Q1 2020 Earnings Call

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Thursday

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Costco, may I have your first and last name?

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Thursday

dead dead

Good morning, welcome to the Iridium Communications first quarter earnings conference call all participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation. There'll be an opportunity to ask question to ask a question. You may press start in one on your touchtone phone to withdraw your question, please press * then two, please note this event is being recorded. I would now like to turn the conference over to Kenneth Levy. Go ahead. Thank you Kate. Good morning and Welcome to our Williams first quarter 2020 earnings call joining me on the call this morning are often in our CFO. Tom Fitzpatrick. Today's call Will begin with a discussion of our first quarter results followed by a Q&A. I trust you had an opportunity to review this morning's earnings release which is available on the wage.

relations section of a reading

This website before I turn things over to math. I'd like to caution all participants that are call may contain forward-looking statements within the meaning of the private Securities litigation Reform Act of 1995 Ford bank statements are statements that are not historical fact and include statements about 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 filing with the Securities and Exchange Commission. Our bar stays should consider it in light of such risks any forward-looking statements represent our views only as of today. And while we may elect to update forward-looking statements at some point in the future. We specifically disclaim any obligation to do so, even offer or expectations change during the call will also be referring to certain non-gaap Financial measures including operational and pro forma free cash flow free cash flow yield free-cash-flow wage.

Version these non-gaap Financial measures are not prepared in accordance with generally accepted accounting principles. Please refer to today's earnings release and the investor relations section of our website for further explanation of these non-gaap Financial measures in a Reconciliation to the most directly comparable gaap measures with that. Let me turn things over to Matt. Thanks again. Good morning everyone. Well, I guess it goes without saying that we're living in some very interesting times. You know, there's this current Global pandemic has changed the fortunes of many businesses around the world at least temporarily and we're starting to feel some effects too long. Now while our first quarter was quite strong the global business and social lockdown underway clouds our visibility to the rest of the year during today's call will share the trends that we've seen through April and how their coloring our Outlook you'll see from our comment that our business model is resilient and unlike many other companies. We're happy to still be forecasting growth for the full year.

First let me address iridium operations during the onset of the virus outbreak. We quickly took precautions almost 2 months ago to ensure the safety of our employees. We wanted to remain responsive to our customers and partners protect the health of our employees and ensure that our operational Cadence was maintained essential employees were identified that needed to work in our facilities to operate our satellite and ground networks off as well as utilize testing equipment in our labs and facilitate product shipments to customers those decisions in retrospect have all been very effective. We were actually well prepared for remote work with our corporate it and security are quite Advanced. We really haven't missed a beat in terms of ongoing business operations, though, like all of you. We long for the camaraderie and social interactions of wage in a close-knit office environment and even the travel to to meet physically with Partners around the world.

I can report that our supply chain is also in good shape and we aren't having any significant inventory issues. We should have sufficient stock to meet you expected equipment.

Our first quarter results were strong and well, I'll leave it to Tom to walk through the numbers to me. The strong performance is indicative of the underlying strength of our business during normal times.

In the final weeks of March the strong Trend that typified 2019 and the first quarter started to slow and it April and with a whole world in lockdown we seem to have entered an entirely new environment, which is unlike anything. We previously seen now for historical perspective. We weren't affected much during the global market crash and recession of 2008 largely. Thanks to the mission critical role Services play for Enterprises and governments around the world. The current climate. However is very different from 2008 or other past Cycles. Social distancing has put healthy companies often hold and there's not much precedent for that. So we're all working through this day by day to try to understand the impacts of covid-19 how long it will last and what the long-term effects will be. Our partners are experiencing the same business and operational restrictions. We are in terms of visiting with customers completing new installations and closing on new business opportunities.

We're keeping in close contact with them to understand the changes in their respective Industries and their expectations of customer behavior for the rest of the year. Well, this is helping inform our Outlook. We're all working from home own set of assumptions based upon where we sit in the customer value chain, and there is no consensus on how quickly things will return back to normal based on this. We've revised our full-year Outlook Thursday, we're comfortable confirming that we still expect to grow service revenue and operationally Batu over 2019 levels, but that's as far as we can go at this time. There are too many variables of certainties to fully understand how long the economic shutdown spurred by the virus will last and how long it may take for businesses to reopen remember iridium touches many different Industries across the globe and each is on a different cycle in responding to the effects of the current lockdown.

From what we can see at this point subscriber count should continue to grow in 2020. I'll be at a slower Pace. We expected our high-margin service. Revenue will also grow from 2019 levels driven by contractual step-ups in certain contracts and increase subscriber levels though it lower lower overall are poodle or usage. The equipment sales are less clear while they were in line with our expectations in the first quarter. The current economic environment makes it prudent to plan for a Slowdown given that equipment contributes lower margins in our service Revenue. The impact of the Slowdown isn't as dramatic to our bottomless engineering revenues also seem to be holding up. Well as our primary customer for Engineering Services, the US government is expected to continue to execute on their projects. This year wage has dedicated funding for these programs with us.

Despite all these puts and takes for 2020 the most important theme for iridium remains our ability to generate strong free cash flow. We have been enthusiastic and vocal about our business transformation in recent years. And it's theme of strong free cash flow is still very much intact despite the slow downs that we're seeing we're very fortunate that we are facing these challenges in twenty20 rather than a several years ago. When we were in the middle of the Iridium next Capital program and bound by the financial requirements of our former credit facility this year, we still plan to deliver significant free cash flow and we'll continue to deliver our balance sheet. So our financial transformation and plans to return Capital to shareholders are still very much on the horizon.

I'm sure you still would have.

Appreciate more about the specific effects of the pandemic that we're seeing from our partners in their businesses and how it might affect our revenues overall. It appears that the effects at this time our greatest in aviation foil and gas and in Maritime particularly as it relates to installation of terminals. We're also seeing A disruption in the typically stronger summer sales and activation season for our Legacy satellite phone service.

In aviation safety service usage revenues are down with the DraStic decrease in flight hours though. We're not seen as many deactivations as you might think the activation of SIM cards on Commercial aircraft can be cumbersome exercise and customers expect it flight schedules will eventually recover oil and gas partners are experiencing a Slowdown in their business due to low low oil prices and wage demand is people work from home and travel less on the maritime front. We're not very exposed to the well-publicized decline in the cruise industry, but we are experiencing slower activations than previously anticipated of a reading certain terminals on ships as Cruise don't want external installers on board while in Port due to concerns a virus transmission.

We still see very strong interest in iridium service, but expect it will experience a temporary slowdown in activations for the next quarter to until installations can resume. The good news is a feedback users remains very positive. The maritime industry appreciates that iridium now offers the most reliable and fastest Albans service available, and we're the only satellite company that can provide true Global coverage. We continue to hold high expectations for reading service and know that our broadband service is an important vehicle growth this fiscal year and out into the future. However, it makes no sense in a current environment to continue to try to Peg year-end 2021 revenues.

They will be what they will be but we're confident that they will be a lot higher than they are today. You can track the quarter by quarter growth for yourselves. Now that we're breaking out Broadband revenues and subscribers in our faith tables the other impact related to covid-19 that we're seeing this worthy of discussion is a sudden and big slowdown in consumer product activations in the iot area to weigh perfect communicators from companies, like garment are often sold through retail stores that have been closed for quite a few weeks with the ongoing pandemic. We're expecting that activations to be lower than normal this year as the virus shut down as he came right in the season. We'd expect to see the most growth a number of other iot partners are also growing slower than in the past many of told us that they are hampered by covid-19 and the global slowdown in business, but expect to bounce back as things get back to something more normal particularly since their end customers are dependent on these iot Solutions in their own businesses.

Overall, even though we don't yet know the complete depth and breadth of covid-19 or how long it will ultimately impact our subscribers and partners. Let me be clear that our company is in a very strong financial position with excellent liquidity today. We're operating a brand new constellation completed to well time financing during the last six months are coming off another great quarters performer that demonstrates are competitive value and continue to generate significant free cash flow, which is helping our leverage position.

now one area we have

John Cena don't expect to see much impact as with the US government.

We're fortunate to a completed new seven-year fixed-price contract for a legacy services with this customer last year before the current economic slowdown. We're also not seen much impact to the coronavirus on all the engineering programs underway with them including the installation of a reading of service at the government's private Gateway.

Switching gears to Ariane it continues to deliver on its promise to improve aircraft surveillance and safety and provide operational efficiencies to air traffic controllers in an aircraft using a TSB off the covid-19 crisis has had an outsized impact on global Aviation traffic which for the near-term has significantly reduced the number of commercial flights and the resulting total number of aircraft being controlled ESPYs. This will have some impact on Ariens revenues while the company continues to sign new contracts less consumer demand for air travel will reduce the part of their revenue that's based on flight hours.

Overall area and has a solid base of Revenue and strong financial backing including a $200 credit facility. They are accessing a readings hosting and data service contract with Aaron are contractually fixed price and our current and we expect them to stay that way this year overall our confidence in area and remains high and they continue to execute well on their business objectives. So as I turn the call over to Tom for his comments, let me just re-emphasize that despite the unprecedented times that we're going through a ratings business is demonstrating itself to be quite durable. We are positioned well with a diverse stream of income customers around the globe and applications that are important and unique our wholesale business model proved its resilience in the 2008 down and we'll see you through this one as well. We believe that are continuing strong cash flow Stacks up well against other satellite companies and and companies and many other sectors right now.

Hopefully we'll all pull through the current crisis soon and get back to something more normal in terms of growth. I know our partners and employees look forward to that as do I with that. I'll turn it over to Tom for a review of our.

Thanks, Matt. Good morning everyone. I'd like to drop my remarks by summarizing our financial metrics for the first quarter and providing some color on the trends. We're seeing in our major business line, then I'll recap on June twenty guidance, which we revise this morning and close with a review of our liquidity position and capital structure iridium generated revenue of 145.3 million in the first quarter, which was a thousand percent increase to last year's comparable quarter. The Improvement was driven by growth across all of our business lines with the largest dollar contribution coming from recurring service Revenue operational was 92.1 million, which was up 18% from the prior-year scooter and the commercial side of our business through reported service revenue of 91 million for the first quarter.

to 7% higher

and the prior Year's. Just primarily.

Reflected growth in posted payload commercial Broadband services along with positive Trends and I have seen boys voice and data service Revenue which represents our telephony business Rose 1% this quarter.

The first time we provided to break out or commercial Broadband Revenue, which totaled eight point seven million in the first quarter up from 6.8 million in the prior year quarter wage represented 28% growth this new line item represents Broadband Revenue one hundred twenty-eight kilobits per second and higher includes the radio open for it and iridium service Broadband. We continue believe that Broadband will be a long-term driver subscriber growth and new revenue for our company and remain happy with the reception of product as received by our Channel partners.

No rate of new activations is being challenged by recent coronavirus impacts.

All righty business continued to grow in first quarter, but began to feel the effects of the recent world events in the second half of the quarter with reduced usage of devices in aviation and not slow down and activation for personal communication devices the channel being closed by the global shut down.

I o t r 2 in the first quarter was $9.71.

To $11.36 in the prior-year quarter.

The driver this year-over-year decline in our food continues to be the significant addition bias and subscribers and low data plans most notably consumer-oriented personal communication devices.

During the quarter we added 27,000 that new commercial subscribers with the game coming entirely from RISD business as I noted. We see a mark change in it growth particularly in the number of additions from personal communication services in mid-march is the retail Channel closed.

At present commercial iot data subscribers represent 70% available commercial subscribers up from 65% in the prior year. So stay in other data service revenues took two sixteen point three million this quarter about Seventeen percent from the copper cooler in 2019. So since you all this increases due to higher hosted payload and data service revenues associated with except on data service agreement with radium the increase in this Revenue coincided with area on clearing key customer milestone in the first quarter.

Turning to our government service business. We recorded revenue of $25 million the first quarter up from $22 million prior-year quarter representing a 14% rise. This increase was due to contractual terms dmss contract which was renewed last September and the first quarter government subscribers grew 22% year-over-year in total US Government customers reached $140,000 this quarter.

Sales improved into the new year as they were largely, but affected by macroeconomic development, but we expect this trend to change. We recorded twenty two point three million in revenue from equipment sales in the fourth quarter with equipment margin a bit higher than a year ago and 45% with the impact of covid-19 being felt across the number of commercial Industries. We now anticipate a slow down and equipment sales for full 20 engineering support Revenue, which is largely episodic the seven million in the first quarter as compared to five point seven million in the prior Year's quarter the pickup from last year with flex an increase in work under our engineering agreement Ariane for work when their operations center as well as an increase in government agency work to enable service capabilities for the US government.

If you saw on our earnings release this morning, we have updated our 2020 full-year Outlook to better reflect our early assessment for the coronavirus an impact in our business.

Now it's got to be the Dodge 2020 will be higher than the three hundred thirty one point seven million reported in 2019.

Will provide a more specific target range at a later date once the operating environment stabilizes or updated Outlook is predicated on the assumptions. We expect a decrease in our equipment new due to the combined effects or the distribution of the disruption in global business operations, the strength of the US dollar and the deterioration of the oil and gas market. We have also update our growth Outlook in our service Revenue despite the negative effects of the coronavirus. We continue expect growth in our service Revenue. This is driven by the following factors. We expect our government service revenues and hosted payload revenues based on contractual stuff UPS. We expect a decline in our Commercial telephony Business as a consequence of the current global economic shut down on going back to economic developments.

Readings business is seasonal with the second and third quarters characterized a higher subscriber additions and higher usage. We expect at this Fallout will be particularly impactful as the economic shutdown is occurring in the heart of our selling.

We do not expect wrote in our iot business in 2020. The segments performance is being impacted by two primary factors arising out of covid-19.

First we expect materially reduced activations a personal Communications devices and twenty twenty and a reduced arpu and subscribers increasingly adopt lower usage plans.

Personal Communications Group by 4.3 million or 51% in 2019, but we now expect it to be about flat overall in 2020.

We also expect materially reduced usage in aviation. This is average about two point six million in quarterly Revenue.

That's more in April. This is down about 60%

Similar reductions for the balance of the second quarter with some improvement in the third and fourth quarters.

Coyotes performance is also being negatively impacted by exposure to the oil and gas sector this this impact is not as materials Aviation is not as readily quantifiable.

Further other sectors such as ass attract and are experiencing lower activity with the global shut down.

I T's performance this year will ultimately depend on the pace and time of recovery.

We expect growth in our Broadband business is already in service offering continues to resonate in the market the rate of activation of our terminal being hampered by the global economic shut down, but we still anticipate growth of adjusted our Revenue projects accordingly.

We also continued expect material growth and Broadband Revenue in 2021, but no longer expect to achieve an exit rate of 75 million due to slowed slower iridium service installations off.

We continue to expect negligible cash taxes 323.

Broadcast that depreciation and amortization expense to remain steady approximately $75 per quarter.

Together these revisions provided the confidence in our 2020 Outlook and support our forecast for operational either.

Let me to our Capital position iridium had a cash equivalent balance and approximately 67.3 million as of March 31st 2020.

Have you completed to refinancing activities since November we expect pro forma title interest expense to decline from 112 million and 2019 and 99 to 2025. What year maintenance capex costs remain at approximately 35 million.

We continue believe that free cash flow provides a useful Benchmark for the help and earning power or company based on the quarterly results. We delivered today and our revised even thought it's here. We believe already and will generate perform a free cash flow at least a hundred seventy seven million for the full year 2020.

We Roll straight up purposes consider the following if we start at 3:32 million and subtract 90 million pro forma net interest reflect our new debt structure with thirty-five million for cap back and thirty million for working capital inclusive to the appropriate hosted payload adjustment 2020s Pro form of free cash flow supports conversion rate in excess of fifty percent and it dividend yield greater than 6% This is up from pro forma free cash flow of 168 million and 2019. The important takeaway here is that we expected reading to grow cash flow break-even in this unprecedented business environment.

Meridian closed first quarter with leverage 4.6 times ebitda and based upon guidance revisions expects exit 20 20 with net leverage of no more than four point four times even stopped dead. We expect continuing to leveraging the twenty-twenty despite broad-based global economic challenges.

Given the uncertainties. We now face, we're glad we chose to be proactive and refinance our debt earlier this year. And while we were visit our financial assumptions based upon current economic climate, we continue to be, you know, ratings business. We know that iridium is in a strong financial position, even as we faced the uncertainty post posed by the coronavirus and look forward to keeping you updated on our property with that. I'll turn things back to the operator for the Kia.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the key to withdraw your question, please press * then two at this time. We will pause momentarily to assemble. Our roster off. Our first question is from Rick Prentice from Raymond James. Go ahead.

Very good morning guys.

Glad to hear you're doing okay and your employees are all safe a couple questions. If I could first on the 2020 guidance, obviously a very good start to the year on one condition as we think about the next three quarters of do you think you would have been able to grow service revenues and if you hadn't had such a good start to the what you

Well, I mean it if we hadn't if you mean if if the coronavirus hadn't struck would we continue to grow? I think the first quarter was I like to think the the first quarter was indicative of the health and strength of our business overall might have might have might have indicated even a stronger year than we originally expected it to be but of course Everything's changed in the last six or eight weeks, you know, in terms of the Market's ability to take things up. So it is that's that's where our new expectations for the year come from the lease terms of what we've seen so far in the last seven or eight weeks, but I think the first quarter was was you know, maybe even better than we originally expected and unfortunately isn't what they're year is going to pan out to be

Yeah, I would after that I think is a good.

Good good to talk. I was just going to say the first quarter is a good picture of an unaffected or radio, but we're a little bit in iot. We saw some some weekend in and ioc back in March. But you know, if you look at our telephony business grew grew 1% you know, so it was in and then and then covid-19 happened and you know, if you look at our our guidance and how we're thinking about twenty twenties is highly colored by the transverse staying in April. If you consider our telephony business in the second quarter of 2019, we had net ads of 10,000 that adds we're looking at April Trend that suggests the second quarter of 2020 is going to be a negative and you know at least five thousand and so that sort of happened overnight and it was very interesting as if you study the activation and deactivation the deactivations are are just about equal to what we saw in 2090.

See, it's all about about a lack.

The activation cuz the channels closed it's a you know, it's a global lockdown and and we see we see that in our numbers almost to the day that it took effect.

Okay, and when you think about the guidance for growth for the year, would you guys suggest you may be thinking of maybe a u shaped recovery as opposed to a vehicle or any other kind of thoughts that kind of a you right now? Yes, certainly more you than a V and the in my remarks I highlighted right if you look at our trends for forever, but the good news of you to follow this for a long time the second and third quarter is when in our telephony business were adding subscribers, right? That's when that's when episodic people somebody else out on an expedition etcetera. They buy a prepaid voucher. So the fact that that the globe that we have the global shut down right in the summer is is impactful to us because if if you bought you occurs as you say well then it happens in the fourth quarter is not going to be you know, a particularly impactful to us because our you know, kind of our selling Seasons behind us.

I would also say I say, you know, I'd also just sort of I don't think that I don't think you can we're not smart enough after seven or eight weeks of knowing exactly how the recovery is going to occur. Like is there a catch up perhaps, you know with people who are dying to take those trips that they hadn't taken Expeditions that are still just been rescheduled. We we don't know that so I would say this is more in line with I don't even know what letter it is, but it's sort of more based upon just the trends of of late March and the and the rest of April here and Nash stations that are will will be a not not a rapid recovery here for third-quarter at this point.

Makes sense last one for me when you talk about leverage. If no more than 4 .4 in the year. How how are you calculating that? Is that like an an additional 12 months worth of void? But is that a 4 Q8 but annualized just trying to think of what the less than four. For our leverage means right? So would be June fourth quarter exit rate. So in our in our guide take 332 is Eva. That cuz that would be LTM / the deck is get to 4 or 4.

It's the converse of at least you know last year.

Right, right. Okay, good luck and best wishes through this crazy time.

Thanks, Richard.

Our next question is from Greg Byrne from Saddam and Company. Go ahead.

Morning, in terms of the hosted the payload data revenue. Is that a clean number is that how we should be thinking about it the rest of the page there any kind of one-time catch-up revenues at that number? No. No, it's not clean. It's it's heavy Greg. There was a one point four million dollar out of. Related to the Harris page and it was about four hundred grand of out of. Related to the area and payload. So, you know, so it's it's High by close to two million bucks. I think about those who payload, you know, we we for some times it said the steady-state is around forty seven million. That's that's the number I would model, you know, twenty Twenty-One and Beyond

and then just wanted to

Follow up on the area on commentary. You know, how how comfortable are you with their their ability to meet their financial obligations to you know, those districts on Monday for too long will will they require additional financing or some forbearance on your part? What's your view on their financial situation?

So so their their financial picture for this year is solid they they have you know, they're they're in an operating cash flow and in a credit facility. So, we we expect them to pay us if they have been paying us all three twenty20 we get into twenty Twenty-One. It's going to it's going to depend the expectation by adding is that air traffic comes back off? And so that's that is the expectation and you remember who their their ownership of Ariane is very, um, well established well established in in aviation and and believe in that business. So we think that they will be able to honor our our their obligations to us in the normal course.

Okay, great. And then I guess obviously you're seeing an impact on the the service the pace of activation of the new what's going on with the virus, but prior to wage this all happening. You know, what were you saying? I know the activations were slowed down at the offset. Um, where are you seeing a pickup in activity, you know boring. You know, what what's happening. Now? What were you seeing in terms of adopted activation and the page that business before the Slowdown?

Well, I mean it was it was building. I mean, there's still there's a lot of things to happen this year. For example, we just introduced the faster speeds and that was starting to be be implemented and all the terminals or so and and really the performance was excellent and people were seeing that of course gmdss is under sheets in beta trials right now and out on a ship's but that was coming this year. There was another there's another terminal coming here into the market factors a number of terminals under development all this year and there's a whole bunch of other activities. So I would say it looked like a strong business to us. It looked like a business that was you know, competitively exactly where we wanted to be and then then we started seeing, you know, the partners telling us they weren't able to get on ships in many ports, you know, and you know, they're still they're still by the way, they're still activation page.

I mean, they're still net-positive activations each month. It's just lower levels because our partners are telling us they they kind of have a backlog of of ships and and contracts that they can't really get too right now. Okay, great. So the the the Outlook is still for growth, you know Revenue growth on top of you know, what we saw and you

You showed this quarter. Yeah. Yeah, no broadband is still a grower for us this year, and you know, maybe not the levels. We we had hoped or thought it would be pretty covid-19, but it's definitely a grower for us and and and a bright spot if you will in our in our financial picture great. Thank you. Thanks God.

Our next question is Mohammed from bws Financial.

Go ahead a good morning. Good morning. Could you talk about what kind of risk you're exposed to as far as the accounts receivables if you've seen any changes their money in collections, not particularly. We've been talking to our Aviation Partners. You'll you'll see speed test page recently filed for bankruptcy. We are we do have receivable with with speed test and but we would expect to be named a critical vendor to them as we would suck it kind of in most circumstances if you think about our relationship with the channel, we're the revenue of the channel and so you can't get more critical than a vendor like we do. So to speak test. We we expect to collect receivable notwithstanding their bankruptcy. And so we are you know, we we, you know have the leverage Etc and Anna long long-standing history of not having too much in the way of bad debt wage.

of that circumstance

I need you to agree though that you know even in cash is not that unusual of a of an account receivable. I just saw their list of you know, predators and everything and obviously were based on the list. We didn't make we didn't make the list of the top, you know a nine or ten. It's still relatively insignificant as it goes because while speedcast was an important area of growth for us. It was that large of a of an overall partner for us. It was more of a future partner. It was more they inherited some of our business from their Acquisitions of of globe, a little bit from cap Rock and that sort of thing and and so it was more what the potential was for them as opposed to necessarily a loss of you know, or a concern really about the the receivable itself, especially if we are an essential supplier to them.

Okay, and then the other question I had was about the pricing. Are you seeing any discounts or going to be doing any discounts in the market? Just getting the low activity log?

Well, you know we are being helpful in certain areas where it makes some sense. For example, we're generating a lot of Goodwill right now in the maritime World by offering some free crew cards to our Broadband customers there. You know anybody who has an open port or service terminal has the ability to get some from chat cards as they're called for them to call call their families, you know, they're paying the internet anyway today, but you know, obviously a better thing if they can talk to their families during this time and you know and and do that so like until September, I think they they have a number of minutes that their crew can use and that's really well appreciated by them. But that isn't per say A Drop in price or a commotion. It's probably traffic that wouldn't have occurred anyway, and because we just want them to be using our product, you know beyond that. No, there isn't any I mean, obviously some Industries are dead.

under more stress

Imagine Aviation is under a relatively amount of stress, but that's very much a usage-based business. So kind of the discount is that the customer that the customers aren't flying their airplanes right now or they're parked on a part to an airport waiting to get started again. And and so that is just Revenue that otherwise wouldn't be coming. So that that really isn't I Would by the way mention I I mentioned crew cards. I mean that's coming right in line. By the way with inmarsat who has raising prices on all their inmarsat see customers, which are primarily they're GM DSS customers and they're creating a minimum Revenue commitment per month for Turbo is that historically haven't charged anything so you can imagine from a competitive environment.

We're in a a very positive position in that we're not raising prices on our customers right at their most vulnerable time as our primary competitors doing and that's obviously very appreciated particularly in light of you know, we expected long-term to get a lot of GM DSS activations for new ships, but maybe there'll be a lot of existing ships that aren't very happy with our supplier either long-term and we'll want to change out their suppliers. So so I'd say that's it. It's not so much as they're not really discounts cuz I don't think you generate business when people are locked down. This isn't I don't think this is a recession kind of activity out there where where these businesses couldn't afford it. They just can't they can't they're not active, you know, if people aren't able to manufacture a new Bowie or or a heavy piece of heavy equipment, then they can't put a satellite tracker on it, and I'm sure that that will get back to home.

To be more normal once once things come back to normal. Yeah, I would just amplify that this is nothing like, you know, we we model the 2008/2009 recessions off to laugh any business through substrate through that recession. We never had it in in in the second quarter always Strong net activation. This is different. This is a global lockdown. It's it's off at it and it's and it's the car Laura is not a recession.

And finally, the lower usage that you're reporting is that just from customers just being at Port longer or is that just there is no activity going on cruise ships. Well V actually the the are poser much higher than we've exhibit in the past because service has much higher arpu than open court and really when she talked about lower usage. I don't think we're really talking about our broadband service. That actually is higher.

Higher revenues and higher usage than we had previously seen in in our previous generation of product. What we're talking about is really if you're not out on if you're not out on you can't make that trip you could make that a scientific Expedition. You can't go on your hunting trip. You can't if you're not using that piece of equipment that you typically are tracking in that month. If you're not sending pictures from here from you know, the piece of heavy game that's usage and and it's really because people can't use it right now. It's just their their their their remaining in the glove box right now, perhaps and paying minimum charges, but they're not taking them out. So, you know, obviously expect that will turn around eventually I will start able to be unlocked down and get out and about and do their normal business.

I would say the the acute.

Impact on usage was evident in aviation. And that's in our iot business. As I said in my prepared remarks that that equipment used for Safety Services on commercial airliners wage two of our partners in particular. And as I said it ran, you know to 6 quarter and you know wanted I'm it went down 60% So that that is is it's kind of a very abrupt and 1/2 impact what usage that we identify quite early.

Relatively small part of our business, but it still still important one.

Thank you. Okay. Thank you.

Our next question is from Anthony cleremont from Deutsche Bank.

Go ahead. Hi. Thanks. Thank you a bunch of my questions were answered. But I think we're all trying to get to the same thing here. So maybe I'll try to ask it slightly differently. You broke out Broadband this quarter and it has a 28% year-over-year growth rate in it. And you know giving that we can't model to the $75 million-dollar run-rate exit, you know, twenty twenty one level. I guess Tom or Matt. Could you provide any kind of anecdotal view as to what may be the April Trend in that look like on a month-over-month basis? I guess we know broadband's kind of birth to be a growth area for you, but I'm wondering if we can maybe help quantify. You know, what the change in the growth rate mother look like in April relative to what you reported.

Tom can take a crack at this to it really comes down to installations. It's just that they've you know, they've cut the grass growth rate dramatically, but we're still growing. So while we may have expected hundreds of ships to be installed in the month on a net basis. It's dead. It's quite a bit lower than that. It's still growing and again, each certif activation is at a higher arpu than any open Port Terminal and I will say one of the things have been surprising is that the open port terminals are declining probably a lower rate than we thought so people aren't taking them off either. So they're they're kind of staying off with their their their continued to be active on shipped. So so net-net, you know, we're adding sort of terminal

Look out too much further than that or give too much additional color on the year because it's just too early. We've only had about seven weeks of this happening like this and I know there are some positive things. We're hearing out of Asia where there's some some ports are starting to open up some countries are starting to push to get out but we can't tell exactly how that will relate to the installation rate until we see it happen further. So, you know anything further to try to describe what that means are exactly how it will affect the end of the year. I think it's just a little premature right now.

I would just say I was just saying thanks. Maybe our Broadband business is unique and that it's growing. It's growing Subs right through April. We didn't do that in less than a month.

Yep. Look, I think that's helpful on the on the telephony side. You know, you mentioned you don't see tremendous exposure to people like speedcast because you'll Altima that receivable whether it's you know at the resolution of their bankruptcy or some other. In your critical vendor for most of those I guess could you talk a little bit about any exposure that you might have or that you see in the consumer and maybe small and medium-sized business area those seem to be the areas that are being hit particularly hardest and you know, whether that I don't know if that's something that kind of shows up in accessing their time or if there are, you know, maybe a collection of just a bunch of smaller businesses where there are some potential, you know, sort of end and Market impact as you think about you know, what the trajectory of the numbers look like about twenty. Yeah, so it's 11:00 and we're not seeing that but there's one thing going on there and that is channel shut down and we're not seeing activation as I said in my remark or I said earlier wage.

Deactivation in telephony is looks just like 2019. It's it's a lack of activation because of the lockdown where we are exposed significantly to to the consumer is in our national communication segment in Ohio to that channel got locked down theirs activation stopped happening consumers started adopting lower usage plans, you know protected least to spend money and we we've been talking to our Channel partners and and that was a big roller for us you'll recall in 2019. We grew by over four million bucks and we don't see that growing here in in 2020. So that's the direct hit that is consumer-related.

Yeah, I would say that businesses. You know, I'm sorry. We're just we're very competitive in that segment. Actually, we have more products coming into the market this year wage. There are more Partners who are introducing products. We've seen some new products be introduced in in and and doing very well in January and February they were exceeding expectations. So I'd say well we're positioned very well in that market. It's just feels like it's it's locked down and that's what our partners are telling us. They're not able to get into stores. And until the store is open up and people start feeling like they can like it makes sense to go out and get get on an airplane and travel that will be slow don't know if they'll be a catch up there or if that will just sort of Dead start again and grow from whatever point it it starts from today. We'll we'll have to see

Thanks. Final one for me. I think you guys had given some longer-range views on Leverage, you know a quarter or two ago. As you were talking about, you know where you ultimately saw the business name down to from a balance sheet perspective and that that would maybe trigger returns of capital as you reach that I guess given that it may take longer now to achieve those metrics any change in the view as how you think about Capital allocation in terms of deleveraging versus shareholder or Capital returns know we we still see we still like our targeted range of 2 and 1/2 to 3 and 1/2 x leverage and we'll do share of old things to kind of maintain that that level.

All right. Thank you.

Again, if you have a question, please press * then 1 our next question is from Louis Vuitton from William Blair. Go ahead.

Matt can't get morning.

Are you guys decentralized this morning? We are I Ken and I are maintaining social distance here in our headquarters, which is quite Lonely by my dad and dark cuz all of our employees are working from home, but Tom is I'm picturing him sitting on a on a beach someplace, but I think he's probably in his office home nice. I I hope you guys continue to do well first for Tom on the beach freak out when I'm not I'm not sure.

Free cash flow is now the focus area for for investors. Can you repeat what your pro forma free cash flow assumption is for 2020 and the new annual cash interest rate.

Right. So on the free cash flow. There's a there's a schedule on our website and that I took through in my prepared remarks the numbers 176 you use 332 and ebitda and we and we we lay out all the assumptions there in our on our website so and on our on our on our interest rate 60% or we have about a billion fixed so that we could that we swapped we have a billion and that's just inside a 6% and then the balance is out plus 350 on our term loan pay.

Okay, sounds good. And and for format you touched upon this several times and this might also relate to Tom but as it relates to off your commercial plans for satellite phones the aircraft cockpit plans the Garmin personal navigation devices and you know asset trackers month. Can you quantify how much of our poo is like based like fixed versus like usage-based arpu? I know you you suggested that like i o t seems to be more sensitive than the other plans, but can you just provide you know a quick overview across your different services like beige are approved versus like usage right sir. Sure. So for Commercial Services, right, you'll check this number is like right around $300 million in commercial service dog.

And so fixed or which is you know.

Access is 78% and errors like twenty-two and that varies depending on you know to Lebanese is is heavier access. It's more like eighty 82% MRC 18% usage. Whereas iot is 73% kind of MRC recurring charge and 27% usage. So i o t is heavier usage-based whereas to Lebanese the opposite, but overall, it's you know, about 78% 22% off m r c versus usage.

Thanks. Thanks, Tom. And the last one for me for Matt. Can you ever had any comments on you know if there are any implications for iridium as it relates to the recent Legato, really?

Yeah, cuz you know probably from seeing my tweets, I'm obviously not happy about that. We have been we have been against there being approved for years out of concerns that if there's too much usage that it would possibly impact our service quality in North America as it would walk away for GPS as well in in sort of a a different part of their spectrum and we'd been aligned on that, you know, obviously we remain concerned long-term because she can't move and and our kind of surprised how fast this is moved but it's not somehow a near-term threat to us in some ways. They still have to build base station, which they don't have the capability of doing which means they probably need to sell their themselves or sell their Spectrum to somebody else to do that and dead.

You know, no devices currently can access that certainly they talk about a 5G or iot network someday. Well, there aren't any devices today that can access that so it's years down the down the road but we shouldn't have to be dealing with it. That's what that's why we continue to reject it. We continue to fight it and there are you know, there are a number of ways in which will continue to work with a whole industry particularly the GPS industry with Department of Transportation that Aviation users that are concerned the department of the the defense department, which is concerned about the usage of GPS and all the other other concerns to keep fighting this because we just don't think it's something we should have to be dead. But it's it's not a it's not in any way and even the intermediate or even medium-term concern for its right.

Sounds good. Thanks, Matt, and I hope everybody stays healthy. Thanks. You too, Louis.

Our next question is from Matthew from Berkeley. Go ahead. Yes, good morning. And thank you for taking the questions first coming back to one of your comments about the fact that activity in Asia is picking up in some countries. I was wondering if you could give us a sense of where I am time activation, which one were taking place and where you were expecting them to take place throughout the years it varies North America heavy or is it Asia or is it well spread to other countries will come in and out of lockdowns at different points in time. So maybe could help us understand the transfer the year second with regards to searches for the evolution segment. If I remember correctly. I think you had in mind plan to launch a product by the end of this year the current crisis impacting any way off.

Lunch plans in terms of the feasibility of launching it and then finally back last year you had signed the mou with one web. I think it was still off the very beginning but confirm whether it's filed for chapter eleven. I was wondering if there was any impact we should be aware with regards to your future plans. Thank you, ma'am. Thanks Matthew. Yes for maritime. I would say we're pretty well spread out all over all the world and all the ports. So, you know, it's the extent it relates to activations particularly as I've said, we're more we're not a cruise ship sort of company, even though we're used in some cases for like the the bridge in a cruise ship but we're really not that heavily exposed to that industry. So long ships are are moving but they're really not putting in new installations on for the most part and as that opens up in Port perhaps, we'll start seeing some improvements, but it's pretty well spread out over the Dead.

The whole world were we're we're broadly, uh, you know spread out there anyway, and as far as Aviation, yes, there are products under way. There could be multiple products under way this year is really kind of two different products two different applications. In aviation. There is sort of a basic service that can be put on a plane from general aviation up to a commercial airliner for just Communications. There's also a safety Services service which requires certification the first one's going to come before the second one. I you know, we don't have a lot of control over it cuz actually our overall satellite services is available today and we support the certification for our safety Services. It's more when the the OEM terminal vendors are ready and we're kind of Reliance upon them and we're working with them on their Terminals and I think we're going to see one on Thursday.

Here very soon, and we'll see more I think come.

And as the year goes on I don't know what that really means in terms of when there'll be ready to to to implement their service like perhaps we could come somebody end of this year. But I think that's more of a 2012 one activity. Your last question was about one web. Yep. As I said in the past, I mean one lab was a potential partner or wasn't a competitive anyway to us. So we are sorry to see them go. However, there was no expectations of any revenue for the next couple of years with one web because their service still had to be had to be activated had to go into service and products to combine. Our two Services together had to be put together. We had no expectations of any Revenue coming from that for a while. In fact, we could see that one web wasn't working too hard on the product even since we we announced an mou so I don't I don't think that has any effect one way or the authors.

Honest right now and continue to see that that segment. I think it will have I think obviously covid-19 use to impact financing and other things for those new Mega constellations. I think it will probably slow some of them down a little bit in terms of going into Service as it may affect that industry, but that really doesn't have any impact on iridium at all or just completely independent of that industry.

Great. Thank you very much. Thanks Matthew.

This concludes our question-and-answer session. I would now like to turn the conference back to management for closing remarks. Thursday is one of the last conference calls. We have two shakes in this in this new coronavirus environment, but who knows how long this is going to last, but in the meantime, I hope all of you stay safe and save stay at home and but do keep in touch cuz I think this will continue to be an interesting year, and we're we'll look forward to seeing you and describe more about what the invite is when we are on our second quarter call together take care of. Thanks.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.