Iridium Communications Inc

Good day and welcome to the ADDM Communications first quarter conference call. All participants will be in the 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 know that this event is being recorded. I would now like to turn the conference over to Ken Levy. Please go ahead.

Thanks, Sagar. Good morning, and welcome to Iridium's first quarter 2025 earnings call. Joining me on the call this morning are our CEO, Matt Desch, and our CFO, Vince O'Neill. Today's call will begin with a discussion of our first quarter results, followed by Q&A. I trust you've had the opportunity to review this morning's earnings release, which is available on the investor relations section of Iridium's websites. Before we 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 a reconciliation to the most directly comparable GAAP measures. With that, let me turn things over to Matt.

Thanks, Ken. Good morning, everyone. The first quarter came in pretty much as we expected. Service revenue continued to expand with the rollout of new services and subscriber growth over the last year. We continue to see and forecast growth across most of our product lines, and our partners continue to be bullish about opportunities with our new product offerings, including Iridium PNT. Normally, the short window between our February call and the end of the first quarter doesn't allow much time for a lot of business surprises. That was not the case this year. The new tariff levels announced a few weeks ago that were implemented and then largely have created more uncertainty than we had anticipated, particularly around equipment expense. We're working to mitigate as much of this impact as possible. Most of our equipment is manufactured in Thailand at a contracted facility. The quality is outstanding. Last year, we only had about 100 items returned out of more than 850,000 individual things that we shipped to customers. That's an amazing quality level that we're very proud of and that my supply chain management team has delivered both during and in the aftermath of the recent pandemic. With U.S. trade policy still in flux, let me share some of our considerations to ensure you understand how we're reacting to these new regulations and how they would affect our bottom line depending on how and when they are implemented. Historically, Iridium has imported our finished goods from Thailand and to a far lesser extent to other countries, but to our Arizona distribution center where they have been inventoried and packaged with other components prior to being shipped on to partners, both in the US and overseas. Last year, however, we began working with a third-party logistics partner in Europe for regulatory reasons and began using their facility for shipments destined to the EU. In the current environment, we will be expanding this relationship quickly to mitigate as much of the new tariff costs as we can utilizing it for almost all non-US partner shipments, which is about 75% of the total. Approximately a quarter of Iridium's annual equipment is shipped to US-based partners, so any import tariff should only impact this portion testing for the United States. We've been working for several years to avoid exposure in our supply chain to China, and now source very little from there. So the very large tariffs there have a relatively small impact on our bottom line. We estimate that the current U.S. trade policies, based upon a minimum tariff of 10% for Thailand, would result in approximately $3 million of incremental cost to Iridium this year and flow through to our OEBITDA. At this time, we think we can absorb this lower level of tariffs within our currently guided OEBITDA range. If tariff policies were to revert to originally proposed levels from April 2nd, Iridium would be subject to a 36% tariff rate for all equipment manufactured and imported from Thailand. Under this scenario, we estimate that Iridium would incur $6 to $7 million in incremental costs this year. We have not included this scenario in our guidance assumptions in light of the uncertainty and ongoing discussions with countries like Thailand on tariff levels and exemptions. While we could choose to mitigate some of the remaining import costs through equipment surcharges to our customers, at this time we prefer not to undermine our strong market position and business momentum. Today, there remains much uncertainty surrounding tariff levels, their timing, and how our partners' businesses will fare in the evolving economic climate. As historical context, we know Iridium's business has been resilient in the face of prior economic shocks. We continue to grow service revenue through the 2008 recession as well as during the 2020 pandemic. I hope this color and the additional information Vince will soon provide will help you better understand how we are thinking about the current environment. At this point, it's a pretty deterministic expense once we understand what the trade policies will ultimately be. Turning back to our activities during the first quarter, we spent a lot of time with the industry and our partners at the satellite show in February and our Iridium partner conference in Florida. Despite the overall market disruptions and changes in our industry, our partners remain bullish on their businesses and opportunities with Iridium, particularly around next-generation IoT, alternate PNT from our Satellis acquisition, and D2D with our development of Iridium NTN Direct. Our expansive partner ecosystem is unique in the satellite industry, and Iridium's partner network covers just about every industry that can use satellite communications. These partners understand and appreciate Iridium's unique capabilities, including our high quality and reliable satellite constellation, truly global coverage, and regulatory approvals. They give us a lot of visibility into their businesses, and we share with them our product roadmap and investments for the future. which is why we remain confident about our growth outlook in the face of new market entrants like Starlink or regional D2D services like AST Space Mobile. Our partners see us as complementary to these new entrants and continue to invest in new Iridium solutions based on our investments and plans to go after new markets. I feel somewhat obligated to talk about Starlink and other startups, as it's clear from short interest that investors still don't understand how Iridium is differentiated from them. Starlink, in particular, has done a great job expanding their network and attacking new markets. They've made strong inroads into the consumer sector and drawn share from established VSAT broadband players in areas like maritime and aviation. Starlink, however, does not have L-band spectrum nor the global coverage required to support mission-critical applications. Further, they do not have the ability to address safety applications in GMDSS on ships or air traffic control communications to the cockpit of airplanes. While there is some overlap between us, specifically in maritime where Iridium has been used as a low-cost primary connection by some boaters, our distribution partners still see an important role for Iridium's weather-resistant global coverage as a complement to Starlink for their customers. The headwind we are experiencing on this small piece of our broadband business should normalize over time as more Iridium Certus GMDSS maritime products reach the market to address end market needs for low-cost safety applications, a niche within maritime where we excel. As for direct-to-device, this industry segment is not a zero-sum game. We fully anticipate that satellite providers offering various levels of cellular-based services from space will develop regional services over time, But most of the services will be limited in geographic scope due to the spectrum interference and regulatory issues, and will need to overcome service expectations with cellular customers. When I talk to our partners, I continue to hear that their customers want uncompromising, highly reliable global service and tailored solutions that address their unique business needs. Their preference is for purpose-built devices that remove uncertainty and obstacles from achieving customers' missions and objectives. As a result, We have no reason to believe that cellular-based D2D will replace the use cases that Iridium addresses. However, there is a growing role for D2D in the marketplace, especially with casual users, which is why we're developing Iridium NTN Direct. Iridium's new IoT and directed device service will be available on standard-based chipsets with 3GPP Release 19. We will be in live on-air tests with Nordic Semiconductor and potentially others this summer, and prospective customers will then have the ability to experience what a global, reliable D2D service really feels like. For Iridium, standards-based chipsets will also have the benefit of lowering costs for manufacturers and customers who want to roam onto Iridium's global network for almost no additional cost beyond what they are spending for cellular hardware. This should be a boon to our IoT business and allow Iridium to find its way into new industries that had previously considered satellite technology too costly for integration. The IoT market is very large, and we expect Iridium NTN Direct to fuel material revenue growth for our company through the end of the decade. Despite suggestions from some, mainly investors who are short Iridium, that D2D will compete with and cannibalize Iridium's legacy services, we find this storyline hard to follow. As current D2D solutions based on cellular frequencies improve, they will still only provide a small extension to the cellular world's 10 to 15% footprint of the globe, far from Iridium's ubiquitous coverage. With all the excitement about D2D, it's worth highlighting that we continue to see growth for personal satellite communication devices. This is even as free D2D services have debuted in the U.S. and elsewhere with Apple on smartphones and with very public beta tests of Starlink services. While there may someday be a large market for D2D, We believe that the relatively small investment we're making in Iridium NTN Direct will result in a robust service that will be complementary to others' D2D efforts and generate incremental IoT service revenue for us starting in 2026. Continuing on this theme of incremental revenue, let me move on to position navigation and timing, an area in which Iridium has a big lean on competitors and which we believe holds a lot of opportunities. Our partners are really excited about integrating our satellite time and location services into their solutions, and we're seeing a lot of interest from new customers who want to solve GPS issues with Iridium STL. As I've discussed before, the prevalence of GPS jamming and location spoofing is on the rise and exposing the vulnerabilities of organizations and critical infrastructure that rely on these services. Thanks to our acquisition of Satellis last year, We can provide them with a timing signal and trusted location that can be delivered cheaply anywhere in the world and is 1,000 times stronger than GPS. We've already seen a big pickup in engagements on P&T since the beginning of this year, and we believe reading STL will be a major driver of revenue growth in both civil and commercial applications through 2030 and beyond. Before I turn things over to Vince, I want to take a moment to touch upon some investor inquiries we've received on the administration's efforts to reduce government expenditures and realize efficiencies. We do not believe that Iridium's existing contracts with the U.S. government will be impacted by these efforts and continue to believe that our long-term partnership with the government provides tremendous value. Our EMSS contract with the DoD gives the government reliable global coverage for as many voice and data units as they care to add to our network at about $65 per user per month. This may be among the most attractive deals in the satellite industry today. We do, however, believe that the geopolitical environment will remain in flux. There's no disputing that international dynamics are changing. Between the new tariffs and U.S. government right-sizing and shifting priorities, we expect to see impact on our industry, some potentially positive, as space remains a priority right now, but some negative as well. Foreign governments, agencies, NGOs, and even safety organizations may face funding challenges. We've seen examples of this in the last two months as USAID funding was cut to some international organizations who are apparently using satellite services to improve their internal security. Right now, we have no reason to believe these changes will be material to our business. We believe Iridium is fairly insulated from the recent protectionism and nationalistic rhetoric, but like every company, we may face issues on the margin as we move through the year. We will continue to keep our ears open, mitigate issues that arise, and keep investors abreast of what we're seeing. Despite recent global turbulence, as my team and I look out to 2030, we are highly confident in Iridium's ability to leverage our one-of-a-kind network to deliver new solutions and expand into new end markets. We have great technology, a strong spectrum position, and a clear path to grow our business, service revenues, and free cash flow. Between our buyback program and quarterly dividends, we are also delivering additional value to shareholders. We continue to believe our stock to be undervalued and will be active to capture this value with the remaining outstanding authorization on our share repurchase program. These capital priorities, in addition to ongoing investments in our network, underscore our confidence in Iridium's business prospects and growth. With that, I'll turn it over to Vince for a review of our financials.