Q4 2024 Gogo Inc Earnings Call
Good day, and thank you for standing by. Welcome to Q4 2024 Gogo Inc. earnings conference call.
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Speaker Change: Please be advised that today's conference is being recorded. I would not like to hand the conference over to your speaker today. Will Davis, head of investor relations, please go ahead.
Will Davis: Thank you operator and good morning everyone. Welcome to Gogo's fourth quarter of 2024 earnings conference call.
Speaker Change: Joining me today to talk about our results are Oakleigh Thorne, Executive Chairman of Gogo, Chris Moore, CEO , and Zach Cotner, CFO .
Speaker Change: 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 at the future .
Speaker Change: and the future performance of the company. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements on this call.
Speaker Change: Those risk factors are described in our earnings release file this morning.
Speaker Change: and a more fully detailed under risk factors in our annual report on 10K and 10Q.
Speaker Change: and other documents that we have filed with the SEC. In addition, please note that the date of this conference call is March 14, 2025.
Speaker Change: 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 more information in our future events.
Speaker Change: During this call, we'll present both Gap and non-GAAP financial measures.
Speaker Change: We have included a reconciliation and explanation of adjustments and other considerations of our non-GAAP measures to the most comparable GAAP measures and our fourth quarter earnings release.
The earnings press release is also available on the website.
Speaker Change: After management comments, we'll host a Q&A session with the financial community only.
Oakley: It is not my great pleasure to turn the call over to Oakleigh [inaudible]
Thanks, Will, and good morning, everyone.
Oakley: Let me start by extending a highly enthusiastic welcome to Chris and Zach.
Oakley: As many of you will remember, seven years ago I came in from the Gogo Board to serve a CEO on an emergency basis and ever since then we've been looking for the right successor.
Oakley: I believe we found that person in Chris. As our industry becomes more competitive and more centered in the fast changing world of satellite technology.
Chris's Deep Sat Common Aviation Knowledge
Oakley: and his strong leadership skills are exactly what Gogo needs at this point in its value creation journey.
Oakley: So with that, I'd like to send a little historical context for where we are in that journey.
Oakley: and set the stage for how combining with Satgum helps drive that journey.
Oakley: Then I'll turn it over to Chris to review our Q4 and 2024 business progress.
Chris Moore: to give an overview of our business strategy, to provide some insight on our Milgaugh business and to update everyone on our progress against our strategic initiatives.
then Zach will do the numbers.
and finally, we'll move to our usual Q&A.
Chris Moore: I was like to start by reminding people that we operate in a market with lots of room to grow.
Chris Moore: In a world where demand for connectivity is surging due to video conferencing and cloud-based applications, only 36% of the world's business jets posed broadband inflight connectivity
Only 22% if you include turbo props.
Chris Moore: And if you look outside the United States, there are 5,000 mid and small jets and 7,000 turboprops that literally have no access to an inflite broadband solution today.
Chris Moore: Meanwhile, data usage for our continues to surge. On Gogo Plains, continue in Q4 that it sat on Plains that grew 18% over prior years.
Chris Moore: Demand for flight also continues to grow, with fractal fleets growing their fleets dramatically and OEMs generally showing hooked to bill ratios over one-to-one.
Chris Moore: This is supported by WingX Data, which shows that the post-COVID surge in flight demand
Chris Moore: with Global Flight Departures up 33% in February 25 versus February 2019.
Chris Moore: As for Gogo and Satcom Direct in 2024, both have solid years. Gogo stand alone met or beat guidance on all financial metrics. Satcom's GOAL Groups have stanchly and Gogo ATG AOL rebounded in the most recent quarter.
Chris Moore: I'm also excited to announce, despite a short delay due to a last minute change in FAA testing, we've received PMA for the Galileo HDX low-Earth orbit antenna and are now shipping product to dealers to kick off work on their aircraft specific STCs.
Chris Moore: We expect those STC's to start rolling out in Q3 and continue rolling out into next year, which will drive up pickup and equipment revenue starting in late Q3 and service revenue in Q1226.
Chris Moore: Chris and Zach will provide more details on these developments in their comments, but to summarize, this PMA delay plus a small slip in Gogo 5G puts a hole in our 2025 plans.
Chris Moore: and leads us to provide pretty flat revenue in EBITDA guidance for this year.
Chris Moore: Despite that bad news, this is a watershed moment for Gogo in the beginning of our climb back to strong, sustainable, three-cash-low growth.
Chris Moore: HGX-PMA is the first deliverable from a massive three-year Gogo investment program
Chris Moore: Extending our advanced platform into new satellite technologies and building a new 5G ATG network in order to one dramatically improve the quality of our connectivity services and remain competitive in a fast-changing telecom ecosystem.
Chris Moore: to grow our addressable market 60% by delivering products that are relevant outside the United States.
Chris Moore: and three, extend recurring revenue customer lifetimes by aggressively driving penetration of our easily upgradable network agnostic advanced platforms.
This last point is critically important.
and Chris will discuss it in more detail later.
Speaker Change: But our goal is to win real estate on as many aircraft as possible with our easily upgradable advanced hardware and software platform.
Chris Moore: So, as technology evolves, our customers can upgrade with easy hardware swaps and software upgrades instead of the delays and cost associated with removing our products and replacing them with competitive products.
Chris Moore: to ensure that we win as much of that real estate as possible.
Chris Moore: We run a major marketing program, dubbed Galileo Catalyst, to ensure customers are aware that we are the only viable leo-cal alternative to Starlink.
Chris Moore: That program was highly successful, and Chris will talk about how that has driven high demand for our Galileo products.
Chris Moore: However, it will impact our free cash flow to the tune of about $25 million later this year.
Chris Moore: We expect several more deliverables from our multi-year investment program that should also accelerate our revenue growth.
Chris Moore: including the delivery of our Galileo FDX Leo terminal and the completion of our 5GATG product later this year and the LTE upgrade of our classic ATG network next year.
Chris Moore: Our combination with that come direct. Not only brings critically important satellite expertise into Gogo, but also accelerates achieving the goals I just enumerated. [inaudible]
Chris Moore: Their International Business Aviation and Milgove Sales Forces are primed to sell Gogo Galileo Glovely.
Chris Moore: and their high end business aviation and their milgov customer bases are particularly interested in the high capacity redundancy and geographic coverage that can be achieved with combined
Chris Moore: Although will provide formal long-term guidance later, we believe 2026 is setting up to be a significant free cash flow and flexion point for Gogo.
Chris Moore: In 2026, we should start seeing higher margin service revenue from our Galileo and 5G investments.
Gross in our Milgaugh business [inaudible]
Chris Moore: and we should see a roughly $60 million reduction in program investments.
Chris Moore: as we won, complete the major product initiatives I just described, to reduce marketing and promotional expenses associated with the Galileo Cavaliers program.
Chris Moore: Three, Center for the Investments required to achieve integration synergies, and four, achieve the full annual one rate benefits of synergies we've already achieved or planned to achieve later this year.
Chris Moore: On the synergy front, Chris and the team have done an amazing job.
Chris Moore: An example to describe in more detail, we now expect that she run rates energies at the high end of the $25 to $30 million range, which we shared at closing.
Chris Moore: We also expect to cover much of the one-time costs to achieve those energies with the Seale of SACCOM's headquarters building in Melbourne, Florida.
Chris Moore: And finally, for 2026 free cash flow, we'll benefit from the FCC receiving full funding for the Rip and Replace program late last year, with Zach will discuss in more detail in a moment.
Zach Kottner: Full funding of that program which helps us accelerate transition from our old EVDO network to LTE to that technology and remove Chinese telco equipment.
Zach Kottner: We'll also allow us to create better incentives for our old classic customers to convert to equipment compatible with the new network, further extending customer lifetimes.
Besides growth and financial benefits.
The Gogo Sack on Combination has big strategic benefits.
Zach Kottner: With the launch of Galileo, Gogo is uniquely positioned as the only competitor to Starlink with the Leo solution specifically designed for the DA market.
Zach Kottner: Providing with us with a significant competitive edge against our traditional competition.
Zach Kottner: and because of our multi-bearer capabilities, which Starlink does not have, we're a well position to provide multi-orbit, multi-band solutions that provide superior capacity, redundancy and coverage to what any competitor on their own can provide.
Zach Kottner: Finally, we believe that network technology will continue to evolve rapidly and that partnering with new partners will be critical.
Zach Kottner: By virtue of our scale within the vertical and our easily upgradable real estate on the aircraft, we believe we will be the partner of choice for new network and technology suppliers as they come to market.
Chris Moore: Now, let me turn it over to Chris, who will go over the quarter, discuss our product strategy, provide insight on our new milk-up business, and provide an update on our strategic initiatives.
Speaker Change: Thanks so can good morning. I'm happy to join you today at CEO of Gogo. I've spent the last two decades in the global telecoms and IT business space joining SACCOM Direct in late 2012.
Speaker Change: In the years since we have successfully expanded our global footprint to provide premium satellite connectivity solutions to aircraft across the global business aviation and military
Joining forces with Gogo is an incredibly exciting opportunity.
Speaker Change: Like so many in the industry, I have long admired the Gogo team and I'm honored to lead it. As Oak noted, the synergy between the two companies is already evident and I look forward to all we can achieve together for the benefits of our customers, partners, shareholders and team.
Speaker Change: Let's review our Q4 performance with reflects the fundamental strengths of our business driven by our strong market position as the only multi-orbit connectivity company in aviation along with durable demand trends.
Speaker Change: On a standalone basis, Gogo met or exceeded its 2024 guidance on all metrics, excluding transaction expenses, and SD continue to show growth as demand for geo-solutions remains across the global business aviation and military government mobility markets.
Zach Kottner: Zach will provide more detailed insights into our financial performance shortly, but I want to highlight some key areas of growth and success.
Oak: Oak shared the news of receiving PMA, but there is other big news on the Galileo front as well.
Zach Kottner: We've added another OEM selecting Galileo HDX as a life fit option for a major small mid-air frame which we will announce later this year. This brings Galileo availability for customers ordering new aircraft on four major OEMs in business aviation.
Zach Kottner: We also received the first YASA STC with Airbus on their A319 platform.
Zach Kottner: In a few minutes, when I get into our strategic initiatives, I'll provide more detail on HDX STCs and performance, all of which is positive news.
Zach Kottner: For now, let me jump into how our products fared in Q4 and calendar 2020-4.
Zach Kottner: Our GA product line has shown impressive growth, particularly in terms of aircraft online, which grew to 1,249, an increase of 65 compared to the prior quarter. As a reminder, over 74% of our GA contracts are more than one year.
Zach Kottner: This demonstrates the power of the OEM line-fix as many of these systems are installed at the factory.
Zach Kottner: It also shows the proclivity of many buyers to take both Leo and Gio offerings in order to get the capacity, redundancy and global coverage that neither Leo or Gio can provide alone.
Zach Kottner: At the premium end of the business aviation sector, Devann football capacity is surging due to the prevalence of cloud data storage, integration of aircraft, cabin networks and video
Zach Kottner: Demand for redundancy is also surging, as busy executives want to get more work done while in the air and not suffer interruptions. And finally, coverage is critical because neither Leo or G.O. are truly global.
Zach Kottner: For instance, no Leo provider can provide service today over India or China, but GO can.
Zach Kottner: and only go to meet that demand with a single integrated global solution with the ability to prioritize data traffic dependent on application and location.
ATG Product Line.
Zach Kottner: We achieve record upgrades from our classic to advanced platform in the fourth quarter, which are critical for the success of our LTE program and drive easily upgradable real states on our craft.
Zach Kottner: Additionally, we saw record Rp. 3,500, representing a 3.4% growth compared to prior year.
Zach Kottner: Furthermore, we shift 906 advance units in 2024, our second highest ever, and up from 894 in 2023.
Zach Kottner: Gogo strategy remains focused on solidifying our position as the trusted provider in the aviation connectivity market.
Zach Kottner: This involves delivering unique multi-band and multi-orbic capability, which is particularly important for high end users who demand redundancy, choice and are willing to invest in maximum global capacity.
Zach Kottner: Gogo's approach to multi-network, open architecture platforms, ensures broad mission coverage across both business aviation and military government sectors by offering dual-dissimilar options, such as combining air-to-grounds with SATCOM or Leo with Geo.
Zach Kottner: The flexibility that is core to our future proofed antenna design strategy hinges on supporting multiple barriers with network agnostic, modular terminals and extends across our product line, including our HDX and FDX Galileo antennas.
Zach Kottner: As a result with our expanding fleet, Gogo has control over the most vital real estate on the aircraft and hardware and software that can utilize multiple pens, operators and
Zach Kottner: With the upcoming launch of multiple K.A. Leo Networks, Gogo can leverage our terminal and network architecture so that we remain agnostic for our customers, enabling the latest developments from the satellite operators on any aircraft type.
Zach Kottner: Beyond our own ATG network, over time we will pursue revenue sharing agreements directly with operators to access new bands and orbits, where we control retail pricing, ensuring we maintain a strong market position and deliver value to our stakeholders.
Zach Kottner: Our ongoing strategic initiatives are directly in support of this long-term strategy. I'll provide some updates now on our key projects.
Zach Kottner: Galileo, our Leo Solution, Gogo 5G, our next gen ATG Solution, and the SEC program that is providing, upgrading, sorry, our EVVDO network and creating a larger base of advanced customers.
[inaudible]
Zach Kottner: I'll also provide some colour on the opportunity in the Milgove Burt School, starting with Gogo Galileo. As a reminder, Galileo comes in two versions, a smaller HDX terminal and a larger FDX terminal.
Zach Kottner: The Galileo HDX terminal is our first to market all aircraft product designed to fit on any size of aircraft and will deliver peak speeds approaching 60 megabits per second, which is 12 to 60 times Gogo's current ATG product offerings.
Zach Kottner: The great news is that we have aircraft on the one web network.
Zach Kottner: Today, consistently getting speeds in the 50 to 60 megabits range, even better news is that we expect a software upgrading Q2 that will increase that throughput by 20 to 30%.
Zach Kottner: H.D.X. is ideal for the 12,000 mid-size and smaller aircraft and which fly out to the side of North America and have no broadband solution today.
Zach Kottner: An aircraft among the 11,000 mid-sized and smaller aircraft registered inside North America that often fly regionally outside of Conus or want faster mean speeds than 5G can provide
Zach Kottner: Our Galileo FDX terminal is a best-in-class product specifically designed for larger jets and will deliver consistent speeds approaching 200 megabits per second.
Zach Kottner: It is ideal for the 9,700 super mid and larger jets that undergo long-range intercontinental missions or long-range missions within North America.
Zach Kottner: The FDX antenna is on schedule to launch and the second half of this year with several OEMs already awarding as line for approval for the FDX on all models of their aircraft.
Zach Kottner: Despite a late change in FAA testing requirements in December , which caused a slight delay in obtaining PMA approval for the HDX terminal.
Zach Kottner: We have just commenced shipping the HDX product to dealers to start our STC projects. We've already shipped 14 HDX units this week with many more to be shipped soon.
Zach Kottner: On top of that, we added three more STC deals to the 27 we had last quarter and now cover more than 20,000 aircraft globally.
Zach Kottner: We also have Textron cutting the HBX-N2 line bit on the longitude in 2025 with other models to follow.
Zach Kottner: Now let me turn our attention to the 5G ATG network, which we are designing for a large segment of roughly 20,000 mid-size and smaller bits in this jet and survey prop aircraft.
Zach Kottner: that fly predominantly in North America and want an excellent connectivity experience at more affordable price than Saffron Solutions.
Zach Kottner: We're pleased to share that the 5G chip is in fabrication, which is scheduled for completion in May. Gogo continues to work very closely with our vendors, partners to ensure a smooth process from fabrication through launch.
Zach Kottner: The market still continues to respond enthusiastically to the 5G value proposition.
Zach Kottner: By the end of the fourth quarter, we shed 404 pre-provision tickets and increased from 342 at the end of the last quarter. Out of those 233 tickets have already been...
Zach Kottner: installed and are operational on our network with an L5LRU. These kits include the 5G MB-13 antennas and an LX-Flying box.
Zach Kottner: which we can be easily swapped with the 5G-LX-5, once we receive the chip.
Zach Kottner: We have 25 completed STCs, end of Q4 2024, up from 21 in Q3.
[inaudible]
Zach Kottner: We look forward to bringing this product to market later this year, which will serve a core part of the Gogo customer base and extend the life of our very profitable ATG product line.
Now turning briefly to the STC Securing Networks
Zach Kottner: program, what we call Gogo Evolution. Gogo is awarded $334 million grant from the FCC under the program, to incentives to accelerate the removal of Chinese telecom technology from our EVD-Onet ground network.
Zach Kottner: In December , Congress passed the National Defense Authorization Act, Funding Bell, which fully funded this program. This means that the previously anticipated shortfall of 50 million to 60 million.
Zach Kottner: has now been covered and Gogo will be reimbursed for all reimbursable expenses. We now expect that only to be 10 to 15 million of our expenses associated with the program will be non-reimbursable.
As Oak pointed out,
Zach Kottner: This fully funding strength wins our 2026 free cash flow projections from prior expectations and enables us to enhance incentives for customers to convert from classic to advance or C1 ahead of our 2026 cut over.
The upgrading of customers hardware alongside our network investments.
Zach Kottner: enables us to deliver a stronger product for a large portion of our fleet and given the ease of upgrades within our advanced system, positions us for even stickier customer relationships over longer lifetimes with systems that are future-proofed for future advancements in technology.
Zach Kottner: We are all so pleased to announce that the Gogo C1 Line Replacement Unit has received supplemental type certification which will enable us to quickly connect classic customers to LTA.
Zach Kottner: The certification covers 70% of North America's 2,500, Gogo legacy, air-to-ground customer aircraft.
Zach Kottner: In the Milgaard vertical, we see tremendous opportunity for Gogo Solutions to be integrated with SD's Geo offerings.
Zach Kottner: Our current revenue mix in this segment includes a significant portion of legacy narrow ban services.
Zach Kottner: which are expected to decline gradually over the next several years. However, the real grave will come from the transition of Milgaugh to broadband solutions.
Zach Kottner: Today, almost all-male government mobility aircraft still rely heavily on voiceover radio and narrow ban for communications which is limited in bandwidth.
Zach Kottner: There is a significant effort underway to upgrade to new broadband satellite technologies.
Zach Kottner: For example, under the proliferated low-earth orbit program PLEO, which Gogo is a supplier, the Department of Defence recently increased its projected spending on Leo satellite services from 900 million over the next 10 years to 13 billion in the same period.
Zach Kottner: and the US Air Force 25 by 25 program aims to equip 25% of its 1,100 mobility aircraft with satellite communications by the end of 2025. This still leaves 75% of the fleet without satellite connectivity.
Zach Kottner: which the Air Force, please, must be addressed, presenting a substantial opportunity for great forego game.
Zach Kottner: Gogo's Leo product will be an excellent complement to our geoproducts in this market due to the DOD's pace protocol, which requires military programs to have primary, alternate, contingent and emergency systems.
Zach Kottner: While there has been some delays and awards as this new administration settles in and reviews programs, the general trend towards better communication systems for the aircraft that lines with the administration's broader goal of modernizing the military.
Zach Kottner: Gogo's Leo product will be an excellent complement to Gogo's Geo product in this market space. And with these initiatives in place, the Mill Gove segment is very promising for Gogo's long-term outlook and significant diversification to our portfolio.
Zach Kottner: In conclusion, Gogo has a lot of work behind us that has positioned us uniquely well to capitalize on the opportunity of a new area, era, in-flight connectivity.
Zach Kottner: Though the delay in our HDX PMA will hurt us financially this year, we expect strong profitable revenue growth next year in both Milgub and Business Aviation.
as HDX, FDX and 5G begin to drive service revenue.
Zach Kottner: Offsetting Flatish GO revenues and modest declines in older Gogo ATG products and narrow
Zach Kottner: We expect that gross profit combined with a reduction in our net program spend reduce Galileo
Zach Kottner: Four-year Synergy Benefits, Reduce Synergy Investments, and Full Federal Funding of the SCC RIP and Replace Program will help us drive A Big Dar and cash flow growth in 2026.
and now I will turn to Zach for the numbers.
Zach Kottner: Thanks, Chris, and good morning, everyone. I'm excited to be leading the financial organization for the newly combined company and pleased to share a financial performance and strategic fit.
Speaker Change: By way of a quick background, I joined SACOM Directive CFO in 2018 and previously held goals in private equity, investment banking, as well as an international aerospace incentive.
Speaker Change: I'm looking forward to continue my journey with Gogo as a business like college and I have long to do a closing of our transaction in early months for integration, the power of our combined organization is R.A. Apparent.
Speaker Change: In partnership with Oak and Chris, we're working to build a strong foundation with a focus on the synergy extraction, operational execution, as well as Iba Don, free cash with this one.
Speaker Change: I look forward to engaging with all of you in the investment community and sharing our progress today in the coming quarters [inaudible]
Speaker Change: Before we get into the details, I want to clarify a few items related to our results.
Speaker Change: First, the Q4 and full year 2024 results include the impact of the SATCOM's Direct Acquisition which closed on December 3rd, 2024.
Speaker Change: Therefore, our results include about a month of STATCOM direct results and in case of our GAAP results, about 60 million transaction related payments incurred across both companies that impacted our free cash flow.
Speaker Change: Given the timing of the closing, our results reflect limited run rate synergies that we have achieved so far and expect to realize in 2025 and beyond.
Speaker Change: Second, the combined business demonstrated strong performance across the board in the fourth quarter.
Speaker Change: Standalone Gogo-only revenue was in line with 2024 guidance and Standalone Gogo-only cash flow and profitability metrics excluding transaction expenses exceeded Standalone Gogo's 2024 guidance.
Speaker Change: And finally, our 2024 guidance reflects the Galileo HGX Terminal Launching Q1 worth revenue convincing in late Q3 and minimal 5G revenues starting in Q4.
Speaker Change: We also expect our free cashflow to improve in 2026 with the bulk of our strategic investments tied to these products coming to completion in 2025.
Speaker Change: I'll start by lock you through Gogo's fourth quarter financial performance, which includes about one month financial contributions from SACOM Direct.
Speaker Change: They all turn to the balance sheet and capital allocation priorities and finally I'll conclude with the additional context on our 2025 guidance.
Speaker Change: For the fourth quarter, Gogo's total revenue was 137.8 million of 41% year-over-year and 37%
Speaker Change: Total service revenue of $119 million was up 47% over the prior year and 45% compared to the prior quarter. Growth in service revenue primarily reflects the addition of SATCOM direct. It is also worth noting that both ATG and GA units online grew sequentially in the fourth quarter.
Speaker Change: Our total ATG aircraft online was $7,059 with 43 incremental units added in Q4, while total advanced aircraft online grew to $4,608, an increase of 16% year-to-year, and now provides a 65% of our total ATG fleet.
Speaker Change: We achieved record advance upgrades in the fourth quarter, reflecting our progress in driving penetration from classic to advance within our existing ATG fleet.
Speaker Change: converting our classic customers to advance remains a top priority. These upgrades help the sequential net increases in advance to 229 aircraft online in the fourth quarter, which represented a 40% increase versus the prior quarter.
Speaker Change: Total HEGR who also grew to a record $3,500, a 3% year-over-year increase, reflected in price increase in the show it initiated in February 2024.
Speaker Change: The launches of Galileo and 5G are anticipated further expand our R2 as will the due service
Now, turning to the Equipment Revenant
Speaker Change: Gogo delivered 4th quarter equipment revenue of 19 million of 12% year over year and 2% and sequentially largely due to the December results from SD.
Speaker Change: Regarding our profitability, Gogo has delivered service margins of 64% in the fourth quarter compared to 77% in the previous quarter as a result of including ST's results for one month.
Stanel and Gogo service margins were flat excluding SD results.
Speaker Change: Equipment margins were negative 6% in the fourth quarter driven by a combination of higher ENO reserves and certain inventory write-offs. As a reminder, we expect Galileo pricing to be close to cost.
Now it turns out pretty expensive [inaudible]
Speaker Change: In the fourth quarter, combined engineering, design and development, sales and marketing, and GNA expenses increased to 161% year-over-year, increased to 111% sequentially reaching 91.3 million.
Speaker Change: The year-over-year increase was mainly driven by 46.5 million of transaction-related expenses, which are excluded from adjusted EBITDA.
Speaker Change: I will now provide some additional commentary on our strategic initiatives around 5G, Galileo, and the FCC Reimbursement Program.
Speaker Change: In the fourth quarter, our 3.6 million to 5G spinning was comprised of 2.2 million in off-ex and 1.4 million in calf-ex.
Speaker Change: 2024 ended with approximately 4 million of 5G OpEx and 7 million in CapEx with total 5G spend for 2024 at 11 million.
Speaker Change: We maintain our estimate of 100 million total external development and deployment costs for a 5G program leading up to the anticipated launch later this year.
Speaker Change: As we turn to our Galileo initiative, we recorded 2.1 million in OPEX and 1.4 million in CAPEX in the fourth quarter.
Speaker Change: Our total 2024 expense for the project was approximately $10 million in OPEX and approximately $4 million in CAPEX.
Speaker Change: We continue to expect total external development costs for both HDX and FTX solutions to be less than 50 million, of which 27 million was incurred from 2022 to 2024, and approximately 12 million is expected in 2025 with the remainder in 2026.
Speaker Change: We also anticipate approximately 80% of Galileo's external development costs will be in off-ex
And finally, our FCC Reimbursement Program
Speaker Change: We're pleased to see the recent passage of the National Defense Authorization Act. This passage is anticipated to provide increased funding for our FCC program to support the upgrade our ATG network to LTE and provide incentives to upgrade our classic fleet to advance.
Speaker Change: This bill increased our expected program cash reimbursements by approximately 50 million and reduced our total expected net cash outlays over the course of the program to approximately 10 million.
Speaker Change: This program is a major driver for our expectations of free cash loan improvement in 2026.
Speaker Change: As a reminder, our free cash flow targets now include the impact of the FCC program [inaudible]
Speaker Change: In the fourth quarter, we received $10.8 million in FCC grant funding, bringing our program to date total to $41 million.
Speaker Change: As of December 31, 2024, we recorded a $9 million dollars receivable from the FCC and it recorded $6.9 million reimbursal spend during the quarter.
Speaker Change: This receivable is included in pre-pay expenses and other current assets on our balance sheet with the corresponding reductions to property equipment, inventory, and contract assets with the pickup and the income statement.
Speaker Change: And moving to our bottom line, Gogo generated 34 million adjusted EBITDA on the fourth quarter, which included approximately 2.1 million of operating expenses related to Calaleo, 2.2 million costs related to 5G, and excludes 46.8 million of expenses related to the FD acquisition.
Speaker Change: A significant portion of these acquisition expenses were related to contracted change of control payments for SD employees and were funded from the seller's proceeds.
Speaker Change: The 34 million of adjusted EBITDA is a decrease of 3% compared to Q4 2023 and 2% on a sequential basis.
Speaker Change: Despite the addition of SD results in December , we took approximately 8 million of non-cash impairments and write-offs that accounted for the majority of the decrease in EBITDA.
Speaker Change: In addition, we incurred net loss of 28.2 million compared to net income of 14.2 million Q4 2023 and 10.6 million Q3 2024
Speaker Change: The net loss includes $46.8 million in expenses related to the SD acquisition.
I will now provide some color on our synergy progress
Speaker Change: Driving Synergies following the close of the actuation was and continues to be a top priority for our management team [inaudible]
Speaker Change: We achieved 18 million of run rate synergy at close and expect another 9 million before the end of the first quarter of 2025.
Speaker Change: Within two years, we now expect run rate synergies to exceed our targeted range of 25-30 million, and believe the cost to achieve these centers will be at the low end of our previously expected range of 15-20 million.
Speaker Change: We plan to fund these costs with proceeds from the sale of the SD headquarters building in Melbourne, Florida.
and now moving to some very casual metrics.
Speaker Change: We reported negative $39.6 million of free cash flow for the quarter and $41.9 million of free cash flow for the full year.
Speaker Change: Those reported group figures reflect the full 60 million in transaction-related payments.
Speaker Change: is important to note that 13.2 million of these payments did not hit Gogo's P&L as they were incurred by SD prior to close and funded from the seller's proceeds.
Speaker Change: As Oak mentioned, we expect 2025 to be a trough of our free cashflow as we benefit from the ramp of new products and the rolling off of related investments.
Speaker Change: We believe that the staying free cash flow growth minus expected future earn out payments is key to driving shareholder value and will help to support the return of cash to shareholders over time.
Speaker Change: Before I turn to the balance sheet, I'll remind you that standalone Gogo-only cash flow and profitability metrics excluding SD and transaction expenses exceeded standalone Gogo's 2024 guidance.
Speaker Change: Now, I'll turn to discussion of our balance sheet, which reflects our use of 150 million cash to fund our acquisition of SD, as well as our new $250 million turn loan.
Speaker Change: As we shared a closing, the interest rate on Gogo's incremental debt is so for plus 6% and our annual cash interest expense will increase by an estimated 25-27 million due to the additional financing.
Speaker Change: Gogo's net leverage ratio at year in was 3.6 times, which was better than our original expectation of four times.
Speaker Change: The improvement was largely due to increased operating cash flow and stronger adjusted beef it up.
Speaker Change: Gogo ended the fourth quarter with 41.8 million cash and short-term investments and 850.8 million outstanding principal and archer two-term loans.
with our 122-million-dollar revolver named Andron.
Speaker Change: We expect to be back within our target range of two and a half to three times in the next 12 to 24 months [inaudible]
Speaker Change: Our cash interest paid for the fourth quarter net of hedge cashflow was 9.5 million.
Speaker Change: As we mentioned in prior quarters, we have a hedge agreement in place and at the end of July the hedge step down to 350 million with a strike rate increasing from 75 based points to 125 based points and at the end of July the hedge and at the end of July the hedge
resulting in 41% of the loans currently hedged. [inaudible]
Speaker Change: The cash interest paid for 2024, a net of hedge cash flow was approximately 33 million.
Speaker Change: As the new Gogo, our capital allocation priorities remain consistent with prior quarters. We are focused on extreme across the following four priorities in order.
First, maintaining adequate liquidity
Speaker Change: Second, continuing to invest in our strategic opportunities to drive competitive positioning in financial value, primarily through Galileo and 5G.
Speaker Change: Third, maintaining an appropriate level of leverage for the economic environment with a target and that leverage ratio of two and a half to three and a half times, and finally returning
In fiscal 2024, we executed across all these priorities
Speaker Change: We repurchased approximately 4 million of shares at a total cost of 33.2 million, including about 2.4 million by-backs in the fourth quarter.
Speaker Change: Gogo has approximately 12 million remaining of the 50 million repurchased authorization are board approved in September 2023.
Speaker Change: Looking ahead, we have committed that we will not pursue any further share repurchases until our net leverage ratio returns to our target range.
Speaker Change: We believe our expected pre-cashable growth of the next few years will provide ample access cash to pay down debt, reduce our interest expense, and ultimately return capital with shareholders.
Now, I'll turn to the guidance we announced this morning.
Speaker Change: For 2025, we expect total revenue in the range of 870-910 million for selecting our HDX launching Q1 and 5G generating modest revenue in Q4.
Speaker Change: Adjust the email on the range of 200 to 220 million reflecting operating expenses of approximately 25 million strategic and operational initiatives, including 5G and Galileo.
Speaker Change: and free cash on the range of 60 to 90 million.
Speaker Change: We expect 2025 to be a trough of our free cash celebration in a flexion point in 2026.
Speaker Change: Our combined Gogo SD business expands and accelerates our growth platform by leveraging SD strong sales and service organization outside North America and their position in the no-go market.
Speaker Change: And finally, we expect capital expenditures of approximately 60 million containing 45 million for strategic initiatives, including 5G, Galileo, and LTE Network Buildout.
Speaker Change: The Catex Guidance excludes 20 million of reimbursement from the FCC.
[inaudible]
Speaker Change: Directionally, we are seeing our first quarter of 2025 play out and online with our outlook, particularly on the free cash flow front.
Speaker Change: We are still working on our long-term model, but in the interim we remind you that preliminary targets for the combined company assumed 10% long-term revenue growth and adjusted even on margins in the mid-20s.
Speaker Change: and Summary, Gogo's performance in the fourth quarter and throughout the year demonstrates our dedication to strategic investments in prudent financial management.
Speaker Change: During this critical phase of our product lifestyle, we are concentrating on investments that will drive long-term growth and value, particularly through our keenish to the Galileo and 5G.
Speaker Change: The acquisition of SACCOM Direct has already positively impacted our business and we are confident in our market position in long term value creation strategies.
Speaker Change: Before we open the floor for questions, I want to express my gratitude to the entire Gogo team for their hard work commitment to our business and dedication to providing exceptional service to our customers.
Speaker Change: Operator, this concludes our prepared remarks and we're now ready to take our first question.
I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: Thank you. As a reminder to ask a question, please press store 1-1 on your telephone and wait for your name to be announced.
To withdraw your question, please press star 1-1 again.
Please stand by when we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Rick Prentiss from Raymond James and Associates.
Thanks. Good morning, everybody.
Chris Moore: Good, good. Welcome, Chris and Zach, good to chat with you guys.
Will Davis: Walter Stark, Chris, since this is your first call out there, you touched on some of it, but clearly, the elephant in the room is the competitive landscape. Walk us through kind of how you see the competitive landscape playing out and Gogo's position in particular.
Chris Moore: Yeah, well, first of all, it's nice to speak to you, Rick. So, yeah, when I looked at it, I think we're in a really strong position, and I think...
Chris Moore: That really goes to the remarks we've made around multi-albit capability. When I look at business aviation customers in particular, especially the high-end ones with mid to long-range aircraft.
Chris Moore: The fact that those aircraft fly globally and they fly into areas in the world that currently don't have leo connectivity.
Chris Moore: Gogo can provide not only Leo, but also Geo Connectivity. For instance, we obviously do flight deck communications as well and there were 400 flights last month inside of India that we tracked
Chris Moore: and we can provide connectivity for all of those 400 flights with our geo-licensing within country. Leo currently isn't able to have communications within that territory because of regulatory.
Chris Moore: So, it's really quite important to kind of clarify that need for multi-albit with that mid-to-long range customer base, and it has a really good similarity as well with military government.
Chris Moore: Where they will not fly, they could kind of go to operations anywhere in the world. So therefore having multi-networks and multi-capability is an essential need for not only the DOD but overseas governments within Europe as well.
Chris Moore: So, we see the competitive landscape, you know, obviously, you know, with the launch of...
Chris Moore: Galileo H.D. X. We're in a prime position to take on competition. We're actually the only competitor for Starlink.
Chris Moore: and the differences were not just selling one service. We have that multiple capability of selling multiple services to customers. So we actually believe that's really going to set us apart. And then also we have multiple opportunities for different revenue streams coming off the aircraft as well.
Does that answer your question?
Speaker Change: It does, and one of the things we've been hearing, certainly in the last couple of months and certainly in the last couple of weeks has been, seems to be an international brewing pushback against Starlink. Any thoughts on what you're hearing out there in the global space? [inaudible]
Speaker Change: Yeah, I think it's kind of an interesting time in the moment, people. I think we're going to see more of a push towards kind of like how do sober and based communication networks work.
Speaker Change: and that need for differentiating services. I mentioned before between Leo and Gio. I think that's going to play really well for Gogo.
Speaker Change: and the fact that we're regulatory compliant globally and we have differentiation of service. I think that's going to be really attractive to a lot of sovereign nations of currently looking at mission-critical infrastructure and also high net-worth individuals.
Speaker Change: as well. I actually think the opportunity for us is really great, so I'm really excited about the launch of HDX and to follow FDX. I think it's a really great time for our business.
Speaker Change: That would just add one thing, Chris, which is a whole notion of being upgradable to new technologies. You buy Starlink, you're stuck with Starlink [inaudible]
and today, they served.
Speaker Change: Their customers are the KU Network. For instance, KAA Networks are going to come along, they're going to be much faster They're not going to want to upgrade customers and customers are starting to get
Speaker Change: That, that they're kind of going to be trapped in the Starlink Echo system if they don't.
Speaker Change: Go with us and into something that's highly flexible and upgradable
Speaker Change: The other big thing, of course, Chris also is support and Zach comes direct famous for its levels of customer support and that's something that people really value spend $80 million on the jet. The last thing you want is not to be able to get somebody to answer the phone if you have an issue. So both Gogo and Starlink are very good at that.
Speaker Change: and as a result of a very loyal customer basis and so that's another big big big different. Yeah I think the big differentiation towards any competitor is if something goes wrong in an aircraft we can get somebody an under 24 hours to that airplane anywhere in the world.
Speaker Change: Great, that's good. And then one for Zach, you know, nice to meet you as well. Clearly a lot of work going on. You mention that you're still working on the long term modeling. What should we think? What is exactly that you need? When should we expect some more long term financial targets to be restored out there? Yeah.
Speaker Change: Yeah, so we're kind of trying to decide if we're going to do it on the Q1 call and or have like an investor day because there's a lot of moving pieces with this.
Speaker Change: We'll have it wrapped up in the next four to six weeks and we're just trying to figure out the best way to disseminate that information. Obviously there's a lot of moving pieces with kind of the geomarket, you know, the milgovs new to the combined business and there's a lot of variables that want people to understand.
Speaker Change: So we'll keep you guys abreast of the plan but it's all forthcoming [inaudible]
Speaker Change: That would be great, and the last one for me is a lot of buzz on direct-to-device, right? So cell-a connectivity to the smartphones, a lot of different cell-a companies playing in the space, carriers playing in the space.
Speaker Change: People get asked us the question then, why quit and people just use their smartphone in a plane if they're truly able to get not just emergency connectivity but some of the operators and plans for direct device or broadband. So maybe just a little touch on that. What does direct device mean in the future here?
Speaker Change: Yeah, I think directed device when we're looking at that with some of the announcements really kind of voice text capability, whereas the really what's driving our mission if you look at it is true broadband capability within the aircraft.
Speaker Change: So, therefore, things like video conferencing, the ability to be actually on your corporate network, full side of security, it is a lot more advanced, so I think kind of if you look at that office in the sky concept.
Speaker Change: Also, from a military point of view, it's about mission, critical communications mission,
Speaker Change: So, it's really interesting technology, but obviously we've kind of over the years moved away from that kind of voice to text and really we're a true broadband capable business.
Speaker Change: and driving broadband services across those connections. So we see kind of like the video conferencing high resolution, streaming straight to the bulk head monitors within the aircraft.
Speaker Change: HD, capable systems watching over the top applications like Netflix, as really kind of the business aviation community and the government then has its own requirements as well.
Speaker Change: They're our challenge for getting directed to advice through an airplane fuselage as well, which is not trivial. Yeah, and I think that's the the other bit as well when you're flying at 500 miles an hour or so.
Speaker Change: kind of prospect on that. I know touched on the service and the quality as well is making sure that you can fly anywhere in the world and you have, for these type of customers, have a consistent service globally. So it's interesting but not really in our space.
Speaker Change: Great. Thanks so much, guys. Thank you. Thank you. Thank you for your questions.
Thank you. One moment for our next question.
Simon Flannery: Our next question comes from the line of Simon Flannery from Morgan Stanley .
Simon Flannery: Great, thanks very much. Good morning and nice to connect as well, best of luck with it.
Simon Flannery: Just following up on Rick's questions, could you talk a little bit more about FDX? Is that like six months behind HDX when you expect to?
Simon Flannery: C-Service Revenue is coming from that and what's been the reception.
Speaker Change: from Investors, and then Zach, just help us with the SATCOM Direct Revenue model, if you could. I see 23.9 million revenues for the stub quarter. I see 1249 aircraft. You didn't give us an R-Poo. Presumably, there's other stuff in here, satellite broadband revenues like Milgavel and so forth, so...
Speaker Change: He's R-Poo, 10,000 a month, what's the trend in that R-Poo? Any color if you have around how we think about that as we build our models going forward? Thank you
Speaker Change: Yeah, thanks, Simon. I'll handle the FDX question first, so we're pretty excited. We've already got at the X antennas and our headquarters in Brunefield, working great.
Speaker Change: The big thing is, is making sure that the antennas are air-worthy parts, we've learnt a lot from the HDX.
Speaker Change: PNA, so we're very confident we can launch that product in the summer and we'll then start developing STCs and a little bit of public.
Speaker Change: Modus Revenue before the end of the year, but that's really kind of, we see the revenue on that kind of picking up in kind of Q1226.
Speaker Change: So super excited about that because that gives us that that's equipment revenue isn't yeah no service revenue
Speaker Change: So, and obviously you need to sell the equipment anyway to get the service, so it'd be a mixture of both, but that gives us then the four-portfolio between HDX and FDX.
Right.
Speaker Change: Good morning. So regarding the revenue, I'll get it a little bit.
Speaker Change: Hard to follow because of the stub period and all that but you know just remind folks you know was December 3rd right so it wasn't a full month almost a month
Speaker Change: You know, the full months are you know, been trending in the low 40 million and that's on a combined basis right and then we think about that 40 million.
Speaker Change: about 20% has been milgove, the rest is business aviation, connectivity and piece of the
Speaker Change: We're not releasing our prune yet for the Geo product, but I will say the vast majority of that is our JX product, which is with MRSAT right, and that's grown very nicely over the past few years. And we anticipate that.
Speaker Change: to continue to grow modically this year, but obviously we will see some pressure on the ARPA as well as the units online just because of natural attrition. But regarding the guidance, we think it's...
Speaker Change: It's pretty reasonable. We try to be as mathematical and thoughtful about the degradation and the arpa, arpa, so that's kind of high level the revenue model that's helpful.
Speaker Change: That's great. And you're back to Rick's question on competition. Are you seeing any changes in industry pricing in the last few months here?
Speaker Change: No, actually it's not seeing any changes in pricing or additional pressures within the last few months
Thanks so much.
Thank you, Clexon.
Thank you, one moment for our next question.
Speaker Change: Our next question comes from the line of Louis DiPalma from William Blair.
Speaker Change: Oak, Chris, and that good morning and congrats on your new roles and also congrats on closing
Thanks, Louie.
for everyone in the prepared remarks.
You mentioned...
Speaker Change: Revenue Sharing Arrangements with your satellite operators, and this seems to be a potentially new economic model. Could revenue sharing arrangements potentially enable you to maintain your margins with
Speaker Change: Multi-Orbit offerings, such that if you're putting both the one web connectivity and the in-marset JX connectivity, the same aircraft, can you potentially maintain the same margin? Thanks.
Speaker Change: Yeah, so that's a good question, Lou. So we've moved all kind of our main arrangements are all now with rev shares with the operators, which actually I think.
Mutually beneficial for their man for us, is it sir?
High Opera Sector.
When you look at both business aviation and military
Speaker Change: and then the opportunity with the multi-orbit really is, there is a level of consistency across those.
Speaker Change: Revenue Shares. They vary a little bit differently, but that enables a greater flexibility in service pricing and capability for the customer, which we're pretty excited about.
[inaudible]
Great, and another one.
Speaker Change: The JS product in 2025, I think you reported strong net additions in the fourth quarter, but should that momentum continue in 2025 as Starlink has also continued to gain traction?
Speaker Change: Yeah, like we said, we think it will, you know, we're anticipating modest improvement, not the same kind of growth that we've seen in years past and I think a just a big driver of that to remind folks is
The JX has historically not been STATCOM direct equipment.
Speaker Change: We've been the service provider, right, and that's the line fit on a lot of aircraft, especially gold string. So it's going to keep getting delivered. Still getting turned on just not as much, not at the clip it was before because if you think about it, if you. [inaudible]
Speaker Change: You know, if you buy a new jet, typically, you're not going to [inaudible]
Speaker Change: put it down and it's been another $600, $700,000 to put a different intent on.
Speaker Change: And like we said, we've seen the ARPA hold up pretty well. It's honestly held up better in the last
Speaker Change: 18 months and we've anticipated. And largely that's because the switching cost is a nuisance and it's been working quite well.
Speaker Change: Thanks, that makes sense and my question was mostly focused on the service revenue and the net additions just because...
Speaker Change: I don't think investors care as much about the equipment revenue because of one time, and Gulf Stream, I think two months ago, put out a pressure release regarding how they are not going to promote.
Like Starlink [inaudible]
Speaker Change: Like factory installation. So I was just wondering, has that impacted your backlog?
Speaker Change: Do you expect a continued positive net as for J-X and it seems like you do?
Zach Kottner: Yeah, I think to what Zach said, we've put it down as like modest, but I think the benefit is with our GX services and also...
Zach Kottner: Plain Simple KU with Intel South Services, they've got a particularly good goal string but the GX services and some instances are tight certified into the airframes on some airframes which...
Speaker Change: Makes me particularly sticky and then going back to that multi orbit position, Louis, if you're buying a G600 or a G700 or a G800
Speaker Change: These are global mission aircraft, so having that need for multi orbit capability.
Speaker Change: We believe even if the customer is putting on a competitive product.
Speaker Change: We're still there as well because also remember we sell the cabin routing environments as well so having that kind of seamless connectivity experience no matter where they fly globally is really important for those types of customers and I think gall string believes in that too.
Man, if you're spending $80 million on a jet [inaudible]
Speaker Change: and they say to you, okay, you want Starlink? Do you still want the Geo? You know, Starlink doesn't cover China, India, etc. has some other blank spots.
Speaker Change: You want continuous coverage or not? And most people say, especially corporations? Yeah, we do. And so they're going to want it as a backup.
Speaker Change: And for those people, more capacity is better and the more they can get the better. So if you look at Sterling, give me 200, but then G.O. is starting to ride 100 megabits per second more in a year or two, why not add it?
Excellent, thanks. Thanks, Chris Sack, and an Ops.
Thanks Louie.
Thank you, one moment for our next question.
Speaker Change: Our next question comes from the line of Sebastiano Petti from J.P. Morgan .
Speaker Change: I welcome Chris and Zach, and Oak it's hard to believe it's been seven years. Just maybe some housekeeping questions perhaps.
Speaker Change: As we're thinking about 5G in fabrication now, are we out of the woods here, given some of these flips?
Speaker Change: You know, that we saw in 2024, I mean, what is the confidence that, you know, maybe, you know, that that product is indeed, you know, continues to progress from here hasn't anticipated. I guess maybe how you're thinking about that and maybe the timeline and next.
milestones there.
Speaker Change: Exceed the high end of the 25-30 million range. You're going to be at 27 million exiting the first quarter
Speaker Change: to help us, you know, obviously, you know, we always sell sideers or would like more information, help us maybe triangulate, you know, where, where are you in terms of? [inaudible]
and what other cost-in-issures may be coming out of that?
Speaker Change: How high could those synergies be and just maybe triangulate? Are you just running ahead or is there more just latent opportunity there? And then lastly, just on the capital allocation in the press release.
Speaker Change: We talk about evaluating a return of capital to shareholders once leverage.
Simon Flannery: Falls below three and a half, but on the, and you're prepared remarks, I believe Zach as well, you also did talk about getting to your leverage range I think within the next 12 to 20, 12 to 24 months. So you can help us try to square those two.
Simon Flannery: You know, even even if you do go below three dot five and you're not necessarily at your leverage range, you know, the implication there that maybe at that point, you would evaluate shareholder returns in some capacity. Thank you.
Speaker Change: Alright, there's a lot of questions to Sebastiano, so we'll start with the 5G.
Speaker Change: I would say that that is the one critical item remaining in terms of getting the 5G product done. I mean the network's built all the equipment.
Speaker Change: Frankly, already SDC'd in PMA, there are claims flying with the equipment installed today.
Speaker Change: We'll just need a box swap for a box that has a 5G chip set of a 4G chip so we're really pretty well primed to deliver and I think the only risk is around to bring up on the chip.
Speaker Change: You know, this chip has been looked at so many ways by so many smart companies and people at this point that we feel like the risk of it failing on bring up is pretty low but that risk is always obviously still there so you know we can't I can't tell you that that that risk is going to zero because it has not. [inaudible]
All right.
Speaker Change: You know, I think the market especially sort of, you know, light mid-size jets that fly mostly in North America and are relatively more price sensitive than people who go for satellite is the big market and a big opportunity for us.
Speaker Change: We don't have a lot of competition in that space either, so we're still very optimistic about the prospects for that product.
Zach Kottner: The next question is the $60 million net save, Zach. You want to jump?
Zach Kottner: on that? Yeah, just more, not only the 60 million net saves, but just the synergy run rate already being at the, you know, you're already almost at the high end here, exiting the first quarter, you talked about that being.
Zach Kottner: A multi-year thing, and just trying to maybe size the savings there. That's perhaps in the context of the 60 million.
But sorry about that [inaudible]
Zach Kottner: Yeah, so I'm sorry with this energy so you know obviously these companies were
Zach Kottner: of a similar size, right? And as we all know, naturally, there's a lot of labor pieces to this just because of redundancy.
Chris Moore: The positive thing is that the vast majority of the 75% have been labor related, right? So these aren't kind of high in the sky sort of, you know, go get, so to speak. You know, Chris and I have only been here for about three months, so we haven't been able to get into a lot of the other...
calab.
Operational type synergies, like software expenses for one.
Speaker Change: There's a lot of redundancies on those that we have to go through.
Speaker Change: In addition, I don't know if you publicly said it but we're moving manufacturing from Canada down to
Speaker Change: Roonfield, so, you know, that should be the Michael Mell savings, but I think the positive thing is, you know, we've originally kind of talked about up to 24 months, but
Speaker Change: The, you know, almost all of these will be executed this year, right? So we'll be in a good spot But and I get it because you guys want to figure out how to model this and that's what's tricky because you know there are offsetting costs right that we have to kind of think about and so. So.
Speaker Change: That's why we see the flatish EBITDA, it's like where the synergy is going, and really you have to think about, you know, we have a little bit of compression on the, you know, the JX and
Speaker Change: I know that's a little bit hard to model, but like that kind of had the way you have to think about it is the service and equipment margins are kind of offsetting some of the synergies
Speaker Change: That makes sense. Yep. And then on the capital allocation, I'll try to address that you can. So, you know, obviously this is a board approved allocation. We haven't really refreshed it yet. You know, I
Speaker Change: You know, return on capital, right? What's the best use for cash? So we're going to explore that with the board kind of looking at the
Speaker Change: The different return profiles of returning cash to shareholder versus certain delivery initiatives over the next 12 months.
Speaker Change: You know, we do believe that we'll be below the target leverage at year end, I think pretty conservatively. So I would just say stay tuned over the next quarter to as we kind of, you know.
Refine the capital allocation strategy [inaudible]
Speaker Change: Yes, I'm sorry, I'm a little bit exact and make sure a credit goes where credit is due. I mean today
Speaker Change: Totally achieved synergies of $27 million. Run rate have already been achieved. There's no debating that. Those changes have been made and the saves are real.
Speaker Change: There's more already in the works for later this year and I think that Chris and Zach will continue to upgrade the street on where those synergies are going. I would say that this is a highly organized effort.
Speaker Change: There's 36 value streams that are under analysis and teams that are working on taking the best of both companies and integrating them into single processes. There's going to be a lot of synergy realized in that and I think that that will help you guys add over the years.
Speaker Change: or two, that's energy achievement. So it's really been a great effort and a very highly organized effort. So you know, congrats and hats off to you guys.
Thanks a lot.
Thank you. One moment for our next question.
Speaker Change: Our last question comes from the line of Scott Searle from Roth Capital.
Scott Searle: Hey, good morning. Thanks for taking my questions. Oak, Zach Chris, congrats on getting the deal done. Zach and Chris nice to meet you over the conference call here. Hey, maybe just a quick week.
Scott Searle: Died in, again, on the 5G front, so to kind of piggybacking on the last set of questions.
Speaker Change: Spent a lot of time at Mobile World Congress with different guys within the ecosystem and sounds like the Silicon is increasingly confident that we're at that point.
Scott Searle: Could you just two things? Take us through the timeline in terms of-
Scott Searle: Getting that to commercialization in your product from a firmware in the testing standpoint on your end.
Scott Searle: And then I'm kind of curious, we've had a lot of discussion today about multi-orbit.
Scott Searle: but ATG seems like it's taken a smaller position in the dialogue today. How important is 5G to growth? Is ATG still a real growth category as you're looking out over the next years, you know, several years given penetration rates in North America?
Scott Searle: Yeah, so why don't I just kind of cover the multi-orbit piece? When I talk about multi-orbit, obviously, you know, it's a little bit of an interest in one with 5G is in obviously it's coming from the ground, but we see that as a key part of the multi-orbit capability.
Scott Searle: on the fact that, you know, not only could you be using satellite communications within North America, for instance, but you can also augment certain services over the 5G service and the fact that 5G is moving to a true broadband service. So, we actually see, obviously, the...
Scott Searle: kind of revenue for it, probably is going to be a little bit less as a primary, however it makes it really get back up service and also an alternative means service.
for people like the crew and allowing that capacity.
for a product like HDX or FDX.
to be a primary communications.
Scott Searle: for the principal or the team in the back of the aircraft if it's a military aircraft. So we can actually start doing some really cool prioritization of service via our access or FDR range of routers as well. So we do see it as a primary product and then if you go downstream into the small jet market.
Scott Searle: Really just become very, very cost effective for aircraft not leaving North America. You then have a true broadband.
Scott Searle: solution. And we've obviously, you know, the Gogo team's done a great job of making that very upgradable in the current A, it's a ground ecosystem. So there's two aspect just ready to small jet customers.
Scott Searle: Who we've got great enthusiasm from our MRA partners who are installing the hardware, still a lot of interest from those small jacked customers, and then going into the mid-large jack and military aircraft, there's a real high potential.
Scott Searle: There are having this as a backup solution and an alternative means for communication.
Scott Searle: and it becomes really interesting as well with removing the Chinese equipment out of there from a side security posture point of view, which is something really serious and...
Thanks for watching.
Scott Searle: You know, the traditional SD business has already done very well on that because of our military government heritage as well So I really do see a lot of future with the products. The way it's kind of adopted by customers might change a little bit but it's a great pairing solution with our Leo strategy. Thank you.
Yeah, then the 5G piece, I think [inaudible]
Speaker Change: Scott, you're familiar with the, you know, when that chip's coming out of fabrication, obviously.
Speaker Change: You know, we have to, it has to go through a series of testing, you know, there's GCT and Samsung's testing and then it gets the air span and they do some testing and then we're trying to run as much in parallels we can.
Speaker Change: But then there's certain things we have to test before we can start putting that in boxes and shipping it so
Speaker Change: You know, we expect that we will be getting that in the boxes, you know, late Q3.
Speaker Change: Shipping and starting to produce revenue in Q4. There are some people that will go to service revenue fairly quickly because they already have all they've got to do is swap in LX-5 for
Speaker Change: and L5 with a 4G chip. That will be a relatively easy conversion for those that already are pre-provisioned, so those people will get to service revenue relatively quickly. So I think you'll see sort of a mix of service and equivalent revenue in Q4.
Speaker Change: Great, thank you very helpful. And lastly, if I could just kind of wrap up on some house cleaning and I apologize I've been going in and I coverage if this was covered.
Speaker Change: But can you calibrate us in terms of what non-Gapop X is going to look like in the first quarter? And then as we get to the end of this year, it sounds like you're well ahead from a cost reduction standpoint, but there are some additional one-time costs in terms of being able to get the Galileo customers and channel up and running. Could you remind us then how much is going to come out of one-time costs? [inaudible] I'm sorry, I'm sorry, I'm sorry, I'm sorry
Speaker Change: in 2025 then as we go into 26 to think about what that cost structure really looks like and maybe one other calibration question on saccom direct kid you know what is the grocery bin in the last couple of quarters specifically in the fourth quarter in that core business
Speaker Change: How has that been progressing, and maybe if you could just update us on the Gross Margin profile there? Thank you
Speaker Change: We've got to break your question down a little bit, Scott. We haven't provided specific guidance for Q1, and I don't think we will. So there's that piece. To the SATCOM growth, fourth quarter, over a prior year, fourth quarter was strong. I don't know if you have it handy, but...
Speaker Change: Yeah, I mean, from a legacy perspective, the business aviation growth has been growing.
Speaker Change: at low double digits, mid double digits for last five years. And that's...
Speaker Change: largely because of that JX business. You know, like I said, I joined...
Speaker Change: Yeah, well, we have flex exactly another one we're doing with Intel SAT, but I joined SAT comp six years ago, and we were consistently add 120 to 140 tails.
Speaker Change: Associate with JX, and their very sticky-riest Christmas and their annual long-term contract and typically, you know, the net tail growth has increased every single year because like I mentioned, people don't want to put the aircraft down to kind of swap and it's worked.
you're asking for what I will say.
is that, you know, the EBIDOT guidance we've provided.
Speaker Change: It's pretty steady throughout the year. It's modest increases in Q3 and Q4. So...
Speaker Change: It's not like a P&L hockey stick to hit this guidance. Obviously, some of the revenue is coming in Q3, Q4 with the one's HCX star-stinary revenue because of these initial shipments
Speaker Change: and the catalyst program. So there's no real revenue associated with that. And then like I mentioned on the 5G front it's it's minimal revenue because like you said there's there's risk there right and we're trying not to.
Speaker Change: to be overly aggressive because we are dependent on other parties to get that done. And that's that you for.
Speaker Change: And I think was there another question we had? Well, I think there was a question around the shift from 25 to 26. I think that things that come off our investments and
Speaker Change: 5G and GBB largely. Also on a net basis, the FCC program improves in terms of cash flow. There's some SATCOM product development that also matures in this year and will go down quite a bit next year.
Speaker Change: The Catalyst Program, which I noted was $25 million. It'll hit cash flow this year. It'll be largely behind us next year.
Speaker Change: Let's see, the cost to achieve synergies would be largely behind us. We guided I think that that was 13 to 15 million something on those lines. I think about 13 of that will be this year so the pretty minimal next year.
Speaker Change: and then we have, you'd probably familiar with our air span.
Speaker Change: Re-Bobber, we think we may need, we're counting on having to maybe lend them some money this year, that it won't, would not repeat next year. So you get all that, all that stuff comes off, then you get that gets offset by some additional product investment we're going to make in some other places, but it won't be anywhere near as large as what we've been doing. [inaudible]
Speaker Change: and that's how you get to a net reduction of roughly 60 million, which I alluded to in my script, in terms of...
Investment Dollars, both Catholics and Off-Ex [inaudible]
Speaker Change: Great. Thank you so much, guys. Yeah, I really appreciate it. Nice talk to you.
Speaker Change: Thank you. At this time, I would now like to turn the conference back over to Oakleigh for closing remarks.
Speaker Change: Oh, thank you very much, everybody. This will actually be the last Gogo conference call that I will eat in turning the con over to Chris will be leading the next call. I just wanted to say a quick word to the self-side guys who've been following us for all these years.
Speaker Change: and the investors have followed us and it's been a real pleasure dealing with you all every quarter on these calls. And thank you for your smart questions and hard work on understanding Gogo and paying attention to our story. So thank you very much.
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.