Iridium Communications Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; it does not provide standalone fourth-quarter results. Iridium operates a 66-satellite low-Earth-orbit communications network and sells services and equipment through wholesale distributors. The U.S. government is its largest single customer.
Financial performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $614.5 million | $583.4 million | Up 5% |
| Service revenue | $492.0 million | $463.1 million | Up 6% |
| Operating income | $46.3 million | $35.5 million | Up 31% |
| Operating margin | 7.5% | 6.1% | Up approximately 1.4 percentage points |
| Net loss | $9.3 million | $56.1 million | Loss narrowed |
| Operating cash flow | $302.9 million | $249.8 million | Up $53.1 million |
| Capital expenditures | $42.1 million | $38.7 million | Up $3.5 million |
- Commercial services were $388.1 million, up 7%. IoT data revenue rose 14% to $110.9 million, broadband revenue rose 20% to $43.0 million, and voice and data revenue rose 4% to $175.6 million. Hosted payload and other data revenue declined $2.0 million to $58.6 million.
- Billable subscribers reached approximately 1.723 million, up 17% year over year. Commercial IoT subscribers rose 24%; IoT ARPU fell 6%, partly reflecting a higher mix of lower-priced personal communication plans.
- Service revenue represented 80% of total revenue. Subscriber equipment revenue increased 7% to $92.1 million; engineering and support revenue decreased 11% to $30.4 million.
- Interest expense, net, declined to $73.9 million from $94.3 million, primarily following two Term Loan repricings. The 2021 net loss also benefited from a much smaller debt-extinguishment loss than in 2020.
- At year-end, cash and cash equivalents were $320.9 million. Gross Term Loan borrowings were $1.621 billion, with a $1.598 billion net carrying amount after deferred financing costs. The $100 million revolving facility was undrawn. Current liabilities were $108.8 million and current assets were $424.4 million.
Material changes and capital allocation
- Revenue increased $31.1 million, led by IoT, broadband, voice and data, and equipment sales. Government service revenue rose 3% to $103.9 million; government subscribers declined by 5, while the EMSS contract’s annual fee increased to $106 million in the third quarter.
- Operating income improved despite higher selling, general and administrative expense, which rose 12% to $100.5 million, primarily due to higher management incentive costs. Depreciation and amortization remained high at $305.4 million.
- Net loss improved to $9.3 million from $56.1 million. The 2020 comparison included a $30.2 million loss on extinguishment of debt; the 2021 loss was $0.9 million. Income tax benefit was $19.6 million, versus $32.9 million in 2020.
- Iridium repurchased and retired 4.3 million shares during 2021 for $163.4 million. At year-end, $136.6 million remained under the $300 million repurchase authorization, which ran through December 31, 2022.
- The Term Loan matures in November 2026. Scheduled principal payments are $16.5 million annually, with $1.555 billion due in 2026. Iridium reported compliance with debt covenants and no required excess-cash-flow prepayment for 2021.
Outlook, commentary and risks
- Management identified commercial services as the primary long-term growth opportunity and expects to leverage the largely fixed-cost network through growth in Certus broadband and midband, IoT, and government services. No specific 2022 revenue or earnings guidance is provided.
- Iridium expects capital expenditures to average approximately $40 million annually through 2029; it estimated 2022 capital expenditures of $45 million. It expected $16.5 million of 2022 principal payments and approximately $60 million of interest at then-current rates, and said available liquidity should meet requirements for at least 12 months.
- Management said aviation recovered in 2021 and anticipated further recovery in 2022, while noting commercial air traffic could take years to return to pre-pandemic levels. Supplier delays related to the global silicon-chip shortage had affected product fulfillment; the company expected related effects to continue through 2022.
- The U.S. government accounted for approximately 21% of 2021 revenue. Its EMSS contract is fixed-price through September 2026, with a total stated value of $738.5 million, but government contracts may be terminated and are subject to appropriations. Management also noted that lower EMSS subscriber use could affect renewal negotiations.
- Key risks include satellite or gateway outages, space debris and lack of in-orbit satellite insurance; competition and technology changes; distributor concentration and dependence on limited suppliers; debt refinancing and variable interest rates; regulatory and spectrum issues, including pending opposition to Ligado’s FCC waiver; and COVID-19 effects on customers, distributors and Aireon.
- Aireon is a significant hosted-payload and data-services customer. Iridium held a 35.7% fully diluted interest in Aireon Holdings, carried at zero on Iridium’s books, and described a potential $120 million redemption of part of its interest as unlikely for several years. Any inability by Aireon to pay contractual fees or secure financing could affect Iridium’s receipts and investment.
- The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting. The auditor identified the estimated 12.5-year useful life of the upgraded satellites as a critical audit matter.
Investor verification priorities
- Track service-revenue growth, subscriber additions and ARPU by category, especially IoT and Certus broadband.
- Verify supplier recovery, product availability and the expected effects of chip shortages through 2022.
- Review cash generation, share repurchases and Term Loan principal reduction alongside the $1.555 billion 2026 maturity and refinancing assumptions.
- Monitor EMSS usage, contract performance, government appropriations and renewal risk ahead of September 2026.
- Assess Aireon’s ability to meet hosting and data-service payments, its financing position and timing of any ownership redemption.
- Follow satellite performance and useful-life assumptions, license renewals, and developments concerning Ligado and potential L-band interference.