Iridium Communications Inc.
Jul 27, 2017

Iridium Announces Second-Quarter 2017 Results; Company Affirms 2017 Outlook

MCLEAN, Va., July 27, 2017 (GLOBE NEWSWIRE) -- Iridium Communications Inc. (Nasdaq:IRDM) ("Iridium") today reported financial results for the second quarter of 2017 and affirmed its full-year 2017 outlook.  Net income was $24.8 million, or $0.20 per diluted share, for the second quarter of 2017, as compared to $26.9 million, or $0.22 per diluted share, for the second quarter of 2016.  Operational EBITDA ("OEBITDA")(1) for the second quarter was $65.8 million, as compared to $62.5 million for the prior-year period, representing a year-over-year increase of 5% and an OEBITDA margin(1) of 59%.  OEBITDA grew primarily due to higher commercial service revenue from the Company's machine-to-machine ("M2M") business.

Iridium reported second-quarter total revenue of $111.6 million, which consisted of $86.6 million of service revenue and $25.0 million of revenue related to equipment sales and engineering and support projects.  Total revenue increased 2% versus the comparable period of 2016, while service revenue grew by 4% from the year-ago period.  Service revenue, which represents primarily recurring revenue from Iridium's growing subscriber base, was 78% of total revenue for the second quarter of 2017.

The Company ended the quarter with 913,000 total billable subscribers, which compares to 823,000 for the year-ago period and is up from 869,000 for the quarter ended March 31, 2017.  Total billable subscribers grew 11% year-over-year, driven by growth in M2M and government customers.

"Iridium continued to benefit from its long-term relationships with growth-oriented partners, particularly in commercial M2M, where subscriber growth of 20% helped to fuel recurring service revenue during the second quarter. We expect strong demand for satellite IoT services will drive momentum in our commercial business, especially as we introduce new solutions like Iridium EdgeTM," said Matt Desch, CEO, Iridium.

Commenting on Iridium® NEXT, Desch said, "Our second batch of Iridium NEXT satellites successfully launched in late June and are now completing validation testing.  All of these new satellites are working well and we're already looking forward to the next batch."  Desch continued, "SpaceX has scheduled the third launch of Iridium NEXT satellites for September 30 at 6:30 a.m. PDT from Vandenberg Air Force Base."

Iridium Business Highlights

Service — Commercial

Commercial service remained the largest part of Iridium's business, representing 58% 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. 

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.   

Equipment

Engineering & Support

Capital expenditures were $119.2 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 a cash and marketable securities balance of $356.5 million and gross debt of $1.8 billion.  Net debt was $1.3 billion, calculated as $1.8 billion of gross debt, less $0.36 billion of cash and marketable securities, as well as $0.14 billion in restricted cash.

2017 Outlook

The Company affirmed its full-year 2017 outlook for total service revenue growth and OEBITDA.  The Company continues to expect:

Long-Range Outlook

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

Non-GAAP Financial Measures & Definitions

(1) 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 are expected to be excluded from Operational EBITDA through late 2017.  In late 2017, Iridium NEXT revenues are expected to exceed recurring Iridium NEXT expenses (recurring Iridium NEXT expenses are not part of the approximately $3 billion construction cost of Iridium NEXT (the "Construction Costs")).   Accordingly, the Company expects that beginning in late 2017, Iridium NEXT revenues and these recurring expenses will no longer be excluded in calculating Operational EBITDA.  U.S. GAAP requires that certain of the Construction Costs be expensed.  These certain Construction Costs, which beginning in late 2017 will principally consist of in-orbit insurance, will continue to be excluded from the calculation of Operational EBITDA through 2018.  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.

      
  Iridium Communications Inc.   
      
  Supplemental Reconciliation of GAAP Net Income to Operational EBITDA   
      
  (In thousands)   
            
  Three Months Ended June 30, Six Months Ended June 30,   
   2017   2016   2017   2016    
 GAAP net income$  24,778  $  26,854  $  62,726  $  55,374    
 Interest expense   88     294     184     777    
 Interest income   (919)    (1,094)    (1,848)    (2,335)   
 Income taxes   11,740     15,640     30,140     30,640    
 Depreciation and amortization   20,201     12,843     33,708     25,779    
 Iridium NEXT expenses, net   5,687     4,320     8,527     7,343    
 Share-based compensation   4,257     3,887     7,738     6,080    
 Non-cash purchase accounting   -      (198)    -      (406)   
 Non-cash gain on Boeing transaction   -      -      (11,003)    -     
 Operational EBITDA$  65,832  $  62,546  $  130,172  $  123,252    
            

  

Conference Call Information
As previously announced, the Company will host a conference call to discuss its results at 8:30 a.m. ET on Thursday, July 27, 2017.  Callers should dial (877) 334-1964 (U.S. only) or (631) 291-4574 (from outside the U.S.) to access the call.  The conference call ID is 43003425.  The conference call will also be simultaneously webcast on Iridium's Investor Relations webpage at www.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 2017; service revenue, OEBITDA margin, cash taxes and leverage over the longer-term; the development of and timing for launch and completion of Iridium NEXT; anticipated equipment revenue; and expected revenue from Iridium's contracts with the U.S. Department of Defense.  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, 2016, filed with the Securities and Exchange Commission ("SEC") on February 23, 2017, 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.    
Consolidated Statements of Operations    
(In thousands)    
   
 Three Months Ended June 30, 
  2017   2016  
Revenue    
Service revenue    
Commercial$  64,623  $  61,486  
Government   22,000     22,000  
Total service revenue   86,623     83,486  
Subscriber equipment   18,844     20,362  
Engineering and support service   6,137     5,347  
Total revenue   111,604     109,195  
     
Operating expenses    
Cost of services (exclusive of depreciation and amortization)   21,368     16,448  
Cost of subscriber equipment sales   10,868     11,859  
Research and development   3,014     4,013  
Selling, general and administrative   20,411     22,303  
Depreciation and amortization   20,201     12,843  
Total operating expenses   75,862     67,466  
     
Operating income (expense)   35,742     41,729  
     
Other income (expense)    
Interest income, net    832     800  
Undrawn credit facility fees   -      (368) 
Other expense, net   (56)    333  
Total other income (expense)   776     765  
     
Income (loss) before income taxes   36,518     42,494  
Provision for income taxes   (11,740)    (15,640) 
Net income (loss)   24,778     26,854  
Series A Preferred Stock dividends, declared and paid   -      1,750  
Series B Preferred Stock dividends, declared and paid   -      2,109  
Series A Preferred Stock dividends, undeclared   1,750     -   
Series B Preferred Stock dividends, undeclared   2,109     -   
Net income (loss) attributable to common stockholders$  20,919  $  22,995  
     
Operational EBITDA$  65,832  $  62,546  
     

 

       
Iridium Communications Inc.      
Consolidated Statements of Operations      
(In thousands)      
     
 Six Months Ended June 30,   
  2017   2016    
Revenue      
Service revenue      
Commercial$  124,396  $  119,309    
Government   44,000     44,000    
Total service revenue   168,396     163,309    
Subscriber equipment   35,958     37,922    
Engineering and support service   11,676     12,166    
Total revenue   216,030     213,397    
       
Operating expenses      
Cost of services (exclusive of depreciation and amortization)   38,326     32,351    
Cost of subscriber equipment sales   20,972     22,322    
Research and development   6,241     6,572    
Selling, general and administrative   39,628     41,366    
Depreciation and amortization   33,708     25,779    
Total operating expenses   138,875     128,390    
       
Gain on Boeing transaction    14,189     -     
       
Operating income   91,344     85,007    
       
Other income (expense)      
Interest income, net    1,665     1,558    
Undrawn credit facility fees   (25)    (871)   
Other income (expense), net   (118)    320    
Total other income (expense)   1,522     1,007    
       
Income before income taxes   92,866     86,014    
Provision for income taxes   (30,140)    (30,640)   
Net income   62,726     55,374    
Series A Preferred Stock dividends, declared and paid   1,750     3,500    
Series B Preferred Stock dividends, declared and paid   2,109     4,218    
Series A Preferred Stock dividends, undeclared   1,750     -     
Series B Preferred Stock dividends, undeclared   2,109     -     
Net income (loss) attributable to common stockholders$  55,008  $  47,656    
       
Operational EBITDA$  130,172  $  123,252    
       

 

Iridium Communications Inc.            
Summary Revenue and OEBITDA Highlights            
(In thousands)            
             
 Three Months Ended June 30, % Change Six Months Ended June 30, % Change 
  2017   2016     2017  2016   
Revenue            
Service revenue(1)            
Commercial            
Voice and M2M data service            
Voice and data$45,629  $45,000  1% $88,173 $87,747 0% 
M2M data(2) 18,994   16,486  15%  36,223  31,562 15% 
Total commercial voice and M2M data service 64,623   61,486  5%  124,396  119,309 4% 
             
Government service revenue(3) 22,000   22,000  0%  44,000  44,000 0% 
             
Total service revenue 86,623   83,486  4%  168,396  163,309 3% 
             
Subscriber equipment 18,844   20,362  -7%  35,958  37,922 -5% 
             
Engineering and support(4)            
Government 5,401   4,857  11%  10,469  10,971 -5% 
Commercial 736   490  50%  1,207  1,195 1% 
Total engineering and support 6,137   5,347  15%  11,676  12,166 -4% 
             
Total Revenue$111,604  $109,195  2% $216,030 $213,397 1% 
             
             
Operational EBITDA            
Operational EBITDA$65,832  $62,546  5% $130,172 $123,252 6% 
             
Other            
Capital expenditures (5)$119,228  $80,980    $168,172 $75,822   
             
Net debt (6)$1,308,479  $1,105,959          
            
Cash, cash equivalents, and marketable securities$356,521  $443,088         
            
Credit facility$1,800,000  $1,651,253         
Deferred financing costs (111,580)  (132,058)        
Credit facility, net$1,688,420  $1,519,195         
             
(1) Service revenue consists of primarily subscription-based services which often generate a long-term recurring revenue stream from subscribers.       
             
(2) M2M 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.  Additionally, M2M data service provides position, navigation and timing technology through Iridium Communications Inc.'s one-way satellite timing, location, and authentication services.       
             
(3) Government service revenue consists of voice and M2M data subscription-based services provided to agencies of the U.S. government through prime contracts or subcontracts.       
             
(4) 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.       
             
(5) Capital expenditures based on cash spent in the respective period.       
             
(6) Net debt is calculated by taking the sum of the credit facility, 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, % Change      
  2017  2016        
Billable Subscribers (1)           
Commercial           
Voice and M2M data service           
Voice and data 360  359 0%      
M2M data 461  384 20%      
Total commercial voice and M2M data service 821  743 10%      
            
Government           
Voice and M2M data service           
Voice and data 48  43 12%      
M2M data 44  37 19%      
Total government voice and M2M data service 92  80 15%      
Total billable subscribers 913  823 11%      
            
            
            
 Three Months Ended June 30, % Change Six Months Ended June 30, % Change
  2017  2016    2017  2016  
Net Subscriber Additions           
Commercial           
Voice and M2M data service           
Voice and data 9  11 -18%  7  8 -13%
M2M data 29  19 53%  48  25 92%
Total commercial voice and M2M data service 38  30 27%  55  33 67%
            
Government           
Voice and M2M data service           
Voice and data 3  2 50%  4  3 33%
M2M data 3  3 0%  4  5 -20%
Total government voice and M2M data service 6  5 20%  8  8 0%
Total billable subscribers 44  35 26%  63  41 54%
            
            
 Three Months Ended June 30, % Change Six Months Ended June 30, % Change
  2017  2016    2017  2016  
 ARPU(2)           
Commercial           
Voice and data$41 $41 0% $40 $40 0%
M2M data$14 $15 -7% $14 $14 0%
            
            
(1) Subscribers as of the end of the respective period. 
(2) ARPU is calculated by dividing the revenue in the respective period by the average of billable subscribers at the beginning of the period and billable subscribers at the end of the period and then dividing the results by the months in the period.  Non-subscriber generated revenue is excluded from the ARPU calculation. Historically, government service revenue was driven by changes in subscriber count or ARPU, however under the terms of the EMSS contract, government service revenue is a fixed-price for unlimited subscribers.  For this and future comparative periods, ARPU will not be presented, as it is no longer a relevant government service revenue metric.
            
Investor Contact:

Kenneth Levy
Iridium Communications Inc.
+1 (703) 287-7570 
ken.levy@iridium.com

Press Contact:

Jordan Hassin
Iridium Communications Inc.
+1 (703) 287-7421
jordan.hassin@iridium.com