Welcome to Morgan Stanley's annual TMT conference. My name is Justin Lang. I'm a space tech analyst at Morgan Stanley, part of the A&D research franchise here. I'm delighted to kick off our firesides for this conference with COGO and especially thrilled to have CEO Chris Moore and CFO Zach Kottner up here with us. So welcome both. Before we begin, I do have to read some disclosures. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com backslash research disclosures. You're going to hear a lot of that in the next few days. But, look, we have a lot of ground to cover. Exciting time in your business. You just reported earnings on Friday. This will not be an extended callback, I promise. But I think the discussion is very timely. So, you know, I want to just start, though, high level with you because, again, a lot of change in the business. transformational merger a little over a year ago with Satcom direct and and go go so maybe just step back with me for a second Chris and talk about sort of the original thesis but more importantly how you grade things a little over a year in
here as you brought these two companies together yeah I think as acquisitions go it was a really good strategic move by go go to buy Satcom I think on a number of levels mostly for international coverage gogo is predominantly a US centric business and with the air to ground network and they were rolling out the Leo service but they hadn't got any international locations staff revenue so this is really just accelerated that and then the other big thing with the acquisition as well is Satcom Direct also had a good strong business in the military government sector as well. So really when you look at combined portfolio from a technical perspective, there wasn't a lot of overlap. Satcom Direct was predominantly a satellite communications provider. GoGo is predominantly an air-to-ground provider with the air-to-ground technology and was getting into SATCOMs, but it was still early stage. So actually, from a synergy point of view, Zach and I were able very quickly, we did the deal on December 3rd, and by the end of Q1, we'd already done quite a large portion of the synergies, which was mostly headcount, but like a year on from that, We're done with all the synergies. There's some kind of things that we can still kind of refine from a financial perspective, but the businesses came together quite quickly. And when you look at a lot of other M&A around the space from the operator level, that's a lot more difficult. If you look at the recent acquisitions of Viasat and Marsat, that's still going through a lot of those synergies. SES with Intelsat, still a lot of synergies Because on the technical side, even though you might be in the satellite industry, the technology is still very proprietary. Whereas from a go-go perspective with the acquisition of Satcom, our technology is very multi-network, which is on a satellite side, which is really beneficial so that you can actually move a lot quicker. You're not married to one technology. Really, our technology is like a foundational platform that can go across multiple networks. So that enabled us to do a lot of synergy savings quickly. And I think the business now is on a good trajectory to really now we've got the synergies done, is really now transforming the customer base, which is a little bit more difficult, from legacy-based technology to the new technologies of 5G on air to ground. And when I say 5G, it's really broadband, true broadband, so you can stream, do Microsoft Teams in the back of the cabin, and then going into Leo broadband, which, again, stream, you can do kind of broadband-capable things. And then if you look at Geo, it's more like an underlying architecture from a – these are all orbits, right, Leo, Geo. But that technology lends itself to being more global than Leo at this point in time. So for a lot of our customers, they want two services for redundancy. So that's really now what we're focused on is kind of we've got a lot of legacy customer base that we need to migrate into the new technology.
That makes a lot of sense. And I want to spend a little time on Galileo and your Leo-based solution. So, you know, maybe talk a little more about what the offering is and then give us the flavor on HTX and FTX.
Yeah, so what Galileo is, is it's a LEO service, and at this point we're partnered with UTELSAT OneWeb, based out of Europe, and we're utilizing their constellation. The one thing we've done on GEO, which is an important point to make, is we've always been agnostic. So we have KUKA band versions, usually within satellite there's two flavors the operators usually pick. it's either KU or KA. Our geo services are agnostic across KU or KA. At some point, I see that being the same for LEO, potentially. But at this point in time, our LEO service is predominantly KU. It comes in two form factors, HDX and FDX. HDX is really 60 by 6 to 10 meg service. What does that mean? Really, the uplink is 6 to 10. And when you look at that, what does that enable you to do in a plane? If you look at small jets that at this point don't have the ability to put geo services on, geo services going on the tail, or you put air to ground services on the belly of the airplane, the LEO service actually goes onto the fuselage. It looks like two laptops kind of size. It goes onto the fuselage. You fix it onto the fuselage and now you've got the same broadband capability that you would have in your home or in the office so you can run your VPN services be completely tied into the office and that's kind of the entry point is HDX so you can get on really small planes like think of it like six person passenger planes like a Phenom 300 by Embraer or a PC24 by Pilatus so very small planes it could also be supplemented um or standalone with the 5g service which i can cover in a bit but that's really hdx then going into fdx that's really designed for mid to large cabin airplanes so that's really going from either kind of a dasso falcon 2000 right through to um a goldstream g800 or a global express 8000 so there's a lot of technical terms unfortunately in our business. So these are just airplane types. Or you could go into an Airbus or a Boeing business aircraft. So really we've got from our new technology, when you think of 5G, which is more focused on the smaller aircraft as a primary communications method and a backup for the mid to large jets, we've got something for every single one of our customers. So we've got something that goes onto a very small aircraft, right through a very large aircraft the other exciting thing with hdx um going into the government market we can also put that product onto a drone you know we um so that will that form factor can actually go onto a uav and with that government market that opens that up and then the other thing with hdx was nothing else can do in the market we can actually put the hdx terminal into the tail of the airplane and our competition can't do that and that lowers the cost of installation so the one thing we can do is get the cost of installation of this equipment cheaper than anybody else which is really kind of important to open up the market opportunity. That's great you mentioned on Friday
that the target for this year is 700 aircraft online equipped with with Galileo yeah and I I think as of the end of 4Q, you're about 75 aircraft. So nice ramp there. So talk to me a little bit about the confidence you have in that number. Is that a conservative estimate? Do you see upside there? What are you seeing on sort of equipment side, STCs, that de-risk the 700?
I think it's an aggressive number, but we feel confident in putting out something aggressive at this point in time. When you look at our pipeline, our sales pipeline, We have over 1,000 aircraft in there. The qualified pipeline, which is effectively, when we say qualified, most of it's qualified, but we go 50% and above. So really that means you're very close to closing that customer. From a sales perspective, there's a number of metrics in there. We have over 400. This is what I said on the call last week anyway. So we feel very confident with the 700 number, although it's aggressive. If you think of it in terms of, like, our competitor who's very fast-moving for the industry, that means in the same time period we've put on, like, double what they have. So I think that kind of shows a strength of robustness to the business, which is great. I think it's a very realistic number to focus on. and I think the fact that we've now got contracts with all the OEMs who make the aircraft outside of a few we're very confident within the next 12 months you will not be able to order a business jet without selecting this as an option it's a bit like when you're ordering a really fancy car you might put options on it
I don't know anything about that
I've seen them on the road if you want to upgrade the vehicle you might want to put something like an option on there the jets and specifying jets is a very similar process you end up putting this on as an option when you're choosing the carpet, the interior the veneer, you choose the internet so you will not be able to order a business jet without selecting this as an option that's a big deal and then we have a very extensive MRO market globally that can fit this on in what they call the aftermarket which is really important and we can do that so again that strengthens our confidence in the number and then they're actually actively selling not only our sales team is actually selling our product those MROs and OEMs are actually actively selling our product because they want to sell either an upgrade option because that's good for them or the MROs are trying to get maintenance work in and at that point they will fit it onto the jet so We feel confident about that. And then our government business, they've got a good target on them for LEO services this year as well. And we believe that market will be slower to ramp just because of the sales cycles. Typical sales cycle from activation from shipment in our business is three to six months because you've got to put it on a plane. So that means that the equipment leaving our docks and going to an MRO and OEM, we expect it to be activated on the network within that period of time. And then government can be a little bit longer, 6 to 12. So if you kind of think of it that way, I think the numbers this year are good, robust. What's being kind of hidden, you know, that's a really explosive growth for Leo from our perspective. but that's being probably dampened a little bit with the positive shift that we're now making with our customer base from going from more legacy connectivity services to those services. So if you look at our total numbers, it's kind of being a little bit massive at this point in time on because we're in this technical transformation of the business.
Right, I want to get there and I want to hit 5G as well. So, you know, another product just, you know, it was a long time coming. Finally, you turned the network live, you know, early this year. It must feel good. Also, the target is 400 aircraft online with 5G by the end of the year. Maybe just a handful as of today. Also, a very steep ramp. Talk to us a little bit about where that slots in and sort of the overall Google portfolio.
Yeah, I think that's the bit where, just to reiterate, I think now we've got, if you think of the business, So if you're purchasing something from us, you've got the entry point, which is 5G, and that entry point really serves small jets. It could be interesting as well from a governmental perspective, but we need to prove that case out. But if you're specifying kind of speccing a small jet like a Phenom 300, PC-24, a Citation aircraft, you'll be able to get it line fit from Textron this year. and Embraer as well. That's a really great entry point to a true broadband service. And our more legacy services on Air2Ground have been fantastic, but I would put it this way on transformational technology. This is like everybody in this room and it's all going back to a BlackBerry or a Nokia and then giving you an iPhone. It's completely transformative technology. And the usability of the system is completely different. So, you know, we have a test aircraft. We've both flown on it. And you can have simultaneous Teams meetings. You can have somebody on Teams, somebody on Netflix, somebody on the corporate network. This is really transformation for kind of those air-to-ground customers. And it's a great entry point. It also adds a level of, we keep talking about multi-network, multi-orbit. That also, for more higher-end customers, gives them a level of resilience within the U.S., because the Airtagrand network is just a U.S. network. It gives them a level of resilience that we have a lot of customers who will not fly unless they have Internet connectivity. So we believe that service is really there. it's really nice now that we've got a true service that all of our air-to-ground customers can now migrate to if they want to, that is a very low-cost option for them to upgrade, and we just lowered the pricing of the equipment so that we know we can get an installation of that around $150,000 total on an airplane, which is very different to putting LEO services on an airplane, which is really entry point to that's like $300,000. So it's half the price for putting this equipment on board, and if you're just flying domestically in the U.S., it's a great service, so we're pretty excited about it. That's great. So you'll have
between Galileo and 5G about 1,000 net new aircraft ads at the end of the year. Just maybe unpack a little bit about the transition underneath that's masking it a little bit. It sounds like legacy will and to sort of wash up the numbers of series up yeah I just kind of
the we're migrating a number of services a with end-of-lifing one of our networks and has a new network actually it's FCC funded kind of what we call our LTE network we have a lot of boxes and a lot of network so it kind of gets a little confusing but if you think of air to ground like we have an entry point into broadband, and we can take our legacy customers into that entry point in broadband and grow them into 5G. That's the easiest way of looking at it. That deactivation of those customers is really where we're seeing some of those customers fall off the network, and we're anticipating some won't come back. What's the reason for that? Is it that migrating to alternative technology? They could be. Or is it also the age of the airframe? So if you look at business jets, everybody tends to focus on the high end. The $70 million airplanes, they look nice and they're good to talk about. But the reality is the bulk of the U.S. fleet is also more older airframes. And that could range anything from a million and a half dollar jet right through to, what I just said, an $80 million jet. And within that, we've been very successful in the past. We built a really good moat around the business with the classic air-to-ground business, if we call it that. So really, it's migrating those customers across, and some of those customers will fall off because they will not make an investment on the aircraft. That being said, we have a migratory service called C1, which we have a lot of boxes, a lot of names. What does that do? It really picks that customer up at no cost to them, the FCC funds it, and migrates them to be able to take advantage of the entry point into broadband. And that's being very successful to us. It was a bit of a slow ramp. But now where we stand on those numbers, we feel very confident that we can take a good proportion of those customers. There will naturally be some fall off. But we've then got a good base to grow into 5G. So that's kind of, I don't know if you want to expand on that.
Yeah, no, I think the only other point is probably mentioning GEO in with this whole piece. It's like the, you know, GEO is what SATCOM kind of brought to the table, and it's held up incredibly well. And this is all in the larger aircraft, right, because it goes in the tail, and it's a higher ARPA. And I think, like, we've been thinking it was going to drop more for the past two years, but it's held up because it is very expensive to upgrade it, right? And for a lot of people, the geo works great, especially the Flex Network, which is the KU. And so we do expect that to come down again this year. And we're working with a lot of the geo operators to work on backup solutions to make sure we keep the real estate on. So, again, back to your point about the numbers are a little confusing because we have all these strong shipments and ramp, but you have a large bulk of legacy products across the board that just will naturally decline at some rate. And I think kind of to the point of on the ATG side, I think the 5G was so late. That's part of the problem is if we had got that launched three years ago, I think we would have had a better moat to build off of. But, you know, we feel confident we can do it. But you have a lot of moving pieces with legacy networks that are just – it's the nature of it. Chris and I at SATCOM, you know, SATCOM was 25 years old, and it had been through three or four of these. And the key is you have to start it well in advance, right? And I think some of these just took a little longer to get going, and we're doing them all at the same time. So, yeah.
Makes sense. Now, Chris, one area that you've been pretty bullish about the past few quarters I've heard you talk about is the fleet opportunity. You had the VistaJet win, which was a big win, maybe didn't get recognition in the market that it probably deserved. And then you had this NetJets announcement late last year that the stock reacted pretty sharply to. So maybe just talk about it. I mean, I thought you gave good color on Friday's call, but we can flesh it out a little bit. How are you thinking about contextualizing the NetJets announcement and any shifts to the sort of fleet strategy or as steady as she goes?
No, I think the fleet strategy is ultimately, I think, the big thing for people to get their head around, we have a competitor. And I think for the classic go-go business, like I said, it had really good moats around the business and really didn't have serious competition. And now I think it's real for people who have been invested in the stock for a long time. Now you're looking at every win or loss, and you're going to have win and losses on both sides. So I think that's quite an important point for conceptually you're in a competitive market. That doesn't mean that every time your competitor wins something and you haven't won it, either one of you is going to go out of business. I think that would, like, there are many competitive markets in the world. Most people, I think competition is a really healthy thing. You should have competition. It makes you better. So that's an important point to make. Regarding NetJets specifically, we have a fantastic relationship with NetJets. Interestingly, when we announced the NetJets win in our press release, we never actually said we won the whole fleet. We were very specific about what we've won. And what we said in that press release still stands today. So we've won a portion of the fleet, and we're rolling out on NetJets Europe. and we will also be rolling out on specific airframes of NetJets North America. What was probably disappointing from our perspective but not a shock is we are still rolling out the technology. So the antenna, which is called the FDX, we just got that through the FAA regulations late in the summer last year. We're just rolling out STCs. That usually takes a six- to 12-month program, and the reality is NetJets couldn't wait any longer, and they needed to upgrade some of those aircraft, which is specific to that type of antenna, and they chose to go on those airframes at this point in time with our competition. However, NetJets also, in my belief, are some of the best negotiators I've ever come across, and they're amazing. They have an amazing procurement team, so we'll see how that goes. I think they've always been a mixed fleet operator when it comes to connectivity because they really do a good job of leveraging their purchasing power. So this wasn't a big shock from my perspective. The other thing is just if you focus on the upside with NetJets, we also do cockpit communications. So we do the data link, VHF, which is a really important part of our business. So like safety services through that. we don't have that with net jets today that's with another competitor the geo business we don't have with net jets today so none of that is impacting how people view us but that just gives you a good broader perspective that net jets has somebody else look after their geo business they've got two leo providers and somebody else looks after the cockpit so from my perspective i think there's a lot of potential upside with our fleet strategy is can we convince net jets that we have good enough services in some other areas. They've also been a great air-to-ground customer for us for a long time. So does that mean, in our numbers, we've been very conservative. We've removed those out of our model, but those pieces of equipment haven't been removed off the fleet. So is that a thing that, from a redundancy perspective, is that important to NetJet? So it's those things that we're still working through with the client. And then pivoting back to Vistajet, if you look at Vistajet, that's a huge win for us. They've just put a potential $5 billion order in with Bombardier. They've announced they're rolling us out across a large proportion of their fleet. They've been a very good customer, as has NetJets by the way, but they're really a proponent to our strategy and they're really vocal about why they went with us and why they didn't go with our competition. The other thing with the competition, we actually beat them out of that bid. They had two choices. There's all the competitor, and they chose us for a number of reasons. And then if you look at Lux Aviation, who we've announced multiple hundreds of aircraft, Avcon Jet, over 100 aircraft. If you actually look at our fleet strategy, we still believe we've got over 1,000 aircraft with fleet customers that are with us today. Wheels Up are rolling out our services and actually did an announcement that it's quite revolutionary, the Internet, on board, and they're actually going to speed up their rollout. Again, no impact on our stock with this, which is kind of frustrating from mine and Zach's point of view, but we kind of try not to look at the stock and just focus on running the company at this point. But I think we're in that kind of prove-it-out piece, like Zach said. Our numbers at this point, we've got so many moving pieces, but we feel very good about our technology roadmap that if we execute, we can transform these customers into new services. And at the same time, we have a very fierce competitor, but we're winning business against the competitor. So I think that's a really important point to make. But, you know, we're still focused on these fleet operators, and I think we're clearly getting votes of confidence from significant players in the market.
That makes sense. The only other point I would add, just I think might have been lost too, is when we started reporting the LEO units online, Galileo, a large portion of those were net jets, our net jets, and they're in Europe. So I think that's also the thing, you know, the announcement people assumed that, you know, it's the halo effect, right? Like, oh, if they're not happy, then who else is not going to be happy? But they are a large customer, and they are rolling it out, and it's a piece of the business that you saw at your end.
We're going to end up having hundreds of aircraft on with NetJazz. I mean, they are still a major significant customer from our point of view, very supportive, and we feel good with the rollout to Zach's point. They're still going as planned with NetJazz.
Yeah, that's great, and that's encouraging. I want to come back to the military government opportunity set because that seems super exciting. When I think about the TAM, you've got manned aircraft, drones. I think we got a report over the weekend U.S. one-way drones in Iran were linked with satellite-based connectivity. So drones, EV tools, sort of a nascent business, but potentially promising. So just talk to us about how you frame the opportunity set for MILGOV.
Yeah, I think, again, we're a business in many parts of this. Where we're, because we've been around for over 20-plus years, like Zach said, that business, we are currently pivoting it away from some narrowband services with sat phones, which it has significant business around, and really focusing on aviation broadband. So if we look at our aviation broadband for our government business, it grew 38% last year. And we said that on the call last week. That's a significant growth trajectory. And our international market was, I can't remember the percentage, it was...
Like almost double that. It was a small book of business, right?
90%, right? 90 plus percent, the international business. Sorry, that number just went out of my head. But very, very significant growth. So if you look at that, focus that on aviation. The LEO product is really interesting for them because USELSAT OneWeb doesn't have as big a name as the competition, but it is a European network. So we're seeing a lot of interest from NATO. our HDX product that we talked about before is very small can get into a UAV the other thing is the cost of installation because we really do know aviation very well we brought the cost of install down so it makes it more cost effective because everybody thinks just instantly when you're dealing with a government customer they just have an open check but that is not the case so we've really brought the cost of ownership down and we think that's a really interesting space for us. Also, we have, within the Satcom Direct acquisition, a global footprint, and we've been selling to heads of state government for a while. So, we have really good key relationships. And a lot of them will not buy from our competition, just purely out of a sovereign-based communications need, security needs. And we've built up this underlying architecture in our business as well on the ground that serves um you know nato us dod and other countries really really well so we're really super excited about it i think um obviously um going to the other point evital we're talking to evital players that model is still not proven out yet you know let's see when these guys start flying um i think there's a lot of airspace challenges but i'm sure somebody's going to get there 100 i think from our perspective short term the next two to three years the government uav business and government opportunity with the underserved airframes if you look at u.s government had a 25 by 25 say 25 meg on 25 percent of his air force and it failed that and a lot of these guys are nowhere near you know it's a very under penetrated market so I think the under penetrated market just the DOD NATO is even worse because they haven't like you know been funding as much as the DOD I mean nobody funds as much as the DOD anyway so if you just look at a C-130 there's over a thousand of them operational in the world today, it is quite clear that 25% of them do not have broadband connectivity. If you're just outside of the UAVs, if we just focus on that, we have a C-130 certified product on GEO, and we can also get LEO into that kind of mix as well. And we can really pivot those opportunities over to GOGO. We think that's pretty exciting.
I think two other points that are really critical that we've harped on a lot, but two phrases. One's called vendor lock, and the other one's called pace planning. So pace planning refers to the military's view that on all these missions, you need to have, it's an acronym, primary, alternative, contingency, and emergency. So backup after backup after backup. And I think that's what's critical because we are one of the only people that can do that, whether it's GEO, LEO, ATG. We can provide the pace planning, and that's also what we've tried to kind of push in to the business aviation market is making sure you always have backup and connectivity. And then the vendor lock is kind of another critical concept because they have gotten stuck with vendors before where they can get gouged, right? They put all these antennas on, then they have no agnostic or flexible capabilities, and that's one thing that we've really tried to push is, again, we're the vendor, we're the face, for the storefront, so to speak, but we will use all these other guys in the background to get you the best deal. And I think, you know, and it's, like you said, it's tough because, you know, there was no MilGov business Art Go-Go before, but, and it operates very differently, but we're still incredibly bullish. It's just, these cycles, you know, take a long time. And I think, like you saw, our Q4 numbers are up pretty substantially in the MilGov business. And I know folks were trying to, when is that going to hit, when it was going to hit? And, you know, we're starting to see traction.
We've got under a minute here. but I want to stick with you, actually, back just to close. You know, we talked a little bit about the moving pieces in 2026. You've talked in the past about the balance sheet, actually trying to refire, lower the cost of debt. Talk to us about what we should expect in 2026, if anything.
Yeah, so we've been actively talking to our bankers and the board pretty regularly about this for the last probably six months. And, you know, from my perspective, the single biggest best use for capital allocation is a deleveraging. And we're exploring different ways. We've already been analyzing whether it's a regular debt buyback or a Dutch auction. But it's kind of been the views of the board and a lot of our banking partners that, look, we do need to do that. We do have to address the balance sheet. But, you know, it kind of maybe we should wait and see how much traction we get in the first quarter or two to kind of help with the debt pricing. But I think we've said it over and over. We have more cash than we need, but making sure we deployed at the right time, making sure we get what we need because the debt does mature in April of 2028. So it's just being thoughtful about deleveraging versus also making sure we get the maturity extension that we need and all that. So that's my biggest focus this year is kind of pushing that forward. Good.
Okay. We're out of time. Thank you both.
Appreciate your time. Thank you.