Gogo Inc. (NASDAQ:GOGO) is the world's largest provider of broadband connectivity services for the business aviation market. The company has a long history of delivering innovative in-flight connectivity solutions, and its latest offerings are poised to revolutionize the industry.
Business Overview
Gogo has served the business aviation market for over 25 years, establishing itself as the leading provider of in-flight connectivity in North America. The company's mission is to enrich the lives of passengers and the efficiency of operators with the world's best business aviation in-flight connectivity and customer support.Gogo's journey has been marked by a successful transition from analog air-to-ground (ATG) technology in the late 1990s to narrowband satellite connectivity in the early 2000s, and then back to ATG with its digital broadband 3G and 4G networks starting in 2010. The company is currently developing its fourth-generation ATG network, Gogo 5G, which is expected to launch a few months later than the previously stated fourth quarter of 2024.
Simultaneously, Gogo is actively working with a subset of AVANCE customers and customers utilizing its legacy Gogo Biz ATG airborne system to upgrade to an AVANCE system compatible with a new LTE network. This transition, expected to occur in early 2026, is partially being reimbursed through Gogo's participation in the Federal Communications Commission (FCC) Secure and Trusted Communications Networks Reimbursement Program.
In addition to its ATG offerings, Gogo continues to provide narrowband satellite services to customers in North America and internationally through distribution agreements with satellite providers. In May 2022, the company announced plans to expand its broadband offerings beyond ATG by launching Gogo Galileo, the first global broadband service designed for all models of business aircraft. Gogo Galileo, which is targeted for commercial launch in the fourth quarter of 2024, will utilize an electronically steered antenna operating on a low earth orbit (LEO) satellite network.
Financials
Gogo's financial performance has been strong, with the company reporting annual revenue of $397,577,000 and net income of $145,678,000 in the most recent fiscal year. The company's annual operating cash flow was $78,970,000, and its annual free cash flow was $54,882,000.In the first quarter of 2024, Gogo generated total revenue of $104,322,000, up 5.8% from the prior-year period. This was driven by a 4.0% increase in service revenue to $81,673,000 and a 12.7% increase in equipment revenue to $22,649,000. The company's AVANCE aircraft online grew 19% year-over-year to 4,110, now comprising 58% of Gogo's total fleet.
Gogo's first-quarter adjusted EBITDA reached a record $43,322,000, up 9% year-over-year, primarily due to strong equipment sales, increased service gross profit, and some permanent operating expense savings. The company also set a new free cash flow record of $32,053,000 for the quarter.
Guidance and Outlook
For the full year 2024, Gogo expects revenue to be in the range of $410 million to $425 million, representing 5% growth. The company now expects adjusted EBITDA to be at the high end of the previously guided range of $110 million to $125 million, reflecting a shift in spending from operating expenses to capital expenditures and some operating expense savings realized in the first quarter.Gogo's long-term targets remain unchanged, with the company expecting revenue growth at a compound annual growth rate of approximately 15% to 17% from 2023 through 2028. The company also expects its annual adjusted EBITDA margin to reach 40% by 2028. Free cash flow is expected to be in the range of $150 million to $200 million in 2025.
Strategic Initiatives
Gogo is focused on a three-pronged strategy to accelerate growth: expanding its addressable market, driving customer loyalty, and offering the best products and customer support at the lowest total cost of ownership.The launch of Gogo Galileo is a key component of the company's market expansion efforts. Gogo Galileo is designed to address the approximately 12,000 mid-size jets, small jets, and turboprops registered outside North America that currently have no broadband solution available, as well as the roughly 11,000 mid-size and smaller jets domiciled inside North America that often fly international missions or desire faster connectivity than ATG alone can provide. The company has already signed four STC agreements for Galileo and has 10 more verbally committed, as well as three in negotiations, which collectively will cover 10,500 jets and 6,200 turboprops globally.
To drive customer loyalty, Gogo is focused on continually improving its ATG networks and incentivizing its 3,200 Gogo Classic customers to migrate to the AVANCE platform. This will provide these customers with easy upgrade paths to new technologies, such as Gogo 5G and Galileo, as they become available.
Gogo's product and customer support strategy is centered on offering the best solutions at the lowest total cost of ownership. The company's Gogo 5G network is expected to achieve mean speeds of around 25 megabits per second, 5x to 25x its current product lines, with peak speeds of 75 to 80 megabits per second. Gogo Galileo, on the other hand, will deliver very consistent speeds of up to 200 megabits per second, roughly 40 to 200 times the speed of Gogo's current offerings.
Risks and Challenges
Gogo faces several risks and challenges, including the successful and timely deployment of its Gogo 5G and Gogo Galileo technologies. The company has experienced some delays in the launch of Gogo 5G, and any further delays could decrease customer confidence and negatively impact the company's financial position.Additionally, Gogo faces competition from emerging players, such as Starlink, which has already entered the business aviation market. While Gogo believes its aviation-grade products and superior customer support position the company to compete effectively, the company's success will depend on its ability to execute its strategy and maintain its technological edge.
Liquidity
Gogo maintains a strong balance sheet, with $152.8 million in cash and cash equivalents as of March 31, 2024. The company's net leverage ratio of 2.7x remains within its target range of 2.5x to 3.5x. Gogo has access to a $100 million revolving credit facility, which was undrawn as of the end of the first quarter.The company's capital allocation priorities include maintaining adequate liquidity, continuing to invest in strategic opportunities, maintaining an appropriate level of leverage, and returning capital to shareholders. Gogo has an authorized share repurchase program of up to $50 million, of which the company has utilized $25 million as of the end of the first quarter.