Iridium Communications Inc Q3 2023 Earnings Call

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Yeah.

Speaker 1: Good morning, everyone, and welcome to the Iridium Communications third quarter 2023 Earnings Conference call. All participants will be in a listen-only mode. Should you need assistance, please say no a conference specialist by pressing the star key followed by zero.

Good morning, everyone and welcome to the Iridium Communications' third quarter 2023 earnings Conference call.

All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

Speaker 1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using your touch-tone telephones. To withdraw your questions, you may press star and two.

I ask a question you May press Star and then one using your Touchtone telephone.

Draw your questions you May press star and two.

Speaker 1: We also know today's event is being recorded. And at this time I'd like to turn the floor over to Ken Levy, Vice President of Investor Relations. Sir, please go ahead. Thanks, Jamie. Good morning and welcome to Aridium's third quarter 2023 earnings call. Joining me on this morning's call are CEO Matt Dash and our CFO Tom Fiss-Patrick.

Also note todays event is being recorded.

I'd like to turn the floor over to Ken Levy, Vice President of Investor Relations. Sir. Please go ahead. Thanks.

Thanks, Jamie Good morning, and welcome to Iridium third quarter 2023 earnings call. Joining me on this morning's call are our CEO , Matt Desch, and our CFO Tom Fitzpatrick.

Speaker 2: Today's call will begin with the discussion of our third quarter results followed by Q&A. I trust you've had the opportunity to review this morning's earnings release, which is available on the investor relations section of Iridium's website.

Today's call will begin with a discussion of our third quarter results followed by Q&A I Trust you've had the opportunity to review this morning's earnings release, which is available on the Investor Relations section of our ratings website.

Speaker 2: Before I turn things over to Matt, I'd like to caution all participants that our call today may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Before I turn things over to Matt I'd like to caution all participants that our call today may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 995.

Speaker 2: Forward-looking statements are statements that are not historical fact and include statements about our future expectations plans and prospects

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.

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 monitor walk.

Speaker 2: 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.

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 what we may elect to update forward-looking statements at some point in the future. We specifically display any obligation to do so, even if our views or expectations change. During the call, we'll also be referring to non-GAAP financial measures, including operational EBITDA, Proformer Free Cash Flow, Free Cash Flow Yield, and Free Cash Flow Conversion. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles.

Any forward looking statements represent our views only as of today and while we may elect to update forward looking statements at some point in the future. We specifically disclaim any obligation to do so even if our views or expectations change during the call. We'll also be referring to non-GAAP financial measures, including operational EBITDA pro forma free cash flow free cash flow year.

And free cash flow conversion. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Please refer to today's earnings release, and the Investor Relations section of our website for further explanation of these non-GAAP financial measures as well as a reconciliation to the most directly comparable GAAP measures with that let me turn things over to Matt.

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, as well as a reconciliation to the most directly comparable GAAP measures . With that, let me turn things over to Matt. Thanks again.

Thanks, Ken.

Morning, everyone.

Speaker 3: I know that many of you joined us for our investor day less than a month ago, where we laid out our strategic growth objectives through 2030. We remain very excited about our business opportunities and bullish about our ability to grow revenues and generate meaningful cash, free cash flow for our business and investors.

I know that many of you joined us for our Investor day less than a month ago, where we laid out our strategic growth objectives through 2030.

We remain very excited about our business opportunities and bullish about our ability to grow revenues and generate meaningful cash free cash flow for our business and investors.

Speaker 3: For those who may not have had the opportunity to listen to our investor day remarks, I would highlight our expectations that a RIDIUM will generate about 1 billion in annual service revenue by 2030 and have the capacity to generate approximately 3 billion in shareholder returns during this seven year period.

For those who may not have had the opportunity to listen to our Investor day remark I would highlight our expectations that iridium will generate about 1 billion in annual service revenue by 2030 and have the capacity to generate approximately $3 billion of shareholder returns during the seven year period.

Speaker 3: During the program, we talked about our confidence in a really strong business position and ability to grow revenues and subscribers. You certainly saw that in our results today.

During the program, we talked about our confidence and iridium strong business position and ability to grow revenues and subscribers.

Certainly saw that in our results today.

Speaker 3: This outlook is based upon the ongoing strengths of our core business lines, and a number of growth vectors we will leverage through the end of the decade to support business expansion while maintaining our cap ex-holiday.

This outlook is based upon the ongoing strength of our core business lines and a number of growth vectors, we will leverage through the end of the decade to support business expansion, while maintaining our capex holiday.

Speaker 3: Despite market uncertainty about broader economic growth, the audience financial stability continues to strengthen. Just before our investor day, we completed the refinancing of our TermLone B, which lowered our interest rate and extended the maturity of our credit facility by four years to September 2030.

Despite market uncertainty about broader economic growth Iridium financial stability continues to strengthen just before our investor day, we completed the refinancing of our term loan b, which lowered our interest rate and extended the maturity of our credit facility by four years to September 2030.

Speaker 3: In light of all the competitive challenges in the satellite industry this year, Aridium continues to be a standout not only for our ability to grow revenues and subscribers, but also for the health of our network and ability to grow organically without the need to buy a new platform or merge with competitors.

In light of all the competitive challenges in the satellite industry. This year Iridium continues to be a standout not only for our ability to grow revenues and subscribers, but also for the health of our network and our ability to grow organically without the need to buy a new platform or merge with competitors.

Speaker 3: We do understand that investors would like more information about forecasting new directed device revenues from our partnership with Qualcomm.

We do understand that investors would like more information about forecasting new director device revenues from our partnership with Qualcomm.

Speaker 3: Adoption of the service by manufacturers is slower than Qualcomm originally projected, but we continue to believe that a ridium will be a player over the coming years in smartphones, automobiles, and other consumer products.

Adoption of this service by manufacturers is slower than Qualcomm originally projected but we continue to believe that iridium will be a player over the coming years, and smart phones automobiles and other consumer products.

Speaker 3: In the meantime, as you can see from today's financial results, we are growing well in all our commercial business lines and continue to expect to do so.

In the meantime, as you can see from todays financial results, we're growing well in all of our commercial business lines and continue to expect to do so.

Speaker 3: One area of business momentum has been an engineering revenue, particularly with our growing business with the space development agency in the US government.

One area of business momentum has been in engineering revenue, particularly with our growing business with the space development agency in the U S government.

Speaker 3: I'm sure you also saw news last month of Iridium's involvement in the Space Force's proliferated LEO program.

I'm sure you also saw news last month of Iridium <unk> involvement in the space forces proliferate a Leo program.

Speaker 3: This program supports DOD's rapid response efforts and positions of Riddium's broadband services to be a core capability for the war fighter, even as new government funded satellites deploy, for which Riddium will provide the ground operation support as well.

This program supports Dod's rapid response efforts and positions Iridium <unk> broadband services to be a core capability for the war fighter, even as new government funded satellites deploy for which iridium will provide the ground operation support as well.

Speaker 3: I should also point out that we made another quarterly dividend payment on September 29th as we continue to return significant capital to shareholders.

I should also point out that we made another quarterly dividend payment on September 29th as we continue to return significant capital to shareholders.

Speaker 3: The Board's confidence in our business prospects and commitment to capital returns is visible in their expansion of our share repurchase program where they added a $400 million authorization earlier this summer and extended the program through 2025.

<unk> confidence in our business prospects and commitment to capital returns is visible in their expansion of our share repurchase program, where they added a $400 million authorization earlier this summer and extended the program through 2025.

Speaker 3: So given that you've heard a lot from me and my team with the investor day a few weeks ago, I'll keep my prepared remarks short today to allow more focus on your questions.

So given that you've heard a lot from me and my team or the Investor day, a few weeks ago I'll keep my prepared remarks short today to allow more focus on your questions.

Speaker 3: We take great pride in the way our business is performing, adding new partners and their new applications that drive growth and support our free cash flow. Like our past, our future will be based on continued strong execution and capitalizing on what we do best.

We take great pride in the way our business is performing adding new partners and there are new applications that drive growth and support our free cash flow like our past our future will be based on continued strong execution and capitalizing on what we do best So let me turn the call over to Tom now for a review of our financials.

Speaker 3: So let me turn the call over to Tom now for a review of our financial.

Speaker 4: Thanks, Matt, and good morning, everyone. I'll get started by summarizing our key financial metrics with a quarter and providing some color on the trends we're seeing in our business lines. Then I'll recap the 2023 guidance we updated this morning and close with the review of our liquidity position and capital structure. Auredium continued to execute well in the third quarter, generating total revenue of 197.6 million, up 7% from the prior year's quarter.

Thanks, Pat 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 the 2023 guidance, we updated this morning, and close with the review of our liquidity position and capital structure.

Iridium continued to execute well in the third quarter generating total revenue of $197 6 million up 7% from the prior year's quarter.

Speaker 4: The improvement reflects ongoing growth in our commercial business lines and strength in engineering and support revenue.

The improvement reflects ongoing growth in our commercial business lines and strength in engineering and support revenues.

Speaker 4: Operational EBITDA hit a record 121.3 million in the third quarter. This was up 12% from the prior year's quarter driven by strength across all commercial business funds and engineering and support revenue.

<unk> EBITDA hit a record $121 3 million in the third quarter. This was up 12% from the prior year's quarter driven by strength across all commercial business lines and engineering and support revenue on the commercial side of our business service revenue was up 12% this quarter to $125 5 million growth was broad based and.

Speaker 4: On the commercial side of our business, service revenue is up 12% this quarter, 225.5 million. Growth was broad base and reflected continued momentum. Commercial voice in data revenue grew 5.9 million or 12% in the third quarter to 56.2 million. The increase was largely driven by the price changes we implemented earlier this year. To date, we've been pleased with how the new pricing has been received and expect that voice output this year will remain in the mid 40s.

It reflected continued momentum.

Commercial voice and data revenue grew $5 9 million or 12% in the third quarter to $56 2 million. The increase was largely driven by the price changes we implemented earlier this year to date, we've been pleased with how the new pricing has been received and expect that voice <unk>. This year will remain in the mid Forty's.

Speaker 4: In commercial IOT, we continue to benefit from demand for personal satellite communications. Revenue rose 14% from the prior year quarter to 38.5 million, with a shifting mix of subscribers resulted in IOT, RPU, $7.90 during the quarter. As I've discussed before, we like this growing business and the service revenue it generates relative to the network resources it consumes.

In commercial Iot, we continue to benefit from demand for personal satellite communications revenue rose, 14% from the prior year quarter to $38 5 million with a shifting mix of subscribers, resulting in Iot or <unk> of $7 90.

During the quarter as I've discussed before we like this growing business in the service revenue it generates relative to the network resources. It consumes commercial Iot subs grew 18% from last year's third quarter fueled by 89000 net new additions. This was one of the biggest increases in our history.

Speaker 4: Commercial IoT subs grew 18% from last year's third quarter, fueled by 89,000 net new additions. This was one of the biggest increases in artistry. IoT data subscribers now represent 80% of billable commercial subscribers up from 77% in the year ago period.

Iot data subscribers now represent 80% of billable commercial subscribers up from 77% in the year ago period.

Speaker 4: We estimate that consumer-oriented plans account for about 900,000 of our 1.7 million commercial IoT users. Commercial broadband revenue grew 16% from the year ago period to 15.8 million. Similar to last quarter, we continue to benefit from a RIDIIM service being adopted as the de facto standard companion to B-SET services in maritime. Though we are seeing lower usage on certain vessels where a RIDIIM service had been used One million stops bound for the peanuts and the stocks will destroy Scientists.

We estimate that consumer oriented plans account for about 900000 of our $1 7 million commercial Iot users commercial broadband revenue grew 16% from the year ago period to $15 8 million.

Similar to last quarter, we continue to benefit from Iridium service being adopted as the de facto standard companion to VSAT services in maritime, though we are seeing lower usage on certain vessels, where iridium service had been used as a primary.

Speaker 4: Hosting another data service revenue with 15 million is quarter in line with Lance Sears Comparable Quarter and consistent with our hosting contract.

Hosting and other data service revenue was $15 million this quarter in line with last year's comparable quarter and consistent with our hosting contracts government service revenue was also steady in the third quarter at $26 5 million, reflecting in terms of our MSS contract with the U S government.

Speaker 4: Government service revenue was also steady in the third quarter at 26.5 million. Reflecting the terms of our EMSS contract with the U.S. government.

Speaker 4: Subscriber equipment revenue was 20.4 million in the third quarter down by 27% from the comparable quarter last year

Subscriber equipment revenue was $24 million in the third quarter down by 27% from the comparable quarter last year.

Speaker 4: Based on trends and input from our channel partners, we had been expecting equipment sales for the full year to be in line with 2022.

Based on trends and input from our channel partners, we had been expecting equipment sales for the full year to be in line with 2022.

Speaker 4: But with supply chain issues now resolved, and partners not fighting for inventory, we have updated our outlook. We now expect equipment sales to be down in the fourth quarter and down for the full year. 2022 was a record year for equipment sales at 135 million, representing 150% of the prior three-year average.

But with supply chain issues now resolved and partners not fighting for inventory, we have updated our outlook. We now expect equipment sales to be down in the fourth quarter and down for the full year 2022 was a record year for equipment sales at $135 million, representing 150% of the prior three year average.

Our updated estimate for equipment sales is fully reflected in our latest estimate for 2023 O EBITDA.

Speaker 4: Our updated estimate for equipment sales is fully reflected in our latest estimate for 2023 O'Ebita. While down from 2022, we expect 2023 equipment sales to remain above normalized historical levels, and now expect this year to be the second highest on record. Going forward, we expect equipment sales to moderate to be more in line with historical averages. This is consistent with our comments at our recent investor die.

While down from 2022, we expect 2023 equipment sales to remain above normalized historical levels and now expect this year to be the second highest on record going forward, we expect equipment sales to moderate to be more in line with historical averages. This is consistent with our comments at our recent Investor day.

Speaker 4: Engineering and support revenue was $25.2 million in the third quarter as compared to $17.1 million in the prior year period. The increased reflects ongoing work for the U.S. government related to the space development agency contract that we won last year.

Engineering and support revenue was $25 2 million in the third quarter as compared to $17 1 million in the prior year period.

The increase reflects ongoing work for the U S government related to the space Development agency contract that we won last year.

Speaker 4: We continue to expect engineering revenue will be up significantly this year, but will fluctuate from quarter to quarter based upon execution and milestone achieving.

We continue to expect engineering revenue will be up significantly this year, but will fluctuate from quarter to quarter based upon execution and milestone achievements.

Speaker 4: Based upon our results through the third quarter and trends we're seeing in October , we're updating our full-year guidance for service revenue growth to approximately 10% in 2023, an operational EBITDA to be between 460 million and 465 million.

Based upon our results through the third quarter and trends, we're seeing into October we are updating our full year guidance for service revenue growth to approximately 10% in 2023 and operational EBITDA to between $460 million and $465 million.

Speaker 4: You'll note that SGNA was up 4% this quarter versus 48% in the first quarter. This was consistent with our expectation for moderation in year-over-year growth rates throughout the year. And we continue to expect SGNA to be up 20% for the full year.

You'll note that SG&A was up 4% this quarter versus 48% in the first quarter. This was consistent with our expectation expectation for moderation in year over year growth rates throughout the year and we continue to expect SG&A to be up 20% for the full year.

Speaker 4: Moving to our capital position as of September 30th, 2023, Reedium had a cash and cash equivalent balance of $67.9 million. Reedium's growing cash flow has been a source of liquidity and continues to support our board's confidence in quarterly dividend payments and an active share repurchase program. With their incremental authorization in July , our board now has authorized a total of $1 billion in buybacks since the program started in early 2021.

Moving to our capital position as of September 32023, <unk> had a cash and cash equivalents balance of $67 9 million iridium.

Iridium is growing cash flow has been a source of liquidity and continues to support our board's confidence in quarterly dividend dividend payment and an active share repurchase program with their incremental authorization in July our board now has authorized a total of $1 billion in buybacks since the program started in early 2021.

Speaker 4: Read and pay the third quarter dividend of 13 cents per common share on September 29 and expect this program will return approximately 65 million of cash to commonholders in 2023.

Iridium paid a third quarter dividend of <unk> 13 per common share on September 29, and expect this program will return approximately $65 million of cash or common holders in 2023.

Speaker 4: In the third quarter, we also purchased approximately 1.4 million shares of common stock and an average price of about $51.71 for about 75 million. We had approximately 385.7 million of capacity outstanding on our Sherry Purchase program at the end of the quarter and we'll continue to execute on these buybacks.

In the third quarter. We also purchased approximately one 4 million shares of common stock at an average price of about $51 71.

For about $75 million, we had approximately $385 7 million of capacity outstanding on our share repurchase program at the end of the quarter and will continue to execute on these buybacks.

Speaker 4: The radium's net leverage was 3.1 times of EBITDA at the end of the third quarter.

Iridium to net leverage was three one times of EBITDA at the end of the third quarter.

Speaker 4: This was down from 3.4 times a year earlier, even when factoring in our share repurchase and dividend activity. Our current expectations for net leverage to be about three times the evadot at the end of 2023 inclusive of quarterly dividends and expected share buybacks. As we said at our investor day, we expect net leverage to decline to below two times but evadot as we exit 2030.

This was down from three four times, a year earlier, even when factoring in our share repurchase and dividend activity.

Our current expectations for net leverage to be about three times EBITDA at the end of 2023 inclusive of quarterly dividends and expected share buybacks as we said at our Investor Day, we expect net leverage to decline to below two times EBITDA as we exit 2030 <unk>.

Speaker 4: Capital expenditures in the third quarter were 12 million. We expect annual capital expenditures to average between 50 million and 60 million through 2030.

Capital expenditures in the third quarter were $12 million, we expect annual capital expenditures to average between $50 million at $60 million through 2030, excluding launch related costs 2020, threes capital expenditures should fall in line with this long term forecast.

Speaker 4: including launch related costs, 2023's capital expenditure should fall in line with this long-term work.

Speaker 4: We're turning to our Proformer Free Cash Flow. If we use the midpoint of our updated 2023 Oibita Gardens and back off 76 million in that interest, approximately 75 million in catbex for this year, and 16 million in working capital, which considers the increase in inventory when asked this year, and a decline bounce over the next few years, as well as the appropriate host-to-pay load adjustment. We're projecting Proformer Free Cash Flow of almost 300 million. These metrics represent a conversion rate to EBITDA.

Turning to our pro forma free cash flow, if we use the midpoint of our updated 2023 O EBIDTA guidance and back off $76 million and net interest approximately $75 million in capex for this year and $16 million in working capital, which considers the increase in inventory, we announced this year and a declining balance over the next few years.

As well as the appropriate hosted payload adjustment, we're projecting pro forma free cash flow of almost $300 million. These metrics represent a conversion rate to EBITDA.

Speaker 4: free cash flow of 64% in 2023 and a yield of more than 5%.

Free cash flow of 64% in 2023, and a yield of more than 5% a more detailed description of these cash flow metrics along with a reconciliation to GAAP measures is available in a supplemental presentation under events on our Investor Relations website in closing we remain very excited about iridium to ongoing strength in its many.

Speaker 4: A more detailed description of these cash flow metrics, along with the reconciliation of GAAP measures, is available in a supplemental presentation under events on our investor relations website. In closing, we remain very excited about Iridium's ongoing strength and its many partnerships and prospects for growth.

Partnerships and prospects for growth.

Speaker 4: Demand for our LBAN services and equipment remains strong, and our business continues to perform well. We are incredibly excited about our future, and our good position to continue to return capital to our shareholders as we fund new projects and make strategic investments. With that, I'll turn things back to the office.

For our L band services and equipment remains strong and our business continues to perform well we are incredibly excited about our future in a good position to continue to return capital to our shareholders as we fund new projects and make strategic investments with that I'll turn things back to the operator for the Q&A.

Ladies and gentlemen at this time, we'll begin our question and answer session.

Speaker 1: Ladies and gentlemen, at this time, we'll begin that question and answer session. If you'd like to ask a question, please press star and then one using a touch-tone telephone to withdraw your questions you may press star in two.

Like to ask a question. Please press star and then one using a touchtone telephone.

All your questions you May press star two.

Speaker 1: If you are using a speaker phone, we do ask you please stick up the hands that prior pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. We'll pause momentarily.

You are using a speaker phone would you ask you. Please pick up the handset prior to pressing the key is to ensure the best sound quality.

Once again.

That is star and then one to join the question queue, we will pause momentarily to assemble the roster.

Yeah.

Speaker 1: Our first question today comes from Rick Prentice from Raymond James. Please go ahead with your question.

Our first question today comes from Rick Prentiss from Raymond James. Please go ahead with your question.

Speaker 4: Great, thanks good morning everybody. All right. Morning, Rick. Hey, a couple of questions. Matt, I know you said obviously we all are very interested in direct-to-device info and you mentioned maybe it's been slower than Qualcomm predicted, but can you help us understand? I think you said previously that you expect $5.10 million of direct-to-device to come in this year. Can you update us as far as how much has come in so far in the quarter and year to date this year?

Great. Thanks, good morning, everybody.

Okay.

Couple of questions amount I know you said, obviously, we all are very interested in directed device info and you mentioned it would be it's been slower than Qualcomm predicted but can you help us understand I think you said previously that you expect $5 million to $10 million of directors device to come in this year can you update us as far as how much has come in so far in the quarter and year to do.

Late this year.

Tom you want to take that.

Good quarter.

Okay.

Speaker 4: No, we're just assembling that. Yeah, it's five to ten in a full year. I don't have the quarter information, Rick. We'll have to double back with you on that.

No we're just assembly.

It's five to 10 in the full year I don't have the quarter information and Rick will want to double back with you on that.

Speaker 4: Okay, that's fine. We continue to expect five to ten in its development revenues.

Okay.

We continue to expect five to 10 in its development revenues.

Right right and as we think of moving towards royalties coming to you from the chip side, what's the timing of your ability to recognize that revenue when the ship goes into the phone is it when the phone ships to the OEM is it when the customer buys the phone and then enables that just trying to understand that.

Speaker 5: And as we think of moving towards royalties coming to you from the ship side, what's the timing of your ability to recognize that revenue? Is it when the ship goes into the phone? Is it when the phone ships to the OEM? Is it when the customer buys the phone and then enables it? Just try to understand the logistical timing as we try and model this in the dark.

The logistical timing as we try and model this in the dark.

Speaker 4: So, there's the development revenues or what is the five to ten and that is milestone related for development work that we've done. So, that's that tranche. Then we get paid on per the chip when Qualcomm orders a chip, that's royalty revenue. And then finally when we entitle, when we entitle a device on our network.

So the development revenues or what is the five to 10 and that is milestone related for development work that we've done okay. So that's.

That's that tranche than we get paid on part of the chip when Qualcomm orders a chip that's royalty revenue and then finally, when we entitle when we entitle eight.

Device on our network.

<unk>.

That's the other element of revenue.

Speaker 4: And then when it's used, there's usage revenue.

Operator: Good morning, everyone and welcome to the Iridium Communications Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode, should you need assistance, please send to a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. To ask a question you may press star and then one using your touch-to-and-telephones, so withdraw your questions you may press star and two.

And then one in the usual amendment and then when its use theres usage revenue.

Speaker 5: Okay, and if the entitlement gonna be part of the ENS revenue or is that rolling to services? That service, think of that as access.

Okay is the entitlement going to be part of the E&S revenue or is that rolling to services that service or think of that as access Rick.

Speaker 4: Right, monthly access type thing. And then when you use it, you get charged for usage. Okay, that helps. And then your cash balance came down a little bit this quarter, you did the obviously the debt refi in there. How much money should we think you want to keep on the balance sheet to kind of run the business as we look at what your free cash flow production would be and your ability to kind of hit the stock buyback? So we were 67 million at the end of this quarter. We're quite comfortable there.

Right monthly access type thing and then when you use it you get charged for usage okay.

That helps.

And then.

Your cash balance came down a little bit this quarter you did the obviously the debt refi in there how much money should we thinking want to keep on the balance sheet to kind of run the business as we look at what your free cash flow production would be in your ability to kind of hit the stock buyback. So we were $67 million at the end of this quarter, we're quite comfortable there.

Operator: There's also note today's event is being recorded, and at this time I'd like to turn the floor over to Ken Movey, Vice President of Investor Relations, sir, please go ahead. Thanks Jamie.

Ken Movey: Good morning and welcome to Iridium's Third Quarter 2023 Earnings Call.

Speaker 4: We took the cash balance down from year end by 100 million bucks. 75 million of it was share buyback.

Yeah, we took the cash balance down from year end up by 100 million Bucks.

Ken Movey: Joining me on this morning's call are a CEO Matt Desch and our CFO, Thomas Fitzpatrick. Today's call will begin with the discussion of our third quarter results followed by Q&A. I trust you've had the opportunity to review this morning's earnings release, which is available on the Investor Relations section of Iridium's website.

$75 million of it was with share buybacks.

Right, Okay, and then the last one for me is.

Speaker 5: Okay, and then the last one for me is the competition in the legacy voice and data business in the past. And I think at the investor day, you also kind of mentioned, it seems like you've got still some good runway there competitively versus the competition's ability to get handsets and provide service. How are you feeling on that legacy voice and data business as far as able to grow revenues? Obviously, it's going to be a tough comp next year because you raised prices this year. It sounds like you're not looking to raise prices.

The competition in the legacy voice and data business in the past and I think at the Investor Day. You also kind of mentioned it seems like you've got still some good runway there competitively versus the competition's ability to get handsets and provide service. How are you feeling on that legacy voice and data business as far as able to grow revenues, obviously, it's going to be a tough comp next year.

Ken Movey: Before I turn things over to Matt, I'd like to caution all participants that are called today may contain Ford looking statements within the meaning of the Private Security's litigation reform act of 1995. Ford looking statements are statements that are not historical fact and include statements about our future expectations, plans, and prospects. Such Ford looking statements are based upon our current police and expectations and are subject to risks which could cause actual results to differ from Ford looking statements.

As you raise prices this year it sounds like you're not looking to raise prices.

Yes, I think it's.

Speaker 3: Yeah, I think it continues to be a very well positioned there. The business continues to perform really well. Better than we certainly expected with a price increase this year, which certainly demonstrates the strength of our offer and over anyone else's, and given that we've added new.

Continues to be very well positioned there and the business continues to perform really well.

Ken Movey: Such risks are more fully discussed in our findings with the Securities and Exchange Commission. Our remarks today should be considered in light of such risks. Any Ford looking statements represent our views only as of today. And while we may elect to update Ford looking statements at some point in the future, we specifically display any obligation to do so even if our views or expectations change.

Then we certainly expected with the price increase this year, which certainly demonstrates the strength of our offering over anyone else's and given that we've added new.

Speaker 3: new offerings in there like with the Go products and Push to Talk and that sort of thing. Those are all growth vectors for us as well. So you're right, it'll be a tough comp next year in terms of year over year growth, but I think you're going to see continued absolute growth out in the future.

New offerings in there like with.

The go products and push to talk and that sort of thing. Those are all those are all growth vectors for us as well so you're right there'll be a tough comp next year in terms of year over year growth, but I think youre going to see.

Ken Movey: During the call we'll also be referring to non-gap financial measures including operational EBITDA, pro-former free cash flow, free cash flow yield, and free cash flow conversion. These non-gap 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-gap financial measures as well as a reconciliation to the most directly comparable gap measures.

Continued absolute growth out in the future.

Speaker 2: Okay, thanks everyone, stay well. Thank you, X-rayer.

Okay. Thanks, everyone stay well thank you thanks Rick.

Speaker 1: And our next question comes from Amog Corsair from the WS. Please go ahead with your question.

And our next question comes from Amit <unk> from Dws. Please go ahead with your question.

Speaker 6: Hey, good morning. Can you just talk about the IoT customer composition? Did that change in Q3? Are you expecting that to change?

Hey, good morning could you just talk about the.

Iot customer composition has that change in Q3 are you expecting that to change anytime soon.

Matthew Desch: With again, good morning, everyone. I know that many of you joined us for our Investor Day lesson a month ago where we laid out our strategic growth objectives through 2030. We remain very excited about our business opportunities and bullish about our ability to grow revenues and generate meaningful free cash flow for our business and investors. For those who may not have had the opportunity to listen to our Investor Day remarks, I would highlight our expectations that are ready and will generate about 1 billion in annual service revenue by 2030 and have the capacity to generate approximately 3 billion in shareholder returns during this seven-year period.

So given our.

Speaker 3: Given our extensive history in IoT over a long period of time, and the literally hundreds of partners and...

Extensive history in Iot over a long period of time and the literally hundreds of partners.

Speaker 3: I mean, it could be thousands of solutions there. It doesn't change that much quarter over quarter. There might be a, you know, some partners or, you know, have contracts perhaps in specific industries or something that are doing slightly better in one quarter over another, but it doesn't really, it really doesn't manifest itself into like a single quarter driver to anything we do. I've talked in the past about.

I mean could be thousands of solutions there it doesn't change that much quarter over quarter there might be.

Some.

<unk>.

Have contracts, perhaps in specific industries or something that are doing slightly better than one quarter over another but it doesn't really.

It really doesn't manifest itself into like a single quarter driver to anything we do I've talked in the past about some.

Matthew Desch: During the program, we talked about our confidence in a really strong business position and ability to grow revenues and subscribers. We certainly saw that in our results today. This outlook is based upon the ongoing strengths of our core business lines and a number of growth vectors we will leverage through the end of the decade to support business expansion while maintaining our CAPEX holiday. Despite market uncertainty about broader economic growth, a medium's financial stability continues to strengthen.

Potential new growth vectors with things like autonomous systems, and drones and that sort of thing and we're certainly seeing lots of experimentation that area.

But really on the on the whole, it's a very broad based.

Our base from energy to transportation to oil and gas heavy equipment and beyond and it's really.

It's very it's very.

Speaker 3: It's very consistent kind of quarter to quarter. There's just a little stronger summer activity, perhaps, well, in the northern hemisphere, it's a little.

It's very consistent kind of quarter to quarter, there is a little stronger summer activity perhaps.

Matthew Desch: Just before our Investor Day, we completed the refinancing of our terminal on B which lowered our interest rate and extended the maturity of our credit facility by four years to September 2030. In light of all the competitive challenges in the satellite industry this year, Iridium continues to be a standout not only for our ability to grow revenues and subscribers but also for the health of our network and ability to grow organically without the need to buy a new platform or merge with competitors.

In the northern Hemisphere, it's a little.

Speaker 3: a little more outdoor, particularly in the consumer segment of that space, but otherwise it's pre-consistent.

A little more outdoor particularly in the consumer segment to that space, but otherwise it's pretty consistent.

Speaker 6: Okay. And then on the equipment revenue side, you have the obviously it strength this quarter. It is, you know, your expectation that there's enough supply out there or is this shrinkage just because demand isn't as strong as your reseller spot it would be.

Okay and then.

On the equipment revenue side.

Obviously it shrank this quarter is this.

Your expectation that theres enough supply out there or is the strength just because demand isn't as strong as your resellers thought it would be.

Speaker 3: The ladder yeah, it's it's I think Tom provided a lot of details there. You know this is going to be our second highest year ever, and while it's slightly lower than last year, I mean it's going to be lower than last year. You know our long term. A lot of that reason was because of both the stock prices and also just our partners really needing.

Matthew Desch: We do understand that investors would like more information about forecasting new directed device revenues from our partnership with Qualcomm. Adoption of this service by manufacturers is slower than quality in Qualcomm originally projected but we continue to believe that Iridium will be a player over the coming years in smartphones, automobiles and other consumer products. In the meantime, as you can see from today's financial results, we are growing well in all our commercial business lines and continue to expect to do so.

The latter yes.

Tom.

A lot of detail there this is going to be our second.

Highest year.

Ever and while it's slightly lower than last year, I mean, it's going to be lower than last year.

Our long term.

A lot of that reason was because of both the stock out of handsets and also just our partners really needing.

Equipment.

Speaker 3: as they were struggling in their own supply chains and saw that we were not able to deliver them on time.

As they were struggling in their own supply chains and saw that we were not able to deliver them on time so.

Matthew Desch: One area of business momentum has been an engineering revenue, particularly with our growing business with the space development agency in the US government. I'm sure you also saw news last month of Iridium's involvement in the Space Forces proliferate a Leo program. This program supports DOD's rapid response efforts and positions Iridium's broadband services to be a core capability for the war fighter even as new government funded satellites deploy for which Iridium will provide the ground operation support as well.

Speaker 3: I think you're going to see more of a normalized demand over time. And that is, as we talked in the investor day a couple of weeks ago, that's what we were assuming was more of a normalized equipment demand rate as we gave you our forecast out to 2030.

I think youre going to see more of a normalized demand over time and that is as we talked in the Investor day, a couple of weeks ago. That's what we were assuming was more of a normalized equipment demand right. As we gave you our forecast out through 2030.

Okay. Thank you.

Sure.

And our next question comes from Caleb Henry from quality space. Please go ahead with your question.

Speaker 1: And our next question comes from Caleb Henry from Quality Space. Please go ahead with your question.

Matthew Desch: I should also point out that we made another quarterly dividend payment on September 29 as we continue to return significant capital to shareholders. The board's confidence in our business prospects and commitment to capital returns is visible in their expansion of our share repurchase program where they added a $400 million authorization earlier this summer and extended the program through 2025.

Speaker 6: Hi guys, just one question because I think most of mine has been answer ready. It's just on the Qualcomm rollout. You mentioned that it was going a little bit slower than they had anticipated. I wonder if they gave you any clarity as to why it was moving a little bit slower and if you have kind of an updated timeline for adoption.

Hi, guys. Just one question I think most of mine have been answered already.

On the Qualcomm rollout you mentioned that it was going a little bit slower than they had anticipated that I'm.

I'm wondering if they gave you any clarity as to why it was moving a little bit slower and if you have kind of an upper.

Any timeline for adoption.

Speaker 3: No, I mean, not really. I mean, we don't have the visibility into the discussions with...

No not.

Matthew Desch: Given that you've heard a lot from me and my team with the investor day a few weeks ago, I'll keep my prepared remarks short today to allow more focus on your questions. We take great pride in the way our business is performing, adding new partners and their new applications that drive growth and support our free cash flow. Like our past, our future will be based on continued strong execution and capitalizing on what we do best.

Not really I mean, we don't have the visibility into the discussions with.

With the handset suppliers and their specific timelines and what their expectations are so.

Speaker 3: with the handsets, suppliers, and their specific timelines and what their expectations are. So not a lot of information. And as we've said pretty consistently over time, the information will come out when phone manufacturers decide to deploy it and when that plans to be.

Not a lot of information and as we've said pretty consistently over time, the information will come out when when phone manufacturers decide to deploy it.

Thomas Fitzpatrick: So let me turn the call over to Tom now for a review of our financial. Thanks, back in the morning everyone. I'll get started by summarizing our key financial metrics with a quarter and providing some color on the trends we're seeing in our business lines. Then our recap of 2023 guidance we updated this morning and close with the review of our liquidity position and capital structure. Aridium continued to execute well in the third quarter generating total revenue of 197.6 million up 7% from the prior years quarter.

When that plant to be.

Alright, and thanks, that's all for me.

Okay.

Yes.

Speaker 1: And our next question comes from Evason Yu from Deutsche Bank. Please go ahead with your question.

And our next question comes from <unk> from Deutsche Bank. Please go ahead with your question.

Speaker 4: Hey, good morning. Thanks for taking our questions. First, it seems the IoT R group has been on the uptick the last couple quarters. I know it's certainly lumpy, but do you think that's something they can continue? Or is this kind of flattish going forward or any thoughts there? So, the fundamental trend is it's just a function of mixed. So, our personal communication...

Hey, good morning, Thanks for taking our questions.

First it seems the Iot <unk> has been on the uptick the last couple couple of quarters I know it's.

It certainly lumpy but.

Do you think thats something that can continue or is this kind of flattish.

Thomas Fitzpatrick: The improvement reflects ongoing growth in our commercial business lines and strengthen engineering and support revenues. Operational EBITDA hit a record 121.3 million in the third quarter. This was up 12% from the prior years quarter driven by strength across all commercial business lines and engineering and support revenue. On the commercial side of our business service revenue was up 12% this quarter to 125.5 million growth was broad base and reflected continued momentum. Commercial voice in data revenue grew 5.9 million or 12% in the third quarter to 56.2 million.

Forward or any thoughts there.

So.

The fundamental trend is just a function of mixed so.

Our personal communications subscribers, which is in Iot are growing faster than the rest of the base and so they have a lower <unk> in the four to $4 range, whereas the rest of the base is higher and as those as those grow faster, it's going to naturally caused the overall.

Speaker 4: subscribers, which is in IoT, are growing faster than the rest of the base. And so they have a lower ARPU in the four dollar range, whereas the rest of the base is higher. And as those grow faster, it's going to naturally cause the overall ARPU to reduce over time. Increases in this quarter probably relate to seasonality, just, you know, summer months our usage tends to be lower.

<unk> to reduce over time increases in this quarter probably relate to seasonality.

Thomas Fitzpatrick: The increase was largely driven by the price changes we implemented earlier this year. To date we've been pleased with how the new pricing has been received and expected voice output this year will remain in the mid-40s. In commercial IOT, we continue to benefit from demand for personal satellite communications. Revenue rose 14% from the prior year quarter to 38.5 million, with a shifting mix of subscribers resulted in IOT Arpo of $7.90 during the quarter.

Summer months, our usage tends to be higher so you have the fundamental trend of we expect personal communications to continue to grow faster than the rest of the Iot base and so so you have that factor, which would be dilutive to the <unk> countering that is we have new functionality, that's being rolled out within Iot.

Speaker 4: So you have the fundamental trend of we expect personal communications to continue to grow faster than the rest of the IoT base. And so you have that factor which would be deluded to the ARPU.

Speaker 4: Countering that is we have new functionality that's being rolled out within IoT with higher data speeds. Think of, you know, being the ability to push pictures through personal communications device. That will be a creative to the ARPU. And so what you have is these two kind of fundamental trends will fight each other and we'll see where ARPU settles out in IoT over time.

With higher data speeds think of.

The ability to push pictures through personal communications device that will be accretive to the <unk> and so what you have is these two fundamental trends I'll fight each other and we'll see where we're RP settles out in Iot overtime.

Thomas Fitzpatrick: As I've discussed before, we like this growing business and the service revenue it generates relative to the network resources it consumes. Commercial IOT subs grew 18% from last year's third quarter. Fueled by 89,000 net new additions. This was one of the biggest increases in artistry. IOT data subscribers now represent 80% of billable commercial subscribers up from 77% in the year ago period. We estimate that consumer oriented plans account for about 900,000 of our 1.7 million commercial IOT users.

Speaker 6: And then just, so there's a second question on the E&S side. You know, there's a nice, I think, sequential move as well. Is that all driven by the SDA? And did this a good level to use going forward?

Okay, and then just a second.

Second question on the on the E&S side, there was a nice sequential move as well.

Is that.

All driven by the SBA and.

A good level to use.

Forward.

Yes, you are talking in engineering and support revenue.

Speaker 3: Yeah, you're talking engineering and support revenue. Yes, that's primarily the biggest driver there is SDA. That's a really large contract that

Yes.

Primarily the biggest driver there is SBA.

Really large contract that.

Thomas Fitzpatrick: Commercial broadband revenue grew 16% from the year ago period to 15.8 million. Similar to last quarter, we continue to benefit from a ridium service being adopted as the de facto standard companion to Vset services in maritime, though we are seeing lower usage on certain vessels where a ridium service had been used as a primary. Hosting another data service revenue was 15 million this quarter in line with last year's comfortable quarter and consistent with our hosting contracts.

Speaker 3: we're ramping up towards in terms of delivering equipment and software and support with our partners.

We are ramping up towards in terms of delivering equipment and software and support with our partner.

Speaker 3: general dynamics for this first tranche of the

General dynamics for this.

The first tranche of the.

Speaker 3: space development agencies, new network that we expect to continue for many years to come and expand into a further work as well. So I think you're going to see that continue to grow. But some of the core R&D work we do with the government is also growing around that as well as we...

Space development agencies, New network that we expect to continue for many years to come and expand into kind of further.

Further work as well, so I think youre going to see that continue to grow.

But some of the core R&D work, we do with the government is also growing around that as well as we.

Thomas Fitzpatrick: Government service revenue was also steady in the third quarter at 26.5 million, reflecting the terms of our EMSS contract with the US government. Subscriber equipment revenue was 20.4 million in the third quarter, down by 27% from the comparable quarter last year. Based on trends and input from our channel partners, we had been expecting equipment sales for the full year to be in line with 2022. But with supply chain issues now resolved and partners not fighting for inventory, we have updated our outlook.

Speaker 3: kind of are embedded in more programs that the government has and so overall I think that's that's kind of a longer-term trend.

Kind of are embedded in more programs that the government has.

So overall I think thats thats kind of a longer term trend.

Okay.

Thanks.

And our next question comes from Greg <unk> from West Park Capital. Please go with your question.

Speaker 1: And our next question comes from Greg Manesses from West Park. Capital, please go with your question.

Speaker 7: Yes, thank you for taking my question. I'd like to drill down just a little bit more into the increase in SG&A in the third quarter. You said it was up 4% and you guided to like a 20% increase going forward. What's driving that? What are the key drivers of the SG&A?

Yes. Thank you for taking my question.

I'd like to drill down just a little bit more into the.

Thomas Fitzpatrick: We now expect equipment sales to be down in the fourth quarter and down for the full year. 2022 was a record year for equipment sales at 135 million, representing 150% of the prior three-year average. Our updated estimate for equipment sales is fully reflected in our latest estimate for 2023 O'Ebita. While down from 2022, we expect 2023 equipment sales to remain above normalized historical levels and now expect this year to be the second highest on record.

Increase in SG&A in the third quarter was you said it was up 4% and you guided to like a 20% increase going forward whats driving that.

What are the key drivers of the SG&A.

Speaker 4: Right, so if you look at our results, the first quarter was actually up 48 percent. And we said at the time, we grew our headcount last year. And we also incurred additional stock-based complex benefits.

Alright, so so if you look at our results the first quarter was actually up 48%.

At the time.

We grew our head count last year.

And we also.

We incurred additional stock based comp expenses in 2022 and that they increased throughout 2022, such that the comparable quarters.

Thomas Fitzpatrick: Going forward, we expect equipment sales to moderate to be more in line with historical averages. This is consistent with our comments at our recent investor day. Engineering and support revenue was 25.2 million in the third quarter as compared to 17.1 million in the prior year period. The increased reflects ongoing work for the U.S, government related to the space development agency contract that we won last year. We continue to expect engineering revenue will be up significantly this year, but will fluctuate from quarter to quarter based upon execution and milestone achievements.

Speaker 4: in 2022 and that they increased throughout 2022 such that the comparable quarters reflect kind of the increased kind of run rate through 2022. So we knew that.

Reflect kind of at the increased kind of run rate through 2022. So we knew that the comps in the third and the fourth quarter would be would show a lot lower growth rate of growth and that's exactly what you are saying, so, whereas we grew 48%.

Speaker 4: The comps in the third and the fourth quarter would show a lot lower growth rate of growth. And that's exactly what you're saying. So whereas we grew 48%.

Speaker 4: in the first quarter, we only grew by 4% in the third, and reiterated that we expect.

In the first quarter, we only grew by 4% in the third and we and we reiterated that we expect.

Speaker 4: SG&A to be up 20% on the full year. And again, the drivers were headcount increases in 2022 that occurred.

SG&A to be up 20% on the full year.

And again, the drivers where head count increases in 2022 that occurred sequentially through the year as well as higher stock based comp.

Thomas Fitzpatrick: Based upon our results through the third quarter and trends we're seeing in October, we're updating our full year guidance for service revenue growth to approximately 10% in 2023. An operational ebita to be between 460 million and 465 million. You'll note that SGNA was up 4% this quarter versus 48% in the first quarter. This was consistent with our expectation for moderation in year-over-year growth rates throughout the year, and we continue to expect SGNA to be up 20% for the full year.

Speaker 4: sequentially through the year as well as higher stock base.

Thank you for that clarification do you expect head count to continue to trend up.

Speaker 7: Thank you for that clarification. Do you expect headcount to continue to trend up?

Speaker 3: Well, certainly a lot of our direct charge headcount is growing. That's probably the fastest part that is charged to the government and for which we get profit for. So our total workforce is growing, but it's mostly in the direct charge areas at this time.

Well, it's certainly a lot of our direct charge head count is growing that's probably the fastest part that is charged to the government and for which we we get profit for so our total workforce is growing but it's mostly in the direct charge areas at this time.

Thank you.

Thomas Fitzpatrick: Moving to our capital position as of September 30th, 2023, Ric Prentiss had a cash and cash equivalent balance of 67.9 million. Ric Prentiss growing cash flow has been a source of liquidity and continues to support our board's confidence in quarterly dividend payments and an active share repurchase program. With their incremental authorization in July, our board now has authorized a total of 1 billion in buybacks since the program started in early 2021.

Speaker 1: Once again, if you would like to ask a question, please press star and then one, so it would draw your questions you may press star and two.

Once again, if you would like to ask a question. Please press star and then one so withdraw your questions you May press star and two.

Speaker 1: Our next question comes from Luis De Palma from William Blair. Please go ahead with your question. Matt Thomas.

Our next question comes from Luis de Palma from William Blair. Please go ahead with your question.

Matt Tom and Ken Good morning.

Hey.

Speaker 8: I was wondering, how should investors think about opportunities with the proliferated LEO contract that you announced earlier in the quarter? I think SpaceX was awarded one of the first.

I was wondering how should investors thinking about opportunities with the proliferating.

Thomas Fitzpatrick: Iridium paid a third quarter dividend of 13 cents per common share on September 29th and expects this program will return approximately 65 million of cash to commonholders in 2023. In the third quarter, we also purchased approximately 1.4 million shares of common stock in an average price of about 51 dollars and 71 cents for about 75 million. We had approximately 385.7 million of capacity outstanding on our share repurchase program at the end of the quarter and will continue to execute on these buybacks.

Yes.

Contract.

Earlier in the corner.

I think Spacex ones awarded one of the first.

Speaker 8: task orders, and like what type of services could this involve for Iridium. Thanks.

Task orders and see what type of services could this involve iridium.

Speaker 3: Thanks. So the government, specifically the space force, has a lot of opportunities to buy commercial broadband from Leo operators. And it's complicated if they had to do that with every specific service provider and operator. So they've decided to create this kind of envelope called the

Yes. Thanks.

The.

Government specifically the space force has a lot of opportunities to buy <unk>.

Commercial broadband from Leo operators, and it's complicated if they had to do that with every specific service provider an operator, so they've decided to create this.

Thomas Fitzpatrick: Iridium's net leverage was 3.1 times of EBITDA at the end of the third quarter. This was down from 3.4 times a year earlier, even when factoring in our share repurchase and dividend activity. Our current expectations for net leverage to be about three times of EBITDA at the end of 2023, inclusive of quarterly dividends and expected share buybacks. As we said in our investor day, we expect net leverage to decline to below two times of EBITDA as we exit 2030.

Kind of envelope called the P. Leo.

Speaker 3: you know, $900 million over, say the next five years.

No.

Slide $900 million over say the next five years and ask all of the industry to apply.

Speaker 3: and asked all the industry to apply to be qualified to basically be awarded task orders off of that. And there were like 20.

To be qualified to basically be awarded task orders off of that and they were like 20 different awardees I think or potentials for that and we've been one of them along with some of our partners.

Speaker 3: different awardees I think or potentials for that and

Thomas Fitzpatrick: Capital expenditures in the third quarter were 12 million. We expect annual capital expenditures to average between 50 million and 60 million through 2030. Excluding launch-related costs, 2023's capital expenditures should fall in line with this long-term forecast. Turning to our pro-former free cash flow, if we use the midpoint of our updated 2023 EBITDA guidance and back off 76 million in that interest, approximately 75 million in cap-backs for this year, and 16 million in working capital, which considers the increase in inventory when asked this year, and a decline bounce over the next few years, as well as the appropriate host-to-pay lit adjustment.

Speaker 3: We've been one of them along with some of our partners using

Using four service L band and we're the only L band kind of supplier in this the rest of it is mostly.

Speaker 3: For Sirtis, L-band, we're the only L-band kind of supplier in this. The rest of it is mostly...

Speaker 3: KA and KU band suppliers like Starlink and others. And so we expect.

<unk> and Ku band suppliers like Starlink and others.

So we expect as.

Speaker 3: you know, broadband needs are needed, you know, whether in places like Ukraine and other places, they can just draw off of this.

Broadband needs are needed.

Whether in places like Ukraine, and other places they can just draw off of this.

Speaker 3: IDIQ and definite delivery and definite quantity contract against that and it will make it easier for them in our case to purchase a radium service for government uses. So it's an upside. It's not specific about exactly what it will be and where it will be but it will make it easier for them to buy broadband from.

I'd IQ indefinite.

Delivery indefinite quantity contract against that and it will make it easier for them in our case to purchase Iridium service for government uses so.

Thomas Fitzpatrick: We're projecting pro-former free cash flow of almost 300 million. These metrics represent a conversion rate to EBITDA to free cash flow of 64 percent in 2023 and a yield of more than 5 percent. A more detailed description of these cash flow metrics, along with the reconciliation of GAT measures, is available in a supplemental presentation under events on our investor relations website.

It's an upside it's just not specific about exactly what it will be and where it will be but it will make it easier for them to buy broadband from us.

Speaker 8: Great. And for Tom, how should we think about CAPEX and SGNA for 2024 relative to 2023, given how there likely won't be any satellite launches next year? And in the previous answer, you were discussing how you ramped up hiring.

Great.

And.

For Tom how should we think about <unk>.

Capex and SG&A for 2024 relative to 2023, given how theyre likely won't be any satellite launches.

Thomas Fitzpatrick: In closing, we remain very excited about our mediums ongoing strength and its many partnerships and prospects for growth. Demand for our LBAN services and equipment remains strong, and our business continues to perform well. We are incredibly excited about our future and our good position to continue to return capital to our shareholders as we fund new projects and make strategic investments.

Sure.

In the previous answer you were discussing how you ramped up hiring in 2022.

Speaker 8: How should we think about those relative levels? I know it's not 2024 yet, but any color there would be.

How should we think about the relative level.

2024.

Any color there would be.

Operator: With that, I'll turn things back to the operator for the Q and I.

Speaker 4: Help you so, so, you know, there's not going to be any launch. You're right. So it's our guide is 50 to 60. I think. That's what that will be in that area in.

Yes.

Capex.

Operator: Ladies and gentlemen, at this time we'll begin that question and answer session. If you'd like to ask a question, please press star and then one using a touch-tone telephone to withdraw your questions you may press star and two. If you are using a speaker phone, we do ask you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question. Q.

There is not going to be any launch you're right. So our guide is 50 to 60 I think that's that will be in that area.

In.

Speaker 4: 2024 I think it's premature to give 2024 guidance on SGNA. Let's do that when we unveil our 2024 guidance in February .

2024, I think it's premature to give 2024 guidance on SG&A.

We will do that when we unveil our 2024 guidance in February .

Speaker 8: Great. And one final one. How should we think about the leverage?

Great and one final one how should we think about the.

Operator: We'll pause momentarily to assemble the roster.

The leverage.

Speaker 8: ratio, the prior guidance for this year was between two and a half times and three and a half times with interest rates continuing to to take up our U-leaning board towards three times versus the high end of that prior range.

Ratio.

Prior.

Ric Prentiss: Our first question today comes from Ric Prentiss from Raymond James. Please go ahead with your question. Great. Thanks. Good morning, everybody. Good morning, Rick. Hey, a couple of questions. Matt, I know you said obviously we're all very interested in direct to device info and you mentioned maybe it's been slower than Qualcom predicted. But can you help us understand? I think you said previously that you expect $5 to $10 million of direct to device to come in this year.

Guidance for this year was between two five times and three five times.

Yeah.

<unk> strength continuing to tick up are you leaning more towards <unk>.

Three times versus <unk>.

High end of our prior range.

Speaker 4: Yep, so so we're saying we see ourselves right around 3 as we exit this year. Louis, that's that's an all that's taking into account everything we know. Okay.

So we're saying we see ourselves right around three as we exit this year Louie.

And that's in all of that's.

Taking into account everything we know.

Ric Prentiss: Can you update us as far as how much has come in so far in the quarter and year to date this year? I'm going to stick to it. That we're just assembling that. Yeah, it's it's 5 to 10 in the full year. I don't have the quarter information. Rick will want to double back with you on that. Okay. That's fine. We continue to expect 5 to 10 in its development revenue. Right.

Okay, great. Thanks, everyone.

Thanks Louie.

Speaker 1: And ladies and gentlemen, at this time in showing no additional questions, I'd like to turn the floor back over to the management team for any closing remarks.

And ladies and gentlemen at this time in showing no additional questions I'd like to turn the floor back over to the management team for any closing remarks.

Speaker 3: Well, obviously a little shorter call than usual because of all the information we provided at Investor Day and all the great conversations that we all had. If anybody hasn't seen the Investor Day, there is a replay available on our website and I encourage you to.

Well, obviously, a little shorter call than usual because of all the information we provided at Investor day, and all the great conversations that we all had.

If anybody hasn't seen the Investor day, there is a replay available on our website and I encourage you to.

Matthew Desch: And as we think of moving towards royalties coming to you from the ship side, what's the timing of your ability to recognize that revenue? Is it when the ship goes into the phone? Is it when the phone ships to the OEM? Is it when the customer buys the phone and then enables to just try to understand the logistical timing as we try and model this in the dark? So so there's the development revenues are what is the 5 to 10 and that is milestone related for development work that we've done.

Speaker 3: see that, but you'll see us at conferences and around, and we look forward to seeing you at the fourth quarter results in a couple months. so take care all.

See that.

But youll see us at conferences and around and we look forward to seeing you.

Fourth quarter results and a couple of months to Carol.

Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We thank you for joining you may now disconnect your lines.

Speaker 1: Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your line.

Matthew Desch: Okay. So so you know that that's that tranche. Then we get paid on per the chip when Qualcom orders a chip. That's that's royalty revenue. And then finally when we entitle when we entitle a device on our network that's the other element of revenue. And then when you and then when there's and then when it's used, there's usage revenue. Okay. If the entitlement going to be part of the E and S revenue or is that rolling to services? That service. Think of that as access Rick. You're right. Monthly access type thing. And then when you use it, you get charged for usage. Okay. That helps.

Thomas Fitzpatrick: And then your cash balance came down a little bit this quarter. You did the, obviously, the debt refi in there. How much money should we think? You want to keep on the balance sheet to kind of run the business as we look at what your free cash will production would be in your ability to kind of hit the suck buyback. So we were 67 million at the end of this quarter. We're quite comfortable there. You know, we took the cash balance down from year end up by 100 million bucks. You know 75 million of it was we share buybacks. Right. Okay.

Matthew Desch: And then the last one for me is the competition in the legacy voice and data business in the past. I think at the investor day, you also kind of mentioned it seems like you've got still some good runway there competitively versus the competitions ability to get handsets and provide service. How are you feeling on that legacy voice and data business as far as able to grow revenues? Obviously it's going to be a tough comp next year because you raise prices this year.

Matthew Desch: It sounds like you're not looking to raise prices though. Yeah, I think it continues to be very well positioned there. The business continues to perform really well. Better than we certainly expected with a price increase this year which certainly demonstrates the strength of our offer and over anyone else is in given that we've added new new offerings in there like with the go products and push the talk and that sort of thing. Those are all those are all growth vectors for us as well. So you're right.

Operator: It'll be a tough comp next year in terms of your over your growth, but I think you're going to see continued absolute growth out in the future. Okay, thanks everyone to stay well. Thank you. Thanks for that.

Hamed Khorsand: And our next question comes from Hamag Khorsand from BWS. Please go ahead with your questions. Hey, good morning. Could you just talk about the IOT customer composition? Has that changed in 3D area? Are you expecting that to change any time soon? Given our extensive history and IOT over a long period of time and the literally hundreds of partners and I mean could be thousands of solutions there, it doesn't change that much quarter over quarter.

Hamed Khorsand: There might be a you know some partners are you know have contracts perhaps in specific industries or something that are doing slightly better in one quarter over another but it doesn't really it really doesn't manifest itself into like a single quarter driver to anything we do. I've talked in the past about you know some potential new growth factors with things like you know autonomous systems and drones and that sort of thing and it's certainly seen lots of experimentation in that area but really on the on the whole it's a very broad-based base you know from energy to transportation to oil and gas to heavy equipment and beyond and it's really it's very it's very consistent kind of quarter to quarter.

Hamed Khorsand: There's a little stronger summer activity perhaps while in the northern hemisphere it's a little a little more outdoor particularly in the consumer segment of that space but otherwise it's pretty consistent. Okay and then on the equipment revenue side you know obviously it shrank this quarter it is you know your expectation that there's enough supply out there or is this shrinkage just because demand isn't as strong as your reseller spot it would be. The latter.

Matthew Desch: Yeah it's I think Tom provide a lot of detail there you know this is going to be our second highest year ever and while it's slightly lower than last I mean it's going to be lower than last year you know our long-term a lot of that reason was because of both the stock out of handsets and also just our partners really needing equipment as they were struggling in their own supply chains and saw that we were not able to deliver them on time so I just I think you're going to see more of a normalized demand over time and that is as we talked in the investor day a couple weeks ago that's what we were assuming was more of a normalized equipment demand rate as we gave you our forecast out through 2030. Okay thank you.

Caleb Henry: In our next question comes from Caleb Henry from Quality Space please go ahead with your question. Hi guys just one question because I think most of mine that's been answered already which is on the Qualcomm rollout you mentioned that it was going a little bit slower than they had anticipated but wondering if they gave you any clarity as to why it was moving a No, I mean, not really. I mean, we don't have the visibility into the discussions with the handset suppliers and their specific timelines and what their expectations are. So, not a lot of information, and as we've said pretty consistently over time, the information will come out when when phone manufacturers decide to deploy it, and when that plans to be. All right, Ian, thanks.

Operator: That's all from me.

Edison Yu: And our next question comes from Evison Yu from Deutsche Bank. Please go ahead with your question. Thank you. Good morning. Thanks for taking our questions. First, it seems the IOTR proof has been on the uptake the last couple, couple quarters. I know it's certainly lumpy, but you think that's something they can continue. Or is this kind of flatish going forward or any thought there?

Matthew Desch: So, the fundamental trend is it's just a function of mixed. So, our personal communications subscribers, which is in IOT, are growing faster than the rest of the base. And so they have a lower RPU in the $4 range, whereas the rest of the base is higher. And as those grow faster, it's going to naturally cause the overall RPU to reduce over time. Increases in this quarter probably relate to seasonality, just summer months are usage tends to be higher.

Matthew Desch: So, you have the fundamental trend of we expect personal communications to continue to grow faster than the rest of the IOT base. And so you have that factor which would be dilutive to the RPU. Countering that is we have new functionality that's being rolled out within IOT with higher data speeds, think of the ability to push pictures through personal communications device. That will be a creative to the RPU. And so what you have is these two kind of fundamental trends, they'll fight each other and we'll see where RPU settles out in IOT over time.

Operator: And then just a second question on the E and S side, you know, there's a nice sequential move as well.

Thomas Fitzpatrick: Is that all driven by the SDA and is this a good level to use point forward? Yeah, you're talking engineering and support revenue. Yes, that's primarily the biggest driver there is SDA. That's a really large contract. We're ramping up towards in terms of delivering equipment and software and support with our partner. General dynamics for this first tranche of the space development agencies, new network that we expect to continue for many years to come and expand into a further work as well.

Thomas Fitzpatrick: So I think you're going to see that continue to grow. But some of the core, you know, R&D work we do with the government is also growing around that as well as we kind of are embedded in more programs that the government has. And so overall I think that's that's kind of a longer term trend.

Operator: Thank you.

Greg Mesniaeff: Thanks. And our next question comes from Greg Minesis from West Park, Capitol, please you have with your question. Yes, thank you for taking my question. I'd like to drill down just a little bit more into the increase in SGNA in the third quarter. You said it was up 4% and you guided to like a 20% increase going forward. What's driving that? What are the key drivers of the SGNA increase?

Thomas Fitzpatrick: Right, so if you look at our results, the first quarter was actually up 48% and we said at the time we grew our headcount last year and we also incurred additional stock based comp expenses in 2022 and that they increased throughout 2022 such that the comparable quarters reflect kind of the increased kind of run rate through 2022. So we knew that the comps in the third and the fourth quarter would show a lot lower growth rate of growth and that's exactly what you're saying.

Thomas Fitzpatrick: So whereas we grew 48% in the first quarter, we only grew by 4% in the third and we reiterated that we expect SGNA to be up 20% on the full year and again the drivers where headcount increases in 2022 that occurred sequentially through the year as well as higher stock based comp.

Thomas Fitzpatrick: Thank you for that clarification. Do you expect headcount to continue to to trend up? Well certainly a lot of our direct charge headcount is growing that's probably the fastest part that is you know charge to the government and for which we we get profit for. So our our total workforce is growing but it's mostly in the direct charge areas at this time.

Operator: Thank you. Once again if you would like to ask a question please press star and then one to withdraw your questions you may press star and two.

Luis DiPalma: Our next question comes from Luis the Paul Mothron, William Blair. Please go ahead with your question. Matt, Tom and Ken, good morning. I was wondering how should investors think about opportunities with the proliferated Leo contract that you announced earlier in the quarter? I think SpaceX was awarded one of the first task orders and like what type of services could this involve for a medium? Thanks. Yeah thanks. So the government specifically the space force you know has a lot of opportunities to buy commercial broadband from Leo operators and it's complicated if they had to do that with every specific service provider and operator and so they've decided to create this kind of envelope called the PLEO you know signed $900 million over say the next five years and asked all the industry to apply to be qualified to basically be awarded task orders off of that and there were like 20 different awardees I think or potentials for that and we've been one of them along with some of our partners using for service L-band where the only L-band kind of supplier in this the rest of it is mostly K-A and K-U-band suppliers like Starlink and others and so we expect as is, you know, broadband needs are needed, you know, whether in places like Ukraine and other places, they can just draw off of this IDIQ and definite delivery and definite quantity contract against that, and it will make it easier for them, in our case, to purchase a radium service for government uses. So, it's an upside, it's not specific about exactly what it will be and where it will be, but it will make it easier for them. And to buy broadband from us.

Thomas Fitzpatrick: Great, and for Tom, how should we think about CAPEX and SGNA for 2024 relative to 2023 given how they're likely won't be any satellite launches next year, and in the previous answer, you're discussing how you ramped up hiring in 2022. So, how should we think about those relative levels? I know it's not 2024 yet, but any color there would be helpful. So CAPEX, you know, there's not going to be any launch your rights, so our guide is 50 to 60, I think that will be in that area in 2024.

Thomas Fitzpatrick: I think it's premature to give 2024 guidance on SGNA, let's do that when we unveil our 2024 guidance in February. Great, and one final one, how should we think about the leverage ratio, the prior guidance for this year was between two and a half times and three and a half times, with interest rates continuing to take up our e-leaning more towards three times versus the high end of that prior range. Yep, so we're saying we see ourselves right around three as we exit this year. Louis, that's an all, and that's taking into account everything we know. Okay, great, thanks everyone. Thanks, Louis.

Matthew Desch: And, ladies and gentlemen, at this time in showing no additional questions, I'd like to turn the floor back over to the management team for any closing remarks. Well, obviously a little short of call than usual because of all the information we provided at Investor Day and all the great conversations that we all had. If anybody hasn't seen the Investor Day, there is a replay available on our website, and I encourage you to see that, but you'll see if it conferences and around, and we look forward to seeing you at the fourth quarter results in a couple months. Take care all.

Operator: Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lives.