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Iridium Announces Second-Quarter 2018 Results; Company Raises 2018 Outlook
- Accelerating Growth Propels Total Subscribers to 1.05 Million
- 2018 Outlook for Service Revenue Growth Raised to 12% to 14%
- 2018 Outlook for OEBITDA Raised to $290 to $300 Million

MCLEAN, Va., July 31, 2018 /PRNewswire/ -- Iridium Communications Inc. (Nasdaq: IRDM) ("Iridium") today reported financial results for the second quarter of 2018 and raised its full-year 2018 outlook.  Net loss was $4.4 million, or $0.06 per diluted share, for the second quarter of 2018, as compared to net income of $24.8 million, or $0.20 per diluted share, for the second quarter of 2017.  This decrease in net income was primarily the result of a $30.3 million increase in depreciation and amortization expense from the year-ago period, reflecting an increased number of Iridium NEXT satellites in service, and a one-time $8.7 million, non-cash charge related to a state income tax law change that was enacted during the second quarter.  Operational EBITDA ("OEBITDA")(1) for the second quarter was $78.7 million, as compared to $65.8 million for the prior-year period, representing a year-over-year increase of 20% and an OEBITDA margin(1) of 58%.  OEBITDA benefitted from higher commercial service revenue and continued strength in equipment sales.

Iridium reported second-quarter total revenue of $134.9 million, which consisted of $104.0 million of service revenue and $31.0 million of revenue related to equipment sales and engineering and support projects.  Total revenue increased 21% versus the comparable period of 2017, while service revenue grew by 20% from the year-ago period.  Service revenue, which represents primarily recurring revenue from Iridium's growing subscriber base, was 77% of total revenue for the second quarter of 2018.

The Company ended the quarter with 1,047,000 total billable subscribers, which compares to 913,000 for the year-ago period and is up from 996,000 for the quarter ended March 31, 2018.  Total billable subscribers grew 15% year-over-year, driven by growth in IoT and government customers.

"We delivered another strong quarter with excellent subscriber additions and revenue growth across all commercial revenue lines," said Matt Desch, CEO, Iridium.  Desch continued, "based upon sales momentum and the strong subscriber trends in the first half of the year, we are raising our full-year guidance for total service revenue and operational EBITDA."

Commenting on Iridium® NEXT, Desch said, "With three successful launches this year, we now have 65 Iridium NEXT satellites in orbit and expect to complete the launch program in the coming months.  We anticipate that the new constellation will be fully deployed this year and begin delivering superior L-band broadband through our new Iridium CertusSM service."

Iridium Business Highlights

Service – Commercial

Commercial service remained the largest part of Iridium's business, representing 61% of the Company's total revenue during the second quarter.  The Company's commercial customer base is diverse and includes markets such as maritime, aviation, oil and gas, mining, recreation, forestry, construction, transportation and emergency services.  These customers rely on Iridium's products and services as critical to their daily operations and integral to their communications and business infrastructure. 

  • Commercial service revenue was $82.0 million, up 27% from last year's comparable period. 
  • Commercial voice and data subscribers were up 1% from the year-ago period to 364,000 customers.  Commercial voice and data average revenue per user ("ARPU") increased during the second quarter to $45 as a result of the rollout of new pricing plans.  Commercial IoT data subscribers grew 25% from the year-ago period to 576,000 customers as a result of continued strength in consumer personal communications and tracking devices.  Commercial IoT data ARPU declined to $12 during the second quarter based upon the higher volume of lower ARPU plans.
  • Iridium's commercial business ended the quarter with 940,000 billable subscribers, which compares to 821,000 for the year-ago period and is up from 892,000 for the quarter ended March 31, 2018.  IoT data subscribers represented 61% of billable commercial subscribers at the end of the quarter, an increase from 56% at the end of the prior-year period.
  • Hosted payload and other data service revenue increased by $10.5 million, or 549%, from the prior year primarily due to increased hosting and data services and an increase in Satellite Timing and Location ("STL") services.

Service – Government

Iridium's voice and data solutions improve situational awareness for military personnel and track critical assets in tough environments around the globe, providing a unique value proposition that is not easily duplicated.  The Company operates under two Defense Information Systems Agency ("DISA") contracts, which include a $400 million, five-year, fixed-price agreement for satellite communications services and a $38 million multi-year contract to support and maintain the Department of Defense's ("DoD") dedicated gateway.   

  • Government service revenue was $22 million, consistent with the prior-year period, as the final step up in the fixed fee under the Company's airtime services contract with DISA occurred in 2015.
  • Iridium's government business ended the quarter with 107,000 subscribers, which compares to 92,000 for the year-ago period and is up from 104,000 for the quarter ended March 31, 2018.  Government voice and data subscribers increased 13% from the year-ago period to 54,000 as of June 30, 2018.  IoT data subscribers increased 20% year-over-year and represented 50% of government subscribers, an increase from 48% at the end of the prior-year period.

Equipment

  • Equipment revenue was $25.9 million during the second quarter, up 37% from the prior-year period.
  • In light of continued strong demand for equipment in the first half of 2018, the Company now expects full-year equipment sales to exceed 2017 levels.

Engineering & Support

  • Engineering and support revenue was $5.1 million during the second quarter, compared to $6.1 million in the prior-year's quarter, primarily due to the episodic nature of commercial and government-sponsored projects.

Capital expenditures were $132.1 million for the second quarter and primarily related to spending for the Company's next-generation satellite constellation, Iridium NEXT.  The Company ended the second quarter with credit facility gross debt of $1.8 billion and a cash and marketable securities balance of $375.9 million.  Net debt was $1.6 billion, calculated as $1.8 billion of credit facility gross debt and $360.0 million of gross unsecured notes, less $375.9 million of cash and marketable securities, as well as $189.7 million in restricted cash.

2018 Outlook

The Company raised its full-year 2018 outlook for total service revenue growth and OEBITDA.  The Company now expects:

  • Total service revenue growth between 12% and 14% for the full-year 2018 (previous outlook was between 10% and 12%).
  • Full-year 2018 OEBITDA between $290 million and $300 million (previous outlook was between $280 million and $290 million). OEBITDA for 2017 was $265.6 million.

Long-Range Outlook

The Company updated its long-range outlook for peak net leverage, while affirming its guidance for total service revenue growth, OEBITDA margin, cash taxes and 2019 net leverage.  Based on the expected 2018 Iridium NEXT system completion, the Company expects:

  • Total service revenue of approximately $440 million for the full-year 2019.
  • OEBITDA margin of approximately 60% in 2019.
  • Negligible cash taxes through approximately 2020.
  • Peak net leverage of approximately 6.0x OEBITDA in 2018.
  • Net leverage of approximately 4.5x OEBITDA in 2019.

(1)   Non-GAAP Financial Measures & Definitions

In addition to disclosing financial results that are determined in accordance with U.S. GAAP, the Company provides Operational EBITDA and Operational EBITDA margin, which are non-GAAP financial measures, as supplemental measures to help investors evaluate the Company's fundamental operational performance.  Operational EBITDA represents earnings before interest, income taxes, depreciation and amortization, Iridium NEXT revenue and expenses (for periods prior to the deployment of Iridium NEXT only), loss from investment in Aireon, share-based compensation expenses, the impact of purchase accounting, and non-cash gain from the Boeing transaction.  Iridium NEXT revenue and expenses were excluded from Operational EBITDA through 2017.  In 2018, Iridium NEXT revenues and recurring Iridium NEXT expenses (recurring Iridium NEXT expenses are not part of the approximately $3 billion construction cost of Iridium NEXT (the "Construction Costs")) will no longer be excluded in calculating Operational EBITDA.  U.S. GAAP requires that certain of the Construction Costs be expensed.  These Construction Costs, which beginning in 2018 principally consist of in-orbit insurance, will continue to be excluded from the calculation of Operational EBITDA through 2019.  The Company also presents Operational EBITDA expressed as a percentage of GAAP revenue, or Operational EBITDA margin.  Operational EBITDA, along with its related measure, Operational EBITDA margin, does not represent, and should not be considered, an alternative to U.S. GAAP measurements such as net income or loss, and the Company's calculations thereof may not be comparable to similarly titled measures reported by other companies.  By eliminating interest, income taxes, depreciation and amortization, Iridium NEXT revenue and expenses (for periods prior to the deployment of Iridium NEXT only), loss from investment in Aireon, share-based compensation expenses, the impact of purchase accounting, and non-cash gain from the Boeing transaction, the Company believes the result is a useful measure across time in evaluating its fundamental core operating performance.  Management also uses Operational EBITDA to manage the business, including in preparing its annual operating budget, debt covenant compliance, financial projections and compensation plans.  The Company believes that Operational EBITDA is also useful to investors because similar measures are frequently used by securities analysts, investors and other interested parties in their evaluation of companies in similar industries.  However, there is no standardized measurement of Operational EBITDA, and Operational EBITDA as the Company presents it may not be comparable with similarly titled non-GAAP financial measures used by other companies.  As indicated, Operational EBITDA does not include interest expense on borrowed money, the payment of income taxes, amortization of the Company's definite-lived intangible assets, or depreciation expense on the Company's capital assets, which are necessary elements of the Company's operations.  It also excludes expenses in connection with the development, deployment and financing of Iridium NEXT and the loss from investment in Aireon.  Since Operational EBITDA does not account for these and other expenses, its utility as a measure of the Company's operating performance has material limitations.  Due to these limitations, the Company's management does not view Operational EBITDA in isolation, but also uses other measurements, such as net income, revenues and operating profit, to measure operating performance.  Please refer to the schedule below for a reconciliation of consolidated GAAP net income to Operational EBITDA and Iridium's Investor Relations webpage at www.iridium.com for a discussion and reconciliation of this and other non-GAAP financial measures.  We do not provide a forward-looking reconciliation of expected full-year 2018 Operational EBITDA guidance as the amount and significance of special items required to develop meaningful comparable GAAP financial measures cannot be estimated at this time without unreasonable efforts.

 

 

 

Iridium Communications Inc.

 

Supplemental Reconciliation of GAAP Net Income to Operational EBITDA

 

(In thousands)

               
 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2018

 

2017

 

2018

 

2017

GAAP net income (loss)

$                                  (4,418)

 

$                                 24,778

 

$                          7,054

 

$                        62,726

Interest (income) expense, net

12,985

 

(831)

 

17,150

 

(1,664)

Income tax expense

7,843

 

11,740

 

11,682

 

30,140

Depreciation and amortization

50,491

 

20,201

 

88,956

 

33,708

Iridium NEXT expenses, net

8,593

 

5,687

 

15,169

 

8,527

Share-based compensation

3,187

 

4,257

 

7,145

 

7,738

Non-cash gain on Boeing transaction

-

 

-

 

-

 

(11,003)

Operational EBITDA

$                                 78,681

 

$                                 65,832

 

$                      147,156

 

$                      130,172

 

Conference Call Information
As previously announced, the Company will host a conference call to discuss its results at 8:30 a.m. ET on Tuesday, July 31, 2018.  Participants should dial (412) 317-5413 and ask to access the Iridium call.  The conference call will also be simultaneously webcast on Iridium's Investor Relations webpage at http://investor.iridium.com.  An archive of the webcast will be available following the live conference call.

About Iridium Communications Inc.
Iridium is the only mobile voice and data satellite communications network that spans the entire globe.  Iridium enables connections between people, organizations and assets to and from anywhere, in real time.  Together with its ecosystem of partner companies, Iridium delivers an innovative and rich portfolio of reliable solutions for markets that require truly global communications.  The company has a major development program underway for its next-generation network – Iridium NEXT.  Iridium Communications Inc. is headquartered in McLean, Va., U.S.A., and its common stock trades on the NASDAQ Global Select Market under the ticker symbol IRDM.  For more information about Iridium products, services and partner solutions, visit www.iridium.com.  IRDM-F

Forward-Looking Statements
Statements in this press release that are not purely historical facts may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding Iridium's expectations with respect to total service revenue growth and OEBITDA for 2018; service revenue, OEBITDA margin, cash taxes and leverage over the longer-term; the timing of Iridium NEXT launches and the introduction of related services, including Iridium Certus, and anticipated equipment revenue.  Forward-looking statements can be identified by the words "anticipates," "may," "can," "believes," "expects," "projects," "intends," "likely," "will," "to be" and other expressions that are predictions or indicate future events, trends or prospects. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Iridium to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, uncertainties regarding customer demand for Iridium's products and services, including demand from the U.S. Government; Iridium's ability to maintain the health, capacity and content of its current satellite constellation; the manufacture and launch of and transition to Iridium NEXT, and the development of and market for Iridium's products and services, as well as general industry and economic conditions, and competitive, legal, governmental and technological factors. Other factors that could cause actual results to differ materially from those indicated by the forward-looking statements include those factors listed under the caption "Risk Factors" in the Company's Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission ("SEC") on February 22, 2018, and in the Company's Form 10-Q for the quarter ended June 30, 2018, filed with the SEC on July 31, 2018, as well as other filings Iridium makes with the SEC from time to time.  There is no assurance that Iridium's expectations will be realized. If one or more of these risks or uncertainties materialize, or if Iridium's underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. Iridium's forward-looking statements are based on information available to it as of the date of this press release and speak only as of the date of this press release, and Iridium undertakes no obligation to update forward-looking statements. ###

 

Iridium Communications Inc.

     

Condensed Consolidated Statements of Operations

     

(In thousands)

     
   
 

Three Months Ended June 30,

 

2018

 

2017

Revenue

     

Service revenue

     

Commercial

$                 81,966

 

$                  64,623

Government

22,000

 

22,000

Total service revenue

103,966

 

86,623

Subscriber equipment

25,865

 

18,844

Engineering and support service

5,100

 

6,137

Total revenue

134,931

 

111,604

       

Operating expenses

     

Cost of services (exclusive of depreciation and amortization)

22,644

 

21,368

Cost of subscriber equipment sales

15,619

 

10,868

Research and development

5,566

 

3,014

Selling, general and administrative

24,266

 

20,411

Depreciation and amortization

50,491

 

20,201

Total operating expenses

118,586

 

75,862

Operating income

16,345

 

35,742

       

Other income (expense)

     

Interest income (expense), net 

(12,985)

 

832

Other income (expense), net

65

 

(56)

Total other income (expense), net

(12,920)

 

776

       

Income before income taxes

3,425

 

36,518

Income tax expense

(7,843)

 

(11,740)

Net income (loss)

(4,418)

 

24,778

Series A preferred stock dividends, undeclared

-

 

1,750

Series B preferred stock dividends, undeclared

2,109

 

2,109

Net income (loss) attributable to common stockholders

$                 (6,527)

 

$                  20,919

       

Operational EBITDA

$                 78,681

 

$                  65,832

 

 

 

       

Iridium Communications Inc.

     

Condensed Consolidated Statements of Operations

     

(In thousands)

     
   
 

Six Months Ended June 30,

 

2018

 

2017

Revenue

     

Service revenue

     

Commercial

$                149,708

 

$             124,396

Government

44,000

 

44,000

Total service revenue

193,708

 

168,396

Subscriber equipment

51,647

 

35,958

Engineering and support service

8,724

 

11,676

Total revenue

254,079

 

216,030

       

Operating expenses

     

Cost of services (exclusive of depreciation and amortization)

41,596

 

38,326

Cost of subscriber equipment sales

30,833

 

20,972

Research and development

10,149

 

6,241

Selling, general and administrative

46,761

 

39,628

Depreciation and amortization

88,956

 

33,708

Total operating expenses

218,295

 

138,875

       

Gain on Boeing transaction 

-

 

14,189

       

Operating income

35,784

 

91,344

       

Other income (expense)

     

Interest income (expense), net 

(17,150)

 

1,665

Other income (expense), net

102

 

(143)

Total other income (expense), net

(17,048)

 

1,522

       

Income before income taxes

18,736

 

92,866

Income tax expense

(11,682)

 

(30,140)

Net income

7,054

 

62,726

Series A preferred stock dividends, declared and paid excluding cumulative
dividends

1,750

 

1,750

Series B preferred stock dividends, declared and paid excluding cumulative dividends

2,109

 

2,109

Series A preferred stock dividends, undeclared

-

 

1,750

Series B preferred stock dividends, undeclared

2,109

 

2,109

Net income attributable to common stockholders

$                    1,086

 

$               55,008

       

Operational EBITDA

$                147,156

 

$             130,172

 

 

 

Iridium Communications Inc.

                   

Summary Revenue and OEBITDA Highlights

               

(In thousands)

                     
                       
 

Three Months Ended June 30,

     

Six Months Ended June 30,

   
 

2018

 

2017

 

% Change

 

2018

 

2017

 

% Change

Revenue

                     

Service revenue(1)

                     

Commercial

                     

Voice and data and IoT data service

                     

Voice and data

$                48,712

 

$                44,203

 

10%

 

$                92,442

 

$                85,849

 

8%

IoT data(2)

20,835

 

18,505

 

13%

 

40,618

 

35,434

 

15%

Hosted payload and other data service (3)

12,419

 

1,915

 

549%

 

16,648

 

3,113

 

435%

Total commercial data service

81,966

 

64,623

 

27%

 

149,708

 

124,396

 

20%

                       

Government service revenue(4)

22,000

 

22,000

 

0%

 

44,000

 

44,000

 

0%

                       

Total service revenue

103,966

 

86,623

 

20%

 

193,708

 

168,396

 

15%

                       

Subscriber equipment

25,865

 

18,844

 

37%

 

$                51,647

 

$                35,958

 

44%

                       

Engineering and support(5)

                     

Commercial

114

 

736

 

-85%

 

$                     195

 

$                  1,207

 

-84%

Government 

4,986

 

5,401

 

-8%

 

$                  8,529

 

$                10,469

 

-19%

Total engineering and support

5,100

 

6,137

 

-17%

 

8,724

 

11,676

 

-25%

                       

Total revenue

$              134,931

 

$              111,604

 

21%

 

$              254,079

 

$              216,030

 

18%

                       
                       

Operational EBITDA

                     

Operational EBITDA

$                78,681

 

$                65,832

 

20%

 

$              147,156

 

$              130,172

 

13%

                       

Other

                     

Capital expenditures (6)

$              132,070

 

$              119,228

     

$              215,031

 

$              168,172

   
                       

Net debt (7)

$           1,568,197

 

$           1,308,479

               
                       

Cash, cash equivalents, and marketable securities

$              375,944

 

$              356,521

               
                       

Credit facility

$           1,773,869

 

$           1,800,000

               

Deferred financing costs

(94,204)

 

(111,580)

               

Credit facility, net

$           1,679,665

 

$           1,688,420

               
                       

(1) Service revenue consists of primarily subscription-based services which often generate a long-term recurring revenue stream from subscribers.

                       

(2) IoT data service provides a two-way short burst data transmission between Iridium Communications Inc.'s network and a telemetry unit, which may be located, for example, on a container in transit or a buoy monitoring oceanographic conditions.  

 
                       

(3) Hosted payload and other services consist primarily of services that do not have traditional billable subscribers. Hosted payload services consist of hosting and data services to our payload customers, Aireon and Harris. Other services include
primarily Iridium Communications Inc.'s one-way satellite timing, location, and authentication services (STL) which provides position, navigation and timing technology. 

 
                       

(4) Government service revenue consists of voice and IoT data subscription-based services provided to agencies of the U.S. government through prime contracts or subcontracts.

                       

(5) Engineering and support includes maintenance services to the U.S. government's dedicated gateway in Hawaii and engineering services to assist customers in developing new technologies for use on Iridium Communications Inc.'s satellite
system.

 
                       

(6) Capital expenditures based on cash spent in the respective period.

           
                       

(7) Net debt is calculated by taking the sum of the gross credit facility and gross high yield notes, less cash and cash equivalents, marketable securities, and the debt service reserve for the credit facility.

 

 

 

Iridium Communications Inc.

                     

Subscriber Highlights

                     

(In thousands, except ARPU)

                     
                       
                       
 

As of June 30,

               
 

2018

 

2017

 

% Change

           

Billable Subscribers (1) (2)

                     

Commercial

                     

Voice and data and IoT data service

                     

Voice and data

364

 

360

 

1%

           

IoT data

576

 

461

 

25%

           

Total commercial voice and data and IoT data service

940

 

821

 

14%

           
                       

Government

                     

Voice and data and IoT data service

                     

Voice and data

54

 

48

 

13%

           

IoT data

53

 

44

 

20%

           

Total government voice and data and IoT data service

107

 

92

 

16%

           

Total billable subscribers

1,047

 

913

 

15%

           
                       
                       
                       
 

Three Months Ended June 30,

     

Six Months Ended June 30,

   
 

2018

 

2017

 

% Change

 

2018

 

2017

 

% Change

Net Billable Subscriber Additions From Prior Quarter

                     

Commercial

                     

Voice and data and IoT data service

                     

Voice and data

10

 

9

 

11%

 

5

 

7

 

-29%

IoT data

38

 

29

 

31%

 

66

 

48

 

38%

Total commercial voice and data and IoT data service

48

 

38

 

26%

 

71

 

55

 

29%

                       

Government

                     

Voice and data and IoT data service

                     

Voice and data

1

 

3

 

-67%

 

2

 

4

 

-50%

IoT data

2

 

3

 

-33%

 

5

 

4

 

25%

Total government voice and data and IoT data service

3

 

6

 

-50%

 

7

 

8

 

-13%

Total net billable subscriber additions

51

 

44

 

16%

 

78

 

63

 

24%

                       
                       
 

Three Months Ended June 30,

     

Six Months Ended June 30,

   
 

2018

 

2017

 

% Change

 

2018

 

2017

 

% Change

 ARPU (2) (3)

                     

Commercial

                     

Voice and data

$                       45

 

$                      41

 

10%

 

$                      43

 

$                         40

 

6%

IoT data

$                       12

 

$                      14

 

-11%

 

$                      12

 

$                         14

 

-11%

                       
                       

(1) Subscribers as of the end of the respective period.

(2) Billable subscriber and ARPU data is not applicable for Hosted payload and other data service revenue items and is excluded from presentation above.

(3) Average monthly revenue per unit, or ARPU, is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the beginning of the period
and the number of billable subscribers at the end of the period and then dividing the result by the number of months in the period. 

 

 

 

Investor Contact:

Press Contact:

Kenneth Levy

Jordan Hassin

Iridium Communications Inc.

Iridium Communications Inc.

+1 (703) 287-7570

+1 (703) 287-7421

 ken.levy@iridium.com  

jordan.hassin@iridium.com

 

Iridium Communications Inc. (PRNewsfoto/Iridium Communications Inc.)

 

SOURCE Iridium Communications Inc.

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