Gogo - Q4 2025

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to Gogo's fourth quarter 2025 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'll 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'd 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, good morning, everyone. Welcome to Gogo's 4th quarter 2025 earnings conference call. Joining me today to discuss our results are Chris Moore, CEO, and Zach Cotner, CFO. I would like 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 in 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. Please note that the date of this conference call is February 27, 2026.

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've included a reconciliation and explanation of adjustments and other considerations of our non-GAAP measures to the most comparable GAAP measures in our fourth quarter earnings release. Our call is being webcast and available 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)

Thank you, Will, and good morning. I'm pleased with our product and synergy execution in 2025 as we transform Gogo from a U.S.-focused entity into a global multi-orbit in-flight connectivity provider in the fast-growing and dynamic business and military government aviation markets. Consistent with prior earnings calls, I will focus on the continued demonstrable progress made across our compelling new product portfolio. These include Gogo 5G and Gogo Galileo, with two models, HDX and FDX, all of which are providing game-changing increases in capacity, functionality, speed, and consistency. I will also highlight our long-term growth prospects from our military and government customer base, which will further improve our revenue mix and diversification. As we look forward this year, we expect the combined Galileo and 5G shipments to exceed 1,000 units.

We expect that the activation of those aircraft will create a high margin, reoccurring service revenue stream that sets the stage for free cash flow growth and long-term strategic value. Let's review the strong demand trends within the under-penetrated global business jet market. Industry sources indicate global business jet flights are 30% higher than pre-COVID levels, with aggregate growth from key global fractional operators even stronger at around 40%. Leading global business jet OEMs highlight strong book-to-bill ratios and backlogs necessary to support continued delivery growth. The 854 new private jets delivering in 2025 marked the highest output since the industry delivered 874 units back in 2009. These factors, along with the relatively low broadband penetration of the 41,000 global business aircraft market, create a backdrop for attractive long-term growth.

Let's review our outlook for Gogo Galileo, our global LEO-based service with two offerings. Starting with HDX, which was purpose-built to fit on all 41,000 global business aircraft. It is ideal for the 12,000 midsize and smaller aircraft outside North America without broadband and the 11,000 midsize and smaller aircraft in North America that fly outside CONUS or want faster speeds than 5G Air-to-Ground. Contrast, FDX is geared specifically for 10,000 large global business aircraft. Galileo operates on the Eutelsat OneWeb satellite network. We are pleased to see the continuing measures by Eutelsat to strengthen its balance sheet and access the capital needed to support its recent order for 440 new LEO satellites, ensuring full operational continuity for its constellation into late 2030.

Given that HDX has a Total Addressable Market over 4 times that of FDX shipments and installations of HDX will naturally be much higher than FDX. The product has also been designed to fit many mid to large cabin aircraft tails, which expands the opportunity from standard LEO fuselage mountings. The average monthly service revenue and profit for FDX will typically be higher than HDX. Our Galileo pipeline consists of over 1,000 aircraft, with a current weighted sales pipeline of more than 400 aircraft. We believe this aligns with our projections for growth in 2026 as we expand opportunities and close new business. We continue to see a favorable pipeline mix with a 60/40 split between U.S. and global markets.

This mix is critical for our success as we upgrade loyal customers in the U.S. market and expand to unserved markets with high-speed connectivity in the international markets for business and military and government customers. As a reminder, inclusive of all aircraft equipped with Gogo broadband connectivity, 35%-40% are large jets, 30% are medium, 25% are light, and less than 5% are on turboprops. Turning to STCs. STCs are a critical part to building our global LEO business, and we continue to make solid progress. Gogo has completed 35 HDX and FDX STCs in the U.S., Europe, Brazil, and Canada, with a Total Addressable Market of 4,000+ aircraft, covering 34 aircraft models.

We continue to expect 20 more STCs to be completed in the first half of 2026, while the total number of STCs is important, not all STCs are created equal. For example, in recent weeks, we achieved FAA validation for the Bombardier Challenger models, 300, 350, and 3500, and for all global models except the 7500 and the 8000, and EASA validation for the Dassault Falcon 2000. Given the install base and growth potential, a Challenger STC is worth substantially more to us than a Learjet STC due to the operator's budget and airframe value. However, with the versatility of our product portfolio, the Learjet has access to our 5G Air-to-Ground product, which is a better solution for both the aircraft mission and budget, all without compromising the need for high-speed connectivity.

In 2025, Gogo shipped over 300 HDX and FDX antennas, with 84% for named customers. By the end of 2026, we expect to have shipped nearly 900 Galileo antennas, with an expected ship to install time of about 3 to 6 months, we see a potential path to 700 Galileo aircraft installed by the end of this year. If we assume a $4,000 average monthly service profit per Galileo aircraft, implying $480,000 in service profit over 10 years, if 1,000 Galileo aircraft are activated and paying, we will demonstrate the long-term growth opportunity with our LEO product portfolio and overall market position in aviation. Let's shift to our global fleet business, which we continue to expect to be a key growth driver.

As highlighted on our Q3 call, we have a clear opportunity to provide Galileo service to 1,000 aircraft amongst our fleet customers, which include all major global and domestic U.S. entities. I am now even more confident about that outcome. In 2026, we estimate that one-third of our Galileo shipments and AOL will be tied to our global fleet accounts. HDX installations by VistaJet began in November and will continue to ramp through 2026. We were pleased that VistaJet recently announced a major Bombardier order for 40 Challenger 3500 business jets, with options for an additional 120 more. If fully exercised, the total contract value would approach $5 billion, expanding VistaJet's fleet to around 400. VistaJet announced that Gogo Galileo was a cornerstone of its digital and in-flight innovation pillar as part of the Vista 2030 growth strategy.

Our largest fleet customer in terms of activated aircraft, remains NetJets, and we expect that to remain the case for some time. NetJets is the world's largest fleet operator, with over 1,000 aircraft, including EJN and existing orders that are expected to expand this fleet by several hundreds over the next few years. As a reminder, the NetJets contract renewal that Gogo announced in February of 2024 is still active. Gogo has installed HDX on dozens of aircraft in the NetJets European fleet, including Challengers 350s and Phenom 300s, Latitudes. We continue to expand installations. Within the NetJets North America fleet, we currently expect to install HDX on the Phenom 300 and the Ascend platforms.

Historically, NetJets has utilized multiple connectivity sources globally. They have confirmed that Gogo will remain a key partner to help facilitate connectivity upgrades for their global fleet in the coming years. In addition to fleets, we expect the Galileo line fit option wins will be another critical source of long-term growth. We are a line fit option with HDX at Textron for the Ascend, Latitude, and Longitude models and will benefit once our options are available later in the year. Additionally, as announced last quarter, FDX will be a LEO line fit option for all new Bombardier Challenger and global business aircraft types. We expect revenue generation from this important win in early 2027.

I am pleased to say that we have secured another line fit option win with a major global OEM for both HDX and FDX that will highlight the growing momentum for Gogo Galileo in the market. We would expect an official announcement before the end of 2026. In our view, these wins validate Gogo Galileo technology and demonstrate the valuable long-term relationship we have with our global business aircraft OEM partners, along with the desire to have competition in the LEO marketplace. Let's continue with Gogo 5G, which substantially increases the speed, performance, and capacity of our S ground network. We completed the activation of our first 5G aircraft in December, true network availability started last month. Our current focus remains shipping boxes to pre-provisioned 5G customers that already have the 5G antennas and wiring installed.

We are happy to report that 5G service commenced in Q1. We expect 5G activations to significantly ramp up through 2026. Gogo has 5G license deals with 5 OEMs, 2 of which are already installing the AVANCE L5 box on the production line today. These boxes will get swapped with the LX5 5G box upon 5G service activation. We continue to believe that 5G will fill a large void in the market for customers who only fly domestically in the U.S., particularly those with light and medium-sized aircraft. Further, we suspect 5G will serve as an active, valuable backup service on certain aircraft, seeking redundancy and enhanced capacity. We recently unveiled updating 5G pricing, highlighting its positioning as a cost-effective way to increase speed tenfold versus our current L5 solution.

Monthly service pricing for unlimited data is now $5,500, and 5G equipment MSRP is now $100,000, allowing for a full installation below $150,000 and making the connectivity market competitive. To that end, we expect to ship over 500 5G boxes in 2026 and expect to reach nearly 400 5G aircraft online by the end of this year. Let's shift to the LTE upgrade of our ATG network, which will be largely subsidized with FCC funding. The LTE upgrade provides multiple benefits. One, it accelerates Classic upgrades to AVANCE, it increases network capacity and fast speeds, and it accelerates our U.S. government business on the Air-to-Ground network, giving enhanced network security.

We shipped a record 472 Air-to-Ground equipment units in Q4, up 8% from 437 in Q3, split between 175 AVANCE units and 297 C1 units. We believe that our C1 strategy is working. C1 AOL increased from 101 in Q3 to 313 in Q4, and we expect to end 2026 at around 800. The C1 box swap takes only a few hours and benefits from FCC subsidies, allowing the system to activate once the LTE network is turned on. We completed 95 Classic to AVANCE upgrades in Q4, as AVANCE AOL grew 8% year-over-year to 4,956. AVANCE now represents 77% of our Air-to-Ground fleet and continues to grow each quarter.

The combination of C1 installs and the AVANCE upgrades drove our Classic AOL at year-end to around 1,100, or only 17% of our ATG fleet. We expect our Classic AOL to reach zero sometime in Q4 2026. As of Q4, about 300 Classic AOL are part of fractional or managed accounts, AKA fleets, with a defined upgrade path, leaving only 800 Classic aircraft not associated with a fleet account. All in our Q4 ATG AOL trends were the best of any quarter in 2025. The continued upgrade of our Classic fleet to both C1s and AVANCE, combined with our LTE rollout and the expected ramp of 5G in 2026, is expected to ultimately moderate the downward pressure on our ATG AOL. Sustained service revenue growth continues to depend on our new product ramp, including Gogo Galileo and 5G.

Let's now turn our attention to our GEO business. We ended 2025 with 1,321 GEO AOL, up 6% versus the prior year, driven by line-fit positioning. We attribute slower GEO AOL growth to deactivations from an increase in aircraft to sale, triggered by the timing of aircraft bonus depreciation. We expect our GEO investments to continue to improve speed and performance, which we will also leverage with our military and government customers. Our recent upgrades to the Plane Simple KU products have already shown results of higher download and upload speeds. We continue to expect large business jets with long global missions to migrate over time to multi-orbit LEO and GEO solutions for increased capacity, consistency, and redundancy.

Our SDR router is now on 2,500 GEO aircraft and is synchronized with AVANCE routers on another 5,000, totaling 7,500 systems available for new product upgrades without box swaps or expensive interior rewiring. I will address our military and government growth opportunities over the next several years. Global defense spending is rising, the broadband penetration of the military and government aircraft is even lower than the business jet market. Our expanded military and government sales force is in active discussions with government agencies across the globe, including the U.S. Department of Defense, NATO, Brazil, the Middle East, and Southeast Asia. A recent industry report highlights a market size of 6,200 combined transport and special mission military aircraft globally, of which 1,600 are in the U.S.

We believe these represent excellent opportunities for our military and government broadband solutions, as this is a very underserved market, primarily with narrowband service. Global governments require diversity among their aeronautical band web suppliers and will place a premium on multi-orbit, multiband service for redundancy and performance. We believe that Gogo is the only player who can fulfill this requirement. The reality is we are already seeing a significant transformation in our business. Our military and government aviation revenue grew 34% year-over-year, and our international growth was an impressive 94%. The net effect of this growth remains muted by the winding down of legacy land mobile narrowband service, a process that is expected to largely complete in 2026. The key point is that our revenue mix quality within military and government will improve substantially over time.

In addition to the traditional military and government market, we are increasingly optimistic about the market potential within the UAV and ISR markets. The U.S. Department of Defense expects to order over 1,000 Class Two and Class Three drones in the next 2 to 3 years. While not all details of our success can be publicized due to their confidential nature, we are excited to begin delivering on our recent contracts, including receipt of U.S. Air Force mobility approval to sell Plane Simple Ku-band hatch mounts to C-130 aircraft, with a term of over 1,000 airframes. A multi-orbit win to provide LEO GEO 5G connectivity to a division of the U.S. government, and a five-year contract with SES Space & Defense for a blanket purchase agreement through U.S. Space Force Space Systems Command, with a $33 million contract ceiling value.

Thank you for the continued support. I trust that you will all see our outstanding progress transforming Gogo into a global multi-orbit player with robust broadband growth opportunities in both the business jet and military and government markets. I will now turn the call over to Zach for the numbers.

Zachary Cotner (CFO)

Thanks, Chris. Good morning, everyone. Fourth quarter results were largely in line with expectations, highlighted by strong equipment shipments and an increase in inventory spend in advance of our Gogo Galileo ramp this year. Additionally, our key 2025 financial results for revenue, Adjusted EBITDA, and free cash flow were all at the high end of our guided ranges as aggressive cost controls and synergies balanced out our product investments. As Chris discussed, we believe the ultimate activations of our Gogo Galileo and 5G equipment shipments will help drive service revenue growth longer term. On our Q3 call, I flagged a potential need for incremental working capital in 2026 to support new product shipments and our anticipation of continued ATG AOL volatility, tempered with further optimization of OpEx and CapEx. My discussion of our 2026 financial guidance later in the call will incorporate these elements.

I'll now provide an overview of our fourth quarter and 2025 results. I will review the outlook to streamline our balance sheet. Lastly, I will discuss our 2026 financial guidance. Gogo's total revenue in the fourth quarter was $231 million, up 3% year-over-year on a combined pro forma basis as well as sequentially. Total service revenue of $192 million increased 61% versus the prior year and increased 1% sequentially. Total ATG aircraft online at the end of Q4 was 6,402, a decline of 9% versus the prior year period and down 2% sequentially. Total advanced AOL increased 8% in the prior year period and now comprises 77% of the total ATG fleet, up from 65% a year ago.

Since the end of 2022, our total advanced AOL has grown by nearly 1,700 aircraft. Given the sequential increase in C1 AOL from 101 to 330, our classic AOL is now approximately 1,100, and our 2026 guidance assumes 0 classic AOL by year-end. Total ATG ARPU of $3,378 declined 3% year-over-year and 1% sequentially, largely due to the pricing reduction on several of our unlimited plans in advance of our new 5G pricing of $5,500 a month for our unlimited data plans. Total broadband GEO AOL, excluding end-of-life networks, totaled 1,321, up 6% from the prior year and down 2% sequentially.

Chris noted, many of the GEO deactivations in Q4 were triggered by an increase in aircraft sales, which is common at year-end for tax purposes. Most GEO broadband aircraft are under fixed-term contracts, which help support revenue predictability. Our revised GEO outlook reduced the present value of our earn-out liability by $7 million. Turning to equipment revenue. Total equipment revenue in Q4 was $39 million, up 104% year-over-year and 15% sequentially. Total ATG equipment shipments of 472 were an all-time high and up 8% sequentially from the prior record of 437 in Q3. In 2025, ATG equipment shipments totaled 1,631, nearly matching the combined shipments from the prior two years.

As expected, advanced shipments of 175 declined sequentially as market demand shifted to Gogo C1, which increased 30% sequentially to 297 to support the classic conversions. Now moving to our margins. Gogo delivered combined service margins of 50%, which was in line with our expectations. I will provide further service margin context in the 2026 guidance discussion later in the call. The write-off of legacy equipment drove equipment margins negative in Q4 and was expected as normal business course. In addition, HDX equipment pricing remains close to cost. Now turning to operating expenses. Total Q4 operating expenses, excluding depreciation and amortization, were $58.2 million, up slightly sequentially due to the ongoing litigation expense, which was $8.4 million during the quarter.

Let's now turn to our major strategic initiatives, 5G, Galileo, and the LTE network upgrade, and the FCC reimbursement program. Total 5G spend in Q4 was $1.7 million, almost all tied to CapEx. Total 5G spend in 2025 was $12.6 million, which we expect to decline by about 50% in 2026. Q4 Galileo spend was $2.6 million, with 70% tied to CapEx. Galileo spending of $10 million in 2025 is expected to decline considerably in 2026 to $1.5 million as we exit the investment phase and embark on product shipments and service activations. We expect total development costs for both HDX and FDX will reach about $40 million, well below our original plan of $50 million.

Given our expectation for strong long-term Galileo success, we believe that our ROI on the Galileo investment will be very attractive. Finally, our LTE network upgrade and FCC reimbursement program. In Q4, we received $34 million in FCC grant funding, bringing our program to date total to $93.9 million. As of year-end 2025, we reported a $27.8 million receivable from the FCC and incurred $35.7 million in reimbursable spend in Q4. The 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's Adjusted EBITDA in Q4 was $37.8 million, in line with our implied 2025 guidance.

Net income for the quarter was negative $10 million, but was affected by a $10 million litigation settlement accrual, a $4 million charge related to the valuation adjustment on a prior investment in a supplier, and a write-down of legacy equipment that I previously mentioned. While we have removed a significant amount of costs from the combined company, particularly in headcount, we continue to identify new sources of cost reductions in various areas, including real estate, back office, software solutions, and CapEx rationalization. Moving to free cash flow. In 2025, we generated $89.2 million in free cash flow, which was at the high end of our guidance range of $60 million-$90 million. Free cash flow was slightly negative in Q4 due to previously flagged factors, including a $17 million increase in inventory tied to our new products, as well as lower EBITDA.

Let's now turn to our balance sheet. Gogo ended the fourth quarter with $125.2 million in cash and short-term investments and $848 million in outstanding principal on our two-term loans, with our $122 million revolver remaining undrawn. Our Q4 net leverage ratio was 3.3 times and within our target leverage ratio of 2.5-3.5 times. Our Q4 cash interest paid, net of hedged cash flow, was $17 million. Our hedge agreement remained at $250 million, with a strike price of 225 basis points, resulting in approximately 30% of the loans being hedged. As a reminder, the hedge amount will de-decrease to $200 million on July 31st, 2026, and expires on July 30th, 2027.

In 2025, cash interest paid net of hedged cash flow was approximately $67 million. Our immediate focus remains exploring ways to optimize and delever our balance sheet while reducing interest expense. Between cash on hand and our revolver, we have approximately $250 million in liquidity, which we believe is significantly higher than our requirements to operate the business. We continue to believe our expected free cash flow over the next few years will provide excess cash to refinance the debt and ultimately return capital to shareholders. In our earnings release this morning, we provided the following 2026 financial guidance: Total revenue in the range of $905 million-$945 million, with 80% tied to service revenue and 20% to equipment revenue. This implies overall growth of about 2% at the midpoint.

Adjusted EBITDA in the range of $198 million-$218 million, and free cash flow in the range of $90 million-$110 million, implying 12% year-over-year growth at the midpoint. We expect approximately $30 million for strategic investments in 2026, net of any FCC reimbursement, down about 45% from our strategic spending at $56 million in 2025. The majority of our strategic investments this year are tied to fleet promotions and STCs and will flow through operating assets. Net CapEx of $20 million after $45 million in CapEx reimbursement from the FCC reimbursement program as we complete the LTE ground network build. In addition, here are some incremental points that can aid in your modeling and provide context on how we look at the business.

1. We believe that Milgov revenue in 2026 will grow faster than overall Gogo revenue. On a sequential basis, Q4 Milgov service revenue grew an impressive 14%. 2. ATG mix heavily influences our overall service profits. ATG service margins are about 75%, and blended GEO margins are in the high 30s, with Galileo margins at scale in the middle of those. 3. Equipment margins are expected to be in the mid-single digits, and service profit is anticipated to account for over 95% of total gross profit. 4. Our 2026 free cash flow estimate excludes an estimated $40 million earn out payment in April, which we expect to pay for cash on. In conclusion, we have made significant progress in the past 15 months since the closing of the SATCOM deal.

Our three-year product investment cycle is nearing completion. We expect to see strong benefits from the rollout of 5G, HDX, FDX, and our LTE network. I want to express my gratitude to the Gogo team for their hard work in driving our transformation and their commitment to outstanding customer service. Operator, this concludes our prepared remarks. Please open the queue for questions.

Operator (participant)

As a reminder, if you'd like to ask a question at this time, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please rejoin the queue if you have any additional questions.

Our first question comes from Scott Searle with Roth Capital Partners.

Scott Searle (Managing Director and Senior Research Analyst)

Good morning. Thanks for taking the questions. Thanks, thank you for the detailed outlook. Very helpful in terms of going through the numbers and the analysis. Maybe to start, just real quickly, Chris, in terms of NetJets, this has been I guess, a lightning rod for the company in the last, you know, several months. What is your expectation in terms of your growth with NetJets? Will you ultimately be adding to the absolute number of NetJets AOL that you have online across, you know, the different types of aircraft across the different geographies? Then I had a follow-up.

Chris Moore (CEO)

I think the big thing is that NetJets remain a customer. We're expanding the customer base with them, especially with the European fleet. We're in a technical transformation with the services that we provide them. If you look at most of the opportunity that we have, it's on our Galileo service. We're continuing to roll that out. They still remain a very important part of our future and business and a customer of ours.

Scott Searle (Managing Director and Senior Research Analyst)

Gotcha. As it relates to the Classic transformation, we're down to about 1,000 aircraft right now. I know there's a cutover point, you know, in the middle of this year. Couple of things. It sounds like by the end of this year, that's gonna be resolved at one point or another. You expect to have zero Classics online. I'm wondering how you're seeing the conversion rate in terms of going to Gogo C1 and upgrade to AVANCE. In other words, what's the attrition number gonna look like within that base as we get to the end of this year? Last one, if I could throw in as well, you know, SATCOM growth within the Milgov space has been very, very good.

It sounds like you're gonna be growing this year, gonna be growing that faster than the rest of the business. I'm wondering if you could give us a framework of what that could look like by, you know, in terms of % and mix by the end of 2026 and maybe end of 2027. Thanks.

Chris Moore (CEO)

I mean, I'll start with the Milgov piece. The Milgov is expanding. We're seeing a lot of opportunity in Europe. Still, as I mentioned in the call, we're also transforming that business and removing the narrowband exposure in that business to broadband. I think the exciting thing, really, on the product portfolio is we're positioned now with Gogo 5G, Gogo Galileo and our GEO broadband offerings, that we have broadband offerings for all of our customers, no matter whether they're in business aviation or government. They have a true broadband offering or multiple broadband offerings, which is pretty exciting, because then all of a sudden, you know, you've got multiple revenue streams coming from an airframe instead of a single as well. The government part of the business, we're already seeing a lot of opportunity with UAVs.

Europe's obviously doing a lot more focus on expenditure, on military spending. I think we're reaping the rewards of that as well. The DoD is a very under-penetrated market, as I mentioned on the call. If you look at that, you know, they had the 25 by 25 campaign a few years ago. They still haven't reached that. Our technology is a lot more deployable, cost-effective, aviation build, aviation grade, and they also don't want interdependencies on a single supplier. I think, you know, as we see that mix, it will take a long time for that to be the same levels as business aviation, but we just see that as continuing to grow between 26, 27 and beyond.

Zachary Cotner (CFO)

Yeah, I think from a, from a mix standpoint, you know, like we said, we do anticipate it's gonna grow faster, this year than last year. You know, a big driver of that is obviously equipment, but we also won a pretty sizable contract, kind of late Q3. That's why you saw the nice Q4 pop in the Milgov numbers, which should continue for most of the year. You know, the equipment side, you're gonna see a lot more growth on that, largely because, you know, if you think of the aircraft, those go on, those are obviously quite a bit different than business aviation, so it just takes a little bit longer, you know, to get those put on the aircraft and, you know, the guys are keenly focused on it.

Scott Searle (Managing Director and Senior Research Analyst)

Yeah, the mix of classic or what you expect to be the outcome of those remaining 1,000 classics in terms of conversion to C1 versus upgrades to Advanced and kind of what you've got factored into the current 2026 guidance. Thanks.

Zachary Cotner (CFO)

Yeah. You know, when we look at the AVANCE Classic mix, you know, the guidance does assume that there's an extension granted, and so it doesn't go dark in Q2, but it's still gonna decline, right? You know, there will be some AVANCE declines, there will be some Gogo C1 decline Classic, right? Long story short, our view is between Classic AVANCE, but then also with the addition of 5G, the total ATG portfolio will be down about 1,000 units by year-end, and then 100 or so Classics basically are assumed to not convert at year-end.

Scott Searle (Managing Director and Senior Research Analyst)

Great. Thank you.

Operator (participant)

Our next question comes from Sebastiano Petti with JPMorgan.

Sebastiano Petti (Senior Research Analyst)

Hi, thank you for taking the question. I guess, Chris, just following up, I think you talked about specifically the NetJets, yeah, expanding their fleet there in Europe. Overall, can you maybe give us a little bit of color on what you're seeing from an international perspective across the portfolio, you know, the, between the backlog on Galileo, you know, you touched on some of the Milgov interest, you know, for DoD, but also maybe internationally?

Maybe kind of start there, and then I'll have a follow-up. Thank you.

Chris Moore (CEO)

Yeah, I think the big opportunity that we announced back on the Q3 call was the fact that we won VistaJet, and I talked about that today as well. Also, if you look at Luxaviation, Avconjet, you know, that back order on those large fleet operators outside of NetJets, specifically within Europe as well, is significant and 1,000-plus aircraft, we know that we're still holding true to that number, regardless of NetJets. We're still excited about the NetJets rollout in Europe as well, the feedback we've had on the products, they've been extremely ecstatic. If you look at our pipeline, it's around, still maintains a 60-40 split with international. I think the sentiment is definitely from our international customers.

I think the fact that Eutelsat OneWeb is also a European operator, I think that has some clout to it. More importantly, these guys have not had a broadband solution on a number of these aircraft, especially those that can't support the rather expensive installation costs of going into the tail or the size of that. We expect that to expand, and we're seeing very interesting markets pop up in Southeast Asia and other markets where, you know, popular airframes, like the Phenom, are there, but we have zero connectivity, and we're really the only solution that can get down to that size of airframe with a true aviation install. The Mil Gov market as well, a lot of that expansion in the Mil Gov market that we've talked about, specifically, mostly is, at this point, is coming out of NATO.

We can't talk about specific projects, but we're winning projects against our competitor, which is great. I think that's a really important point to make as well. We are not the only bid when we are winning these, and I think that pivot towards our technology just shows its versatility from going into anything from a UAV to something that's a small platform aircraft. I think that is also giving us good dividends as well. We expect that to grow. We've expanded the international team for the business as well, and yeah, we're very hopeful and enthusiastic about where that's going.

Zachary Cotner (CFO)

Yeah, I would just make one other point to reiterate Chris's comments. You know, if you look at some of our metrics we reported, you'll see we've started adding the LEO units online, and more than half of those are in Europe, so I think that's really proving the point.

Chris Moore (CEO)

Yeah.

Zachary Cotner (CFO)

-that Chris has articulated, that that's a very strong market for us.

Sebastiano Petti (Senior Research Analyst)

Thank you.

Operator (participant)

Our next question comes from Justin Lang with Morgan Stanley.

Justin Lang (Analyst)

Hi. Good morning. Thanks for taking the questions. Chris, appreciate the comments around Galileo and the 5G aircraft online expectations this year. Curious if you could provide a little more color on what level of service revenues from the new products are factored into the guide currently? Just on the top-line range, you know, what factors might push you to the high end versus the low end this year, and what should we be watching for? Thanks.

Zachary Cotner (CFO)

There's obviously a lot of ins and outs to this because the ATG revenue on the existing book is going down significantly, right? That's about $40 million. The remainder of kind of the decline in service is from the GEO business. You know, we do expect a nice little uptick on the LEO, right? I'd say the LEO service revenue is offsetting not quite half, but almost half of the decline in the legacy products. Obviously, the equipment mix, that's a big piece of the revenue bridge from last year.

Justin Lang (Analyst)

Got it. That's helpful. Just on a sort of cadence basis, should we expect a much stronger second half year as some of these new products dial in, or is that a stretch? Maybe, just actually on free cash flow cadence, because I think you've suggested some unique working capital demands this year. If we could hit on that'd be great.

Zachary Cotner (CFO)

I think a couple points. One, it does take 3 to 6 months, about, on the HDXs to get installed. You're right, it is gonna take a little bit of time to see the service revenue. From a free cash flow perspective, like we said, in Q4, you saw kind of an inventory build. You'll probably see that in Q1 as well. That's really for all the shipments, right? We got to make sure we can deliver these orders as requested, so we're ramping up. I think the ramp will be done this quarter, and then you'll see more and more flows out in Q2 and Q3. I think from a cash flow perspective, you know, you will see better cash flow in the other three quarters.

Was there another one, or did I get all of them? Okay.

Justin Lang (Analyst)

Yeah, that's helpful. If I could, I'd like to sneak one more in just on the Milgov topic, and specifically around the C-130 opportunity you were talking about, Chris, and I think there's a mention of over 100 aircraft in the TAM. Is that, how big of a discrete revenue opportunity is this for you? Sort of secondly, I think we saw you won a seat on the MDA C-SHIELD IDIQ a little while ago, so how should we think about potential Gogo contribution to Golden Dome? Thanks.

Chris Moore (CEO)

Yeah, I think if you look at the TAM for the C-130, it's 1,000. That's pretty significant, and getting that which is a really important product for those guys, 'cause it's very low-cost installation. Again, I think that's what been one of the prohibiting points for the military, is actually fitting communications onto the aircraft. I think, you know, the wins that we're having with the DoD around things like Golden Dome, we'll see how that pans out over time, I think our approach is really kind of pushing in the adaptable, really easy, low-cost install. We're moving away from the $1,000-dollar hammer or them having to fund our business where by hundreds of millions of dollars. We don't need that.

We're really very specifically focused towards our military customers to get them quick, expandable technology that can be upgradable, very easily in the future as technology changes. I think that's really resonating with the military. Then, if you look at the overseas military outside of the DoD, which is a huge opportunity, obviously, the DoD does the largest spend globally on military spending. Aviation's becoming so much more important, border patrol, and also head of state. We've had wins in the last 12 months around anything from surveillance aircraft right through to significant heads of state wins. It's a really versatile portfolio. We believe there's a really underserved market, very much like the business aviation market with broadband connectivity. We just see that being very positive outcome for the business.

The nice thing is, as well, we really don't have to put a lot of CapEx in adapting the technology either. It's really kind of off-the-shelf, commercial aviation technology that we've kind of developed for business, purpose-built for business aviation. We're actually able to take that and put that into those markets. I think the C-130 just kind of, that's one platform that's obviously utilized globally, but there's other airframes there, like the A400M, which is very popular in Europe. We're really going after that part. We've really boosted up the sales team, we've put that under new leadership, and we're seeing significant kind of uptick from that. We're really excited about it.

Justin Lang (Analyst)

Great color. Thank you.

Operator (participant)

As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your touch-tone phone. Our next question comes from Alexander Phipps with OHA.

Alexander Phipps (Analyst)

Hey, guys. Thanks for the call today. Overall, congrats on the quarter. It seems like it's starting to stabilize a bit. I guess, I understand the concept of people getting a backup with GEO to supplement their LEO, but how should we think about where ARPU should stabilize on the GEO business longer term, if someone's just using it as a backup solution?

Chris Moore (CEO)

I think the big thing is, if you look at total revenue by the airframe, right? I think that's gonna change over time. Where we've had a traditional single kind of source coming from the airframe as a primary communication method, whether it's GEO or Air-to-Ground within CONUS with the U.S. market. With Galileo and obviously the demand that we're seeing for LEO, which is brilliant, I think the big thing is for those global operators, having continuity of service globally is so critically important. I think the way we're looking at it is kind of a blended ARPU for those larger aircraft, which is similar to what we probably get from GEO today, but we'll see that more as a blended ARPU from multiple connectivity forms. That's the way we're kind of looking at it right now.

Alexander Phipps (Analyst)

Got it. On the line fitting, it's good to hear that you guys are gonna be getting a bunch of new line fits for the HDX. Do you know what percentage of planes on the GEO side, let's say, that are line fit with a Satcom Direct solution, are also currently line fit with a Starlink solution? I guess, how exactly does that work? Does the customer need to keep the GEO solution in the tail of the plane and then get the Starlink solution installed at an MRO after the fact, or can they actually opt just to get Starlink and not have the SD solution put in the tail?

Chris Moore (CEO)

I'll answer in a couple of different ways. At this point in time, I think we have set ourselves up that when you buy an aircraft across any airframe over the next 12 months, we're in a position that ultimately you'll either choose the competitor or us when it comes to LEO. That's a really important point to make. GEO is still line fit across those OEMs, which can actually fit it into the tail, and we're seeing the fact that customers do want an alternative, if at the moment, they are not installing our solution as the LEO solution, and they are still seeing the need for GEO.

The reason for that is when you look at the larger airframe manufacturers, you know, these aircraft fly 14 hours, they're flying all around the world, and there are large portions of the LEO network from a regulatory perspective, that are still not connecting today. You really need that assurance of that GEO backup. The other thing which we're also seeing is a lot of our customers like that assurance, 'cause we provide a lot of different things that other people don't provide as well, such as cybersecurity, continuity of service. I know a number of value adds, and also having that connectivity allows our support, which is global.

You know, we've got human beings who can answer the phones, but we've also put a lot of technology into our back end, so we can filter through where really the issues are with the aircraft and fix issues for customers, really before they, you know, even know about them or are reporting them back to us. I think that GEO position as a backup, but also from a continuity of service, providing bandwidth, we're seeing that customers are also still utilizing the service, even if they have LEO on board, because we're also pushing off a lot of information and synchronizing those with other OEMs, such as engine manufacturers, operations, tracking the aircraft. It's a lot more nuanced than just providing connectivity.

We're seeing that, but I think the really exciting thing, just to reiterate, is we will be in a position over this year that, you know, we are a genuine choice for a customer, no matter the size of the airframe. All of our customers now have a true broadband solution, whether it's kind of 5G as an entry service and then LEO service as a, like, a primary LEO, low latency, high bandwidth product at an enterprise level, communication method as well. It's a really exciting time for the company.

Zachary Cotner (CFO)

I would just kind of to dovetail on that. I think it's a critical point on the line fit. When you look at the GEO adds we've had this year, those are almost all exclusively line fit, right? That's, that was kind of the old SATCOM way that we were able to grow that business so well, is because, you know, like you said, you had to pick a provider, and that's where we'll be at the end of this year and the beginning of next year. Whereas this year, it's a lot of aftermarket, and you've got to slot guys into maintenance times, and it's a bigger sales lift until you get line fit.

Chris Moore (CEO)

Yeah, I think now at least, we've also got, like, both ends of the market. We've got really strong MRO base, we've got amazing MRO partners, we've also got amazing OEM partners, we have a direct sales team who are going out to customers when they're specifying their airframe or they're maintaining their airframe, whether it's in the aftermarket, that can actually walk customers through what connectivity solutions are needed for the size of airframe and the mission that they actually have for that aircraft as well. You know, I think we're going to the market in a kind of multipronged way anyway.

Alexander Phipps (Analyst)

Yeah, that's super helpful. I guess just 2 quick follow-ups on that. I guess on the point where I guess just to my earlier point, like, they have the GEO as a backup, but they're gonna be using a LEO high bandwidth solution, like, where should ARPU shake out? Is it half of where it is now for the GEO solution? Is it, like, a quarter? Just any comments on that. I guess on the line fit, like, just to kind of say it a different way, like, I mean, if you go on a commercial airplane right now, there's still an ashtray in the bathroom, and that's not because they think someone's gonna smoke in it.

It's because the door to the bathroom got an STC back in 1960 with an ashtray in it. Like, do planes have to like, if they have an STC with an SD solution in the tail, will it be rolled out? Like, will that plane always be delivered with that in the tail, or will customers have the option to, like, just get Starlink and not have that in the tail of the plane?

Chris Moore (CEO)

I think the big point is, on communications, it's always choice. Outside of safety services, the OEM has always enabled choice on what connectivity solutions that you have, and that's also dependent on the STC. You absolutely have choice on not specifying different connectivity. However, if you're very different to commercial aviation, where kind of utilizing the connectivity service on board is a chargeable event and kind of the attrition for the airlines, it's a really different model. For a business jet, it's a necessity and a need, and also it really depends on the utilization, who's using it, and therefore, whether it's primary or backup. We've seen that this is, like, not a new thing for us. If we look at our narrowband service to when GX came in and as a service, that didn't just go away.

You know, we are still activating narrowband services with our OEMs today. I get your point on kind of like the analogy with the ashtray. I think it's, this is more kind of really, yeah, the STC's been invested in. It's also very difficult to get things on airplanes, to your point, so those things linger around for a while. We are seeing utilization on the GEO service, even if another service is on board, as we do with narrowband services that are being utilized with GEO on board as well. We've got a lot of experience in this, and that's the bit where we do feel that it will be a multipoint approach with a lot of customers, with the larger aircraft. Obviously, on the smaller aircraft, that's a little bit different.

We usually see a single source of communications as the primary communications method. The nice thing is, with the HDX, it can really get down to those smaller airframes, where actually our competition antenna is quite large. I think that's the bit where, you know, we feel really quite strong about different sides of the market. With 5G coming in, that's a revolutionary service for these Classic customers or people going to Gogo C1. You know, really, this is going to true broadband. Again, you know, we're seeing OEMs investing in 5G for the line as well. I think the choice for the customer has always been there, and there's nothing new with that. I think that's the biggest takeaway from my perspective. On the number side, really on the ARPU, the ARPU will really settle.

You know, that's a really tough one to navigate at this point, because we're still seeing strong ARPUs from GEO because of the necessity of having that backup. But at some point, we truly do believe that it's gonna blend together. Whereas, where we really see the true blended rates, we see that being around what we get from GEO today on the kind of higher end from customers, because they're ultimately getting multiple services. The nice thing with Gogo, we're the only company who provides all of those services, and we can send the customer an integrated bill, so they're not looking at it's almost utilizing your mobile phone. You know, you're not looking at how much network utilization you took off AT&T versus Verizon. You'll be looking at this from us as a blended bill from Gogo.

Very simple, but ultimately knowing you've got the assurance of backup on your data as well. I hope that makes sense.

Alexander Phipps (Analyst)

Yeah, that's super helpful. Just I promise one more quick one, and then I'll shut up. If like, gun to your head, just to help conceptualize what the white space looks like, 'cause to me it seems like there's a lot of white space. Like, excluding Milgov, just biz av, like, what do you think the mix will be five years down the line in terms of composition of your fleet, north, like, North America, or let's say Americas, EMEA, and APAC?

Chris Moore (CEO)

On, types of service, I think, I'll put it down.

Alexander Phipps (Analyst)

Just like AOL. Like, just like AOL. Like, I mean, obviously right now the AOLs are, like you said, half of the LEO that came online are Europe, if I recall correctly. Like, do you think that that's gonna be the mix longer term? Do you think it's gonna be like 50% of your LEO fleet is non-U.S. and 50% is domestic, or is that just right now?

Chris Moore (CEO)

I think no, I think we're seeing the demand we've always been seeing the utilization of business aircraft outside of North America is growing at a rapid rate. Therefore, I think it would be a logical assumption that the splits that we've got at the moment, you know, North America is obviously the biggest market. We believe we will hold good percentage in that, and I think having that kind of 60/40 split is a good way that we're kind of thinking of it long term. As the international market grows, and we'll grow into that. We also have offices all around the world, so we can really kind of support those customers. Also those customers, over a period of time, you know, they'll be taking aircraft from the OEM.

The nice thing now is they can actually spec it at the OEM with our services. I think that will naturally grow as well. I think that kind of 60/40 split is the kind of way we're thinking about it for the business over kind of the next few years.

Alexander Phipps (Analyst)

Super, super helpful. Thanks so much, guys.

Chris Moore (CEO)

Yeah, no problem.

Will Davis (Head of Investor Relations)

Thanks so much.

Operator (participant)

That concludes today's question and answer session. I'd like to turn the call back to Will Davis for closing remarks.

Will Davis (Head of Investor Relations)

Thank you, everyone, for your participation in our fourth quarter earnings call. You may disconnect.

Operator (participant)

This concludes today's conference call. Thank you for participating, and have a great day.