Gogo Inc. (NASDAQ:GOGO) Q4 2022 Earnings Call Transcript

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Gogo Inc. (NASDAQ:GOGO) Q4 2022 Earnings Call Transcript February 28, 2023

Operator: Thank you for standing by. And welcome to the Gogo's Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session . As a reminder, today's call is being recorded. I would now like to turn the conference over to your host, Mr. Will Davis, Vice President of Investor Relations. Please go ahead.

Will Davis: Thank you, Valorie, and good morning, everyone. Welcome to Gogo's fourth quarter 2022 earnings conference call. Joining me today to talk about our results are Oakleigh Thorne, Chairman and CEO; Barry Rowan, Executive Vice President and CFO; and Jessi Betjemann, who will assume the role of Gogo's CFO on March 11, 2023. 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. And we caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements on the conference call. Those risk factors are described in our earnings release filed this morning and are more fully detailed under risk factors in our annual report on Form 10-K and 10-Q and other documents we have filed with the SEC.

In addition, please note that the date of this conference call is February 28, 2023. Any forward-looking statements that we make today are based on assumptions as of this date. We undertake no obligation to update these statements as a result of more information or future events. During the 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. This call is being broadcast on the Internet and available on the Investor Relations Web site at ir.gogoair.com. The earnings press release is also available on the Web site. 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 Oakleigh.

Oakleigh Thorne: Thanks Will. And good morning, everyone. Thanks for joining us. Our 2022 fourth quarter capped off a great year for Gogo. We exceeded our growth expectations and positioned ourselves for continued long term growth and value creation. Our industry is seeing seismic shifts in demand coming out of COVID. Thanks to our talented Gogo team and strong operating infrastructure, Gogo stood atop the avionics electronics industry in its ability to scale and meet that demand. We expect those demand drivers to continue and we'll continue investing in improving our products and services to meet that demand and maintain our leading position in the business aviation in flight connectivity industry. As I mentioned, 2022 was a very busy year.

Together the Gogo team achieved a lot and released the 1.5 million flight milestone on our AVANCE platform since launch in 2017, cementing its position as the most successful broadband product launch ever in business aviation. We completed the multiyear simplification of our capital structure and reduced our net leverage ratio to below our target of 4 times in connection with the conversion of our final outstanding notes. With net leverage of roughly 3.1 times at the year end and with ample cash on the balance sheet, we're well positioned to execute on strategic initiatives that will ensure our long term competitiveness. We adeptly managed supply chain in a year of strong demand and weak supply. And many dealers tell us we were the only avionics company able to meet their demand last year.

We shipped more than 1,300 total ATG units, an all time record, up more than 50% from 2021 and more than 20% above our additional guidance, all of which we believe will drive a record increase in aircraft online in 2023. We completed the 150 tower bill for our 5G network and we're on track for a fourth quarter launch. As I'll discuss later, customers are excited and hungry to upgrade to this next level of service and we're actively selling, shipping and installing 5G equipment. We aim partnerships with OneWeb and Hughes to deliver the world's first low Earth orbit global broadband product size to fit on all BA aircraft. This initiative will take us from serving single digit megabits per second today to delivering hundreds of megabits per second for the high performance segment of the BA market over the next few years.

We did that by aiming to build a much smaller antenna than competitive LEO and GEO satellite providers. As we aim to be the disruptor of the disruptee in the rapidly evolving satellite IFC space. And finally, not to be overlooked, we continued our strong track record of financial performance. We raised our fiscal 2022 financial guidance every quarter and ultimately delivered record performance at the high end or above those raised expectations. While we're happy with our progress, it's far more important to focus on our future. And the 2023 financial guidance and long term targets that Jessi will cover demonstrate our confidence in our business and in our value creation opportunity. So I'll focus the rest of my remarks on two areas. First, with some key highlights and market drivers of Gogo's strong fourth quarter results and second, update on our strategic thinking and progress against our strategic initiatives.

So let's start with our Q4 performance. At the end of the year on a high note, we delivered record fourth quarter revenue of $108.2 million, up nearly 17% over prior year fueled by record service revenue and record equipment revenue. We added 158 new service revenue producing AVANCE units and ended the year with 47% of our fleet on AVANCE. Adding additional AVANCE units online is central to our growth strategy. First, it drives incurring high margin service revenue. And second, it extends customer lifetimes by offering upgrades to new technologies like 5G and GBB that are easier and cheaper to execute than moving to competitor's solutions. As I've mentioned, we shipped a record 390 AVANCE units in the quarter and we anticipate those will help drive record activations in 2023.

On the bottom line, Gogo delivered record fourth quarter adjusted EBITDA of $46.2 million, up 17% year-over-year, driven predominantly by growth in service and equipment revenue. We're really pleased that we can deliver this kind of bottom line performance even as we invest in strategic initiatives like 5G and GBB. We believe the strong demand we're seeing is result of a structural change in BA passenger demand, evidenced by Gogo flight counts being up 31% for the quarter when compared to pre-COVID Q4 2019. That change is driven by a number of factors, including a large cohort of buyers that tried private aviation during COVID and plan to keep funding private aviation, a shift in passenger demographics for Gens X, Y and Z through demand connectivity when traveling and a digital transformation on all passengers lived their lives whether that's their social lives and work lives, and the ways to drive demand for more high bandwidth applications.

The impact that digital transformation is evident in Gogo data consumption. Consumption per passenger hour grew 17% year-over-year in the fourth quarter, and was up 50% from 2019 for full year. One recent trend of note is the return of corporate flight department activity with , which represents 59% of Gogo and flying 23% more flights in 2022 than in pre-COVID 2019 and nearly 46% more data per hour than they did in 2019. As a result of all this activity, we saw significant demand pull across our distribution channels. And both our dealer and OEM partners have told us they could have installed more aircraft with Gogo if it were not for sortages in labor and/or parts from their other suppliers. We saw a big surge in shipments in Q3 to Q4 and especially in December, as partners placed large orders to beat in January 1st price increase.

As we look at our inventory in the field, we see shipments to channel inventory levels that are consistent with prior years. And when we look specifically at where the largest stockpiles are they're at our largest OEMs and dealers who choose to move those inventories fairly quickly. As we look ahead, we expect to return to more normal pre-COVID order patterns. Our lead times are down to three months and we build enough buffer stock that we can easily handle drop in orders. And from a supply perspective we've got clear line of sight to meet almost all component demand for 2023, and our current backlog is sitting at more than 50% of our equipment budget. That said, we had a very strong December, which has led to January and February being a little lighter than planned.

However, March owners are back on track and we expect to return to normal high volumes for the rest of the year. Now let me turn to our current strategic thinking and an update on our major strategic initiatives. As the supply chain environment has stabilized in recent months, we've now turned our attention to better understanding why 70% of North American and 95% of the rest of world aircraft have no broadband connectivity. As examples, for some it's the cost of installs; for others, its quality and current solutions; for others, it's there is no broadband solution that fits on their aircraft. There are many other inhibitors as well. But taking a systematic approach to tackling those inhibitors to accelerate our growth with the following three pronged strategy.

First, expanding our service addressable market by bundling our products in different configurations to appeal to all segments of the BA market based on variables like size of aircraft, whether they fly in North America or the rest of the world, whether they want to pay more for high performance or less for a more value oriented product, and whether they fly corporate missions, private missions or some others. Given our choice of networks LEO or ATG and our various AVANCE equipment form factors. From a performance oriented L5 to the value oriented SCS, we believe we can bundle different combinations of equipment, service and networks to fit the needs of every segment of the global market. Second, we want to continue to extend the service revenue life of Gogo equipment installed on an aircraft by continuing to drive AVANCE penetration by enhancing the performance of our ATG network to serve the North American midsize and light jet value oriented segments of the market and by providing an easy upgrade paths to new technologies for advanced customers that are cheaper than replacing our equipment with competitive products.

And third, we want to provide equivalent for better network performance and superior customer service to each segment of the BA market at a lower total cost of ownership than our competition. Beyond our major 5G and GBB initiatives, we've launched a series of smaller operating initiatives to address many of the inhibitors I've described a moment ago, such as accelerating install times, further improving our award winning customer service and developing product, pricing and packaging to appeal to each segment of the BA market. These operating initiatives will add modestly to expense in 2023 and 24, but will help accelerate top line growth and a step function change in free cash flow in 2025 and beyond. We believe our focus on these areas will build an even more competitive Gogo, better positioned to capture large portion of the global business aircraft market and creating more value for customers and for our shareholders.

Now, let me turn to updates on our two major strategic initiatives, 5G and GBB, initiatives that will take us from delivering single digit megabits per second today to 10s and then 100s of megabits per second over the next few years. I'll start with 5G. As I mentioned earlier, we're now on track to commercially launch Gogo 5G in the fourth quarter of this year. In December, the chip passed critical design review, a collaborative effort in which intense scrutiny was applied and transparency exhibited across all parties working on this chip, including Samsung, GTT, Airspan and ourselves. The chip is now deep into fabrication and it's allotted to be delivered on time to hit our Q4 target. Once live, our 5G network is expected to deliver speeds roughly 5 to 10 times faster than Gogo's current ATG networks, with peak speeds up to 30 times faster.

Enabling multiple streaming sessions and video conference applications be opened at the same time on the same aircraft and all at a lower cost than competing LEO or GEO satellite solutions. In the meantime, customers who want Gogo 5G service can install the AVANCE L5 today with full 5G provisions and operate on Gogo's 4G network until X3, the box with a chip is available. For those who pre-provisioned, once the X3 is ready it can be installed quickly and 5G service can begin immediately saving downtime and expense. Today, we've delivered 24 pre-provision chipsets to customers, we have 105 end customers that have signed up for pre-provisioning promotions, and we have 92 orders from dealers. Some of the dealer orders may be duplicative of customer orders.

But regardless, that is a big jump from the 60 orders we had on our Q3 call. We also have commits from four OEMs and they're in discussions with several other OEMs about orders. And we have certifications in process for 19 aircraft models, representing more than 7,000 aircraft in the US fleet. And we expect further certification announcements and incremental momentum with our partners in the coming months. Now I'll turn to GBB. First, a reminder of why LEO. LEO satellites are particularly well suited to business aviation because of their low altitude, which enables an equivalent length budget of less power than the GEO satellites, thereby enabling smaller contaminants, which can fit better into the small spaces available for antenna installation from most BA aircraft.

Over the next few years, we expect LEO satellite technology will allow us to launch service plans that deliver 100s of megabits per second to meet demand from the high performance and heavy intercontinental jet segments of the BA market. Our goals for the global broadband offerings are to;one, expand our total addressable market to include the 14,000 business aircraft registered outside of North America; two, add a satellite feature for the hundreds of US super mid and heavy jets to fly global missions, but have Gogo advanced ATG installed for use over North America; and third, drive enhanced stickiness in our core North American medium sized smaller aircraft segment by offering an EV upgrade path to a LEO product if their need to pass with ATG alone can deliver.

GBB will enable streaming directly from your favorite video services, multiple simultaneous video conferencing sessions, VPN access, and all the other connectivity enabled solutions you use today the same service levels you expect in your office or living room today. We continue to make great progress alongside our partners. OneWeb, who will supply the LEO network, will complete launch of its 588 satellite global constellation in April and should have the network deployed and aero ready in 2024. And assuming their pending merger with Eutelsat closes, should have access to funding for their gen 2 network, which will further improve our GBB performance. On the antenna side, we just completed preliminary design review with our partner Hughes and have been able to move our schedule to the left by two months, and now aim to launch commercially in the second half of 2024.

Our GBB product has received a very enthusiastic response from our OEMs, dealer partners and fleet managers. As we've gotten more clarity on competitive plans, it's clear that we're building -- what we're building is disruptive and highly differentiated on two key factors. First, our small form factor antenna is designed to work on all size aircraft while our -- LEO competitor has delivered a large antenna that will work best in the already very competitive heavy business jet segments of the market. The second, Gogo is focused on value. We believe our pricing will be more competitive than others in the space. Importantly, we're well positioned to leverage our existing international customer support footprint to support GBB outside the US, with 20 plus dealers already in place and 900 narrowband customers in 90 countries today.

Let me wrap up my strategic initiative update by saying that we see ATG 5G and GBB as complementary elements of our product portfolio, with 5G targeted to serve value oriented segments of the North American market where 86% of all flights take place, and GBB targeted to serve all segments outside North America in the high performance super mid and heavy jet segments inside North America. I should add that our advanced multi-bearer capability will allow us to serve the super high premium segment of North American aircraft with LEO and ATG connectivity at the same time, significantly enhancing capacity and providing redundancy for those owners who want them. Despite investments in these two very large strategic initiatives and the smaller operational investments I described earlier, we're guiding to substantial growth and free cash flow this year.

And as these investments roll off, we expect step function growth in free cash flow beginning in 2025. To wrap up, our accomplishments throughout 2022 have reshaped Gogo. We're not just an ATG company. We're driving the next era of IFC technology with the launch of 5G and development of broadband LEO satellite. And the continued penetration of our AVANCE platform positions as well to extend customer lifetimes and drive free cash flow to invest in further strengthening our business and to return capital to shareholders. In short, we're more resilient, more in demand, more innovative and more poised for value creation than ever, and our team is energized and excited to deliver on the opportunity ahead in 2023. Finally, in a moment, I'll turn the call over to Barry for his last earnings call's as Gogo's CFO.

But first I want to thank him for his immense contributions to our company. Barry has been an invaluable leader during a period of unprecedented change, challenge and growth. He led us to numerous refinancing without which we would not have survived. He was essential to the sale of our commercial aviation business and he has been a trusted adviser on operational and strategic matters to me since the day I arrived in 2018. So I want to give him my personal thanks, as well as the thanks from the entire Gogo community. We wish Barry all the best in his well earned retirement. So while we'll miss Barry, it was very fortunate to have a highly qualified successor in Jessi Betjemann, who was running FP&A at Gogo for the last six and a half years, and who I credit with making sure we always hit our numbers.

Jessi is also on the line today and will walk through our 2023 guidance and long term targets, as well as be available for questions at the end of our prepared remarks. There is no doubt our finance organization is set up for continued success in Jessi's capable hands. And now I'll turn it over to Barry for the notes.

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Barry Rowan: Thanks Oakleigh, including your very kind words, really appreciate that. Good morning, everyone. We are very pleased with Gogo's performance in 2022 as we set new records both operationally and financially. Our performance demonstrates two foundational elements to Gogo investment thesis. First, we have proven our ability to deliver strong financial performance, even as we've undertaken significant strategic investments, including Gogo 5G and our Gogo broadband product. Looking ahead, we will continue these investments in 2023 and 2024 as we advance our technology and execute other operational initiatives to maintain our leadership position in the growing and underpenetrated business aviation in-flight connectivity market.

We expect our free cash flow to accelerate substantially beginning in 2025 as we get these major projects behind us. Secondly, our ability to achieve these results is a testament to the strength of our underlying business model and financial position. In 2022, we met unprecedented demand for our equipment in the face of significant worldwide supply chain challenges. As these units are activated these aircraft online produce recurring high margin service revenue that is sticky and is the engine of our strong cash flow. And further, our strong balance sheet provides the flexibility to invest in our business for the long term while delivering for customers and shareholders today. The 2023 financial guidance and long term targets we announced this morning underscore our confidence in the business and our strategy.

Before we discuss these in more detail, I'll walk you through our fourth quarter results. For the fourth quarter, our record total revenue of $108.2 million grew 17% year-over-year. Our top line was driven by record service revenue of $77.3 million, up 12% year-over-year and 3% sequentially. As we have said, increasing AOL and particularly the penetration of our AVANCE products is the centerpiece of our strategy in both the North American market and globally, as we also further our GDP initiatives. In the fourth quarter, total ATG AOL increased to 6,935 units, up 8% versus the prior year and 2% versus the prior quarter. AVANCE units online grew to 3,279, up 31% year-over-year and AVANCE now comprises 47% of our total fleet. Our dealers are as busy as ever and the proportion of shipments channel inventory levels in 2022 was in line with trends for 2019 through 2021.

As Oak mentioned, we expect our exceptional equipment shipment performance in 2022 to drive strong activations and service revenue growth throughout 2023. Total ATG ARPUs were 2% year-over-year to $3,370, driven by growth in revenue -- recurring revenue from subscription plans. We expect higher price data plans and the launch of Goho 5G followed by GBB to further expand to healthy growth over time. We expect the primary growth drive of service revenue to be from additional aircraft online. Turning to the equipment side. Gogo delivered $3.8 million in equivalent revenue in the fourth quarter, a 34% increase year-over-year as we saw continuing very strong demand for our AVANCE L3 and L5 products. We shipped a record 390 AVANCE units in the quarter and 1,334 for the year, a remarkable 50% year-over-year growth in AVANCE units shipped.

Gogo delivery service margin was 78% in the fourth quarter. This was a 2 percentage point decrease year-over-year due to the planned higher network costs associated with the deployment of the Gogo 5G network and an 1 percentage point increase sequentially due to lower maintenance and logistics costs. Our service margins were within our target range of 75% to 80% for '22, and we continue to expect service margins in the 75 plus percent range over a five year time horizon. As expected, equipment margins were down in the fourth quarter to , 5% lower than the prior year period and 4% lower sequentially, driven by our strategic initiative to drive AVANCE penetration. This quarter also included higher excess and obsolete inventory reserves, which we regularly to as a matter of course and is related to our planned product upgrades and technology roadmap.

Now moving on to operating expenses. Fourth quarter combined engineering, design and development, sales and marketing and general and administrative expenses increased 4% year-over-year to $29.1 million, reflecting development expenses for GBB. On a sequential basis, these operating expenses were 2% lower in the fourth quarter, primarily due to lower legal fees. We anticipated that 2022 would be an investment here for Gogo. It was but not to the extent we originally planned due to pushing out of Google 5G expenses related to the chip delay. Looking ahead, we expect that 2023 and 2024 will continue to be investment years as we complete our 5G program and ramp spending for GBB. We expect to see the benefit of these investments through sustained strong top line growth and an inflection point and free cash flow growth in 2025 and beyond as we have consistently stated.

I'll now describe the spending profiles of our Gogo 5G and GBB initiatives starting with Gogo 5G. As Oak mentioned, Gogo's 5G chip is now in fabrication and we're on track and on budget for commercial launch in the fourth quarter of 2023. It's worth noting that we have remained on track with the cost expectations we set back in 2019. The Gogo 5G external development and deployment costs would be approximately $100 million. As we detailed in our third quarter call, we pushed some of the Gogo 5G spending previously expected in 2022 into 2023 due to the delay in the 5G chipset availability. In the fourth quarter of 2022, we spent $6 million for Gogo 5G, primarily in CapEx, we impacted the timing shift for 5G spending from 2022 to 2023 is reflected in our 2023 financial guidance.

It's particularly evident in our adjusted EBITDA expectations, which reflects both delayed 5G sales and higher 5G spending in this fiscal year. Now onto our GBB initiative. In the fourth quarter, we recorded approximately $1 million in operating expenses related to GBB. We continue to expect external development costs for GBB to be less than $50 million over three years. However, we have updated our expectations on the timing of those costs. GBB spending was approximately $4 million in 2022 and we now expect to over to $14 million in 2023, with most of the remaining spending to occur in 2024. This is a slight pull forward from our prior view of the timing of our GBB investment. Additionally, we now anticipate that approximately 95% of GBB external development costs will be in OpEx. This spending profile is reflected in our 2023 adjusted EBITDA and free cash flow guidance.

I'll now touch on our record profitability. Gogo's record adjusted EBITDA increased 17% year-over-year to $46.2 million, primarily driven by record service and equipment revenue. We delivered net income of $27.7 million in the fourth quarter, translating to $0.22 in basic earnings per share and $0.21 in diluted earnings per share. As a reminder, our financial statements reflect non-cash income tax expense as we continue to generate positive pre-tax income. Based on our substantial NOL position, we do not expect to pay meaningful cash taxes for an extended period, but we may pay a modest amount by the end of our planning horizon. We continue to expect to see additional reversals for portions of our remaining valuation allowance against deferred tax assets within the next 12 months.

In the fourth quarter, we generated $25 million in free cash flow, down slightly from $25.7 million from the prior year period due to increased CapEx associated with Gogo 5G and increased net working capital. Now I'll turn to the discussion of our balance sheet. Gogo maintained its strong liquidity position as we ended the quarter with $175.3 million in cash and short term investments, and our $100 million revolver remains undrawn. As of the end of fourth quarter, we have $714 million in outstanding debt on our Term Loan B. Our strong balance sheet provides the foundation for Gogo's significant financial and strategic flexibility. In a moment, I'm going to turn the call over to Jessi to provide Gogo's forward-looking perspective, including our capital allocation strategy, as well as our 2023 outlook and long term targets.

But first, I'll provide a quick recap of our 2022 full year results. Increasing demand from customers with connectivity and Gogo's robust business model both contributed to another year of great performance. We generated total revenue of $404.1 million, up 20% from 2021 and at the high end of our guidance range, which we increased during the year. We delivered service revenue of $296.3 million, up 14% from 2021 to service gross profit also growing 14%, which is a significant contributor to the free cash flow. Equipment revenue was $107.7 million, up a remarkable 42% from 2021. We reached adjusted EBITDA of $173.8 million for the full year, up 15% from 2021 and significantly above our guidance range, which we also increased throughout the year.

Net income from continuing operations was $92.1 million for the year. The decrease versus prior net income from continued operations of $156.6 million was primarily driven by the $187.2 million income tax benefit recorded last year as a result of the partial release of our deferred tax valuation allowance. We also delivered record free cash flow of $57.8 million for 2022 even as we invested approximately $40 million in Gogo 5G CapEx. Overall, 2022 was an outstanding year for Gogo. We're proud of the results we achieved, thanks to the very hard work from our entire team. Thank you all for your relentless commitment to customer focus and innovation. Now, I'd like to pass the mix to Jessi.

Jessi Betjemann: Thank you, Barry. It is a pleasure and a privilege to join you all this morning. While I've been behind the numbers for several years and have engaged with many of you on the line previously, I'm looking forward to getting to know you better as I move into my new role. I'm going to provide a brief update on our capital allocation strategy and then provide some context to the 2023 guidance and long term targets we announced this morning. We are pursuing a balanced capital allocation strategy intended to further our strategic goals and enhance shareholder value. We are focused on four priorities; first, maintaining adequate liquidity; second, investing in strategic opportunities to drive competitive positioning and financial value, including 5G and GBB; third, maintaining an appropriate level of leverage; and finally, returning capital to shareholders as appropriate in the future.

Given the rise in interest rates and the current volatility of the financial markets, you can see that we are taking a more conservative approach to our balance sheet. A higher cash reserve provide us with the optionality to evaluate potential new strategic investments and preserve strategic and financial flexibility. In addition, we have previously stated our goal of maintaining a target net leverage ratio below 4 times. We ended 2022 with a net leverage ratio of 3.1 times. Looking forward, we are planning to maintain net leverage in the range of 2.5 to 3.5 times. Our strategic considerations also include the potential to pay down debt in the future. We will continue to evaluate returning capital to shareholders in conjunction with our ongoing assessment of financially attractive strategic investments in the context of the fluid macroeconomic environment.

Now, I'll turn to the guidance and long term targets we announced this morning, starting with some additional color on our 2023 projections. As a reminder, our guidance and long term targets do not reflect the impact of the Federal Communications Commission-Secure and Trusted Communications Networks Reimbursement Program. As we await further information regarding whether Congress will appropriate additional funds for eligible expenditures under this program. We expect 2023 revenue to be in the range of $440 million to $455 million. We anticipate that 2023 will be a strong year for aircraft online growth as the record equipment units we shipped in 2022 are activated, translating into solid service revenue growth. However, this growth is partially offset by lower 5G equipment sales relative to our previous expectations due to the Gogo 5G chipset delay.

We anticipate 2023 adjusted EBITDA in the range of $150 million to $160 million. As Barry mentioned earlier, 2023 will be another important investment year for Gogo, particularly as we increase our investment in GBB and complete the launch of Gogo 5G. Our adjusted EBITDA expectation was approximately $30 million of targeted OpEx investments to drive future growth, broken down into three areas; first, $9 million in expected 5G spending, which reflects the shift of $6 million from 2022 to 2023 related to the chip delay; second, an increase in GDP spending to $14 million from our prior expectations of $10 million dollars; and finally, as Oak outlined in his remarks, increased investment in additional operational initiatives focused on penetrating the 70% of the business aviation in-flight connectivity market that remains untapped and maintaining our long term competitiveness.

We expect 2023 free cash flow of $80 million to $90 million, which at the midpoint is nearly 50% growth over 2022, even after reflecting the increased investments I just walked through. We forecast 2023 cash interest to be approximately $38 million net of the benefit of our interest rate caps and CapEx in the range of $30 million to $40 million, which includes approximately $20 million of spend for Gogo 5G. Looking further into the future. Our 2024 free cash flow or the external spending for our GBB project, which as we mentioned, we expect to be below $50 million in aggregate. Now turning to our long term targets. We recently updated our baseline long term model, which now reflects the launch of Gogo 5G in late 2023, launching our GBB product to penetrate new global markets and investment in initiative to continue to improve our competitive positioning.

Our long term targets are as follows. We expect revenue growth at a compound annual growth rate of approximately 17% from 2022 through 2027, with global broadband contributing to revenue beginning in 2025. This updated view maintains our 17% CAGR target for an additional year in spite of dropping 2022 during which revenue grew 20% as the first year. We expect annual adjusted EBITDA margin to be in the mid 40% range by 2027. This is slightly lower than prior expectations, driven by lower equipment margins to fund our strategic initiative of driving advanced penetration. It also includes investments in engineering, design and development to fund continued innovation and market competitiveness in the out years. Importantly, we still expect to achieve significant operating leverage, as we see the potential for operating expenses as a percentage of revenue to be reduced by as much as 15 points from 2023 to the end of our planning horizon.

We continue to expect free cash flow of more than $200 million in 2025 and growing in 2026 and beyond. This expectation is based on similar capital structure assumptions and underpinning our previous long term targets. Importantly, we originally set this target in September of 2021 and have maintained it in spite of since committing to the GBB project and operating in a higher interest rate environment. In conclusion, Gogo's business continues to perform extremely well. Our outlook underscores the immense value creation potential for our customers and shareholders that we expect to unlock as we execute our strategy. Now, I'll turn the call back to Barry for some closing remarks. But before I do that, I just want to give Barry my heartfelt thanks for his guidance and partnership over the years, and especially in the last year to ensure a smooth transition.

Barry Rowan: Thanks so much, Jessi. Before we open up the call for questions, I would like to take this opportunity to express my appreciation to Oak for your truly exemplary leadership, to Jessi for stepping up as you have, to Will for your partnership with the street, and to the entire Gogo team for your incredible support. As you know, I'll be closing a chapter of my professional life in the coming weeks, which has spanned 40 years helping build or turnaround technology driven companies, including nearly six years at Gogo. I may be retiring from Gogo but I'm not retiring from life. I look forward to this next season, which I expect to include serving on boards, contributing to the floor and investing in the next generation of leaders.

Gogo is in outstanding position to achieve its significant potential for value creation through enriching our customers' lives and continuing to contribute to society along the way. It's been an absolute privilege to be a part of Gogo's transformation in partnership with our highly innovative and energized team, you are truly the best. I'm also proud to pass the baton to Jessi who's more than demonstrated her confidence, leadership and outstanding business acumen during her years at Gogo, plus she's a wonderful human being. I look forward to cheering as she open the rest of the leadership team guide Gogo into the right bright that lies ahead. Operator, this concludes our prepared remarks and we're now ready for our first question.

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