Iridium Announces Second-Quarter 2020 Results; Updates 2020 Outlook

July 28, 2020

Iridium Communications Inc. reported financial results for the second quarter of 2020 and updated its full-year 2020 outlook. Net loss was $12.4 million, or $0.09 per diluted share, for the second quarter of 2020, as compared to net loss of $18.1 million, or $0.16 per diluted share, for the second 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 and a decline in in-orbit insurance costs and research and development expenses. Operational EBITDA ("OEBITDA")(1) for the second quarter was $85.3 million, as compared to $85.1 million for the prior-year period, representing an OEBITDA margin(1) of 61%. 

Iridium reported second-quarter total revenue of $140.2 million, which consisted of $113.4 million of service revenue and $26.8 million of revenue related to equipment sales and engineering and support projects. Total revenue decreased 2% versus the comparable period of 2019, while service revenue grew by 2%. Service revenue, which represents primarily recurring revenue from Iridium's growing subscriber base, was 81% of total revenue for the second quarter of 2020.

The Company ended the quarter with 1,362,000 total billable subscribers, which compares to 1,213,000 for the year-ago period and is up from 1,332,000 for the quarter ended March 31, 2020. Total billable subscribers grew 12% year-over-year, driven by growth in commercial and government IoT customers.

"Despite the headwinds caused by the global pandemic, Iridium continues to grow subscribers, service revenue and cash," said Matt Desch, CEO, Iridium. Desch continued, "As businesses around the world started to reopen in the second quarter, we've also seen some recovery in activity from our technology and distribution partners."

Commenting on the full-year outlook, Desch added, "With each passing month, we are getting increased visibility that allows us to refine our guidance for the year. Iridium is fortunate to provide mission-critical services across a broad array of industries, which has allowed our business to remain resilient in this environment. I think it's notable that despite the economic slowdown, Iridium increased its cash position by more than $50 million in the second quarter, all of which came from operating activities. We expect to continue to generate significant free cash flow in 2020 and beyond." 

Iridium Business Highlights 

Service – Commercial

Commercial service remained the largest part of Iridium's business, representing 63% of the Company's total revenue during the second 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 $88.4 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 data service usage associated with the COVID-19 pandemic.

Commercial voice and data subscribers were down 3% from the year-ago period to 349,000 subscribers. Commercial voice and data average revenue per user ("ARPU") was $40 during the second quarter, compared to $41 in last year's comparable period.

Commercial IoT data subscribers grew 20% from the year-ago period to 863,000 customers, driven by consumer personal communications and tracking devices. Commercial IoT data ARPU was $8.91 in the second quarter, compared to $11.40 in last year's comparable period. The decrease in ARPU resulted from reduced usage, principally, associated with COVID-19 impacts, most notably 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 $8.5 million, up from $7.4 million in the year-ago period. This rise was primarily attributable to growing Iridium Certus broadband service. Commercial broadband ARPU was $258 during the second quarter, compared to $245 in last year's comparable period.

Iridium's commercial business ended the quarter with 1,223,000 billable subscribers, which compares to 1,088,000 for the year-ago period and is up from 1,192,000 for the quarter ended March 31, 2020. IoT data subscribers represented 71% of billable commercial subscribers at the end of the quarter, an increase from 66% at the end of the prior-year period.

Hosted payload and other data service revenue was $15.4 million in the second 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. Air Force Space Command 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. Air Force Space Command. Iridium Certus airtime services are not included under these contracts and may be procured separately for an additional fee.

Government service revenue was $25.0 million in the second quarter compared to $24.5 million in the prior-year period, reflecting increased revenue from the Company's EMSS Contract.

Iridium's government business ended the quarter with 139,000 subscribers, which compares to 125,000 for the year-ago period and is down from 140,000 for the quarter ended March 31, 2020. Government voice and data subscribers increased 9% from the year-ago period to 60,000 as of June 30, 2020. Government IoT data subscribers increased 13% year-over-year to 79,000 and represented 57% of total government subscribers, an increase from 56% at the end of the prior-year period.

Equipment

Equipment revenue was $19.8 million during the second quarter, compared to $23.4 million in the prior-year's quarter.

The Company continues to expect full-year equipment sales will be down from 2019 levels due to the impact of the global pandemic on the industries that we support.

Engineering & Support

Engineering and support revenue was $7.0 million during the second quarter, compared to $8.9 million in the prior-year quarter, primarily due to the episodic nature of contract work with the U.S. government.

Capital expenditures were $9.2 million for the second quarter, which includes $0.8 million of capitalized interest. The Company ended the second quarter with gross debt of $1.65 billion and a cash and cash equivalents balance of $119.1 million, for a net debt balance of $1.53 billion.

2020 Outlook 

The Company refined its full-year 2020 outlook for total service revenue growth and OEBITDA. The Company now expects:

Total service revenue growth between 1% and 2% for full-year 2020. Total service revenue for 2019 was $447.2 million.

Full-year 2020 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 4.3 times OEBITDA at the end of 2020. Net leverage was 4.8 times OEBITDA at December 31, 2019.