Iridium Communications Inc. (Nasdaq:IRDM) (“Iridium”) today reported financial results for the first quarter of 2016 and affirmed its full-year 2016 and long-range outlook. Net income was $28.5 million, or $0.23 per diluted share, for the first quarter of 2016, as compared to $21.0 million, or $0.17 per diluted share, for the first quarter of 2015. Operational EBITDA (“OEBITDA”)(1) for the first quarter was $60.7 million, as compared to $52.5 million for the prior-year period, representing a year-over-year increase of 16% and an OEBITDA margin(1) of 58%. OEBITDA grew primarily due to higher government service revenue and increased sales of subscriber equipment, as well as to lower manufacturing costs on certain product lines.
Iridium reported first-quarter total revenue of $104.2 million, which consisted of $79.8 million of service revenue and $24.4 million of revenue related to equipment sales and engineering and support projects. Total revenue increased 7% versus the comparable period of 2015, while service revenue grew 6% 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 first quarter of 2016.
The Company ended the quarter with 788,000 total billable subscribers, which compares to 748,000 for the year-ago period and is up from 782,000 for the quarter ended December 31, 2015. Total billable subscribers grew 5% year-over-year, driven by growth in machine-to-machine (“M2M”) and government customers.
“We delivered solid revenue growth in the first quarter and reaffirmed our full-year and long-range outlook, in spite of continued macro-economic headwinds affecting our commercial business,” said Matt Desch, CEO, Iridium.
Commenting on Iridium NEXT, Desch said, “With our first launch with SpaceX this summer, our primary focus remains on constellation replacement and the introduction of new business services. The first Iridium NEXT satellites are now complete, and production is ramping up well. All the pieces of our program are coming together nicely as we enter our launch campaign.”
Iridium Business Highlights
Service — Commercial
Commercial service remained the largest part of Iridium’s business, representing 55% of the Company’s total revenue during the first 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 $57.8 million, up 1% from last year’s comparable period.
– Commercial voice and data subscribers decreased 1% from the year-ago period to 348,000 customers. Commercial voice and data average revenue per user (“ARPU”) was unchanged from last year’s comparable period at $40. Commercial M2M data subscribers grew 9% from the year-ago period to 365,000 customers. Commercial M2M data ARPU was $14 during the first quarter, compared to $15 in last year’s comparable period.
– Iridium’s commercial business ended the quarter with 713,000 billable subscribers, which compares to 685,000 for the year-ago period and is up from 710,000 for the quarter ended December 31, 2015. M2M data subscribers represented 51% of billable commercial subscribers at the end of the quarter, an increase from 49% 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 $22 million, a 22% increase from the prior-year period, driven by the Company’s airtime services contract with DISA.
– Iridium’s government business ended the quarter with 75,000 subscribers, which compares to 63,000 for the year-ago period and is up from 72,000 for the quarter ended December 31, 2015. Government voice and data subscribers increased 14% from the year-ago period to 41,000 as of March 31, 2016. M2M data subscribers increased 26% year-over-year and represented 45% of government subscribers, an increase from 43% at the end of the prior-year period.
Equipment
– Equipment revenue was $17.6 million during the first quarter, a 6% rise from the prior-year period.
– The Company does not expect equipment revenue to grow in 2016.
Engineering & Support
– Engineering and support revenue was $6.8 million during the first quarter, compared to $5.0 million in the prior-year’s quarter, primarily due to an increase in government-sponsored projects.
Capital expenditures were $75.8 million for the first quarter and primarily related to spending for the Company’s next-generation satellite constellation, Iridium NEXT. The Company ended the first quarter with a cash and marketable securities balance of $412.1 million and gross debt of $1.6 billion. Net debt was $1.1 billion, calculated as $1.6 billion of gross debt, less $0.4 billion of cash and marketable securities, as well as $0.1 billion in restricted cash.
The Company’s Credit Facility, net balance was $1.5 billion in its Form 10-Q filing for the period ended March 31, 2016. This amount differed from the $1.6 billion drawn against the Credit Facility through March 31, 2016 as a result of an update from the Financial Accounting Standards Board. Effective January 1, 2016, the Company adopted the new accounting standard requiring a company’s debt balance be presented net of related debt issuance costs. As of March 31, 2016, the Company’s debt issuance costs totaled approximately $0.1 billion, decreasing the net Credit Facility balance to $1.5 billion for purposes of presentation in the Company’s balance sheet.
2016 Outlook
The Company affirmed its full-year 2016 outlook for total service revenue growth and OEBITDA. The Company continues to expect:
– Total service revenue growth between 4% and 6% for the full-year 2016.
– Full-year 2016 OEBITDA between $245 million and $255 million. OEBITDA for 2015 was $234.0 million.
