Q3 2021 Iridium Communications Inc Earnings Call

[music].

Welcome to the Iridium third quarter 2021 earnings conference call.

All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.

I'd now like to turn the conference over to Ken Levy, Vice President Investor Relations. Please go ahead.

Thank you Andrew Good morning, and welcome to Iridium third quarter 2021 earnings call. Joining me on today's call are CEO, Matt Desch, and our CFO Tom Fitzpatrick.

Today's call will begin with a discussion of our third quarter results followed by Q&A.

I Trust, you've had an opportunity to review this morning's earnings release, which is available on the Investor Relations section of <unk> website.

Before I turn things over to Matt I'd like to caution all participants that our call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.

Forward looking statements are statements that are not historical facts and include statements about our future expectations plans and prospects.

Sure.

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. Our remarks today should only be considered in light of such risks.

Any forward looking statements represent our views only as of today and while we may elect to update forward looking statements at some point in the future. We specifically disclaim any obligation to do so even if our views or expectations change.

During the call, we'll also be referring to certain non-GAAP financial measures, including operational EBITDA pro forma 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 today's earnings release, and the Investor Relations section of our website for a 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.

Thanks, Ken good morning, everyone.

As you saw in this mornings earnings release, we put up another exceptional quarter with really strong results. In fact, this quarter was our highest quarterly operational EBITDA in company history.

The results are indicative of the strong rebound we've seen since last year during the early days of the pandemic.

In the third quarter, we saw broad based demand for our many solutions and continued to witness the strength of our wholesale business model.

The ecosystem of around 500 global partners that we built over the past two decades remains a real differentiator. It has shown its resilience during various economic cycles and market dislocations.

Back in May you, you will recall that Tom and I laid out the vectors for Iridium <unk> five year growth plan during our Investor day.

At that time visit visibility for growth in 2021 was still a bit clouded by how fast some of our partners markets might recover from the previous year.

However, we still had a strong grasp with the underlying demand for our services and we had confidence that a full schedule of new product Rollouts and planned service introductions all supported by our substantial partner network would deliver new subscriber additions just as it has in prior years.

This perspective supported our announcement in May of a return to average high single digit service revenue growth from 2023 through 2025.

We're definitely on schedule for that given our results this year.

In light of the growth, we continue to see across our commercial business lines, we're taking up our full year outlook for service revenue growth to between five and 6% in 2021.

This increase also supports a higher operational EBITDA, which we now expect to reach approximately $375 million this year, which would represent about five 5% growth on a year over year basis.

We feel really good about the momentum we're seeing in our business and it's not just confined to our bottom line. It's a combination of topline growth good execution on operations and strong partner activity, which are all providing a clear runway for years to come.

I mentioned last quarter that global supply chains were affecting equipment production because of a shortfall of a key part in some of our Iot modules I want to update you on the situation.

As you saw in our results, we had a strong quarter of equipment sales as demand from our partners remains particularly strong even more robust than we expected earlier in the year.

To date, our supply chain team has done a good job in managing the impact of this component shortage as much as possible.

In fact, we now expect that the strong demand we continue to see will cause our equipment revenue in 2021 to exceed last year's level.

Still I wish we were less constrained by this shortage, especially.

Especially as we see demand outstripping current supply allocations for the next several quarters.

Our partners seem to understand this constraint is a short term problem in fact, some of them are having their own issues base.

Based on the supply allocations, we expect to receive over the next two quarters. It appears we will catch up on the affected product lines in the summer of 2022.

So this equipment constraint is limited and at least at this time I don't see this issue affecting our long term growth trajectory of our relationship with our partners.

That said, we our partners our suppliers and our partners use a number of different chips across a great variety of products.

And the global shortage of Silicon chips is ongoing and wide ranging so we will continue to actively work these issues as they arrive.

Moving along let me talk to a few of our key market segments.

To start the personal communications sector has really shifted into top gear. After recording our best quarter of net sub additions in quarter. Two we followed up in quarter. Three was 71000 net new Iot subscribers, putting us on pace for another excellent year of growth in this segment.

As interest in the small portable communicators has grown there's also increasing anticipation that satellite technology will be integrated into a broader set of mobile assets, including smartphones and automobiles.

We believe that the adoption of satellite connectivity into mass scale consumer oriented device is inevitable and iridium Global L band network is ideal for that application.

Our cell phone use has become ubiquitous the one limitation that remains is making connections outside of major metropolitan areas and corridors. Our satellite connection in a smartphone is an elegant solution to this problem, which extend connectivity when consumers wander outside of terrestrial coverage.

This evolution would be a natural extension of our Iot business today, with our $1 1 million connections, including well more than 500000 personal communication devices on our network today.

During the third quarter, we reached the next big milestone of our Iridium service product line with the availability of Iridium service 100.

Built on our Iridium 90, 770 module. This new mid band service class offers much faster throughput than our current narrow band modems that makes faster connections through standard IP, rather than proprietary protocols and it's still a very compact and lightweight device with a small omni directional antenna perfect for Uavs Maritime aviation.

Asian, and many new Iot applications.

Iridium service 100 is now available with the first band products and more coming in the next few months, there's a lot of excitement in our partner base about the solutions. They can now address with these devices and speeds.

I'm also really happy with the continued adoption of Iridium <unk> broadband in maritime.

This product is resonating with the channel both as a standalone service as well as a companion to VSAT and this year's activation serve as an encouraging sign that the maritime market is recovering.

In the third quarter broadband revenue rose, 26% compared to the same period last year.

During the quarter. We also introduced our new Iridium service 200 class terminals, which are smaller and lower priced to complement our standard Iridium service 700 broadband terminal portfolio.

These new terminals are just starting to enter the market now and should have a noticeable impact on our broadband growth going forward. There are perfect upgrade for the slower connections unlimited cover coverage of our competitors' products and a great successor technology for our own legacy Iridium open port terminals.

Broadband <unk> continued increase in the third quarter as we're seeing iridium <unk> to 700 adopt as both a standalone solution and a companion TV set and larger vessels.

Users are exactly what we envisioned when we introduced Iridium service in 2019.

And should continue to allow us to grow our broadband service revenues.

Aviation is another important source of future broadband growth in our aviation vans continued to make progress with their various new Iridium service terminals summer.

Some are on air and testing and from what they are telling us the first one should be ready near year end.

This is a market where the end users already know iridium and our capability is very well.

We still need to get these new terminals certified for safety services like our partner partners legacy aviation terminals, but that process is well underway.

We continue to see a strong appetite for Iridium service for a number of cockpit services using small terminals and the 100 200 700 class ranges and the commercial corporate rotorcraft, UAV and general aviation sectors and with these coming new terminals will start to be able to satisfy that demand.

Now an area, we haven't seen the subscriber growth that we had from past years as the U S government.

While service revenues remain as expected administrative issues created by the transition of our MFS contract from DISA to the U S space Force has slowed U S. A.

Slowed user activations.

As we mentioned last quarter. This has not been a seamless handoff and we continue to support the process, they're going through together to ensure that the U S. Government can avail itself of all the benefits conferred by our contract.

We still have a great relationship and then they highly value our network. The government had about 149000 subscribers at the end of the third quarter and we continue to work with them on a number of dedicated engineering development and gateway upgrade projects that are strategic to their needs going forward.

Switching gears to <unk>. The company continues to see its business slowly improve as air traffic rebounds.

<unk> expect to generate positive free cash flow for the year and remains very excited about its newest offering of data services, which could become a substantial contributor to the revenues.

They continue to provide a very high quality and valuable service to their MSP customers, including the FAA and have additional customers in the pipeline, even though reduced air travel over the last 18 months as delayed customer decisions on new contracts.

Still they are in good shape for a company that's only been operational for two and a half years.

We also continue to be very happy about our investment and tell us which provides alternate position navigation and time signals to protect important infrastructure and augment GPS services there.

They are seeing success in a number of commercial and government market segments, and we expect they will they will need to expand their use of our network in the coming years as well.

As I said earlier this year Iridium has more oars in the water than at any time in our history, new product launches are expanding our reach and allowing us to address the needs of a growing number of customers with only a few months left in the year, we're very excited about our business position and the growth opportunities that we see.

Iridium has emerged from the global pandemic with strong momentum our pipeline of new products and more demand than we can satisfy today. This positions us very well as we start planning for 2022.

With that I'll turn it over to Tom for a review of our financials Tom.

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, which give us confidence in raising our full year guidance.

I will then review our liquidity position and capital structure.

<unk> enjoyed another strong quarter with broad based growth we generated total revenue of $162 2 million in the third quarter, which was up 7% from last year's comparable period.

The improvement reflects strong demand for our services across all commercial business lines and serves as a confirmation that the strongest headwinds of the pandemic, which had slowed channel activities are now largely behind us.

Operational EBITDA reached a record $102 million in the third quarter up 7% from the prior year's quarter.

The increase from last year reflects strong momentum in service revenue growth and ongoing demand for subscriber equipment, which is on pace for one of its best years on record.

In light of this strength, we are raising our outlook for EBITDA to approximately $375 million. This fiscal year based upon expectations that service revenue will increase between 5% and 6% in 2021.

This change in forecast is a testament to the underlying strength of our business and the uniqueness of our offerings.

On the commercial side of our business service revenue was up 11% this quarter to $101 9 million. This increase reflected strength across all business lines. In addition to ongoing demand for Iot and broadband services. We also realized a material pickup in voice and data services.

Commercial voice and data revenue increased 7% with $5 7 million in the third quarter benefiting from the return of our normal seasonal business in a meaningful rise in net subscriber additions.

This is a stark contrast to last year when a dearth of activity during the pandemic resulted in a decline in subscriber activations in voice revenue.

With communications are a core part of our business.

Continued to perform better than we initially forecast in part due to ongoing adoption of push to talk services, which helps to support our strong outlook for the year.

Push to talk devices from our van icon.

Particularly popular they've sold over 10000 units since introducing them about two years ago.

Consumer interest in our satellite Iot services also remains very strong.

In commercial Iot retail oriented subscribers fueled 71000 net activations during the quarter.

We also saw a pickup in aviation, which continues its rebound from last year's headwinds. This drove an 18% increase in revenue from the year ago period.

Iot <unk> was $8 93 in the third quarter compared to $9 48 in the prior year period the.

The decrease in <unk> from the year ago period was caused primarily by the increasing proportion of personal communication subscribers, which use lower RPI plans.

We have however continue to see a rebound in high <unk> customers, most notably in aviation, which was hard hit by travel restrictions last summer during.

During the quarter, we added 78000 net new commercial subscribers commercial Iot helped to fuel this growth in Iot subs now represent 75% of iridium billable commercial subscribers up from 72% in the year ago period.

We estimate the consumer oriented plans account for about half of iridium to commercial Iot users.

Commercial broadband revenue was up 26% in the third quarter to $11 5 million from the prior year period.

We continue to see improvement in the maritime environment as terminal installers gained access to ships in many geographies and <unk> grew with the rising mix of new Iridium service Activations.

We anticipate continued growth in broadband revenue as travel restrictions lift and the offering of Iridium service Mariner maritime terminals expands with new product launches from Talis and large trauma.

Hosting and other data service revenue was steady at $14 $6 million this quarter.

Turning to our government service business, we reported revenue of $25 9 million in the third quarter up 3% from the prior year quarter.

This increase reflects the terms of our long term <unk> contract, which included a contractual step up in revenue in mid September.

Government subscribers grew 5% year over year to 149000 in the third quarter.

Subscriber equipment sales continued to benefit from strong demand rising 7% to $26 9 million from the year ago period.

As Matt noted, we continue to work with our suppliers.

And explore options to source components in short supply in general we've been effective in utilizing inventory on hand, negotiating large allocations from suppliers and finding alternative sources for certain equipment.

As a result, we have largely manage the impact of the specific supply chain issue that Matt referenced through the first nine months of the year.

We anticipate that the brunt of this component shortage will impact our ability to meet full customer demand in the fourth quarter the.

The challenge of sourcing components from alternative vendors is likely to result in some margin compression as we absorbed certain costs in an effort to respond to strong channel demand.

Engineering and support activities remained largely episodic and produced revenue of $7 5 million in the third quarter compared to $9 4 million in the year ago period.

As we noted on our July call, we continue to expect engineering activities to ebb and flow with schedules and the needs of our customers.

Through the first nine months of the year, we've been very happy with our performance and the strong demand for Iridium suite of services, it's clear that business activity has rebounded from the headwinds we experienced last year.

The resumption of partner activities. This year and continued channel demand is pushing revenue growth above our forecast as a result, we're increasing our outlook for service revenue growth to between 5% and 6% in 2021 and raising our full year guidance for EBITDA to approximately $375 million.

Moving to our capital position as of September 30, this year Iridium had cash cash equivalents in marketable securities balance of approximately $289 million, our cash position has increased by more than $100 million over the last 12 months, even when giving effect to this year's share repurchases through the first nine months of the year iridium repurchase about.

$125 million of stock under its $300 million share repurchase authorization.

With a balance of about $175 million and our share buyback program, we continue to be opportunistic in executing these repurchases.

Net leverage was three six times of EBITDA at the end of the third quarter, including the impact of our 2021 buyback program.

This improved from four two times a year earlier and.

And three nine times last quarter.

Our long term target for net leverage continues to be between two five and three five times of 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 buybacks.

Capital expenditures in the third quarter were $8 8 million and we continue to expect capex to be about $45 million. This year.

In light of our increase in our EBITDA, we have raised our outlook for pro forma free cash flow to approximately $242 million this year.

We continue to expect growth in pro forma free cash flow will outpace the rate of growth in EBITDA.

This figure is up from 20% from 2020 and highlights the strength of Iridium business model.

We arrive at this level by using our updated 2021, EBITDA guidance of $375 million and back off $66 million in pro forma net interest $45 million in capex and $22 million in working capital inclusive of the appropriate hosted payload adjustment.

This free cash flow reflects the conversion rate in excess of 60% in 2021, representing a yield of more than 4%.

More detailed description of these cash flow metrics, along with the reconciliation to GAAP measures is available in our supplemental presentation under events and our Investor Relations website.

As we highlighted on our July call.

<unk> completed a repricing of its term loan in the third quarter the.

The improvement to spread and LIBOR floor represent an overall savings of 50 basis points, when interest costs, which yields annualized interest expense savings of approximately $6 million.

As I reflect on our strong progress to date I am reminded of the long term guidance, Matt Nice shared at our Investor day in May.

We expected that 2021 would be a slow Europe growth for iridium forecasting 3% growth at that time.

But we were confident that given new products and a generally bright are generally bright prospects that service revenue growth will accelerate and average in the high single digits for 2023 through 2025.

Our updated guidance of 5% to 6% growth this year Shouldnt give investors increased confidence in our longer term guide.

Service revenue was the primary driver of growth in EBITDA and given our Levered free cash flow profile. We believe that this growth will drive about $2 billion in Levered free cash flow between 21 and 25%. We believe this is a significant consideration for investors as it represents about 40% of our current equity market capitalization with that.

I'll turn things back to the operator for the Q&A.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

If you are using a speakerphone please pick up your handset before pressing the keys.

But any time your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

The first question.

Comes from Landon Park of Morgan Stanley. Please go ahead.

Thank you and good morning.

I'm just wondering if you can touch on.

The service the service aviation products.

Alright.

Timelines are you expecting and where are you with the fans certification and what type of.

Use cases do you see on the UAV side, and then secondarily just on the EBIT.

EBITDA outlook.

$10 million sequential step down in <unk> was that.

All driven by seasonality and supply chain are there any other elements that we should be thinking about on the sequential trend.

Okay.

Aviation Thats, a natural space for us.

Quite successful in aviation today, using our sort of legacy devices. It has taken.

Our van partners longer than expected to get their antennas completed but there appear to be solving their issues right now there's multiple suppliers and they are.

A number of them have told us they are both on air we have seen some of their terminals they look great.

The first one should be available later this year, though I don't know that they will be.

Be in the market significantly till certainly.

Well into 2022 and into 2023.

But they are quite small.

They offer services.

In most cases, both up to 700 Kilobits per second which is quite effective for a L. Band service. They also have low cost versions coming using our service 100, or 200 technologies, which are which are small and omni directional and and.

Perfect for things like GAA for Uavs and for smaller.

Smaller aircraft so.

And they'll go on airplanes, regardless, they don't need to be fan certified to do that that can be used for internet services.

Cockpit, particularly.

<unk> pit, but even small aircraft cabin.

Or we're seeing a lot of.

Particularly service 100 interest right now in the UAV market.

<unk> new.

<unk> and vars that want to supply that service, particularly for command and control kind of applications using <unk> 100, since it's a global product and it's very small and lightweight and fits on.

A lot of those platforms.

Certification is going to take longer.

Of course requires the FAA and.

Also additional development.

Underway right now I wish I could tell you exactly when fan certification would occur that will obviously.

Drive penetration on too.

The larger commercial aircraft the long haul aircraft for.

Flight safety services in the cockpit, but that won't be.

That wont be that will just be a driver as opposed to a gating element for getting aviation terminals in revenues in 'twenty, two and 'twenty three.

So that was the first part of the question you were highlighting.

Highlighting its Tom ill take the second part so the fourth quarter is seasonally.

Tad weaker than the third the third.

It is a stronger quarter, just seasonality wise and then we're modeling equipment revenues in the fourth quarter down materially from where you saw it in the third quarter, we see equipment revenues up on the full year, but fourth quarter will be down sequentially in that kind of accounts for the for the decrease in our outlook for EBITDA sequentially.

Great. Thanks, and then just one last one on <unk> you guys recently provided some commentary about that payment that first.

Excellent some payment coming in 'twenty four can you just walk through how confident are you in that revised timeline and just some of the moving parts that.

Right.

We're very confident in <unk> business model, they're cash flow positive this year their businesses is performing very well.

They've just they've just.

The effects of Covid on international Air travel, it's just cause their business model to move to the right a bit and so their anticipated refinancing has moved to the right, but we're highly confident.

That day, we'll make those lump sum payments.

In due course.

Great. Thanks very much.

The next question comes from Ric Prentiss with Raymond James. Please go ahead.

Well Eric.

Hey, Greg.

Couple of questions.

First we will stock buyback, obviously, you said you'd be opportunistic.

The big drop off.

On all bank level.

Through the third quarter honestly with global bonds.

The timing and pacing of the buyback is there anything else going on out there.

And the way we use of funds.

So the way we think of it Rick is we want a handsome return to where we were we think intrinsic value is and we think about it in terms of where we are in our in our level of leverage. So we want to we want a higher return if we're if we're above our leverage guide and so that's that's how we think about it and so we were opportunistic in.

Third quarter.

As we've said.

Yes.

In terms of M&A there are some things that we that we like.

We're not when it's not like we're holding back because of M&A.

Okay.

Over the quarter.

Okay.

Paul.

Excuse me Mr Prentiss.

You make an adjustment there on your end I am sorry to interrupt it's kind of breaking up there on I assume your cell phone.

Yes.

Yes.

Yes.

Instead, it's really hardware.

Really.

Yes.

Under a clearer, but give it a try and we'll try to make it out your question.

Okay any better here perfect. That's clear yes. Thank you Sir.

You bet no worries guys second question appreciate that.

Matt you touched on it a little bit in your prepared remarks about the thought of that.

L band coming into smartphones can you walk us through kind of the timeline and the process of what's involved in making that happen.

But also in talking with the Oems.

Yes, so I'm not going to go into any more detail on that Rick as you might imagine.

Bring it up because it's been so much in the public sphere, obviously around.

Specifically Apple.

Rumours around them, but also there are some other companies that.

Have emerged that are.

Our out claiming that they're going to go after this with great expense and new satellites and that sort of thing.

And I just think it's important for people to understand this is core to our strategy that our network is built for this sort of thing we have the right spectrum and positioned for it and we're pursuing it but.

When if all those sort of things I think are.

It doesn't really make sense for us to go into any kind of detail I don't want to even.

Presuppose exactly how how and what we would do because that would that would give a way way too much about what our approach and strategy would be towards that market segment. So hope you understand.

Makes sense, but conceptually the concept of satellite linkages in the smartphones or something core to your strategy something youre working on.

Yes, I mean, we view ourselves as a personal communications company when it really comes down to it. That's how we were built 25 30 years ago.

It was about a highly efficient.

Communication globally, two small antennas and small devices around the world and you can see it's played out in our Iot business.

It played out in the way we have been successful sort of in the personal communication sector around.

<unk> from.

Go through iphones to personal communicators, and we've been licensing our technology into <unk>.

Other product for other applications.

Both smartphones will be just one one direction also there is a lot of interest I think in a lot of connected into other consumer products and automotive sectors and.

That sort of thing as well so.

It's how we're built.

Makes sense and last one for me.

Obviously, a lot of other thoughts about the capital being raised in the space as you mentioned.

How should we think about how you guys look to position yourselves.

And kind of the new landscape of Leo.

<unk> set out there and anything you might be working as far as collaborative.

Well.

In the segment I just talked about people, who are trying to go after connecting to.

Two.

Smartphones directly from space, either using standard protocols R.

<unk> spectrum, because they don't have any spectrum themselves I think those companies have a long way to go.

Most of them don't have the <unk>.

Technology.

Built are available yet don't have sometimes a financing some of their plans as most people know are quite ambitious is probably a nice way of.

Saying that and so I doubt that we will be partnering or working necessarily with any of those companies towards towards things unless there's some sort of.

Future spectrum sharing or something but.

We are keeping our eyes out for the Iot sector.

There are lots and lots of companies trying to build networks to go.

Our trade or what I would call the low end Iot sector. There has been some sort of announcements in that space, none of which really demonstrate that anybody has been successful anytime soon there.

<unk> been some companies.

<unk> been purchased but I don't know that theyre, even sort of a demonstration of the success of those companies.

Yet they still have a long way to go.

As we know because we've been now in the Iot business for <unk>.

Think about 17 years or so of our 'twenty, one 'twenty two years and it takes a long time to build up the solutions and ecosystems.

In addition to having sort.

No alpha.

Our low cost, but yet low end sort of products. So we're keeping our.

We're talking to a lot of them and we're considering some of them want to use our network to <unk>.

Possibly provide their services.

We are open to that but are considering whether that makes business and economic.

Sort of a sense and whether we should have other kinds of relationships with them as well so.

Great, Okay, well keep our eyes on that.

Great I appreciate it guys. Thanks.

Thanks, Greg.

The next question comes from Walter Piecyk with light Chien. Please go ahead.

Economic Thanks, Hey, Matt do you think Theres, an opportunity for us to have maybe a more formalized relationship with next NAV.

Next NAV is successful in completing their spec I saw the announcement from earlier in October but it seems like they're highly complementary businesses I'm just curious on your thoughts on those two companies going forward.

I'm not sure I can speak specifically to next NAV, nor probably should.

I do think.

I can say that.

I mean to tell us has a well established revenue stream business and probably <unk>.

Stackable themselves if that was a smart.

Strategy I don't frankly know that that is.

I.

I think specs personally having been through one and finding the pain there was associated when we did it.

Original stash.

The original or the original stack, yes exactly.

We respect before spec for cool as I say.

Say.

But it's an expense.

It's an expensive way of going it was an expensive way for us it was required because of the 2008 recession and everything and that was the only sort of direction. We had in place and I would say if you have to absolutely have to go I guess, that's what you would do but I don't know that I would.

I would wish it on anyone.

Your advice to Ariane and say tell us it sounds like it would be maybe to do a traditional IPO process as opposed to a spec absolutely.

Okay. So can I just put them on the top Tom.

On your prepared comments I understand that companies don't like to change targets.

But in your comments you talked about.

Like this there's three and a half to two five times net leverage target and you want to get there by the end of 2022.

I mean youre at three six now if you go backwards on EBITDA like if you just took the current quarter and annualize it like many companies do.

Already within the target range up two and a half to three five times.

So I kind of wanted to come back to the share repurchase comment that I think I think Rick was asking you.

I mean, if you bring up a year to date chart and I look at the stock performance Q1 and Q2.

Yet the stock kind of rallied on the whole Apple thing in September, but there was plenty of time in July and August.

To buy stock at the same price that you were buying it in June in the June quarter and in the March quarter.

Your stock was in the low to mid fifties now you might not have bought stock there, but you found an opportunity to buy $50 million worth of stock in the first quarter.

And then the same amount in the second quarter, So I think.

Investors.

Might want a better clarification on why you didn't buy stock in Q3, because saying that you're opportunistic and not getting the same returns. It just doesn't that doesn't flip to the opportunities you have to buy the stock in the third quarter.

So just your observation that we're at three six times.

Average now the guide of being inside.

Inside of three five times assumes the full $300 million of buybacks that we would buy back another $175 million worth of stock. So that answers the leverage question I'm not going to get into any more of our thinking around buybacks other than to say that we wanted to appropriate return to what we.

<unk> stated would be our intrinsic value.

And.

You offered that isn't it.

You offered that as an answer and the answer it doesn't make sense. If the stock was at the same price that you were willing to buy it out in Q1 and Q2.

I don't know if thats.

Truly accurate.

We've demonstrated let's.

Things called discipline in terms of our view of value and by the way I think our value is increasing particularly given back in quarter, one and quarter. Two we were still in sort of the post <unk>.

<unk> depth and we're now at a stronger place, where we think our stock probably has even more valuable given our.

The confidence in our direction and what we have now told people in May and where we believe our market is in the latter half. So I wouldn't say that the exact same place or the stock that we should do.

That we should be buying the stock should be identical in every quarter.

But you just you supported the point on that if you if you're in a stronger position.

Sure.

If youre intrinsic value is greater and if the stocks at the same price that youre willing to buy it at <unk>.

In Q1, and Q2 like because you had that price in July and August.

I think investors just want to understand why the more stock was bought back in the third quarter I don't disagree with anything you said it actually supports the argue.

<unk> it sure does.

It's actually the opposite.

We.

We're our view of what a van.

Valuable price might be going if you will up in some ways overtime.

Where our stock traded before and where we think it could trade again.

But I.

I don't really know it makes sense right now.

I believe we have a process internally we're careful we're disciplined.

We're being opportunistic as Tom said.

I think you can almost evaluate what and where it was and what prices we are considering that to be and if you analyze it correctly.

Youll find that there is probably more discipline associated with it than you have given us credit for it but.

So I don't really know if that makes sense to argue and described.

Anything more than that because it would just be.

Describing prices and other things like that which all makes sense.

Also just sending a message.

Correct investors that maybe they shouldnt be buying the stock if youre not willing to buy the stock at a higher at 42 bucks or whatever it is.

I don't think Thats what were doing.

Okay.

Thank you.

The next question comes from Greg Burns of Sidoti. Please go ahead.

Good morning.

Understood.

Just to go back to the topic of increasing competition and space I've seen.

Our recent stack talking about having Ed USB receivers on like a micro constellation that theyre, putting up so I was just wondering what the potential for a competing so there's two areas.

Like how do you view that Marc is there potential for increased competition.

Going forward.

And maybe what the differentiator is.

Maybe some of the other services Tempe gateway.

Yeah. So.

I've seen that as well.

I have to say, we kind of chuckle when we see people talk.

Talk about building a.

Pace.

Aviation.

ATC grade.

Competing service that would take many many years and would require a different kind of network then.

Small sat networks are capable of doing so.

We feel extremely confident I know how.

To say it even higher than that that that those companies aren't going to be really.

Competition to area on certainly for many many years to come I mean part of it is the <unk>.

<unk> R.

Our service.

Through interconnected inter satellite links through a network that is.

Kind of can guarantee performance doesn't have satellites just last couple of years, and then try to bring new satellites into place.

Debt.

It doesn't just depend on certain locations based upon bent pipe.

Actually has a global connection those aren't easily replaceable things.

A.

Small small sat network of any sort so could could there be data coming from aircrafts that goes through small cell networks that maybe could be sold.

Sort of secondary data.

Sure, but I think theyre going to be competing with a.

What I would call it Golden data set from.

With that truly knows where every aircraft is at every second all everywhere in the world as opposed to many.

A different time.

And not globally et cetera. So.

The other thing too is you know.

<unk> through its ownership structure obviously.

Some areas customers are big owners of it and they demanded really the highest level of accuracies in fact.

Certifications by.

He also the <unk>.

European regulator to prove that the service was bulletproof and.

Worthy.

All of the necessary to do air traffic control that took many years and a lot of effort and a demonstration of quality levels that are kind of unprecedented that I don't think.

A small sat network could could achieve for many many many years to come so.

I think theres, a big kind of competitive moat around.

The core areas.

Perhaps there can be some competition around data services, but theyre going to be competing with a really good set of data.

Yes.

Okay, great. Thanks, and then.

You had mentioned.

It sounds like the.

The maritime space on the broadband front it's.

You're starting to feel a bit of improvement.

Improvement there in terms of your access to ship, but the net adds didn't really.

Increased too much.

Year over year.

A little bit sequentially. So.

But that comment what youre seeing I think market.

The additions to start noticing now.

Yeah.

I, just have a growing pipeline or backlog that youre, referring.

Can you just talk to somebody.

Outlook for the maritime broadband market.

Yes.

I track is sort of my monthly service Activations in maritime and looking back from.

Kind of earlier this year actually from last year, and then earlier this.

Year, I see sort of month over month improvement each month as more and more service terminals get activated on ships I think the net number of subscribers is that.

We are seeing some open port terminals deactivated not nearly as many as we thought many years ago they seem to be <unk>.

<unk>.

On ships and more new service terminals going onboard and open terminals that are replaced by others and I think that so I think that will probably.

Accelerate a bit with service 200.

Now coming into the market and <unk> 100, because thats a nice replacement for open port in that.

Might actually accelerate that transition, but the bottom line is service terminals are much faster and higher revenue generating and so as you can see in the the revenue growth, we're seeing that that adds for <unk>.

Lot more service revenue growth was at 26% growth, we see year over year. So that's probably the.

Our most important metric that we continue to have strong growth in that area.

In addition, with these new products and being more cost effective in both land and then eventual aviation applications and more government.

Subscribers all of that will add to continue I think.

Broadband growth going out.

And in the future.

Okay.

Sir just 102 hundred is that as the revenue can be recognized in broadband or is it going to dependent 100 depend on what the application is the Iot like California.

Track that our revenue from those new services.

Hey, Greg it's Tom.

Tom Greg broadband is going to be above 128.

The only things going in broadband and <unk>.

100, <unk> it'll be basically follow what it what it.

Displaces, so we have a L band Transceivers, it's in voice and data.

Typically if it replaces that it'll go into voice and data and if it replaces Iot.

It'll go into Iot.

Okay. Thank you.

The next question comes from.

Ed correspond with Dws financial please go ahead.

Hi, good morning.

Would you just talk about.

The earlier comments you made about the component of the shoes that you went out and sourced different components does that change the quality of the product or in any manner.

How did you find the solution of alternative component and how is that going to.

Impact your partners in any way as far as feedback you've been getting from them as far as quality assurance is concerned.

So we.

We don't we would never make any change that would affect the quality of our products. We just won't we won't sacrifice quality.

That's our brand so no.

Component, it's usually a like for like component that has absolutely the same capabilities, sometimes even better capabilities we did.

Go through the trouble to replace it.

If it was a component.

Change out in that situation I was describing in Iot It was a specific component shortfall actually.

They just werent they decided.

Earlier this year earlier in the summer that where we had been ordering parts and they have been delivering and within three months. They suddenly said sorry, you can't get parts for 12 months, because we are using those wafers for perhaps other things, perhaps theyre, making car hardships.

Chips out of them or PC chips or whatever it was so it was more that we were on allocation and by the way even with the great third I mean, we had great third quarter equipment sales, we were on allocation and third quarter. Just shows you the kind of the level of demand we're getting right now that are partners.

It's much stronger than we thought when we budgeted.

Year and earlier this year as we wondered how fast they would really grow they've demanded a lot more product than we expected and so it's obviously shown up it's why our equipment revenues are up year over year.

Even with allocations that have been going on for the last quarter, and we will be going onto the fourth quarter and the.

First and second quarter of next year as well I think for some of those Iot component. So it has nothing to do with quality.

This is something we do all the time I mean.

Any high tech supplier is constantly upgrading components.

Moving to different parts.

Current.

For the years of the same sort of component et cetera.

But if this shortage is silicon chips, which is the one that is most concerning that this whole supply chain issue that <unk>.

Primarily comes out of lack of wafers and stuff coming.

Coming out of Taiwan, that's the one I think we're mostly watching here.

But as.

I said our partners are having the same sort of issues. None of them have expressed I would say concerns that they could go any place else or want to go any place else. They know that at least especially in this component that's in the Iot products. They know that that's a limited time, we are working sort of allocations.

Supply around to them.

To meet as much of their needs as we can so it's you know.

It's a little frustrating more frustrating than anything else because we would be just.

Really killing it right now.

If if this wasn't an issue, but it is a global supply issue.

Got it and then.

The other question was on the consumer side.

Youre doing fine as far as getting.

Components of making devices.

Are you searching youre getting to the shelf in time, especially given the holiday season coming up.

We say, we're doing fine I said, we'd be doing a lot better I don't consider this to be fine.

Fine.

We've put up even bigger numbers in the third and fourth quarter and beyond.

If.

If we didn't have any constraints here, so I'm not happy with the situation there is.

Is it affecting some of our partners, who may be putting products with their customers absolutely. It is affecting our.

A number of our Iot.

Dams in bars and their ability to get products on the shelf as it is with many other companies right now.

They're getting a lot of them on there, but not all the ones they want because they're getting high demand as well so.

So yes, it's affecting.

Perfect.

<unk> overall, but and in fact the.

The supply chain, all the way out to the end customer.

We'd have more subscribers, but for but for this issue even through the third quarter definitely through the rest of the year.

Okay, great. Thank you. Thank you.

The next question comes from Chris.

Quilty Quilty analytics.

Please go ahead.

Alright, thanks to modeling housekeeping questions for Tom first SG&A was up like $2 million sequentially 5 million year over year. It looks like most of that was equity comp.

Driven by the stock price, which is unknowable.

Fair to assume we should model.

At the same levels or up from here looking out into the next several quarters.

Yeah, I would say at around this level.

Is that that's pretty safe Chris.

And no Q4 bonus.

And whatnot that we should see it up in Q4.

Let's let's see how the quarter plays out but.

Okay.

About where the third quarter level.

That feels right to us at the moment.

Okay and on gross margins are better.

Than expected in this quarter, especially given the component shortages I think you mentioned that you expect to see an increasing impact due to that on a go forward. So should we be modeling in that same 40% to 42% gross margin range. So.

It could be more.

The third quarter.

Quarter was really strong because it was handset heavy so handsets are our highest margin so.

Model it down a bit.

Into the fourth quarter.

Because of the component shortage, but also mix.

Got you and a question on the consumer devices, obviously, it's been very garmin heavy in past years.

As you've mentioned.

Lots of New partners are you seeing any of those partners that are.

Standing out in terms of gaining traction.

And can you give us any color that you've gotten from your partners around use in applications, whether it's mostly for the same.

Thing just people doing outdoors or are you seeing other upticks in the application for those personal communications devices.

Well, yes, I mean garmin continues to still be.

The leader in that space, but they are not just a couple of products. They are expanding their portfolio of.

Connected devices and that certainly is helping to drive in addition to <unk>.

Driving.

Growth.

In terms of where they distribute I think.

The other standout lately has been <unk>.

I really think.

Then.

Pleasing to see how that product has taken off.

Think has exceeded expectations.

Certainly of ours not theirs.

I think that's a very interesting products, but as we said, there's a number of others.

From.

Somewhere in <unk>.

And the ACR group there is.

There is.

For others I know that.

Kind of unique.

Channels that they go after whether it might be.

D application or it might be a maritime application it might be something very specific.

I think overall, it's just demonstrated that.

People want to stay.

And that Theres a lot there is a high demand for this I think that's what's sort of been the interesting thing is people have.

Realized how important personal communications are and we've certainly seen that and are looking to play off of that.

Great.

Final question on the push to talk and I guess, maybe specifically I com.

Are they yet at full global distribution for that product and where are you seeing the.

The demand is it primarily in government sort of first responder applications are you seeing it broaden out into more general commercial enterprise applications yet.

PTT and PTT.

PTT.

It is broadening out it has really taken off in the last two years.

Particularly.

But the only thing that was missing was this icon handset, which is really really.

People really like that handset.

I think a great example was this last week, you probably saw a tweet out a little bit.

A rebel rally this all women.

Car rally where all the.

By the way a great place to talk to the automotive manufacturers, who are in these extreme automotive areas because.

They see connectivity from satellite being very important, but everyone was using PTT and loving it because they're.

About this coordinated race over hundreds of miles and these devices are just easy to use a push to talk and everybody here is exactly what you need to talk to and they couldnt say enough about how they are how the management of the race has really transformed is using it and we're just seeing more and more applications whether they be.

First responders are kind of evolving from satellite phones to push to talk we see people.

Firefighting, we see.

We see other militaries around the world who are looking for alternative devices, we're seeing.

Just I think it's continuing to broaden out it's not really I would say consumers.

Paul it's usually almost some sort of enterprise or civil kind of application of some sort but.

We've had really good we've been really pleased with the performance over the last couple of years and PTT.

Great. Thank you.

The next question comes from Anthony Klarman.

<unk>.

Deutsche Bank. Please go ahead.

Thank you most of what I had has been asked and answered, but maybe if I could I'd like to Matt tried to get a little additional <unk>.

Color on the commentary around the government contract and in many ways. It's it's your simplest and easiest agreement you have it's a fixed price.

Carmen on tract with some modest annual escalators each side has tremendous transparency as to what the spend is.

And I'm wondering what the complexities are teething pains or as the agreement is handed off from visa.

To the U S space force in and what the challenges are there and.

And do you think that will have any implications on how the contract gets renegotiated in the future. Thank you.

Yeah. Thanks Anthony.

It has nothing to do with our the administration of our contract with the U S government, you're right, that's a very simple straightforward and.

And manageable, it's the issue of how the government itself manages it.

<unk> many end users and so they set a pricing schedule that sort of recovers their cost to both internal and external users. Unfortunately, because of the way they do their accounting when they moved it over to the U S space Force.

It caused all the prices to go way up.

Up on their products to their users many of whom had.

<unk> budgets and Couldnt afford.

<unk> uses and so in some cases they move their use over to the commercial gateway that suddenly became less expensive, which is crazy because it's a fixed cost contract.

But it was really an internal administration issue between.

Today accounted for with their users.

They recognize that they are fixing it.

As with all things with the U S government takes a long time to get news out and changes out to their end customers and so it will take some time to fix but I expect over some period of time in the future.

How next year that we'll start seeing.

Significant increases in subscribers again, so no I don't think it will affect our long term renegotiation because.

Strategic relationship in the general direction of that continues to be positive, but but both they and we have been sort of frustrated with this.

Issue.

Issue that just resulted from sort of internal accounting.

Counting stuff between two government agencies.

Thanks, and maybe just.

Just a quick follow on I think one of the untapped opportunities in the government contract was the ability to sell service offerings into that because it was not inclusive of.

And notice I think it was just sort of.

Our re striking of of the prior agreement would that also be I guess delayed or pending the resolution of this I would imagine if pricing if end user pricing through some internal accounting has gone up it might be more challenging to try to sell additional kind of service revenues and into that contract.

<unk> no no. It has nothing to do with sort of it was really all about how you a portion of fixed price contract among.

Amongst the users and the different.

Services, and external customer bases and and that was it.

It completely was about.

Iot device that used to.

Is that $1 a year now cost Y dollars year service was completely independent of that it's priced separately from that they are they are buying it independently from our.

From bars, and and that that is mapped to sort of a competitive price range. So no it won't affect different.

Purchases.

Great. Thank you for the additional color.

Anthony.

And the last questions today will come from Louie Dipalma with William Blair. Please go ahead.

Matt Tom and Ken Good morning, Hey, Louie Louie.

Matt You mentioned that you are receiving.

Actress from drawn providers for <unk>.

New service 100 are you pursuing partnerships with any of the very large consumer John platforms.

Yes.

[laughter].

But.

There's some very large platforms that are very interested in.

Maybe if not primary control, but a lot of those really big platforms have multiple technologies on them in and Theres a lot of interest because we're a very cost effective and truly global service and those kind of environment.

But but.

But we do scale down to very small smaller drones as well quite well, which I think is what the attraction is.

Great and.

One final question.

You previously mentioned.

You mentioned, how certain government.

Users.

Are you using our commercial gateway.

Iridium, finishing building out the U S government dedicated gateway for for service connectivity.

Yeah. So.

Yes, it's been dependent.

Upon government budgets, which.

Start and stop it looks like Theyre, starting again, and so I expect that that will be completed.

Next year, I mean, I guess will be finally completed the thought it would be this year.

It Hasnt stopped the government from buying services, because they just buy.

The commercial gateway, but they would prefer to buy it through the government gateway. So I know it will will eventually be an additive to that but.

We kind of wait for them to.

Free up the money they need to sort of buy in.

And.

And contract for the work.

That needs to be done, but I believe that thats sort of on track to be done now I think next year.

Not necessarily at the end of next year sometime in next year.

Sounds good thanks, everyone.

Thanks Louise.

This concludes our question and answer session I would like to turn the conference.

Over to management for any closing remarks.

Well, if you thought it was a good quarter and I.

I know, we will see you all I guess next in probably February as we wrap up the year and give you.

Give you a guidance for 2022, so we look forward to seeing you all then and take care. Thank you.

The conference has.

Polluted. Thank you for attending today's presentation you may now disconnect.

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