Iridium Communications Inc. Q4 FY2024 earnings call

• 2024 was a transition year with modest OEBITDA and 5% service revenue growth due to various headwinds, but OEBITDA is expected to return to historical growth trends.
• Returned approximately $140 million to shareholders in Q4 2024 through dividends and share repurchases, with over 30 million shares retired since 2021 and over $1.2 billion returned to shareholders.
• Progress in product development: Introduced Iridium Certus GMDSS for Mariners, enhanced functionality for various users, onboarded over 30 new partners and certified over 60 new partner applications in 2024, and made progress on 3GPP standards for D2D.
• Aireon, in which Iridium has a significant stake, has expanded its leadership in aviation surveillance, broadened its market position with data analytics services, and is working on new capabilities like turbulence monitoring.

For 2024, service revenue was on target, and operational EBITDA exceeded full-year projection. Iridium generated over $300 million in pro forma free cash flow. In the fourth quarter, operational EBITDA was $117 million, up 3% from the prior year, and total revenue grew 9% to $213 million. Commercial service revenue in Q4 was $127.3 million, up 5% year-over-year; commercial IoT grew 15% in the quarter. Broadband revenue in Q4 was $13.4 million, down 9% year-over-year. Government service revenue rose in Q4 to $26.8 million. Subscriber equipment increased 38% in Q4 to $21.6 million. Engineering and support revenue grew 20% in Q4 to $37.4 million. For 2025, guidance includes service revenue growth of 5%-7% and EBITDA of $490M-$500M. IoT is expected to have double-digit revenue growth despite subscriber seasonality, broadband revenue to remain similar to 2024, equipment revenue similar to 2024 but with lower margin, and engineering and support to grow again.

• 2025 service revenue is forecasted to grow between 5% and 7%.
• 2025 EBITDA is expected to be between $490 million and $500 million.
• CapEx in 2025 is预计 to be about $90 million to support work with 3GPP standards and testing/adoption of Iridium's L band waveform.
• Dividend is expected to increase to $0.15 per share starting in the third quarter of 2025.
• Pro forma free cash flow for 2025 is projected to be $302 million, with a conversion rate of OEBITDA to free cash flow of 61% and a yield of over 10%.

• Short interest in shares, which is part of a bearish bet on the broader satellite sector due to Starlink's aggressive pricing and adoption.
• Recurring stories about potential vulnerabilities in the government network, though the network is not encrypted by default and partners can encrypt traffic as needed.
• Seasonality in IoT subscribers due to a large commercial IoT customer changing retail pricing plans, leading to more seasonality in subscriber numbers.

Q: Good morning. Thank you so much for taking our questions. So first off, I want to get your kind of latest thinking on the landscape. Obviously, we've got some deals happening on the L band side potentially. You alluded to the Starlink. Has any of the recent developments changed your thinking on the speed, and what you're trying to do in D2D?

A: No, I don't think so. I know a lot of you kind of pinged us, when Apple announced a tweak to their iPhone, for example, which I -- we fully expected, I mean, with their 60% market share, why they wouldn't work with T Mobile service, for example. And I had to answer a lot of questions, you know, for a few days when a totally expected situation sort of announced. Perhaps there was other reasons for making that announcement, but it certainly wasn't technical. All the other things really are things we've been anticipating for a long time, which is frankly a feature of the satellite industry. You typically can figure out what's going to happen for quite a few years in advance, which is why we've been able to navigate so successfully really over time, as we've anticipated what others are going to do. So, our D2D offerings we believe are quite complementary to many of these others. I know that many investors seem to think it's a zero-sum game that every announcement means that somebody is winning and somebody is losing. In our case, because our investment is modest and the gains which we believe will happen from moving to a standard based D2D kind of world is significant. We expect to have a really nice return going forward and will fit very well and be complementary to many of these other solutions, because as I said, mobile network operators are really looking for multiple solutions to offer their customers, and they like our global highly reliable approach and would love to have their customers roam onto our network.

Q: Understood. I want to ask a longer-term question on the potential NextGen or the NextGen constellation. I think, Matt, you may have made some comments at a recent industry conference about it. One perspective or one angle I wanted to kind of maybe get your thoughts on is, have you entertained or would you consider the possibility of perhaps having a partner or someone else kind of own or handle the CapEx of that future constellation? And then you would take on obviously the operating role and the market and the go-to-market role. But just this idea of trying to maybe offload the CapEx or the burden of that in the future for this NextGen constellation?

A: I mean, we're open to all kinds of ideas and continue to talk to everyone in the industry about things. That's really a decision that can't -- doesn't make sense to make today because it's really for something in the next decade. As I've said in other calls before, I think the cost of a next generation network will probably be less given all the investment the industry has made in satellite platforms. I was at a small sat conference when I made that and there were of course I got I've been rushed since then with people who want to offer me lower cost buses and lower cost launch services et cetera. And I think those will all be beneficial when we get around to doing that in perhaps in the 2030s. I think our advantage here is really our ability to create businesses and the technology that we've employed has really been effective. Things like, as I said, developing Aireon or developing PNT services, et cetera, have been we've been an innovative organization and having control of the technology is an advantage. This isn't a commodity, you don't just turn it over to someone else and sell services at low margins. We make very high margins as a result of kind of owning our own technology and our own spectrum. And I don't see that changing dramatically, but I'm open to other discussions, particularly around partnering with other constellation. There's perhaps the opportunity to make -- to have our payload be a part of another constellation or utilize someone else's factory line for satellites to make it very low cost for us to replicate or rejuvenate our constellation. But we already have ideas as I mentioned in that conference about some other things we'd like to do with the next generation constellation, some new services again that would make us quite competitive and interesting going out into the 2030s and 2040s. So that's what we're thinking about and spending our time on.