Global Eagle Entertainment's (ENT) CEO Dave Davis on Q2 2014 Results - Earnings Call Transcript

| About: Global Eagle (ENT)

Global Eagle Entertainment Inc. (NASDAQ:ENT)

Q2 2014 Results Earnings Conference Call

August 07, 2014


Kevin Trosian - VP of Corporate Development and IR

Dave Davis - Chief Executive Officer

Mike Zemetra - Chief Accounting Officer

Ed Shapiro - Board Chairman

Wale Adepoju - EVP and Chief Commercial Officer


Dick Ryan - Dougherty

James Marsh - Piper Jaffray

Andrew DeGasperi - Macquarie Capital

Tyler Hogo - Sidoti & Company


Good day, ladies and gentlemen. And welcome to the Global Eagle Entertainment Incorporated Second Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference Kevin Trosian, Vice President of Corporate Development and Investor Relations. Please go ahead.

Kevin Trosian

Good afternoon and welcome to Global Eagle second quarter 2014 earnings conference call. Before we start, I would like to remind you that the discussions during the call will include forward-looking statements and actual results could differ materially. The factors that could cause actual results to differ are discussed in Global Eagle’s most recent annual reports on Form 10-K and in Global Eagle’s reports on forms 10-Q and 8-K. The discussions will also include certain financial measures that were not prepared in accordance with the Generally Accepted Accounting Principles. And a reconciliation of those non-GAAP financial measures to those most directly comparable GAAP financial measures can be found in the earning release furnished with Global Eagle’s current report on Form 8-K dated today.

Now I’d like to turn the call over to Dave Davis, CEO of Global Eagle.

Dave Davis

Thanks Kevin and good afternoon everyone. Thank you for participating in today’s call. Joining me today on the call are Mike Zemetra, Global Eagle’s Chief Accounting Officer; also on the call are Ed Shapiro, our Board Chairman and Wale Adepoju, our EVP and Chief Commercial Officer, both of whom will be available for Q&A at the conclusion of our prepared remarks.

As many of you know, I was recently appointed CEO of Global Eagle. I’d like to take a quick moment to thanks John LaValle, our previous CEO for a substantial contribution in helping to establish Global Eagle as a leader in the in-flight entertainment and connectivity market. On today’s call, we’ll provide a summary of our Q2 operating and financial performance and an overview of the exciting opportunities that we have in front of us.

Let me start off by congratulating the Global Eagle team for putting together record revenue performance in the second quarter. We are seeing the benefits of offering airlines access to the widest variety of content available today, innovative digital media products and an industry leading connectivity solution.

As we continue the process of integrating the different businesses that we have acquired, we are moving pass the notion of offering either content or connectivity to passengers. We are providing our customers with an increasingly integrated digital media offering. The number of Wi-Fi enabled smart devices worldwide grew by over 400 million units in 2013 alone and consumers increasingly expect to be able to access content on demand wherever they are. Most of this growth is occurring internationally where Global Eagle derives over half of its revenue.

We are uniquely positioned to deliver in-flight content to passenger devices whether connected to the internet or to an aircraft’s local Wi-Fi network only. There are three key elements to our offering that no other single company provides. First, the broadest content offering available today; second, a high speed internet connection in the sky; and third tools like our WISE platform that provides passengers access to preloaded content stream to their own devices.

Taking each of these three in order, our content offering is unmatched by anyone else in the business. We provide licensed and original content in over 47 languages viewed by nearly 1 billion passengers annually. Our offering runs the gambit from Hollywood movies and TV shows to Bollywood, Asian, African and Latin programming. We create games and applications that are used by airlines around the world. Our technical capabilities are unmatched as we provide our airline customers with content adapted for use on dozen of IFE hardware platforms added at each airline specifications.

Regarding our Ku-band base connectivity system, we have more satellite based broadband systems installed than any other manufacturer. We continue to grow the number of aircraft using our systems, both domestically and internationally and we have coverage circling the globe from Russia across Europe and the Atlantic and across North America. We continue to win international business.

Finally, we are a key participant in emerging form of in-flight entertainment, involving the delivery of content that is stored on an on-board server to handheld devices. With these systems, screens installed in seats are not necessary to provide content to passengers. Our WISE software platform is used on hardware systems manufactured by large aerospace companies to deliver media content, which is typically provided by Global Eagle to iOS and Android based devices.

This unique combination of assets provides airlines with powerful tools to improve the passenger experience; engage with their customers and drive ancillary revenue. Innovations in in-flight entertainment and connectivity are key elements in helping airlines maintain a competitive advantage.

Let me turn now to the quarter that we just closed. During the quarter, we achieved a number of milestones and a notable wins. Some of these started delivering revenue late in the quarter and others will contribute beginning in future quarters.

First, we have an exciting opportunity on the connectivity front. While we cannot yet disclose the carrier, we have partnered with a large telecom company to launch a trial of our connectivity system on a major international airline. We are dedicating significant engineering and program management resources to this effort and we expect to be able to provide you with an update and more color on this win later in the year.

During Q2, we launched the WISE platform that I just described into commercial service on two carriers. As a reminder, WISE enables passengers to access content through a Wi-Fi router that connects to a server onboard the aircraft. With DRM enabled content, passengers can stream movies and TV shows, play games and access other media such as destination information on their devices. The next provision of our system to be launched later this year will support e-commerce applications enabling buy onboard purchases without the need for an internet connection.

The launch airline for WISE is Philippine Airlines; we’re deploying the system on their long haul A330 aircraft serving routes to the Middle East. These planes do not have embedded seat back systems or dropdown screens.

Global Eagle provides the WISE software platform in the media and entertainment content on these aircraft. One of our hardware partners OnAir provides the onboard service system. Our WISE platform is hardware agnostic and we’re continuing to build our relationships with the hardware providers in this market.

Turning now to high IFE content. We began executing on two major contract wins with Etihad and Garuda Indonesia at the end of the quarter, both of which contributed to our strong sequential revenue growth.

As many of you know, we believe that sponsorships and advertising are important revenue source for airlines and from Global Eagle. Sponsorships allow airlines to fund contents without necessarily charging passengers and they provide sponsors with access to a truly captive audience of tens of millions of passengers.

To that end, we recently signed an advertising and sponsor representation agreement with Delta Air Lines. This means that Delta and Global Eagle are working together to bring companies to Delta interested in sponsoring content on Delta’s various IFE platforms.

During the quarter, we entered into an agreement with Boeing to begin the process of getting our connectivity system line-fit offerable on Boeing 737 and 787 aircraft. This process is proceeding well.

Also during the quarter, we completed our acquisition of the remaining outstanding shares of AIA. We now have full control over AIA and we’re moving rapidly to consolidate our various businesses.

We expect integration synergies to begin to be realized in the second half of the year and we expect these synergies to total over 10 million annually on a run rate basis.

We are continuing installations of our connectivity system. At the end of Q2, 568 aircrafts were installed with our system and our backlog stood at 261 systems.

Lastly, we remain on track to deliver connectivity to Air China. We recently completed a Critical Design Review with Air China and we are moving to the regulatory approval process. We expect to begin flying our system on Air China’s 777 in Q4.

Stepping back, we continue to believe that Global Eagle is uniquely position to take advantage of the rapidly growing IFENC market. We have a strongly differentiated offering versus many of our competitors, we deliver the richest content available to passengers in either a connected or unconnected environment and in industry leading internet connectivity platform. We are focused on partnering with airlines to help them attract and retain their customers.

Lastly, I’d like to say that I’m very excited to have the opportunity to lead Global Eagle into the future, I believe we have a tremendous opportunity in front of us.

Let me now turn the call over to Mike Zemetra, our Chief Accounting Officer.

Mike Zemetra

Thank you Dave. We are excited about the platform we have built and the growth opportunities that we have identified and we are very pleased with the sequential and year-over-year growth in our business.

Before we get into our financials, I’d like to remind everyone that it is difficult to make year-over-year comparisons of our financial results given that we closed on the formation of Global Eagle in January 2013 and acquired PMG and IFE Services in the second half of 2013.

Now I will turn to our second quarter financial results in more detail. Revenue was $98.1 million, up 56% year-over-year and 14% sequentially from the first quarter of 2014. Contribution margin profit was $23.5 million, up 81% year-over-year and 13% sequentially for the first quarter of 2014. Adjusted EBITDA was $6.5 million up 434% year-over-year and 27% sequentially from the first quarter of 2014. We expect to continue to grow our earnings as we add scale and integrate the multiple prior year acquisitions.

I would like to talk more about our revenue growth across our content and connectivity segments in more detail. The year-over-year Q2 content revenue grew 62% to $71.5 million. This was largely due to the acquisitions of PMG and IFES coupled with organic growth across our content segment.

More importantly, sequential Q2 content revenue grew 12.5%. This was largely driven by the addition of larger new customers in Q2 2014 which included Etihad, Garuda and several other airlines across four continents. In addition, we also experienced Q2 sequential revenue growth across our industry leading games and software applications and launched our WISE application on Philippine Airlines.

Year-over-year Q2 connectivity revenue grew 42% to $26.6 million. This was due to Q2 growth of 40% in connectivity service revenue and 46% in connectivity equipment. The growth in connectivity service revenue was due to higher overall customer take rates, new Wi-Fi installed planes and the addition of sponsorship revenue on our TV Flies Free products on Southwest Airlines which began in July 2013.

Our connectivity equipment revenue growth was largely due to increased shipments on aircraft from existing customers. Sequential Q2 connectivity revenue grew 18.9% to 26.6 million due to quarter-over-quarter growth of 5% in connectivity services and 58% in connectivity equipment. The sequential growth in connectivity service revenue was largely due to increased number of connections. Equipment revenue increased sequentially due to the timing of new planned installations on existing customers.

Now I would like to discuss our contribution margin profit across our segments. The year-over-year Q2 content contribution margin profit grew 68% to 18.8 million, largely due to the previously discussed growth in content revenue. The year-over-year Q2 content contribution margin percentage of 26% remained relatively flat when compared to 25% in Q2 2013. However it did decrease sequentially from Q1 2014 of 27%. The sequential decrease in the contribution margin percentage was due to the timing of new large customers in Q2 2014 which typically provides lower margins in the early phases of content deployment. We expect to return to content contribution margin levels of Q1 and greater overtime.

Q2 connectivity contribution margin profit grew 161% year-over-year and 39% sequentially to 4.7 million. This was due to the discussed growth in our connectivity service revenue coupled with how we are monetizing our bandwidth cost which are largely fixed across our connectivity products.

Turning to our consolidated operating expenses. Q2 GAAP operating expenses were 105.7 million, up 50% year-over-year. Excluding depreciation, amortization and stock-based compensation totaled operating expenses were 95.4 million, down 217 basis points as a percentage of revenue versus Q2 2013. Expenses were up in dollar terms driven by increased cost of sales due to the growth of our content and connectivity revenues.

Sales and marketing grew year-over-year largely due the acquisitions of PMG and IFES in the second half of 2013. Product development expense grew due to increased R&D investments across our connectivity platform and engineering basis support the ongoing growth of our connectivity segment.

Higher G&A expenses, which include higher stock-based compensation and depreciation of 2.5 million in Q2 2014 as compared to 800,000 in Q2 2013, a reflective of non-recurring item such as 3.6 million associated with acquisition and integrated related activity as compared to 1.4 million in Q2 2013 and 2.2 million for the PMG and IFES acquisitions.

Excluding these items, G&A expenses would have been down 1.7 million or 14% from Q2 2013, which takes us to our balance sheet in cash position. We ended Q2 2014 with cash of 215.3 million, down 35.3 million from 250.6 million at the end of Q1 2014. The decrease in Q2 cash was due to 18.2 million paid to acquire the remaining 6% ownership interest in AIA. With the completion of the AIA acquisition we expect significant immigration synergies beginning in the second half of 2013.

In addition, we used $4.1 million to pay down our debt in Q2, $2 million in CapEx, $1.4 million to repurchase warrants under our $25 million buyback program. To-date we have repurchased approximately 400,000 warrants at an average price just below $3.50 per share. The remainder is due to timing of cash associated with our working capital mainly an increase of approximately $10 million from cash receivable. This was due to the overall revenue growth in equipment shipments discussed earlier from new and existing clients in the latter half of Q2 2014.

We ended Q2 at approximately $3.6 million debt and increased our cash position from $215.3 million at the end of Q2 to approximately $220 million as of July 31, 2014.

Now, let’s take a moment to discuss financial guidance. We forecast revenue in the range of $375 million to $385 million, representing year-over-year growth of 46% at the midpoint. We forecast adjusted EBITDA in the range of $28 million to $32 million, representing year-over-year growth of 117% at the midpoint.

Turning to installations and consistent with prior guidance, we expect to install connectivity on approximately 120 aircraft in 2014. And finally we forecast CapEx in the range of $10 million to $11 million.

Before we begin the Q&A part of the call, I also like to update you on a couple of conferences we have planned to attend in the quarter.

On September 2, we will be attending the City Global Technology Conference and on September 18 we will be attending the Imperial Global Opportunities conference both are in New York City. And during the week of September 15th, we will be showcasing our products and meeting across the global airline industry at APEX Expo in Anaheim, California.

That concludes my prepared remarks. We would now like to open the line for Q&A.

Question-and-Answer Session


Thank you. (Operator Instructions). Our first question comes from the line of Dick Ryan with Dougherty. Your line is open.

Dick Ryan - Dougherty

Thank you. Dave, can you -- maybe you mentioned it, but I missed it. How many installations did you have in Q2?

Dave Davis

In the second quarter, we had 21 installations I believe.

Dick Ryan - Dougherty

I think that was versus 24 in Q1. Can you talk a little bit about the take rates you are seeing with -- I mean if you want to take out live TV, what you are kind of seeing in take rates across your two major customers? It looked like they had very strong passenger growth in Q2.

Dave Davis

Yes. So this is what I would say. We don’t disclose specific take rate information. And it’s a little bit misleading right across our entire customer portfolio, because some of our customers offer the TV, sorry offer the connectivity for free and others have a paid model. I will generally say this, usage of the system has been up and up significantly, particularly since gate-to-gate rolled out Southwest Airlines.

In addition to take rates being steady to up, which is sort of an interesting year-over-year trend, the actual number of passengers authenticating on the system that is opening up their device and connecting to the system, but not necessarily purchasing Wi-Fi is up fairly dramatically year-over-year. So, we’re not necessarily collecting revenue for that directly from the passenger but what’s happening is it’s providing more impressions, more opportunities to sell in sponsorships and advertising. So, I would say usage of the system; authentications on the system are trending very favorably.

Dick Ryan - Dougherty

Great. You mentioned sponsorships and I am not sure I caught your discussion with Delta regarding sponsorships going forward. Could you provide a little more detail on that Dave?

Dave Davis

Yes, sure. It’s another sort of new line of business for us that we are very focused on. So, you’re well aware Dick of our Dish sponsorship and the fact that we’re pursuing other sponsorships. We are also working with carriers, Delta being let’s just say one of the first, to provide them and bring sponsors to them to sponsor content on their hardware systems which may or may not be supplied by Global Eagle. So, it’s really using the expertise we’ve developed in finding sponsorships and in showing sponsors how valuable this in-flight space is, it’s taking that expertise, taking that technology and bringing it to another carrier, in this case a major airline like Delta. So, it’s incumbent upon us to find sponsors, bring them to Delta and Delta can choose to use those sponsors and collect a portion of the revenue from those sponsors to sponsor their in-flight content.

Dick Ryan - Dougherty

Okay. Have you guys agreed on any new sponsorships with them or looking at your own carriers, dish looking on the live TV side, you have indicated in the past you are working on sponsorship efforts on the music side, can you update us on those efforts?

Dave Davis

Yes. So first of all, the agreement with Delta is brand new and we have a pipeline of sponsors that we are talking to, we think there is a lot of interest out there. Second of all, the music sponsorship in particular, I said this before and I will say it again, we are very close. There has been some changes on our music sponsors side that has slowed things a bit but all indications are that that’s going to be at go very soon.

Dick Ryan - Dougherty

Okay. Maybe one last one from me also on the new business side; you talked about a connectivity trial starting, working with a large telco. Could you provide us a little more information on that also Dave?

Dave Davis

Yes, I really can’t provide that much more information on that. We have been, as I’ve discussed before, we have an active pipeline. We have been working a number of major airlines around the world who are interested in adding connectivity. And all we can say at this point is, in partnership with a large telecom company, we’ve secured a trial on a major international airline. That airline doesn’t want us to announce yet and we are not going to say much more on it. But the hopes are that later in the year we’ll be able to more fully explain what this entails.

Dick Ryan - Dougherty

Okay. Thanks Dave, I will get back in line.


Our next question comes from the line of James Marsh of Piper Jaffray. Your line is open.

James Marsh - Piper Jaffray

Great, thanks. Just a couple of questions here, first on the content side. You mentioned that the year-over-year growth of 62% but obviously you have got in there IFE. I am just trying to get a sense for what you think the pro forma revenue and operating profit growth are for this business? And then I have a follow-up.

Mike Zemetra

Yes. So the year-over-year revenue numbers are a little bit difficult to discern, obviously you’ve got some acquisitions in there, a number of these companies PMG hire these services and some of the AIA companies sort sold to each other. So it’s a difficult to say exactly what was organic and what was acquisition driven in terms of growth. But I would focus on I think a little bit is the pretty dramatic increase in quarter-over-quarter revenue.

So two big customer wins Etihad and Garuda Indonesia as well as a number of smaller wins drove that revenue growth. I’ve been consistently saying that we think on sort of the traditional content side, we could expect high-single-digit growth rates in revenue on an annual basis. Obviously quarter-over-quarter, we grew substantially faster than even that number. I don’t think that this quarter-over-quarter number is sustainable, but the high-single-digit numbers in growth rates on the content side I’ve discussed in the past, I think we’re very confident in it.

James Marsh - Piper Jaffray

And the profit has grown as well?

Mike Zemetra

Yes, exactly. So the contribution margin associated with the content business. We’ll continue to get better in future quarters. In April, we got full control of AIA and we’re now and I would say full blown integration mode here, that is going to drive substantial improvements overtime in content division gross profit.

The other thing I’ve got point out is these two big airlines Etihad and Garuda Indonesia are significant revenue airlines and the way some of these new contracts work when they come in there is a fair number of start-up costs associated with on-boarding these guys. So the contribution profit some of these big new revenue sources can be very low initially and then will grow fairly rapidly in future quarters at these startup costs get worked through.

James Marsh - Piper Jaffray

Okay, all right. And then I guess the next question relates to the WISE system and I assume you guys are familiar with Delta’s announcement for the Delta Studio offering and I am just trying to get a sense for how that differs from what you guys are trying to do with WISE, because my understanding was if Delta Studio offering that they would be streaming content on board off of a server and then it will be able to go to the other network, I am just trying figure out, so what’s different about WISE, what’s more proprietary about it in this offering if you now?

Dave Davis

Yes. So, first of all Delta Studio, that’s a brand that Delta has put on their complete IT package which includes the connected systems as well as the seat back screen. It’s an overall passenger offering.

Specifically on the WISE, there are number of differences. The biggest being the fact that our platform, the WISE platform is completely hardware agnostic so we have partnered a number of hardware providers around the world. We’ve announced several of them before to use our software on their hardware systems. It greatly expands the market from having just the sort of streaming products available on one-zone hardware. So, that’s a big piece of the difference.

The other thing is, we are working with these hardware providers to really offer an integrated IT package which includes their hardware, our software, our content and potentially some other interesting things such as sponsorships. So, we think that the WISE system has a number of advantages.

James Marsh - Piper Jaffray


Ed Shapiro

I will make a comment, this is Ed Shapiro, as we think about the worldwide opportunity for all of our products. We think there is a fairly substantial market, not so much in the U.S. but more internationally where carriers want to be able to offer some sort of entertainment, it’s historically not been willing to bear the cost of in feedback particularly on shorter home narrow bodies and they are also not really today a business space to make for full connectivity.

Before that segment, we think we have the right combination of content and now software like WISE, the partner with hardware providers who are have their own business models and sort of the have to attack that, but it is a fairly substantial market we think in increased number of eye balls to see content either in advanced connectivity and internet connected solutions down the road or perhaps to some airlines they’ll never go down that road but maybe more leisure oriented or flying over regions where connectivity isn’t readily available.

And so it’s another growth opportunity to really put to drive content.

James Marsh - Piper Jaffray

Okay, alright. That’s helpful. Thanks guys.


Our next question comes from the line of Andrew DeGasperi with Macquarie Capital. Your line is open.

Andrew DeGasperi - Macquarie Capital

Thanks for taking my question. Dave I just wanted to ask you the margin guidance that you gave, Dave, if I take the midpoint that implies some kind of margin expansion in second half, if I’m doing my math correctly. And also can you maybe talk about first of all the new trial that you have, I mean you are saying you’re partnering with large telecom company, is this the KA system?

Dave Davis

So, on the first question, the answer is yes. We anticipate margin expansion in the second half, a lot of these integration synergies that I talked about previously are beginning to appear in the second half of the year and some of these on-boarding cost for Etihad and Garuda will begin to dissipate. So, we expect margin expansion that’s first of all.

Second of all, again this is something that with this international launch we will talk more about later in the year, but it’s fair to say that it is using our existing antenna system.

Andrew DeGasperi - Macquarie Capital

Right. And then lastly I just want to ask you about the technology roadmap to upgrade in the future from the current (inaudible) that you have on the new satellites, how those satellites come out, can you maybe comment on that?

Ed Shapiro

Yes, absolutely. So, we have an active technology roadmap sort of in development here and we think that there are some very interesting things in a couple areas. We think that KA band is an interesting technology something we may want to participate in overtime there are certain limitations, geographic being one of them and the ability to broadcast live television being another but KA is something that we will be interested and are interested in participating in but I think you would likely see us doing that with an unnamed partner. We are also very excited about the opportunities that KU-HGS offers. So our current KU system we’re very happy with and as some of these higher throughput use KU systems get launched, there are tremendous sort of synergies between wide beam, narrow beam and the technologies that we have today and that we have in development.

So we are excited, we’re selling we’re supporting our existing system and we have technology roadmap laid out and we intend to participate in Ku HTS and in some way in Ka.

Unidentified Analyst

Great, thank you.


(Operator Instructions). Our next question comes from the line of Tyler Hogo with Sidoti & Company. Your line is open.

Tyler Hogo - Sidoti & Company

Yes. Hi, good evening. So, I was looking for a little bit more detail on the Delta sponsorship agreement. I guess I am wondering a couple of different things. One, are you guys running up against any competition in regards to providing kind of a service offering like this? And just also curious your thoughts on how quickly you are able to find kind of some of the advertisers.

Dave Davis

So, first of all, in terms of a lot of competitors out there offering a similar service, there are some companies out there that specialize in or feature sale of advertising onboard aircraft. I don’t think any of them are particularly focused on the sponsorship aspect of this which is broader than just ad spots. And I think that the effectiveness, with their effectiveness has been I would somewhat limited. So we think with our understanding of the airline space, of the airline hardware space and of the content space we are well positioned. The pipeline in terms of sponsors for this particular deal we think is fairly rich. We have just started talking to a number of name sponsors and we hope to be successful, we hope to be successful soon. I would characterize it as very active.

Tyler Hogo - Sidoti & Company

Okay, that’s good color. Thanks for that. And then, just on the connectivity side, certainly

seems like excitement surrounding the telecom partnership and new airline potential. But maybe just more broadly, if you could update us on just kind of pipeline there and kind of expectations for additional wins beyond the one you mentioned as we continue moving into the back half of the year.

Dave Davis

Yes, so let me talk about it in a couple of ways. First of all, if you look at our install comps -- or sorry, our install forecast, we anticipate some significant rollout on a couple of our international customers that we’ve been rolling out on more slowly in recent months. We are working very actively on the Air China trial and as we say in the release, we’ve gone to through a critical designer view with them and we’ve gone through a number of regulatory hurdles successfully.

So very focused on performing for Air China, they have a large lease. And this new international win is also something we are heavily focused on. So just executing on what we’ve got is a lot of good stuff and we’re very focused on it.

Turning to the pipeline, there continues to be a very, very active pipeline around the world. I would say in recent months, Latin America has become a particular area of focus and we have seen carriers there who’ve sort of been investigating this in a small way previously, moving closer to commitment stage.

So, we continue to pursue these as you guys know to take a bit longer to win than any of this would like, once they’re won your -- it’s pretty sticky. So, the pipeline is reach and we continue to be hopeful of more wins through the remainder of the year.

Tyler Hogo - Sidoti & Company

Okay. Thanks for that. And I don’t know if you can answer this one or not Dave. But just on WISE, I know that’s ramping up now but what are your expectations for kind of contribution in either ‘14 or ‘15 just in regards to that product?

Dave Davis

Our expectations are a significant number of deployments. I am not going to go into right now financially how that impacts us but I think in future quarters, we will be talking more about how valuable this is to us. Because remember when the WISE system is on the aircraft, the way we essentially get paid is similar to the way software is sold elsewhere. We basically get an upfront fee and then we get a monthly recurring license fee for the WISE system. Then on half of that, we have a very obvious leg out on providing all the content that’s sitting onboard those systems as well. So, it’s sort of a double sale for us which is why one of the reasons we’re so excited about this. The other thing that it does I think as Ed was talking about earlier, sort of opens up a whole new segment of airlines and sub fleets, narrow body fleets that wouldn’t invested in seat back in-flight systems before.

So, we’re excited about the product, not ready to really give a lot of financial detail yet but we expect to continue to see rollout going forward.

Tyler Hogo - Sidoti & Company

Okay, that’s great. And just lastly from me, I didn’t hear any commentary regarding kind of text product with Southwest. Has that kind of slowed relative to prior expectations or maybe just an update there?

Dave Davis

Yes, the texting product. I would say that it is improving but not to the level that we want it to get to. So there are some changes that we think need to be made that we need to work with Southwest on to improve the usage of the texting product, which could potentially be pretty deliberate for us. I think there is a few minor tweaks and then some other business related tweaks that has to be done to make that thing more successful than it is today.

Tyler Hogo - Sidoti & Company

Got it. That’s all I have. Thanks a lot.

Ed Shapiro

Thanks Tyler.


Our next question is a follow up question from the line of Dick Ryan with Dougherty. Your line is open.

Dick Ryan - Dougherty

Great, thank you. Hey Dave, maybe this is for Wale, with Delta introducing that new branding of their IFE Delta Studio. Is it correct to assume that they are looking at procuring content mostly by themselves and if so is that a potential concern that the airlines size will start trying to procure their own content or the other side that the studios maybe reaching out to the airline themselves. Is anything in that dynamic changing?

Wale Adepoju

Thank you for that question. I think, I always talk, speak to Delta in terms of their strategy, but the release as they put into the market is very much a good news for us and for the industry at large. It’s a significant support for in-fight media, which means that every passenger on board, every aircraft, regional jet has access to this media. And that’s a sort of story that we are expecting across the board for various different airlines.

For us specifically we are rightholders in the market. So we distribute content, so regardless of who purchases it or who delivers it or by which mode it’s delivered, it’s good news for Global Eagle. And so we welcome this sort of trend in the market. In terms of specifically larger airline strategy. It really does depend, if you look at the world’s top 10 airlines, six of those are serviced by us directly. This whole media area is very different skills area to run in that line and it’s the area we specialize in. I think between us and other service provider, we cover 9 out of 10. So, the trend is more using specialist service providers.

David Davis

Yes, Dick. This is Dave, second to last point that Wale made I think what we’re seeing as we talked about previously, in-flight entertainment in-flight connectivity we think is becoming sort of more and more of a necessity among carriers rather than I think a lot of airline sort of say bringing this is house and building and whole bunch of infrastructure instead they are reaching out and looking for qualified partners to help and procure content, help them as we talked about the Delta deal procure sponsors and things like that.

So, I think these trends are very much actually in our favor.

Dick Ryan - Dougherty

Okay, okay. And one of the things you’ve talked about in the past with the content side of the business having such deep relationships with Global airline. I mean are you seeing that those conversations move over to the connectivity side of the house?

David Davis

I think we’re seeing those -- yes I think what we’re seeing is among a number of carriers really beginning to view this whole thing holistically not just the technology solution, not just we need to procure movies for our seatback system, they’re viewing this is as Delta is doing I guess in a really holistic package way. And why it has a piece of that our connectivity system plays into that obviously all the content we sell plays into that. So that’s why we think we are uniquely positioned as airlines begin to brand and view this IFE and C product as one holistic offering.

Dick Ryan - Dougherty

Good, good thanks Dave, thanks Wale.

David Davis

Thanks Dick.


And I am not showing any further questions at this time I would like to turn the call back over to Dave for closing remarks.

David Davis

Okay thanks everyone we appreciate you participating in the call. And we look forward to seeing I am sure many of you at the upcoming conferences that we talked about earlier. Thanks again.


Ladies and gentlemen thank you participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a good day.

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