Q1 2025 Gogo Inc Earnings Call
William Davis, Simon Flannery, Scott Searle, Zachary Cotner, Zachary Cotner, Michael DiPalma
. . . . . .
Good day, and thank you for standing by. Welcome to the Q1 2025 Gogo Inc. Earnings Conference call.
at this time, all participants are in a listen-only mode.
After the speaker's presentation, there will be a question, answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Will Davis head of investor relations? Please go ahead.
Will Davis: Thank you, Gigi, and good morning, everyone. Welcome to Gogo's first quarter of 2025 earnings conference call.
Speaker Change: Joining me today to talk about our results are 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. [inaudible]
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. Those risk factors are described in our earnings release file this morning.
Speaker Change: and a more fully detailed note under risk factors filed in our annual report on 10K and 10Q and other documents that we have filed with the SEC.
Speaker Change: In addition, please note that the date of this conference called is May 9th, 2025.
Speaker Change: 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.
Speaker Change: During this call, we'll present both GAAP and non-GAAP financial measures. We've included a reconciliation in the explanation of adjustments.
Speaker Change: and other considerations of our non-GAAP measures to the most comparable GAAP measures in our first quarter of our annual release.
Speaker Change: This call is being broadcast on the Internet and available on the investor website.
Speaker Change: Naring's release is also available on the website. After management comments will host a Q&A session with the financial community only.
Chris Moore: It is not my great pleasure to turn the caller with you
Chris Moore: Thanks Will and good morning everyone. Thank you for joining us today as we continue to merge Gogo and Zach come direct. I'd like to say how proud we are of the progress our volleyball team is making.
Chris Moore: The murder is already indicating that it was a positive strategic move for our employees, our customers and investors.
Chris Moore: We've built strategic and commercial momentum for the last quarter, resulting in significant milestones achieved with PMA approval for our HDX and FDX Galileo antenna execution of new OEM agreements for our Gogo Galileo service.
Chris Moore: The confirmation of the fabrication of our 5G chip and grew in the number of aircraft online optimising RGO satellite services.
Chris Moore: with PMA approvals, particularly significant as they will enable us to begin shipping products.
Chris Moore: The SDX PMA approval came just this week, almost two months ahead of schedule, and we expect the SDX to follow a similar successful roll-out with tenant DCs already queued.
Chris Moore: I'm looking forward to talking you through a strong Q1 performance which will cover our quarterly operating results, provide updates on our G-O-N-A-TG product.
Lines and highlights of success in realising acquisition related cost energies.
Chris Moore: We will review the demand potential in our markets and our line of strategic approach to capitalize on these opportunities to enhance shareholder value.
Chris Moore: Following this, I will share progress on key strategic initiatives and conclude with a brief assessment of the potential impacts of tariffs on our business. Finally, I'll turn it over to Zach for the financial updates and then open up for Q&A.
[inaudible]
Chris Moore: Driven by a stronger than anticipated service revenue, early than expected synergy realisation and deferral of some expenses related to new product investments, we delivered quarter that exceeded our plans and concessors on revenue adjusted EBITDA and free cash flow.
[inaudible]
Chris Moore: On the Riveny front, our strong results were driven by both AOL and maintaining ARPA.
G.O.F.Craft Online Group. See you.
Chris Moore: 1,280 aircraft, up 2.5% from 2024 year-end, and up 16% from Q1 2024.
Chris Moore: and even more encouraging, we ship 31 new GO terminals in the quarter, but from 18 units in 2021-2024.
Chris Moore: Many new units were lined for installations, buyers often wanted to avoid the costs, delay, and
Chris Moore: which is why securing a line for option with OEMs is advantageous.
Chris Moore: Customers expect connectivity from the day of aircraft delivery to automated bandwidth, redundancy and coverage
Chris Moore: This course will strengthen our life they're offering while confirming our plain simple K.A. ban terminal as a line's the option for goal strains, G5 and 500 at frames.
We experienced.
Chris Moore: A modest decline in Earth Ground AOL, primarily due to maintenance suspensions on older Earth Ground classic installed aircraft. We expect a reversal of this trend once the launch of our new broadband networks.
offering this later this year.
Chris Moore: A key ATG metric for us is the increased penetration of our software centric advanced platform which delivers a cost effective, simplified path to advanced technology like air-to-ground broadband and Galileo, and Prinsett presents a significant advantage over competitive solutions.
Chris Moore: Our advanced platform gains substantial momentum this Cotner with a record of 119 upgrades from our classic products and 19% increase over the previous Cotner at 241 units were shipped to Deliz Preparing for Galileo Connectivity Installations.
Chris Moore: We also saw a rise in a penetration within the air to ground fleet up to 68% up from 65% the prior quarter and 58% on 2024.
Chris Moore: We are pleased to report significant progress towards our synergy goals with over 85% of targeted Senate Savings already realised.
William Davis, Simon Flannery, Zachary Cotner, Zachary Cotner,
Chris Moore: Additionally, we completed key actions to reach the high end of our 25th to 30 million energy cost savings guidance, positioning those for higher than projected cost savings this year and full realisation in 2026.
Chris Moore: We currently have 40 integration initiatives that we expect to complete over the next 12 months. In addition, the combined company's headcount will be reduced by 21% by the end of the second quarter.
Thank you. Thank you. Thank you.
Chris Moore: So, sorry, through leverage common systems and process, we are streamlining the organization and expect to find additional synergy opportunities as we prepare the organization for the future.
Chris Moore: Key Synergy projects include consolidating manufacturing by relocating SD avionics production from off to a two-brainfield, Colorado Day.
Chris Moore: Transitioning Data Center operations from our least Chicago location to our wholly owned second-direct facility in Melbourne, Florida. And the plan sale of our Melbourne headquarters building, which is expected to offset.
Chris Moore: The 15-to-20 million investment required to achieve the projected recurring synergy savings.
Chris Moore: We continue to expect strong free cash flows in 2026. This will be driven by higher margin service revenue from our Galileo and S-Gram, broadband investment and the benefits from the four-year impact of realised cost synergies further contributing to the profitability.
William Davis, Simon Flannery, Scott Searle,
[inaudible]
[inaudible] I'm sorry. I'm sorry. I'm sorry.
Speaker Change: is an anticipated 60 million reduction in net program spend as grant and Galileo program roll outs, conclude an integration synergy investments are finalized.
Chris Moore: Moving on to the market demand, the business aviation sector presents a significant opportunity for increased broadband connectivity usage.
Speaker Change: Currently only about a third of the world's business jets and a fifth of all business aircraft.
including Turbay Props have any connectivity.
Speaker Change: The number are lower outside of the United States. We're just 12% of business
Speaker Change: Noothbly, there are 5,000 mid and small jets and 7,000 turboprops outside the U.S. There have been no prior access to broadband solutions, highlighting a substantial unmet demand within
Speaker Change: A healthy and growing business aviation industry characterized by strong OEM, book to build ratios and expanding fractional fleets and robust flight counts.
Speaker Change: Turning to the mill-governability market where demand is also strong, we see the opportunity for Gogo solutions, our current revenue mix, and the segment includes the significant proportions of legacy narrow-banned services.
Speaker Change: which we're expected to decline gradually over the next several years, but we'll be replaced with growth from the transition of milgove to saccombral band solutions.
William Davis, Simon Flannery, Scott Searle,
Speaker Change: Under the proliferated Leo Orbit program, P. Leo, to which Gogo is now a key supplier, the Department of Defense recently increased its projected spending on Leo satellite services from 900 million over the next 10 years to 13 billion in the same period.
Speaker Change: The US Air Force 25 by 25 program is lagging behind its goals to put 25% of its 1100 aircraft with satellite communications by the end of 2025.
Fritz, this means...
Speaker Change: More than 75% of this flick is still without satellite connectivity, which the Air Force believes must be addressed, presenting a major opportunity for Gogo's great.
Speaker Change: Our multi-band Leo and GEO offerings also support the DOD paste-prote call, which requires the military to implement primary, alternate contingent and emergency systems.
Speaker Change: We also see increased demands overseas as non-US governments disengage from their reliance on the DOD for military support and ramp up their investments in defense spending, including commercial communication systems.
Speaker Change: Moving on to strategy, we continue to advance key initiatives that are critical for our continued penetration of the business aviation and military government mobility markets.
Speaker Change: Our strategy is to grow shareholder value by driving rapid growth in long-term, high margin recurring revenue customers, relationships, and these dynamic sectors.
Speaker Change: We've invested three years in low-earth orbit satellite and broadband air-to-ground technology to improve service quality and coverage by developing a purpose-built product portfolio that is easy to install, maintain and upgrade.
Speaker Change: Crucially, our network agnostic hardware and software architecture allows for faster, cheaper upgrades, ensuring the long-term competitiveness.
Expanding on target addressable market with the
Speaker Change: Business Aviation and Ministry of Government Birk, of course, it is crucial to achieving off-penetrating goals, saccom directs, global sales and service network extends our reach and has increased our access to Leo Tam by 60%.
while also providing geosatellite solutions. [inaudible]
Speaker Change: Dispositions Gogo as the only ISC company offering multi-orbit geo-leo-f-ground broadband solutions in the business aviation and government and military markets.
Speaker Change: Our comprehensive suite of hardware and software products complemented by value-added services delivers a unique competitive advantage, enabling us to score more aircraft types than any other provider.
Speaker Change: We continue to strengthen our global network of 140 dealers across 229 locations. These dealers act as a committed business partners and are invested in STC generation with us.
which significantly amplified our sales effort.
William Davis, Simon Flannery, Zachary Cotner,
Speaker Change: Now I'd like to review our key strategic initiatives supporting on growth strategy.
William Davis, Simon Flannery,
Speaker Change: The Utah South One Web Leo Network is operational and represents the latest addition to our broadband broadening portfolio.
Speaker Change: Powering of Gogo Galileo's compact flat panel antennas, which can be equipped on a broad range of aircraft types.
Speaker Change: This new product opens an untapped market for us and gives us more capacity to offer to
Speaker Change: This is a key differentiator as Gogo is now the only provider that can deliver purchase belts, hardware and multi-network capabilities, world-class customer support, a global sales force, an extensive dealer channel and OEM line-fit positions to our target markets from a single
Speaker Change: The Galileo HDX terminal is our first market Leo product designed to fit on any business aircraft. It is expected to deliver 60 megabits downlink, which is 12 to 60 times the speed of our current Gogo EarthGround product offerings.
We have time for 10.
Speaker Change: targeting the 12,000 mid-size and smaller aircraft flying outside of North America and have no broadband solution today.
Speaker Change: and the 11,000 mid-size and smaller aircraft, either flying regionally outside Cona's or our owners who are willing to pay for faster, mean speed than our air-to-ground broadband products alone can provide.
William Davis, Simon Flannery, Scott Searle,
[inaudible]
Speaker Change: We're ahead of schedule on FTCs, having confirmed five of them year-to-date [inaudible]
Speaker Change: One in Canada, three in Europe , one of which is for the world's most popular business jet, the embryo Venom 300, and our first US FAA STC, which was confirmed this week for the Gulf Stream G200.
Speaker Change: We currently have aircraft type with the products installed in aircraft registered in Europe and Brazil. Perhaps most importantly, passenger reaction to HDF product has been outstanding and passenger feedback is incredibly positive.
Speaker Change: Utah Sub 1 web has confirmed a software update that will improve performance up to 30% when it comes online.
Speaker Change: In Q1, we ship 36 HDX units, 20 of which were for STC and 8 for revenue. We recognise 1 million of equipment revenue in the quarter. Year-to-date, we have ship 59 units, including 42 for STC's.
Speaker Change: We've already announced that HDX is aligned with the option with Textron for the longitude, latitude and ascend operators. We are pleased to announce that we're close to signing with a second OEM and hope to confirm this at our next call.
Speaker Change: In North America, we have over 300 opportunities for HDX and 25 for AFDX, which is almost 60% of the pipeline.
William Davis, Simon Flannery, Zachary Cotner,
Speaker Change: As I mentioned earlier, we received PMA had a schedule for the FDX terminal and can begin shipping products to dealers to develop past TCs immediately.
Speaker Change: The FDX Terminal is designed for larger business aircraft operators that fly intercontinental missions and are expected to deliver up to 195 megabits per second.
Speaker Change: The 10 STC agreements for the 10 super mid to heavy business jet types are expected to be completed in the latter half of 2025 and early 2026.
Speaker Change: We have previously mentioned another signed agreement as a line-fit option with a major OEM for all
Speaker Change: I'll finish by noting that 4,700 advanced customers can take advantage of an easy Galileo upgrade when we release a software update for the SACON direct routers, another 2,200 could also benefit from the upgrade.
and others. Thank you. Thank you.
[inaudible]
Speaker Change: As most of you know, our 5G tower network is built and ready to go live as all the LRU and Airborne antennas required to access the network. I'm pleased to confirm that our chip set supply has successfully completed fabrication and is now in the process of packaging the chip.
Speaker Change: which will be followed by the bring-up process for deployment readiness.
Speaker Change: The market continues to respond enthusiastically to the 5G value proposition with 301 aircraft now pre-provisioned for launch, up 29% from the 233 pre-provisioned at the end of 2024.
Speaker Change: We expect the launch to be relatively straightforward, once we receive the 5G chip because the 5G, MB 13 antennas and the 5G AlliU have already received PMA and have 25 STCs in place.
Speaker Change: We look forward to bringing this product to market later this year, which will extend the life of our out-of-ground product line, which supports a core set of Gogo customers.
Speaker Change: I'd also like to share a brief update on the FCC's Secured Networks program.
Speaker Change: which we call Gogo Evolution. Under this program, the SEC award, Gogo a 34 million grant.
Speaker Change: to accelerate the removal of foreign telecom technology from our terrestrial network.
Speaker Change: As we announced last quarter, Congress patched the National Defence Authorisation Act, funding bill in December 2024, fully funding the RIP and Replace Programme.
This is additional funding.
Speaker Change: Eliminates any potential shortfall and takes places to complete the project and then enables us to provide alternative incentives for Gogo Classic customers choosing to whop tonight our new LTE network when we transition in 2026.
Speaker Change: The interest in the C1 LTE product continues. Upon launch of the C1 LTE box, 76 units were immediately shipped to customers. The C1 LTE product is a drop in solution for classic customers which have...
Speaker Change: Dual EVDO and LT Air Cards, ensuring seamless support for our network cut over.
[inaudible]
Speaker Change: For customers lacking time or budget for an advanced upgrade before our 2026 cut over, this solution enables a cost-effective option that keeps our customers connected and preserves Gogo service revenue from this market segment.
Speaker Change: Before handing over to Zach to talk financials, I would like to touch on the potential impact of current and proposed tariffs on our business.
Zach Cotner: For contacts on the agreements on trade in civil aircraft treaty, agreed to the Paris Accords and approved by US Congress in 1979, aircraft or aircraft parts were exempt from tariffs.
Zach Cotner: before the recent announcements. In that environment, US Aviation Industry flourished.
Zach Cotner: With aviation exports historically running six times higher than the amount of aviation imports ironically imposed tariffs on imported aviation parts could push up the cost of US manufactured aircraft potentially making the aviation industry less competitive.
Zach Cotner: As you know the situation with respect to terrorists remains fluid and we are adapting as needed.
Zach Cotner: was relocated to Brunefield even before we knew of the terrace to be in post
Zach Cotner: Based on the current tariff environment and recent analysis, we believe we have modest exposures to tariffs. Under the current tariff proposal, we can absorb tariff impacts within our current guidance.
Zach Cotner: In conclusion, Milgov Fleet worldwide are in various stages of upgrade strategies, demand for broadband from new aircraft categories is high, and we believe the opportunities presented by the new Leo Network and the upgraded GEO Network will all continue to stimulate revenues.
[inaudible]
Zach Cotner: We're looking forward to producing compelling financial results due to growth in service revenue, a significant reduction in product development programmes, spending, the four-year impacts of synergies, we expect to achieve this year and full funding of our FCC Rip and Replace programme. I will now hand over to Zach to present the numbers.
Zach Cotner: Thanks, Chris, and good morning, everyone. I'm pleased to report First Quarter Resolve for a head of expectation on both the top and bottom lengths. In addition, five months after the close of the SACOM Direct Transaction, we see improved product execution, strong financial discipline and integration progressing well.
Zach Cotner: We're still in the early days of the integration, but we believe these positive developments are setting the table for future free cash flow growth and material delivery gene as we look to 2026 and beyond.
Zach Cotner: Even this period of global macro uncertainty, we are reiterating our 2025 financial guidance including the impact of current and proposed tariffs.
Zach Cotner: Our 2025 guidance reflects small amounts of Galileo HDX equipment revenue in Q2, an FDX launch in the late summer, and assumes minimal 5G revenue beginning in Q4.
Zach Cotner: We expect the Galileo HDX service revenue to ramp it in the first quarter of 2026.
Zach Cotner: I'll now provide an overview of Gogo's first quarter financial performance, then I'll turn to our balance sheet and capital allocation priorities, and finally, I'll conclude with the additional context on our 2025 guidance.
Zach Cotner: For the first quarter, Gogo's total revenue was $230.3 million, up $121% year-over-year and 67% sequentially.
Zach Cotner: On a standalone basis, SACCOM Direct's Q1 revenue proved 10% from the prior year.
Zach Cotner: Total service revenue of 198.6 million was up 143% over the prior year and 67% compared to the prior quarter [inaudible]
Zach Cotner: At the end of Q1, we had 6,902 total ATG aircraft in line, which was a decline of approximate 3% compared to Q1 2024 and 2% compared to Q4 2024.
Zach Cotner: We achieved record advance upgrades in the first quarter and converting our classic customer's advanced continues to remain a top priority.
Zach Cotner: Advanced AOL reached 4,716 of 15% in the prior year and now comprises 68% of the total ATG fleet, up from 58% in the prior year quarter.
Zach Cotner: Our 2025 guidance assumes continued advance growth, but the overall ATG AOL will be lower at year in 2025 versus 2024.
Zach Cotner: Total ATGR pool of 3,451 dips flightly sequentially and a flat from the prior year as we initiated a price increase in February of 2024 [inaudible]
Zach Cotner: Total Broadband G of GOAL, excluding networks that are end of life, reached 1,280 of 179 aircraft and 16% year over year, and up 31 units and coincidentally.
Zach Cotner: The majority of geo-broadbane aircraft are under fixed-term contracts helping you create revenue stability. In addition, our geo-arpo is holding up better than expected.
Now turn to Equipment Revenue.
Zach Cotner: Total equipment rather than the first quarter was 31.7 million, up 40% year-over-year and 67% sequentially. The number of advanced equipment units shipped increased 19% sequiturally to 241.
Zach Cotner: With regard to our profitability, Gogo delivered service margins of approximately 53% inclusive of SATCOM direct. Stand along Gogo service margin was about 77% and in line with our previously stated targets.
Zach Cotner: 98% of our gross profit in the first quarter was tied to service revenue and we run the business to drive this recurring high margin service revenue.
I'm Chris Cotner. I'm Jessica Betjemann. Thank you.
Zach Cotner: Equipment margins were 7% in the first quarter, and as a reminder, we expect Galileo Equipment
Now turn to Aubrey and Expense.
Zach Cotner: In the first quarter, total operating expenses excluding depreciation and amortization were 57.6 million and more than 5% below our budget, which helped drive better than expected adjusted EBITDA.
Zach Cotner: I will now provide some additional commentary on our major strategic initiatives around 5G, Galileo and the FCC Reimbursement Program.
Zach Cotner: In the first quarter, 3.5 million 5G spending was comprised of 1.3 million optics and 2.2 million
Zach Cotner: We expect 5G spend to declines in the skill in 2026 as we roll out 5G and Q4.
[inaudible]
Zach Cotner: Turns to Galileo, recorded 1.2 million op-EX and 1.5 million capex in the first quarter.
Zach Cotner: We continue to expect total external development costs for both the HDX and FDX solutions to be less than 50 million, of which 27 million was incurred from 2022 to 2024, and approximately 13 million is expected in 2025.
Zach Cotner: We participate approximately 80% of Galea's external development process will be in ethics
And finally, our FCC Reimbursement Program.
Zach Cotner: Following the passage of the National Defense Authorization Act late in 2024, we continue to anticipate an increased reimbursement of about 50 million for our FCC program to support the upgrade of our ATG network to LTE and provide incentives to upgrade our classically to advance.
Zach Cotner: This will reduce our total cash outlays into the program to 10 million and should be a primary driver of our 2026 free cash flow improvement.
Zach Cotner: In the first quarter, we received 5.9 million FTC grant funding, bringing our program to the day total of 47.19.
Zach Cotner: As of March 31st, we recorded a 10.7 million receivable from the FCC and incurred 6.9 million
Zach Cotner: It's receivables included in prepaid expenses and other current assets on our balance sheet with corresponding reduction to property equipment, inventory and contract assets with a pickup in the income statement. [inaudible]
Zach Cotner: Moving to our bottom lines, Gogo generated 62.1 million in Adjusted EBITDA on the first quarter, which includes approximately 1.2 million of operating expenses related to Galileo and 1.3 million of cost related to 5G.
Zach Cotner: Our justice EBITDA margin was 27% as compared to our long-term view in the mid-20s when the SATCOM acquisition was announced in September .
Zach Cotner: In addition, Gogo reported first quarter net income of 12 million equating to 9 cents of diluted EPS.
I will now provide some color on our synergy progress
Zach Cotner: We have made good headway driving synergies and we believe that we have more to go. We achieved 18 million of run rate synergies to close with the acquisition and add another 9 million during the first quarter call.
Zach Cotner: All in line with what we said on the fourth quarter call [inaudible]
Zach Cotner: In two years, we continue to expect run rate synergies in the $25 to $30 million range.
Zach Cotner: As we sell in the Q4 call, we still believe the cost to achieve these synergies will be at the low end of our previously expected range of 15 to 20 million. And we anticipate funding these costs with proceeds from the sale of the SD headquarters building in Melbourne, Florida.
Zach Cotner: Moving to free cash flow, first quarter free cash with a solid $30 million and we view the current proposed tariff situation as manageable.
Zach Cotner: We expect to have plenty of cushions or any minor tariff impacts on our 2025 free cash
Zach Cotner: We continue to expect that 2025 will be our trough year of free task load, new products and the course-biting product and lessons roll off.
Zach Cotner: We believe that sustained free cash flow growth, and mine is expected to feature earn out payments, is the key to driving shareholder value and will help support the return of cash to shareholders over time [inaudible]
Now I'll turn to the discussion of her balance sheet.
Zach Cotner: Gogo into the first quarter with 70.3 million cash and short-term investments and 850 million outstanding principles on our two-term loans, with our $122 million revolver remaining
Zach Cotner: This equates to a net leverage of 3.4 times at the end of the first quarter, and we expect this ratio to remain relatively flat as we move through the year.
Zach Cotner: Our leverage trends are better than when the fact comes deals announced largely due to higher
Zach Cotner: Our cash interest paid for the quarter, net of cash, net of hedge cash flow was 17.8 million.
Zach Cotner: As we mentioned in prior quarters, we have a hedge agreement placed and at the end of July , the hedge steps down to 250 million, with the strife rate increasing from 125 bips to 225 bips, resulting in 29% of the lungs being hedged
Zach Cotner: As a reminder, the cash interest paid for 2024 net of hedge cash flow was 33 million. We expect that to you approximately 70 million this year.
Zach Cotner: Our capital allocation and priorities remain consistent with prior quarters and focus on executing across the following four priorities in the order.
Zach Cotner: First, maintaining adequate liquidity. Second, continuing to invest in our strategic opportunities primarily through Galileo and 5G.
Zach Cotner: Third, maintaining appropriate level of leverage for the economic environment with the target net leverage ratio of 2.5 to 3.5 times and finally returning capital shareholders.
Zach Cotner: As a reminder, Gogo has $12.1 million remaining on $50 million repurchase authorization that our board approved in September of 2023.
Zach Cotner: At 3.4 times, we were just to take under the high end of the target of leverage rain and we continued to monitor the markets to determine a reasonable strategy to refinance our term loan fee.
[inaudible]
Zach Cotner: We believe our expected free cash flow growth over the next few years will fight ample access cash to pay down debt, reduce our interest expense and ultimately return capital shareholders.
Zach Cotner: and our earnings release this morning, the company reiterated our 2025 financial guidance, adding that it includes the current and proposed impact of global tariffs.
Zach Cotner: For 2025, we expect total revenue in the range of 870 to 910 million, reflecting the HDX launching Q1 and 5D generating modest revenue in Q4.
Zach Cotner: adjusted EVOT in the range of 220 million, reflecting operating expenses of approximately 25 million strategic and operational initiatives, including 5G and Galileo.
Zach Cotner: Free cash flow in the range of 60 to 90 million, and we expect 2025 to be the trough or free cash flow as we have approximately 70 million inflated for strategic investments, none of SCC reimbursement.
Zach Cotner: Finally, we expect capital expenditures of approximately 60 million, containing 45 million for strategic initiatives, including 5G, Galileo, and LTE Network Build.
The Catholics guidance excludes 20 million reimbursement from the FCC.
Zach Cotner: We remind you that preliminary targets for the combined company is in 10% long-term revenue growth and adjusted EBITDA margins in the mid-20s.
Zach Cotner: We anticipate providing updated targets once our long-term plan is finalized.
Zach Cotner: In summary, Gogo's first quarter performance highlights our focus on new product execution and financial discipline.
Zach Cotner: The positive impacts of the acquisition are visible in our results, and we believe that a fully integrated, Gogo, SACCOM Direct global business will have the scale, market positioning, and the broad product portfolio needed to deliver the balance sheet, drive free cash flow, and create long-term shareholder value.
Zach Cotner: Before we open the four-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.
Zach Cotner: Operators, this concludes our prepared remarks and we are now ready to take questions.
Thank you.
Speaker Change: As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.
Speaker Change: Our first question comes from the line of Rick Prentiss from Raymond James and Associates.
Hey, Eric Thanks, everyone.
Speaker Change: As Brent Pentair on for Rick.
Speaker Change: Appreciate the color on the modest tariff impact and it's absorbing the guidance can you size that for us in terms of the dollar amount is now baked into your guidance on tariffs.
Speaker Change: Yes, it's about.
Speaker Change: Around five ish million dollars, it's kind of half EBITDA half working capital.
Speaker Change: A lot of it is from our purchases of inventory.
Speaker Change: So and like I said most of our revenue is service based.
Speaker Change: Exempt.
Speaker Change: Okay got it and then just on the broader economy.
Speaker Change: Can you update us on the proportions of your customer base.
Speaker Change: That our corporate versus charter high net worth et cetera.
Speaker Change: The combined company now that we have satcom and what portion of your customer base would you view as economically sensitive.
Speaker Change: Given some of the macro fears out there and if youre seeing anything any impact so far.
Speaker Change: Yeah, we're not really seeing any impact to total I mean, the good thing with the businesses, we're really divest internationally.
Speaker Change: And we're not really seeing any kind of impacts at this point in time.
Speaker Change: The other bit with the government business.
Speaker Change: When we look at.
Speaker Change: Any potential impacts usually they're all we've seen that in the past with trends.
Speaker Change: Trends in the past that that.
Speaker Change: Business aviation, but when we look to Covid and 2020.
Speaker Change: If it goes down slightly than the government business goes up say, we're feeling pretty confident at the moment.
Speaker Change: I am deliveries look good.
Speaker Change: As we mentioned in the cole with the Geo Activations that still up.
Speaker Change: And the demand on the pipeline for Galileo is exceptionally strong.
Speaker Change: Okay, and then last one for me.
Speaker Change: The 10% growth at Satcom since we don't have all the historical is there could you break down roughly the growth rate that you saw in <unk> between Geo broadband versus narrow band versus 1000 Gov.
Speaker Change: And since Gogo investors are newer to that business.
Speaker Change: How should we think about kind of a long term sustainable growth rate and what's baked into that 10% combined guidance that you gave in terms of satcom growth.
Speaker Change: Yes, there is a lot to unpack I will try to distill it as best I can.
Speaker Change: So I would say the vast majority of the growth was related to Geo broadband.
Speaker Change: And.
Speaker Change: You can see that like we said with the Geo units online.
Speaker Change: So and then.
Speaker Change: Within that there is a.
Speaker Change: Pretty sizable piece and 1000 Gov that was also a <unk>.
Speaker Change: Broadband.
Speaker Change: We're not the 10% was the previously guided long term growth rates. So we're not prepared to discuss the long term rate on this call, but I mean, if you. If you want to think about the trend thats really the geo broadband units online.
Speaker Change: Okay. Thank you everyone.
Speaker Change: Thank you Brent.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Sebastiano Petti from J P. Morgan.
Sebastiano Petti: Hi, Thank you for taking the question I guess, just relatedly to that.
Speaker Change: Maybe you can.
Sebastiano Petti: Perhaps that give a little bit of color.
Sebastiano Petti: With the tariff impact not quite that extensive.
Sebastiano Petti: We would have thought that you would probably grow revenue sequentially from here over the balance of the year as the shipments from the Galileo start coming on.
Sebastiano Petti: But the guidance if you run rate the first quarter implies you are above the high end of guidance for the year. So just any considerations as we think about that glide path from here.
Sebastiano Petti: And then I have a follow up.
Yes, so we noodle this a lot to try to try to make sure we're being thoughtful.
Sebastiano Petti: About the trends of the business.
Sebastiano Petti: Think one of the two of the big factors that we.
Sebastiano Petti: We monitor very closely that are really kind of outside of our control is the continued path of atg units online right. Because Q1 was a little rough on that side.
Sebastiano Petti: And then as well as the <unk>.
Sebastiano Petti: <unk> units online as well as the corresponding harpoon, we don't release, our <unk> for the Geo business, but it is holding up much much better, but we do anticipate continued pressure.
Sebastiano Petti: On that piece going forward so yes.
Sebastiano Petti: That holds up better than we kind of think there could be upside and closer to the high end.
Sebastiano Petti: But again, it's early days, we're only a quarter and so we just want to make sure we're being thoughtful about those trends.
Sebastiano Petti: The new combined business and kind of how the Leo story unfolds.
Speaker Change: Okay. That's very helpful. Thank you for that and then just as you touched on exactly the atg units online.
Speaker Change: A little bit softer I think Chris in your prepared remarks, you talked about just maintenance suspensions, but obviously the debate and the.
Speaker Change: On the cover story overall, there's obviously the competitive environment and so how do we how should we think about just getting comfort about maybe this is maintenance related as opposed to share competitive losses.
Speaker Change: Within the Atg segment specifically.
Yes.
Speaker Change: When our customers spend.
Speaker Change: We have really good market intelligence data on why customers all suspending or.
Speaker Change: Leaving the network.
Speaker Change: So.
Speaker Change: Yes, when we look when we look at that information actually is pretty well educated said, it's not kind of.
Speaker Change: I guess why is that so.
Speaker Change: Ground sideways.
Speaker Change: We're still very confident we can see OSA with customers.
Speaker Change: Pre provisioning for five G, which I think is a good indicator as well in the market that people still want to service.
Speaker Change: Unlike the Gi business, which is more kind of contractually the 12 months plus.
Speaker Change: Ground business is actually there is a lot of customers with a more flexible based contracts.
Speaker Change: It's really kind of hard to put some trends around that but when we're looking at the reasons why people are suspending we're haven't got really major concerns at this point.
Speaker Change: Got it and then.
Speaker Change: Lastly on the <unk>.
Speaker Change: Broadband I mean.
Speaker Change: Obviously.
In fact, you did touch upon there some mill Devin that you don't necessarily disclose but.
Speaker Change: Units are up 16% year on year.
Speaker Change: Aircraft online up 16% year on year.
Speaker Change: Obviously.
Speaker Change: Lots of concerns as well from a competitive standpoint about that but help us think about how you see that business today from a from a relative competitive standpoint, how youre thinking about it over time as this are the Geo broadband aircraft online.
Speaker Change: A source of.
Speaker Change: Potential upgrades to Leo and Youre Galileo solution over time, just how you're kind of thinking about the trends in that over just a multi year basis. Thanks.
Speaker Change: Yes.
Speaker Change: Obviously, there is great there and Jay which is really encouraging I think that just demonstrates the power of line fit as well with the Oems and their customers are obviously still taking the survey.
Speaker Change: You kind of hit a good point I think we see two things with Gallo one is customers may.
Speaker Change: Great and replace Jay that's a definite potential.
Speaker Change: But as I mentioned on the last call. We also see kind of the mid to large jet market taking.
Speaker Change: Taken as a supplement.
Speaker Change: Having both Leo and Geo and then going into the government sector, that's actually a requirement with the paste planning the primary alternate contingent an emergency so we do see kind of.
Speaker Change: Modest growth.
Speaker Change: And it's kind of difficult to predict but.
Speaker Change: That's really why we see the market but.
Speaker Change: Geo is holding up exceptionally well I would say think that okay. The demonstration to kind of glide with competitive products that may be a potential that there is a little bit of a cooling off.
Speaker Change: And also the <unk> products, so you've got a lot more.
Speaker Change: Competitive with speeds, but obviously with alere it slightly.
Speaker Change: Big different offering from a latency point of view say with our mid to large jet customers, we see that more kind of like as I said.
Speaker Change: Implements and then hopefully that.
Positive for the business.
Speaker Change: Thanks again, everyone.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Scott Searle from Roth capital.
Scott Searle: Hey, good morning, Thanks for taking my questions. Congratulations on a great first quarter out of the gate.
Speaker Change: And Chris maybe to start I want to confirm on the <unk> chip front, you've used the word fabrication a couple of times in your opening remarks, I want to confirm that you guys have actually gotten some testing back on it and this chip as you go outside of some some basic firmware upgrades and testing and otherwise and I was wondering if you could also take us through the milestones to getting that law.
Speaker Change: Jump in running it sounds like Youre tracking towards the fourth quarter of this year and finally on the <unk> front help me reconcile.
Speaker Change: Noel.
Speaker Change: <unk> down.
Speaker Change: Existing 2025, given the impact that we're expecting to see from five <unk> at some point late this year and certainly into 2026, and then I had a follow up.
Speaker Change: I'll try and cover that.
Speaker Change: With the fabrication. It's just at this point we've been at this stage before so we're being.
Speaker Change: Pretty cautious at this point I mean, obviously when you bring up the chip you have to layer it.
Speaker Change: Actually come up with the fabrication of the products.
Speaker Change: That will then guide from our supplier.
Speaker Change: Go into packaging and then ultimately then we have to bring up as well. So we've got these stages.
Speaker Change: What will unfold over the next.
Speaker Change: <unk>.
Speaker Change: Several months and that's why we'd go.
Speaker Change: Hopefully the network being launched in the fourth quarter.
Speaker Change: Everything's looking good say, Paul we have been to this stage before let's say.
Speaker Change: Sure.
Speaker Change: Very optimistic but.
Speaker Change: We don't want to really say much more than that at this point regarding.
Speaker Change: The actual business.
Speaker Change: I think our covenant and the last comment but.
Speaker Change: We see that kind of.
Speaker Change: Suspensions people coming back online.
Speaker Change: Q1 is usually a big heavy maintenance window for a lot of customers. So the story unfolds across the year, we still think thats strong upgrades for customers going into.
Speaker Change: <unk>.
Speaker Change: More advanced as a ground products and obviously opportunity for those customers with Galileo as well.
Speaker Change: Great. Thank you very helpful and if I could on the Galileo front.
Speaker Change: Sounds like that was the PMA approvals you are really progressing well on both the <unk> front.
Speaker Change: I'm wondering just from a competitive landscape standpoint, if your expectations for the size of the market and share increasing given the success early success that youre, having with FDIC and HTS and it's kind of a flip in Twitter comments from Elon Musk, we're actually driving some competition in opportunities and share your.
Speaker Change: Direction. Thanks.
Speaker Change: Yes, I think the big thing.
Speaker Change: We encourage we got over 300 customers in the pipeline already for HD X, which I think speaks massive volume say, we're really excited about that.
Speaker Change: Also the FTC, we're saying no slow up and.
Speaker Change: That's why the MRO is that so important to us.
And yes competition is healthy I think it's a really really good thing is I think customers have been waiting.
Speaker Change: With.
Speaker Change: Having a competitor.
Speaker Change: In the market and then also the Mdx PMA. We're ahead of schedule. Our engineering team has done an amazing job we.
Speaker Change: We had a lot of lessons learned.
Speaker Change: From <unk>, we were able to accelerate productivity market, which is fantastic news.
Speaker Change: And those Stc's announced starting to become a real thing is we can ship products.
Speaker Change: We're really excited from a competition point of view I think is really important as well.
Speaker Change: Competition is good but.
Speaker Change: We're really focused at providing the enterprise product global and then to the earlier point, whether it's Leo and Geo together or Leo on its own.
Speaker Change: We actually see a really good kind of positive opportunity.
Speaker Change: For the prototype season, we look at the mix in.
Speaker Change: Our pipeline just a hasty exit amendment is about 60 40 split.
Speaker Change: Between North America, and the international market.
Speaker Change: And I think that's a real strength of go getting moving forward with the Satcom direct acquisition. We've now got access to a complete global sales team, which no say, we can provide support anywhere in the world. So we can get on a plane and typically under 24 hours. If there is any problems.
Speaker Change: With systems, and then I'll say.
Speaker Change: Made massive investments in regulatory compliance as well so we're really excited.
Speaker Change: We're getting really great reaction from customers and I'd.
Speaker Change: I think that splits as well, it's really interesting on kind of lie about pipeline split with 40% from coming I would say is I think is really encouraging.
Speaker Change: Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Justin Lang from Morgan Stanley.
Speaker Change: Yes, hi, good morning, Thanks for taking the question.
Speaker Change: A lot's been covered I just wanted to ask one on the milk of business, Chris you mentioned at the top with <unk>.
Speaker Change: Own pace, but I was hoping you could project, maybe a little more color on some of the trends youre seeing in that business just given some of that.
Speaker Change: Hey, fast changing dynamics, we're seeing in defense and government markets in the U S and Europe.
Speaker Change: European Defense spend clearly on the rise use top of Trillium here in 2006. So just curious if youre seeing new opportunities emerge really the near term in this space.
Speaker Change: Yes, I would say.
Speaker Change: Pretty much what we've just covered I mean, there is really encouraging in the moment.
Speaker Change: <unk>.
Speaker Change: Overseas markets, which.
Speaker Change: It's been kind of a little bit sleepy before in the past.
Speaker Change: Dependent on the data to date.
Speaker Change: <unk> really.
Speaker Change: Seeing a lot more.
The mining coming from more suffering based networks.
Speaker Change: I would say the ability to.
Speaker Change: Have a little bit more control on that future capabilities.
Speaker Change: We see a great opportunity within the European environment also.
Speaker Change: Southeast Asia and some other.
Speaker Change: Territories as well.
Speaker Change: Great News is with go specialized staff in those areas and then the Dod's ready as I mentioned in the call really looking that tech refresh.
Speaker Change: And.
Speaker Change: That narrow band.
Technology, they've been very dependent on for a long time and the difficulty of gritty.
Speaker Change: Moving into new services and installations of those services, we've really kind of we feel with the HD X and the <unk> with really kind of created a very easy to install platform.
Speaker Change: Taking a commercial proposition into the government trying to drive out costs.
Speaker Change: All of them as well.
Speaker Change: And.
Speaker Change: Really don't want that kind of thousand dollar Ham amendment for the government, what we really want to do is drive in.
Speaker Change: The scale of.
Speaker Change: Commercial solutions.
Speaker Change: We're really we're very very kind of encouraged about our business unit, we feel very optimistic about it yes.
Speaker Change: Yes.
Speaker Change: All of the things you mentioned were starting to really see those and also the support for our partner Eutelsat. One web is really increasing and you can see that we have a lot of press and kind of the traction that you're getting as well.
Speaker Change: Very excited about the opportunity.
Speaker Change: Great I appreciate it good to hear all the Cowen. Thanks.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Louie Dipalma from William Blair.
Speaker Change: Chris Zac and good morning.
Speaker Change: Good morning.
Speaker Change:
Speaker Change: When taking into account the.
Speaker Change: The one time program costs.
Speaker Change: And and further expected synergies.
Speaker Change: Much of the 2025 costs.
Speaker Change: Should go away.
Speaker Change: For 2026.
Speaker Change: Yes.
Speaker Change: We estimate that we're saying anywhere from $60 million to $70 million, you said youre really seeing all of this stuff hit.
Speaker Change: Obviously, there will be some.
Speaker Change: Investment as we rollout kind of our five year R&D roadmap, but.
Speaker Change: I think it's going to be a lot tighter and that sort of what we said is $60 million to $70 million of kind of cost that should be pulled out.
Speaker Change: Great.
Speaker Change: The breakdown how much of that should be opex versus capex.
Speaker Change: I'm looking at here.
Speaker Change: I don't have that in front of me.
Speaker Change: Later, I'll be able to pull it up.
Speaker Change: Okay great.
Speaker Change: And another question.
Speaker Change: Chris from a high level can you discuss the.
Speaker Change: <unk> performance for HD X for the initial adopters I know that you said that it's performing according to spec, but can you remind us what the.
Speaker Change: Specs are and.
Speaker Change: How is the performance of <unk> and <unk> Dx should compare to the Sterling performance.
Speaker Change: Yes, I think.
Speaker Change: I would say that a couple of things we've got customers flying around in Europe.
Speaker Change: U S right now actually paying customer in Europe, while its fleet operator.
Speaker Change: Services, working flawless and <unk>.
Speaker Change: They're able to do everything they want to do from teams meeting.
Speaker Change: Streaming movies on the bulk heads.
Speaker Change: And then the nice thing with our solution is obviously is completely integrated into the cabin management system.
Speaker Change: Regarding kind of comparisons to competitive products all of this fully a speed.
Speaker Change: Ultimately a hasty exit design Scout 60 Megabits per second.
Speaker Change: We're seeing the product performed within that.
Speaker Change: Parameter.
Speaker Change: Link speeds are solid.
Speaker Change: And really when you look at the passenger counts on those jets.
Speaker Change: More than enough capacity flat.
Speaker Change: Flexibility I think everybody gone kind of speed, Matt everybody talks about speeds, but nobody talks about the consistency of the cake and the capacity.
Speaker Change: <unk> capability.
Speaker Change: Within flight.
Speaker Change: Really what we're focused on is that and also having service level agreements that we can back that up with but.
Speaker Change: Everything we've seen with customers is extremely encouraging.
Speaker Change: We're really excited.
Speaker Change: <unk> signal.
Speaker Change: Some customers down in South America.
Speaker Change: And that's the other the nice thing we're seeing about the service is just consistent wherever these customers are flying it completely global and we've got the.
Same expectations from <unk> as well.
Speaker Change: Yes, we're pretty excited about it.
Speaker Change: Great. That's it for me thanks, everyone.
Speaker Change: Yes. Thank you.
Speaker Change: Thank you.
Speaker Change: At this time I would now like to turn the conference back over to will Davis for closing remarks.
Speaker Change: Thank you everyone for joining our first quarter conference call. This morning. This concludes our call.
Speaker Change: You may now disconnect. Thank you.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Speaker Change: [music].
Speaker Change: Okay.