Iridium Communications Inc.
Aug 1, 2013

Iridium Announces Second-Quarter 2013 Results; Company Updates 2013 and Long-Range Outlook

MCLEAN, Va., Aug. 1, 2013 (GLOBE NEWSWIRE) -- Iridium Communications Inc. (Nasdaq:IRDM) ("Iridium") today reported financial results for the second quarter of 2013 and updated its full-year 2013 and long-range financial outlook. Net income was $15.4 million, or $0.18 per diluted share, for the second quarter of 2013, as compared to $17.7 million, or $0.23 per diluted share, for the second quarter of 2012. Operational EBITDA ("OEBITDA")(1) for the second quarter was $51.1 million, as compared to $52.0 million for the prior-year period, representing a year-over-year decline of 2 percent and an OEBITDA margin(1) of 54 percent. OEBITDA fell largely due to a decrease in equipment revenue and a $1.9 million charge related to higher projected warranty costs.

Iridium reported second-quarter total revenue of $94.7 million, which consisted of $71.4 million of service revenue and $23.3 million of equipment, engineering and support revenue. Total revenue declined 3 percent versus the comparable period of 2012, while service revenue grew 4 percent from the year-ago period. Total revenue declined largely due to 17 percent lower equipment revenue resulting from fewer overall unit sales. Service revenue, which represents primarily recurring revenue from Iridium's growing subscriber base, was 75 percent of total revenue for the second quarter of 2013 as compared to 70 percent in the year-ago period.

The Company ended the quarter with 647,000 total billable subscribers, which compares to 576,000 for the year-ago period and is up from 621,000 for the quarter ended March 31, 2013. Total billable subscribers grew 12 percent year-over-year, driven by strength in machine-to-machine ("M2M") and commercial voice customers.

"We continue to face short-term challenges in a couple areas of our commercial business, which caused us to revise our 2013 and long-range financial outlook," said Matt Desch, CEO, Iridium. "In the maritime sector, despite solid new customer additions and a favorable competitive landscape, recently addressed product issues have led to higher churn and tempered our growth prospects. We're also absorbing lower overall subscriber growth and usage in our core handset offerings, in part from increased competition in the cost-sensitive segment of these markets."

Desch continued, "But, our long-term growth prospects are excellent and Iridium NEXT is now just about 18 months from its first scheduled launch. We're also pleased with the strong progress we've recently made with our global aviation monitoring business, Aireon. NAV CANADA, our joint venture partner, continued to demonstrate its commitment with a second tranche investment of $40 million, while the FAA formalized its collaboration with NAV CANADA on a range of operational and technical issues in support of the development and deployment of space-based global aviation monitoring. Importantly, our current satellite network is robust and continues to perform well, while the Iridium NEXT project remains on budget and on schedule. Finally, we continue to plan for a successful renewal of our services agreement with the Department of Defense by the end of September, and M2M remains the leader in our commercial portfolio with year-over-year subscriber and revenue growth rates of 25% and 21%, respectively, for the second quarter of 2013."        

Iridium Business Highlights

Service — Commercial

Commercial service remained the largest part of Iridium's business, representing 60 percent 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 has a strategic relationship with its U.S. Government customer supported by differentiated and robust product offerings and a dedicated gateway providing secure voice and data communications.              

Equipment

Engineering & Support

Capital expenditures were $132.4 million for the second quarter and primarily related to spending for the Company's next-generation satellite constellation, Iridium NEXT, and upgraded ground network infrastructure at its commercial gateway. The Company ended the second quarter with a cash and marketable securities balance of $275.7 million and gross debt of $853.6 million. Net debt was $510.4 million. 

2013 Outlook

The Company updated its full-year 2013 outlook for total billable subscriber growth, total service revenue growth and OEBITDA. The Company now expects: 

     
 2013 Outlook 2013 Outlook 
 (May 2013)(August 2013) 
Total Billable  15% to 20% 10% to 15%
Subscriber Growth    
Total Service 8% to 10% 6% to 8%
Revenue Growth    
Operational EBITDA $215 million to $225 million Approximately $210 million
(OEBITDA)    
     

Long-Range Outlook

The Company affirmed its long-range outlook for cash taxes and rate of deleveraging and updated its projections for average service revenue growth, OEBITDA margin and net leverage. The Company now expects:

 Prior Long-Range Outlook Revised Long-Range Outlook
 (February 2013)(August 2013)
Average Service Revenue Growth 9% to 11% per year between 2013 and 2015 8% to 10% per year between 2014 and 2015
Operational EBITDA (OEBITDA) Margin Approximately 60% in 2015 Between 55% and 60% in 2015
Cash Taxes Negligible cash taxes from 2013 to approximately 2020 Affirmed
Net Leverage Approximately 5x at year-end 2015 Approximately 6x at year-end 2015
Rate of Deleveraging 0.5 to 1.0 multiple of OEBITDA per year beginning in 2016 Affirmed

Non-GAAP Financial Measures & Definitions

(1)   In addition to disclosing financial results that are determined in accordance with U.S. GAAP, the Company discloses 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), share-based compensation expenses, and the impact of purchase accounting. The Company also presents Operational EBITDA expressed as a percentage of 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), share-based compensation expenses, and the impact of purchase accounting, 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. 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 and 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.

         
Supplemental Reconciliation of GAAP Net Income to Operational EBITDA
   
  Iridium Communications Inc.
  For the Three Months Ended June 30, For the Six Months Ended June 30,
  2013 2012 2013 2012
  (In thousands)
GAAP net income $15,413 $17,663 $30,347 $30,081
Interest expense 174 6 240 91
Interest income (815) (127) (1,518) (280)
Income taxes 11,187 8,119 18,736 7,170
Depreciation and amortization 18,597 18,368 36,828 42,572
Iridium NEXT expenses, net 4,528 6,047 9,590 12,775
Share-based compensation 2,179 1,993 4,083 3,661
Non-cash purchase accounting (176) (54) (370) (190)
Operational EBITDA $51,087 $52,015 $97,936 $95,880
         

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, August 1, 2013. 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 will also be simultaneously webcast on Iridium's Investor Relations webpage at www.iridium.com. A replay of the conference call will be available beginning Thursday, August 1, 2013 through Thursday, August 8, 2013 at Iridium's Investor Relations webpage. Callers can also dial (855) 859-2056 (U.S. only) or (404) 537-3406, Access Code 69682848, for an audio replay of the 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 ever-expanding 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 billable subscriber growth, total service revenue growth and OEBITDA for the full-year 2013; average service revenue growth, OEBITDA margin, cash taxes, net leverage and rate of deleveraging in the longer-term; the development of and timing for launch of Iridium NEXT; anticipated equipment revenue; development of Aireon, and expectations for contract renewal 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 increases in 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 satellite constellation, the development of and transition to Iridium NEXT, including expanded capacity and features, the development of and market for Aireon's global aviation monitoring service, and the renewal of Iridium's service agreement with the U.S. Department of Defense, which expires at the end of September 2013, 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, 2012, filed with the Securities and Exchange Commission ("the SEC") on March 5, 2013, and the Company's Form 10-Q for the quarter ended June 30, 2013, filed with the SEC on August 1, 2013,  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 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)
     
    Non-Cash Purchase Accounting for the
  Three Months Ended June 30, Three Months Ended June 30, (1)
  2013 2012 2013 2012
         
Revenue:        
Service revenue        
Commercial  $ 56,996  $ 52,913  $ (74)  $ (104)
Government  14,405  15,572  --   -- 
Total service revenue  71,401  68,485  (74)  (104)
Subscriber equipment  19,815  23,914  --   
Engineering and support service  3,468  4,922  --   -- 
Total revenue  94,684  97,321  (74)  (104)
         
Operating expenses:        
Cost of services (exclusive of depreciation and amortization)  14,206  15,988  (260)  (260)
Cost of subscriber equipment sales  12,893  13,292  --   -- 
Research and development  1,741  3,429  --   -- 
Selling, general and administrative  18,399  17,970  10  102
Depreciation and amortization  18,597  18,368  12,393  19,615
Total operating expenses  65,836  69,047  12,143  19,457
         
Operating profit (loss)  28,848  28,274  (12,217)  (19,561)
         
Other (expense) income:        
Interest income (expense), net   641  121  --   -- 
Undrawn credit facility fees  (2,020)  (2,582)  --   -- 
Other (expense) income, net  (869)  (31)  --   -- 
Total other (expense) income  (2,248)  (2,492)  --   -- 
         
Earnings (loss) before income taxes  26,600  25,782  (12,217)  (19,561)
Benefit from (provision for) income taxes  (11,187)  (8,119)  4,663  7,034
Net income (loss)  15,413  17,663  (7,554)  (12,527)
Series A Preferred Stock dividends  1,750  --   --   -- 
Net income attributable to common stockholders  $ 13,663  $ 17,663  $ (7,554)  $ (12,527)
         
Operational EBITDA  $ 51,087  $ 52,015    
         
         
(1) The impact of purchase accounting on the carrying value of inventory, favorable lease assets, property and equipment, intangible assets and accruals of Iridium Communications Inc., was an increase of approximately $19.8 million, $0.2 million, $348.2 million, $95.5 million and $29.0 million, respectively, compared to Iridium Holdings LLC's balance sheet as of September 29, 2009. Similarly, Iridium Holdings LLC's deferred revenue decreased by $7.4 million. As a result of the effect of the purchase accounting, the decrease in the carrying value of deferred revenue caused a decrease in revenue, which we expect will continue into future periods. In addition, the increase in accruals had the effect of reducing cost of services (exclusive of depreciation and amortization), which we expect will continue into future periods. The increase in property and equipment and intangible assets had the effect of increasing depreciation and amortization expense, which we expect will continue into future periods. The increase in favorable lease assets and related amortization thereof had the effect of increasing selling, general and administration expense, which we expect will continue into future periods.
         
         
Iridium Communications Inc.
Consolidated Statements of Operations
(In thousands)
     
    Non-Cash Purchase Accounting for the
  Six Months Ended June 30,  Six Months Ended June 30, (1)
  2013 2012 2013 2012
         
Revenue:        
Service revenue        
Commercial  $ 110,696  $ 104,017  $ (130)  $ (227)
Government  29,492  31,316  --   -- 
Total service revenue  140,188  135,333  (130)  (227)
Subscriber equipment  37,146  45,454  --   
Engineering and support service  6,539  10,008  --   -- 
Total revenue  183,873  190,795  (130)  (227)
         
Operating expenses:        
Cost of services (exclusive of depreciation and amortization)  28,682  33,991  (519)  (519)
Cost of subscriber equipment sales  24,013  26,634  --   -- 
Research and development  3,400  9,118  --   -- 
Selling, general and administrative  36,764  36,118  19  102
Depreciation and amortization  36,828  42,572  24,765  39,187
Total operating expenses  129,687  148,433  24,265  38,770
         
Operating profit (loss)  54,186  42,362  (24,395)  (38,997)
         
Other (expense) income:        
Interest income (expense), net   1,278  189  --   -- 
Undrawn credit facility fees  (4,116)  (5,361)  --   -- 
Other (expense) income, net  (2,265)  61  --   -- 
Total other (expense) income  (5,103)  (5,111)  --   -- 
         
Earnings (loss) before income taxes  49,083  37,251  (24,395)  (38,997)
Benefit from (provision for) income taxes  (18,736)  (7,170)  9,312  14,023
Net income (loss)  30,347  30,081  (15,083)  (24,974)
Series A Preferred Stock dividends  3,500  --   --   -- 
Net income attributable to common stockholders  $ 26,847  $ 30,081  $ (15,083)  $ (24,974)
         
Operational EBITDA  $ 97,936   $ 95,880     
         
         
(1) The impact of purchase accounting on the carrying value of inventory, favorable lease assets, property and equipment, intangible assets and accruals of Iridium Communications Inc., was an increase of approximately $19.8 million, $0.2 million, $348.2 million, $95.5 million and $29.0 million, respectively, compared to Iridium Holdings LLC's balance sheet as of September 29, 2009. Similarly, Iridium Holdings LLC's deferred revenue decreased by $7.4 million. As a result of the effect of the purchase accounting, the decrease in the carrying value of deferred revenue caused a decrease in revenue, which we expect will continue into future periods. In addition, the increase in accruals had the effect of reducing cost of services (exclusive of depreciation and amortization), which we expect will continue into future periods. The increase in property and equipment and intangible assets had the effect of increasing depreciation and amortization expense, which we expect will continue into future periods. The increase in favorable lease assets and related amortization thereof had the effect of increasing selling, general and administration expense, which we expect will continue into future periods.
         
Iridium Communications Inc.
Summary Revenue and OEBITDA Highlights
         
  Three Months Ended June 30, % Change Six Months Ended June 30, % Change
  2013 2012   2013 2012  
  (In thousands)   (In thousands)  
Revenue             
Service revenue(1)            
Commercial            
Voice and M2M data service            
Voice and data  $ 44,648  $ 42,743 4%  $ 87,093  $ 84,623 3%
M2M data(2)  12,348  10,170 21%  23,603  19,394 22%
Total commercial voice and M2M data service  56,996  52,913 8%  110,696  104,017 6%
             
Government(3)            
Voice and M2M data service            
Voice and data  13,448  14,855 -9%  27,652  29,971 -8%
M2M data  957  717 33%  1,840  1,345 37%
Total government voice and M2M data service  14,405  15,572 -7%  29,492  31,316 -6%
Total service revenue  71,401  68,485 4%  140,188  135,333 4%
             
Subscriber equipment  19,815  23,914 -17%  37,146  45,454 -18%
             
Engineering and support(4)            
Government   2,767  4,675 -41%  5,357  9,495 -44%
Commercial  701  247 184%  1,182  513 130%
Total engineering and support  3,468  4,922 -30%  6,539  10,008 -35%
             
Total Revenue  $ 94,684  $ 97,321 -3%  $ 183,873  $ 190,795 -4%
             
             
Operational EBITDA            
Operational EBITDA  $ 51,087  $ 52,015 -2%  $ 97,936  $ 95,880 2%
             
Other            
Capital expenditures (5)  $ 132,444  $ 151,913    $ 151,688  $ 186,704  
             
Net debt (6)  $ 510,363  $ 360,662        
             
Cash, cash equivalents, and marketable securities  $ 275,689  $ 166,662        
             
Credit Facility   $ 853,552  $ 567,988        
             
(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.
(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 short term and long term debt less cash and cash equivalents, marketable securities, and the debt service reserve for the credit facility.
             
Iridium Communications Inc.
Subscriber Highlights  
             
           
Billable Subscribers (1) As of June 30, % Change      
  2013 2012        
  (In thousands, except ARPU)        
Commercial            
Voice and M2M data service            
Voice and data  343  326 5%      
M2M data  253  202 25%      
Total commercial voice and M2M data service  596  528 13%      
             
Government            
Voice and M2M data service            
Voice and data  33  36 -8%      
M2M data  18  12 50%      
Total government voice and M2M data service  51  48 6%      
Total billable subscribers  647  576 12%      
             
             
         
  Three Months Ended June 30, % Change Six Months Ended June 30, % Change
  2013 2012   2013 2012  
  (In thousands, except ARPU)   (In thousands, except ARPU)  
Net Subscriber Additions            
Commercial            
Voice and M2M data service            
Voice and data  11  13 -15%  11  19 -42%
M2M data  15  19 -21%  25  34 -26%
Total commercial voice and M2M data service  26  32 -19%  36  53 -32%
             
Government            
Voice and M2M data service            
Voice and data  (1)  --  -100%  (3)  (1) 200%
M2M data  1  --  100%  3  1 200%
Total government voice and M2M data service  --   --  0%  --   --  0%
Total billable subscribers  26  32 -19%  36  53 -32%
             
         
 ARPU(2) Three Months Ended June 30, % Change Six Months Ended June 30, % Change
Commercial 2013 2012   2013 2012  
Voice and data  $ 44  $ 45 -2%  $ 43  $ 45 -4%
M2M data  $ 17  $ 18 -6%  $ 16  $ 17 -6%
Government            
Voice and data  $ 134  $ 138 -3%  $ 135  $ 137 -1%
M2M data  $ 18  $ 19 -5%  $ 18  $ 19 -5%
             
             
(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.
             

TABLE

CONTACT: Investor Contact:

         

         Steve Kunszabo

         Iridium Communications Inc.

         +1 (703) 287-7570

         steve.kunszabo@iridium.com

         

         Press Contact:

         

         Diane Hockenberry

         Iridium Communications Inc.

         +1 (703) 287-7421

         diane.hockenberry@iridium.com