Iridium Communications Inc

Good day and welcome to the Iridium Communications first quarter 2023 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. To ask a question, you may press star, then one on a touch-tone phone. 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.

Thanks, Betsy. Good morning, and welcome to Reading's first quarter 2023 earnings call. Joining me on this morning's call are our CEO, Matt Desch, and our CFO, Thomas Patrick. Today's call will begin with a discussion of our first quarter results, followed by Q&As. the trustee to have the opportunity to review this morning's earnings release, which is available on the Investor Relations section of Aridia'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 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 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 the Investor Relations section of our website for further explanation of these non-GAAP financial measures and reconciliation of the most directly comparable GAAP measures. With that, let me turn things over to Matt.

Thanks, Ken. Good morning, everyone. Well, as you can see, we're off to a great start in 2023. We're continuing to experience the momentum that's been building over the last few years as we take full advantage of our second-generation network. Subscribers, service revenues, equipment, and engineering services all remain strong. We're really hitting on all cylinders, and this continues to generate meaningful growth in our pro forma free cash flow, as well as in value for our partners and user ecosystem. All this reinforces our expectations for another strong year of sales and growth in partnerships and subscribers. On a personal front, it's been a busy few months since our last call with increased travel for industry events, investor conferences, and getting out again to interact with new and existing partners. It's been particularly satisfying to see Iridium's profile raised at these conferences, as we are directly in the middle of conversations on key topics shaping the satellite industry, like direct-to-satellite services for smartphones, the ascendancy of LEO networks, in particular for governments of all kinds of proliferated services, and the increased penetration of satellite connectivity in maritime, aviation, and other industry segments. It also made me happy to hear so many established satellite operators acknowledge what Iridium has known for decades, There are natural advantages to operating in low Earth orbit, and the ability to connect small mobile assets is an important distinction for us that has global utility. For those who have followed Iridium's story over the last five or six years, this is likely not a revelation. We have been focused on IoT and commercial applications that leverage our very unique network, and the emerging opportunities on which satellite sector is now focused are a great fit with Iridium's constellation architecture and operational strength. In fact, This is what our network was built for. A lot of industry focus has been on the new direct-to-device market. Iridium continues to lead the way to connect people wherever they are and to the personal devices they use the most. For example, Iridium has more than three-quarters of a million ruggedized personal satellite communicators on our network, and that number is expected to continue to grow significantly in 2023. These consumer-oriented devices allow users to navigate routes, share a location, send and receive texts, and even secure emergency services via SOS. These small, lightweight devices have become a mainstay of outdoor enthusiasts, remote workers, government users, and safety response organizations in recent years, allowing Iridium to drive a compound annual revenue growth of more than 45% from this growing customer segment since 2017. ARPUs from these users are relatively low today, but we expect some to adopt our faster IOT technologies to drive additional utility and higher ARPUs in our commercial IOT business line in 2024 and beyond. We've also had a great reception for our new Iridium GO Exec that we introduced in the first quarter, with over 4,000 in orders booked already. That device expands our Iridium GO line of satellite hotspot devices to connect with smartphones and tablets to provide a richer data connection when on the move and in remote environments. Best of all, our partners are seeing strong market interest, which underscores longer-term demand for the RIDM GO line of services. Success here should also drive higher ARPUs for our voice and data business in the coming years. We believe the consumer-oriented satellite segment represents a meaningful growth opportunity for RIDM, confirmed by the growing number of devices on our network. The value of providing highly mobile data services on a global basis is indisputable, and we expect to add to this growth by supporting new satellite-directed device capabilities that are being introduced later this year. We're excited about our new partnership with Qualcomm Technologies, announced in the first quarter, as well as the introduction of their Snapdragon satellite processor incorporating Iridium technology. This chip will integrate Iridium two-way messaging and SOS services into next-generation Android smartphones. A half-dozen smartphone OEMs have already announced they will include Snapdragon Satellite in their phones, and we are working with Qualcomm to further expand this list. We're excited about the application of Reading's network for directed device and the potential upside to our growth projections it will create. We also see additional opportunities in the automotive industry, as well as for applications in the government sector, and expect to eventually be relevant in other mainstream consumer devices like computers and tablets. Satellite-directed device is an example of a technology convergence going on today between satellite and the traditional terrestrial world, but interest appears to be growing, and I think the opportunities for satellite solutions are endless. We had already seen a lot of convergence within industrial IoT, where many of our partner satellite IoT applications are deployed with cellular connections as well, but expect we'll see even more of this in the future. We believe Iridium's unique constellation is an ideal platform for this convergence and, best of all, this sector opportunity is incremental to our core business growth, but it's not a material driver of the strong service revenue growth we're forecasting today. In our other business areas like maritime broadband, aviation, and land mobile, we continue to benefit from strong demand and strategic opportunities. You can see proof of this in our first quarter performance. We continue to take share in the maritime broadband space, where our revenue grew 17% year-over-year in the first quarter, and are receiving positive channel feedback that keeps us optimistic about the future. We're hearing from our maritime partners that Starlink is disrupting the traditional BSAT market, and while they aren't making much margins on this product, most are starting to deploy Starlink when requested by their customers. While interesting, this trend has little effect right now on our market expectations. As with other VSAT solutions, these partners are deploying Iridium as a companion service with Starlink and, of course, are also deploying this for their GMDSS requirements, as well as vessel monitoring solutions on fishing vessels, anti-piracy and citadel solutions for crew safety, and other diverse applications in Maritimes. We estimate that an Iridium terminal of some kind is installed on four out of five SOLAS-class vessels at sea today and calculate that Iridium is now installed in some kind of solution on about 250,000 ships of all kinds around the world, and that number is still growing. We also feel very good about the opportunities we're seeing in the aviation market, both in fixed-wing and rotorcraft. We are already installed on nearly 70,000 aircraft of all types today, including commercial, business aircraft, helicopters, as well as other general aviation aircraft. And that doesn't count all the pilots who take us along as a portable solution for their safety or to take with them when they land. In the aviation market, we're starting to see a transition or expansion from our traditional narrowband voice safety data and IoT services to already inserted mid-band for faster speeds and new services. and expect to also see Iridium Certus broadband start to deploy on larger aircraft now that the first two antenna systems from partners have been certified. We're expecting additional certifications in 2023 of other partners' antennas, as well as the first supplemental type certificates where the FAA approves these terminals onto specific aircraft types. We've been waiting for this kind of progress for a long time and look forward to the tailwind it can provide for our aviation revenues which should build into 2024 and beyond. Of course, I also want to highlight our strong land mobile performance. You can see the ARPU was up year over year and demand trends continued for equipment and service as we implemented some targeted pricing actions after holding access and airtime pricing stable for several years. Subscriber growth is still strong, but not quite at the level of 2022, which was an unusual year with the incremental demand we experienced from the Ukrainian conflict as well as the handset shortages experienced by our competitors. We feel good about the durability of our voice business and now believe the continued growth for Push-to-Talk and Iridium Go exec services will help to generate high single-digit growth on average for at least the next few years. Overall, our business environment continues to be robust, and demand for all of our primary business lines remains strong. As you can see, we logged another record quarter for equipment sales, with orders for handheld devices remaining above trend. Based on feedback from our partners, the supply chain of fulfillment issues experienced by our competitors on handsets have continued into 2023. We still have our own supply chain issues affecting delivery intervals, but we see them mostly abating by mid-year, allowing us to build back our inventories to traditional levels. You'll also note that our engineering and service revenues are up substantially in 2023 on the growing work we're doing for the Space Development Agency in building the ground components of their next generation network. That's a strategic effort for us, and it's going very well, even expanding beyond the initial award into new work. As we've said before, margins on this business is low compared to our service revenues, but along with other work for commercial and government customers, It is an important enhancement to our relationships and will further our capabilities. Tom will provide additional color on our first quarter results, but I would like to acknowledge the important historical milestone we made on March 30th with the payment of our first ever dividend. We believe paying a dividend is a smart way to generate returns for shareholders in addition to our ongoing share repurchase program, which was also very active in the first quarter. Together, these shareholder-friendly programs underscore the confidence that we have in our business moving forward and the strength of our enterprise to generate free cash flow. I hope you've had the chance to review our latest environmental, social, and governance report, which was published in March. In it, we highlight our priorities for ESG and speak to our corporate values and culture. I believe our activity in this area demonstrates our commitment to being a good corporate steward on what I would call real ESG matters, without sacrificing on business performance or business opportunities. In fact, our support for the communities in which we operate enhances our position with our employees and new hires and has been welcomed by our partner ecosystem as we demonstrate values that align with their business priorities and interests. You'll notice in this year's report some enhancements to our disclosures, which we hope will allow investors to better appreciate with more detail the factors around our social stewardship, priorities, and impact. So, as we celebrate this year, the 25th anniversary year of Iridium's initial service launched in 1998, we continue to believe that Iridium is positioned better than at any other time in our history, both for the evolving opportunities in the satellite industry and with our ability to fund growth and reward shareholders. 2023 will be another great year for us, with new product rollouts and more exciting announcements. I look forward to keeping you abreast of our progress. With that, I'll turn it over to Tom for a review of our financial team.