Earnings Call Transcript - GOGO Q1 2021

Operator, Operator

Good day, and thank you for standing by. Welcome to the Gogo First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I would now like to hand the conference over to your first speaker today, Mr. William Davis, Vice President of Investor Relations. Please go ahead, sir.

William Davis, Vice President of Investor Relations

Thank you, RJ, and good morning everyone. Welcome to Gogo's first quarter 2021 earnings conference call. Joining me today to talk about our results are Oakleigh Thorne, President and CEO; 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 earnings press release filed this morning and are more fully detailed under the 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 May 6, 2021. 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 have included a reconciliation and explanation of adjustments and other considerations of our non-GAAP measures to the most comparable GAAP measures in our first quarter earnings press release. This call is being broadcast on the Internet and available on the Investor Relations section of the Gogo website. The earnings press release is also available on the 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.

Oakleigh Thorne, President and CEO

Thanks, Will, and thank you all for joining us this morning and for your interest in Gogo. The first quarter results we announced today and the completion of our refinancing last week, highlight Gogo's strong momentum as we execute on our pure-play business aviation connectivity strategy. Today, my remarks will focus on highlights of our first quarter results, business aviation's strong recovery from the depth of COVID, our progress against the strategic initiatives I discussed on our last call and the impact of the refinancing on our business on a go-forward basis. So, let me start with results. Gogo delivered a strong first quarter, driven by the ongoing recovery of the business aviation market and the strength of our advanced platform. We generated total Q1 revenue of $73.9 million, up 4% compared to Q1 2020, driven by a 3% increase in service revenue, and a 10% increase in equipment revenue. The service revenue growth is primarily attributable to a 3% increase in ATG aircraft online, hitting a new record high of 5,892 aircraft. Our ability to rebound from the depths of the pandemic to record aircraft online in just 12 months speaks to the resilience of our team, the strength of our technology, and the mission-critical nature of our service to our customers. On the equipment side, Gogo grew first quarter revenue 10% year-over-year, driven primarily by AVANCE L5 sales. We also marked an important milestone, 100% of Gogo’s ATG equipment shipments in the first quarter were AVANCE. And as we wind down new sales of our classic ATG product line and customers gravitate to our next-generation AVANCE platform. Despite the strong year-over-year growth, equipment revenue was down 30% sequentially from an extremely strong Q4 of 2020. However, Q4 tends to be our strongest equipment sales quarter, and given our current strong backlog and pipeline, we predict equipment sales overall this year will significantly surpass equipment sales for 2020 by 20%. These strong equipment sales should drive growth in high-margin recurring service revenue down the road, as many of the units we shipped have yet to come online. Our five-year plan targets an additional 400 ATG aircraft online per year, and we expect to greatly exceed that number for 2021. On another positive note, we had very low equipment churn in the quarter, achieving an annualized 98.2% equipment retention rate, which equates to more than a 17-year revenue producing equipment life on an aircraft. This is a significant recovery from a low point of 92.5% in Q2 of 2020. We also saw strong adjusted EBITDA and free cash flow performance for the quarter, driven by robust equipment revenue, disciplined price controls, and some delayed spending that will hit later in the year. I'm very proud of the Gogo team and what we've accomplished in the first quarter. I think it's a harbinger of good things to come and the culmination of a lot of hard work and strong execution over the past two years. Now, let me turn to conditions in the business aviation market. Clearly, the pandemic has created supportive trends in business aviation, pushing more fliers who can afford it to fly private for health concerns and accelerating the Uberification of air travel, as more connected passengers turned to charter or timeshare models to access private aviation. We track flight activity as a proxy for demand, as growth in flight activity ultimately drives demand for aircraft and thereby demand for connectivity. This is especially true in the corporate and fleet segments, where passengers are insisting on quality connectivity when making their purchase decisions. To assess growth in the industry today compared to pre-COVID times, we will compare 2021 flight activity to 2019 activity. For Q1 2021, average daily Gogo flight activity ran at 97% of average daily flight activity for Q1 2019. However, that modest decline was anchored by corporate flight departments, which are still well behind 2019 flight counts early in the year. That all changed in March and April. Corporate flight counts grew from around 70% of 2019 counts in February to 100% in March and 102% in April. Charter flights grew to 130% of 2019 counts in March and 128% in April, and fractional flights grew to 130% of 2019 in March and 136% in April. This dramatic growth in demand has driven a surge in secondhand aircraft purchases, leaving inventory of pre-owned aircraft at an all-time low. It's caused fleet operators to delay aircraft retirements. As a result, rapid Wall Street analysts have raised their projections for OEM deliveries by 6% for this year, and another 6% for next year. Gogo is uniquely positioned to take advantage of this opportunity. Our line is set at all nine of the major business aviation OEMs, we have a strong aftermarket network of 120 dealers that sell and install our systems, and 93 FDCs cover installing Gogo equipment on over 200 makes and models of aircraft, far more than any other broadband ISP supplier to the BA market. The other significant change in the BA market is the shift in passenger behavior. The COVID new normal has driven our end users to live and work online. Consequently, they now require streaming and video conference capabilities in-flight as part of the work-from-anywhere culture. This demand manifested itself in Q1 data consumption on Gogo equipped aircraft growing 44% from Q1 2019, which translates into a 32% increase on a per aircraft basis and which in turn should manifest itself in purchases of higher data and service plans in the future. Gogo is well positioned to meet this increased data demand with AVANCE L5, which delivers faster speeds and enhanced network capacity on our 4G ATG network. L5 enables live streaming of video and audio, video conferencing and other essential applications like VPN. To make that demand more affordable, we just announced the new unlimited streaming and data plan Gogo Biz 4G Limitless, available for our AVANCE L5 customers, which allows customers to enjoy the benefits of streaming without the unpredictability of high overages. With Gogo 5G, we will advance our product offering even further by supporting multi-device video streaming, thus extending all aspects of remote office functionality into the sky. Based on the strength of our first quarter performance and the industry tailwind shaping the recovery of the business aviation market, Gogo is raising our 2021 revenue and adjusted EBITDA outlook. We are also achieving positive free cash flow for the first time. Barry will provide more details on that in a moment. Now let's talk about our progress on the strategic initiatives I discussed in our last call. As background, let's remember that aviation is a relatively small market, but it is a highly un-penetrated market. This represents a significant opportunity for a small company like Gogo. Of the 24,000 business aircraft in North America, only 28% have broadband WiFi today, and of 14,000 business aircraft globally, less than 1,000 have broadband today. Our strategy is to leverage our three unique competitive advantages: our proprietary ATG Network, our AVANCE platform, and our strong distribution channels to strengthen our competitive moat and go after that large whitespace in the BA markets. We intend to execute that in three ways. First, we aim to enhance our ATG Network by rolling out Gogo 5G. This will allow us to aggregate our proprietary licensed spectrum and 60 megahertz of unlicensed spectrum to deliver a super-fast, high-performance link for our customers. I should note that our portfolio includes 349 patents related to this aggregation technology. We made tremendous progress on 5G in the quarter. We completed critical design review and flight testing for our airborne antenna, our 5G core hardware and software have all been installed in our data centers, and we successfully completed our first end-to-end call on the Gogo SIM. We also completed acceptance testing of our 5G Base Station antennas and are preparing for testbed installation later this year. We finished building our prototype 5G Aircards in preparation for full airborne equipment prototyping later this year. We're still on schedule for service launch in 2022. Our second strategic initiative is driving penetration of our AVANCE platform. It enables us to integrate future technologies into our customers' existing AVANCE installations at a much lower cost than buying and installing similar products new from other suppliers. In essence, AVANCE future-proofs our customers' investment in hardware by allowing us to add new products, service levels, new spectrum, and even new networks primarily through software upgrades, rather than expensive in-aircraft hardware upgrades. For example, when Leo satellite networks and ESA antennas become available, Gogo would have the option of offering AVANCE customers access to those networks simply by adding a new ESA antenna on top of the plane. That antenna could connect to the existing AVANCE platform already installed inside the aircraft. Much like how a Tesla upgrade is achieved primarily through software updates. Conversely, if a future competitor offers that same product, the customer will have to rip out existing equipment and install new hardware, costing them hundreds of thousands of dollars along with weeks of downtime. Gogo is not committed to a legal plan regarding this yet, but this demonstrates the type of optionality we get with a relatively modest investment on our part from the AVANCE platform. To make this point even clearer, as we upgrade AVANCE L5 customers to 5G, most of the upgrade will be software-based. The only hardware needed will be one small box and two new antennas that fit exactly where the old antennas sit on the outside of the aircraft. We're very bullish on AVANCE. The flexibility to adapt and integrate new technologies strengthens our competitive position and provides us the ability to enter new markets outside of North America. A notable highlight from Q1 for AVANCE was a 42% year-over-year growth in units online, reaching 1,900 units, or 32% of our total aircraft online, up from 23% in Q1 2020. Our third strategic initiative focuses on supply chain and manufacturing. To drive down costs and enhance quality, we simplify our supply chain by standardizing components across all AVANCE devices. By mandating common components, we reduce the number of SKUs we need to source, thereby driving up the quantity we purchase of each SKU. This approach reduces unit costs and increases quality by simplifying our inbound logistics and manufacturing. This strategy has proven especially valuable this year as we've minimized supply chain risk in the face of increased demand during a global supply chain crisis. Currently, we feel confident in our supply chain's ability to meet increasing demand for the next several quarters. Let me finish by discussing refinancing. In early 2020, we outlined our value creation roadmap for Gogo, focusing on managing our business through the severe impact of the COVID-19 pandemic, completing the sale of our commercial aviation business, and implementing a comprehensive refinancing to enhance our financial flexibility and position the new Gogo for growth. With the closing of our refinancing last Friday, we've delivered on all three prongs of that plan. Our refinancing was an overwhelming success. We achieved approximately $70 million a year in annual cash interest savings, exceeding our original target of $50 million. As a result of now having a clear picture of our debt service obligations and given the strong performance of the business, we are now sharing long-term free cash flow guidance for the first time. And Barry will provide more detail on that guidance shortly. There are several positive aspects of our refinancing worth noting. First, by entering the Term Loan B market, we achieved flexibility to refinance, de-lever, or pursue strategic transactions in the future as needed. Second, the $200 million in liquidity and significantly enhanced cash flow will enable us to invest in deepening and widening our competitive moat and further de-lever our balance sheet. Third, in Q3, we expect to achieve a significant milestone when we turn net income and earnings per share positive for the first time, making us what my dad would call a real company. That’s an exciting milestone for Gogo. Finally, I would like to welcome Mark Anderson of GTCR to our Board and welcome GTCR as a partner in the Gogo business. GTCR added tremendous value throughout our refinancing process, contributing their experience from investments in other business aviation companies. Last, we are very excited about the opportunity ahead of us as we leverage our ATG network, leading innovative AVANCE platform and strengthened balance sheet to drive growth and value creation for our employees, customers, and shareholders. With that, I'll turn it over to Barry.

Barry Rowan, Executive Vice President and CFO

Thanks, Oak, and good morning, everyone. In my remarks today, I'll start by walking through Gogo's first quarter financial performance in more detail. Then I'll provide an update on our balance sheet following our comprehensive refinancing last week, which marks a major milestone for Gogo and positions us for significant value creation going forward. Finally, I'll finish with some additional context around the updated 2021 guidance and long-term targets we announced this morning. As Oak mentioned, the accelerating recovery in the business aviation market and our unique ability to capture that value drove strong first quarter results. Total revenue of $73.9 million increased 4% compared to the first quarter of 2020, driven by increases in both service and equipment revenue. These results reflect the continued recovery in the business aviation industry and strong sales of Gogo’s AVANCE platform. On a sequential basis, total revenue decreased by 4.8% in the first quarter of this year. We had strong growth in service revenue sequentially. However, equipment revenue declined following the record AVANCE shipments in the fourth quarter of 2020, which was driven by pent-up demand, promotional activity, and general seasonality. Let me break down the revenue progression between service and equipment. We achieved a record service revenue of $59.4 million this quarter, an increase of nearly 3% compared to the prior year period, due primarily to a 3% increase in ATG aircraft online and a recognition of $1.2 million in service revenue under the network sharing agreement with Intelsat. As a reminder, we have a 10-year deal under which Intelsat has exclusive rights to our ATG network for Commercial Aviation, subject to paying us at least $178 million in revenue share over the term. This agreement is expected to generate increased revenue over time. On a sequential basis, service revenue grew more than 4%, due primarily to a 2% increase in ATG aircraft online and higher service revenue from the agreement with Intelsat, along with an increase in average monthly connectivity service revenue per ATG aircraft online, or ARPU, rising from $3,069 to $3,085. Overall, we're anticipating ATG ARPU to continue rising throughout the year, likely exceeding 2020 results for the full year of 2021. In the first quarter, new customer activations as a percentage of total activations increased to pre-COVID levels of 65%, which is a positive indicator for the projected growth trajectory of our service revenue. It's important to highlight that since emerging from the depths of the pandemic, we have seen consistent sequential growth in our subscription-based service revenue. This trend is key to our recurring revenue model and will be an important long-term value driver. Notably, we expect continued sequential service revenue growth throughout 2021. Now let me discuss equipment revenue. We generated equipment revenue of $14.5 million in the first quarter, a 10% increase compared to the first quarter of 2020, primarily driven by increased shipments of our advanced products. As Oak outlined, driving penetration of the advanced platform into our installed base and with new customers is a centerpiece of our long-term strategy. It provides the foundation for our expectations of continuing growth in our service revenue annuity stream. Looking forward, we expect the seasonality we've experienced over the past several years to persist, with equipment revenue back-end loaded to the second half of the year and strongest in Q4. Several factors contribute to Q4 sales, including promotional activity, trade show training, and the tendency of companies to wait until year-end to evaluate their financial position before making equipment investments. This combined with our sizable backlog of purchase orders, new orders received in the first quarter, and other indicators gives us confidence that 2021 equipment revenue will grow at least 20% over 2020. We raised our 2021 revenue guidance to reflect these positive trends. I'll do a deeper dive into our full guidance update in a few minutes, but first, let's focus on profitability. As we noted last quarter, we anticipate service margins to contract somewhat throughout 2021, mainly due to increased data center and network operations costs. Some of these increased costs are transitional, related to the separation and migration activities following the sale of our Commercial Aviation business to Intelsat. Our service margin will also be modestly affected by the financial statement geography change, with Intelsat's revenue share recorded as service revenue instead of cost of service. While we experienced some anticipated contraction in the first quarter, service margins remained strong at 76% and we expect this metric to remain in the mid-70% range over the longer term. We do not expect this very high equipment margin to continue through 2021. However, we do expect equipment margins for the full year of 2021 to be above 2020 levels. In terms of operating expenses, we've seen significant decreases in G&A spending due to lower outside services and personnel expenses. This drove a 26% year-over-year reduction in combined engineering design and development, sales and marketing, and G&A expenses, totaling $20 million for this quarter. As we noted in our pre-announcement filing in mid-April, this does reflect a delay in certain budgeted operating expenses totaling approximately $4 million that we expect to incur in future quarters. Looking at operating expenses for the full year of 2021, we expect OpEx to grow from the low levels experienced in the first quarter, reflecting growth in G&A due to financing and other expenses, increased 5G spend as that program ramps, and modestly increasing sales and marketing expenses. We expect G&A expenses to be relatively flat for 2021 compared to 2020, as we fulfill our obligations under the Intelsat transition services agreements. We expect to reduce G&A, excluding non-cash stock-based compensation, by approximately $10 million by the end of 2022. We spent just $1 million in total external 5G development and deployment costs in the first quarter, of which approximately $600,000 was in OpEx and the remainder in CapEx. We continue to expect to spend about $12 million in 5G OpEx for external development and deployment in 2021, as reflected in our adjusted EBITDA guidance. Our bottom-line performance for the first quarter was strong. Gogo delivered adjusted EBITDA of $33.9 million, a 25% increase over the prior year period, and up 76% from Q4 2020. As a reminder, Q4 2020 adjusted EBITDA was negatively impacted by a $10 million full-year accrual for 2020 cash bonus expense, as well as a $2.6 million inventory reserve. Free cash flow for the quarter was $23.9 million, a 4% increase over the prior year period due to the increase in EBITDA, offset by lower net working capital. Free cash flow for the first quarter of 2021 increased by over $40 million from the fourth quarter of 2020 due to the interest payment in Q4. We expect free cash flow to be negative in the second quarter due to the higher interest payment prior to the April refinancing, but we anticipate generating positive free cash flow thereafter. We're pleased with our first quarter results, particularly as they reflect Gogo's ability to drive growth despite the lingering effects of COVID. Before I discuss our guidance and long-term targets, I'll touch on our balance sheet position, which reflects the comprehensive refinancing we completed last week. This represents a major milestone in our transformation to the new Gogo and creates a step change in our value creation potential. As we previously announced, in March and April, Gogo entered privately negotiated exchange agreements with GTCR and other existing holders of our 2022 convertible notes. Through those exchange agreements, approximately $135 million of aggregate principal amount of the convertible notes were exchanged for approximately 24 million shares of Gogo common stock. In connection with the GTCR exchange agreement, Gogo welcomed Mark Anderson, Managing Director of GTCR, to our Board of Directors. GTCR has been a strong supporter of our strategy, and we truly look forward to continuing our collaboration with Mark and the GTCR team as we execute our shared vision for driving shareholder value. On April 30, we completed our comprehensive refinancing transaction. We secured a seven-year $725 million Term Loan B bearing interest at LIBOR plus 3.75% with a LIBOR floor of 75 basis points. Additionally, we put in place a five-year $100 million revolving credit facility. We used the proceeds of the Term Loan B and cash to redeem in full the $975 million aggregate principal outstanding of our 2024 Senior Secured Notes, including the redemption premium, accrued interest, and transaction fees. These transactions transformed our financial profile, reducing total debt by $385 million and cutting our interest payments by nearly two-thirds, realizing approximately $70 million in annualized interest expense savings. These savings are set to increase by approximately $6 million as the balance of the convertible notes matures in 2022 or are converted earlier. This refinancing action significantly enhances Gogo’s free cash flow generation and catalyzes a powerful value creation cycle along three primary dimensions. First, as a result of the transaction, Gogo significantly reduced annualized interest expenses, strengthening our free cash flow. Second, with enhanced free cash flow generation, we have more financial flexibility to invest in strategic projects with attractive returns. Thirdly, our fortified balance sheet makes us even more resilient against an increase in competition. Our strengthened free cash flow profile is further augmented by low ongoing CapEx, significant tax assets of approximately $800 million in net operating loss carryforwards, and our plan to settle the conversion of the remaining converts in common stock prior to their maturity. We currently have approximately 109.6 million common shares outstanding and about $103 million in aggregate principal amount of convertible notes outstanding. As of May 4, we had $100 million of cash on hand, and with our undrawn revolver and no plans for drawing it, we exit the refinancing with $200 million in total available liquidity. Our team has a lot to be proud of after what we accomplished over the past year through the completion of the CA divestiture and this transformational refinancing transaction. Today, we are the new Gogo, well-positioned to build on our enhanced financial profile and strong market position to drive long-term shareholder value. Now let's turn to the updated guidance we announced this morning, starting with 2021. Based on the strength of our first quarter performance, we are raising our 2021 revenue and adjusted EBITDA outlook. We now expect total revenue for 2021 in the range of $310 million to $325 million, an increase from the previous range of $300 million to $320 million. We expect service revenue to grow at least 15% over 2020. However, we now anticipate equipment revenue to grow at least 20% in 2021, compared to our previous expectation of equipment revenue being relatively flat year-over-year. Adjusted EBITDA is now expected in the range of $115 million to $125 million, excluding $4 million of non-recurring separation and migration costs related to the sale of the CA division, up from the previous range of $105 million to $120 million. We expect capital expenditures to be in the range of $25 million to $30 million in 2021, with the majority focused on Gogo 5G. There may be some fluctuation between CapEx and OpEx each quarter as required by the accounting guidelines. We also provided 2021 free cash flow guidance, reflecting the impact of our refinancing, expecting free cash flow in the range of $10 million to $20 million, inclusive of cash interest payments of approximately $71 million. It's important to note that all guidance pertains to the full year 2021. Our expectation is that revenue and profitability will be weighted towards the second half of the year, particularly in the fourth quarter. For the longer term, Gogo has also provided a long-term free cash flow target to reflect the impact of our refinancing, targeting approximately $100 million in free cash flow for the full year 2023 following the deployment of the Gogo 5G network in 2022, with significant growth expected thereafter as our credit profile continues to improve. Our other long-term targets remain unchanged, as we target at least 10% compounded annual revenue growth from 2020 to 2025 and adjusted EBITDA margins of 35% to 40% throughout the planning period. As our outlook demonstrates, we believe Gogo is stepping into a bright future, leveraging our strong market position, enhanced balance sheet, industry-leading product and service platform, and favorable trends in the business aviation industry. Before we open the call to questions, I’d like to reiterate our appreciation to the world-class Gogo team. Our progress and strong momentum are a testament to our team's dedication, ingenuity, and unwavering focus on delivering for our customers and achieving our strategic goals. Thank you, team.

Operator, Operator

Your first question comes from the line of Ric Prentiss from Raymond James. Your line is open.

Ric Prentiss, Analyst

Thanks. Good morning, everyone.

Oakleigh Thorne, President and CEO

Good morning, Ric.

Ric Prentiss, Analyst

Morning, you guys have been busy.

Oakleigh Thorne, President and CEO

We try.

Ric Prentiss, Analyst

We'll start the conversation on competition. You mentioned a little bit about AVANCE conditions you in case you make a decision on LEO, but we get a lot of questions about competitive dynamics, obviously. There are other air-to-ground potential networks out there. There's LEO, ViaSat, and there's talk about what they're doing in business aviation. But can you talk a little bit about how you see the competitive dynamics and your ability to continue to grow share?

Oakleigh Thorne, President and CEO

We focus on growing units rather than share. We see three main segments of competitors or complements. We consider LEO networks more of an opportunity than a threat, with Starlink, Telesat, and OneWeb currently in development. Telesat and OneWeb are moving into our B2B segment, which we view positively and plan to partner with them to integrate LEO into our offerings. This shift poses a significant threat to our GEO competitors. Whether Starlink will adopt a B2B model is uncertain, but the market is relatively small, as our industry is about a $500 million service sector, and there are larger opportunities available. The investment needed to manage nine OEMs, build a dealer network with hundreds of dealers, and sell in a fragmented market may deter Starlink from pursuing this segment, as they may target larger aviation sectors. Additionally, both LEO and GEO competitors face substantial investment challenges, including high installation costs. We compete effectively with larger players like Viasat and Inmarsat, having researched the impact of latency on user experience, showing notable performance differences compared to GEO. Over time, customers will likely recognize these weaknesses. We believe the increase in demand in our sector won’t adversely affect us. SmartSky has garnered attention but is facing challenges, and it's unclear when they will launch a network. We aim to take advantage of varied market dynamics by leveraging existing relationships, competitive cost strategies, and prioritizing quality. I hope that gives you a clear picture. Does this answer your question?

Ric Prentiss, Analyst

It does. A very thoughtful answer. Appreciate that. Obviously, you spend a lot of time looking at the competitive environment. Follow-up question is, you've mentioned strategic projects and strategic possibilities in the future then expand overseas. Is that what we should think of as where some of the future might be for Gogo, and don't you face some of those same issues regarding how to develop a dealer network and sales opportunities overseas? If I'm hearing you right, that might be an opportunity strategically?

Oakleigh Thorne, President and CEO

Yes. We already have sales and support internationally due to our previous narrowband products. We sell radium and SwiftBroadband worldwide. We have an existing network that would need some expansion, but that would require only a modest investment. We are considering pursuing the ESA LEO project along with other options, but have not received formal approval from our Board yet. The AVANCE platform provides us with the potential to explore these opportunities if we choose to, which is significant. Looking at international markets, we could initially target large jets with the ESA LEO solution. Once we establish a presence there, we can expand to medium-sized and light jets since the ESA form factor is designed to be more compact, allowing greater flexibility. We excel at engineering for smaller aircraft, which is one of our strengths. We see a chance to penetrate overseas in the segment of 14,000 aircraft where we currently have limited business, especially with the LEOs.

Ric Prentiss, Analyst

Okay. Makes sense. I think what I'm really getting at is whether there are other areas without connectivity? What do you see in those markets?

Oakleigh Thorne, President and CEO

Yes. The overseas issues remain significant. It’s simply not economic to build an ATG network in most regions, given the large geographical areas outside the US and the relatively low market density. For instance, Europe collectively only contains 6.5% of all business aircraft globally. So satellite is going to be the solution for the rest of the world.

Ric Prentiss, Analyst

Great. Thanks guys. Stay well.

Oakleigh Thorne, President and CEO

Thank you.

Operator, Operator

Our next question comes from the line of Phil Cusick from JPMorgan. Your line is open.

Phil Cusick, Analyst

Hi, guys. Thank you. I heard the milestones in 5G, that's great. What hurdles remain in getting that up and running?

Oakleigh Thorne, President and CEO

We need this current 5G chip production to stay on track. Assuming that happens, then all the technology risk is removed, and it's really a function of blocking and tackling. Our program management organization at Gogo is doing an excellent job managing this risk. We feel confident about hitting our deadlines, and we are on track for 2022 as we articulated earlier.

Phil Cusick, Analyst

Okay. And you talked about 28% penetration, and we get into this a little bit with a record, but do you think that the L3 price points are enough to cover the gamut of planes out there? How high can penetration get from 28% given the price points you have today?

Oakleigh Thorne, President and CEO

It's hard to imagine that a plane without connectivity will be common in ten years. There are markets, like general aviation, not currently included in the 28% market share. However, we anticipate further penetration as we adapt to lower price points to reach all segments. L3 is available around $30,000 with a pay-as-you-go plan, so its pricing is quite attractive. We're having significant success on the high end, and yes, we'll learn and adapt to gain more of those markets.

Phil Cusick, Analyst

Okay. And lastly, anything you can share about the status of conversations with the remaining convert holders? Thanks.

Oakleigh Thorne, President and CEO

That’s really a Barry question, but I'll answer it briefly. Currently, there isn’t much incentive for us to convert them now; we can hold until maturity.

Barry Rowan, Executive Vice President and CFO

That's right.

Operator, Operator

Your next question comes from the line of Scott Searle from ROTH Capital. Your line is open.

Scott Searle, Analyst

Thanks for taking my questions. Hi, Oak. Hi, Barry. Congratulations on all the work you've done in the past year. It's nice to see you guys becoming a real company. So Barry, just real quickly, I’m not sure if I missed it, but did you give a number for the Intelsat contribution in the first quarter? And I just want to clarify regarding component availability; it sounds like you have sufficient inventory to carry you through this year? Just want to confirm on that front. Lastly, in relation to 5G and the 5G upgrade, what's the expected cost for moving the existing AVANCE installations to 5G? As you look now, it sounds like there is an uptick in new jet orders. I think you said 6% this year and next year; what do you think the attach rate for that is in terms of connectivity, especially in the turboprop market, which has been under-penetrated? How substantially do you think that can grow over the next three to five years?

Barry Rowan, Executive Vice President and CFO

So the Intelsat contribution was about $1.2 million for the first quarter. As for component availability, we have good visibility into the next couple of quarters to fulfill our demand. Our sourcing strategy and common componentry lead us to order fewer distinct SKUs, which positively impacts our leverage with suppliers.

Oakleigh Thorne, President and CEO

So that…

Barry Rowan, Executive Vice President and CFO

Overall, I would estimate that historically the OEM share stands at about 30% to 40% per quarter for ATG equipment. The first quarter was about 40% OEM with our past figures sitting around 20% in Q4.

Scott Searle, Analyst

Awesome. Sounds good. That's it for me. Thanks.

Operator, Operator

There are no further questions over the phone line at this time. Presenters, you may continue.

Oakleigh Thorne, President and CEO

Well, okay, this will conclude our call for today. Thank you everyone for your participation. Bye-bye.

Barry Rowan, Executive Vice President and CFO

Thanks.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.