Q3 2019 Earnings Call
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Thank you.
Good morning, and welcome to Iridium <unk> third quarter 2019 earnings call joining me on todays call car, a CEO , Matt Desch and our CFO comp. It's Patrick today's call will begin with a discussion of our third quarter results followed by Q anyway, I Trust, you've had an opportunity to review this morning's earnings release, which is available on the Investor Relations section of Iridiums website.
Right.
Before I turn things over to Matt I'd like to caution all participants that our call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
We're looking statements or statements that are not historical facts and includes statements about our future expectations plans and prospects.
Such forward looking statements are based upon our current beliefs and expectations and are subject to risks, which could cause actual results to differ from forward looking statements such risks are more fully discussed in our filings with the Securities Exchange Commission My remarks today should be considered in light of such risk.
Any forward looking statements represent our views only as of today and what we may elect to update forward looking statements at some point of the future. We specifically disclaim any obligation to do so even if our views or expectations change during the call well also be referring to certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with Joe.
Generally accepted accounting principles. Please refer to todays earnings release, any Investor Relations section of our web site for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures with that let me turn things over to Matt.
Thanks, again and good morning, everyone.
So it's not easy you know iridium price, the 1.4 or 5 billion term loan and an additional revolver earlier this month.
I'd like to talk for a minute about this transaction before discussing our third quarter activities and financial performance.
This refinancing, which we expect to close next week is a major milestone for us it will replace and pay off our longstanding $1.8 billion French export bank facility that was instrumental in the construction launch of our new constellation.
The BP I facility as its now called let's put in place in 2010 and provided iridium cost effective financing for Iridium next one debt funding for companies like ours was difficult to come by.
While the facility was perfect for Iridium at that time, the completion of our new network allows us to take another step forward to a structure that has a better fit for our company today.
The new deal, we just price will completely retire the French facility and in doing so it proves our capital structure provides us flexibility to leverage our growing free cash flow for investors and kicks off a new era for our company.
Can't overstate, the rebel relevance and symbolism a this transaction to iridium, there's really a key milestone and we feel a tremendous amount of optimism as we begin the new chapter of growth for the company and its shareholders and many of you on the call today have been vital to see that through to this day.
That's where the third quarter results. We reported this morning, they reflected another strong quarter and a healthy business that continues to grow as such we're on track to exceed our original service revenue guidance for the full year and today, we're tightening our operational EBITDA guidance to better reflect the momentum supporting the outlook.
The third quarter is always a busy one for us.
This year, we hosted our annual partner conference in September during which we brought together the many developers manufacturers and resellers, who create iridium solutions, it's an opportunity for our growing ecosystem up more than 450 partners to network with each other and exchange ideas, we provide them our vision of the future and they help shape our growth.
And I'm sure that are one of a kind network remains the network of choice for their customers an application.
There were many important announcements at this year's conference. So a lot of excitement around iridium Certus, which launched earlier this year.
Today, we have nearly 800 active service users and overall sales of these terminals buyer manufacturing partners to our license distributors have been several multiples of this figure.
So we have a very good pipeline a product in the channel today, which bodes well for future Activations and demonstrate the channels expectations for demand.
Despite this data as you know in the third quarter, we trimmed expectations for the sales ramp of Iridium Certus through year end 2021.
We saw sales and deployment cycles, there were a little longer than we originally anticipated.
For example, it took almost six months from the service launch for the last of our 20 maritime resellers to complete their technical requiring a decelerating uncertain and fully integrate us into their proprietary service offerings.
I can report that the rate of installation has been steadily increasing since our revenue uptick mid September .
Overall, I think weve set expectations appropriately at this time for that part of our outlook going forward.
Our newest offering iridium Certus 700 is under test now and will be available to partners by yearend.
It's been delivered as a firmware upgrade and will be straightforward for partners to up update existing terminals and customers.
Last week Intellia became the latest partner to develop a new maritime terminal based on the Iridium Certus platform.
And Tony and has a great brand in the industrial will be very attracted to many fleets.
With the speed upgrade continued strength in terminal demand and positive end user feedback we are confident that iridium certus will deliver on its promise as the industry Best L band service.
At our partners conference. We also have a lot of discussions about becoming use of iridium certus for aviation.
Today, you probably know Iridium has a strong presence in aviation with about 40000 installed subscribers from commercial aircraft and business Jets to rotorcraft and general aviation.
As a group these subscribers pull up Iridiums average voice and data ARPU.
Once aviation terminals already we expect iridium certus to turbocharge, our existing suite of aircraft safety services as well as deliver internet capabilities, such as electronic flight bag services graphic weather Blackbox streaming E mail and more.
We're also seeing a lot of interest in the way the area and if that had been adding some new partners addressing the opportunities that are coming for beyond line of sight control of drone.
We have a number of avionics partners developing solutions to meet all of these aircraft platform requirements testing of Iridium Certus aviation terminals is currently underway and we expect the first one should be ready by mid 2020, let's certified cockpit safety products to follow later in the year.
We also use our partner conference as a launching pad for new services like the one that we're calling iridium certus mid band, which will be available next year.
Mid band represents a new category of surface devices that are optimized for size power weight and tenant size and cost.
They will operate much faster than our current narrowband transceivers that are embedded in our phones personal communication devices and I T modems.
There's a lot of excitement in our partner channels for the first device in this category the new Iridium 97, 70, transceiver and we expect to see applications for that starting later in 2020 and ramping into 2021.
Today, we have over 767000 commercial iOS users.
And leasing compound annual subscriber growth greater than 20% since going public in 2009.
All this growth was generated by our legacy service offering which is very capable despite having a very slow data rate.
New mid band devices that are up to 35 times faster, we'll move iridium from just delivering data points like location in assets status.
More diverse feature rich information like pictures graphic messaging and email.
[laughter] Iridiums partners.
We're also excited to hear about our plans to deliver some new aiotv devices in the coming on.
It expand on Iridium edge, which we introduced in 2017.
Irene edge line of finished Aiotv terminals aim to simplify our partners work, putting their customers on the radio network SB time to revenue for Iridium minutes partners.
2020, we will rollout to new identity products to our partners Iridium edge pro which incorporates a processor in a suite of development tools to get partners a complete solution to develop their applications directly on the device.
And the Iridium edge solar device, which is a very low cost solar powered tracking tracker, which we think will be the best device in that category for tracking non powered assets like shipping containers and the like.
These and other new capabilities, we're introducing like Iridium cloud connect powered by Amazon Web services, that's going live this quarter are generated a lot of excitement for our I O T partners invalidate why were the best network for them to develop their satellite I would see services.
One other announcement that coincided with our partner conference was the memorandum of understanding we entered into with Oneweb.
You envision integrating iridium into a possible combined service offering available to their future customers.
Well, one web isn't planning to offer global services for another two years or so they felt the combined offering could leverage the strength of both companies Leo networks and that our L band complement their K. you band served us very well.
Is likely not the only announcement will make with new Mega constellation owners. I think this announcement also serves as a clear message to investors that are Alvin and the new K. you are KBW and networks are not direct competitors. It's helpful to have these reminders for investors, especially with a high frequency of satellite launches planned by Mega operators print.
Next year.
As you know the U.S. government renew our to enhance mobile satellite services contract in mid September .
We're really happy with the contract it gives both parties good visibility into future and as a foundation for our mutual relationship going forward.
A fixed price seven year deal is unprecedented in the satellite industry or frankly, most other industries and demonstrates the value of the U.S. government fees in our unique network.
We expect the deemed to be a strong customer for iridium Certus services on top of this contract and expect they will eventually be care a lot of iridium Certus broadband service through our partner Comsat, and new sort of mid band service and equipment through other partners in the government space.
In addition to the Msf airtime contract the U.S. government awarded to other notable contract to Iridium This year and most recently the gateway evolution contract, which provides for technical refresh and lifecycle upgrades to the government existing gravel gateway equipment to ensure continued compatibility with iridiums commercial architecture.
There's a five year I'd like you contract.
Focused on infrastructure upgrades, which can generate up to 76 million in revenue for iridium.
It will be used to help the government at launch services like Iridium Certus do their dedicated iridium gateway.
The other contract we announced in April , let's forget weight maintenance and support services.
It's a four and a half your contract worth 54 million and it's being used to procure iridium software in engineering services in support of the DRD.
Revenues from this contract and the gateway evolution contract flow through Iridiums Engineering services line, and while lower margin than the MSS airtime contract. These contracts are very important in optimizing the use of iridium services.
Overall, our relationship with the federal government is fundamental to our story. The U.S. government has been a source a tremendous collaboration and often enabled commercial solutions as well.
We're happy to a formalized these important new contracts with the de especially in a year that is tracking to be their biggest here of subscriber growth in our history.
Finally, I want to touch on area, which is live and and delivering on the benefit they promised.
Revenue was flowing and the company will have positive free cash flow next year. It's this is an amazing feat given that the company was little more than an idea just a few years ago.
Since our last call this on two more customers.
Hey of India, and co Cessna organization, managing air traffic for six Central American States.
We expect to see more customer sign up shortly and also look forward to the epay starting to use area service in the Caribbean that early next year.
We continue to believe that our equity and stake in area will yield significant cash flow for redeeming the coming years and are very proud of the progress the team is making.
So overall, another great quarter, and with some pretty big milestones achieved as well.
Provide some more detail I'll now turn it over to Tom who by the way deserves a lot of credit for his leadership on the execution of our recent financing and for his leadership on our overall financial plan.
Tom Thanks, Matt Good morning, everyone.
As you saw from our press release. This morning, we enjoyed strong result in the latest quarter double digit growth in service revenue and operational EBITDA.
I'd like to kick off my remarks by reviewing some of our key financial metrics for the quarter.
Ladies and trends that underlie our revised 2019 guidance.
I'll also provide an update on our refinancing activities and review our capital plans liquidity position.
In the third quarter Iridium generated total revenue of 144.8 million. This was a 6% increase to the prior years quarter and largely driven by growth in both commercial and government service revenue somewhat offset by lower equipment revenue.
Operational EBITDA was 88.5 million, which was up 11% from last year's comparable quarter.
On the commercial side of our business, we reported service revenue of 90.2 million in the third quarter, which was 8% higher than a year ago.
The increase reflected continued strength that I'd say as well as growth in revenue for the hosted payload another data services during the quarter voice and data revenue rose 3%.
The increase was driven by a rising subscriber cap and an increase in ARPU to $48 that primarily benefited from new Iridium Certus activations.
Commercial Aiotv revenue grew 12% during the quarter to 25.3 million or 25% growth in billable subscribers continuing that trend.
Demand for consumer oriented devices like garments growing suite of personal location and messaging devices continued to provide us with momentum. In addition to introduce a new satellite navigation devices. This summer pharma has expanded its iridium offerings to consumer products Arden for the maritime environment.
The LTE subscribers that garment and other consumer oriented companies bring to our network are particularly attractive in terms of revenue generation relative to network resources use we expect to add about 100000, new personal communication subscribers. This year to last year's base of about 225000 users.
During the third quarter, we added 50000, net new Aiotv commercial subscribers commercial aiotv data subscribers now represent 67% of billable commercial subscribers up from 63% in a year ago period.
Turning to our government service business, we reported revenue of 25.6 million at third quarter, which reflected the renewal of our MSS contract as well as revenue from short term extensions during the quarter.
As Matt noted the U.S. government signed a seven year $738.5 million contract, which will pay iridium 100 million an initial year the contract and step up to 110.5 million in the seventh year in 2026.
Dms as contract reflects the strong collaborative relationship that Iridium has built the U.S. via day, which will serve as an important source of recurring revenue well into the next decade, while also leaving additional room for growth from Iridium service, which will be procured separately.
In the third quarter government subscribers grew 16% year over year to reach a record 131000 users.
Revenue from equipment sales was 21.4 million in the third quarter and continues to reflect our outlook for moderation from a record pace last year equipment margins, 40% in the latest quarter.
Engineering support revenue was 7.6 million in most recent quarter and continues to reflect increased activity with the U.S. government.
In general the third quarter came in much as we had expected and continue to reflect growth in recurring service revenue service revenue accounted for 80% of total revenue in the third quarter of about 300 basis points from last year. We now expect that total service revenue will be between 445 to 450 million for the full year.
Versus our prior guidance of approximately 440 million.
We're also using today's call to update our outlook for operational EBITDA tightened our guidance to approximately 330 million for the full year.
We continue to anticipate a step up and data service revenue corresponding with the customer contract milestones.
Ariane is on track to reach we expect area on data revenues will rise from about 1.1 million a month currently to approximately 1.9 million a month. When this milestone is satisfied later in the fourth quarter.
As you consider our implied guidance for service revenue in the fourth quarter. It is important to remember that we recorded an out of period true up relative to tell us in last year's fourth quarter of 4 million.
The midpoint of our full year guidance or service revenue was 447.5 million. This the 10% growth year over year.
So format for the to tell us adjustment, our fourth quarter growth rate would be in line with the full year growth rate of 10%.
Also depreciation and amortization expense should continue at a quarterly rate of about 75 million, reflecting the completion of the Iridium next program.
With the upgrade of our global constellation now behind US Iridium enters a new phase in the corporate life cycle.
We had a strong capital position and our at the beginning of a prolonged period of free cash flow generation.
As of September Thirtyth. This year, we had a cash and cash equivalents balance of 171.6 million.
During the quarter, we incurred $10.2 million of capital expenditures, which reflected maintenance capex now that spending for Iridium next mission has concluded moving forward, we anticipate maintenance capex to average approximately $35 million year. The next 10 years.
As Matt indicated we are delighted with the terms of our new 1.4 or 5 billion term loan.
The term loan will improve a recent covenant flexibility and amortization profile and aligns better with our intention to undertake shareholder friendly actions.
We've been talking about refinancing for some time, we're waiting to get the new D. contract under our belt before doing so since April when the previous five year MSS contract expire LIBOR has fallen about 60 basis points to around 1.9%.
So that move has been favorable at the same time, however, the market for leverage loans has softened with spreads widened by close to 50 basis point for single B credits like ours.
Back there have been a couple of single B credits that were pulled recently due to insufficient demand.
Against this backdrop, we moved quickly after signing our new NFV contract in September to prepare for marketing our new term loan.
Our expectations were colored by the fact that there was another well known satellite company marketing a term loan in the weeks immediately prior to our planned launch.
That term loan was downsized and the pricing increased in order to close the deal. This presented a challenge for US has the company was in the same industry as Iridium and also had a higher credit rating.
Despite their higher credit rating, we and our bankers believe that iridiums growth and significant free cash flow represented a superior credit and our results bear this out.
Our offering was oversubscribed.
We're three times with orders of about 5 billion, when our 1.4 or 5 billion term loan.
As a result pricing with achieved at LIBOR, plus 375 with L. idea of 99 five.
Very favorable terms, particularly in comparison with the other recent satellite deal.
We're very proud of this outcome, particularly since we are first time issuer in this market.
We provided color on our debt offering because we think equity owners should know that another class investors has given us such a ringing endorsement.
Our pending debt transaction greatly simplifies the regions capital structure, and a better suited for our ongoing corporate priorities, especially as we enter a new error free cash flow generation.
We expect this deal to close on November 4th and provide iridium a significant flexibility in deploying excess cash generated from our business.
As you reflect in our capital plans I want to ought to provide some perspective on our financial priorities and review certain metrics. We believe investors should consider in evaluating the appropriate trading multiples for our equity.
As we've said repeatedly we intend to delever, our balance sheet and are targeting the level of net leverage between two and half in three and half times EBITDA.
As evidenced by September Thirtyth balance sheet that process has already begun we closed the quarter with net leverage of 4.8 times EBITDA gathered more down more than three quarters of return from our peak of 5.6 times last year.
We have indicated that cost associated with our finance refinancing would impact our prior guide for year end 2019 leverage by approximately a quarter turn so accordingly, we've updated our 2019 year end net leverage to 4.8 times versus our prior guide a 4.5 times.
I want to also underscore the relevance and durability of the most recent quarterly figures, we published this morning, and reflecting ongoing capital spending.
The first time investors can see within our financial statements the level of capital expenditures that we expect will characterize our 10 year Capex holiday.
If you looked at the Form 10-Q , we filed this morning, the statement of cash flow shows capital expenditures for the nine months ended September Thirtyth of 102.8 million.
This compares to capital expenditures 92.6 million from the same statements to the six month ended June Thirtyth.
The difference between these two statements is approximately $10 million.
Backing out the quarterly change.
Chart change related to GAAP capitalize interest of approximately $2 million, you're left with the cash capex amount of $8 million. This figure is squarely in line with our guidance for Capex to averaged 35 million per year over the next 10 years.
That's just can use this input to characterize iridiums cash flow and cash flow yield.
Using the 35 million dollar figure in our normalized calculation of 2019, Levered free cash flow yield 167 million, which is better than a 50% conversion rate on our EBITDA guide.
Normalized levered free cash flow per share for 29 team would be a $1.22 representing a yield of 5%.
Investors should also note that today's updated guidance for 2019 EBITDA represents more than 9% growth in 2018, so when combined with the Levered free cash flow yield is apparent that iridium represents a rare combination of growth unlevered free cash flow generation.
We believe that using these measures iridiums characteristics resemble companies in the tower sector, which trade in the range of 24 times multiple.
This is an important investment consideration in our view.
Iridium remains well positioned to generate meaningful free cash flow in the coming years and deliver on the financial transformation that our team outline within five years ago.
As I reflect in our accomplishments this year and the current trajectory iridiums business its subscriber growth in revenue pipeline I'm very proud of our team's execution and the metal Morphosys of the company that has resulted in significant benefits for our shareholders with that I'll turn things back the operator for the Kodak.
We'll now begin the question.
To ask a question.
Then one.
Your question.
Thank you.
A question.
Vince.
This question.
Rick Prentiss Raymond James.
Thanks, Good morning, guys.
Hey.
Couple of questions if I could first Matt appreciate all those details on the.
The development of the new products in the service.
Line and family.
Definitionally I assume like a surface mid band product in the I achieve that make on it as well is that all included in the now 50 million incremental.
Slide 21 exit rate revenue target.
We'll confused on sort of broadband versus Certus normal just trying to think through what that how you're going to be reporting it.
Yes, we have focus that guide really on the broadband say the the sort of 300 5700 type range products only so mid band would be more incremental than we'd go into two categories that would go into sort of the voice and data category and it would go into the Io tea category.
Sorry, so those are those are.
Products that will sort of.
Help those two revenue lines.
I think you mentioned sort of mid band, maybe some apps and 20 and then ramping in 21.
Yeah, we have a bunch of our partners who are actually.
Trialing or no testing and the and starting to integrate that knew the first.
Modem into their products right now we expect their products the at the market sometime in 2020.
But really I think this is going to be more really a big bigger part of the ramp into 2021, just takes time to to put that new product to a number of other solutions.
Make sense and then Tom obviously.
Call out on the leadership on the refinancing the financing plan.
Long journey and now you're there.
As you think about that equity friendly components, you've laid out leverage target chewing after three assets how should we think about how soon you might make board level decisions on stock buybacks or dividends and when we might see it come into the marketplace.
We think about 2020 as a de levering year.
And then.
Immediately thereafter.
Sort of as we exit 2020.
Those those initiatives become top of mind.
Okay.
And.
Noticed in the quarter R&D Dropdowns at about $3 million is that kind of the new run rate in southeast new products and that was talking about but.
Sure the constellations up there so how should we think about R&D on a go forward basis versus what we saw this quarter.
I'd say three to four Rick.
Okay and then the last one for me in a busy earnings day is.
You called out the $2 million capitalize interest in the quarter. So it was really 8 million of cash capex.
How should we expect capitalized interest to go forward now that the the constellations up there is capitalized interest really going to go away will be expense interest. So all we'll really see is.
The 35 million of kind of more traditional capex or what we're still be some capitalized interest.
A little bit I'd call, it 3 million or less for the year.
And would that be included in the 35 million or would that be added doubts that now now because that's how we quote interest expense that is that is not cash capex that is that the gap.
Okay.
Treated derrek gafford GAAP accounting.
But it's not part of we quote cash Capex is what we spend on cap Capex and we quote interest expense as cash interest expense just gap mix them together in the public buys so thats why the called your attention Gotcha I appreciate the exar inflation. Thanks, guys.
Thanks.
Your next question Greg.
Paul.
Go ahead.
Morning.
Regarding.
And.
Vision.
Okay.
Competitive response from.
Yeah.
That had any impact on your.
Well for service.
Yes, Greg not really I mean, I don't think that there has been anything that they've done thats really been.
Significant are impacting to that.
The slight.
The change in sort of the outlook at the end of 2021 was really only based on sort of the slows the slowness out of the ramp of some of our partners being able to sell the product.
Starting to ramp now as we expect we'll see the new products come onboard and aviation and a bunch of other new products that were announced by some of our.
A little manufacturers and for 2020 and 2021, so we feel pretty good about the the guidance we have right now and really don't really expect.
I don't really expect a competitive sort of answer to that in any kind of significant way.
Really I think service is better in just about every capacity and the competitive dynamic really with our partners wanting to sell it hasnt changed at all so we feel really good about where services.
Great and then in terms of area.
You highlighted two to the new contracts.
Maybe.
Can you share those how much airspace, they're currently contracted to cover right now and.
That's a milestone payments for.
Hosting milestone payments.
Yes.
What's the expectation is that cash coming in thanks.
Yes, I mean im not exactly sure about the percentage of the World I mean, there's like 14 NSP is right now that are contracted and.
And having seen their pipeline they got a bunch of them that are that are into Q and looking to close here in the coming quarter too.
And I think there will be brought on as well, it's a pretty big part of the world already but you know.
There are still still a lot.
Of opportunity ahead for them.
As I said I'm I'm quite excited because the revenue is flowing it's pretty significant revenue amount that's already getting into cash flow positive next year.
By the way, it's working very well over the northern Atlantic from what I understand and really helping.
No visibility to flights there they're using it I know flights are actually getting better better time door to door, especially as they go through Aireon airspace.
And so there's a lot of a lot of momentum on that front.
But in terms of there's still a number of at Sps in a world that they're they're looking to sign up and of course, the epay, which is starting to move.
It is.
Got a whole kind of rollout plan that are working to see if they can accelerate with the of a to get the benefits even earlier to the to the Epay and more part to the F. airspace, which is so still a big part of the world.
That's certainly positive but ill.
That's something for them to really kind of.
Developing announce.
So Tom North of sure I'll handle the milestone payments, Greg you remember as we entered the year they had paid us $43 million.
They may have made another payment of 11 million here in this quarter and we expect another payment of 4 million.
Well get 15 million from them. This year. So that's a total of 58 and so you will recall there is a contractual minimum.
Annual amount of that lines up to our Rev. Rec 16 million a year. So think of the 58 that debt they paid us essentially they're prepaid through mid 2021.
Their plan is to access the high yield market in late 2021, and do a high yield deal that retires that facility that they range last year.
And upsides that because they'll have a.
Significantly larger.
Revenue contracted at that point in time, and they intend to take us out in the entirety for the hosting payment plus interest which is accruing at LIBOR plus 350.
Okay, great. Thanks sure.
Next question.
Yes.
Please go ahead.
Yes, good morning.
Three questions for me. Please first in terms of the guide them. So you raised your guidance for service revenues.
And when I look at the Q3 actually did there was a very good progression on the bid.
I was wondering why weren't to raising.
The guidance did the other some particular cost items in Q4.
And revenue mix.
Impact.
The second question was on the addition of thinking about you mentioned a number of.
Installed customers was your trend proposition.
Products, if you could you repeat thoughts.
If I missed it but more importantly, when we think about the ramp up of deviation tondar.
As you've explained has been it a little bit of delays you like to reaching.
Some of the sort of products on maritime have you also taken more conservative view on the the ramp up of ammunition in your new guidance or you flush stub unchanged and then finally you mentioned.
Condition of some service was Amazon if you could maybe just a bit more color about Bob. Thanks.
You want me to think that first one matter. Okay. So right. So we basically took the bottom end of our range out of play so that we had our prior guidance 325 to 335, we've taken the 325 out of play and Threethirty is the number we feel very good about takes that we beat that it's going to be dependent on where equipment revenues shake out in the.
Fourth quarter, So, we'll wait and see.
And that's that's the rationale for the guide as it is.
Okay and then on this on the second question Matthew.
In aviation I quoted the number of active devices that we have of our subscribers has been.
40000, or so on aircraft of all types, that's been true over the years those are traditionally what we call it will be to use voice and data revenues that.
Our used for voice and.
Transferring of things like basic weather and.
Like slight bag updates or or.
Actually air traffic control.
Pilot messaging that sort of thing on commercial aircraft, we've been certified for a number of years.
What's called Aviation safety services as other acronyms, so were able to be put on commercial aircraft in the cockpit. So it's been a pretty successful.
You know.
Position because of our global network can because.
We have very small intend as weve been very popular in aviation scaling all the way down.
Smaller aircraft.
We were not the.
Revenue leader in L band.
In addition, but we definitely are the units leader and aviation as we've attacked more the lower end of the aviation cycle fan rotorcraft, we have a clear.
The majority of rotorcraft that have satellite connections on the.
General aviation aircraft et cetera, so as far as that evolving into service. That's underway now sort of antennas are being developed by a number of.
Terminal manufacturers different from the maritime manufactures theres more complexity involved because of the size and scale because of the certification requirements that are necessary to put something on an aircraft.
So it's taking them, we always expected that would be around mid 2020 to have those really starting to ramp into the market and that seems to be what they are so we really haven't changed our our forecast much due to aviation because it really wasn't hitting in a big way until 2021.
And was not nearly as large as the maritime.
Opportunity at least in the near term so that hasn't really changed much. So I wouldn't say, we're taking a conservative more conservative view, we still feel very very good about.
Aviation has always been one of the most.
I don't know pure advantages, where iridium has over almost any other network because of our ability to cover the polls and because the size of our antennas because the cost of them et cetera.
Now as the last when you mentioned those Amazon Web services, we did announce last year a.
Kind of a groundbreaking relationship with Amazon web services to develop a product call with which we call Iridium cloud connect that's been under development underway for the last year by a ws.
That does is sort of incorporate iridium into the a ws cloud suite that there.
Many developers and you know they have the largest market share of cloud services. So.
Particularly great advantage for those who deployed terrestrial.
Solutions using ADW us as their backbone that they can now add iridium.
It's more easily into sort of their solution because.
Although sort of commands or sort of in the in the development suite and that's been under development now for the last year and is going live this quarter. So expect to doesn't drive revenues directly to iridium, that's really more for them, but what it does is it simplifies our partners ability to put.
Solutions on the network and hopefully speed time to revenue and time for devices to get out there, which we think is a really good thing for our continued growth.
[laughter].
Great. Thank you very much.
Thanks Matthew.
The next question please.
Please queue.
[noise] not just wanted to follow up on the.
The aviation safety services.
I know inmarsat with their Swiss Swift broadband safety. It took quite a long time to get certified what gives you the confidence that you can get that certified by the end of next year.
Yes, we've been working on it for quite a while it's in the committees right now it's a the languages being reviewed in all in all the different various committees. It does require antennas.
To be validated and those are nearly ready some of them are actually starting to have initial tests and that sort of things. So.
Yes, given it's a fairly straightforward upgrade to our network if not new satellites is not.
Our current satellites are really if you will certified for its really just more of a new service class.
It's it's relatively straightforward, we just had to get the antennas ready so.
Everything we see right now is that it's on track to be.
Certified and able to be in the marketing be selling later in 2020. So that's still looking good for us.
And speaking of certification GMDSS still on track.
Yes, GMDSS effect.
Just after this call going to another project management review of that that's a.
Development, that's underway to get.
Deployed in the first quarter next year.
A lot of testing underway right now and.
Connections to the various rescue services and that sort of thing.
And that we have a exciting new terminal in the market. The large kratos has created as a number of others in the works so a lot of enthusiasm about the.
So yeah everything's on track there for GMDSS as well.
Got you had a follow up I think in your script. You mentioned you expect to add about 100000 personal communication devices. This year.
Can you give us a sense it how many were added last year and is that Garland only or does that include new partners.
Remember how many was there was less than that last year. So that's an accelerating I think I think was in the area of 75, yes, so, it's probably 25% or more actually higher than last year in terms of the.
In terms of the overall numbers there is probably about.
Almost 10 different personal communicator.
Communication devices.
Ranging from commercial applications the government applications Theres, some exciting new ones that are quite small and easy they are coming out of sort of startups and some.
Other interesting companies that are focused at the enterprise and.
As as well as sort of outside the traditional consumer spaces garment is certainly the majority of the devices and they're expanding their line and skews that are that are deploying that are integrating iridium into into them. So the majority, but there's a lot of other.
Consumer devices in the market as well.
Yes.
Can you give us a breakdown of the.
Hosting and other scenes for this quarter.
Thank you.
You mean.
Yes.
Well I know in past quarters, we've had a number of true ups and the I'm just wondering how clean that.
12 million was.
I think the Aireon hosting is pretty set its formerly the quarter the data fee like 3.2 million.
And Eric I think 12 clean Chris.
Okay.
Yes, and so.
We hit.
All of the step ups that we're going to see for the balance of the you know so as I said theres. If there is that area on customer.
That cuts customer milestone that we haven't hit through the third quarter, we expect to hit it in.
The fourth quarter at which time.
Revenues go up by 800000.
Okay and held out on how about on to tell us.
Yes, it tell us if thats the run rate until they hit another volume clip.
So there is in the month in them in the quarter for us to tell us where <unk> million to 75 at the current rate they need to they need to clear volume clip to for that to increase.
Okay.
All right very good thank you.
Thanks, Chris.
Your next question.
Yes.
Okay.
Hi.
Good morning.
Especially it has.
Impact if anything is.
Is there on that.
Right.
2020 from Jamaica.
With your carry on.
Yes.
I'm not sure Im following what you're talking about the.
Okay delay or you're referring to last quarter in previous quarters, you're talking about doing this testing in late 2019 in your pre made.
Remarks.
Talking about 20, Twond, Oh, I wasn't referring to a delay there. They are actually still testing I was just more talking about the actual use of the service and active air traffic control and stuff and probably the.
The use of it to manage I wasn't trying to make a distinguished of any sort of delay there that seems to be on track.
And.
And going well.
Okay, and then my other questions what kind of ramp could you seen concertis user base now that you're you're entering the winter months, where there's more ships support.
Oh, we continue to see Activations.
On new ships were seeing fleet that are working to convert.
Hello assumption just go into port Theres still the digitalization of them continues and the ones out in the field really there is still out in the field.
Need to upgrade over overtime so.
No. We've always had its always been a little slower in terms of active rate activation rates across all of our products in the sort of the fourth quarter in first quarter, but it doesn't look anything unusual to us it looks like it sort of the continued growth rate that we experienced in the past and other maritime areas.
And then finally on your commercial.
An area, where you could see.
ASP increase earnings is pretty much more of a declining business, but just more volume driven.
Commercial side.
So there is there's there's no element of it.
Business been declining so there's the subscribers that we're we're gaining more heavily weighted to personal communication, which is lower ARPU. We will take all of those subscribers you can get their highly efficient they have a higher they have a lower ARPU, but that that that is not.
That's that's not something that kind of declining certainly not ARPU is or are being.
Influenced by the end are gone lower but that's great business, Yes, Thats, just an average ARPU prices haven't decline nor as usage declined in fact, if anything it's going up there are some potential.
Counter actions as we start to develop Certus Io tea products as I said when you start transferring messages.
Rich messages and pictures and things like that there's a chance that.
We'll see some very interesting applications that will take advantage of that which would be higher ARPU customers.
The aviation when it comes on board is often a little higher ARPU.
Customer so there's counteracting effect of X, but if.
As Tom said of consumer.
I would see and all these personal communication devices keep exploding I'd take those all day, they don't use much resources and while they don't drive a lot incremental arc.
Revenue in each one there's a lot of volume level.
Last question is there any difference if the Aiotv proctors on service your legacy and how much of a percentage.
He is on service.
So we are describing assertive today I mean, when we talked about a guidance for how much certus. There would be in 2021, we are really only talking about a broadband product not aiotv.
No.
In the future.
Say in a year from now there will be Certus Io tea products, we would expect those revenues would go probably into the.
Got it.
As we go into the Io tea category at that time, they wouldn't be going is that sort as broadband.
And the service.
Revenues that go into these mid band products a lot of those will go into the voice and data line.
So you will see a breakout of the voice and data line here in the coming months.
Two for surface broadband services, which would include Openport answered as broadband anything if you will 128 killed us for second an up primarily.
And then you will see these mid band products kind of going into the primarily into the voice and data line and some certify a t. going into the Io tea line.
Okay.
Thank you.
Thanks.
Next question.
William Blair. Please go ahead.
Good morning that timing can.
Hey, good morning.
You guys knocked off your check with this year with the completion of the new $3 billion Iridium next constellation in January then service launch in late January the MSS contract in September and now the new term loan in October .
Just want say nice execution on all four.
If you're going to say what are we going to do next.
I usually get the.
What's next but anyway. Thank you very much accurate and moving moving forward on the third of guidance was reduced from 75 million to 50 million for the year exiting 2021 I was wondering do you have a new target year on when you think you will reach.
That 75 million started flash.
100 million dollar total broadband milestone is is 2023 reasonable or.
The other thing about that so couple of misconceptions there.
Just because we had 25 and openport didn't that that's in there.
That isn't necessarily a certain number we've talked with $75 million or broadband revenues, which could be frankly, probably won't be battle. It could be all all sort of by that time.
But probably won't be there will still be openport revenues could that product continues to.
To be on ships and wont be converted over.
So and just do the math and due to Comparables and we're going to be ramping up we believe pretty significantly in 2021, as we exit 2021 to that 75 number so.
Thank you.
I see that is linear or anything I mean, our expectations will be will cross the 100 million line pretty shortly thereafter, I don't know exactly when it is we're not going to start making new guidance on than we crossed 100 million right now but.
I would be disappointed if it was out in 2023.
Okay and.
Just one more point of clarification, the MSS contract contained.
Aiotv services and I believe they are narrow band.
Keith Harrison so are the new fairness mid band I O T severance is incremental to the fixed price DMD MFS contract.
Yes, they are so.
We did not we only included if you will legacy services in that DRG contract.
New sort of technology, that's any anything faster.
They will be buying if you will separately and we'll be paying for the air time as they go.
So, yes, both sort of broadband and sort of mid band and.
And to the mid success. These mid band applications, our I O T applications those are all incremental.
Thanks, that's all I have.
The fluid.
This concludes our focus.
Yes.
Turn the conference.
Management.
Thanks.
Thanks, I think was another good quarter, obviously is really felt a lot of milestones this year and.
We're not done yet so we look forward to see new at our fourth quarter call and.
And.
Onward, and upward thanks, everybody for joining us.
The conference.
Thank you for attending todays.
Now disconnect.
Okay.
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