Q1 2022 Iridium Communications Inc Earnings Call
Good morning, and welcome to the Iridium Communications' first quarter 2022 earnings conference call. All participants will be in 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 would now like to turn the conference over to Kenneth B Lovie, Vice President of Investor Relations. Please go ahead.
Thank you Andrew Good morning, and welcome to Iridium is first quarter 2022 earnings call. Joining me on this morning's call are CEO , Matt Desch, and our CFO Tom Fitzpatrick today's call will begin with a discussion of our first 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 Iridium as 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 1995.
Forward looking statements are statements that are not historical fact and could 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 within our filings with the Securities and Exchange Commission our remarks today should 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 free 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 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.
But as you can see 2022 is off to a strong start.
Like many of you were back in the office collaborating with team members meeting with business partners and starting to travel for conferences.
It feels like things are getting back to normal, though the war in Ukraine shows us that none of us can take anything for granted.
Last month <unk>.
Tim and I were active at both investor and industry conferences, including the Big satellite show in Washington, D. C, where attendance was strong approaching pre pandemic levels and we had a lot of very productive discussions with many in the industry. This space and satellite industry is quite vibrant and optimistic right now and I am proud that iridium is right in the middle of that dynamic.
As a clear leader <unk>.
2022 promises to be another good year of growth for Iridium and we're off to a very strong start.
As you saw in our press release this morning, Iridium as first quarter results maintain the momentum we experienced last year.
At a high level the business environment continues to improve and our and our primary business lines are firing on all cylinders.
Beyond mobile demand for handsets, which has long been the foundation of our commercial business continues at a very strong pace.
This is a function of a number of factors, including the quality of our offering with growing momentum from PTT. Some supply issues, apparently being experienced by competitors and of course increased demand related to Ukraine.
Iot continues to experience strong demand driven in part by the growing array of personal satellite messaging devices that operate on our network commercial.
Commercial Iot Activations were 50000, this quarter and while that's a really strong number for the first quarter. It could have been even higher if we could have shipped more equipment and on that front, we expect to be in a position to catch up to the growing demand later in the year.
Broadband also continued its growth trajectory the maritime environment is improving for us as most countries have returned to normal business operations.
We're also seeing a rise in <unk> iridium services faster speeds drive greater use and increasingly represent a growing mix of our broadband revenue compared to legacy Iridium open port terminals.
We are actively working on our opportunities in aviation and continue to expect new terminals for that market will launch in the later part of this year.
Beyond commercial safety business in general Aviation Rotorcraft, and drones, all provide upside to our broadband business, which we feel very good about.
The U S government remains an important cornerstone of our service revenue and we expect to grow our business with them.
You might have seen the new video compression technologies from partners that we announced in the first quarter to support live action video efficiently over Iridium service. They will make a service even more attractive to the USG as well as for commercial customer applications.
Subscriber counts for the U S government continues to lag as the space course space Force and <unk>.
Continue to work through their transition and administration of the MSS contract as I've said before this has no impact on our revenue.
But we want to see it corrected so the government can fully utilize our network.
We have been assured that this is being addressed and look forward to continued collaboration so that the government can maximize their use of iridium services.
I'll leave it to Tom to provide additional color on the first quarter results, but but I did want to touch upon a few other items that are important in framing this year's outlook and how we may leverage our strong financial position.
First an update on supply chain issues, our supply chain team continues to do a great job of managing this issue and we seem to be doing as well as anyone and getting the parts. We need our problem is the demand continues to exceed forecasts, we shipped a record number of products in the first quarter and while we still are not back to billing.
Up inventory for most of our products as I said, we have a plan to get there through the end of the year.
This is a high quality problem to have even though frustrating we have the business and could ship even more units if our part supplier could meet our growing needs.
Even as we've been pretty successful working supply chain issues. We're also finding new challenges in the current environment like expanding our team to address our growing set of business opportunities.
We are bringing on some great new people, but the technical skills. We need are in high demand, which is requiring a larger investment in this area and is likely to move SG&A a bit higher than we had budgeted for in 2022.
Our needs are real and building our technical ranked today will position us well to address the long term opportunities we see.
We're also seizing upon our strong business momentum to accelerate investments and retool some of our business systems.
And while I won't get into the details we are planning to get ahead of some of the big new opportunities we're expecting to win later this year. These.
These investments are among the reasons that we're not raising our full year guidance.
In terms of Iridium is growing cash position and capital plans.
Wanted to make sure that you saw our board has approved a new share repurchase authorization for $300 million last month. This is on top of the $300 million authorization, we announced in February 2021.
And underscores the confidence that management and the board have been iridium business and opportunities for growth.
We took advantage of the volatility of the market to purchase close to 4 million shares of stock in the first quarter and we will continue to respond to opportunities to execute on the program in a disciplined manner.
I have tremendous confidence in my team and the business opportunities, we are pursuing and believe that iridium shares continue to present, an attractive investment at these levels.
Another opportunity that we're exploring this year is a rideshare to launch most of our remaining ground spare satellites.
We've always said that we wanted to get our ground spares the space at the right opportunity presented itself and we believe we've been presented an excellent value and fit as the launch. We're considering is planned for an orbit in altitude that are ideal for our satellites.
I wanted to be clear that we do not have an immediate need to launching satellites. Our constellation is very healthy and is performing well, but our ground spares have.
I have little utility just sitting in storage.
We view the launch of the spares as cost effective insurance to ensure the maximum life of our network. It would provide for a similar number of spares to what we had with our first generation network, which lasted well over 20 years.
On orbit spares and have the redundancy of our constellation and over time I think this rideshare opportunity will prove to be a very savvy financial decision.
We are finalizing the opportunity and we expect to announce a specific details in the coming weeks.
This launch is a one time approximately 35 million events and aside from this does not change our overall capex holiday plans.
Before I turn things over to Tom I want to highlight that Iridium recently released our new environmental social and governance report for 2021.
The report speaks to our company's culture priorities and values.
While iridium as a financially successful services company. We're also a caring organization and work hard to support our people the communities, we touch and the industries we represent.
We've stepped up our disclosures this past year and I hope that you will find it helpful to learn more about the way in which we go about our business with good governance and a focus on social responsibility.
We engage with partners to set strong standards for ethical behavior, and how we implement best practices across our organization to ensure that we continue to be a leader and set the standards for stewardship and Leo to maintain this shared resource for the next generation of startups.
<unk> strong financial position and growth trajectory allow us to address these ESG matters without sacrificing on other priorities and business opportunities and that's okay. We're happy to lead the industry.
Among the values that are most important to me and highlighted in this year's report our diversity equity and inclusion.
I'm proud to co chair Iridium Dei Committee and know that leading in this area is good for our company our employees and our communities.
Can see from recent public announcements in our proxy statement, our senior leadership and board of directors continue to diversify and be more representative of our employee population in the world at large.
This is an area of constant improvement and aligns with iridium cultural and philosophical values on representation.
In closing I continue to be very happy with the progress Iridium is making on both financial and social matters, we are executing well on our strategic objectives and rewarding our shareholders with each passing quarter.
2022 will be another important year for us and I look forward to keeping you abreast of our progress with that I'll turn it over to Tom for a review of our financials Tom.
Thanks, Matt and good morning, everyone I'd like to start my remarks by summarizing our key financial metrics for the first quarter and providing some color on the trends we're seeing in our major business lines now I'll recap the 2022 guidance, which we affirmed this morning and close with a review of our liquidity position and capital structure.
Iridium continued to execute well generating total revenue of $168 2 million in the first quarter up 15% from the prior year's quarter.
As Matt said, we're seeing continued great demand across the board.
Operational EBITDA was $103 2 million in the first quarter. This was a 15% increase from last year's quarter, and particularly driven by strong equipment sales in our effort to meet the growing demand for our many partners on.
On the commercial side of our business service revenue was up 10% this quarter to $99 6 million. This increase was broad based and reflected continued strength in Iot and broadband as well as a rebound in voice subscriber growth voice and data revenue rose, 8% from last year's comparable quarter to $44 9 million.
In the first quarter, we benefited from new subscriber growth and strong demand for handset.
Commercial Iot revenue totaled $28 4 million in the first quarter up 15% from the prior year quarter, we continue to benefit from the growing demand for personal satellite communications, which we view as a long term consumer driven trend.
All these subscribers generate lower <unk> than our traditional industrial Iot users. They remain a very attractive contributor to our service revenue growth in light of the minimum comparative network resources, they consume as a result.
<unk> was $7 78, this quarter compared to $8 39 in the prior year period.
Revenue in commercial broadband grew 22% from the year ago period to $11 5 million supporting this growth with an increase in <unk> driven by a mix shift among maritime subscribers to Iridium service from our legacy Iridium Open Port service.
Broadband remains an important component of our long term growth and we continue to expect it will drive double digit revenue and subscriber growth in 2022 during the quarter. We added 58000 net new commercial subscribers with the gain driven predominantly by Iot as a result, commercial Iot data subscribers now represent.
Present, 76% of billable commercial subscribers up from 73% in the year ago period, we estimate that consumer oriented plans now account for about half of our $1 2 million commercial Iot users.
Hosting and other data services revenue was $14 8 million this quarter in line with the comparable quarter last year.
Turning to our government service business, we reported revenue of $26 5 million in the first quarter up from $25 8 million in the prior year quarter. This increase reflects the contractual terms of our long term <unk> contract.
Sales of subscriber equipment came in better than we had expected as we continue to see strong demand for hardware, which supports all of our commercial business lines equipment sales rose, 41% from the prior year period to $33 7 million.
Engineering and support revenue was $8 4 million in the first quarter as compared to $6 4 million in the prior year period.
We saw a rise in activity in both commercial and government work, which tends to ebb and flow from quarter to quarter.
Our first quarter results as well as the trends, we're seeing into April allow us to affirm our full year revenue and EBITDA guidance and supported this outlook I want to highlight a few items that should aid you in modeling iridium quarterly progress for the remainder of the year.
In light of the Activations and growth we are now seeing across all of our commercial business lines, we remain comfortable with our growth outlook for service revenue growth in 2022.
Quarterly revenue from our MSS contract with U S government will remain steady at $26 5 million per quarter. In 2022, there is no increase in the contractual fee schedule. This year.
The next step up will occur in 2024.
As I noted earlier equipment sales are trending higher than we initially projected due to higher demand for Iot hardware and handset in light of this trend. We continue to believe that hardware sales in 2022 will materially outpaced last year's results.
On the expense side of the ledger as Matt mentioned, we are feeling the effects of higher recruiting and development cost and also anticipate making some incremental investments to retool business systems, which were not included in our original budget. This will result in higher spending on SG&A in 2022. These costs, however will allow us to move.
Easter on revenue generating opportunities in future years and.
In addition to these higher cash SG&A expenses, we expect materially higher stock compensation expenses as a result of the accounting for our new retirement provision in our RF SKU Award program and higher <unk> Awards. Both of these items are more fully explained in our public filings when compensation matters in total we expect S.
G&A to increase by about 20% this year.
We continue to forecast total service revenue growth between 5% and 7% this year.
The higher equipment sales, we anticipate this year will be balanced by higher SG&A and technology investment.
Accordingly, we reiterate our outlook for operational EBITDA between $400 million and $410 million in 2022.
Moving to our capital position as of March 31, 2022, Iridium had a cash and cash equivalents balance of approximately $23 $2 million and $232 million.
Iridium growing cash flow has been a source of liquidity and it's one of the reasons that our board added to our share repurchase program with an additional 300 million authorization last month.
In the first quarter of 2022, Iridium purchased three 8 million shares of common stock at an average price of about $35 for a total of $134 2 million inclusive of the board's newest share repurchased authorization. This left iridium with approximately $302 million of capacity outstanding on our buyback program.
Graham at the end of the quarter, we will continue to be disciplined on executing these authorizations erith.
Iridium is net leverage was three five times of EBITDA at the end of the first quarter. This was down from four times a year earlier, but up a little from December 31, 2021, as a result of our considerable share repurchase activity during the first quarter.
Based upon our newest repurchase authorization, our long term target for net leverage is to be between two five and three five times EBITDA at the end of 2023.
We expect to be within this target range, even after giving effect to all outstanding share buybacks authorized by our board.
Capital expenditures in the first quarter were $13 6 million in light of our comment that iridium may participate in a launch rideshare, we expect capex could rise above $45 million this year to as much as $80 million, we expect that at least half of the approximate $35 million in launch and related costs would occur this year subject to final launch.
Timing with the remainder in early 'twenty three this spending can be comfortably supported by iridium strong cash and cash equivalents balance and ongoing expectations for strong free cash flow in 2022.
The launch Rideshare is a one time event and only slightly increases iridium to capex when spread across the duration of our capex holiday given its cost of approximately $35 million exclusive of this rideshare. We continue to believe that iridium Capex will average approximately $40 million per year during our Capex holiday as we previously guided.
If we use the midpoint of our 2022, EBITDA guidance and back off $60 million and net interest pro forma for our current debt structure.
$8 million in Capex for this year.
And $14 million in working capital inclusive of the appropriate hosted payload adjustment, we're projecting pro forma free cash flow of approximately $251 million up 2% from 2021. This is a conversion rate of 62% in 2022, representing a yield of approximately 5% or more detailed.
Are these cash flow metrics, along with the reconciliation to GAAP measures is available in our supplemental presentation under events in our Investor Relations website.
In closing Iridium continues to enjoy strong operational trends and we'll be opportunistic this year and.
And using its growing cash position to support incremental share repurchases, but new business system investment and potentially launch additional ground spares into space. We continue to be highly confident in iridium business prospects and our ability to generate meaningful returns for our shareholders 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 any 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.
If at 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 Ric Prentiss with Raymond James. Please go ahead.
Good morning, everyone.
Okay.
Obviously strong equivalent revenue as you can.
In the quarter.
Some supply chain issues in and around the edges.
First question is obviously, the Iot business, usually has a pretty strong summer time sales you had really good <unk> sales are you concern of not being able to meet the seasonal surge with what we've seen with the supply chain, particularly in the Iot personal salad communications area.
Are concerned I mean, as I said, we're forecasting significant growth in equipment. This year and are going to deliver significant growth in equipment to the Iot space is just keeping up.
Continue to surprise us with higher and higher orders across broad areas, obviously, particularly in <unk>.
Things like chipsets and devices for the.
The personal communications sector, but really widely across.
Your line so far right now it looks like we're going to clear most of the backlog at different times during the second and third quarter, but we're really not going to completely get out of being able to meet any kind of additional demand till almost near the end of the year. So.
So as I said, it's a high quality problem I guess, we're kind of keeping up with forecast, but then they keep expanding them on us so.
No I think we'll be able to deal with the growth this summer.
Okay. Good.
Nice to hear there is some potential new opportunities and some wins coming what exactly does retooling and investing in the business means that some accounting system is that sales customer relationship type systems. What are you thinking about investing in that some of the SG&A higher levels.
<unk> provides.
Yes, so we're talking about a couple of different things. There obviously people costs are going up a bit right now in terms of the.
The competitiveness in markets we're in.
Actually have an awful lot of demand for.
People right now and.
Growing projects and customer opportunities etcetera, but yeah in terms of the specifics on on retooling the business.
We're 22 years, maybe two five years kind of old right now as we've gotten more and more successful or our.
Our growth has outpaced some of our internal systems that.
To support our growing employee base.
Internationally.
We brought in some new talent, there and are seeing some.
Automation and some other things we can do to make ourselves a lot more efficient.
It will include our financial systems, our financial planning systems, our underlying financial systems.
All of our employee management performance and other supply chain issues also are our technology development that needs to even have some <unk>.
Not major.
Not major but around the edges, we think it's time, particularly given all of this growing success, we're having to put some of that back completely.
Back into the business and make ourselves better as a result.
Okay.
One for me.
Obviously smartphones or starting to go along with insurance.
A year ago, we had the rumor that smartphones, including satellite gypsum can you update us as far as your thoughts of firms the timeline to achieve that in and which.
And our new radio aspect to the bonds that were operating in and the Alabama.
I don't know what you mean by new radio or what are you referring to there yes. So some of the <unk> bands have NR categories behind them and that just means it's a new raise it works better in some of the iPhone or Android chips.
Chipsets that are being put into homes.
Well I mean.
Sure how that relates to L band satellite systems. There is obviously new standards that support <unk> directly from space that are sort of starting to.
Starting to mature I think there are years away from implementation and no one's really committed to implementing them yet so I think thats a longer term trend that will happen in the industry that we obviously will keep keep track of and consider how we might.
Sure.
Evolve to it.
By the way our underlying systems continue to sort of evolve to meet what I would call five to your three G. P. P kind of standards overall.
Of the overall smart thing smartphones obviously.
<unk> responded to that in the last several.
Last several earnings calls told you that we believe that's a strong focus for US you can tell in our results that we are ideally positioned for personal communications across a wide variety of areas.
<unk> Standalone and we believe long term in terms of supporting that in all kinds of consumer devices, including smartphones.
I'm not really prepared to talk any further about sort of detailed plans on that until we're able to give plans, but we've been working on it for quite a while.
Yes.
Thanks, guys continuing to be well, yes, thanks, Rick.
The next question comes from Landon Park with Morgan Stanley . Please go ahead.
Great. Thank you.
I was wondering if you could update us on.
On the broadband side and just how do you think the cadence is going to look for the full year.
And maybe just.
100 side are there any particular, new products that you see coming particularly exciting from your standpoint.
Okay.
Broadband continues to.
Think.
Pace, our expectations here as we continue to have more products from our partners that we're able to meet more market segments like moving beyond maritime and land in the aviation and government.
As we move down from the original sort of circa 700 products to service 200 service 100, we continue to see.
Growing.
Activations growing adoption I think.
Yes.
I think we're kind of becoming the de facto L band standard for anything non inmarsat in the industry, which are all the VSAT players that.
Not make up to sort of bias that inmarsat.
Continue.
Continuing to kind of be able to be more and more cost effective to go from the larger ships to smaller ships or from commercial aircraft to general aviation and Uavs. So I would say I would expect continued.
Kind of.
Quarter over quarter growth, particularly as we.
As we progress through the year and into the.
Bigger parts of the summer and that continues to be a strong market for us, it's obviously growing at double digit rates.
We expect that will happen for a long period of time as far as service 100 goes yes, the portfolios of products that our partners are putting together continues to expand.
We're seeing initial activations.
And across a wide variety of areas from.
Drones to devices on chips to.
Systems on aircraft.
Yes.
And land mobile applications.
We're going to see I think more Iot services.
Coming about.
You said once I'm, particularly excited about im excited about all of them I think youre going to start sort of seen that product hit the consumer segment. This year.
And next year, where anybody can sort of buy a product that could work.
Say on the clear Sheila with small airplane or on a boat or it.
Can be portable devices, moving from sort of power devices into the portable range. So I'm.
I am very bullish on what service 100 will kind of do to us long term.
Really a sweet spot for us.
Great. Thanks, very much and just one clarification on.
On the SG&A guidance.
Should we be looking at about $120 million for the full year is that the right number.
What we said we said it would be about 20%.
So okay.
Okay. Thanks, very much thanks Linda.
The next question comes from Greg Burns with Sidoti and company. Please go ahead.
Yeah.
Good morning, So in terms of the guide maintaining the service revenue growth target I would think with the strong demand strong equipment sales that would translate into service revenue down the road, maybe maybe it's not this year and that's why the guide is unchanged, but can you just.
Im unpack that why.
So strong.
Strong equipment sales is not translating into stronger outlook for service revenue growth.
Hey, Greg It's Tom how are you yeah. So that we are reiterating the guy, but just because of the comp if you look at the sequential growth.
In 2021.
Had over $10 million of growth between the first and the third quarter. So the third quarter and the fourth quarter comps just get a lot tougher. Your point is well taken we were keeping our eye on the subscriber increases and I should should trends continue you should look for that guy to get get bumped either in the second to the third quarter if current trends continue.
Okay, Great and then.
In terms of your relationship with the U S government space Development agency and the new Leo constellation, what's what's the status there in terms of maybe the RFP process and how is that.
Opportunity kind of significant to your relationship with U S government.
Well.
It's somewhat.
Independent.
Opportunity, we are exploring to serve the new sort of FDA opportunity as they build their their new Leo network is kind of independent of anything else, we've done, but it's a perfect fit for our capability and in history and we're excited about it it is something that they're going to award.
This year in <unk>.
Hopefully we.
Have put together the best proposal with our with our partner and we will we will hear good news about that but it's kind of independent of anything else that we're doing I would say it's.
It would be a continued growth in our strategic relationship and give us.
Even better visibility to the future activities that.
USG is doing but really.
I would say really impressed with sort of the progress that they're making overall as they are building out that network.
There's a lot of confidence amongst the government that that's going to be.
A network that will be increasingly relied upon so it's one of the reasons why we've chosen to sort of step out of what we normally do to go after.
Supporting and running in.
And operating.
<unk> network in addition to the.
Incredible experience, we've had running our own.
Okay, and then lastly, I recently saw some headlines around GPS jamming going on in the Ukraine.
Can you just.
Talk about so tell us is that something that's to tell us.
<unk> and just remind us what your what your equity stake or your ownership stake in <unk>. Thank you.
Yes, that's exactly the kind of things that tell us is built for.
And I'm sure they are.
Offering to support and help in those situations if their technology is built into.
Something that utilizes GPS that can provide protection.
Alternative to that can provide a signal indoors can.
Can sort of help protect from spoofing and jamming and other kinds of activities. In addition to us being able to provide a very reliable time signals are things that need digital information. So it's absolutely in the sweet spot of and.
And one of the things that long term, they're going to help protect of other kinds of GPS.
And other kind of <unk> issues around the earth as far as our share 17%.
17% still.
Okay, Alright, great. Thank you.
Thanks.
The next question comes from Amit <unk> with Dws financial Please go ahead.
Good morning, just had two questions.
First one.
About this equipment.
Revenue increase could you just talk about are these new customers are buying equipment and haven't activated yet or is the mix more of existing customers, making the change to service.
So as far as equipment revenue overall going up in demand.
It's really strong across the board there isn't a product line that we have there isn't.
Experiencing significant growth year over year.
Say that in specific but handsets are strong.
Iot of everything from devices to chipsets to everything we really have on that front is very strong PTT devices are extremely strong.
And then and then broadband.
Obviously still small numbers, but that continues to sort of meet our expectations and grow so it's broad based.
New partners its existing partners, it's pretty much everybody seems feels like the.
Told us one thing last year that they wanted to buy from us and we plan for that and then.
Every month or two we seem to get more and more demand from all of them across the board.
And it's challenging to keep up with it as I said because.
Supply chains are limited in terms of how fast you can respond even though we've gotten most of the parks. We thought we were going to need to meet the original supply when demand exceeds that then you have to catch up in and suppliers can't turn on a dime. So it's as I said, it's a really high quality problem I think it demonstrates just how.
Strong our business is right now it really bodes well for long term growth for us. So it's all all good. It's just frustrating as you can imagine when you really want to.
Exceed expectations of every partner and deliver what they want.
Okay and my other question is could you just update about your presence in Russia with the teleport location and how has that gone into sanctions going to affect your.
Service, there and just service overall globally.
The location there.
Well I mean.
So Russia is not obviously in our growth plans or our growth projections and certainly isn't anymore at this point.
It's a small part of our business overall, but.
We serve 100% of the planet and that's that's how we serve.
That land mass if you will.
So it continues sanctions we are <unk>.
<unk> with all sanctions.
Can say I have taken some.
I guess im encouragement recently as they've been sort of.
Lessened a bit.
<unk> for telecom companies Internet companies like us and many others to sort of encourage us to stay in operation or at least I have taken it that way.
Because.
I think they want free flow of information to and from.
Both the people there as as well as the other activities that it supports but this is this is something we're monitoring we're being very careful about most of my focus is really on Ukraine and supplying.
The tremendous demand we've seen there are services being used extensively there many thousands of handsets in Iot and other devices are gone in from our partners and others we've been supplying.
Obviously, a lot of minutes, but it's a free minutes and some.
Devices, where we can we've been stretched in terms of supply to meet all of that but.
I would say that's been our bigger focus.
Okay. Thank you.
Sure.
The next question comes from Chris Quilty with Quilty analytics.
Go ahead.
Thanks, Matt and I guess, maybe Tom I wanted to follow up on the aviation market back at the peak of Covid I think you had quantified about.
And a half per quarter revenue impact and was wondering how far you've come back from that trough.
And I think again the time you had indicated that you figured it might take two to three years to get back to normal levels is that still a reasonable estimate or are you feeling a little bit more optimistic more optimistic.
We've seen we've seen.
I think we're just about to pre pandemic levels now Chris.
Great and.
Likewise, I think you were looking at about a half dozen terminal vendors I think you reiterated.
Back half of this year, you expect those to come into certification in US is it still that same of order of magnitude in terms of vendors and.
In terms of the actual devices or these terminals.
Terminals designed primarily for commercial aviation or general or across other platforms like rotorcraft and Uavs.
Yes, we're still seeing a lot of demand from our partners.
And from their customers for iridium in the aviation market where.
We're seeing high.
Hi gain in low gain antennas.
Flying now and being tested and working to be certified still look at it would be roughly that number of suppliers were already starting to see by the way from aviation Activations in the lower end service 100 say in drones and NGA.
And I think we're going to start seeing <unk> 207 hundred type systems later on this year.
Really broad base there is a lot of interest.
In the larger avionic suppliers, who are putting us into commercial aircraft, primarily for cockpit communications and eventually for safety communications. The earliest systems will be non safety and then safety certifications will come and say the 'twenty three 'twenty four time frame.
And then I.
The broader base and we've always been the biggest supplier in terms of volume.
Rotorcraft General aviation drones that sort of thing with 30% to 40000 at least devices kind of installed already.
I think thats still going to be a very strong market for us and the service 102 hundred areas.
And some of those are going to also be hitting this year youll be seeing us more and more an aircraft of all different types.
As we start getting built in and it just takes a long time with aviation because of.
Regulation and certification and everything else, but van demand is high and we are a perfect fit for that market.
Just to follow up on one point the UAV market, we're actually seeing some.
Larger scale operational tests in the drone delivery market, what is iridium suitability for sort of command and control functions for that particular market niche.
Yes, I think very very high.
Those companies, obviously will rely on on local technologies that they can but they really want beyond line of sight.
Reliability.
Either as primary or as a backup sort of communication capability I don't know the number of drilling companies now that are actively.
Testing or deploying our systems, but it's quite a few we keep keep meeting more and more every every every quarter that are sort of adopting that becoming partners in deploying us we seem to have a really good fit.
Yes.
With say like a service 100 product because it.
It's not.
It's lower power.
Lighter weight quite.
Quite small.
Requirements are not very high so those those very small drones can afford to put iridium on them for the applications that require non localized sort of support which could be it could be many many.
Down the road, obviously, it's still early days for that sort of delivery.
That business, so we don't.
Counted because it feels like it's not going to take office are our big demand business for 'twenty, two but it does feel very positive for sort of long term growth and how we're positioned with it.
Great.
I guess, just a follow up on area on.
It feels like it was only a couple of weeks ago, We did your fourth quarter call any updates there or if not that's fine.
Yes, it hasnt been a lot of update there, obviously, raising some capital, which we've talked about in the past to focus on this commercial data services continue to have sort of wins in that area.
There continue.
Continue to sort of look for the rebound of of travel which look increasingly positive.
Here this summer and next so I'm sure there'll be.
Back to strong growth.
Over the over the coming.
Year or two.
I don't think there haven't been any specific ones that we wanted to call out necessarily in our script. This time about.
Big new wins or anything, but I saw even this week that.
They were kind of touting, how they're supporting I save you there in the sort of the northern region quite a large aerospace where aircraft travel over the polls.
The debt is open and operating in.
Yes, I think you're just going to continue to see.
A lot of long term positive information out area.
Great and final question I guess, you reiterated the about half of revenues on the Iot side coming from commercial.
Is there any way you could give us.
Sketch of perhaps how many skus you have currently versus where you were a year or two year ago, two years ago in order to get a sense of how broadly the partner network is expanding.
But.
One of that.
Long time and the problem is it so hard to.
So hard to qualitatively.
Count.
To know for sure what you have I can only sort of Todd.
More.
Totally in the case I think it's quite a bit higher.
I've talked about when you say skus I think youre, meaning like how many ways his or her.
Device, and 96% or 2% or $96, three year, and $95 23, or a chipset or whatever it is how many different.
Individual products or solutions, and I think it's starting to get to be in the <unk>.
At this point.
We have 300 or 400 at least of our partners are our full fully Iot related and we're adding.
Anywhere from 15 to 40, a year new ones a year.
And we even added the last two years during the pandemic quite a few new partners.
A number of new product spaces, and I would say even lately.
It feels a little bit like we're getting almost anybody who really is interested in a satellite Iot solution is coming our way and even seeing some of our competitors look like there.
Acknowledging by moving to a sale leasing their spectrum or something model, they're not kind of winning the new the new opportunities. So I feel.
We're still continuing to expand we are adding everything from like heavy equipment suppliers still new ones with that to these new applications like drones to industrial applications to buoys and.
Container tracking solutions, it's just a broad broad range and it's really hard to count numbers I wish we could.
Well, maybe for Tom just in terms of the mix of those consumers overall consumer tends to be a lower <unk> and then within that category. The partners that are using either the chipset or maybe a way for them in the future.
Again takes the <unk> down is it fair to assume that we should continue to see through the balance of 22, the sort of mid single digit type <unk> declines on an ongoing basis, just due to mix, yes, that's how we see it but but that the introduction of the <unk> 100 is going to is going to have the opposite effect right Chris because.
That's going to be the ability to push pictures and things like that so thats going to fight the natural downward trend of the mix of because of the personal communication. So I would say, yes, that's right.
But if we go down 7% year over year that feels about right in 'twenty two into 'twenty, three but then you're going to get pressure going the other way as additional functionality is.
As introduced across that across that segment.
Okay, and you had mentioned.
Government interest in this service 100.
Due to some of the video and image transfer to.
The degree that that lands in the government market with the <unk>.
Attribute over to the commercial side, because right now see the commercial gateway.
The the <unk>.
Actual subs would show up on the government side and the government Iot.
Good question.
As the new unruly.
I'll answer that.
So long as the revenues.
And as long as the revenues go up that's fine, but yes, thats kind of how I view, it which is why should that answer for you I am really focus more on that side of the buckets of it.
Alright, great. Thanks, everybody. Thanks.
Thanks, Chris.
The next question comes from Matthew will Bellard with Barclays. Please go ahead.
Yes, good morning all.
A few questions. Please first in terms of the trends.
<unk> revenues, maybe if you could give a bit more color as what surprised you positively compared to your initial expectations.
As I said, it's broad based it is across almost every product line.
And with.
I Wouldnt I don't know that every one of our 500 or so partners are ordering more but a significant portion more ordering more than had been ordering then are possibly coming back unless we.
We did a lot of our planning for the year that provided our sort of initial view of guidance back in <unk>.
November October November December of last year.
Saw growth.
Our optimism across our partner base for all the different applications and support that they use iridium for and and we plan for that and.
That was showing growth but.
Jack challenging growth.
So we go back and buy lots apart from.
Partners, who have extended their from weeks to months in some cases and looked like we were still going to be short, but catching up.
In terms of what we're doing and then everybody keeps ordering more every month so.
I've got to say, obviously, the personal communications side of things has been very strong as we added Garmin has done very well, but so is oleo. It added <unk>, who is kind of lowered their prices and seems to be catching on in the market to several others, but other Iot suppliers and of course the handset it's been.
Very strong this year.
Perhaps some of our competitors are stumbling theyre, a little bit in terms of their supply issues might be higher than ours. So.
Picking up a bigger percentage of the global market share right now for handsets, but.
Certainly no unexpected that the demand in Ukraine.
A year ago would be as high as some of those things that pushed it higher but so is broad base interest in and PTT that continues to expand and so devices going into those kind of push to talk or growing as well. So it's really been broad based.
In order to tell you other than I think people, it's all coming together all the work that we've done over many years to have a great network that performs very well.
That is priced and positioned appropriately in our partners really are excited about the potential they are seeing in all the different ways that they can use our network to meet their needs.
Great. Thanks for the additional color.
On the competitive side.
Seen any change in behavior.
Plumb embarks Hudson said the transaction with Viasat has announced anything notable there.
No I haven't noticed any any new change in behavior. They continue to.
Kind of.
I'd say business as usual.
More than than anything else.
I think if anything they are kind of not being more aggressive maybe there.
There has been price increases and other things on their side that have kind of indicated that maybe there.
We've been struggling for some growth, but I think they are doing okay.
The environment, but I wouldn't say that the overall environment that we work with them has changed at all.
Great and then the last one on SG&A. So you pointed to a 20% increase from <unk> 22, I was curious kind of suddenly Scott.
Yes.
Place, which will bring you in terms of SG&A would that be like the new normal.
Any growth from there are some elements that would be.
It appears seeing some 2000 suites on such for because they are more one off in nature.
I think thats, a higher a higher run rate.
Okay. Thank you.
Yes, I would I would model 20 to 120 to 125 somewhere in there and.
And think of it growing for inflation from there.
I would say this is a little bit of right sizing for the growth that we're seeing right now and where we're at.
We're just seeing a lot of opportunity and we're growing a lot and we've got a reset ourselves a little bit for the environment. We're in growing forward, which is which is a positive agreement.
Agreement I think.
Competition for technical people is intense we see opportunities and we're hiring in advance of the opportunities that we say and thats going to take our SG&A up okay.
Okay, great. Thank you.
Thanks.
Our next question comes from Anthony Klarman with Deutsche Bank. Please go ahead.
Pretty much everything I had was asked already but I guess I did have just a clarifying question.
On the Capex increase for this year, obviously here you see an opportunity to get the ground spares up and I know that you've used ride sharing previously could you just give us some insights as to what youre.
Actually getting the ground spares up does for you strategically or operationally is it just.
Increasing the.
The time or reusable network timing in orbit or what benefit are you getting from this capex spend and how do you weigh that against some of the other capital needs or opportunities that you might have whether it be buybacks or other sort of strategic investments that you might be able to look at making.
Well I think first of all we're very fortunate to be in a financial position to do something like this.
When we originally.
Built 81 satellites.
We were expecting a.
Especially utilizing Spacex for the first time, we're expecting that wouldn't be out of the mix have a launch failure during that timeframe. So we ended up.
And we sort of self insured as we went along there.
Hoping that we didn't.
Fortunately, we had no problems and therefore ended up with.
Actually more satellites in orbit than we expected, but also these ground spares, we had fixed ground spares leftover and they serve absolutely no utility sitting in the ground. In fact, you have to maintain them you have to keep the technical expertise up you have to maintain their solar arrays and batteries and that sort of thing and while we may never really.
Need them, because our network is performing so well.
Having I will tell you as the CEO of a satellite operator I'd much rather have.
15, 14 spares in orbit.
<unk> then.
Benign.
That are backing up your system so they.
It's an insurance policy and Thats pretty much all they are.
We were thinking if.
As I said, we're looking at maybe if there was an opportunistic situation, where we thought it was a really good deal where we could get those up at a low price we would take it we've always sort of talked about that being sort of outside our capex holiday spend.
We're seeing an opportunity now that we like where theyre going and we.
We think it's the right time and place so.
It's truly insurance only at this point if you will they don't have a operational improvement to our system, but.
Last network that we have.
Operator for 22 years, I think satellites that were built to last for.
Much shorter than these satellites are I think this gives us a lot of long term hope that we will have at least that kind of.
The kind of network this time too, which obviously it does support and continues to support sort of the length of our Capex holiday overall, because the need to sort of build the next network.
Technically reduce it slightly as a result of this.
Does that help or.
Anthony.
Sorry, I was on mute.
That's pretty much what I was looking for thank you okay.
The next question comes from Louis Dipalma with William Blair. Please go ahead.
Tom and Ken Good morning, Hi, Louie Louie.
With.
Your announcement about launching spares I know you just.
Touched upon that is there any change to your forecast for the expected useful life.
The constellation.
The timeframe for replacing it.
Like around 2035.
Well, we've always said always really described as the Capex holiday.
At least 10 years and that continues to support that.
I would obviously, we're doing it because it will lengthen whatever the long term life of our network is we're not calling out a different.
Amount of time at this time, because you just never know what you don't know down the road, but obviously every year that goes by we will give us increasing confidence that we will have.
A longer term. So there are I know accounting implications and other things that I'm sure that that's all part of but we're not changing any of that right now it is not appropriate to.
Great.
<unk>.
I think a few quarters ago Garmin released a second edition.
In reach many.
Can you discuss how your equipment sales were very strong and you highlighted handset sales.
We have also discussed how your partners plan to release third is 100.
This is over the next two years I was wondering does iridium have plans to update its own mobile device lineup such as Youre a satellite phone in your mobile hotspot with the service 100 functionality.
Yes.
Okay.
You're making me.
Tease out information that I'm, not really quite ready to talk too much about but yes. We yes, we believe that lets look how do I say that the service 100 technology.
I think be fantastic in a consumer type device and I look forward to seeing that in the market.
Before long, but I'm not going to announce anything today great.
And.
And then I missed this.
Yes.
Can you discuss the.
Potential applications.
Your video compression partnerships with <unk> and <unk> that you announced.
Last month do you see.
Adoption of.
That technology more so for the military market or is there an emphasis on commercial end markets.
I think it's both.
Definitely seeing some very good interest in <unk>.
In fact, the initial applications were sort of.
Remote.
Video over low in a very remote places.
We saw it first in operation and we're kind of blown away ourselves by how well it worked in Arctic link demonstration that we did last summer.
A big demonstration area in the polar regions with a very broad range of.
Dod.
Other governments in that sort of thing and watching how well it worked and so.
Really encouraged us to support those those partners because we've also heard a number of our commercial partners have also.
Expressed interest in what they could do using the technology over very low data rates.
Our network isn't about speed, we're not trying to provide.
Tens or hundreds of megabits like others and in fact, some other networks are better for those kind of applications. If youre doing those all the time, but.
But.
Our network is extremely well suited for certain applications and being able to do.
Do.
Good video over.
<unk> kind of like a service 100 device we think.
It was really unique there's just nobody is going to be able to do that so.
A number of our commercial partners are also looking at it as well, but I can't really.
Announcer describe exactly all the applications that I've I've heard it possibly being used for.
Great did you say that the service 100 devices will also be capable of transmitting video.
Well using this kind of technology, if you use compression compression technology you can get.
It has some pretty pretty good video even out of.
Tens of Kilobits per second they've been demonstrating it obviously, it's not going to be high definition TV quality stuff, but it may be exactly what you need for a gain camera or a.
A video of an important video in a remote location, where you really want to show what's going on in real life.
In other applications, but yes.
It could even be that low SB, but obviously I think more of it is going to go into the <unk> 200, 700 category, where you can really get.
A lot of capability there.
Great. Thanks for the color.
Sure.
And our final question today will come from Walt Piecyk with Lakehead. Please go ahead.
Thanks, Matt I think at the end of the prepared comments you mentioned.
Ending new businesses, what exactly as one of obviously multiple things to do with free cash flow can you describe what does that mean to fund our new business.
Honestly I don't remember talking about okay.
Businesses I don't know what you mean, but let me give you. An example, so we've talked about area and doing a.
Our capital raise in support of their data business that'd be that'd be an investment that we would take a very hard look at and it seems very compelling to us.
Don't remember I don't remember, saying that in my prepared remarks, or maybe Bloomberg has it wrong I just read it off of Bloomberg <unk> the last sentence of the prepared remarks.
So.
In terms of other uses of cash you mentioned area on raising capital or are you guys committed to invest in and around and it has a term sheet.
You are on the board is there a term sheet in terms of this existing round or is that still being sought.
We haven't said, what we said is that it should should they undertake such a ramp that would be something we'd be very interested in.
And would you anticipate maintaining your existing percentage increasing do you have the optionally what rights do you have to increase your percentage in terms of additional rounds.
Well, there's no restrictions on increasing our.
So obviously, if we took a bigger share of it than others did then we would be increasing our share.
Would you contemplate actually.
The lead investor in the next ramp.
I would just say, we like that business, whereas we remain as committed to it as as we've ever been.
Got it last quarter and then.
Just the other question on free cash flow. So last quarter, you provided the update which gave us a good sense of this amount of stock that you repurchased in the first quarter, which is obviously.
Almost as much as you did all of last year.
Can you give us some sense of what's gone on or what you are planning to do in Q2 or kind of what sense of.
Our pace, we should expect across.
2022 in general.
Sure. So we're through the first authorization here in April I can tell you that we're working on the second 300, and it's the same balance of leverage.
We poked poked above three five times, we are going to be disciplined and watch our leverage watch where we think the stock is most compelling.
As you can tell what we're.
We fully exhausted the first authorization, which was two years, we exhausted it in one year. So we're very serious about this buyback program.
Got it thank you.
By the way I noticed it was and it.
It was in Tom's prepared remarks, one of his closing statements fund.
<unk> new business system investment he was referring to that discussion, where we were talking about putting retooling some of our business systems, our it systems to <unk>.
Our automation and other things so I think thats what that was about.
Okay I appreciate that thank you okay.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
While we continue to be here to support your additional questions.
And support you and we'll be seeing you in the second quarter.
Thanks for joining us this this quarter take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
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