Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Iridium Communications Inc (IRDM, Financial) reported a 5% service revenue growth in the second quarter, driven by strong subscriber growth with net additions of 80,000.
- The company completed its first acquisition with Satelles, making it a market leader in alternative Position, Navigation, and Timing (PNT) services.
- Iridium Communications Inc (IRDM) secured a new five-year contract with the US government, expanding its relationship with the Space Force and increasing revenue by more than 50% compared to the previous contract.
- The company successfully repriced its term loan, resulting in an annual interest expense saving of approximately $4 million.
- Iridium Communications Inc (IRDM) increased its quarterly dividend by 6% to $0.14 per share, reflecting confidence in its ability to grow free cash flow well into the next decade.
Negative Points
- Revenue from commercial broadband fell by 4% from the year-ago period, indicating challenges in this segment.
- The company expects higher SG&A expenses in 2024, up about 15% from the previous year, partly due to the Satelles acquisition and reclassification of certain expenses.
- Depreciation and amortization will be significantly lower due to the change in satellite useful life, impacting revenue recognition from associated fixed-price hosting contracts.
- Iridium Communications Inc (IRDM) plans to increase its net leverage to below 4 times OEBITDA through 2026, raising concerns about higher debt levels.
- The company acknowledged that 2024 is a transition year, indicating potential uncertainties and challenges in achieving its growth targets.
Q & A Highlights
Q: On the service revenue guidance, maintaining at 4% to 6% year-over-year increase, any update from what you were thinking last quarter to what you're thinking this quarter for us in that range?
A: Not really. The Satelles acquisition was not contemplated in our original guide, but it represents less than 100 basis points of additional growth. We are comfortable reiterating the original guide of 4% to 6% and the $1 billion service revenue guide for 2030. (Thomas J. Fitzpatrick, CFO)
Q: Is there something that goes on when leverage is above 3.5% but less than 4%?
A: Not between 3.5% and 4%. When you get over 4%, certain things happen, but they are manageable. We prefer keeping it inside of 4 times, which provides a lot of capacity for additional share repurchases. (Thomas J. Fitzpatrick, CFO)
Q: On IoT, you did have that ARPU increase. Can you talk about the competitive positioning of those IoT devices versus what's going on with direct device of other operators out there?
A: We're introducing new devices with higher speeds and more capabilities, which helps drive ARPU. We have a strong competitive advantage because we offer a global service from day one, unlike others who are typically non-real-time or regional. We supplement cellular IoT, which only covers a small part of the world. (Matthew Desch, CEO)
Q: On the leverage point, it's a significant increase from 3.5% to 4%. Is there anything else going into this decision?
A: The additional leverage is exclusively to repurchase more shares. We believe the stock is undervalued and taking it up to just inside of 4 times OEBITDA provides significant capacity for share repurchases. (Thomas J. Fitzpatrick, CFO)
Q: On commercial broadband, can you help tell us what inning are we in on this ARPU decline?
A: We're in the latter part of the game. The predominant use is now as a companion service. We're adding GMDSS to our broadband service, which will enhance its value. We think ARPU will settle in the mid-200s. (Matthew Desch, CEO)
Q: You talked about the $90 million in incremental revenue over the next five years from the US government. How does that flow through the next several years?
A: It's pretty flat year over year. The previous contract was lower, and this new contract steps it up roughly 50%, providing a steady increase over the next five years. (Matthew Desch, CEO)
Q: On the IoT front, what drove the ARPU increase? Was it consumer or industrial?
A: It was driven by consumer, particularly due to a new two-year contract with a large, fast-growing customer. This is not a one-time benefit but will continue over the contract period. (Thomas J. Fitzpatrick, CFO)
Q: Is your partner promoting their product more to include you?
A: Yes, they are heavily promoting their products, introducing new capabilities, and working with us to make it a success for both parties. (Matthew Desch, CEO)
Q: What are the margins for equipment, and what's the range for the full year?
A: High 30s margins for equipment are about right. (Thomas J. Fitzpatrick, CFO)
Q: Any update on Aireon?
A: Aireon is seeing positive developments, including new products, expanding teams, and continued expansion of their footprint. They are also working on a possible global VHF service to ADS-B, which could be part of our next constellation. (Matthew Desch, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
