Q1 2025 Iridium Communications Inc Earnings Call
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Speaker Change: Good Day, and welcome to the Iridium Communications Force Quartor Conference call. All participants will be in the lesson only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad.
Please know that this event is being recorded.
Speaker Change: I would now like to turn the conference over to Kenneth Levy, please go ahead
Ken Levy: Thanks to Garb. Good morning and welcome to Iridium's first quarter 2025 earnings call. Joining me on the call this morning are a CEO , Matt Desch, and our CFO , Vince O'Neil.
Ken Levy: Today's call will begin with the discussion of our first 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.
Ken Levy: 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 Security's litigation reform act of 1995.
Ken Levy: Ford-looking statements are statements that are not historical fact and include statements about our future expectations, plans, and prospects. Thanks for your time.
Ken Levy: 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.
Ken Levy: 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.
Ken Levy: During the call will also be referring to certain non-GAAP financial measures including operational EBITDA, pro form of free cash flow, free cash flow yield, and free cash flow conversion.
Ken Levy: These non-GAAP financial measures are not prepared in accordance with the generally accepted accounting principles.
Ken Levy: 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 a reconciliation to the most directly comparable GAAP measures . With that, let me turn things over to Matt. Thanks again. Good morning everyone.
Matt: We continue to see and forecast growth across most of our product lines and our partners continue to be bullish about opportunities with our new product offerings, including Iridium PNT.
Matt: Normally, the short window between our February call in the end of the first quarter doesn't allow much time for a lot of business surprises
that was not the case this year.
Matt: The new tariff levels announced a few weeks ago that were implemented and then largely suspended have created more uncertainty than we had anticipated, particularly around equipment expense.
Matt: We're working to mitigate as much of this impact as possible.
Matt: Most of our equipment is manufactured in Thailand at a contracted facility. The quality is outstanding. Last year we only had about 100 items returned out of more than 850,000 individual things that we shipped to customers.
Matt: That's an amazing quality level that we're very proud of and that my supply chain management team has delivered both during and in the aftermath of the recent pandemic.
Matt: With US Trade Policy still in flux, let me share some of our considerations to ensure you understand how we're reacting to these new regulations and how they would affect our bottom line depending on how and when they are implemented.
Matt: Historically, Iridium has imported our finished goods from Thailand and to a far lesser extent other countries, but to our Arizona Distribution Center where they have been inventory and package with other components, prior to being shipped on to partners, both in the US and overseas.
Matt: Last year, however, we began working with a third party logistics partner in Europe for regulatory reasons and began using their facility for shipments destined to the EU.
Matt: In the current environment, we will be expanding this relationship quickly to mitigate as much of the new tariff costs as we can, utilizing it for almost all non-US partnershipments, which is about 75% of the total.
Matt: of approximately quarter of Iridium's annual equipment is shipped to U.S.-based partners.
Matt: So any import tariff should only impact this portion tested for the United States.
Matt: We've been working for several years to avoid exposure in our supply chain to China and now source very little from there. So the very large tariffs there have a relatively small impact on our bottom line.
Matt: We estimate that the current U.S. trade policies based upon a minimum tariff of 10% for Thailand would result in approximately $3 million of incremental costs to Iridium this year and flow through to our Oibida.
Matt: At this time, we think we can absorb this lower level of tariffs within our currently-guided
Matt: If tariff policies were to revert to originally proposed levels from April 2nd, Iridium would be subject to a 36% tariff rate for all equipment manufactured and imported from Thailand.
Matt: Under this scenario, we estimate that Iridium would incur $6.7 million in incremental costs this year.
Matt: We have not included this scenario in our guidance assumptions in light of the uncertainty and ongoing discussions with countries like Thailand on tariff levels and exemptions.
Matt: While we could choose to mitigate some of the remaining import costs through equipment surcharges to our customers, at this time, we prefer not to undermine our strong market position and business from the momentum.
Matt: Today, there remains much uncertainty surrounding tariff levels, their timing, and how our partners' businesses will fair in the evolving economic climate.
Matt: As historical context, we know Iridium's business has been resilient in the face of prior economic shocks. We continue to grow service revenue through the 2008 recession, as well as during the 2020 pandemic.
Speaker Change: I hope this color and the additional information Vince will soon provide will help you better understand how we are thinking about the current environment. At this point, it's a pretty deterministic expense once we understand what the trade policies will ultimately be. [inaudible]
Speaker Change: Turning back to our activities during the first quarter, we spent a lot of time with the industry and our partners at the satellite show in February and our Iridium Partner Conference in Florida.
Speaker Change: Despite the overall market disruptions and changes in our industry, our partners remain bullish on their businesses and opportunities with Iridium, particularly around next-generation IOT, Alternate PNT from our Satellis acquisition, and D2D with our development of Iridium NTN Direct.
Speaker Change: Our expansive partner ecosystem is unique in the satellite industry and Iridium's partner network covers just about every industry that can use satellite communications.
Speaker Change: These partners understand and appreciate Iridium's unique capabilities, including our high quality and reliable satellite constellation, truly global coverage, and regulatory approvals.
Speaker Change: They give us a lot of visibility into their businesses, and we share with them our product roadmap and investments for the future, which is why we remain confident about our growth outlook in the face of new market entrants like Starlink or regional D2D services like AST Space Mobile.
Speaker Change: Our partner CSF complementary to these new entrants and continue to invest in new
Speaker Change: I feel somewhat obligated to talk about Starlink and other startups as it's clear from short interest that investors still don't understand how Iridium is differentiated from them.
Speaker Change: Starlink in particular has done a great job expanding their network and attacking new markets.
Speaker Change: They've made strong inroads into the consumer sector and drawn share from established VSAT broadband players in areas like maritime and aviation
Speaker Change: Starlink, however, does not have LBAN Spectrum nor the global coverage required to support mission critical applications.
Speaker Change: While there is some overlap between us specifically in maritime work, Iridium has been used as a low-cost primary connection by some voters. Our distribution partners still see an important role for Iridium's weather-resistant global coverage as a complement to startling for their customers.
Speaker Change: The head when we are experienced on this small piece of our broadband business should normalize over time as more Iridium-certised GMDSS maritime products reach the market to address and market needs for low-cost safety applications.
Anish within Maritime, where we excel
Speaker Change: As for direct-to-device, this industry segment is not a zero-sum game.
Speaker Change: We fully anticipate that satellite providers offering various levels of cellular-based services from space will develop regional services over time.
Speaker Change: But most of the services will be limited in geographic scope due to the spectrum interference and regulatory issues and will need to overcome service expectations with cellular customers.
Speaker Change: When I talk to our partners, I continue to hear that their customers want uncompromising, highly reliable global service, and tailor solutions that address their unique business needs.
Speaker Change: There are preferences for purpose-built devices that remove uncertainty and obstacles from achieving customer's missions and objectives. As a result, we have no reason to believe that cellular -based D2D will replace the use cases that Iridium addresses.
Speaker Change: However, there is a growing role for D2D in the marketplace, especially with casual users, which is why we're developing Iridium NTN Direct.
Speaker Change: Iridium's new IoT and Directed Device service will be available on standard-based chipsets with 3GPP release 19.
Speaker Change: We will be in live on our tests with Nordic Semiconductor and potentially others this summer, and prospective customers will then have the ability to experience what a global, reliable, deeded service really feels like.
Speaker Change: For Iridium, Standards-based chipsets will also have the benefit of lowering costs for manufacturers and customers who want to roam onto Iridium's Global Network for almost no additional cost beyond what they are spending for cellular hardware.
Speaker Change: This should be a boon to our IoT business and allow Iridium to find its way into new industries that had previously considered satellite technology too costly for integration.
Speaker Change: The IoT market is very large and we expect Iridium NTN Direct to fuel material revenue growth for our company through the end of the decade.
Speaker Change: Despite suggestions from some, mainly investors who are short Iridium, the D to D will compete with and cannibalize Iridium's legacy services we find this storyline hard to follow.
Speaker Change: As current D2D solutions based on cellular frequencies improve, they will still only provide a small extension to the cellular world's 10-15% footprint of the globe, far from Iridium's ubiquitous coverage .
Speaker Change: With all the excitement about D to D, it's worth highlighting that we continue to see growth for personal satellite communication devices. This is even as free D to D services have debuted in the US and elsewhere with Apple on smartphones and with very public beta tests of Starlink services.
Speaker Change: While there may someday be a large market for D to D, we believe that the relatively small investment we're making in Iridium NTN Direct will result in a robust service that will be complimentary to others D to D efforts.
Speaker Change: and Generate Incremental IoT Service Revenue for us starting in 2026.
Speaker Change: Continuing on this theme of incremental revenue, let me move on to position navigation and timing, an area in which Iridium has a big lean on competitors
and which we believe holds a lot of opportunity.
Speaker Change: Our partners are really excited about integrating our satellite time and location services into their solutions and we're seeing a lot of interest from new customers who want to solve GPS issues with Iridium STL.
Speaker Change: As I've discussed before, the prevalence of GPS jamming and location spoofing is on the rise in exposing the vulnerabilities of organizations and critical infrastructure that rely on these services.
Speaker Change: Thanks to our acquisition of Satellis last year, we can provide them with a timing signal and trusted location that can be delivered cheaply anywhere in the world and as a thousand times stronger than GPS.
Speaker Change: We've already seen a big pickup in engagements on P&T since the beginning of this year, and we believe STL will be a major driver of revenue growth in both civil and commercial applications through 2030 and beyond.
Speaker Change: Before I turn things over events, I want to take a moment to touch upon some investor inquiries we received on the administration's efforts to reduce government expenditures and realize efficiencies.
Speaker Change: We do not believe that Iridium's existing contracts with the US government will be impacted by these efforts and continue to believe that our long term partnership with the government provides tremendous value. [inaudible]
Speaker Change: Our EMSS contract with a DOD gives the government reliable, global coverage for as many voice and data units as they care to add to our network. At about $65 per user per month, this may be among the most attractive deals in the satellite industry today.
Speaker Change: We do, however, believe that the geopolitical environment will remain in flux. There's no disputing that international dynamics are changing.
Speaker Change: Between the new tariffs and US government rightsizing and shifting priorities, we expect to see impact on our industry. Some potentially positive as space remains a priority right now, but some negative as well.
Speaker Change: Foreign Governments, agencies, NGOs, and even safety organizations may face funding challenges.
Speaker Change: We've seen examples of this in the last two months as USAID funding was cut to some international organizations who were apparently using satellite services to improve their internal security.
Speaker Change: Right now, we have no reason to believe these changes will be material to our business.
Speaker Change: We believe Iridium is fairly inflated from the recent protectionism and nationalistic rhetoric, but like every company we made face issues on the margin as we move through the year. We will continue to keep our ears open, mitigate issues that arise, and keep investors abreast of what we're seeing.
Speaker Change: Despite recent global turbulence as my team and I look out to 2030, we are highly confident in Iridium's ability to leverage our one-of-a-kind network to deliver new solutions and expand into new end markets. We have great technology, a strong spectrum position, and a clear path to grow our business, service revenues, and free cash flow.
Speaker Change: Between our buyback program and quarterly dividends, we are also delivering additional value to shareholders. We continue to believe our stock to be undervalued and will be active to capture this value with the remaining outstanding authorization on our share repurchase program.
Speaker Change: These capital priorities, in addition to ongoing investments in our network, underscore our confidence in Iridium's business prospects and growth
Speaker Change: With that, I'll turn it over to Vince for a review of our financial events.
Vince: Thanks, Matt, and good morning everyone. I'll start my remarks today by reviewing our financial results for the first quarter and some trends we're seeing in our major business lines.
Vince: Simmer Samat, I'd also like to discuss the evolving business climate and how it colors our outlook for the year. I'll then close with a review of our liquidity position in capital structure.
Vince: Iridium executed well in the first quarter and continued to deliver on our full year plan. Operational libido was up 6% in the first quarter to 122.1 million driven by a combination of revenue from recurring commercial services and engineering and support.
Vince: On the commercial side of our business, service revenue was up 4% to 127.5 million.
This increase was led by Strent and IOT and Iridium P and T
Vince: Voice and Data Revenue rose 2% from the prior year quarter to 55.9 million and largely reflect the subscriber growth in telephony services.
Speaker Change: As Matt mentioned, a small portion of the deactivations we saw during the quarter related to USAID and changes to program funding.
Speaker Change: Commercial IoT revenue total 43.8 million in the first quarter, up 11% from a year earlier. As noted previously, this reflects a step up in our two-year contracts with our largest IoT partner in addition to ongoing demand for personal satellite communication services.
Speaker Change: As previewed in February , we have experienced and continue to anticipate
Speaker Change: Structural Subscriber Deactivations, Associated with Changes to an IOT Partners Retail Plans, which are phasing out plans that allow subscribers to toggle between active and inactive status throughout the contract year.
Speaker Change: These deactivations have no impact on revenue under the terms of the contract
Speaker Change: Revenue in commercial growth bound was down 6% from the year ago period to 12.9 million. This decline was driven by the increasing use of Iridium as a companion service and the conversion of certain primary customers to lower usage plans.
Speaker Change: We expect the R2 headwinds from these conversions will become less pronounced over time, especially with the proliferation of new Iridium service GMDSS terminals by VAM partners in the second half of the year and into 2026.
Speaker Change: Over time, we believe gains from subscribers adoption of Iridium Service GMDSS will offset the off-boo pressures we are now experiencing from primary user conversions.
Speaker Change: Hosting and other data services revenue was 14.9 million this quarter, up 7% from last year's comparable
Speaker Change: We continue to see a pickup in Iridium P&T after having fully acquired Satellis and Q2 last year and remain very optimistic about demand for P&T services as global organizations increasingly address the vulnerabilities inherent to GPS and GNSS space systems.
Speaker Change: Government service revenue was up modestly in the first quarter to 26.8 million, reflecting the step up in RMSS contracts with the US government this past September .
Speaker Change: Subscriber Equipment Sales were 23.1 million in the first quarter. While down from Q1 last year, which was the high watermark for 2024, demand continues to track expected levels.
Speaker Change: We continue to forecast full-year equipment sales in line with 2024, though we will obviously be monitoring the impact that evolving tariff policies may have on equipment costs.
Speaker Change: Engineering and support revenue was $37.5 million in the first quarter, as compared to $30.4 million in the prior year period.
Speaker Change: The increase reflected our growing work with the USG, including the Space Development Agency and two new contract awards from the prior year.
Speaker Change: One of the ancillary benefits of being involved with the SDA program is the insights it provides our team on new and evolving satellite technologies, which is informing our early stage thinking on our next generation network.
Speaker Change: As you will have noted from our release, we are affirming our full year guidance for both Service Revenue and O'Ebeda, but I'll make a few points in a second about what that means.
Speaker Change: Revenue and commercial voice and data is expected to accelerate from Q1, which is historically a seasonally self-quarter
Speaker Change: As we move into the back half of the year, voice and data will also benefit from select price actions.
Speaker Change: These price changes will phase in starting in July on certain commercial services.
Speaker Change: These actions were contemplated in our full year forecast and communicated to partners late last year.
Speaker Change: We hope this additional level of transparency will be helpful as you model our service revenue growth for the balance of the year.
Speaker Change: We forecast double digit IOT commercial IOT growth in 2025. This is driven by a step up in the two-year contract we entered into with our largest IOT partner and ongoing demand for personal satellite communications.
Speaker Change: We continue to see momentum in TNT and expect new work and contracts related to our satellite base time and location service to support our forecast.
Speaker Change: Our government business benefits from a step up in our EMSS contract which will result in full year revenue of 108 million in 2025.
Speaker Change: As Matt mentioned, there remains a high level of uncertainty on tariff policies.
Speaker Change: Even though the tariff policies were not contemplated in our February guidance, we estimate that if proposed tariffs was 10% on most of the world's stay in place
Speaker Change: While it would have a negative impact on our costs for the rest of the year, which we quantifies approximately 3 million, it can still be observed within our current guided oebs arranged, especially in light of our mitigation efforts.
Speaker Change: However, if the original tariffs announced on April 2nd were to be implemented, they would have a much more significant impact on our cost base, which at about $67 million would likely cause us to be outside arrow with the guidance range.
Speaker Change: Taken together, this outlook supports our forecast for service revenue growth between 5 and 7% and operational in Alibata, between 490 and 500 million this year.
Speaker Change: We continue to feel good about Iridium's business prospects. However, we will continue to engage closely with our partners and we'll monitor for any significant changes in business climate that may potentially impact end user demand.
Speaker Change: Moving to our capital position, as of March 31st, Iridium had cash and cash equivalence balance of 50.9 million, which was bolstered by a 20 million drawer on our revolver this quarter.
Speaker Change: Our cash flow is ample to fund operations and support ongoing payments of quarterly dividends, as well as our buyback program.
Speaker Change: During the first quarter, Iridium retired approximately 2.4 million shares of common stock at an average price of $29.48 That's a big sense.
Speaker Change: This left us with an outstanding balance of 360.3 million under our Board approved authorization through December 31st, 2027.
Speaker Change: Over the preceding 12 months, we've been able to retire approximately 12% of our outstanding share count.
Speaker Change: We will continue to execute on our buyback program, balancing the desire to maximize return on investment, with our long-term objective for de-leveraging.
Speaker Change: During the first quarter, we also made a quarterly dividend payment of 14 cents per share paid on March 31st.
Speaker Change: Beginning in the third quarter of 2025, Iridium's board intends to increase our quarterly dividend to $0.15 per share, representing an increase of approximately 5% over the full year of 2024 [inaudible]
Speaker Change: This reflects our confidence in the company's business opportunities and prospects for continued strong free cash flow generation.
Speaker Change: Capital expenditures in the first quarter were 24.5 million. We expect capital expenditures to rise in 2025 to support our work with 5G standards and moderate thereafter through the end of the decade.
Speaker Change: Turning to our pro-former free cash flow, if we use the midpoint of our 2025 O'Eve to guidance, and back off 91 million in net interest pro-former for our current debt structure, approximately 90 million in cap-ex for this year.
Speaker Change: six million in cash taxes and six million in working capital, inclusive of the appropriate hosted payload adjustment. We're projecting pro-former free cash flow 302 million per 2025.
Speaker Change: These metrics would represent a conversion rate of OE, but it's free cash flow of 61% in 2025 and a yield approaching 11%.
Speaker Change: A more detailed description of these cash flow metrics along with the reconciliation GAAP measures is available in a supplemental presentation under events on our investor relations website.
Speaker Change: Iridium continues to grow its business and make strong progress on new initiatives, like Iridium Mentor and Direct, MP and T.
Speaker Change: As I look at the competitive landscape, I feel very good about our positioning and prospects and with that, our ability to achieve our long-term growth targets and continue to return capital to shareholders
Speaker Change: With that, I'll turn things back to the operator and look forward to your questions.
Thank you.
We will now begin the question and answer session.
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Speaker Change: The opinions voiced in this material are for general information only and are not intended to provide specific advice or resources for any individual. To determine which investment option is appropriate for you, consult your financial advisor prior
Our first question comes from the
Rick Prentiss, with Raymond James, please go ahead
Good morning, everybody.
Eric
Speaker Change: I appreciate the color on tariffs. Obviously, a very fluid and volatile time that really helps us understand it on the cost side, but it's not like Matt, if it's just the 10% tariff stuff, you would prefer not to raise
Speaker Change: crisis at the customer at the time, but as we think longer term, any thoughts on what the tariffs would do to sub-growth or service revenue as an indicator?
Speaker Change: It's too early to tell. As I've said, we've had other economic shots in the past and given that we're a critical service in many cases, it usually doesn't.
Speaker Change: Effect Relief Demand, very much for us. So I'm not expecting right now that's not the mood we're getting in the market today.
Speaker Change: Right now, we don't see, you know, demand changes that are anything that concerns us too highly right now.
We're making supply chain changes to the health [inaudible]
Speaker Change: The dose cuts in the government efficiency stuff might be a little more...
Speaker Change: firm since you've seen some of those changes. We did note this quarter the government subs were down. Was that the USAID or was that in the commercial side and what maybe drove the change in government subs?
Speaker Change: You know, that doesn't really have much to do with those as much as it's just a government cleanup activity, is they?
Speaker Change: I think sort of position themselves for our NEC EMS or EMSS renewal in a couple years, you know, if they have...
Speaker Change: Units that they haven't been utilizing, they, you know, different services kind of turn them off to...
Speaker Change: You know, change their relative positions with other services, but it really-
Speaker Change: It really doesn't speak to anything related to Doge or anything like that Yeah, and the only thing I would add there Rick is
Speaker Change: The USAID, you'll see that in the commercial voice and data numbers.
Speaker Change: So that's a drive is there and there's also some conflict area draw it down as well there that you see in Q1. We called that by the way out there but it's one of the few things we've kind of seen that's been directly attributable that we could we could make a line to and as you can see it's pretty small and probably. So that's it.
Speaker Change: You know, relatively deterministic so far. Again, it's one of the few things that we could really draw a clear line to, but I don't see many other things like that.
And then she called out that we should expect some
Legacy Voice of Data, Price Actions in the second half.
Speaker Change: Historically, you guys was like every five years, it'd increase at maybe 10%. Should we think this is kind of more of that?
Speaker Change: Low-single-digit increases that might happen annually instead of just such a long-weight step-motion, long-weight.
Speaker Change: Yeah, a year or two ago we decided instead of having price increases every five years, a smaller price increase every...
to in half years.
Speaker Change: would be less noticeable really by the market and sort of in line with global inflation sort of things that are happening anyway. So not expecting a lot of reaction from it. We've had this in planning really for the last nine months so far. Obviously didn't communicate that.
Speaker Change: Publicly, so I'm sure you didn't have that in your models or anything but you know it goes into effect as scheduled your middle of the year and a little bit why our service revenues are a bit higher in the second half than the first half, one of the reasons anyway.
Speaker Change: That's the last one for me is you touched on obviously the directed device items. You might start seeing some service revenues. It sounds like in 26 as you go through the summer 25 trial. But how should we think about how that ramps up and what line items would that benefit your directed device plans?
Speaker Change: Well, it really affects IOT, you know, which is a strength of ours anyway. You know, in some ways, the earliest revenues I think will be
Speaker Change: or really a development by the end user partner. So how fast that goes, it's unclear, it depends on how fast for at least 19 ships that's getting the market and you know the MNOs that adopt us and that sort of thing.
Speaker Change: All the interactions we've been having are very positive. There's a lot of interest in having Iridium be a supplier.
Speaker Change: In that marketplace, as I said, we feel good being this complimentary service that sort of support that is kind of a global glue that is there to support all those places where
Speaker Change: D2D Won't Be, and even many places where it will be, where people want to use us. He'll take a little longer to get into
Speaker Change: Phones and Consumer Devices, so I'm sure there's interest there as well. So that may not hit in 26 as much, it'll be more IOT, but that will ramp out towards a lot of part of this decade.
Great. Thanks, everybody. Thanks for it. Thanks, Rick.
Edison Yu: Thank you. The next question comes from Edison Yu from Deutsche Bank, please go ahead.
Hey, good morning. Thanks for taking our questions.
first just on
Edison Yu: Just on the tariff situation, I know you caught out the $3 million and $67 million. Is that an impact for basically half a year? And then if they continue, we'd have to roll it through for the full year next year? Or what's the assumption on the timing of when that hits? [inaudible]
Edison Yu: Well, the 3 million really kind of started already, so it's three quarters of a year kind of effect.
Edison Yu: The 6 million to 7 million is by the way it's not incremental, that's a total amount so think of it as incremental 3 to 4 million on top of that.
Edison Yu: That is, you know, presumably at the end of the 90-day period, if those things go into effect, then that would affect this year. We're not given guidance next year yet on this because, I mean, anybody who can forecast out next year what terror policies will be, I think, is well.
Edison Yu: There's not certainly on the outside like we are. But I don't think that the overall incremental impact that we see is much more than that say six to seven million dollars on a full your basis right now, because we think we can mitigate. Okay.
Edison Yu: and everything else. So, you know, it's a tax on our business. It's a known yearly kind of tax as we see it, but, you know, hopefully it won't have much impact on, you know, business and momentum or other things as it relates to other things we're doing.
And that's it.
Speaker Change: Higher level question, obviously a lot of geopolitical shifts happening, and I think for the most part we see a lot on the K-band side, especially in Europe , given the political developments.
Speaker Change: I guess, how do you see that, or how do you think this could manifest, if at all, on the LVAN MSS side? I realize it's much different market dynamics, but curious if you have any views there.
Speaker Change: Yeah, I mean, there is a bit of protectionism. There's a lot of investment in EU space companies and supply to...
Speaker Change: to provide an alternate to Starlink, we see and hear that as well. A lot of people are being careful about getting too tied to US suppliers, etc. But so far we seem to be more of an international global player, you know, viewed...
Speaker Change: As he, having a unique and trusted and valuable service from partners who are all over the world, you know, we obviously haven't [inaudible]
Speaker Change: you know allied ourselves with anybody specifically and we support you know governments all over the world in terms of critical first responder and other services so I don't think it has a lot of impact on us right now we're obviously monitoring it and we'll
We'll
Speaker Change: For example, put embedded into some of those European solutions as a backup say to support.
Speaker Change: to protect against GPS, jamming, and outages. And really pleased to see that we're part of really what you could call a new centric solution.
Speaker Change: understood. And just the last quick one on aviation service. Do we have a, I guess, what's the latest update there? Should we expect a ramp in the, in the second half?
Speaker Change: Yes, I mean it is growing. Now that we have terminals that are available, we're right now. This is a year of flight trials to be certified for aviation safety services so they can put us on airplanes now to provide. Thank you very much.
Speaker Change: Voice and Data to say a cockpit but to certify it for air traffic control communications.
Speaker Change: It probably won't happen until early next year according to the current schedules. It just takes a lot of time for enough data to fly on enough airlines for the FAA to kind of approve that application. Thank you for your attention.
Speaker Change: But we are seeing a lot more applications you've probably seen us on helicopters, some of our partners.
Speaker Change: are ramping service and other non-safety applications in general aviation. And so it's happening also drones, which is still an early stage market is very interested in our...
Speaker Change: in our aviation applications, but that's also ramping slowly. So I don't think it's a big driver of our, our second half service revenue growth, but it's a long term positive trend for our service revenue. [inaudible]
Great, thank you.
Thanks, Dev.
Thank you.
Speaker Change: Our next question comes from Pauline Canfield from Cantor. Please go ahead.
Paul Smith, there
Speaker Change: Matt, I thought your comment was kind of comparing 2020-2035 and 2008 was pretty pressure and so maybe if you could talk about kind of previous lessons and dig into lessons from 2008 around Iridium's Quartic Corp. Act, it was...
Speaker Change: somewhat of a consumer defensive, and then maybe some commentary around 2020 in discussing the trends you saw there regarding consumer electronics funds.
Relatives, maybe the perception of a softening consumer environment. Thanks.
Speaker Change: Thanks Colin, yeah 2008, you know obviously we're still on our first generation network [inaudible]
quite concerned about the...
Speaker Change: The economic shocks that were going around the world, the recessions and that sort of thing, and yet I was really pleased, maybe not surprised.
Speaker Change: that none of our product lines actually changed their growth trajectory almost at all because I think we found that in almost every case what we were doing
Speaker Change: was an extremely valuable part of an enterprise or a government or was a critical safety applications. I remember some...
Speaker Change: Civil governments maybe had to cut back on their safety budgets and maybe had a few less phones, for example, in place but we didn't notice it really in the total and the growth continued to grow beyond it.
Speaker Change: 2020 was a what obviously had a similar reaction but was different because of just the
Speaker Change: The supply chain shocks that occurred, and in that case, again, I think might...
Speaker Change: and my supply chain team really showed out in terms of their ability to...
Speaker Change: quickly managed the situation. We are actually the one with the most equipment and probably took up, took share from other suppliers who were struggling.
Speaker Change: But again, it wasn't really a cut back in service. IOT continued to grow and other things as well new products that we were introducing. Also hit the market and grew as well.
Speaker Change: really, you know, this pair of situation has been an exciting last 10 weeks or so as we've been on lots of calls with my supply chain team scrambling really glad we put in this third party logistics center last last year because that will enable it's really in weeks to kind of move
Speaker Change: and Mitigate the Effects, which would have been a lot higher than $67 million if we had kind of had a team that could respond so quickly and professionally. But I think we're kind of ready for this. No one knows for sure if things continue to get escalator.
Speaker Change: Or change around the world, but right now we're kind of responding to this in a fairly deterministic way [inaudible]
Speaker Change: Got it. Got it. And then maybe one exercise, but kind of the way that you think about true government exposure for the total business. I think a lot of folks look at
Speaker Change: The Engineering Line, and they look at the pure-played government contract line, but don't, but I just particularly appreciate the level of government exposure on the civil side, public safety stuff like that. So is there a rough way to think about what the total government exposure for the businesses, not just not just direct?
Speaker Change: This fails to like why we end the use case of all the products.
Speaker Change: That's a good question. I can't say we've ever really analyzed it because there's a wholesale supplier we don't have.
Speaker Change: You know, it's hard to tell whether it's military or non-military, usually these are an IOT device tracking and assets difficult to tell. So that being said,
Speaker Change: I think it's still a relatively small part of our overall commercial business, if government is roughly...
Speaker Change: 20% or so US government. I would say combined all the other governments in the world are much less than that really. It's still small parts.
Speaker Change: You know, it's dominated really by commercial IOT and other other applications, but you know, they're solid PTT business and, you know, by other governments, there's, there's boys and data.
Speaker Change: Services, and there's IoT tracking and a lot of applications as well, even using personal communication devices as well as in the hands of other governments. But I still think it's, you know, probably single digits. It's good to see that.
You're good.
Okay.
Speaker Change: And then last week for me, but maybe conceptually talking through, and I was just like, similar to early endings on all PMC, but conceptually talking through how you think about like pricing mechanics and pricing levers. I think one of the things that people kind of focus on is the dynamic of assured access and how natural security in this environment is very much kind of a priceless feature, right? So maybe talk about kind of what you're seeing from new adders in the government domain.
Speaker Change: and then maybe like talking in kind of a longer form view of the business of how you think of the functionality and either a hot versus cold environment from a warfighting perspective.
Well, you know,
Speaker Change: I think we've talked a lot in the past about how the US government and other governments in the world don't have a single choice for a communication device whether it's in a vehicle or a dismounted soldier or whatever it is, they really want multiple things because
Um, you know,
Speaker Change: Even in good times, you know, things can be thwarted whether it's the GPS signal being jammed or communications system. So, you know, they talk in terms of pace, primary alternative contingency, emergency, like four different kind of categories.
Speaker Change: Sometimes we're the primary, but almost always we're the alternate contingency or emergency sort of in a solution connecting an asset or soldier or whatever it might be.
Speaker Change: In that environment, I think we're quite resilient around the world to a lot of things. Even as new solutions come forward, obviously we're seeing a lot of interest in Starlink and Star Shield but that doesn't really do what we do.
Speaker Change: So again, we think that as solutions like that and others, you know, whether it's the one web and Kipers and others of the world in K and K you, they're also looking still for L band solutions that are
and more resilient, more global.
Speaker Change: provide an alternate connection really or is backup or command and control or whatever it might be particularly.
Speaker Change: Given our size, weight and power is different than a lot of those solutions as well. You talked about being denied, of course, I think you're referring to like our P&T solution, we do have a big advantage there, and that we have...
Speaker Change: You know provide even service a timing signal inside a building or other asset and on that basis I think the whole world is realizing the importance of that application and really the interest has been exploding [inaudible]
Speaker Change: You know, really over the last year or two, but particularly since we bought Satellis, I think we just have seen lots of applications where that's applicable to [inaudible]
Got it. Thank you for the call. Yeah, thanks, go on.
Speaker Change: Thank you. The next question comes from Hamed Khorsand, from VWS Financial, please go ahead.
Hamid Khorsan: Thank you. Good morning. First off, I just want to see you in what kind of response you're seeing from your partners as far as equipment goes. Are they stock you more? They want to stock more? And what kind of level of conversation you've been having with them?
Hamid Khorsan: Yeah, so far, you know, we haven't seen nor would we encourage, you know, any kind of...
Hamid Khorsan: You know, stocking up or anything like that from from I mean around the edges I think we had a
Hamid Khorsan: Order on chipsets or something that was a little larger than expected and perhaps there was some of that involved but we don't see like a direct connection right now today.
in our supply chains. Still see the demand, still see...
Hamid Khorsan: sort of our expectations from a yearly perspective, the fact that we're not passing on these costs right now to these customers is probably appreciated if we would have told them that there would be a big price increase or something on hardware later this year we might have...
Hamid Khorsan: changed that but I don't think that's really the direction we wanted to be going so really haven't seen much much different so far.
Speaker Change: And my other question was as far as engineering revenue is concerned, this was the second quarter at Roro, 37 million, is that going to be the same going forward? I mean this revenue line used to be very lumpy, could you just provide a little bit more details about that?
Speaker Change: Yeah, what I would say, Hamed, there will probably be some variation in that going forward but certainly that level or up close to that level is probably a good assumption moving through the rest of the year.
Speaker Change: Yeah, a lot of growth has been driven by our contract with the Space Development Agency as we've built their ground
Speaker Change: weve got four more. Thank you and remember, if you want to take one of these segment, go ahead and do one of these challenge classes, one of these four challenges, and you ca n get that gift of information
Speaker Change: proliferator warfighter network that they're launching right now. That's getting to a maximum sort of spend rate here soon because they're launching satellites and we'll be operating them.
Speaker Change: before long. So we've been ramping up as we've been building that system and then we'll go a bit more of a steady state on that when we go into operational mode.
Great. Thank you.
Thank you, Hamid.
Speaker Change: Thank you. Next question comes from Chris Quilty from Quilty Space, please go ahead.
Speaker Change: Thanks just to follow on to that last statement around the shift from, you know, build out to service. Is the margin profile or I should just say the margin gross?
Speaker Change: You know, the margins you can really charge on services or even equipment is pretty fixed, so margins are going to stay pretty consistent. The government pays us.
Speaker Change: for work we do with a profit and that's really the incremental margin we can get so it doesn't really change significantly.
Speaker Change: That's right, great. Circling back, sorry, one more question on equipment. Customers have not been necessarily stocking inventory, but Vince, you guys...
Vince: kind of ran up your inventory which was historically like 30 to 40 million even post COVID up to the 80 to 90 million level in late 23 and it's kind of stayed at those levels.
Speaker Change: It does that inventory and it's sort of comparative advantage of the tariffs you paid become . . .
Vince: You know a use or a source of cash, you know you work that down. [inaudible]
you know, on your...
Vince: from the Inventory, or does the build-up of the 3PL in Europe sort of all set?
You know, any...
and the Inventory Optimization You Might Trust.
Bye-bye.
Vince: No, that will definitely help Chris, so the fact that we have that equipment and inventory on hand, certainly helps us as...
Vince: As we move forward here and negotiate our way through the tariffs in the short term so I don't know that it will be dramatic but you probably see some drawdown in inventory as we go through Q3 and Q4
Speaker Change: Okay, and one other sort of inventory hardware question, as you move to the NTN Direct, I mean currently, you know, sell to vams and vars that build stuff.
ostensibly as you move to an N T N model.
Speaker Change: Does the need for hardware diminish or go away because these all become standard DDD or IoT devices that exist?
Speaker Change: Product Line, which we make modules and devices which we sell as we move to more chipsets in general.
Speaker Change: Whether it be by the way proprietary, which we're kind of moving towards even a chipset sort of approach on our FBD service down the road. But as we move to standards-based solutions, certainly there's a lot less. Thank you very much.
Revenue there, in some cases.
Speaker Change: Still good margins when it's our systems, but it's certainly higher volumes as well there, so I think that kind of evens out a little bit.
But yeah, I think that covers
Speaker Change: But yeah, there's probably less hardware, as you know, hardware equipment's never been...
Speaker Change: You know the line we have focused on it's a driver for service revenue so the less
Speaker Change: The more equipment we can send out with the least amount of margin is just great news because it just gets more potential for service driving for us. So that's definitely in line with our approaches.
Speaker Change: Great. And final question, just related to safety services, both maritime and arrow where you've picked up certifications last year, is there any opportunity to sort of jumpstart customer adoption in those products? I think you're
Speaker Change: You would claim roll to the advantage roll to your one competitor on sort of hardware and throughput and whatnot.
Speaker Change: Or is that simply a market where customers don't replace existing terminals? You're really just selling into the new market of new things that are being configured and set up with the GMDSS or Aviation Safety Services?
Speaker Change: We also expand both the adoption but also the kind of share of wallet that we can address in those areas particularly around aviation where
Speaker Change: We have a unique capability, it's differentiated, the market really likes what we can do and others can't do as well as we can, so we have some ideas about how to move down the road but still a little early for that to talk about.
Funny. I look forward to it. Thank you. Okay. Thank you for this.
Thank you.
Matthew Robillard: The next question comes from Matthew Robilliard, from Barclays. Please go ahead.
Matthew Robillard: Yes, good morning. Thank you for the presentation. I had first one on the maritime and as you flagged in many quarters
Matthew Robillard: There's a negative impact from the fact that you're losing some true connectivity revenues and I wanted to...
Matthew Robillard: I understand when exactly you expect that to disappear because when I look at the quarterly trended things, it seems it was...
Matthew Robillard: really a big impact in Q2 last year, a little bit in Q1, but oh rather it started then and I was wondering if by Q3Q4 this year we could see a stabilization both in our pool but also in terms of subscribers on that business line.
Speaker Change: I hope so, but I mean, I'm not really forecasting a specific time for it, you know.
Speaker Change: It's hard to forecast precisely when that will end, but we do think that as more Iridium service GMDSS terminals come out, there's, like,
Speaker Change: You know, I think that's holding that transition up a little bit, once that kind of, and those are all supposed to.
Speaker Change: Get into our market this year sometimes, so I really kind of I'm expecting you know 2026 to be the year when it's definitely over or when we're normalized if you will but exactly when it's hard to hard to forecast.
Speaker Change: and maybe even some growth there, but this isn't like a key part of our overall growth story or...
Speaker Change: or, you know, driver to 2030 revenues and cash. But, you know, we believe it's important enough and we have the market position and a defensible market position to maintain a really solid position in this area, you know, based on just the...
Success of our GMDSS services.
Speaker Change: That's clear. So I guess if we think about maybe some contribution from IRO as you flagged earlier and some sort of stabilization, that's how you're happy to guide for not a guidance between decade in the previous quarter that brought them revenues would remain broadly stable here, which obviously can be an honest one. I think that's consistent. We've been going back to our investor day. This wasn't part of their driver. We would have liked to grow on it. [inaudible]
Speaker Change: You know, small amount by now, but you know, I think that that's going to turn around and we really think we have a solid position that's important and critical in long term and have really kind of worked.
Speaker Change: to make sure we had the best product and market positioning so that we could be that complement to other K.A. and K.E. solutions. And right now that's the way the market sees us and is encouraging us and is telling us we should play out long term.
Speaker Change: but I would have thought it would be a much bigger extension of coverage for, you know, regular smartphones.
Speaker Change: Did I get your numbers right or is there something you want to add on that one?
Speaker Change: You know, what I was talking about is current cellular coverage of the whole world is 10 to 15 percent. That's how much your world that recovers.
Speaker Change: I said that it would be incrementally pretty small, even those networks have satellites that go all around the planet, you know, and
Speaker Change: that they're able to use using cellular frequencies are allowed by that government, by that landmass to be able to operate and right now we believe
Speaker Change: There's really limited markets where currently cellular-based D2D will be operating. Certainly the US is one of them and they can fill out the coverage in the US which
It's very good today, but isn't 100% good?
Speaker Change: There are other kind of more island nations like Australia and Japan where I think it will also...
Speaker Change: come into usage pretty quickly, but it won't cover, you know, water, it won't cover Europe , and it won't cover other areas.
Speaker Change: because in a lot of countries, the interference environment between those cellular frequencies and adjacent markets where those cellular frequencies are also used would create a lot of...
Speaker Change: Interference and inability to really offer those services and so governments won't allow them to operate globally. So unlike mobile satellite service frequencies like our L-band or even S-band frequencies that some others have, those are globally allocated, they don't cause-
Interference, you know, market to market because they're ...
Speaker Change: They're coordinated on a global basis, which is why our Iridium NTN Direct Service being global can be can be really differentiated and complimentary to a regional solution that's providing kind of cellular infill in a specific market where it's
Speaker Change: where it's not causing interference in the regulatory agent to prove this and we can provide sort of the glue that provides a global service that complements that.
That's very clear. Thank you.
Okay, thank you [inaudible]
Thank you.
Speaker Change: A last question comes from Lewis DiPalma from William Blair, please go ahead
Matt Vincent and Ken Goodmorning. Hey, Louie.
Speaker Change: Should IoT subscribers turn positive later in 2025 after the cleanup is done?
Louis: Yeah, I would hope so, I don't know if it depends on when it kind of started at the when it ends. I think it was sort of was it late last year or late last year the
The change over that partner made to a...
Louis: having customers go to a yearly to a monthly basis sort of affected so we expected sort of a one-year transition and so I don't know how we'll see it whether in the fourth quarter but I would certainly expect to see it in 26
Where that affect.
that's right, you know, of anybody who...
Louis: was the deactivations really that were occurring on that sort of come out of it. And then we'll be in a bit more volatile environment where people will see the subscribers on the network as they use it, only the months that they use it as opposed to
Louis: All the time, whether they're using it or not, but again it's a said that that doesn't really affect our revenues since that customer has a fixed price contract
Louis: Great, and should that contract stay six price going forward? Is that the expectation?
Louis: Well, we're talking about that now. But what we want to do is just have a win-win situation with that partner to both encourage their growth and I'm sure they feel the same about us so that we grow together and we're having good discussions about that now.
Speaker Change: Great, and secondly, should the main catapex associated with NTN Direct be complete in 2025 in terms of the software updates and modifying your ground network.
Speaker Change: Certainly largely, you know, the big lump, if you will, the kind of incremental amount of what would probably in budget a couple of years for, certainly going to be mostly completed this year, but there's always some kind of cleanup afterwards, so it'll leak into 27 as we get into sort of up to 26.
Speaker Change: as we get into further tweaks and upgrades and things like that, but largely the shear is the biggest part of it.
Great. And one final one. Do, um…
to our all of the 75.
Original Iridium Next Satellites, or, do they all remain?
Functional, and you previously extended the...
Speaker Change: Accounting Useful Life, is there the potential sometime that you also extend the CapEx holiday?
Yeah, so all 80 satellites actually we haven't sprained up.
Speaker Change: 66 and 14 spares are all healthy, operating fully well, haven't needed to use knock on wood.
Speaker Change: What we bought them for, which is why we extended the useful life and could there be other extent? Yeah, if we continued operating this way, we'll extend it again.
Speaker Change: Certainly won't do it this year, I don't think, but at some point in the future as the network continues to perform well and
Ken Levy: and we see that we have all these extra satellites in space, then, you know, probably extended further. Yeah, and just that to that, Levy.
Ken Levy: We extended the useful life from 12 and a half to 17 and a half years which when you do the math takes you at the middle of the next decade and to Matt's point we'll continue to monitor the performance of the network and kind of go from there.
Speaker Change: I think I've said before, I'd be disappointed in our... Great, thanks.
Speaker Change: Our last generation satellites lasted over 20 years and they weren't built to last to anywhere the standards as the satellites today. So we haven't we haven't projected that yet and may not but right now it's disappointed if they don't extend at least the same length of time as the first generation satellites did.
. . .
. . .
Thanks. Thank you.
Speaker Change: This concludes our question and answer session. I would now like to turn the conference back to the management for any closing remarks.
Speaker Change: Yeah, well thank you. I mean obviously it's kind of crazy times globally right now and we're as you can tell we're one of the first to announce so I'm interested in seeing what everybody else is doing. I feel so proud of my team for how we're kind of...
Speaker Change: Managing the current environment as business continues to track to our expectations and to our longer-term expectations as well. So look forward to talking to you individually, but I hope this is helpful to you. Thanks.
Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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