Iridium Reports Double-digit Revenue Growth in First Half of 2011

by

PARIS — Mobile satellite services provider Iridium Communications on Aug. 8 reported a 13 percent increase in revenue for the first six months of 2011, with subscriber growth for both voice and data links more than offsetting declines in monthly revenue per subscriber.

McLean, Va.-based Iridium said it has seen no appreciable decline in any of its major markets, including U.S. military use of Iridium gear in Afghanistan and commercial use of Iridium by the maritime industry.

In a conference call with investors, Iridium Chief Executive Matt Desch said the company, which in September will be introducing a handset with a host of new features, has also seen no impact on its business from rival Inmarsat’s hand-held phone, which was introduced in mid-2010.

London-based Inmarsat told investors Aug. 4 that its maritime business was suffering as customers switched to a new generation of on-board equipment that costs less per delivered megabyte of data. As they get used to the new gear, Inmarsat said, ship owners and crews will increase the volume of data they demand, and revenue will go up.

Inmarsat also said its new IsatPhone Pro handset was taking “at least” one-third of the market for new satellite handsets sold in recent months, and had more than 30,000 active subscribers as of June 30.

Desch said that if this is the case, Inmarsat would appear to be opening up a new satellite handset market at the lower end by virtue of the lower cost of the Inmarsat product. Be that as it may, Desch said, Iridium is seeing no erosion of its growth.

As of June 30, Iridium had 477,700 total subscribers. This figure includes 294,800 commercial voice subscribers, up 12 percent from a year earlier. Commercial machine-to-machine subscriptions totaled 135,700 as of June 30, up nearly 63 percent in a year.

Government voice subscribers totaled 37,200 as of June 30, up nearly 17 percent. Government subscriptions to Iridium’s machine-to-machine service jumped 82 percent |during the period, to 10,000 |subscribers.

These increases were offset by reduced monthly revenue from all categories of Iridium users except for government machine-to-machine contracts. As is the case with other companies in this sector, Iridium is introducing subscription packages that provide lower monthly charges for some types of use.

For its U.S. government customers, Iridium has fixed-rate pricing plans for voice and data users.

Total Iridium revenue for the six months ending June 30 was $187.2 million, up 13 percent from a year earlier. Operational earnings before interest, taxes, depreciation and amortization were 49 percent of revenue for the period, compared with 42 percent a year ago.

In an Aug. 8 filing with the U.S. Securities and Exchange Commission (SEC), Iridium said it removed from service one of its in-orbit satellites, bringing to eight the number of Iridium satellites that have failed in orbit in the past decade.

Desch said the company has sufficient in-orbit spares to avoid any permanent service degradation before the company’s second-generation system, Iridium Next, is launched starting in 2015.

Desch said prime contractor Thales Alenia Space of France and Italy is nearing completion of the Iridium Next preliminary design review, a key engineering milestone, and that the program is on schedule. As of June 30, Iridium had paid Thales Alenia Space $297.2 million of the $1.8 billion total contract value for 81 Iridium Next satellites, of which 72 are scheduled to be launched. The remaining nine will be spares.

Iridium has contracted with Space Exploration Technologies (SpaceX) of Hawthorne, Calif., to launch all 72 satellites aboard Falcon 9 rockets under a deal that has a maximum value of $492 million, or $6.83 million per satellite.

In June, Iridium signed an option with ISC Kosmotras of Moscow, operator of the Dnepr rocket, a converted ballistic missile, for up to six Dnepr launches from Russia’s Yasny spaceport. The contract includes a second option, also for up to six launches.

Each Dnepr rocket would carry two Iridium satellites. In its SEC filing, Iridium said its contract with Kosmotras calls for a payment of $184.3 million if all six launches are conducted, for a per-satellite launch cost of $15.4 million.

Iridium has until March 31, 2013, to exercise its Kosmotras contract, which otherwise will be terminated.

Iridium Next is expected to cost around $3 billion including the satellites’ construction, launch and launch insurance. The company has secured a $1.8 billion bank facility with the backing of France’s export-credit agency, Coface. These funds, plus Iridium’s projected operating cash flow, are expected to be enough to finance Iridium Next. Iridium is including in its future cash flow projections one or more contracts from government agencies that will place their payloads on Iridium’s satellites and pay Iridium for the service.

Desch said air traffic control and other hosted payload possibilities remain a focus of attention at Iridium, and that the company expects to have at least one hosted payload deal committed within nine months.