drop to about 2,300 flights per day. In May, we averaged 2,700. In June, that grew to 3,500. In July, it grew to 5,300, and in August, we are averaging a little more than 6,000 flights a day. The good news is that over that same period, load factors rose from the 10% to 20% range in April up to the 40% to 60% range this month, which bodes well for our Q3 gross passenger opportunity. All of these data points demonstrate that the CA North American market is recovering. While we are still far from where we were last year, we are recovering nonetheless, and that recovery is starting to show in our numbers. Starting with sessions, pre-COVID, we averaged 125,000 sessions a day, which then collapsed 91% to 11,000 sessions a day in April. We started coming back with 15,000 a day in May and are now at 40,000 a day for 32% of pre-COVID levels in August. Now, on sales – not revenue because given ASC 606 accounting and other similar factors, sales are a better measure of daily cash generating activity than revenue. Pre-COVID, our North American sales averaged just under $1 million per day. In May, that number collapsed to just under $200,000 a day. In June and July, it grew to 275,000 a day, and in August, it's running a little more than $300,000 a day. The downturn in our sales and the recovery are more muted than the session downturn and recovery because monthly service plans and other recurring revenue sources accounted for about 25% of our daily sales pre-COVID are stickier than daily in-air sales and accounted for roughly 25% of our CA service sales from pre-COVID times. We ended Q2 with 2,455 aircraft online in CA-NA, down 25 from the prior quarter but up 12 from the prior year. Not all those aircraft were active in the quarter. Our low point was roughly 1,200 active aircraft per day in early May, about two-thirds of which were ATG regional jets. U.S. airlines relied heavily on regional jets at the bottom of the chasm, as they are cheaper to fly than mainline jets. If no one is on the plane, it doesn't matter what jet you use. By the end of the quarter, we were up to about 1,500 active sales per day. As of last week, we were up to more than 1,800 active sales per day or 73% of our North American fleet. It's tough to predict the impact of COVID on our fleet count going forward because airlines don't always retire all the aircraft they say they plan to retire. We estimate that there are about 230 older Gogo-installed aircraft that North American airlines may retire as they downsize their fleets over the coming year or so. For the quarter, and so far into Q3, we have run a little ahead of our forecast. We believe our forecast for North America is fairly accurate and gives us a good basis for projecting our liquidity. In regard to our Rest of World segment, the downturn was about the same as the North American segment, but the recovery has been slower. Pre-COVID, our Rest of World GPO was running at 11 million passengers per month, which collapsed to 480,000 in April, and May was no better. There was a modest recovery in June, but since that time, we have seen more recovery. Pre-COVID, Rest of World flight counts were running at about 2,600 per day. In April, we sank to less than 400 per day, and then that climbed steadily to an average of 700 per day in July and more than 900 per day in August. Roughly three quarters of these flights are domestic non-U.S. flights, which include Japan, Brazil, and Australia. Positive trends are also coming through in our numbers. Pre-COVID, our Rest of World division was averaging 47,000 sessions a day, which collapsed 94% to 2,700 sessions in April. However, it has grown to 6,000 a day in June and they're running at more than 9,000 a day in August. They followed a similar muted pattern as North America, dropping from 114,000 a day pre-COVID to 27,000 days in April, then starting a steady recovery, currently up to a little more than 40,000 a day in August. Rest of World aircraft online actually grew in the quarter, up to 842, and up 151 from the prior year. Due to retirements and bankruptcies, we expect roughly 100 of our current Rest of World fleet to be inoperable over the next year, though these numbers are hard to predict as airline fleet plans can change rapidly. Let me turn to the cost side of our COVID operating plan. The first goal of our plan is to protect the health and safety of our employees and our customers. We've implemented work-from-home policies. Although all of our U.S. facilities are now open with extra safety precautions, only a fraction of employees are actually working from the office at this time. I'm really proud of the great job our team has done working remotely. Despite furloughs and layoffs, they've stayed connected and worked as a team. After safety, our next priority was focusing on the financial health of Gogo and creating value for shareholders. Our approach has been to develop and continually stress-test multiple scenarios for the depth and duration of the COVID pandemic in our markets, and then develop operating plans to address those scenarios. The operating plans, in turn, drive 16 cost levers that we can pull or push to manage our cash expenses. The conditions in the Commercial Aviation market are aligned with the worst-case scenario we developed back in March, while the Business Aviation market dip was much deeper than we anticipated, but the recovery has been much faster. Last call, we forecast $170 million in savings in 2020 and 2021 under the best-case scenario, and $330 million on the worst case, and we are now projecting savings greater than $330 million as we're closer to the worst-case scenario than previously expected due to the pandemic. The latest and most significant lever was our announcement two weeks ago of a reduction of 14% in our workforce, affecting 20% of our Commercial Aviation division workforce as CA has been the hardest hit by the pandemic. Including attrition since the beginning of the pandemic, we've reduced headcount in our Commercial Aviation division by 30%. We'd always stated that our reduction in force was our last resort, and tragically, with airlines in such difficult circumstances, we had no choice but to transition from furloughs to a reduction in force to meet our liquidity requirements. Pay reductions will continue, and our compensation committee has announced that plans to pay bonuses and stock options in 2020 unless the company has adequate cash reserves to pay in cash. Virtually every supplier we have is working with us to manage through this pandemic, and we are grateful for their help. We've also had assistance from some airline partners who have delayed installations or found other ways to help us reduce cash burn. We’re trying to minimize the impact of our cost reductions on two levers related to products, namely our Gogo 5G initiatives and our 2Ka initiative. We've shifted some spending on those without affecting timing. We believe these savings should suffice to see us through these challenging times. However, we continuously model new scenarios to prepare for a deeper and longer downturn than our current worst-case projections. I want to thank the Gogo team for their hard work and creativity in developing these plans, as well as the sacrifices they are making to ensure the long-term survival of our company. I want to especially thank those who will be leaving us. Their departures have nothing to do with their individual capabilities; they are driven by circumstances beyond our control. We wish them all the best in their future endeavors. Now let me turn to the strategic track. We have two valuable businesses, and our management views our job as realizing the value of both for our shareholders. Our Business Aviation division operates in a very attractive industry, with relatively little customer concentration, an under-penetrated market, and a strong market position. We offer the industry's leading product at an attractive price compared to competitive solutions, alongside a unique advantage with our proprietary spectrum and ATG network. Financially, our recurring revenue model generates robust cash flow, allowing us to invest in enhancing our product offerings and maintaining our product advantage as demonstrated with the launch of our advanced product line two years ago, and as we will do with Gogo 5G in 2021. Conversely, our Commercial Aviation business operates in a more challenging industry with high customer concentration, a more heavily penetrated market, and a handful of competitors. Despite this, industry players agree that In-Flight Connectivity (IFC) and Commercial Aviation is an attractive growth industry. Airlines are shifting towards free service, driving adoption, and operational applications will grow as the quality of in-flight broadband improves. To capture this growth potential and drive innovation, the industry would benefit from fundamental changes through either horizontal or vertical business combinations. Recently, we received inquiries about the possibility of selling our commercial aviation division, and we’d like to provide the following comments regarding those queries. We've long discussed the strategic benefits of combining our CA division either with another service provider to enhance economies of scale, or with a satellite operator to drive utilization, or with an avionics company to facilitate data transfer as the connected aircraft becomes a reality. COVID has accelerated consolidation discussions as industry players look to emerge from this crisis with the strongest portfolio of assets to capture future growth. Gogo Commercial Aviation brings an attractive and unique set of assets that appeal to both strategic and financial buyers interested in consolidation. We helped create the IFC segment and established a leading market share among many major airlines worldwide. We have industry-leading competencies in engineering, software sales support, and network management, along with the leading IFC product in the world with Gogo 2Ku. Moreover, we have an asset-light business model that affirms our tremendous flexibility as the satellite industry quickly evolves toward a multi-orbit, multi-spectrum future. Several parties expressed interest in our CA business in the second quarter. As a result, we retained a financial advisory firm to assist us and launched a formal process this summer to evaluate our strategic options for that business. We have engaged in extensive discussions with multiple parties and are optimistic that a deal may materialize. However, we cannot guarantee that we will be able to complete a transaction. We do not want to affect our negotiations by providing excessive information publicly, so we will refrain from answering further questions on this matter until it is appropriate to do so. I want to point out that we've taken steps to facilitate a transaction by completing a series of measures that began two years ago to formally separate our two businesses. This started in 2018 with our decision to split Business Aviation organizationally. In 2019, we aligned our ATG network and operations under the new business aviation division, which allowed us to manage that network effectively. We also separated our corporate expenses at the beginning of 2020 to provide better visibility of these costs for investors. Finally, in July, we completed the legal separation of the two businesses by establishing separate balance sheets and segregating assets, liabilities, contracts, licenses, and employees by division. We are genuinely proud of the capabilities the commercial aviation team has built and believe that it will have a bright future as part of a larger, more integrated entity. Lastly, let me discuss the financing track. Because we cannot be certain that we will be able to finalize a strategic transaction and due to the risk that the pandemic might worsen or our revenue may not increase as quickly as we expect, we are also pursuing a financing track. One factor to consider is that our $238 million phase on our convertible notes becomes due in May 2022. We don’t have a firm financial plan at the moment but believe our three-track value creation plan will provide opportunities to enhance our capital structure. As you know, the CARES Act provides two potential opportunities for Gogo to receive assistance, totaling $32 billion in short-term payroll protection grants for air carriers and contractors, and $29 billion in loans and loan guarantees for air carriers, including repair stations like Gogo. We haven’t included government assistance in our financial planning, but we have applied for $81 million under the grant program and $150 million under the loan program. While we have not received a definitive response regarding either application, we found indications that we may not qualify for the loan program. We have yet to hear whether we will be accepted for the grant program, but we continue our discussions with Treasury. Should we receive government assistance, we believe we would be required to roll back most or all of the furloughs and pay reductions mentioned above, as well as any planned reductions and defer any other employee actions until after September 30.

Thanks, Oakleigh. I'll start my comments by summarizing the financial impact of the COVID pandemic on our business, as well as our response. Of course, Gogo has been significantly impacted by COVID-19. Commercial Aviation has been much harder hit than Business Aviation, and BA is already recovering reasonably well. Consolidated revenue was down by 48% from the first quarter of this year, while CA revenue declined nearly three times as much as BA, with CA revenue down 63%, and BA down 23% over the first quarter. The cost controls we've implemented this year are ahead of schedule. As a result of these actions, we achieved breakeven unlevered free cash flow for the quarter and ended with $156 million in cash. Let me build on Oak’s comments by summarizing the financial dimensions of our response to COVID. As Oak described, we are executing on a three-part value creation plan, including the operational track, a strategic track, and a financing track. Oak covered the strategic and financial tracks, so I will focus on the financial implications of our operational planning. Within the operational track, we continue to follow our three-part planning and execution process, developing scenarios, identifying cost-saving levers, and actively monitoring industry dynamics to assess our position relative to our continuum of scenarios. On our last quarter call, we reported that we had identified cost savings ranging from $170 million to $330 million through 2021. We also indicated that the execution levels would depend on how the impact of COVID-19 unfolded with respect to our best- and worst-case scenarios. You may recall that our worst-case scenario included a full ground stop lasting two to three months. Although we aren't completely at that point now, we are planning for a slow recovery in commercial aviation, which closely parallels our worst-case scenario. In response to the rapidly evolving COVID situation, we have developed cost-saving plans exceeding $340 million through 2021. This goes beyond the $330 million that was the high-end of savings we previously referenced. I won't delve into every detail of our cost savings plan, but let me summarize the 16 levers I've mentioned. Six of these levers are non-personnel related, accounting for about two-thirds of our projected savings. On our last quarterly call, we stated that around three-fourths of these savings were directly in our control, or represented savings where we had already reached agreements with the relevant counterparties. We've made even more progress since then. Approximately 95% of the more than $340 million of savings we've identified by the end of 2021 have already been secured or are presently under our control. The primary counterparties involved include airlines, equipment suppliers, and service providers. We've made significant progress in reaching agreements with our customers and suppliers to lower our cost structure, for which we are thankful, as we navigate through this challenging environment. One key driver of these cost savings is that we have come to agreements with our airline partners to significantly delay installations. This delay has mutually benefited Gogo and the airlines, representing substantial cash savings for us between now and the end of 2021. At the time of our first quarter call, we had already renegotiated our purchase commitments to align with these installation delays, estimating a $40 million net cash savings for Gogo during 2020. Since then, we've managed to further reduce our purchases, reflecting the higher overall savings I've described. Our satellite providers have also adopted a partnership-like approach with us. We’ve reached agreements with all of them; these concessions generally do not change the fundamental structure of agreements, but they offer significant cash savings. We now expect savings through 2021 of over $70 million from renegotiations with satellite vendors and the delays in new capacity purchases due to reduced demand. We're also dramatically cutting non-essential spending and related categories across the board, while being mindful not to undermine the franchise value of Gogo. These expense categories represent over $60 million in savings through 2021. Regrettably, our employees are sharing the burden of COVID's impact on our business, with about one third of the cost savings coming from personnel-related actions. Although we delayed this decision for as long as possible, pending potential government funding, we had to implement a reduction in force announced at the end of July. We also modified our bonus program to conditionally allow the company to pay bonuses in stock for the upcoming spring, 2021. The impact of these changes is reflected in our second-quarter numbers. These cost-saving initiatives are already taking effect, running ahead of plan. Our best and worst case scenarios cited cash cost savings through June of this year, ranging between $58 million and $67 million, respectively. In reality, however, we achieved over $100 million in cash savings through June, surpassing our worst case scenario. On a combined basis, our engineering, design, and development; sales; marketing; and general administrative expenses decreased by 35% compared to last year and were down 27% from the first quarter. This operational planning track has significantly reduced our burn rate and driven our strong cash flow performance for the quarter. We concluded the quarter with $156.3 million in cash. This is $58 million less than the $214.2 million in the first quarter, and the difference relates entirely to the $53 million in interest payments made during the quarter and a repayment of $5 million on our ABL. On an unlevered basis, Gogo achieved breakeven free cash flow for the quarter, which we believe is a significant milestone given the severe impact of the COVID pandemic, particularly on our Commercial Aviation business. Looking toward next year, we will benefit from the full-year impact of the cost-saving measures we are implementing this year. Provided the recovery remains on track, and we continue executing our cost-saving plans, we expect to approach free cash flow breakeven in 2021 on a levered basis, including our interest expenses. I would like to point out that we are current on our interest payments and are in complete compliance with all of our debt covenants. Now I will discuss our second-quarter operating results at the consolidated level. Total revenue was $96.6 million for the second quarter, down 55% compared to the prior year period. Service revenue was $74.3 million, down 57%, while equipment revenue fell 44% to $22.4 million year-over-year. As previously stated, the top line performance varied considerably between BA and CA. BA service revenue declined only 20%, whereas combined CA-NA and CA-ROW service revenue fell 75% compared to the second quarter of 2019. Our cost controls helped to mitigate the bottom line effect, and we reported an adjusted EBITDA of negative $15.9 million. BA's bottom line performance was especially noteworthy, as they recorded near-record segment profit margin of 50%. We also established an additional $5 million in reserves under the new CECL standard, primarily regarding an airline that went into administration during the quarter, but there were no other material asset impairments recorded during this quarter. This contrasts with $49.4 million in asset impairment charges reported during the last quarter that initially reflected COVID-19's impact. Now, let's discuss the operating results of our business segments, starting with Business Aviation. As expected, BA is weathering the COVID crisis relatively well, particularly when comparing to CA. Total revenue declined year-over-year by 23% to $54.6 million for this quarter, with service revenue and equipment revenue down by 20% and 36%, respectively. Service revenue has exceeded our internal expectations due to the less significant impact of the BA industry compared to CA, alongside the robustness of the BA subscription model. Although activations exceeded deactivations in June, the first time since the onset of the COVID crisis, we still see caution in the market around new equipment purchases. We anticipate a substantial upswing in BA equipment revenue by year-end, but will closely monitor sales through both OEM and aftermarket channels. Importantly, ATG units online experienced only a slight decline of 1%, from 5,462 to 5,399 year-over-year, and a 5.5% decrease from the first quarter. Unfortunately, we did face a more pronounced 17% decline in average monthly service revenue per ATG unit, dropping from $3,091 to $2,570 due to customers reverting to downgraded plans or switching to pay-as-you-go. Still, BA successfully maintained margins amid declining revenues; segment profit was down to $27.2 million, with a 50% segment profit margin—only 1% off the all-time high of 51% reached in the first quarter. This performance stemmed from achieving an overall gross margin of 69% for the quarter and tight expense control. Combined, our ED&D, sales, and marketing costs, as well as general and administrative expenses fell to $10.9 million, a 30% decrease compared to last year. This reduction came even as we invested $5 million more for the development of Gogo 5G quarter-on-quarter, some of which was capitalized. Now let's move on to the results of our Commercial Aviation division, starting with CA North America. CA NA experienced substantial revenue declines, with total revenue decreasing 72% to $30 million, and service revenue declining 74% to $25.5 million, primarily due to COVID-19’s impact. Revenue was also affected by the changes with American Airlines that we have discussed on previous calls. Equipment revenue decreased by 52% year-over-year to $4.5 million, mainly because there were no installations of 2Ku aircraft under the airline-directed business model this quarter. The sharp drop in service revenue also led to a reduction in the service gross margin from 60% in the same quarter last year to 40% this quarter. This revenue decline resulted in a segment profit loss of $10.6 million in the second quarter, a significant change from the $34.1 million profit recorded last year. Effective cost control measures have been crucial for CA, with CA NA's engineering, development, and design, sales, marketing, and general and administrative expenses collectively reduced by 47% compared to last year’s second quarter. The number of aircraft online rose slightly to 2,455 from 2,433 a year earlier, driven by an increase in the number of 2Ku and RJ aircraft, although this was partly offset by the retirement of older mainline ATG and RJ aircraft along with a few 2Ku retirements. As expected, the ARPA numbers for CA mirrored the revenue declines, given the lower load factors on available aircraft. CA-NA ARPA declined 73% from 136,000 year ago to 37,000 this quarter. While we can't predict the COVID impact on CA's revenues with precision, we expect CA-NA service revenue to increase significantly in the latter half of 2020 from the devastating levels we experienced this quarter. Transitioning to CA-ROW, total CA-ROW revenue fell to $12 million, down 67% from last year's second quarter, with service revenue dropping to $4.7 million, a 79% decline compared to the same period. This results from lowered ARPA, reflecting COVID’s impact on global air travel. Equipment revenue dropped to $7.3 million, down 49% from the previous year, mainly due to fewer installations under the airline-directed model. Similar to CA-NA, the reportable segment loss expanded 63% to $26.7 million from Q2 last year due to revenue declines, which were substantially mitigated by significant reductions in ED&D and sales and marketing expenses. I would like to add that additional credit loss reserves referred to earlier were noted in CA-ROW’s G&A expense, leading to an increase in this expense category from a year ago. CA-ROW aircraft online increased to 842 by the end of the second quarter, up 22% from 691 during the same period last year. We exited this quarter with 620 2Ku planes in backlog, with approximately 83% that backlog attributable to CA-ROW. As I conclude my prepared remarks, I want to emphasize our commitment to navigatating Gogo through these challenging times. The impact of the pandemic on the aviation industry has been acute, but we have worked diligently to maintain an objective perspective on the situation. We’re executing on our cost reduction measures and will continue closely managing our cost structure as this pandemic persists. We will press forward with the industry consolidation opportunities we've discussed. Lastly, I'd like to join Oak in thanking our employees for their incredible dedication and work ethic during these difficult times. They truly inspire us. Thank you again. Operator, we're ready for our first question.

Thank you. Our first question comes from Scott Searle with Roth Capital. Your line is now open.

Hey, good morning. Thanks for taking my question. Oak and Barry, thanks for the detailed update; it was incredibly helpful. First off, just regarding the strategic process, I was curious whether a joint venture outcome is considered a viable option and whether you could provide any insight regarding the debt levels or any debt that would accompany the CA side.

Yes. We’re not going to comment on the potential forms of combinations at this time. Regarding the debt, it remains with the parent level and will not accompany CA.

Got it. One more on CA North America gross margins, which appear better than expected. It seems like you've been successful in negotiations with your satcom providers. Can you provide more insight into what the fixed and variable components are, and whether there were any one-time benefits or whether this is a baseline minimum we should expect?

Yes, Scott. The cost reductions we've experienced are part of our strategic plan and we will see the benefits going forward, especially as we transition from furloughs to reductions in force. This applies to both CA North America and Rest of World segments. While we saw negative impacts on G&A in the ROW segment from CECL reserves, we expect to benefit here also. We anticipate the benefits of reduced operating expenses and satcom cost reductions to carry through as we continue to navigate this environment.

Great. Lastly, on BA, it sounds like with reactivations and planes reopening, you’re achieving a 90% run rate in terms of service. However, I’m curious whether the demand for new aircraft is increasing or whether that is more tied to fulfilling a backlog built during ADSP. What does the long-term pipeline look like?

Yes, order flow has decreased significantly. We shipped 100 units in Q2 compared to an average of about 270 last year. While we don’t expect to reach last year’s levels this year, we do anticipate higher shipment levels in Q3 and Q4. Many orders froze in Q2, particularly around the March-April timeframe, but we’re beginning to see some new installs. We have a high demand for charters, but as of now haven’t seen that translate into new orders in North America.

Thank you. Our next question comes from Lance Vitanza with Cowen. Your line is now open.

Thanks for taking my questions. I have two. You mentioned robust cash flow in Q2, but to what extent do you expect these benefits to reverse in Q3 or Q4? More critically, if you don’t expect a reversal, what might recovery look like for the business?

Our plans regarding the short-term COVID operating plan run through the end of 2021 and align with our recovery expectations. We aim to push any deferrals beyond the pandemic.

To address your question about the near- and long-term cash flow outlook, we have benefited from expense reductions and working capital management. However, you can’t expect this trend to persist indefinitely. We anticipate unlevered free cash flow to fall back negative for the latter half of the year. Looking ahead to 2021, we look forward to reaping benefits from the full years’ cost actions.

You mentioned the convertible notes maturing in May 2022. I suppose refinancing them before they go current is the goal, but if conditions allow, would you prefer to wait until absolutely necessary?

Our value creation plan offers us a lot of options to address the converts. A successful strategic sale process could generate optionality. The operation tracks with cost savings improve our liquidity, adding to our financial viability. Ultimately, we aim to address the converts before they go current in May 2021.

Thanks, guys.

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

When considering the separation of the CA and BA divisions, do you have a general sense of what CA's cash burn was in 2019?

On an unlevered basis, CA’s cash burn in 2019 was about $24 million.

Got it. As you’re considering a sale of this division, I imagine the cash burn would also be taken into consideration by potential buyers. Regarding SpaceX and their satellite investments, do you believe the 2Ku system has the capability to connect with SpaceX's Starlink?

Yes, it certainly does. We’re well-positioned to adapt to any non-geostationary satellites as we can transition from 2Ku to 2Ka effectively.

Great! How much CapEx and general expenses are left for the ATG 5G network? I recall you spent some this quarter and previously.

The total cost of the ATG network is approximately $100 million, with around two-thirds being CapEx and the rest operating expenses. We’re keeping OpEx spend on track, and development is on schedule. The bulk of capital expense will occur in 2021 as we deploy towers. That’s projected at around $50 million.

Thanks. Good morning, everyone. I hope you, your family, and employees are managing through this crisis safely. My first question is about the BA and CA split. If there were to be a sale of CA, what revenue would need to be allocated to BA since BA handles the ATG network?

That's correct. A commercial agreement will exist between the two companies, and the specifics will be part of negotiations with potential partners.

Would you wait for a partnership to be established before funding that, or implement it beforehand?

I think it's critical for any transaction to have this in place before signing a deal.

As you might know, there’s currently a mechanism for pricing the transfer from BA to CA for the megabytes they deliver.

What would that number be?

Unfortunately, we do not disclose that publicly, but we can follow up with you.

Understood, and on the next-gen ATG network, when do you need to finalize spending decisions? Should this align with the strategic decision-making you mentioned?

That would likely occur in the middle of next year.

So, there’s still time.

Yes.

Lastly, you mentioned COVID consideration during the strategic sale process; did I understand correctly that you'd entered the formal process earlier in the second quarter?

Yes, we received inquiries early in Q2 and initiated a formal process then, which is still ongoing.

Thank you.

If CA sold, does the investment in 5G still make sense, given BA’s needs?

Absolutely. As user expectations for performance increase, having quality connectivity remains essential to fend off competition.

The RJ business will also require important investments to ensure capacity rolls out appropriately.

Finally, if CA were to be sold or spun off, would BA be sufficiently large to remain publicly listed, or would it be better to keep it private?

We currently have no plans on that front. I’ve successfully led smaller public companies, and you can indeed be a credible public entity at $300 or $400 million. Our focus is on growing that business.

Thanks, Oak.

Thanks for your questions.

Thank you. We will now take our last question. Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes your program, and you may now disconnect.