Iridium Communications Inc.
Oct 26, 2017

Iridium Announces Third-Quarter 2017 Results; Updates 2017 Outlook

MCLEAN, Va., Oct. 26, 2017 (GLOBE NEWSWIRE) -- Iridium Communications Inc. (Nasdaq:IRDM) ("Iridium") today reported financial results for the third quarter of 2017 and updated its full-year 2017 outlook.  Net income was $29.3 million, or $0.23 per diluted share, for the third quarter of 2017, as compared to $31.6 million, or $0.26 per diluted share, for the third quarter of 2016.  Operational EBITDA ("OEBITDA")(1) for the third quarter was $71.8 million, as compared to $69.7 million for the prior-year period, representing an OEBITDA margin(1) of 62%.  OEBITDA benefitted from continued growth in the Company's Internet of Things (IoT) business and from higher equipment sales.

Iridium reported third-quarter total revenue of $116.5 million, which consisted of $89.9 million of service revenue and $26.6 million of revenue related to equipment sales and engineering and support projects.  Total revenue increased 3% versus the comparable period of 2016, and service revenue rose by 3% 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 third quarter of 2017.

The Company ended the quarter with 949,000 total billable subscribers, which compares to 838,000 for the year-ago period and is up from 912,000 for the quarter ended June 30, 2017.  Total billable subscribers grew 13% year-over-year, driven by growth in commercial M2M and government customers.

"Iridium's commercial service revenue grew a healthy 4% in the third quarter fueled by ongoing demand for satellite IoT services and a seasonal rise in equipment sales.  Large storms in Florida, Texas and Puerto Rico demonstrated the criticality of Iridium's communications network as thousands of Iridium devices were deployed by first responders and relief organizations to provide aid in impacted areas," said Matt Desch, CEO, Iridium.  Desch continued, "Based upon the momentum that our commercial business continues to enjoy, we are tightening our full-year OEBITDA guidance to the high end of our 2017 outlook."

Commenting on Iridium® NEXT, Desch said, "Our third batch of Iridium NEXT satellites successfully launched in early-October.  All 10 satellites will be placed into service and enhance Iridium's growing broadband capabilities ahead of next year's rollout of Iridium CertusSM broadband."  Desch continued, "As previously announced, we are excited about our upcoming launch of 10 Iridium NEXT satellites, which SpaceX has scheduled for December 22 at 5:26 p.m. PST 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 third 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 $122.5 million for the third quarter and primarily related to spending for the Company's next-generation satellite constellation, Iridium NEXT.  The Company ended the third quarter with a cash and marketable securities balance of $350.4 million and gross debt of $1.8 billion.  Net debt was $1.4 billion, calculated as $1.8 billion of gross credit facility debt plus $28.9 million of vendor financing, less $350.4 million of cash and marketable securities, as well as $102.0 million in restricted cash.

2017 Outlook

The Company affirmed its full-year 2017 outlook for total service revenue growth and updated its outlook for OEBITDA.  The Company expects:

Long-Range Outlook

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

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 2017.  In 2018, 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 2018, 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 2018 will 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.
 Iridium Communications, Inc.
 Supplemental Reconciliation of GAAP Net Income to Operational EBITDA
 (In thousands)
        
 Three Months Ended September 30, Nine Months Ended September 30,
  2017   2016   2017   2016 
GAAP net income$  29,253  $  31,555  $  91,979  $  86,929 
Interest expense   56     253     240     1,030 
Interest income   (1,302)    (953)    (3,151)    (3,288)
Income taxes   10,055     18,647     40,195     49,287 
Depreciation and amortization   22,944     11,809     56,652     37,588 
Iridium NEXT expenses, net   6,823     4,775     15,350     12,118 
Share-based compensation   3,948     3,803     11,686     9,883 
Non-cash purchase accounting   -      (215)    -      (621)
Non-cash gain on Boeing transaction   -      -      (11,003)    -  
Operational EBITDA$  71,777  $  69,674  $  201,948  $  192,926 
        

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, October 26, 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 93129783.  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 subscriber voice usage in the coming quarter; 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 and the availability of related services, including Iridium Certus; 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. 

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

 

 

Iridium Communications, Inc.   
Condensed Consolidated Statements of Operations   
(In thousands)   
  
 Three Months Ended September 30,
  2017   2016 
Revenue   
Service revenue   
Commercial$  67,902  $  65,316 
Government   22,000     22,000 
Total service revenue   89,902     87,316 
Subscriber equipment   21,784     19,900 
Engineering and support service   4,861     5,578 
Total revenue   116,547     112,794 
    
Operating expenses   
Cost of services (exclusive of depreciation and amortization)   20,883     15,936 
Cost of subscriber equipment sales   12,186     11,476 
Research and development   3,981     5,038 
Selling, general and administrative   18,471     18,767 
Depreciation and amortization   22,944     11,809 
Total operating expenses   78,465     63,026 
    
Operating income   38,082     49,768 
    
Other income (expense)   
Interest income, net   1,246     700 
Undrawn credit facility fees   -      (305)
Other income (expense), net   (20)    39 
Total other income, net   1,226     434 
    
Income before income taxes   39,308     50,202 
Provision for income taxes   (10,055)    (18,647)
Net income   29,253     31,555 
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 attributable to common stockholders$  25,394  $  27,696 
    
Operational EBITDA$  71,777  $  69,674 
    


    
Iridium Communications, Inc.   
Condensed Consolidated Statements of Operations   
(In thousands)   
  
 Nine Months Ended September 30,
  2017   2016 
Revenue   
Service revenue   
Commercial$  192,298  $  184,625 
Government   66,000     66,000 
Total service revenue   258,298     250,625 
Subscriber equipment   57,742     57,822 
Engineering and support service   16,537     17,744 
Total revenue   332,577     326,191 
    
Operating expenses   
Cost of services (exclusive of depreciation and amortization)   59,209     48,287 
Cost of subscriber equipment sales   33,158     33,798 
Research and development   10,222     11,610 
Selling, general and administrative   58,099     60,133 
Depreciation and amortization   56,652     37,588 
Total operating expenses   217,340     191,416 
    
Gain on Boeing transaction   14,189     -  
    
Operating income   129,426     134,775 
    
Other income (expense)   
Interest income, net   2,911     2,258 
Undrawn credit facility fees   (25)    (1,176)
Other income (expense), net   (138)    359 
Total other income, net   2,748     1,441 
    
Income before income taxes   132,174     136,216 
Provision for income taxes   (40,195)    (49,287)
Net income   91,979     86,929 
Series A Preferred Stock dividends, declared and paid   1,750     5,250 
Series B Preferred Stock dividends, declared and paid   2,109     6,327 
Series A Preferred Stock dividends, undeclared   3,500     -  
Series B Preferred Stock dividends, undeclared   4,218     -  
Net income attributable to common stockholders$  80,402  $  75,352 
    
Operational EBITDA$  201,948  $  192,926 
    


Iridium Communications, Inc.           
Summary Revenue and OEBITDA Highlights           
(In thousands)           
            
 Three Months Ended September 30, % Change Nine Months Ended September 30, % Change
  2017   2016     2017  2016  
Revenue           
Service revenue(1)           
Commercial           
Voice and M2M data service           
Voice and data$  48,169  $  48,054  0% $  136,342 $  135,852 0%
M2M data(2)   19,733     17,262  14%    55,956    48,773 15%
Total commercial voice and M2M data service   67,902     65,316  4%    192,298    184,625 4%
            
Government service revenue(3)   22,000     22,000  0%    66,000    66,000 0%
            
Total service revenue   89,902     87,316  3%    258,298    250,625 3%
            
Subscriber equipment   21,784     19,900  9%    57,742    57,822 0%
            
Engineering and support(4)           
Commercial   784     674  16%    1,991    1,869 7%
Government   4,077     4,904  -17%    14,546    15,875 -8%
Total engineering and support   4,861     5,578  -13%    16,537    17,744 -7%
            
Total revenue$  116,547  $  112,794  3% $  332,577 $  326,191 2%
            
            
Operational EBITDA           
Operational EBITDA$  71,777  $  69,674  3% $  201,948 $  192,926 5%
            
Other           
Capital expenditures (5)$  122,540  $  74,989    $  290,712 $  231,791  
            
Net debt (6)$  1,376,501  $  1,130,498         
            
Cash, cash equivalents, and marketable securities$  350,361  $  426,374         
            
Credit facility$  1,800,000  $  1,669,872         
Deferred financing costs   (104,168)    (123,095)        
Credit facility, net$  1,695,832  $  1,546,777         
            
(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 and the Thales bills of exchange, 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 September 30, % Change      
  2017  2016         
Billable Subscribers (1)           
Commercial           
Voice and M2M data service           
Voice and data   368    358  3%      
M2M data   486    398  22%      
Total commercial voice and M2M data service   854    756  13%      
            
Government           
Voice and M2M data service           
Voice and data   49    43  14%      
M2M data   46    39  18%      
Total government voice and M2M data service   95    82  16%      
Total billable subscribers   949    838  13%      
            
            
            
 Three Months Ended September 30, % Change Nine Months Ended September 30, % Change
  2017  2016     2017  2016  
Net Subscriber Additions           
Commercial           
Voice and M2M data service           
Voice and data   8    (1) 900%    15    7 114%
M2M data   25    14  79%    73    39 87%
Total commercial voice and M2M data service   33    13  154%    88    46 91%
            
Government           
Voice and M2M data service           
Voice and data   1    -   NM    5    3 67%
M2M data   2    2  0%    6    7 -14%
Total government voice and M2M data service   3    2  50%    11    10 10%
Total billable subscribers   36    15  140%    99    56 77%
            
            
 Three Months Ended September 30, % Change Nine Months Ended September 30, % Change
  2017  2016     2017  2016  
 ARPU(2)           
Commercial           
Voice and data$  43 $  44  -2% $  41 $  42 -2%
M2M data$  13 $  15  -13% $  13 $  14 -7%
            
            
(1) Subscribers as of the end of the respective period.
(2) 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. ARPU excludes revenue from our non-subscriber satellite, timing, and location service that was launched in the second quarter of 2016 and revenue from data fees collected as part of the hosted payload service that became available with Iridium NEXT in the first quarter of 2017.
NM - not meaningful