Iridium Communications Inc. (Nasdaq:IRDM) (“Iridium”) today reported financial results for the third quarter of 2015 and affirmed its full-year 2015 and long-range outlook. Net income was $29.5 million, or $0.24 per diluted share, for the third quarter of 2015, as compared to $20.4 million, or $0.17 per diluted share, for the third quarter of 2014. Operational EBITDA (“OEBITDA”)(1) for the third quarter was $63.8 million, as compared to $58.4 million for the prior-year period, representing a year-over-year increase of 9% and an OEBITDA margin(1) of 60%. OEBITDA grew largely due to higher government service revenue and lower product warranty expenses, as well as decreased manufacturing costs on certain products.
Iridium reported third-quarter total revenue of $106.0 million, which consisted of $81.2 million of service revenue and $24.8 million of equipment, engineering and support revenue. Total revenue declined 1% versus the comparable period of 2014, while service revenue was essentially flat from the year-ago period. Service revenue, which represents primarily recurring revenue from Iridium’s growing subscriber base, was 77% of total revenue for the third quarter of 2015.
The Company ended the quarter with 781,000 total billable subscribers, which compares to 726,000 for the year-ago period and is up from 766,000 for the quarter ended June 30, 2015. Total billable subscribers grew 8% year-over-year, driven by growth in machine-to-machine (“M2M”) customers.
“Iridium continues to succeed in a challenging macroeconomic environment,” said Matt Desch, CEO, Iridium. “While our commercial service revenues are being impacted by a strong U.S. dollar and weakness in the energy sector, we are benefitting from strength in government services and continued growth in M2M data services.”
Commenting on Iridium NEXT, Desch said, “We have revised the date of the initial launch of the Iridium NEXT program to reflect an updated delivery schedule from our prime satellite supplier, Thales Alenia Space. In consideration of this timeline, Iridium and launch service provider Kosmotras have now scheduled the deployment of the first two satellites of the Iridium NEXT constellation for April 2016, and we continue to expect the Iridium NEXT constellation to be fully operational by the end of 2017. Insurance for the initial launch has been fully bound, and Iridium has agreed with its lenders on material terms to amend its credit facility to provide additional flexibility in obtaining launch and in-orbit insurance.” Desch continued, “Once deployed, Iridium NEXT will offer advanced satellite services like AireonSM and Iridium CertusSM broadband, which will drive revenue growth in 2018 and beyond.”
Iridium Business Highlights
Service — Commercial
Commercial service remained the largest part of Iridium’s business, representing 60% 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 $63.2 million, a 4% decline from last year’s comparable period.
– Commercial voice and data subscribers increased 1% from the year-ago period to 360,000 customers. Commercial voice and data average revenue per user (“ARPU”) was $43 during the third quarter, compared to $47 in last year’s comparable period. The decline in voice and data ARPU was primarily due to continued declines in device usage, a non-recurring benefit in the prior-year period associated with prepaid airtime vouchers and foreign currency impacts in the Company’s Russian market. Commercial M2M data subscribers grew 12% from the year-ago period to 352,000 customers. Commercial M2M data ARPU was $15 during the third quarter, a decrease from $17 in last year’s comparable period. Lower M2M data ARPU was primarily attributable to the growth in subscribers using lower airtime usage plans.
– Iridium’s commercial business ended the quarter with 712,000 billable subscribers, which compares to 669,000 for the prior-year quarter and is up from 701,000 for the quarter ended June 30, 2015. M2M data subscribers represented 49% of billable commercial subscribers, an increase from 47% 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 through 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 $18.0 million, a 13% increase from the prior-year period, driven by the Company’s airtime services contract with DISA.
– Iridium’s government business ended the quarter with a record 69,000 subscribers, which compares to 57,000 for the prior-year quarter and is up from 65,000 for the quarter ended June 30, 2015. Government voice and data subscribers increased 15% from the year-ago period to 39,000 customers. M2M data subscribers increased 30% year-over-year and represented 43% of government subscribers, an increase from 40% at the end of the prior-year period.
Equipment
– Equipment revenue was $21.2 million during the third quarter, a 3% increase from the prior-year period. The increase in revenue from the year-ago quarter primarily reflects higher commercial handset sales.
– The Company continues to expect equipment revenue will not grow in 2015 primarily due to the strong U.S. dollar.
Engineering & Support
– Engineering and support revenue was $3.7 million during the third quarter, compared to $5.4 million in the prior year’s quarter due to the episodic nature of this government work.
Capital expenditures were $77.6 million for the third quarter and primarily related to spending for the Company’s next-generation satellite constellation, Iridium NEXT. The Company ended the third quarter with a cash and marketable securities balance of $512.6 million and gross debt of $1.4 billion. Net debt was $843.0 million.
2015 Outlook
The Company affirmed its full-year 2015 outlook for total service revenue growth and OEBITDA. The Company continues to expect:
– Total service revenue growth between 1% and 3% for the full-year 2015.
– Full-year 2015 OEBITDA of approximately $230 million. OEBITDA for 2014 was $216.5 million.
