Q4 2021 Gogo Inc Earnings Call
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[music].
Good morning, ladies and gentlemen, and welcome to the Q4 2021 Gogo Inc.
<unk> conference call at this time, all participants are in a listen only mode. Later, we will conduct question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your Touchtone telephone as a reminder, this conference call is being recorded.
I would like to turn the conference over to your House, Mr Will Davis, Vice President of Investor Relations. Please go ahead.
Thank you Jerome and good morning, everyone welcome to Gogo as fourth quarter 2021 earnings Conference call.
Joining me today to talk about our results of our hopefully form chairman 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 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 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've filed with the SEC. In addition, please note that the date of this conference call is March 3rd 2022.
Any forward looking statements that we make today are based on assumptions as at this stage.
We undertake no obligation to update these statements as a result of more information or future events during.
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 fourth quarter earnings release. This call is being broadcast on the Internet and available on the Investor really.
<unk> website at IR Doc Gogo are dot com.
Our 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.
It is now my great pleasure to turn the call over to ugly.
Thank you will.
And thanks for joining us this morning.
As we highlighted in our press release that those 2021 fourth quarter marked an outstanding one to a transformative year for our company.
Our first full year as a pure play business aviation connectivity leader.
I'm incredibly proud of all that our team has accomplished and how well positioned we are to create substantial value in the future.
Let me start with a little highlight reel of key 21 achievements that reflects the relentless focus and determination of our world class Gogo team.
Together, we met an intense surge in demand for B, a connectivity equipment and data.
And then most of our global supply chain crisis, we scaled advanced shipments by 40% and we successfully introduce business Aviation's first unlimited data and streaming plans.
Hit historic financial inflection points.
And positive quarterly net income and earnings per share for the first time in Q3.
Positive free cash flow for the full year 2021.
We completed a comprehensive refinancing that reduced our annualized interest expense by more than $70 million, giving us the financial strength to invest in improving our products and services.
To further delever, our balance sheet to secure a component in a supply constrained world and to return capital to shareholders when appropriate.
We entered the exciting 200000 to aircraft strong general aviation market.
Are there service partnership offering gobo IFC on the G tube plus vision jet.
We gained traction in the Underpenetrated light jet and turboprop markets like that.
Evidenced by our recent announcement that the Palatis fractional operator plain fence is installing all of that's L. Three on their entire fleet of 46 P. C 12, and P. C 20 fours.
We executed extremely well and I Gotta go five G project, including most recently completing a testbed that that's going to go up for an on time on budget commercial launch in the second half of 2022.
We also signed at <unk> and Duncan aviation to five G commitments that will help secure a successful commercial launch.
We continued our strategic initiative to drive penetration of our future proof advanced platform.
With a 46% increase in installed base in 2021, and then finance now representing 39% of our Atg installed base up from 30% at the end of 2020.
We also achieved a 96% equipment retention rate for the year, which raised our rolling average equivalent lifetime on an aircraft from 17 years 18 years.
Each quarter, we exceeded and then raised 2021 guidance, including accrued include Q4 expectations with the performance we announced today.
Evidence of the very strong demand for IFC and the business aviation market.
Our superior performance in meeting that demand.
Reminder, we provided initial 2021 revenue and adjusted EBITDA guidance ranges of 300 to 320 million and 105 to 120 million respectively.
Below the numbers, we delivered today.
We also introduced long term financial targets on our year end 2020 call and we've raised those targets again today, reflecting our bullish outlook on business aviation demand for in flight connectivity and confidence in our continued ability to meet that demand.
We truly come into our own as a new guy, though in our financial performance this year bears that out.
We ended fiscal 2021 with record total revenue driven by record advanced shipments and record service revenue.
We ended the year with 6400 aircrafts online just short of 11% higher than at the end of 2020.
We had $3300 and are approved for Q4 up almost 8% from Q4 2020 and.
And we grew full year adjusted EBITDA of 54% year over year.
I'll focus my remarks. This morning on the factors that drove our strong fourth quarter performance.
And that we believe will continue to drive our growth in the future.
I'll share a progress on our key strategic initiatives.
And introduce our 2022 financial guidance and after the updated long term targets before turning it over to Barry.
Then we'll open up the call for questions.
It's evident from our fourth quarter, the demand for travel and connectivity remains very strong.
We believe the two primary tailwind driving that demand the growth in high net worth individuals over the last decade.
And the significant increase in data consumption driven by growing usage of video and text social and work related applications, partly driven by the Covid pandemic.
We also believe those tell ones are sustainable.
Setting us up for long term continued success as we execute on our strategy of enhancing our atg network and driving market penetration of our advanced platform.
Growth in the number of high net worth individuals over the past decade has driven significant growth in the cohort cohort of people, who can afford to fly privately.
Either on their own jets through fractional shares or charters.
Not only has that called cohort grown but it's also grown younger.
67% of respondents in a recent Gogo brand study now from generations X Y and Z and only 32% from my old book Baby Boomer generation.
[noise] Covid drove that cohort to try private aviation as an alternative to commercial airlines and now that they've tried it they're not going back.
OEM sales have moved yet and fleet sales effects of ownership are up dramatically largely driven by new private fliers, indicating that those new Flyers are making long term financial commitments the private aviation.
The second tailwind dramatic increase in data consumption is also driven partly by Covid.
The pandemic fundamentally change the way that people of all ages think about connectivity as the work from anywhere and socialize from anywhere cultures became the norm.
And drove demand for highly interactive data intensive applications like zoom Facetime or office 365.
These two trends drove a 78% increase in the data consumed by business aircraft in our network in Q4 2021 versus pre pandemic Q4 2019.
The biggest variables driving that increase was 38% increase in megabytes consumed per flight and a 29% increase in flights per day.
The shift in data consumption drove two and a half times as many customers to request plant upgrades as requested downgrades in 2020 one.
Versus a roughly even split between upgrades and downgrades in 2019.
We expect this growth in data consumption to continue driving ARPA as video heavy content becomes more pervasive and ultimately as a matter of us and connected aircraft applications enter the aircraft cockpit and cabin.
Fortunately Gogo will have the cassidy the capacity to meet this demand.
Offloading mainline commercial airline fleet several years ago, we have freed up a lot of capacity in our network and projected we could accommodate roughly triple the number of aircraft. If we have on our network today.
We also expect the number of aircrafts on our network to continue to grow and that will drive the number of service plans themselves.
We finished Q4 with 6400 aircraft online up 10, 8% year over year, and we expect continued strong growth this year.
In Q4, we booked a record new equipment orders in our equipment order backlog already accounts for 90% of the 2022 equipment revenue in our guidance today.
In fact, we see that trend continuing for the long term.
Today, only 30% of the 24000 business aircraft in North America have broadband in flight connectivity.
We expect that number to grow to 50% by the end of 2025, and a leading business Aviation Trade Association project that number to grow to almost 100% by 2035.
Our bullishness on the business aviation market is buoyed by what we see in our OEM and dealer distribution channels.
Oh, I am such as Textron, Bombardier and Gulfstream.
Probably the highest order flow in 15 years.
Some kind of advanced platform is installed in roughly 60% of the aircraft coming off the line destined for North American delivery that is a very positive trend for gogo.
We're seeing even more demand in the dealer channel and are currently predicting a 50% increase in units shipped to dealers this year and projecting that dealers will represent more than 65% of our new shipments in 2022.
Taken together data flight and aircraft demand drove outstanding Q4 top line growth for Gogo.
Record revenue of $92 3 million up 19% year over year.
We hit record service revenue of $69 3 million and very strong equipment revenue of $23 million.
Our continued growth demonstrates the virtuous cycle of our business model in action.
Equipment sales profitably expand our base of subscribers Jenner.
Generating recurring sticky high margin service revenue.
It drives cash flow to invest in improving our network and platform, which in turn attracts new customers driving more equipment shipments generating more recurring sticky high margin service revenue et cetera.
Finally, let me touch on our bottom line.
Google's ability to translate the powerful demand pet tailwind that I, just described and the bottom line value is a testament to the exceptional unit economics of our business.
Even excluding our huge Q4 income tax benefit we delivered positive net income and positive EPS for the second quarter in a row.
Of which marked a nice contrast to the losses, we ran in Q4 2020.
We also more than doubled our quarterly adjusted EBITDA for Q4 2020.
And we drove more than $50 million in free cash flow for the last half of the year.
We're proud of our results and the momentum we're building and I'm proud of the Gogo team, which continues to rise to the challenge of meeting exceptional demand and executing on our strategic initiatives in a supply constrained world.
Now, let me turn to our strategic initiatives for a moment.
Gogo has two major strategic initiatives aimed at deepening our competitive moat and driving long term shareholder value.
First enhancing our atg network to keep pace with customers on ground connectivity expectations and second driving penetration of our flexible future proof of advanced platform.
I'll start with enhancing our Atg network.
The first step and the successful execution of that objective as the commercial launch of our <unk> network in the second half this year.
Five five G data speeds and low latency will be a top differentiator for gogo as business customers increasingly require a seamless videoconferencing and VPN access and leisure travelers expect living room quality streaming capabilities for accessing video intense social media.
We previously announced and continue to expect Gogo five G to deliver 25 Megabits per second on average with peak speeds in the 75 to 80 Megabits per second range, a significant improvement improvement over their already competitive speeds advanced delivers today and leapfrogging both G O satellite competitors in it.
Potential atg competitor.
As a reminder.
Our potential atg competitor is still working toward a <unk> network launch if they say will deliver speeds roughly equivalent to what we already deliver with events L. Five.
And significantly slower than what we will deliver let's go go five G.
Even if all goes according to the potential competitors plan their eventual forging solution will not be able to compete with gogo five G on speeds.
Not to mention many other product and service deficiencies that make a successful launch of their product highly improbable.
As I'm sure. Most of you know this potential competitor filed a lawsuit against us on Monday.
Alleging that our five implementation infringes on four of their patents.
Yes from a company that has invested hundreds of millions of dollars over the past eight years and is now six years late on delivering a functioning nationwide network.
Our patent attorneys and engineers have studied the entire smart Sky patent portfolio and we know these four patents very well.
I can assure you we do not infringe on those patents and we will fight this lawsuit with extreme vigor.
Now, let me move to five key advantages over G O satellite competitors.
There are limited to the Super mid and heavy heavy jet segments of the market because of the size and weight of their Gamble, then tenants and their equipment is more expensive and more difficult to install and atg.
More importantly, we think <unk> will outperform gilles on speeds and latency.
Based on user customer surveys, we've conducted geo satellites provide speeds of 2% to 17 megabits per second depending on the provider a bit slower than our five G will offer.
But more important due to the 44000 mile round trip that packets have to travel to reach the Internet and then come back to the aircraft they suffer very high latency, making interactive video difficult.
Well, our Atg network is limited to the Continental United States and Canada deals have the advantage of your global coverage.
However, 87% of all global B, a flight hours are in North America, and 77% are within the United States, which gives us a very large addressable market.
In terms of five key milestones, we've now passed all technical hurdles and I ended the deployment and commercial launch phase of the <unk> program.
We reached a major deployment milestone at the end of last year. When we completed a seven tower testbed on time and on budget.
Testbed include sites in both remote and populated locations in order to validate that the network is operating as designed.
We'll complete the other 143 towers towers at a rapid pace throughout the first half of 2022.
Last week, we announced that the Gogo five G aircraft container has received FTC and parks manufacturer approval or PMA from the FAA.
See the PMA is an important milestone as it essentially means that the FAA has green lighted the mass production of our five G. Radio antenna is ahead of our fiber deployment.
On the commercial side, we've already signed Jed Ed just go goes five G watch customer Jan.
Jed edge has advanced all five installed across most of its large cabin fleet today, and we'll update 50 of those aircrafts to Gogo five G, which gives us a really strong head start on delivering our five G projections.
Additionally.
Duncan aviation the largest independent MRO in the world is upgrading all of its existing full equipment that they can sell five FTC to include Gogo five G, which will cover more than 30 aircraft models, including aircraft manufactured by Bombardier Gulfstream and.
And textron.
As Barry will touch on in a moment 2022 is a big investment year as we deploy the five G network.
Ramp up our sales and marketing.
And fund inventory to support installation demand.
Worth, noting that we expect to fund the entire five G network out of internally generated cash flow. In fact, just one year of interest savings from our recent refinancing more than covers our entire five G capex cost.
Okay.
Now, let me move to our other major strategic initiative.
Vance penetration.
Advanced as a platform not a product.
It runs across multiple form factors and computing platforms.
And affords us tremendous opportunities to drive profitable growth.
Improving stickiness.
Introducing adjacent products and penetrating adjacent markets.
Advanced affords us many opportunities for growth, but for purposes of this conversation one of the more important features of events is it multi bearer capabilities.
It allows us to add multiple networks to the aircraft in order to deliver more data capacity for passengers and crew.
For instance, we could partner with a global Leo provider and add capacity from their Leo network to advances existing atg capacity to deliver even more data to the aircraft. We could do that by simply developing an E. S antenna that sits on the fuselage of the plane.
And plugging that into the advanced platform inside the plane.
That would be it from a hardware installation perspective, the rest of the install would be accomplished with an over the air software upgrade to.
To make the math clear.
Let's say that in five years, we improve atg to deliver 50 megabits per second.
And in that same timeframe Leo networks are deployed that can deliver 100 megabits per second.
We added the Leo network to the existing advance atg installation that configuration would deliver 150 megabits per second.
That's greater than either the atg or Leo networks could deliver on their own.
The global broadband initiatives would allow us to first pursue the 14000 business aircraft outside North America next pursue G. O satellite installations on large North American Jets fly global emissions.
And third the sand and drive stickiness in our core North American market are medium sized and smaller aircrafts by offering Leo capacity, if they need more capacity than what atg alone can offer.
We think that we have some natural advantages over potential Leo competitors in pursuing the global Leo broadband initiatives.
First our vast installed base is several times larger than our competitors' installed basis, it would be far cheaper for those aircraft to upgrade with Gogo and leverage the advanced system that already they already have in place and to rip out events and installed new systems for all of the functionality that advance already provides.
Second our deep mutually profitable distribution channel relationships with Oems and dealers.
Already line fit in all business aircraft and we have our 120 dealer network already outfitted to install events and adding in the assay to their installations would be relatively simple compared to cutting in a whole new product.
And third speed the market, we can simply a matter of the OEM type certificates and aftermarket supplemental type certificates that already exist for events to add the Esa antenna just like we're doing now for five G, giving us a speed to market advantage over competitors, who will be starting from scratch.
In short, we see tremendous upside of the Leo strategy be advanced if we if we proceed we expect to accelerate our growth in the latter half of this decade, and we expect our investment would be modest compared to our <unk> investment and it would be spread over several years.
Another way advance gives us opportunity to grow is the ability to remix common componentry into new form factors, while using the same advanced software to address the specific needs of adjacent markets.
Our entry into the general Aviation market is a good example, we accomplish this by developing the small form factor of a S. L. Three and by lowering our service, Florida 3000 feet with a software upgrade and equipment upgrade.
And with those changes we've gained traction both in the smaller fuselage segment of the business aviation market.
And in the 200000 strong general aviation market, two markets, where our competitors' equipment is too large to compete.
And the beauty of it is it was the same software using common advanced componentry. We can continue to develop new form factors that will further help us penetrate those markets.
So to summarize advance gives us a lot of opportunities to improve equipment stickiness, introducing adjacent products and growing into adjacent markets and for those reasons growing the advanced install base is core to our strategy.
So far we've been quite successful at that advances the most successful broadband product ever launched in business aviation with just over 2500 aircraft online at year end 2021.
46% over prior year and that's installed on more aircraft in our two biggest competitors combined.
We reported 105 net advanced installs and Oh, sorry, Yeah, We reported 105 net events and stuff in the month of December alone and 267 for the quarter.
We project at least 25% growth in advanced unit shipments this year.
Already mentioned, we've already booked 90% of those orders.
We also see demand drivers that lead us to believe we can exceed our 25% unit growth target and are intensely focused on our supply chain to see if we can make that happen.
Now I'll touch briefly on our financial guidance before turning the call over to Barry <unk>.
Beginning with a few caveats.
First our 'twenty two guidance does not include potential strategic investments like the Leo Global broadband product I discussed a moment ago.
Assuming we greenlight those initiatives well roll those into our projections and update update guidance as appropriate.
Second we've long characterized 2022 as an investment year focused on finishing our <unk> deployment and supporting its launch with all the resources necessary to succeed.
That said, we expect to still grow adjusted EBITDA and still have positive free cash flow despite those investments.
We're also extending and raising our long term financial targets driven by the strong equipment sales, we're seeing today and the usage trends I highlighted earlier in the call both of which will drive sticky high margin recurring service revenue for many years to come.
In turn those new financial targets are the springboard for our capital allocation strategy, which Barry will walk you through in a minute.
We have our <unk> investment well in hand, and we've zeroed in on a target leverage ratio and as soon as we complete sizing our strategic growth opportunities. We can vector in on our approach to returning capital to shareholders.
So let me conclude by saying, we believe Gogo presents a unique and compelling opportunity.
We serve an underpenetrated market that should provide opportunity for years of profitable growth.
We differentiate ourselves based on our deep understanding of that market and our ability to create unique services and products tailored to the specific needs of that market.
And on top of that we see numerous opportunities to deploy modest amounts of capital into adjacent products and into adjacent markets.
Celebrate profitable growth in the latter half of the decade.
We're excited about the future and Gogo has ability to deliver for our customers employees and shareholders as we execute on that strategy for long term value creation.
And now I'll turn it over to Barry.
Yeah.
Thanks, Joe and good morning, everyone.
We're pleased to have capped off a very strong 2021, continuing to set new records in the fourth quarter.
Our 2022 financial guidance and the increased long term targets, we announced this morning underscore our confidence in the significant value creation opportunity ahead.
Before we talk about our expectations in more detail I'll walk through our fourth quarter results starting with the top line.
Total revenue for the fourth quarter was $92 3 million, increasing 19% year over year and 6% sequentially.
By strong growth in both service and equipment revenue as demand continued to exceed our expectations.
Gogo is top line growth is a reflection of the accelerating strength of the business aviation market and Gogo has unique ability to capitalize on that growing demand.
Our record service revenue of $69 $3 million in the fourth quarter represents an increase of 22% year over year, driven mainly by more events units coming online and stronger ARPA.
On a sequential basis, our fourth quarter service revenue grew 5%.
Atg aircraft online reached record levels of 6400 up 11% compared to the fourth quarter of last year and 4% sequentially.
As oak highlighted <unk> growth accompanied by our subscription based service revenue as the biggest driver of our long term value creation. As we are fortunate to operate in an underpenetrated market with significant headroom for continued growth.
New customer Activations represented 66% of our total activations during the quarter the strongest ratio in two years.
As further demonstration of the strength of the demand for connectivity data usage continues to grow along with aircraft online growing 78% in the fourth quarter of 2021 over to pre pandemic levels in the fourth quarter of 2019.
<unk> grew to $3301, representing an increase of 8% year over year and 1% sequentially.
As I have mentioned demand for data by passengers as well as our unlimited streaming plan and other innovative new products. We've introduced contributed to this continued <unk> expansion.
Turning now to equipment revenue.
<unk> delivered very strong equipment revenue of $23 million for the fourth quarter.
11% increase year over year, and a 10% increase sequentially.
Selecting strong demand for both our advanced L three and five products.
We had a record 285 advanced product shipments in the fourth quarter representing.
10% growth year over year, and 8% growth sequentially with increases in both the aftermarket and OEM channels.
I want to highlight that our 887 total advanced shipments in fiscal 2021 represents 40% year over year growth.
These strong results are based on the robust market demand, which began in late 2020 and increased throughout 2021, ultimately exceeding our original 2021 internal budget by 30%.
We exited 2020 by posting an outstanding fourth quarter through a combination of typical seasonal strength promotional activity and the beginning of business aviation is recovering from the effects of the pandemic.
The confluence of these factors somewhat masked the fundamental demand driving shifts that solidified and accelerated during 2021 to drive unprecedented demand for gogo equipment.
Looking to 2022, we are experiencing continued strength in advanced shipments and now expect growth at or above the high end of our previous expectations of 20% to 25% growth over 2021 levels.
We exited the fourth quarter of 2021 with a very strong order backlog, representing again, 90% of our expected equipment shipments for 2022.
This backlog meaningfully derisked the achievement of the targets we communicated this morning.
I'll provide more color on our guidance later in my remarks.
Now turning to profitability Gogo delivered service margins of 80% in the fourth quarter ahead of our expectations largely due to lower than anticipated network costs.
Excluding the impact of the regulatory surcharge credit that bolstered our third quarter service margins or service margins increased 250 basis points sequentially.
We expect our long term service margins to trend to the high 70% range throughout our five year planning horizon.
On the equipment side Gogo delivered equipment margins of 37% in the fourth quarter, a 400 basis point sequential decrease.
This decrease is in line with the expectations. We set in previous calls were declining equipment margins in the near and intermediate term as we pursue our strategic objective of increasing advanced penetration, which oak as discussed in some detail.
In alignment with this objective, we anticipate equipment margins to be lower for 2022 than they were for 2021.
Importantly from a financial perspective advanced equipment sales are the foundation for high margin recurring service revenue, which in turn is the engine of our future value creation.
Moving to operating expenses fourth quarter, combined engineering design, and development sales and marketing and general and administrative expenses, excluding depreciation and amortization of $28 million decreased 8% year over year.
This decrease reflected the increased employee bonus expense recorded in Q4 2020, as we made the decision to shift the form of annual bonus payments from stock based compensation to cash.
Now I'll provide some additional detail on our Gogo <unk> G program and spending profile.
I'll start by saying we are on track to deploy our network in the second half of 2022 on time and on budget.
As planned our <unk> spend increased in the fourth quarter to $4 $6 million comprised of $1 7 million in opex and $2 $9 million in Capex.
I'll note that our GAAP <unk> capex spend came in lower than we expected for this quarter due to a lag in the timing of $4 million and invoices.
We'll be paid and reported in the first quarter of 2022.
To be clear the timing of this reported spend is not indicative of a slowdown in our deployment schedule.
For 2022, we have budgeted external development and deployment opex of $11 million, an increase of $7 million over 2021.
And additional Gogo <unk> related investments and marketing production operations and network cost of $6 million.
This results in an approximately $13 million increase in total opex related to <unk> in 2022 versus 2021.
And of course impacts the adjusted EBITDA growth rate for 2022.
To reiterate our overall expectations for Capex, we expect that over 90% of our total five Gogo <unk> investment will be completed by the end of 2022.
We expect 2022 capex to be approximately $65 million with approximately $50 million spend tied to gogo strategy.
After yoga five years launched we continue to expect ongoing capital expenditures in the $15 million to $20 million range annually.
Sporting very attractive adjusted EBITDA to free cash flow conversion rates in 2023 and beyond.
Now onto our bottom line.
As expected our adjusted EBITDA was slightly lower in the fourth quarter at $39 6 million down 3% sequentially due to the onetime regulatory surcharge credit in Q3 and higher operating expenses in the fourth quarter as anticipated.
On a year over year basis quarterly adjusted EBITDA more than doubled driven by significantly higher profit from our subscription based service revenue as.
As we have grown nearly 11% year over year.
Last year's fourth quarter also included the higher bonus expense I described.
As we mentioned earlier Gogo generated positive net income from continuing operations for the second consecutive quarter.
Our reported net income includes an income tax benefit of $188 million in the fourth quarter due to the partial release of the valuation allowance on their deferred tax assets.
Based on our expectations for continuing strong operating performance additional reversals of our remaining valuation allowance of $111 million may occur within the next 12 to 18 months.
Importantly, even excluding the impact of the valuation allowance Gogo delivered positive net income from continuing operations of $21 $5 million in the fourth quarter.
This translates to basic earnings per share from continuing operations of <unk> 18, and.
And diluted earnings per share of <unk> 17.
As of December 31, 2021, Gogo had $689 million in federal net operating losses.
With our substantial NOL position, we do not expect to pay meaningful cash taxes for an extended period of time, but we may pay some cash taxes by the end of our planning horizon.
For the fourth quarter Gogo generated record free cash flow of $25 7 million.
Reflecting our strong top line and adjusted EBITDA performance.
This also includes the impact of the comprehensive refinancing we completed in April which materially reduced our annual interest expense and enhances our strategic and financial flexibility.
While we expect some shifts quarter to quarter for example, due to the timing of our <unk> expenditures, our expectation is to deliver positive annual free cash flow going forward.
As you know, we substantially increased expectations for free cash flow in 2023, and 2025 in the third quarter call.
But we'll talk about in a moment, we continue to expect a very significant ramp in free cash flow beginning in 2023.
Before I move to a discussion of Gogo as capital allocation priorities and our balance sheet position I'll briefly summarize our full year 2021 fiscal year results.
We achieved significant top line growth due to strong tailwind is driving the business aviation market, which by all indications are sustaining coupled with solid execution.
Gogo generated total revenue of $335 7 million up 24% from 2020, and well above the high end of our guidance range.
We delivered service revenue of $259 6 million up 22% from 2020 with service gross profit also growing 22%.
A key contributor to our significant free cash flow growth.
Equipment revenue was $76 1 million for the full year up 32% from 2020, well above our expectations as I mentioned.
For the full year 2021, we achieved adjusted EBITDA of $151 million.
54% year over increase and also significantly ahead of our 2021 guidance.
And free cash flow of $58 million was well ahead of the more than $40 million expectation, we set for the full year November 21st earnings call.
Only in 2021, it was a remarkable year.
The strength of the business aviation market customers' increasing demands for connectivity and Gogo has a robust business model as a pure play business Aviation company.
All contributed to this outsized performance.
We believe this positions us well for significant future value creation.
Now, let's turn to a discussion of our balance sheet.
Gogo is in a very strong liquidity position.
We exited 2021 with a cash balance of $145 $9 million and our $100 million revolver remains undrawn.
At the end of the fourth quarter, we had approximately $824 million in outstanding debt.
<unk>, the $721 $4 million term loan b and approximately $103 million in outstanding convertible notes.
Based on our strong financial performance in 2021, and we exited the year with a net leverage ratio at four five times adjusted EBITDA.
Notably this is down from a net leverage ratio well into double digits for years ago.
Okay.
We're tremendously proud of the progress Gogo has made on our debt reduction goals.
The sale of our CA business on December one 2020, and the comprehensive refinancing completed in April 2021.
Have enabled us to reduce our debt by nearly one third from the 2020 levels.
As a result of our progress Gogo as balance sheet is now a competitive strength.
As we mentioned on our second and third quarter earnings calls go to committed approximately $10 million in cash for additional inventory purchases. During 2022 to ensure we can deliver on equipment orders that already stretch well into 2022.
Looking ahead as previously announced we expect to settle.
Any conversions of the $103 million of convertible notes and stock prior to their maturity on may 15th.
Given our current stock price relative to the $6 conversion price, we expect all holders of the remaining converts to.
To elect to convert into a total of approximately $17 1 million.
Yeah.
As a result of our comprehensive refinancing plan our annualized cash interest expense will have been reduced from $111 million before our April 2021 refinancing.
To approximately $33 million after the convertible notes mature in may of this year.
Our strong balance sheet and operating performance provide us with significant strategic and financial flexibility.
On previous calls we indicated that we would pursue a balanced capital allocation strategy focused on four primary actions in the following order of priority.
First is enhancing the capacity and performance of our Atg network through the deployment of <unk>.
Second is reducing overall leverage to an appropriate operating level.
Thirdly is making strategic investments in our business such as the global broadband initiative to capitalize on market opportunities and further strengthen our competitive position.
And finally <unk>.
Returning capital to shareholders.
We made considerable progress on the first two of these actions with Gogo <unk> on track and deleveraging.
Ahead of schedule is driven by our strong financial results.
We're now actively addressing the latter two priorities.
With respect to value enhancing strategic convinced investments as oak discussed Gogo is seriously evaluating a leo base global broadband initiatives.
This would increase the number of planes and our available served market and further defend our strong market position in North America.
While we are also exploring other strategic investments, we would only execute on any of these if they are meaningfully value enhancing to our business.
With respect to our fourth priority the timing and amount of the potential return of capital will be informed by our capital structure strategy.
Our targeted capital structure includes maintaining minimal minimum available liquidity of $125 million with the majority of this liquidity comprised of cash, but also considering our revolver capacity.
And secondly, a targeted net leverage ratio of less than four times.
We expect to achieve this net leverage target in the second quarter of 2022 after the expected equitation of our convertible notes in May.
Given our strong cash position and the additional dilution from the expected <unk> of our convertible notes.
Our board is evaluating capital allocation strategies that may include share repurchases.
Let me add one final housekeeping point related to our capital structure.
You may remember that when GTC our exchange its convertible notes for common stock last April we entered into a registration rights agreement that gives GTC are customary demand and piggyback rights with respect to shares held by <unk> and its affiliates.
The registration rights agreement as amended requires the company to have a shelf registration statement declared effective by May 23 2022.
Now I'll turn to the guidance, we announced this morning, starting with some color on our 2022 projections.
We continue to expect significant top line growth.
At the end of.
September we said, we expected growth in advanced shipments of at least 25% in 2022 and that was on top of the strong 2021 performance we've outlined.
Reiterate that 90% of equipment revenue included in our 2022 top line guidance is already in our backlog, which meaningfully de risks our 2022 revenue plan.
In spite of our expectations for strong topline growth.
We view 2022, as an investment year, particularly for Gogo <unk> G and.
And we wanted to be clear that we don't expect our bottom line to grow at the pace we delivered in 2021.
Our priority is to deploy our <unk> network and support its successful launch with healthy sales and marketing investments.
We also anticipate higher working capital needs as we meet higher demand for events unit shipments.
Our wider free cash flow range reflects potential additional spending to secure inventory to support that demand.
We expect our EBITDA to be weighted towards the second half of 2022, which will set the table for a substantial increase in EBITDA and particularly free cash flow growth in 2023.
Turning to the members we announced the following 2022 guidance in our press release. This morning, we.
We expect 2022 revenue in the range of $380 to $395 million, reflecting double digit service and equipment revenue growth.
We anticipate 2022 adjusted EBITDA in the range of $150 million to $160 million, reflecting a planned increase in Gogo <unk> investment as previously discussed.
We expect free cash flow of $25 million to $45 million, including cash interest payments of approximately $36 million and capital expenditures of approximately $65 million with approximately $50 million of the capex spend tied to Gogo <unk>.
The 2022 guidance and long term targets are derived from our baseline budget and recently updated baseline locker model, which include Gogo FRG, but do not include potential strategic investments currently under consideration.
<unk> a global broadband initiatives.
The 2022, adjusted EBITDA and free cash flow guidance and long term targets do include a preliminary estimate of the defense costs for the smart Sky lawsuit filed against Gogo This week.
Now turning to our long term targets, we are updating our baseline long term targets as follows.
Revenue growth at a compound annual growth rate of approximately 15% from 2021 through 2026.
It's worth noting that we expect to be able to maintain this 15% CAGR target for an additional year in spite of dropping 2021.
<unk> represented 24% growth over 2020 as the initial year.
Annual adjusted EBITDA margin approaching 50% in 2026 up from the low forties in 2022 and 2023.
Free cash flow of approximately $125 million in 2023, following the deployment of the Gogo <unk> network in 2022.
Increasing to over $200 million beginning in 2025.
Before we open the call up to questions I'd like to reiterate our thanks to the entire Gogo team for the outstanding performance this quarter and throughout 2021.
Our results are a testimony to your dedication ingenuity and unwavering focus on delivering for our customers and reaching our strategic goals.
Thank you team.
Operator. This concludes our prepared remarks, we're now ready for our first question.
Ladies and gentlemen, if you have a question at this time. Please practice part and then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key your first question comes from the line of Phil Cusick with Jpmorgan. Your line is open you may now ask your.
Question.
Hi, This is amir for Phil any update on supply chain for getting the ATB units this year and at what level of growth might you hit some issue and then beyond that for the expected revenue growth for 2022 can you break out your expectations for equipment.
Service revenue growth.
Yeah, why don't I.
Take the supply chain piece and Barry can take the breakout on growth.
Managing supply chain is very tricky these days as I'm sure you're aware and.
We have.
Secured supply.
But.
Guarantees et cetera to meet that but the equipment budget in the 25% unit growth.
That we forecast.
We are very busy trying to procure more supply.
I think we've made substantial progress.
On that.
We have some key tiers, we have sort of a.
The natural Oh, I'll say, an increase in demand that we see out there that we'd like to meet.
Which is one level target and I think we're getting very close to being able to say that we've nailed that down probably have more guidance on that later in the year and then we have more of a stretch goal for.
For the second half that we're still working hard on trying to secure so.
Challenging world, but our balance sheet is helping us out and what we can come in and and prepay.
We're where we need to.
We.
Also I would say that our common componentry strategy, where well all three all five.
And future.
Future form factors you use the same components. So they use them in different mixes and different configurations, but then at the same components. So that gives us the ability to have more.
Big bigger orders and have more sway with our suppliers. So both of those things are helping us out right now.
And you know we're.
But we're not to the point, where we're going to be raising equivalent guidance.
And about your question.
A question about the breakdown.
We are providing details on them and I would just say that.
But we are as you see of course.
The expectations for a 15% CAGR over the planning horizon based on the guidance given to revenue in 2022, you can see that we expect to get out of the gate strongly.
In that area. So again, we expect that.
Strong growth in both service revenue and equipment with that.
Probably in percentage terms equipment revenue to growing a little bit more strongly in terms of the higher rate than service revenue because of the demand that we're seeing.
Thank you guys and one more if I may on the Capex spend in 2022, how should we be thinking about the cadence of that and some of that capex for five G rollover into 2023.
Thank you.
Yes.
Capex spend as you know is largely tied to the tower builds in 2022, so that capex spend is going to be primarily over the first three quarters that will be spread throughout the year. So it will be loaded in that first three quarter time period would be our expectation there'll be some capex.
<unk> continuing into 2023, but 90% of the Capex spend will be completed by the end of 2022 is our expectation.
Thank you guys congrats on the quarter. Thanks Amir.
Thank you thanks Amir.
Your next question comes from the line of Scott Searle with Roth Capital. Your line is hoping you may now ask your question Hey, Good morning, Thanks for taking my questions nice job on the quarter guys.
Maybe just quickly to jumping into the service provider revenue and guidance for 2022, I'm wondering how are you seeing <unk> trend given the uptake of a launch given the pending <unk> launch and also starting to see G contribution, which I assume comes in at lower <unk> and then I had a follow up.
Yes, Scott I mean I think.
We've guided to 33, 4% growth over time in the five year guidance.
We kind of blew that away this year, because we had a lot of upward pressure on <unk> from our screening unlimited streaming and data plan.
I think you know.
We still continue to see auto and Barry can give you the exact number but the three 4% growth range for the five year model and I think that's kind of what we would guide to this year.
Gotcha.
Scott It overtime, it's basically 13% as growth driven by AOR growth of 3% as our peer group.
Horizon from 'twenty into 'twenty six.
Very helpful and then I got.
That's like you pointed out I mean, we've got upward pressure at the high end of the market that wants to lease the unlimited plans and then as we make more progress in.
General Aviation market and then.
Light jet market.
Those people tend to buy higher rate lower rate plan, so there's downward pressure as well, but that's all good for us and that's all.
In absolute terms, that's all growth.
And then oak, maybe if I could dive into the 15% CAGR through 2026, it's a big number it's a step up from what you guys had been talking about before certainly there is strong demand characteristics in terms of under penetration in the marketplace, but I'm wondering why your comfort level is so strong at this current time and in a couple of items and clarification.
<unk> what are you thinking about in there in terms of GAA contribution it sounds like Leo contribution or potential Leo contribution really isn't built into that that comes in the back half of the decade, and maybe if I could throw on top of that to the Leo potential Leo investment I'm not sure. If ive heard you size the magnitude of what that would require thanks.
Yes sure.
Scott, let's break that question down into a couple of pieces.
I'm sorry, you started with.
Oh, well, the 15% CAGR really the confidence level now why now and what are you what are you factoring into that.
Alright, thank you.
The great thing about that number frankly is that we lost a really high growth year, a 24% at the beginning.
The recovery from Covid, we had tremendously strong growth that came out of the model and we added another year at the end and so being able to hang in at that 15% CAGR.
It was we thought was really good and you know in terms of projections.
You know we took belt these models from the bottom up.
And we're looking at demand in various segments of the market and how it flows through the distribution channels.
We're pretty confident.
A lot of like right now you know a lot of this growth we're already booking orders for 2023 so.
We have pretty good visibility as we look ahead at least over the next couple of years and when you look at the on penetrated market and the fact that we're getting traction traction in some of the less penetrated parts of the market.
We're very confident in these.
Numbers barring you know.
With a global recession or this unfortunate.
Or blowing up on us and you know, causing some macro events that are that come in and pinch on us. So we feel good about that.
In terms of the G E.
What we have in the model and our sort of our current da commitments.
And we've got a few other things going that we factored in that we think are fairly high probability it's not a it's not a big number frankly, but up but that there is some gi included in there Leo.
It was not in.
Yeah.
Our vernacular we call that an overlay right now it's hitting us.
Yes long term financial model that we haven't laid into our long term projections when we greenlight it.
Then we will roll with it and.
We haven't really sized it other than to say, it's a relatively modest compared to our <unk> investment and I think you know what our <unk> investment is also the Leo investment would be spread out.
But at a little more than the <unk> investment is the most of the <unk> investments this year.
Leo investment would be you know, it's going to take a couple of years of development and and and so it's smoothed over two three years.
Perfect. Thanks, nice quarter guys.
You bet, Thanks got it.
And your next question would be coming from the line of Lance Vitanza with Cowen Your line is open.
Thanks, guys. Thanks for taking the questions.
I had two the first is on the the long term financial targets the meaningful increase in your targeted EBITDA margin and.
And I'm wondering if you could discuss the factors that are leading to your more encouraging outlook. There and then in particular and as particularly as part of that.
How does competition potential competition figure into that longer term target in particular, if were all wrong.
And smart Skype does get its act together should we expect that would negatively impact your margin target. Thanks.
I'll catch up again.
And then Barry why don't you take the beginning of the question in terms of our long term model, we do factor in competition.
And we.
We project.
Continuing positive trends for our.
Competitors.
In the segments of the market they address are starting to address.
And then from a smart Sky. We you know we have included them in our projections.
We don't we don't project them.
Gathering tremendous success, but we you know in order to be conservative we've assumed that they actually launch at some point.
And in wind.
Some portion of the of aircrafts so.
Yeah.
As we watch them and learn more about them.
And we do deep analysis, we think there the odds of success are very low there to be honest, but.
But we still have them in our models.
Yeah, and that's up to your question about.
EBITDA margins and while we see those going up.
There are a couple of drivers of that in the next couple of years, we do expect.
To have lower equipment margins as we invest in the penetration of the advanced parameters, we've talked about so that's a very conscious effort.
To drive service revenue, so what's really driving the expanded margin over time.
Growth in the service revenue combined with operating leverage so when you look at Opex as a percentage of revenue over time, we expect that to.
Come down meaningfully, but if we're seeing that as we drive that kind of G&A reductions that we've talked about for a couple of years and we're seeing that happen and so on so it really is a combination of the mix of strong service revenue and operating leverage without having to increase the opex at the same rate as our revenues are growing over time.
Thanks, and then just lastly for me Oak you gave your assurances that Gogo has not infringe on the four patents that are identified in that current smart sky lawsuit, but can you offer assurances that gogo has been infringed on any of their other patents as well.
Yes.
And engineers have.
Viewed all of their patents and we do not infringe any valid patent of theirs and we've stated that before.
I'm not going to get into talking about these for in particular, just because from a litigation perspective.
We don't want to tip, our hand in any way to them.
They do listen to these calls so I.
The frame from talking about the four in particular.
Thanks, guys.
And your last question Oh, I'm, sorry, and your next question comes from the line of Rick Prentiss with Raymond James Your line is open.
Thanks, Good morning, everyone.
Hey, Rick.
Hey, Rick.
Couple of questions one follow up.
Obviously supply chain is the key item in a lot of industries. It sounds like you can try and get some more supply how should we think about dollar wise last year, you spent about $10 million.
In this kind of pre purchase stuff how should we think about the magnitude of what you're trying to put to work this year to make sure you've got supply.
Yeah, Eric data.
A 10 million.
Didn't spend all of that last year. So the $10 million is the amount that we're looking to spend this year. So we have identified the need store a meaningful portion of that but not all of it. So so we will.
Use that to drive it in combination with the other things we're doing brick in a number of things we're doing.
Running our MRP program with a much longer horizon 18 to 24 months.
So that shows the demand that we can then place orders and so we can get a better indication.
Design the products with alternative parts that we can get so that we're not completely relying on sole source parts. We've actually helped some of our suppliers source parts when they have not been able to do that.
So we're doing a number of things to really drive that supply chain success and as we mentioned we feel good about being able to deliver on the expectations for equipment that we've said on this call, but we think the demand could draw.
Brian higher opportunity there. So that's really the piece of working now is how do we increase the supply chain capacity to delivering those potentially.
There are opportunities.
Another hot topic is inflation, how are you guys looking at inflation houses affecting your business.
Yes, so we have some inflation built into our plans we have wage inflation built in we have.
Cost inflation on our materials. So we have that built into our plans interestingly.
A meaningful portion of our cost structure is not generally tied to inflationary trends, so like backhaul and network operations and we've seen actually some.
Some declines in that over time as backhaul costs.
More aggressive so so and when you combine that with high gross margins.
It's not like being in the grocery store business. So we with the high gross margins were a little less vulnerable to that than we would otherwise be but it's certainly something that we're mindful of.
And last one for me is.
Over the months of November December into January the phrase <unk> started taking on a very different connotation to consumers the press and the FAA going out there kind of scaring people about what could happen with air travel.
The C band because they didn't actually called C band Leo we're calling it <unk> what have you heard from your Oems dealers and end users about <unk>.
<unk> are they concerned about what <unk> means are they concerned about anything with aviation related that way either affecting your sales or just impacting concept of what <unk> means.
Yeah, I think we.
Communicating well with our distribution channels.
And.
I think they all understand the difference between the C band in the spectrum, where we're operating in and frankly.
Understand that the media kind of confused C band and <unk> cell <unk>.
<unk> as you know.
There's lots of different spectrum.
So.
And spectrum will use isn't anywhere close to the spectrum that was in question. So.
We haven't seen any impact on our sales as a result of that.
That's great because obviously that causes a lot of constellation even just inside my own household people Boeing can we fly it since yesterday.
[laughter] well the most of that.
<unk> has been cleared up the FAA has cleared most of the altimeters in question.
Good good to hear it's not affecting demand or or concerns right. Thanks, guys stay well.
Thank you.
And your next question comes from the line of Landon Park with Morgan Stanley . Your line is open.
Thank you and good morning, everyone.
I was wondering.
Hey, I was wondering if you guys I think last quarter, you guys said that your backlog lead time Ed.
<unk> all the way out to like six months.
I think you referenced earlier that you're already taking orders for 23, so where does that lead time at now versus last quarter and just any thoughts there on when that might start to normalize.
Well.
They are creative in terms of how we manage lead time, and we don't want to mess and install if we have the opportunity to get it so.
You have to understand in all market.
Jets come in for their maintenance.
I'm very.
Scheduled manner.
So.
So.
The MRO and dealers would have therefore is booked up now pretty well for the year end and we've been able to meet that demand. So far so that's good.
So look if somebody came in and needed.
The box in three months and Charlie can figure out a way to get it to them.
We are technically were booked into the fourth quarter now but.
A lot of us are okay, and the 20 times and the timeframe three orders, we've got aren't because of lead time that just because.
Yeah.
Buying equipment for specific maintenance event, that's going to happen in 2023 and not in 2022.
Most of that most of the stuff with shippers.
And then it goes to dealers most of what we ship is.
Book for a particular customer already.
Great. Thanks for that color and then on the capital returns I think you guys referenced the four times of that.
I think that was a two two number or is that also the long term level that youre comfortable with.
When you are considering buybacks or dividends or how are you thinking about where that long term leverage should should settle out.
Yes, we think about it in two phases. The first is that we wanted to get to.
Our net leverage ratio of less than four times.
And then and that will kind of be the threshold at which we start to really think about when we might consider returning to capital what that timing might be.
As we've discussed we need to make sure that we finished right sizing the strategic investments to inform that decision so getting to less than four times as the initial target and then what we would run the company with beyond that is there something that we will look at and we're carefully as we.
Net debt ratio and see what the right level of.
That is on an ongoing basis, but for now we've kind of taken the branches thats less than four times.
Okay.
Great and then just the last one for me on the lawsuit.
The.
The preliminary injunction do you have an expected timeline on when you think that matter could at least be settled.
No I mean, frankly that move yet.
It is relatively new we did anticipate this happening.
At some point frankly, we probably thought it would happen a little closer to all five G launch than it is.
We have actually not even we're seeing papers, yet, but you know we factored this into our budget.
Money already set aside for defense and.
I think any guidance on timing now would be premature.
Okay, great. Thanks very much.
Thank you Lynn.
And your last question Louise.
And your last question comes from the line of Louis Dipalma with William Blair. Your line is open.
Great. Thanks Oak.
Barry and good morning.
Barry can you. Please repeat the comment that you said about the potential.
Our buyback just because it seems to be a pretty significant contrast relative to gogo history in which you previously alluded to how you had 10 times.
Leverage needs to be burning $100 million or more in cash.
On a quarterly basis and so what are the different.
Stages and thresholds in terms of leverage and timeline associated with five G.
Leo broadband initiatives that investors should consider as you.
And your board of directors evaluates potential.
Share buyback.
Thanks.
Yeah, we're in a very different place than we were.
We first started having these conversations with you as you know so it's a privileged position to be in and to be able to even think about these things. So so what we said is that we.
We expect to achieve this net leverage target in the second quarter of 'twenty two after the acquisition of the convertible notes in may and that given the cash position and that dilution from the acquisition that our board's evaluating capital allocation strategies that may include share repurchases. So it's something that we are looking at kind of the <unk>.
Things that inform that will be the amount and timing of the strategic investments in things like global broadband, where we want to make sure. We're conservative about those and have ample dry powder for those but having said that we are.
We are in a strong cash position now and it's.
Something that we are kind of evaluating in terms of what the right time might be.
In this in this context.
Okay.
So at this stage.
Thanks, Barry and for Oak I was wondering what is the development status.
Leo satellite antennas for for business aviation are there any antennas available now that you are currently trialing on an aircraft or are there any available for for other service providers or are these antennas.
So in the development stages.
In the development stages, Louis I mean.
There's a lot of debate around and tenants that will access Leo constellation.
We think the best technology isn't electronically durable antenna.
And.
We are in the process of talking to.
Providers.
We would work with them in developing one.
We're not going to give away our secret sauce in terms of what we think.
Out design on this call.
But we know the market very well.
Our goal is to design something that is very particular to that market and will fit that market.
In terms of ESA aviation I mean, they've been used in the military for quite a long time, a very very expensive in the military.
And they are.
In development for commercial aviation.
Now and then.
Some of it I think in an experimental status at this point and had been put on jetson flown so but those are much larger frankly.
On a business aviation aircraft and the trick is.
Smaller the impact of the lower the power.
And.
It is the power goes down the harder it is to maintain the link budget with.
With the satellite.
All.
Right.
That's why it's been a challenge in business aviation and it's a matter of being able to get enough power and have it work without creating too much heat and the aircraft and burning a hole in the fuselage.
Yeah.
And get enough talent, you've got a good signal of a good a good product.
That's difficult so yeah, we're working on it and we are optimistic.
And so.
One final question Oak.
Do you have any estimate for how many days would it take in MRO.
Install the five G antenna for a customer that already has Yvonne all five system and how complicated would that upgrade fee.
Well.
It's a long tenor swaps.
It would involve the addition of a small modem box as well.
We're looking to simplify this over time.
And so well have more to say about that later.
You know I'm not going to estimate the exact number of days I think my dealer partners, we'd like to keep that between themselves and their and their customers.
But it's but it's.
It's nowhere near as complicated as.
Stalling a new system because all the wiring is in place.
The box the main box is in place.
The Calvin has already been installed with our wireless access points and all of that so it's a lot simpler than then starting with the new system.
The other.
The point I was going to make.
<unk>.
Alright.
I'm, having a senior moment you'd asked about the amount of time Louie and what was the other part of your question.
Hum.
Alright.
Complexity and you basically answered it in terms of the <unk>.
Oh I'm sorry, the other part the other thing I was going to say is that because we're going to be able to start shipping antennas.
Now that we have PMA.
We're probably going to start shipping some of the equipments that people can actually get pre FID.
With.
Pre filled with the antennas and some of the other stuff when they go in for maintenance this year, even though the <unk> product isn't launched so they'll just be ready for like a box swap when the when the when the product actually launches later so.
Given the people essentially an opportunity if they have a maintenance event if sort of the pre.
Pre install a lot of what you'd need to.
Actually implement <unk> with advance.
Sounds good thanks, thanks, everyone and congrats on the corner.
Thanks, Larry Thanks Louis.
Thank you I would now like to turn the conference back to the company for any closing remarks.
Okay. Thank you that concludes our fourth quarter call. We appreciate your participation and talk soon.
Great day.
Thank you all appreciate it.
Thanks, Bob.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
Yeah.
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