Iridium Communications Inc.
Jul 28, 2016

Iridium Announces Second-Quarter 2016 Results; Reports Record Net Subscriber Additions

MCLEAN, Va., July 28, 2016 (GLOBE NEWSWIRE) -- Iridium Communications Inc. (Nasdaq:IRDM) ("Iridium") today reported financial results for the second quarter of 2016 and affirmed its full-year 2016 outlook.  Net income was $26.9 million, or $0.22 per diluted share, for the second quarter of 2016, as compared to $26.0 million, or $0.21 per diluted share, for the second quarter of 2015.  Operational EBITDA ("OEBITDA")(1) for the second quarter was $62.5 million, as compared to $61.0 million for the prior-year period, representing a year-over-year increase of 3% and an OEBITDA margin(1) of 57%. 

Iridium reported second-quarter total revenue of $109.2 million, which consisted of $83.5 million of service revenue and $25.7 million of revenue related to equipment sales and engineering and support projects.  Both total revenue and service revenue increased 7% versus the comparable period of 2015.  Service revenue, which represents primarily recurring revenue from Iridium's growing subscriber base, was 76% of total revenue for the second quarter of 2016.

The Company ended the quarter with 823,000 total billable subscribers, which compares to 766,000 for the year-ago period and is up from 788,000 for the quarter ended March 31, 2016.  Total billable subscribers grew 7% year-over-year, driven by growth in government customers and machine-to-machine ("M2M").

"We delivered a best ever performance in subscriber growth driven by our M2M and government businesses, which illustrates the unique appeal of our services and positions us well for long-term growth," said Matt Desch, CEO, Iridium.

Commenting on Iridium NEXT, Desch said, "We look forward to commencing the launch campaign for Iridium NEXT.  This major upgrade to our global constellation will build upon our leading position in satellite communications by adding high-speed broadband through Iridium CertusSM as well as important new hosted payload services, and be a platform for continued growth and innovation well into the future."

Desch continued, "Next week we will start shipping the first of our ten Iridium NEXT satellites to Vandenberg Air Force Base for first launch.  We now anticipate a first launch date with SpaceX of September 19th at 9:49pm PDT.  With a second launch planned for December, we expect all seven launches with SpaceX to be completed by the end of 2017.  This is a particularly exciting time for our employees, partners and investors as over seven years of planning and coordination usher in a new era of satellite services for Iridium and its global customers."

Iridium Business Highlights

Service — Commercial

Commercial service remained the largest part of Iridium's business, representing 56% 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 through 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 $81.0 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 $443.1 million and gross debt of $1.7 billion.  Net debt was $1.1 billion, calculated as $1.7 billion of gross debt, less $0.4 billion of cash and marketable securities, as well as $0.1 billion in restricted cash.

2016 Outlook

The Company affirmed its full-year 2016 outlook for total service revenue growth and OEBITDA.  The Company continues to expect:

 2016 Outlook
(April 2016)
2016 Outlook
(July 2016)
Total Service
Revenue Growth
4% to 6%Affirmed
Operational EBITDA
(OEBITDA)
$245 million to $255 millionAffirmed
   

Long-Range Outlook

The Company affirmed its long-range outlook for total service revenue growth, OEBITDA margin, cash taxes and 2018 net leverage and updated its outlook for timing of peak net leverage.  Given the expected 2017 Iridium NEXT launch completion, the Company now expects:

 Long-Range Outlook
(April 2016)
Long-Range Outlook
(July 2016)
Total Service Revenue$420 million to $465 million for
the full-year 2018
Affirmed
Operational EBITDA
(OEBITDA) Margin
Approximately 60% in 2018Affirmed
Cash TaxesNegligible cash taxes from 2016
to approximately 2020
Affirmed
Peak Net Leverage6.0x - 6.5x OEBITDA in 20166.0x - 6.5x OEBITDA in 2017
2018 Net LeverageApproximately 4x OEBITDA in
2018
Affirmed
   

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, and the impact of purchase accounting.  Iridium NEXT revenue and expenses are expected to be excluded from Operational EBITDA through 2016.  In 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 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 in 2017 and later 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, 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 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 March 31, Six Months Ended June 30,   
   2016   2015   2016   2015    
 GAAP net income$26,854  $25,988  $55,374  $47,007    
 Interest expense 294   560   777   904    
 Interest income (1,094)  (1,352)  (2,335)  (2,933)   
 Income taxes 15,640   16,423   30,640   28,983    
 Depreciation and amortization 12,843   12,820   25,779   26,175    
 Iridium NEXT expenses, net 4,320   4,640   7,343   9,222    
 Share-based compensation 3,887   2,105   6,080   4,549    
 Non-cash purchase accounting (198)  (198)  (406)  (448)   
 Operational EBITDA$62,546  $60,986  $123,252  $113,459    
            

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 28, 2016.  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 37233950.  The conference call will also be simultaneously webcast on Iridium's Investor Relations webpage at www.iridium.com.  An archived 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 2016; service revenue, OEBITDA margin, cash taxes and leverage over the longer-term; the development of, timing for launch and completion of, and anticipated benefits 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 development 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, 2015, filed with the Securities and Exchange Commission ("SEC") on February 25, 2016, 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, 
  2016   2015  
Revenue    
Service revenue    
Commercial$61,486  $60,016  
Government 22,000   18,000  
Total service revenue 83,486   78,016  
Subscriber equipment 20,362   18,768  
Engineering and support service 5,347   5,135  
Total revenue 109,195   101,919  
     
Operating expenses    
Cost of services (exclusive of depreciation and amortization) 16,448   14,320  
Cost of subscriber equipment sales 11,859   9,281  
Research and development 4,013   4,422  
Selling, general and administrative 22,303   18,742  
Depreciation and amortization 12,843   12,820  
Total operating expenses 67,466   59,585  
     
Operating income 41,729   42,334  
     
Other income (expense)    
Interest income, net 800   792  
Undrawn credit facility fees (368)  (930) 
Other income, net 333   215  
Total other income 765   77  
     
Income before income taxes 42,494   42,411  
Provision for income taxes (15,640)  (16,423) 
Net income 26,854   25,988  
Series A Preferred Stock dividends 1,750   1,750  
Series B Preferred Stock dividends 2,109   2,109  
Net income attributable to common stockholders$22,995  $22,129  
     
Operational EBITDA$62,546  $60,986  
     

 

     
Iridium Communications Inc.    
Consolidated Statements of Operations    
(In thousands)    
   
 Six Months Ended June 30, 
  2016   2015  
     
Revenue:    
Service revenue    
Commercial$119,309  $117,440  
Government 44,000   36,000  
Total service revenue 163,309   153,440  
Subscriber equipment 37,922   35,308  
Engineering and support service 12,166   10,178  
Total revenue 213,397   198,926  
     
Operating expenses:    
Cost of services (exclusive of depreciation and amortization) 32,351   29,202  
Cost of subscriber equipment sales 22,322   19,928  
Research and development 6,572   8,548  
Selling, general and administrative 41,366   39,266  
Depreciation and amortization 25,779   26,175  
Total operating expenses 128,390   123,119  
     
Operating income 85,007   75,807  
     
Other income (expense):    
Interest income, net 1,558   2,029  
Undrawn credit facility fees (871)  (1,847) 
Other income, net 320   1  
Total other income 1,007   183  
     
Income before income taxes 86,014   75,990  
Provision for income taxes (30,640)  (28,983) 
Net income 55,374   47,007  
Series A Preferred Stock dividends 3,500   3,500  
Series B Preferred Stock dividends 4,218   4,218  
Net income (loss) attributable to common stockholders$47,656  $39,289  
     
Operational EBITDA$123,252  $113,459  
     

 

Iridium Communications Inc.            
Summary Revenue and OEBITDA Highlights            
(In thousands)            
             
 Three Months Ended June 30, % Change Six Months Ended June 30, % Change 
  2016   2015     2016   2015    
Revenue            
Service revenue(1)            
Commercial            
Voice and M2M data service            
Voice and data$45,000  $44,642   1% $87,747  $87,401   0% 
M2M data(2) 16,486   15,374   7%  31,562   30,039   5% 
Total commercial voice and M2M data service 61,486   60,016   2%  119,309   117,440   2% 
             
Government service revenue(3) 22,000   18,000   22%  44,000   36,000   22% 
             
Total service revenue 83,486   78,016   7%  163,309   153,440   6% 
             
Subscriber equipment 20,362   18,768   8%  37,922   35,308   7% 
             
Engineering and support(4)            
Government 4,857   5,040   -4%  10,971   9,549   15% 
Commercial 490   95   416%  1,195   629   90% 
Total engineering and support 5,347   5,135   4%  12,166   10,178   20% 
             
Total Revenue$109,195  $101,919   7% $213,397  $198,926   7% 
             
             
Operational EBITDA            
Operational EBITDA$62,546  $60,986   3% $123,252  $113,459   9% 
             
Other            
Capital expenditures (5)$80,980  $124,153    $156,802  $174,206    
             
Net debt (6)$1,105,959  $827,801          
            
Cash, cash equivalents, and marketable securities$443,088  $476,848         
            
Credit facility$1,651,253  $1,393,149         
Deferred financing costs (132,058)  (132,505)        
Credit facility, net$1,519,195  $1,260,644         
             
(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      
  2016   2015         
Billable Subscribers (1)           
Commercial           
Voice and M2M data service           
Voice and data 359   359   0%      
M2M data 384   342   12%      
Total commercial voice and M2M data service 743   701   6%      
            
Government           
Voice and M2M data service           
Voice and data 43   37   16%      
M2M data 37   28   32%      
Total government voice and M2M data service 80   65   23%      
Total billable subscribers 823   766   7%      
            
            
            
 Three Months Ended June 30, % Change Six Months Ended June 30, % Change
  2016   2015     2016   2015   
Net Subscriber Additions           
Commercial           
Voice and M2M data service           
Voice and data 11   8   38%  8   5   60%
M2M data 19   8   138%  25   17   47%
Total commercial voice and M2M data service 30   16   88%  33   22   50%
            
Government           
Voice and M2M data service           
Voice and data 2   1   100%  3   2   50%
M2M data 3   1   200%  5   3   67%
Total government voice and M2M data service 5   2   150%  8   5   60%
Total billable subscribers 35   18   94%  41   27   52%
            
            
 Three Months Ended June 30, % Change Six Months Ended June 30, % Change
  2016   2015     2016   2015   
 ARPU(2)           
Commercial           
Voice and data$41  $41   0% $40  $41   -2%
M2M data$15  $15   0% $14  $15   -7%
            
            
(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:

Diane Hockenberry
Iridium Communications Inc.
+1 (703) 287-7421
diane.hockenberry@iridium.com