Iridium Communications Inc. (Nasdaq:IRDM) (“Iridium”) today reported financial results for the fourth quarter of 2013 and issued its full-year 2014 and long-range outlook. Net income was $15.6 million, or $0.18 per diluted share, for the fourth quarter of 2013, as compared to $16.7 million, or $0.19 per diluted share, for the fourth quarter of 2012.
Operational EBITDA (“OEBITDA”)(1) for the fourth quarter was $49.8 million, as compared to $52.3 million for the prior-year period, representing a year-over-year decline of 5 percent and an OEBITDA margin(1) of 51 percent. OEBITDA fell largely due to lower equipment revenue.
Iridium reported fourth-quarter total revenue of $98.2 million, which consisted of $76.5 million of service revenue and $21.7 million of equipment, engineering and support revenue. Total revenue increased 6 percent versus the comparable period of 2012, while service revenue grew 15 percent from the year-ago period. Service revenue, which represents primarily recurring revenue from Iridium’s growing subscriber base, was 78 percent of total revenue for the fourth quarter of 2013 as compared to 72 percent in the year-ago period.
The Company ended the quarter with 664,000 total billable subscribers, which compares to 611,000 for the year-ago period and is up from 655,000 for the quarter ended September 30, 2013. Total billable subscribers grew 9 percent year-over-year, driven by strength in machine-to-machine (“M2M”) and commercial voice customers.
“We achieved our most important strategic objectives in 2013 including the favorable renewal of services and support contracts with the U.S. Department of Defense (“DoD”) and securing a $120 million investment commitment from three European Air Navigation Service Providers (“ANSPs”) for our AireonSM global aviation monitoring business,” said Matt Desch, CEO, Iridium. “The agreements with the DoD, worth $438 million over five years, deliver growing and predictable cash flow during the Iridium NEXT launch and construction period, while the investment commitments for our Aireon joint venture provide access to the needed funding to develop an operational Aireon system in 2017. And, while 2013 saw us navigate through challenges in our commercial handset and maritime businesses, we’re poised for better performance as we consider our prospects this year. The handset market is growing more slowly than we’ve seen in past years, but we have a defensible leadership position and continue to expand our product portfolio with new offerings including the recently announced Iridium GO!™ satellite Wi-Fi hotspot. We’ve also improved our maritime broadband platform, which should lead to a nice rebound in 2014 as industry dynamics are strong. The M2M market remained a bright spot in our portfolio, growing both subscribers and revenue 20% last year. We expect continued robust gains in this sector, and are just beginning to penetrate the lucrative OEM segment.”
Desch continued, “Our network is the best in the industry today with true global coverage, very high availability and robust service quality for our customers. Our Iridium NEXT build remains on budget, and the new constellation is still on track to be fully deployed in 2017. While the first launch date hasn’t officially changed yet, we expect that extensive payload and software testing schedules will push out our first launch a few months to the second quarter of 2015. All in all, with Iridium NEXT fast approaching, we have excellent long-term growth prospects and will continue to execute against the key targets that ensure our success.”
Full-Year 2013 Iridium Business Highlights
For the full year, Iridium reported net income of $62.5 million, or $0.71 per diluted share, as compared to net income of $64.6 million, or $0.83 per diluted share, for 2012. The Company reported 2013 total revenue of $382.6 million, which was relatively unchanged from the year-ago period. Total revenue included $292.1 million of service revenue and $90.6 million of equipment, engineering and support revenue. OEBITDA for 2013 was $201.1 million, down 2 percent from $205.8 million in the prior-year, representing an OEBITDA margin of 53 percent. Capital expenditures were $403.5 million for the full-year 2013.
Fourth-Quarter Iridium Business Highlights
Service – Commercial
Commercial service remained the largest part of Iridium’s business, representing 62 percent of the Company’s total revenue during the fourth 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 $60.9 million, an 18 percent increase from last year’s comparable period, primarily supported by a gain in voice and M2M data subscribers and a change in the Company’s prepaid airtime policy.
– Commercial voice and data subscribers increased 2 percent from the year-ago period to 340,000 customers. Commercial voice and data average revenue per user (“ARPU”) was $47 during the fourth quarter, a 15 percent year-over-year increase. Voice and data ARPU grew primarily due to higher recurring subscriber fees and a non-recurring benefit of $3.6 million related to a change in the Company’s prepaid airtime policy. Commercial M2M data subscribers grew 20 percent from the year-ago period to 273,000 customers. Commercial M2M data ARPU was $16 during the fourth quarter, unchanged from last year’s comparable period.
– Iridium’s commercial business ended the quarter with 613,000 billable subscribers, which compares to 560,000 for the prior-year quarter and is up from 604,000 for the quarter ended September 30, 2013. M2M data subscribers represented 45 percent of billable commercial subscribers, an increase from 41 percent 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 was recently awarded two Defense Information Systems Agency contracts, which include a $400 million, five-year, fixed-price agreement renewing its satellite communications services relationship and a $38 million deal to support and maintain the DoD’s dedicated gateway.
– Government service revenue was $15.6 million, a 3 percent increase from the prior-year period, driven by the Company’s new airtime services contract with the DoD.
– Iridium’s government business ended the quarter with 51,000 billable subscribers, which is unchanged from the prior-year quarter and the quarter ended September 30, 2013. M2M data subscribers increased 33 percent year-over-year and represented 39 percent of billable government subscribers, an increase from 29 percent at the end of the prior-year period.
Equipment
– Equipment revenue was $15.9 million during the fourth quarter, a 28 percent year-over-year decrease. Revenue declined from the year-ago quarter primarily due to lower overall handset sales.
– The Company’s equipment revenue in 2014 is expected to be greater than it was in 2013 due to higher overall unit sales.
Engineering & Support
– Engineering and support revenue was $5.8 million during the fourth quarter, up 66 – percent from the prior-year period, primarily resulting from an increased scope of work for ongoing government projects.
Capital expenditures were $140.1 million for the fourth quarter and primarily related to spending for the Company’s next-generation satellite constellation, Iridium NEXT, and upgraded ground network infrastructure at its commercial gateway. The Company ended the fourth quarter with a cash and marketable securities balance of $263.0 million and gross debt of $1.0 billion. Net debt was $695.2 million.
