Iridium Communications Inc. - FORM 8-K - EX-99.1

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8-K - FORM 8-K - Iridium Communications Inc.	d766949d8k.htm

Exhibit 99.1

LOGO

FOR RELEASE THURSDAY, JULY 31, 2014


Investor Contact:		Press Contact:

Steve Kunszabo		Diane Hockenberry
Iridium Communications Inc.		Iridium Communications Inc.
+1 (703) 287-7570		+1 (703) 287-7421
steve.kunszabo@iridium.com		diane.hockenberry@iridium.com

IRIDIUM ANNOUNCES SECOND-QUARTER 2014 RESULTS; COMPANY AFFIRMS 2014 AND LONG-RANGE OUTLOOK

MCLEAN, Va. – July 31, 2014 – Iridium Communications Inc. (Nasdaq:IRDM) (“Iridium”) today reported financial results for the second quarter of 2014 and affirmed its full-year 2014 and long-range outlook. Net income was $15.0 million, or $0.14 per diluted share, for the second quarter of 2014, as compared to $15.4 million, or $0.18 per diluted share, for the second quarter of 2013. Operational EBITDA (“OEBITDA”)⁽¹⁾ for the second quarter was $54.7 million, as compared to $51.1 million for the prior-year period, representing a year-over-year increase of 7 percent and an OEBITDA margin⁽¹⁾ of 53 percent. OEBITDA grew largely due to higher service revenue.

Iridium reported second-quarter total revenue of $102.5 million, which consisted of $76.2 million of service revenue and $26.3 million of equipment, engineering and support revenue. Total revenue increased 8 percent versus the comparable period of 2013, while service revenue grew 7 percent from the year-ago period. Service revenue, which represents primarily recurring revenue from Iridium’s growing subscriber base, was 74 percent of total revenue for the second quarter of 2014.

The Company ended the quarter with 705,000 total billable subscribers, which compares to 647,000 for the year-ago period and is up from 674,000 for the quarter ended March 31, 2014. Total billable subscribers grew 9 percent year-over-year, driven by strength in machine-to-machine (“M2M”) and commercial voice customers.

“This was another good quarter across the board,” said Matt Desch, CEO, Iridium. “It comes on top of achieving our most significant financial objective for 2014 with our credit facility amendment and related capital raise. We again have a strong funding profile during the peak spending years for our Iridium NEXT program, and the needed flexibility to execute our operating plan with less than a year to go before our first scheduled launch in 2015. I thank our lenders and shareholders for supporting a successful transaction and look forward to the transformational change we expect in our cash flow profile.”

Desch continued, “We’ve made progress in key strategic areas, with both the Iridium NEXT build and our Aireon joint venture having reached important milestones. For example, our first test call using Iridium NEXT hardware was successfully conducted earlier this month, while the highly sophisticated main mission antennas (“MMAs”) were completed for the first five satellites, allowing our prime contractor, Thales Alenia Space, to move forward with high-volume production for all 81 space vehicles. Our primary launch services provider, SpaceX, also successfully completed dispenser qualification testing for the Iridium NEXT constellation, marking an important step in ensuring that the new satellites are safely delivered into low-earth orbit. As for Aireon, I’m pleased that it met the requirements for additional investments from NAV CANADA and its European partners, respectively. With milestones complete for nearly $200 million of its $270 million total funding commitment from its other investors, Aireon is demonstrating continued momentum in deploying the world’s first near real-time global aircraft surveillance system.”

Desch concluded, “From an operating standpoint, we affirmed our 2014 and long-range outlook for all key metrics today. Total service revenue grew 7 percent versus last year, with our M2M business line leading the way posting 17 percent year-over-year growth. Iridium GO!™ is now shipping, and we’re pleased with the volume of initial orders. We’re also seeing renewed growth with Iridium OpenPort^®, which is an important barometer of our prospects in the aviation and maritime markets.”

Iridium Business Highlights

Service – Commercial

Commercial service remained the largest part of Iridium’s business, representing 59 percent of the Company’s total revenue during the second 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 $60.2 million, a 6 percent increase from last year’s comparable period, primarily supported by a gain in M2M data and voice subscribers.

•

Commercial voice and data subscribers increased 3 percent from the year-ago period to 352,000 customers. Commercial voice and data average revenue per user (“ARPU”) was $44 during the second quarter, unchanged from last year’s comparable period. Commercial M2M data subscribers grew 18 percent from the year-ago period to 298,000 customers. Commercial M2M data ARPU was $17 during the second quarter, unchanged from last year’s comparable period.

•

Iridium’s commercial business ended the quarter with 650,000 billable subscribers, which compares to 596,000 for the prior-year quarter and is up from 621,000 for the quarter ended March 31, 2014. M2M data subscribers represented 46 percent of billable commercial subscribers, an increase from 42 percent 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 contracts, which include a $400 million, five-year, fixed-price agreement for satellite communications services and a $38 million deal to support and maintain the Department of Defense’s (“DoD”) dedicated gateway.

•

Government service revenue was $16.0 million, an 11 percent increase from the prior-year period, driven by the Company’s airtime services contract with the DoD.

•

Iridium’s government business ended the quarter with 55,000 subscribers, which compares to 51,000 for the prior-year quarter and is up from 53,000 for the quarter ended March 31, 2014. M2M data subscribers increased 22 percent year-over-year and represented 40 percent of government subscribers, an increase from 35 percent at the end of the prior-year period.

Equipment

•

Equipment revenue was $20.3 million during the second quarter, a 3 percent year-over-year increase. Revenue grew from the year-ago quarter primarily due to higher overall unit sales.

•

The Company’s equipment revenue in 2014 is expected to be greater than it was in 2013 due to higher overall unit sales.

Engineering & Support

•

Engineering and support revenue was $6.0 million during the second quarter, up 72 percent from the prior-year period, primarily resulting from an increased scope of work for ongoing government projects.

Capital expenditures were $49.6 million for the second quarter and primarily related to spending for the Company’s next-generation satellite constellation, Iridium NEXT, and upgraded ground network infrastructure at its commercial gateway. The Company ended the second quarter with a cash and marketable securities balance of $500.5 million and gross debt of $1.1 billion. Net debt was $500.4 million.

2014 Outlook

The Company affirmed its full-year 2014 outlook for total service revenue growth and OEBITDA. The Company continues to expect:

•

Total service revenue growth between 2 percent and 4 percent for the full-year 2014

•

Full-year 2014 OEBITDA between $205 million and $215 million. OEBITDA for 2013 was $201.1 million.


	2014 Outlook (May 2014)	2014 Outlook (July 2014)
Total Service Revenue Growth	2% to 4%	Affirmed
2014 Operational EBITDA (OEBITDA)	$205 million to $215 million	Affirmed

Long-Range Outlook

The Company affirmed its long-range outlook for compound annual service revenue growth, OEBITDA margin, cash taxes, peak net leverage and 2018 net leverage. The Company continues to expect:

•

Compound annual service revenue growth between 8 percent and 12 percent between 2014 and 2018

•

OEBITDA margin of approximately 60 percent in 2018

•

Negligible cash taxes from 2014 to approximately 2020

•

Peak net leverage of approximately 6.5x OEBITDA in 2015

•

Net leverage of approximately 4x OEBITDA in 2018


	Long-Range Outlook (May 2014)	Long-Range Outlook (July 2014)
Compound Annual Service Revenue Growth	8% to 12% between 2014 and 2018	Affirmed
Operational EBITDA (OEBITDA) Margin	Approximately 60% in 2018	Affirmed
Cash Taxes	Negligible cash taxes from 2014 to approximately 2020	Affirmed
Peak Net Leverage	Approximately 6.5x OEBITDA in 2015	Affirmed
2018 Net Leverage	Approximately 4x OEBITDA in 2018	Affirmed

Non-GAAP Financial Measures & Definitions

(1)

In addition to disclosing financial results that are determined in accordance with U.S. GAAP, the Company provides Operational EBITDA and Operational EBITDA margin, which are non-GAAP financial measures, as supplemental measures to help investors evaluate the Company’s fundamental operational performance. Operational EBITDA represents earnings before interest, income taxes, depreciation and amortization, Iridium NEXT revenue and expenses (for periods prior to the deployment of Iridium NEXT only), loss from investment in Aireon (which was previously included with Iridium NEXT revenue and expenses), share-based compensation expenses, and the impact of purchase accounting. The Company also presents Operational EBITDA expressed as a percentage of GAAP revenue, or Operational EBITDA margin. Operational EBITDA, along with its related measure, Operational EBITDA margin, does not represent, and should not be considered, an alternative to U.S. GAAP measurements such as net income or loss, and the Company’s calculations thereof may not be comparable to similarly titled measures reported by other companies. By eliminating interest, income taxes, depreciation and amortization, Iridium NEXT revenue and expenses (for periods prior to the deployment of Iridium NEXT only), loss from investment in Aireon (which was previously included with Iridium NEXT revenue and expenses), share-based compensation expenses, and the impact of purchase accounting, the Company believes

the result is a useful measure across time in evaluating its fundamental core operating performance. Management also uses Operational EBITDA to manage the business, including in preparing its annual operating budget, debt covenant compliance, financial projections and compensation plans. The Company believes that Operational EBITDA is also useful to investors because similar measures are frequently used by securities analysts, investors and other interested parties in their evaluation of companies in similar industries. However, there is no standardized measurement of Operational EBITDA, and Operational EBITDA as the Company presents it may not be comparable with similarly titled non-GAAP financial measures used by other companies. As indicated, Operational EBITDA does not include interest expense on borrowed money, the payment of income taxes, amortization of the Company’s definite-lived intangible assets, or depreciation expense on the Company’s capital assets, which are necessary elements of the Company’s operations. It also excludes expenses in connection with the development, deployment and financing of Iridium NEXT and the loss from investment in Aireon. Since Operational EBITDA does not account for these and other expenses, its utility as a measure of the Company’s operating performance has material limitations. Due to these limitations, the Company’s management does not view Operational EBITDA in isolation and also uses other measurements, such as net income, revenues and operating profit, to measure operating performance. Please refer to the schedule below for a reconciliation of consolidated GAAP net income to Operational EBITDA and Iridium’s Investor Relations webpage at www.iridium.com for a discussion and reconciliation of this and other non-GAAP financial measures.

Supplemental Reconciliation of GAAP Net Income to Operational EBITDA


	Iridium Communications Inc.
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013
	(In thousands)
GAAP net income	$	15,019		$	15,413		$	31,562		$	30,347

Interest expense		304			174			404			240

Interest income		(1,029	)		(815	)		(1,766	)		(1,518	)

Income taxes		10,170			11,187			20,759			18,736
Depreciation and amortization		19,672			18,597			39,938			36,828
Iridium NEXT expenses, net		5,057			3,968			8,197			7,528
Loss from investment in Aireon		3,827			560			4,136			2,062
Share-based compensation		1,895			2,179			3,564			4,083
Non-cash purchase accounting		(250	)		(176	)		(500	)		(370	)

Operational EBITDA	$	54,665		$	51,087		$	106,294		$	97,936

Conference Call Information

As previously announced, the Company will host a conference call to discuss its results at 8:30 a.m. ET on Thursday, July 31, 2014. Callers should dial (877) 334-1964 (U.S. only) or (631) 291-4574 (from outside the U.S.) to access the call. The conference call will also be simultaneously webcast on Iridium’s Investor Relations webpage at www.iridium.com. A replay of the conference call will be available beginning Thursday, July 31, 2014 through Thursday, August 7, 2014 at Iridium’s Investor Relations webpage. Callers can also dial (855) 859-2056 (U.S. only) or (404) 537-3406, Access Code 53094284, for an audio replay of the conference call.

About Iridium Communications Inc.

Iridium^® is the only mobile voice and data satellite communications network that spans the entire globe. Iridium enables connections between people, organizations and assets to and from anywhere, in real time. Together with its ecosystem of partner companies, Iridium delivers an innovative and rich portfolio of reliable solutions for markets that require truly global communications. The company has a major development program underway for its next-generation network – Iridium NEXT. Iridium Communications Inc. is headquartered in McLean, Va., U.S.A., and its common stock trades on the NASDAQ Global Select Market under the ticker symbol IRDM. For more information about Iridium products, services and partner solutions, visit www.iridium.com. IRDM-F

Forward-Looking Statements

Statements in this press release that are not purely historical facts may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding Iridium’s expectations with respect to total service revenue growth and OEBITDA for the full-year 2014; compound annual service revenue growth, OEBITDA margin and cash taxes in the longer-term; the development of and timing for launch of Iridium NEXT; anticipated equipment revenue; expected revenue from Iridium’s contracts with the U.S. Department of Defense; projected cash needs and cash flow changes; introduction of new products and prospects for our maritime and M2M businesses; Aireon funding tranches; and the deployment and expected benefits of the Aireon system. Forward-looking statements can be identified by the words “anticipates,” “may,” “can,” “believes,” “expects,” “projects,” “intends,” “likely,” “will,” “to be” and other expressions that are predictions or indicate future events, trends or prospects. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Iridium to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, uncertainties regarding increases in customer demand for Iridium’s products and services, including demand from the U.S. Government; Iridium’s ability to maintain the health, capacity and content of its current satellite constellation; the development of and transition to Iridium NEXT, including expanded capacity and features; the completion of funding milestones for, and the development and deployment of, the Aireon system, and the development of and market for Iridium’s products and services, as well as general industry and economic conditions, and competitive, legal, governmental and technological factors. Other factors that could cause actual results to differ materially from those indicated by the forward-looking statements include those factors listed under the caption “Risk Factors” in the Company’s Form 10-Q for the quarter ended March 31, 2014, filed with the Securities and Exchange Commission on May 1, 2014, as well as other filings Iridium makes with the SEC from time to time. There is no assurance that Iridium’s expectations will be realized. If one or more of these risks or uncertainties materialize, or if Iridium’s underlying

assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. Iridium’s forward-looking statements speak only as of the date of this press release, and Iridium undertakes no obligation to update forward-looking statements.

###

Iridium Communications Inc.

Consolidated Statements of Operations

(In thousands)


	Three Months Ended June 30,						Non-Cash Purchase Accounting for the Three Months Ended June 30,⁽¹⁾
	2014			2013			2014			2013

Revenue:
Service revenue
Commercial	$	60,217		$	56,996		$	—		$	(74	)
Government		16,000			14,405			—			—

Total service revenue		76,217			71,401			—			(74	)
Subscriber equipment		20,333			19,815			—
Engineering and support service		5,971			3,468			—			—

Total revenue		102,521			94,684			—			(74	)

Operating expenses:
Cost of services (exclusive of depreciation and amortization)		16,730			14,206			(259	)		(260	)
Cost of subscriber equipment sales		13,268			12,893			—			—
Research and development		4,645			1,741			—			—
Selling, general and administrative		18,493			18,399			9			10
Depreciation and amortization		19,672			18,597			13,397			12,393

Total operating expenses		72,808			65,836			13,147			12,143


Operating profit (loss)		29,713			28,848			(13,147	)		(12,217	)

Other (expense) income:
Interest income (expense), net		725			641			—			—
Undrawn credit facility fees		(1,460	)		(2,020	)		—			—
Other (expense) income, net		(3,789	)		(869	)		—			—

Total other (expense) income		(4,524	)		(2,248	)		—			—


Earnings (loss) before income taxes		25,189			26,600			(13,147	)		(12,217	)
Benefit from (provision for) income taxes		(10,170	)		(11,187	)		5,217			4,663

Net income (loss)		15,019			15,413			(7,930	)		(7,554	)
Series A Preferred Stock dividends		1,750			1,750			—			—
Series B Preferred Stock dividends		1,102			—			—			—

Net income attributable to common stockholders	$	12,167		$	13,663		$	(7,930	)	$	(7,554	)


Operational EBITDA	$	54,665		$	51,087

(1)

The impact of purchase accounting on the carrying value of inventory, favorable lease assets, property and equipment, intangible assets and accruals of Iridium Communications Inc., was an increase of approximately $19.8 million, $0.2 million, $348.2 million, $95.5 million and $29.0 million, respectively, compared to Iridium Holdings LLC’s balance sheet as of September 29, 2009. Similarly, Iridium Holdings LLC’s deferred revenue decreased by $7.4 million. As a result of the effect of the purchase accounting, the decrease in the carrying value of deferred revenue caused a decrease in revenue, the impact of which was fully realized by December 31, 2013. In addition, the increase in accruals had the effect of reducing cost of services (exclusive of depreciation and amortization), which we expect will continue into future periods. The increase in property and equipment and intangible assets had the effect of increasing depreciation and amortization expense, which we expect will continue into future periods. The increase in favorable lease assets and related amortization thereof had the effect of increasing selling, general and administrative expense, which we expect will continue into future periods.

Iridium Communications Inc.

Consolidated Statements of Operations

(In thousands)


	Six Months Ended June 30,						Non-Cash Purchase Accounting for the Six Months Ended June 30,⁽¹⁾
	2014			2013			2014			2013

Revenue:
Service revenue
Commercial	$	117,647		$	110,696		$	—		$	(130	)
Government		32,000			29,492			—			—

Total service revenue		149,647			140,188			—			(130	)
Subscriber equipment		40,490			37,146			—
Engineering and support service		10,416			6,539			—			—

Total revenue		200,553			183,873			—			(130	)

Operating expenses:
Cost of services (exclusive of depreciation and amortization)		30,933			28,682			(519	)		(519	)
Cost of subscriber equipment sales		27,180			24,013			—			—
Research and development		6,766			3,400			—			—
Selling, general and administrative		37,679			36,764			19			19
Depreciation and amortization		39,938			36,828			27,602			24,765

Total operating expenses		142,496			129,687			27,102			24,265


Operating profit (loss)		58,057			54,186			(27,102	)		(24,395	)

Other (expense) income:
Interest income (expense), net		1,362			1,278			—			—
Undrawn credit facility fees		(2,959	)		(4,116	)		—			—
Other (expense) income, net		(4,139	)		(2,265	)		—			—

Total other (expense) income		(5,736	)		(5,103	)		—			—


Earnings (loss) before income taxes		52,321			49,083			(27,102	)		(24,395	)
Benefit from (provision for) income taxes		(20,759	)		(18,736	)		10,754			9,312

Net income (loss)		31,562			30,347			(16,348	)		(15,083	)
Series A Preferred Stock dividends		3,500			3,500			—			—
Series B Preferred Stock dividends		1,102			—			—			—

Net income attributable to common stockholders	$	26,960		$	26,847		$	(16,348	)	$	(15,083	)


Operational EBITDA	$	106,294		$	97,936

(1)

Iridium Communications Inc.

Summary Revenue and OEBITDA Highlights


	Three Months Ended June 30,				% Change			Six Months Ended June 30,				% Change
	2014		2013					2014		2013
	(In thousands)							(In thousands)
Revenue
Service revenue⁽¹⁾
Commercial
Voice and M2M data service
Voice and data	$	45,711	$	44,648		2	%	$	89,647	$	87,093		3	%
M2M data⁽²⁾		14,506		12,348		17	%		28,000		23,603		19	%

Total commercial voice and M2M data service		60,217		56,996		6	%		117,647		110,696		6	%

Government service revenue⁽³⁾		16,000		14,405		11	%		32,000		29,492		9	%


Total service revenue		76,217		71,401		7	%		149,647		140,188		7	%

Subscriber equipment		20,333		19,815		3	%		40,490		37,146		9	%

Engineering and support⁽⁴⁾
Government		5,524		2,767		100	%		9,390		5,357		75	%
Commercial		447		701		-36	%		1,026		1,182		-13	%

Total engineering and support		5,971		3,468		72	%		10,416		6,539		59	%

Total Revenue	$	102,521	$	94,684		8	%	$	200,553	$	183,873		9	%


Operational EBITDA
Operational EBITDA	$	54,665	$	51,087		7	%	$	106,294	$	97,936		9	%

Other
Capital expenditures ⁽⁵⁾	$	49,554	$	132,444				$	108,073	$	151,688

Net debt ⁽⁶⁾	$	500,438	$	510,363

Cash, cash equivalents, and marketable securities	$	500,487	$	275,689

Credit Facility	$	1,084,425	$	853,552

(1)	Service revenue consists of primarily subscription-based services which often generate a long-term recurring revenue stream from subscribers.

(2)	M2M data service provides a two-way short burst data transmission between Iridium Communications Inc.’s network and a telemetry unit, which may be located, for example, on a container in transit or a buoy monitoring oceanographic conditions.

(3)	Government service revenue consists of voice and M2M data subscription-based services provided to agencies of the U.S. government through prime contracts or subcontracts.

(4)	Engineering and support includes maintenance services to the U.S. government’s dedicated gateway in Hawaii and engineering services to assist customers in developing new technologies for use on Iridium Communications Inc.’s satellite system.

(5)	Capital expenditures based on cash spent in the respective period.

(6)	Net debt is calculated by taking the sum of the short term and long term debt less cash and cash equivalents, marketable securities, and the debt service reserve for the credit facility.

Iridium Communications Inc.

Subscriber Highlights


	As of June 30,				% Change
	2014		2013
	(In thousands, except ARPU)
Billable Subscribers ⁽¹⁾
Commercial
Voice and M2M data service
Voice and data		352		343		3	%
M2M data		298		253		18	%

Total commercial voice and M2M data service		650		596		9	%

Government
Voice and M2M data service
Voice and data		33		33		0	%
M2M data		22		18		22	%

Total government voice and M2M data service		55		51		8	%

Total billable subscribers		705		647		9	%


	Three Months Ended June 30,					% Change			Six Months Ended June 30,					% Change
	2014		2013						2014		2013
	(In thousands, except ARPU)								(In thousands, except ARPU)
Net Subscriber Additions
Commercial
Voice and M2M data service
Voice and data		14		11			27	%		12		11			9	%
M2M data		15		15			0	%		25		25			0	%

Total commercial voice and M2M data service		29		26			12	%		37		36			3	%

Government
Voice and M2M data service
Voice and data		1		(1	)		-200	%		2		(3	)		-167	%
M2M data		1		1			0	%		2		3			-33	%

Total government voice and M2M data service		2		—			NM			4		—			NM

Total billable subscribers		31		26			19	%		41		36			14	%


	Three Months Ended June 30,					% Change			Six Months Ended June 30,					% Change
	2014		2013						2014		2013
ARPU⁽²⁾
Commercial
Voice and data	$	44	$	44			0	%	$	43	$	43			0	%
M2M data	$	17	$	17			0	%	$	16	$	16			0	%

(1)	Subscribers as of the end of the respective period.

(2)

ARPU is calculated by dividing the revenue in the respective period by the average of billable subscribers at the beginning of the period and billable subscribers at the end of the period and then dividing the results by the months in the period. Historically, government service revenue was driven by changes in subscriber count or ARPU, however under the terms of the new EMSS contract, government service revenue is a fixed-price for unlimited subscribers. For this and future comparative periods, ARPU will not be presented, as it is no longer a relevant government service revenue metric.

NM - not meaningful

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