Q1 2024 Gogo Inc Earnings Call
Operator: Thank you for standing by, and welcome to Gogo Inc.'s first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.
Thank you for standing by and welcome to Gogo, Inc. 's first quarter 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during the session.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 1-1.
We'll need to press star one one on your telephone to remove yourself from the queue. You May Press Star one won that game I would now like to hand, the call over to William Davis, Vice President Investor Relations. Please go ahead.
Operator: I would now like to hand the call over to William Davis, Vice President, Investor Relations. Please, go ahead. Thank you, Lateef, and good morning, everyone. Welcome to Gogo's first quarter 2024 Earnings Conference Call. Joining me today to talk about our results are Oakleigh Thorne, Chairman and CEO; and Jesse Betjeman, Executive Vice President and CFO.
William G. Davis: Thank you Latif and good morning, everyone welcome to Gogo as first quarter of 2024 earnings Conference call. Joining me today to talk about our results are ugly Thorn chairman and CEO.
William G. Davis: Jesse Betjeman executive Vice President and CFO.
William G. Davis: 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 made on this conference call. Those risk factors are described in our earnings release filed this morning and are more fully detailed under risk factors, support on the 10-K and 10-Q and other documents that we have filed with the SEC.
William G. Davis: 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.
William G. Davis: We caution you to consider the risk factors that could cause actual results to differ materially from nurses forward looking statements on this conference call.
William G. Davis: Those risk factors are described in our earnings release filed this morning and are more fully detailed under risk factors.
William G. Davis: In your report on 10-K, and 10-Q and other documents, we have filed with the SEC.
William G. Davis: In addition, please note that the date of this conference call is May 7th, 2024. Any forward-looking statements that we make today are based on assumptions as of this date, and we undertake no obligation to update these statements as a result of new information or future events.
William G. Davis: In addition, please note that the date of this conference call is May seven 2024.
William G. Davis: Any forward looking statements that we make today are based on assumptions as of the state and we undertake no obligation to update these statements as a result of more information or future events.
William G. Davis: During this call, we'll present both GAAP and non-GAAP financial... We've included a reconciliation, adjustments, and other considerations of our non-GAAP measures to the most comparable GAAP measures in our first quarter earnings release. Calls are being broadcast on the internet and are available on the investor relations website at ir.gogoair.com. Their unexpressed release is also available on the website. After management comments, we'll host a Q&A session with the financial community only. It's now my great pleasure to turn the call over to Oakleigh.
William G. Davis: During this call will present, both GAAP and non-GAAP financial measures.
William G. Davis: We've included a reconciliation.
William G. Davis: Adjustments and other considerations of our non-GAAP measures to the most comparable GAAP measures in our first quarter earnings release.
William G. Davis: Call is being broadcast on the Internet and available on the Investor Relations website at IR Dot Gogo are dot com.
William G. Davis: The earnings press release is also available on the website after management comments, we'll host a Q&A session with the financial community only.
William G. Davis: Now my great pleasure to turn the call over to Alex.
Oakleigh Thorne: Thanks, Will, and good morning, everyone, and thanks for joining us on this call. So, Gogo achieved strong results in the first quarter, setting a record for free cash flow in open market share repurchases, even as we continue to invest in bringing our next generation products to market. Gogo Galileo, our Low Earth Orbit satellite product, and Gogo 5G, our next-generation North American air-to-ground product. We believe these products will accelerate our revenue growth beginning next year as they deliver first order of magnitude improvements in the speed of Gogo's service. Second, deliver a 60% increase in our total addressable market. Third, extend customer lifetimes by providing easy and compelling upgrade paths for our advanced installed base.
Alex: Thanks will and good morning, everyone and thanks for joining us on this call.
Alex: So <unk> achieved strong results in the first quarter setting a record for free cash flow and open market share repurchases, even as we continued to invest in bringing our next generation products to market Gogo.
Alex: Gogo Galileo are low Earth orbit satellite product and got five G are next generation North American air to ground product.
Alex: We believe these products will accelerate our revenue growth beginning next year as they deliver first order of magnitude improvements in the speed of Gogo service.
Alex: Second.
Alex: Over 60% increase in our total addressable market.
Alex: Third extended extend customer lifetimes by providing easy and compelling upgrade paths for advanced installed base.
Oakleigh Thorne: Our first quarter performance was fueled by advanced equipment revenue, which grants a rebound from Q4 2023, and record service revenue driven by a modest price increase and record advanced upgrade. We consider every advanced installation a strategic win because it provides that customer with easy upgrade paths to new technologies like 5G and LEO with Gogo, rather than going to the expense of installing equipment from a competitor. The jump in orders we had in Q1 is great proof of that point.
Alex: Our first quarter performance was fueled by advanced equipment revenue, which experienced a rebound from Q4 2023.
Alex: And record service revenue driven by a modest price increase and record advance upgrades.
Alex: We consider every events installation a strategic win because it provides that customer with easy upgrade path to new technologies, like <unk>, and Leo with Gogo, rather than going to the expense of installing equipment from our competitors.
Alex: The jump in orders we had in Q1, it's great proof of that point, our surge in orders was driven by two factors first.
Oakleigh Thorne: Our surge in orders was driven by two factors. First, OEMs that want to line-fit install ANTZL-5s, often with 5G antennas, so that those planes are ready for easy upgrades to 5G or Galileo. And second, pull through in the OEM and aftermarket channels from NetJets, who also wants to install all 5s and MB-13s to be ready for either 5G or Galileo this morning...
Alex: And they want to line fit install it and sell fives, often with <unk> antennas. So that those planes are ready for easy upgrades to five Geo Galileo and second.
Alex: All through in the OEM and aftermarket channels from net Jets, who also wants to install all fives and <unk> to be ready for either <unk> or Galileo.
Oakleigh Thorne: I'm gonna start by highlighting some demand trends we're seeing in the BA market to continue to underpin our bullish outlook, then provide an overview of our Q1 results, and finally dive into our progress on strategic initiatives. Jesse will then walk through the numbers and discuss our 2024 and long-term guidance. Overall, demand for business aviation flights and demand for connectivity on those flights remains strong. Gogo-equipped BA flight counts were up slightly year over year, a reversal of last year's slightly downward trend, and, more importantly, flights remain significantly elevated from pre-COVID levels.
Alex: This morning.
Alex: Going to start by highlighting the demand trends youre seeing in the VA market to continue to underpin our bullish outlook.
Alex: Then provide an overview of our Q1 results and finally dive into our progress on strategic initiatives.
Alex: Jesse will then walk through the numbers and discuss our 2024 and long term guidance.
Alex: Overall demand for business aviation flights and demand for connectivity on those flights remains strong.
Alex: Goodbye VA flight counts were up slightly year over year, a reversal of last year's slightly downward trend and more importantly flights remains significantly elevated from pre COVID-19 levels, but Q1 up 29% from Q1 2019.
Oakleigh Thorne: Q1 of 29% from Q1 2019. As for data demand, consumption per flight hour was up 13% from the year-ago quarter and up 101% from pre-COVID Q1 2019. This is demonstrating strong demand growth. Further evidence of this is that twice as many customers requested service plan upgrades in the quarter as requested down. This demand is further demonstrated by strong OEM order books and very strong fractional sales, all of which we expect will drive Gogo shipment growth over the next few years. Now, let me turn to our Q1 performance.
Alex: As for data demand consumption per flight hour was up 13% from the year ago quarter and up 101% from pre Covid Q1 2019.
Alex: <unk> strong demand growth.
Alex: Other evidence of this is it twice as many customers requested service planned upgrades in the quarter as requested downgrades.
Alex: This demand is further demonstrated by strong OEM order books, and very strong fractional sales all of which we expect will drive gogo shipment growth over the next few years.
Oakleigh Thorne: Revenue was up 6% year over year, with service revenue up 4% and equipment revenue up 13%. Quarter-over-quarter, total revenue was up 7%, with service revenue up 1% and equipment revenue up 34%. Our record service revenue is driven by a 19% increase in advanced service revenue over the prior year and a 5% sequential increase over Q4-23, offset by a decline in Gogo classic service revenue as customers migrate to events. We grew total advanced units online by 19% over the prior year to 4,110 aircraft, or 58% of our ATG install base. Our advanced beachhead will only grow faster as we inspire our 3,200 Go! Go!
Alex: Now, let me turn to our Q1 performance.
Alex: Revenue was up 6% year over year with service revenue up 4% and equipment revenue up 13%.
Alex: Quarter over quarter total revenue was up 7% with service revenue up 1% and equipment revenue up 34%.
Alex: Our record service revenue was driven by a 19% increase in advanced service revenue over prior year and the <unk>.
Alex: 5% sequential increase over Q4, 'twenty three offset by a decline in Gogo Classic service revenue as customers migrate to event.
Alex: We grew total advanced units online 19% over prior year to 4110 aircrafts are 58% of our atg installed base.
Alex: Our advanced beachhead will only grow faster as we Incent, our 3200 Gogo classic customers to migrate to LTE is part of our participation in the FCC secure and trusted network program better.
Oakleigh Thorne: Classic customers to migrate to LTE as part of our participation in the FCC Secure and Trusted Network Program, better known as RIP and REPLACE. We had a slight decline in overall units online for the quarter as we implemented an inflation-driven 4% price increase, which included adding minimums to our hourly plan. And, as expected, some hourlies dropped their service, accounting for a loss of less than 400,000 of annual service revenue.
Alex: Better known as Rip and replace.
Alex: We had a slight decline in overall units online for the quarter as we implemented an inflation driven 4% price increase which included adding minimums to our hourly plants.
Alex: As expected some hourly dropped their service accounting for a loss of less than 400000 of annual service revenue.
Oakleigh Thorne: Equipment revenue was driven by advanced equipment sales being up 24% year over year and 39% sequentially from Q4 2023, and was partially offset by declines in our old narrowband satellite equipment. As I mentioned, the increase in equipment orders was driven by NETJET's pull-through demand and a shift of a few OEM annual bulk shipments into Q1 from later in the year. And though inventory in the channels grew, the number of units that were not committed to a particular customer went down to 84 units from 108 units at the end of Q4-23.
Alex: Equipment revenue was driven by advanced equipment sales being up 24% year over year.
Alex: And 39% sequentially from Q4 2023.
Alex: And was partially offset by declines in our old narrow band satellite equipment revenue.
Alex: As I mentioned the increase in equipment orders was driven by net jets pull through demand and a shift of a few OEM annual bulk shipments into Q1 from later in the year and no inventory in the channel grew the number of units that are not committed to a particular customer went down to 84 units from 108 units at the.
Alex: The end of Q4 2003.
Oakleigh Thorne: On the earnings side... Every quarter, we achieved our highest Q1 EBITDA ever, driven by, first, strong equipment sales, second, some permanent OPEX savings, and third, some changes in the timing of project-related OPEX. I'm also proud that Gogo set a new free cash flow record, which demonstrates the strength of our business even as we invest deeply in the Gogo 5G and Galileo programs. Now for our Progress on Strategic Initiatives. Gogo is focused on accelerating growth with a three-pronged strategy.
Alex: On the earnings side and the <unk>.
Alex: We achieved our highest Q1 EBITDA ever driven by first strong equipment sales second some permanent opex savings and there are some changes in the timing of project related Opex.
Alex: I'm also proud that Gogo set a new free cash flow record, which demonstrates the strength of our business, even as we invest deeply in the Gogo <unk> and Galileo programs.
Alex: Now for our progress on strategic initiatives.
Alex: Are those focused on accelerating growth with a three pronged strategy.
Oakleigh Thorne: First, we want to expand our addressable market by taking our broadband offerings global for the first time and by leveraging the advanced platform to deliver products at prices that suit each segment of the 39,000 aircraft global BA market. Second, we want to drive customer loyalty by continually improving our ATG networks to drive conversion of classic customers to the advanced platform so that they have easy upgrade paths to new technologies as they emerge.
Alex: First we want to expand our addressable market by taking our broadband offerings global for the first time.
Alex: And by leveraging the advanced platform to deliver products at pricing that since each segment of the 39000 aircraft level VA market.
Alex: Second we want to drive customer loyalty by continually improving our atg networks to drive conversion of classic customers to the advanced platform. So that they have easy upgrade paths to new technologies as they emerge.
Oakleigh Thorne: And third, we're focused on offering the best product and customer support to each segment of the market at the lowest total cost of ownership. We're making great strides on the strategic initiatives along all three prongs. Let me start with Gogo Galileo, and I'll start with a little bit of background.
Alex: And third we are focused on offering the best product and customer support to each segment of the market at the lowest total cost of ownership.
Alex: We're making great strides on our strategic initiatives along all three of these products, let me start with Gogo, Galileo and I'll start with a little bit of background.
Oakleigh Thorne: After we sold our commercial aviation division in 2020, we went through deep dive strategic planning around the BA business, and came to two conclusions. First, that ESA antennas and LEO satellite constellations are going to change everything in business aviation connectivity. They would support lightning-fast connectivity. They would enable small antennas that would fit well on all BA aircraft. They could be cheaper and easier to install than GEO antennas.
Alex: After we sold our commercial aviation Division in 2020.
Alex: We went through a deep dive strategic planning around the VA business and came to two conclusions.
Oakleigh Thorne: They would provide truly global broadband coverage for the first time ever, and their service pricing could be very competitive with GEO satellite pricing. And most important, that the dramatic increase in value created by their offerings would accelerate IFC penetration dramatically in the global BA market. The second thing we realized was that Starlink would become a significant competitor, and that has now happened as they entered the market with STCs on two aircraft lines earlier this year. Gogo has a history of disrupting our own industry. In fact, Galileo isn't our first Leo product.
Alex: First.
Alex: That Esa antennas and Leo satellite constellations, we're going to change everything in business aviation connectivity.
Alex: They would support lightning fast connectivity, they would enable small antennas that would fit well on all aircraft they could be cheaper and easier to install than geo antennas. They would provide truly global broadband coverage for the first time ever and their service pricing can be very competitive with Geo satellite pricing.
Alex: And most important that the dramatic increase in value created by the offerings would accelerate IFC penetration dramatically and the global <unk> market.
Alex: The second thing, we realized was that Starlink would become a significant competitor and that has now happened as they entered the market, but the FTC's on two aircraft lines earlier this year.
Alex: Gogo has a history of disrupting our own industry in fact, Galileo isn't our first Leo product launch in 2000, and we migrated 1500 customers from other than analog atg system to lay up.
Oakleigh Thorne: In 2000, we migrated 1,500 customers from our then analog ATG system to LEO. Iridium. We designed and manufactured the airborne systems, some of which are still line-fit at OEMs today, and we still service more than 4,000 aircraft globally on the Iridium network. Like 24 years ago, our focus with Galileo has been on developing an aviation-grade product suite tailored to the unique needs of BA customers. Starlink, on the other hand, is focused on mass-producing consumer off-the-shelf products for much bigger markets and then trying to repurpose those for aviation.
Alex: Iridium <unk>.
Alex: We designed and manufactured the airborne systems, some of which are still line fit at Oems today, and we still service more than 4000 aircraft globally on the Iridium network.
Alex: Slide 24 years ago, our focus with Galileo has been on developing in the aviation grade product suite.
Alex: Miller to the unique needs of VA customers.
Alex: Sterling on the other hand is focused on mass producing consumer off the shelf products for much bigger markets and then trying to repurpose those for aviation.
Oakleigh Thorne: They may have some initial success, if for no other reason than the allure of Mr. Musk, but ultimately, the simplicity of our Galileo terminal installation, the superior reliability of our equipment, and the white-gloved customer support we offer position Gogo to compete well and capture a significant share of this market. So with that background, let me give you an update. Galileo comes in two versions; a smaller HDX terminal and a larger FDX terminal.
Alex: They may have some initial success if for no other reason than the allure of Mr. Musk, but ultimately the simplicity of our go well they are terminal installation the superior reliability of our equipment and the white glove customer support we offer physician gogo to compete well and capture a significant share of this market.
Speaker Change: So with that background, let me give you an update.
Speaker Change: Galileo tons in two versions smaller HD X terminal and a larger <unk> terminal.
Oakleigh Thorne: The HDX terminal is a small antenna that will deliver a very consistent 60 megabits per second, which is 12 to 60 times the speed of our current product offer and will fit on all business aircraft, targeting two major market segments. The first.
Speaker Change: The HD X terminal is a small antenna that will deliver a very consistent 60 megabits per second which is 12 to 60 times the speed of our current product offerings and will fit on all business aircraft targeting two major market segments.
Oakleigh Thorne: Roughly 12,000 mid-sized jets, small jets, and turboprops registered outside North America that have absolutely no broadband solution available today. Second, those aircraft inside the roughly 11,000 midsize and smaller jets that domicile inside North America that often fly international missions or want faster connectivity than ATG alone can provide. The Galileo FDX terminal is a larger antenna that will deliver very consistent speeds approaching 200 megabits per second, roughly 40 to 200 times the speed of our current product offering, and it targets the roughly 7,000 global super midsize and larger heavy jets that generally fly intercontinental or long-range missions.
Speaker Change: First roughly 12000 midsize jets small jets and turboprops registered outside North America that have absolutely no broadband solution available today.
Speaker Change: And second.
Speaker Change: Those aircraft inside that roughly 11000, midsize and smaller jets that domicile inside North America that often fly international missions or want faster connectivity than atg alone can provide.
Speaker Change: The Galileo Mdx terminal is a larger antenna that will deliver very consistent speeds approaching 200 megabits per second.
Speaker Change: Fully 40 to 200 times the speed of our current product offerings.
Speaker Change: And it targets the roughly 7000 global Super mid size and larger heavy jets to generally fly intercontinental or long range missions.
Oakleigh Thorne: A huge advantage for us is that Galileo is a simple upgrade from any advanced installed plane; one only needs to add our HDX or FDX intent on the fuselage and then run data and power cabling into the aircraft. And given that Advance is already a line-fit option at every OEM and has STCs on every currently produced model of aircraft, it will be relatively easy from an engineering and certification perspective for OEMs and dealers to offer Galileo.
Speaker Change: A huge advantage for US is the Galileo is a simple upgrades from any advance installed plane.
Speaker Change: One only needs to add our HD X or <unk> 10 on the fuselage and then run data and power cabling into the aircraft and.
Speaker Change: And given that advance is already a line fit option at every OEM and has FTC's on every currently produce model of aircraft. It will be relatively easy from an engineering and certification perspective for Oems and dealers to offer Galileo.
Oakleigh Thorne: We've already signed four SDC agreements for Galileo, we have 10 more verbally committed, and three in negotiations, which together will cover 10,500 jets and 6,200 turboprops globally. We remain on track to start shipping HDX terminals in Q4 and FDX terminals in the first half of 2024. We have achieved a number of exciting milestones since our last conference. In March, we completed end-to-end connectivity using the HDX antenna on the fully deployed Eutelsat OneWeb LEO satellite network.
Speaker Change: We've already signed four STC agreements for Galileo we have 10 were verbally committed and three in negotiations, which all in will cover 10500 Jets and 6200 <unk>.
Speaker Change: Turboprops globally.
Speaker Change: We remain on track to start shipping HD X terminals in Q4, and <unk> terminals in the first half of 2025.
Speaker Change: We achieved a number of exciting milestones since our last conference call.
Speaker Change: In March we completed end to end connectivity using the HTS antenna on the fully deployed <unk>, one way or Leo satellite network.
Oakleigh Thorne: The next three big milestones will be aircraft installation in July, engineering flight testing in August, and Parts Manufacturing Authority, or PMA, in Q4. In April, we announced our first FTC partnership, which is with a European MRO for a very small-sized aircraft, the CJ series, demonstrating that we indeed can fit on any aircraft and that we have global distribution reach. Also in April, GOGO was granted Earth Station in Motion approval from the Federal Communication Commission to commercialize and operate the Galileo HDX and FDX antennas. This is important, not only for commercializing Galileo in the United States, but it acts as a precedent for authorization in many other countries. To conclude, we are very excited about Galileo.
Speaker Change: Next three big milestones will be aircraft installation in July.
Speaker Change: Engineering flight testing in August and parts manufacturing authority or TMA in Q4.
Speaker Change: In April we announced our first FTC partnership, which significantly is with a European MRO for a very small size aircraft. The CJ series demonstrating that we indeed can fit on any aircraft and that we have global distribution reach.
Speaker Change: Also in April <unk> was granted Earth station in motion approval from the Federal Communications Commission to commercialize and operate the Galileo HTS and <unk> antennas. This is important not only for commercializing Galileo and the United States that acts as a precedent for authorization and many other countries.
Speaker Change: To conclude we are very excited about Galileo.
Oakleigh Thorne: It will be a game changer for the business aviation industry and will be a major accelerant for the growth of GoGo. Now, let me turn to GoGo 5G. As you all know, more than a year ago, we completed our initial 150-tower network rollout. And we completed our 5G data center upgrade. We received PMA for our MB-13 5G airborne antennas and for our LX-5 5G box, but with a 4G chip.
Speaker Change: It will be a game changer for their business aviation industry, and we will be a major accelerant for the growth of Gogo.
Speaker Change: Okay.
Speaker Change: Now, let me turn to Gogo <unk>.
Speaker Change: As you all know more than a year ago, we completed our initial 150 tower network rollout.
Speaker Change: We completed our <unk> data center upgrade.
Speaker Change: We received PMA for RMB 13, five airborne antennas.
Speaker Change: And for our <unk> five <unk>.
Speaker Change: But with a <unk> chip.
Oakleigh Thorne: As you also know, we're still waiting for our 5G show. That chip has failed to bring up twice but has now been redesigned and was meant to go into fabrication again this month. On the good news front, we've been able to start flight testing on the actual network using the chip's software on an FPGA simulation of the chip. Unfortunately, in testing, an issue was identified that has chip hardware design implications.
Speaker Change: As you also know we're still waiting for our <unk> chip.
Speaker Change: That shift has failed bring up twice, but has now been redesigned and it was meant to go into cat fabrication again this month.
Speaker Change: And the good news front, we've been able to start flight testing on the actual network using the chips software on an FPGA stimulation of the chip.
Speaker Change: Unfortunately in testing and issue was identified that has ship hardware design implications.
Oakleigh Thorne: That issue has led to a minor chip hardware redesign, which is now in integration testing and which must be complete before fabrication can begin. We currently expect the launch of Go! Go!
Speaker Change: That issue has led to a minor chip hardware redesign, which is now an integration testing and which must be complete before fabrication can begin.
Oakleigh Thorne: 5G to occur a few months later than the previously stated fourth quarter of 2024, and we are working with our vendors to finalize that schedule, which we will discuss on our Q2 earnings call. The good news is that this was discovered now, before the chip was re-spun, saving what could have been a much longer delay. Despite this, the market continues to respond enthusiastically to the 5G value proposition, with ongoing pre-provisioning programs and a flood of STC programs that position us for a highly successful launch.
Speaker Change: We currently expect the launch of Gogo <unk> to occur a few months later than the previously stated fourth quarter of 2024 and are working with our vendors to finalize that schedule, which we will discuss on our Q2 earnings call.
Speaker Change: The good news is that this was discovered now before the chip was respond saving what could have been a much longer delay.
Speaker Change: <unk>. This the market continues to respond enthusiastically to the <unk> value proposition with ongoing pre provisioning programs in a flood of STC programs that position us for a highly successful launch.
Oakleigh Thorne: We've already shipped 245G pre-provisioned kits with MB-13 5G antennas, approximately 80 of which have already been installed and are flying today using our 4G network. We have commitments from five OEMs, with most of those under agreement, and one already installing the MB-13s with L5's line fit today. Because the L5 is the same form factor as the LX5, once the 5-chip is certified, customers can simply swap the LX5 for the L5, and they'll be on the 5G network.
Speaker Change: We've already shipped 245 pre provision kits with MB <unk> antennas, approximately 80 of which have already been installed and are flying today using our <unk> network.
Speaker Change: We have commitments from five Oems with most of those under agreements and one already installing the envy 13, so without fives line fit today.
Speaker Change: Because they are five has the same form factor as the <unk> side once the <unk> chip is certified those customers can simply swapped Alex five for al <unk> and they'll be on the <unk> network.
Oakleigh Thorne: On the certification front, we have 11 FTCs for MB-13s completed and 16 more in the works, representing 8,371 North American Registered Aircraft. We're confident that between our FPGA flights and a virtual simulator our team has built that replicates our entire 5G network, we will be able to test and validate 90% of our 5G functionality and network before we receive the final 5G chip. Gogo 5G should achieve mean speeds of around 25 Mbps, 5 to 25 times our current product lines, and peak speeds of 75 to 80 Mbps.
Speaker Change: On the certification front, we have 11 Stc's for MB Thirteen's completed and 16 more in the works representing 8371, North American registered aircrafts.
Speaker Change: We're confident that between our FPGA flights and a virtual simulator. Our team has built that replicates our entire <unk> network that we will be able to test and validate 90% of our <unk> functionality and network before we received the final <unk> chip.
Speaker Change: Gogo <unk> shared achieved mean speeds of around 25 megabits per second.
Speaker Change: 5% to 25 times, our current product lines and peak speeds of 75 to 80 Megabits per second.
Oakleigh Thorne: And we believe it is the perfect product for mid-sized and smaller business aircraft that fly North American missions and want great speed at a better value than competitive satellite products. Now, let me turn to the FCC RIP and Replace Program. The program was enacted under the Trump administration to incent wireless carriers to accelerate the removal of Chinese telecom technology from their networks. Gogo was awarded a $334 million grant under that program.
Speaker Change: And we believe it is the perfect product for midsize and smaller business aircrafts at slide North American missions and want great speed at a better value than competitive satellite products.
Speaker Change: Now, let me turn to the FCC Rip and replace program.
Speaker Change: The program was enacted under the Trump administration to Incent wireless caloric carriers to accelerate the removal of Chinese telecom technology from their networks.
Speaker Change: Gogo was awarded a $334 million grant under that program.
Oakleigh Thorne: Because there were more qualified grants than originally planned, funding for all grants was cut back to 39% of the original award, which in Gogo's case was cut back to $132 million. The White House included full funding for the program in its supplemental funding request to Congress last year, and there are two bills in Congress with bipartisan support that would fully fund the program right now.
Speaker Change: Because there are more qualified grants than originally planned funding for all grants were cut back to 39% of the original award, which in <unk> case was cut back to $132 million.
Speaker Change: The White House included full funding for the program and its supplemental funding request to Congress last year.
Speaker Change: And there are two bills in Congress with bipartisan support that would fully fund the program right now.
Oakleigh Thorne: Based on changes we've made to our FCC program, we no longer believe we will need, nor will we receive, $334 million. However, if full funding is approved, we would be able to accelerate our program and cover all reimbursable costs. With the current partial funding, about 70% of the reimbursable costs of replacing all EVDO ground equipment and moving Gogo Classic customers to LTE would be covered by the grant. And that is what is reflected in our long-term guidance. There is also another $25 million of spend associated with the program that is non-reimbursable, and that is also reflected in our long-term guidance.
Speaker Change: Based on changes we've made to our FCC program, we no longer believe we will need Norwood, we received $334 million. However.
Speaker Change: However, if full funding is approved we would be able to accelerate our program and cover all reimbursable costs.
Speaker Change: With the current partial funding about 70% of the Reimbursable cost of replacing all video ground equipment and moving Gogo classic customers to LTE would be covered by the grant and that is what is reflected in our long term guidance.
Speaker Change: There is also another $25 million of spend associated with the program that is non reimbursable and that is also reflected in our long term guidance.
Oakleigh Thorne: This program has considerable benefits for Gogo and its customers. For example, it will improve the speed of our 4G network by 40% for customers using our Advanced L3 product. It will double the number of aircraft that the ATG 4G network can simultaneously manage, and it will accelerate the number of Gogo Classic customers upgrading to Advanced, which has the strategic benefit of extending Gogo customer lifetimes due to the ease of upgrading to 5G and Galileo from Advanced platform equipment.
Speaker Change: This program has considerable benefits for gogo and its customers.
Speaker Change: It will improve the speed of our <unk> network, 40% for customers using our advanced all three product.
Speaker Change: We will double the number of aircrafts at the Atg <unk> network can simultaneously manage.
Speaker Change: And it will accelerate the number of Gogo classic customers upgrading to advance which has the strategic benefit of extending gogo customer lifetimes due to the ease of upgrade to <unk> in Galileo from advanced platform equipment.
Oakleigh Thorne: We have 3,200 aircraft still on our old classic product line that we'll need to convert from EVDO to LTE versions of the hardware inside their planes, around 900 of which are in fleets and a little more than 2,200 of which are smaller customers. All of the fleet customers are in active discussions on how they plan to convert, and most are leaning towards upgrading to L5 so that in the future, they can easily upgrade to either 5G or Galileo. On the smaller customer side, we've had conversations with all but 150 of them.
Speaker Change: We have 3200 aircrafts still on our old classic product line that will need to convert from <unk> to LTE versions of the hardware inside their planes.
Speaker Change: Around 900 of which are in fleets and a little more than 2200 of which are smaller customers.
Speaker Change: All of the fleet customers are in active discussions and how they plan to convert and most are leaning towards upgrading to L. Five so.
Speaker Change: In the future they can easily upgrade to either <unk> or Galileo.
Speaker Change: On the smaller customer side, we've had conversations with all but 150 of them of those we've spoken with 60% have already voiced a preference for what they would like to convert two and almost all of them indicate that would move to one advanced product or another.
Oakleigh Thorne: Of those we've spoken with, 60% have already voiced a preference for what they would like to convert to, and almost all of them indicate they will move to one advanced product or another. We currently have customer promotions in place to incent conversion, and our dealers are doing a great job configuring their operations to transition customers at scale. We also have a special product we will introduce later this year called C1, which will house both an EVDO and an LTE air card in a form factor that is an exact replication of our classic product. These will not provide any enhanced performance, however, they will be relatively inexpensive and will only require a few hours to swap with the old classic box.
Speaker Change: We currently have customer promotions in place to Incent conversion and our dealers are doing a great job configuring their operations to transition customers at scale.
Speaker Change: We also have a special product we will introduce later this year called <unk>, one which will house, both in <unk> and in LTE Aircard in a form factor is an exact replication of our classic product.
Speaker Change: These will not provide any enhanced performance. However, they will be relatively inexpensive and will only require a few hours to swap with the old classic boxes.
Oakleigh Thorne: We call this a time machine because it allows customers who delay swapping to advance before our cutover date time to convert to advance after the cutover. To zoom out, Gogo is approaching an exciting inflection point in its product cycle as we anticipate the launches of Gogo 5G and Gogo Galileo. Gogo will soon have the most complete product portfolio in the BA IFC industry, products that offer the right performance with the right coverage at the right total cost and great customer support for every segment of the highly unpenetrated 39,000 aircraft global BA market.
Speaker Change: We call. This a time machine because it allows customers who delay swap into advanced before our cutover date time to convert to event after the cutover.
Speaker Change: To zoom out Gogo is approaching an exciting inflection point in our product cycle as we anticipate the launches of Gogo <unk> and Gogo Galileo.
Speaker Change: <unk> will soon have the most complete product portfolio and the IFC industry with products that offer the right performance with the right coverage at the right total cost and great customer support for every segment of the highly Underpenetrated 39000, aircrafts global beer market.
Oakleigh Thorne: We're excited about our future and believe Gogo is well positioned to capitalize on the significant opportunity in our market and deliver long-term value creation to shareholders. And now, I'll turn it over to Jesse for the. Thanks, Oak, and good morning, everyone.
Speaker Change: We're excited about our future and believe Gogo is well positioned to capitalize on the significant opportunity in our market and deliver long term value creation to shareholders.
Speaker Change: And now I'll turn it over to Jesse for the numbers.
Jessica Betjemann: Gogo generated record service revenue and free cash flow in the first quarter, with adjusted EBITDA coming in well above expectations. While our results benefited from some timing related to equipment, revenue, and expenses, they highlight the strength of our core business as we invest in our new products, Gogo 5G and Galileo. We continue to believe that 2024 is the trough year for our growth and profitability within our long-term plan through 2028. With most of our strategic investments concluding at the end of 2024, we expect our free cash flow to accelerate substantially in 2025.
Jessica Betjemann: Thanks, <unk> and good morning, everyone.
Jessica Betjemann: <unk> generated record service revenue and free cash flow in the first quarter with adjusted EBITDA coming in well above expectations.
Jessica Betjemann: While our results benefited from some timing related to equipment revenue and expenses. They highlight the strength of our core business as we invest in our new products <unk> and Galileo.
Jessica Betjemann: We continue to believe that 2024 is the trucking ore for our growth and profitability within our long term plan through 2028.
Jessica Betjemann: With most of our strategic investments concluding at the end of 2024, we expect our free cash flow to accelerate substantially in 2025.
Jessica Betjemann: In my remarks today, I'll start by walking through Gogo's first quarter financial performance. Then I will turn to our balance sheet and capital allocation priorities. And finally, I'll conclude with a positive update on our 2024 guidance and additional context on the reiteration of our long-term targets. For the first quarter, Gogo's total revenue was $104.3 million, up 6% year-over-year and 7% sequentially. Gogo's top line was driven by record service revenue of $81.7 million, up 4% year-over-year and 1% sequentially.
Speaker Change: In my remarks today I'll start by walking through the first quarter financial performance, then I will turn to our balance sheet and capital allocation priorities and finally, I'll conclude with a positive update to our 2020 for our guidance and additional context on the reiteration of our long term target.
Jessica Betjemann: For the first quarter total revenue was $104 3 million up 6% year over year and 7% sequentially.
Jessica Betjemann: Top line was driven by record service revenue of $81 7 million.
Jessica Betjemann: Up 4% year over year and 1% sequentially.
Jessica Betjemann: Our ATG aircraft online reached 7,136, up 1% year over year and down 1% sequentially. The quarterly decline was driven by higher deactivations, of which approximately 80% was attributed to the attrition of hourly contract aircraft as a result of the price changes we implemented this quarter. However, the loss of these aircraft has a very low impact on service revenue of less than 0.1% for the quarter due to the low ARPU they generate.
Jessica Betjemann: Our atg aircraft online reached <unk>, 7136 up 1% year over year and down 1% sequentially.
Jessica Betjemann: The quarterly decline was driven by higher deactivation of which approximately 80% was attributed to the attrition of early contract aircraft as a result of the price changes we implemented this quarter.
Jessica Betjemann: However, the loss of these aircrafts has a very low impact on service revenue of less than 1% for the quarter, Peter low RPM that they generate.
Jessica Betjemann: Another driver for high deactivations this quarter was due to an increase in the number of aircraft sold, which we believe a majority of which will reactivate in the coming months under new owners based on historical trends. Importantly, total advanced aircraft online grew to 4,110, an increase of 19% year-over-year and 3% sequentially, and now comprise 58% of our total fleet. Our number of advanced aircraft online has doubled in less than three years
Jessica Betjemann: Another driver for Heidi Activations this quarter was due to an increase in the number of aircrafts sold.
Jessica Betjemann: We believe a majority of which will reactivate in the coming months under new honor based on historical trends.
Jessica Betjemann: Importantly, total advance aircraft online grew to 4110, an increase of 19% year over year, and 3% sequentially and now comprise 58% of our total fleet.
Jessica Betjemann: A number of advanced aircraft online has doubled in less than three years.
Jessica Betjemann: We continue to expect a strong year of advanced activations in 2024 as we upgrade our classic ATG customers while maintaining a reasonably conservative view on improvements in the maintenance cycle times that have slowed installations over the past year. Upgrading our customers to advanced is a critical part of our strategy, and it extends customer lifetimes due to the easy upgrade path to Gogo 5G and Galileo once launched. However, consistent with our prior comments, this process will mute the ATG aircraft growth rate over the coming quarters. As Oak mentioned, we had record advance upgrades in the first quarter. Total ATG ARPU grew 2% year-over-year and 2% sequentially to $3,458, driven by pricing changes.
Jessica Betjemann: We continue to expect a strong year of advanced Activations in 2024, as we upgrade our classic atg customers, while maintaining a reasonably conservative view on improvements in EMEA and in cycle times.
Jessica Betjemann: <unk> installations over the past year.
Jessica Betjemann: Upgrading our customers to have Dan is a critical part of our strategy and it extends customer lifetimes due to the easy upgrade pack to Gogo <unk> Galileo once launched.
Jessica Betjemann: However, consistent with our prior comments this process will mute the atg aircraft online growth rate over the coming quarters.
Jessica Betjemann: As Eric mentioned, we had record advance upgrades in the first quarter.
Jessica Betjemann: Total atg ARPA grew 2% year over year, and 2% sequentially to $3458 driven by pricing changes.
Jessica Betjemann: The launch of Gogo 5G and Galileo is anticipated to further expand our approved growth opportunity over time. Moving to equipment revenue, Gogo demonstrated a strong rebound from the prior quarter and delivered record first quarter equipment revenue of $22.6 million, a 13% year-over-year increase due to a pull-in of shipments for two significant OEM partners earlier than planned, demonstrating strong demand for Gogo's connectivity. Gogo's equipment revenue typically ramps toward the back half of the year, but given the shipments we had in Q1, we expect that dynamic to shift in 2024.
Jessica Betjemann: The launch of IAG and Galileo is anticipated to further expand our ARPA growth opportunity overtime.
Jessica Betjemann: Moving to equipment revenue Gogo demonstrated a strong rebound from the prior quarter and delivered a record first quarter equipment revenue of $22 6 million or.
Jessica Betjemann: A 13% year over year increase due to a pull in of shipments for two significant OEM partners earlier than planned.
Jessica Betjemann: Constraining strong demand for growth with connectivity.
Jessica Betjemann: Because of this equipment revenue typically ramps towards the back half of the year, but given the shipments we had in Q1, we expect that dynamic to shift our 2024.
Jessica Betjemann: On a sequential basis, equipment revenue rose 34%, reflecting the strong order flow this quarter, as well as the $4 million reserve we recorded in Q4 2023 due to a specific customer circumstance that reduced revenue last quarter. We continue to expect a stronger rate of growth from equipment revenue in 2024, driving the overall revenue growth for the year. We shipped 258 advanced units this quarter, which is a record for our first quarter, up 16% year-over-year and up 28% sequentially. Turning to profitability, Gogo delivered service margins of 78% in the first quarter, better than expectations due to lower network and data center costs. However, relatively flat sequentially.
Jessica Betjemann: On a sequential basis equipment revenue rose, 34%, reflecting the strong order flow this quarter as well as the $4 million reserve. We recorded in Q4 2023 due to a specific customer circumstance that reduced revenue last quarter.
Jessica Betjemann: We continue to expect a stronger rate of growth from equipment revenue in 2020 for driving the overall revenue growth for the year.
Jessica Betjemann: We shipped 258 advanced units this quarter, which is a record for a first quarter up 16% year over year and up 28% sequentially.
Jessica Betjemann: Turning to profitability Gogo delivered service margins of 78% in the first quarter better than expectations due to lower network and data center costs and relatively flat sequentially.
Jessica Betjemann: We continue to expect service margins to be in the 75% range this year, with a slight decrease in future years as Go! Galileo service revenue increases as a percentage of the MEC. Service revenue and service margin continue to be the primary levers for free cash flow generation and long-term value creation. Equipment margins were 30% in the first quarter, 20 percentage points higher than the prior year period, and well above expectations. The increase was primarily due to higher equipment revenue that came in earlier than planned and non-reimbursable costs related to the FCC reimbursement program in the prior year.
Jessica Betjemann: We continue to expect service margins to be in the 75% range. This year with a slight decrease in future years as Google Air service revenue increases as a percentage of the mix.
Jessica Betjemann: Service revenue and service margin continuing to be the primary levers for free cash flow generation and long term value creation.
Jessica Betjemann: Equipment margins were 30% in the first quarter 20 percentage points higher than the prior year period, and well above expectation the.
Jessica Betjemann: The increase was primarily due to higher equipment revenue that came in earlier than planned and non reimbursable costs related to the SEC reimbursement program in the prior year.
Jessica Betjemann: Equipment margins were 21 percentage points higher sequentially, also driven by higher equipment revenue in the quarter, coupled with lower inventory reserves due to extended warranty and reserves recorded in the prior quarter, driven by a customer contract renewal.
Jessica Betjemann: Equipment margins were 21 percentage points higher sequentially also driven by the higher equipment revenue in the quarter, coupled with lower inventory reserves due to extended warranty and reserves recorded in the prior quarter driven by a customer contract renewal.
Jessica Betjemann: We expect equipment margins to be in the low 20% range this year, with a slight decrease in future years as the mix of Gogo Galileo units sold increases over time. Now on to operating expenses. First quarter combined engineering, design, and development, sales, marketing, and general and administrative expenses increased 11% year-over-year and decreased 8% sequentially to $32.2 million.
Jessica Betjemann: We expect equipment margins to be in the low 20% range. This year with a slight decrease in future years as the mix of Gogo Galileo units saw increases over time.
Jessica Betjemann: Now on to operating expenses first quarter.
Jessica Betjemann: Our combined engineering design and development sales and marketing and general and administrative expenses increased 11% year over year and decreased 8% sequentially to $32 2 million.
Jessica Betjemann: The year-over-year increase was mainly driven by legal expenses related to the SmartSky patent litigation, as well as higher spend on Galileo. We continue to expect higher legal expenses in the coming quarters relating to the launch of Galileo and the ongoing SmartSky patent litigation. 2024 will be a significant investment year as we continue to invest in our Gogo 5G and Galileo programs. We expect that these product investments will support revenue growth acceleration and significant free cash flow growth in 2025 and beyond. In terms of Gogo 5G, in the first quarter, our $1.6 million of 5G spending was comprised of $0.6 million in OPEX and $1 million in capital.
Jessica Betjemann: The year over year increase was mainly driven by legal expenses related to the smart Guy patent litigation as well as higher spend on <unk> we.
Jessica Betjemann: We continue to expect higher legal expenses in the coming quarters relating to the launch of Galileo and the ongoing smart Sky patent litigation.
Jessica Betjemann: 'twenty 'twenty four will be a significant investment year as we continued to invest in arcos <unk> and Gallo Air programs. We expect that these product investments will support revenue growth acceleration and significant free cash flow growth in 2025 and beyond.
Jessica Betjemann: In terms of geography.
Jessica Betjemann: In the first quarter, our $1 6 million or <unk> spending was comprised of $6 million and opex and $1 million in capex.
Jessica Betjemann: We now expect 2024 to include approximately $6 million of 5G OpEx and approximately $14 million in CapEx, with total 5G spend for 2024 remaining unchanged at approximately $20 million. We continue to maintain our estimate of $100 million in total external development and deployment costs for our 5G program and anticipate no negative impact on the overall program cost from the most recent delay Oak described. Moving on to our Gogo Galileo initiative. In the first quarter, Gogo recorded $2.6 million in operating expenses related to Galileo.
Jessica Betjemann: We now expect 2024 will include approximately $6 million or <unk>.
Jessica Betjemann: <unk> Opex and approximately $14 million in Capex with total <unk> spending for 2024 remaining unchanged at approximately $20 million.
Jessica Betjemann: We continue to maintain our estimate of $100 million in total external development and deployment costs for our <unk> program and anticipate no negative impact on the overall program costs from the most recent delay oak described.
Jessica Betjemann: Moving onto our Gogo Galileo initiative.
Jessica Betjemann: In the first quarter Kroger recorded $2 6 million in operating expenses related to Galileo.
Jessica Betjemann: We now expect 2024 to include approximately $17 million of Galileo OPEX and approximately $6 million in CapEx. We continue to expect external development costs for both the HDX and FDX solutions to be less than $50 million in total, of which $13 million was incurred in 2022 and 2023. $23 million is projected in 2024, and the remainder is expected in 2025. We anticipate that approximately 90% of Google Galileo's external development costs will be in OPEX.
Jessica Betjemann: We now expect 2024. It will include approximately $17 million of Callaway of Opex and approximately $6 million in Capex.
Jessica Betjemann: We continue to expect external development cost for both the <unk> and <unk> solutions to be less than $50 million in total.
Jessica Betjemann: It's $13 million incurred in 2022 and 2023.
Jessica Betjemann: $23 million is projected in 2024 and the remainder is expected in 2025.
Jessica Betjemann: We anticipate approximately 90% of our cocoa galileo's external development costs will be in Opex.
Jessica Betjemann: Moving on to our bottom line, Gogo delivered $43.3 million in adjusted EBITDA in the first quarter, a 9% increase year-over-year and a 23% increase sequentially. The growth was primarily driven by strong equipment sales and an increase in service gross profit driven by record service revenue.
Jessica Betjemann: Moving on to our bottom line Gogo delivered $43 3 million and adjusted EBITDA in the first quarter.
Jessica Betjemann: 9% increase year over year, and 23% increase sequentially.
Jessica Betjemann: The growth was primarily driven by strong equipment sales and increase in service gross profit driven by record service revenue.
Jessica Betjemann: Adjusted EBITDA exceeded expectations driven by the timing of OEM orders and certain 5G and Galileo-related project spend shifting to later in the year. The timing shift in equipment orders and spend contributed to our record result in the first quarter. And while we have narrowed our 2024 adjusted EBITDA guidance to the high end of the range, we expect that the first quarter will be the high EBITDA quarter for the year. Net income was $30.5 million in the first quarter, up 49% year-over-year.
Jessica Betjemann: Adjusted EBITDA exceeded expectations, driven by the timing of OEM orders and certain <unk> and go layer related projects then shifting to later in the year.
Jessica Betjemann: Timing shift in equipment orders and spend contributed to a record <unk>.
Jessica Betjemann: <unk> added to our record results in the first quarter and while we have narrowed our 2024 adjusted.
Jessica Betjemann: Adjusted EBITDA guidance to the high end of the range, we expect that the first quarter will be the highest EBITDA quarter for the year.
Jessica Betjemann: Net income was $35 million in the first quarter up 49% year over year the increase.
Jessica Betjemann: The increase was primarily due to a $13.1 million unrealized pre-tax gain, which was $9.9 million net of tax, from the $5 million investment in a convertible note offering of our key chipset supplier to support continued progress on our 5G chips. Net income in the second quarter may be negatively impacted from this investment if there is an unrealized loss based on the share price on June 30th, or any future share price volatility will affect our net income in future quarters from mark-to-market adjustments to the fair value.
Jessica Betjemann: It was primarily due to a $13 $1 million unrealized pre tax gain which was $9 $9 million net of tax from the $5 million investment in a convertible note offering of our key chipset supplier to support continued progress on our <unk> chip.
Jessica Betjemann: Net income in the second quarter may be negatively impacted from this investment if there is an unrealized loss based on the share price on June 30.
Jessica Betjemann: For any future share price volatility will affect our net income in future quarters from mark to market adjustments to the fair value.
Jessica Betjemann: Based on our substantial NOL position at the end of 2023, including $446 million in federal net operating losses and $377 million in state net operating losses, we had a net deferred income tax asset of $206 million at the end of the quarter. We do not expect to pay meaningful cash taxes through our five-year planning horizon.
Jessica Betjemann: Based on our substantial NOL position at the end of 2023.
Jessica Betjemann: Including $446 million in federal net operating losses, and $377 million and state net operating losses, we had a net deferred income tax asset of $206 million at the end of the quarter.
Jessica Betjemann: We do not expect to pay meaningful cash taxes through our five year planning horizon.
Jessica Betjemann: I will now provide a status update on our SEC reimbursement program. In the first quarter, we received $11.9 million in FCC grant funding, and our program-to-date total received is $13.5 million. As of March 31, 2024, we recorded a $15.2 million receivable from the FCC, and we incurred $8.8 million in reimbursable spend during the quarter. This receivable is included in prepaid expenses and other current assets in our balance sheet with corresponding reductions to property and equipment, inventory, and contract assets, and with a pick-up in the income statement.
Speaker Change: I will now provide a status update on our SEC reimbursement program.
Speaker Change: In the first quarter, we received $11 $9 million and FCC Grant funding and our program to date total received is $13 5 million.
Speaker Change: As of March 31, two in Q4, we recorded a $15 2 million receivable from the FCC and we incurred $8 $8 million in reimbursable spend during the quarter.
Speaker Change: This receivable is included in prepaid expenses and other current assets on our balance sheet with a corresponding reduction to property and equipment inventory and contract assets and with a pick up in the income statement.
Jessica Betjemann: Gogo's original one-year term to complete the FCC reimbursement program was set for July 21, 2024. However, we filed for our first six-month extension, which was granted by the FCC on March 29, extending the program completion deadline to January 21, 2025. In our application, we stated that we would need to have multiple extensions to complete the program and are planning to request the next extension in the fourth quarter. As a reminder, with partial funding, we are forecasting that we will run out of reimbursement funds in late 2025 and will need to continue to spend money in support of the program through 2026, which is expected to negatively impact 2026 free cash flow. In the first quarter, we generated record free cash flow of $32.1 million, an increase from $20 million in the year-ago period and $28 million last quarter.
Speaker Change: Cargoes original one near term to complete the SEC reimbursement program was set for July 21, 2024. However, we filed for our first six month extension, which was granted by the FCC on March 29th extending the program completion deadline to January <unk> 2025.
Speaker Change: In our application we stated that we will need to have multiple extensions to complete the program and are planning to request. The next extension in the fourth quarter.
Speaker Change: As a reminder, it's partial funding we are forecasting that we will run out of reimbursement funds in late 2025 and will need to continue to spend money in support of the program through 2026, which is expected to negatively impact 2026 free cash flow.
Speaker Change: In the first quarter, we generated record free cash flow of 31, $32 1 million.
Speaker Change: An increase from $20 million in the year ago period, and $28 million last quarter.
Jessica Betjemann: Both the year-over-year and quarterly increases were primarily driven by FCC reimbursements from our RIP and Replace program this quarter, higher EBITDA, and lower cash interest. Now I'll turn to a discussion of our balance sheet. Gogo ended the quarter with $152.8 million in cash and short-term investments and $605 million in outstanding principal on our term loan, with our $100 million revolver remaining undrawn.
Speaker Change: The year over year and quarterly increases were primarily driven by FCC reimbursements from a rip and replace program this quarter higher EBITDA and lower cash interest.
Speaker Change: Now I will turn to a discussion of our balance sheet.
Speaker Change: Gogo ended the quarter with $152 8 million in cash and short term investments and $605 million in outstanding principal on our term loan with our $100 million revolver remains undrawn.
Jessica Betjemann: Gogo's net leverage of 2.7 times remained in line with our target range of 2.5 to 3.5 times. As we previously mentioned, we have a hedge agreement in place, and we currently have 87% of our loan hedged. The next step down in the hedge to $350 million occurs in July 2024, with an increase in strike rate from 0.75% to 1.25%. Our cash interest paid for the first quarter, net of hedge cash flow, was $7.7 million.
Speaker Change: <unk> net leverage of two seven times remained in line with our target range of two five to three and a half time.
Speaker Change: As we previously mentioned we have a hedge agreement in place and we currently have 87% of our ground hedged.
Speaker Change: Next step down in the hedge to $350 million occurred in July 2024, with an increase in strike rate from seven 5% to one 5%.
Speaker Change: Our cash interest paid for the first quarter net of hedge cash flow by $7 $7 million.
Jessica Betjemann: Assuming no further debt paydown... the cash interest paid for 2024 net of hedge cash flow is expected to be approximately $34 million. Now, let me turn to provide a recap of Gogo's capital allocation priorities. First, maintaining adequate liquidity. Second, continuing to invest in strategic opportunities to drive competitive positioning and financial value, including Gogo 5G in Galileo. Third, maintaining an appropriate level of leverage for the economic environment with a target net leverage ratio of 2.5 to 3.5 times.
Speaker Change: Assuming no further debt paydown to.
Speaker Change: The cash interest paid for 2024 net of hedge cash flow is expected to be approximately $34 million.
Jessica Betjemann: And finally, returning capital to shareholders. We have executed across all priorities, with an authorization of up to $50 million for a share repurchase program our Board of Directors approved in September 2023. We continue to maintain a strong balance sheet and cash position while executing on our share repurchase program. As a reminder, Gogo repurchased approximately 480,000 shares for a total cost of approximately $4.8 million in the fourth quarter of 2023. In the first quarter of this year, Gogo repurchased approximately 1.1 million shares for a total cost of approximately $10.1 million.
Speaker Change: Now, let me turn let me provide a recap of rigorous capital allocation priorities.
Speaker Change: First maintaining adequate liquidity.
Speaker Change: Second continuing to invest in strategic opportunities to drive competitive positioning and financial value, including Gogo for AG in Galileo.
Speaker Change: Third maintaining an appropriate level of leverage for the economic environment with a target net leverage ratio of two five to three and a half time and.
Speaker Change: And finally, returning capital to shareholders.
Speaker Change: We have executed across all priorities with an authorization of up to $50 million for our share repurchase program. Our board of directors approved in September 2023, we continue to maintain a strong balance sheet and cash position, while executing on our share repurchase program.
Speaker Change: As a reminder, gogo repurchased approximately 480000 shares for a total cost of approximately $4 8 million in the fourth quarter of 2023 and.
Speaker Change: In the first quarter of this year Kroger repurchased approximately one 1 million shares.
Speaker Change: Total cost of approximately $10 1 million.
Jessica Betjemann: In April 2024, the company repurchased approximately 1.1 million shares for $9.3 million. We believe we are well positioned to execute our product investment schedule, evaluate further debt paydowns, and opportunistically repurchase shares. Our flexibility to pay down further debt and return capital to shareholders should increase as our free cash flow ramps up in 2025. Now, I'll turn to our financial outlook. We positively updated our 2024 financial guidance while reiterating our long-term target.
Speaker Change: In April 2024, the company repurchased approximately one 1 million shares for $9 3 million.
Speaker Change: We believe we are well positioned to execute our product investment schedule evaluate further debt paydown and opportunistically repurchase shares our flexibility to pay down further debt and return capital to shareholders should increase as our free cash flow ramps up in 2025.
Jessica Betjemann: Importantly, note that our 2024 financial guidance and long-term financial targets do not reflect a potential delay in GOGO 5G beyond 2024. To the extent that we become aware of additional information about the timing of the GOGO 5G launch as the year progresses, we will determine whether to update this guidance during our regularly quarterly earnings announcements as appropriate. For our 2024 financial guidance, we continue to target 2024 revenue in the range of $410 to $425 million, implying 5% overall growth with equipment revenue growing faster than service revenue. While we had better-than-expected equipment revenue for the quarter, it was mostly due to timing within the year.
Speaker Change: Now I'll turn to our financial outlook.
Speaker Change: We positively updated our 2024, our financial guidance, while reiterating our long term target.
Speaker Change: Importantly, note that our 2024 financial guidance and long term financial targets do not reflect our potential delay in Google I E beyond 2024 to.
Speaker Change: To the extent that we became aware of additional information about the timing of the Gogo <unk> launch as the year progresses.
Speaker Change: Will determine whether to update this guidance during our regularly quarterly earnings announcements as appropriate.
Speaker Change: For our 2024 financial guidance, we continue to target 2020 for revenue in the range of $410 million to $425 million.
Speaker Change: Implying 5% overall growth with equipment revenue growing faster than service revenue.
Speaker Change: While we had better than expected equipment revenue for the quarter. It was mostly due to timing within the year. We continue to believe service revenue growth will be slower than the growth rate in 2023 as you project a significant number of upgrades from classic to advance.
Jessica Betjemann: We continue to believe service revenue growth will be slower than the growth rate in 2023, as we project a significant number of upgrades from classic to advanced, driven by the SEC program, which, while strategically important, will dampen aircraft online growth. We now expect Adjusted EBITDA at the high end of the previously guided range of $110 to $125 million, reflecting operating expenses of approximately $33 million for strategic and operational initiatives, including Gogo 5G and Galileo. Our guidance also includes approximately $5 million in legal expenses tied to the SmartSky litigation.
Speaker Change: Driven by the FCC program, and while strategically important will dampen aircrafts online growth.
Speaker Change: We now expect adjusted EBITDA at the high end of the previously guided range of $110 million to $125 million.
Speaker Change: Reflecting operating expenses of approximately $33 million for strategic and operational initiatives, including global IGN Galileo.
Speaker Change: Our guidance also includes approximately $5 million in legal expenses tied to the smart Guy in litigation the.
Jessica Betjemann: The increase in adjusted EBITDA guidance is mainly due to a shift in spend from OPEX to CAPEX in our strategic programs and some OPEX savings realized in the first quarter. We expect 2024 CapEx to be approximately $45 million, which includes approximately $30 million for strategic initiatives, including Gogo 5G, Galileo, and the LTE network build out. We anticipate free cash flow of $20 million to $40 million, which includes approximately $56 million of expected FCC spend, including non-reimbursable development spend, and approximately $45 million in FCC reimbursement. Free cash flow guidance remains the same despite an increase to adjusted EBITDA guidance as there was a shift in spend from OPEX to CAPEX and fluctuations in net working capital.
Speaker Change: The increase in adjusted EBITDA guidance is mainly due to a shift in spend from opex to capex and our strategic programs and some opex savings realized in the first quarter.
Speaker Change: We expect 2020 for Capex to be approximately $45 million, which includes approximately $30 million for the strategic initiatives, including Gogo <unk>, Galileo and the LTE network build out.
Speaker Change: We anticipate free cash flow of 20 million to $40 million, which includes approximately $56 million of expected FCC spend including non reimbursable development spend and approximately $45 million in FCC reimbursements.
Speaker Change: Free cash flow guidance remains the same despite an increase to adjusted EBITDA guidance as there was a shift in spend from opex to capex and fluctuations in networking capital.
Jessica Betjemann: Our long-term targets remain unchanged. We reiterate that we expect revenue growth at a compound annual growth rate of approximately 15 to 17 percent from 2023 through 2028, with Galileo materially contributing the new beginning in 2025. We continue to expect annual adjusted EBITDA margin to reach 40% by 2028. Finally, we expect free cash flow in the range of $150 to $200 million in 2025, which reflects increased EBITDA driven by revenue growth with the launch of 5G and Galileo and reduced engineering design and development OPEX and lower CAPEX as investment in these strategic programs are completed and positive networking capital driven by inventory purchases and prepayments planned in 2024 for 2025 equipment This does not take into account the effect of the FCC's program.
Speaker Change: Our long term targets remain unchanged, we reiterate that we expect revenue growth at a compound annual growth rate of approximately 15% to 17% from 2023 through train chain E with Galileo materially contributing revenue beginning in 2025.
Speaker Change: We continue to expect annual adjusted EBITDA margin to be reaching 40% by 2028.
Speaker Change: Finally, we expect free cash flow in the range of $150 million to $200 million in 2025, which reflects increased EBITDA driven by revenue growth with the launch of <unk> in Galileo and reduced engineering.
Speaker Change: Engineering design and development Opex and lower Capex as investment in these strategic programs are completed and positive networking capital driven by inventory purchases and prepayments planned in 2024 for 2025 equipment shipments.
Speaker Change: This does not take into account the effect of the FCC program.
Jessica Betjemann: In conclusion, Gogo continues to perform well as we invest in the launches of Gogo 5G and Galileo. Our outlook illustrates the value creation potential for our customers and shareholders that we expect to unlock as we execute our strategy and invest in the strategic initiatives that we believe will extend and enhance our long-term growth. Before we open the call up for questions, I would like to join Oak in thanking the entire Gogo team for their hard work and dedication to our business and for providing unparalleled service to our customers.
Speaker Change: Yes.
Speaker Change: In conclusion <unk> continues to perform well as we invest in the launches of <unk> in Galileo our outlook illustrates the value creation potential for our customers and shareholders that we expect to unlock as we execute our strategy and invest in the strategic initiatives that we believe will extend and enhance our long term growth.
Speaker Change: Before we open the call up for questions I would like to join Oak in thanking the entire gogo team for their hard work and dedication to our business.
Speaker Change: Writing unparalleled service for our customers.
Jessica Betjemann: Operator, this concludes our prepared remarks. We're now ready for your first question. Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the question queue, you can press star 11.
Speaker Change: Operator. This concludes our prepared remarks, we're now ready for your first question.
Speaker Change: Thank you as a reminder to ask a question you will need to press star one on your telephone to remove yourself from the question queue. You May Press Star one again, please standby, while we compile the Q&A roster.
Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Scott Searle of Roth MKM. Good morning, Scott, thank you for taking my question. Good, good. Thanks, guys. Nice job on the quarter.
Speaker Change: Our first question comes from the line of Scott Searle of Roth Kingham. Your question. Please good morning, guys.
Scott Wallace Searle: Good morning, Scott for taking my question.
Scott Wallace Searle: Nice to see the continued progress on the Galileo front. Maybe just, Jesse, quickly, clarification on some of the financials. I think you and Oak referenced permanent OPEX savings. I'm wondering if you could give us an idea about what that looks like.
Scott Wallace Searle: Good good thanks, guys nice job on the quarter nice to see the continued progress on the Galileo front, maybe just Jesse quickly clarification on some of the financials I think you'd referenced in the <unk> referenced permanent Opex savings I'm wondering if you could give us some idea about what that looks like.
Jessica Betjemann: Also wanted to clarify, it sounds like there was the $400,000 step down in service revenue related to, I'll call it, churning off smaller low-end customers. And what are you expecting in the guidance of that $410,000 to $425,000 in the back half of this year for FCC rip and replace? And then I had a follow-up. So your first question with regard to some of the OPEC savings. So in the quarter, we did have some.
Jessica Betjemann: Also wanted to clarify it sounds like there was about $400000 step down in service revenue related to alcohol are churning off smaller low end customers and what are you expecting in the guidance of that 410 to $4 25 in the back half of this year for FCC Rip and replace and then I had a follow up.
Jessica Betjemann: Okay.
Jessica Betjemann: So.
Speaker Change: And your first question with regards to some of the Opex savings during the quarter, we did have some.
Jessica Betjemann: Some of it was due to network and data center costs that came in lower than planned; that's real and realized; it's not a timing issue. We also do have some personnel savings, so in the quarter, it was around $3 million. And throughout the year, there will be some continued savings as well, because there is some push-out of expenses into 2025. What was your next question, I'm sorry?
Speaker Change: Yes, some of it was due to network and data center costs that came in lower than plan that that will.
Speaker Change: That's real and realize it's not a timing issue and we also did have some personnel savings so in the quarter it was around $3 million.
Speaker Change: And.
Speaker Change: Throughout the year.
Speaker Change: There will be some continued savings as well because there is some.
Speaker Change: Push out of expenses into 2025.
Speaker Change: Okay.
Jessica Betjemann: Well, there was a late ribbon replacement. Yeah, Scott, you asked about the... The expectations for rip and replace this year, right, because clearly you had a great quarter as it related to equipment revenue, it seems like NetJet's pulling ahead, but what are you expecting in that $4.10 to $4.25 this year in terms of rip and replace contribution on the equipment? This year is going to be a heavy year of upgrades, so that will contribute to our equipment shipments this year.
Speaker Change: What was your next question, while there was a late year really replace commission.
Speaker Change: Yes.
Speaker Change: Yes, Scott you'd asked about the.
Speaker Change: Late in the year replace impact.
Speaker Change: The expectations for Rip and replace this year right, because clearly <unk> had a great quarter as it related to equipment revenue. It seems like net jets pulling forward, but what are you expecting in that 4% to 425 this year.
Speaker Change: In terms of rip and replace contribution on the equipment front.
Speaker Change: With regards to the upgrades you mean, yes, yes.
Speaker Change: I mean, this year is going to be a heavy year of upgrades.
Speaker Change: That will contribute.
Jessica Betjemann: We're seeing it obviously in Q1, but we will continue to see that through the year. Okay, fair enough. And, Oak, I'll dive in quickly on the 5G front. A little bit of a delay there, but it seems like it was caught earlier, so that's the good news.
Speaker Change: Two our equipment shipments this year.
Speaker Change: We're seeing obviously in Q1, but we will continue to see that through the year.
Speaker Change: Okay fair enough.
Speaker Change: Okay.
Speaker Change: <unk> quickly on the <unk> front, a little bit of a delay there it seems like it was call. It earlier so that's the good news.
Oakleigh Thorne: Just general confidence levels on that front, and then maybe coupled with that, it seems like the dialogue and the tenor around Galileo has continued to get more and more positive. It has always been on or ahead of schedule, but now it seems like the market opportunities specifically for HEX and FDX are bigger than we would have expected 12 or 18 months ago. So, I wonder if you could talk a little bit about how important that is relative to 5G and how that seems to be advancing and getting pulled forward. Thanks.
Speaker Change: Just general confidence level on that front, and then may be coupling with that it seems like the dialogue and the tenor around Galileo has continued to get more and more positive. It has always been on or ahead of schedule, but now it seems like the market opportunity specifically for Ags <unk> and mdx are bigger than we would have it.
Speaker Change: Expected 12, or 18 months ago. So I wonder if you could talk a little bit about how important that is relative to <unk> and how that seems to be advancing and getting pulled forward. Thanks.
Oakleigh Thorne: Yeah, I mean... You know, we've already spent more time talking about 5G because we've always asked about 5G more because it was always the next product launch and, obviously, a significant upgrade to our ATG networks in North America. So, I think we always felt that Galileo was probably the bigger opportunity in the end.
Speaker Change: Yes.
Speaker Change: We've already spent more time talking about <unk>, because we're always asked about five more.
Speaker Change: It's always the next product launch.
Speaker Change: Sure.
Speaker Change: Obviously, a significant upgrade to our atg networks in the in North America. So.
Speaker Change: I think we've always felt that Galileo is probably the bigger opportunity in the end.
Oakleigh Thorne: And I think that the positive response we're getting from the market about it is very encouraging for us. And obviously, strategically, it is a very important product in competing with Starlink as they enter the market. So, we're really excited about it. It's going to be a great product line, and OEMs are very excited about it, and the fleets are very excited about it. We're getting a lot of positive traction overseas.
Speaker Change: And I think that the positive response, we're getting from the market about it is very encouraging for us and obviously strategically it is.
Speaker Change: Very important product and you're competing with starlink as they entered the market. So it's.
Speaker Change: We're really excited about it it's going to be a great product line and the Oems are very excited about it and the fleets are very excited about it we're getting a lot of positive traction overseas. So we're very excited about it we still think <unk>.
Oakleigh Thorne: So, we're very excited about it. 5G has a very important role in our product line, though, because there are just, you know, a lot of medium-sized jets down there that only fly in North America that are, you know, frankly, a little more cost-conscious than other flyers and are not, you know, all that excited about putting on a more expensive satellite system. So for them, you know, 5G is going to be important.
Speaker Change: <unk> has a very important role in our product line up because theres just a lot of medium sized jets on down that only fly in North America.
Speaker Change: Frankly, a little more cost conscious.
Speaker Change: And then other Flyers and Theyre not all that excited about putting on it more.
Speaker Change: A more expensive satellite system, so for them <unk>.
Oakleigh Thorne: And so, and we have, you know, commitments to OEMs and fleets and others who already have, you know, basically said they're going to buy the product. So we don't want to, you know, we're not going to back off from 5G. It's still important to us. It is in a somewhat less competitive segment, I would say, at the moment as well.
Speaker Change: He is going to be important and so and we have commitments to Oems.
Speaker Change: And fleets and others, who already have basically said, they're going to buy the product. So we don't want to we're not going to back off from <unk>, It's still important to us.
Speaker Change: It is in a somewhat less competitive segment I would say at the moment as well so at the time urgency maybe is not as great as it is for Galileo.
Oakleigh Thorne: So the time urgency maybe is not as great as it is for Galileo. Great, thanks. I'll get back in the queue.
Speaker Change: Great. Thanks, I'll get back in the queue.
Operator: Thank you. Our next question comes from the line of Simon Flannery of Morgan. Okay, great. Good morning. How are you?
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Come from the line of Simon Flannery of Morgan Stanley.
Simon William Flannery: Okay. Thanks, Kevin Good morning, how are you. Thank you.
Simon William Flannery: Thank you. Just continuing on the Galileo opportunity, I think you said that you would ship the HDX terminals in Q4. So when do we start seeing service revenues out of Galileo? Is that really kind of Q1?
Simon William Flannery: Just continuing on the.
Simon William Flannery: Galileo opportunity I think you had said that you would shift the HD X terminals in Q4, so when do we start seeing service revenues out of Galileo and start really kind of Q1, where we start to see that.
Simon William Flannery: And then.
Simon William Flannery: Jesse, you mentioned the margin impact. Is it fair to think you're gonna be looking at a service margin on? monthly commitments per plane. And then something on the depreciation there?
Speaker Change: I think Jeff you mentioned the margin impact is it fair to think youre going to be looking at our service margin.
Simon William Flannery: Reselling, one web and that kind of 50% range on any color you could provide around that and how that is that most of the usage based or are there.
Simon William Flannery: Have we seen all the impact of that price increase? Or do you think we could see more details in Q2? And is it all principally this asset, the sale of aircraft?
Simon William Flannery: Humphrey commitments per plane.
Simon William Flannery: Something on the <unk> there.
Simon William Flannery: Have we seen all the.
Simon William Flannery: Impact of that price increase or do you think we could see more <unk> in Q2.
Oakleigh Thorne: Or are you seeing any competitive losses to Starlink or Smart Sky or anything like that that's ticking? So. In terms of DX, I'll take that one first. I don't think we're going to see a lot more of that. We'll reserve judgment for a little bit. It really all hit in February. The price increase and the minimums were implemented at the beginning of February.
Simon William Flannery: And is it all principally this asset sale of aircraft or are you seeing any competitive losses to sterling <unk> smart sky or anything like that that's ticking up here. Thank you.
Simon William Flannery: So.
Simon William Flannery: Okay.
Speaker Change: In terms of Dx I'll take that one first.
Speaker Change: I don't think were going to see a lot more of that will reserve judgment, a little bit it really all hit in February.
Speaker Change: Yes.
Speaker Change: The price increase in the minimums were implemented at the beginning of February so.
Oakleigh Thorne: So I think that's going to be the bulk of that. In terms of competitors, we've done a deep dive on that. We went and actually interviewed all of the customers who were suspended in February, that was 50 some odd of them, and only one had gone to competition, and that ironically was a jet that belonged to DaVinci Jets, which is, I don't know if they're the owners anymore or the founders of SmartSky. And they actually didn't go to SmartSky.
Speaker Change: I think thats going to be the bulk of that.
Speaker Change: Of competitive we've done a deep dive on that.
Speaker Change: We went and actually interviewed.
Speaker Change: All of the customers who suspended.
Speaker Change: In February it was 50 some out of them.
Speaker Change: And only one had gone to competition.
Speaker Change: That ironically was a jet that belonged to da Vinci Jets, which is.
Speaker Change: No. The I don't know if they're the owners anymore of the founders of Smart Sky.
Oakleigh Thorne: They went to a KA solution. So that was funny. So that's that. We don't think so.
Speaker Change: They actually didn't go to smart Guy they went to an <unk> solution. So that was funny.
Speaker Change: So thats that we don't think.
Oakleigh Thorne: We're not losing any aircraft from our installation base to Starlink at this point. I think we do feel that there is some pressure on new sales from them right now, as customers look at, you know, the Starlink system, and obviously, they are already out with theirs, and we don't have our global system yet. So, we feel a little pressure there and, you know, we may have, we may have lost a few new sales there in the heavy jet market. Those would only be globals, of course, Global Expresses.
Speaker Change: We're losing any.
Speaker Change: Many aircrafts from our installed base to Sterling at this point I think we do feel.
Speaker Change: That there is.
Speaker Change: Some pressure on new sales from them right now as customers look at the Sterling system and obviously they are already out with theirs and we don't have a global system. Yet so we feel a little pressure. There. We may have we may have lost a few new sales there and heavy jet market does it only be globals of course.
Speaker Change: Global expresses we don't really see any pressure yet on the Gulfstream side.
Oakleigh Thorne: We don't really see any pressure yet on the Gulfstream side because Gulfstream's been pretty negative about the Starlink STC for Gulfstream aircraft. So, that's all, you know, in the heavy jet still at that point. And again, we haven't seen any losses there.
Speaker Change: Because gulfstream has been pretty negative about the starlink STC for Gulfstream aircraft. So.
Speaker Change: That's our heavy jets still at that point.
Speaker Change: Again, we haven't seen any losses there.
Oakleigh Thorne: Simon, now you have to go back and remind me of the beginning of your question. It was about Galileo's revenue. I can answer that. So, yeah, I mean, the expectation is we're going to be having, you know, the equipment revenue, and equipment shipments in Q1, and service revenue will be there in the second half, but, you know, it'll probably start to be a little bit more in the second quarter. Okay, and margins, which we haven't commented on publicly.
Speaker Change: Simon now you have to go back and remind me at the beginning of your question and it's on the Galileo revenue I can answer that.
Simon William Flannery: The expectation is we're going to be having the equipment revenue equipment shipments.
Simon William Flannery: In Q1 and service revenue will be be there in the second half, but probably start to see a little bit more.
Simon William Flannery: Well in the second quarter.
Simon William Flannery: Okay and on margins.
Simon William Flannery: Margins, we haven't commented on publicly.
Oakleigh Thorne: You know, we, I would put it this way, we have to, we're taking an approach where we can sort of maintain flexibility, because, you know, you never know where Starlink is going to go with pricing, and we need to be prepared to move with them. So, to get, what I will call, pricing flexibility, we probably have given up a bit of margin. And, you know, we expect to still have service margins that begin with a seven through this planning horizon. Yeah, in total.
Speaker Change: We I would put it this way we have.
Simon William Flannery: We're taking the approach where we can sort of maintain flexibility.
Simon William Flannery: Because you never know where starlink is going to go with pricing and we need to be prepared to meet with them. So.
Simon William Flannery: To get sort of.
Simon William Flannery: What I will call for pricing flexibility, we probably have given up a bit of margin.
Simon William Flannery: And we expect to still have service margins in the that begin with seven through this planning horizon, yes.
Jessica Betjemann: And so we feel pretty good about the business, but we're not gonna come out with sort of sharing margin projections until we come to market. I was just going to say, I know it's going to be lower than ATG but still a very strong healthy margin. Yeah. Understood. And would you, are you, does your system just work with one web, or could you incorporate others?
Simon William Flannery: In total.
Simon William Flannery: And.
Simon William Flannery: So we feel very good about the business, but we're not going to come out with sort of sharing margin projections until we come to market.
Simon William Flannery: Alright, and how that is going to be.
Simon William Flannery: But I was just going to say Ive noted its going to be lower than atg, that's still very strong healthy margin.
Simon William Flannery: Sure.
Speaker Change: And what are you.
Simon William Flannery: Does your system.
Simon William Flannery: Just work with one wherever could you incorporate other.
Speaker Change: Uh huh.
Speaker Change: Providers of capacity, we'd like copper down the road.
Oakleigh Thorne: Yeah, we can. And now we have designed our terminal to be portable from provider to provider. You know, we expect that nanotechnology is going to develop a lot over the next five to 10 years. There are going to be other providers that come into the market. And, you know, our hope is that OneWeb continues to deliver a strong product and that their Gen 2 is a strong product. But, you know, we also need to be prepared to go elsewhere if it's better for our customers.
Speaker Change: Yes, we can now we designed our terminal to be portable from provider to provider, we expect that.
Speaker Change: So technology is going to develop a lot over the next five years to 10 years that are going to be other providers, who come into the market.
Speaker Change: And.
Speaker Change: Our hope is that that one way of continues to deliver strong product in that they are gen. Two is a strong product.
Speaker Change: But we also need to be prepared to go elsewhere, if it's better for our customers. So we designed the antenna.
Oakleigh Thorne: So we designed the antenna and the Terminal, which we own the intellectual property for, to be easily, once installed; it is very easily removed. You don't have to go back inside the airplane and remove the headliner and all that. You can literally unscrew it from the outside and slap another version of it on quite simply, but the new version would have the right aperture for the new supplier and the right modem for the new supplier in it.
Speaker Change: <unk>, which we own the intellectual property for us.
Speaker Change: To be easily installed it is very easily remove you don't have to go back inside of the airplane and remove the headliner and all of that and literally unscrew. It from the outside and slap. Another version of it on quite simply but the new version would have the right aperture for the new supplier in the right modem for the new supplier in it.
Oakleigh Thorne: And so we're very portable in terms of future direction. Great. Thank you. Thanks, Simon.
Speaker Change: And.
Speaker Change: So we're very portable in terms of future direction.
Speaker Change: Great. Thank you.
Speaker Change: Thanks, Tom.
Operator: Thank you. Our next question comes from the line of Rick Prentiss of Raymond James. Yeah, thanks. Good morning, everybody. Good morning.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: It comes from the line of Ric Prentiss of Raymond James.
Richard Hamilton Prentiss: Okay. Thanks, good morning, everybody.
Richard Hamilton Prentiss: Hey Rick. Great, thanks. A couple questions. First, I want to go to the Smart Sky Litigation. I think the judge made some rulings on some definitions and some other things. There were some reports out there that thought it was less favorable to y'all, but just explain to us kind of where we are on the lawsuit, how you viewed the judge's rulings or definitions, and I'll come back.
Speaker Change: Yeah.
Richard Hamilton Prentiss: Morning, David.
Bill: Hey, Bill.
Speaker Change: Hey, Thanks couple of questions.
Richard Hamilton Prentiss: First of all unfortunately.
Richard Hamilton Prentiss: Smart side litigation I think the judge had made some rulings on some definitions and some other items. There were some reports out there and the thought it was less favorable to you all but just explain to us kind of where we're at on the lawsuit how you view the judges.
Oakleigh Thorne: I like giving my questions one at a time so you can handle them. Thanks, Rick. We appreciate that. Yeah, that was what's called a Markman hearing, and that's where the judge rules on how the patents should be interpreted. We were pleased with how the judge ruled, and it hasn't changed our view of what we think the outcome of the case is.
Richard Hamilton Prentiss: Rulings or definitions and I'll come back like you. My question is why all the time so you can handle.
Speaker Change: Thanks, Rick we appreciate that.
Speaker Change: Yes that was let's call the markman hearing and if thats, where the judge rules.
Speaker Change: On the on how the patents should be interpreted.
Speaker Change: We were pleased with how the judge ruled and it Hasnt changed our view of what we think the outcome of the cases.
Oakleigh Thorne: However, I will say this: in my short, brutish business career, I've learned not to comment on litigation, and my lawyers are encouraging me to stick with that, so I'll kind of leave our comments at that. There were some articles, or an article, that went around by a writer who doesn't know much about patent law, who kind of made it sound like we lost the whole case, you know, from this ruling. That's just not the case, and any update to the timing. The trial was supposed to be on April 25, but now it looks like the judge is going to move that back, and she has not set a new date.
Speaker Change: However, I will say this in my short British business career, I've learned not to comment on litigation, Mike lawyers are encouraging me to stick with that so.
Speaker Change: I'll kind of leave our comments at that there was there were some articles are an article that went around.
Speaker Change: The rider, who doesn't know much about patent law.
Speaker Change: Kind of made it sound like we lost the whole case.
Speaker Change: From this ruling that's just not the case.
Speaker Change: Okay, and any update on the timing.
Speaker Change: The trial was supposed to be in April of 'twenty, five, but now it looks like the judge is going to move that back and she has not set a new date.
Richard Hamilton Prentiss: Second question is, on the guidance, Jesse mentioned that, you know, some reduction in some of the projects, I think now about 33 million; previous guidance said 40 million of OPEX, I think in there, so some reduction and shift out in timing. Just want to make sure some of that is then moving into 25, but then also a little note in the press release that said guidance and targets do not reflect a potential delay and Gogo 5G Beyond 24. But then you kind of think maybe the launch will be pushed out a few months. I just want to reconcile both those things if I can.
Speaker Change: Second question is on the guidance.
Speaker Change: Jesse matching that some reduction in some of the projects I think now $33 million previous guidance at $40 million of Opex I think in there. So some reduction in shifting out in timing.
Speaker Change: Just to make sure some of that and moving into 'twenty five but then also.
Speaker Change: A little note in the press release, our guidance and targets do not reflect the potential delay.
Speaker Change: Gogo <unk> beyond 'twenty four but then as you kind of thought maybe the launches pushed out a few months just wanted to reconcile both of those if I could.
Jessica Betjemann: So on the timing part around 5G, we don't know right now if it'll still launch in Q4 of this year or early next year. We're working with our chipset supplier to get definitive dates. There's a process that the chip's going through now, sort of a validation integration process. And at the end of that, they should have a better idea of when. I'll go into fabrication now.
Speaker Change: So.
Speaker Change: On the other.
Speaker Change: <unk> part around five G.
Speaker Change: We don't know right now if it'll still launch in Q4 of this year early next year.
Speaker Change: With our chipset supplier to to get definitive dates.
Speaker Change: A process.
Speaker Change: That.
Speaker Change: It's going to the chips going through now sort of a validation integration process and at the end of that they should have a better idea.
Jessica Betjemann: Then there's an opportunity to perhaps accelerate some of the fabrication steps. So we're looking at that, and when we know more, we'll... tell the world more, but that's why we are not yet projecting or including in our guidance any delay.
Speaker Change: When.
Speaker Change: They'll go into fabrication.
Speaker Change: There is a opportunity to perhaps accelerate some of the fabrication steps. So we're looking at that and when we know more.
Speaker Change: Tell the world more but thats why we are not yet.
Speaker Change: Projected any are including in our guidance any delay.
Jessica Betjemann: And the point about the strategic spend decreasing, last quarter we had $40 million, and this quarter it's $33 million in total for the strategic initiatives. And a large driver of that is a shift around $5 million of spending from OPEX to CAPEX. And then there was about $2 million overall savings as well.
Speaker Change: Yes.
Speaker Change: A point about the strategic spend decreasing put last quarter, we had $40 million in this quarter. It's 30.
Speaker Change: $33 million in total for the strategic initiatives and.
Speaker Change: A large driver that is a shift around $5 million.
Speaker Change: <unk> spending from Opex to Capex.
Speaker Change: And then there was about $2 million overall savings as well so that's what's driving that reduction.
Speaker Change: And that's also why because of that shift from Opex to Capex, you don't necessarily see any uplift.
Speaker Change: <unk> included a free cash flow.
Jessica Betjemann: So that's what's driving that reduction. And that's also why, because of that shift from OPEX to CAPEX, you don't necessarily see that uplift flowing through the free cash flow. Okay, and then just one more on that 24 guidance and the timing. If it does slip out from fourth quarter 24 into the early few months pushing into 25, what items would be really affected by the guidance? Is it equipment revenue? Could it lead to service revenues? Is it the margin on EBITDA?
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: Just one more on that 24 guidance on the timing.
Speaker Change: It does slip out from the fourth quarter of 2004 until the early few months portion into the 25, what items would be really affected on the on the guidance as the equipment revenue could it lead to service revenues is it margin on EBITDA what line items should we be watching your case.
Richard Hamilton Prentiss: What line items should we be watching in this case? Yeah, actually, I think we noted this on the previous call, you know, to be conservative, we did not factor in any 5G revenue in our guidance that we had provided. So revenue won't be impacted. It really will be on the OPEX side, which will be a benefit because if there is, there could be some push-out of spending potentially, both for OPEX and CapEx. So there's not really a downside risk; there just could be some temporary upside risk, even though, yeah, even though the project moves out, the revenues weren't expected anyway.
Speaker Change: Yes, so actually.
Speaker Change: I think we noted this on the previous call.
Speaker Change: Conservative we did not factor in any <unk> revenue.
Speaker Change: In our guidance that we had provided some revenue won't be impacted it really will be on the opex side there'll be a benefit because.
Speaker Change: There could be some push out of spending potentially.
Speaker Change: Both for Opex and Capex.
Speaker Change: So there's not really a downside risk there just could be some.
Speaker Change: Even though even though the project moves out the revenues Werent expected anyway, okay that helps clarify that.
Jessica Betjemann: Okay, that helps clarify that. And then, Oak, I want to go back to Simon's question, then also for my final one on the folks with ARPU, the price increase, the 4% price increase, February, do you think most of it was felt? I think you said 80% of the DX were the hourly folks.
Speaker Change: And then also I want to go back to Simons question. Then also for my final one on <unk>.
Speaker Change: The.
Speaker Change: Folks who are through the price increased 4% price increase February you think most of them are installed I think you said, 80% of the <unk>, where the our hourly folks. So should we expect some normal course hannity activations as you're upgrading people to the advanced product and is that why I think Jeff you mentioned.
Richard Hamilton Prentiss: So should we expect some normal course kind of deactivations as you're upgrading people to the advanced product? And is that why, I think, Jess, you mentioned, maybe some dampening of installs? [inaudible] Well, you're going to see a lot of conversions. They don't drive units online.
Speaker Change: So maybe some dampening of installs.
Jeff: Well a couple of quarters here.
Speaker Change: Well youre going to see a lot of conversions they don't drive units online.
Oakleigh Thorne: They will drive some equipment revenue. But, you know, you're getting a lot of people upgrading from classics this year to advanced platforms as part of the, you know, LTE rip and replace program. So, you'll see that in terms of, you know, what's going on in the dealers right now. You know, we've had good signs and bad signs.
Speaker Change: They will drive some equipment revenue.
Speaker Change: But youre getting a lot of people upgrading from classics this year to two advanced platform.
Speaker Change: As part of the LTE Rip and replace program, So say youll see that.
Speaker Change: In terms of what's going on at the dealers right now.
Oakleigh Thorne: I mean, everybody has sort of gotten used to managing in a somewhat screwed up supply chain world. And so I think the dealers are handling it better. Customers are handling it better. We had a lot of deacts in February. A lot of them have already come back, though.
Speaker Change: We've had good signs and bad signs I mean, there's.
Speaker Change: Everybody has sort of gotten used to managing.
Speaker Change: Somewhat screwed up supply chain world and so I think the dealers are handling it better customers are handling it better.
Speaker Change: We had a.
Speaker Change: A lot of Dx in February a lot of them have already come back, though so that implies a little bit of shortening of the suspension periods.
Oakleigh Thorne: So that implies a little bit of shortening of the suspension periods. And though, on the other side, there's still a lot of engine problems and engine parts problems that are extending some suspension. So we're not getting out of our skis on projecting any change in deactivation and reactivation at this point. We'll watch what happens here over the next couple months.
Speaker Change: And.
Speaker Change: On the other side there is still a lot of engine problems in engine parts problems that are extending some suspension. So.
Speaker Change: We're not getting out over our skis on.
Speaker Change: Projecting any change.
Speaker Change: Andy activation and reactivation at this point, but we'll watch what happens here over the next couple of months and.
Jessica Betjemann: And Rick, just to clarify, the 80%, it was the 80% of the increase in deactivation from quarter to quarter, not the total deactivation. Gotcha. That's helpful. Okay. Thanks, everybody. Stay well.
Speaker Change: Undecided, whether theres, a permanent improvement or not.
Speaker Change: Just to clarify the 80% it was the 80% of the increase and deactivation add from quarter to quarter not the total of the activation.
Speaker Change: Gotcha that's helpful. Okay, Thanks, everybody stay well.
Richard Hamilton Prentiss: All right. Thanks, Rick. Thank you. Our next question... comes from the line of Lance Vitanza of T.D. Cohen.
Speaker Change: Alright, Thanks, Rick.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: It comes from the line of Lance Vitanza of TD children.
Operator: Hi, thanks for taking the questions. And congratulations on the quarter. I guess my question is, with respect to AOL having ticked down a little bit, is this just sort of what we'd expect from, you know, we're in this pre-launch phase, whether it's 5G or Galileo. I assume that new customers or new potential customers are waiting, right? And so, similar to the run-up to the launch of Advance a few years ago, it's tough to get new people over the goal line. And so is that dynamic in play right now, or are we still seeing that happen, and do we expect it?
Lance William Vitanza: Yeah, Hi, Thanks, Hi.
Lance William Vitanza: Hi, Thanks for taking the questions.
Lance William Vitanza: And congratulations on the quarter I guess my question is with respect to having kick lower a little bit is this just sort of what we'd expect from we're in this prelaunch phase, whether it's <unk> or Galileo I assume that that new customers or new potential customers are waiting right and so similar to the run up to.
Lance William Vitanza: To the launch of advance a few years back.
Lance William Vitanza: Tough to get new people over the goal line.
Lance William Vitanza: And so do you is that dynamic in play right now or are we still seeing that happen and do we expect that is that possibly an issue as we think about a further delay in <unk> do we think that that could actually pressure equipment sales not related to <unk>, but could that could that pressure.
Lance William Vitanza: Is that possibly an issue as we think about a further delay in 5G? Do we think that that could actually pressure equipment sales, not related to 5G, but could that pressure your existing sales going forward? Yeah, I'm ready.
Lance William Vitanza: Your existing sales going forward.
Oakleigh Thorne: For a couple of quarters, we've been in a bit of a lull in the product cycle. And, you know, you see it in Apple watches, etc. The same thing where sales sort of slow down for the old products as you move into new, much better products. But what we've tried to do is make Advance L5 a natural stepping stone to 5G in Galileo. And that's working to some extent.
Speaker Change: Yes, I mean I think.
Speaker Change: For a couple of quarters, we've been in a bit of a lull in the product cycle.
Speaker Change: And you see it in.
Speaker Change: Apple watches et cetera are the same thing versus sales to sort of slowdown of the old products as you.
Speaker Change: Move into new much better products that what we've tried to do is make advance L. Five.
Speaker Change: Our natural stepping stone to <unk> in Galileo and that's working to some extent I mean, we've obviously had great.
Oakleigh Thorne: I mean, we've obviously had great equipment sales of L5s this quarter, and almost all of that has been people saying, okay, great, I'll be ready to go to Galileo or 5G if I install that box. Because if you're going to Galileo, you don't need to change the box. If you're going to 5G, you just replace the L5 with an exact replica form factor called the LX5, which has 5G functionality built in.
Speaker Change: Sales of equipment sales of <unk> this quarter and all of that is.
Speaker Change: But not all but almost all of that has been people say, okay, great I'll be ready to go to Gallo layout or <unk>, if I install that box because the.
Speaker Change: If you go onto Galileo you don't need to change the box. If you go into a <unk> you just replace the <unk> five with a exact replica of form factor called <unk> five.
Oakleigh Thorne: So they're both very easy upgrades, and that is working for us to some extent, and that was why we got the fleet pull through for NetJets, and that's where we got this acceleration of OEM orders. So we'll see if that persists. It would be nice if it did, but we're not counting on it right now, and we're not factoring that into our guidance at all. Thanks, and then the last one for me is just on the share repurchases and looking ahead. You have, I guess, most of the cash flow for the year has already come in.
Speaker Change: Which is the <unk> functionality in it. So they are both very easy upgrade and that is working for us to some extent and that was why we got the flu.
Speaker Change: <unk> pull through for net Jets, and Thats, where we got these this acceleration of OEM orders. So we'll see if that persists it would be nice if it did but we're not counting on it right now and we're not factoring that into our guidance at all.
Oakleigh Thorne: Does that suggest that we're sort of done with your share repurchases for the time being, or given that you have cash on the balance sheet, is that still something that we, at least in theory, could potentially see going forward as well?
Speaker Change: Thanks, and then the last one from me is just on the share repurchases and looking ahead.
Speaker Change: Got it.
Speaker Change: I guess most of the cash flow for the year has already come in does that suggest that we're sort of done with your free cash with your share repurchases for the time being or or.
Speaker Change: Given that you have cash on the balance sheet is that still something that we at least in theory could potentially see going forward as well.
Lance William Vitanza: I think it's something you could potentially see going forward. We've got a fifty million dollar repurchase program approved by the board. We have an investment committee that takes it ten million dollars at a time. We've spent about twenty-five million dollars at this point.
Speaker Change: I think it's something you could potentially see going forward, we've got a $50 million repurchase program approved by the board. We have an investment committee that takes at $10 million at a time.
Speaker Change: We've spent about $25 million at this point.
Jessica Betjemann: You know, I mean, as you said, we're continuing to look at that. We'll assess the share price and that we'll look at that opportunistically. And but we also want to balance that with, you know, the hedge step down and understand whether or not we would pay down debt.
Speaker Change: <unk>.
Speaker Change: I mean as you said, we're continuing to look at that will assess the share price and that we'll look at that opportunistically, but we also want to balance that with.
Speaker Change: With the hedged stepped down to an understanding whether or not we would pay down debt. So yes, and the board will look at whatever they think is best for shareholders and Thats the way it will go.
Jessica Betjemann: So, yeah, and the board will look at whatever they think is best for shareholders, and that's the way we'll go. Thank you. Excellent. Thank you. Our final question comes from the line of Louis DiPalma, from William Blair.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our final question.
Speaker Change: Come from the line of Louie Dipalma of William Blair.
Operator: Hey William, I mean Louie, Louie who works at William's, sorry. Hi, good morning Oak, Jesse, and Will. Oak, you indicated that you expect to begin shipping the HDX antenna in the fourth quarter. When should we expect the first STCs to be received? And will your STCs... STC schedule remain roughly a year behind Starlink in the business jet market, or do you expect to narrow that? Well, we're better at getting STCs than they are.
Michael Louie D DiPalma: Hey will.
Speaker Change: Laurie.
Speaker Change: We have worked with Williams sorry.
Michael Louie D DiPalma: Hi, good morning, Jeff and well.
Michael Louie D DiPalma: You indicated that you expect to begin shipping the HD X and tenant in the fourth quarter.
Speaker Change: When should we expect the first S tcs to be received.
Speaker Change: And will your S T.
Speaker Change: <unk> schedule remain roughly a year behind darlings.
Speaker Change: STC schedule in the business jet market or do you expect to to narrow that gap.
Speaker Change: Well, we're better at getting Ccs.
Michael Louie D DiPalma: And so we'll get a lot of STCs in a hurry. And I noted the number that were already in work in my script. We will get, you know, you have to get your first article STC before you can get PMA.
Speaker Change: And so we'll get a lot of FCC is in a hurry.
Speaker Change: The number that were in work already.
Speaker Change: In in my script.
Speaker Change: We will get you have to get to your first article STC before you can get PMA. So I think I said, we were going to get PMA in Q4. So we will have our first article FTC before that.
Oakleigh Thorne: So I think I said we were going to get PMA in Q4, so we'll have our first article STC before that. And then, you know, we work hard to know how to work with dealers on STCs so that they are ready to go when we are ready to go. And so we will have a lot of them pre-primed. You know, I would guess we'd have several maybe even before the end of the fourth quarter and certainly a lot of them in the first quarter next year.
Speaker Change: Then we work hard with and know how to work with dealers on Stc's. So that they are ready to go when we are ready to go.
Speaker Change: And so we will have a lot of them pre primed.
Oakleigh Thorne: So this is one of the things we do really well, very peculiar to our little industry, and it's something that Starlink is learning the hard way. Great. So you do expect to narrow the gap? Yeah, yeah.
Speaker Change: And.
Speaker Change: I would guess we would have several maybe even before the end of the fourth quarter and certainly a lot of them in the first quarter next year. So.
Speaker Change: This is one of the things, we do really well.
Speaker Change: Very peculiar to our little industry.
Speaker Change: It's something that Starlink is learning the hard way.
Speaker Change: Great. So you do expect to narrow the gap.
Oakleigh Thorne: And as far as 5G goes, I mean, we've been really smart about that whole STC program, which is why there are so many aircraft in North America that will be covered almost immediately after we launch because we've actually got First Article, STC, and PMA on an LX5 box already with a 4G chip in it. So all we need to do with that to get those SDCs kind of up and running immediately is substitute the 5G chip, do a minor modification to the SDCs that are already done, and then those SDCs and will get quite rapid FAA approval because if it's a minor mod, it's a week or two, and then we'll be ready to fly with 5G on a whole lot of planes too. Great, and another two-parter along the same Starlink theme.
Speaker Change: Yes, yes, as far as satisfied <unk>.
Speaker Change: I mean, we've been really smart about that whole STC program.
Speaker Change: Which is why.
Speaker Change: So many aircrafts in North America that will be covered almost immediately after we launch because we've actually got.
Speaker Change: First article STC and PMA.
Speaker Change: On an Alex five box already but the <unk> chip in it.
Speaker Change: So all we need to deal with that to get those stc's kind of up and running immediately as substitute the <unk> chip.
Speaker Change: A minor modification to the FTC's that are already done.
Speaker Change: And then those sbcs and that those will get quite.
Speaker Change: Quite rapid FAA approval, because if it's a minor moderates a week or two.
Speaker Change: And then we'll be ready to fly with <unk> on a whole lot of planes too so.
Michael Louie D DiPalma: There was a Bloomberg article about the Starlink service quality because of Starlink sharing their aviation network with the residential network in the channel. Are you hearing if that is a customer concern, and also on this Starlink theme, are you hearing whether pricing is responding, and do customers think that is just introductory pricing similar to what Comcast Xfinity does? I think that's actually sustainable. Thanks. Yeah, sure. Let's start with the $2,000 plan.
Interviewer: Great and.
Interviewer: Another two parter amongst the same starlink theme there was a Bloomberg article about the Starlink service quality on a Delta Airlines trial that.
Interviewer: Suffered from.
Interviewer: From quality issues because of Sterling sharing their aviation network with the residential network in the channel.
Interviewer: Are you hearing if that is the customer concern and also on the Sterling theme.
Interviewer: Are you hearing whether the $2000 per month plan price plan is resonating and do customers think that is just introductory pricing similar to what Comcast Xfinity does or.
Interviewer: Did I think that's actually sustainable.
Oakleigh Thorne: I mean, that's just a bucket plan, right? So you pay a minimum of $2,000, and then you pay another $100 per gig. We've got bucket plans; we know them well.
Interviewer: Thanks.
Speaker Change: Yeah sure, let's start with the $2000 plan.
Interviewer: That's just a bucket plant right. So you pay a minimum of $2000 and then you pay another $100 per gig.
Interviewer: We've got bucket plans, we know them well.
Oakleigh Thorne: What happens generally is that people go over the bucket and pay a lot more for the plan than they anticipated, and with these very powerful antennas like Starlink and what we are bringing out, you're going to consume a whole lot of data. So that first 20 gigs is going to go pretty quick, and people will end up spending a lot more than they planned. And owners in this space typically do not like spending more than they planned, so they opt for unlimited plans generally. So today, 80% of our aircraft are on unlimited or fleet plans, which are very similar to unlimited, and only 13% are on bucket plans.
Interviewer: What happens generally is that people go over the bucket and pay a lot more for the planned than they anticipated.
Interviewer: And with.
Interviewer: He is very powerful and tenants like Starlink, and we're bringing out youre going to consume a whole lot of data. So that first 20 gigs is going to go pretty quick.
Interviewer: And people will end up spending a lot more than they planned.
Interviewer: And owners in this space typically do not like spending more than they plan. So they opt for unlimited plans generally so today.
Interviewer: 80% of our aircraft are on unlimited or fleet plans, which are very similar to unlimited only 13% or on bucket plans.
Oakleigh Thorne: And also, just given what we're projecting for usage, we think people on that plan will actually spend more than the $10,000 for the unlimited plan. So that doesn't, Thank you very much. But that doesn't mean that that's what the ARPU is, right? The ARPU is going to be a lot higher. Your other question on Starlink contention, it is an issue. I've flown Starlink down the eastern seaboard. I got between 16 megabits per second and 135 megabits per second.
Interviewer: And also just given what we're projecting for usage.
Interviewer: We think <unk> hit people on that plant that will actually spend more than the <unk>.
Interviewer: Then the $10000 for the unlimited so that doesn't concern us very much to be honest and will have Rob <unk>.
Interviewer: Sort of aggressive plans like that too.
Interviewer: But that doesn't mean that that's what the <unk> Europe is going to be a lot higher.
Speaker Change: Your other question on <unk>.
Speaker Change: Styling contention, yes. It is an issue I'm not flown styling down the eastern seaboard.
Speaker Change: I got between 16 Megabits per second and one.
Speaker Change: <unk> 35 Megabits per second.
Oakleigh Thorne: It was still good. The latency improvement that we will have and they have makes a huge difference in your perception of speed, to be honest. So I'll give them credit for that. But for all of us, it depends on which Starlink satellite you get on. You could have a lot of contention or not.
Speaker Change: There was still good delinquency.
Speaker Change: The latency improvement that we will have and they have it makes a huge difference in your perception of speed to be honest.
Speaker Change: So I.
Speaker Change: I will.
Speaker Change: Give them credit for that but there is.
Speaker Change: For all of US are it depends on which sterling sounded like you get on you could have a lot of contention or not.
Oakleigh Thorne: It's a legitimate issue, but I think, frankly, the real issues are not going to be around the service itself. I think the service will be good when it's available. The issues, from my perspective, are more around the equipment and what they're doing there. This market is very, a very demanding market in a lot of ways. Equipment needs to be small because space is at a premium on business aircraft. It also needs to be aerodynamic for safety and fuel consumption purposes. It needs to be ruggedized to withstand extreme vibration and temperature variations. It needs to be reliable, and it needs to be easy to install.
Speaker Change: So the German issue.
Speaker Change: But I think frankly, the real issues are not going to be around the service itself I think the service will be.
Speaker Change: Good when it's available.
Speaker Change: Issues for my perspective or more around.
Speaker Change: The equipment and what Theyre doing there I mean, there is.
Speaker Change: This market is a very.
Speaker Change: Very true.
Speaker Change: Demanding market and a lot of ways equipment needs to be small because space is at a premium on business aircraft it needs be aerodynamic for safety and fuel consumption purposes needs to be ruggedized to withstand extreme vibration and temperature variations.
Oakleigh Thorne: HCX and FDX actually check all those boxes. Starlink, however, has taken a very different approach, right? They are taking consumer off-the-shelf products that they mass produce in order to keep the cost down for consumers, and they're trying to move them into the arrow. And that doesn't work very well. They're hard to install. It's 39 inches wide, which will make it difficult to install on narrow-
Speaker Change: And it needs to be easy to install.
Speaker Change: <unk> actually check all those boxes, starlink, which has taken a very different approach. They are taking consumer off the shelf products that they mass produce in order to keep the cost down for our consumers and they are trying to move them into residents and arrow and that doesn't it doesn't work very well.
Speaker Change: <unk>.
Speaker Change: They're hard to install its 39 inches wide, which will make it difficult to install a narrow diameter claims by contrast, our HTS 12 inches wide and easy to install a narrow.
Oakleigh Thorne: By contrast, our HDX is 12 inches wide, so it's easy to install on narrow-diameter planes. It's 44 inches long.
Speaker Change: I am <unk> planes 44 inches long RF.
Oakleigh Thorne: Our FDX, which is our big one, is only 30 inches long. And that's important because when you're on the top of an aircraft, there are actually all kinds of other antennas and gear up there. And the more of that stuff you have to move in order to put an antenna on, the more expensive the install is. It's very complex to install; they've got like 39 pieces of equipment and 200 plus fasteners to attach the antenna to the plane. Our FDX has 12 pieces and 16 fasteners; our HDX has nine pieces and 14 fasteners.
Speaker Change: <unk> is our big one is only 30 inches long.
Speaker Change: And that comes into it that's important because when you are on the top of an aircraft or is actually all kinds of other antennas and gear up there.
Speaker Change: And the more of that stuff you have to move in order to put an antenna on the more expensive the install is.
Speaker Change: It's very complex to install they've got like 39 pieces of equipment in 200, plus fasteners to attached Arne tenant of the plane.
Speaker Change: <unk> has 12 pieces in 16 fasteners are <unk> nine pieces in 2014 fasteners.
Oakleigh Thorne: And I just throw those numbers out there just to give you sort of a sense of what we mean when we talk about, you know, complexity. They also have designed this thing in such a way that the FAA is requiring periodic maintenance. But no other antenna in in-flight connectivity requires periodic maintenance.
Speaker Change: Throw those numbers out there just to give you sort of a sense of what we mean when we talk about complexity.
Speaker Change: They also.
Speaker Change: <unk> has designed this thing in such a way that.
Speaker Change: The FAA is requiring periodic maintenance.
Speaker Change: No other antenna in in flight connectivity requires periodic maintenance.
Oakleigh Thorne: You know, we build these things for the last 25, 30 years of the aircraft, and they never require maintenance. That maintenance will actually require owners to remove the headliner inside the aircraft, which can be, believe it or not, very complicated. On some planes, you have to take out the seats, take out the floor so you can get the side panels out to take the headliner down, and then get into the fuselage inside the aircraft.
Speaker Change: Rebuild these things for the last 25 30 years of the aircraft and they never require maintenance that maintenance will actually require owners to remove the headliner inside the aircraft, which can be believe it or not very complicated answer Glenn do you actually have to take out the seats takeout. The Florida. So you can get the side panels out to take the headliner down.
Speaker Change: And then get into the fuselage inside of the aircrafts and you don't need to do that for periodic expense inspections, you're also going to need to take.
Oakleigh Thorne: And you're gonna need to do that for periodic inspections. You're also gonna need to take the radome off for those inspections, and you're gonna have to lubricate parts of this antenna. That's unheard of in our space. I could go on and on. I mean, they just have all kinds of crazy things.
Glenn: <unk> actually made them off for those inspections and youre going to have to lubricate parts of this antenna that's unheard of in our in our space.
Speaker Change: So I could go on and on I mean, they just have all kinds of crazy things because they are consumer off the shelf.
Oakleigh Thorne: Because they're a consumer off the shelf. They cannot survive outside the pressure vessel, okay, so they're not, this equipment can't go from, you know, 130 degrees on the tarmac to just minus 60 at 50,000 feet in 10 minutes. It, you know, you can't withstand any of that.
Speaker Change: They cannot survive outside the pressure vessel. Okay. So this equipment cant go from you.
Speaker Change: 130 degrees on the time axis minus 60 at 50000 feet in 10 minutes.
Oakleigh Thorne: So you have to put all this stuff inside. The Pressure Vessel, which is taking up room for luggage, seats, closet space, a place to put your golf clubs, et cetera, et cetera. You know, obviously, we're ruggedized, and we can be installed anywhere. You can put it inside the pressure vessel or outside the pressure vessel.
Speaker Change: It can't withstand any of that so you have to put all this stuff inside.
Speaker Change: The pressure vessel versus taking up room for.
Speaker Change: Luggage seats closet space place to put your golf comps et cetera et cetera.
Speaker Change: Obviously were ruggedized and we can be installed anywhere you can put it inside the pressure vessel or outside of the pressure vessel and they also require a lot of different pieces of gear. They don't.
Oakleigh Thorne: And they also require a lot of different pieces of gear. They don't – because they're made for consumers, they are AC power. Most business aviation is DC power, so you have to have a power converter. Then you need a fan in order to cool all that because that gets very hot. And most passengers don't like having a fan whirring inside the cabin, et cetera, et cetera
Speaker Change: That made for a consumer.
Speaker Change: They are AC power most business aviation as DC power. So you have to have a power converter then you need a fan in order to cool all that because it gets very hot most passengers don't like having a fan wearing in the inside the cabin et cetera et cetera. So I can go on and on it on but Theres a lot of things.
Speaker Change: There are kind of inconveniences.
Oakleigh Thorne: So I could go on and on and on, but there's a lot of things, that are kind of inconveniences, minor problems but add it up it's sort of like you know if you're going to pay about the same and the service is about the same why would you put up with all those nuisances you know and and frankly a higher total cost of ownership with all the maintenance costs you're going to have the end of the day and from the company you don't know is going to be in the business for the long term and you could buy it from somebody who's been in it for 30 years, has great service, provides great support to any kind of product, and you know is going to be in the business. Thanks, Oak. You are very in the weeds on that. And one for... Sadly, I could go a lot further in the weeds.
Speaker Change: Minor problems, but add it up it's sort of like if we can pay about the same and the service is about the same why would you put up with all those nuisances and frankly, a higher total cost of ownership with all the maintenance costs youre going to have the end of the day.
Speaker Change: The company you don't know who is going to be in the business for long term and you could buy it from somebody who's been in it for 30 years.
Speaker Change: As Great service provides great support.
Speaker Change: Kind of product and there's going to be in the business.
Speaker Change: Thanks.
Speaker Change: Three in the weeds.
Speaker Change: One one for badly I could go a lot further.
William G. Davis: Yes. And one for Jesse. Jesse, if the 5G network is delayed... Does that mean some of the 5G costs that you're anticipating for? The second half of this year will be pushed into 2025, and that would imply that... You would raise your EBITDA guidance? Well, so I said that we would evaluate that once we understood the exact timing, but potentially, the impacts would be on OpEx and CapEx being pushed out, which would impact, or positively impact EBITDA and pre-cash flow, but the specific value of what that would be, you know, we don't know
Speaker Change: [laughter], Yeah, and one for Jesse.
Speaker Change: Jesse if the five G network is delayed.
Speaker Change: Does that mean.
Speaker Change: That some of the <unk> costs that youre anticipating for the second half of this year will be pushed into 2025 and that would imply that.
Jessica Betjemann: You would raise your EBITDA guidance.
Jessica Betjemann: Well, so I said that we would evaluate once we understood the exact timing but.
Jessica Betjemann: Potentially the impact would be on.
Speaker Change: On Opex, and Capex pushed out which would impact positively impact EBITDA and free cash flow, but the.
Speaker Change: Specific value of what that would be.
Jessica Betjemann: And one of the things we've talked about, you know, doing flight testing; we're continuing to do flight testing, so there still will be spending, it's just that particular milestones may get pushed out, so we'll have to evaluate that and come back. Right, and with those milestones, there would be the milestone payments, and so that would be deferred, right? That's right. That's all right. Awesome. Thanks, Jesse. Thanks, Will and Oak.
Speaker Change: We don't know yet I'm one of the things I mean.
Speaker Change: Eric has talked about due to flight testing, we're continuing to do blood testing. So there still will be spending.
Speaker Change: It's just that particular milestones may get pushed out so we'll have to evaluate that and come back.
Speaker Change: Right and with those milestones therapy, the milestone payments and so that would be deferred right. That's right that's right.
Speaker Change: Awesome. Thanks, Stephanie thanks willing okay.
Speaker Change: Yeah.
Speaker Change: Thankfully.
Jessica Betjemann: Thank you very much. Thank you. Thank you. I would now like to turn the conference back to William Davis for his closing remarks, sir. Thank you everyone for joining our first quarter earnings call. This concludes our call. You may disconnect. This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: Thank you I would now like to turn the conference back to William Davis for closing remarks, Sir.
William G. Davis: Thank you everyone for joining our first quarter earnings call. This concludes our call you may disconnect.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
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