Profile: Taking Iridium To the Next Step

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  Space News Business

Profile: Taking Iridium To the Next Step

By MISSY FREDERICK
Space News Staff Writer
posted: 30 January 2006
04:10 pm ET


Profile: Carmen Lloyd

Chief Executive Officer, Iridium Satellite LLC

I n 2000, a group of investors purchased the assets of the bankrupt Iridium satellite phone company for $25 million, a tiny fraction of the roughly $5 billion spent deploying the system.

Anchored by a $72 million, two-year contract with the U.S. Department of Defense (DoD), the new company, Iridium Satellite LLC, was able to build a business. Today, Iridium Satellite is cash-flow positive, according to Carmen Lloyd, who took over the company in October 2003 . Iridium and DoD are negotiating the fourth of five one-year options on their contract, and commercial sales have outpaced government sales since 2004.

But major decisions are looming. Iridium Satellite is looking for another cash infusion to start paying back its investors and lay the groundwork for a next-generation satellite system, which Lloyd says likely will not be a carbon copy of the first. The company is weighing options that include an initial public offering (IPO) and a strategic partnership.

Lloyd spoke recently with Space News Staff Writer Missy Frederick.

What is the likelihood of an Iridium IPO in 2006?

We are always on the outlook for what’s the next step here. The good news is that growth is quite strong. Second of all, we are profitable and have positive cash flow.

As we look at the next step here, when you’re financially stable and strong, then you have a number of options, whether it be an IPO or public debt or public equity, strategic partnerships, etc. So we’ve reached that critical point as a company, where we’re on the radar screen, and we’re going to look at the best option for our investors.

Our investors have been very patient. They’ve been at this for five years, and we owe them a return. It’s a normal business process when the business has matured financially.

For how long has Iridium been cash-flow positive?

We’ve been profitable for three quarters now, and had positive cash flow since 2004. When we became cash-flow positive, we began investing in our growth. It was very important that we set aside money to invest in the development of our handsets and in the development of our low-cost data device.

What is the status of your existing constellation of satellites?

Today’s constellation is fully populated. We have 66 satellites, and they cover the globe. We also have overlap from spot beams and in-orbit spares. That way if we do have an anomaly situation where we’d have to bring a satellite out of service, it takes a very short time frame for us to do that, with very little customer interruption. It’s probably the most robust network in the sky.

What are your fleet replenishment plans?

This year, we plan to launch a much more aggressive program looking at our satellites in terms of longevity. The last review we had put them at lasting through 2014.

We’re going to take some of our money this year and look at what the constellation looks like now, and in conjunction with that, what the next generation of them will look like. The process will probably take 12-18 months.

Because technology has moved on, there are a lot of opportunities for additional functionality, and lots of opportunities to look at architecture changes. Will we maintain the existing constellation, or look at a combination with a geostationary satellite or with some other technology?

How much will it cost to replenish the fleet ?

It’s hard to say. You could do a reverse-engineering exercise and figure out what it would cost to duplicate what we have, but that’s probably not going to be where we go next. So as we flesh out the plan for our next step, we’ll look at what it will cost. We’re going to look at things like shared payload opportunities, and ask such questions as whether we could put satellite radio capabilities up there, or Global Positioning System capabilities. These are all things we’ve engaged in discussing with specialists.

For the next couple of years there’s going to be cash flow coming in. Some longevity plans we’ve seen have put some of our existing satellites as lasting until 2020, so we’ll still be garnishing revenue. This makes it much more feasible to think about internally funding it. Instead of the endeavor costing $2 billion, it might be done in $150 million-$200 million increments, and it’s not inconceivable that we’d be pushing that kind of cash flow. We’d probably want to leverage up, but the cost wouldn’t be anywhere near the $5 billion Iridium 1 cost.

When you look out over the next three to four years, we’ve got 140,000 subscribers, and are adding about 3,000 a month. We’re going to have a very large installed base of customers, so anything we do will need to be backward compatible.

What new Iridium products or applications are planned for launch in the near future?

We’re officially releasing our low-cost data-only module next month, called the 9601 Short Burst Data Service Transceiver, which has been beta tested and is in production now. It’s kind of like a modem using the Iridium system and it can be very useful for things like asset tracking. It has a number of applications in the maritime and government areas of business.

Our Push-To-Talk voice and data system, which allows a user to communicate with multiple users simultaneously, is in Phase 1, meaning we have customers using it in a pilot program. It will get pushed out to our first customers in the military in the fall of this year, and be commercially available in the first or second quarter 2007. It has a lot of neat applications on the homeland security and military side, and even in public safety.

We’ll also be developing next-generation handsets that will be more robust, as well as smaller and lighter. We’re in the second generation of phones now, and have been for about four years. The earlier generation had a bad rap as far as size and weight. The second generation isn’t bad.

Is your DoD business still growing?

They’ve actually been growing their business — not just on the voice side, but on the data side, using our technology to track inventory or track logistics.

In terms of our overall growth, we’ve needed to build up our commercial business so as to not be highly reliant on a single customer. Because we’re private, we don’t publicize our revenues, but we describe our DoD business from our main contract with them as somewhere in the 25-percent range. If you include all our government work, it makes up about a third of our business.

We’re seeing a lot of subscribers not just for voice, but for asset tracking, command and control for weapons programs, a lot of ground sensors, etc.

Have you seen increased business from the aviation industry?

In the general aviation market, we’re introducing new products such as credit card capabilities where you can get on a jet, swipe your card and pick up 100-500 minutes of voice or data time.

We’re seeing continued opportunities not just on the corporate or general aviation side of things, but also commercially. Some of the large carriers such as Federal Express can use our services for asset tracking and for the ability to communicate back and forth. Another area we’ve gotten into is helicopters; we have a lot of medical evacuation helicopters using us for the transmission of both voice and data.

What impact did Hurricane Katrina have on demand for Iridium phones and services?

Since Katrina, the need for government agencies to be preparing for the future has been one of our marketing efforts. We’ve been pushing hard on a number of agencies, as well as officials at the state and local levels.

We’ve seen kind of a contiguous backlog of equipment which is at higher than normal levels; more orders than we’ve been able to keep up with. People are starting to think ahead and plan ahead.

If you talk to local- or state-level officials, they clearly know they need to be prepared for next time. At the federal level, there has been a lot of activity around committees and hearings, where a number of people, including ourselves, spent a lot of time trying to convince them this is something they need to support as well.