Iridium Announces First-Quarter 2018 Results; Affirms 2018 and Long-Range Outlook

McLean, Va., May 1, 2018--Iridium Communications Inc. (Nasdaq:IRDM) (“Iridium”)  reported financial results for the first quarter of 2018 and affirmed its full-year 2018 and long-range outlook.  Net income was US$ 11.5 million, or $0.07 per diluted share, for the first quarter of 2018, as compared to US$ 37.9 million, or $0.30 per diluted share, for the first quarter of 2017. 

This decrease in net income was primarily the result of a $25.0 million increase in depreciation and amortization expense compared to the year-ago period and the recognition of a $14.2 million gain in the prior year period triggered by the Company’s insourcing transaction with Boeing.  Operational EBITDA (“OEBITDA”)(1) for the first quarter was $68.5 million, as compared to $64.3 million for the prior-year period, representing a year-over-year increase of 6% and an OEBITDA margin(1) of 57%.  OEBITDA benefitted from higher equipment sales and continued growth in the Company’s Internet of Things (“IoT”) data business.

Iridium reported first-quarter total revenue of $119.1 million, which consisted of $89.7 million of service revenue and $29.4 million of revenue related to equipment sales and engineering and support projects.  Total revenue increased 14% from the comparable period of 2017, while service revenue grew 10% from the year-ago period.  Service revenue, which represents primarily recurring revenue from Iridium’s growing subscriber base, was 75% of total revenue for the first quarter of 2018.

The Company ended the quarter with 996,000 total billable subscribers, which compares to 869,000 for the year-ago period and is up from 969,000 for the quarter ended December 31, 2017.  Total billable subscribers grew 15% year-over-year, driven by growth in commercial IoT and government customers.  The Company currently has over one million subscribers.

“2018 started on a strong note with continued subscriber additions in commercial IoT and better than expected equipment sales.  These drivers led to a 14% increase in total sales for the quarter in what is normally a seasonally slow period.  We feel very good about our momentum, especially with the upcoming launch of Iridium CertusSM, and remain confident in the full-year guidance we affirmed this morning,” said Matt Desch, CEO, Iridium.

Commenting on Iridium® NEXT, Desch said, “With another successful launch in March, we now have three-quarters of the operational Iridium NEXT constellation in orbit.  We are scheduled to complete the launch phase of this mission later this year and eagerly await our next launch – a rideshare with the GRACE-FO spacecraft – scheduled for May 19 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. 

  • Commercial service revenue was $67.7 million, up 13% from last year’s comparable period. 
  • Commercial voice and data subscribers increased 1% from the year-ago period to 354,000 customers.  Commercial voice and data average revenue per user (“ARPU”) increased during the first quarter to $41.  Commercial IoT data subscribers grew 25% from the year-ago period to 538,000 customers.  Commercial IoT data ARPU was steady during the first quarter at $13.
  • Iridium’s commercial business ended the quarter with 892,000 billable subscribers, which compares to 783,000 for the year-ago period and is up from 869,000 for the quarter ended December 31, 2017.  IoT data subscribers represented 60% of billable commercial subscribers at the end of the quarter, an increase from 55% at the end of the prior-year period.
  • Hosted payload and other data service revenue increased $3.0 million, or 253%, from the prior year primarily due to increased hosting and data services and increased satellite timing and locations services.  We anticipate revenue from our hosting and data services to continue to increase as more Iridium NEXT satellites are placed into service over the launch campaign, which we expect to complete in 2018.

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.   

  • Government service revenue was $22 million, consistent with the prior-year period, as the final step up in the fixed fee under the Company’s airtime services contract with DISA occurred in 2015.
  • Iridium’s government business ended the quarter with 104,000 subscribers, which compares to 86,000 for the year-ago period and is up from 100,000 for the quarter ended December 31, 2017.  Government voice and data subscribers increased 18% from the year-ago period to 53,000 as of March 31, 2018.  IoT data subscribers increased 24% year-over-year and represented 49% of government subscribers, an increase from 48% at the end of the prior-year period.

Equipment

  • Equipment revenue was $25.8 million during the first quarter, up 51% from the prior-year period.
  • The Company now forecasts equipment sales in 2018 to be in line with 2017.

Engineering & Support

  • Engineering and support revenue was $3.6 million during the first quarter, compared to $5.5 million in the prior year’s quarter, primarily due to the episodic nature of government-sponsored projects.

Capital expenditures were $83.0 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 credit facility gross debt of $1.8 billion and a cash and marketable securities balance of $450.7 million.  Net debt was $1.5 billion, calculated as $1.8 billion of credit facility gross debt and $360.0 million of unsecured notes, less $450.7 million of cash and marketable securities, as well as $189.2 million in restricted cash.

In the first quarter, the Company completed a debt issuance and an amendment to its credit facility to solidify its liquidity position.  The $360 million in senior unsecured notes will bear interest at 10.25% per annum and mature on April 15, 2023.  Among other changes, the credit facility amendment delays a portion of the required principal repayments under that facility for 2018, 2019 and 2020 into 2023 and 2024.  Together, these actions provide the Company with sufficient cash to meet its needs, including principal and interest payments, for the next several years.

2018 Outlook

The Company affirmed its full-year 2018 outlook for total service revenue growth and OEBITDA.  Based on expectations that approximately $14 million in hosting revenues from Aireon will be recognized in 2018, the Company continues to expect:

  • Total service revenue growth between 10% and 12% for the full-year 2018.
  • Full-year 2018 OEBITDA between $280 million and $290 million.  OEBITDA for 2017 was $265.6 million.

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:

  • Total service revenue of approximately $440 million for the full-year 2019.
  • OEBITDA margin of approximately 60% in 2019.
  • Negligible cash taxes through approximately 2020.
  • Peak net leverage of 6.0x to 6.5x OEBITDA in 2018.
  • Net leverage of approximately 4.5x OEBITDA in 2019.