Q1 2021 Iridium Communications Inc Earnings Call
Thursday Thursday
Good morning, and welcome to the Iridium Communications first quarter earnings conference call. All participants will be in listen-only mode. Should you need assistance. Please email a conference specialist by pressing the 6-0.
After today's presentation, there will be an opportunity to ask questions to ask a question. You may press office is being recorded. I would not like to turn the conference over to Kenneth Levy vice president of investor relations, please go ahead sir. Thanks, Rocco. Good morning and Welcome to our redeemers first quarter wage earnings call joining me on today's call or CEO and CFO Tom Fitzpatrick. Today's call Will begin with the discussion of our first quarter results followed by Q&A. I trust you have that opportunity to review this morning's earnings release which is available on the investor relations section out of ratings website before I turn things over to Matt. 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 nineteen eighty-five forward-looking statements are statements that are not historical fact and includes statements about our future expectations plans and Prospects wage.
Forward-looking statements are based upon our current beliefs and expectations and are subject to risks which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in our filings with the Securities and Exchange Commission or remarks today should be considered in light of such risk any forward-looking statements represent our views only as of today. And while we may elect update forward-looking statements at some point in the future. We specifically disclaim any obligation to do so, even if our views our expectations changed during the call will also be referring to certain non-gaap Financial measures including operational even dead and proforms three Cash Flow Free Cash Flow yield and free-cash-flow, conversion. These non-gaap Financial measures are not prepared in accordance with generally accepted accounting principles. Please refer to the Dodge Journeys release in the investor relations website for further explanation of these non-gaap Financial measures and a Reconciliation to the most directly comparable gaap measures with that. Let me turn things over to Matt.
Like you can and good morning everyone. It's already in the first quarter came in pretty much as we expected. It's tough to compare it to the first quarter of last year as that quarter was hitting on all cylinders before the
Pandemic struck the world and our many partners and customers in the last week or two of March though the pandemic continues to impact certain industries and geographies 20/20 really underscored the strength and resolve of iridium. Wholesale business model across our Global ecosystem of more than 450 Partners each felt something different some felt a rapid slow down the seasonal pickup that's typical of of their business. Well some actually saw an increase in activity fortunately our business is off to a good start this year economic activity is picked up many parts of the globe and even in the most hard-hit of Industries, like commercial Aviation consumer activity as returned in air travel volumes are on the rise this year. We've been pleased with life activity the renewed pace of equipment sales and subscriber growth and feel like we're on track to achieve the full year guidance. We provided about two months ago. I'm looking forward to seeing the remaining.
Economic headwinds that our partners have been grappling with fall away as we move further through the year, but really encouraged by the vaccination rates here in the US and the optimism we're hearing from our partners about continued business walk through the rest of 2021 has I said, we had a tough Compass quarter in light of the strong start that characterized our business in the first quarter of 2020 as a result. We expect to see an acceleration of service Revenue growth for the balance of the year. I feel good about twenty Twenty-One as a year where we continue to emerge back to the growth rates. We're capable of and the trans. I'm now seeing Bears out the equipment sales and subscriber counts continue to grow in the first quarter which highlights strengthening demand and the underlying health of our business.
Most of our business partners have acclimated to operating with the many logistical challenges and business restrictions or the past 12 months and it made good progress in rebuilding their sales pipelines scheduling installations faith in proving their revenue, Cadence.
As I discussed in February 2021 will be a year of new product introductions within iot. We are seen many signs of normality in the first quarter. We passed a symbolic wage important Milestone 1 million commercial iot subscribers using our Network and we continue to expect double-digit subscriber growth. Well into the future in the last six months off we rounded out the Iridium Edge line of commercial iot devices, which a long-lived solar-powered unit and an all-in-one integrated unit with processor and development platform to facilitate the creation a new applications without a lot of additional engineering we're pleased with the momentum of these new products that they're creating and look forward to expanding our existing base of tens of thousands of iridium Edge family devices off. Our strategy has been to make it as easy and as fast as possible to add iridium connectivity to an existing or competitive iot offering and we're reaping the benefits of this plan now,
Within the retail environment demand for personal communication devices seems to have largely recovered. We estimate that these many messaging devices account for approximately 40% of all commercial iot subscribers. Now, obviously, this is a market that iridium is very well suited to support those. Each device is currently operated Legacy nari ban data rates. They allow for a global activity and allow subscribers to keep in touch. Even when Off the Grid we're talking now to these consumer companies about expanding into our higher speed iridium certus platforms and are excited about the new products am planning and and we expected will drive higher RPMs in the future overall. We're seeing a lot of enthusiasm from our partners for our newest transceiver the Iridium 9770 this month on speed transceiver offers throughput that is 35 times out of our Legacy modems, and we're seeing a number of new industrial iot Solutions starting to roll out this year from partners with growth of subscriber.
in our commercial iot segment averaging
Percent per year. We still see plenty of runway for Meaningful Revenue growth and new subscriber adoption.
Well, you see more on this later in the year. We believe iridium connectivity can be embedded in many more consumer devices and are working towards that now we've been very aggressive at licensing our core Technologies, whether they be chipsets or waveforms to companies that can embed them into their own products and will continue to do so our Network spectrum and coverage are well suited for this and they're continuing a good interest from the industry in Maritime after the launch of iridium GM DSS late last year. We've continued to see a steady stream of new orders and installations as fleets and shipowners seeking a fordable solutions for Global safety voice and distress services to date hundreds of terminals have shipped to the channel destined for end users in the new-build market as well as for vessel retrofits.
We see iridium GM DSS as a Gateway service to the largest Maritime vessels yet price is such an attractive level that it will expand the gmdss market to smaller vessels that would otherwise go without this Maritime same device this safety distressed terminal will gain additional momentum when paired with our new iridium Service 200 terminals, which has start hitting the market this quarter worth strong interest in iridium certus 200 already. It is viewed as the successor to our iridium pilot terminal with a compelling value at its lower entry level price point Beyond affordability. It is lighter smaller and faster than competing services with global coverage that they cannot offer.
Among our current Broadband offerings. We're seeing continued growth of our reinserted 3 5700 Maritime and land mobile high-speed terminals terminal installations are still slower than expected All Ships but picking up month by month.
Increasingly iridium is being sold as a companion to vsat in addition to being a standalone terminal for satellite Communications as we look forward. We expect that a reading service will be the service of choice for V. Sat back up as it Remains the most cost-effective Broadband offering with true Global coverage in the fastest speeds in the industry in the first quarter. We saw 10% growth in Broadband subscribers off with our pins pretty consistent to the year ago. Going forward Broadband will continue to be an important contributor to our Revenue growth as you would expect our business with the US government wage has remained steady throughout the pandemic the government continued to add subscribers in the second year of their seven-year fixed-price contract with us to maximize their use of iridium service.
We expect to see an increase in engineering and support work this year as the government continues its upgrades to its private Gateway in preparation for broader use of iridium certus.
Switching gears the aireon despite lower International Air Travel use of aireon service by NSP seems to be getting back to growth on the apparent backside of the pandemic in the first quarter. I am excited to see NAV Canada and that's using aireon to give direct shorter point-to-point routes to airlines flying between North Atlantic North America and Europe rather than using the traditional and less efficient North Atlantic track system proving out the benefits of oceanic a DSP surveillance.
During the quarter.
Barry an operationalized service with the ANS piece of India Iceland and Papua New Guinea in the case of new Sky Pacific in Papua New Guinea area and space-based a TSB service is replacing the way the country's ground-based radar infrastructure, which alleviate the expense of maintaining upgrading and repairing radar stations throughout the country's mountainous terrain providing a more cost-effective solution.
In the first quarter area and also announced a new contract with the A and S P of Norway for Helicopter Surveillance in the North Sea. This is the first space-based be used case specifically targeted wage monitoring helicopters, and as an Innovative way to enhance safety and rescue operations in this region where helicopters are required to be equipped equipped with the antennas in this particular use case with Aaron will make Norway's low-flying traffic visible two controllers and also allow them to be integrated in the country's automated air traffic platform with these recent deployment of technology is now in service or will be in service in about half of the world's airspace. This is a remarkable achievement for a company that just went operational in 2019.
Aryan continue to deliver on his promise to improve aircraft surveillance and safety and we're very proud of their progress and to be an equity stake holder.
I would also point out and highlight that we recently published our inaugural report on environmental social and governance matters in March. Iridium has always taken Pride not just keep doing well, but also in doing good. I would encourage you to review our twenty-twenty report to learn more about our approach to ESG.
Before I turn things over to Tom, I want to point out that we took advantage of the volatility in the market to purchase our first shares of stock under our buyback program in the first quarter this of course demonstrates that we are now delivering on our strategy of leveraging our strong free cash flow to return Capital to shareholders. So in closing the ratings business is demonstrated self to be quite durable even during a package we continue to generate significant free cash flow and have already deployed some of that cash through our new share repurchase program. We also see open lanes for growth and are continuing to invest in R&D and services to add to our diverse streams of income.
Looking forward service Revenue growth will accelerate in the coming quarters AS Global lockdowns and and travel increases powered in part by new product launches and unique applications. We have a busy year ahead. Our plate is full will cover a lot more of this and and a more comprehensive sort of 5 year outlook in are coming investor day next month, and I hope you'll join us. So with that I'll turn it over to Tom view of our financials.
Thanks, Matt. Good morning everyone. I'd like to start my remarks by summarizing our key financial metrics for the first quarter and providing some color on the transverse seen in our major business line them up the 2021 guidance, which we reiterated this morning and close with review of our liquidity position and capital structure.
iridium
Need to execute. Well, as we entered the second year of the pandemic generating total revenue of 146.5 million in the first quarter.
Revenue was up 1% from the prior Year's quarter and in line with our expectations.
As we noted on our February call we started the new year against a particularly Tough Cop as much of the prior Year's quarter was unaffected by the COVID-19 pandemic.
This change and operating environment accounted for the off Trend growth. And so on the first quarter, it sets the table for improved growth trends for the balance of the year as we laugh the start of the game.
operational ebitda was 89.8 million in the first quarter the 2% decline from last year's quarter reflects the impact that the pandemic
Has had in our subscriber usage versus a relatively clean quarter a year ago.
In light of our expectations for steady improvement over the course of twenty. Twenty-One are full year either. Guidance remains at $365 to $375 billion.
On the commercial side of our business service Revenue was down 1% this quarter to 90.4 million this decreased primarily reflected a tough comp presented by one time billing settlement in-home data Revenue in the year ago. As well as lower usage in the first quarter related to the pandemic.
Commercial Broadband Revenue totaled nine point four million in the first quarter up 8% from the prior-year quarter while growth from our new Broadband offerings has remained steady travel restrictions continue to hamper installations and the activation of new equipment. This said we've been pleased with the feedback from the channel particularly on the performance and reliability of our broadband service rep iridium service Broadband remains an important component of our long-term growth and we expect installations to improve once travel restrictions lift and serve as a Tailwind to revenue commercial iot we continue to benefit from retail use of personal Communications devices this led to revenue growth of 4% and the first quarter even with the ongoing headwinds in aviation and oil and gas get the pandemic.
Iot arpu was $8.39. This quarter compared to $9.71 in the prior-year. The primary driver of this decrease was nowhere usage as a result of effects of COVID-19. Most notably in aviation.
During the quarter we added 41,000 new commercial subscribers with the gain driven predominantly by iot as a result commercial iot data subscribers now represent 73% of available commercial subscribers up from 70% in the year ago. We estimate the consumer-oriented plans now account for more than 40% of our 1 million commercial iot users off.
Posting and other data services revenues 14.8 million this quarter down 9% from the Constable quarter in 2020 as we've noted previously in the first half of 2020. We benefited from a billing set up and cumulative catch up with Revenue associated with an updated estimate based on observed usage patterns on the Harris payload that totaled about two point three million dollars approximately 8.3 million of this was recognized as Revenue in the year ago. And the balance in the second quarter of 2020 this accounted for the decline in hosting and other data services revenues this quarter and will present itself again in the second quarter.
turning to the
Service business we reported revenue of 25.8 million in the first quarter up from $25 million in the prior year quarter representing a 3% rise, this increase reflects the contractual terms of long-term emss contract government subscribers, grew 9% year-over-year and reached a record $153,000 in the first quarter.
Subscriber equipment started the new year on a strong note Rising 8% in the prior. 224 million favorable shipments in the first quarter lead us to believe that seasonal activity could improve in 20 21 to what we saw the outside of the pandemic a year ago. We continue to forecast full-year equipment sales will remain in line last year's total.
Engineering and support Revenue, which is largely episodic with 6.4 million in the first quarter as compared to seven million in the prior Year's quarter as Matt noted US government is upgrading their dedicated iridium Gateway iridium service capabilities as a result. We continue expect government engineering work Tab and flow from quarter-to-quarter as these upgrades are completed in all the first quarter came. In fact, we had expected travel and business restrictions tied to the pandemic continue to weigh on certain industries that we support while Trends are improving the impact of the pandemic was largely absent from our results a year ago. We are fortunate to have a number of new products. They recently launched as well as a strong pipeline of new partner products that will roll out this year to gather these should provide incremental revenue and subscriber growth with each quarter off as a result. We continue to reiterate our full-year guidance for service Revenue growth approximately 3%
This outlook for service Revenue suggest growth of approximately 14 million to 20 21. Given that revenue is Splat. You were here the first quarter. I'd like to provide perspective to put our Revenue guidance in clear Focus off to achieve our pool year guidance. We need to generate approximately 5 million a quarterly service Revenue growth in each of the remaining quarters of the Year. This Outlook is quite reasonable. If you consider the following month first as we've noted for some time the virtual standstill in commercial aviation in twenty-twenty and impacted our quarterly Revenue by about 1 to 1 and 1/2 million dollars per quarter started in 2nd June 2020.
So our cop should ease by that amount and we're also expecting improving usage as air travel increases going forward second. There was a true up and hosted payload in the first quarter of 2012 to the tune of about 1.3 million creating a headwind that will not require at all in the third and fourth quarters and will occur to a lesser extent in the second quarter.
Third we expect year-over-year performance in our voice and data business to improve steadily during the balance of the year coinciding with the improving conditions in the global economy and a reopening across border travel depending on the region an increase in vaccinations and a return to normalcy is expected to have an impact with the use of telephony and personal Communications during iridium important summer selling season wage example, I would call out last week's deployment of our push to talk service by the Indonesian government.
PTT has been a bright spot with the addition.
New equipment in functionality and it's generating increasing interest around the world.
We also anticipate improved Broadband performance this year Improvement should follow an increase in activity at Global ports, which will allow our business partners to access Maritime vessels and install iridium service 713 within the government Market, we expect additional traction from our partners. It's l iridium service into the dod in the second half of the Year. Finally, we expect the introduction of our new mobile products in the coming months to gain traction by the end of the year generating incremental Revenue these factors give us confidence in our ability to produce service Revenue growth that averages approximately 3% this year off to sensually Flat quarter moving to our Capital position, as of March 31st, iridium had a cash cash equivalents marketable Securities balance of approximately 222.3 million are growing package has been a source of liquidity and is one of the reasons that our board authorized a share repurchase program in February in the first quarter of 2021 iridium purchased 1.6 million shares of common stock an average price of 37.
50 leaving the company with the balance of 240.7 million and it's three hundred million dollar share buyback program. We expect to continue to be opportunistic and executing these repurchases home net leverage was four times a year, but at the end of the first quarter this was down from four point six times a year earlier and includes the impact of our buyback during the first quarter our long-term Target for net leverage in use to be between 2 and 1/2 and three and half times that we've adopt we anticipate that we will be within this target range by year-end 2022 even after giving effect to the maximum $300 share buyback offer Capital expenditures in the first quarter where nine point four million and we continue to expect maintenance capex of about forty-five million this year as we accelerate investments in real estate and support new product development.
We continue to expect perform a free cash flow or approximately 232 million this year up 15% from 2020. We arrive at this level by using the midpoint of our 2021 guidance at 3 a.m. 70 million and back lost seventy 1 million and net interest performer for our replace debt, 45 million in cash back and twenty two million and working-capital inclusive of the appropriate hosted payload adjustment. This is cash flow reflects the conversion rate of 60% and twenty Twenty-One representing a yield of more more percent. We continue to expect growth and pro forma free cash flow will outpace the rate of growth in ebitda this year.
A more detailed description of these cash flow metrics along with the reconciliation. The Gap measures is available in a supplemental presentation under events in our investor relations website and closing iridium Edge. Enjoy a free strong free cash flow and improving financial position and will realize the incremental Revenue growth as the effects depend Democrat bait this year. We see many opportunities both near-term and long-term for information and our happy that are many new products will be available to our partners this year to attract new subscribers and gain Traction in new geographies and verticals with that. I'll turn things back to the operator for the Q&A.
Thank you. We will now begin the question-and-answer session.
To ask a question. If you're using the speaker phone offer question comes from Walter plastic my check please go ahead.
Mr. Paul is open sir.
You're on your traps.
All right. Well looks like we'll move on to our next question comes from Ric Prentiss. What Raymond James please go ahead. Hey guys. I'm sure Walt pop back in a couple of questions. First off. I would like to talk about our booze a little bit Tom. You mentioned the the iot side has been affected by Aviation, but you're about to lap that how should we think about the recovery back to a more normal level on the aviation impact on iot and what the Trends on given the mix of personal communication devices might look like
Right so that the the the second quarter of the the in terms of the top-right the the right when you compare year-over-year, you're going to have 1.5 volts in the area of 121 and 1/2 million in the prior year quarter that's going to be affected by the aviation usage. So the it should not be that as much of a decrease in the second quarter as the first because it's kind of apples to apples with the aviation, um impact and then as as sequentially as you go forward, you know, the Improvement in air travel should be accrued the creative to the vet.
and