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 2020-03-31 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 2020-05-14 Shareholder Vote
8-K 2020-04-28 Earnings, Exhibits
8-K 2020-02-28 Officers
8-K 2020-02-25 Earnings, Exhibits
8-K 2020-02-13 Regulation FD
8-K 2020-02-07 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2020-02-03 Regulation FD
8-K 2020-01-17 Regulation FD
8-K 2019-11-04 Enter Agreement, Regulation FD, Exhibits
8-K 2019-10-29 Earnings, Exhibits
8-K 2019-10-21
8-K 2019-09-13 Enter Agreement, Regulation FD, Exhibits
8-K 2019-08-21 Regulation FD
8-K 2019-07-23 Earnings, Exhibits
8-K 2019-07-19 Regulation FD
8-K 2019-06-21 Regulation FD
8-K 2019-05-21 Regulation FD
8-K 2019-05-15 Shareholder Vote
8-K 2019-04-26 Sale of Shares, Regulation FD, Exhibits
8-K 2019-04-23 Earnings, Exhibits
8-K 2019-04-22 Regulation FD
8-K 2019-03-07 Regulation FD, Exhibits
8-K 2019-02-28 Earnings, Exhibits
8-K 2019-02-13 Officers
8-K 2019-01-30 Officers, Regulation FD, Exhibits
8-K 2018-12-31 Regulation FD
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-05-17 Shareholder Vote
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-03-16 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-03-09 Enter Agreement, Regulation FD, Other Events, Exhibits
8-K 2018-03-09 Enter Agreement
8-K 2018-02-26 Officers
8-K 2018-02-26 Sale of Shares, Regulation FD, Exhibits
8-K 2018-02-22 Earnings, Exhibits

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-10.2 ex102scottscheimreifem.htm
EX-10.3 ex1032020performancebo.htm
EX-31.1 irdm10-q033120exx311.htm
EX-31.2 irdm10-q033120exx312.htm
EX-32.1 irdm10-q033120exx321.htm

Iridium Communications Earnings 2020-03-31

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

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 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)
 
DE
 
26-1344998
(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 Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
Common Stock, $0.001 par value
 
IRDM
 
The 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. (Check one): 
Large Accelerated Filer
x
 
 
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 April 22, 2020 was 132,228,020.
 




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)
 
March 31, 2020
 
December 31, 2019
 
(Unaudited)
 
 
Assets
 

 
 

Current assets:

 

Cash and cash equivalents
$
67,289

 
$
223,561

Accounts receivable, net
64,485

 
68,697

Inventory
37,695

 
39,938

Prepaid expenses and other current assets
10,793

 
10,739

Total current assets
180,262

 
342,935

Property and equipment, net
3,110,867

 
3,180,799

Intangible assets, net
46,591

 
46,977

Other assets
53,346

 
52,846

Total assets
$
3,391,066

 
$
3,623,557

Liabilities and stockholders' equity
 

 
 

Current liabilities:
 

 
 

Short-term secured debt
$
16,500

 
$
10,875

Accounts payable
8,913

 
6,713

Accrued expenses and other current liabilities
26,819

 
49,293

Interest payable
247

 
7,790

Deferred revenue
36,848

 
39,080

Total current liabilities
89,327

 
113,751

Long-term secured debt, net
1,606,881

 
1,412,501

Long-term senior unsecured notes, net

 
352,994

Deferred income tax liabilities, net
175,672

 
188,653

Deferred revenue, net of current portion
61,649

 
67,092

Other long-term liabilities
43,744

 
29,284

Total liabilities
1,977,273

 
2,164,275

Commitments and contingencies


 


Stockholders' equity:
 

 
 

Common stock, $0.001 par value, 300,000 shares authorized; 132,227 and 131,632 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
132

 
132

Additional paid-in capital
1,136,135

 
1,134,048

Retained earnings
300,267

 
331,969

Accumulated other comprehensive loss, net of tax
(22,741
)
 
(6,867
)
Total stockholders' equity
1,413,793

 
1,459,282

Total liabilities and stockholders' equity
$
3,391,066

 
$
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 March 31,
 
 
2020
 
2019
Revenue:
 

 

Services
 
$
115,975

 
$
106,951

Subscriber equipment
 
22,263

 
21,008

Engineering and support services
 
7,049

 
5,726

Total revenue
 
145,287

 
133,685

 
 
 
 
 
Operating expenses:
 
 

 
 

Cost of services (exclusive of depreciation and amortization)
 
21,978

 
22,521

Cost of subscriber equipment
 
12,274

 
12,431

Research and development
 
2,444

 
3,611

Selling, general and administrative
 
20,825

 
23,841

Depreciation and amortization
 
75,944

 
72,914

Total operating expenses
 
133,465

 
135,318

Operating income (loss)
 
11,822

 
(1,633
)
 
 
 
 
 
Other expense, net:
 
 

 
 

Interest expense, net
 
(26,444
)
 
(25,597
)
Loss on extinguishment of debt
 
(30,209
)
 
(207
)
Other income (expense), net
 
447

 
(326
)
Total other expense, net
 
(56,206
)
 
(26,130
)
Loss before income taxes
 
(44,384
)
 
(27,763
)
Income tax benefit
 
12,682

 
9,739

Net loss
 
(31,702
)
 
(18,024
)
Series B preferred stock dividends, undeclared
 

 
2,097

Net loss attributable to common stockholders
 
$
(31,702
)
 
$
(20,121
)
Weighted average shares outstanding - basic and diluted
 
132,645

 
113,038

Net loss attributable to common stockholders per share - basic and diluted
 
$
(0.24
)
 
$
(0.18
)
Comprehensive loss:
 

 

Net loss
 
$
(31,702
)
 
$
(18,024
)
Foreign currency translation adjustments, net of tax
 
(3,986
)
 
726

Unrealized loss on cash flow hedges, net of tax (see Note 6)
 
(11,888
)
 

Comprehensive loss
 
$
(47,576
)
 
$
(17,298
)















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
March 31,
 
 
2020
 
2019
 
 

 

Total stockholders' equity, beginning balances
 
$
1,459,282

 
$
1,601,577

 
 
 
 
 
Common stock:
 
 
 
 
Beginning balances
 
132

 
112

Stock options exercised and awards vested
 

 
1

Ending balances
 
132

 
113

 
 
 
 
 
Additional paid-in capital:
 
 
 
 
Beginning balances
 
1,134,048

 
1,108,550

Stock-based compensation
 
4,100

 
3,780

Stock options exercised and awards vested
 
1,171

 
2,126

Stock withheld to cover employee taxes
 
(3,184
)
 
(3,486
)
Ending balances
 
1,136,135

 
1,110,970

 
 
 
 
 
Retained earnings:
 
 
 
 
Beginning balances
 
331,969

 
501,712

Net loss
 
(31,702
)
 
(18,024
)
Ending balances
 
300,267

 
483,688

 
 
 
 
 
Accumulated other comprehensive loss, net of tax:
 
 
 
 
Beginning balances
 
(6,867
)
 
(8,797
)
Cumulative translation adjustments, net of tax
 
(3,986
)
 
725

Unrealized loss on cash flow hedge, net of tax
 
(11,888
)
 

Ending balances
 
(22,741
)
 
(8,072
)
 
 
 
 
 
Total stockholders' equity, ending balances
 
$
1,413,793

 
$
1,586,699



















See notes to unaudited condensed consolidated financial statements.

5



Iridium Communications Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Cash flows from operating activities:
 

 

Net loss
 
$
(31,702
)
 
$
(18,024
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Deferred income taxes
 
(17,150
)
 
(9,873
)
Depreciation and amortization
 
75,944

 
72,914

Loss on extinguishment of debt
 
30,209

 
207

Stock-based compensation (net of amounts capitalized)
 
3,698

 
3,327

Amortization of deferred financing fees
 
890

 
4,836

All other items, net
 
(64
)
 
36

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
3,600

 
2,627

Inventory
 
2,300

 
(7,649
)
Prepaid expenses and other current assets
 
(688
)
 
821

Other assets
 
2,769

 
671

Accounts payable
 
2,320

 
3,863

Accrued expenses and other current liabilities
 
(20,117
)
 
(20,195
)
Interest payable
 
(7,071
)
 
23,400

Deferred revenue
 
(6,607
)
 
(8,012
)
Other long-term liabilities
 
2,482

 
(829
)
Net cash provided by operating activities
 
40,813

 
48,120

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Capital expenditures
 
(9,487
)
 
(34,643
)
Purchase of other investments
 

 
(10,000
)
Net cash used in investing activities
 
(9,487
)
 
(44,643
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Borrowings under the Term Loan
 
202,000

 

Repayments on the senior unsecured notes, including extinguishment costs
 
(383,451
)
 

Payment of deferred financing fees
 
(2,562
)
 

Proceeds from exercise of stock options
 
1,172

 
2,126

Tax payment upon settlement of stock awards
 
(3,184
)
 
(3,486
)
Net cash used in financing activities
 
(186,025
)
 
(1,360
)
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
(1,573
)
 
1,281

Net (decrease) increase in cash and cash equivalents
 
(156,272
)
 
3,398

Cash, cash equivalents, and restricted cash, beginning of period
 
223,561

 
465,287

Cash, cash equivalents, and restricted cash, end of period
 
$
67,289

 
$
468,685







See notes to unaudited condensed consolidated financial statements.

6



 
 
Three Months Ended March 31,
 
 
2020
 
2019
Supplemental cash flow information:
 

 

Interest paid, net of amounts capitalized
 
$
33,366

 
$
419

Income taxes paid, net
 
$
254

 
$
280

 
 
 
 
 
Supplemental disclosure of non-cash investing and financing activities:
 
 

 
 

Property and equipment received but not paid
 
$
2,285

 
$
2,642

Interest capitalized but not paid
 
$

 
$
6,084

Capitalized amortization of deferred financing costs
 
$
21

 
$
1,489

Capitalized stock-based compensation
 
$
402

 
$
452
































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 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 Company is currently evaluating the effect ASU 2019-12 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.

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 March 31, 2020 and 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

8



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. Derivatives are measured at fair value and are recorded on the balance sheet within other assets 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.

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:
 
 
March 31, 2020
 
December 31, 2019
 
Recurring Fair
Value Measurement
 
 
(in thousands)
 
 
Cash and cash equivalents:
 

 

 
 
Cash
 
$
11,247

 
$
13,943

 
 
Money market funds
 
56,042

 
209,618

 
Level 2
Total cash and cash equivalents
 
$
67,289

 
$
223,561

 
 


4. Leases

Lessor Arrangements
Operating leases in which the Company is a lessor consist primarily of hosting agreements with Aireon LLC (see Note 11) and L3Harris Technologies, Inc. (“L3Harris”) for space on the Company’s upgraded 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 and $5.5 million during the three months ended March 31, 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 income (loss).


9



Both Aireon and L3Harris have made payments pursuant to their hosting agreements and will continue to do so. Future income with respect to the Company's operating leases in which it is the lessor existing at March 31, 2020, exclusive of the $5.4 million recognized during the three months ended March 31, 2020, by year and in the aggregate, is as follows:
Year Ending December 31,
 
 
Amount
 
 
 
(in thousands)
2020

 
16,084

2021

 
21,445

2022

 
21,445

2023

 
21,445

2024

 
21,445

   Thereafter

 
120,352

Total lease income

 
$
222,216



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 and bears interest at an annual rate of LIBOR plus 3.75%, with a 1.0% LIBOR floor and has a seven-year maturity. Interest is paid monthly on the last business day of the month. Principal is paid quarterly, beginning with the quarter ending June 30, 2020, at a rate of one percent per annum, with the remaining principal due upon maturity. The Revolving Facility bears 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 a five-year maturity.

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 all of the indebtedness outstanding under the 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 March 31, 2020, the Company reported an aggregate of $1,650.0 million in borrowings under the Term Loan, before $26.6 million of net unamortized deferred financing costs, for a net principal balance of $1,623.4 million in borrowings in the accompanying condensed consolidated balance sheet. As of March 31, 2020, based upon over-the-counter bid levels (Level 2 - market approach), the fair value of the Company's $1,650.0 million in borrowings under the Term Loan due in 2026 was $1,551.0 million. The Company had not borrowed under the Revolving Facility as of March 31, 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, subject to a 1% penalty in the event the facility is prepaid or repriced within the first six months.

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.


10



Senior Unsecured Notes

As of March 31, 2020, the Company had fully paid down 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 during the three months ended March 31, 2020 and 2019 was $27.9 million and $36.4 million, respectively. Interest incurred includes amortization of deferred financing fees of $0.9 million and $6.4 million for the three months ended March 31, 2020 and 2019, respectively. Interest capitalized during the three months ended March 31, 2020 and 2019, was $0.7 million and $7.6 million, respectively. Accrued interest as of March 31, 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 Company’s variable rate debt to be hedged. This will reduce the negative impact of increases in the variable rates over the term of the 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.

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 Company's 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 March 31, 2020. The Company designated both the Swap and Swaption as qualifying hedging instruments and accounted 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 March 31, 2020, the Company had a long-term liability balance for the fair value of the Swap in the amount of $9.3 million, recorded in other long-term 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 March 31, 2020 and December 31, 2019, the Company had a long-term liability balance for the fair value of the Swaption in the amount of $6.9 million and $0.9 million, respectively, recorded in other long-term liabilities.

During the three months ended March 31, 2020, the Company incurred $1.0 million in net interest expense for both the Swap and the Swaption. The Company did not hold any cash flow hedges during the comparable prior year period. 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 interest rate swaps are included in cash flows from operating activities on the condensed consolidated statements of cash flows. The amount of unrealized loss, net of a $4.2 million tax impact, recognized in

11



accumulated other comprehensive loss in the condensed consolidated balance sheets related to the Company’s derivative financial instruments was $11.9 million during the three months ended March 31, 2020. 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 March 31, 2020, the remaining aggregate number of shares of the Company's common stock available for future grants under the Amended 2015 plan was 11,834,074. 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 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.

The Company did not grant any stock options during the three-month period ended March 31, 2020. During the three months ended March 31, 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 first quarter of 2020 and 2019, respectively, with an estimated grant date fair value of $1.4 million, for each period.

During the three months ended March 31, 2020 and 2019, the Company granted approximately 632,000 and 629,000 service-based RSUs, respectively, to its employees, with an estimated aggregate grant date fair value of $17.1 million and $14.6 million, respectively.

During the three months ended March 31, 2019, the Company granted approximately 7,000 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

12



date fair value of the RSUs granted to non-employee consultants during the three months ended March 31, 2019 was $0.1 million. No grants have been made to non-employee consultants in 2020.

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 the three months ended March 31, 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.

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 issued 1.0 million shares of preferred stock in the fourth quarter of 2012 and 0.5 million shares of preferred stock in the second quarter of 2014. The remaining 0.5 million authorized shares of preferred stock remain undesignated and unissued as of March 31, 2020.

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 March 31, 2020 and December 31, 2019.


13



9. Revenue

The following table summarizes the Company’s services revenue:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
(in thousands)
Commercial voice and data services
 
$
42,240

 
$
41,781

Commercial broadband
 
8,700

 
6,814

Commercial IoT data services
 
23,766

 
22,491

Hosted payload and other data services
 
16,269

 
13,865

Government services
 
25,000

 
22,000

Total services
 
$
115,975

 
$
106,951



The following table summarizes the Company’s engineering and support services revenue:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
(in thousands)
Commercial
 
$
997

 
$
225

Government
 
6,052

 
5,501

Total
 
$
7,049

 
$
5,726



The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the condensed consolidated balance sheets. The Company bills amounts under its agreed-upon contractual terms at periodic intervals (for services), upon shipment (for equipment), or upon achievement of contractual milestones or as work progresses (for engineering and support services). Billing may occur subsequent to revenue recognition, resulting in accounts receivable (contract assets). The Company may also receive payments from customers before revenue is recognized, resulting in deferred revenue (contract liabilities). The Company recognized revenue that was previously recorded as deferred revenue in the amounts of $12.4 million and $14.5 million during the three months ended March 31, 2020 and 2019. The Company has also recorded costs of obtaining contracts expected to be recovered in prepaid expenses and other current assets (contract assets or commissions), that are not separately disclosed on the condensed consolidated balance sheets. The commissions are recognized over the estimated prepaid usage period. The contract assets not separately disclosed are as follows:
 
 
March 31, 2020
 
December 31, 2019
 
 
(in thousands)
Contract Assets:
 

 

Commissions
 
$
785

 
$
1,116

Other contract costs
 
$
3,156

 
$
3,231




14



10. Net Loss Per Share

The Company calculates basic net loss per share by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. In periods of net income, diluted net income per share takes into account the effect of potential dilutive common shares when the effect is dilutive. Potentially dilutive common shares include (i) common stock issuable upon exercise of outstanding stock options, and (ii) contingently issuable RSUs that are convertible into shares of common stock upon achievement of certain service and performance requirements. The effect of potentially dilutive common shares is computed using the treasury stock method.

The computations of basic and diluted net loss per share for the three months ended March 31, 2020 and 2019 are as follows:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
(in thousands, except per share data)
Numerator:
 

 

Net loss attributable to common stockholders - basic and diluted
 
$
(31,702
)
 
$
(20,121
)
 
 
 
 
 
Denominator:
 
 
 
 
Weighted average outstanding common shares - basic and diluted
 
132,645

 
113,038

 
 
 
 
 
Net loss per share attributable to common stockholders - basic and diluted
 
$
(0.24
)
 
$
(0.18
)


Due to the Company’s net loss position for the three months ended March 31, 2020 and 2019, all potential common stock equivalents were anti-dilutive and therefore excluded from the calculation of diluted net loss per share. For the three months ended March 31, 2020, 0.2 million unvested performance-based RSUs were not included in the computation of basic and diluted net loss per share as certain performance criteria had not been satisfied, and options to purchase 0.1 million shares of common stock were not included in the computation of diluted net loss per share, as the effect would be anti-dilutive.

For the three months ended March 31, 2019, 0.3 million unvested performance-based RSUs were not included in the computation of basic and diluted net income per share, as certain performance criteria had not been satisfied, and options to purchase 0.3 million shares of common stock were not included in the computation of diluted net income per share, as the effect would be anti-dilutive. For the three months ended March 31, 2019, 16.6 million as-if converted shares of the Series B Preferred Stock were not included in the computation of diluted net income per share, as the effect would be anti-dilutive. For the three months ended March 31, 2019, $2.1 million unpaid dividends to holders of the Series B Preferred Stock were not declared or accrued as a result of all cash dividends being suspended, but such amounts were deducted to arrive at net loss attributable to common stockholders.

11. Related Party Transactions

Aireon LLC and Aireon Holdings LLC

The Company's satellite constellation hosts the Aireon® system, which provides a global air traffic surveillance service through a series of automatic dependent surveillance-broadcast (“ADS-B”) receivers. The Company formed Aireon in 2011, with subsequent investments from the air navigation service providers (“ANSPs”) of Canada, Italy, Denmark, Ireland and the United Kingdom, to develop and market this service. In December 2018, in connection with Aireon's entry into a debt facility, the Company and the other Aireon investors contributed their respective interests in Aireon into a new holding company, Aireon Holdings LLC, and entered into an Amended and Restated Aireon Holdings LLC Agreement (the “Aireon Holdings LLC Agreement”). Aireon Holdings LLC holds 100% of the membership interests in Aireon LLC, which remains the operating entity. At March 31, 2020, the Company had a fully diluted ownership stake in Aireon Holdings LLC of approximately 35.7%, subject to certain redemption provisions contained in the Aireon Holdings LLC Agreement.

Aireon has contracted to pay the Company a fee to host the ADS-B receivers on its constellation, as well as fees for power and data services in connection with the delivery of the air traffic surveillance data. Pursuant to an agreement with Aireon (“the Hosting Agreement”), Aireon will pay the Company fees of $200.0 million to host the ADS-B receivers, of which $54.1 million had been paid as of March 31, 2020, as well as power fees of approximately $3.7 million per year. Pursuant to a separate data transmission services agreement (the “Data Services Agreement”), Aireon also pays the Company monthly data service fees on a per-satellite basis totaling $19.8 million per year for the delivery of the air traffic surveillance data through the Iridium network, as well as specified services relating to Aireon's hosted payload operations center. The Aireon ADS-B receivers were activated on an individual basis as the satellite on which the receiver is hosted began carrying traffic. Pursuant to ASU 2016-02, the Company considers the Hosting Agreement as an operating lease. During the three months ended March 31, 2020 and 2019,

15



the Company recorded $4.0 million and $3.9 million related to this agreement, respectively. For power and data service fees, the Company recorded revenue from Aireon of $6.3 million and $3.1 million for the three months ended March 31, 2020 and 2019, respectively.

Under two services agreements, the Company also provides administrative services and support services, which are paid monthly. Aireon receivables due to the Company under all agreements totaled $2.1 million and $1.4 million at March 31, 2020 and December 31, 2019, respectively.


16



ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion along with our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed on February 25, 2020 with the Securities and Exchange Commission, or the SEC, as well as our condensed consolidated financial statements included in this Form 10-Q.

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingencies, goals, targets or future development or otherwise are not statements of historical fact. Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “intend” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on our current expectations and projections about future events, and they are subject to risks and uncertainties, known and unknown, that could cause actual results and developments to differ materially from those expressed or implied in such statements. These risks and uncertainties may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy. The important factors described under the caption “Risk Factors” in this report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed on February 25, 2020 could cause actual results to differ materially from those indicated by forward-looking statements made herein. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview of Our Business

We are engaged primarily in providing mobile voice and data communications services using a constellation of orbiting satellites. We are the only commercial provider of communications services offering true global coverage, connecting people, organizations and assets to and from anywhere, in real time. Our unique L-band satellite network provides reliable communications services to regions of the world where terrestrial wireless or wireline networks do not exist or are limited, including remote land areas, open ocean, airways, the polar regions and regions where the telecommunications infrastructure has been affected by political conflicts or natural disasters.

We provide voice and data communications services to businesses, the U.S. and foreign governments, non-governmental organizations and consumers via our satellite network, which has an architecture of 66 operational satellites with in-orbit and ground spares and related ground infrastructure. We utilize an interlinked mesh architecture to route traffic across our satellite constellation using radio frequency crosslinks between satellites. This unique architecture minimizes the need for local ground facilities to support the constellation, which facilitates the global reach of our services and allows us to offer services in countries and regions where we have no physical presence.

During the first quarter of 2019, we completed the Iridium® NEXT program, which replaced our first-generation constellation of satellites with upgraded satellites that support new services and higher data speeds for new products. We deployed a total of 75 new satellites on eight Falcon 9 rockets launched by SpaceX, with 66 operational satellites, as well as in-orbit and ground spares, maintaining the same interlinked mesh architecture of our first-generation constellation.

Our new constellation also hosts the Aireon® system, which provides a global air traffic surveillance service through a series of automatic dependent surveillance-broadcast, or ADS-B, receivers on the upgraded satellites. We formed Aireon LLC in 2011, with subsequent investments from the air navigation service providers, or ANSPs, of Canada, Italy, Denmark, Ireland and the United Kingdom, to develop and market this service. Aireon has contracted to provide the service to our co-investors in Aireon and to other ANSPs around the world, including the U.S. Federal Aviation Authority, or FAA. Aireon has also contracted to pay us a fee to host the ADS-B receivers on our constellation, as well as data service fees for the delivery of the air traffic surveillance data over the Iridium network. As of March 31, 2020, Aireon has made payments of $54.1 million for a portion of its hosting fees. Aireon also pays us power and data services fees of up to approximately $23.5 million per year in the aggregate for the delivery of the air traffic surveillance data over the Iridium system. In addition, we have entered into an agreement with L3Harris Technologies, Inc., or L3 Harris, the manufacturer of the Aireon hosted payload, pursuant to which L3Harris pays us fees to allocate the remaining hosted payload capacity to its customers and data service fees on behalf of these customers.

We sell our products and services to commercial end-users through a wholesale distribution network, encompassing approximately 110 service providers, approximately 270 value-added resellers, or VARs, and approximately 95 value-added manufacturers, or VAMs, which create and sell technology that uses the Iridium network either directly to the end user or indirectly through other service providers, VARs or dealers. These distributors often integrate our products and services with other complementary hardware and software and have developed a broad suite of applications using our products and services to target specific lines of business.


17



At March 31, 2020, we had approximately 1,332,000 billable subscribers worldwide, representing an increase of 16% from approximately 1,151,000 billable subscribers at March 31, 2019. We have a diverse customer base, with end users in the following lines of business: land mobile, maritime, aviation, Internet of Things, or IoT, hosted payloads and other data services and the U.S. government.

We recognize revenue from both the provision of services and the sale of equipment. Over the past several years, service revenue, including revenue from hosting and data services, has represented an increasing proportion of our revenue, and we expect that trend to continue.

Recent Developments
Term Loan

On February 7, 2020, we amended our term loan with various lenders and Deutsche Bank AG New York Branch as Administrative Agent and Collateral Agent, or the Term Loan, to borrow an additional $200.0 million in principal. On February 13, 2020, we used these proceeds, together with cash on hand, to prepay all of the indebtedness outstanding under the senior unsecured notes, or 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.

COVID-19

The COVID-19 pandemic and measures taken in response are currently affecting countries, communities and markets around the world. Like many other businesses, we started to see a slowdown in the final weeks of March as a result of this widespread economic shutdown. Our distributors are also experiencing business and operational restrictions, which limit their ability to visit customers, complete new installations, and close on new business opportunities. These disruptions are occurring as we enter the second and third quarters, in which we normally experience higher subscriber additions and higher usage, driving much of our growth in a typical year. Accordingly, following analysis of the expected effects on our business, including lower equipment sales, lower levels of subscriber growth, and the potential for increased customer use of lower-cost plans, we have substantially reduced our previously announced outlook for the coming year.  The ultimate effects of the COVID-19 pandemic are difficult to assess or predict with certainty at this time but may include additional risks. For further information on the potential effects of the COVID-19 pandemic on our business, financial condition and results of operations, see “Risk Factors” in Part II, Item 1A of this Form 10-Q.


18



Material Trends and Uncertainties

Our industry and customer base have historically grown as a result of:
demand for remote and reliable mobile communications services;
a growing number of new products and services and related applications;
a broad wholesale distribution network with access to diverse and geographically dispersed niche markets;
increased demand for communications services by disaster and relief agencies, and emergency first responders;
improved data transmission speeds for mobile satellite service offerings;
regulatory mandates requiring the use of mobile satellite services;
a general reduction in prices of mobile satellite services and subscriber equipment; and
geographic market expansion through the ability to offer our services in additional countries.
Nonetheless, we face a number of challenges and uncertainties in operating our business, including:
the effects of the COVID-19 pandemic on us and on Aireon, including on revenue, employee health and safety, employee productivity, and the financial health and effectiveness of our distributors and suppliers;
our ability to maintain the health, capacity, control and level of service of our satellites;
our ability to develop and launch new and innovative products and services;
changes in general economic, business and industry conditions, including the effects of currency exchange rates;
our reliance on a single primary commercial gateway and a primary satellite network operations center;
competition from other mobile satellite service providers and, to a lesser extent, from the expansion of terrestrial-based cellular phone systems and related pricing pressures;
interference with our services caused by the repurposing of L-band satellite spectrum for terrestrial purposes;
market acceptance of our products;
regulatory requirements in existing and new geographic markets;
rapid and significant technological changes in the telecommunications industry;
our ability to generate sufficient internal cash flows to repay our debt;
reliance on our wholesale distribution network to market and sell our products, services and applications effectively;
reliance on single-source suppliers for the manufacture of most of our subscriber equipment and for some of the components required in the manufacture of our end-user subscriber equipment and our ability to purchase parts that are periodically subject to shortages resulting from surges in demand, natural disasters or other events, potentially including the COVID-19 pandemic; and
reliance on a few significant customers, particularly agencies of the U.S. government, for a substantial portion of our revenue, as a result of which the loss or decline in business with any of these customers may negatively impact our revenue and collectability of related accounts receivable.


19



Comparison of Our Results of Operations for the Three Months Ended March 31, 2020 and 2019
 
 
Three Months Ended March 31,
 
Change
 
 
2020
 
% of Total Revenue
 
2019
 
% of Total Revenue
 
Dollars
 
Percent
($ in thousands)
 
 
 
 
 
 
Revenue:
 

 

 

 

 

 

Services
 
$
115,975

 
80
 %
 
$
106,951

 
80
 %
 
$
9,024

 
8
 %
Subscriber equipment
 
22,263

 
15
 %
 
21,008

 
16
 %
 
1,255

 
6
 %
Engineering and support services
 
7,049

 
5
 %
 
5,726

 
4
 %
 
1,323

 
23
 %
Total revenue
 
145,287

 
100
 %
 
133,685

 
100
 %
 
11,602

 
9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation
 
 
 
 
 
 
 
 
 
 
 
 
and amortization)
 
21,978

 
15
 %
 
22,521

 
17
 %
 
(543
)
 
(2
)%
Cost of subscriber equipment
 
12,274

 
9
 %
 
12,431

 
9
 %
 
(157
)
 
(1
)%
Research and development
 
2,444

 
2
 %
 
3,611

 
3
 %
 
(1,167
)
 
(32
)%
Selling, general and administrative
 
20,825

 
14
 %
 
23,841

 
18
 %
 
(3,016
)
 
(13
)%
Depreciation and amortization
 
75,944

 
52
 %
 
72,914

 
54
 %
 
3,030

 
4
 %
Total operating expenses
 
133,465

 
92
 %
 
135,318

 
101
 %
 
(1,853
)
 
(1
)%
Operating income (loss)
 
11,822

 
8
 %
 
(1,633
)
 
(1
)%
 
13,455

 
(824
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Other expense:
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(26,444
)
 
(18
)%
 
(25,597
)
 
(19
)%
 
(847
)
 
3
 %
Loss on extinguishment of debt
 
(30,209
)
 
(21
)%
 
(207
)
 
 %
 
(30,002
)
 
14,494
 %
Other expense, net
 
447

 
 %
 
(326
)
 
 %
 
773

 
(237
)%
Total other expense, net
 
(56,206
)
 
(39
)%
 
(26,130
)
 
(19
)%
 
(30,076
)
 
115
 %
Loss before income taxes
 
(44,384
)
 
(31
)%
 
(27,763
)
 
(20
)%
 
(16,621
)
 
60
 %
Income tax benefit
 
12,682

 
9
 %
 
9,739

 
7
 %
 
2,943

 
30
 %
Net loss
 
$
(31,702
)
 
(22
)%
 
$
(18,024
)
 
(13
)%
 
$
(13,678
)
 
76
 %


20



Revenue
Commercial Service Revenue 
 
 
Three Months Ended March 31,
 
 
 
 
 
 
 
 
2020
 
2019
 
Change
 
 
Revenue
 
Billable
Subscribers (1)
 
ARPU (2)
 
Revenue
 
Billable
Subscribers (1)
 
ARPU (2)
 
Revenue
 
Billable
Subscribers
 
ARPU
 
 
(Revenue in millions and subscribers in thousands)
Commercial voice and data
 
$
42.2

 
351

 
$
40

 
$
41.8

 
348

 
$
40

 
$
0.4

 
3

 
$

Commercial broadband (3)
 
8.7

 
10.9

 
267

 
6.8

 
9.9

 
233

 
1.9

 
1.0

 
34

Commercial IoT data
 
23.8

 
830

 
9.71

 
22.5

 
678

 
11.32

 
1.3

 
152

 
(1.61
)
Hosted payload and other data services
 
16.3

 
N/A

 
 
 
13.9

 
N/A

 
 
 
2.4

 
N/A

 
 
Total Commercial
 
$
91.0

 
1,192

 
 
 
$
85.0

 
1,036

 
 
 
$
6.0

 
156

 
 
(1) 
Billable subscriber numbers shown are at the end of the respective period.
(2) 
Average monthly revenue per unit, or ARPU, is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the beginning of the period and the number of billable subscribers at the end of the period and then dividing the result by the number of months in the period. Billable subscriber and ARPU data is not applicable for hosted payload and other data service revenue items.
(3) 
Beginning with the three-month period ended March 31, 2020, we present broadband service revenue separately from commercial voice and data revenue, and prior year periods have been conformed to this presentation.

For the three months ended March 31, 2020, total commercial service revenue increased $6.0 million, or 7%, as a result of increased revenue across all commercial services compared to the prior period. Hosted payload and other data revenue increased $2.4 million from the prior year period, which was primarily due to increased Aireon data service fees related to a contractual step-up and increased Aireon power fees. Commercial broadband revenue increased $1.9 million, or 28%, from the prior year period. This increase was principally due to sales of Iridium Certus® broadband services, which were commercially introduced in January 2019. Commercial broadband revenue, consisting of Iridium OpenPort® and Iridium Certus revenue, was previously reported within voice and data. Commercial IoT data revenue increased $1.3 million, or 6%, from the prior year period. This increase was principally due to a 22% increase in commercial IoT data billable subscribers, primarily from continued strength in consumer personal communications devices. These products comprised an increased proportion of total subscribers, contributing to a decline in related ARPU. Net activations of these IoT devices decreased significantly in March 2020, and we expect activations to remain at these lower levels for at least the next two quarters. Commercial voice and data revenue increased $0.4 million, or 1%, from the prior year period, principally due to greater usage of our push-to-talk services.
Government Service Revenue 
 
 
Three Months Ended March 31,
 
 
 
 
 
 
2020
 
2019
 
Change
 
 
Revenue
 
Billable
Subscribers (1)
 
Revenue
 
Billable
Subscribers (1)
 
Revenue
 
Billable
Subscribers
 
 
(Revenue in millions and subscribers in thousands)
Government service revenue
 
$
25.0

 
140

 
$
22.0

 
115

 
$
3.0

 
25

(1) 
Billable subscriber numbers shown are at the end of the respective period.

We provide airtime and airtime support to U.S. government and other authorized customers pursuant to our Enhanced Mobile Satellite Services contract, or the EMSS Contract. Under the terms of this agreement, authorized customers utilize specified Iridium airtime services provided through the U.S. government's dedicated gateway. The fee is not based on subscribers or usage, allowing an unlimited number of users access to these services. Prior to entering into the EMSS Contract in September 2019, we were providing services under our previous EMSS contract at an annual rate of $88.0 million per year. For the three months ended March 31, 2020, government service revenue increased $3.0 million from the prior year period as a r