Iridium Communications Inc

Good morning and welcome to the Iridium Communications second quarter earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Ken Levy, VP of Investor Relations. Sir, please go ahead.

Thank you, Jamie. Good morning, and welcome to Iridium's second quarter 2020 earnings call. Joining me on this morning's call are our CEO, Matt Desch, and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of our Q2 results, followed by Q&A. I trust you've had the opportunity to review this morning's earnings release, which is available in the Best Relations section of Iridium's website. Before I turn things over to Matt, I'd like to caution all participants that our call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical fact and include statements about our future expectations, plans, and prospects. Such forward-looking statements are based upon our current beliefs and expectations and are subject to risk which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in our filings with the Securities and Exchange Commission. Our remarks today should be considered in light of such risks. Forward-looking statements present 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 certain non-GAAP financial measures, including operational EBITDA, in pro forma 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. Please refer to today's earnings release and on the investor relations web section for a further explanation of our non-GAAP financial measures and a reconciliation to the most directly comparable GAAP measures. With that, let me turn things over to Matt.

Thanks, Ken. Good morning, everyone. Well, it's clear that 2020 will be defined by the coronavirus. While this global pandemic continues to create uncertainty for many industries, and Iridium has felt the effects too, we are fortunate to operate a wholesale business and provide mission-critical services that remain pretty resilient. Since the initial period following the lockdowns in mid-March, we have seen sequential monthly improvement in our business lines. Subscriber growth in May was better than April, and June was better than May, and this trend has now continued into July. Overall, results in the second quarter were flat compared to last year, which frankly was a good outcome given where the quarter began. During the past three months, we've also started to get improved visibility across our partners' channels to better assess what we think the full year impact of the coronavirus will be on our business. This improved visibility gives us confidence in revising our full year outlook for service revenue and operational EBITDA. Perhaps most important in the current climate, we have maintained our ability to generate strong, free cash flow and continue to deliver our balance sheet, which means our long-term investment thesis remains intact. As I highlighted last quarter, the impact of the global lockdown was most pronounced in our commercial IoT business. This segment spans a variety of different industries and user types, and into the second quarter, the pandemic continued to weigh particularly hard on our aviation partners and to a lesser extent partner activities in oil and gas. The decline in aviation flight hours means that IOT transmissions for cockpit safety services is running below normal seasonal trends. Aerion is measuring that global air traffic has recovered almost 50% of the global movement since January, but the international flights that Iridium primarily serves are recovering more slowly. While their data is showing week by week recovery in traffic, most industry analysts still anticipate a relatively slow recovering aviation, which means the current environment will likely persist for the remainder of the year and into 2021. On a positive note, we've seen a bounce back in consumer-oriented IoT services coinciding with the reopening of many retail stores in the second quarter and the desires of many to seek out remote activities. This has revived sales and use of devices like Garmin's inReach, and other personal communicators like the new satellite communicator from Zolio, Somewhere Labs Global Hotspot and Bivy's BivyStick. In the second quarter, Iridium added 33,000 net new IoT subscribers, predominantly consumer-oriented subs, with activations in June being the strongest month by far. In our legacy voice business, we expressed concern in April that COVID disruptions would restrain activations during our peak selling season, which it has. Fortunately, the headwind has not been as great as we originally forecast. Based on the trends we saw through April, we had anticipated a decline of more than 5,000 net voice subscribers in the quarter, but the decline has turned out to be only about 2,000, which is encouraging. As we said last quarter, the problem hasn't been customer deactivations. It's been fewer customers activating new or reactivating existing devices for their typical summer activities. But there seems to be more of that as activities are slowly opening up again around the world. Now that we're halfway through our peak selling season, we're getting better visibility on usage trends. Within maritime, the slowdown in shipping activity persists with a reduction in routes and ongoing logistical challenge of getting installation crews on vessels. Out of abundance of caution not to expose ships into their crew to the coronavirus, many vessels have remained in lockdown, making it difficult for our partners to access vessels to install new equipment already purchased, as well as meet with ship owners on the procurement of new services. Even in the current environment, we're not sitting idly by. We've been engaging with our partners and been proactive with promotions and messaging. Many of our partners are attracting attention with deals featuring Iridium's service as a VSAT companion service. We also have been supporting mariners and ship owners with access to some free voice calling cards for their crew to allow them to connect with family and friends during a particularly stressful time away while also demonstrating the enhanced voice quality of our new network. Even with the challenges in maritime, we were able to drive positive net installations of broadband terminals and a 15% increase in year-over-year broadband revenue. Overall, Iridium Certus remains an important vehicle for growth for us, and we received great feedback on the product from those using it. In the coming months, We're expecting Iridium's new GMDSS service will also launch. It's entering final beta trials soon on a number of ships around the world, connecting them in an emergency to regional rescue coordination centers as well as critical navigation weather information sources. Our partners are excited about this offering as it targets the 65,000 SOLAS class vessels that are required to carry GMDSS but have traditionally only had one supplier. Iridium's GMDSS is being offered as a standalone terminal initially, though it will start the integration with Iridium Certus in 2021, and when complete, should serve as an additional tailwind to the adoption of Iridium Certus broadband. We're also expecting a new high-speed Certus broadband terminal from Korean manufacturer Intelli in this quarter, which is a great maritime brand that many partners are looking forward to having access to. We're also introducing some new IoT products soon. Our new Iridium Edge Pro and the Iridium Edge Solar will make developing IoT services using Iridium's network easier and faster, as well as complement the new Iridium Cloud Connect service powered by AWS, which is already in use by a number of our partners. With continued recovery from global lockdowns, we expect 2021 to start the recovery to more traditional IoT growth rates. We are making progress on delivering Iridium Certus aviation products in 2021 and 2022. Our first terminal partners have started to test their products on our network, and we're making progress on the regulatory front towards FAA certification for safety services on Iridium Certus to complement our existing legacy safety products. We remain excited about the aviation segment and its future contribution to broadband revenues in the coming years. Our business with the US government particularly under the new EMSS contract remains largely unaffected by the pandemic. We continue to work with the government on upgrades to their dedicated gateway to enable private Iridium service services as well as other engineering upgrades and maintenance they pay us to do. We had some subscriber cleanup and some internal logistical activities with the transition to US Space Command that netted out a roughly flat subscriber number in the second quarter, but that doesn't affect revenues with our fixed price contract and activity with the U.S. government remains at historically high levels overall. Lastly, Arian. Obviously, global air travel has taken a big hit with the pandemic, and that has affected the pace of Arian sales activities with new ANSPs. Overall, though, they are continuing to make progress on their business objectives. Arian's data services are now being used and deployed by ANSPs covering 37 countries, including growing usage by the FAA. They are also seeing some initial success with selling their data for other commercial purposes like flow management, airport service surveillance, and airfield management solutions. You might have seen their announcement a couple of weeks ago with Passeur Aerospace on that front. So while Iridium is certainly not immune to the effects of a global pandemic, we continue to execute well in this challenging environment. We're managing our business effectively, making strong progress on product development, prioritizing growth, and investing in the future. In a year of extraordinary business headwinds and global uncertainty, Iridium is adding net new subscribers, driving incremental revenue growth, and most importantly, generating significant free cash flow. So with that, I'll turn it over to Tom for a review of our financials. Tom?