Q2 2022 Iridium Communications Inc Earnings Call
Good morning, and welcome to the Iridium Communications' second quarter earnings Conference call.
Participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing to Starkey followed by zero.
After today's presentation there'll 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 Ken Levy VP of Investor Relations. Please go ahead.
Anthony Good morning, and welcome to Iridium second quarter 2022 earnings call. Joining me on this morning's call are our CEO , Matt Desch, and our CFO Tom Fitzpatrick.
Today's call will begin with a discussion of our second quarter results followed by Q&A.
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 with 1995.
Forward looking statements are statements that are not historical fact and include statements about our future expectations plans and prospects.
Such forward looking statements are based upon our current beliefs 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 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.
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 reconciliation to the most directly comparable GAAP measures with that let me turn things over to Matt.
Yeah, Thanks, Ken and good morning, everyone.
As you all saw our ratings business outperformed nicely in the quarter recording record revenue and operational EBITDA.
This momentum gives us confidence to raise our top and bottom line guidance for the year.
We're seeing a sustained strength from our partner channel and signing up new customers and purchasing equipment, which is the result of iridium strong competitive position and unique offerings.
Underlying strength helped to shield us against changes in the global financial environment. We believe we're positioned well to grow just as we have through past cycles, even if recent concerns of an economic downturn come to fruition.
Our business remains vibrant and resilient. This is owed to the unique business Iridium is focused on characterized by safety services and mission critical applications as well as the durability of our business model.
While no business is recession proof, we've grown nicely through past downturns in large part due to the diversity of our customer base and the industries that we serve.
Iridium continues to occupy a unique lane, even amongst saddle satellite companies and today that lane is characterized by its strong demand growth opportunities and some pronounced areas of upside, which I'd like to call accelerators, Let me speak to each of these three areas.
First demand for Iridium equipment services has never been stronger.
This has been driving hardware sales over the last 12 months.
And kept net subscriber additions near all time highs in our commercial business.
In the second quarter, we added 95000 net subscribers, which means over the last year, we've grown our subscriber base by 16% to almost $1 9 million users and I can't think of another satellite communications company that makes more connections to things from space than iridium.
We've continued to see momentum in our core handset business in part due to ongoing demand in Ukraine continued strong growth in iridium push to talk services for global work groups and governments and general acceptance by the market that our satellite phones and Iridium go smartphone hotspots are the gold standard for remote communications, but also.
I believe that our successful management of supply chain obstacles over the past year or so has allowed us to ship devices when others could not.
Further iridium enjoys a global reputation for service reliability this is particularly relevant.
To the recent demand we've seen in Ukraine partners in subscribers tell us that iridium handsets work much better in battle zones, where GPS is now being jammed because our devices do not rely on this location technology to connect like others do it.
All of these things are combining to create a very strong year of growth for these core product lines and as Tom will go into further we believe commercial voice and data is a resurgent area of growth for us into the future.
Moving on to Iot or industrial partners continue to prosper and grow their subscriber counts but.
It is the personal user that remains the real story lately.
Continue to ride a wave of demand for iridium connected personal satellite communication devices as partners like Garmin, <unk> busy and others have developed new solutions.
The small lightweight consumer devices are great for mobility and offer users reliable two way connectivity, which they often paired with their smartphones, even when they are off the grid.
Our personal satellite communication services have gained in popularity, especially as the prices of these devices have fallen in recent years and retail consumer awareness of them has grown.
And maritime we're pleased to see the growing adoption of Iridium service reached quarterly installation levels that we long have been expecting ship.
Ship owners are realizing that Iridium service provides highly capable and reliable L band service at a price point that makes it accessible and attractive to both small boat owners and large fleet operators.
Activation of these terminals continue to expand quarter two was another strong quarter with subs up 12% from the same quarter last year.
Overall broadband revenue growth also remained strong up 14% from a year ago. This is even before we are starting to see widespread use of the new lower cost Iridium service 200 terminals that are just now getting into the channel.
I think it was quite clear that demand for our commercial satellite services is healthy and growing across the board now in term of opportunities. Let me highlight three that I think you should keep a close eye on.
First within Iot I discussed the momentum we're seeing for personal satellite communications.
We already have more than 670000 active users on our network and that number appears to be accelerating with the introduction of new products and features from our partners.
We expect that these consumer oriented devices will continue to be a long term driver of Iot revenue and subscriber growth.
Our next big opportunity is being fueled by Iridium service 100 service, which we call mid band.
It delivers a higher speed data connection that our legacy nairobian offerings in a very small form factor perfect for applications, where size weight and power considerations like in segments of aviation, where our partners are introducing new terminals for the growing unmanned aerial vehicle market.
Our opportunity has only expanded in the last year now that our technology partners have enabled efficient video transmission over the Iridium service platforms.
The intersection of these applications with new Iridium service 100 devices should unleash a new wave of users and applications that have high ARPA.
Some of the early technical applications are now available to iridium customers and we expect these solutions to only grow in the quarters and years ahead.
Lastly, I want to highlight our emerging opportunity in aviation broadband we're expecting to finally see Iridium service aviation terminals start activating on our network this year and next.
Timeline for aviation services have been necessarily long due to the regulatory testing and rigorous certifications required for each piece of equipment that enters the cockpit.
As a pilot this is one business a business opportunity that I remain very excited about and I can't wait to see come to market.
Iridium has been working with a handful of partners, who will be launching their respective products using iridium service in the second half of this year.
These partners are closing critical certification milestones performance successful flight tests, and some will be entering service with first installations in the coming months and both rotary and fixed wing application.
In terms of my third theme on future upside accelerator.
Iridium is always active in looking to expand beyond our traditional markets to grow even faster.
I'd like to highlight three accelerators that hold great promise for us.
One of these new business opportunities was awarded in late May when spirit when the space Development Agency chose general dynamics mission systems, and iridium to build and operate their ground operations system for their new Leo satellite network is.
$324 million Prime contract Leverages Iridium has expertise in flying satellites and managing ground system operations to provide us entry into a new type of business with the U S government.
We're proud of our capabilities and know that this contract with a space development agency will enhance knowledge of the advanced technology around an important network like this.
The $133 million in revenue that we expect to receive over seven years from this award will be seen in our top line results, but the strategic impact of a closer alignment with the FDA is what is most important.
We're excited to begin work and are honored to see our capabilities recognized and explore what else might be come of this expanding relationship with the department of defense.
Another accelerator for us as area and their continued product evolution and adoption in.
In late June Iridium augmented its position in the 10 year old joint venture, our new $50 million preferred equity investment will help accelerate areas development of their commercial data service business, which will allow <unk> to monetize their high quality <unk> data set with customers beyond its core use and air traffic surveillance areas.
<unk> data has value to commercial enterprises that assess manage and interface with the commercial aviation industry. In fact, Boeing just signed up area and to use their data for its own safety toolkit and advanced data analytics capabilities.
As <unk> grows the benefit to iridium will be an increase in the value of our substantial equity stake in this enterprise as well as dividends down the line.
And another area of long term promise to US today, you'll also see from the 8-K filing accompanying our press release that we furthered our vision of connecting millions of consumer devices to our network by entering into a development agreement with a strategic partner to enable iridium technology in smartphones.
Yeah.
We likely won't have much more to say about this arrangement until products are ready for market, but obviously, it's a demonstration that we're making good progress on the execution of our vision and something that can provide significant upside in the future.
In total all three of these partnership opportunities are additive to iridium business rest assured that we will provide additional details about each of them at the time is right. However, it is safe to say that they serve as accelerators to our story, which should further excited our shareholders.
Summarized we are continuing our experienced strong demand. This year. We are excited about the areas of growth were developing and we are actively working on some accelerators to our business, which we believe will be material in the future.
We feel very good about where we are and look forward to continued strong growth in 2022 and beyond.
I think youll have to agree whether youre, a longtime iridium shareholder or you have only recently come to our story were particularly interesting company to watch in the space industry or any industry for that matter given our unique potential.
With that I'll turn the call over to Tom for a review of our financials.
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 now I'll recap our increased guidance for 2022.
And close with a review of our liquidity position and capital structure Iridium continued to execute well in the second quarter in an environment characterized by robust equipment demand and meaningful subscriber growth. We generated total revenue of $174 9 million in the second quarter, which was up 17% from last year's comparable quarter.
The improvement reflects ongoing strength in our commercial business lines, a pickup in engineering and support work and unprecedented demand for subscriber equipment.
Operational EBITDA hit a record $105 9 million in the second quarter.
This was up 12% from the prior year's quarter and supported by strength across all business lines. These trends give us confidence in raising our full year outlook to better reflect the ongoing demand for our L band services, which we expect to continue in the second half of the year and drive incremental subscriber growth on.
On the commercial side of our business service revenue was up 11% this quarter to $106 4 million. This increase reflected continued strength in voice services Iot and broadband <unk>.
Commercial voice and data revenue grew by $5 2 million or 12% in the second quarter. As you know we've historically characterized this business as a low single digit grower as Matt noted there were two contributors to this outsized growth this quarter.
First our newer service offerings Iridium go and push to talk are really hitting their stride, we experienced combined growth of about 50% on these two products in the second quarter together they accounted for about a third of the growth in the voice and data business we.
We expect continued strength strong growth from these products going forward.
We experienced materially higher sales of prepaid vouchers in the quarter. We believe this strength was driven by two factors.
First we have noted previously higher sales volumes associated with the conflict in Ukraine, while the second we attribute to increased sales volume, resulting from our primary competitors not having handsets in stock to meet demand.
Prepaid revenues accounted for about a third of the growth in our voice and data business this quarter.
The balance of our growth in this business line came from our core service offerings that also that also benefited somewhat from the competitive environment as described.
So in summary, the new product growth will recur, but some of the other growth may wane a bit as circumstances change we expect the voice and data business line will generate high single digit growth this year, and we'll see where things settle out but it now appears that this business is more like a solid mid single digit grower on average based on latest.
Trends.
In commercial Iot, we continued to benefit from consumer demand for personal satellite communications Iot revenue totaled $30 6 million in the second quarter up 13% from the prior year quarter.
While these subscribers generate lower <unk> than our traditional industrial Iot users. They remain very attractive contributor to our service revenue growth in light of the minimum comparative network resources. They consume as a result, Iot ARPA was $7.96 this quarter compared to $8 69 and.
In the prior year period.
Commercial Iot subs grew 22% from last year's second quarter fueled in part by 80000 net new additions. This was the second best on record. These data subscribers now represent 76% of Iridium billable commercial subscribers up from 74% in the year ago period.
Through June 30, we had over 670000 personal communication devices on our network and we continue to believe that these consumer oriented users will drive Iot growth for the foreseeable future.
Commercial broadband revenue rose, 14% from the prior year quarter to $12 1 million.
Activations were driven by ongoing adoption of Iridium service terminals in maritime our partners are seeing good access to vessels, which should keep subscriber growth strong in broadband where we continue to grow our offering and are seeing strong adoption of iridium service as a companion to VSAT terminals.
Hosting and other data services revenue was $15 2 million this quarter up 5% from the prior year quarter on higher data usage.
Turning to our government service business, we reported revenue of $26 5 million in the second quarter up 3% from $25 8 million in the prior year quarter. This increase reflects the contractual terms of our long term MSS contracts subscriber.
Equipment continues to benefit from strong demand rising 55% from the prior year period to $33 8 million as Matt noted, we continue to receive new orders for equipment, which support our forecast for full year equipment sales well above 2020 one's level.
We expect equipment margin dollars to be up materially as well equipment margin as a percent of revenue is expected to decline this year to a range of between 35 and 40%.
The reduction in margin percentage is primarily driven by a mix shift towards chipsets to have lower margin, which are widely utilized by our personal communication partners and driving significant subscriber growth. We're also to a lesser extent experiencing some cost increases as we manage through supply chain issues.
Engineering and support revenue was $8 3 million in the second quarter as compared to $6 8 million in the year ago period.
The rise reflects activity related to the episodic nature of our contract work for the U S government and commercial customers.
All the trends we saw in the second quarter were quite strong accordingly, we are increasing our growth outlook for service revenue to between 7% and 9% in 2022 and raising our full year guidance for operational EBITDA to between 410 and $420 million.
Some of the items helped me to frame our thoughts on EBITDA include the recent SBA award and our outlook for SG&A.
With the award of the Space Development Agency contract to General dynamics mission systems and Iridium in May we anticipate that iridium will receive a $133 million in revenue under the award over a seven year term.
But this could grow with future opportunities revenue will vary from year to year and appear in our engineering and support line.
We expect work under the FCA contract to generate small margins, which we view as acceptable given its strategic importance. This in combination with the increase in equipment revenues and decrease in equipment margin percentage will drive our EBITDA margin percentage below 60% this year.
On the expense side of the Ledger, we continue to expect spending on SG&A to rise this year as we incur higher recruiting and development costs accrued for higher stock compensation expenses and also make additions to our support infrastructure.
I noted these items back in April and anticipate that in total it will result in SG&A being about 20% higher in 2022 compared to last year.
Moving to our capital position as of June 32022, Iridium had a cash and cash equivalents balance of approximately $227 million Iridium is growing cash flow is one of the reasons that our board upsized our share repurchase program with an additional $300 million earlier this year in the second quarter Iridium purchased approximately.
<unk> 1 million shares of common stock at a total purchase price of $35 million into July we have remained active in the market purchasing an additional 290000 shares at a cost of approximately $11 2 million.
And since the original authorization of our buyback program. In 2021, we have retired approximately $9 4 million shares at a total price of about $344 million or <unk> $36 47 per share at this time remaining capacity on our program is approximately $256 million, we will continue to be <unk>.
<unk> and executing on share repurchases.
Net leverage was three four times of EBITDA at the end of the second quarter. This was down from three nine times a year earlier and includes the impacts of our buybacks.
The first half of 2020 to our long term target for net leverage continues to be between two five and three five times of EBITDA at the end of 2023, we expect to be within this target range, even after giving effect to all share buybacks authorized by our board.
Capital.
<unk> in the second quarter were $17 5 million and included initial spend of $7 $5 million related to our launch of up to five ground spare satellites.
You will recall that this launch of our ground spares as a onetime event with a total expected cost of about $35 million.
Which will be spent this year and next we anticipate that the launch will take place in 2023. We have previously indicated that we expect annual capex to average about $40 million during our Capex holiday. So inclusive of the launch of our ground spares, we do not expect our capex spending in 2022 to exceed $75 million.
This spending can be comfortably supported by iridium strong cash and cash equivalents balance and ongoing expectations for strong free cash flow in 2022.
If we use the midpoint of our 2022, EBITDA guidance and backlog of $66 million and net interest pro forma for our current debt structure. The maximum expected $75 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 two.
<unk> hundred $60 million.
These metrics represent a conversion rate of 63% in 2022, and a yield of nearly 6%.
I would note that iridium put in place an interest rate cap in July of 2021 to hedge 1 billion notional value on our term loan this positioned us well to weather the current interest rate environment.
A more detailed description of these cash flow metrics, along with a reconciliation to GAAP measures is available in our supplemental presentation under events on our Investor Relations website.
In closing, we're very excited about iridium business prospects and the new revenue streams. We will soon realize from the STI contract awarded in June as well as our entry into new markets. We have all worked hard through the challenges of the pandemic during the past two years to execute efficiently and get to this point.
As Matt noted, we are enjoying strong demand trends today and executed a number of promising business opportunities as I look back on the dozen years I've been with Iridium I've witness an accelerated pacing of growth and technological capabilities. It took iridium 18 years to get to 1 million subscribers, which occurred in 2018, we expect to reach 2 million.
Subscribers as we exit this year illustrating the acceleration of our business.
It's very rewarding to see this progress and given the strength of our personal communications business in current pace of growth will likely surpass 3 million subscribers in less than four years.
This is an especially exciting time for our company our partners and employees. We are committed to return capital to our shareholders, while still investing in the business and pursuing new vectors for growth I truly believe that for iridium. The best is yet to come 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 your telephone keypad.
If you're using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Ric Prentiss with Raymond James You May now go ahead.
Thanks, Good morning, everyone.
Hey, Rick.
Obviously, we'd like to see the guidance raised particularly in this economic environment, Matt you talked a little bit about how you guys had weather different <unk>.
Economic situations help us understand where you're at today and looking into this current environment.
How you see it playing out.
Into like your midterm guidance on any thoughts about update.
Updating that guidance or how this current market conditions are affecting that.
Well I think we've been looking carefully at trends and everything and just haven't really seen much yet.
Have to expect that there is.
Some potential impact is perhaps more equipment than anything else just as people will be more careful about.
Purchases, though we're not seeing that at this time, yet, but kind of considering that going forward I remember the 2008 2009 period, we werent.
We're in public until 2009, but even looking at 2008, we had.
We really grew our service revenue continued to grow well through that whole period, we had a down year one year in terms of equipment I think in 2009, but it really pop back up in 2010 quickly too.
And I think it's all just due to the nature of.
The highly diversified business that we have the fact that.
Most of our services are pretty life critical and important.
The industries that they are and so we're not currently really expecting to change sort of our midterm.
Or even long term look right now.
Any reason right now.
Those scientists are unclear at this point.
Okay and.
You mentioned on your long term accelerants.
Talking about the development agreement to bring your technology in the smartphones.
Say a lot about that but it's all about timeframe, we should be thinking about that and we won't have enough time to get all three of the 8-K and the extra language there that we should be particularly looking for.
Well youre right Theres not much more we can say about that which I'm sure is a little frustrating but.
Certainly one or two.
We thought it was important to.
<unk> showed.
Show some progress that we're making in that area.
An important strategic relationship.
We're excited about the potential there, but the timing really is not something I can speak to I think you'll just have to wait until products are introduced.
Mainly in some ways I can't talk about it because it's not really that much within our control at this point, we have some work to do ourselves, but it's really up to our partner.
And others to two.
To execute on that.
And obviously some of the Big news in satellite and over the last two days was.
Leo operator startup one lab now officially announced the merger with Geo operator Eutelsat.
Any thoughts about what that.
As for the industry or anything what it means for iridium.
Well I don't think it means much for iridium I think it speaks to the competitive dynamics in that commodity broadband space that we've long talked about.
Kind of ancillary to our business.
There's a lot of competition in that space, there's a lot of concern about the future environment searching.
Realignment to partners as we saw from <unk>.
And Marsha and Viasat I think.
Perhaps there's some choosing those.
There is some consolidation I guess this will be continued consolidation in sort of that market segment.
I don't know that it speaks so much to orbital dynamics as it does the competition.
And then other aspects there, but that's.
Thats the story for others to really speak to besides us.
Alright, Thanks, guys stay well thanks rich thanks, Richard here.
Our next question will come from Landon Park with Morgan Stanley You May now go ahead.
Great. Thanks for taking my questions everyone. Good morning.
I'll take one more swing at the smartphone announcement can you say anything about what type of company Youre partnering with on this agreement then.
And I guess, if we if we're looking out 510 years do you think that this has the potential to be.
Youre seeing the largest revenue bucket over time.
The technology is successful and I guess what is your.
Your confidence level in being able to develop.
Successful integration of your technology into smartphones.
Okay.
Well that was a good swing landon.
Sure I can help much with either of those those questions.
And I'm, sorry for that but we have been.
We have been.
Talking a little bit about this opportunity over the last couple of quarters.
This is a this is a good milestone, but it's not definitive nor are we represented in any specific way at this time as to what it means when it means and who it means with at this time.
But I can say there is.
Over $1 billion, new smartphones a year.
There is something like 7 billion smartphones out there in the coming years.
Obviously, making a connection of those is something that others have hinted and.
Expect we will try to do I think that the.
It's going to be a sizable market to make.
Any kind of connection to devices like smartphones and I wouldn't even limited to smartphones I mean, we're talking about sort of.
Things that consumers might might have or might be contained and many other kinds of consumer devices.
We believe that's our vision Thats, what our network is very well suited for it.
I think what we've been doing over the last 23 years has prepared us for.
This kind of market and.
Don't want to speak to the size, but obviously we.
We don't think it's insignificant so.
Great.
Got it and can you.
Can you speak at all to.
Two.
Due to the timeline that we should be looking forward I guess.
For instance.
Firmer agreement by the end of the year is that sort of the next milestone we should be looking at.
Yeah.
Yes, we do need to complete a service provider agreement.
And even the development agreements are subject to that agreement.
And but in terms of when the when.
This will affect our business obviously.
That's out in the future and it's really like I said not in our control. So I just don't want to I don't want to set any specific expectations about that which I. Appreciate it's frustrating and it won't help your models much but.
But believe we are least needed to announce that.
But we're making definitive steps here.
Understood and then just a last one on the settlement how should we think about the capacity of the IMAX network in terms of.
If you do end up loading a lot more sort of low usage subs here, how should we think about what does the capacity of your network really allow for over the next decade, and then just on a separate.
Alright.
I'd Love for you to opine on the area on investment and how we're thinking about the Tam there and the type of value you can create out of your holdings.
Yes, I mean, our network is built for extreme.
It's very efficient.
<unk> Communications, which Iot is as you can see by just sort of our performance is a key.
Area of growth is a key area of growth in our in our area.
What we do delivering even more devices. There is there is a lot more capacity is still to be utilized for that because those are very efficient uses of our network. So.
Kind of a breakthrough.
Model of how many millions of subscribers, we would have on our network, obviously with that but it's more about the kind of.
Amount of messages.
Data transmissions they'd have through at which our network is well suited to support.
So as.
As far as far as area and in terms of.
The addressable market, yes, I mean, obviously were.
We're expand we believe <unk> is expanding their addressable market, which we already thought was pretty significant and managing the air traffic management aspect of it the surveillance, which.
Frankly with people back on airplanes flying internationally is growing again and their revenues I think internally are growing in that area. They recovered back to.
Back to pre pandemic levels and beyond as they continue to expand their subscribers there, but as I've said in the past we were really quite interested in the progress that they're making monetizing their dataset in this commercial data services area. They have already got a number of wins they have a number of new products.
That they have developed in their marketing and with this additional investment we saw them.
Able to further out.
The offerings that they could make in terms of exploiting that data set and a number of new interesting ways. So it is expanding the addressable market.
I can't speak to exactly the numbers I know we've talked to the.
Surveillance market in the past.
There's a couple of others out there that are also trying to get in this market, but they don't have the same dataset we do.
They certainly talked pretty big potential for the market.
Kent dispute that.
But it's still early days.
And we think Theres a lot of.
There's a lot of growth potential there is the reason why we.
We kind of doubled down here and we're able to sort of expand our investment in this because we really think over the next couple of years, that's really going to pay off.
And just in terms of sizing area has estimated there tend to be $750 million a year.
Yes.
So.
They have said that for some time and we've said that we expect our dividends from <unk> to exceed what we get out of them from hosting until we get.
$37 million in hosting and data out of <unk>.
And so we expected dividends to eventually be greater than that so we're excited by this opportunity I would only say that $750 million was sort of a pre commercial data services sort of Tam, but it's hard to say exactly how much that adds to it in this case, though.
And on the dividends one should we expect.
This will start flowing we've said if we've said eventually.
We havent, we havent okay.
Fair enough.
Our renovation of the questions.
Thanks Glenn.
Our next question will come from Walter Piecyk with <unk> you May now go ahead.
Thanks.
What is the process for.
I guess, how a technology gets enabled and smartphones meaning that.
Does the ultimate demand have to come from the device makers, who drives it whether the agreements with the device makers some of them for a component guy or whatever it is like how does that typically manifest itself because I wouldn't.
And that.
If it is not the device maker that someone else would expand development.
Development dollars unless they knew that the end of the day, there was going to be a device maker. They would actually wanted to put it in their phone.
Yes, I mean answering that question Walt.
But this is not something I can kind of go into at this time I mean that really.
Goes beyond what we are really capable of saying today, but I don't disagree with you that there obviously wouldn't sign agreements unless there were.
Everyone's view there to be a sizable opportunity in the future.
Thanks, So what is why does someone need a.
Service provider agreement, because if I think about.
AT&T phone and I have got a soft sim.
B using AT&T and my terrestrial network I go to Utah, whatever I can just flip to a soft Sim that's another service provider. So why is.
Why is there a need in this case for a service provider agreement.
So I'm not going to go into the business model that we.
Are anticipating for this but.
We are not the service provider. So anytime we provide service through others. There has to be sort of an agreement on.
How it would be price and how it would be delivered and that sort of thing. So it's more of our agreement with them about how it would be how would be the I understand that.
Presumably a device maker themselves could say hey buy my phone.
And then when it does when it rooms off of the cellular provider that youre using it than me Apple.
Samsung whoever can say this phone is going to work in more places. So why I don't understand why you would need a service provider.
In that context.
I can assure you we need a service provider agreement and so thats why we are negotiating okay.
Just last question on the share repurchase it was it was down obviously.
Given the quarterly results and this announcement is the reason you didn't buy as much stock back this quarter. Because you knew this announcement was coming or is there other kind of factors that went into the share repurchase activity this quarter.
I don't think we're going to go into exactly why and how we do that obviously, that's sort of disclosing but I think.
I think thats, probably all we can say about that.
Okay.
A reason wasn't that weak.
We would've liked to buy the stock at the levels that we saw in June but that wasn't that wasn't feasible.
Why was it more feasible now.
Not going to go into that.
Okay. Thank you.
Yes.
Our next question will come from Hamed <unk> with BW is financial you May now go ahead.
Hi, Good morning, I just wanted to see how comfortable are you with channel inventory how are you managing it and making sure partners arent preordering too much ahead of expected installs.
Yes, that's been an ongoing.
Sort of process that our sales and marketing team has done.
In conjunction with our almost 500 partners.
Obviously been a lot of.
Demand out there for us as you can see much higher than we were expecting at the beginning of the year and we've been.
We've had we've been on sort of allocations for a number of our components a number of our devices really for the last.
Last 12 months or so here.
And while we are catching up we've had to go back and kind of work with each of them individually understanding because a lot of them have supply issues of their own and everything so.
Trying to make sure that we.
We allocated our.
Our devices to places that could matter. The most has been sort of a.
Bit of an art, some science, but a lot of art and a lot of discussions I feel good about how it's gone because our partners are telling us that.
They feel that it's been an open.
Transparent.
Productive sort of process.
We have been catching up in some areas here still still behind and some others could have even better second quarter, but.
<unk>.
We'll be catching up a lot of this through the rest of the year, assuming we don't have any other big supply chain shocks or anything, but we seem to.
I mean, I really outstanding supply chain team, who has done I think a amazing job over the last year of managing.
Quite a complex environment here too.
To be able to continue it.
Equipment level growth through this sort of unprecedented demand.
And.
And manage through all the kind of little issues.
Popping up just due to the.
The normal environment, everybody is having to go through.
Okay and then my other question was on the personal devices.
Is this predominantly still in North America sales process or are you seeing partners come onboard from different geographies.
While it's never been just North America.
North America has been a strong market for us but.
We have partners in Europe , Asia really everywhere around the world.
I was just.
Our partner conference in Europe , and we have a strong <unk>.
<unk>.
And growing group of partners in Europe Middle East.
Definitely I would quite a few and have been growing nicely in Asia.
I forget how many.
Saw the number that we added last year in Asia alone, which is.
Across the region there too so it's a global phenomenon of the partner base that we have.
Okay, great. Thank you.
Yeah.
Our next question will come from Greg Burns with Sidoti and co. You May now go ahead.
Good morning.
The hosted and data payload was up a little bit.
This quarter and it sounded like it was from growth from so tell us. So is there is this like a new.
<unk>.
Is there a new growth opportunities emerging for us to tell us should we expect that line item to continue to grow. Thank you.
Yes, Greg we expect that to grow over time.
Okay.
And then.
In terms of the.
SBA contract what is the timing of.
It sounds like it's not like a straight line.
Revenue realization there.
What is the timing of when revenue.
We should start to see revenue from that.
Hitting the P&L.
It'll be it'll be heavier in the first two years then it will decrease.
The final five years, it gets sort of.
There is a heavy lift in the first couple of years and then it just goes to maintenance in the back five.
And revenues should start flowing.
This quarter like in the third quarter.
Yes.
Yes.
Okay, and then in terms of the timing on sort of just 100, it sounds like you're making progress there, bringing some new applications to market when should we expect to see.
Revenue start picking up from from those.
New applications.
Yes, I mean youre going to see the.
See that flow into both voice and data line as well as the Iot line, depending upon sort of the applications.
CN.
There's a whole bunch of new products that are getting announced all the time in fact I just know Oshkosh is starting this week and there's a couple of our partners are announced.
Announcing some products for the general aviation market built on <unk> 100 technology.
I think youre going to see some consumer devices in the coming quarters that are.
<unk> built around that technology.
Both voice and higher speed data services.
We've said UAV market is.
Number of different partners or <unk>.
After that but that all depends on how the growth of their individual markets go, but there's a lot of excitement about that.
We see.
We see surveillance devices out there just a bunch of applications also a lot of interest in the government for applications.
Alrighty.
All statements military kind of applications as well so it's a broad range, we're starting to see the first.
Revenues already I think thats going to build over time like anything because there is.
There's often a lot of.
Sort of other development required for a very tailored.
Developments around technology.
Like this has never existed before.
We've noticed this in other technologies like push to talk to the other things that kind of grows slowly in the first year.
There are two and then kind of gathers momentum and then really kind of takes off as.
The solutions are well established and.
Sales channels are well established so im expecting this will just be.
No.
It will kind of follow that same trajectory.
Okay.
Yes.
Okay, great. Thank you.
Yes.
Our next question will come from Caleb Henry with.
<unk> analytics you May now go ahead.
Thank you Hey, guys I just had a couple of questions about the relativity launch deal. Thank you had been a couple of years since it was announced.
So you said the launches are happening in 2023.
How many missions do you expect I think this is all the smaller rocket.
Taryn one.
And then the original announcement was for up to six.
And you said on the call. This will be five satellites that are launching so I'm just curious what the logic was behind lunch.
Launching five and keeping one ground sprayer.
Yes, I think you are.
Youre, assuming a little too much there.
We do have a.
A arrangement with relativity for future launches that have been.
Prescribed but the vehicles that we were talking about there can only launch really one of our satellites.
We haven't named the launch provider for our launch in 'twenty three but.
You can probably figure out its five satellites instead of one and that wouldn't necessarily fit their current.
Current profile for the for.
For the launch prior provider you just suggested.
Okay.
The spare launches are not going to involve relativity that.
Well Thats as I said, we haven't we haven't named the launch provider, but I've given you a lot of information to figure that out.
Just haven't decided to name a launch provider yet.
Okay.
And I guess, just one follow up and then I'll, let it go.
Do you still have an arrangement with relativity to launch spares or has that been replaced by this future agreement.
We do have an arrangement still hasnt been terminated it provides for the ability to launch.
Satellites in the future at our discretion, but it was never offered the opportunity to launch, but it didn't require a specific number of satellites for launch and we will still have.
Our spare left after after this launch so we'll see.
Okay. Thanks, Okay.
Our next question will come from Louis Dipalma with William Blair You May now go ahead.
Good morning, Matt, Tom and Ken what an action packed earning.
Earnings call.
Thank you Louie I agree.
Firstly I just wanted to commend.
Tom we're hedging the floating rate debt that I cover another company it was downgraded recently.
Floating rate debt exposure. So that was that was very savvy Tom in your your team.
Going to have to pay them more if you keep that up.
Thanks, Ed.
So again.
Related to.
The the smartphone announcement and in the seven or eight questions that followed are you looking to be exclusive with a smartphone OEM are you going to be open.
Several smartphone Oems.
That's a great question and one I can't really answer at this time, but.
But obviously our goal.
Our goal long term is to address the market as broadly as we can.
Sounds good and and.
In response to.
I think Rick's question.
You mentioned other.
Sumer devices potentially as part of the agreement just broadly.
Is it feasible for the Iridium <unk> technology to be embedded in a device as small as a smartwatch.
Yes first of all this development agreement doesn't cover.
Anything with smartphones as you can.
Can read in the 8-K, but it doesn't it doesn't preclude us addressing other.
Other applications and other devices and.
I cant say definitively because we have not tested it specifically yet that's still to come but it would.
It would be.
Is it seem to suggest what the right antenna et cetera.
As the integration that we see in smartwatch is that yes, our technology is coming from a Leo.
Orbit using the L band.
In technology, we are aware of would be able to address it should be able to address.
<unk> watches and other very small small applications really if it if it's in.
Smart enough chip and the.
The rest of the components.
Allow it.
Obviously, a low data rate.
Can you can make a connection with us.
And the nice thing is they don't have to build a new network to do it either.
Yes.
Sure.
And in terms of the term service provider agreement you already have service provider agreements with Garmin <unk> and other partners such that.
They pay you.
Either a wholesale rate per message per byte or per month and then.
The service provider actually charges, there and customers.
Whatever economic arrangement they set right.
Yeah, that's right I mean, that's how we go to market.
Wholesale supplier, we don't we.
We really don't develop retail.
Prices and we don't deliver the market to end consumer so we always go to market through what we call our service provider agreement and.
And doing so in this kind of area would require the same thing.
It's an arrangement by which.
How is it that we would price what it is that we would be delivering and on what terms and that's just that's just the natural evolution, we do it all the time and stuff to do it in this case as well.
Thanks, Matt.
Ken.
Thanks Louie.
Okay.
Our last question will come from come from Chris Quilty with Quilty analytics.
Go ahead.
Thanks, Matt can you give us the first letter of the name of the company.
Yeah.
Well that was.
That's an appropriate question in any way Chris Thank you.
Second letter you just you didn't think somebody could come up with an original way to ask the question right now.
We can do better.
Alright.
I actually I did have a legitimate.
Technology question, if you can address.
One of the reasons <unk> been so successful integrating with Garmin and GPS devices is because.
The location of your spectrum and its adjacency to GPS signals and the ability to integrate with internal antennas and so from a technical perspective as you look at smartphones do you have the same ability.
We are sort of the existing hardware.
Either chipsets or.
Antennas, which are kind of the two critical components for you to work with another device or.
Does it device manufacturer more likely than not have to do some significant or.
Even minor hardware adjustments to the existing device.
Yes.
It goes into a little bit too much detailed Chris it was a good try though.
Technical question. It is a technical question I would just say that this is something because as you recognize because <unk> been talking about this for the last.
Through three quarters or so at least there has been a lot of work done.
At this point and we feel confident that.
You can make a connection usable connection between smartphones.
And lower orbit satellites, and obviously that shouldnt be a total surprise.
Based on sort of a lot of others, who would love to be in this market as well and by the way I really do expect this will not be.
Exclusive to Iridium I mean, others will want to be in this market, but it's such a huge market that if you can address it in multiple ways. There's a lot of a lot of opportunities to build.
Our new network to support this which I don't know if that will occur, but some have some expect to try.
Can use other existing technologies, but what I feel.
Feel good about is with a truly global network.
<unk>, which is a very flexible system that can be demonstrated over many years to be very adaptable.
And with sort of.
The physics are really pretty good about this right now so.
Honestly won't be <unk>.
Dark device, but.
I think the changes obviously must be manageable because they.
They look they look very promising.
Okay, and so I'll just a couple of real quick questions.
Commercial broadband <unk> have been marching up but you have some mix change in the future with new service products.
Should we generally expect the ARP, who given your your expectation of product shipments to kind of trend up or flat or down just generically.
<unk> 100, right, that's going to go into commercial voice and data and that should be accretive to those rfps are obviously right because it's more it's more data used.
So we think we think in broadband.
<unk>.
The addition of additional service and the replacement of the legacy product open for it should be accretive to those rfps as well.
There's a lot of move movers in that whole broadband area. There is higher ARPA applications coming in like commercial aviation and some.
Some areas that we see.
There are lower.
Sure price products like <unk> 200 that might.
Go into lower applications that might not have ever wanted to as high as <unk> I think that there's a broad range of <unk>, but obviously.
As we moved up from sort of traditional open port lower speed and stuff to higher speed stuff that typically drives higher higher usage and I think we're going to see broad based.
Continued.
I can't tell you exactly where the <unk> will end up in that whole area because it still seems to be fairly early in that whole stage, but.
We like we like the trends we're seeing.
Okay.
And I know this doesn't really impact revenues, but you're.
Your subs your government subs have been kind of trending down and you mentioned the space Force transition do you see a resolution in that and that being a potential driver for equipment sales looking out over the next year.
Well, we've had a lot of positive discussions and know that it's it's a recognized issue.
It is being worked to be addressed.
It's complicated like anything within our.
A complicated environment like the U S government, but they are the fee.
Fee that they want to take more advantage of the contract that they have right now and just have to.
<unk> made some changes to ensure the incentives and other things internally sort of support that they recognize that it's not really demand going down at all.
There is a lot of applications and there are some really big programs coming that could drive.
Significant volumes.
Depending upon their success and how fast they rollout and that sort of thing so.
We are still.
Very bullish long term on our relationship through this contract and through eventually another contract out in the future on sort of our core business as well as continued.
Continued growth in AR.
In broadband.
Other applications as well.
Big demonstration coming out sort of in Asia.
This summer I'm excited to sort of.
Showcase the applications, it's really a broad based set of applications potentially support them as well as many other allied.
Many of their allies and everything so.
It's still a very long term strategic relationship just showing up in subscriber numbers, but Fortunately we have the right <unk>.
Contractual environment that it really doesn't sort of affect the revenue numbers much.
And are you still discussing a separate service contract and is that something we should expect in the near to medium term.
Well, we really.
It's not a specific.
The service will be delivered separately through a number of partners we have.
Signed up now I forget six or so around.
Around six somewhere between five and seven.
Our.
Of our partners, who are now going after sort of a number of different broadband applications some of which we've already.
<unk> come through on the commercial gateway.
As the government gateway, though the increasingly coming through the government gateway, but those will really be.
<unk> terminal per pricing kind of applications.
As it goes so youll see government broadband revenues I think grow over the coming.
Coming years here and add to our broadband revenues that way.
It's not going to be like a contract for a specific thing with the government it won't.
It won't be directly from us to the government, but we'll go through those.
Those designated government service partners.
Gotcha, So right now anytime you do international business it.
Flows through your commercial line, because that's where your partners.
Operate through so you are saying any service business at least for now the way. The business is running is also with.
With the DMD would flow through the commercial line and those partners. Yes. That's correct. It's go through our commercial broadband revenue line.
Okay.
And I do have one other clarification question on on the handset thing in the FD disclosure Tom It had indicated that there is some reimbursement for expenses that we do.
Assume that on a P&L basis, it sort of looks like.
Revenue goes up in R&D goes up and they offset.
So are you talking about the SDA.
No no. This is for the handset.
The 8-K.
Our 8-K, yes.
So that's it.
That's going to be that it'll be in engineering and support.
Revenues and engineering and support costs so.
Okay.
They are the lines that will be affected by.
The 8-K references.
Got you understand okay, great appreciate the.
The color and congrats on a great quarter.
That's great. Thanks, Chris I appreciate it.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Well.
It has been an action packed quarter I appreciate that so it's great to great to be in a good environment. We really are enjoying some strong demand in.
Love the opportunities, we're working on and we will keep you updated on the progress of those accelerators as we've we've described them as and I appreciate you being on the call.
In the third quarter. Thanks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.