Iridium Posts $18 Million 1Q 2019 Loss; Company Affirms 2019 Outlook

Mclean, Va., April 29, 2019 — Iridium Communications Inc. (Nasdaq: IRDM) has reported a net loss of US$ 18.0 million, or $0.18 per diluted share, for the first quarter of 2019, as compared to net income of US$ 11.5 million, or $0.07 per diluted share, for the first quarter of 2018.

Despite the loss, Iridium affirmed its full-year 2019 outlook for total service revenue growth, OEBITDA (operational earnings before interest, income taxes, depreciation and amortization), cash taxes, and net leverage. The company said it continues to expect total service revenue of approximatelyUS$ 440 million for the full-year 2019 and OEBITDA of between US$ 325 and US$ 335 million in 2019. OEBITDA for 2018 was US$ 302.0 million.

Following the release of its quarterly results, research firm Quilty Analytics said Iridium’s 1Q19 results delivered healthy revenue/EBITDA upside but few major surprises. 

"The commercial side of the business remains the primary growth driver (up 25% in Q1) but the pending renewal of the company’s DoD contract could provide a near-term upside surprise. Looking further out, we expect 2019 to be an important ‘building’ year for the company, with new services (Certus, Aireon, and PTT), new partners, a revamped balance sheet, and the transition to free cash flow providing incremental excitement for investors," Quilty said.

Among the key takeaways Quilty pointed out are the following:

• Commercial service revenues (ex-hosting fees) up 11.9% y/y.  Fourth consecutive quarter of double-digit growth.
• Iridium added 31,000 net subscribers in the quarter, an improvement from 28,000 in the prior year and 19,000 in 2017
• Commercial IoT subs up 26% and revenues up 14%.  ARPUs down 10% due to large contribution from Garmin (<$5 ARPU).
• Voice & data revenues up 11% (best since 4Q13) aided by price hike in 2Q18.  Voice erosion likely to continue but Certus, GMDSS, and new PTT devices on the horizon.
• Aireon/Certus went live in January.  Both services expected to be material contributors over the long haul.
• The DoD extended Iridium’s EMSS contract to May 21 while negotiating final terms.  Our model currently assumes a 9% revenue CAGR through 2020 though upside possible.
• Iridium will force conversion of its Series B preferred on May 15, resulting in an additional 16.6 mm shares.  The BPIAE facility will also be taken out in 2019 to increase financial flexibility (dividends, buybacks, M&A).
• Our 2019 estimates remain largely unchanged, but we are raising our 2020 revenue/EBITDA estimates by 1% and 2%, respectively (subject to revision based on EMSS terms).  

Quarterly Results

Iridium said the decrease in net income was primarily the result of a $34.5 million increase in depreciation and amortization expense compared to the year-ago period. Operational EBITDA for the first quarter was $78.0 million, as compared to $68.5 million for the prior-year period, representing a year-over-year increase of 14.0% and an OEBITDA of 58%. OEBITDA primarily benefitted from the recognition of revenue from hosted payload and other data services, telephony pricing actions and growth in the Company's IoT data business.

Iridium reported first-quarter total revenue of $133.7 million, which consisted of $107.0 million of service revenue and $26.7 million of revenue related to equipment sales and engineering and support projects. Total revenue increased 12% from the comparable period of 2018, while service revenue grew 19% from the year-ago period.  Service revenue, which represents primarily recurring revenue from Iridium's growing subscriber base, was 80% of total revenue for the first quarter of 2019.

The company ended the quarter with 1,151,000 total billable subscribers, which compares to 996,000 for the year-ago period and is up from 1,121,000 for the quarter ended December 31, 2018.  Total billable subscribers grew 16% year-over-year, driven by growth in commercial and government IoT customers.

"Iridium enjoyed solid revenue and subscriber growth to start 2019, driven predominantly by strength in commercial services. New contributions from hosted payloads and continued momentum in commercial IoT are expected to be a tailwind to our business and support OEBITDA growth for the remainder of the year," said Matt Desch, CEO, Iridium.

Iridum also announced the Company's negotiations continue with the Department of Defense to renew its Enhanced Mobile Satellite Services contract with the U.S. government. On April 19, 2019, the company entered into a short-term contract extension with the DoD to provide additional time to finalize the terms of a new EMSS contract. Under the terms of this extension, the DoD will pay Iridium $8.3 million for a one-month period, during which the Company expects to conclude an agreement.  Iridium continues to expect a five-year contract with annual revenue greater than the final year of the current EMSS contract.

As announced yesterday, Iridium was awarded a $54 million contract for Gateway Maintenance and Support Services by the DoD. The multi-year contract provides ongoing technical and maintenance support for the dedicated U.S. government ground infrastructure that connect to the Iridium network.

Commenting on Iridium Certus and Aireon LLC, Desch said, "Iridium Certus is positioned to be a best-in-class solution for L-band broadband users around the world.  Demand for our new broadband service has continued to ramp since its formal launch in January, and activations are meeting our expectations." 

Desch added, "Our Aireon joint venture also launched its live air traffic surveillance and tracking service earlier this month. For the first time in history, aircraft can be surveilled anywhere on the planet. Aireon's real-time air traffic information will extend the reach of traditional terrestrial-based systems and radically optimize flight safety and efficiency. We are proud of this accomplishment and delighted to maintain a meaningful equity interest in this transformative company."

Iridium Business Highlights

Service – Commercial

Commercial service remained the largest part of Iridium's business, representing 64% 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 $85.0 million, up 25% from last year's comparable period due to revenue from hosted payload and other data services, telephony pricing action and increased IoT revenues.

Commercial voice and data subscribers rose 1% from the year-ago period to 358,000 customers. Commercial voice and data average revenue per user was $45 during the first quarter, compared to $41 in last year's comparable period, as a result of the rollout of new pricing plans in 2018. Commercial IoT data subscribers grew 26% from the year-ago period to 678,000 customers, driven by continued strength in consumer personal communications and tracking devices. Commercial IoT data ARPU was down 10% to $11.32 in the first quarter.

Iridium's commercial business ended the quarter with 1,036,000 billable subscribers, which compares to 892,000 for the year-ago period and is up from 1,008,000 for the quarter ended December 31, 2018. IoT data subscribers represented 65% of billable commercial subscribers at the end of the quarter, an increase from 60% at the end of the prior-year period.

Hosted payload and other data service revenue increased $9.6 million, or 228%, from the prior-year period primarily due to increased hosting and data services.

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.

Government service revenue was $22.0 million, consistent with the prior-year period, under the company's fixed fee EMSS contract with the U.S. government.

Iridium's government business ended the quarter with 115,000 subscribers, which compares to 104,000 for the year-ago period and is up from 113,000 for the quarter ended December 31, 2018. Government voice and data subscribers remained unchanged from the year-ago period at 53,000 as of March 31, 2019. IoT data subscribers increased 22% year-over-year and represented 54% of government subscribers, an increase from 49% at the end of the prior-year period.

Equipment

Equipment revenue was $21.0 million during the first quarter, down 19% from the prior-year period.
The company continues to forecast lower equipment sales in 2019.

Engineering & Support

Engineering and support revenue was $5.7 million during the first quarter, compared to $3.6 million in the prior year's quarter, primarily due to the episodic nature of government-sponsored projects.

Capital expenditures were $34.6 million for the first quarter and primarily related to spending for the Company's recently completed, next-generation satellite program. The company ended the first quarter with credit facility gross debt of $1.7 billion and a cash and cash equivalents balance of $275.7 million.  Net debt was $1.6 billion, calculated as $1.7 billion of credit facility gross debt and $360 million of unsecured notes, less $275.7 million of cash and cash equivalents, as well as $193.0 million in restricted cash.