Iridium Communications Inc.
Feb 27, 2014

Iridium Announces Fourth-Quarter and Full-Year 2013 Results; Company Issues 2014 and Long-Range Outlook

MCLEAN, Va., Feb. 27, 2014 (GLOBE NEWSWIRE) -- Iridium Communications Inc. (Nasdaq:IRDM) ("Iridium") today reported financial results for the fourth quarter of 2013 and issued its full-year 2014 and long-range outlook. Net income was $15.6 million, or $0.18 per diluted share, for the fourth quarter of 2013, as compared to $16.7 million, or $0.19 per diluted share, for the fourth quarter of 2012. Operational EBITDA ("OEBITDA")(1) for the fourth quarter was $49.8 million, as compared to $52.3 million for the prior-year period, representing a year-over-year decline of 5 percent and an OEBITDA margin(1) of 51 percent. OEBITDA fell largely due to lower equipment revenue.

Iridium reported fourth-quarter total revenue of $98.2 million, which consisted of $76.5 million of service revenue and $21.7 million of equipment, engineering and support revenue. Total revenue increased 6 percent versus the comparable period of 2012, while service revenue grew 15 percent from the year-ago period. Service revenue, which represents primarily recurring revenue from Iridium's growing subscriber base, was 78 percent of total revenue for the fourth quarter of 2013 as compared to 72 percent in the year-ago period.

The Company ended the quarter with 664,000 total billable subscribers, which compares to 611,000 for the year-ago period and is up from 655,000 for the quarter ended September 30, 2013. Total billable subscribers grew 9 percent year-over-year, driven by strength in machine-to-machine ("M2M") and commercial voice customers.

"We achieved our most important strategic objectives in 2013 including the favorable renewal of services and support contracts with the U.S. Department of Defense ("DoD") and securing a $120 million investment commitment from three European Air Navigation Service Providers ("ANSPs") for our AireonSM global aviation monitoring business," said Matt Desch, CEO, Iridium. "The agreements with the DoD, worth $438 million over five years, deliver growing and predictable cash flow during the Iridium NEXT launch and construction period, while the investment commitments for our Aireon joint venture provide access to the needed funding to develop an operational Aireon system in 2017. And, while 2013 saw us navigate through challenges in our commercial handset and maritime businesses, we're poised for better performance as we consider our prospects this year. The handset market is growing more slowly than we've seen in past years, but we have a defensible leadership position and continue to expand our product portfolio with new offerings including the recently announced Iridium GO!™ satellite Wi-Fi hotspot. We've also improved our maritime broadband platform, which should lead to a nice rebound in 2014 as industry dynamics are strong. The M2M market remained a bright spot in our portfolio, growing both subscribers and revenue 20% last year. We expect continued robust gains in this sector, and are just beginning to penetrate the lucrative OEM segment."           

Desch continued, "Our network is the best in the industry today with true global coverage, very high availability and robust service quality for our customers. Our Iridium NEXT build remains on budget, and the new constellation is still on track to be fully deployed in 2017. While the first launch date hasn't officially changed yet, we expect that extensive payload and software testing schedules will push out our first launch a few months to the second quarter of 2015.   All in all, with Iridium NEXT fast approaching, we have excellent long-term growth prospects and will continue to execute against the key targets that ensure our success."        

Full-Year 2013 Iridium Business Highlights

For the full year, Iridium reported net income of $62.5 million, or $0.71 per diluted share, as compared to net income of $64.6 million, or $0.83 per diluted share, for 2012. The Company reported 2013 total revenue of $382.6 million, which was relatively unchanged from the year-ago period. Total revenue included $292.1 million of service revenue and $90.6 million of equipment, engineering and support revenue. OEBITDA for 2013 was $201.1 million, down 2 percent from $205.8 million in the prior-year, representing an OEBITDA margin of 53 percent. Capital expenditures were $403.5 million for the full-year 2013.

Fourth-Quarter Iridium Business Highlights

Service - Commercial

Commercial service remained the largest part of Iridium's business, representing 62 percent of the Company's total revenue during the fourth 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 was recently awarded two Defense Information Systems Agency contracts, which include a $400 million, five-year, fixed-price agreement renewing its satellite communications services relationship and a $38 million deal to support and maintain the DoD's dedicated gateway.  

Equipment

Engineering & Support

Capital expenditures were $140.1 million for the fourth 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 fourth quarter with a cash and marketable securities balance of $263.0 million and gross debt of $1.0 billion. Net debt was $695.2 million. 

2014 Outlook

The Company issued its full-year 2014 outlook for total service revenue growth and OEBITDA. The Company expects: 

   
 2014 Outlook 
 (February 2014)
Total Service Revenue
Growth
2% to 4%
2014 Operational
EBITDA (OEBITDA)
$205 million to $215 million

Long-Range Outlook

The Company issued its projections for compound annual service revenue growth, OEBITDA margin and cash taxes. The Company expects:

   
 Long-Range Outlook
 (February 2014)
Compound Annual
Service Revenue Growth Growth
8% to 12% between 2014 and
2018
Operational EBITDA
(OEBITDA) Margin
Approximately 60% in 2018
Cash Taxes Negligible cash taxes from
2014 to approximately 2020

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 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), 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 December 31, For the Year Ended December 31,
  2013 2012 2013 2012
  (In thousands)
GAAP net income $15,585 $16,711 $62,517 $64,631
Interest expense 202 23 583 114
Interest income (643) (507) (2,859) (1,186)
Income taxes 18,776 11,524 47,948 30,387
Depreciation and amortization 18,775 18,054 74,980 81,110
Iridium NEXT expenses, net (3,563) 4,930 11,396 23,868
Share-based compensation 358 1,712 6,715 7,332
Non-cash purchase accounting 334 (189) (194) (502)
Operational EBITDA $49,824 $52,258 $201,086 $205,754

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, February 27, 2014. 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, February 27, 2014 through Thursday, March 6, 2014 at Iridium's Investor Relations webpage. Callers can also dial (855) 859-2056 (U.S. only) or (404) 537-3406, Access Code 10601409, 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 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 the full-year 2014; compound annual service revenue growth, OEBITDA margin and cash taxes in the longer-term; the development of and timing for launch of Iridium NEXT; anticipated equipment revenue; expected revenue from Iridium's new contracts with the U.S. Department of Defense; prospects for our handset, maritime and M2M product offerings and the funding, development and launch of the Aireon system. 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 current satellite constellation; the development of and transition to Iridium NEXT, including expanded capacity and features; the completion of funding milestones for, and the development and deployment of, the Aireon system, 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, 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 September 30, 2013, filed with the SEC on October 31, 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)
         
  Three Months Ended December 31, Non-Cash Purchase Accounting for the
Three Months Ended December 31, (1)
  2013 2012 2013 2012
         
Revenue:        
Service revenue        
Commercial  $ 60,893  $ 51,553  $ (583)  $ (61)
Government  15,630  15,202  --   -- 
Total service revenue  76,523  66,755  (583)  (61)
Subscriber equipment  15,904  22,041  --   
Engineering and support service  5,780  3,488  --   -- 
Total revenue  98,207  92,284  (583)  (61)
         
Operating expenses:        
Cost of services (exclusive of depreciation and amortization)  15,888  12,946  (259)  (259)
Cost of subscriber equipment sales  12,499  12,457  --   -- 
Research and development  4,624  2,784  --   -- 
Selling, general and administrative  20,164  15,019  9  9
Depreciation and amortization  18,775  18,054  12,196  12,375
Total operating expenses  71,950  61,260  11,946  12,125
         
Operating profit (loss)  26,257  31,024  (12,529)  (12,186)
         
Other (expense) income:        
Interest income (expense), net   441  484  --   -- 
Undrawn credit facility fees  (1,706)  (2,383)  --   -- 
Other (expense) income, net  9,369  (890)  --   -- 
Total other (expense) income  8,104  (2,789)  --   -- 
         
Earnings (loss) before income taxes  34,361  28,235  (12,529)  (12,186)
Benefit from (provision for) income taxes  (18,776)  (11,524)  5,438  3,897
Net income (loss)  15,585  16,711  (7,091)  (8,289)
Series A Preferred Stock dividends  1,750  --   --   -- 
Net income attributable to common stockholders  $ 13,835  $ 16,711  $ (7,091)  $ (8,289)
         
Operational EBITDA  $ 49,824  $ 52,258    
         
         
(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 administrative expense, which we expect will continue into future periods.
 
Iridium Communications Inc.
Consolidated Statements of Operations
(In thousands)
         
  Year Ended December 31, Non-Cash Purchase Accounting for the
Year Ended December 31, (1)
  2013 2012 2013 2012
         
Revenue:        
Service revenue        
Commercial  $ 232,928  $ 211,741  $ (806)  $ (415)
Government  59,164  61,750  --   -- 
Total service revenue  292,092  273,491  (806)  (415)
Subscriber equipment  73,303  93,866  --   
Engineering and support service  17,254  16,163  --   -- 
Total revenue  382,649  383,520  (806)  (415)
         
Operating expenses:        
Cost of services (exclusive of depreciation and amortization)  59,346  60,937  (1,037)  (1,037)
Cost of subscriber equipment sales  52,062  53,285  --   -- 
Research and development  11,149  15,525  --   -- 
Selling, general and administrative  75,218  67,589  37  120
Depreciation and amortization  74,980  81,110  49,814  66,566
Total operating expenses  272,755  278,446  48,814  65,649
         
Operating profit (loss)  109,894  105,074  (49,620)  (66,064)
         
Other (expense) income:        
Interest income (expense), net   2,276  1,072  --   -- 
Undrawn credit facility fees  (7,708)  (10,232)  --   -- 
Other (expense) income, net  6,003  (896)  --   -- 
Total other (expense) income  571  (10,056)  --   -- 
         
Earnings (loss) before income taxes  110,465  95,018  (49,620)  (66,064)
Benefit from (provision for) income taxes  (47,948)  (30,387)  21,535  21,127
Net income (loss)  62,517  64,631  (28,085)  (44,937)
Series A Preferred Stock dividends  7,000  --   --   -- 
Net income attributable to common stockholders  $ 55,517  $ 64,631  $ (28,085)  $ (44,937)
         
Operational EBITDA  $ 201,086  $ 205,754    
         
         
(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 administrative expense, which we expect will continue into future periods.
 
 
Iridium Communications Inc.
Summary Revenue and OEBITDA Highlights
             
         
  Three Months Ended December 31, % Change Year Ended December 31, % Change
  2013 2012   2013 2012  
  (In thousands)   (In thousands)  
Revenue             
Service revenue(1)            
Commercial            
Voice and M2M data service            
Voice and data  $ 48,378  $ 41,124 18%  $ 184,003  $ 170,983 8%
M2M data(2)  12,515  10,429 20%  48,925  40,758 20%
Total commercial voice and M2M data service  60,893  51,553 18%  232,928  211,741 10%
             
Government service revenue(3)  15,630  15,202 3%  59,164  61,750 -4%
             
Total service revenue  76,523  66,755 15%  292,092  273,491 7%
             
Subscriber equipment  15,904  22,041 -28%  73,303  93,866 -22%
             
Engineering and support(4)            
Government   5,436  3,058 78%  15,420  14,963 3%
Commercial  344  430 -20%  1,834  1,200 53%
Total engineering and support  5,780  3,488 66%  17,254  16,163 7%
             
Total Revenue  $ 98,207  $ 92,284 6%  $ 382,649  $ 383,520 0%
             
             
Operational EBITDA            
Operational EBITDA  $ 49,824  $ 52,258 -5%  $ 201,086  $ 205,754 -2%
             
Other            
Capital expenditures (5)  $ 140,102  $ 220,311    $ 403,547  $ 441,654  
             
Net debt (6)  $ 695,214  $ 443,136        
             
Cash, cash equivalents, and marketable securities  $ 262,989  $ 254,418        
             
Credit Facility   $ 1,039,203  $ 751,787        
             
(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 December 31, % Change      
  2013 2012        
  (In thousands, except ARPU)        
Commercial            
Voice and M2M data service            
Voice and data  340  332 2%      
M2M data  273  228 20%      
Total commercial voice and M2M data service  613  560 9%      
             
Government            
Voice and M2M data service            
Voice and data  31  36 -14%      
M2M data  20  15 33%      
Total government voice and M2M data service  51  51 0%      
Total billable subscribers  664  611 9%      
             
             
             
         
  Three Months Ended December 31, % Change Year Ended December 31, % 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  (5)  (1) 400%  8  25 -68%
M2M data  14  15 -7%  45  60 -25%
Total commercial voice and M2M data service  9  14 -36%  53  85 -38%
             
Government            
Voice and M2M data service            
Voice and data  (1)  1 -200%  (5)  (1) 400%
M2M data  1  1 0%  5  4 25%
Total government voice and M2M data service  --   2 -100%  --   3 -100%
Total billable subscribers  9  16 -44%  53  88 -40%
             
             
         
 ARPU(2) Three Months Ended December 31, % Change Year Ended December 31, % Change
Commercial 2013 2012   2013 2012  
Voice and data  $ 47  $ 41 15%  $ 46  $ 45 2%
M2M data  $ 16  $ 16 0%  $ 16  $ 17 -6%
             
             
(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. Historically, government service revenue was driven by changes in subscriber count or ARPU, however under the terms of the new 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. 
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