From: Iridium Communications Inc.
Posted: Thursday, July 27, 2017
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.
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.
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.
Engineering & Support
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.
The Company affirmed its full-year 2017 outlook for total service revenue growth and OEBITDA. The Company continues to expect:
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:
(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.
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