Iridium Communications Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Iridium provides global mobile voice and data communications through its satellite network. Financial amounts below are in U.S. dollars; “Q3” refers to the three-month period.
Financial and operating results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $151.5m | $144.8m | $436.9m | $421.6m |
| Operating income | $12.7m | $8.0m | $30.4m | $10.1m |
| Operating margin | 8.4% | 5.5% | 7.0% | 2.4% |
| Net loss | $4.0m | $18.0m | $48.1m | $54.1m |
| Net loss per common share | $0.03 | $0.14 | $0.36 | $0.47 |
| Operating cash flow | Not separately provided | Not separately provided | $179.1m | $142.5m |
| Capital expenditures | Not separately provided | Not separately provided | $29.3m | $102.8m |
- Q3 revenue rose 5%. Services revenue increased 1%, equipment revenue 18%, and engineering and support revenue 25%. For the first nine months, revenue rose 4%.
- Service growth included higher hosted-payload and data fees, including Aireon, and commercial broadband. Voice and data revenue declined amid pandemic-related mobility restrictions. IoT subscriber growth was offset by lower average revenue per user.
- Q3 net loss narrowed by $14.0m year over year, helped by higher revenue, lower SG&A, and $7.9m lower net interest expense. Nine-month net loss improved despite a $30.2m debt-extinguishment charge.
- At September 30, cash and cash equivalents were $182.7m, versus $223.6m at year-end 2019. Current assets were $286.5m and current liabilities $100.7m.
- Nine-month investing cash outflow was $29.3m, primarily capital expenditures; financing cash outflow was $188.5m. Cash declined $40.9m over the period.
- Gross Term Loan borrowings were $1,641.8m; the balance-sheet amount, net of financing costs, was $1,600.4m long-term plus $16.5m current secured debt. The $360m senior unsecured notes were retired in February 2020. The $100m revolver was undrawn.
Changes, outlook, and notable items
- In February, Iridium borrowed an additional $200m under its Term Loan and used the proceeds and cash on hand to retire the senior notes. The refinancing contributed to lower interest expense, but produced a $30.2m nine-month loss on extinguishment of debt, including premiums and write-offs.
- Management said recovery in some markets had led it to improve its 2020 revenue, profitability, and leverage outlook from the substantial reductions made in April, bringing expectations closer to the February forecast. The filing does not provide specific numerical guidance.
- COVID-19 continued to restrict distributor sales, installations, and customer activity. Aviation and maritime remained pressured; management noted aviation could take years to recover. IoT showed stronger recovery, while reduced usage and a mix shift to lower-priced plans weighed on revenue per subscriber.
- Management estimated capital expenditures would average approximately $40m annually through 2029 and stated that available liquidity was expected to meet requirements for at least the next 12 months. Term Loan principal and interest are principal near-term liquidity requirements.
- Interest-rate exposure remains on unhedged variable-rate debt. A $1bn interest-rate swap runs through November 2021; a swaption could extend hedging through November 2026. The loan agreement includes restrictions and excess-cash-flow prepayment provisions; the Term Loan has no financial maintenance covenants.
- Key risks include pandemic effects and distributor credit/collections (one distributor sought bankruptcy protection), Aireon’s ability to pay contracted fees amid reduced air traffic, reliance on distributors and limited suppliers, satellite/network operations risks, and potential interference from Ligado’s FCC-approved use of adjacent L-band spectrum.
- The company reported no legal proceedings. Management concluded disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether market recovery and management’s improved but non-numeric 2020 outlook translated into subsequent revenue, profitability, and leverage results.
- Cash generation, required debt service, and any mandatory excess-cash-flow prepayments against the substantial Term Loan balance.
- Distributor financial health and collections, particularly the impact of the distributor bankruptcy filing.
- Aireon’s ability to make contracted payments and the timing and conditions of any planned $120m ownership-interest redemption, which management said was not expected for several years.
- Whether Ligado’s spectrum deployment causes service interference, and the resulting customer or regulatory impact.