Q2 2021 Iridium Communications Inc Earnings Call
Okay.
Good day and welcome to the Iridium Communications second quarter earnings Conference call.
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I'd now like to turn the conference over to Ken Levy, Vice President of Investor Relations. Please go ahead Sir.
Thanks, Rocco good morning, and welcome to Iridium second quarter 2021 earnings call. Joining me on this morning's call are our CEO, Matt Desch, and our CFO Tom Fitzpatrick.
Today's call will begin with the discussion of our second quarter results followed by Q&A I Trust, you've had an opportunity to review this morning's earnings which is available on Investor Relations section of Iridium as website before I turn things over to Matt I'd like to caution all participants that our call may contained looking statements within the meaning of the private Securities Litigation Reform Act of the 1995.
Forward looking statements of our 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 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 on our remarks today should be considered in light of such risks and.
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 if our views or expectations change.
During the call, we'll also be referring to non-GAAP financial measures, including operational EBITDA pro forma free cash flow free cash flow yield and free cash flow conversion of these.
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.
Explanation of these non-GAAP measures and a reconciliation.
Filiation of the most directly comparable GAAP measures with that let me turn things over to Matt.
Thanks, Ken.
Morning, everyone.
So of <unk> business accelerated in the second quarter as we saw strong demand across the board and very healthy business activity across our partner ecosystem.
While the whole world Hasnt completely reopened yet we've seen our subscriber growth recovered of the kind of levels. We were seeing in 2018 in 2019 before the pandemic slowed things down.
For example, commercial aviation partners are experiencing a nice rebound in activity and end user demand in maritime is also showing signs of improvement.
This progress helps the frame our views for the full year. Accordingly, we are raising our forecast for service revenue to reflect the strong demand. We are now seeing on the back of the increased usage and strong subscriber growth.
We've also seen more normal seasonality again, this year, which began in March and should carry through to October.
The seasonal move which was largely absent last year was visible in the strong activations in commercial voice and data subscribers during the second quarter and it goes down as our best first half performance in 9 years.
Subscriber activity was strong in Iot as well in fact, we logged the best quarter of commercial Iot growth in Iridium history, adding a record 82000 net new subscribers over the past 3 months.
Some of the strength of mace surely relate to the new love, we all have lately for outdoor activity as personal communications subscribers continue to grow at a record clip now we don't see this demand slowing anytime soon.
We've added a number of new consumer oriented partners in recent years.
And many are now seeing an acceleration of unit sales in the Activations.
As these personal satellite communication devices proliferate in part driven by falling retail prices. There is increasing awareness among consumers of the great value and utility they provide when traveling off the grid.
We believe that we're still on the early days of adoption and Iridium network is better suited for these mass scale consumer oriented devices than any other existing or planned satellite constellation.
We're very happy with the rebound in usage on subscriber growth in the first half of the year as well as the strong equipment demand, which is indicative of future activation.
I'm sure you're aware, however that there are global supply chain shortages of semiconductors affecting high tech companies driven in part by high demand for automobiles and personal computers.
This demand has recently impacted of specific component used in our legacy Iot modules and the supplier we used for this part reduce their monthly shipments to us until later in the year.
Fortunately my supply chain team has worked to limit the impact of the situation to Iot modules scheduled for delivery to partners.
For the most part in the third and fourth quarters of this year.
We should catch up quickly with demand in the first quarter of 2022.
Well this is slowing down a percentage of our monthly Iot module shipments over this period.
Bit frustrating given the strength we are now seeing in the in our business, we really didn't want to be held back in the Iot even on a small way as this business continues to gain steam and is the driver of meaningful growth in the future.
Apart from this unexpected challenge on some equipment, we've been extremely happy with how 2021 has unfolded. The industries. We serve of open up our partners of resumed normal operations on subscribers of returning to their normal seasonal usage pass or pattern.
We're about halfway through our peak season, and we're getting better versus the.
Full year trends the acceleration of service revenue growth that we had expected the spoke to last quarter now seems to be playing out.
For those who attended the Investor day in May you heard about the strong progress that we're making on new products and services launching this year across several industry verticals.
It feels like we have more oars in the water than at anytime in our history, we believe that new product launches will expand our reach and drive new subscriber adoption in the coming years to help us achieve high single digit service revenue growth.
I'm really excited about the recent commercial launch of our iridium sort of 200 service.
This new service class offers the best performance the value in the industry for maritime and land mobile applications and we expect new aviation products to follow later this year and in 2022.
Iridium service 200 is the perfect upgrade for ships that use of Iridium open Port service of which there are still around 9000 octave and it's the better alternatives on Inmarsat fleet 1 product.
It provides good data speeds out of a very attractive price point.
And it's small omni directional antenna will fit unobtrusively on small boats airplanes trucks and trains erith.
Iridium service 200 will be an even more cost effective companion to VSAT on ships and partners are excited about adding it to their existing iridium service portfolios.
By the way installation on ships are getting a little easier for some partners and it's showing in our numbers with the activation of more of Iridium <unk> broadband terminals. We added twice as many net new broadband subscribers. This quarter than we did in the first quarter and 3 times more than we did in the same quarter last year.
Iridium <unk> is also performing well for us with more than 500 terminals sold and serviced commenced late last year. We continue to expect that our growing maritime offering will drive double digit broadband revenue growth well into the future.
In aviation.
Our terminal manufacturers are finally, making real progress there are several tenants under development for commercial corporate rotorcraft in general aviation markets and when they are ready I think they will disrupt the status quo in aviation with their size cost and performance in the same way, we have and maritime and land mobile.
We're also making good progress on the regulatory front for aviation safety services.
The global standards organization recently approved our detailed safety plans for Iridium service to be used for control of pilot data links and other safety services on commercial aircraft this quarter and it is clear from those efforts that we have a lot of supporters in the industry, who want more of Iridium L band aviation broadband products for their aircraft and customers as soon as possible.
Possibly.
I am pleased to be able to share today. The garments aviation team is now integral iridium into their groundbreaking auto land aviation safety system instead.
The installed on some of the latest Garmin equipped aircraft Iridium will soon provide a reliable source for real time weather data into the system, which will complement other garmin inputs to assist the system to safely on autonomously lay on the aircraft in emergency situations.
In addition, we continue to explore other opportunities with government to leverage Iridium Global network and recently signed an agreement enabling them to integrate iridium service technology into their products.
We're excited about the possibilities of increased data speeds and the most up to date L band technology can offer of garments many customers.
Moving to Iot.
Feel really good about our position in this growing market and know that the momentum we have enjoyed with personal communication devices will be of driver for many years, we continue to add new Iot partners to the fold 8 more in the second quarter alone who should further extend our industry and geographic reach.
We've also begun to see a bounce back in demand from heavy equipment manufacturers as the pandemic recede.
<unk> has now started deploying their iridium solution and other major Asian Oems are also beginning to hit their stride.
Of the equipment now accounts for more than 10% of our commercial Iot base and it's forecasted to provide continued meaningful growth, especially of global construction returns and as investment in infrastructure becomes a priority.
In the first half of of the year. We've also formerly lab certified 14, New Iot solutions at the request of our partners and continue to see a healthy pipeline of new product innovations from them, especially those based on the Iridium 90.770 mid band module.
The new device that supplies, what we call iridium.
100 class service.
Several partners are now selling their first products in this class and many more of developing new applications today to replace legacy voice and data and Iot solutions with faster data speeds and other capabilities.
On the consumer side personal communication devices accounting now for nearly half of our Iot subscribers and are among the most efficient users of our satellite network.
With consumer subscriber growth, averaging 46% over the past 2 years.
We want to augment our capabilities with these users beyond basic texting and Sos services and embed iridium connectivity into more consumer devices.
The <unk> products are coming into 2022 that will allow our consumer satellite users to share feature rich.
<unk> text photos and update their social media more easily we're very excited about the potential of all of these.
The U S government continues to be an important long term partner.
In June we hosted a 2 week Arctic exercise with the U S government and more than 20 organizations were involved showcasing iridium technology for operational needs in the vast regions north and south of 70 degrees latitude where few other highly mobile system choices exist.
This expedition, which was called operation of Arctic links.
Together partners and users to demonstrate the Iridium service platform and other of iridium products to customers for high valued communications on the move.
Participants got to utilize many of the <unk> capabilities and partners products. The support unintended sensors command and control real time communications imagery and full motion video.
We were very happy with the broad participation on this event and the collaboration of these partners with so many end users and plan to host these types of programs on a more regular basis.
Despite having 153000 the government customer subscribers, we would've anticipated higher growth in subscribers and engineering service revenue this quarter, but for some teething pains of the U S government is going through as they work through the transition of our MSS contract and gateway support from <unk> to the U S space Force.
We're working with the Dod to manage through their budgeting and contractual issues to continue to foster growth and innovation under the MSS program.
Switching gears to area on air.
<unk> is starting to see signs of growth as air traffic rebounds from the pandemic last month. They made use of the favorable credit markets to closed on a refinancing of the credit facility of that provides them access to capital on much improved terms the.
The company continues to deploy the solutions to partners and will already service about half of the world's aerospace when it's existing contracts are deployed.
As I've said before we're really pleased with the quick progress areas, making of what they call commercial data services. We believe this will provide a nice upside to their longstanding business plan, which was initially focused primarily on air traffic control data.
As an example, Eurocontrol recently announced the deployment of areas of real time traffic surveillance data for flow management to boost the air traffic predictability and safely adapt to varying traffic demands across the organizations 41 member states.
We're proud of the progress that <unk> has made since it went operational in 2019 and are happy to host their technology, which is now redefining the standard for global aircraft surveillance and safety.
So as I reflect on the first half of the year of.
Iridium has emerged from the global pandemic with momentum and our accelerating growth and strong free cash flow generation of allow us to pursue many avenues for expansion.
This year, we've continued to add new products partners and services.
Each of which should bolster our unique position in the satellite industry we.
We feel very good about our progress and look forward to continued strong revenue growth to meet the objectives. We laid out for the next 5 years at our recent Investor day.
That I will turn it over to Tom for a review of our financial and stuff.
Thanks, Matt and good morning, everyone.
I'll get started by summarizing our key financial metrics for the quarter and providing some color on the trends we're seeing in our business lines, then I'll recap our updated guidance for 2021 and close with the review of our liquidity position and capital structure.
Iridium executed well on the second quarter and continued to grow sales as the broader business environment continue to return to normal we generated total revenue of the $149.9 million in the second quarter, which was up 7% from last year's comparable quarter. The improvement reflects ongoing demand for our L band services and as an.
<unk> sign of the headwinds associated with the COVID-19 pandemic have decreased operational EBITDA was $94.8 million, which was up 11% from the prior year's quarter. The increase from last year reflects the return to seasonal activity, including more customary business operations for our partners most of whom were still reacting.
2 the pandemic in the year ago period.
In light of our expectations for improving revenue growth in the second half of the year. We now expect service revenue to increase between 4% and 5% this year.
On the commercial side of our business service revenue was up 8% this quarter to $95.6 million.
This increase reflected of rebound in our seasonal business compared to last year's pandemic headwinds, which weighed on travel and usage strength in Iot and broadband as well as the seasonal uptick in voice more than offset the decline in hosting data revenue, which was entirely attributable to a true up in the prior year period on the <unk>.
3 Harris hosted payload.
Commercial voice and data revenue increased 4% to $43.3 million driven by a seasonal uptick in activations, including continued strength in iridium push to talk.
In commercial Iot retail oriented subscribers fueled a record 82000 activations during the quarter and drove a 20% increase in revenue from the from the year ago period.
Through June 30, we had over 500000 personal communication devices on our network and continue to believe that these consumer oriented users will drive Iot growth for the foreseeable future.
Last year Iot growth was constrained by the Covid shutdown.
And with the especially acute with lower data usage in the aviation industry.
As business activities have begun to normalize we have seen a rebound if the aircraft usage, which is helping to augment commercial Iot ARPA.
Iot <unk> was $8.69, this quarter compared to $8.91 in the prior year period the.
The slight decrease in Q2 from the year ago period was caused primarily by the increasing proportion of personal communications subscribers, which use lower RPI plans.
Offsetting this trend was an increase in usage and aviation, which was also evident in the increase in <unk> from the first.
As we noted during our Investor day in May.
Iot <unk> trend should revert back to our long term historical norm the 20% revenue growth. We saw on the quarter supports our expectation that Iot revenue growth for the full year will be up materially from the off trend, 1%. We saw on 2020 during the height of the impact from the pandemic.
The return of air traffic is the key variable as it removes a significant headwind we faced last year.
During the quarter, we added a record 98000 net new commercial subscribers driven by the surge in Iot Activations commercial Iot data subscribers now represent 74% of iridium billable commercial subscribers up from 71% in the year ago period, we estimate the consumer oriented plans now account for nearly half of.
Of our commercial Iot users.
Commercial broadband revenue totaled $10.6 million in the second quarter up 25% from the prior year quarter.
A rise in maritime Activations drove gross.
The limited access to vessels continues to restrain the IND.
Iridium service terminals.
With more than 5600, iridium terminals ship to date by our manufacturing partners. We continue to expect strong broadband growth travel restrictions lift hosted in the other data service revenues was $14.4 million this quarter down 7% from the comparable quarter in 2020, the year over year decline related to a revenue true up.
In last year's second quarter related to usage by L..3 Harris.
Turning to our government service business, we reported revenue of $25.8 million in the second quarter up 3% from the $25 million in the prior year quarter. This increase reflects the contractual terms of our long term MSS contract government subscribers grew 10% year over year to of 153000 in the second quarter.
Subscriber equipment continues to benefit from strong demand rising 10% from the prior period to $21.8 million as Matt noted we received notice from suppliers that equipment that was previously order is in short supply and not likely to be delivered on the timeline that we had originally contracted while we continue to work with our suppliers who are altered.
On it.
The sourcing options, we now expect that full year equipment sales will be below our initial expectations. We are also having to absorb some price increases that could compress equipment margins.
Engineering and support revenue, which is largely episodic with $6.8 million in the second quarter as compared to $7 million in the year ago period, We continue to expect engineering revenue to ebb and flow and have recently experienced some delays that will cause our engineering and support revenues to be lower than our original expectations in all of the second quarter.
It was quite strong as we saw demand from Iridium service improve with the resumption of more normal business operations by our global sales partners. We remain optimistic that pandemic related restrictions will continue to abate in the industries that have been hardest hit over the past year, we will increasingly see their business returned to pre pandemic levels.
This assessment gives us confidence and increasing our growth outlook for service revenue to between 4% and 5% in 2021.
Due to the uncertainty with supplier constraints and the resulting impact on equipment revenues and costs and given the softer engineering revenue. We now expect we have not increased our guidance of operational EBITDA, we reiterate our full year guidance for EBITDA of between $365 million and $375 million moving to our cash position as of June <unk>.
32021.
<unk> had a cash cash equivalent and marketable securities balance of approximately $219 million.
Our strong liquidity is a key reason that our board authorized the share repurchase program earlier this year and.
In the second quarter of Iridium purchased $63 million of common stock at an average price of about $37 of share, leaving the company with the balance of $178 million on its $300 million share buyback program. We will continue to be opportunistic in executing these repurchases.
Net leverage was 3.9 times EBITDA at the end of the second quarter.
This was down from 4.4 times a year earlier and includes the buyback during the first half of 2021.
Our long term target for net leverage continues to be between 2 and a half of 3.5 times the EBITDA.
We anticipate that we will be within this target range by year end 2022, even after giving effect to the maximum 300 million share buyback.
Expenditures in the second quarter were $9.8 million and we continue to expect maintenance capex to be about $45 million. This year.
We continue to expect pro forma free cash flow of approximately $232 million. This year. This is up from 15. This is up 15% from 2020.
We arrive at this level by using the midpoint of our 2021 EBITDA guidance at $370 million in backlog of $71 million in pro forma net interest of $45 million in capex $22 million on working capital inclusive of the appropriate hosted payload of adjustment.
This free cash flow reflects the conversion rate in excess of 60% in 2021, representing a yield of more than 4%.
We continue to expect growth in free form of pro forma free cash flow will outpace the rate of growth. The EBITDA. This year a more detailed description of these cash flow metrics, along with a reconciliation to GAAP.
GAAP measures is available supper.
A supplemental presentation under events on our Investor Relations website. As you may have seen we launched a repricing of our term loan yesterday with indicative pricing of LIBOR, plus 250 basis points of 25 basis point improvement in the current spread with the LIBOR floor of 75 basis points down from the current rate of 1 per.
<unk>.
This pricing would represent an overall savings of 50 basis points on our current interest cost, which will yield annualized interest expense savings of approximately $6 million. We expect this transaction to close next week and we'll be able to confirm details at that time.
This is the second time, we've undertaken a repricing of our term loan in the calendar year. We think this demonstrates the strength of iridium as business model along with the acknowledgment from investors of the strong and stable recurring share of.
All of our free cash flow profile in light of the expiry of an interest rate swap later this fall and the impending close of our current repricing transaction, we would expect pro forma interest expense of less than $60 million in 2022, which represents a significant decrease from the 2021 level and approximate and is approximately half of what it was in 2.
19, just 2 short years ago.
In closing Iridium is capitalizing on many growth opportunities now that most of our business partners have reopened and returned to normal operations. We will continue to keep you informed on the supply chain challenges that we may face, but believe that we are navigating the current environment, well, which will allow us to drive revenue growth. This year as we also generate so.
Free cash flow for our shareholders with that I'll turn things back to the operator for the Q&A.
Thank you we will now begin the question of interest.
If you'd like to ask the question. Please press Star then 1 on you touched on zone.
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First question comes from Ric Prentiss with Raymond James. Please go ahead.
Hey, good morning, guys.
Hey, Rick.
Yes.
Obviously the quarter on the assets will overhang.
Overhang of the supply chain issues, it sounds like but if we think longer term.
You mentioned in your analyst day high single digits for service revenue growth and 23% to 25 as we think about getting there from what we're seeing currently how much of that is driven by pricing and how much is driven by quantities.
When you say pricing do you mean raising the price.
Well, we're just on the ARPA.
Well it certainly isn't about raising prices because we don't have to do that to achieve the kind of level.
I'd say most of it is quantity really the 100% as quantity in terms of adding subscribers.
New products that deliver additional revenues.
The fact that we're moving more broadly into broadband at.
At all different levels and the multi class level of all of the products, we have offering we're entering into broadband in the aviation.
Really increasing kind of.
Sure.
Service revenues across the board in that area. So.
It really is volume driven.
And not a lot.
Not a big chain.
Change from sort of the trajectory that we're currently seeing right now and expect into next year to get to that level.
Okay.
On broadband pricing.
Obviously still a fairly small base, but the <unk> bounce around a little bit in the in the.
Broadband category is the seasonality there or is it just as you are installing the line I'm just trying to think of how we think about the service <unk> going forward.
Well sort of 700 is the is the only service we offer today and maritime and land mobile.
And we offer a number of different sort of data packages based on time and data levels et cetera.
The general level of the amount of usage of our new Iridium service terminals is higher than what we were used to in the previous.
Iridium open port timeframe.
Open ports still makes up the majority of our broadband revenues today, but that will that will be.
Quarter by quarter overtaken by more and more.
Higher speed service terminals, which deliver higher <unk>.
No.
Im not sure.
Some of the bouncing around on the higher higher Arps, who sort of terminals will continue to sort of dominate over a longer period of time.
I think thats about the only way you can kind of look at it.
Okay, So probably it's a little bit of seasonality of usage in the summer I assume.
So I would say because of the predominance of maritime right now.
And on the land mobile offerings, there's going to be a little higher seasonality.
In the say the second and third quarters, particularly so that might might affect things a little bit too.
Makes sense.
In the past, we get a lot of questions about all of the new leos the space race, the billionaires going on out there.
Talk a little bit about where you're at as far as maybe partnering or collaborating with these other leos and how the L band of Iridium services might play into what the future networks.
The networks look like.
Well again, what what.
What's going on in these mega constellations and the <unk> and Ku band is very.
Very different than what we do have called that the commodity broadband services offering really really high speed services from a larger antenna.
In some ways to consumers, but even when it's in the enterprise and kind of government applications. These are through.
Large terminals that.
The operating in very very different applications than we either do today or ever aspire to do and in most cases almost every service that we offer.
The example, we dominate in the cockpit of commercial airplanes, where the Wi Fi system.
In the cabin.
It would be the kind of system that those systems would compete over with the existing geostationary satellite systems at operating the same frequencies of Ku and <unk> band So.
So very different services I believe complementary.
And and.
Yes.
We are.
Complementary to existing operators when new.
When these new Mega constellations come in our partners will be offering their services and complementary fashion with our services in the same way they offer them today, so it really doesn't affect.
No.
In many ways, what we do.
As you know, we really focus on what I would call smaller more highly mobile battery operated consumer devices and that kind of built very.
Very small.
Smaller kind of vehicles et cetera, and again, that's a completely different area that those those networks can't really.
Address as far as partnering with them, we do have discussions with them.
They all recognize that we're complementary they talk.
About possibly having join.
Joining offerings together, we haven't announced anything like that I would say that most of them are a lot more focused on getting their networks and operations right now and a single.
The first service together.
Specced most of those kind of discussions will be more something that happens in the coming years as opposed to anytime real soon.
Makes sense, thanks for the extra color Matt Thank.
Thank you.
And our next question today comes from Walter Piecyk with.
Please go ahead.
Thanks, I may have missed this prepared comments I apologize if this was addressed but when I look at the quarter that 20%.
Growth in Iot, specifically, obviously, a very big acceleration much higher rate than I guess, you could say.
The comp from last year, but.
Matt can you just kind of talk about.
Where is that coming from in terms of either products distribution channel. It's just kind of peel the onion on that 1 of a little bit and how you expect that to play out over the next couple of quarters.
Well, it's very broad based as well as you know we have.
The 1 hundreds and hundreds of Iot partners.
And all of them seem to be kind of back to normal and performing very well in.
Many many industries really across the board from things like I've mentioned heavy equipment too.
2 maritime too scientific to oil and gas.
As of.
Little bit of recovery probably.
And really across the board so.
Obviously the biggest 1 in terms of numbers has been personal communications and that is definitely up though those are much lower ARPA of subscribers, but when you take the full collection around there really isn't an area that is performing.
Performing badly right now and of course, the big headwind. They got last year. When you said, an easy comp was aviation, which really kind of dragged on that whole thing.
And was the biggest reason why sort of a 1% grower and that has come back quite quite a bit I mean, the majority of that is really sort of come back because.
Of those airplanes are flying again, and they are using safety services and so so we're seeing really.
Those revenues come back as well so it's really broad based.
Should we start to look at this is like the sequential revenue business.
Obviously this.
There's the recurring revenue nature to this this is going to be the 1 of the higher growth or the highest growth engine against broad mountain view of big 1 as well.
Like is that the way we should start to think about this on and can you do like steady sequentially or.
The quarters at the sequential or be more aggressive than others.
Well it has been.
Strong sequential year over year gross business for us in the past you go back.
The $15.15 years right now, but I mean go back to as a public company every quarter every year, we've been able to put on significant new revenue and it's been very consistent except for last year was a little bit of of obviously because of the primarily the second quarter.
And third quarter of last year in aviation really.
It took a little bit of of bite out of it but that has come back largely this year as we expected and.
With a lot of new products coming to bear that are.
Soon going to provide higher speeds more capabilities I mentioned, the more partners that are being added into it the more solutions that are being driven to it. So I think the kind of success you saw us this year will continue well into the future.
Always thought the.
This was always going to be 1 of our biggest growth engines.
Broadband might be a more immediate real opportunity because we started from such a small base on that front, but the Iot is going to be a cost of an engine of growth for us and I would just add.
Think about the personal communications right. So we havent half of million subscribers I mean, there's $3.5 billion smartphones in the world. This is an accessory to a smartphone if you look at the penetration of wireless in the nineties. It grew by 50% year in and year out so the potential here is.
Significant for we think is a.
The long time.
And then can we just end on on <unk>.
I am sorry go on but with no no I would just mentioned.
I noted in the rug say sort of set it a bit in my script.
I really think putting up almost 100000 subscribers this quarter was really.
The quite an eye opener in some ways for for us in the sense that that was such a record.
But it really doesn't feel unusual to us anymore. It was only a couple of years ago that would've been a good full year.
That probably is not going to be that in the news.
Second quarter for us on the future and I think with the potential.
The increase.
Increasing number of partners that we see on the and the discussions on that.
Activity, we see that could that could be of.
B of low water Mark down the road here so.
The strong business to be part of.
And then just lastly, I guess on on.
Share repurchase.
Any kind of thoughts on how we should expect that I mean, obviously, another another solid quarter relative to last quarter, but.
Free cash flow kind of ramping up it looks like your capex is under pacing.
Just kind of.
So on share repurchase as we hit the second half of the year.
Any new thoughts on on.
1 of the dividend is going to be a part of the capital return policy.
Well you have to tell me what the stock price looks like it's going to be in the next coming weeks here.
In months.
And then I will tell you how much we will buy I mean, obviously, we're being opportunistic right Tom.
It is.
Thanks, Mark it's been down a bit and obviously we've continued to buy.
At different times, there and.
We've talked about the envelope, which the board has approved and we will keep working within that right now but.
I mean, I just would expected of.
Of the market improves we won't see quite as much but.
And the in the near term but.
Continues to give us opportunities, we'll take them.
And then thoughts on dividend.
As we said on the Investor day.
On the menu.
Well, we will consider at the appropriate time right now we're focused on the buybacks dividends arent aren't out of the question down the road.
I mean, hopefully its not just feedback.
Not opportunistic dividends, because I think investors prefer to see if and when you start this thing regular growth as opposed to staying like well our stock has rallied as the drop of dividend this quarter versus not I think obviously regular dividend and growth is going to be what.
Investors will prefer and right in the new investors even right. That's how we think about certainly the primary concern is that any dividend we put on the stock we want to be share that.
As sturdy through the next capital cycle the next.
As of our constellation so.
As time passes we get greater and greater clarity on what that looks like and then eventually we think the long ways off.
Okay I got it. Thank you very much yeah. Thanks will.
And of our next question today comes from Greg Burns with Sidoti <unk> Company. Please go ahead.
Good morning.
Just give us a little bit more clarity on the.
I guess, how the supply chain issues might impact Iot activations of the next in the second half of the year.
Right now, we don't think its going to impact our gross much in the second half in terms of Activations and obviously service revenue because we call that up for the year because most of our partners.
Have the devices they need in the next quarter or 2 or certainly in the plans to.
Get those.
Get the current.
Products fulfilled and everything with their customers. So I really don't think it's going to affect too much the.
Bigger issue, we had more of the was could we contained it.
Something that a couple of.
It really kind of found out about it about a month ago and I'm really fortunate to have such a great chain team from jumped on this thing really hard working closely with.
With our supplier.
Kind of increase increased allocations from what we originally feared I think.
And.
Kind of constrained this thing to primarily 2 quarters, the third and the fourth quarter in terms of the sort of reduced shipments to them. So it's affecting.
It is affecting some equipment revenues for us.
The second half of this year, the fed will be will really be.
Caught up pretty quickly in the first quarter of next year. So all of the growth requirements that everyone has.
We were fortunate to go into this with.
A bit of inventory on hand, so we're using data as well to fulfill.
Our partners requirements.
<unk>.
In the next quarter or 2 but.
Theres a few we're going to have to allocate a little bit which is frustrating because where we and they are doing so well right now we don't want to hold anybody back so.
Since it is going to be a bit of a blip on the road in terms of our overall overall growth, but it's 1 of the reasons why.
Can't call the Sutton.
Can't call it up yet until we see exactly how that all plays out.
Okay.
And then in the in the voice and data obviously, a nice snapback from last year in terms of seasonality, but even even so the the net adds were probably the highest I've seen since I've been covering the company has there been any other.
Change in that market that.
Maybe from a competitive perspective or the <unk>.
Driving stronger demand for your services.
Well I think our portfolio as I said, it's the best first half of 9 years I think we of a best of really great portfolio of products. For example had really good activations of our go product. This year Iridium go has performed very well people I think are really appreciating.
Sort of.
It's the potential the other 1 the PTT I mean, we're really PTT has been very strong we introduced that a number of years ago. It takes time, because it's a more complicated sales because you are selling that 2 of work group or.
The government or agencies, and everything and they need to integrate it into their their service portfolio and in their systems, but more and more of that is happening around the world and so of PTT has been really strong in the left.
6 months of coal.
And obviously people returning back out.
As also.
An important driver.
As you can see people appreciate sort of the value of the service wherever they are everybody wants to do that.
Out in socially distance I guess, they are using the satellite devices, but the.
It has been has been strong.
Okay and then.
In terms of in the maritime market.
With the different levels of.
Yes service offerings in terms of the 200.700 how of those.
How are those products differentiated in the market aside from the street.
I'm thinking like in terms of like what applications are they more used for and 200 potentially going to cannibalize. Some of the 700 like how should we think about the dynamic of.
Demand for 700 versus 200.
Yes, obviously, there are 2 different speeds.
The 200 is very small and offers.
About on this.
Called 200, because its about 200 kilobits per second type of service, which is good enough for many applications and.
On a lot of lower and more price sensitive kind of applications.
The arent really going to use service all of that much like the fact that it's a lot less expensive terminal.
Half the cost.
And therefore, it might be used for that it's going to be used in some VSAT companion applications, which where they just want to really.
You can reduce the cost further for sort of the <unk> component.
Said before almost every day.
VSAT terminals seem to go out there with 1 of 1 of our <unk> terminals on at least if it's anybody but.
The 1.1.
K van providers.
And then the 700 kilobit per second unit is obviously provides a lot more speed, it's a little more expensive, but it's a lot more competitive to those kind of standalone applications you might want to have where you really want to a pay as you go kind of service as opposed to an always on VSAT unit and but.
Even if you wanted of premium backup to your VSAT unit, which will provide a much more comparative kind of service to it when you don't when you can't use your VSAT terminal or it's out of coverage or it goes into.
The more northern or southern hemisphere coverage areas or whatever whatever the the reason might be it provides even a higher level of service. So our partners kind of see debt both of them are going to be.
The used in their portfolio as they see they don't see really 1.
Over another I will say I believe that long term the <unk>.
<unk> 200 product will cannibalize, our open port units, which I will say has been holding up much better than I think thought a couple of years ago, We got a lot of people.
The place those open port.
What's with service, but many of them are still out there on the field as I said almost 9000 are still out there, but as they do.
Come up for replacement I think the sort of 200 for those who are really really cost.
This will be of great.
Replacement choice.
Joyce for them.
Okay. Thank you.
And our next question today comes from Chris Quilty of Quilty analytics. Please go ahead.
Thank you first a question for Tom.
The higher anticipated service growth rate, but not raising the full year EBITDA is it fair to assume that all of that is related to the lower engineering services and potentially lower.
The revenues and margins on the equipment side or are there other factors at play.
It's those 2 Chris.
Okay.
And then Matt a question for you on the personal communications, obviously, the big anchor there is garmin and I think nearly all of those products today are the sort of handheld GPS type of units.
So 2 questions here.
Do you see that broadening out in terms of customer concentration and number 2 is.
What do you think is the next major class of products beyond handheld GPS debt becomes a.
The large.
Unit volume market.
I understand the kind of where youre going obviously garmin has embedded us into more and more of their.
Products and have plans to I believe introduce other products based upon our services and as I mentioned today.
They just.
Kind of signed the deal to embed.
Iridium service technology into their products and of <unk>.
Free integrated.
The integrated way much more than than might be.
We expect and that will create enough I think even new opportunities for additional products that use higher speeds.
The transfer.
Pictures and that sort of thing much more.
Easily than you can today with the current lower speed devices. So.
I'm looking at the.
A lot of opportunity for growth from Garmin, and the coming years, I really would hate to start trying to describe what they should really describe in terms of their product plans and how they plan to address different markets I do know they also continue to look to expand sort of geographically as well.
Theyre very I think adept and effective at managing sort of that consumer focused business and they do that carefully.
Around the world and in ways that.
The advantageous in that also drive some growth so.
Think.
I think that's that's what's exciting, but I don't really want to try to analyze their business for you here.
Got you and.
Final question just on the service margins here given some of the mix issues that that you see going on is it fair to assume that they stay around the 80% level or do you see any room for expansion.
In terms of service revenue percentage of our of our portfolio.
Theres not theres not a lot of work there is not a lot of debt there is no.
There is no incremental variable cost from 1 product to the next it's kind of.
Net network utilization so.
If youre modeling the 80% I don't see of change change on that.
Perfect.
Thank you gentlemen.
Thanks, Chris and on <unk>.
Next question today comes from Harvard per sand with Dws financial. Please go ahead.
Hey, good morning.
First off I just wanted to see if this growth that you've seen in Q2 was that a lot of built up.
Backlog to a lot of your partners were able to clear out given the.
Reopening after COVID-19.
I don't know that the characterize it to us as that way I believe the day.
I believe of lot of them are meeting.
The backlog going back even into the late last year as we started seeing this growth really not just in the second quarter, but it was building in the third quarter of last year of the fourth quarter. The first quarter I, just think as we hit sort of the tsunami of.
Seasonality on the number of our business areas of full.
<unk> growth in some areas of new products coming on all of these things are sorting are coming together to get us back to what I would call more traditional.
Year over year kind of growth rates.
And Thats, what I think you saw in the second quarter I don't think it was sort of some unexpected backlog flowing out perhaps a little bit more on the broadband I know that there is sort of the tent.
Pent up backlog of Iridium <unk> terminals to go onto ships and obviously, we saw some of those.
Start getting onto ships more start of those starting to get onto ships in the second quarter, but I don't think thats the.
The complete yet either so.
I think the law the.
The sort of natural growth.
Okay and then on.
What you've been seeing on the Iot from at the components.
Component shortages is that going to cap.
The revenue or.
In some capacity because you are still raising service revenue. So I'm just trying to understand how are you.
Expect interest growth to slow down compared to what you achieved in Q2.
The <unk>.
It relates specifically to equipment revenue.
We had expectations of the beginning of year for a certain level of equipment revenue I will say the demand has far outstripped, what our original expectations were.
And while we can meet some of that demand growth in certain areas. This 1 component.
We will slow us down a bit in the.
And in Iot modules in the third and fourth quarter.
We can't meet all of the additional growth that we're getting from those Iot partners and the way, we'd like to still of lot of it.
I don't think its kind of.
We're not gonna be way way off but it will affect of equipment revenues I would say, we would definitely have had an up year on equipment revenue without this.
That now it doesn't look like from the necessarily happen, though we'll see I mean, we're really as I said, we will.
We're still working to kind of maximize the revenue right now and we will we will be able to report a lot more on that in the third quarter about exactly where we were.
Are we think we will end up.
Thank you.
Yes, Thanks Omar.
And our final question today comes from Matthew <unk> with Barclays. Please go ahead.
Yes, good morning, and thank you for.
First question maybe on maritime.
Can you give a little bit of color in terms of how the competitive environment has evolved from from legacy players of from.
The more recent player in any changed on its worth flagging.
Well I mean, it's.
We've obviously gotten very strong in the last year or 2 with both products in almost every category that are better cheaper.
More places of the Earth et cetera, and we're only making that even more dramatic with now adding the <unk> 200 maritime products. This year.
There'll be 100 products in the maritime market GM DSS is now fully certified and expanding in fact, we.
We'll report on it in the <unk>.
Probably coming quarter, but we.
Got it.
1 country that needs to certify.
Service terminals and they should be certifying that soon all of these things are adding up to probably the best competitive position we've ever been in and the response to US of course, there is a little bit of response, but there can only be so much I think too.
I think the really strong position across the board and so it's showing up in our results were.
We're getting.
We're getting growth in maritime.
Other others arent.
Struggling in those areas and where we're taking share and I think thats just the strong position. We're in so I don't think thats going to change dramatically.
If anything where we're stepping on the gas everywhere, we can too.
So even compete more effectively.
Yeah.
Second 1 was on obligation.
You mentioned some progress on different fronts in terms of being ready to launch the surface.
In the segment.
Update in terms of when you think you can be in the market commercially.
Product.
Yes, if the.
The partners continue to progress the way it looks like they are.
Would be hitting the market late this year.
Certainly in 2022.
We've had some of their terminals now into our lab for <unk>.
<unk> testing to make sure that they're the intent of work well with our network and they seem to meet.
Our network requirements. So there.
Looks like they are in sort of the finishing up of their products right now and as I said theyre going to be.
I'm really excited about the potential of them because they are quite small in terms of being able to offer the speeds and capabilities. They are and I think there'll be able to fit on a lot of erk.
The aircrafts that previously wouldn't have gotten that kind of capability before whether it be rotorcraft or general aviation or corporate aircraft.
Certainly commercial as well.
And in parallel we have to.
We have to also deliver the safety capability safety certification. So that these terminals could be used on commercial aircrafts in cockpit applications for safety.
Making good progress this year on that and are on track to kind of get those certified.
To be allowed to have those things certified when they're when they are.
In 2022 and 2023, so all of those are.
It's taken a long time to get there.
And.
Really excited about as I said there's.
Theres a number of products that will be here.
In the coming quarters.
Sounds great and then maybe the last question.
Which is a bit more long term, but.
Obviously, you did the the capacity of just sunlight.
The United is limited.
Until I guess the maximization of revenues is the mix of volume in our pool and I think back in 2019, you'd kind of said well, we think based on our internal assumptions of.
How much we charge for capacity and what the volumes are that we can generate maybe $1 billion of revenues into long term with the fleet.
I guess the question was how have things developed come in can you comment a bit in terms of how is the mix between volume and price per megabyte.
Volume is that kind of in line with what you guys were seeing or are we seeing more higher prices on your volume just maybe some color there.
Yes.
I can't reproduce my complete.
The discussion so I encourage people to go back and look at that kind of Investor day discussion, where I sort of made debt that summary.
It was more of an anecdotal summary at the time, but it was based upon a number of assumptions based upon all of the new products. We are offering the growth that we were expecting and the different kinds of mix for example extremely per.
Personal consumer products versus a little less efficient broadband products.
How they operate around the world. The other part of it too is that we are doing a lot of development right now to mine a lot of capacity out of our existing network, we're kind of re <unk>.
Redesigning our existing satellite software.
And gateway hardware and.
So basically and significantly improve the capacity of our system in the coming years. So all of that being said that led me to believe he just anecdotally, let's say with the at least to say of $1 billion.
And that Hasnt, our view Hasnt really changed nothing in terms of sort of the.
Growth track, we've been on or the.
Or anything we've seen in terms of all of those variables over the last.
I don't know 2 years or whatever it was since we said that really has changed sort of the trajectory of what we think is this network is capable of.
So definitely think we have a lot of lot of growth left a lot of cash flow out of.
A lot of earnings growth to come from the network and a lot of new subscribers include.
Including.
I'd say, we're even more bullish about.
On the personal communication space than we might've been even back then because of some of the things we've seen and again, though.
Are incredibly efficient sort of applications, sending text messages across our network uses very little of our.
Network based upon sort of the cost per per.
<unk>, so as those expand as well as we might think that that even.
Makes me, even more bullish about our long term potential.
That's very helpful.
Hey, guys.
Okay. Thanks Matthew.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the call back over some of the management team for any final remarks.
Well I'll get to go and find out how the Blue origin launch did I hope you've all been watching that in the corner of your eyes. Nobody told me anything happened. So I'll look forward to seeing another progress in the space industry.
Around this but thanks for thanks for joining this call and look forward to seeing you on third quarter take care.
Thank you Sir This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.