Iridium Communications Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Iridium provides global mobile voice and data communications through a 66-satellite constellation, selling services and equipment through wholesale distributors. The filing is unaudited.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $149.9 million | $140.2 million | $296.5 million | $285.5 million |
| Operating income | $11.6 million | $5.8 million | $20.6 million | $17.7 million |
| Operating margin | 7.7% | 4.2% | 7.0% | 6.2% |
| Net income (loss) | $3.8 million | $(12.4) million | $(1.4) million | $(44.1) million |
| Operating cash flow | Not separately provided | Not separately provided | $126.0 million | $104.5 million |
| Capital expenditures | Not separately provided | Not separately provided | $19.2 million | $18.7 million |
Q2 service revenue was $121.3 million, subscriber equipment revenue $21.8 million, and engineering and support revenue $6.8 million. Q2 diluted EPS was $0.03; six-month loss per share was $0.01. The Q2 net profit included a $10.0 million income tax benefit, including a one-time $8.3 million benefit from a state apportionment change. Six-month interest expense, net, was $40.4 million.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $213.4 million, marketable securities $6.0 million, and current assets $321.8 million. Cash and cash equivalents declined $23.8 million from year-end 2020.
- Term Loan borrowings were $1.6288 billion before $22.1 million of deferred financing costs; the reported net debt balance was $1.6067 billion. The $100 million revolving facility was undrawn, leaving $100 million available.
- Term Loan maturity is November 2026; the January 2021 repricing reduced its rate to LIBOR plus 2.75%, with a 1% LIBOR floor. The company reported covenant compliance and no Term Loan financial maintenance covenants.
- Six-month financing cash outflow was $131.2 million, including $122.5 million of share repurchases. The board authorized up to $300 million of repurchases through December 31, 2022; $177.6 million remained available at quarter-end.
Material changes and business trends
- Revenue grew 7% year over year in Q2 and 4% for the first half. Q2 commercial services revenue rose 8%, led by IoT and broadband; subscriber equipment revenue increased 10%.
- Billable subscribers reached approximately 1.616 million, up 19% year over year. IoT subscriber growth was strong, while IoT average revenue per user declined, partly due to a greater share of lower-priced personal communications plans.
- Q2 operating income nearly doubled year over year. Lower interest expense and the absence of the prior-year $30.2 million debt-extinguishment loss also improved first-half results; the company nevertheless recorded a first-half net loss.
- Six-month operating cash flow increased by $21.4 million year over year. Management attributed the improvement to better profitability and working-capital changes.
Outlook, risks and unusual items
- Management said available liquidity should cover requirements for at least the next 12 months. It expects capital expenditures to average approximately $40 million annually through 2029. No broader quantified revenue or earnings guidance is provided in this filing text.
- COVID-19 continued to affect distributor access and customer activity. Management cited recovery in some markets, particularly IoT, but ongoing weakness in aviation, maritime and some international markets; aviation may take years to return to pre-pandemic levels.
- The company reported global silicon-chip shortages and supplier production delays, which it expects to delay some product orders. It relies on two device manufacturers and sole-source suppliers for certain components.
- Other identified risks include satellite and network operations, competition, regulation, technology changes, reliance on wholesale distribution and significant customers, and the ability to generate cash to service debt.
- The interest-rate swap hedged $1.0 billion of Term Loan exposure through November 2021. A half-percentage-point LIBOR change was not expected to materially affect period interest cost. The company sold its $1.0 billion swaption in May for $0.7 million and continued paying its premium through November 2021.
- No legal proceedings were reported. The filing text identifies no material contingency amount.
Important facts for investors to verify
- Whether subscriber growth, especially IoT, translates into sustained revenue growth despite lower IoT ARPU and pandemic-related market weakness.
- The duration and commercial impact of component shortages, including expected product-order delays and any replacement-component costs.
- Debt-service capacity, floating-rate exposure after the swap expires, and the terms and availability of the revolving facility.
- The sustainability of reported earnings given the one-time $8.3 million tax benefit and the first-half net loss.
- The pace and price of share repurchases relative to liquidity needs and the remaining authorization.