Iridium Asks for Investor Patience Through Lull

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PARIS — Mobile satellite services provider Iridium Communications on Feb. 28 asked investors to stick with the company as it moves through mediocre periods like 2012 on the way to a diversified and growing revenue base.

“We’re a long-term bet that hasn’t paid off yet,” Iridium Chief Executive Matthew J. Desch said during a conference call with investors, reminding shareholders how far the McLean, Va.-based company has come in the past six years. “We’re about half-way up the mountain. The peak is in sight.”

Conceding that 2012 “fell a little short” of the company’s forecasted target for service revenues, Desch said robust growth should return in 2013, with total subscriber growth of between 15 percent and 20 percent — mainly in machine-to-machine terminals — and total service revenue growth of between 8 percent and 10 percent.

Iridium left largely unchanged its previous forecast that service revenue would grow by around 10 percent per year between 2013 and 2015, with operational EBITDA — earnings before interest, taxes, depreciation and amortization — climbing to 60 percent of revenue by 2015, versus 54 percent in 2012.

Iridium operates a constellation of 66 low-orbiting satellites delivering voice and data communications to 611,000 subscribers as of Dec. 31, up nearly 17 percent from a year ago and 2.7 percent from Sept. 30. Forty percent of the subscribers were machine-to-machine terminals that accounted for a total of 17 percent of Iridium’s revenue of $383.5 million.

Desch said that the constellation, which is beyond its original contracted in-orbit service retirement date, remains healthy in orbit with five spare satellites in addition to the 66 operational spacecraft.

Keeping the constellation fully functional until Iridium’s $3 billion Iridium Next fleet is launched starting in 2015 has been an Iridium priority.

Desch said the Iridium Next contract, with prime contractor Thales Alenia Space of France and Italy, is slightly ahead of schedule, with a first launch scheduled in February 2015. He said Iridium expected to exercise an option with ISC Kosmotras of Russia for the launch of the first two Iridium Next satellites aboard Russian-Ukrainian Dnepr vehicles, which are converted ballistic missiles.

Dnepr’s availability on the commercial launch market has been a subject of discussion in the industry in recent months.

As it moves toward its second-generation constellation, Iridium is facing subscriber losses from some of its military users in Afghanistan as allied forces begin their withdrawal, or relocate in Afghanistan to central locations where satellite phones are not needed.

In addition, Iridium’s OpenPort maritime service was hit with an unexpected customer loss in late 2012 as a fleet owner defected to competitor Inmarsat of London. Iridium Chief Financial Officer Thomas J. Fitzpatrick said during the conference call that the loss of this customer was acutely felt because the vessels in question had posted particularly high monthly use of the Iridium service.

Desch said that Inmarsat, which like Iridium has increased prices on certain service packages, has been “very aggressive” in going after new customers but that the maritime market is determined to have an alternative to Inmarsat.

In addition to traditional L-band mobile satellite services like Iridium and Inmarsat, ship-fleet owners now have the option of installing higher-speed VSAT, or very small aperture terminal, systems to provide broadband links. But VSAT service, provided by satellites whose coverage up to now has focused on land masses, is not available everywhere.

Iridium’s multiyear contract with the U.S. Defense Department is up for renewal in September. Desch said he was confident that the U.S. military’s use of Iridium over the years has made the service all but indispensable, and that the contract would be renewed.

A price increase on some Iridium services will help maintain revenue levels in 2012, and Iridium’s new license in Russia — up to now a gap in the service’s coverage — should also provide a revenue boost. Desch said the Russian mobile satellite services market should total around $70 million per year in the next year or two, and that Iridium is aiming to capture 40 percent of it.