Iridium Communications Inc.
Apr 27, 2017

Iridium Announces First-Quarter 2017 Results; Company Affirms 2017 and Long-Range Outlook

MCLEAN, Va., April 27, 2017 (GLOBE NEWSWIRE) -- Iridium Communications Inc. (Nasdaq:IRDM) ("Iridium") today reported financial results for the first quarter of 2017 and affirmed its full-year 2017 and long-range outlook.  Net income was $37.9 million, or $0.30 per diluted share, for the first quarter of 2017, as compared to $28.5 million, or $0.23 per diluted share, for the first quarter of 2016.  Operational EBITDA ("OEBITDA")(1) for the first quarter was $64.3 million, as compared to $60.7 million for the prior-year period, representing a year-over-year increase of 6% and an OEBITDA margin(1) of 62%.  OEBITDA grew primarily due to the recognition of a $3.2 million cash credit triggered by the Company's insourcing transaction with Boeing, which took effect in January 2017, as well as higher commercial service revenue from the Company's machine-to-machine ("M2M") business.

Iridium reported first-quarter total revenue of $104.4 million, which consisted of $81.8 million of service revenue and $22.7 million of revenue related to equipment sales and engineering and support projects.  Though total revenue was essentially flat versus the comparable period of 2016, 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 first quarter of 2017.

The Company ended the quarter with 869,000 total billable subscribers, which compares to 788,000 for the year-ago period and is up from 850,000 for the quarter ended December 31, 2016.  Total billable subscribers grew 10% year-over-year, driven by growth in M2M and government customers.

"Strong subscriber additions in commercial M2M helped to fuel Iridium's service revenue growth during the first quarter. We expect this strength to continue in 2017 and remain comfortable with our full-year guidance, which we affirmed this morning," said Matt Desch, CEO, Iridium.

Commenting on Iridium® NEXT, Desch said, "Our first batch of Iridium NEXT satellites is now operational and working well for Iridium's global base of subscribers.  We remain on track for our second launch with SpaceX and have been confirmed for a launch on June 29th at 1:02pm PDT from Vandenberg Air Force Base."

Iridium Business Highlights

Service — Commercial

Commercial service remained the largest part of Iridium's business, representing 57% of the Company's total revenue during the first quarter.  The Company's commercial customer base is diverse and includes markets such as maritime, aviation, oil and gas, mining, recreation, forestry, construction, transportation and emergency services.  These customers rely on Iridium's products and services as critical to their daily operations and integral to their communications and business infrastructure. 

Service — Government

Iridium's voice and data solutions improve situational awareness for military personnel and track critical assets in tough environments around the globe, providing a unique value proposition that is not easily duplicated.  The Company operates under two Defense Information Systems Agency ("DISA") contracts, which include a $400 million, five-year, fixed-price agreement for satellite communications services and a $38 million multi-year contract to support and maintain the Department of Defense's ("DoD") dedicated gateway.

Equipment

Engineering & Support

Capital expenditures were $48.9 million for the first quarter and primarily related to spending for the Company's next-generation satellite constellation, Iridium NEXT.  The Company ended the first quarter with a cash and marketable securities balance of $419.1 million and gross debt of $1.80 billion.  Net debt was $1.25 billion, calculated as $1.80 billion of gross debt, less $0.42 billion of cash and marketable securities, as well as $0.14 billion in restricted cash.

2017 Outlook

The Company affirmed its full-year 2017 outlook for total service revenue growth and OEBITDA.  The Company continues to expect:

   
 2017 Outlook
(February 2017)
2017 Outlook
(April 2017)
Total Service
Revenue Growth
3% to 5%

Affirmed

Operational EBITDA
(OEBITDA)
$255 million to $265 million

Affirmed

   

Long-Range Outlook

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

 
 Long-Range Outlook
(February 2017)
Long-Range Outlook
(April 2017)
Total Service Revenue

$440 million to $465 million for
the full-year 2019
 Affirmed

Operational EBITDA
(OEBITDA) Margin
Approximately 60% in 2019

Affirmed

Cash Taxes

Negligible cash taxes from 2017
to approximately 2020
Affirmed

Peak Net Leverage

6.0x - 6.5x OEBITDA in 2017

Affirmed

Net Leverage

Below 4x OEBITDA in 2019

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, the impact of purchase accounting, and non-cash gain from the Boeing transaction.  Iridium NEXT revenue and expenses are expected to be excluded from Operational EBITDA through late 2017.  In late 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 late 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 beginning in late 2017 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, the impact of purchase accounting, and non-cash gain from the Boeing transaction, the Company believes the result is a useful measure across time in evaluating its fundamental core operating performance.  Management also uses Operational EBITDA to manage the business, including in preparing its annual operating budget, debt covenant compliance, financial projections and compensation plans.  The Company believes that Operational EBITDA is also useful to investors because similar measures are frequently used by securities analysts, investors and other interested parties in their evaluation of companies in similar industries.  However, there is no standardized measurement of Operational EBITDA, and Operational EBITDA as the Company presents it may not be comparable with similarly titled non-GAAP financial measures used by other companies.  As indicated, Operational EBITDA does not include interest expense on borrowed money, the payment of income taxes, amortization of the Company's definite-lived intangible assets, or depreciation expense on the Company's capital assets, which are necessary elements of the Company's operations.  It also excludes expenses in connection with the development, deployment and financing of Iridium NEXT and the loss from investment in Aireon.  Since Operational EBITDA does not account for these and other expenses, its utility as a measure of the Company's operating performance has material limitations.  Due to these limitations, the Company's management does not view Operational EBITDA in isolation, but also uses other measurements, such as net income, revenues and operating profit, to measure operating performance.  Please refer to the schedule below for a reconciliation of consolidated GAAP net income to Operational EBITDA and Iridium's Investor Relations webpage at www.iridium.com for a discussion and reconciliation of this and other non-GAAP financial measures.

     
         
   Iridium Communications Inc.   
   Supplemental Reconciliation of GAAP Net Income to Operational EBITDA   
   (In thousands)   
         
   Three Months Ended March 31,   
    2017   2016    
 GAAP net income $  37,948  $  28,520    
 Interest expense    96     483    
 Interest income    (929)    (1,241)   
 Income taxes    18,400     15,000    
 Depreciation and amortization    13,507     12,936    
 Iridium NEXT expenses, net    2,840     3,023    
 Share-based compensation    3,481     2,193    
 Non-cash purchase accounting  -     (208)   
 Non-cash gain on Boeing transaction    (11,003)  -    
 Operational EBITDA $  64,340  $  60,706    
         

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, April 27, 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 92473444.  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 development of and timing for launch and completion 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 manufacture and launch of and transition to Iridium NEXT, and the development of and market for Iridium's products and services, as well as general industry and economic conditions, and competitive, legal, governmental and technological factors. Other factors that could cause actual results to differ materially from those indicated by the forward-looking statements include those factors listed under the caption "Risk Factors" in the Company's Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission ("SEC") on February 23, 2017, as well as other filings Iridium makes with the SEC from time to time.  There is no assurance that Iridium's expectations will be realized. If one or more of these risks or uncertainties materialize, or if Iridium's underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. Iridium's forward-looking statements are based on information available to it as of the date of this press release and speak only as of the date of this press release, and Iridium undertakes no obligation to update forward-looking statements.

     
Iridium Communications Inc.    
Consolidated Statements of Operations    
(In thousands)    
   
 Three Months Ended March 31, 
  2017   2016  
Revenue    
Service revenue    
Commercial$  59,773  $  57,823  
Government   22,000     22,000  
Total service revenue   81,773     79,823  
Subscriber equipment   17,114     17,560  
Engineering and support service   5,539     6,819  
Total revenue   104,426     104,202  
     
Operating expenses    
Cost of services (exclusive of depreciation and amortization)   16,958     15,903  
Cost of subscriber equipment sales   10,104     10,463  
Research and development   3,227     2,559  
Selling, general and administrative   19,217     19,063  
Depreciation and amortization   13,507     12,936  
Total operating expenses   63,013     60,924  
     
Gain on Boeing transaction    14,189   -  
     
Operating income (expense)   55,602     43,278  
     
Other income (expense)    
Interest income, net    833     758  
Undrawn credit facility fees   (25)    (503) 
Other expense, net   (62)    (13) 
Total other income (expense)   746     242  
     
Income (loss) before income taxes   56,348     43,520  
Provision for income taxes   (18,400)    (15,000) 
Net income (loss)   37,948     28,520  
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$  34,089  $  24,661  
     
Operational EBITDA$  64,340  $  60,706  
     

 

Iridium Communications Inc.       
Summary Revenue and OEBITDA Highlights       
(In thousands)       
        
 Three Months Ended March 31, % Change  
  2017   2016     
Revenue       
Service revenue(1)       
Commercial       
Voice and M2M data service       
Voice and data$  42,544  $  42,723  0%  
M2M data(2)   17,229     15,100  14%  
Total commercial voice and M2M data service   59,773     57,823  3%  
        
Government service revenue(3)   22,000     22,000  0%  
        
Total service revenue   81,773     79,823  2%  
        
Subscriber equipment   17,114     17,560  -3%  
        
Engineering and support(4)       
Government    5,068     6,114  -17%  
Commercial   471     705  -33%  
Total engineering and support   5,539     6,819  -19%  
        
Total Revenue$  104,426  $  104,202  0%  
        
        
Operational EBITDA       
Operational EBITDA$  64,340  $  60,706  6%  
        
Other       
Capital expenditures (5)$  48,944  $  75,822     
        
Net debt (6)$  1,245,865  $  1,079,521     
        
Cash, cash equivalents, and marketable securities$  419,135  $  412,137     
        
Credit facility$  1,800,000  $  1,593,761     
Deferred financing costs   (115,621)    (133,314)    
Credit facility, net$  1,684,379  $  1,460,447     
        
(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 March 31, % Change 
  2017   2016    
Billable Subscribers (1)      
Commercial      
Voice and M2M data service      
Voice and data   351     348  1% 
M2M data   432     365  18% 
  Total commercial voice and M2M data service   783     713  10% 
       
Government      
Voice and M2M data service      
Voice and data   45     41  10% 
M2M data   41     34  21% 
  Total government voice and M2M data service   86     75  15% 
Total billable subscribers   869     788  10% 
       
       
       
 Three Months Ended March 31, % Change 
  2017   2016    
Net Subscriber Additions      
Commercial      
Voice and M2M data service      
Voice and data   (2)    (3) 33% 
M2M data   19     6  217% 
  Total commercial voice and M2M data service   17     3  467% 
       
Government      
Voice and M2M data service      
Voice and data   1     1  0% 
M2M data   1     2  -50% 
  Total government voice and M2M data service   2     3  -33% 
Total billable subscribers   19     6  217% 
       
       
 Three Months Ended March 31, % Change 
  2017   2016    
 ARPU(2)      
Commercial      
Voice and data$  39  $  40  -3% 
M2M data$  13  $  14  -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:

Jordan Hassin
Iridium Communications Inc.
+1 (703) 287-7421
jordan.hassin@iridium.com