Iridium Communications Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Iridium provides mobile voice and data communications through a 66-satellite operational constellation and wholesale distribution network. Billable subscribers totaled approximately 1.69 million, up 18% year over year.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $162.2 million | $151.5 million | $458.6 million | $436.9 million |
| Operating income | $15.0 million | $12.7 million | $35.6 million | $30.4 million |
| Operating margin | 9.3% | 8.4% | 7.8% | 7.0% |
| Net loss | $2.1 million | $4.0 million | $3.4 million | $48.1 million |
| Net loss per share, diluted | $0.02 | $0.03 | $0.03 | $0.36 |
| Operating cash flow | Not separately stated | Not separately stated | $213.1 million | $179.1 million |
| Capital expenditures | Not separately stated | Not separately stated | $28.0 million | $29.3 million |
Q3 revenue rose 7%; nine-month revenue rose 5%. Services generated 78% of Q3 revenue and 79% of nine-month revenue. Nine-month operating cash flow less capital expenditures was approximately $185.1 million, versus $149.9 million a year earlier.
Revenue drivers and changes
- Q3 services revenue increased 9% to $127.8 million. Commercial services rose 11% to $101.9 million, led by IoT (+18%), broadband (+26%) and voice/data (+7%). Government services increased to $25.9 million; the EMSS contract’s annual rate rose from $103 million to $106 million during Q3.
- Commercial IoT subscribers reached 1.156 million, up 25%; lower-ARPU plan mix reduced IoT ARPU. Broadband growth reflected more subscribers and increased adoption of higher-ARPU Certus plans.
- Q3 equipment revenue rose 7% to $26.9 million. Engineering and support revenue fell 21% to $7.5 million, primarily reflecting episodic government contract work.
- Nine-month hosted payload and other data revenue declined $2.3 million, partly because the prior-year period included non-recurring billing and usage-estimate adjustments.
- Q3 SG&A increased 26% to $25.9 million, mainly from higher management incentive costs, legal and professional fees, and stock appreciation rights expense. Nine-month SG&A rose 16%.
Profitability, liquidity and debt
- Interest expense fell 22% in Q3 and 19% for the nine-month period, primarily following Term Loan repricings in January and July 2021. The loan now bears interest at LIBOR plus 2.50%, subject to a 0.75% LIBOR floor, and matures in November 2026.
- Nine-month net loss improved substantially from 2020, when Iridium recorded a $30.2 million debt-extinguishment loss related to retiring its senior notes. The 2021 nine-month period included a $0.9 million extinguishment loss from the July repricing.
- At September 30, cash and cash equivalents were $287.0 million, marketable securities were $2.0 million, and the full $100 million revolving facility was undrawn. Management stated liquidity should be sufficient for requirements over at least the next 12 months.
- Term Loan borrowings were $1.625 billion before $24.2 million of unamortized financing costs; the balance-sheet net amount was approximately $1.601 billion. Iridium reported covenant compliance. The Term Loan has no financial maintenance covenants; the revolver has a leverage test if more than 35% is drawn.
- Nine-month financing cash outflow was $139.7 million, including $125.1 million of share repurchases. The company authorized repurchases up to $300 million through December 31, 2022; $174.9 million remained available at quarter-end.
Outlook, risks and unusual items
- Management expects capital expenditures to average approximately $40 million annually through 2029 and stated that available liquidity is adequate for the next 12 months. No specific revenue or earnings guidance is provided in the filing.
- Iridium entered into a $1.0 billion notional interest rate cap effective November 2021, with a 1.5% LIBOR threshold, to manage variable-rate exposure after its swap expires. The remaining unhedged debt remains exposed to interest-rate fluctuations.
- COVID-19 continued to affect markets unevenly: IoT had recovered notably, while aviation and maritime and some international markets remained affected. Management cautioned aviation could take years to return to pre-pandemic levels.
- The company disclosed supplier concentration and global silicon-chip shortages, with production delays already affecting some orders. It expects related fulfillment delays, higher costs and reduced product sales and associated service use to continue into 2022.
- Other key risks include satellite health and capacity, dependence on a primary commercial gateway and network operations center, competition, regulatory requirements, wholesale-channel reliance, significant government customers, and the ability to generate cash to service debt. Commercial voice activity is typically seasonal, with March through October as peak months.
- Tax benefits were significant relative to pretax losses: the nine-month effective tax rate was 90.4%, reflecting discrete tax items and credits. Management reported no material change to critical accounting policies. No legal proceedings were reported; disclosure controls were deemed effective.
Investor verification priorities
- Track subscriber growth and revenue quality, particularly IoT subscriber additions versus lower ARPU, Certus broadband uptake, and recovery in aviation and maritime.
- Assess whether chip shortages and supplier delays persist into 2022 and how they affect equipment deliveries, sales, costs, and related service revenue.
- Monitor operating cash generation, capital spending, debt repayment, interest-rate exposure after the swap expires, and compliance with credit agreement restrictions.
- Review the pace and price of share repurchases against liquidity needs and the remaining authorization.
- Distinguish recurring operating improvement from prior-year debt-extinguishment charges, financing repricing costs, non-recurring hosted-data revenue, and discrete tax benefits.