Gogo Inc. Q3 FY2025 earnings call

• New Products Progress: Significant progress in 5G, HDX, and FDX; 5G flight testing completed, HDX STCs increased, and FDX secured a line-fit with Bombardier.
• Market Demand: Global business jet flights are ~30% above pre-COVID levels, with an underpenetrated market where only ~25% of 41,000 business aircraft have broadband connectivity.
• ATG Network: LTE upgrade subsidized by FCC, record ATG equipment shipments, AVANCE AOL growth, and C1 shipments ramping up.
• Financial Discipline: Gogo generated $56.2 million of adjusted EBITDA in Q3, $31 million of free cash flow, and reiterated the 2025 guidance high end for revenue, adjusted EBITDA, and free cash flow.

ATG Segment: Total ATG aircraft online ended Q3 at 6,529, down ~7% year-over-year and 3% sequentially. Advanced AOL (AVANCE) increased 12% year-over-year to 4,890, now comprising 75% of the ATG fleet. Record 437 ATG equipment units were shipped in Q3, split 208 AVANCE units and 229 C1 units. A record 145 Classic to AVANCE upgrades were recorded in Q3. Galileo Segment: Combined Galileo pipeline is approximately 1,000, up from 500 at the end of Q2. HDX completed STCs increased from 8 to 19 out of 40 under contract, with over 200 HDX units shipped year-to-date. FDX had successful flight tests, including a line-fit option with Bombardier for new Challenger and global business aircraft types, with revenue expected in early 2027. 5G Segment: 5G flight testing completed, with Q4 launch timing reaffirmed. Plan to ship boxes to pre-provisioned 5G customers in early Q1, with service revenue expected in the latter part of Q1. GEO Segment: Broadband GEO AOL ended Q3 at 1,343, up 14% year-over-year. Military/Government Segment: Recent contract wins validated the multi-orbit multi-band strategy, including a 5-year federal contract for 5G, LEO, and GEO services to a U.S. government agency.

• Reiterated the 2025 guidance high end for revenue, adjusted EBITDA, and free cash flow.
• Q4 expected to see modest year-over-year revenue growth, but adjusted EBITDA and free cash flow to decrease sequentially due to Galileo and 5G investments and elevated inventory.
• 2026 guidance to be provided in February, with potential incremental working capital needs for new product ramps and ATG AOL volatility.

• Industry trends pressuring ATG online count in the next several quarters.
• Monitoring FCC reimbursement timing, though not currently affected by the government shutdown.
• Potential impacts of government shutdown on military/government contract approvals, though not majorly affecting revenue outlook currently.

Q: Scott Searle asks about the fourth quarter implied EBITDA guidance, ATG transition, and Classic fleet.

A: Zachary Cotner notes ATG pressure continues, revenue mix changes with lower margin equipment shipments, and 5G testing causing gross margin compression. Christopher Moore adds on record AVANCE and C1 shipments showing customer upgrades.

Q: Justin Lang doubles back on the implied 4Q EBITDA guide, asking about headwinds from Galileo, 5G, and ATG.

A: Zachary Cotner states the headwind is split between ATG pressure and increased OpEx, with a bigger piece related to 5G than Galileo.

Q: Justin Lang asks about ATG AOL declines and competitive pressure.

A: Christopher Moore mentions no significant competitive pressure, with MRO partners helping with C1 upgrades.

Q: Justin Lang asks about government shutdown impact.

A: Christopher Moore states no major effect on revenue outlook currently.