Q2 2020 Iridium Communications Inc Earnings Call
[noise] and welcome to be Iridium Communications second quarter earnings Conference call.
All participants will be in a listen only mode. She did you need assistance. Please single conference specialists by pressing the Starkey followed by zero [music]. After today's presentation, there will be an opportunity to ask questions.
Please also notes today's event is being recorded.
At this time I'd like to turn the Congress call over to you can Lovie V. P. A investor relations. Sir Please go ahead.
Thank you Jamie good morning, and welcome to Iridium second quarter 2020 earnings call. Joining me on this morning's call, our CEO Mad Dash and our CFO Tom Fitzpatrick.
Today's call will begin with discussion of our Q2 results followed by Q&A I Trust you've had the opportunity to review this morning's earnings release, which is available in the best Relations section of a redeems website.
Before I turn things over to Matt I'd like to caution all participants that I call me contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Forward looking statements are statements that are not historical fact and include statements about our future expectations plans and prospects.
Such forward looking statements are based upon our current beliefs expectations and our subject to risk, which could cause actual results to differ from forward looking statements.
Such risks are more fully disgusting or filings with the securities and Exchange Commission Rmr's today should be considered an lightest such risks.
Forward looking statements presented.
The present, our views only as of today and while we may have liked to update forward looking statements at some point in the future. We specifically disclaim any obligation to do so even if our views or expectations change.
During the call will also be referring to certain non gap financial measures, including operational EBITA.
Pro forma free cash flow free cash flow yield and free cash flow conversion.
<unk> financial measures are not prepared in accordance with generally accepted accounting principles.
Please refer to today's earnings release and on the Investor Relations Web section.
For a further explanation of or non gap financial measures and a reconciliation to the most directly comparable gap measures with that let me turn things over to math.
[noise], Thanks, Ken good morning, everyone.
Both clear that 2020 will be defined by the coronavirus.
Oh this global pandemic continues to create uncertainty for many industries and iridium is spelled P. A affects too we were fortunate to operate a wholesale business and provide mission critical services, there <unk> remain pretty resilient.
Since the initial period following the Lockdowns in mid March we have seen sequential monthly improvement in our business like <unk>.
Subscriber growth and May was better than April and June was better than May in this trend is now continued into July.
Overall results in the second quarter, where flat compared to last year, which frankly was a good outcome given where the quarter began.
During the past three months, we've also started to get improve visibility across our partners channels to better. It says what we think the full year impact of the coronavirus will be on our business.
It's improved visibility it gives us confidence and revising are full your outlook for service revenue and operational EBIDTA.
Perhaps most important in the current climate, we have maintained our ability to generate strong free cash flow and continue to delever are balance sheet, which means are longterm investment thesis remains intact.
As I highlighted last quarter the impact of the global Walker was most pronounced in our commercial Iot business.
This segment spans a variety of different industries and user types and into the second quarter. The pandemic continued away, particularly hard on our aviation partners and to a lesser extent partner activities in oil and gas.
The decline in aviation played hours means that Iot transmissions for cockpit safety services is running below normal seasonal trends.
Area on his measuring the global air traffic has recovered almost 50% of the global movement since January.
But the international flights that Iridium, primarily serves a recovering more slowly.
While they're data is showing week by week recovery in traffic most industry animals.
[noise] anticipate of relatively slow recovery in aviation, which means the current environment will likely persist for the remainder of the year and into 2021.
On a positive note we've seen a bounce back in consumer oriented Iot services, coinciding with a reopening of many retail stores in the second quarter and the desired of many to seek out remote activities.
This is revive sales and use of devices like garments in reach and other personal communicators like the new satellite communicator from <unk>, So I'm more labs global hot spot and bibi's busy stick in the second quarter Iridium added 33000, and that new I O T subscribers predominantly consumer oriented subs with Activations.
June being the strongest month by far.
And our legacy voice business, we express concern in April that Kobe disruptions wood restraint activations during our peak selling season, which it has.
Fortunately the headwind has not been as great as we originally forecast.
Based on the trends we saw through April weird anticipated of it a decline of more than 5000 that voice subscribers in the quarter.
But the decline it turned out to be only about 2000, and which is encouraging.
<unk> said last quarter, the problem hasn't been customer deactivation, it's been fewer customers activating new or reactivating existing devices for their typical summer activities.
But there seems to be more of that is activities are slowly opening up again around the world.
Now that we're halfway through our peak selling season, we're getting better visibility on usage trends.
Within maritime the slow down and shipping activity persists with a reduction in routes an ongoing logistical challenge of getting installation cruise on vessels.
Abundance of caution not to expose ships into their crew to the coronavirus. Many vessels have remained I'm locked out I'm, making a difficult for our partners to access vessels to install a new equipment already purchased as well as meet with ship owners on the procurement a new services.
Even in the current environment, we're not sitting idly by we've been engaging with our partners and been proactive with promotions and messaging. Many of our partners are attracting attention with deals featuring or reading surfaces are VSAT companion service.
We also have been supporting Mariners and ship owners with access to some free voice, calling cards for their crew to allow them to connect with family and friends during a particularly stressful time away well also demonstrated me enhanced voice quality of our new network.
Even with the challenges and maritime we were able to drive positive net installations a broadband terminals.
And a 15% increase in your over your broadband revenue.
Overall Iridium service remains an important vehicle for growth for us and we were receive great feedback on the product from those using it.
And the coming months, we're expecting a mediums new G. M. DSS service will also lunch. It's entering final badal trials soon on a number of ships around the world connecting them in an emergency to regional rescue coordination centers as well as critical navigation weather information sources.
Our partners are excited about this offering is it targets the 65000 and soulless class vessels that are required to carry G. M. D. S. S. But have traditionally only had one supplier.
Original G M D S S as being offered as a Standalone terminal initially, though it will start the integration with Iridium service in 2021 and wouldn't complete should serve as an additional tailwind to the adoption or iridium surges broadband.
We're also expecting.
A new high speed surgery broadband terminal from Korean manufacturer and tell you in this quarter, which is a great maritime Brown that many partners are you looking forward to having access to.
We're also introducing some new Iot products in our new Iridium edge pro and the Iridium edge solar will make developing Iot services, using a mediums network easier and faster as well as complement the new Iridium cloud connect service powered by AWS, which is already in use by a number of our partners with continued recovery from global Lockdowns.
Expect 2021 to start the recovery to more traditional Iot growth rates.
We're making progress on delivering Iridium service aviation products in 2021 and 2022.
First terminal partners of started to test their products on our network.
And we're making progress on the regulatory front towards F. E certification for safety services on Iridium service to complement our existing legacy safety products.
We remain excited about the aviation segment in the future contribution to broadband revenues in the coming years.
Our business with the U S government, particularly under the new <unk> contract remains largely unaffected by the pandemic.
We continue to work with the government on upgrades to their dedicated gateway to enable private Iridium service services as well as other engineering upgrades and maintenance they pay us to do.
We had some subscriber clean up and some internal logistical activities with the transition to U S space command that netted out of roughly flat subscriber number and the second quarter, but that doesn't affect revenues with our fixed price contract and activity with the U S government remains that historically high levels overall.
Lastly area, obviously global Air travel has taken a big hit with a pandemic and that has affected the pace of area in sales activities with new a nsp's.
Overall, though they are continuing to make progress on their business objectives area data services are now being used and deployed by Nsp's covering 37 countries, including growing usage by the FAA.
They are also seen some initial success with selling their data for other commercial purposes like flow management Airport service available and airfield management solutions, you might've seen their announcement a couple of weeks ago with Pisser aerospace on that front.
Oh, well iridium is certainly not immune to the effects of global pandemic, we continue to execute well in this challenging environment, where managing our business effectively making strong progress on product development prioritizing growth and investing in the future.
And a year of extraordinary business headwinds and global uncertainty Iridium is adding net new subscribers driving incremental revenue growth and most importantly, generating significant free cash flow.
So would that I'll turn it over to calm for review of our financial Tom.
Back in the morning, everyone I'll get started by summarizing are key financial metrics for the quarter and providing some color in the trends were seen in our business lines. Then I'll recap. The 2020 guidance. We updated this morning and clothes with a review of our liquidity positioning capital structure.
Iridium generated total revenue of $142 million in the second quarter, which was 2% lower than last year's comparable quarter.
This decline was primarily attributable to softness in subscriber equipment sales related to Kobe 19, as well as the episodic nature of the engineering and support revenue operational EBITA was 85 3 million, which was up modestly from the prior years quarter when the commercial side of our business. We reported service rather you know of 88 $4 million the second quarter.
Which was 2% higher than a year ago.
This increase primarily reflected strong growth and hosted payload revenue, which more than offset a decline in rather new in our voice and Iot businesses.
During the quarter voice and data revenue fell 3%.
This decreases predominantly driven by a fall and seasonal activations attributable to the current pandemic and it's consistent with our observations from late April.
We saw a net decrease of 2000 subscribers on a sequential quota basis, whereas last year, we reported again, a 10000 subs and the second quarter.
<unk> noted this was better than our expectations given results through our call last call in April.
Commercial Iot also felt the impact of the pandemic and the second quarter with revenue declining 5% to 22 $6 million.
The closure of retail outlets resulted in a slow down and activations for much of the quarter.
If not for the channels reopening in June in our records surge inactivation iridium not have achieved 20% increase in billable subscribers for the quarter to 863000.
As we noted in April usage of Iot devices, particularly in aviation oil and gas has slowed as planes had been grounded in oil production halted.
<unk> subscribers, who are characterized by their higher <unk> and high usage plans will continue to weigh in Iot revenue growth. This year in June we saw meaningful increase in the activation.
A personal communication devices.
No it's too early for us to call. This a trend it remains an encouraging side.
Continuing to onto commercial broadband, which would be glad to break out in our financial statements. You already this year, we reported rabenold eight $5 million in the second order up 15% from the year ago period.
Positive. These results are much less than our expectations given the disruption in the industry D to Cook at 19.
The good news is that the channels happy with the performance of our broadband offering and we're confident that Iridium service will provide a long term source subscriber in revenue growth.
During the second quarter, we added 31000, net new commercial subscribers with the increase heavily weighted towards I O T.
Commercial Iot data subscribers now represents 71% available commercial subscribers up from 66% and the year ago period.
Hosting and other data services revenues increased to $15 $4 million this quarter up 29% from the comparable quarter and 2019.
Majority of this increases due to hire data service revenues associated with the step up <unk> data service agreement with Iridium. However, there was also a chew up about $1 million related to Harris due to observed usage patterns.
We continue to forecast normalized revenue from hosted payloads for about $47 million per year.
Turning to our government service business, we reported revenue of $25 million in a second quarter up from 20, 459, and the prior year quarter, representing a 2% rise.
This increase was due to the contractual terms the new E&S S contract, which we entered into last September.
At the end of the second quarter governments subscribers were up 11% year over year to 139000.
Given the all you can eat nature of the Ems's contract. This sub movement during the quarter has no impact when contractual E&S S revenue.
The coronavirus pandemic has impacted a number of the industries that we support which means that is also way in on our equipment orders.
They are down from a year ago equipment sales or trending better than we forecasted in April.
And the second quarter, we reported 19 $8 million in revenue from equipment sales with equipment margin a bit lower than a year ago at 39%.
We continue to anticipate a slowdown in equipment sales for the full year 2020 their results will likely be less severe than we expected at the time of our last call.
Engineering and support revenue was $7 million in the second quarter compared to eight $9 million in it prior years quarter. The change reflects the episodic nature of engineering spending.
With a full quarter of results to reflect upon since cobin, 19th struck the U S economy.
Medium has a much better handle on how the global pandemic is impacting it's partners in subscribers.
While we continue to feel the economic impact of the Corona virus, we're now more comfortable assertion its impact in our business Accordingly, where updating our full year guidance for 2020 to reflect this information in the trends, we see through year and.
We know expected EBITDA be approximately $340 million and 2020 predicated on total service revenue growth between one and 2%.
The school year outlook reflects a modest stabilization and our voice and Iot businesses. Following the initial shock of the coronavirus pandemic in mid March and April.
We continued expect both lines of business to be down year over year.
Moving to our capital position Iridium had a cash in cash equivalents balance of approximately $119 million as of June 30th.
We continue to forecast maintenance capex costs will average approximately $35 million a year for the next 10 years.
Free cash flow provides a very useful benchmark for the health and earnings power of our company, perhaps even more so than the current environment.
We believe that are growing cash flow is an indication of the health meridians business and on this basis iridium stacks up well against other communications infrastructure companies.
Based on a quarterly results, we announced today in our updated outlook for EBITA. This year, we believe iridium will generate pro forma free cash flow of approximately $185 million for the full year 2020, compared to pro forma free cash flow of $168 million and 2019.
<unk> purposes consider the following.
If we start with EBITA of $340 million, and subtract $90 million and pro forma net interest to reflect our new that structure 35 million for Capex, and 30 million and working capital inclusive of the appropriate.
Pay a little adjustment 20th 20th pro forma free cash flow supports a conversion rate and access at 50% and a dividend yield approaching 6%.
This is indicative of the underlying strength of our core business.
As in the past couple of quarters, we've provided supplemental information on the Investor Relations section of our website laying out these pro forma free cash flow calculations.
Iridium close the second quarter with leverage at four four times EBITA and based upon guidance revisions expects to exit 2020 with net leverage of approximately four three times EBIDTA.
Before I conclude my remarks, I'd like to provide an update on <unk> financial expectations with regard to iridium in light of Kobe ongoing impact on aviation.
Area I had expected to be cash flow positive in 2020.
Certainly that's customers contracts are variable in nature, and expand and contract with air traffic volumes.
Areas revenues have contracted with the material decrease in air traffic volume since the beginning of the year.
Accordingly area I no longer expect to be cash flow positive in 2020.
Area now expect to be cash flow positive sometime between late to 2021 and mid 2022.
Area and has a range for funding of this extended cash flow deficit period.
This funding consist of the Undrawn portion of its existing $200 million credit facility and a standby investor bridge loan supported by its equity investors.
Iridium has committed $11 million and supported this industrial bridge, which will bear interest at 11%.
Carry-on does not expect to draw on this bridge in 2020, but made you sell in 2021 and 2022, depending on the level of air traffic volumes.
Area I had planned on refinancing, it's existing credit facility and raising sufficient capital to repay the balance of the hosting fees due to read them in early 2022, given coded area now does not expect such refinancing to a car before mid 2022.
Kobe impacts on area on are expected to have limited impact when iridium unless air traffic behind the able to recover from their current levels.
All amounts iridium recognizes as revenue in 2020 and 2021 are expected to have been received is cash payments as part of the area is updated cash flow profile.
Redeem expect to be financially compensated for the delay in areas refinancing and resulting payment of hosting fees.
Unpaid hosting fees contractually accrue interest at LIBOR, plus 350 basis points.
We remain confident that area I'm will be a significant source of value to iridium shareholders and are pleased with the company's recent developments with the FAA and other customers, which demonstrate that area and it's becoming a critical part of the world's air traffic control infrastructure.
Clearly the first half of the year has been anything but routine, but iridium is fortunate to Maine as strong maintain a strong diverse base of customers and operate a wholesale business model, which generates more than 80% of revenue from recurring sources.
We believe that we are position well to whether the global pandemic and will continue to generate meaningful free cash flow this year and into the future with that I'll turn things back to the operator Q&A.
Ladies and gentlemen will now be getting the question and answer session.
To ask a question you May press Star and then one using a touchtone telephone.
If you are using a speaker phone and we do ask you. Please pick up the handset before pressing the numbers to ensure the best sound quality.
To withdraw your questions you May press Star and then too.
Once again that is star and then one to ask a question.
Well pause momentarily to some other roster.
And our first question today comes from Rick Prejudice from Raymond James. Please go ahead with your question.
Thanks, Good morning, guys glad to hear everybody's doing okay any of these crazy times.
Eric.
Okay.
[noise] questions one let's start at 30, thousands with you or 2000 cool I'm Gonna review.
That we get a lot of questions about the newly I was right.
<unk> in the marketplace, raising some money one wet maybe coming out of bankruptcy with the.
British government Embar T and they're supporting it as you think about your business and these new leos, what do they mean competitively to the new areas of your business. The service broadband, but also the legacy areas of your business voice and data Iot and even the government.
Yes, correct I mean.
I really don't think they.
Or direct competitors in any way.
Perhaps around the edge long long term, but really for the most part we see all those.
New Leo players as potential partners.
Offering commodity broadband services that are complimentary to the much more mobile.
Safety oriented services that we provide so <unk>.
We've had discussions with all of them.
They all C. At the same way they see us with someone that could possibly be integrated into their services to supply of better service to their customers.
I think I've talked about this before the way our.
The way our whole services are architected are structured is very very different from their their whole vision of all those players is to try to provide the most bandwidth to a specific customer as possible to every customer as possible.
[noise] whole system is architected structured to provide the most mobility, we provide as much data as possible in the smallest possible package and those are two totally different sort of design philosophies and really they're not.
They're not.
You can't really change one to the other and back and forth. So they really can't scaled down to the levels were out they could never offer say a small device that operates in the palm of your hand, and integrated into our mobile phone or onto.
Very a consumer device.
And frankly, our system doesn't scale up to offer 50 megabytes per second which is what they all are looking to try to offer almost as a minimum. So the two services worked very well it's demonstrated today in the fixed satellite service players, who who are terminals or put right next to theirs on ships.
As a companion VSAT offering and really.
Those small new I mean, those new Leo players really are more focused on competing for that commodity broadband segment, which has been around for 20 years and for which we've been very complimentary to all alone then in any way to doing something that we've been doing or planned to do in the future.
And any thoughts of what it might be into the government business.
It's been a long term.
User partner of Iridium, but just get that we get that question occasionally.
Yeah, and again, we we've been talking both of the government into those players and they see our services complimentary as well.
Sure.
They're excited about the potential for a lower latency sort of commodity broadband service, but it doesn't.
Those are all still services for example that don't have been or satellite link so therefore can't be.
Can't be delivered anywhere on the planet quickly. They can't have the same sort of portability profile, we do they're all in K, a N K U ban which are.
Good for high speeds, but aren't as good for delivering.
Secure kind of services.
L band can do so again, we're really seen there. So they are seen as both is complementary they want both L band.
And K AKU band services, I think they'll always want L ban in K U K O ban services and.
And I think they're really excited about getting RL band services, because now with Iridium served as we can deliver.
Really a.
The best possible <unk> product they could get so that's why they're installing service at their private gateways, that's why they're actually have already deployed.
Service, particularly in the land mobile area and we think there's a long great future potential with broad are kind of broadband, which I called specialty broadband with the U S government.
Makes sense I appreciate that and speaking of Alabama and the government.
Legato processed and you update us what's going on with legato in the department of defense.
The end of spectrum.
Well for those who haven't followed it I mean, the FCC sort of unexpectedly.
Gave approval to legato.
Some time ago I think it was.
Two months ago or so now.
And.
I think.
All the different U S government agencies as well as commercial interests, who realized the potential impact that has.
Have been working hard to make sure both the FCC and the U S government.
Legislature and others are aware of all the issues that that's going to cause I think a lot of the attention. Obviously, it's been on the GPS impact of legato and probably rightfully. So it has it has certainly potential impact there for many different agencies.
Perhaps not as much focus has been placed on the potential impact it could have on iridium long term. So we've been making sure that they all understand that and you've probably seen that I've been.
Busy communicating that information to them so.
We continued to fight it both.
On every front, both so I'd say procedurally.
<unk> illegally and obviously legislatively.
Hope then would expect to prevail long term to making sure that it doesn't impact our services in any way in in the U S.
Okay.
Let's put it down a little closer to Earth, Tom on the guidance.
Can you talk to a little bit about the aviation Iot section.
Previously.
That could be a couple million dollars a quarter.
Or are we thinking now that that doesn't really recover much in 2020.
Six one you wanted to get that and that might be part of what's obviously weighing on the.
Second have some service revenue guidance.
So yeah. So.
Usage based.
Element in Iot link <unk> said before is about two and a half million dollars a quarter.
And we're off about a million dollars and have a quarter and so it's at $455 million headwind on on the four year results because it's three quarters of impact Rick.
Right makes sense I'm glad I was doing well I hope you continue will do well thanks, guys same to you <unk>.
Okay and our next question comes from Anthony Klarman from Deutsche Bank. Please go ahead with your question.
Hi, Thank you a couple of questions.
And your commentary you talked a little bit about obviously one of the issues is getting access to some of the ships, which for good reasons are sort of being kept.
In dark and not given access to them can you give us a sanchez to sort of what installs are kind of in the backlog here. So we can get a sense as to sort of what the potential <unk>.
<unk> backlogged that there is that's kind of sitting in Q waiting to be installed.
Well I guess.
We don't have visibility to the specific backlog by each one of our partners. We are in discussions with them every week and talking to them about it and they they are the ones that are telling us that.
They probably would be doing I don't know twice as much business or more if there weren't all these.
Issues with imports on ships inability to kind of talk to to captains or talk to fleets, who are more worried about other things and what they would be doing so in general they have the product they have the desire they liked pricing and the promotions there and by the way ships are getting.
Installed I mean, they are a few hundred.
Did get installed and the quarter and and much more in June and previous month's and so I think that theirs.
Recovering going on to what level. It is I guess.
Hard to what level it will get too, it's a little bit hard to tell right now because this is.
A lot of this is new business for us with this as a whole.
New market segment, we've been an.
Open port for Awhile, but we've never had such a great competitive product that could not only.
When lots of new ships, but could replace equipment on existing shift so.
Where are partners are telling us there seeing a lot of interest they want to deploy the product.
They.
Believe there's an awful lot of shipped to one of our product, but I can't I can't sort of define it as a specific backlog of exactly how that will play out and say on the third and fourth quarter.
Mainly because we don't even know how the recovery.
You too.
Got it so maybe just sort of tagging on the back of that answer as as we think about how to how to build towards that exit.
2021 exit revenue incremental revenue run right from broadband.
Is there is there a sort of a shape of the recovery that you feel you need to kind of get to that metric that you've given us in terms of what the incremental revenue opportunity is exiting 2021.
What kind of internally I mean, I'd say the measure sort of how many how many shipped net net installations, we have by month and and we're tracking that and we want to be to the point of we're doing hundreds of.
Several hundreds of installations net installations per month, and we're not there yet word.
We're probably less than half of where we kind of thought we would be or wanted to be maybe maybe even a third but we're progressing towards it I'm really I'm really encouraged by sort of the month over month progression since the February March April timeframe. When it was really really really locked down.
June has been better July is looking better that sort of thing where it will get too and how fast. That's that's the big question and that's why it's really really hard and why we.
We pulled away from focusing on a year and 2021 number because we're not really control of what the the market environment is out there I think we're in control of the competitive environment. We've done a good job with that and we're continuing to sort of add to the product and add to the capabilities and add to the.
Commercial value of the product, but really.
How fast it will grow to what number in late 2021, we we just can't really tell quite yet.
Understood and maybe for Tom most most subscriber base businesses that we all follow I've had some measure of bad that were subscribers of either not paid or have asked for an extension of terms on payment could you update us on anything you're seeing on the on the E R and collections front as it relates to bad debt.
So so nothing nothing generally I mean.
Where are accounts receivable or in decent shape, we talked last.
Quarter about it yeah, we do have some limited exposure to speed cast, it's less that less than a million Bucks and that's fully that's fully contemplated any any exposure. We had there is fully contemplated in our guidance update.
Thanks, and then finally on erion.
In addition to the hosting payments I think you get some form of a monthly kind of date recurring data.
Fees from them.
And are those revenues tied in any way too usage on their network or those sort of flat fees. In other words is there any variability to the recurring form of revenue that you get from from <unk>.
There's not there's that's contractual.
Got it and then when is the one is the next big milestone.
Hosting payment due and would you expect that they would probably have to draw on that.
That backstopped facility that you laid out to to fund that milestone payment that they would all on the hosting contract.
So.
There is a contractual minimum of $16 million a year and they are prepaid that through 2021, three the first half of 2021 so.
Oh S around another eight in the second half of 2021 and that payment I would just say is fully reflected in how they think about their liquidity as I said in my prepared remarks.
Got it so there's really a full year operationally before area I'm, what all are significant payment other than the recurring monthly revenue.
Right, that's right in there or paint their pain on the data fee, they're paying that monthly.
As mat routinely.
Great. Thank you that's all for me.
Our next question comes from Hamas core sand from Bwl's financial. Please go ahead with your question.
Good morning.
First off I just want to see.
Just first quarter, where Iot sub growth did not offset <unk> decline.
That's going to continue.
Whereas the Iot revenues decline even if.
Subscriber growth is rising.
The most acute impact as in aviation right, we're head for as I said, one $5 million.
And usage that has just fallen out so that's the major reason for the for the decline in <unk>.
Okay.
With what you've seen from commercial customers does this mean, you've missed the 22 2020 install season.
You mean in terms of maritime.
Yes.
2020 was supposed to be.
A big ramp year for us we have a brand new product, it's better than the competition and Cove. It hit and so that's kind of like the rug got pulled out from under US If you will.
In terms of insurance in terms of sales ramp 2020th supposed to be.
Fast ramp and it's not because for obvious reasons, yeah I remember.
Messages maritime, but I mean, and all of our product lines, we are a little bit more seasonal.
In the summer second and third quarters are always our best quarter, because the northern hemisphere is warm and people are outdoors, so whether it's handsets or even Iot installed for for shipping in.
Fishing and.
All the all the things that you would expect would be a little stronger in the summer.
Has been a little weaker though strengthening as in recovering back to some some level of the season. So we are starting to see.
June and July much better not at the levels that we saw last year expected, but we're starting to see it kind of recovering back to.
Something a lot closer to.
Normality maritime they install all year round. So it's not like it's just in the summer. It's just we would have expected a.
It's a little less seasonal really done say are lay on mobile business.
And aviation really isn't very seasonal either.
But it's still has been impacted by the coronavirus.
Okay, and then lastly, just totally on.
Your comments earlier from the installations are you.
Doing one for one inventory replacement with you as the equipment is placed.
They purchasing every equipment that they placed with.
No no.
They.
They need to stage equipment, all around the world in Port.
Places, where they need it so.
There's not that level of.
Sophistication there.
<unk> of our terminals right now out in the market.
But.
Quite a few from our terminal suppliers remember, we just we just sell them in the case of service terminals a.
To say cobham, or <unk> or soon and tell in a.
A modem a radio from our factory and then.
Months later that gets put into one of their terminals and then they sell the full complete terminal too.
Partners for and sales and they've reported to us that they've sold thousands of these things because of the high interest by all the various maritime partners, who sell our services.
And those those maritime partners are the ones, telling us it's hard to get those things on the ships, but they're they're increasingly able to do it and it's growing month by month, but.
Still not normal out there and.
And may be still months before it becomes that way.
Okay.
Maybe I'm not understand.
Not communicating crushing properly, but I'm just trying to gauge how confident.
Partners.
[noise] installing the equipment or.
As far as being wanting to stock.
More of your appointment and within their wearhouse.
As they placed east.
Equipment.
At the ship.
Alright, you're talking them, they're continuing to buy radios, they're continuing to order new terminals. So they are they haven't like stopped.
And we are seen new devices going out there to replace the old devices. So I would say it isn't like they have lost confidence in there just.
Selling their inventory down to nothing or something it still feels like there is still turnover of inventory they put new terminals on the ships. They are ordering new terminals tabak fill them they might be slightly lower inventory levels you'd have to ask them that would be something to talk tomorrow link or.
K V H or to speed cast her to the.
30, others that are really the main ones in the marketplace doing this but there's still pretty busy and when I talk to them.
And we're talking to them all the time they feel like there's a lot of activity around there is just slower than expected.
Okay. Thank you.
Our next question comes from the Louis the Palmer for him William Blair. Please go ahead with your question.
Matt calming can good morning.
Good morning.
First I hope you and your families there staying well during these.
Difficult time.
Second I wanted to say.
Nice work on how the Iridium next expense adjustments to operational EBITDA are now are now zero.
Positive sign in third Tom.
I saw that you raise your free cash flow guidance, which is good for your <unk>.
Reduction of leverage and along these lines I was wondering how do you expect that the shift.
In Aryans free cash flow outlook may impact the timing on when iridium announces a dividend or sure buyback.
So.
You're referring to the lump sum payment.
All the different all the different all the different payments that area and O as you and how like that might impact your leverage and how you're leverage is tied to when you might do some sort of like.
Sure buyback or dividend.
Alright, so the area an update is simply they've said that <unk>.
Refinancing, which kind of.
Is the source of their ability to pay us the lumps on the $150 million ish and.
Yeah.
Push that back to mid 2022.
Okay. So.
But but I wouldn't say that that <unk>.
Necessarily impacts.
If you if you pass out the numbers, we can get into our leverage guide without that lump sum payment prior to that so.
Okay.
I think.
Package, if we will impact it two weeks to the degree to a degree but not necessarily the timing of it.
Because we get there without it.
Just model it out.
Gotcha.
Sounds good and for for Matt New products and services are definitely a key part of your story that many investors are excited about you discussed G. M. D. S has ah the new in telling you in terminal and the Iridium edge services can you Matt providing.
On the expected timeline for the new 90, 770, Iot devices and also the the low cost terminals have there been any delays in terms of.
When you expect to roll those out.
Yeah, there hasn't been any delay.
By the way I should remark your.
Thank you. Thank you for same things in terms of our health that's been a it's been a very big focus obviously and the company to make sure all our employees.
Others are healthy and safe.
Tell you we've all learned.
How to work remotely and we've found it surprisingly effective and productive.
We're really getting it hasn't affected for development schedules or.
Really just about anything in the company in fact, many of my employees are remarking that they are even almost more productive and certainly appreciate that with all the uncertainties with family care and all that sort of thing I'll say, Tom and I've been talking we probably can reduce a little real estate long term here and possibly even.
Move into kind of a new new environment long term, which I think is probably just where everybody's going these days. So that's just one aspect as far as the 90 770.
You will for those who don't know that's our new small form factor midband.
Modem that kind of is going to.
Be the first of a number of different.
Radio products to.
Drive additional <unk> into the island Iot and.
Voice and data segments because <unk>.
Enables more speed, but it's still very small and compact and uses a very small antenna those are in beta trials with a bunch of partners. This summer.
They've been reporting that worked very well we expected because it's.
It's going to get built into kind of comparable complicated products that we'd start seeing the first of those towards the end of this year and into 2021 and it will be made increasingly available beyond the first 10 beta partners too.
More and more partners later this year, who will start building them into products that could come out later in 2021 and 2022.
<unk> things like a new handset, including a new device that would be much faster than our existing.
Hotspot product Iridium go including.
Faster Iot products that would enable things like pictures and Richard services. So.
Those are still on track.
The.
Like I said, we're just starting the additional lower the smutch smaller modem so much lower cost devices those aren't gonna really come until 2021 22.
We're just getting started into the.
Serious in terms of new handsets, which will refresh our handset line and provide.
Richard service experience for those.
Who want a very very simple satellite phone experienced that sort of thing and those things all come.
90, 770 is important because it's kind of the parent of all those devices, which is why we wanted to get it right.
And it is.
It is.
It's full fully developed it's manufacturable today, we're just making sure. It works and every kind of environment of our partners before we really turn on this big it late this year in the early 2021 for everyone.
Sounds good and when you say new handset is that your your voice.
Handset for satellite telephony or or is that <unk>.
Yes for like your like Garman like personal navigational device type handset.
So there will be new devices that.
Partners like garment are able to build into a much more fully functional I mean, a faster speed data only product or even possibly voice.
At what you would call the low end, but yes, we plan yeah, and we have work to replace that replace but augment our satellite phone portfolio I don't know how else to call it but when it becomes sort of a rich multi service device. The table operated higher speed and have more applications and whatnot, yes. It.
Will there will be a replacement for that as well.
That is sort of in the works right now.
Great. Thank you and I'm glad you in all of the Iridium and plays and your families. There are generally doing.
Okay. Thank you.
Two Louis.
Okay.
Okay. Once again, if you would like to ask a question. Please press star and then one so what's your all your questions you May press star and too.
Our next question comes from Chris Quilty from quota analytics. Please go ahead with your question.
Alright, just wanted to follow up on that voice handset is that something that you intend to outsource to partners are still something that you would do internally.
Really in the final throws of that decision right now I'll be honest, it's an issue of speed.
And some other aspects what we've had some really attractive offers to do it externally, which could I expect we would still be selling it but we made more partner externally with some a company that has the capability of bringing a lot of expertise and skills to it but we have a very effective.
And capable internal development.
Would be raring to do it as well.
We really literally or.
A month or two of making that final decision.
Gotcha, and I guess, it's kind of a two part question because you've also got your D. O D. Phipps certified handset is that a separate decision and is there customer funding available for that.
Well.
Thank you are referring to the current 90 575, a model that the government.
Has a secure sleeve.
Allows them to operated and pipeline encryption that sort of thing that's available today took a long time to get there, but it's been out there for awhile and as in used by the U S government it as possible as part of this they could choose if they like what we come up with it could choose to make a version of that but we don't.
Have a development plan with them yet on doing that and that would really.
It'd be based upon.
Whether they like.
Bandages that a new a new device would offer them.
I would expect by the way.
While that is still going to be out there and I don't really think that that's going to.
Packed are bottom line until more like 2022 or or beyond.
I think even before that would be a more fully feature device that as a data only device that would allow smartphones and ipads and the like to operate on our network even with voice in that regard. So you could say, it's in augmentation of sort of Iridium go.
But.
That will that actually we have a plan for and is underway and has been underway a bit and would probably be ahead of the.
More fully features satellite phone device.
Understand.
It also looks like during the quarter you picked up I don't know 20 or 30, new.
S P as in bars, which is kind of surprising in the current environment is there anything specific behind that partner growth.
I don't think much as the activity that we've had with interest and the company.
Technology.
Really hasn't waned, we haven't seen like.
The company's say for example, who want to use this in drone applications. They haven't gone away I mean, it might be.
One more difficult environment, but the opportunity long term for drones, an autonomous vehicles hasn't changed.
So.
I still think we're seeing a lot of activity we're seeing it in.
And tracking devices, you see that we have some new consumer devices, we're seeing interest in enterprise class.
Devices as well.
<unk> had that many in the quarter, but I haven't been keeping close track.
But we're still seeing good.
New partner activity, particularly because of the new platforms, they see being able to offer even more in a very very small highly mobile package. I think is created a lot of interest in that whole, what we call Midband product area, and we think that that will that will really attractive both existing partners and some new partners.
To our network.
Got it and Tom one one question for you on the I O T R poo.
Understanding that the aviation market is.
Single biggest drag on <unk>.
As you continue to grow the consumer business is it still mixing down the <unk> or are we mostly past that impact.
I would say.
If you consider that consumers.
Four bucks and that's the biggest.
Biggest single area of growth and subscribers. The lie is going to slow down continue slowed down as that grows in that that while they've had while they had a kind of.
Setback, if you will with coded.
June Activations, we're really impressive so I think that's going to be a long term trend of significant growth and personal consumer and we we like to $4 <unk>, there's very little usage owner network.
Understand and is there a long term.
Roadmap for the 90, 770 or service type products and that consumer market and when would you be there in terms of form factor size, which I think is currently.
Certainly within 90 772 large.
Yeah. The 90 770 can be a platform for some.
Iot in new voices data applications and that's what we're seeing in these additional partners in the interest right now amongst a whole bunch of platforms like drones et cetera.
But I agree.
Has a whole roadmap of additional.
New Transceivers.
That are kind of right now underway.
Really scaled down version that doesn't offer quite as much speed, but is really really.
Has the potential being low cost and use very small antennas been really would be I think the ideal product for.
Faster Iot applications that offer more data types to be sent across and obviously potentially then generate more <unk>.
That's probably still at least 18 months away.
Really.
I think realized while it's underway and.
Core platform now is is really solid in the 90, 770, which will enable us to develop these additional sort of variance.
Still got different power amplifiers different layouts different antenna types et cetera, but those things are underway right now and I would say I'd be thinking more of that these are big 2022, 23 effects kind of for us right now.
Gotcha, and one clarification did I hear Ya correctly that June was a record month for consumer Iot.
Okay.
I would say it was a record month for Iot net Activations, which are primarily were consumer I mean, obviously will always be sort of consumer basis because of the numbers involved.
June June was a really big month I think.
Maybe.
Some of that might've been catch up with people.
Desperate to get their device in April and May but couldn't get out but.
Hopefully some of that as is demonstrating and this was both to be a really really good year overall and I'd say once the economy gets back I would expect.
All of our Iot partners Ah Raring to get back into.
All the different important applications that they service.
And all the different industries a service.
Very good thank you very much.
Okay. Thanks, Chris.
And ladies and gentlemen at this time and showing no additional questions I'd like to turn the conference call back over to management for any closing remarks.
Thanks for joining us in the second quarter Strange times as some of you said everybody's stay safe and.
And stay productive and we'll see you on the third quarter call take care.
Ladies and gentlemen, with that will conclude today's conference call. We do thank you for attending you may know disconnect your lines.