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Date
Thursday, November 6, 2025 at 8:30 a.m. ET
Call participants
Chief Executive Officer — Christopher J. Moore
Chief Financial Officer — Zachary Cotner
Director of Investor Relations — William Davis
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Takeaways
Total revenue -- $224 million in total revenue (pro forma basis) for the fiscal third quarter ended September 30, 2025, down 1% year over year and sequentially in the third quarter, reflecting equipment revenue strength offset by service revenue softness.
Service revenue -- $190 million in service revenue for the fiscal third quarter, up 130% year over year in the third quarter but down 2% sequentially; 97% of total gross profit in the third quarter came from recurring service business.
Equipment revenue -- $33.6 million in equipment revenue for the fiscal third quarter, an 80% year-over-year increase in the third quarter and a 5% sequential rise, primarily driven by advanced and C1 equipment shipments.
Adjusted EBITDA -- $56.2 million in adjusted EBITDA for the fiscal third quarter with a 25% margin in the third quarter, consistent with initial long-term range targets after Satcom consolidation.
Free cash flow -- $31 million in free cash flow in the third quarter, totaling $94 million year to date and exceeding internal expectations.
Net income -- Negative $1.9 million for the quarter, including a $15 million pretax fair value adjustment on the Satcom acquisition earnout liability in the fiscal third quarter.
Cash and short-term investments -- $1.336 billion in cash and short-term investments as of the fiscal third quarter, with $849 million in total term loan principal and an undrawn $122 million revolver, producing a net leverage ratio of 3.1x in the third quarter.
ATG aircraft online (AOL) -- 6,529 at the end of the third quarter, down 7% year over year and 3% sequentially; advanced AOL now comprise 75% of the total ATG fleet as of the fiscal third quarter, up from 62% a year earlier.
ATG ARPU -- a 3% year-over-year decline and a 1% sequential decrease, reflecting product mix and customer transitions.
ATG equipment shipments -- 437 units shipped in the fiscal third quarter, an all-time high and an 8% sequential increase; split between 208 advanced units and 229 C1 units.
GEO broadband AOL -- 1,343 GEO aircraft online as of the fiscal third quarter, up 14% year over year and 2% sequentially, aided by fixed-term OEM line fit penetration.
FCC reimbursement -- $6.6 million in new FCC grant receipts in the fiscal third quarter, with a cumulative $59.9 million received to date; $26 million remains receivable from the FCC as of September 30, 2025.
Galileo pipeline -- Now approximately 1,000 units as of the fiscal third quarter, doubled from 500 at the end of the fiscal second quarter, with a 60/40 U.S./global mix.
Milgov contract awarded -- Five-year federal contract for 5G, LEO, and GEO services to a U.S. government agency; Milgov segment revenue is 13% of total company revenue as of the fiscal third quarter and expected to rise.
Product launch timelines -- Commercial 5G flight testing commenced October 28, with fourth quarter launch reiterated with initial 5G service revenues anticipated in late first quarter 2026; Bombardier Challenger aircraft to receive FDX beginning in early 2027.
Synergy achievement -- Over $30 million in annualized synergies realized as of the fiscal third quarter, with run-rate now projected above the prior $30 million to $35 million target from Satcom integration.
2025 full-year guidance -- Revenue expected at the high end of $870 million to $910 million for fiscal 2025, adjusted EBITDA (non-GAAP) at the high end of $200 million to $220 million for fiscal 2025, free cash flow at the high end of $60 million to $90 million for fiscal 2025, and $40 million to be invested in strategic initiatives in fiscal 2025 post-FCC reimbursement.
Segment performance -- Satcom Direct’s standalone G III revenue declined about 4% year over year in the fiscal third quarter.
Summary
Gogo (GOGO 13.07%) reported fiscal third quarter revenue in line with internal forecasts, while adjusted EBITDA and free cash flow were ahead of plan, supported by record equipment shipments and rapid product innovation. Management confirmed a surge in the Galileo product pipeline and highlighted material contract wins, including a five-year U.S. government deal and global OEM endorsements of the FDX product. Financial guidance for the year was reiterated at the upper ranges, with management outlining headwinds for fiscal fourth quarter adjusted EBITDA driven by the timing of strategic investments and mix shift. The call also detailed significant progress in Satcom integration synergies, balance sheet strengthening, and anticipated continued free cash flow generation to fund deleveraging initiatives.
Cotner said, "we expect [fiscal] Q4 2025 free cash flow to be the lowest of the year, primarily due to the timing of strategic investments and inventory purchases related to the launch of our new products."
The FCC reimbursement program remained on track, with government shutdown concerns being monitored but not currently affecting receivables timing.
The ATG fleet continues transitioning from classic to advanced and C1 hardware, with C1 upgrades benefitting from FCC subsidies and representing a near-term catalyst for installation activity.
Moore stated, "we see that really encouraging. I think you can see with the C1 numbers. They're starting to really pick up now."
Management noted Milgov's revenue share is 13% of total revenue and is likely to rise to 20% over the long term, reflecting increased contract wins and multiorbit solutions adoption.
Pricing flexibility was highlighted as a mitigant to downward ARPU pressure, with the expectation that 5G ARPU is "worth twice that of a classic customer," according to Moore, as discussed on the fiscal third quarter 2025 earnings call.
Management acknowledged both increased OpEx from product investments and gross margin mix compression as the primary drivers of reduced fiscal fourth quarter profitability guidance.
Industry glossary
ATG (Air-to-Ground): A technology providing in-flight broadband connectivity by linking aircraft to ground-based cellular networks.
AOL (Aircraft Online): The count of aircraft equipped and actively using a specified connectivity platform or service.
GEO: Refers to geostationary earth orbit satellite connectivity solutions.
LEO: Low earth orbit satellite connectivity solutions, typically associated with lower latency and improved in-flight performance.
HDX/FDX/SDX: Gogo's proprietary product lines for different sizes of aircraft and satellite network configurations; HDX and FDX refer to Galileo LEO-based systems tailored for small/midsize and larger jets, respectively.
C1 Box: A hardware unit enabling ATG classic aircraft to transition to LTE-capable service as part of network modernization.
STC (Supplemental Type Certificate): FAA regulatory approvals for aircraft modifications such as installing new connectivity hardware.
ARPU (Average Revenue Per User): The average recurring revenue generated per aircraft or subscriber, used here for ATG and GEO products.
Milgov: Military government end-user segment for connectivity services, distinct from commercial and business aviation.
OEM (Original Equipment Manufacturer): Aircraft manufacturers that install connectivity equipment on production lines (line-fit) or via aftermarket installations.
Full Conference Call Transcript
William Davis: Thank you, and good morning, everyone. Welcome to Gogo Inc.'s Third Quarter 2025 Earnings Conference Call. Joining me today to discuss our results are Christopher J. Moore, CEO, and Zachary Cotner, our 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 in a more fully detailed note under risk factors filed in our annual report on 10-Ks and 10-Q and other documents that we have filed with the SEC. In addition, please note that the date of this conference call is November 6, 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 will 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 third quarter earnings release. Our call is being webcasted and available at ir.gogoair.com. The earnings release is also available on the website. After management comments, we will host a Q&A session with the financial community only. It is now my great pleasure to turn the call over to Christopher J. Moore.
Christopher J. Moore: Thank you, Will, and good morning. I will let Zach handle the numbers, but I am pleased with our financial discipline, integration, and synergy execution and free cash flow generation as we prepare for growth as a result of our new product ramps and global contract wins. My remarks will focus on the significant progress made across our key new products in the third quarter, including 5G, HDX, and FDX. All of which are expected to provide a step function increase in speed, consistency, and performance. We will also discuss our progress in the Mill Gov end market, including several recent contract wins that validate our unique multi-orbit, multiband strategy for this important customer base.
We believe Gogo Inc. is well-positioned to execute on our new product launches, and this bolsters my confidence in achieving long-term sustained revenue and free cash flow growth. Before we jump into our product rollouts, let's review the positive demand trends within our underpenetrated market. Global business jet flights are about 30% above pre-COVID levels and at an all-time high. Fractional demand is robust. Overall demand for business jets remains healthy, with major OEMs reporting strong backlog and estimating a 2025 final book-to-bill ratio of one times or higher. Last month, Honeywell estimated business jet deliveries globally of 8,500 over the next ten years, representing an annual growth rate of approximately 3%.
Given that our global addressable market of 41,000 business aircraft is less than 25% penetrated with broadband connectivity, these factors create a robust end market. In summary, our value creation is to grow our current strong position in the underpenetrated market with long-term high-margin customer relationships by delivering a set of new products and services which deliver order of magnitude improvements in performance with purpose-built equipment that is easier to install, maintain, and upgrade than competitors' products. Let's start on our new product update with Galileo, our global LEO-based service that comes in two flavors: HDX for smaller aircraft and FPX for larger aircraft.
The recent announcement by VistaJet, a leading global business jet operator, of its plans to deploy both HDX and FDX across its fleet of 270 aircraft is a powerful endorsement for Galileo. HDX installations begin this month in Europe and start in the US and Asia in January. Vista expects one aircraft upgrade with the Gogo Inc. Galileo terminal every nine days, reaching at least 60 aircraft with the Galileo terminal within the first eighteen months. VistaJet was comfortable with both the robust performance of our Galileo service and our commitment to long-term global customer support, as well as the ability to manage capacity and route traffic across a global fleet with multiple aircraft types.
The VistaJet contract continues our momentum across multiple global fleet operators. In addition to VistaJet, Gogo Inc. has announced wins with the following fleets, all with plans to upgrade their fleet to Galileo and/or 5G: NetJets, Lux Aviation, Wheels Up, and Adconjet. All in, we believe that there is a path with Gogo Inc. to reach well over a thousand fleet aircraft with either Galileo or 5G, representing a true slingshot to propel our LEO and ATG business further. Our combined Galileo pipeline for both HDX and SDX is now approximately 1,000, up from 500 at the end of Q2. We continue to see a favorable pipeline mix between the U.S. and global market of about 60/40.
Note, as we win new contracts like the VistaJet deal, this pipeline rolls off into new business won. So a pipeline is just one piece of the puzzle in tracking our progress. Next, let's drill down on HDX. HDX 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. Our execution on HDX bore significant fruit during the quarter as we increased our completed FTCs from 8 to 19 out of 40 under contract. We are very close to reaching critical mass with our HDFSTC count.
Additionally, we have now shipped over 200 HDX units year to date, nearly three times the 77 shipments we announced on our Q2 call in August, with 93% earmarked for specific customers. Our HDX installations are now 50, including outstanding FCCs, which we expect to ramp significantly as we begin to install on our major fleet accounts and execute online for installations with Textron beginning in early 2026. Accelerating AOL in a new product is truly where the magic happens and will be the key to future service revenue acceleration.
HDX is performing ahead of speed expectations and was purpose-built to fit on 41,000 global aircraft, and we expect a very ramp in shipments and AOL growth in 2026 and beyond. Now let's shift to the FDX, our larger LEO antenna for the large global business market of 10,000 aircraft. A successful flight test with OEMs, dealers, and fleet customers is a fantastic endorsement for the status of the new product. At the recent NBAA show, we flew multiple flight demos with speeds reaching 200 megabits at the high end of our predicted speed range. As we say, this is screaming. We operated 27 streaming devices simultaneously and consumed an outstanding 36 gigs of data in thirty-six minutes.
I have been launching and testing aviation Wi-Fi systems for a couple of decades and have never seen such flawless execution on a flight demo within a week of aircraft installation and delivery. It was truly an awesome performance. Hats off to the Gogo Inc. team and our partners Hughes, Standard Aero, and One Way. We were thrilled to announce in our earnings release this morning that FDX will be a LEO wide fit option for all new Bombardier Challenger and global business aircraft types. In our view, this validates our technology, our team, and shows great trust from a major global business aircraft OEM. We expect revenue generation from this important win in early 2027.
We have now announced strong Galileo relationships with the following major global OEMs: Bombardier, Textron, Dassault, and Embraer. Let's now move on to 5G, our multiyear investment to substantially improve the performance of our ATG network. I am thrilled to say that we are at the goal line on 5G. Our 5G flight testing began on October 28, and the results have exceeded our expectations. As a result, we reiterate a Q4 launch timing for 5G. We plan to begin shipping boxes to our 400 pre-provisioned 5G customers in early Q1. I already have the 5G antenna installed, and the wiring is completed.
We expect our 5G service revenue to begin in the latter part of the first quarter once installations have begun. Beyond our focus on pre-provisioned aircraft, 28 out of the 33 STCs under contract are now completed, and we expect the remaining five to be completed by the end of the year. Further, Gogo Inc. has 5G line fit commitments with five OEMs, with one already installing the advanced L5 box on the production line today. These boxes will be swapped with the LX5 5G box when service is turned on. We continue to believe the significant pent-up demand exists for 5G among customers who predominantly fly domestically, particularly those with light and medium-sized aircraft.
5G offers a tenfold increase in speeds versus the existing LATG solution and is a cost-effective solution versus a more premium-priced HDX or FDX. Keeping the focus on ATG, let's move to our LTE upgrade. The upgrade of our ATG network to LTE, which will be largely subsidized by FCC funding, is expected to bring multiple benefits. One, accelerating the upgrade of classic aircraft to advance. Two, increasing ATG network capacity and increasing speed. And third, accelerating our US government business on the ATG network, given the enhanced security of the network. We shipped a record 437 ATG equipment units in the quarter, up 8% sequentially, split between 208 advanced units and 229 C1 units.
Equipment shipments are typically a leading indicator of future installs. We recorded a record 145 classic to advanced upgrades in Q3, as advanced AOL grew 12% year over year to 4,890. Avance now represents 75% of our ATG fleet, and that figure is quickly heading to 100%. Correspondingly, our classic count of roughly 1,500 aircraft is only 25% of the ATG fleet, and over 400 are part of fractional or managed accounts with a defined upgrade path. This leaves approximately 1,100 classic aircraft not associated with a fleet account. We expect that our count of 101 C1 aircraft will ramp significantly over the coming quarters.
The C1 box is identical in size to the classic box and allows the system to operate after the LTE system is turned on. This bulk swap takes only a few hours and benefits from FCC subsidies. Bottom line, we are accelerating our progress towards the anticipated LTE cutover in May 2026, and our entire dealer network is pushing all out to upgrade our classic fleet as they have a strong vested interest in a smooth transition of our air-to-ground network.
While we are encouraged with our efforts to improve the performance of the ATG network across multiple levels, including the 5G and LTE rollouts and the C1 upgrade process, we continue to believe that industry trends will pressure our ATG online count for the next several quarters. Our ability to return to sustained service revenue growth will be dependent on two things. First, the pace of the ramp of our new products, including HDX, FDX, 5G, and second, progress in the Milgov end market. Let's jump into the discussion of the performance of our GEO business. We ended Q3 with 1,343 GEO AOL, up 161 units or 14% from the prior year, powered by our line fit positioning.
We expect that our investment in geotechnology will continue to improve speed and performance over time for business jets, which we believe can be leveraged across our Milgov customers as well. Our SD router, called SDR, is on about 2,400 GEO aircraft and is synchronized with the advanced routers on other 4,900 aircraft. This is a total of approximately 7,300 systems that should be upgradable to new products without box swaps or expensive interior rewiring. Now moving to our military government end market. Given that our Milgov service revenue is relatively new to most of you, let me provide context about how we view it.
First, the global Milgov aircraft number has an even lower broadband penetration than the business jet market, and this presents a compelling long-term growth path. The 25 by 25 initiative from the US Air Force is a great example of this. The US Air Force set a goal that 25% of its 1,100 nonfighter aircraft would have broadband speeds of 25 megabits or greater by 2025, and that the goal will come up short. Of note, the architect of the 25 by 25 initiative, retired General Mike Menehan, joined our board this year. Second, we believe governments globally will seek diversity amongst their aero bandwidth suppliers and will place a premium on multi-orbit, multiband service for redundancy and performance.
These capabilities are military prerequisites for PACE, standing for primary, alternate, contingent, and emergency, and Gogo Inc. is the only company that can fit that bill. This was a major contributing factor to our recently announced five-year federal contract to deliver 5G, LEO, and GEO services to a US government agency. This is the first service win for 5G in a multi-orbit government contract. Third, we can reuse business aviation terminal offerings for Milgov use without incremental R&D spend. This advantage was highlighted with our recent five-year contract with SES Space and Defense for a blanket purchase agreement for US Space Force Space Command.
We will plan to deliver managed global Ku-band GEO flexor air services utilizing our plain simple Ku-band antenna to provide scalable, secure, and high-speed satellite connectivity across government operations worldwide. This contract ceiling value is $33 million, of which aviation is a major component, and the total revenue split is 80% service and 20% equipment. Finally, given that Milgov contracts are typically multiyear, we believe that increased predictability, revenue streams under contract, in this segment, have the potential to add a new layer of strategic value for Gogo Inc. Given that context, we expect that Milgov, which is 13% of our total revenue, is likely to move towards 20% over the longer term.
Thank you for your attention, and I trust that you share our enthusiasm for the significant progress we have made over the last few quarters in transitioning this global business. I will now turn the call over to Zachary Cotner for the numbers.
Zachary Cotner: Thanks, Chris, and good morning, everyone. Third quarter revenue was in line with expectations, highlighted by strong equipment shipments. Also, adjusted EBITDA and free cash flow were ahead of plan as our integration synergies and financial discipline continued to materialize. As a result, we are reiterating the high end of our 2025 financial guidance ranges for revenue, adjusted EBITDA, and free cash flow. As Chris mentioned, global demand for our new products continues to expand, and we believe this will ultimately lead to service revenue growth.
As implied in our 2025 financial guidance, we expect to return to modest year-over-year revenue growth in Q4, while increases in Galileo and 5G investments, as well as elevated inventory levels driven by our new product launches, should decrease adjusted EBITDA and free cash flow sequentially. We are still completing our 2026 annual plan and will be providing guidance on our Q4 call in February. However, in the meantime, we would like to provide a bit of context around next year. We see the potential for some incremental working capital needs in '26 to support our new product ramps as well as continued ATG AOL volatility, particularly amongst our classic fleet.
Despite these considerations, we believe that new product growth, the roll-off of 5G and Galileo investments, as well as further OpEx and CapEx rationalization, will benefit us next year. I'll now provide an overview of our third quarter results, then I will turn to our capital allocation priorities and outlook for the balance sheet transactions to reduce interest expense and further delever. And finally, I will provide some additional color on the guidance. On a combined pro forma basis, Gogo Inc.'s total revenue in the third quarter was $224 million, down 1% on a pro forma basis year over year as well as sequentially. On a standalone basis, Satcom Direct's G III revenue declined about 4% year over year.
Total service revenue of $190 million increased 130% over the prior year and declined 2% sequentially. Total ATG aircraft online at the end of Q3 was 6,529, a decline of approximately 7% versus the prior year period and down 3% sequentially. Consistent with our strategic goals, total advanced AOL increased 12% from the prior year period and now comprises 75% of the total ATG fleet, up from 62% a year ago. Since the end of 2022, our total advanced AOL has grown by over 1,600. Total ATG ARPU of $3,407 declined about 3% year over year and approximately 1% sequentially.
Total broadband GEO AOL, excluding networks that are end of life, reached 1,343, up 14% from the prior year and 2% sequentially. This strength highlights our OEM line fit positions. In addition, most GEO broadband aircraft are under fixed-term contracts, enhancing revenue stability, and our GEO ARPU continues to hold up better than expected. This performance was the primary driver in the increase in the fair value of the earnout liability that affected our net income in the quarter. Now turning to equipment revenue. Total equipment revenue in the third quarter was $33.6 million, up 80% year over year and 5% sequentially.
Total ATG equipment shipments of 437 were an all-time high and up 8% sequentially from 405 in Q2, which was a prior record. Advanced shipments remained robust at 208, while C1 shipments ramped substantially to 229, up from 129 in the prior quarter. Given that equipment shipments are generally a leading indicator of future installation activity, we believe our strong Q3 shipments bode well for the future conversion of Classic customers ahead of our expected LTE network cutover in May 2026. Now moving on to our margins. Gogo Inc. delivered combined service margins inclusive of 52%, which was in line with our budget. Service gross profit accounted for 97% of total Q3 gross profit.
We continue to focus on driving this recurring high-margin service revenue. Equipment margins were about 8% in Q3 as Galileo equipment pricing remains close to cost. Now turning to operating expenses. Total Q3 operating expenses for G&A, sales and marketing, as well as engineering design development, were $57 million, up slightly sequentially largely due to SmartSky litigation spend. Now let's turn to our major strategic initiatives: 5G, Galileo, and the FCC reimbursement program. Total 5G spend in Q3 was $6 million, with approximately $5.5 million tied to CapEx. We continue to expect total 5G spend to decline in 2026 as we launch our 5G network in Q4.
Turning to Galileo, we recorded $1.2 million in Q3 OpEx and about $2.2 million in CapEx. We continue to expect total external development costs from both the HDX and FTX to be less than $50 million, of which $34 million was incurred from 2022 through the first nine months of 2025, with approximately $11 million expected this year. We anticipate approximately 80% of Galileo's external development costs will be in OpEx. And finally, our FCC reimbursement program. In the third quarter, we received $6.6 million in FCC grant funding, bringing our program to date total to $59.9 million.
As of September 30, we recorded a $26 million receivable from the FCC and incurred $22.8 million in reimbursable spend during the quarter. The timing of reimbursement payments has not been affected by the government shutdown, but we are monitoring the situation closely. The receivables are included in prepaid expenses and other current assets on the balance sheet, with a corresponding reduction to property and equipment inventory and contract assets, with a pickup in the income statement. Moving to our bottom line, Gogo Inc. generated $56.2 million adjusted EBITDA in the quarter, our adjusted EBITDA margin of 25% was consistent with the initial long-term view of the mid-20s we described when the SATCOM deal was announced.
Net income for the quarter was negative $1.9 million, and EPS was negative $0. Net income includes a $15 million pretax fair value adjustment related to the SATCOM acquisition I described a moment ago. As of Q3, we have achieved over $30 million of annualized synergies and expect run rate synergies to modestly exceed our previous range of $30 million to $35 million from approximately two years of closing the SATCOM deal. This is a significant improvement from our original guidance of $25 million to $30 million. We continue to anticipate total cost to achieve synergies in the range of $15 million to $20 million.
While we have achieved the vast majority of our headcount reductions, we feel confident that we can further reduce costs as we head into '26 in multiple areas, including real estate, back office software solutions, and CapEx rationalization. Now moving to free cash flow. Gogo Inc. generated $31 million of free cash flow in Q3, above expectations and totaling $94 million year to date. Based on our current 2025 guidance, we expect Q4 free cash flow to be the lowest of the year, mostly due to the timing of strategic investments and inventory purchase related to the launch of our new products. Now I'll turn to the discussion of our balance sheet.
Gogo Inc. ended the third quarter with $1.336 billion in cash and short-term investments, and $849 million outstanding principal on our two term loans, with our $122 million revolver remaining undrawn. This equates to a net leverage ratio of 3.1 times for Q3, down from 3.2 times in the prior quarter. Our cash interest paid net of hedge cash flow was $16.3 million. Our hedge agreement is now $250 million with a strike of 225 bps, resulting in approximately 30% of the loans being hedged. In 2025, we continue to expect cash interest paid net of hedged cash flow to be approximately $70 million.
Consistent with our Q2 call, our immediate focus remains exploring ways to streamline our balance sheet, reduce interest expense, and continue our deleveraging process. Between our cash on hand and our revolver, we have more than $250 million in liquidity. This is significantly more than we need to operate the business, and we believe this provides plenty of financial flexibility to find the right balance sheet solution in 2026. Bottom line, we continue to 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, we are largely reiterating key elements of our 2025 financial guidance. For the year, we expect total revenue at the high end of the range of $870 million to $910 million, adjusted EBITDA at the high end of the range of $200 million to $220 million, reflecting operating expenses of approximately $15 million for strategic initiatives including 5G and Galileo, versus our prior expectations of $20 million. Given our guidance, we expect Q4 EBITDA will decline sequentially largely due to the timing of planned investments and an expected decrease in ATG service revenue. Free cash flow at the high end of the range of $60 million to $90 million.
We now expect approximately $40 million slated for strategic investments in 2025 net of any FCC reimbursement, versus prior expectations of $60 million. This reduction is largely due to timing. Our net CapEx is still expected to be $40 million after $30 million of CapEx reimbursement from the FCC reimbursement program. In conclusion, 2025 has largely been a year of blocking and tackling execution, that include the integration of Gogo Inc. and SATCOM, significant product investments, and launching HDX, FDX, and 5G. Now nearly a year after the close of the SATCOM deal, we are seeing the results of our transformation.
Shipments and installations of game-changing new products are starting to ramp, significant costs are being removed, and we are weighing long-term contracts with global fleet, OEMs, and governments. I want to express my gratitude to the Gogo Inc. team for their hard work in driving this transformation and their dedication to providing exceptional customer service. Operator, this concludes our prepared remarks. Please open the queue for questions.
Operator: Thank you. Your name will be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Scott Searle with Roth Capital Partners. Your line is open.
Scott Searle: Maybe just to dig in initially on the fourth quarter implied guidance. Chris, Zach, I'm wondering if you could dive in a little bit more in terms of detailing that outlook. It implies adjusted EBITDA in the $40 million range. You've mentioned incremental strategic investments and the ATG kind of roll-off. Could you take us through that a little bit more in detail in terms of the thought process and if you're being conservative on that front, or if ATG is expected to continue to transition, particularly on the classic front.
Zachary Cotner: Yeah. Hey. Morning. Thanks for the question. I think the way we're looking at it is, as you've seen, you know, the ATG pressure continues. Right? And that's the highest margin revenue. Right? So we anticipate a decline, albeit not as aggressive as the prior quarters, largely because the C1s should start to—they're shipping. But the other piece is our revenue is actually going to be up. Right? And another piece of that is equipment shipments. So if you have lower margins on equipment shipments, so the mix changes, and as well as that, we have significant testing on 5G. So there's a little bit of compression on gross margin because of the mix.
And then the OpEx side is going to be a little bit higher, largely because of 5G testing.
Christopher J. Moore: Yeah. I think also if you look at the record advanced shipments, C1s that Zach picked up, it's clear that customers are also planning to upgrade. I think the fact that we're rolling out the 5G network and that's successful, I think that's also a very positive sign at this point in time.
Scott Searle: Got you. And for my follow-up, I'm wondering if we could dig in a little bit more in terms of existing Classic, the transition to C1, and kind of the offset there now that we're starting to see momentum on 5Gs and Galileo as we go into 2026. So could you help us frame in terms of Classic, how that's expected to roll over the next several quarters? Now with the C1 out there, you had a lot of momentum this quarter. Is the majority of that base expected to convert pretty quickly to C1? Or are some of those expected to upgrade to 5G as well? Thanks.
Christopher J. Moore: I think it's a mix. If you look at the record of van shipments, clearly, those customers are looking forward to 5G. It depends also on the customer budget. The C1 is really a placeholder product, but it's really encouraging that people are also taking that when you think it's just, you know, moving them onto a more modern network. And our MRO partners are putting in field service teams. So we expect that to pick up and derisk classic customers not cutting over. Everything we see at the moment is extremely positive. So we're feeling pretty good about it.
Scott Searle: Chris, if I could just add on to the back of that. From an ARPU standpoint, how do you see things trending as we go into the first half of next year? There's some downward pressure, I would imagine, as we're going to see one. But you're also having some of the higher ARPU services starting to kick in. So how do you see that playing out as we go into '26? Thanks.
Christopher J. Moore: Yeah. I think, what's encouraging is if you look at 5G ARPU, it's worth twice that of a classic customer. So that conversion we actually see upside. So and I think that's really where our heads are at the moment. Obviously, you've got more price-sensitive customers, but we've got a lot of price flexibility within the plans. So people cutting over from over to C1, that's one aspect, and then you got people who—I mean, we're going to be delivering a 50 to 80 megabit service on 5G. So that's—I mean, that's completely and utterly a different service level than these customers have ever experienced.
So we see that as, you know, those customers really being on our higher offer as they're streaming and being able to use video applications within the aircraft that they've never been able to do before.
Scott Searle: Thanks. I'll get back in the queue.
Operator: Thank you. As a reminder, ladies and gentlemen, that's star one to ask a question. Please stand by for our next question. Our next question comes from the line of Justin Lang with Morgan Stanley. Your line is open.
Justin Lang: I just wanted to go back on the implied 4Q EBITDA guide. Maybe you could just put a finer point on how much of the implied headwind is related to LEO 5Gs investments versus some of the ATG pressures you flagged? Thanks.
Zachary Cotner: Yeah. I would say it's kind of split a little bit evenly between ATG pressure as well as increased OpEx. I would say there's a bigger piece of it related to 5G versus Galileo. You know, there's still Galileo cost, but, you know, the STCs are running through, and, you know, 5G is—there's a lot of testing that has to go. We got it on aircraft right now, so that's a big driver.
Justin Lang: Okay. Got it. And then, you know, I know you've mentioned in the past sort of, you know, regular maintenance has been a big driver of some of the ATG AOL declines. Are you still seeing that trend? Are you seeing heightened competitive pressure anywhere?
Christopher J. Moore: Not really seeing competitive pressure. I think, you know, one of the natures of the market is customers have scheduled maintenance for upgrades. So going to the C1, what I mentioned on the previous questions, really, it's that, you know, MRO partners have put field service teams. It's a very simple upgrade for C1, which we've designed. So we're doing a lot of those in the field, and there's been a lot of press about that with Omni, Westar, MRO partners there. So I think that will continue to have positive momentum for us. And we see that really encouraging. I think you can see with the C1 numbers. They're starting to really pick up now.
So but, you know, obviously, customers who are also waiting for scheduled maintenance, they'll wait until that point as well. It's just the nature of the market.
Justin Lang: Got it. Okay. That's helpful. And then just real quick on the shutdown. I know Zach, you mentioned it's not really impacting FCC reimbursement. But are you seeing any other impacts maybe around Milgov or not sure if there's any regulatory oversight outstanding for 5Gs flight testing. But are you seeing that creep up anywhere else?
Christopher J. Moore: Yeah. I think you can definitely see things have slowed down a little bit with kind of like, when you need government approvals in certain areas, but they're not—it's not really affecting our business at this point in time. So we're just keeping a close monitor to it, but we're not seeing major effects in our revenue outlook because of the government shutdown.
Justin Lang: Okay. Perfect. Thanks, guys.
Operator: Thank you. Thanks, Justin. Ladies and gentlemen, that's star one to ask a question. I'm showing no further questions in the queue. I would now like to turn the call back over to William Davis for closing remarks.
William Davis: Thank you for joining our third quarter earnings conference call. You may disconnect.
Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation.