Iridium Announces Third-Quarter 2020 Results; Improves 2020 Outlook

Oct. 20, 2020

 Iridium Communications Inc. reported financial results for the third quarter of 2020 and updated its full-year 2020 outlook. Net loss was $4.0 million, or $0.03 per diluted share, for the third quarter of 2020, as compared to net loss of $18.0 million, or $0.14 per diluted share, for the third quarter of 2019.  This decrease in net loss was primarily the result of lower net interest expenses related to the refinancing of Iridium's credit facility and high-yield notes from the year ago period.  Also contributing to the improvement was growth in service revenue and lower selling, general and administrative expense. Operational EBITDA ("OEBITDA")(1) for the third quarter was $93.4 million, as compared to $88.5 million for the prior-year period, representing a year-over-year increase of 6% and an OEBITDA margin(1) of 62%.  OEBITDA primarily benefitted from increased commercial revenue and a reduction in operating expenses.

Iridium reported third-quarter total revenue of $151.5 million, which consisted of $116.9 million of service revenue and $34.6 million of revenue related to equipment sales and engineering and support projects.  Total revenue increased 5% versus the comparable period of 2019, while service revenue grew by 1%. Service revenue, which represents primarily recurring revenue from Iridium's growing subscriber base, was 77% of total revenue for the third quarter of 2020.

The Company ended the quarter with 1,429,000 total billable subscribers, which compares to 1,269,000 for the year-ago period and is up by a record 67,000 from 1,362,000 for the quarter ended June 30, 2020. Subscriber growth during the most recent quarter was driven by rising activations of personal communications devices. Total billable subscribers grew 13% year-over-year, driven by growth in commercial IoT customers.

"Iridium's business model has proven quite resilient given the importance of our services in the face of a global pandemic," said Matt Desch, CEO, Iridium. Desch continued, "Iridium delivered a record 67,000 net subscriber additions during the quarter, which drove sequential growth in commercial services. Subscriber equipment sales also increased by 18% year-over-year, driven by increased demand in the third quarter."

Commenting on the full-year outlook, Desch added, "In light of continued momentum, Iridium is raising its full-year guidance for 2020. We now expect to generate approximately $355 million in operational EBITDA and finish the year with net leverage of approximately 4.0 times operational EBITDA. With nearly a full turn of deleveraging in 2020, we are well on our way to achieving our targeted leverage range and undertaking material returns of capital to shareholders."

Iridium Business Highlights

Service – Commercial

Commercial service remained the largest part of Iridium's business, representing 61% of the Company's total revenue during the third 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 $91.8 million, up 2% from last year's comparable period due to an increase in revenue from hosted payload and other data services and broadband services, partially offset by lower voice and data revenue associated with the effects of the global pandemic.

Commercial voice and data subscribers were down 2% from the year-ago period to 352,000 subscribers.  Commercial voice and data average revenue per user ("ARPU") was steady at $41 during the third quarter.  Commercial IoT data ARPU was $9.48 in the third quarter, compared to $11.36 in last year's comparable period. The decrease in ARPU resulted from reduced usage in aviation, as well as the effect of the increased proportion of personal communications subscribers within IoT. These subscribers utilize lower ARPU plans.

Commercial broadband revenue was $9.1 million, up from $8.1 million in the year-ago period. This rise was primarily attributable to growing Iridium Certus® broadband service. Commercial broadband ARPU was $270 during the third quarter driven by an increasing mix of Iridium Certus subscribers, compared to $260 in last year's comparable period.

Iridium's commercial business ended the quarter with 1,287,000 billable subscribers, which compares to 1,138,000 for the year-ago period and is up from 1,223,000 for the quarter ended June 30, 2020. IoT data subscribers represented 72% of billable commercial subscribers at the end of the quarter, an increase from 67% at the end of the prior-year period.

Hosted payload and other data service revenue was $14.5 million in the third quarter compared to $12.0 million in the prior-year period, which was primarily due to increased Aireon data service fees related to a contractual step-up.

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.

Under Iridium's Enhanced Mobile Satellite Services contract (the "EMSS Contract"), a seven-year, $738.5 million fixed-price airtime contract with the U.S. Space Force signed in September 2019, Iridium provides specified satellite airtime services, including unlimited global standard and secure voice, paging, fax, Short Burst Data®, Iridium Burst®, RUDICS and Distributed Tactical Communications System services for an unlimited number of Department of Defense and other federal government subscribers. Iridium also provides maintenance and support work for the U.S. government's dedicated Iridium gateway under two other contracts with the U.S. Space Force. Iridium Certus airtime services are not included under these contracts and may be procured separately for an additional fee.

Government service revenue was $25.1 million in the third quarter and included the impact of a contractual step up in the EMSS Contract on September 15.  Quarterly revenue decreased $0.5 million from last year's comparable quarter, reflecting the 2019 benefit of short-term rate increases on monthly contract extensions in advance of signing a new seven-year EMSS Contract.

Iridium's government business ended the quarter with 142,000 subscribers, which compares to 131,000 for the year-ago period and is up from 139,000 for the quarter ended June 30, 2020.  Government voice and data subscribers increased 9% from the year-ago period to 61,000 as of September 30, 2020.  Government IoT data subscribers increased 8% year-over-year to 81,000 and represented 57% of total government subscribers.

Equipment

Equipment revenue was $25.1 million during the third quarter, compared to $21.4 million in the prior-year quarter.

In light of strong demand for subscriber equipment in the third quarter and continued favorable trends related to the U.S. dollar exchange rate, the Company now expects full-year equipment sales will be equal to or greater than 2019 levels.

Engineering & Support

Engineering and support revenue was $9.4 million during the third quarter, compared to $7.6 million in the prior-year quarter, primarily due to the episodic nature of contract work with the U.S. government.

Capital expenditures were $10.6 million for the third quarter, which includes $0.9 million of capitalized interest. The Company ended the third quarter with gross debt of $1.64 billion and a cash and cash equivalents balance of $182.7 million, for a net debt balance of $1.46 billion.

2020 Outlook

The Company updated its full-year 2020 outlook for total service revenue, OEBITDA and net leverage.  The Company now expects:

Total service revenue growth of approximately 3% for full-year 2020. (Previous outlook was for total service revenue growth between 1% and 2%). Total service revenue for 2019 was $447.2 million.

Full-year 2020 OEBITDA of approximately $355 million. (Previous outlook was for OEBITDA of approximately $340 million). OEBITDA for 2019 was $331.7 million.

Negligible cash taxes in 2020. Cash taxes are expected to be negligible through approximately 2023.

Net leverage of approximately 4.0 times OEBITDA at the end of 2020. (Previous outlook was for net leverage of approximately 4.3 times OEBITDA). Net leverage was 4.8 times OEBITDA at December 31, 2019.