Iridium Communications Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Iridium provides global mobile voice and data communications through a 66-satellite low-earth-orbit network. Billable subscribers were approximately 1.781 million, up 17% year over year.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $168.2 million | $146.5 million | Up 15% |
| Operating income | $19.2 million | $9.0 million | Up $10.2 million |
| Operating margin | 11.4% | 6.2% | Up 5.2 percentage points |
| Net income (loss) | $2.8 million | $(5.2) million | Improved $8.0 million |
| Diluted EPS | $0.02 | $(0.04) | Returned to profit |
| Operating cash flow | $65.8 million | $50.8 million | Up $15.0 million |
| Capital expenditures | $13.6 million | $9.4 million | Up $4.2 million |
Services revenue rose 9% to $126.1 million; subscriber equipment revenue increased 41% to $33.7 million, and engineering and support revenue increased 30% to $8.4 million. Commercial services growth reflected more subscribers across voice and data, IoT, and broadband. IoT revenue rose 15%, though IoT ARPU fell 7%; broadband revenue increased 22%. Government services revenue was $26.5 million, up 3%.
Operating expenses increased 8% to $149.0 million. Subscriber equipment costs grew 57%, faster than equipment revenue, primarily due to product and customer mix. SG&A rose 15%, mainly from higher incentive and equity compensation. Net interest expense declined $8.2 million to $14.6 million, principally following the 2021 term-loan repricing. Income tax expense was $1.8 million, versus a $8.6 million benefit a year earlier; the 2022 effective tax rate was 39.2%.
Cash, debt and liquidity
Cash and cash equivalents were $232.0 million at March 31, down from $320.9 million at year-end. Operating cash flow less capital expenditures was approximately $52.2 million. Financing cash outflow was $141.3 million, including $134.2 million of share repurchases. The company repurchased 3.8 million shares at an average $35.06 per share during the quarter.
Term-loan borrowings were $1.617 billion gross principal, or $1.595 billion net of deferred financing costs. The loan bears interest at LIBOR plus 2.50%, subject to a 0.75% floor, and matures in November 2026. The $100 million revolving facility was undrawn; the company reported covenant compliance and no financial maintenance covenant on the term loan. A $1.0 billion notional interest-rate cap provides protection if one-month LIBOR exceeds 1.5%. The company stated that available liquidity should cover requirements for at least the next 12 months.
Outlook, risks and notable items
- Management expected 2022 SG&A expense to increase approximately 20%, primarily due to stock compensation. Depreciation and amortization was expected to remain relatively consistent.
- Capital expenditures were expected to average approximately $40 million annually through 2029, excluding possible ground-spare launch costs. For the next 12 months, the company estimated capex of $45–$80 million, required term-loan principal of $16.5 million, and interest of approximately $60 million at then-current rates.
- Approximately $35.2 million of non-cancelable inventory purchase obligations with Benchmark were due during 2022. Management cited increased demand and recovery from supply-chain constraints.
- The company expanded its share-repurchase authorization by up to $300 million through December 31, 2023; $302.5 million remained available at quarter-end. Repurchases are discretionary.
- Russia’s invasion of Ukraine and related sanctions led Iridium to stop equipment shipments to Russia and adjust operations. Russia represented approximately 2.3% of 2021 total revenue; the company expected significantly reduced Russian revenue in 2022 and could further limit or cease operations, potentially incurring shutdown costs.
- Other disclosed risks include satellite health and capacity, reliance on a primary commercial gateway and network operations center, competition, government-customer concentration, and dependence on global suppliers, including a primary equipment manufacturer. The filing reported no material pending legal proceedings beyond routine litigation.
- Comprehensive income was $32.1 million, including a $28.0 million after-tax unrealized cash-flow-hedge gain recorded in other comprehensive income; this was not net income.
Key facts for investors to verify
- Whether subscriber growth and revenue gains continue, and whether lower IoT ARPU or equipment mix constrains profitability.
- Cash use and remaining repurchase authorization relative to the company’s projected capital spending, debt service, and liquidity needs.
- Term-loan exposure to rising benchmark rates despite the interest-rate cap, and refinancing plans for the expected $1.555 billion principal due at 2026 maturity.
- The financial effects of Russia-related restrictions and any further supply-chain disruption or inventory commitments.
- Whether management’s expense and capital-expenditure expectations change; interim results are not necessarily indicative of full-year results.