Iridium Communications Inc.
Feb 23, 2017

Iridium Announces Fourth-Quarter and Full-Year 2016 Results; Company Issues 2017 Outlook

MCLEAN, Va., Feb. 23, 2017 (GLOBE NEWSWIRE) -- Iridium Communications Inc. (Nasdaq:IRDM) ("Iridium") today reported financial results for the fourth quarter of 2016 and issued its full-year 2017 and long-range outlook.  Net income was $24.1 million, or $0.19 per diluted share, for the fourth quarter of 2016, as compared to net loss of $69.4 million, or $0.77 per diluted share, for the fourth quarter of 2015.  Net loss for the fourth quarter of 2015 included a non-cash goodwill impairment charge of $87.0 million, or $0.91 per diluted share.  Adjusted to eliminate this non-cash goodwill impairment charge(1), net income would have been $17.6 million, or $0.14 per diluted share, for the fourth quarter of 2015.  Operational EBITDA ("OEBITDA")(1) for the fourth quarter was $61.3 million, as compared to $56.8 million for the prior-year period, representing a year-over-year increase of 8% and an OEBITDA margin(1) of 57%.  OEBITDA grew largely due to higher machine-to-machine ("M2M") and government service revenue and reduced non-income taxes.

Iridium reported fourth-quarter total revenue of $107.4 million, which consisted of $84.2 million of service revenue and $23.2 million of revenue related to equipment sales and engineering and support projects.  Total revenue increased 1% versus the comparable period of 2015, while service revenue grew 2% from the year-ago period.  Service revenue, which represents primarily recurring revenue from Iridium's growing subscriber base, was 78% of total revenue for the fourth quarter of 2016.

The Company ended the quarter with 850,000 total billable subscribers, which compares to 782,000 for the year-ago period and is up from 838,000 for the quarter ended September 30, 2016.  Total billable subscribers grew 9% year-over-year, driven by growth in machine-to-machine and government customers.

Full-Year 2016 Iridium Business Highlights

For the full year, Iridium reported net income of $111.0 million, or $0.89 per diluted share attributable to common stockholders, as compared to a net income of $7.1 million, or a net loss attributable to common stockholders of $0.09 per diluted share, for 2015.  Net income for 2015 included a non-cash goodwill impairment charge of $87.0 million, or $0.86 per diluted share.  Adjusted to eliminate this non-cash goodwill impairment charge, full year 2015 net income would have been $94.2 million, or $0.77 per diluted share.  The Company reported 2016 total revenue of $433.6 million, which was up 5% from the year-ago period.  Total revenue included $334.8 million of service revenue and $98.8 million of revenue related to equipment sales and engineering and support projects.  OEBITDA for 2016 was $254.2 million, a 9% increase from $234.0 million in the prior-year, representing an OEBITDA margin of 59%.  Capital expenditures were $405.7 million for the full-year 2016.

"We successfully launched the first ten Iridium NEXT satellites in January and are pleased to report that our first Iridium NEXT satellite is now active, carrying live communications traffic within our global network.  While validation of these first ten satellites is ongoing to confirm functionality, we anticipate that eight of those initially launched will be put into service by mid-April, while two continue to drift to an adjacent orbital plane for planned deployment and pre-operational testing."

Commenting on full-year financial and business performance, Desch said, "2016 was another strong year for Iridium.  The Company delivered 6% total service revenue growth and 9% growth in Operational EBITDA, driven by an increase in revenue from our Government business and growth in personal tracking, as well as leading heavy-equipment manufacturers.  These expanding relationships underscore Iridium's strong market position in the burgeoning market for real-time Internet of Things (IoT) solutions.  We reached a record 850,000 billable subscribers in 2016, fueled by 15% subscriber growth in commercial M2M data, which accounts for more than half of Iridium's billable commercial subscribers."

Desch concluded, "Today, we affirmed our long-range outlook and issued 2017 full-year guidance.  Increased demand for IoT is driving subscriber growth and should serve as an excellent long-term catalyst for Iridium's satellite services, global partner development and customer base."

Fourth-Quarter 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 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 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 $173.9 million for the fourth quarter and primarily related to spending for the Company's next-generation satellite constellation, Iridium NEXT.  The Company ended the fourth quarter with a cash and marketable securities balance of $410.5 million and gross debt of $1.78 billion.  Net debt was $1.26 billion, calculated as $1.78 billion of gross debt, less $0.41 billion of cash and marketable securities, as well as $0.11 billion in restricted cash.

2017 Outlook

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

 2017 Outlook
(February 2017)
Total Service
Revenue Growth
3% to 5%
Operational EBITDA
(OEBITDA)
$255 million to $265 million


Long-Range Outlook

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

 Long-Range Outlook
(October 2016)
Long-Range Outlook
(February 2017)
Total Service Revenue$440 million to $465 million for the
full-year 2019
 Affirmed
Operational EBITDA
(OEBITDA) Margin
Approximately 60% in 2019Affirmed
Cash TaxesNegligible cash taxes from 2017 to
approximately 2020
Affirmed
Peak Net Leverage6.0x - 6.5x OEBITDA in 2017Affirmed
Net LeverageBelow 4x OEBITDA in 2019Affirmed


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.  In addition, in the fourth quarter of 2015 the Company took a non-cash goodwill impairment charge, which resulted in a net loss for the quarter, and the Company decided to report, as a supplemental measure, net income adjusted to eliminate the goodwill impairment charge.  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 into 2017.  During 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 during 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 December 31, Year Ended December 31,
  2016   2015   2016   2015 
GAAP net income (loss)$  24,103  $  (69,431) $  111,032  $  7,123 
Impairment of goodwill   -      87,039     -      87,039 
Adjusted net income   24,103     17,608     111,032     94,162 
        
Interest expense   129     515     1,159     2,416 
Interest income   (805)    (1,292)    (4,093)    (5,485)
Income taxes   17,846     20,640     67,133     65,992 
Depreciation and amortization   11,806     12,727     49,394     51,834 
Iridium NEXT expenses, net   4,614     4,323     16,732     17,296 
Share-based compensation   3,806     2,387     13,689     8,602 
Non-cash purchase accounting   (204)    (128)    (825)    (775)
Operational EBITDA$  61,295  $  56,780  $  254,221  $  234,042 
        

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 23, 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 48576241.  The conference call will also be simultaneously webcast on Iridium's Investor Relations webpage at www.iridium.com.  An archive of the webcast will be available following the live conference call.

About Iridium Communications Inc.

Iridium® is the only mobile voice and data satellite communications network that spans the entire globe.  Iridium enables connections between people, organizations and assets to and from anywhere, in real time.  Together with its ecosystem of partner companies, Iridium delivers an innovative and rich portfolio of reliable solutions for markets that require truly global communications.  The company has a major development program underway for its next-generation network — Iridium NEXT.  Iridium Communications Inc. is headquartered in McLean, Va., U.S.A., and its common stock trades on the NASDAQ Global Select Market under the ticker symbol IRDM.  For more information about Iridium products, services and partner solutions, visit www.iridium.com.  IRDM-F

Forward-Looking Statements
Statements in this press release that are not purely historical facts may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding Iridium's expectations with respect to total service revenue growth and OEBITDA for 2017; service revenue, OEBITDA margin, cash taxes and leverage over the longer-term; the continued deployment and expected timing for launch and completion of Iridium NEXT; the anticipated market for IoT solutions; 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, 2016, filed with the Securities and Exchange Commission ("SEC") on February 23, 2017, as well as other filings Iridium makes with the SEC from time to time.  There is no assurance that Iridium's expectations will be realized. If one or more of these risks or uncertainties materialize, or if Iridium's underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. Iridium's forward-looking statements are based on information available to it as of the date of this press release and speak only as of the date of this press release, and Iridium undertakes no obligation to update forward-looking statements. 


Iridium Communications Inc.    
Consolidated Statements of Operations    
(in thousands)    
   
 Three Months Ended December 31, 
 2016 2015 
Revenue    
Service revenue    
Commercial$62,197  $61,285  
Government 22,000   21,097  
Total service revenue 84,197   82,382  
Subscriber equipment 16,389   17,127  
Engineering and support service 6,863   6,909  
Total revenue 107,449   106,418  
     
Operating expenses    
Cost of services (exclusive of depreciation and amortization) 16,671   17,114  
Cost of subscriber equipment sales 10,488   9,320  
Research and development 4,469   4,116  
Selling, general and administrative 22,419   24,645  
Depreciation and amortization 11,806   12,727  
Impairment of goodwill -   87,039  
Total operating expenses 65,853   154,961  
     
Operating income (expense) 41,596   (48,543) 
     
Other income (expense)    
Interest income, net 676   777  
Undrawn credit facility fees (170)  (668) 
Other expense, net (153)  (357) 
Total other income (expense) 353   (248) 
     
Income (loss) before income taxes 41,949   (48,791) 
Provision for income taxes (17,846)  (20,640) 
Net income (loss) 24,103   (69,431) 
Series A Preferred Stock dividends 1,750   1,750  
Series B Preferred Stock dividends 2,109   2,109  
Net income (loss) attributable to common stockholders$20,244  $(73,290) 
     
Operational EBITDA$61,295  $56,780  
     

 

Iridium Communications Inc.   
Consolidated Statements of Operations   
(in thousands)   
  
 Year Ended December 31,
 2016 2015
Revenue   
Service revenue   
Commercial$246,822  $241,925 
Government 88,000   75,097 
Total service revenue 334,822   317,022 
Subscriber equipment 74,211   73,615 
Engineering and support service 24,607   20,741 
Total revenue 433,640   411,378 
    
Operating expenses   
Cost of services (exclusive of depreciation and amortization) 64,958   60,306 
Cost of subscriber equipment sales 44,286   40,807 
Research and development 16,079   16,144 
Selling, general and administrative 82,552   81,445 
Depreciation and amortization 49,394   51,834 
Impairment of goodwill -   87,039 
Total operating expenses 257,269   337,575 
    
Operating income 176,371   73,803 
    
Other income (expense)   
Interest income, net 2,934   3,069 
Undrawn credit facility fees (1,346)  (3,289)
Other income (expense), net 206   (468)
Total other income (expense) 1,794   (688)
    
Income before income taxes 178,165   73,115 
Provision for income taxes (67,133)  (65,992)
Net income 111,032   7,123 
Series A Preferred Stock dividends 7,000   7,000 
Series B Preferred Stock dividends 8,436   8,436 
Net income (loss) attributable to common stockholders$95,596  $(8,313)
    
Operational EBITDA$254,221  $234,042 
    

 

Iridium Communications Inc.           
Summary Revenue and OEBITDA Highlights           
(in thousands)           
            
 Three Months Ended December 31, % Change Year Ended December 31, % Change
 2016 2015   2016 2015  
Revenue           
Service revenue(1)           
Commercial           
Voice and M2M data service           
Voice and data$44,862  $46,010  -2% $180,489 $180,657 0%
M2M data(2) 17,335   15,275  13%  66,333  61,268 8%
Total commercial voice and M2M data service 62,197   61,285  1%  246,822  241,925 2%
            
Government service revenue(3) 22,000   21,097  4%  88,000  75,097 17%
            
Total service revenue 84,197   82,382  2%  334,822  317,022 6%
            
Subscriber equipment 16,389   17,127  -4%  74,211  73,615 1%
            
Engineering and support(4)           
Government 6,486   5,678  14%  22,362  18,779 19%
Commercial 377   1,232  -69%  2,245  1,963 14%
Total engineering and support 6,863   6,910  -1%  24,607  20,742 19%
            
Total Revenue$107,449  $106,419  1% $433,640 $411,379 5%
            
            
Operational EBITDA           
Operational EBITDA$61,295  $56,780  8% $254,221 $234,042 9%
            
Other           
Capital expenditures (5)$173,896  $243,013    $405,687 $494,810  
            
Net debt (6)$1,254,294  $1,041,828         
           
Cash, cash equivalents, and marketable securities$410,495  $388,994        
           
Credit facility$1,777,789  $1,521,822        
Deferred financing costs (120,644)  (133,056)       
Credit facility, net$1,657,145  $1,388,766        
            
(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 December 31, % Change      
 2016 2015        
Billable Subscribers (1)           
Commercial           
Voice and M2M data service           
Voice and data 353   351  1%      
M2M data 413   359  15%      
Total commercial voice and M2M data service 766   710  8%      
            
Government           
Voice and M2M data service           
Voice and data 44   40  10%      
M2M data 40   32  25%      
Total government voice and M2M data service 84   72  17%      
Total billable subscribers 850   782  9%      
            
            
            
 Three Months Ended December 31, % Change Year Ended December 31, % Change
 2016 2015   2016 2015  
Net Subscriber Additions           
Commercial           
Voice and M2M data service           
Voice and data (5)  (9) 44%  2  (3) 167%
M2M data 15   7  114%  54  34  59%
Total commercial voice and M2M data service 10   (2) 600%  56  31  81%
            
Government           
Voice and M2M data service           
Voice and data 1   1  0%  4  5  -20%
M2M data 1   2  -50%  8  7  14%
Total government voice and M2M data service 2   3  -33%  12  12  0%
Total billable subscribers 12   1  1100%  68  43  58%
            
            
 Three Months Ended December 31, % Change Year Ended December 31, % Change
 2016 2015   2016 2015  
 ARPU(2)           
Commercial           
Voice and data$41  $42  -2% $42 $42  0%
M2M data$14  $14  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