Gogo Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 9 speakers on the call.

Operator

Thank you for standing by, and welcome to Gogo Inc. First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. I would now like to hand the call over to William Davis, Vice President, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Latif, and good morning, everyone. Welcome to Gogo's Q1 of 2024 earnings conference call. Joining me today to talk about our results are Oakley Thorne, Chairman and CEO Jesse Betjeman, Executive Vice President and CFO. Before we get started, I would like to take this opportunity to remind you that during the course of this call, we may make forward looking statements regarding future events and the future performance of the company. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward looking statements on this conference call.

Speaker 1

Those risk factors are described in our earnings release filed this morning and are more fully detailed under Risk Factors in our annual report on 10 ks and 10 Q and other documents that we have filed with the SEC. In addition, please note that the date of this conference call is May 7, 2024. Any forward looking statements that we make today are based on assumptions as of this date. We undertake no obligation to update these statements as a result of more information or future events. During this call, we'll present both GAAP and non GAAP financial measures.

Speaker 1

We've included a reconciliation and explanation of adjustments and other considerations of our non GAAP measures to the most comparable GAAP measures in our Q1 earnings release. Call is being broadcast on the Internet and available on the Investor Relations website at ir.gogoair.com. The earnings press release is also available on the website. After management comments, we'll host a Q and A session with the financial community only. It's now my great pleasure to turn the call over to Oakley.

Speaker 2

Thanks, Will, and good morning, everyone, and thanks for joining us on this call. So Gogo achieved strong results in the Q1, setting a record for free cash flow in open market share repurchases even as we continue to invest in bringing our next generation products to market. Gogo Galileo, our low earth orbit satellite product and Gogo 5 gs, our next generation North American air to ground product. We believe these products will accelerate our revenue growth beginning next year as they deliver 1st, order of magnitude improvements in the speed of Gogo service 2nd, deliver a 60% increase in our total addressable market and third, extend customer lifetimes by providing easy and compelling upgrade paths for our Avance installed base. Our Q1 performance was fueled by Avance equipment revenue, which experienced a rebound from Q4 2023 and record service revenue driven by a modest price increase and record Avance upgrades.

Speaker 2

We consider every Avance installation a strategic win because it provides that customer with easy upgrade pass to new technologies like 5 gs and LEO with Gogo rather than going to the expense of installing equipment from a competitor. The jump in orders we had in Q1 is great proof of that point. Our surge in orders was driven by 2 factors. 1st, OEMs that want the line fit install of ANSEL 5s often with 5 gs antennas so that those planes are ready for easy upgrades to 5 gs or Galileo. And second, pull through in the OEM and aftermarket channels from NetJets who also wants to install all 5s and MB-13s to be ready for either 5 gs or Galileo.

Speaker 2

This morning, I'm going to start by highlighting some demand trends we're seeing in the BA market that continue to underpin our bullish outlook, then provide an overview of our Q1 results and finally dive into our progress on strategic initiatives. Jesse will then walk through the numbers and discuss our 2024 and long term guidance. Overall demand for Business Aviation Flights and demand for connectivity on those flights remains strong. Gogo equipped BA flight counts were up slightly year over year, a reversal of last year's slightly downward trend and more importantly, flights remained significantly elevated from pre COVID levels with Q1 up 29% from Q1 2019. As for data demand, consumption per flight hour was up 13% from the year ago quarter and up 101% from pre COVID Q1 twenty nineteen, demonstrating strong demand growth.

Speaker 2

Further evidence of this is that twice as many customers requested service plan upgrades in the quarter as requested downgrades. This demand is further demonstrated by strong OEM order books and very strong fractional sales, all of which we expect will drive Gogo shipment growth over the next few years. Now let me turn to our Q1 performance. Revenue was up 6% year over year with service revenue up 4% and equipment revenue up 13%. Quarter over quarter total revenue was up 7% with service revenue up 1% and equipment revenue up 34%.

Speaker 2

Our record service revenue was driven by a 19% increase in advanced service revenue over prior year and a 5% sequential increase over Q4 'twenty three, offset by a decline in Gogo Classic service revenue as customers migrate to Avance. We grew total Avance units online 19% over prior year to 4,110 aircraft or 58% of our ATG installed base. Our advanced beachhead will only grow faster as we incent our 3,200 Gogo Classic customers to migrate to LTE as part of our participation in the FCC Secure and Trusted Network Program, better known as RIP and Replace. We had a slight decline in overall units online for the quarter as we implemented an inflation driven 4% price increase, which included adding minimums to our hourly plans. And as expected, some hourlies dropped their service, accounting for a loss of less than $400,000 of annual service revenue.

Speaker 2

Equipment revenue was driven by Advanced Equipment sales being up 24% year over year and 39% sequentially from Q4 2023 and was partially offset by declines in our old narrowband satellite equipment revenue. As I mentioned, the increase in equipment orders was driven by NetJets pull through demand and a shift of a few OEM annual bulk shipments into Q1 from later in the year. And though inventory in the channel grew, the number of units that are not committed to a particular customer went down to 84 units from 108 units at the end of Q4 2023. On the earnings side, in the quarter, we achieved our highest Q1 EBITDA ever, driven by, 1st, strong equipment sales 2nd, some permanent OpEx savings and 3rd, some changes in the timing of project related OpEx. I'm also proud that Gogo set a new free cash flow record, which demonstrates the strength of our business even as we invest deeply in the Gogo 5 gs and Galileo programs.

Speaker 2

Now for our progress on strategic initiatives. Gogo is focused on accelerating growth with a 3 pronged strategy. 1st, we want to expand our addressable market by taking our broadband offerings global for the first time and by leveraging the Advanced platform to deliver products at pricing that suits each segment of the 39,000 aircraft global BA market. 2nd, we want to drive customer loyalty by continually improving our ATG networks to drive conversion of classic customers to the advanced platform, so that they have easy upgrade paths to new technologies as they emerge. And third, we're focused on offering the best product and customer support to each segment of the market at the lowest total cost of ownership.

Speaker 2

We're making great strides on the strategic initiatives along all three of these prongs. Let me start with Gogo Galileo and I'll start with a little bit of background. After we sold our Commercial Aviation division in 2020, we went through deep dive strategic planning around the BA business and came to 2 conclusions. 1st, that ESA antennas and LEO satellite constellations are going to change everything in Business Aviation Connectivity. They would support lightning fast connectivity, they would enable small antennas that would fit well on all BA aircraft, They could be cheaper and easier to install than GEO antennas.

Speaker 2

They would provide truly global broadband coverage for the first time ever and their service pricing can be very competitive with GEO satellite pricing. And most important that the dramatic increase in value created by the offerings would accelerate IFC penetration dramatically in the global BA market. The second thing we realized was that StarLink would become a significant competitor and that has now happened as they entered the market with STCs on 2 aircraft lines earlier this year. Gogo has a history of disrupting our own industry. In fact, Galileo isn't our first LEO product launch.

Speaker 2

In 2000, we migrated 1500 customers from our then analog ATG system to LEO, Iridium. We designed and manufactured the airborne systems, some of which are still line fit at OEMs today and we still service more than 4,000 aircraft globally on the Iridium network. Like 24 years ago, our focus with Galileo has been on developing an aviation grade product suite tailored to the unique needs of BA customers. STARLINK, on the other hand, is focused on mass producing consumer off the shelf products for much bigger markets and then trying to repurpose those for aviation. They may have some initial success if for no other reason than the allure of Mr.

Speaker 2

Musk, but ultimately the simplicity of our Galileo terminal installation, the superior reliability of our equipment and the white glove customer support we offer position Gogo to compete well and capture a significant share of this market. So with that background, let me give you an update. Galileo comes in 2 versions, smaller HDX terminal and a larger FDX terminal. The HDX terminal is a small antenna that will deliver a very consistent 60 megabits per second, which is 12 to 60 times the speed of our current product offerings and will fit on all business aircraft, targeting 2 major market segments. The first, roughly 12,000 midsize jets, small jets and turboprops registered outside North America that have absolutely no broadband solution available today.

Speaker 2

And second, those aircraft inside the roughly 11,000 midsize and smaller jets that domicile inside North America that often fly international missions or want faster connectivity than ATG alone can provide. The Galileo FDX terminal is a larger antenna that will deliver very consistent speeds approaching 200 megabits per second, roughly 40 to 200 times the speed of our current product offerings, and it targets the roughly 7,000 global super midsized and larger heavy jets that generally fly intercontinental or long range missions. A huge advantage for us is that Galileo is a simple upgrade from any advanced installed plane. 1 only needs to add our HDX or FDX antenna on the fuselage and then run data and power cabling into the aircraft. And given that AVANCE is already a line fit option at every OEM and has STCs on every currently produced model of aircraft, it will be relatively easy from an engineering and certification perspective for OEMs and dealers to offer GALILEO.

Speaker 2

We've already signed 4 SDC agreements for GALILEO. We have 10 more verbally committed and 3 in negotiations, which all in will cover 10,500 jets and 6,200 turboprops globally. We remain on track to start shipping HDX terminals in Q4 and FDX terminals in the first half of twenty twenty five. We achieved a number of exciting milestones since our last conference call. In March, we completed end to end connectivity using the HDX antenna on the fully deployed Eutelsat OneWeb LEO satellite network.

Speaker 2

The next three big milestones will be aircraft installation in July, engineering flight testing in August and Parts Manufacturing Authority or PMA in Q4. In April, we announced our first FDC partnership, which significantly is with a European MRO for a very small sized aircraft, the CJ Series, demonstrating that we indeed can fit on any aircraft and that we have global distribution reach. Also in April, Gogo was granted Earth Station in motion approval from the Federal Communication Commission to commercialize and operate the Galileo HDX and FDX antennas. This is important not only for commercializing Galileo in the United States, but acts as a precedent for authorization in many other countries. To conclude, we are very excited about Galileo.

Speaker 2

It will be a game changer for the business aviation industry and will be a major accelerant for the growth of Gogo. Now let me turn to Gogo 5 gs. As you all know, more than a year ago, we completed our initial 150 tower network rollout. We completed our 5 gs data center upgrade. We received PMA for our NV13 5 gs airborne antennas and for our LX5 5 gs box, but with a 4 gs chip.

Speaker 2

As you also know, we're still waiting for our 5 gs chip. That chip has failed bring up twice, but has now been redesigned and was meant to go into fabrication again this month. On the good news front, we've been able to start flight testing on the actual network using the chip software on an FPGA simulation of the chip. Unfortunately, in testing, an issue was identified that has chip hardware design implications. That issue has led to a minor chip hardware redesign, which is now in integration testing and which must be complete before fabrication can begin.

Speaker 2

We currently expect the launch of Gogo 5 gs to occur a few months later than the previously stated Q4 of 2024 and are working with our vendors to finalize that schedule, which we will discuss on our Q2 earnings call. The good news is that this was discovered now before the chip was re spun, saving what could have been a much longer delay. Despite this, the market continues to respond enthusiastically to the 5 gs value proposition, with ongoing pre provisioning programs and a flood of STC programs that position us for a highly successful launch. We've already shipped 2.45 gs pre provision kits with MB13 5 gs antennas, approximately 80 of which have already been installed and are flying today using our 4 gs network. We have commitments from 5 OEMs with most of those under agreements and one already installing the MB-13s with L5s line fit today.

Speaker 2

Because the L5 is the same form factor as the LX5, once the 5 chip is certified, those customers can simply swap the LX5 for the L5 and they'll be on the 5 gs network. On the certification front, we have 11 STCs for MB-13s completed and 16 more in the works, representing 8,371 North American registered aircraft. We're confident that between our FPGA flights and a virtual simulator our team has built that replicates our entire 5 gs network that we will be able to test and validate 90% of our 5 gs functionality and network before we receive the final 5 gs chip. Gogo 5 gs should achieve mean speeds of around 25 megabits per second, 5 to 25 times our current product lines and peak speeds of 75 to 80 megabits per second. And we believe it is the perfect product for midsize and smaller business aircraft that fly North American missions and want great speed at a better value than competitive satellite products.

Speaker 2

Now let me turn to the FCC RIP and Replace program. The program was enacted under the Trump administration to incent wireless carriers to accelerate the removal of Chinese telecom technology from their networks. Gogo was awarded a $334,000,000 grant under that program. Because there were more qualified grants than originally planned, funding for all grants were cut back to 39% of the original award, which in Gogo's case was cut back to $132,000,000 The White House included full funding for the program in its supplemental funding request to Congress last year and there are 2 bills in Congress with bipartisan support that would fully fund the program right now. Based on changes we've made to our FCC program, we no longer believe we will need nor would we receive $334,000,000 However, if full funding is approved, we would be able to accelerate our program and cover all reimbursable costs.

Speaker 2

With the current partial funding, about 70% of the reimbursable costs of replacing all eVDL ground equipment and moving Gogo Classic customers to LTE would be covered by the grant. And that is what is reflected in our long term guidance. There is also another $25,000,000 of spend associated with the program that is non reimbursable and that is also reflected in our long term guidance. This program has considerable benefits for Gogo and its customers. It will improve the speed of our 4 gs network 40% for customers using our Avance L3 product.

Speaker 2

It will double the number of aircraft that the ATG4 gs network can simultaneously manage, and it will accelerate the number of Gogo classic customers upgrading to Avance, which has the strategic benefit of extending Gogo customer lifetimes due to the ease of upgrade to 5 gs and Galileo from advanced platform equipment. We have 3,200 aircraft still on our old classic product line that will need to convert from EVDO to LTE versions of the hardware inside their plane, around 900 of which are in fleets and a little more than 2,200 of which are smaller customers. All of the fleet customers are in active discussions and how they plan to convert and most are leaning towards upgrading to L5 so that in the future they can easily upgrade to either 5 gs or Galileo. On the smaller customer side, we've had conversations with all but 150 of them. Of those we've spoken with, 60% have already voiced a preference for what they would like to convert to and almost all of them indicate they will move to one Avance product or another.

Speaker 2

We currently have customer promotions in place to incent conversion and our dealers are doing a great job configuring their operations to transition customers at scale. We also have a special product we will introduce later this year called C1, which will house both an eVDO and an LTE air card in a form factor that is an exact replication of our classic product. These will not provide any enhanced performance. However, they will be relatively inexpensive and will only require a few hours to swap with the old classic boxes. We call this a time machine because it allows customers who delay swapping to Avance before our cutover date time to convert to Avance after the cutover.

Speaker 2

To zoom out, Gogo is approaching an exciting inflection point in our product cycle as we anticipate the launches of Gogo 5 gs and Gogo Galileo. Gogo will soon have the most complete product portfolio in the BA IFC industry with products that offer the right performance, with the right coverage, at the right total cost and great customer support for every segment of the highly unpenetrated 39,000 aircraft global BA market. We're excited about our future and believe Gogo is well positioned to capitalize on the significant opportunity in our market and deliver long term value creation to shareholders. And now, I'll turn it over to Jesse for the numbers.

Speaker 3

Thanks, Oak, and good morning, everyone. Gogo generated record service revenue and free cash flow in the Q1 with adjusted EBITDA coming in well above expectations. While our results benefited from some timing related to equipment revenue and expenses, they highlight the strength of our core business as we invest in our new products Gogo 5 gs and Galileo. We continue to believe that 2024 is the trough year for our growth and profitability within our long term plan through 2028. With most of our strategic investments concluding at the end of 2024, we expect our free cash flow to accelerate substantially in 2025.

Speaker 3

In my remarks today, I'll start by walking through Gogo's Q1 financial performance, then I will turn to our balance sheet and capital allocation priorities, and finally, I'll conclude with a positive update to our 2024 guidance and additional context on the reiteration of our long term targets. For the Q1, Gogo's total revenue was $104,300,000 up 6% year over year and 7% sequentially. Cogos top line was driven by record service revenue of $81,700,000 up 4% year over year and 1% sequentially. Our ATG aircraft online reached 7,136, up 1% year over year and down 1% sequentially. The quarterly decline was driven by higher deactivation, of which approximately 80% was attributed to the attrition of hourly contract aircraft as a result of the price changes we implemented this quarter.

Speaker 3

However, the loss of these aircraft has a very low impact on service revenue of less than 0.1% for the quarter due to the low ARPU they generate. Another driver for high deactivations this quarter was due to an increase in the number of aircraft sold that we believe a majority of which will reactivate in the coming months under new owners based on historical trends. Importantly, total advanced aircraft online grew to 4,110, an increase of 19% year over year and 3% sequentially and now comprise 58% of our total fleet. Our number of of advanced activations in 2024 as we upgrade our classic ATG customers, while maintaining a reasonably conservative view on improvements in the maintenance cycle times that have slowed installations over the past year. Upgrading our customers to Avance is a critical part of our strategy and it extends customer lifetimes due to the easy upgrade path to Gogo 5 gs and Galileo once launched.

Speaker 3

However, consistent with our prior comments, this process will mute the ATG aircraft online growth rate over the coming quarters. As Oak mentioned, we had record advanced upgrades in the Q1. Total ATG ARPU grew 2% year over year and 2% sequentially to $3,458 driven by pricing changes. The launch of Gogo 5 gs and Galileo is anticipated to further expand our ARPU growth opportunity over time. Moving to equipment revenue.

Speaker 3

Gogo demonstrated a strong rebound from the prior quarter and delivered record 1st quarter equipment revenue of $22,600,000 a 13% year over year increase due to a pull in of shipments for 2 significant OEM partners earlier than planned, demonstrating strong demand for Gogo's connectivity. Gogo's equipment revenue typically ramps towards the back half of the year, but given the shipments we had in Q1, we expect that dynamic to shift for 2024. On a sequential basis, equipment revenue rose 34%, reflecting the strong order flow this quarter as well as the $4,000,000 reserve we recorded in Q4 2023 due to a specific customer circumstance that reduced revenue last quarter. We continue to expect a stronger rate of growth from equipment revenue in 2024, driving the overall revenue growth for the year. We shipped 258 advanced units this quarter, which is a record for our Q1, up 16% year over year and up 28% sequentially.

Speaker 3

Turning to profitability, Gogo delivered service margins of 78% in the Q1, better than expectations due to lower network and data center costs and relatively flat sequentially. We continue to expect service margins to be in the 75% range this year with a slight decrease in future years as Go Galileo service revenue increases as a percentage of the mix. Service revenue and service margin continue to be the primary levers for free cash flow generation and long term value creation. Equipment margins were 30% in the Q1, 20 percentage points higher than the prior year period and well above expectations. The increase was primarily due to higher equipment revenue that came in earlier than planned and non reimbursable costs related to the SEC reimbursement program in the prior year.

Speaker 3

Equipment margins were 21 percentage points higher sequentially, also driven by the higher equipment revenue in the quarter, coupled with lower inventory reserves due to extended warranty and reserves recorded in the prior quarter, driven by a customer contract renewal. We expect equipment margins to be in the low 20% range this year with a slight decrease in future years as the mix of Gogo Galileo units sold increases over time. Now on to operating expenses. 1st quarter combined engineering design and development, sales and marketing and general and administrative expenses increased 11% year over year and decreased 8% sequentially to $32,200,000 The year over year increase was mainly driven by legal expenses related to the SmartSky patent litigation as well as higher spend on Galileo. We continue to expect higher legal expenses in the coming quarters relating to the launch of Galileo and the ongoing SmartSky patent litigation.

Speaker 3

2024 will be a significant investment year as we continue to invest in our Gogo 5 gs and Galileo programs. We expect that these product investments will support revenue growth acceleration and significant free cash flow growth in 2025 and beyond. In terms of Gogo 5 gs, in the Q1, our $1,600,000 of 5 gs spending was comprised of $600,000 in OpEx and $1,000,000 in CapEx. We now expect 2024 will include approximately $6,000,000 of 5 gs OpEx and approximately $14,000,000 in CapEx, with total 5 gs spend for 2024 remaining unchanged at approximately $20,000,000 We continue to maintain $100,000,000 in total external development and deployment costs for our 5 gs program and anticipate no negative impact on the overall program cost from the most recent delay Oak described. Moving on to our Gogo Galileo initiative.

Speaker 3

In the Q1, Gogo recorded $2,600,000 in operating expenses related to GALILEO. We now expect 2024 will include approximately $17,000,000 of Galileo OpEx and approximately $6,000,000 in CapEx. We continue to expect external development costs for both the HCx and FDx solutions to be less than $50,000,000 in total, of which $13,000,000 was incurred in 2022 2023, dollars 23,000,000 is projected in 2024 and the remainder is expected in 2025. We anticipate approximately 90% of Gogo Galileo's external development costs will be in OpEx. Moving on to our bottom line, Gogo delivered $43,300,000 in adjusted EBITDA in the Q1, a 9% increase year over year and 23% increase sequentially.

Speaker 3

The growth was primarily driven by strong equipment sales and increase in service gross profit driven by record service revenue. Adjusted EBITDA exceeded expectations driven by the timing of OEM orders and certain 5 gs and Galileo related project spend shifting to later in the year. The timing shift in equipment orders and spend contributed to our record resulted in the Q1. And while we have narrowed our 2024 adjusted EBITDA guidance to the high end of the range, we expect that the Q1 will be the high EBITDA quarter for the year. Net income was $30,500,000 in the 1st quarter, up 49% year over year.

Speaker 3

The increase was primarily due to a $13,100,000 unrealized pretax gain, which was $9,900,000 net of tax from the $5,000,000 investment in a convertible note offering of our key chipset supplier to support continued progress on our 5 gs chip. Net income in the Q2 may be negatively impacted from this investment if there is an unrealized loss based on the share price on June 30, so any future share price volatility will affect our net income in future quarters from mark to market adjustments to the fair value. Based on our substantial NOL position at the end of 2023, including $446,000,000 in federal net operating losses and $377,000,000 in state net operating losses, we had a net deferred income tax asset of $206,000,000 at the end of the quarter. We do not expect to pay meaningful cash taxes through our 5 year planning horizon. I will now provide a status update on our SEC reimbursement program.

Speaker 3

In the Q1, we received $11,900,000 in FCC grant funding and our program to date total received is $13,500,000 As of March 31, 2024, we recorded a $15,200,000 receivable from the FCC and we incurred $8,800,000 in reimbursable spend during the quarter. This receivable is included in prepaid expenses and other current assets in our balance sheet with corresponding reductions to property and equipment, inventory and contract assets and with a pickup in the income statement. Gogo's original 1 year term to complete the SEC reimbursement program was set for July 21, 2024. However, we filed for our 1st 6 month extension, which was granted by the FCC on March 29, extending the program completion deadline to January 21, 2025. In our application, we stated that we will need to have multiple extensions to complete the program and are planning to request the next extension in the Q4.

Speaker 3

As a reminder, with partial funding, we are forecasting that we will run out of reimbursement funds in late 2025 and will need to continue to spend money in support of the program through 2026, which is expected to negatively impact 2026 free cash flow. In the Q1, we generated record free cash flow of $32,100,000 an increase from $20,000,000 in the year ago period and $28,000,000 last quarter. Both the year over year and quarterly increases were primarily driven by FCC reimbursements from our rip and replace program this quarter, higher EBITDA and lower cash interest. Now I'll turn to a discussion of our balance sheet. Gogo ended the quarter with $152,800,000 in cash and short term investments and $605,000,000 in outstanding principal on our term loan with our $100,000,000 revolver remaining undrawn.

Speaker 3

Gogo's net leverage of 2.7 times remained in line with our target range of 2.5 times to 3.5 times. As we previously mentioned, we have a hedge agreement in place and we currently have 87% of our loan hedged. The next step down in the hedge to $350,000,000 occurs in July 2024 with an increase in strike rate from 0.75% to 1.25%. Our cash interest paid for the Q1 net of hedge cash flow was $7,700,000 Assuming no further debt pay down, the cash interest paid for 2024 net of hedge cash flow is expected to be approximately $34,000,000 Now let me provide a recap of Gogo's capital allocation priorities. 1st, maintaining adequate liquidity 2nd, continuing to invest in strategic opportunities to drive competitive positioning and financial value, including Gogo 5 gs and Galileo 3rd, maintaining an appropriate level of leverage for the economic environment with a target net leverage ratio of 2.5 times to 3.5 times and finally, returning capital to shareholders.

Speaker 3

We have executed across all priorities with an authorization of up to $50,000,000 for a share repurchase program our Board of Directors approved in September 2023. We continue to maintain a strong balance sheet and cash position while executing on our share repurchase program. As a reminder, Gogo repurchased approximately 480,000 shares for a total cost of approximately $4,800,000 in the Q4 of 2023. In the Q1 of this year, Gogo repurchased approximately 1,100,000 shares for a total cost of approximately $10,100,000 In April 2024, the company repurchased approximately 1,100,000 shares for $9,300,000 We believe we are well positioned to execute our product investment schedule, evaluate further debt pay downs and opportunistically repurchase shares. Our flexibility to pay down further debt and return capital to shareholders should increase as our free cash flow ramps up in 2025.

Speaker 3

Now I'll turn to our financial outlook. We positively updated our 2024 financial guidance, while reiterating our long term targets. Importantly, note that our 2024 financial guidance and long term financial targets do not reflect a potential delay in Gogo 5 gs beyond 2024. To the extent that we become aware of additional information about the timing of the Gogo 5 gs launch as the year progresses, we will determine whether to update this guidance during our regularly quarterly earnings announcements as appropriate. For our 2024 financial guidance, we continue to target 2024 revenue in the range of $410,000,000 to $425,000,000 implying 5% overall growth with equipment revenue growing faster than service revenue.

Speaker 3

While we had better than expected equipment revenue for the quarter, it was mostly due to timing within the year. We continue to believe service revenue growth will be slower than the growth rate in 2023 as we project a significant number of upgrades from classic tow vans driven by the SCC program. And while strategically important, we'll dampen aircraft online growth. We now expect adjusted EBITDA at the high end of the previously guided range of $110,000,000 to $125,000,000 reflecting operating expenses of approximately $33,000,000 for strategic and operational initiatives, including Gogo 5 gs and Galileo. Our guidance also includes approximately $5,000,000 in legal expenses tied to the SmartSky litigation.

Speaker 3

The increase in adjusted EBITDA guidance is mainly due to a shift in spend from OpEx to CapEx in our strategic program and some OpEx savings realized in the Q1. We expect 2024 CapEx to be approximately $45,000,000 which includes approximately $30,000,000 for the strategic initiatives including Gogo 5 gs, Galileo and the LTE network build out. We anticipate free cash flow of $20,000,000 to $40,000,000 which includes approximately $56,000,000 of expected FCC spend, including non reimbursable development spend and approximately $45,000,000 in SEC reimbursement. Free cash flow guidance remains sustained despite an increase to adjusted EBITDA guidance as there was a shift in spend from OpEx to CapEx and fluctuations in net working capital. Our long term targets remain unchanged.

Speaker 3

We reiterate that we expect revenue growth at a compound annual growth rate of approximately 15% to 17% from 2023 through 2028, with Galileo materially contributing revenue beginning in 2025. We continue to expect annual adjusted EBITDA margin to be reaching 40% by 20.28. Finally, we expect free cash flow in the range of $150,000,000 to $200,000,000 in 2025, which reflects increased EBITDA driven by revenue growth with the launch of 5 gs and Galileo and reduced engineering design and development OpEx and lower CapEx as investment in these strategic programs are completed and positive networking capital driven by inventory purchases and prepayments planned in 2024 for 2025 equipment shipments. This does not take into account the effect of the FCC program. In conclusion, Google continues to perform well as we invest in the launches of Google 5 gs and Galileo.

Speaker 3

Our outlook illustrates the value creation potential for our customers and shareholders that we expect to unlock as we execute our strategy and invest in the strategic initiatives that we believe will extend and enhance our long term growth. Before we open the call up for questions, I would like to join Oak in thanking the entire Gogo team for their hard work and dedication to our business and for providing unparalleled service to our customers. Operator, this concludes our prepared remarks. We're now ready for your first question.

Operator

Thank you. Our first question comes from the line of Scott Searle of ROTH MKM. Your question please?

Speaker 1

Hey, good morning. Thanks.

Operator

Go ahead.

Speaker 2

Good morning, Scott. Thanks for taking my question.

Speaker 4

Good, good. Thanks guys. Nice job on the quarter. Nice to see the continued progress on the Galileo front. Maybe just, Jesse, quickly, clarification on some of the financials.

Speaker 4

I think you had referenced and Oak had referenced permanent OpEx savings. I'm wondering if you could give us an idea about what that looks like. Also wanted to clarify, it sounds like there was the 400 $1,000 step down in service revenue related to, I'll call it, churning off smaller low end customers. And what are you expecting in the guidance of that $410,000,000 to $425,000,000 in the back half of this year for FCC rip and replace? And then I had a follow-up.

Speaker 3

So, your first question with regards to some of the OpEx savings. So in the quarter, we did have some some of it was due to network and data center costs that came in lower than planned. That will that's real and realized, it's not a timing issue. We also do have some personnel savings. So in the quarter, it was around 3,000,000 dollars And throughout the year, there will be some continued savings as well because there is some push out of expenses into 2025.

Speaker 3

What was your next question?

Speaker 2

Well, there was a late year ribbon replacement question. Yes. Scott, you had asked about the late in the year rip and replace impact.

Speaker 4

The expectations for rip and replace this year, right, because clearly it seems you had a great quarter as it related to equipment revenue. It seems like NetJet is pulling forward. But what are you expecting in that $410,000,000 to $425,000,000 this year, in terms of rip and replace contribution on the equipment front?

Speaker 3

With regards to the upgrades, you mean?

Speaker 2

Yes.

Speaker 3

Yes. Yes. So I mean this year is going to be a heavy year of upgrades. So that will contribute to our equipment shipments this year. We're seeing it obviously in Q1, but we will continue to see that through the year.

Speaker 4

Okay, fair enough. And Oak, I'll dive in quickly on the 5 gs front, a little bit of a delay there. It seems like it was caught earlier, so that's the good news. Just general confidence level on that front. And then maybe coupling with that, it seems like the dialogue and the tenor around Galileo has continued to get more and more positive.

Speaker 4

It has always been on or ahead of schedule, but now it seems like the market opportunities specifically for HEX and FDX are bigger than we would have expected 12 or 18 months ago. So I'm wondering if you could talk a little bit about how important that is relative to 5 gs and how that seems to be advancing and getting pulled forward? Thanks.

Speaker 3

Yes. I mean,

Speaker 2

we've already spent more time talking about 5 gs because we've always asked about 5 gs more because it's always the next product launch. And obviously, a significant upgrade to our ATG networks in North America. So I think we've always felt that Galileo was probably the bigger opportunity in the end. And I think that the positive response we're getting from the market about it is very encouraging for us. And obviously, strategically, it is very important product in competing with StarLink as they enter in the market.

Speaker 2

So it's we're really excited about it. The fleets are very excited about it. We're getting a lot of positive traction overseas. So we're very excited about it. We still think 5 gs has a very important role in our product line now, because there's just a lot of medium sized jets on down that only fly in North America that frankly a little more cost conscious than other flyers and are not all that excited about putting on a more expensive satellite system.

Speaker 2

So for them, 5 gs is going to be important. And so and we have commitments to OEMs and fleets and others who already have basically said they're going to buy the product. So we don't want to we're not going to better back off from 5 gs. It's still important to us. It is in a somewhat less competitive segment, I would say at the moment as well.

Speaker 2

So the time urgency maybe is not as great as it is for Galileo. Great. Thanks. I'll get back in the queue.

Operator

Thank you. Our next question comes from the line of Simon Flannery of Morgan Stanley.

Speaker 5

Okay, great. Good morning. How are you? Thank you. Just continuing on the Galileo opportunity, I think you'd said that you would ship the HDX terminals in Q4.

Speaker 5

So when do we start seeing service revenues out of Galileo? Is that really kind of Q1 where we start to see that? And then I think, Jesse, you mentioned the margin impact. Is it fair to think you're going to be looking at a service margin on reselling OneWeb in that kind of 50% range? Any color you could provide around that and how that is that mostly usage based or are there monthly commitments per plane?

Speaker 5

And then something on the D acts there, have we seen all the impact of that price increase? Or do you think we could see more deacts in Q2? And is it all principally this asset sale of aircraft? Or are you seeing any competitive losses to StarLink or SmartSky or anything like that that's ticking up here? Thank you.

Speaker 2

So, in terms of DX, I'll take that one first. I don't think we're going to see a lot more of that, the reserve judgment a little bit. It really all hit in February. The price and the minimums were implemented at the beginning of February. So, I think that's going to be the bulk of that.

Speaker 2

In terms of competitors, we've done we deep dived on that. We went and actually interviewed all of the customers who suspended in February, that was 50 some out of them. And only one had gone da Vinci Jets, which is the I don't know if they're the owners anymore or the founders of SmartSky. And they actually didn't go to SmartSky, they went to a Ka solution. So that was funny.

Speaker 2

So that's that. We don't think we're losing any aircraft from our installed base to StarLink at this point. I think we do feel that there is some pressure on new sales from them right now as customers look at the StarLink system and obviously they are already out with theirs and we don't have our global system yet. So we feel a little pressure there we may have lost a few new sales there in heavy jet market. Those would only be globals of course, global expresses.

Speaker 2

We don't really see any pressure yet on the Gulfstream side, because Gulfstream has been pretty negative about the Sterling STC for Gulfstream aircraft. So that's all and heavy jet still at that point. And again, we haven't seen any losses there. Simon, now you have to go back and remind me of the beginning of your question.

Speaker 3

It was on the Galileo revenue. I can answer that. So, I mean, the expectation is we're going to be having the equipment revenue, equipment shipments in Q1 and service revenue will be there in the second half, but it'll probably start to be a little bit more full in the second quarter.

Speaker 5

Okay. And margins?

Speaker 2

Margins, we haven't commented on publicly. We I would put it this way, we have we're taking an approach where we can sort of maintain flexibility because you never know where StarLink is going to go with pricing and we need to be prepared to move with them. So to get sort of what I will call sort of pricing flexibility, we probably have given up a bit of margin. And we expect to still have service margins in the to begin with a 7% through this planning horizon. Total.

Speaker 2

Yes, in total. And so we feel pretty good about the business, but we're not going to come out with sort of sharing margin projections until we come to market. Yes. I

Speaker 3

know that it's going to be I was just going to say, I know that it's going to be lower than ATG, but still very strong healthy margin.

Speaker 2

Yes.

Speaker 5

Understood. And what your are you does your system just work with OneWeb or could you incorporate other providers of capacity like Kuiper down the road?

Speaker 2

Yes, we can. And we designed our terminal to be portable from provider to provider. We expect that, Neo technology is going to develop a lot over the next 5 to 10 years. There are going to be other providers that come into the market. And our hope is that OneWeb continues to deliver a strong product and that their Gen 2 is a strong product.

Speaker 2

But we also need to be prepared to go elsewhere if it's better for our customers. So we designed the antenna, the terminal, which we own the intellectual property for, to be easily once installed, it is very easily removed. You don't have to go back inside the airplane and remove the headliner and all that You can literally unscrew it from the outside and slap another version of it on quite simply, but the new version would have the right aperture for the new supplier and the right modem for the new supplier in it. And so we're very portable in terms of future direction.

Speaker 5

Great. Thank you.

Speaker 1

Thanks, Simon.

Operator

Thank you. Our next question comes from the line of Ric Prentiss of Raymond James.

Speaker 6

Yes. Thanks. Good morning, everybody.

Speaker 3

Good morning.

Speaker 2

Hey, Rick. How are you doing?

Speaker 6

Great. Thanks. A couple of questions. First, I want to go to the SmartSky litigation. I think the judge had made some rulings on some definitions and some other items.

Speaker 6

There were some reports out there that thought it was less favorable to you all. But just explain to us kind of where we're at on the lawsuit, how you view the judge's rulings or definitions? And I'll come back. I'll give my questions one at a time, so you can handle them.

Speaker 2

Thanks, Rick. We appreciate that. Yes, that was what's called a Markman hearing and that's where the judge rules on the and how the patents should be interpreted. We were pleased with how the judge ruled and it hasn't changed our view of what we think the outcome of the case is. However, I will say this in my short, brutish business career, I've learned not to comment on litigation and my lawyers are encouraging me to stick with that.

Speaker 2

So I'll kind of leave our comments at that. There were just some articles or an article that went around by a writer who doesn't know much about patent law, who kind of made it sound like we lost the whole case from this ruling. That's just not the case.

Speaker 6

Okay. And any update to the timing?

Speaker 2

The trial was supposed to be in April of 2025, but now it looks like the judge is going to move that back and she has not set a new date.

Speaker 6

And second question is on the guidance, Jesse mentioned that some reduction in some of the projects, I think now $33,000,000 previous guidance had $40,000,000 of OpEx, I think, in there. So some reduction in shift out in timing. Just want to make sure is some of that then moving into $25,000,000 But then also a little note in the press release that said guidance and targets do not reflect a potential delay in Gogo 5 gs beyond 24, but then you kind of thought maybe the launch is pushed out a few months. I just want to reconcile both those if I could.

Speaker 2

So on the timing part around 5 gs, we don't know right now if it will still launch in Q4 of this year or early next year. We're working with our chipset supplier to get definitive dates. There's a process that it's going to the chips going through now sort of a validation integration process. And at the end of that, they should have a better idea of when they'll go into fabrication. Then there's an opportunity to perhaps accelerate some of the fabrication steps.

Speaker 2

So we're looking at that. And when we know more, we'll tell the world more. But that's why we are not yet projecting or including in our guidance any delay.

Speaker 3

Yes. And the point about the strategic spend decreasing, last quarter we had $40,000,000 and this quarter it's $33,000,000 in total for the strategic initiatives. And a large driver of that is a shift around $5,000,000 spending from OpEx to CapEx. And then there was about $2,000,000 overall savings as well. So that's what's driving that reduction.

Speaker 3

And that's also why because of that shift from OpEx to CapEx, you don't necessarily see any that uplift flow include free cash flow.

Speaker 6

Okay. And then just one more on that 2024 guidance and the timing. If it does slip out from Q4 'twenty four into the early few months portion to 'twenty five, what items would be really affected on the guidance? Is it the equipment revenue? Could it lead to service revenues?

Speaker 6

Is it margin on EBITDA? What line items should we be watching in case?

Speaker 3

Yes. So actually, I think we noted this on the previous call. To be conservative, we did not factor in any 5 gs revenue in our guidance that we had provided. So revenue won't be impacted. It really will be on the OpEx side will be a benefit because there could be some push out of spending potentially, both for OpEx and CapEx.

Speaker 6

So it's not really a downside risk there. It just could be some downside risk even though the project moves out, the revenues weren't expected anyway. Okay, that helps clarify that. And then, I want to go back to Simon's question then also for my final one on the folks where the ARPU, the price increase, 4% price increase February, you think most of it was felt, I think you said 80% of the D acts were the hourly folks. So should we expect some normal course kind of deactivations as you're upgrading people to the advanced product?

Speaker 6

Is that why I think, Jess, you mentioned some maybe some dampening of installs for a couple of quarters here?

Speaker 2

Well, you're going to see a lot of conversions. They don't drive units online. They will drive some equipment revenue. But you're getting a lot of people upgrading from classics this year to AVANCE platform as part of the LTE rip and replace program. So you'll see that.

Speaker 2

In terms of what's going on in the dealers right now, we've had good signs and bad signs. I mean, there's everybody sort of gotten used to managing a somewhat screwed up supply chain world. And so I think the dealers are handling it better, customers are handling it better. We had a lot of D acts in February, a lot of them have already come back though. So that implies a little bit of shortening of the suspension periods.

Speaker 2

And but though on the other side, there's still a lot of engine problems and engine parts problems that are extending some suspension. So, we're not getting out of our skis on projecting any change in deactivation and reactivation at this point. We'll watch what happens here over the next couple of months and decide whether there's a permanent improvement or not.

Speaker 3

And Rick, just to clarify, the 80%, it was the 80% of the increase in deactivation had from quarter to quarter, not the total deactivation.

Speaker 6

Got you. That's helpful. Okay. Thanks everybody. Stay well.

Speaker 2

All right. Thanks, Rick.

Operator

Thank you. Our next question comes from the line of Lance Vitanza of TD

Speaker 7

Cohen. Hi, thanks for taking the questions. And congratulations on the quarter. I guess my question is with respect to AOL having ticked lower a little bit. Is this just sort of what we'd expect from we're in this pre launch phase, whether it's 5 gs or Galileo.

Speaker 7

I assume that new customers or new potential customers are waiting, right? And so similar to the run up to the launch of AVANCE a few years back, it's tough to get new people over the goal line. And so do is that dynamic in play right now? Are we still seeing that happen? And do we expect that is that possibly an issue as we think about a further delay in 5 gs?

Speaker 7

Do we think that that could actually pressure equipment sales not related to 5 gs, but could that pressure your existing sales going forward?

Speaker 2

Yes. I mean, I think for a couple of quarters, we've been in a bit of a lull in the product cycle. And you see it in Apple Watches, etcetera, the same thing where sales sort of slow down of the old products as you move into new much better products. What we've tried to do is make Avance L5 a natural stepping stone to 5 gs in Galileo and that's working to some extent. I mean, we've obviously had great sales equipment sales of L5s this quarter and all of that has been not all, but almost all of that has been people say, okay, great, I'll be ready to go to Galileo or 5 gs if I install that box.

Speaker 2

Because if you go into Galileo, you don't need to change the box. If you go into a 5 gs, you just replace the L5 with an exact replica form factor called the LX5, which has the 5 gs functionality in it. So they're both very easy upgrades and that is working for us to some extent. And that was why we got the fleet pull through for NetJets and that's where we got these this acceleration of OEM orders. So we'll see if that persists.

Speaker 2

It would be nice if it did, but we're not counting on it right now and we're not factoring that into our guidance at all.

Speaker 7

Thanks. And then the last one for me is just on the share repurchases and looking ahead, you've got I guess, most of the cash flow for the year has already come in. Does that suggest that we're sort of done with your share repurchases for the time being? Or given that you have cash on the balance sheet, is that still something that we at least in theory could potentially see going forward as well?

Speaker 2

I think it's something you could potentially see going forward. We've got a $50,000,000 repurchase program approved by the Board. We have an investment committee that takes $10,000,000 at a time. We've spent about $25,000,000 at this point.

Speaker 3

I mean, as you said, we're continuing to look at that. We'll assess the share price and that we'll look at that opportunistically. But we also want to balance that with the hedge step down too and understanding whether or not we would pay down debt.

Speaker 2

Yes. And the Board will look at whatever they think is best for shareholders and that's the way we'll go. Thank you. Excellent.

Operator

Thank you. Our final question comes from the line of Louie DiPalma of William Blair.

Speaker 2

Hey, William. I mean Louie, how are you? Louie, who works at William, sorry.

Speaker 8

Hi, good morning, Oak, Jesse and Will. Oak, you indicated that you expect to begin shipping the HDX antenna in the Q4. When should we expect the first STCs to be received? And will your STC schedule remain roughly a year behind STARLINK's STC schedule in the business jet market? Or do you expect to narrow that gap?

Speaker 2

Well, we're better at getting STCs than they are. And so we'll get a lot of SCCs in a hurry and that's why I noted the number that were in work already in my script. We will get you have to get your first article SDC before you can get PMA. So I think I said we were going to get PMA in Q4. So we'll have our first article STC before that.

Speaker 2

And then we work hard with know how to work with dealers on STCs, so that they are ready to go when we are ready to go. And so we will have a lot of them pre primed. And I would guess we'd have several maybe even before the end of Q4 and certainly a lot of them in the Q1 next year. So this is one of the things we do really well. It's very peculiar to our little industry and it's something that STARLINK is learning the hard way.

Speaker 8

Great. So you do expect to narrow the gap then?

Speaker 2

Yes. Yes. And as far as 5 gs goes, I mean, we've been really smart about that whole SCC program, which is why there are so many aircraft in North America that will be covered almost immediately after we launch because we've actually got first article STC and PMA on an LX5 box already with a 4 gs chip in it. So all we need to do with that to get those STCs kind of up and running immediately is substitute the 5 gs chip and do a minor modification to the STCs that are already done. And then those STCs and those will get quite rapid FAA approval because if it's a minor MHAD, it's a week or 2.

Speaker 2

And then we'll be ready to fly with 5 gs and a whole lot of planes too.

Speaker 8

Great. And another 2 parter along the same StarLink theme. There was a Bloomberg article about the StarLink service quality on a Delta Airlines trial that suffered from quality issues because of StarLink sharing their aviation network with the residential network. In the channel, are you hearing if that is a customer concern? And also on this StarLink theme, are you hearing whether the $2,000 per month plan price plan is resonating?

Speaker 8

And do customers think that is just introductory pricing similar to what Comcast Xfinity does? Or do they think that's actually sustainable? Thanks.

Speaker 2

Yes, sure. Let's start with the $2,000 plan. I mean, that's just a bucket plan, right? So you pay a minimum of $2,000 and then you pay another $100 per gig. We've got bucket plans.

Speaker 2

We know them well. What happens generally is that people go over the bucket and pay a lot more for the plan than they anticipated. And with very powerful antennas like StarLink and we are bringing out, you're going to consume a whole lot of data. So that first 20 gigs is going to go pretty quick, and people will end up spending a lot more than they planned. And owners in this space typically do not like spending more than they planned, so they opt for unlimited plans generally.

Speaker 2

So today, 80% of our aircraft are on unlimited or fleet plans, which are very similar to unlimited and only 13% are on bucket plans. So and also just given what we're projecting for usage, we think people on that plan they'll actually spend more than the $10,000 for the unlimited. So that doesn't concern us very much to be honest. And we'll have sort of aggressive plans like that too. But that doesn't mean that that's what the ARPU is, right?

Speaker 2

The ARPU is going to be a lot higher. Your other question on StarLink contention, it is an issue. I mean, I've flown StarLink down the Eastern seaboard. I got between 16 megabits per second and 135 megabits per second. It was still good.

Speaker 2

The latency improvement that we will have and they have makes a huge difference in your perception of speed to be honest. So I will give them credit for that. But there is for all of us, it depends on which Starlink satellite you get on. You could have a lot of contention or not. So it's a legitimate issue.

Speaker 2

But I think frankly, the real issues are not going to be around the service itself. I think the service will be good when it's available. The issues from my perspective are more around the equipment and what they're doing there. I mean, there's this market is a very sort of demanding market in a lot of ways. Equipment needs to be small because space is at a premium on business aircraft.

Speaker 2

It needs to be aerodynamic for safety and fuel consumption purposes, needs to be ruggedized to withstand extreme vibration and temperature variations, it needs to be reliable and it needs to be easy to install. In HCX and FDX actually check all those boxes. StarLink, which has taken a very different approach, right? They are taking consumer off the shelf products that they mass produce in order to keep the cost down for consumers and they're trying to move them into aero. And that doesn't doesn't work very well.

Speaker 2

They're hard to install. It's 39 inches wide, which will make it difficult to install in narrow diameter planes. By contrast, our HDX is 12 inches wide. It's easy to install on narrow diameter planes. It's 44 inches long.

Speaker 2

RFD X, which is our big one, is only 30 inches long. And that comes into that's important because when you're on the top of an aircraft, there's actually all kinds of other antennas and gear up there. And the more of that stuff you have to move in order to put an antenna on, the more expensive the install is. It's very complex to install. They've got like 39 pieces of equipment and 200 plus fasteners to attach the antenna to the plane.

Speaker 2

Our FDX has 12 pieces and 16 fasteners. Our HDX has 9 pieces and 14 fasteners. And I need to throw those numbers out there just to give you sort of a sense of what we mean when we talk about complexity. They also have designed this thing in such a way that the FAA is requiring periodic maintenance. No other antenna in in flight connectivity requires periodic maintenance.

Speaker 2

We build these things for the last 25, 30 years of the aircraft and they never require maintenance. That maintenance will actually require owners to remove the headliner inside the aircraft, which can be, believe it or not, very complicated. On some planes, you actually have to take out the seats, take out the floor so you can get the side panels out to take the headliner down and then get into the fuselage inside the aircraft. And you need to do that for periodic inspections. You're also going to need to take the actually radome off for those inspections and you're going to have to lubricate parts of this antenna.

Speaker 2

That's unheard of in our space. So I could go on and on. I mean, they just have all kinds of crazy things because they're consumer off the shelf, they cannot survive outside the pressure vessel, okay. So they're not this equipment can't go from 130 degrees on the tarmac just minus 60, 50,000 feet in 10 minutes. You can't withstand any of that.

Speaker 2

So you have to put all this stuff inside the pressure vessel, which is taking up room for luggage, seats, closet space, place to put your golf comes, etcetera, etcetera. Obviously, we're ruggedized and we can be installed anywhere. You can put it inside the pressure vessel or outside the pressure vessel. And they also require a lot of different pieces of gear. They don't because they're made for consumer, they are AC power.

Speaker 2

Most business aviation is DC power, so you have to have a power converter. Then you need a fan in order to cool all that because that gets very hot and most passengers don't like having a fan wearing in the inside the cabin etcetera, etcetera. So I could go on and on and on, but there's a lot of things that are kind of inconveniences, minor problems, but added up, it's sort of like, if you're going to pay about the same and the service is about the same, why would you put up with all those nuisances? And frankly, a higher total cost of ownership with all the maintenance costs you're going to have at the end of the day and from the company you don't know is going to be in the business for the long term and you could buy it from somebody who's been in it for 30 years, has great service, provides great support, same kind of product and you know who's going to be in the business.

Speaker 8

Thanks, Oak. You are very in the weeds on that. And one for Sadly,

Speaker 2

I could go a lot further in the weeds.

Speaker 8

Yes. And one for Jesse. Jesse, if the 5 gs network is delayed, does that mean that some of the 5 gs costs that you're anticipating for the second half of this year will be pushed into 2025 and that would imply that you would raise your EBITDA guidance?

Speaker 3

Well, so I said that we would evaluate once we understood the exact timing, but potentially the impacts would be on OpEx and CapEx pushed out, which would impact positively impact EBITDA and free cash flow. But the specific value of what that would be, we don't know yet. And one of the things, I mean, we have talked about doing flight testing. We're continuing to do flight testing. So there still will be spending.

Speaker 3

It's just that particular milestones may get pushed out. So we'll have to evaluate that and come back.

Speaker 8

Right. And with those milestones, there would be the milestone payments and so that would be deferred, right?

Speaker 3

That's right. That's right.

Speaker 8

Awesome. Thanks, Jesse. Thanks, Will and Oak.

Speaker 2

Thank you, Lloyd. Thanks, Lloyd.

Operator

Thank you. I would now like to turn the conference back to William Davis for closing remarks. Sir?

Speaker 1

Thank you everyone for joining our Q1 earnings call. This concludes our call. You may disconnect.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Gogo Q1 2024
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