Iridium Communications Inc. (IRDM) Earnings Call Transcript & Summary

Good morning. I'm Bob Niehaus. I'm the Chairman of the Board of Iridium Communications Inc. I'm very happy to welcome you to the Iridium Communications 2020 Stockholder Meeting. As part of our precautions regarding COVID-19, our Annual Stockholders Meeting is being held virtually this year. We hope that each of you is staying safe and well. We are joined today by each of our nominees for the Board, our executive officers and some of our advisers, including Ernst & Young and Cooley LLP, our outside counsel. Before we get started with the business at hand, I will ask Kathy Morgan, our Assistant Secretary, to run through a few logistics.

Thanks, Bob, and good morning, everyone. We appreciate you joining us. If you're logged in as a stockholder this morning, you will see sections on your screen for voting and also for submitting questions. After we've concluded the business of the annual meeting, our CEO and Board member, Matt Desch, will make a short presentation and will then respond to appropriate stockholder questions. Please send questions now, and time permitting, we will address them on our call today. All questions received even those we don't have time to address this morning will be posted on the Investor Relations section of our website for review by early next week. With that, I will turn things over to Bob.

The meeting will now officially come to order. We will proceed with the formal business of the meeting as set forth in your notice of annual meeting and proxy statement. Will the Secretary please report at this time with respect to the mailing of the notice of the meeting of the stockholders list?

Mr. Chairman, I have, at the meeting, a complete list of the stockholders of record of the company's common stock at the close of business on March 16, 2020, the record date for this meeting. I also have an affidavit certifying that on April 3, 2020, a notice of annual meeting of stockholders of the company was deposited in the United States mail to all stockholders of record at the close of business on March 16, 2020.

At this time, I'd like to introduce Christel Pauli of American Election Services, LLC, who is also on the line and has been appointed to act as inspector of election at this meeting. Ms. Pauli has taken and subscribed the customary oath of office to execute her duties with strict impartiality. We will file this oath with the records of the meeting. Her function is to decide upon the qualifications of voters, accept their votes and when balloting on all matters is completed, to tally the final votes. With the Secretary please report at this time with respect to the existence of a quorum?

Mr. Chairman, I've been informed by the inspector of election that proxies have been received for 123,988,008 of the 132,217,098 shares of common stock outstanding on the record date, which represents approximately 93.8% of the total number of outstanding shares. This constitutes a quorum for the meeting today, and we may now carry out the official business of the meeting.

We will now proceed with the formal business of this meeting. There are 3 proposals to be considered by the stockholders of this meeting. The Secretary will now describe the voting procedures.

The time is now 8:34 a.m. on Thursday, March 14, 2020 (sic) [ May 14, 2020 ] and the polls are open for voting on all matters to be presented. Any stockholder who has not yet voted or wishes to change their vote may do so by clicking the voting button displayed on the screen and following the instructions shown. Stockholders who do not want to change their vote do not need to take any further action. The polls will be closed to voting after we go through the matters to be voted on.

And Tom meant to say May 14 so the polls are open as of Thursday, May 14, 2020. The first item of business is the election of 12 directors to serve until the 2021 annual meeting, until their successors are elected. The nominees for directors are as set forth in our proxy statement are as follows: myself, Robert H. Niehaus; Thomas C. Canfield; Matthew J. Desch, who is also our CEO; Thomas J. Fitzpatrick, who is also our CFO; Jane L. Harman; Alvin B. Krongard; Suzanne E. McBride, who is also our COO; Admiral Eric T. Olson (Retired); Steven B. Pfeiffer; Parker W. Rush, Henrik O. Schliemann and Barry J. West. The second order item of business today is the advisory vote on the executive compensation of the company's named executive officers as disclosed in the proxy statement. The stockholders have been asked to vote on an advisory basis on the following resolution. Resolved, that the compensation paid to the company's named executive officers as disclosed pursuant to compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, compensation tables and any related information disclosed in this proxy statement is hereby approved. The third and final item of business today is the ratification of the selection by the Board of Directors of Ernst & Young LLP as the independent registered public accounting firm of the company for the fiscal year ending December 31, 2020. That was the final proposal for today's meeting. The Secretary will now close the polls.

The polls are about to close. If you have not yet voted, please do so. [Voting]

The time is now 8:36 a.m. and the polls are now closed for voting.

May we have the results of the voting?

The preliminary report of the inspector of election covering the proposals presented at this meeting is as follows: the proposal to elect 12 nominees as directors of the company is carried, with each director receiving votes from at least 96.2% of the votes sharing -- the shares voting. The resolution concerning the advisory vote on the compensation paid to the company's named executive officers is approved, with approximately 96.3% voting in favor, 3.5% opposed and 0.2% abstaining. The appointment of Ernst & Young LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020, is ratified, with approximately 98.8% voting in favor, 1.0% opposed and 0.2% abstaining.

Thank you, Mr. Secretary. A full tally of the final votes will be published in a current report on Form 8-K, which will be filed with the Securities and Exchange Commission within 4 business days after today. This concludes the formal portion of today's meeting. The meeting is now adjourned. I would like to thank you all for attending. And on behalf of everyone at Iridium, send you our wishes for your continued well-being during this time. I will now turn things over to Matt.

Thanks, Bob, and welcome to all for joining us today. I was going to make a brief presentation about the company and overview and be glad to take any questions that you may have. I'd first like to thank our Iridium Board of Directors who are on the call, who -- thank them for their service and for their oversight and wisdom. You can see pictures of them here as a first slide and their bios are online at our website. Of course, statement -- forward-looking statements and an overview of the company. So briefly, for those of you who don't know, we are still a very unique satellite company operating 66 in-orbit satellites in Low Earth Orbit. I was looking back at the number of customers we served when we went public. It was less than 400,000, I think, in our first annual shareholder meeting. We were talking about the previous year having achieved that level. You can see how we have grown, over the last 10 years, to more than 1.3 million customers served daily. Our global partner base that takes our products and puts it into theirs and delivers solutions to their customers has also grown dramatically to over 450 partners today. And our trailing 12-month revenue is now at $560 million. And our story has been one of really a complete financial transformation over the last few years. And this is the first year really as we are moving into a long CapEx holiday. As you can see by this chart, we have spent a lot of money building a brand-new satellite system that was completed in February of 2019. It's all in space, it's operating very well and it is a powerful platform for new services now. While it was quite expensive and there was a high CapEx cost associated with it, that cost has now ended. And as you can see, over the last 10 years, really our operational EBITDA has grown dramatically even before the network was built, and we ended 2019 with operational EBITDA of $332 million. So as a result of that, with continued operational EBITDA growth, we see falling net leverage, and our story is one now of really growing free cash flow and it's very important. These are the businesses that we -- primary businesses that we serve. We serve them quite uniquely. There are many other satellite companies but none of them operate the way we do in L-band and around this very unique set of services that we provide, maritime, aviation, government, IoT or Internet of Things customers and the land/mobile market. Each of these are important segments for us. Each of them, we provide a very unique set of services through our partners to the customer base, and that provides a powerful platform for growth. As stockholders, you will have seen that the market appreciated when we completed the next mission. I think they understood that we were moving to this financial transformation with new growing free cash flows, and we had strong stock appreciation in 2019 as we completed that service. It has been a very interesting year with COVID-19 happening in mid-March. As you might have heard on our earnings call, our first quarter earnings call a few weeks ago, we had an outstanding first quarter, which was, I think, indicative of the kind of business that we have outside the COVID-19 era. But unfortunately, it has impacted our partners and their businesses, and particularly in areas like aviation, which as you know, is almost 60% to 80% down from its previous 2019 kind of levels. Oil and gas is obviously affected and others. Still despite that, as you can see, even post-COVID, we are seeing growth in key areas of our business like broadband, hosted payload, thanks to a government contract. And even in our engineering services with the government, we are still forecasting service revenue growth, operational EBITDA to be at least the level we've had in the past and for our leverage to continue to fall. As a result of that though, our story again is one of pro forma free cash flow. If you look at 2019 on the chart I'm displaying and going to a 2020 pro forma outlook that we've provided, based upon even a flat operational EBITDA year-over-year, we will see a 5% year-over-year free cash flow, which translates to almost $1.29 of free cash flow per share, a 6.3% yield and a growing free cash flow conversion. So despite the environment we're in, I think we're in a unique position that continues to be a very powerful platform for growth. And as a result of that, as you can see, we expect that based upon this new environment we're in with strong free cash flow conversion and continued long-term growth, that we will continue to deleverage. We have provided investors that we are expecting to provide shareholder returns, especially once we get to the 2.5 to 3.5x target net leverage, which we are moving towards at this point. So it's a good story to be in. It's good to be us right now in the sense that even despite having effects, we're fortunate that the COVID-19 impact really hit in 2020 after the completion of our network and financing activities so that we can weather the storm and continue to provide future shareholder returns. So with that, if there are any questions you may have, I would be glad to answer them. Kathy, have there been any questions?

No, we've not had any questions submitted, Matt.

Well, then I would suggest any shareholders on the call, feel free to interact with us at [email protected]. Ken Levy would be glad to field those and we'll be glad to answer them after the call. We have a lot of information for you on the Investor Relations part of our website, and we look forward to interacting with you in the future. So with that, I guess that concludes the meeting. Kathy, back to you.

Thanks all, everyone, for joining us, and we appreciate you being here today.

Thank you for joining. You may now disconnect.