What happened
Shares of Gogo (GOGO 3.98%) were down 17.9% as of 2:30 p.m. ET on Monday, according to data provided by S&P Global Market Intelligence, after the in-flight broadband connectivity specialist announced solid second-quarter 2023 results, but also lowered its full-year and longer-term guidance.
Quarterly revenue climbed 6% year over year to $103.2 million (roughly in line with analysts' expectations), including an 8% increase in service revenue to $79.1 million, and a 2% decline in equipment revenue, to $24.2 million.
On the bottom line, that translated to net income of $89.8 million, or $0.67 per share -- though that included a $0.48-per-share tax benefit during the quarter. Adjusted for that item, Gogo's net income was $0.19 per share, above Wall Street's estimates of $0.14.
So what
CEO Oakleigh Thorne said: "We are in a two-year investment cycle to take advantage of new technologies like 5G, [low Earth orbit] satellite, and LTE to deliver order-of-magnitude improvements in network speed and coverage for our customers, grow our addressable market by 50%, and strengthen our competitive position. We expect to see the payback for these investments to start in 2025 and drive substantial returns for shareholders in the latter half of the decade."
Despite its solid second-quarter results, however, Gogo followed by reducing its guidance to account for the impact of the Federal Communications Commission (FCC) Secure and Trusted Communications Networks Reimbursement Program. The program provides funds to small communications providers to replace equipment or services that pose a national security risk.
As such, for the full-year 2023, Gogo now expects revenue ranging from $410 million to $420 million (down from previous guidance for $440 million to $455 million), adjusted earnings before interest, taxes, depreciation, and amortization of $150 million to $160 million (consistent with prior guidance), and free cash flow of $60 million to $70 million (down from $80 million to $90 million before).
Now what
Over the longer term, Gogo also revised its outlook to call for a compound annual revenue growth rate of 15% to 17%, versus its prior target for growth near the higher end of that range. Management also told investors it anticipates annualized free cash flow of $150 million to $200 million in 2025 "without the impact of the FCC program, and growing thereafter." Previously, the company was targeting free cash flow of $200 million in 2025.
In the end, Gogo's core thesis appears to remain intact. But this market hates being told to wait longer for growth to scale up and for operating leverage to kick in. Gogo shares are simply responding in kind today.
