Gogo - Earnings Call - Q1 2025

Executive Summary

• Strong quarter with broad beats: revenue $230.3M and adjusted EBITDA $62.1M exceeded plan, driven by stronger-than-anticipated service revenue, earlier-than-expected synergy realization, and deferred spend on new products.
• GAAP diluted EPS was $0.09; results reflect $9.4M amortization of intangibles and $6.5M acquisition/integration costs tied to Satcom Direct; adjusted EBITDA margin of ~27% underscored recurring service strengths.
• Guidance reiterated for FY2025 despite tariff headlines: total revenue $870–$910M, adjusted EBITDA $200–$220M, FCF $60–$90M, capex ~$60M; management quantified tariff headwind at ~$5M within guidance.
• Product milestones are catalysts: FAA PMA approvals for Galileo HDX (March) and FDX (May), growing GEO aircraft online to 1,280, and 5G chipset fabrication progress for Q4 launch; these set up service revenue acceleration starting Q1 2026.

What Went Well and What Went Wrong

What Went Well

• Service revenue strength and mix: service revenue rose to $198.6M (+143% YoY; +67% QoQ), with GEO broadband momentum and fixed-term contracts supporting stability.
• Execution milestones: PMA approvals for HDX and FDX ahead of schedule, 38 HDX STCs under contract, and shipments of 59 HDX antennas YTD; “We believe that these two new products, along with an expected 5G launch in Q4, will begin to accelerate service revenue in the first quarter of 2026.” – CEO Chris Moore.
• Integration synergies: ~85% of targeted savings realized and trajectory to high end of $25–$30M run-rate synergies within two years; cost to achieve expected at low end of $15–$20M, funded by asset sale.

What Went Wrong

• ATG fleet pressure: total ATG aircraft online fell ~3% YoY and ~2% QoQ to 6,902, with management attributing declines largely to maintenance suspensions on older classic installs.
• ARPU softness: ATG ARPU was $3,451, flat YoY and down 1% QoQ from the Q4 record $3,500, reflecting mixed fleet dynamics and timing of upgrades.
• Reported EPS compressed by non-operational items: GAAP diluted EPS $0.09 includes $9.4M amortization and $6.5M integration costs; Q1 2024 benefited from a $13.1M unrealized gain, distorting YoY comparability.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Q1 2025 Gogo earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 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 (Head of Investor Relations)

Thank you, Gigi, and good morning, everyone. Welcome to Gogo's first quarter of 2025 earnings conference call. Joining me today to talk about our results are Chris Moore, CEO, and Zach Cotner, 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 call. Those risk factors are described in our earnings release filed this morning, and a more fully detailed note under risk factors filed in our annual report on 10-K 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 9th, 2025.

Any forward-looking statements that we make today are based on assumptions as of this date, and we undertake no obligation to update these statements as a result of more information or future events. During this call, we'll present both GAAP and non-GAAP financial measures. We have included a reconciliation and explanation of adjustments and other considerations of our non-GAAP measures to the most comparable GAAP measures in our first quarter earnings release. This call is being broadcast on the internet and available on the investor website at ir.gogoair.com. The earnings release is also available on the website. After management comments, we'll host a Q&A session with the financial community only. It is now my great pleasure to turn the call over to Chris.

Chris Moore (CEO)

Thanks, Will, and good morning, everyone. Thank you for joining us today. As we continue to merge Gogo and Satcom Direct, I'd like to say how proud we are of the progress our global team is making. The merger is already indicating that it was a positive strategic move for our employees, our customers, and investors. We built strategic and commercial momentum in 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, the confirmation of the fabrication of our 5G chip, and growth in the number of aircraft online optimizing our geo-satellite services. The PMA approvals are particularly significant as they will enable us to begin shipping products and developing STCs for both terminals.

We've already made great progress with our Galileo HDX antenna as we continue securing new STCs, OEM wins, and generating revenue with activated customers. The FDX PMA approval came just this week, almost two months ahead of schedule, and we expect FDX to follow a similar successful rollout with 10 STCs already queued. I'm looking forward to talking you through a strong Q1 performance, which will cover our quarterly operating results, provide updates on our GEO and ATG product lines, and highlight our success in realizing acquisition-related cost synergies. We will review the demand potential in our markets and outline our strategic approach to capitalize on these opportunities to enhance shareholder value. Following this, I will share progress on key strategic initiatives and conclude with a brief assessment of the potential impact of tariffs on our business.

Finally, I'll turn it over to Zach for the financial updates and then open up for Q&A. Driven by a stronger-than-anticipated service revenues, earlier-than-expected synergy realization, and deferral of some expenses related to new product investments, we delivered a quarter that exceeded our plans and consensus on revenue, adjusted EBITDA, and free cash flow. On the revenue front, our strong results were driven by both AOL and maintaining ARPU. GEO aircraft online grew to 1,280 aircraft, up 2.5% from 2024 year-end, and up 16% from Q1 2024. Even more encouraging, we shipped 31 new GEO terminals in the quarter, up from 18 units in Q1 2024. Many new units were line-fit installations. Buyers often want to avoid the cost, delay, and downtime retrofit installations incur, which is why securing a line-fit option with OEMs is advantageous.

Customers expect connectivity from the day of aircraft delivery to optimize bandwidth, redundancy, and coverage. This quarter, we strengthened our line-fit offering by confirming our Plane Simple Ka-band terminal as a line-fit option for Gulfstream's G5 and G500 airframes. We experienced a modest decline in air-to-ground AOL, primarily due to maintenance suspensions on older air-to-ground classic installed aircraft. We expect a reversal of this trend once the launch of our new broadband networks is offered later this year. 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 presents a significant advantage over competitive solutions.

Our advanced platform gained substantial momentum this quarter with a record 119 upgrades from our classic products and a 19% increase over the previous quarter as 241 units were shipped to dealers preparing for Galileo connectivity installations. We also saw a rise in advanced penetration within the air-to-ground fleet, up to 68%, up from 65% the prior quarter and 58% in 2024. We are pleased to report significant progress towards our synergy goals, with over 85% of targeted synergy savings already realized. Additionally, we completed key actions to reach the high end of our $25 million-$30 million synergy cost savings guidance, positioning us for higher-than-projected cost savings this year and full realization in 2026. 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.

Through leveraged common systems and process, we are streamlining the organization and expect to find additional synergy opportunities as we prepare the organization for the future. Key synergy projects include consolidating manufacturing by relocating SD Avionics production from Ottawa to Broomfield, Colorado, transitioning data center operations from our leased Chicago location to our wholly owned Satcom Direct facility in Melbourne, Florida, and the planned sale of our Melbourne headquarters building, which is expected to offset the $15million-$20 million investment required to achieve the projected recurring synergy savings. We continue to expect strong free cash flows in 2026.

This will be driven by higher margin service revenue from our Galileo and air-to-ground broadband investments and the benefits from the full-year impact of realized cost synergies, further contributing to the profitability of an anticipated $60 million reduction in net program spend as air-to-ground and Galileo program rollouts conclude and integration synergy investments are finalized. Moving on to the market demand, the business aviation sector presents a significant opportunity for increased broadband connectivity usage. Currently, only about a third of the world's business jets and a fifth of all business aircraft, including turboprops, have any connectivity. The numbers are lower outside of the U.S., with just 12% of business jets optimizing connectivity.

Notably, there are 5,000 mid and small jets and 7,000 turboprops outside the U.S. that have had no prior access to broadband solutions, highlighting a substantial unmet demand within a healthy and growing business aviation industry characterized by strong OEM book-to-bill ratios and expanding fractional fleets and robust flight counts. Turning to the MilGov mobility market, where demand is also strong, we see the opportunity for Gogo solutions. Our current revenue mix in this segment includes a significant portion of legacy narrowband services, which are expected to decline gradually over the next several years, but will be replaced with growth from the transition of MilGov to Satcom broadband solutions.

Under the proliferated LEO orbit program, PLEO, 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. The US Air Force's 25 by 25 program is lagging behind its goals to equip 25% of its 1,100 aircraft with satellite communications by the end of 2025. For us, this means more than 75% of this fleet is still without satellite connectivity, which the Air Force believes must be addressed, presenting a major opportunity for Gogo's growth. Our multi-band LEO and GEO offerings also support the DOD PACE protocol, which requires the military to implement primary, alternate, contingent, and emergency systems.

We also see an increased demand overseas as non-U.S. governments disengage from their reliance on the DOD for military support and ramp up their investments in defense spending, including commercial communication systems. 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. Our strategy is to grow shareholder value by driving rapid growth in long-term, high-margin, recurring revenue customers' relationships in these dynamic sectors. 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. Crucially, our network-agnostic hardware and software architecture allows for faster, cheaper upgrades, ensuring long-term competitiveness. Expanding our target addressable market with the business aviation and military government verticals, it is crucial to achieving our penetration goals.

Satcom Direct's global sales and service network extends our reach and has increased our access to LEO TAM by 60%, while also providing geo-satellite solutions. This positions Gogo as the only ISC company offering multi-orbit geo-LEO air-to-ground broadband solutions in the business aviation and government and military markets. Our comprehensive suite of hardware and software products, complemented by value-added services, delivers a unique competitive advantage, enabling us to support more aircraft types than any other provider. We continue to strengthen our global network of 140 dealers across 229 locations. These dealers act as committed business partners and are invested in STC generation with us, which significantly amplifies our sales effort. Now, I'd like to review our key strategic initiatives supporting our growth strategy.

The Eutelsat OneWeb LEO network is operational and represents the latest addition to our broadening portfolio, pairing our Gogo Galileo compact flat panel antennas, which can be equipped on a broad range of aircraft types. This new product opens an untapped market for us and gives us more capacity to offer to existing customers. This is a key differentiator as Gogo is now the only provider that can deliver purpose-built 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 source. The Galileo HDX terminal is our first-to-market LEO product designed to fit on any business aircraft. It is expected to deliver 60 Mbps downlinked, which is 12x-60x the speed of our current Gogo air-to-ground product offerings.

We are targeting the 12,000 mid-size and smaller aircraft flying outside of North America and have no broadband solution today, and the 11,000 mid-size and smaller aircraft either flying regionally outside CONUS or are owners who are willing to pay for faster mean speeds than our air-to-ground broadband products alone can provide. We're ahead of schedule on STCs, having conferred five of them year to date: one in Canada, three in Europe, one of which is for the world's most popular business jet, the Embraer Phenom 300, and our first US FAA STC, which was confirmed this week for the Gulfstream G200. We currently have aircraft type with the product installed in aircraft registered in Europe and Brazil. Perhaps most importantly, passenger reaction to HDX product has been outstanding, and passenger feedback is incredibly positive.

Eutelsat OneWeb has confirmed a software update that will improve performance up to 30% when it comes online. In Q1, we shipped 36 HDX units, 20 of which were for STCs and 8 for revenue. We recognize $1 million of equipment revenue in the quarter. Year to date, we have shipped 59 units, including 42 for STCs. We have already announced that HDX is a line-fit option with Textron for the Longitude, Latitude, and Ascent 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. In North America, we have over 300 opportunities for HDX and 25 for FDX, which is almost 60% of the pipeline. As I mentioned earlier, we've received PMA ahead of schedule for the FDX terminal and can begin shipping products to dealers to develop STCs immediately.

The FDX terminal is designed for larger business aircraft operators that fly intercontinental missions and are expected to deliver up to 195 Mbps. The 10 STC agreements cover 10 super mid to heavy business jet types and are expected to be completed in the latter half of 2025 and early 2026. We have previously mentioned another signed agreement as a line-fit option with a major OEM for all its aircraft models. 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 Satcom Direct routers. Another 2,200 could also benefit from the upgrade. As most of you know, our 5G tower network is built and ready to go live, as are the LRU and airborne antennas required to access the network.

I'm pleased to confirm that our chipset supplier has successfully completed fabrication and is now in the process of packaging the chip, which will be followed by the bring-up process for deployment readiness. 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. We expect the launch to be relatively straightforward once we receive the 5G chip because the 5G MB13 antennas and the 5G LRU have already received PMA and have 25 STCs in place. We look forward to bringing this product to market later this year, which will extend the life of our air-to-ground product line, which supports a core set of Gogo customers. I'd also like to share a brief update on the FCC Secured Networks Program, which we call Gogo Evolution.

Under this program, the FCC awards Gogo a $334 million grant to accelerate the removal of foreign telecom technology from our terrestrial network. As we announced last quarter, Congress passed the National Defense Authorization Act funding bill in December 2024, fully funding the rip and replace program. This additional funding eliminates any potential shortfall anticipated to complete the project and enables us to provide alternative incentives for Gogo classic customers choosing to opt for our new LTE network when we transition in 2026. 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 dual EVDO and LTE air cards, ensuring seamless support for our network cutover.

For customers lacking the time or budget for an advanced upgrade before our 2026 cutover, this solution enables a cost-effective option that keeps our customers connected and preserves Gogo's service revenue from this market segment. 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. For context, under the Agreement on Trade in Civil Aircraft Treaty, agreed to at the Paris Accords and approved by U.S. Congress in 1979, aircraft or aircraft parts were exempt from tariffs before the recent announcements. In that environment, the U.S. aviation industry flourished, with aviation exports historically running 6x higher than the amount of aviation imports. Ironically, imposed tariffs on imported aviation parts could push up the cost of U.S.-manufactured aircraft, potentially making the aviation industry less competitive.

As you know, the situation with respect to tariffs remains fluid, and we are adapting as needed. The tariff risk relates directly to the manufacturing part of the business, not our service provision. Most of our manufacturing is conducted in the United States at our Broomfield facility in Colorado, and what manufacturing we had at the Satcom Direct facility in Ottawa was relocated to Broomfield even before we knew of the tariffs to be imposed. Based on the current tariff environment and recent analysis, we believe we have modest exposure to tariffs. Under the current tariff proposal, we can absorb tariff impacts within our current guidance. In conclusion, MilGov fleet worldwide is 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 networks and the upgraded GEO networks will all continue to stimulate revenues.

We are looking forward to producing compelling financial results due to growth in service revenue, a significant reduction in product development program spending, and the full-year impacts of synergies we expect to achieve this year, and full funding of our FCC rip and replace program. I will now hand over to Zach to present the numbers.

Zach Cotner (CFO)

Thanks, Chris, and good morning, everyone. I'm pleased to report first-quarter results were ahead of expectations on both the top and bottom lines. In addition, five months after the close of the Satcom Direct transaction, we see improved product execution, strong financial discipline, and integration progressing well. We are 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 deleveraging as we look to 2026 and beyond.

Even in this period of global macro uncertainty, we are reiterating our 2025 financial guidance, including the impact of current and proposed tariffs. 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. We expect the Galileo HDX service revenue to ramp in the first quarter of 2026. I'll now provide an overview of Gogo's first-quarter financial performance. I will turn to our balance sheet and capital allocation priorities. Finally, I'll conclude with additional context on our 2025 guidance. For the first quarter, Gogo's total revenue was $230.3 million, up 121% year-over-year and 67% sequentially. On a standalone basis, Satcom Direct's Q1 revenue grew 10% from the prior year. Total service revenue of $198.6 million was up 143% over the prior year and 67% compared to the prior quarter.

At the end of Q1, we had 6,902 total ATG aircraft online, which was a decline of approximately 3% compared to Q1 2024 and 2% compared to Q4 2024. We achieved record advanced upgrades in the first quarter, and converting our classic customers to advanced continues to remain a top priority. Advanced AOL reached 4,716, up 15% from the prior year, and now comprises 68% of the total ATG fleet, up from 58% in the prior year quarter. Our 2025 guidance assumes continued advanced growth, but that overall ATG AOL will be lower at year-end 2025 versus 2024. Total ATG ARPU of $3,451 dipped slightly sequentially and was flat from the prior year as we initiated a price increase in February of 2024. Total broadband GEO AOL, excluding networks that are end-of-life, reached 1,280, up 179 aircraft and 16% year-over-year, and up 31 units sequentially.

The majority of GEO broadband aircraft are under fixed-term contracts, helping to create revenue stability. In addition, our GEO ARPU is holding up better than expected. Now turning to equipment revenue. Total equipment revenue in the first quarter was $31.7 million, up 40% year-over-year and 67% sequentially. The number of advanced equipment units shipped increased 19% sequentially to 241. Regarding our profitability, Gogo delivered service margins of approximately 53% inclusive of Satcom Direct. Standalone Gogo service margin was about 77% and in line with our previously stated targets. 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. Equipment margins were 7% in the first quarter, and as a reminder, we expect Galileo equipment pricing to be close to cost. Now turning to operating expenses.

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. I will now provide some additional commentary on our major strategic initiatives around 5G, Galileo, and the FCC reimbursement program. In the first quarter, $3.5 million of 5G spending was comprised of $1.3 million in OpEx and $2.2 million in CapEx. We expect 5G spend to decline significantly in 2026 as we roll out 5G in Q4. Turning to Galileo, we recorded $1.2 million in OpEx and $1.5 million in CapEx in the first quarter. 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.

We anticipate approximately 80% of Galileo's external development costs will be in OpEx. Finally, our FCC reimbursement program. Following the passage of the National Defense Authorization Act late in 2024, we continue to anticipate 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 classic fleet to advance. This would reduce our total cash outlays under the program to $10 million and should be a primary driver of our 2026 free cash flow improvement. In the first quarter, we received $5.9 million in FCC grant funding, bringing our program-to-date total to $47.1 million. As of March 31, we recorded a $10.7 million receivable from the FCC and incurred $6.9 million in reimbursable spend.

This receivable is included in prepaid expenses and other current assets on our balance sheet, with corresponding reductions to property and equipment, inventory, and contract assets, with a pickup in the income statement. Moving to our bottom line, Gogo generated $62.1 million in adjusted EBITDA in the first quarter, which includes approximately $1.2 million of operating expenses related to Galileo and $1.3 million of costs related to 5G. Our adjusted EBITDA margin was 27% as compared to our long-term view in the mid-20s when the Satcom acquisition was announced in September. In addition, Gogo reported first-quarter net income of $12 million, equating to $0.09 of diluted EPS. I will now provide some color on our synergy progress. We have made good headway driving synergies, and we believe that we have more to go.

We achieved $18 million of run-rate synergies at the close of the acquisition and added another $9 million during the first quarter call, all in line with what we said on the fourth quarter call. Within two years, we continue to expect run-rate synergies in the $25-$30 million range. As we said on 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-$20 million, and we anticipate funding these costs with proceeds from the sale of the SD headquarter building in Melbourne, Florida. Moving to free cash flow, first-quarter free cash flow was solid at $30 million, and we view the current and proposed tariff situation as manageable. We expect to have plenty of cushion to absorb any minor tariff impacts on our 2025 free cash flow guidance.

We continue to expect that 2025 will be our trough year of free cash flow as new products ramp and the corresponding product investments roll off. We believe that sustained free cash flow growth, minus expected future earnout payments, is the key to driving shareholder value and will help support the return of cash to shareholders over time. Now I'll turn to the discussion of our balance sheet. Gogo ended the first quarter with $70.3 million in cash and short-term investments and $850 million in outstanding principal on our two-term loans, with our $122 million revolver remaining undrawn. This equates to a net leverage of 3.4x at the end of the first quarter, and we expect this ratio to remain relatively flat as we move through the year.

Our leverage trends are better than when the Satcom Direct deal was announced, largely due to higher adjusted EBITDA and strong free cash flow. Our cash interest paid for the quarter, net of hedge cash flow, was $17.8 million. As we mentioned in prior quarters, we have a hedge agreement in place, and at the end of July, the hedge steps down to $250 million, with the strike rate increasing from 125 basis points to 225 basis points, resulting in 29% of the loans being hedged. As a reminder, the cash interest paid for 2024 net of hedge cash flow was $33 million. We expect that to be approximately $70 million this year. Our capital allocation priorities remain consistent with prior quarters and focus on executing across the following four priorities in order. First, maintaining adequate liquidity. Second, continuing to invest in our strategic opportunities, primarily through Galileo and 5G.

Third, maintaining an appropriate level of leverage for the economic environment, with the target net leverage ratio of 2.5x-3.5x, and finally, returning capital to shareholders. As a reminder, Gogo has $12.1 million remaining on its $50 million repurchase authorization that our board approved in September 2023. At 3.4x, we are just a tick under the high end of the targeted leverage range, and we continue to monitor the market to determine a reasonable strategy to refinance our term loan B. We believe our expected free cash flow growth over the next few years will provide ample excess cash to pay down debt, reduce our interest expense, and ultimately return capital to shareholders. In our earnings release this morning, the company reiterated our 2025 financial guidance, adding that it includes the current and proposed impact of global tariffs.

For 2025, we expect total revenue in the range of $870 million-$910 million, reflecting the HDX launch in Q1 and 5G generating modest revenue in Q4. Adjusted EBITDA in the range of $200 million-$220 million, reflecting operating expenses of approximately $25 million for strategic and operational initiatives, including 5G and Galileo. Free cash flow in the range of $60 million-$90 million, and we expect 2025 to be the trough of our free cash flow as we have approximately $70 million slated for strategic investments, net of FCC reimbursement. Finally, we expect capital expenditures of approximately $60 million, containing $45 million for strategic initiatives, including 5G, Galileo, and LTE network build. The capital expenditures guidance excludes $20 million reimbursement from the FCC. We remind you that preliminary targets for the combined company assume 10% long-term revenue growth and adjusted EBITDA margins in the mid-20s.

We anticipate providing updated targets once our long-term plan is finalized. In summary, Gogo's first-quarter performance highlights our focus on new product execution and financial discipline. The positive impacts of the acquisition are visible in our results, and we believe that a fully integrated Gogo Satcom 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. Before we open the floor for questions, I want to express my gratitude to the entire Gogo team, for their hard work, commitment to our business, and dedication to providing exceptional service to our customers. Operator, this concludes our prepared remarks, and we are now ready to take questions.

Operator (participant)

As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced.

To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ric Prentiss from Raymond James & Associates.

Brent Penter (Associate Analyst)

Hey. Hey, Rick. Thanks, everyone. This is Brent Penter, on for Rick. Appreciate the color on the modest tariff impact and its absorbing the guidance. Can you size that for us in terms of the dollar amount that's now baked into your guidance on tariffs?

Zach Cotner (CFO)

Yeah, it's about around $5 million. It's kind of half EBITDA, half working capital. A lot of it's from our purchases of inventory. And like I said, most of our revenue is service-based, so that's exempt.

Brent Penter (Associate Analyst)

Okay. Got it.

Just on the broader economy, can you update us on the proportions of your customer base that are corporate versus charter, high net worth, etc., at the combined company now that we have Satcom? What portion of your customer base would you view as economically sensitive, given some of the macro fears out there, and if you're seeing any impact so far?

Chris Moore (CEO)

Yeah, we're not really seeing any impact at all. I mean, the good thing with the business is we're really diverse internationally, and we're not really seeing any kind of impacts at this point in time.

The other bit with the government business, when we look at any potential impacts, usually if there are, we've seen that in the past with trends in the past that if business aviation, like when we looked at COVID in 2020, if it goes down slightly, then the government business goes up. So we're feeling pretty confident at the moment. The OEM deliveries look good. As we mentioned in the call, with the GEO activations, they're still up, and the demand on the pipeline for Galileo is exceptionally strong.

Brent Penter (Associate Analyst)

Okay. And then last one for me. On the 10% growth at Satcom, since we don't have all the historicals there, could you break down roughly the growth rate that you saw in one Q between GEO Broadband versus Narrowband versus MilGov?

Since Gogo investors are newer to that business, 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?

Zach Cotner (CFO)

Yeah, there's a lot to unpack. I'll try to distill it as best I can. I would say the vast majority of the growth was related to Geo Broadband. Like you can see that, like we said, with the Geo units online. Within that, there's a pretty sizable piece in MilGov that was also Geo Broadband. The 10% was the previously guided long-term growth rate, so we're not prepared to discuss the long-term rate on this call. I mean, if you want to think about the trend, it's really the Geo Broadband units online.

Okay. Thank you, everyone.

Chris Moore (CEO)

Thank you. Thanks, Brent. Thank you.

Operator (participant)

One moment for our next question. Our next question comes from the line of Sebastiano Petti from JPMorgan.

Sebastiano Petti (Executive Director and Senior Research Analyst)

Hi. Thank you for taking the question. I guess just relatedly to that, if you could perhaps, Zach, give a little bit of color. With the tariff impact, not quite that extensive, we would have thought that you would probably grow revenue sequentially from here over the balance of the year as shipments from Galileo start coming on. The guidance, if you run rate the first quarter, implies you're above the high end of guidance for the year. Just any considerations as we think about that glide path from here? I have a follow-up. Thanks.

Zach Cotner (CFO)

Yeah. We noodle this a lot to try to make sure we're being kind of thoughtful about the trends of the business.

I think two of the big factors that we monitor very closely that are really kind of outside of our control is the continued path of ATG units online, right? Q1 was a little rough on that side. As well as the Geo units online, as well as the corresponding ARPU. We do not release ARPU for the Geo business, but it is holding up much, much better. We do anticipate kind of continued pressure on that piece going forward. If that holds up better than we kind of think, there could be upside and closer to the high end. Again, it is early days, right? We are only a quarter in, so we just want to make sure we are being thoughtful about those trends as the new combined business and kind of how the Leo story unfolds.

Sebastiano Petti (Executive Director and Senior Research Analyst)

Oh, okay. That is very helpful.

Thank you for that. And then just as you touched on, Zach, I mean, the ATG units online, a little bit softer. I think, Chris, in your prepared remark, you talked about just maintenance suspensions. Obviously, the debate on the Gogo story overall is obviously the competitive environment. How should we think about just getting comfort about maybe this is maintenance-related as opposed to share or competitive losses within the ATG segment specifically?

Chris Moore (CEO)

Yeah. When a customer suspends, we actually have really good market intelligence data on why customers are suspending or leaving the network. Yeah, when we look at that information, actually, it's pretty well-educated, so it's not kind of a guesswork there. On the ground side, we're still very confident.

We can see also with customers still pre-provisioning for 5G, which I think is a good indicator as well in the market that people still want the service. Unlike the GEO business, which is more kind of contractual over 12 months plus, the ATG business is actually there's a lot of kind of customers within more flexible-based contracts. It is really kind of hard to put some trends around that. When we're looking at the reasons why people are suspending, we haven't got really major concerns at this point.

Sebastiano Petti (Executive Director and Senior Research Analyst)

Got it. Lastly, on the GEO Broadband, I mean, obviously, Zach, you did touch upon there's some MilGov in there that you don't necessarily disclose. Units up 16% year on year, or aircraft online up 16% year on year. Obviously, lots of concerns as well from a competitive standpoint about that.

Help us think about how you see that business today from a relative competitive standpoint and how you're thinking about it over time. Are the GEO broadband aircraft online a source of potential upgrades to LEO and your Galileo solution over time? Just how you're kind of thinking about the trends in that over just a multi-year basis. Thanks.

Chris Moore (CEO)

Yeah. I mean, obviously, there's growth there in GEO, which is really encouraging. I think that just demonstrates the power of line fit as well with the OEMs, and the customers are obviously still taking the service. You kind of hit a good point. I think we see it in two things with Galileo. One is customers may upgrade and replace GEO. That's a definite potential.

As I mentioned on the last call, we also see kind of the mid to large jet market taking it as a supplement. So having both LEO and GEO. Then going into the government sector, that's actually a requirement with the PACE planning, the primary, alternate, contingent, and emergency. We do see kind of modest growth, and it's kind of difficult to predict, but that's really where we see the market. GEO is holding up exceptionally well. I also think that is a demonstration that with competitive products, there may be a potential that there's a little bit of cooling off. Also, the GEO products have got a lot more competitive with speeds. Obviously, with the LEO, it's slightly a big different offering from a latency point of view.

With our mid to large jet customers, we see that more kind of like as a supplement, and then hopefully that's positive for the business.

Sebastiano Petti (Executive Director and Senior Research Analyst)

Thanks again, everyone.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Scott Searle from Roth Capital.

Scoth Searle (Managing Director and Senior Research Analyst)

Hey, good morning. Thanks for taking my questions. Congratulations on a great first quarter out of the gate. Thank you. Chris, maybe to start, I want to confirm on the 5G 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 is a go outside of some basic firmware upgrades and testing and otherwise. I was wondering if you could also take us through the milestones to getting that launch up and running.

It sounds like you're tracking towards the fourth quarter of this year. Finally, on the 5G front, help me reconcile AOL, ATG down, exiting 2025, given the impact that we're expected to see from 5G at some point late this year and certainly into 2026. I had a follow-up.

Chris Moore (CEO)

I'll try and cover that. I think with the fabrication, it's just at this point, we've been at this stage before. We're being pretty cautious at this point. I mean, obviously, when you bring up the chip, they have to layer it and actually come up with the fabrication of the products. It will then go from our supplier, go into packaging, and then ultimately, then we have to bring up as well. We've got these stages that will unfold over the next several months.

That is why we have hopefully the network being launched in the fourth quarter. Everything is looking good so far. We have been to this stage before, so we are very optimistic, but we do not want to really say much more than that at this point. Regarding the actual business, I think I covered it in the last comment, but we see that kind of suspensions, people coming back online, Q1 is usually a big heavy maintenance window for a lot of customers. As the story unfolds across the year, we still think there are strong upgrades for customers going into more advanced air-to-ground products and obviously opportunity for those customers with Galileo as well.

Scoth Searle (Managing Director and Senior Research Analyst)

Great. Thank you. Very helpful. If I could, on the Galileo front, it sounds like now with the PMA approvals, you are really progressing well on both the HDX and the FDX front.

I'm wondering just from a competitive landscape standpoint, if your expectations for the size of the market and share are increasing, given the success and early success that you're having with FDX and HDX, and if kind of the flip in Twitter comments from Elon Musk are actually driving some competition and opportunities in share your direction. Thanks.

Chris Moore (CEO)

Yeah. I think the big thing is we're really encouraged. We've got over 300 customers in the pipeline already for HDX, which I think speaks massive volume. So we're really excited about that. Also, the STCs we're seeing now slow up. That's why the MROs are so important to us. Yeah, competition's healthy, I think, is a really, really good thing. I think customers have been waiting with having a competitor in the market. Also, the FDX PMA, we're ahead of schedule.

Our engineering team's done an amazing job. We had a lot of lessons learned from HDX. We were able to accelerate the product into market, which is fantastic news. Those STCs are now starting to become a real thing as we can ship products. We're really excited. From a competition point of view, I think it's really important as well as competition's good, but we're really focused on providing that enterprise product global. To the earlier point, whether it's LEO and GEO together or LEO on its own, we actually see a really good kind of positive opportunity for the product overseas. We look at the mix in our pipeline just for HDX at the moment. It's about 60/40 split between North America and the international markets. I think that's a real strength of Gogo moving forward with the Satcom Direct acquisition.

We've now got access to a complete global sales team, which also we can provide support anywhere in the world. We can get on a plane in typically under 24 hours if there's any problems with systems. We've made massive investments in regulatory compliance as well. We're really excited. We're getting really great reactions from customers. I think that split as well is really interesting on kind of like that pipeline split with 40% from coming overseas. I think it's really encouraging.

Scoth Searle (Managing Director and Senior Research Analyst)

Thanks so much.

Chris Moore (CEO)

Thanks

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Justin Lang from Morgan Stanley.

Justin Lang (Research Division Analyst)

Yeah. Hi, Chris. Good morning. Thanks for taking the question. A lot's been covered. I just wanted to ask one on the MilGov business.

Chris, you mentioned at the top with PLEO and PACE, but I was hoping you could provide maybe a little more color on some of the trends you're seeing in that business, just given some of the maybe fast-changing dynamics we're seeing in defense and government markets in the U.S. and Europe, right? European defense spend clearly on the rise. U.S. budgets could top $1 trillion here in 2026. Just curious if you're seeing new opportunities emerge really in the near term in this space. Thanks.

Chris Moore (CEO)

Yeah. I would say pretty much what you've just covered. I mean, it's really encouraging at the moment the overseas markets, which in arguments have been kind of a little bit sleepy before in the past, very dependent on the DOD.

Really, we're seeing a lot more demand coming from more sovereign-based networks, also the ability to have a little bit more control on their future capabilities. We see a great opportunity within the European environment, also Southeast Asia and some other territories as well. Great news is we've got specialized staff in those areas. The DOD is really, as mentioned in the call, really looking at that tech refresh and that narrowband technology that they've been very dependent on for a long time and the difficulty of really moving into new services and installations of those services. We really kind of, we feel with the HDX and the FDX, we've really kind of created a very easy-to-install platform, taking a commercial proposition into the government, trying to drive out costs for them as well.

We really do not want that kind of thousand-dollar hammer moment for the government. What we really want to do is drive in the scale of commercial solutions. We are very, very encouraged about that business unit. We feel very optimistic about it. Yeah. All of the things you mentioned, we are starting to really see those. Also, the support for our partner, Eutelsat OneWeb, is really increasing. You can see that with a lot of press and the traction they are getting as well. We are very excited about the whole opportunity.

Justin Lang (Research Division Analyst)

Great. Appreciate it. Good to hear. I will stick to one. Thanks.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Louie DiPalma from William Blair.

Louie DiPalma (Research Analyst)

Chris, Zach, and Will, good morning. Morning. Good morning.

Zach Cotner (CFO)

Thank you, Louie.

Louie DiPalma (Research Analyst)

When taking into account the one-time program costs and further expected synergies, how much of the 2025 costs should go away for 2026?

Zach Cotner (CFO)

Yeah. So the estimate that we're saying is anywhere from $60 million-$70 million. Like you said, you're really seeing all of this stuff hit. Obviously, there will be some investment as we roll out kind of our five-year R&D roadmap, but I think it's going to be a lot tighter. And that's sort of what we said is $60 million-$70 million of kind of costs that should be pulled out.

Louie DiPalma (Research Analyst)

Great. And what's the breakdown? How much of that should be OpEx versus CapEx?

Chris Moore (CEO)

I'm looking right here. I don't have that in front of me, but when we chat later, I'll be able to pull it up for you.

Louie DiPalma (Research Analyst)

Yeah. Okay. Great.

Another question, Chris, from a high level, can you discuss the performance for HDX for the initial adopters? I know that you said that it's performing according to spec, but can you remind us what those specs are and how the performance of HDX and FDX should compare to the Starlink performance?

Chris Moore (CEO)

Yeah. I'll take that in a couple of things. We've got customers flying around in Europe and US right now, actually paying customer in Europe, large fleet operator, service is working flawless. They're able to do everything they want to do from Teams meetings, streaming movies on the bulkhead. The nice thing with our solution is, obviously, it's completely integrated into the cabin management system. Regarding comparisons to competitive products, ours is full LEO speed. Obviously, HDX is designed to go up to 60 megabits per second.

We're seeing the product perform within that parameter. The uplink speed's solid. Really, when you look at the passenger count on those jets, it's more than enough capacity, flexibility. I think everybody's gone kind of speed mad. Everybody talks about the speeds, but nobody talks about the consistency and the capacity capability within flight. Really, what we're focused on is that and also having service-level agreements that we can back that up with. Everything we've seen with customers is extremely encouraging. We're really excited. We've also got some customers down in South America. That's the other nice thing we're seeing about the service is just consistent wherever these customers are flying, and it's completely global. We've got the same expectations from FDX as well. Yeah, we're pretty excited about it, Louis.

Louie DiPalma (Research Analyst)

Great. That's it for me. Thanks, everyone.

Chris Moore (CEO)

Yeah. Thank you. Thank you.

Operator (participant)

At this time, I would now like to turn the conference back over to Will Davis for closing remarks.

Will Davis (Head of Investor Relations)

Thank you, everyone, for joining our first quarter conference call this morning. This concludes our call. You may now disconnect. Thank you.