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Iridium Announces Second-Quarter 2017 Results; Company Affirms 2017 Outlook

MCLEAN, Va., July 27, 2017 (GLOBE NEWSWIRE) -- Iridium Communications Inc. (Nasdaq:IRDM) (“Iridium”) today reported financial results for the second quarter of 2017 and affirmed its full-year 2017 outlook.  Net income was $24.8 million, or $0.20 per diluted share, for the second quarter of 2017, as compared to $26.9 million, or $0.22 per diluted share, for the second quarter of 2016.  Operational EBITDA (“OEBITDA”)(1) for the second quarter was $65.8 million, as compared to $62.5 million for the prior-year period, representing a year-over-year increase of 5% and an OEBITDA margin(1) of 59%.  OEBITDA grew primarily due to higher commercial service revenue from the Company’s machine-to-machine (“M2M”) business.

/EIN News/ -- Iridium reported second-quarter total revenue of $111.6 million, which consisted of $86.6 million of service revenue and $25.0 million of revenue related to equipment sales and engineering and support projects.  Total revenue increased 2% versus the comparable period of 2016, while service revenue grew by 4% 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 second quarter of 2017.

The Company ended the quarter with 913,000 total billable subscribers, which compares to 823,000 for the year-ago period and is up from 869,000 for the quarter ended March 31, 2017.  Total billable subscribers grew 11% year-over-year, driven by growth in M2M and government customers.

“Iridium continued to benefit from its long-term relationships with growth-oriented partners, particularly in commercial M2M, where subscriber growth of 20% helped to fuel recurring service revenue during the second quarter. We expect strong demand for satellite IoT services will drive momentum in our commercial business, especially as we introduce new solutions like Iridium EdgeTM,” said Matt Desch, CEO, Iridium.

Commenting on Iridium® NEXT, Desch said, “Our second batch of Iridium NEXT satellites successfully launched in late June and are now completing validation testing.  All of these new satellites are working well and we’re already looking forward to the next batch.”  Desch continued, “SpaceX has scheduled the third launch of Iridium NEXT satellites for September 30 at 6:30 a.m. PDT from Vandenberg Air Force Base.”

Iridium Business Highlights

Service – Commercial

Commercial service remained the largest part of Iridium’s business, representing 58% 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 $64.6 million, up 5% from last year’s comparable period. 
  • Commercial voice and data subscribers were up slightly from the year-ago period to 360,000 customers.  Commercial voice and data average revenue per user (“ARPU”) was unchanged during the second quarter at $41. Commercial M2M data subscribers grew 20% from the year-ago period to 461,000 customers.  Commercial M2M data ARPU was down slightly during the second quarter to $14.
  • Iridium’s commercial business ended the quarter with 821,000 billable subscribers, which compares to 743,000 for the year-ago period and is up from 783,000 for the quarter ended March 31, 2017.  M2M data subscribers represented 56% of billable commercial subscribers at the end of the quarter, an increase from 52% at the end of the prior-year period.

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 92,000 subscribers, which compares to 80,000 for the year-ago period and is up from 86,000 for the quarter ended March 31, 2017.  Government voice and data subscribers increased 12% from the year-ago period to 48,000 as of June 30, 2017.  M2M data subscribers increased 19% year-over-year and represented 48% of government subscribers, an increase from 46% at the end of the prior-year period.

Equipment

  • Equipment revenue was $18.8 million during the second quarter, down 7% from the prior-year period.
  • As previously indicated, the Company expects lower equipment sales in 2017.

Engineering & Support

  • Engineering and support revenue was $6.1 million during the second quarter, compared to $5.3 million in the prior-year’s quarter, primarily due to the episodic nature of government-sponsored projects.

Capital expenditures were $119.2 million for the second quarter and primarily related to spending for the Company’s next-generation satellite constellation, Iridium NEXT.  The Company ended the second quarter with a cash and marketable securities balance of $356.5 million and gross debt of $1.8 billion.  Net debt was $1.3 billion, calculated as $1.8 billion of gross debt, less $0.36 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:

  • Total service revenue growth between 3% and 5% for the full-year 2017.
  • Full-year 2017 OEBITDA between $255 million and $265 million.  OEBITDA for 2016 was $254.2 million.

Long-Range Outlook

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

  • Total service revenue between $440 million and $465 million for the full-year 2019.
  • OEBITDA margin of approximately 60% in 2019.
  • Negligible cash taxes from 2017 to approximately 2020.
  • Peak net leverage of 6.0x to 6.5x OEBITDA in 2017.
  • Net leverage of approximately 4.5x OEBITDA in 2019.

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 June 30,   Six Months Ended June 30,      
      2017       2016       2017       2016        
  GAAP net income $   24,778     $   26,854     $   62,726     $   55,374        
  Interest expense     88         294         184         777        
  Interest income     (919 )       (1,094 )       (1,848 )       (2,335 )      
  Income taxes     11,740         15,640         30,140         30,640        
  Depreciation and amortization     20,201         12,843         33,708         25,779        
  Iridium NEXT expenses, net     5,687         4,320         8,527         7,343        
  Share-based compensation     4,257         3,887         7,738         6,080        
  Non-cash purchase accounting     -          (198 )       -          (406 )      
  Non-cash gain on Boeing transaction     -          -          (11,003 )       -         
  Operational EBITDA $   65,832     $   62,546     $   130,172     $   123,252        
                       

  

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, July 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 43003425.  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 June 30,  
    2017       2016    
Revenue        
Service revenue        
Commercial $   64,623     $   61,486    
Government     22,000         22,000    
Total service revenue     86,623         83,486    
Subscriber equipment     18,844         20,362    
Engineering and support service     6,137         5,347    
Total revenue     111,604         109,195    
         
Operating expenses        
Cost of services (exclusive of depreciation and amortization)     21,368         16,448    
Cost of subscriber equipment sales     10,868         11,859    
Research and development     3,014         4,013    
Selling, general and administrative     20,411         22,303    
Depreciation and amortization     20,201         12,843    
Total operating expenses     75,862         67,466    
         
Operating income (expense)     35,742         41,729    
         
Other income (expense)        
Interest income, net      832         800    
Undrawn credit facility fees     -          (368 )  
Other expense, net     (56 )       333    
Total other income (expense)     776         765    
         
Income (loss) before income taxes     36,518         42,494    
Provision for income taxes     (11,740 )       (15,640 )  
Net income (loss)     24,778         26,854    
Series A Preferred Stock dividends, declared and paid     -          1,750    
Series B Preferred Stock dividends, declared and paid     -          2,109    
Series A Preferred Stock dividends, undeclared     1,750         -     
Series B Preferred Stock dividends, undeclared     2,109         -     
Net income (loss) attributable to common stockholders $   20,919     $   22,995    
         
Operational EBITDA $   65,832     $   62,546    
         

 

             
Iridium Communications Inc.            
Consolidated Statements of Operations            
(In thousands)            
         
  Six Months Ended June 30,      
    2017       2016        
Revenue            
Service revenue            
Commercial $   124,396     $   119,309        
Government     44,000         44,000        
Total service revenue     168,396         163,309        
Subscriber equipment     35,958         37,922        
Engineering and support service     11,676         12,166        
Total revenue     216,030         213,397        
             
Operating expenses            
Cost of services (exclusive of depreciation and amortization)     38,326         32,351        
Cost of subscriber equipment sales     20,972         22,322        
Research and development     6,241         6,572        
Selling, general and administrative     39,628         41,366        
Depreciation and amortization     33,708         25,779        
Total operating expenses     138,875         128,390        
             
Gain on Boeing transaction      14,189         -         
             
Operating income     91,344         85,007        
             
Other income (expense)            
Interest income, net      1,665         1,558        
Undrawn credit facility fees     (25 )       (871 )      
Other income (expense), net     (118 )       320        
Total other income (expense)     1,522         1,007        
             
Income before income taxes     92,866         86,014        
Provision for income taxes     (30,140 )       (30,640 )      
Net income     62,726         55,374        
Series A Preferred Stock dividends, declared and paid     1,750         3,500        
Series B Preferred Stock dividends, declared and paid     2,109         4,218        
Series A Preferred Stock dividends, undeclared     1,750         -         
Series B Preferred Stock dividends, undeclared     2,109         -         
Net income (loss) attributable to common stockholders $   55,008     $   47,656        
             
Operational EBITDA $   130,172     $   123,252        
             

 

Iridium Communications Inc.                        
Summary Revenue and OEBITDA Highlights                        
(In thousands)                        
                         
  Three Months Ended June 30,   % Change   Six Months Ended June 30,   % Change  
    2017       2016           2017     2016      
Revenue                        
Service revenue(1)                        
Commercial                        
Voice and M2M data service                        
Voice and data $ 45,629     $ 45,000     1 %   $ 88,173   $ 87,747   0 %  
M2M data(2)   18,994       16,486     15 %     36,223     31,562   15 %  
Total commercial voice and M2M data service   64,623       61,486     5 %     124,396     119,309   4 %  
                         
Government service revenue(3)   22,000       22,000     0 %     44,000     44,000   0 %  
                         
Total service revenue   86,623       83,486     4 %     168,396     163,309   3 %  
                         
Subscriber equipment   18,844       20,362     -7 %     35,958     37,922   -5 %  
                         
Engineering and support(4)                        
Government   5,401       4,857     11 %     10,469     10,971   -5 %  
Commercial   736       490     50 %     1,207     1,195   1 %  
Total engineering and support   6,137       5,347     15 %     11,676     12,166   -4 %  
                         
Total Revenue $ 111,604     $ 109,195     2 %   $ 216,030   $ 213,397   1 %  
                         
                         
Operational EBITDA                        
Operational EBITDA $ 65,832     $ 62,546     5 %   $ 130,172   $ 123,252   6 %  
                         
Other                        
Capital expenditures (5) $ 119,228     $ 80,980         $ 168,172   $ 75,822      
                         
Net debt (6) $ 1,308,479     $ 1,105,959                    
                       
Cash, cash equivalents, and marketable securities $ 356,521     $ 443,088                  
                       
Credit facility $ 1,800,000     $ 1,651,253                  
Deferred financing costs   (111,580 )     (132,058 )                
Credit facility, net $ 1,688,420     $ 1,519,195                  
                         
(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 June 30,   % Change            
    2017     2016                
Billable Subscribers (1)                      
Commercial                      
Voice and M2M data service                      
Voice and data   360     359   0 %            
M2M data   461     384   20 %            
Total commercial voice and M2M data service   821     743   10 %            
                       
Government                      
Voice and M2M data service                      
Voice and data   48     43   12 %            
M2M data   44     37   19 %            
Total government voice and M2M data service   92     80   15 %            
Total billable subscribers   913     823   11 %            
                       
                       
                       
  Three Months Ended June 30,   % Change   Six Months Ended June 30,   % Change
    2017     2016         2017     2016    
Net Subscriber Additions                      
Commercial                      
Voice and M2M data service                      
Voice and data   9     11   -18 %     7     8   -13 %
M2M data   29     19   53 %     48     25   92 %
Total commercial voice and M2M data service   38     30   27 %     55     33   67 %
                       
Government                      
Voice and M2M data service                      
Voice and data   3     2   50 %     4     3   33 %
M2M data   3     3   0 %     4     5   -20 %
Total government voice and M2M data service   6     5   20 %     8     8   0 %
Total billable subscribers   44     35   26 %     63     41   54 %
                       
                       
  Three Months Ended June 30,   % Change   Six Months Ended June 30,   % Change
    2017     2016         2017     2016    
 ARPU(2)                      
Commercial                      
Voice and data $ 41   $ 41   0 %   $ 40   $ 40   0 %
M2M data $ 14   $ 15   -7 %   $ 14   $ 14   0 %
                       
                       
(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

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