Company Quick10K Filing
Iridium Communications
Price22.10 EPS-0
Shares132 P/E-47
MCap2,910 P/FCF45
Net Debt-367 EBIT27
TEV2,544 TEV/EBIT93
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-10-20
10-Q 2020-06-30 Filed 2020-07-28
10-Q 2020-03-31 Filed 2020-04-28
10-K 2019-12-31 Filed 2020-02-25
10-Q 2019-09-30 Filed 2019-10-29
10-Q 2019-06-30 Filed 2019-07-23
10-Q 2019-03-31 Filed 2019-04-23
10-K 2018-12-31 Filed 2019-02-28
10-Q 2018-09-30 Filed 2018-10-25
10-Q 2018-06-30 Filed 2018-07-31
10-Q 2018-03-31 Filed 2018-04-26
10-K 2017-12-31 Filed 2018-02-22
10-Q 2017-09-30 Filed 2017-10-26
10-Q 2017-06-30 Filed 2017-07-27
10-Q 2017-03-31 Filed 2017-04-27
10-K 2016-12-31 Filed 2017-02-23
10-Q 2016-09-30 Filed 2016-10-27
10-Q 2016-06-30 Filed 2016-07-28
10-Q 2016-03-31 Filed 2016-04-28
10-K 2015-12-31 Filed 2016-02-25
10-Q 2015-09-30 Filed 2015-10-29
10-Q 2015-06-30 Filed 2015-07-30
10-Q 2015-03-31 Filed 2015-04-30
10-K 2014-12-31 Filed 2015-02-26
10-Q 2014-09-30 Filed 2014-10-30
10-Q 2014-06-30 Filed 2014-07-31
10-Q 2014-03-31 Filed 2014-05-01
10-K 2013-12-31 Filed 2014-03-04
10-Q 2013-09-30 Filed 2013-10-31
10-Q 2013-06-30 Filed 2013-08-01
10-Q 2013-03-31 Filed 2013-05-02
10-K 2012-12-31 Filed 2013-03-05
10-Q 2012-06-30 Filed 2012-08-02
10-Q 2012-03-31 Filed 2012-05-03
10-K 2011-12-31 Filed 2012-03-06
10-Q 2011-09-30 Filed 2011-11-08
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-10
10-K 2010-12-31 Filed 2011-03-07
10-Q 2010-09-30 Filed 2010-11-09
10-Q 2010-06-30 Filed 2010-08-09
10-Q 2010-03-31 Filed 2010-05-10
10-K 2009-12-31 Filed 2010-03-16
8-K 2020-10-20 Earnings, Exhibits
8-K 2020-07-28 Earnings, Exhibits
8-K 2020-05-14
8-K 2020-04-28
8-K 2020-02-28
8-K 2020-02-25
8-K 2020-02-13
8-K 2020-02-07
8-K 2020-02-03
8-K 2020-01-17
8-K 2019-11-04
8-K 2019-10-29
8-K 2019-10-21
8-K 2019-09-13
8-K 2019-08-21
8-K 2019-07-23
8-K 2019-07-19
8-K 2019-06-21
8-K 2019-05-21
8-K 2019-05-15
8-K 2019-04-26
8-K 2019-04-23
8-K 2019-04-22
8-K 2019-03-07
8-K 2019-02-28
8-K 2019-02-13
8-K 2019-01-30
8-K 2018-12-31
8-K 2018-10-25
8-K 2018-07-31
8-K 2018-05-17
8-K 2018-04-26
8-K 2018-03-16
8-K 2018-03-09
8-K 2018-03-09
8-K 2018-02-26
8-K 2018-02-26
8-K 2018-02-22

IRDM 10Q Quarterly Report

Part I.
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
Item 4.Controls and Procedures.
Part II.
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 irdm10-q093020exx311.htm
EX-31.2 irdm10-q093020exx312.htm
EX-32.1 irdm10-q093020exx321.htm

Iridium Communications Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
4.23.42.51.70.80.02012201420172020
Assets, Equity
907153351702012201420172020
Rev, G Profit, Net Income
0.30.20.0-0.1-0.3-0.42012201420172020
Ops, Inv, Fin

irdm-20200930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-33963  
Iridium Communications Inc.
(Exact name of registrant as specified in its charter)
DE26-1344998
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1750 Tysons Boulevard, Suite 1400, McLean, VA 22102
(Address of principal executive offices, including zip code)
703-287-7400
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, $0.001 par valueIRDMThe Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large Accelerated Filerx  Accelerated Filer¨
Non-Accelerated Filer¨ Smaller Reporting Company¨
  Emerging Growth Company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of October 14, 2020 was 133,301,722.



IRIDIUM COMMUNICATIONS INC.
TABLE OF CONTENTS
 
Item No.     Page
    
  
     
    
     
   
     
   
     
   
     
   
     
ITEM  2.  
     
ITEM  3.  
     
ITEM  4.  
    
  
     
ITEM  1.  
     
ITEM  1A.  
     
ITEM  2.  
     
ITEM  3.  
     
ITEM  4.  
     
ITEM  5.  
     
ITEM  6.  
     
   

2


PART I.
Iridium Communications Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
 September 30, 2020December 31, 2019
(Unaudited) 
Assets  
Current assets:
Cash and cash equivalents$182,702 $223,561 
Accounts receivable, net59,340 68,697 
Inventory33,309 39,938 
Prepaid expenses and other current assets11,188 10,739 
Total current assets286,539 342,935 
Property and equipment, net2,981,370 3,180,799 
Intangible assets, net45,881 46,977 
Other assets51,735 52,846 
Total assets$3,365,525 $3,623,557 
Liabilities and stockholders equity
  
Current liabilities:  
Short-term secured debt$16,500 $10,875 
Accounts payable7,181 6,713 
Accrued expenses and other current liabilities40,727 49,293 
Interest payable246 7,790 
Deferred revenue36,017 39,080 
Total current liabilities100,671 113,751 
Long-term secured debt, net1,600,387 1,412,501 
Long-term senior unsecured notes, net 352,994 
Deferred income tax liabilities, net165,053 188,653 
Deferred revenue, net of current portion52,600 67,092 
Other long-term liabilities31,351 29,284 
Total liabilities1,950,062 2,164,275 
Commitments and contingencies
Stockholders’ equity:  
Common stock, $0.001 par value, 300,000 shares authorized; 133,279 and 131,632 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively133 132 
Additional paid-in capital1,151,606 1,134,048 
Retained earnings283,840 331,969 
Accumulated other comprehensive loss, net of tax(20,116)(6,867)
Total stockholders’ equity1,415,463 1,459,282 
Total liabilities and stockholders’ equity$3,365,525 $3,623,557 








See notes to unaudited condensed consolidated financial statements.
3


Iridium Communications Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Revenue:
Services$116,914 $115,853 $346,239 $333,601 
Subscriber equipment25,120 21,375 67,198 65,803 
Engineering and support services9,438 7,557 23,495 22,166 
Total revenue151,472 144,785 436,932 421,570 
Operating expenses:  
Cost of services (exclusive of depreciation and amortization)23,909 23,581 69,021 71,709 
Cost of subscriber equipment15,429 12,862 39,772 38,663 
Research and development3,116 2,822 7,940 10,718 
Selling, general and administrative20,631 22,934 62,556 67,744 
Depreciation and amortization75,654 74,575 227,260 222,617 
Total operating expenses138,739 136,774 406,549 411,451 
Operating income12,733 8,011 30,383 10,119 
Other expense, net:  
Interest expense, net(22,628)(30,493)(71,578)(85,076)
Loss on extinguishment of debt  (30,209)(207)
Other income (expense), net205 26 332 (926)
Total other expense, net(22,423)(30,467)(101,455)(86,209)
Loss before income taxes(9,690)(22,456)(71,072)(76,090)
Income tax benefit 5,685 4,444 22,943 21,948 
Net loss(4,005)(18,012)(48,129)(54,142)
Series B preferred stock dividends, declared and paid excluding cumulative dividends   4,194 
Net loss attributable to common stockholders$(4,005)$(18,012)$(48,129)$(58,336)
Weighted average shares outstanding - basic and diluted133,760 131,688 133,177 122,816 
Net loss attributable to common stockholders per share - basic and diluted$(0.03)$(0.14)$(0.36)$(0.47)
Comprehensive loss:
Net loss$(4,005)$(18,012)$(48,129)$(54,142)
Foreign currency translation adjustments, net of tax(1,348)(864)(4,241)1,302 
Unrealized gain (loss) on cash flow hedges, net of tax (see Note 6)
1,794  (9,008) 
Comprehensive loss$(3,559)$(18,876)$(61,378)$(52,840)










See notes to unaudited condensed consolidated financial statements.
4


Iridium Communications Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Total stockholders’ equity, beginning balance
$1,409,160 $1,572,951 $1,459,282 $1,601,577 
Common stock:
Beginning balance
133 131 132 112 
Stock options exercised and awards vested
  1 2 
Preferred stock converted to common
   17 
Ending balance
133 131 133 131 
Additional paid-in capital:
Beginning balance
1,141,744 1,121,613 1,134,048 1,108,550 
Stock-based compensation
5,134 4,423 13,775 12,559 
Stock options exercised and awards vested
5,175 1,155 7,786 9,941 
Stock withheld to cover employee taxes
(447)(395)(4,003)(4,237)
Preferred stock converted to common
   (17)
Ending balance
1,151,606 1,126,796 1,151,606 1,126,796 
Retained earnings:
Beginning balance
287,845 457,838 331,969 501,712 
Net loss
(4,005)(18,012)(48,129)(54,142)
Dividends on Series B preferred stock
   (7,744)
Ending balance
283,840 439,826 283,840 439,826 
Accumulated other comprehensive loss, net of tax:
Beginning balance
(20,562)(6,631)(6,867)(8,797)
Cumulative translation adjustments, net of tax
(1,348)(864)(4,241)1,302 
Unrealized gain (loss) on cash flow hedge, net of tax
1,794  (9,008) 
Ending balance
(20,116)(7,495)(20,116)(7,495)
Total stockholders’ equity, ending balance
$1,415,463 $1,559,258 $1,415,463 $1,559,258 
Dividends declared per share:
Series B preferred stock$ $ $ $16.88 











See notes to unaudited condensed consolidated financial statements.
5


Iridium Communications Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Nine Months Ended September 30,
20202019
Cash flows from operating activities:
Net loss$(48,129)$(54,142)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred income taxes(23,600)(18,543)
Depreciation and amortization227,260 222,617 
Loss on extinguishment of debt30,209 207 
Stock-based compensation (net of amounts capitalized)12,560 11,524 
Amortization of deferred financing fees2,724 15,485 
All other items, net548 394 
Changes in operating assets and liabilities:
Accounts receivable7,958 1,051 
Inventory6,709 (11,038)
Prepaid expenses and other current assets(986)4,886 
Other assets2,545 293 
Accounts payable556 2,998 
Accrued expenses and other current liabilities(14,025)(15,618)
Interest payable(7,072)(5,516)
Deferred revenue(16,576)(9,769)
Other long-term liabilities(1,544)(2,376)
Net cash provided by operating activities179,137 142,453 
Cash flows from investing activities:  
Capital expenditures(29,267)(102,756)
Purchase of other investments (10,000)
Net cash used in investing activities(29,267)(112,756)
Cash flows from financing activities:  
Payments on the Credit Facility, including extinguishment costs (126,000)
Borrowings under the Term Loan202,000  
Payments on the Term Loan(8,250) 
Repayments on the senior unsecured notes, including extinguishment costs(383,451) 
Payment of deferred financing fees(2,562) 
Proceeds from exercise of stock options7,786 9,941 
Tax payment upon settlement of stock awards(4,003)(4,237)
Payment of Series B preferred stock dividends (8,387)
Net cash used in financing activities(188,480)(128,683)
Effect of exchange rate changes on cash and cash equivalents(2,249)453 
Net decrease in cash and cash equivalents(40,859)(98,533)
Cash, cash equivalents, and restricted cash, beginning of period223,561 465,287 
Cash, cash equivalents, and restricted cash, end of period$182,702 $366,754 



See notes to unaudited condensed consolidated financial statements.
6


 Nine Months Ended September 30,
20202019
Supplemental cash flow information:
Interest paid, net of amounts capitalized$77,047 $101,061 
Income taxes paid, net$934 $999 
Supplemental disclosure of non-cash investing and financing activities:  
Property and equipment received but not paid$2,533 $1,307 
Interest capitalized but not paid$ $2,526 
Capitalized amortization of deferred financing costs$82 $2,276 
Capitalized stock-based compensation$1,215 $1,034 































See notes to unaudited condensed consolidated financial statements.
7


Iridium Communications Inc.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation and Principles of Consolidation
Iridium Communications Inc. (the “Company”) has prepared its condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The accompanying condensed consolidated financial statements include the accounts of (i) the Company, (ii) its wholly owned subsidiaries, and (iii) all less than wholly owned subsidiaries that the Company controls. All material intercompany transactions and balances have been eliminated.
In the opinion of management, the condensed consolidated financial statements reflect all normal recurring adjustments that the Company considers necessary for the fair presentation of its results of operations and cash flows for the interim periods covered, and of the financial position of the Company at the date of the interim condensed consolidated balance sheet. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019, as filed with the SEC on February 25, 2020.

2. Significant Accounting Policies

Adopted Accounting Pronouncements

Effective January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This guidance introduces a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. Adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements and related disclosures and no cumulative adjustment was recorded.

Recent Accounting Developments Not Yet Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This guidance amends certain aspects of the accounting for income taxes. The Company intends to apply the new guidance effective January 1, 2021, as required. The impact of the adoption of the ASU on the Company's consolidated financial statements and related disclosures is not expected to be material.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The amendments apply only to contracts and hedging relationships that reference London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The Company is evaluating ASU 2020-04 and considering the possible adoption of certain expedients stated within the guidance as well as the impacts they may have on its consolidated financial statements and related disclosures.

Fair Value Measurements

The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by management of the Company. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value.

8


The fair value hierarchy consists of the following tiers:

Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The fair value estimates are based upon certain market assumptions and information available to the Company. The carrying value of the following financial instruments approximated their fair values as of September 30, 2020 and December 31, 2019: cash and cash equivalents, prepaid expenses and other current assets, accounts receivable, accounts payable, and accrued expenses and other current liabilities. Fair values approximate their carrying values because of their short-term nature. The Level 2 cash equivalents include money market funds, commercial paper and short-term U.S. agency securities. The Company also classifies its derivative financial instruments as Level 2.

Leases

For new leases, the Company will determine if an arrangement is or contains a lease at inception. Leases are included as right-of-use (“ROU”) assets within other assets and ROU liabilities within accrued expenses and other liabilities and within other long-term liabilities on the Company’s condensed consolidated balance sheets.

ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Certain leases contain variable contractual obligations as a result of future base rate escalations which are estimated based on observed trends and included within the measurement of present value. The Company’s leases do not provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For certain leases, such as teleport network (“TPN”) facilities, the Company elected the practical expedient to combine lease and non-lease components as a single lease component. Taxes assessed on leases in which the Company is either a lessor or lessee are excluded from contract consideration and variable payments when measuring new lease contracts or remeasuring existing lease contracts.

Derivative Financial Instruments

The Company uses interest rate swap agreements to manage its exposures to fluctuating interest rate risk on variable rate debt. Its derivatives are measured at fair value and are recorded on the balance sheet within other current and other long-term liabilities. The Company’s derivatives are designated as cash flow hedges, with the effective portion of the changes in fair value of the derivatives recorded in accumulated other comprehensive loss within the Company’s consolidated balance sheets and subsequently recognized in earnings when the hedged items impact earnings. Any ineffective portion of cash flow hedges would be recorded in current earnings. Within the consolidated statement of operations and comprehensive income, the gains and losses related to cash flow hedges are recognized within interest income (expense), net, as this is the same financial statement line item used for any gains or losses associated with the hedged items. Cash flows from hedging activities are included in operating activities within the company’s consolidated statements of cash flows, which is the same category as the items being hedged. See Note 6 for further information.

9


3. Cash and Cash Equivalents and Restricted Cash and Cash Equivalents

Cash and Cash Equivalents

The following table summarizes the Company’s cash and cash equivalents:
September 30, 2020December 31, 2019Recurring Fair
Value Measurement
 (in thousands) 
Cash and cash equivalents: 
Cash$20,886 $13,943  
Money market funds161,816 209,618 Level 2
Total cash and cash equivalents$182,702 $223,561  

4. Leases

Lessor Arrangements
Operating leases in which the Company is a lessor consist primarily of hosting agreements with Aireon LLC (“Aireon”) (see Note 11) and L3Harris Technologies, Inc. (“L3Harris”) for space on the Company’s satellites. These agreements provide for a fee that will be recognized over the life of the satellites, currently expected to be approximately 12.5 years. Lease income related to these agreements was $5.4 million for each of the three months ended September 30, 2020 and 2019, and $16.1 million and $16.2 million during the nine months ended September 30, 2020 and 2019, respectively. Lease income is recorded as hosted payload and other data service revenue within service revenue on the Company’s condensed consolidated statements of operations and comprehensive loss.

Both Aireon and L3Harris have made payments pursuant to their hosting agreements and the Company expects they will continue to do so. Future income with respect to the Company’s operating leases in which it is the lessor existing at September 30, 2020, exclusive of the $16.1 million recognized during the nine months ended September 30, 2020, by year and in the aggregate, is as follows:
Year Ending December 31,Amount
(in thousands)
2020$5,361 
202121,445 
202221,445 
202321,445 
202421,445 
   Thereafter120,353 
Total lease income$211,494 

5. Debt

Term Loan and Revolving Facility

On November 4, 2019, pursuant to a new loan agreement (the “Credit Agreement”), the Company entered into a $1,450.0 million term loan with various lenders and Deutsche Bank AG New York Branch as the Administrative Agent and the Collateral Agent (the “Term Loan”) and an accompanying $100.0 million revolving loan (the “Revolving Facility”). The Company used the proceeds of the Term Loan, along with its debt service reserve account and cash on hand, to prepay all of the indebtedness outstanding under the loan facility with Bpifrance Assurance Export S.A.S. as well as related expenses. The Term Loan was issued at a price equal to 99.5% of its face value, bears interest at an annual rate of LIBOR plus 3.75%, with a 1.0% LIBOR floor, and matures in November 2026. Principal payments, which are payable quarterly and began on June 30, 2020, equal one percent of the original loan amount per annum, with the remaining principal due upon maturity. Interest is payable monthly on the last business day of the month. Borrowings under the Revolving Facility, if any, bear interest at the same rate (but without a LIBOR floor) if and as drawn, with no original issue discount, a commitment fee of 0.5% per year on the undrawn amount, and mature in November 2024.

On February 7, 2020, the Company closed on an additional $200.0 million under its Term Loan. On February 13, 2020, the Company used these proceeds, together with cash on hand, to prepay and retire all of the indebtedness outstanding under the
10


senior unsecured notes (the “Notes”), including premiums for early prepayment. The additional amount is fungible with the original $1,450.0 million, having the same maturity date, interest rate and other terms, but was issued at a 1.0% premium to face value. To prepay the Notes, the Company paid a call price equal to the present value at the redemption rate of (i) 105.125% of the $360.0 million principal amount of the Notes plus (ii) all interest due through the first call date in April 2020, representing a total call premium of $23.5 million, plus all accrued and unpaid interest to the redemption date.

As of September 30, 2020, the Company reported an aggregate of $1,641.8 million in borrowings under the Term Loan, before $24.9 million of net unamortized deferred financing costs, for a net principal balance of $1,616.9 million in borrowings in the accompanying condensed consolidated balance sheet. As of September 30, 2020, based upon over-the-counter bid levels (Level 2 - market approach), the fair value of the Company’s $1,641.8 million in aggregate borrowings under the Term Loan was $1,642.8 million. The Company had not borrowed under the Revolving Facility as of September 30, 2020.

The Credit Agreement restricts the Company’s ability to incur liens, engage in mergers or asset sales, pay dividends, repay subordinated indebtedness, incur indebtedness, make investments and loans, and engage in other transactions as specified in the Credit Agreement, and also contains a mandatory prepayment mechanism with respect to a portion of the Company’s excess cash flow (as defined in the Credit Agreement). The Credit Agreement provides for specified exceptions, baskets measured as a percentage of trailing twelve months of earnings before interest, taxes, depreciation and amortization (“EBITDA”), and unlimited exceptions in the case of incurring indebtedness and liens and making investments, dividend payments, and payments of subordinated indebtedness, as well as a phase-out of the mandatory excess cash flow prepayments, based on achievement and maintenance of specified leverage ratios. The Credit Agreement permits repayment, prepayment, and repricing transactions.

The Credit Agreement contains no financial maintenance covenants with respect to the Term Loan. With respect to the Revolving Facility, the Credit Agreement requires the Company to maintain a consolidated first lien net leverage ratio (as defined in the Credit Agreement) of no greater than 6.25 to 1 if more than 35% of the Revolving Facility has been drawn. The Credit Agreement contains other customary representations and warranties, affirmative and negative covenants, and events of default.

Senior Unsecured Notes

As of September 30, 2020, the Company had fully paid down and retired the total gross outstanding principal balance of the Notes, as discussed above. As of December 31, 2019, the Company reported an aggregate of $360.0 million in borrowings under the Notes, before $7.0 million of net unamortized deferred financing costs, for a net principal balance of $353.0 million in borrowings in the accompanying condensed consolidated balance sheet.

Interest on Debt

Total interest incurred was $23.6 million and $35.7 million during the three months ended September 30, 2020 and 2019, respectively, and $75.0 million and $107.2 million during the nine months ended September 30, 2020 and 2019, respectively. Interest incurred includes amortization of deferred financing fees of $1.0 million and $5.7 million for the three months ended September 30, 2020 and 2019, respectively, and $2.8 million and $17.9 million for the nine months ended September 30, 2020 and 2019, respectively. Interest capitalized was $0.9 million and $2.3 million during the three months ended September 30, 2020 and 2019, respectively, and $2.4 million and $13.5 million, respectively, during the nine months ended September 30, 2020 and 2019. Accrued interest as of September 30, 2020 and December 31, 2019 was $0.2 million and $7.8 million, respectively.

6. Derivative Financial Instruments

The Company is exposed to interest rate fluctuations related to its Term Loan. The Company has reduced its exposure to fluctuations in the cash flows associated with changes in the variable interest rates by entering into offsetting positions through the use of interest rate swap contracts which result in recognizing a fixed interest rate for the portion of the Term Loan. This will reduce the negative impact of increases in the variable rate over the term of the interest rate swap contracts. These financial instruments are not used for trading or other speculative purposes. Historically, the Company has not incurred, and does not expect to incur in the future, any losses as a result of counterparty default.

Hedge effectiveness of interest rate swap contracts is based on a long-haul hypothetical derivative methodology and includes all changes in value. The Company formally assesses, both at the hedge’s inception and on an ongoing quarterly basis, whether the designated derivative instruments are highly effective in offsetting changes in the cash flows of the hedged items. When the hedging instrument is sold, expires, is terminated or is exercised, or no longer qualifies for hedge accounting, or is no longer probable, hedge accounting is discontinued prospectively.

11


Interest Rate Swaps

On November 27, 2019, the Company executed a long-term interest rate swap (“Swap”) effective through November 2021 to mitigate variability in forecasted interest payments on a portion of the Company’s borrowings under its Term Loan. On the last business day of each month, the Company receives variable interest payments based on one-month LIBOR from the counterparty. The Company also entered into an interest rate swaption agreement (“Swaption”) that, if executed on November 22, 2021, would extend the term of the Swap through November 2026. The Company pays a fixed annual rate of 0.50% for the Swaption and a fixed rate of 1.565% on the Swap. Both the Swap and the Swaption derivative instruments carry a notional amount of $1,000.0 million as of September 30, 2020. The Company has designated both the Swap and Swaption as qualifying hedging instruments and accounts for these derivatives as cash flow hedges.

At inception, the Swap and Swaption were designated as cash flow hedges for hedge accounting. The unrealized changes in market value are recorded in accumulated other comprehensive income (loss) and reclassified into earnings during the period in which the hedged transaction affects earnings. Over the next 12 months, the Company expects any gains or losses for cash flow hedges reclassified from accumulated other comprehensive income (loss) into earnings to have an immaterial impact on the Company’s condensed consolidated financial statements.
Fair Value of Derivative Instruments

As of September 30, 2020, the Company had a current liability balance for the fair value of the Swap in the amount of $6.7 million, recorded in other current liabilities. As of December 31, 2019, the Company had a long-term asset balance for the fair value of the Swap in the amount of $0.8 million, recorded in other long-term assets. As of September 30, 2020 and December 31, 2019, the Company had a long-term liability balance for the fair value of the Swaption in the amount of $5.7 million and $0.9 million, respectively, recorded in other long-term liabilities.

During the three and nine months ended September 30, 2020, the Company incurred $2.7 million and $6.4 million, respectively, in net interest expense for the Swap and the Swaption, collectively. The Company did not hold any cash flow hedges during the comparable prior year periods. Gains and losses resulting from fair value adjustments to the Swap and Swaption are recorded within accumulated other comprehensive loss within the Company’s condensed consolidated balance sheets and reclassified to interest expense on the dates that interest payments become due. Cash flows related to the Swap are included in cash flows from operating activities on the condensed consolidated statements of cash flows. The amount of unrealized loss related to the Swap and Swaption that was recorded in accumulated other comprehensive loss in the condensed consolidated balance sheets was $9.0 million as of September 30, 2020, net of a $3.2 million tax impact. There were no gains or losses related to derivative financial instruments during the comparable prior year period.

7. Stock-Based Compensation

In May 2019, the Company’s stockholders approved the amendment and restatement of the Company’s 2015 Equity Incentive Plan (as so amended and restated, the “Amended 2015 Plan”), primarily to increase the number of shares available under the plan. The Company registered with the SEC an additional 2,542,664 shares of common stock made available for issuance pursuant to the Amended 2015 Plan, bringing the total to 30,944,912 shares registered. As of September 30, 2020, the remaining aggregate number of shares of the Company’s common stock available for future grants under the Amended 2015 plan was 11,799,631. The Amended 2015 Plan provides for the grant of stock-based awards, including nonqualified stock options, incentive stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights and other equity securities to employees, consultants and non-employee directors of the Company and its affiliated entities. The number of shares of common stock available for issuance under the Amended 2015 Plan is reduced by (i) one share for each share of common stock issued pursuant to an appreciation award, such as a stock option or stock appreciation right with an exercise or strike price of at least 100% of the fair market value of the underlying common stock on the date of grant, and (ii) 1.8 shares for each share of common stock issued pursuant to any stock award that is not an appreciation award, also known as a “full value award.” The Amended 2015 Plan allows the Company to utilize a broad array of equity incentives and performance cash incentives in order to secure and retain the services of its employees, directors and consultants, and to provide long-term incentives that align the interests of its employees, directors and consultants with the interests of the Company’s stockholders. The Company accounts for stock-based compensation at fair value.

Stock Option Awards

The fair value of stock options is determined at the grant date using the Black-Scholes option pricing model. The stock option awards granted to employees generally (i) have a term of ten years, (ii) vest over four years with 25% vesting after the first year of service and the remainder vesting ratably on a quarterly basis thereafter, (iii) are contingent upon employment on the vesting date, and (iv) have an exercise price equal to the fair market value of the underlying shares at the date of grant.

12


The Company did not grant any stock options during the nine-month period ended September 30, 2020. During the nine months ended September 30, 2019, the Company granted approximately 139,000 stock options to its employees, with an estimated aggregate grant date fair value of $1.3 million.

Restricted Stock Units

The RSUs granted to employees for service generally vest over four years, with 25% vesting on the first anniversary of the grant date and the remainder vesting ratably on a quarterly basis thereafter, subject to continued employment. The RSUs granted to non-employee directors generally vest in full on the first anniversary of the grant date. Some RSUs granted to employees for performance vest upon the completion of defined performance goals, subject to continued employment. The Company’s RSUs are generally classified as equity awards because the RSUs will be paid in the Company’s common stock upon vesting. The related compensation expense is recognized over the service period and is based on the grant date fair value of the Company’s common stock and the number of shares expected to vest. The fair value of the awards is not remeasured at the end of each reporting period. The awards do not carry voting rights until they are vested and released in accordance with the terms of the award.

Service-Based RSUs

The majority of the annual compensation the Company provides to members of its board of directors is paid in the form of RSUs. In addition, certain members of the Company’s board of directors elect to receive the remainder of their annual compensation, or a portion thereof, in the form of RSUs. An aggregate amount of approximately 58,000 and 76,000 service-based RSUs were granted to the Company’s directors as a result of these payments and elections during the nine months ended September 30, 2020 and 2019, respectively, with an estimated grant date fair value of $1.4 million for each period.

During the nine months ended September 30, 2020 and 2019, the Company granted approximately 683,000 and 651,000 service-based RSUs, respectively, to its employees, with an estimated aggregate grant date fair value of $18.3 million and $15.0 million, respectively.

During the nine months ended September 30, 2020 and 2019, the Company granted approximately 10,000 and 11,000 RSUs to non-employee consultants that are generally subject to service-based vesting. The RSUs will vest 50% on the first anniversary of the grant date, and the remaining 50% will vest quarterly thereafter through the second anniversary of the grant date. The estimated aggregate grant date fair value of the RSUs granted to non-employee consultants during the nine months ended September 30, 2020 and 2019 was $0.2 million for each period.

Performance-Based RSUs

In March 2020 and 2019, the Company granted approximately 115,000 and 125,000 annual incentive, performance-based RSUs, respectively, to the Company’s executives and employees (the “Bonus RSUs”), with an estimated grant date fair value of $3.1 million and $2.9 million, respectively. Vesting of the Bonus RSUs is and was dependent upon the Company’s achievement of defined performance goals over the respective fiscal year. The Company records stock-based compensation expense related to performance-based RSUs when it is considered probable that the performance conditions will be met. Management believes it is probable that substantially all of the 2020 Bonus RSUs will vest. The level of achievement, if any, of performance goals will be determined by the compensation committee of the Company’s board of directors and, if such goals are achieved, the 2020 Bonus RSUs will vest, subject to continued employment, in March 2021. Substantially all of the 2019 Bonus RSUs vested in March 2020 upon the determination of the level of achievement of the performance goals.

Additionally, in March 2020 and 2019, the Company granted approximately 144,000 and 96,000 long-term, performance-based RSUs, respectively, to the Company’s executives (the “Executive RSUs”). The estimated aggregate grant date fair value of the Executive RSUs was $3.9 million for the 2020 grants and $2.2 million for the 2019 grants. Vesting of the Executive RSUs is dependent upon the Company’s achievement of specified performance goals over a two-year period (fiscal years 2020 and 2021 for the Executive RSUs granted in 2020 and fiscal years 2019 and 2020 for the Executive RSUs granted in 2019) and further subject to additional time-based vesting. Management believes it is probable that the Executive RSUs will vest at least in part. The vesting of Executive RSUs will ultimately range from 0% to 150% of the number of shares underlying the Executive RSUs granted based on the level of achievement of the performance goals. If the Company achieves the performance goals, 50% of the number of Executive RSUs earned based on performance will vest on the second anniversary of the grant date, and the remaining 50% will vest on the third anniversary of the grant date, in each case, subject to the executive’s continued service as of the vesting date. During March 2020, the Company awarded approximately 20,000 additional shares underlying performance-based RSUs to the Company’s executives for over-achievement of performance goal targets during 2018 and 2019 related to the Executive RSUs granted in 2018.

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8. Equity Transactions

Preferred Stock

The Company is authorized to issue 2.0 million shares of preferred stock with a par value of $0.0001 per share. The Company previously issued 1.5 million shares of preferred stock, and the remaining 0.5 million authorized shares of preferred stock remain undesignated and unissued as of September 30, 2020. As of September 30, 2020, there were no outstanding shares of preferred stock, as all preferred stock was converted in prior periods into common stock according to its terms.

Series B Cumulative Perpetual Convertible Preferred Stock

In May 2014, the Company issued 0.5 million shares of its 6.75% Series B Cumulative Perpetual Convertible Preferred Stock (the “Series B Preferred Stock”) in an underwritten public offering. Holders of Series B Preferred Stock were entitled to receive cumulative cash dividends at a rate of 6.75% per annum of the $250 liquidation preference per share (equivalent to an annual rate of $16.875 per share). Dividends were payable quarterly in arrears on each March 15, June 15, September 15 and December 15. 

During the three months ended June 30, 2019, the Company’s daily volume-weighted average stock price remained at or above $11.21 per share for a period of 20 out of 30 trading days, allowing for the conversion of the Series B Preferred Stock at the election of the Company. On May 15, 2019, the Company converted all outstanding shares of its Series B Preferred Stock into shares of common stock, resulting in the issuance of 16,627,632 shares of common stock. To convert the stock, the Company declared and paid all current and cumulative dividends to holders of record of Series B Preferred Stock as of May 8, 2019, resulting in a dividend payment of $8.4 million. As a result, the Company did not have any shares of Series B Preferred Stock outstanding as of September 30, 2020 and December 31, 2019.

9. Revenue

The following table summarizes the Company’s services revenue:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (in thousands)
Commercial services revenue:
Voice and data $42,736 $44,717 $126,748 $129,526 
Broadband9,120 8,135 26,339 22,332 
IoT data25,410 25,346 71,802 71,740 
Hosted payload and other data14,511 12,037 46,213