Iridium Communications Inc

Welcome to the Iridium third quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. 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. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ken Levy, Vice President, Investor Relations. Please go ahead.

Thank you, Andrew. Good morning and welcome to Iridium's third quarter 2021 earnings call. Joining me on today's call are CEO Matt Desch and our CFO Tom Fitzpatrick. Today's call will begin with the discussion of our third quarter results followed by Q&A. I trust you've had an opportunity to review this morning's earnings release, which is available on the Investor Relations section of ARIM'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 risks 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 only be considered in light of such risks. 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 certain non-GAAP financial measures, including operational EBITDA, pro forma 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 in the investor relations section of our website for a 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, Ken. Good morning, everyone. As you saw in this morning's earnings release, we put up another exceptional quarter with really strong results. In fact, this quarter was our highest quarterly operational EBITDA in company history. The results are indicative of the strong rebound we've seen since last year during the early days of the pandemic. In the third quarter, we saw broad-based demand for our many solutions and continue to witness the strength of our wholesale business model. The ecosystem of around 500 global partners that we've built over the past two decades remains a real differentiator. It has shown its resilience during various economic cycles and market dislocations. Back in May, you will recall that Tom and I laid out the vectors for Iridium's five-year growth plan during our investor day. At that time, Visibility for growth in 2021 was still a bit clouded by how fast some of our partners' markets might recover from the previous year. However, we still had a strong grasp of the underlying demand for our services, and we had confidence that a full schedule of new product rollouts and planned service introductions, all supported by our substantial partner network, would deliver new subscriber additions just as it has in prior years. This perspective supported our announcement in May of a return to average high single-digit service revenue growth from 2023 through 2025. We're definitely on schedule for that, given our results this year. In light of the growth we continue to see across our commercial business lines, we're taking up our full-year outlook for service revenue growth to between 5% and 6% in 2021. This increase also supports a higher operational EBITDA, which we now expect to reach approximately $375 million this year which would represent about 5.5% growth on a year-over-year basis. We feel really good about the momentum we're seeing in our business, and it's not just confined to our bottom line. It's a combination of top-line growth, good execution on operations, and strong partner activity, which are all providing a clear runway for years to come. I mentioned last quarter that global supply chains were affecting equipment production because of a shortfall of a key part in some of our IoT modules. I want to update you on this situation. As you saw in our results, we had a strong quarter of equipment sales as demand from our partners remains particularly strong, even more robust than we expected earlier in the year. To date, our supply chain team has done a good job in managing the impact of this component shortage as much as possible. In fact, we now expect that the strong demand we continue to see will cause our equipment revenue in 2021 to exceed last year's levels. Still, I wish we were less constrained by this shortage, especially as we see demand outstripping current supply allocations for the next several quarters. Our partners seem to understand this constraint is a short-term problem. In fact, some of them are having their own issues. Based on the supply allocations we expect to receive over the next two quarters, it appears we'll catch up on the affected product lines in the summer of 2022. This equipment constraint is limited, and at least at this time, I don't see this issue affecting our long-term growth trajectory or relationship with our partners. That said, we, our suppliers, and our partners use a number of different chips across a great variety of products, and the global shortage of silicon chips is ongoing and wide-ranging, so we will continue to actively work these issues as they arrive. Moving along, let me talk to a few of our key market segments. To start, the personal communications sector has really shifted into top gear. After recording our best quarter of net sub-editions in quarter two, we followed up in quarter three with 71,000 net new IoT subscribers, putting us on pace for another excellent year of growth in this segment. As interest in these small portable communicators has grown, there's also increasing anticipation that satellite technology will be integrated into a broader set of mobile assets, including smartphones and automobiles. We believe that the adoption of satellite connectivity into mass-scale, consumer-oriented device is inevitable, and Iridium's global L-band network is ideal for that application. As cell phone use has become ubiquitous, the one limitation that remains is making connections outside of major metropolitan areas and corridors. connection in a smartphone is an elegant solution to this problem, which extends connectivity when consumers wander outside of terrestrial coverage. This evolution would be a natural extension of our IoT business today with our 1.1 million connections, including well more than 500,000 personal communication devices on our network today. During the third quarter, we reached the next big milestone of our Iridium Certus product line with the availability of Iridium Certus 100. Built on our Iridium 9770 module, this new mid-band service class offers much faster throughput than our current narrowband modems. It makes faster connections through standard IP rather than proprietary protocols, and is still a very compact and lightweight device with a small omnidirectional antenna, perfect for UAVs, maritime, aviation, and many new IoT applications. Iridium Certus 100 is now available with the first band products, and more are coming in the next few months. There's a lot of excitement in our partner base about the solutions they can now address with these devices and speeds. I'm also really happy with the continued adoption of Iridium Certus broadband in maritime. This product is resonating with the channel, both as a standalone service as well as a companion to VSAT, and this year's activations serve as an encouraging sign that the maritime market is recovering. In the third quarter, broadband revenue rose 26% compared to the same period last year. During the quarter, we also introduced our new Iridium Certus 200 class terminals, which are smaller and lower priced to complement our standard Iridium Certus 700 broadband terminal portfolio. These new terminals are just starting to enter the market now and should have a noticeable impact on our broadband growth going forward. They're a perfect upgrade for the slower connections and limited coverage of our competitors' products and a great successor technology for our own legacy Iridium open port terminals. Broadband ARPU's continued increase in the third quarter, as we're seeing Iridium Certus 700 adopted as both a standalone solution and a companion to VSAT in larger vessels. These uses are exactly what we envisioned when we introduced Iridium Certus in 2019, and should continue to allow us to grow our broadband service revenues. Aviation is another important source of future broadband growth, and our aviation vans continue to make progress with their various new Iridium Certus terminals. Some are on air and testing, and from what they're telling us, the first one should be ready near year end. This is a market where the end users already know Iridium and our capabilities very well. We still need to get these new terminals certified for safety services, like our partner's legacy aviation terminals, but that process is well underway. We continue to see a strong appetite for Iridium Certus for a number of cockpit services, using small terminals in the 100, 200, and 700 class ranges in the commercial, corporate, rotorcraft, UAV, and general aviation sectors. And with these coming new terminals, we'll start to be able to satisfy that demand. Now, an area we haven't seen the subscriber growth that we had from past years is the U.S. government. While service revenues remain as expected, administrative issues created by the transition of our EMSS contract from DISA to the U.S. Space Force has slowed user activations. As we mentioned last quarter, this has not been a seamless handoff and we continue to support the process they are going through together to ensure that the U.S. government can avail itself of all the benefits conferred by our contract. We still have a great relationship and they highly value our network. The government had about 149,000 subscribers at the end of the third quarter and we continue to work with them on a number of dedicated engineering development and gateway upgrade projects that are strategic to their needs going forward. Switching gears to Aerion, the company continues to see its business slowly improve as air traffic rebounds. Aerion expects to generate positive free cash flow for the year and remains very excited about its newest offering of data services, which could become a substantial contributor to their revenues. They continue to provide a very high quality and valuable service to their ANSB customers, including the FAA, and have additional customers in the pipeline, even though reduced air travel over the last 18 months has delayed customer decisions on new contracts. Still, they're in good shape for a company that's only been operational for two and a half years. We also continue to be very happy about our investment in Satellis, which provides alternate position navigation and time signals to protect important infrastructure and augment GPS services. They are seeing success in a number of commercial and government market segments, and we expect they will need to expand their use of our network in the coming years as well. As I said earlier this year, Iridium has more ores in the water than at any time in our history. New product launches are expanding our reach and allowing us to address the needs of a growing number of customers. With only a few months left in the year, we're very excited about our business position and the growth opportunities that we see. Iridium has emerged from the global pandemic with strong momentum, a pipeline of new products, and more demand than we can satisfy today. This positions us very well as we start planning for 2022. With that, I'll turn it over to Tom for a review of our financials. Tom?