Good day, thank you for standing by, and welcome to the third quarter 2021 Gogo Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone or touch tone key. If you require an operator assistance, please press star zero. I would now like to hand the conference over to your first speaker today, Vice President of Investor Relations, William Davis. Thank you. Please go ahead.
Thank you, Nika, and good morning, everyone. Welcome to Gogo's third quarter 2021 earnings conference call. Joining me today to talk about our results are Oakleigh Thorne, Chairman and CEO, and Barry Rowan, Executive Vice President and 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 financial 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 the conference call. These risk factors are described in our earnings release filed this morning and are more fully detailed under the 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 November 4, 2021 . 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 third-quarter earnings release. This call is being broadcast on the Internet and available on the investor relations website at ir.gogoair.com. The earnings press release is also available on the website. 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.
Thanks, Will, and thank you all for joining us this morning. A few weeks ago, we hosted a call to discuss our recently updated long-term financial targets, so I won't repeat those today, but instead we'll focus on Gogo's third quarter and why we believe it provides further evidence that we're on track to deliver the long-term financial targets that we recently discussed. Q3 was a quarter of record performance. Gogo delivered record total revenue, record service revenue, record service gross profit, record AVANCE shipments, and record adjusted EBITDA. We also achieved a couple of notable firsts, generating both positive net income and positive earnings per share for the first time. We were certainly helped by the powerful tailwinds driving demand for private jet travel. We were also well-prepared to capitalize on that strong demand and deliver excellent top and bottom line growth.
Our advanced platform and 4G network are well-positioned to meet the needs of our growing customer base and take advantage of the accelerating demand for BA connectivity, and our vertically integrated and scalable business model is converting that demand into shareholder value. I'll begin with a summary of the highlights of our third quarter results, then provide some context on the current competitive landscape and Gogo's competitive advantages, and finally introduce our updated 2021 financial guidance, which reflects the impact of continued strong equipment sales and the high margin recurring subscription service revenue that tracks those sales. Barry will then walk through our quarterly performance and latest 2021 guidance before we open the call up to your questions. Let me start on Q3 with our demand drivers.
As has been written about in the media extensively recently, the business aviation industry is on fire. Flight counts continue to grow, with third-quarter flight counts in Gogo-equipped aircraft up 8% from Q2 and up 24% compared to pre-COVID Q3 2019. That demand for flights is driving demand for aircraft, with fleet operators deferring retirements, acquiring as many aircraft as they can in the pre-owned jet market, and placing ever larger orders for new aircraft with OEMs. That activity is good for Gogo. As fleet customers want connectivity on those new and used jets, and deferred retirements often retain Gogo-connected aircraft in the fleet. Even more impressive is the growth in demand for data on those flights.
In Q3, we saw a 78% increase in megabytes consumed per day on our network, and a 44% increase in megabytes per flight as compared to pre-COVID Q3 2019. Those metrics were driven by a 33% increase in flight hours per day, a 34% increase in megabytes consumed per hour, and a 17% increase in the number of aircraft flown. Those increases drove all-time high monthly ARPU and AOL, Aircraft Online for Gogo.
ARPU continues to grow as more than 3x as many customers upgraded plans in Q3 as downgraded plans, up from 2.3x in Q3 2020, and up from 2x in Q3 2019. ATG aircraft online, AOL, also continues to grow and hit an all-time high of 6,154 aircraft at the end of Q3, up 10% from Q3 2020. That combination of ARPU and AOL growth delivered record total revenue of $87.2 million, fueled by record service revenue of $66.2 million and outstanding equipment revenue of $21 million. The strong equipment sales growth that drove us to raise our long-term financial targets in late September has continued, and our service revenue is growing nicely as more of those units are installed and activated.
I think it's also important to note that once installed and activated, our service revenue is extremely sticky. From the time we started computing churn in 2017 until now, we've averaged a 0.5% monthly churn rate, which implies a 17-year equipment life on an aircraft. That's driven by high customer satisfaction, combined with the fact that it's very expensive and time-consuming to install a new system. All of these factors continue to de-risk the long-term targets we shared a few weeks ago and are a perfect demonstration of our virtuous circle business model. Equipment sales profitably expand our base of subscribers, and that in turn generates recurring, sticky, high-margin service revenue, which in turn drives cash flow, enabling us to invest in improving our network, which in turn attracts new customers, generates more usage, and drives more equipment shipments. Importantly, we think this demand will continue.
Though 85% of today's broadband-connected aircraft use Gogo, approximately 70% of the market still does not have broadband, creating white space for us, but raising questions from investors as to why that penetration is so low. There are a couple of reasons for that. First, the average age of an aircraft in today's business aviation fleet is 20 years, so much of today's fleet was manufactured before line fit with Wi-Fi was an option. Second, when Gogo launched, the iPhone hadn't even been developed, and in-flight connectivity was considered a business productivity tool, mostly for doing email, and many business travelers didn't even do that. It's a different world now. Today, broadband connectivity is line fit on all 28 models of business aircraft, and Gogo is line fit on 27 of them.
Today, passengers insist on being online, whether they're business travelers using Zoom or leisure travelers surfing video-intense social media. I also think our advanced platform is accelerating market penetration, with customers loving the L5's interactive video capabilities for Zoom calls and the small form factor L3 driving penetration of the light jet and turboprop markets where today's GEO satellite providers can't compete. As we talked about a few weeks ago, based on these trends, we expect the number of broadband-connected BA aircraft to grow by approximately 50% by the end of 2025, substantially increasing our market opportunity.
We expect to win our fair share of those aircraft by virtue of the competitive advantages I plan to talk about in more detail in a minute, namely our unique ATG network and rollout of our new 5G network, the versatility of our advanced platform, and our strong relationships with our customers and distribution partners. Another important driver of Gogo's ability to drive revenue this quarter and hit our targets for the next few years is our ability to meet demand. Supply chain challenges have been systemic across our industry.
However, due to a combination of our long-standing relationships with suppliers, our common componentry strategy for AVANCE, and our strong balance sheet, we've secured all the supply we need to not only meet our 2021 demand, but also to meet the 25% unit growth we project for 2022, further de-risking the targets we shared a few weeks ago. Finally, but most important, because of the great work of our Gogo sales and production teams, we've been able to not only meet demand, but convert that demand into bottom-line profitability and value for shareholders. In Q3, we generated positive net income of $19.7 million from continuing operations, which computes to $0.16 a share on a fully diluted basis. We achieved record adjusted EBITDA of $40.8 million, up 35% year-over-year and 11% above last quarter.
We expect to have positive net income going forward as our high-margin service revenue grows and our operating costs remain relatively fixed, driving operating leverage and strong growth in cash generation. We're proud of our results and the momentum we're building, and I'm really proud of the Gogo team, which continues to rise to the challenge of exceptional demand while preparing to deploy the world's first 5G ATG network. Our team's focus on our customers' needs and on continuous improvement is the key ingredient that drives our success. Now I want to turn our attention to the BA competitive landscape. Gogo has developed three main competitive advantages in our 30 years serving the BA market, including our proprietary ATG network, our unique and future-proof advanced platform, and our deeply embedded relationships with our OEM and dealer partners.
Together, these advantages enable us to provide an unmatched value proposition to BA manufacturers, dealers, owners, and passengers. Importantly, we continue to invest in strengthening each of them. Let me start with our proprietary network. Today, we operate the only air-to-ground network in North America, and we have exclusive licenses to the only radio spectrum authorized to provide ATG connectivity to aircraft in North America. The advantage of ATG are that first, it provides lower latency than our current GEO satellite competitors can deliver by virtue of having ground antennas that are no more than 200 miles from the aircraft, as opposed to GEO satellites, which are 22,000 miles from the aircraft.
Second, because of that close proximity, our ATG airborne antennas require less power than GEO antennas, which allows us to have much smaller form factors and to fit on far more makes and models of aircraft, thereby having a much larger total addressable market than our GEO competitors. Finally, ATG costs much less than GEO satellite-based connectivity on an equipment, installation, and service basis. I should add that it's not easy to build an ATG network, nor is it easy to fund the operating losses a network operator suffers between lighting up their network and activating enough customers to cover their operating costs. In Gogo's case, we had to raise more than $800 million in equity. At that time, we were fortunate to have positive margin from providing ATG to commercial airline customers to cover some of those costs.
A key pillar of our strategy is that we will continue to improve the performance of our ATG network to keep pace with customer expectations based on what they experience on the ground. To that point, we remain on track to deploy the world's first 5G ATG network with nationwide coverage from 150 sites in the second half of 2022. In the third quarter, Gogo achieved several significant deployment milestones. We moved from the design development phase into qualification and certification of the aircraft hardware and ground stations. We've placed orders for all of our seven tower test bed equipment, and that gear is on its way for a Q4 build-out. Third, we released installation manuals, service pricing, and hardware pricing to the OEMs and dealers. Beyond deployment, we've made significant progress across our 5G program.
Based on recent testing and modeling across eight commonly traveled city pairs, we announced that we expect Gogo 5G to deliver approximately 25 Mbps on average, with peak speeds in the 75-80 Mbps range, a significant improvement from the 2-7 Mbps that Gogo AVANCE L5 customers interviewed by the Boston Consulting Group reported they experience today. As business travelers increasingly require seamless video conferencing and VPN access, and leisure travelers expect living room quality streaming capabilities for accessing video-intense social media, Gogo 5G data speeds will be a top differentiator for Gogo. We also announced Jet Edge, the largest operator of super-midsize and large cabin private jets, as our launch customer. Jet Edge has AVANCE L5 installed across the majority of its managed large cabin fleet and will upgrade 50 of them to Gogo 5G post-launch.
A key selling point for the AVANCE L5 platform is that the upgrade path to our Gogo 5G network is much simpler than installing a new IFC system. You replace the two current L5 antennas with new 13-inch antennas that fit in the exact same location as the L5 antennas and add a small box inside the aircraft. The wiring, access points, and main LRU all stay the same. The rest is just a software update that is done seamlessly over the air. Gogo 5G is not the end of our ATG enhancements. We have a roadmap of future enhancements aimed at improving the performance of our ATG network for years to come. Our second major competitive advantage is our AVANCE platform.
Like Apple products, AVANCE is a software-centric platform that includes a set of hardware devices built on common components that all operate on a single operating system that transcends the cloud and all of our devices. AVANCE allows us to, first, provide a whole new level of customer service, which drives stickiness. Second, allows us to seamlessly add apps over the air that drive increased ARPU and/or stickiness. Third, allows us to add new network technologies as they evolve to provide more capacity, coverage, and performance for our customers. A good example of our AVANCE customer service features would be the automated ticket creation feature. The system constantly monitors itself, and as it identifies issues, it auto-creates trouble tickets, thereby allowing us to take corrective action often before the customer even knows they have a problem.
A good example of seamlessly adding apps that drive stickiness is our recent MIX app, which allows flight departments to remotely scale different levels of service to different users on the aircraft, thereby ensuring that each passenger gets the appropriate experience. A good example of AVANCE flexibility in incorporating new network technologies would be the LEO networks that are being launched over the next few years. AVANCE could support a LEO network aggregated with our ATG network over North America to deliver more bandwidth than either network could deliver on its own. It would also expand our total addressable market to include the 14,000 business aircraft that are registered and predominantly fly outside North America.
AVANCE gives us a tremendous advantage addressing the LEO opportunity because we could add an electronically steerable antenna, ESA, on top of the aircraft and run wiring down to the AVANCE LRU, and that would be the extent of the hardware upgrade. The rest of the upgrade would be completed with an over-the-air software update. Our third major competitive advantage is our relationships with dealers and OEMs. I discussed OEMs a moment ago, so we'll focus these comments on dealers and MROs. As we've said before, Gogo has a high-quality network of 120 dealers worldwide. These mutually profitable relationships are incredibly valuable and took many years to build. Our distribution partners are invested in Gogo, and they know we can be relied upon to deliver quality products on a timely basis, and that those products will make their customers happy.
Evidence of the strength of these relationships was the announcement by Duncan Aviation, the largest independent MRO in the United States, to modify all of its full equipment AVANCE L5 STCs to include Gogo 5G, which will cover more than 30 aircraft models, including aircraft manufactured by Bombardier, Gulfstream, Dassault, and Textron. Now, let me turn to the competitive landscape. Competitors fall into two buckets, GEO satellite service providers and a potential new ATG service provider. Let's start with GEO satellite service providers. Their main advantage is that they have broader coverage than Gogo. However, since 87% of all BA flights are in North America, Gogo can still serve most BA aircraft missions.
As mentioned earlier, Gogo's advantages over GEOs are, A, smaller form factors, allowing us to serve all makes and models of aircraft, while GEO providers have heavier and larger form factors and are limited to larger jets. B, a significant latency advantage, which is very important for interactive video applications like Zoom. C, Gogo is cheaper on all fronts, including equipment, installation, and service. Now, let's turn to the potential new ATG entrant. They face many challenges, starting with a lack of credibility with the distribution channels and customers.
After originally announcing that they would deploy a nationwide network in 2016, they have missed a series of launch dates over the last five years and have recently said they would complete their network by the end of this year, but have now slipped once again and are now saying they will complete the network by the end of the second quarter next year. As a result of these delays, this potential competitor has no credibility in the distribution channels, and they will need to complete and successfully operate their network for some period of time before they can regain credibility. Even then, they'll face challenges. They recently announced their network will generally achieve speeds in the 5-8 Mbps range, with peak speeds up to 15 Mbps.
Their speeds are roughly equivalent to what our L5 customers on our 4G network experience currently, and well below the average speeds in the 25 Mbps range and peak speeds of 75-80 Mbps that we expect customers to experience with Gogo 5G. Besides our distribution channel and speed advantages, we also expect they will face challenges around the size of their antennas, and they will need to raise considerably more capital to finish their network and operate it to profitability, which given all the other challenges they face, is a challenge in its own right. More broadly in the market, we also see exciting opportunities to partner with potential new entrants in the LEO satellite service space.
Of the three LEO providers launching or likely to launch over the next few years, two are committed to B2B models, and we are in discussions with them about us providing a LEO global broadband product to our vertical market. This would allow us to add the 14,000 business aircraft outside of North America to our total addressable market and to provide an integrated advanced ATG and LEO product to the North American market, which we think would be especially valuable to North American heavy jets that fly globally and use both ATG and GEO satellite solutions today. The third LEO provider is Starlink, which is currently in beta test and pursuing the global broadband market, estimated at $350 billion in revenue this year, with a direct-to-consumer model.
They have discussed also pursuing the $80 billion military/gov market, the $25 billion connected car market, and the $7 billion US commercial aviation market, among others. Business aviation connectivity is tiny compared to those opportunities, estimated at less than $500 million in service revenue this year. Given the relative size of the BA market opportunity and given that BA, business aviation connectivity is highly regulated, has complex distribution channels, and has a highly fragmented customer base, we would be surprised if entering our market were a high priority for Starlink.
Meanwhile, we think we are well-positioned to launch a LEO add-on to our AVANCE platform, given our current distribution channel relationships, given that we will have a large AVANCE install base that would be LEO-ready, and given that we will be able to leverage AVANCE certifications for our LEO product, just like we're doing today for 5G. Now, I'll touch briefly on our updated 2021 financial guidance before turning the call over to Barry. This morning, we raised our 2021 adjusted EBITDA and free cash flow guidance and noted that our full-year revenue is expected to come in at the high end of our previous guidance range.
This is the third time we've raised 2021 guidance, and our raised expectations are driven by significant growth in Gogo equipment sales, supported by strong industry tailwinds and growth of the high-margin recurring subscription service revenue that follows activation of our equipment. That margin growth and the relatively fixed nature of our operating costs creates tremendous operating leverage and will drive substantial cash generation after completion of our 5G network in 2022. A brief note on next year.
We expect continued strong revenue growth, but would like to remind investors that it will be an investment year as we complete our 5G network, and that and those investments will mute growth in our adjusted EBITDA and net income until the 5G tower investments are largely installed. We're excited about the future and Gogo's ability to deliver for our customers, shareholders, and employees as we execute on our strategy for long-term value creation. With that, I'll turn it over to Barry.
Thanks, Oak, and good morning, everyone. As Oak mentioned, the tailwinds driving the business aviation market are strong and by all indications, are sustaining and picking up momentum. This, coupled with Gogo's business execution, creates a strong foundation for continued profitable growth. As we have demonstrated, our financial model is a virtuous circle. Strong equipment shipments drive high-margin recurring service revenue, leading to strong cash flow that we can invest in enhancing our network, which in turn attracts new customers, generates more usage, and drives more equipment shipments. Our record third quarter results demonstrate that our model is firing on all cylinders as we reach an exciting inflection point for the company, which was that Gogo generated positive net income and EPS for the first time, as Oak mentioned.
Strong equipment shipments are de-risking our long-term targets, and we continue to strengthen our balance sheet to enhance our foundation for innovation, investment in future success, and eventually capital returns. I'll walk through the key results of the quarter, starting with the top line, which are a reflection of the accelerating strength of the business aviation market and Gogo's unique ability to capitalize on that growing demand. Total revenue for the third quarter was a record $87.2 million, increasing 31% year-over-year and 6% sequentially, fueled by strong growth in both service and equipment revenue as demand continues to exceed our expectations. Our record service revenue of $66.2 million in the third quarter represents an increase of 24% year-over-year and was driven mainly by more AVANCE units coming online.
On a sequential basis, our third quarter service revenue grew 5%, excluding the one-time benefit of $1.8 million in our second quarter from recognizing deferred revenue from a specific customer contract. Growth of our recurring subscription-based service revenue is a key long-term value driver of our business. ATG Aircraft Online reached 6,154, up 10% compared to the third quarter of last year and 2% compared to the second quarter of this year. New customer activations remain strong, representing over 60% of total activations during the quarter, which is in line with the last several quarters. As we said over the past year, penetration of the Advanced platform into both our installed base and with new customers is a centerpiece of our long-term strategy.
AVANCE provides unparalleled extensibility as our technology evolves, laying the foundation for even stickier, enduring relationships with our customers. In the third quarter, total AVANCE units online grew to 2,237, an increase of 46% compared to Q3 2020. This is comparable to AVANCE growth for the last five quarters, which ranged from 42%-51%. AVANCE units comprised 36% of total AOL as of September 30, 2021, a meaningful increase from the 27% a year ago. As we grew our AOL, ARPU also grew to $3,264, representing an increase of 9% year-over-year. Excluding the one-time benefit from last quarter's deferred revenue, ARPU increased 2% sequentially.
Looking ahead, we expect our 2021 revenue to be at the high end of the guidance range we announced last quarter, reflecting our expectations that service revenue for the full year 2021 will grow at least 20% over the full year 2020. Turning now to equipment revenue. Gogo delivered very strong equipment revenue of $21 million, a dramatic 59% increase year-over-year and a 19% increase sequentially due to strong demand for our Advanced L3 and L5 products. We had a record 264 Advanced product shipments in the third quarter, which represents 58% growth from Q3 2020 and 33% growth sequentially. It's worth noting that our expectations for 2021 Advanced shipments are now more than 30% ahead of our original 2021 internal budget.
Our 2021 revenue guidance reflects equipment revenue for the full year of 2021 at 30% above 2020 levels. This strong performance is based on the underlying strength of the market as well as the seasonal dynamics of our business. We generally see equipment sales backloaded to the second half of the year, and we expect that same seasonality to occur this year. As we shared at the end of September when we updated our long-term financial targets, we expect continuing strength in AVANCE shipments with growth of 20%-25% next year, and this on top of this year's strong performance. Let me add one final point regarding equipment shipments, and that is to underscore the important results achieved by our production operations team in the face of the global supply chain crisis.
As Oak described, our efforts to efficiently manage our supply chain benefit from our AVANCE platform hardware strategy, which is focused on standardizing common componentry across our L3 and L5 products to manage our costs and drive quality. Gogo is also committing $10 million in cash for additional inventory purchases during 2022 to ensure we meet demand and to reduce our quoted lead times. The outstanding results achieved by our supply chain team certainly de-risk our long-term guidance by ensuring that we can deliver on equipment orders that already stretch well into 2022. Now I'll turn to a discussion of our profitability for the quarter. Our stronger than expected performance in the third quarter reflected the power of our business model, which flows from our recurring high-margin service revenue. Gogo delivered service margins of 80% in the third quarter, an increase of 300 basis points sequentially.
This increase was mainly driven by a one-time $2 million catch-up credit for Federal Universal Service Fund regulatory surcharges from which we have recently become exempt. Telecommunications companies must pay a percentage of their interstate end user revenues to the fund. Due to changes in our operating structure in 2020, prior to the sale of the CA division, Gogo is now exempt from these surcharges, and this credit was for the seven months from January through July of this year. Beginning in August 2021 and going forward, we will have $3 million in annual savings as a result of the exemption, and this impact was factored into long-term targets we announced in late September. Excluding this credit, service margin would have been in line with expectations and approximately even with last quarter's 77%.
As we've said previously, we anticipate service margins to come down to the mid-70s in the fourth quarter of this year and for 2022, and then to increase over the longer term as we benefit from increased operating leverage. On the equipment side, margins increased to 41% in the third quarter, an increase of 320 basis points sequentially, driven by strong equipment sales and mix more skewing more significantly toward advanced products in line with our strategy. This profitable customer acquisition is a significant differentiator of the unit economics of our business, particularly relative to traditional telecom and other digital infrastructure businesses.
We continue to expect equipment margins for the full year of 2021 to be above the 2020 levels, even as margins in the second half are expected to be lower than in the first half of the year, largely due to mix between L3 and L5 equipment shipments. It's important to note that while equipment margins are lower on the less expensive L3 product, service margins are quite similar across the two product offerings, which of course, is most important for our overall business model. Our L3 product is delivering on its strategic objective of penetrating the market for smaller airframes, as demonstrated by our continued momentum in personal jets, including our previously announced agreement with Cirrus, as well as the HondaJet announcement Oak referenced on this call.
Moving to operating expenses, Gogo's third quarter combined engineering, design and development, sales and marketing, and G&A expenses of $26.7 million increased 16% year-over-year. This was primarily due to a one-time catch-up in non-cash stock-based compensation expense related to vesting that occurs on employee retirements and primarily impacted G&A. Q3 OpEx spending did benefit from a reduction of $3 million relative to our previous expectations, half of which are permanent savings and half being deferred to future periods. We continue to expect G&A to decrease in 2021 relative to 2020. We also remain on track to deliver our targeted $10 million reduction in G&A, excluding non-cash stock-based compensation from the 2020 level by the end of 2022. Now I'll provide some additional detail on our Gogo 5G program and spending profile.
As I've mentioned, we are on track to deploy our 5G ATG network in the second half of 2022. In the third quarter, we spent a total of $1.8 million in external Gogo 5G development and deployment costs, split evenly between CapEx and OpEx. Two factors contributed to the level and timing of Gogo 5G related spending. First, we had reached the accounting requirements to capitalize Gogo 5G spend earlier than originally budgeted. We demonstrated technical feasibility in early 2020 and achieved R&D completion milestones for Gogo 5G in July of this year. As a result, we expect to capitalize $3 million of Gogo 5G costs in 2021 that were initially anticipated to be treated as OpEx. Secondly, we are expecting that some OpEx and CapEx spend projected previously in Q4 2021 will shift to the first quarter of 2022.
I want to be clear that these shifts in our spend schedule do not change our expectations on the timing of network deployment. As we look ahead, our Gogo 5G spend is expected to ramp significantly in the fourth quarter and to peak in the first quarter of 2022 in anticipation of our launch in the second half of next year. We expect that over 90% of our total Gogo 5G investment of approximately $100 million will be completed by the end of 2022.
It's significant that we are able to fund the entire remaining amount of Gogo 5G deployment costs from internally generated cash flow. To reiterate our long-term expectations, after Gogo 5G is launched, we expect ongoing capital expenditures in the $15-$20 million range annually, supporting an even stronger adjusted EBITDA to free cash flow conversion rate in 2023 and beyond. Now on to our bottom line. Our adjusted EBITDA of $40.8 million was a new record and represents a 35% increase year-over-year and an 11% increase sequentially. This record certainly reflects the strength of our business model and the underlying trends driving our business. As I mentioned a few minutes ago, our third quarter adjusted EBITDA does include some benefits that we don't expect to recur, namely the $2 million credit for Federal Universal Service Fund surcharges.
Our full year 2021 guidance for adjusted EBITDA, which we increased to a range of $140 million-$145 million from our previous guidance of more than $130 million, reflects our somewhat lower adjusted EBITDA in the fourth quarter versus this quarter. This is due to the one-time surcharge credit in Q3 and lower equipment margins and higher operating expenses related to 5G deployment expected in the upcoming quarter. As we mentioned earlier in the call, Gogo achieved a tremendous milestone in our third quarter. We achieved positive net income for the first time. During this quarter, we achieved $19.7 million in net income from continuing operations, which translated into 18 cents in basic earnings per share and 16 cents in diluted earnings per share from continuing operations.
Free cash flow for the quarter was $24.6 million. This reflects our strong top-line growth and healthy 47% adjusted EBITDA margins, as well as the impact of the comprehensive refinancing we completed in April, which materially reduced our annual interest expense and enhances our strategic and financial flexibility. Although there will certainly be variation from quarter to quarter, particularly due to the timing of our Gogo 5G investment, our expectation is to deliver positive annual free cash flow going forward. Based on this performance, we have increased our free cash flow guidance for 2021. As you know, we substantially increased expectations for free cash flow in 2023 and 2025 several weeks ago. Now let's turn to a discussion of our balance sheet.
Gogo is in a very strong liquidity position with $133.2 million in cash on hand as of September 30, and our $100 million revolver remains undrawn. As of the end of the third quarter, we had approximately $826.2 million in outstanding debt, including the $723 million term loan B we recently put in place, and approximately $103 million in outstanding convertible notes. Our strong financial performance has reduced our net leverage ratio to 4.7x based on our year-to-date annualized results as of September 2021. This is a dramatic improvement over where we were a year ago just before the CA divestiture.
Based on annualizing three quarters of adjusted EBITDA from continuing operations for the first three quarters of 2020, our net leverage ratio for continuing operations was 10.1x as of September 30 a year ago, more than double our current leverage ratio. I'm also pleased to highlight one of the provisions we're able to negotiate as a part of our most recent financing, which was that our interest rate would decline as our leverage declines. During the third quarter, our lower leverage ratio enabled us to achieve the maximum 50 basis point reduction in the interest rate on our Term Loan B as provided by our contract. Our interest rate will be reduced to LIBOR plus 3.25%, with a 75 basis point LIBOR floor, and our revolver commitment fee will be reduced by 25 basis points.
These reduced rates will take effect in November and in aggregate will result in approximately $3.8 million in annual savings. Assuming we settle conversions of the $103 million in convertible notes maturing in May 2022 in stock as currently planned, we expect our net leverage ratio to be below 4x by the end of 2022. With this final step in our comprehensive refinancing plan, our annual interest expense will have been reduced from $111 million before our April refinancing to approximately $30 million annually after the equitization of the remaining convertible notes and reflecting the reduced interest rates due to our lower leverage ratio as I mentioned a moment ago. Our strong balance sheet and financial performance afford Gogo unprecedented levels of strategic and financial flexibility.
On previous calls, we indicated that we would pursue a balanced capital allocation strategy focused on four primary areas in the following order of priority. First is enhancing our network through the deployment of Gogo 5G. Second is reducing overall leverage to an appropriate operating level. Third is strategically investing in our business in ways that capitalize on market opportunities or further strengthen our competitive position, such as the global broadband opportunity. Fourthly, over the longer term, considering returning capital to shareholders as appropriate. We have made considerable progress on the first two of these with Gogo 5G on track and on budget, and the natural deleveraging that has occurred on an accelerated basis with a stronger than expected operating performance. We are now in a position to more actively consider the latter two priorities.
Over the coming quarters, we will continue to assess value-creating investment opportunities like the LEO-based global broadband opportunity. We will then be in a position to begin considering the potential timing of returning capital to shareholders in the context of a targeted capital structure. With that, I'll provide some additional color on our updated financial guidance. As we announced in our press release this morning, we expect our full-year revenue to come in at the high end of the $325 million-$335 million range we had previously communicated. We also raised our 2021 adjusted EBITDA guidance to a range of $140 million-$145 million versus at least $130 million as we previously expected.
This guidance excludes approximately $2 million of separation migration costs related to the sale of the CA division. In terms of free cash flow, we now anticipate generating at least $40 million in free cash flow for the 2021 fiscal year, compared to the $25 million-$30 million to which we had previously guided. Finally, given the Gogo 5G spend dynamics I spoke to earlier, we now anticipate 2021 capital expenditures at the low end of our $20 million-$25 million range. While we plan to provide full-year 2022 guidance on our next earnings call, as we normally do, we thought it would be helpful to offer some high-level perspectives as we finish out 2021 and look forward to 2022. We continue to expect significant top-line growth.
However, we wanna be clear that we don't expect our bottom line to continue to grow at the pace we are delivering in 2021. For one, we will not have the approximately $4 million one-time benefit as we did in 2020 with the deferred revenue recognition and USF surcharge credit. We expect service and equipment margins to contract somewhat next year, and we will be significantly ramping investments to deploy our Gogo 5G network. In addition, Gogo will be returning to more normalized post-COVID spending on sales and marketing, particularly as we continue to commercialize Gogo 5G. We anticipate that meeting the significant growth in advanced unit shipments expected in 2022 will require some investments in working capital.
Over the longer term, we continue to drive toward the long-term financial targets for revenue growth, adjusted EBITDA margin, and free cash flow we announced in late September, which remain unchanged. As a reminder, the long-term financial targets are as follows. Revenue growth at a compounded annual growth rate of approximately 15% from 2020 to 2025. Annual adjusted EBITDA margin reaching 45% in 2025. Adjusted EBITDA margin may decline modestly from the higher than expected level achieved this year due to the investments we described for next year, for example, but our target of 45% in 2025 remains unchanged. Free cash flow of approximately $125 million in 2023, following the deployment of the Gogo 5G network in 2022, and approximately $200 million in 2025.
In conclusion, our business is really hitting its stride, leveraging our unique competitive advantages to capitalize on the positive trends, driving growth in the attractive under-penetrated BA market. Our equipment shipments and supply chain strengths continue to de-risk our long-term financial projections as more aircraft come online and feed the virtuous circle that creates value for our customers, shareholders, and employees. Before we turn the call over for your questions, I'd like to thank the Gogo team for the outstanding performance we delivered this quarter again. Our continuing progress, including reaching the exciting milestone of achieving positive net income, is a testament to the hard work of our talented team. Thank you. Operator, this concludes our prepared remarks, and we're now ready for our first question.
Okay. As a reminder, to ask a question, you will need to press star one on your telephone. Again, star one on your telephone. To withdraw your question, or if your question has been answered, press the pound or hash key. Your first question comes from the line of Phil Cusick from J.P. Morgan. Your line is now open.
Good morning, guys. This is Amir for Phil. I wanted to know when you look at your 2022 goal for the 5G launch, where are the puts and takes into hitting that, and how does the supply chain kind of work today for that? In addition to that, another one, if I may, can you confirm that you're seeing revenues from that Intelsat agreement? Should that ramp as airlines start to kind of come back and flight counts go up? Thank you.
Thanks, Amir. I'll take the first part and let Barry deal with the Intelsat part. I wouldn't say that we have any puts and takes on when we're gonna deliver. We're very confident in delivering the second half of 2022. As you know, we had a 5G chip issue that's been resolved, that's being delivered on schedule. That was a six-month delay in that chip, but we actually managed the project to still stay on schedule, and we're very confident in that. Amir, the second part of that question was supply chain. You know, in terms of supply chain, we are in very good shape. We have secured all the supply, all parts required to meet our commitments this year and for the first quarter next year and second quarter next year.
For Q3 and Q4 next year.
We have secured all parts needed to meet our current projections of 25% unit growth. We are actually putting demand into our systems now for greater than 25% unit growth in case we see a similar surge in orders as we have this year, next year. We still are a bit yellow on that surge in additional demand if that occurs in Q3, Q4, but we're working that down, and I think we feel pretty confident we could handle it. We are ordering already. We're ordering 18 months ahead right now in order to secure supply. We're now actually placing orders for demand for 2023.
We're feeling pretty good about that, and I think we performed really well in that area. As far as, you know, 5G itself, you know, most of the supply right now is around the network and, you know, the actual equipment to run the network. You know, that's coming in right now on schedule. In terms of the airborne equipment, you know, that's all in the certification process right now. But we don't see, you know, a lot of any supply issues there, you know, we have very focused vendors, I'll put it that way. Three very good vendors who are supplying us on that project, and there are no alarm bells whatsoever.
Remember, it also leverages a lot of the same componentry that we use for our AVANCE L5 and L3 products. You know, the supply chain is pretty consistent across 5G and AVANCE. We feel good.
Amir, on your second question regarding the Intelsat revenue, yes, that is on track. As a reminder, we have a ten-year contract with them, and the amount of the minimums grow over time to total about $177 million over that ten-year period. We are on track for that, and there is a step-up in that rev share amount, as the 5G deployment takes place.
Great. Thank you, guys. Congrats on the quarter.
Thanks a lot, Amir.
Thanks, Amir.
Your next question comes from the line of Scott Searle from ROTH Capital Partners. Your line is now open.
Hey, good morning. Nice quarter. Thanks for the color as always, and thanks for taking my questions. Hey, just a real quick clarification. Looking to 2022, you know, talking about 20% plus unit growth, it sounds like you've got the supply chain well in order. I'm wondering what you have in terms of visibility to order coverage at this point in time and kind of how that breaks down when you think about the attach rate on new aircraft coming off versus retrofits. Then I had a couple follow-ups.
Barry, I'll take the beginning of that. Right now, you know, about 6% of our units are committing to our aftermarket and about 40% line fit. That's been kind of a skew we've seen develop here as I think we get more penetration in older aircraft in the market. That is a trend we would anticipate to continue. Barry, do you wanna talk about the order flow?
Yeah. In terms of the orders, Scott, you know, we have a strong backlog, actually the highest we've had in our company's history. You know, the lead times are a bit longer than where they had been. They normally run from the time that somebody accepts a shipment, one to two months. Those are stretching out closer to six months now as the demand has so significantly outstripped our previous expectations. We're now, you know, taking orders to be delivered in the May timeframe. With the supply chain work, we're continuing to work that down and expect to be able to return to those shorter lead times over time. You know, it's really based on the booming demand for the equipment that we've seen.
Great. Thanks. Very helpful. Lastly, if I could, you know, looking at the equipment gross margins are very high at 40%, but then you start to talk about, you know, how AVANCE is growing both for the L3 and the L5, and then the low churn rates that translates to basically, you know, aircraft 18 years in the field, and what you can do with the AVANCE in terms of the easy upgrade to 5G. Basically, you're securing that customer. I'm wondering how you're thinking about being more aggressive on the AVANCE front because that really locks in your customer effectively for the next 10-15+ years. If you accelerate that, do you get more aggressive on the gross margin?
If you don't have to at this point in time simply because of the supply-demand balance within the industry. Also, as part of that, I'm kind of wondering what you think the overall installation capacity from an industry standpoint is in 2022. Thanks.
Yeah. I'll jump in at the start of that. I mean, driving AVANCE penetration for all the reasons you mentioned, Scott, is a central pillar of our strategy. You know, right now, frankly, yes, we don't need to drive a lot more orders just because, you know, there are some supply chain constraints. Now, you know, we are trying to manage ourselves to, you know. Well, first of all, we have managed ourselves to 25% unit growth above this year, next year, and we are actually trying to now make sure we can satisfy demand in case it's greater than that. You know, we do.
We have in our guidance, we talked about lower equipment margins over the next couple years, and that is built in partly in order to take account of incentives we might create in order to get people to upgrade from the classic products to AVANCE products. The one thing I would add to what you mentioned as benefits of AVANCE is because of its multi-bearer capabilities, we think that we could add a global broadband LEO product relatively easily as an add-on to that, which we think gives us a tremendous competitive advantage in our space and is a way we can fend off potential other satellite competitors coming into our space.
Getting people to move to AVANCE is a major thrust. It's growing about 46% this year, which is great. We hope that by the end of next year, it's roughly 50% of our installed base and growing, and we're gonna keep driving that.
Scott, to your question on the margins. Yes, as you know, service margin is really the driver of the overall economics and accounts for about 90% of the gross margin dollars. That's really the factor that drives the value creation for Gogo. In terms of the margins on equipment, they were high this quarter, as we've said. We expect those to come down even as we launch Gogo 5G, 'cause it's very much worth it to us to invest in driving the conversion to 5G and also driving the advanced penetration because for all the reasons we've talked about. As we get more advanced products online, it adds to the stickiness of the customers. It's future-proofed, enables people to operate as we described.
Even as we see those equipment gross margin percentages compressing somewhat over the next couple of years, it's very good for the overall business model.
Thanks. Great.
In terms of the MRO capacity, I think you know there's plenty of MRO capacity to install. I don't think that's really an issue. You know, the thing is that you have to be a compelling product for the MROs to sell, that's something that they make money on, and that makes their customers happy. You know, right now we're really in the catbird seat on that, and the distributors are you know very happy with their relationships with Gogo. That's a way to keep another sort of weapon in driving that penetration. Right now, we don't really see that as a limiting factor.
Great. Thanks, guys. Nice quarter.
Thanks, Scott.
Thank you.
Your next question comes from the line of Ric Prentiss from Raymond James. Your line is now open.
Hey, guys. This is Brent on for Rick. Good morning.
Yeah.
ED&D came in a little bit lower than expected this quarter. Were there any deferred costs within that category or one-timers? How should we think about that trending going forward?
Yes. It did come in a little bit lower. There were a couple of reasons, some of which we pointed out. One was that we were able to capitalize more of the cost than we had previously anticipated because of having crossed the technical feasibility proof and milestones for the Gogo 5G product. That certainly helped. There was $2 million that will be deferred, some of which will be deferred into next year. We do expect ED&D spending to ramp in the next quarter as we continue to, you know, invest in the Gogo 5G product.
Got it. Thanks. My other question is, you guys have talked about some of these new markets that could provide upside to your expectations, general aviation and international and connectivity to the cockpit. Just could you provide an update on where you're most encouraged and which of these markets you think could provide the most upside to your long-term expectations?
Yeah, I'll take that. I think the one that would have the most upside would be the global broadband initiative. However, that's, you know, still in the business case stage, and we have not formed any, you know, formal relationships with external parties or gotten board approval to move ahead with that. That's something we'll talk about in more detail when we get there. Where we're having the most success right now, of course, is moving down market, and by that I mean into smaller aircraft. That's both general aviation aircraft like the Cirrus Vision Jet, and you know, small business aircraft like the HondaJet STC we announced a couple weeks ago. Yeah, we're having good success.
We're in an area where it's hard for our competitors to compete, and that is an aircraft that requires small form factors like our AVANCE L3. We're gonna keep driving that, and we're looking at other ways we can modify our products to further drive penetration there. The two big things so far have been the small form factor L3, and then the lowering of the flight floor or our altitude floor for getting connectivity to 3,000 ft, because smaller planes tend to fly shorter routes and not get over 10,000 ft very often. But there's other things we can do and we're working on to further drive that. Those would be the two big ones. But GBB by far the biggest.
That would drive, you know, probably wouldn't start driving revenue until, you know, the second half of the decade, but would, we think, accelerate our growth dramatically for the second half of the decade.
Great. Thanks.
Your next question comes from the line of Louie DiPalma from William Blair. Your line is now open.
Barry and Will, good morning.
Louis.
Morning. Morning, Louis. How you doing?
Great. Have you been able to test the bonding of your licensed 4 MHz of 850 MHz band spectrum with the unlicensed 60 MHz of Wi-Fi spectrum? Have the results been positive? Does the bonding work?
Yeah. It's actually aggregation, not bonding. There's an engineering difference between the two of them. That's actually we right now have our first end-to-end all the way aircraft through tower to tower equipment to data center set up, and we're testing that right now, Louis. More to come on that in the next call.
Great. Oak, you also mentioned how the existing AVANCE system will easily support future LEO broadband antennas and systems. Will AVANCE also support the new Iridium Certus L-band service, and are you still working on developing your own Iridium Certus antennas?
It could support Certus or any other, you know, with a new antenna, just like the LEO installation would require a new LEO antenna. You know, we're not a Certus dealer, I don't think. You know, we still sell a lot of Iridium product, and we have you know, plans around what I'll call the narrow band that I don't think we're really ready to talk about yet. But that would not add, you know, a lot of bandwidth for us like LEOs would. You know, we're not focused on that.
Right. One final one financially for Barry. Even with this quarter's upside, do you still project that your 2022 revenue growth will be at the upper end of your 10%-15% long-term guidance growth range?
Actually gonna increase the expectations for service revenue growth, saying that we expect it to be 15% each year compounding from 2022 forward. Yes, we do expect it to be up at that 15% range for next year.
Awesome. Thanks, guys.
Thank you.
Your next question comes from the line of Jonnathan Navarrete from Cowen. Your line is now open.
Hey, good morning. This is Jonathan in for Lance. Congrats on the quarter. My first question is, what are the trends that the company is seeing in terms of unit expansion and pricing into the fourth quarter? Perhaps any viewpoint on how the beginning of 2022 will look in terms of unit expansion and pricing.
Barry, you wanna take it?
You, you're talking, Jonathan, about basically what we see happening in the ARPU over time? That's your question in the fourth quarter and going forward?
Right. Like, what are the trends that you're seeing right now and maybe what we can expect in 2022, the beginning of it, at least?
Yeah. Just to put it in context, you know, our ARPU has grown over the last number of years, and a big part of that is people have this insatiable demand for more bandwidth that they are upgrading plans. We have seen that and expect that to continue going forward. As you look at the longer term, there are kind of two upward pressures on ARPU and one downward pressure, but also for a good reason. The two upward pressures are the continued migration to higher value, higher megabyte plans, which we have seen, you know, including with the addition of the full streaming plan. We expect that trend to continue as people want to consume more megabytes.
The second uplift is from Gogo 5G, and so we are confident that we're gonna be able to charge more for Gogo 5G because of the increased performance. Those two things will lift ARPU over time. The downward pressure is as we get into the light jet turboprop market, as we talked about, those planes, as you know, fly shorter routes. The average revenue per user tends to be lower as a result. Very importantly, the revenue per megabyte is comparable to the other. It's very quality business, but that will have a dampening effect on ARPU going forward. As we go forward from this point over the longer term, we expect ARPU to continue to increase.
Understood. Thank you. That's very helpful. Just two more on my end. How many L5s were installed during the quarter? The last one is, in terms of the 15% revenue CAGR from 2020 to 2025, what % of the market share does that imply? Thank you.
Yeah. On the Oak,
Do you want to take the second part of that question?
On how we see unit volume market share growing over time? I can come back in there.
Yeah. I'll take that, and then we'll pick up the data point on installs. You know, we don't really look at market share as an internal measure, to be honest. You know, it's more something that investors are concerned with. We focus on unit growth and growth in the number of service plans we have and pricing of those service plans. You know, there is a lot of room in this market if there are other entrants. You know, roughly 70% of the market is unpenetrated today.
Frankly, you know, we project, we've shared our projections through the end of 2025, you know, and at the end of 2025, assuming success of a potential ATG entrant and assuming that our GEO competitors succeed in their plans and continue their current growth trajectories. You know, 50% of the market is still unpenetrated in 2025. You know, there's enough white space for everybody, and so market share isn't what we focus on as much as it is unit growth and our own growth.
To answer your question, Jonathan, about the shipments, there were 139 shipped in the last quarter.
That's shipments. I think he was asking about installs. Total, there were, yeah, 244 advanced platforms shipped. You gave the L5 number. I don't have the install number handy, but it would be simply the growth in units online for L5.
Yeah, 107 units online growth for L5.
Yeah. All right. Great.
Thank you.
Your next question comes from the line of Joichi Sakai from Singular Research. Your line is now open.
Hi, good morning. I have a question on your marketing spend. You recently talked about you're gonna increase it going forward. I wanted to see, you know, do you have a metric, say, that of your spend per new customer, and, you know, how is that gonna increase in the near term?
Yeah. Marketing spend was artificially low during COVID for obvious reasons. It didn't make sense to do marketing during that period of time, really. Marketing spend is coming back up. We see it remaining relatively constant as a percentage of revenue going forward, but it will grow as the overall top line grows. As we look to 2022, as we mentioned, we expect the marketing spend to grow during that year as we one, normalize it back to those levels, but secondly, as we invest in marketing and promoting the, you know, the exciting Gogo 5G product.
Yeah. I would say.
Okay. Great. For when would you expect L-three sales to really pick up and maybe become higher than L-five sales?
We don't necessarily see them getting higher than L5, but they certainly have picked up. When you look at the relative percentages of L3 versus L5, if you go back, you know, a couple of years ago, it was about half the number of L3s versus L5s, and now it's, you know, over 80%. We see that ratio continuing to grow. You know, we also expect L5s to be very strong going forward, and particularly because you have the upgrade capability directly from L5 to Gogo 5G, for example. Oak, did you want to add something there?
Yeah. We do see L3 sales. We project that they will narrow with L5 sales over the four-year plan. They don't quite reach that level, though, the L5 level. Yeah.
Okay, great. Thanks.
You bet.
There are no further question at this time. I'll turn it over back to William Davis.
Thank you, Nika, and thank you everyone for joining our third quarter conference call. This call is now concluded, and you may disconnect.
This concludes today's conference call. Thank you for participating. You may now disconnect.