Iridium Communications Inc. (Nasdaq:IRDM) (“Iridium”) today reported financial results for the fourth quarter of 2015 and issued its full-year 2016 and long-range outlook. Net loss was $69.4 million, or $0.77 per diluted share, for the fourth quarter of 2015, as compared to net income of $23.0 million, or $0.19 per diluted share, for the fourth quarter of 2014. Net loss for the fourth quarter of 2015 included a non-cash goodwill impairment charge of $87.0 million, or $0.91 per diluted share. Adjusted to eliminate this non-cash goodwill impairment charge(1), net income would have been $17.6 million, or $0.14 per diluted share, for the fourth quarter of 2015. Operational EBITDA (“OEBITDA”)(1) for the fourth quarter was $56.8 million, as compared to $51.8 million for the prior-year period, representing a year-over-year increase of 10% and an OEBITDA margin(1) of 53%. 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 fourth-quarter total revenue of $106.4 million, which consisted of $82.4 million of service revenue and $24.0 million of revenue related to equipment sales and engineering and support projects. Total revenue increased 6% versus the comparable period of 2014, while service revenue grew 5% 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 fourth quarter of 2015.
The Company ended the quarter with 782,000 total billable subscribers, which compares to 739,000 for the year-ago period and is up from 781,000 for the quarter ended September 30, 2015. Total billable subscribers grew 6% year-over-year, driven by growth in machine-to-machine (“M2M”) and government customers.
Full-Year 2015 Iridium Business Highlights
For the full year, Iridium reported net income of $7.1 million, or a net loss attributable to common stockholders of $0.09 per diluted share, as compared to net income of $75.0 million, or $0.69 per diluted share, for 2014. Net income for 2015 included a non-cash goodwill impairment charge of $87.0 million, or $0.86 per diluted share. Adjusted to eliminate this non-cash goodwill impairment charge, full year 2015 net income would have been $94.2 million, or $0.77 per diluted share. The Company reported 2015 total revenue of $411.4 million, which was up 1% from the year-ago period. Total revenue included $317.0 million of service revenue and $94.4 million of revenue related to equipment sales and engineering and support projects. OEBITDA for 2015 was $234.0 million, an 8% increase from $216.5 million in the prior-year, representing an OEBITDA margin of 57%. Capital expenditures were $494.8 million for the full-year 2015.
“Iridium executed well to achieve good results in a challenging macro-economic environment. Our unique network and diverse revenue streams allowed us to deliver 2% total service revenue growth and 8% growth in Operational EBITDA in 2015,” said Matt Desch, CEO, Iridium. “We reached a record 782,000 billable subscribers this year, fueled by growth in our Government Services business, and continued strength in M2M data, which accounts for more than half of Iridium’s billable commercial subscribers.”
Commenting on Iridium NEXT, Desch said, “Kosmotras has notified us of a delay in obtaining the approvals they need to launch our satellites. Uncertainty surrounding the resolution of this matter has caused Iridium to change the sequence and timing of its first launch of the Iridium NEXT program. Iridium will now proceed with the first satellite launch of the Iridium NEXT constellation in July 2016 with 10 satellites on SpaceX and subsequently launch two satellites with Dnepr once approvals are received. Even with this change, the Iridium NEXT constellation remains on track for full deployment in 2017.” Desch continued, “We are very excited about the Iridium NEXT mission and eager to begin our launch schedule. Thales Alenia has made good progress on the technical aspects of this program and is on track with deliveries for our scheduled launches.”
Desch concluded, “Today, we affirmed our long-range outlook and issued 2016 full-year guidance. We expect the economic and currency headwinds that impacted our business in 2015 to carry over to 2016 and do not anticipate a turnaround in the commodity-oriented sectors that we serve in 2016. Nonetheless, growth in our Government Services business, driven by a 17% increase in contracted revenue for airtime services, should more than offset the pressure we anticipate from continued global economic weakness. Iridium has excellent long-term growth prospects and is well positioned to deliver meaningful Operational EBITDA growth this fiscal year.”
Fourth-Quarter 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 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 $61.3 million, up 1% from last year’s comparable period principally based on increased M2M subscribers.
– Commercial voice and data subscribers decreased 1% from the year-ago period to 351,000 customers. Commercial voice and data average revenue per user (“ARPU”) was $42 during the fourth quarter, compared to $43 in last year’s comparable period. The decline in voice and data ARPU was primarily due to continued declines in airtime usage and foreign currency impacts. Commercial M2M data subscribers grew 10% from the year-ago period to 359,000 customers. Commercial M2M data ARPU was $14 during the fourth quarter, compared to $16 in last year’s comparable period, reflecting a higher proportion of subscribers on lower usage plans.
– Iridium’s commercial business ended the quarter with 710,000 billable subscribers, which compares to 679,000 for the prior-year quarter and is down from 712,000 for the quarter ended September 30, 2015. M2M data subscribers represented 51% of billable commercial subscribers at the end of the quarter, an increase from 48% 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 $21.1 million, a 20% increase from the prior-year period, driven by the Company’s airtime services contract with DISA.
– Iridium’s government business ended the quarter with 72,000 subscribers, which compares to 60,000 for the prior-year quarter and is up from 69,000 for the quarter ended September 30, 2015. Government voice and data subscribers increased 14% from the year-ago period to 40,000 as of December 31, 2015. M2M data subscribers increased 28% year-over-year and represented 44% of government subscribers, an increase from 42% at the end of the prior-year period.
Equipment
– Equipment revenue was $17.1 million during the fourth quarter, unchanged from the prior-year period.
– The Company does not expect equipment revenue to grow in 2016, primarily due to continued economic and currency headwinds.
Engineering & Support
– Engineering and support revenue was $6.9 million during the fourth quarter, compared to $5.2 million in the prior-year’s quarter, primarily due to an increase in government-sponsored projects.
Capital expenditures were $243.0 million for the fourth quarter and primarily related to spending for the Company’s next-generation satellite constellation, Iridium NEXT. The Company ended the fourth quarter with a cash and marketable securities balance of $389 million and gross debt of $1.5 billion. Net debt was $1.0 billion.
2016 Outlook
The Company issued its full-year 2016 outlook for total service revenue growth and OEBITDA. The Company expects:
– 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.
