Iridium Communications Inc

Good day, and welcome to the Iridium Communications 2024 Fourth Quarter Earnings Conference Call. All participants will be in 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 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, VP of Investor Relations. Please go ahead.

Thanks, Debbie. Good morning, and welcome to Iridium's fourth quarter 2024 earnings call. Joining me on this morning's call are CEO Matt Dash and our CFO, Vince O'Neill. Today's call will begin with a discussion of our fourth 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 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. 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 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 from our release this morning, we finished out 2024 on a strong note and are forecasting a return to more normal growth trends for 2025. Service revenue came in on target for 24, and operational EBITDA exceeded our full-year projection, all while Iridium generated more than $300 million in pro forma free cash flow for the year. Robust free cash flow continues to be a point of differentiation as investors compare Iridium to other satellite companies. Not only does our strong cash flow support ongoing business investment, but it also allows us to make good on our commitment to return capital to shareholders. In the fourth quarter alone, Iridium returned approximately $140 million to shareholders through dividends and an expanded share repurchase program. Our buyback program retired more than 4 million shares, bringing the total shares retired in 2024 to almost 14 million shares. Since we initiated these shareholder-friendly activities in 2021, Iridium has retired close to 30 million shares of stock and returned over $1.2 billion of capital in dividends and share repurchases. We continue to feel very good about Iridium's market position and potential, as well as our ability to achieve the long-term guidance we shared during Investor Day in 2023 to deliver $1 billion in service revenue in 2030 and generate approximately $3 billion in free cash flow over that period. Overall, 2024 was a transition year for our company. The modest EBITDA and 5% service revenue growth we put up this year was a bit off of our normal trend, in part due to the comp from the voice and data price action taken in 2023, our need to rework our D2D offering, and the RevRec accounting impact of extending the estimated useful life of our satellites. We also had tough comps and equipment as we came back to normal ordering from partners after their stock up with supply chain concerns during the pandemic. But, having now cleared these headwinds, you should expect Iridium Zoibita to start returning back to historical growth trends. On today's call, I'm happy to be accompanied by our new CFO, Vince O'Neill. Many of you have gotten to know Vince during his 10-plus years at Iridium, leading our FP&A team, and it's been a seamless transition, and I know he'll continue the strong financial leadership that Tom instilled during his tenure. Iridium enters 2025 with momentum, a strong capital position, and strength relative to our LBank competitors. We have good visibility through our extensive partner ecosystem, that gives us confidence in our near and long-term growth projections. I note there's been a recent rise in short interest in our shares. This appears to be part of a bearish bet on the broader satellite sector in the face of Starlink's aggressive pricing and adoption, particularly as it relates to their disruption of the VSAT market and entrance into the directed device market. As I've highlighted before, Iridium is complementary to Starlink's effort in both of these areas. We are focused on safety and mission-critical applications and operating completely different spectrum than Starlink, which provides our users with an important utility that Starlink cannot fulfill. In our opinion, bets against our growth seem misplaced, and while it's difficult to disprove a negative, continued good execution and delivering on growth will eventually win the day and differentiate Iridium even more from other satellite operators. Today, we initiate a full-year guidance for OEBITDA and service revenue for 25, which continue to underscore our growth and business opportunities. While Vince will discuss the driver supporting this outlook as well as our 2024 results, I'd like to touch upon the unusual-looking decline in net subscribers in our IoT business from the third quarter. As we mentioned last quarter, a large commercial IoT customer on a fixed-price contract announced a change in their retail plans late in the third quarter. While these changes will not impact our revenue, we expect they will have the effect of reducing active subscriber numbers during 2025 and creating more seasonality in our IoT subscriber base each year. The customer continues to develop and introduce new products that rely on our network, which we expect to continue to contribute meaningfully to Iridium's commercial IoT growth. Vince will cover this topic in greater detail. A key reason for Iridium's success has been our truly global network, our L-band spectrum position, and probably most important, the reliability of our network. These characteristics have come to define our brand and have set the standard for organizations involved in safety services and mission-critical applications. In broadband, we've positioned Iridium Certus as a reliable companion to VSAT offerings, including Starlink. We're currently in a transition to being what we believe is the preferred L-band companion to VSAT on maritime ships. We've continued to differentiate our maritime offerings by doubling down on safety services. There's a near-term headwind as we address the transition from primary to backup service, but we're confident in our product positioning going forward. In late 2024, We introduced Iridium Service GMDSS for mariners, which combines our L-band broadband technology with important and mandated maritime safety and security services. The combination of these capabilities into one terminal sets a new standard for cost, efficiency, and performance and helps to ensure that Iridium is the preferred choice on ships to complement KA and KU broadband connections. We've also enhanced functionality for land mobile and IoT users with the introduction of Iridium Certus Midband over the past year or so. This functionality has already been leveraged by our industrial partners in their products. We've had close to 30 new Iridium Certus 100 products come through our certification process so far across a variety of IoT and voice market applications. We've also introduced our next generation IoT technology in 24, which we call Iridium Certus IoT, which provides faster speeds, direct connection to the Amazon cloud, and faster partner development. Iridium Certus IoT technology is being integrated into personal satellite communications devices, like the inReach Messenger Plus, which launched in September, to facilitate the transmission of photos and voice messages for recreational users. All these applications expand Iridium's utility and support higher ARPU. Beyond these traditional uses for our network, we continue to invest in partnerships, new technologies, and use cases. In 2024, we onboarded more than 30 new partners to our global ecosystem and certified more than 60 new partner applications on Iridium's network. These numbers are impressive. We do not invite partners into our ecosystem by chance, and their selection is a process that reflects their ability to bring new capabilities and customers onto our network. We're also excited about our work on 3GPP standards. While the satellite industry remains in the early stages of development on D2D, we're making fast progress on our development of Iridium NTN Direct, supporting standards-based narrowband IoT connections that can be used in consumer and terrestrial IoT devices. We expect to be in live testing with pre-standards-based chips from at least one supplier as early as this summer. This timeline will allow customers and partners to experience Iridium's D2D capabilities and support commercial launches in 2026. In our opinion, service coverage will remain the biggest challenge for early adopters of D2D services. Iridium is unique among other D2D players that we remain the only L-band satellite company with a LEO constellation in orbit today, a global allocation of spectrum, and a path to offer reliable, standards-based connectivity to end-user markets around the world. MNOs have told us that they expect to deliver multiple D2D and standards-based satellite IoT solutions to their customers, and we expect Iridium NTN Direct to be a key one on a global basis. As I said before, we don't have to be first to market. We just have to be one of the best, which we will be. Before I turn things over to Vince, I wanted to take a minute to touch upon the progress and strong market position that Aerion now occupies. Most of you know that Iridium helped create and owns a significant equity stake in this space-based aircraft surveillance company. The analyst community has been valuing our stake at about $2 per share going as far back as 2018. Since that time, Arian has continued to expand its leadership in aviation surveillance, signing new ANSP customers, and now has relationships representing over 40 countries that cover more than half the world's airspace. More importantly, however, Arian has broadened its market position to monetize its rich data set of global in-flight data movements, aircraft movements. The company has invested in cloud-based data analytics and services, to establish a strong position in the aviation analytics market. Arian has signed commercial data service agreements with companies like Airbus, Boeing, ForeFlight, GE Airspace, and others that integrate Arian's ADS-B data into airspace analytics platforms. This allows them to streamline workflows between flight planners and pilots and optimize flight paths and maintenance services to inform and enhance flight operations. In fact, commercial data analytics services represent a meaningful component of Arian's business and has grown at a faster rate than the company's traditional surveillance business since 2019. Arian has been investing in some exciting new big data analytics capabilities that help to solve some of the biggest safety issues that are facing the aviation industry. For example, there have been significant increases in the frequency of GPS signal jamming and aircraft position spoofing, and the Arian system can identify global hotspots, real-time jamming events, and provide aircraft tracking independent of GPS. This will enhance safety for both ANSPs and airlines. Arian also continues to explore ways to leverage their unique global data set to help solve some other operational and safety issues for the industry. One such problem is is turbulence encounters that create significant safety and economic impacts to the aviation industry and flying public. Arian is currently working with the research community and commercial airlines to introduce a capability later this year that will identify and monitor turbulence events. Arian has fully rebounded from the headwinds associated with the pandemic, remains EBITDA positive, and continues to expand its service offerings. Most recently, the company announced its plans to explore bringing space-based VHF services to the aviation marketplace. We're supporting them on that effort. I'm proud of Iridium's longtime involvement in Ariane and the leadership and forward thinking that Ariane's team has shown in the aviation market. It's another example of where Iridium's one-of-a-kind network has delivered value and is helping to foster global changes. So, as I look forward, 2025 will be a year of growth for Iridium. We will continue to invest in new products and services, return capital to our shareholders, and grow our partnerships and business. Perhaps most important to long-term investors, you will see Iridium invest in longer-term growth opportunities like Iridium NTN Direct and continue to generate strong free cash flow. So with that, let me turn it over to Vince for a review of our financial performance.

Thanks, Matt, and good morning, everyone. With my remarks today, I'd like to recap Iridium's full year results for 2024 and provide perspective on our fourth quarter performance. I'll also provide color on the 2025 outlook we released this morning and review Iridium's liquidity and capital positions. For full year 2024, Iridium exceeded its OEBDA guidance, aided in part by service revenue growth and new government contract awards and a return to more normalized demand for equipment. Pro forma free cash flow was $306 million in 2024, and shareholders remained the beneficiaries as we returned over $400 million through share repurchases, equivalent to 11% of our shares outstanding. Including dividends, Iridium returned close to half a billion dollars to investors in 2024. In the fourth quarter, operational EBITDA rose 3% from the prior year's quarter to $117 million, and total revenue grew 9% to $213 million. Growth in service revenue was complemented by the return of equipment demand and expanding government contract awards, which drove engineering and support revenue. Within the commercial business, we reported service revenue of $127.3 million in the fourth quarter, which was up 5% from a year earlier. Revenue from commercial voice and data rose 3% from the prior year period and reflected incremental market share gains in the APAC region, where other L-band service providers have experienced outages in recent years. These events underscore the importance of reliable, weather-resilient L-band service and highlight the durability of Iridium's one-of-a-kind network. Commercial IoT grew 15% in the quarter, in part fueled by personal communications, which remains a strong business for us. You will note that IoT subs were down 15,000 for the quarter. This was due to a personal communications customer changing its retail pricing plans, something that we previewed with you on our Q3 call and which Matt mentioned in his remarks. We saw a spike in deactivations from that customer in the fourth quarter as they started to phase out their annual plans, including plans that allow subscribers to toggle between active and inactive status, on a monthly basis throughout the contract year. The number of inactive subscribers varied seasonally but averaged about 250,000 over the last year. I think you'll see the impact of these changes over the next few quarters. Subscribers who previously used these annual plans are now expected to only be subscribers in months when they anticipate using the service. This means, going forward, you will see greater seasonality in our subscriber numbers from quarter to quarter versus prior year periods. I want to underscore that we attribute the decline in net subscribers in the fourth quarter directly to these plan modifications and do not believe that changes to subscriber numbers were a result of competition or other external factors. Iridium's IoT revenue with this large partner is fixed under the terms of our contract, and the increase in subscriber seasonality will have no impact on our revenue in 2025. Gross activations remain strong in the fourth quarter, and we expect our 2026 revenues from this customer to further increase from 2025. In broadband, we reported revenue of $13.4 million in the fourth quarter, down 9% from the year-ago period. As ARPU reflected increased prevalence of Iridium's use as a companion service, and the conversion of customers to other plans. For the full year, broadband revenue was down 3% and remained largely in line with our expectations. In all, commercial subscribers grew 9% year-over-year. IoT continued to represent the largest share of our user base at 81% of the total at year-end, up from 80% in the year-ago period. Revenue from hosted payload and other data services was up 2% in the fourth quarter to $15.4 million. The year-over-year increase reflected strong contributions from our new P&T service, despite a tough comp from a one-time benefit that drove growth in the prior year's quarter. Government service revenue rose in the fourth quarter to $26.8 million, reflecting a step up in our fixed-price EMSS contracts with the U.S. government, which occurred on September 15th. Subscriber equipment increased 38% in the fourth quarter to $21.6 million after a period of prolonged volatility related to supply chain issues associated with the pandemic. As we had previously forecasted, full year 2024 marked a return to more normalized sales levels following two consecutive years of record equipment sales for the company. We believe the Q4 improvement in equipment sales shows continued strong support for Iridium services. Engineering and support revenue grew 20% from the prior year period to $37.4 million in the fourth quarter, reflecting new contract awards and Iridium's growing work with the Space Development Agency. Our work with the SDA remains highly strategic and aligns Iridium closely with the U.S. government's long-term space priorities. Moving to our 2025 outlook, we anticipate service revenue growth of between 5 and 7 percent in 2025, and our forecasting OEBIDR of between 490 and 500 million. Many of the factors that impacted our 2024 growth normalized as we move into 2025, allowing service revenue and OEBIDR growth to improve. To provide further context to our full year guidance, I want to highlight some of the drivers that support our 2025 outlook. First, we continue to forecast ongoing subscriber and revenue growth for our voice business, as Iridium remains the gold standard in this business due to the reliability and global coverage of our network. In IoT, 2025 will be another year of revenue growth, in part owed to a step up in our fixed price contracts with our largest IoT customer. We anticipate double-digit revenue growth, even with added subscriber seasonality related to the pricing plan changes I noted earlier. IoT partners continue to invest in and roll out new devices featuring Iridium's mid-band technology. Over the last two years, we have seen the introduction of a dozen or so products across the aviation, maritime, land mobile, and government sectors. We expect these new products. as well as new consumer-orientated applications, will broaden Iridium's adoption across industries, attract new users, and drive higher IoT ARPU. In broadband, we expect revenue to remain at a level similar to 2024. Growth from our new Iridium Certus GMDSS service will help to support revenue and additional market share gains, but the continued migration of customers to other plans will pressure ARPU in 2025. Hosted payload and other revenue should serve as another tailwind to 25 revenue as Iridium P&T gains traction with partners. This service has both civil and government applications and is increasingly gaining attention from GPS-dependent organizations that are susceptible to the risks associated with signal spoofing and jamming. We expect equipment revenue in 2025 to be similar to sales in 2024. Margin, however, will be down modestly as a one-time cost benefit realized in 2024 will not recur in 2025. Engineering and support continues to benefit from Iridium's growing contracts with the U.S. government and is expected to grow again in 2025. On the expense side of the equation, we will continue to support new service and product development. To begin, we expect SG&A growth rates to significantly decline to the mid-single digits as costs normalized following our acquisition of Satalis in 2024. R&D spending is expected to decline in 2025, as some major programs move into a more capital-intensive phase of development. As a result, capital expenditures will be about $90 million in 2025 to support work with three GPP standards and facilitate testing and adoption of Iridium's L-band waveform with new consumers. We still expect CapEx to moderate from here as we move closer to the end of the decade. Other operational assumptions supporting our 25 outlook, which I've not yet touched upon, include depreciation expense, which after a couple of years of change will be relatively stable with 2024's level. Interest expense, based on our current projections, is expected to increase modestly year over year, reflecting the expansion of our credit facility in 2024. Iridium has a 1.5% interest rate cap in place to hedge $1 billion of exposure on our term loan through November 26. Iridium continues to expect minimal cash taxes of less than $10 million per year through 2026. When considering these items, we expect to generate between $490 and $500 million in OEB during 2025. At the midpoint, a weaver of $495 million would represent 5% growth from 2024's reported number. Moving on to our balance sheet, as of December 31, 2024, Iridium had a cash and cash equivalence balance of approximately $94 million. Our cash balance is ample to fund our operations, and we anticipate continued payment of quarterly dividends and opportunistic share repurchases. In the fourth quarter of 2024, Iridium retired approximately 4.1 million shares of common stock at an average price of $29.64. For the full year 2024, Iridium purchased 14 million shares at an average price of $28.92 for a total of $403.8 million. This represents approximately 11% of Iridium's outstanding shares. This activity left Iridium with an outstanding balance of $430 million at year end under our board-approved authorization through December 31, 2027. Since the inception of our buyback program in Q1 2021, we have repurchased almost $1.1 billion. We expect to continue to execute our buyback program, balancing our objective for deleveraging with the desire to maximize return on investment. In 2024, Iridium paid a total of $64.7 million through quarterly dividend payments to shareholders. Looking to 2025, we expect our board will increase the dividend to $0.15 per share starting in the third quarter, resulting in an increase of over 5% for the full year. The increase reflects management's continued confidence in the company's business opportunities and prospects for continued strong free cash flow. We closed 2024 with net leverage of 3.6 times our EBITDA. This was up from 3.1 times a year earlier and reflects additional issuance on our term loan to support this TELUS acquisition and opportunistic share buybacks. We think Iridium naturally delevers over time and expect to exit 2030 below two times net leverage, even after giving effect to our dividend program and all sharebacks authorized by our board. Turning to our pro forma free cash flow, if we use the midpoint of our 2025 OEBITDA guidance and back off $91 million in net interest pro forma for our current debt structure, approximately $90 million in capex for this year, $6 million in cash taxes, and $6 million in working capital, inclusive of the appropriate hosted payload adjustment, we're projecting pro forma free cash flow of $302 million for 2025. These metrics would represent a conversion rate of OEBITDA to free cash flow of 61% in 2025 and a yield of over 10%. We continue to believe that pro forma free cash flow is a good measure of our business strength. A more detailed description of each element of these calculations, along with the reconciliation to gap measures, is available in a supplemental presentation under Events on our Investor Relations website. As I begin my first year as Iridium's CFO, investors should recognize the level of financial discipline and continuity that runs through this organization and our capital policies. Our team has planned for this year's transition, and I expect the stability of Iridium's business model that you've come to know through my predecessor will remain a consistency. I have great confidence in Iridium's business prospects and cash flow generation. and look forward to discussing these topics with many of you during Iridium's upcoming conference appearances. With that, I'd like to turn the call over to the operator for Q&A.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Edison Yu with Deutsche Bank. Please go ahead.

Hey, 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. Have any of the recent developments changed your thinking on the speed and what you're trying to do in D2D?

No, I don't think so. I know a lot of you kind of pinged us when David Miller- Apple, you know, 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 David Miller- I had to answer a lot of questions, you know, for a few days when a totally expected situation sort of David Miller- Announced perhaps there was other reasons for making that announcement, but it certainly wasn't 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. 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, you know, our investment is modest and the gains, which we believe will happen from moving to a standards-based D2D kind of world, is significant, we expect to, you know, 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, the 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.

Understood. I want to ask a longer-term question on the potential next gen 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 or 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 next-gen constellation.

Well, 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 doesn't make sense to make today because it's really for something in the next decade. You know, 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'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. You know, 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 Arion or developing P&T services, et cetera, have been, you know, 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 constellations. There's perhaps the opportunity to have our payload be a part of another constellation or utilize someone else's, you know, factory line for satellites to make it very low cost for us to offer, you know, 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.

Great. Appreciate it, Carlos. Thanks, Otis.

The next question is from Simon Flannery with Morgan Stanley. Please go ahead.

Thank you. Good morning. Matt, thanks for all the updates on the D2D Nice to see that we're heading towards trials here and commercial launch. Could you just give us a few signposts on when this should become impactful from a financial point of view? How do we think about the TAM? It sounds like you're not necessarily directly going for the voice market here, but more for an IoT perspective. So should we see much revenue benefit next year, or how do you think about the overall market opportunity that you're able to address here? with your products. And then, Vince, just a housekeeping one for you. I think in the past on broadband, and thanks for the guidance on 25, you'd sort of said the ARPU would stabilize after, I think it was four or five quarters, something like that. It'd be great to understand just where are we in that sort of transition process to being removed as sort of from the sort of complementary, coming back to the complementary from people who are using it for more broadband applications. Thanks.

Well, on D2D, I mean, we still expect that we'll have a service commercially available in early 2026. Chip manufacturers are starting to line up to develop products for that time, but there will still be the implementation timeline for people to implement those into solutions and to distribute those. So, I think it's going to have a very small impact on 2026, but we'll grow significantly. And our plan has it showing, you know, in more of the 27, 28, 29 timeframe, starting to really ramp up and contributing materially to our IoT business and other services. Vince, the second part of that.

Yeah, sure, Simon. As I noted in my remarks, in 25 years, We obviously anticipate that we'll gain market share with our GMDSS services that launches into the market. Our expectation is that we will continue to see some ARPU pressure in 25, especially as more of the subscriber base migrates towards a companion service. So our expectation is that you'll continue to see some of that play out in 25.

Is 250 still kind of the base level we should be thinking about?

Yeah, I think that's a good assumption, Simon.

Thanks a lot.

Next question is from Chris Quilty with Quilty Analytics. Please go ahead.

Phil Kleisler- filthy space anyways just to follow up on that maritime point. Phil Kleisler- I think starlink drop their progress report at the end of last year and they indicated something like 75,000 vessels attached, which is bigger than the the actual visa market is you know 40 45,000. Phil Kleisler- Are you seeing any opportunities with assuming those numbers are correct and there's a bunch of incremental vessels. pickups in the backup service, or is it your indication that whatever vessels they're landing are perhaps smaller leisure vessels that would not be an appropriate candidate for a backup service?

That's a good question, Chris. I'd say they could be expanding the market a little bit. Clearly, I think the real advantages of a companion service are in the larger blue ocean kind of vessels that end up in ports and places where their service wouldn't operate very well or worry about really absolutely continuous services because they're industrial kind of vessels. But I think the market is demanding more connectivity elsewhere, and our partners are really packaging things up nicely where we're kind of just part of the solution. So I think we might find this increases. And also, GMDSS in general is really kind of expanding to smaller vessels. There's a real effort to make it available to all kinds of vessels, and we're making it a lot less expensive. So it could be expanding the market a bit, yes.

Gotcha, and on commercial voice, subs were down in the fourth quarter, which isn't unusual. Maybe it was down a little bit more, but what do you look at the prospects for 2025 and the growth drivers for the voice business? Is it still primarily a push-to-talk driver for that business, or are there new services that will be offered?

It is primarily push-to-talk as the growth driver there. I mean, we continue to sell, you know, voice hotspots, if you will, you know, with Go, et cetera. But really, it's PTT has really expanded really nicely in the last couple of years. So, yeah, I think that's the primary driver. I think this continues to be a very foundational element of our business. It's a little seasonal. So you see, you know, in the northern hemisphere, you know, there is less activity in the winter and more activity in the summer. And I think you'll see that naturally play out.

Right, and if I can ask one more, I stopped asking questions about Ariane, so I'm happy to hear you guys promoting it again. Obviously, the biggest missing customer there is the FAA. I don't think anybody knows what's going on in the FAA in the last couple of months, but can you give us maybe a rundown of how that transpired? For a while, you were testing with them, and then the FAA sort of backed out, and what are the prospects for bringing them on on a go-forward basis?

Yeah, the FAA eventually kind of told us, look, it's interesting technology and we would love to deploy it, but we are underfunded. We have a long list of things that we still need to do to modernize our network. And this is really not on the top of the list right now, even though we felt it was pretty cost effective and made a big impact to them. I think there's some more interest that's been generated recently. Certainly the Crash here in D.C. of a helicopter and commercial aircraft prompted a lot of discussion from the current administration about modernizing the FAA. I noticed the Department of Transportation Secretary saying that there's technologies that were invented in the U.S. that haven't been deployed in the U.S. and should be. I thought that was practically an advertisement for Ariane. Don't really know what will happen. Certainly, I don't think it'll be the same as many other agencies because you don't want to mess with air traffic control and safety too quickly, but I do think it creates more opportunities because I think there's going to be a strong focus on safety and modernization, and Arian is perfectly positioned for that.

Good luck with that. Thank you.

Thanks, Chris.

The next question is from Rick Prentice with Raymond James. Please go ahead.

Good morning, everybody. Hey, Rick. Hey, Rick.

Hey.

A couple questions. One, we did see some stories popping out, I think it was yesterday, about a white hat hacker having some success kind of breaking into the government network with you guys. Can you talk a little bit about what that story might be

be alluding to or what uh is going on with the government contract uh a couple follow-ups yeah it was uh i've seen that story it's a recurring story that's been kind of popping up every every uh couple years ever since i think the first one we ever saw was back in 2015 it's really not news uh i don't really understand sort of why it was being promoted and and uh I don't know if people ever just do Google, you would see that story from the past. Yes, our network is not encrypted by default, but all of our partners, including the government, can encrypt traffic that they want to maintain and do. Describing this as somehow a fundamental flaw of our network was sort of strange to me and not really news. It doesn't affect anything we're doing. It's not somehow suddenly discovered. Everyone who works with us knows exactly how our network works. And all the traffic, a lot of the traffic over our network is encrypted. And so it was a strange story as far as I was concerned.

And then following on Simon's question on the non-terrestrial network and timing, how do you view the different kind of segments of what directed device, whether it's smartphone, tablets, cars, computers, how would you kind of think where the Iridium solution might play best as we think about the TAN and the kind of the segments?

Well, we've always had an advantage where, you know, there's been no compromises on needing global coverage. And so clearly, that's going to be our hallmark. Starlink, AST, those are regional solutions that do cellular infill in regional terrestrial markets. Right now, they still have interference and regulatory issues to overcome to really expand that beyond 10% of the Earth's surface. You want to go in the oceans, you want to go into Europe, you want to go into many other markets with your device or your car or your watch, those services aren't going to work. So again, I think we're going to be complementary to those. Those are going to be really good solutions for certain markets, but they're going to want something when they roam beyond those markets. And that's really how Iridium has always been positioned in the IoT space. People don't know if you make a tracking device, an IoT tracking device, and you're using a standards-based solution, you don't know where it's going to end up in the world. And you'd like, if you're going to roam, to roam to someone who will be there no matter where you are and not a regional or an unreliable partner. So I'm expecting that most of the mobile network operators will sign us up as a roaming partner and will roam to us or create some sort of messaging solutions around us that fit for their, along with others, for their customers.

Great. You've been doing this as long and longer than I on the satellite side, but you get the question a lot. Will these satellite solutions actually be a replacement for wireless?

Absolutely not. I go back to my terrestrial days in the 1G, 2G world. I've been involved in cellular since the late 80s. There is no way that enough satellites could be put into space to be a primary service or will really replace anything. They may, some of these bigger solutions like the ones that Starlink and AST are talking about, it's not the Starlink solution of today but maybe one in the future or in AST, might eliminate a cell where you wouldn't have to put a cell tower in some place. I think they even describe them that way. But those are really small expansions of the current 10% footprint that cellular has. So maybe the cellular footprint will expand from 10% to 15% or whatever, but it's not going to be much greater than that. And I still think that the rest of the world will be satellite more not certainly the kind of service you're expecting from your 5G or 6G phone.

Exactly. Good to hear that directly. Last one for me, mentions to tell us, any other M&A out there as we think about that billion-dollar service revenue target in 2030? What other M&A opportunities might be out there?

So that's a tricky thing to talk about, obviously. I mean, we do have aspirations that, you know, that there could be things. Obviously, I've been pretty consistent about my strategy, and it's to go after things we can do better than anyone else that takes advantage of our network, exploits the uniqueness of our L-band spectrum and whatnot. And I think Satellis last year was a good example of that. There's some other ideas we have. I'll just leave it at that for now. I think they have to have good business cases and have to demonstrate to investors that they would be accretive, certainly the mid-long term. And so that would be our criteria for selection. Great. Thanks, guys. Thanks, Rick.

The next question is from Hamed Korsand with BWS. Please go ahead.

Hey, good morning. So the first question I had was, On the Satellis topic, it's within the hosted payload. So it went down sequentially. So it's not a linear growth kind of rate. So what is your outlook for 25? And how is the latter as far as getting to your projection of, I think it was $100 million in revenue for it?

So, yeah, what I would say, Hamid, is that... We did have a one-time non-recurring event in the prior year.

While we don't break PMT out separately, we've seen good growth in that in 24, and we expect that to continue in 25 as well.

Okay. Is that going to be the main thing? source of growth in your services guidance, or is there other moving pieces?

As you look at hosted payload and other, the biggest moving piece in there will be P&T. From quarter to quarter, there may be some other noise in there, I would call it, but the biggest single factor in there will be P&T.

Okay, my last question was... Yeah, go ahead.

I was just saying, we didn't talk as much about P&T. We'll do that in future quarters because it's one of the most active areas in our business right now. Really, we're seeing a lot of new applications. We're seeing a lot of, especially as we've expanded the geographical area and the sales team, and I'm really, really bullish about P&T for 25, 26. I think it's on the trajectory where looking for it to be. And I think you'll see that pop out of that posted payload and other category in the future.

And my final question was, what is the comfort level as far as cash balance and what should we assume as far as your buyback activity is concerned?

So I think like around an operational cash balance, I mean, we've talked in the past that you know, call it around 50 to 60 million from quarter to quarter, I think we feel pretty comfortable operating with. You know, that can obviously vary a bit, but certainly at a level of around 50 million, we feel pretty comfortable. I think as you think about the repurchase activity as we go through 25 and beyond, I think the guardrails there will obviously be leverage, but also managing to that cash balance. So,

um as you think about 25 that's how i would think about it in terms of sizing okay thank you thanks so much the next question is from colin canfield with cantor please go ahead hey thanks for the question um could maybe to unpack a little bit uh directed advice constellation plans i know you had said beyond 2030 um there's kind of a the marker there, but maybe talk a little bit about how any plans interact with your $3 billion free cash flow targets, and maybe even fleshing out a little bit of recent moves with respect to capitalization of R&D.

Thanks. I'm sorry. I'm not sure I'm following the train of your question. You said D to D, and then you said the 2030s or something like that. I don't know what you were referring to there.

Sure, sure. So the concept is you guys reaffirmed the free cash flow target, right? The view that out into 2030, you'll generate $3 billion of free cash flow. And there was some movement within the quarter around kind of, or we'll call it the Olympic HAPEX outlook with respect to capitalization of R&D. And so the question is how the new Constellation plans interact with that $3 billion free cash flow target.

Thanks. Cool. So it has nothing to do with new constellation plans. Those are things out beyond 2030 before we'd be spending money on a new constellation. The money we're spending right now that we're capitalizing where R&D is moving to capital is all software and ground-based hardware to implement Iridium NTN Direct or what we call Project Stardust. I mean, we have basically a software-based constellation and we're upgrading it. We're enhancing it, we're improving it, but we're not launching any new satellites. This is all software in the satellites and ground-based systems that's in conjunction with the work that chip manufacturers are doing to enhance the standard here. So, yes, we are investing a little bit more in the near term. I think it's going to mitigate itself over time because once we're kind of done with that, that was an effort really in 24 and 25 is sort of the maximum spend. That's a little bit why the CapEx went up a bit this year. I expect over time that that will kind of come back down a bit. But that's really investment into, you know, roaming hardware and, you know, standards-based kind of gateway as well as just satellite software upgrades.

Got it. Okay. Got it. And then maybe unpacking the subscriber mechanics a little bit, it seemed that the commentary suggested expansion beyond 2025 for revenue. So maybe just talk a little bit about the dynamics there that enable growth in that customer beyond 2025.

Yeah, I mean, we're still seeing growth. strong activations from that customer and continue to see that it's been consistent all along. When they introduced these new pricing plans late in the third quarter, they don't really allow people to keep their service for the whole year and just use it when they wanted to use it. We're going to see customers deactivate, particularly here in the winter when they're when in the northern hemisphere where they're not using as much and they're, you know, we're expecting to see them activate more when it gets warm and they go out and they're using their devices. You know, again, that creates a little bit more volatility. It means that these subscribers, which most recently have been about 250,000, by the way, that's been sort of proportional as they've grown. It's kind of been growing numbers. Those are going to kind of work themselves out of our network and it sort of overwhelms because of the numbers. some of our other subscriber numbers, but that'll all be done once, you know, they kind of completely finish their transition to this monthly plans instead of annual plans. Again, usage, you know, of the new devices, the investment that they're making, that's all been very positive. They expect to continue to have a larger and larger active user base going forward, and I'm expecting that that will mean more revenues as usage and as the value of really the network to these subscribers grows. But it does mean sort of a short-term anomaly here as those subscribers kind of, those seasonally inactive subscribers kind of get worked out of our subscriber numbers.

Got it. And then the last one for me, but maybe across commercial and government customers, just discuss the kind of element of national security as a factor within that and how customers are thinking about the market in terms of subsidizing things that might be lower priced or higher priced when considering the importance of their, we'll call it national or network security. Thank you.

I'm not sure if you're referring to that article or whatever. Again, I don't think that's an issue whatsoever in terms of our customer. We have been working in the case of the U.S. government, but many other governments of the world, and have been embedded into so much part of the sort of the fabric of their solutions and are critical to sensors, et cetera. We've been standardized into the future of, say, blue force tracking, of tracking things. We're a critical part of push-to-talk devices now to extend those beyond sort of regional sort of solutions to global areas. We're just involved in many different agencies, et cetera, and I don't see any changes to that right now. I think we're quite cost-effective. We're a great solution for that right now. We're not everything. For example, I do think, for example, Starlink and, you know, the equivalent Starshield are going to be a great solution for them for broadband services. But again, it doesn't do what we do, and so we're going to be very complimentary in those, and I think continue to expand our capabilities and support for many things going on there. Got it. Thank you. Appreciate the questions.

Sure. The next question is from Walter Pysak with LightShed. Please go ahead.

Thanks, Matt. I first want to go back to Rick's question on the billion revenue target in 2030. He framed that question as if acquisitions have to be a part of it to get to a billion. Is that true, or would acquisitions be incremental to the billion-dollar 2030 revenue target?

Well, when we made that target in 2020, whatever it was, 2023, everybody's reminding me. It seems forever. You know, acquisitions were part of that, and we implemented it with Satellis, for example, already. I sort of anticipated that that could be part of it, and we've even said, you know, Satellis will be $100 million. We didn't make it incremental at that point. It's possible, you know, that there would be incremental aspects if there were future acquisitions that we made. But we've been consistent in that Satellis was part of that, and that's what we said at the time.

Okay, I guess I'm trying to ask the question this way. I mean, some analysts just forecast acquisitions, and I guess we used to do that in the old days with Cisco because they would make regular acquisitions. But if you're trying to come up with the value of the company today, I can't assume acquisitions are going to occur. I don't know what the price is going to be, how it's going to impact the capital structure. So if I'm going to assume no acquisition, should I not be assuming you hit a billion in revenue in 2030?

I don't think that's a bad assumption. I would tell you our internal plan is to make that billion without additional acquisitions. So it would be fair to say if we make additional acquisitions, it would be incremental, I would expect. I certainly wouldn't do one unless it was incremental to that. But, yeah.

Okay. And then on the government line, I think there was a reference in terms of the guidance, at least for growth there. Maybe I misheard that. But I think you have a seven-year contract that's stepping down this year. So is the anticipation that there's new business coming in that's going to offset that? Or are you going to be more heavily weighted in the first half of the year? And then we'll see a step down in the second half when that seven-year contract hits. It's going to last three years.

So, first of all, it's a step up, you know, that occurred. It's only been step ups in that contract. There's no step downs. That contract is through, I think, later in 26, though probably will be extended into 27 as it has a provision to do. You know, final year, I think, is $110 million. So, that's up from a little bit. So, there's no step downs. And then we'll be We're already in the process of sort of talking to them about what another contract might look like, you know, sort of working back and forth about what that might be, but certainly wouldn't expect that would be a step down either.

Got it. So then, so it sounds like it's going to be pretty stable across the, you know, each quarter of the year to get to the growth overall in the year. There was also mention of maybe lower margins. when you put together the higher revenue with the lower margins is, and you look to kind of what gross profit would be for government, does that mean there's growth or should there be contraction in gross profit? Like how much of a margin step down would there be this year in that segment in the context of gross profit contribution?

So the margin comment was more in relation to equipment, and that was just a one-time benefit that we got in 24. I think as you think about equipment margins, and we've talked about this as equipment revenue normalizes after, you know, what we've seen in 22 and 23. I think if you go back and look at prior equipment margins, you're probably in the ballpark of where we would expect to be. So that's not going to have a big impact.

And it's really only equipment gross margins on service is extremely high and will remain extremely high. And as we grow revenues and the service revenue, it just expands our gross profit from margin.

And then just lastly on Arion, given your kind of bullishness about the outlook there, is there an opportunity, first of all, are you still in this kind of 27% equity stake in there? And is there an opportunity to increase that stake with that company? And then alternatively, can you give us some, you know, 10,000 foot level of like, where are their finances today? Are they going to be in the capital markets raising money to give us some mark on, you know, where the market perception is of their value is today?

That's a good, good question. I mean, I don't want to get too far ahead of them on this, but you know, they are, looking to kind of recapitalize or there's a lot of discussions amongst their, um, the rest of the investor base about where the company is getting to, you know, they're getting to potential, you know, where there could be, um, positives in terms of, uh, you know, their dividends or other, uh, cashflow kind of positive things to the investor base in a couple of years that gets closer and closer here. Um, Is it possible at the right price? I would absolutely. I believe strongly in the future of Arion and the potential for it to be an extremely high margin, high cash flow producer. We're kind of part of the drag on that because they have to pay our hosting fees and really if we could fix that together with the other investors, you know, I would gladly take a larger share of that because I think it's going to pay off in a big way in a couple years.

So basically restructure it so you don't get those upcoming payments and then you jack that 27% up higher.

It's more important that whatever we take delivers that percentage value to us going forward. We believe that that sort of... value creation events getting closer and closer. So I would take more, and certainly it's sort of a fixed basis here. It would have to be from someone else.

So anyway, we're certainly- I mean, I assume they're generating operating cash flow now. They're just not to the point of distributing or giving distributions to the shareholders. Is that fair?

Yeah, especially since they're paying us, and they're paying us in service fees and sort of interest on hosting fees and that sort of thing. Yeah.

Okay, thank you. Thanks, Walt.

The next question is from Greg Mesnia with Kingswood Capital Partners. Please go ahead.

Yes, thank you for taking my question. I want to circle back to the question of increased seasonality that you talked about more than once so far. Do you see that being really important to a large extent the function of your resellers or is that a general customer trend that will continue over time? And assuming it is, what will be the impact on the pricing of annual plans if more customers opt for the monthly options? Thanks.

So seasonality has always been a feature of a global network like ours because there's more people and more activity in the northern hemisphere than the southern hemisphere. There is more traffic in the northern hemisphere than southern. And so to the extent anybody is using our network on a periodic basis, for example, recreational users, they typically go more outside when it's warm and so we've always seen our subscriber base sort of swell faster in the summer than the winter. In this specific case that we were talking about, we're talking about one large customer who has a lot of subscribers who now suddenly can't be on annual plans anymore and have to go to monthly plans. And so we're expecting that they're going to be more on those monthly plans in the summer than they are in the winter. That means it's going to be a bit more you know, seasonality to our subscriber base. Doesn't really affect our revenues. They're going to continue the overall kind of subscriber base we think is going to continue to expand. It's just going to look weird for a year while kind of everybody moves from being able to stay on an annual plan and not use the network to only really paying for the month that they use.

So you don't foresee any impact on pricing of annual plans to create an incentive to minimize that seasonality?

No, I mean, this is a retail strategy that a partner has chosen to use to kind of simplify, I think, their plans. They believe that, obviously, overall, they wouldn't do this unless this would continue to expand their Their overall subscriber base and usage on the network, they've been very good at doing that in previous years, so I trust that they know what they're doing there. So I don't think this has anything to do with pricing in general or anything. That's a different discussion entirely, and it certainly doesn't affect our relationship with them, which I said is fixed cost. We've done that together because as the portfolio expands, it's a win-win for both of us.

Got it.

Thank you. Yeah, thanks. Great.

The next question is from Matt Roviard with Barclays. Please go ahead.

Yes, good morning. Thank you for the presentation. I had a question about spectrum. So recently we've seen a transaction in the L band, and I don't know if you looked at that opportunity or not, but I guess the question is broader. How do you feel about your spectrum assets? Clearly it doesn't seem to be a constraint today, but maybe tomorrow as you come up with a more powerful asset, constellation with more capacity. So maybe if you could give us a bit of color on how you think about your spectrum position and going forward.

Yeah, obviously we really value our spectrum position. It's global. It's, you know, most countries support it. It's been the foundation of our growth. We've mined a lot more capacity out of our system over time and think with the right kind of network, when we start building it in the 2030s, we could mine a lot more capacity out of that existing spectrum position. So there is no, to us, really requirement from our spectrum, particularly since we don't aspire, as you can tell, we're not a broadband player in general. We're more of a safety and mission-critical applications on the broadband side. So with the kind of services that we do as we're expanding the P&T, P&T has kind of unlimited capacity into D2D, which is extremely efficient in capacity. We think we have plenty of capacity going way, way out there. That being said, if there was some aspect of more spectrum, I mean, that would allow the ability to consider new service areas perhaps, et cetera. We're always open to that. We've talked to a number of others about you know, partnerships or other aspects of it, and we remain open to that. But most people are extremely proud of their Spectrum assets that they believe that they acquired, you know, that they got for free, and they're trying to monetize in some ways. And so there really isn't anything right now we're looking at, and certainly wouldn't acquire Spectrum just for the sake of acquiring Spectrum.

That's very clear. And if I can follow up on spectrum, as you've showed, L-band has some really valuable attributes for quite a number of customers, very reliable, notably. But I was wondering, when we look at the pace of innovation in the sector currently, whether that unique attribute can't be competed away by more powerful satellites, for example, that make the signal even in other bands very secure. I realize that there's a lot of regulatory approval. I mean, you don't put something in the cockpit without lots of testing and these things take time. But I wonder how to think about that going forward.

Yeah, that's a complicated, long, I'd be glad to spend more time with you on that. LBAN is unique. It is sort of, able to be used in regulated safety services. There's reasons for that. Because it's a primary allocation, we control completely that spectrum where, for example, KA and KU are shared vans and have to be and are not primary use traditionally. There's also a lot of other reasons why you wouldn't want to mix safety and non-safety services. So, you know, while there's some that would love to, you know, they offer their there are broadband pipes, for example, for safety services for the cockpit, it's just really unlikely that's going to happen, that that firewall is going to be breached or that regulatory agencies would move in those kind of directions. So, you know, L-band is a really important frequency. Obviously, we have a, you know, Our allocation is really critical to us, but I really don't think you're going to see anything, certainly over the next 10 to 15 years, in some other areas kind of upending its unique capabilities. And obviously, we're doubling down to take advantage of those.

Thank you. That's very clear.

Thanks, Matthew.

This concludes the question and answer session. I would like to turn the conference back over to management for any closing remarks.

Vince, good job for your first one. Thanks, Matt. You're over that. Thanks, everybody, for joining us, and glad to answer further questions over time. Take care. Thanks, guys.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.