Iridium Communications reported financial results for the first quarter of 2020 and updated its full-year 2020 outlook. Net loss was $31.7 million, or $0.24 per diluted share, for the first quarter of 2020, as compared to net loss of $18.0 million, or $0.18 per diluted share, for the first quarter of 2019.
This increase in net loss was primarily the result of debt extinguishment costs associated with Iridium’s refinancing of its senior unsecured notes. Operational EBITDA for the first quarter was $92.1 million, as compared to $78.0 million for the prior-year period, representing a year-over-year increase of 18% and an operational EBITDA margin of 63%.
Iridium reported first-quarter total revenue of $145.3 million, which consisted of $116.0 million of service revenue and $29.3 million of revenue related to equipment sales and engineering and support projects. Total revenue increased 9% from the comparable period of 2019, while service revenue grew 8% from the year-ago period. Service revenue, which represents primarily recurring revenue from Iridium’s growing subscriber base, was 80% of total revenue for the first quarter of 2020.
The Company ended the quarter with 1,332,000 total billable subscribers, which compares to 1,151,000 for the year-ago period and is up from 1,300,000 for the quarter ended December 31, 2019. Total billable subscribers grew 16% year-over-year, driven by growth in commercial and government IoT customers.
“In the first quarter, Iridium delivered solid growth in total revenue and billable subscribers, driven by strong gains in service revenue, engineering and support services, and equipment sales. New revenue from Iridium Certus® broadband, along with increases in contractual revenue from the U.S. government and Aireon also aided our results,” said Matt Desch, CEO, Iridium. Desch added, “Iridium is pleased to have completed all planned refinancing activities in recent months, and we remain confident in our ability to generate significant free cash flow in 2020 and beyond. Accordingly, we continue to be committed to undertaking shareholder-friendly activities in due course.”
Commenting on the impact of COVID-19 to the business, Desch said, “In March we began to see a reduction in the pace of subscriber additions, and heard from some of our many partners about varying levels of business impact depending on their industry. Into April, these trends accelerated. While we continue to forecast overall growth in service revenue and Operational EBITDA for 2020, we are updating our full-year outlook to account for these unfavorable impacts.”
Desch continued, “Iridium’s satellite services are used for mission-critical applications across the globe, and our revenue base has, historically, been more resilient than many businesses to exogenous shocks and economic cycles, though the current economic shutdown is unprecedented. The timing of the shutdown coincides with Iridium’s peak season and will impact us accordingly. Still, we remain confident in Iridium’s ongoing financial position and our capacity to generate significant free cash flow.”
Commercial service remained the largest part of Iridium’s business, representing 63% of the Company’s total revenue during the first quarter. The Company’s commercial customer base is diverse and includes markets such as maritime, aviation, oil and gas, mining, recreation, forestry, construction, transportation and emergency services. These customers rely on Iridium’s products and services as critical to their daily operations and integral to their communications and business infrastructure.
Commercial service revenue was $91.0 million, up 7% from last year’s comparable period due to an increase in revenue primarily from hosted payload and other data services, broadband and IoT.
Commercial voice and data subscribers were up 1% from the year-ago period to 351,000 customers. Commercial voice and data average revenue per user (“ARPU”) was $40 during the first quarter, unchanged from last year’s comparable period. Commercial IoT data subscribers grew 22% from the year-ago period to 830,000 customers, driven by continued strength in consumer personal communications and tracking devices. Commercial IoT data ARPU was $9.71 in the first quarter, compared to $11.32 in last year’s comparable period.
Commercial broadband revenue was $8.7 million, up from $6.8 million in the year-ago period. This rise was primarily attributable to the introduction of Iridium Certus broadband service. Commercial broadband average revenue per user (“ARPU”) was $267 during the first quarter, compared to $233 in last year’s comparable period.
Iridium’s commercial business ended the quarter with 1,192,000 billable subscribers, which compares to 1,036,000 for the year-ago period and is up from 1,165,000 for the quarter ended December 31, 2019. IoT data subscribers represented 70% of billable commercial subscribers at the end of the quarter, an increase from 65% at the end of the prior-year period.
Hosted payload and other data service revenue was $16.3 million in the first quarter compared to $13.9 million in the prior-year period, which was primarily due to increased Aireon data service fees related to a contractual step-up.
Iridium’s voice and data solutions improve situational awareness for military personnel and track critical assets in tough environments around the globe, providing a unique value proposition that is not easily duplicated.
Under the Enhanced Mobile Satellite Services contract (the “EMSS Contract”), a seven-year, $738.5 million fixed-price airtime contract with the U.S. Air Force Space Command signed in September 2019, Iridium provides specified satellite airtime services, including unlimited global standard and secure voice, paging, fax, Short Burst Data®, Iridium Burst®, RUDICS and Distributed Tactical Communications System services for an unlimited number of Department of Defense and other federal government subscribers. Iridium also provides maintenance and support work for the U.S. government’s dedicated Iridium gateway under two other contracts with the U.S. Air Force Space Command. Iridium Certus airtime services are not included under these contracts and may be procured separately for an additional fee.
Government service revenue was $25.0 million and reflected increased revenue from the Company’s EMSS Contract.
Iridium’s government business ended the quarter with 140,000 subscribers, which compares to 115,000 for the year-ago period and is up from 135,000 for the quarter ended December 31, 2019. Government voice and data subscribers rose 11% from the year-ago period to 59,000 as of March 31, 2020. IoT data subscribers increased 31% year-over-year and represented 58% of government subscribers, an increase from 54% at the end of the prior-year period.
Equipment revenue was $22.3 million during the first quarter, up 6% from the prior-year period.
Due to the combined effects of the current global shutdown, deterioration in the oil and gas market, and strength of the U.S. dollar, the Company now expects full-year equipment sales will be down from 2019 levels.
Engineering and support revenue was $7.0 million during the first quarter, compared to $5.7 million in the prior year’s quarter, primarily due to an increase in the volume of contracted work.
Capital expenditures were $9.5 million for the first quarter, which includes $1.2 million of capitalized interest. The Company ended the first quarter with gross debt of $1.65 billion and a cash and cash equivalents balance of $67.3 million, for a net debt balance of $1.58 billion.
Two noteworthy transactions have impacted the structure of Iridium’s debt financing over the last two quarters. In November 2019, the Company entered into a seven-year, $1.45 billion secured Term Loan. The proceeds of the Term Loan, along with the cash in the Company’s debt service reserve account and cash on hand, were used to prepay all of the indebtedness outstanding under its BPIAE Facility and premiums for early prepayment, net of amounts refunded, of $48.9 million. On February 7, 2020, the Company closed on an additional $200.0 million under its Term Loan. On February 13, 2020, the Company used the proceeds of this transaction, together with cash on hand, to prepay all of the $360.0 million in indebtedness outstanding under the Company’s senior unsecured notes, premiums for early prepayment of $23.5 million, and accrued interest.
Given the current global shutdown and macroeconomic uncertainties, the Company updated its full-year 2020 outlook and currently anticipates:
- Growth in total service revenue for full-year 2020. Total service revenue for 2019 was $447.2 million.
- Growth in OEBITDA for full-year 2020. OEBITDA for 2019 was $331.7 million.
- Negligible cash taxes in 2020. Cash taxes are expected to be negligible through approximately 2023.
- Net leverage of no more than 4.4 times OEBITDA at the end of 2020. Net leverage was 4.8 times OEBITDA at December 31, 2019.