Iridium Communications Inc. Q1 2023 Earnings Call

Speaker 1: Good day and welcome to the Iridium Communications first quarter 2023 earnings conference call. Participants will be in a listen-only mode.

Speaker 1: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker 1: After today's presentation, there will be an opportunity to ask questions.

Speaker 1: To ask a question, you may press star then 1 on a touchtone phone. To withdraw your question, please press star then 2.

Speaker 1: Please note, this event is being recorded.

Speaker 1: I would now like to turn the conference over to Ken Levy, Vice President Investor Relations. Please go ahead. I would now like to turn the conference over to Ken Levy, Vice President Investor Relations.

Speaker 2: Thanks, Betsy. Good morning and welcome to our reading's first quarter 2023 earnings call. Joining me on this morning's call are CEO Matt Desch and our CFO , Thomas Patrick.

Speaker 2: Today's call will begin with a discussion of our first quarter results followed by Q&A. The trustees have the opportunity to review this morning's earnings release, which is available on the VEST Relations section of the reading website.

Speaker 2: 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 include statements about our future expectations, plans, and prospects.

Speaker 2: 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.

Speaker 2: 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.

Speaker 2: During the call, we'll also be referring to certain non-GAAP financial measures, including operational EBITDA, proforma free cash flow, free cash flow yield, and free cash flow conversion.

Speaker 2: These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles.

Speaker 2: Please refer to today's earnings release and the Invest Relations section of our website for further explanation of these non-GAAP financial measures and reconciliation of the most directly comparable GAAP measures. With that, let me turn things over to Matt.

Speaker 3: Thanks, Ken. Good morning, everyone.

Speaker 3: Well, as you can see, we're off to a great start in 2023. We're continuing to experience the momentum that's been building over the last few years as we take full advantage of our second generation network.

Speaker 3: Growth in subscribers, service revenues, equipment, and engineering services all remain strong. We're really hitting on all cylinders. And this continues to generate meaningful growth in our pro forma free cash flow, as well as in value for our partners and user ecosystem.

Speaker 3: All this reinforces our expectations for another strong year of sales and growth and partnerships and subscribers.

Speaker 3: On a personal front, it's been a busy few months since our last call with increased travel for industry events, investor conferences, and getting out again to interact with new and existing partners.

Speaker 3: It's been particularly satisfying to see Iridium's profile raised at these conferences, as we are directly in the middle of conversations on key topics shaping the satellite industry, like direct-to-satellite services for smartphones, the ascendancy of LEO networks, in particular for governance of all kinds of proliferated services.

Speaker 3: and the increased penetration of satellite connectivity in maritime, aviation, and other industry segments.

Speaker 3: It also made me happy to hear so many established satellite operators acknowledge what Iridium has known for decades.

Speaker 3: There are natural advantages to operating in low Earth orbit and the ability to connect small mobile assets is an important distinction for us that has global utility.

Speaker 3: For those who have followed Iridium's story over the last five or six years, this is likely not a revelation.

Speaker 3: We have been focused on IoT and commercial applications that leverage our very unique network, and the emerging opportunities on which satellite sector is now focused are a great fit with the reading's constellation architecture and operation strength. In fact, this is what our network was built for.

Speaker 3: A lot of industry focus.

Speaker 3: has been on the new directed device market, Arinin continues to lead the way to connect people wherever they are and to the personal device that they use the most.

Speaker 3: For example, Iridium has more than three quarters of a million ruggedized personal satellite communicators on our network, and that number is expected to continue to grow significantly in 2023.

Speaker 3: These consumer-oriented devices allow users to navigate routes, share locations, send and receive texts, and even secure emergency services via SOS.

Speaker 3: These small, lightweight devices have become a mainstay of outdoor enthusiasts, remote workers, government users, and safety response organizations in recent years, allowing Iridium to drive a compound annual revenue growth of more than 45% from this growing customer segment since 2017.

Speaker 3: ARPUs from these users are relatively low today, but we expect some to adopt our faster reading service IoT technologies to drive additional utility and hire ARPUs in our commercial IoT business line in 2024 and beyond.

Speaker 3: We've also had a great reception for our new Iridium GO exec that we introduced in the first quarter, with over 4,000 in orders booked already. That device expands our Iridium GO line of satellite hotspot devices to connect with smartphones and tablets to provide a richer data connection when on the move and in remote environments. And now a special thanks for our incredible co trapped team here in 3602!

Speaker 3: Best of all, our partners are seeing strong market interest, which underscores longer-term demand for the read and go line of services.

Speaker 3: Success here should also drive higher ARPUs for our voice and data business in the coming years.

Speaker 3: We believe the consumer-oriented satellite segment represents a meaningful growth opportunity for Iridium, confirmed by the growing number of devices on our network. The value of providing highly mobile data services on a global basis is indisputable, and we expect to add to this growth by supporting new satellite-directed device capabilities that are being introduced later this year.

Speaker 3: smartphones. A half dozen smartphone OEMs have already announced they will include Snapdragon satellite in their phones, and we are working with Qualcomm to further expand this list.

Speaker 3: We're excited about the application of Rooning's network for direct-to-device and the potential upside to our growth projections it will create.

Speaker 3: We also see additional opportunities in the automotive industry as well as for applications in the government sector and expect to eventually be relevant in other mainstream consumer devices like computers and tablets.

Speaker 3: Satellite directed device is an example of a technology convergence going on today between satellites and the traditional terrestrial world, but interest appears to be growing and I think the opportunities for satellite solutions are endless.

Speaker 3: We had already seen a lot of convergence within industrial IoT, where many of our partner satellite IoT applications are deployed with cellular connections as well. But expect we'll see even more of this in the future.

Speaker 3: We believe a reading's unique constellation is an ideal platform for this convergence and, best of all, this sector opportunity is incremental to our core business growth, but it's not a material driver of the strong service revenue growth we're forecasting today.

Speaker 3: In our other business areas like Maritime, Broadband, Aviation and Landmobile, we continue to benefit from strong demand and strategic opportunities.

Speaker 3: You can see proof of this in our first quarter performance.

Speaker 3: We continue to take share in the Maritime Broadband Space where a revenue grew 17% year over year in the first quarter and receiving positive channel feedback that keeps us optimistic about the future

Speaker 3: We're hearing from our maritime partners that Starlink is disrupting the traditional B-Sat Market.

Speaker 3: And while they aren't making much margins on this product, most are starting to deploy Starlink when requested by their customers.

Speaker 3: While interesting, this trend has little effect right now on our market expectations.

Speaker 3: As with other VESAT solutions, these partners are deploying a RIDIUM as a companion service with Starlink, and of course, are also deploying this for their GMDSS requirements, as well as vessel monitoring solutions on fishing vessels, anti-piracy and citadel solutions for Babaus and Krustasevd.

Speaker 3: and other diverse applications in maritime.

Speaker 3: We estimate that an arrhythmium terminal of some kind is installed on 4 out of 5 solar-ass class vessels at sea today and calculate that arrhythm is now installed in some kind of solution on about 250,000 ships of all kinds around the world and that number is still growing.

Speaker 3: We also feel very good about the opportunities we're seeing in the aviation market, both in fixed wing and rotorcraft.

Speaker 3: We are already installed on nearly 70,000 aircraft of all types today, including commercial, business aircraft, helicopters, as well as other general aviation aircraft. And that doesn't count all the pilots who take us along as a portable solution for their safety or to take with them when they land. In the aviation market, we're starting to see a transition or expansion from our –

Speaker 3: expecting additional certifications in 2023 of other partners' antennas, as well as the first supplemental type certificates where the FAA approves these terminals onto specific aircraft types.

Speaker 3: We've been waiting for this kind of progress for a long time and look forward to the tail when it can provide for our aviation revenues which should build into 2024 and beyond.

Speaker 3: Of course, I also want to highlight our strong land mobile performance.

Speaker 3: You can see the RPU was up year over year and demand trends continued for equipment and service as we implemented some targeted pricing actions after holding access and airtime pricing stable for several years.

Speaker 3: Subscribe or grow if it's still strong. Do not quite the level of 2022, which was an unusual year with the incremental demand we experienced from the Ukrainian conflict, as well as the handset shortages experienced by our competitors.

Speaker 3: We feel good about the durability of our voice business and now believe the continued growth for PushToTalk and the RhythmGo exec services will help to generate high single digit growth on average for at least the next few years.

Speaker 3: Overall, our business environment continues to be robust and demand for all of our primary business lines remains strong.

Speaker 3: As you can see, we logged another record quarter for equipment sales with orders for handheld devices remaining above trend.

Speaker 3: Based on feedback from our partners, the supply chain of fulfillment issues experienced by our competitors on hands that have continued into 2023.

Speaker 3: We still have our own supply chain issues affecting delivery intervals, but we see the mostly debating by mid-year allowing us to build back our inventory to traditional levels.

Speaker 3: You'll also note that our engineering and service revenues are up substantially in 2023. On the growing work we're doing for the space development agency and building the ground components of their next generation network.

Speaker 3: That's a strategic effort for us and it's going very well, even expanding beyond the initial work, award into new work.

Speaker 3: As we said before, Martin's on his business is low compared to our service revenues, but along with other work for commercial and government customers, it is an important enhancement to our relationships and will further our capabilities.

Speaker 3: Tom will provide additional color on our first quarter results, but I would like to acknowledge the important historical milestone we made on March 30th with the payment of our first ever dividend. We believe paying a dividend is a smart way to generate returns for shareholders in addition to our ongoing share repurchase program, which is also very active in the first quarter.

Speaker 3: Together, the shareholder friendly programs underscored the confidence that we have in our business moving forward and the strength of our enterprise to generate free cash flow. I hope you had the chance to review our latest environmental, social, and governance report which was published in March.

Speaker 3: In it, we highlight our priorities for ESG and speak to our corporate values and culture.

Speaker 3: I believe our activity in the series demonstrates our commitment to being a good corporate steward on what I would call real ESG matters without sacrificing on business performance or business opportunities.

Speaker 3: In fact, our support for the communities in which we operate enhances our position with our employees and new hires and has been welcomed by our partner ecosystem as we demonstrate values that align with their business priorities and interests.

Speaker 3: You'll notice in this year's report some enhancements to our disclosures, which we hope will allow investors to better appreciate with more detail the factors around our social stewardship, priorities, and impact.

Speaker 3: So, as we celebrate this year, the 25th anniversary year of the Readium's initial service launched in 1998.

Speaker 3: We continue to believe that a radium is positioned better than at any other time in our history, both for the evolving opportunities in the satellite industry and with our ability to fund growth and reward shareholders.

Speaker 3: 2023 will be another great year for us with new product rollouts and more exciting announcements.

Speaker 3: I look forward to keeping you abreast of our progress. But that I'll turn it over to Tom for a review of our financial team. Thanks, Matt. Good morning, everyone.

Speaker 3: 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.

Speaker 4: Then I'll recap the 2023 guidance which we reaffirmed this morning.

Speaker 4: We close with the review of our left footed-of-theft assumption and the capital structure.

Speaker 4: The RIDAM continue to execute well, generating total revenue of 205.3 million in the first quarter, up 22% from the prior year's quarter. Operational EBITDA was 111.9 million in the first quarter. This was an 8% increase from last year's quarter and driven by increasing engineering its poor revenue.

Speaker 4: Growth and Service revenue, and another record quarter of equipment sales.

Speaker 4: On the commercial side of our business, service revenue was on 13% this quarter to 112.8 million.

Speaker 4: This increase was broad based and reflected continued strength in voice, IOT and broadband, as Matt mentioned.

Speaker 4: Boys and data revenue rose 17% from last year's comparable quarter to 52.4 million.

Speaker 4: The increase was largely driven by higher ARPU, resented to targeted price changes adopted in the first quarter. We also benefited from strong growth in our push to talk, and a really good services. As Matt noted, the increase in access charges was our first price action in commercial voice since 2018.

Speaker 4: And we expect to be durable keeping our foods in the mid-40s and providing a growth tailwind to boys and data this year. To date, we've been pleased with how the new price has been received by the market. It hasn't meaningfully affected net scribe reditions, demonstrating the value that end users seeing our services.

Speaker 4: Commercial IOT revenue total 32 million in the first quarter, up 12% from the prior year quarter.

Speaker 4: We continue to see all going to demand for personal, satellite communications, an area in which our partners continue to invest.

Speaker 4: and their retail focused products. While these subscribers generate lower R-POO than our traditional industrial IoT users, they remain a very attractive contributor to our service revenue growth and light up the minimal comparative network resources they consume.

Speaker 4: As a result, IOT ARPU was $7.22 this quarter compared to $7.78 in the prior year period.

Speaker 4: We believe this consumer oriented sector will remain a strong driver of revenue and subscribers and believe that the integration of new aridium service technologies into these products will increase data usage and potentially argue too.

Speaker 4: Revenue to commercial broadband grew 17% from the year ago, period to 13.4 million. Supporting this growth was a increase in RPU driven by a mixed shift among maritime subscribers to a Ritium service from our Legacy Eritium Open Port service, as well as market share gains driven by a Ritium service 200 and 700 services.

Speaker 4: Broadband remains an important component of our long-term growth, and we continue to expect it to drive double-digit revenue and subscriber growth in 2023. During the quarter, we added 52,000 net new commercial subscribers, which began predominantly by IoT.

Speaker 4: As a result, commercial IOT data subscribers now represent 79% available commercial subscribers up from 76% in the year ago period. We estimate that consumer oriented plans now account for about half or 1.5 million commercial IOT users. Hosting and other data services revenue was 15 million this quarter.

Speaker 4: in line with last year's comparable quarter. Government service revenue was also stable in the first quarter at $26.5 million, reflecting the terms of our EMFS contract with the U.S. government.

Speaker 4: Subscribe for equipment which has remained at record levels over the last year grew 24% in the first quarter. If demand for hardware supporting our commercial business lines remains robust. Equipment sales were 41.7 million in the first quarter compared to 33.7 million in the prior year period. Engineering and support revenue was 24.2 million in the first quarter as compared to

Speaker 4: which would require basic upon execution and milestone achievements.

Speaker 4: Our first quarter results as well as the trends we are seeing into April allow us to affirm our full-year guidance on service revenue and even done. In support of this outlook, I want to highlight a few items that may be relevant to your models and occasions of a Williams growth this year.

Speaker 4: We remain comfortable with our outlook for service revenue growth between 9 and 11 percent in 2023, in part due to continued strong net activations and revenue growth across all of our commercial business lines. As I mentioned earlier, the price actions for commercial woods will serve as a tailwind this year.

Speaker 4: Given the positive effect of this higher R-POO and considering other favorable trends in this business, we now expect that annual growth in commercial voice and data will average in the high single digits between 2023 and 2025.

Speaker 4: Revenue from our EMSS contract with the U.S. Government will be made steady at 26.5 million per quarter in 2023. There is no increase in the contractual fee schedule this year.

Speaker 4: The next step up will occur in 2024. Equipment sales set another record this quarter as demand for our satellite handsets in all our products remains elevated. Based upon current partner orders, we continue to believe that hardware sales in 2023 will be in line or even possibly exceed 22's record level.

Speaker 4: When the expense of the ledger, we continue to forecast higher costs related to stock based compensation and new employee hires as we upgrade and retool business systems.

Speaker 4: These dynamics resulted in a 48% increase in the SGA in the first quarter, which we expect to moderate in the balance of the year. You recall that SGA grew over the course of 2022 with first half expenses at $54.8 million and second half expenses at $68.7 million.

Speaker 4: Accordingly, we expect the second half of 2023 to be much more in line with 22 expenses and continue to forecast that 12-year 2023 expenses will be up by about 20%. R&D will also run higher in 2023 as our team supports a number of new products coming to market. Region.

Speaker 4: We feel very good about the broad-based growth we are seeing across our businesses and believe that the incremental expenses we will have in 2023 are appropriate and necessary as our business continues to grow. Take it together, please trend to allow us to reiterate our forecast for service revenue growth between 9 and 11 percent.

Speaker 4: an operational EBITDA between $455 million and $465 million this year. Moving to our capital position, as of March 31st, a RIDIM had a cash and cash equivalent as balance of $126.6 million. RIDIM's robust cash flow is one of the reasons that our board continues to support our sharing purchase program.

Speaker 4: and initiated a quarterly dividend program. As Matt noted, the Grittium's Board initiated a quarterly dividend in December 2022, and on March 30th we paid a dividend of 13 cents per share. Grittium's dividend program will allow for the return of approximately 65 million of cash commonholders in 2023 and reflects our confidence in our business opportunities and strong free cash flow generation. In the first quarter of 2023, the RIDium also purchased approximately 900,000 shares of common stock in an average price of $59.84. For a total of 53.1 million.

Speaker 4: Since the end of the quarter, we've brought back an additional 500,000 shares for a total of 29.4 million, leaving us with 97.1 million of capacity upstanding on our share repurchase program. We will continue to execute on our buyback program, balancing our objective for deleveraging with the desire to maximize return on investment. In the first quarter, we also increased.

Speaker 4: are invested in to tell us by tech and they raise additional capital to expand their commercial business.

Speaker 4: To tell us the satellite time and location service continues to have relevance to commercial partners and governments who seek a complement to GPS and other GNFS services, which are susceptible to interference and smooth being.

Speaker 4: To tell us his offering leverage is a really global consolation to protect critical national infrastructure and assured PNT solutions and will remain very optimistic about their unique offering and this is opportunity.

Speaker 4: The reading of the net leverage was 3.2 times the end of the first quarter. This was down from 3.5 times a year earlier, even when factoring ends are sharing purchase and dividend activity during the first quarter. Our long-term target for net leverage continues to be between 2.5 and 2.5. The net leverage continues to be between 2.5 and 2.5.

Speaker 4: and 3 1.5 tons of EBITDA at the end of 2023. Inclusive of quarterly dividends and giving it back to all outstanding chair, by the X-Walks Rise Fire Board.

Speaker 4: Capital expenditures in the first quarter were $22.9 million, including one time spending of approximately $11 million, related to this year's plan launch of spare satellites. As we noted on our fourth quarter call in February , we expect annual capital expenditures over the forecasted 10-year capital holiday period to average.

Speaker 4: $156 million. Excluding a launch-related cost, 2023's half-books benefit interest should fall online at this long-term forecast.

Speaker 4: Turning to our ProFormer Free Cash Flow, we use the midpoint of our 2023 EBIT dog guidance and back off 75 million in net interest, approximately 75 million in cat backs for this year, and 14 million in working capital, inclusive of the appropriate posted payload adjustment, we're projecting ProFormer Free Cash Flow at almost 300 million dollars.

Speaker 4: These metrics represent a conversion rate of either adopt a pre-cash flow of 64% in 2023 and a yield of approximately 4%.

Speaker 4: The more detailed description of these cash flow metrics along with the record affiliation to GAT measures is available in our supplemental presentation under events on our Investor Relations website. In closing, the RIDIM continues to benefit from our robust operating environment and strong demand for our equipment and services.

Speaker 4: We plan to return capital to our shareholders, fund new projects, make strategic investments, and are looking forward to the launch of 5 Grounds Bears next month. We think this quarter is a good reflection of the Rydian game plan.

Speaker 4: generating strong operating results, returning capital shareholders, and making strategic investments that position us for future growth. With that, I'll turn things back to the operator for the Q&A. We will now begin the question and their session.

Speaker 1: To ask the question, you may press star then one on your touchtone phone.

Speaker 1: If you are using a speakerphone, please put up your hands ethical press and the keys. Is it 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.

Speaker 5: The first question comes from Rick Prentice with Raven James. Please go ahead. Thanks. Good morning, everyone. Good morning, Rick. Obviously, a strong start to the year. Have a couple of questions. Obviously, one of the bigger areas that people are trying to focus on is the directive device opportunity. I could have been better at a larger fist, but I'm personally fine with not having that technology required. Did or what would() you do if I were to fix my previous problem and once I come around

Speaker 5: Can you help us understand? I know you've said there's not going to be much meaningful impact on the service revenue side this year from Directive Device. But have we seen some Directive Device already showing up? It seems like the engineering and support levels that got reported might have already had some in there. So just trying to gauge when will you break out kind of Directive Device as a...

Speaker 4: as a category and have we already seen some to date. So yeah, if you look at our Q-RIC, we say that the commercial engineering and support increase is principally directed device or all-con relationship. Applause.

Speaker 5: Okay, makes sense. And then how long should that development fee kind of concept continue? Is that something that can run for several more quarters of this year? Does it run into next year? We'll see. We don't expect it currently, but we'll see. There's opportunities for additional, but time will tell.

Speaker 5: Okay and then the royalties start kicking in that will go would that go into that same line item commercial engineering support?

Speaker 4: The vast majority is going to be in service revenues. Initially it will be in host to pay with another and then when it gets big enough we'll likely break it out.

Speaker 5: So royalties would go into hosted payload another.

Speaker 5: and then maybe break it out. Okay. Obviously, about people who are watching IoT, our proves as well, you called out that you've...

Speaker 5: I've seen obviously the mix change, but maybe service can help. How should we think about the current ARPUs in that personal communication area? Is that kind of mid-single digits? And as we think of direct device, it feels like that service might be priced a little bit underneath it given what that will bring to the market. Is that fair thinking?

Speaker 3: All right, followed that last part of your question, Rick. You said...

Speaker 5: What is priced underneath the market? So the current personal communication devices should be, think that's kind of a mid-single digit arpoo. As we think of directed device coming online, is that something that would be an arpoo below kind of personal communication device arpoo?

Speaker 3: Yeah, it would be below, you're right, roughly in terms of what personal communications are, maybe just slightly below mid-level, single digits, but yeah, it would definitely be below that level.

Speaker 3: Okay, and I'm flaccid for me. I get a lot higher, you know, so that I'm assuming.

Speaker 3: Okay, and I'm talking for me. I get a lot higher, you know, so that I'm assuming Be part of it. Yeah

Speaker 5: A price time's going to be a lot of quantities. Okay, and the last one for me, I appreciate all the questions. The pacing in the quarter of stock buyback ramped up significantly and March sounds like you've done a good bit in April . How should you think about how you look at that shareholder return equation and putting money to work on the stock buyback? What's the lever that says, okay, now it's time to put more of the free cash flow production into the buybacks? Is that free? You can.

Speaker 4: So our algorithm is we want to return to where we think appropriate return to where we think intrinsic value is and we execute on the buybacks when we think the return is appropriate.

Speaker 1: Okay, great. Appreciate all the answers. Everyone do well. Okay, thanks, Rick. The next question comes from Landon Park with Morgan Stanley . Please go ahead. The next question comes from

Speaker 2: Very good morning everyone thanks for taking the questions. I wanted to begin on the voice and data segment that's obviously been a pretty surprising source of upside over the last year or two here. Can you maybe disaggregate that high single digit growth target that you're laying out and maybe just double a little bit more into what gives you the confidence that the current trends can continue out a couple years and even if we potentially have to lap. and

Speaker 2: or, you know, comp against this Ukraine benefit reversing at some point. And just on that, maybe if you could size what you think that Ukraine benefit has been and how you're thinking about that moving forward.

Speaker 3: Well, maybe Tom can talk to the Ukrainian better, which I think in the biggest scheme is kind of small overall. But we have for the last several years seen strong demand for our handsets. There is a competitive dynamic there. It appears, you know. And it appears, you know, it appears, you know, it appears, you know.

Speaker 3: It's definitely sort of outlasted everyone in our service that seem to be appreciated more than anyone else's and

Speaker 3: and have a very strong position in the market that we've been appreciating for a while. We clearly have a, as you can see, we've finally sort of announced a price increase this year. It's a price increase by the way we've been planning for a long time. I know there were a number of questions and previous calls over.

Speaker 3: Our ability to do that and we, certainly felt it was an appropriate time after not having done that for, you know, good four or five years, marketing to not be affected very much in terms of that. They still, the demand for our devices remains, continues to remain high and our partners.

Speaker 3: have told us that they see long-term demand and are almost working in a very high way with us versus anybody else at this point. So all those things, in addition to new technology, things like GoExec, things like PushToTalk, all those are now giving us kind of a visibility for the next couple of years.

Speaker 3: this was clearly a strong steady, low single digit kind of grower, but I think that the market dynamics and demand and technology have all given us a lot of confidence now that that that is not going to be that for the next couple of years.

Speaker 4: I would just amplify Matt's remarks. So in 2023, you just do the math on where the ARP through that I've indicated is going to be a solid double digit grower in 23. So the guide is intended to have, however you think about 24 and 25, you put the three together or the average annual rate, we think it's going to be high single digits. And that takes into account all of the dynamics that Matt referenced. So we think this segment is more growthy than it had been for a decade. And then we said that one.

Speaker 4: We've observed the results last year and we think they go and push to talk or that is an ongoing benefit. That changes the complexion of this segment. And then there are competitive dynamics that are hard to predict really. But what we're observing in our handset sales, et cetera, give us confidence to put that guide out of.

Speaker 3: seen that this year and so all of our guidance is really relevant to sort of a...

Speaker 4: You know a reversal of that already Well, you're laughing and I you're getting but it has it come out of the base I guess it was more than quite I wouldn't say it come out of the base. We didn't see the ads so so if you look if you look at commercial voice and data Net ads in the first quarter look it look at it for the past five years

Speaker 4: last year's first quarter jumps off the page. So clearly we got a bump in ads last year. And the stuff that's come out, but you didn't get the activation occurred and there's still being used, but there's no bump in activation. Just to the extent that it could reverse it, you actually reverse out at some point, what can you are you able to talk about the magnitude? So just.

Speaker 4: So on the RPU, I just wanted to keep, I might have missed your comment. Can you clarify the size of the pricing action? Yes, so we've said that RPUs are going to be mid in the mid-40s. So that's four bucks five. We've been running. And that's durable, notwithstanding. So, we've been running.

Speaker 3: Ukrainian reversal. And the magnitude of what that would look like reversing out? Well, the number of devices in Ukraine still, you know, increment, that was all returned off immediately would be, I mean, less than a percent of our of our...

Speaker 2: of our base, probably less than a percent of our base. So that's not really, really driving our results at all at this point. Understood. That's very helpful. And then just two more if I could. Your primary geo competitor has had an outage recently in the APAC region. You talked about the value of...

Speaker 2: Leo and Pearl afraid, Leo design up top. Can you talk about if you think there might be some sort of competitive impact of that outage and I don't know if you've heard anything, it's obviously a fluid situation. Anything you can comment there?

Speaker 3: We haven't heard anything more than anyone else publicly has. I would say they've made public statements about that and there has been.

Speaker 3: probably a focus in the Asia-Pacific region after that happening a couple times there on our services and may have a positive.

Speaker 3: impact going forward. I think it highlights the difference in our architectures. We haven't had any kind of satellite outages, but if we did, satellites move around the planet in the Leo. So quickly, it would never have this kind of impact on any region that would have really little, literally minutes at any one point.

Speaker 3: on Earth during the day. So, and we obviously have a lot of spare satellites and more coming even next month. So, I think our brand is resiliency and quality and high level of service and will...

Speaker 2: Continue to focus on that. No, perhaps it will be benefits there. Just one last one on direct device. The Royal T Payments associated with the future unit sales, is that? Should we expect that to be something below like 50 cents per unit? Or are you able to ride any color there in terms of what that will look like on a per unit basis?

Speaker 3: Yeah, we really aren't exposing our contracts at this point yet. You know, we don't even have the first units and service that will happen in the coming months. No, when I think sometime in the future, you'll hear more about that, but you know, really trying to give you a range or something would be.

Speaker 3: Really inappropriate this time, that would just be too much information early at this point.

Speaker 2: Understood. Thanks for taking all the questions. Yeah. Thanks, Lynn. The next question comes from Hamed Corpense with CWS Financial. Please go ahead. Good morning. Could you first talk about your comments about the different...

Speaker 5: vertical tandens that you're looking at auto, you know, particularly, you know, is that happening now or is that just a conversation? Where does that stand from a revenue opportunity for you?

Speaker 3: We're working in the details and planning and discussions and given that the technology work is.

Speaker 3: You know, largely completed at this point because the integration has been in and tested and has been integrated with smartphones. It wouldn't take long essentially to implement the technology into automotive. What's different about automotive though is those design cycles for...

Speaker 3: for cars are quite long and so I don't know how long it would take for snapdragon satellite to enter in the automotive space, but I doubt that it will impact revenues nearly as fast as the smart phone industry just on how that kind of design would happen. So I think that's a few years away. You know, it's just...

Speaker 3: We're just giving highlights, a sort of upside to this technology integration and the fact that we have selected such a strong and strategic partner here that we're working with who has broad-based capabilities in other industries as well.

Speaker 5: Okay, and then my other question was on the IoT side, then number of additions this quarter was I think approximately 38,000, which is, you know, it seems like it's slowing down. Is that purely because of, you know, consumer, you know, spending changes, or is that, you know, partners delaying new product introductions?

Speaker 3: No, that's just seasonality. The first quarter is slower, the first and fourth are slower, second and third are stronger. I don't think your numbers are right. I think it's more like net billable subscriber ads were 53,000 in 23 versus 50,000 last year. So it's actually up a bit.

Speaker 3: Each quarter is hard to validate within a few thousand exactly how many they'll be. We have so many different partners and so many different segments. I don't think you can read much into the first quarter results either way.

Speaker 3: As each quarter is hard to validate within a few thousand exactly how many will be. We have so many different partners and so many different segments. I don't think you can read much into the first quarter results either way. Okay. Thank you.

Speaker 1: Next question comes from Louis DiPomo with Williams Blair. Please go ahead. Matt, Tom, and Ken, good morning.

Speaker 6: Good morning, Joey. For Matt and Tom, at the Barcelona conference, Qualcomm announced that it will make Snapdragon satellite available for, I believe, mid-tier Snapdragon 4 devices.

Speaker 6: in addition to the previously announced Snapdragon 8 high-end premium devices. And last quarter you provided a 10.

Speaker 6: estimate of around 80 million to 100 million phones a year and I was wondering how is that?

Speaker 3: impacted with the potential inclusion of Snapdragon 4 devices that may incorporate the satellite feature? Well, I mean our view of from what we understand there's a lot more of those mid-tier Snapdragon devices being shipped to

Speaker 3: satellite phone manufacturers, and there are high-end ones that we've already sort of described, so the opportunity is quite large. It will just depend.

Speaker 3: on how many phone manufacturers decide to adopt a technology. Our hope would be high because it's not incrementally a lot to necessarily do that. I think most of the focus really on late 23 and 24 introductions will be at the high end.

Speaker 6: I do see long term that that will expand. Great. Thanks, Matt. Matt, are you able to say if the royalty rate for

Speaker 6: The mid-tier Snapdragon 4 devices is lower than the royalty rate for the premium Snapdragon 8 devices or is that still in negotiations.

Speaker 6: It's totally premature to talk about either relative levels or actual levels of rail piece of any sort at this point. Sorry. No problem. That's completely understandable. And for Tom, you referenced higher R&D.

Speaker 6: this year, I think for new devices, is that R&D to support the Qualcomm partnerships such that are a RIDIUM software developers and a radio frequency engineers actually working on that or is this higher R&D?

Speaker 6: to support other new devices perhaps in the consumer IoT sector. I would say other devices in the consumer sector and generally.

Speaker 3: Yeah, we just we feel there's a lot of opportunity right now for a medium and you know given our success and growth you know we have a long list of.

Speaker 3: things that we want to develop both in our, that require both work on the ground and big ways, work in cloud, work in device, work.

Speaker 3: There's just a lot of opportunities and so have expanded our investment because we believe it's the right time to do that because we believe we can support it in our growth projections.

Great. Tom, did you also say, as it relates to the IOT RPU, that there might actually be expansion going forward, or did I miss hear that?

We said that the service functionality should drive higher data usage, which would drive higher car boost load.

Okay, and for those certists, would that be for consumer devices? Yeah, I think it was a garment device pushing pictures that's higher use than the tire orpook. Okay. Yeah, we do know that there's been some adoption amongst our partners and they have they have plans to.

know, just that use more narrowband technology, but it's obviously a positive long, long very long.

that use more narrowband technology, but it's obviously a positive long, long wind on our

Great. Thanks. That's it for me. Thanks, Lloyd. As a reminder, if you would like to ask a question, please press the bell. Gaur, send one to be joined into the question queue.

This concludes our question. It looks like we have a follow-up from Rick Prentice from Raymond James. Please go ahead.

Yeah, thanks. Hey, there's a few minutes left on a busy earnings day. Have it be remiss if we don't ask the recession question or economic condition question? Are you seeing any impact out there globally as far as what the macro market is or is just the demand for the product still just super strong? Well, I don't think we've seen any...

big impact whatsoever. We just held our first partner conference in a number of years here in California a couple weeks ago. I'd say the enthusiasm of our 500 plus partners is as high as I've ever seen in the future. There was no ringing of hands in any specific market segments. I keep looking for.

You know, particularly things like the consumer type segment to possibly be affected in different places and hard to see those trends yet, but I think we're.

a great time in the world and we didn't see a lot of impact then. It was kind of experience sort of regional market downturn. And I think our in ecstable like services like Aridium are very valuable services. They're ones that you know critical to life that sort of thing.

of your interest costs.

Well, you know, we're we're we have a billion dollar cap on our so we're we're hedge for a billion dollars. We paid down a hundred million and so we're you know we're we're building about it correct but we feel like we've contained our exposure to interest rate and and we're I think by about line what we're going to do we're going to continue to buy in the shares.

they're investing in their uh...

Marshall Data Services business and there's seen traction there, you know, I believe that's a long-term opportunity. As you're starting now, the air traffic has come back to more normal levels that both have a lot of air traffic disorders.

kind of increased their revenue levels, but also has started to get some other markets moving in terms of adopting their air traffic control services. So I would say most of the positives over there. And Tommy mentioned an investment by y'all and just to tell us I missed that number. What was the investment? Ten million, right?

levels but also has started to get some other markets moving in terms of adopting their air traffic control services so I would say most of the positives over there. And Tommy mentioned an investment by y'all and just to tell us I missed that number was the investment. Ten million. 10-1-0.

One zero. Okay. Great. Thanks, everyone. Stay well. The next question is a follow-up from Landed Parks with Morgan Family. Please go ahead. I just wanted to ask about the service aviation products. I mean, now that those are coming into the market.

I was wondering if maybe you could remind us of the TAM that you see there on the commercial plane front for the larger service products. I seem to remember pricing being quite, or at least pricing expectations at your analyst day were quite high, I think $600 plus. Is that still the right range to think about there?

It's a little too early to project, because they don't... Our partners don't have commercial expectations for the service product line versus others. We know it should be higher, because there's more data and more service through it. The initial applications are going to be primarily in... for the broadband product.

a lot of interest in the midband products.

in road or craft, and then in drones, that's still a very early market segment, but very positive in terms of just the activity and unmanned aerial vehicles. So we're at a really early stage of that. I'm really happy that we got two terminals and more coming. We're hearing about their wins with specific platforms and the FDCs that they're...

I wouldn't say fast, but it's going to take time, but I think we're going to start seeing a few thousand as the year there, which will add to that roughly 70,000 aircraft installed with better arches than we've seen before. And the safety version of those products, which is what they're really looking for, come towards the end of this year and that end of the next year. I was flight trials and that sort of thing.

2024 and beyond to be more in the cards for you guys in terms of

to be more in the cards for you guys in terms of expanding your EBITDA margins.

So, the operating leverage is intact, right? So, if you look for the variable cost to produce an incremental minute of use, it's really kind of hard to find. So, the operating leverage is intact. I agree with you that SDA kind of, you know, because the SDA contract is so big, is relatively big and lower margin, it appears that there's, you know, a lot of problems with the operating leverage.

that the EBITDA margin has decreased, but that is not because the operating leverage isn't in the business. The same fundamentals of the cost to produce an incremental minute are intact, and we will continue to grow EBITDA as to our service business.

as service revenues grow, EBITDA should grow. That's true of equipment too, which is a lower margin, but has increased dramatically over the last two or three years. This is all positive. It all falls to the bottom line and generates cash for us, so it's a good thing. The 1% SG&A growth this year and last year.

question is a follow-up from Louis D'O'Pomme with William Blair. Please go ahead. Hi guys. I have a question in terms of why have your satellite phone competitors experienced major supply chain issues, but it doesn't seem to have really impacted.

Yeah. You know, I have my own personal ideas about that. I'm not sure it's appropriate for me to describe, you know, my competitors issues or problems. I think their businesses is smaller. I think they perhaps outsource more of their technology to others and so they don't have quite the...

supply chain control over the situation that we do. I can only speak to the excellent work my team does. We've been doing this longer than anyone has. We have more breadth of experience, perhaps. I really think I more would rather focus on sort of the positives of what we've done. It looked a little scary, I would say, you know, a year, year and a half ago as we were

really hard and maybe our volumes are higher.

and drives higher priorities from suppliers than maybe others do. But I think we're on top of it now. I think it's pretty much over from almost all products, certainly phones. And I remember during that whole time in our case...

I mean, we had the incremental challenge of higher demand. So we were grabbing all the demand of others, was being poured onto us just at the time we were working through those challenges. So that was an additional complexity we had to work with. But I just owe it to the expertise and competency of my team more than anything else.

I'd just amplify that to Matt to say, like, our satellite phone business is highly strategic to us. We are not reluctant at all to invest in safety stock in support of that business. It's unclear that our competitors feel the same way about their handset business as we feel about ours.

Great, thanks Matt and Tom. And also earlier this year you launched the Iridium GO Exec, which seems like a really exciting device. What has been the initial feedback?

the go exact from your your channel partners and Does the the service revenue for that product does that go in the commercial voice and data? Reporting segment or does it go into the the IOT reporting segment?

Yeah, it goes into commercial voice and data. As far as reception, very, very high. You know, it's a unique product. There isn't anything sort of supplying that speed on a portable battery-powered basis that allows a smart tablet to do more than just connect with just...

texting, I mean it allows higher speed services, it allows email. I was using it myself the other day on a...

Along multiple voice lines, it's extremely flexible, has open interfaces. So we're seeing application providers start to adapt their products to it so that they can drive specific applications, which means they're going to be selling the product as well. So I think we announced today that there are 4,000 orders, which I thought was very, very positive for a very first field of channels and people. We've even had some reorders already.

Thanks, everyone.

Thanks, everyone.

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Yeah, obviously we'll see you again in July , but I'd.

remind you that we're scheduled at investor day in New York on September 21st. I hope you all can join us there because we are planning to provide more details about what makes us confident in our longer-term projections and how we think our long-term model looks like and why we believe our growth projections are the way they are.

Join us then, we'll look forward to seeing you, but thanks for joining us on this call. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.