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

Good afternoon, everyone, and welcome to the afternoon sessions here at Deutsche Bank's 29th Annual Leveraged Finance Conference. Welcome, everyone, if I haven't gotten a chance to welcome you already in this morning's presentation. My name is Anthony Klarman. I cover the telecommunications, cable and satellite space here for DB, and we are very pleased to welcome Iridium Communications. With us here today from the company is Chief Financial Officer Tom Fitzpatrick. Tom has a few slides to go through as part of his presentation, and I'll be back to help out with some Q&A. [Operator Instructions] And I will try to get in as many as your questions and my own as time permits. So with that, I will turn it over to the company's CFO, Tom Fitzpatrick, to take us through a few slides. Tom, over to you.

Great. Thanks, Anthony. Good afternoon, everybody. So skip through the safe harbor statement. We're talking about some non-GAAP measures, and you can see the reconciliation to the GAAP statistics on our IR website. Just by way of introduction, Iridium is a mobile satellite communication services company. What -- the main thing you should know about us is, we have a very significant competitive moat around us, around our business. And it has its origin, the kind of the reach and functionality of our satellite network. There's a couple of pictures up at the top of this chart, which is our original satellite network constellation. It was launched in the late '90s and was fully replaced in a significant capital construction product -- project that took 9 years to complete, and it was completely replaced with 66 brand-new satellites. What you should know about that is the architecture of the network is the same as the original network, which is unique. It's one of a kind. It's called Low-Earth Orbit mesh. And we operate in the L-band, and you -- and those attributes are unique and are the source of competitive advantage. That is what has enabled us to grow our EBITDA since 2009 by over 9% with -- it's all driven by our services revenue. Think much like access and air time in a terrestrial wireless model. But as I say, we -- our network does things that others can't, and it's why we've succeeded. The blue sort of shaded area over the period from 2009 through the present time, through 2021, is our capital expenditures. And so what you see is in the period prior to 2010, very low, sub-$20 million CapEx, and we launched the capital construction campaign to fully replace our former network. And you see CapEx up $400 million in some years, et cetera, over a $3 billion CapEx cycle. Well, the good news is we're through that CapEx cycle, and now we're back down into the CapEx holiday kind of mode, and -- which we think lasts for about 10 years. And so when you come combine our profile of growing EBITDA with very low CapEx, what you have now is a very significant generator of free cash flow. Our new network retains the old architecture of our prior network. But because it's a state-of-the-art communications network, it affords us the ability to go after revenue streams that we couldn't do so previously. And so we think our prospects for accelerated revenue growth are really good, and I'm going to take you through that in a slide or 2. So our financial guidance for the year. Our service revenue is between 4% and 5%. EBITDA between $365 million and $375 million. We ourselves are paying cash taxes through 2023. And we have a guide on net leverage of 3.5x as we exit 2022 pro forma for $300 million worth of share repurchases. If we take a look at our levered free cash flow and contrast 2020 to 2021, what you see is a profile of significant levered free cash flow. If you measure us in terms of yield or free cash flow conversion, we think we stack up very well against the tower companies, et cetera. And what you see is a profile of free cash flow greatly -- the growth in free cash flow greatly exceeding the rate of growth in EBITDA, and we think that continues just given the nature of our business. So I talked about a profile of accelerating revenue growth. And so, for example, our service revenue, if you look at our financials, we have service revenue and then we have equipment and other. But it's the service revenue which is the recurring revenue. Think of it like access and airtime. Very low variable cost to produce an incremental minute of use or an incremental revenue dollar. And so it's a profile of significant operating leverage. We think that our service revenue, which this year we see at about 4% to 5% growth, we think that accelerates. And we think in the period between 2023 and 2025, we're going to average high single digit during that period. Points of note, our second quarter of 2021 was a record for subscriber growth. We think that we're going to break that record going forward because of a new revenue stream called personal communications. It's -- there's a device called -- that Garmin puts out called inReach, but there's others, ZOLEO, et cetera, that basically enable smartphones when they're off cellular coverage to do things like texting and other functionality. And we're seeing significant growth in that area, and we expect that growth to continue when you consider the installed base of smartphones globally. We're a global provider. This is an accessory to a smartphone. And so we think our prospects for growth are excellent. Similarly, our -- the network that we replaced in 2019 was a late-'90s vintage telephone company, basically, with data speeds that were of that vintage. Our new network is state of the art and enables us to offer broadband speeds that are faster than the competition. We do so at a more economical price. And our gear is a lot smaller because we're in Low-Earth Orbit. The competition is geostationary, 50x further from the Earth. And so we're able to offer broadband speeds at very competitive rates as a benefit of our new network. We also see significant expansion in IoT. We think that we're going to be the satellite provider of choice in IoT, again owing to the fact that we're in Low-Earth Orbit that requires very small antennas, very low power, and it just lines up very well with the needs of IoT. And so when you put the -- all that together, the profile of accelerating service revenue growth with the operating leverage of the business, with the CapEx holiday, what falls out of that equation is levered free cash flow that is around $2 billion in the period 2021 through 2025. That's fully 40% of our market capitalization. We think that's the -- we're very unique with that sort of statistic. So how we think about capital allocation and the -- with the $2 billion in levered free cash flow, how do we think about that? Well, we think of ourselves as being -- maintaining a leverage of between 2.5 to 3.5x EBITDA. And we believe that we will be at less than 3.5x as we exit 2022 pro forma for $300 million in share repurchases. We've acquired $122 million through June -- through this June. So to the extent that we do less than $300 million, we'll be under 3.5x before the fourth quarter of 2022. To the extent that we do it faster, it'll be sooner than that, and we'll see. I mean the way we think about share repurchases is that we want to get an acceptable return based on what we think is the intrinsic value of our shares, and we'll be very disciplined about share repurchases with that metric as our guiding principle. We're always looking for important strategic acquisitions. There are certain things that we know we don't want to buy, but there are other things that are attractive to us, and we will use our levered free cash flow as appropriate to execute a strategic investment as -- when they present themselves. And finally, we'll consider dividends as appropriate. The guide there is that we want to make sure that any dividend we put on the stock can be sustained through the next CapEx cycle 10 years from now. And so -- but dividends are on the table as the third kind of element of how we think about capital allocation. And with that, I'll turn it over -- turn it back to Anthony for Q&A.

Great. Thanks, Tom, and thanks for that overview. Look, I want to hit a bunch of those points in the questions, notably that $2 billion of levered free cash flow over that horizon that you talked about. But I actually want to start with a question that I actually wasn't even thinking of asking about 10 days ago -- until about 10 days ago, which is when we saw the articles coming out in the press about the potential inclusion of satellite technology in terrestrial phones. And it was perhaps maybe more tied to one of your competitors about potentially being included in the next generation of -- I think it was iPhone. But from a broad thematic perspective, how much of a potential untapped market opportunity is that if we horizon scan? And how likely is it down the line that we see some sort of mesh of satellite and terrestrial coming together in a sort of small form factor handset that we're familiar with today with the iPhones or the Samsung phones that we are all carrying around with us?

Right. So if you -- Matt Desch, our CEO, talked about this on our Investor Day. And if you just look at the advances that Garmin has made and others have made in miniaturizing the modem in the Garmin inReach device, it -- given those kind of developments, it's all about -- you can't be so big that the iPhone has to -- or the smartphone has to be bigger. So you have to -- you have size constraints, you have power constraints. The antenna has to be a certain size. But there's been such -- like I said, such strides that's been done already to shrink the personal communication devices that integration into a smartphone seems like that it's technologically doable. And certainly, we would -- we see the growth in personal communications. We have 0.5 million of those subscribers, growing at something like 40%. And if you just think about it, it's a -- it is an accessory to a smartphone. A smartphone, when you're out of cellular coverage, which is in 90% of the globe, is not a communication device. It's a brick. Whereas, when you have a Garmin device and you tether it to the smartphone, you can text and you have other functionality as well. So then, if you just think about the installed base of smartphones, I think there's 3.5 billion globally, that's something that we'd be very interested in. It'd be an excellent application for our network to be kind of the fallback when you're out of cellular coverage.

And from your network's perspective, it wouldn't really require anything other than software. I mean you have the network capacity to be able to handle that. You obviously have the global coverage. Would it be just a matter of the form factor of the equipment getting to the point where it could be included with a phone or tethered to a relatively small device that can be carried and maybe opens up what that opportunity set could look like?

Well, the equipment being tethered to a smartphone, that's here now. That's the Garmin inReach. Any investor can go into a Costco and pick up that device. It's $300. So that is here and now. That's not even a question. And we think that grows for a long time. Just consider the various applications there. When you then go to the next step and say you don't even have to tether anything, it's in the smartphone. The smartphone is no bigger, and it's there kind of as a just in case. It seems as though that, that could have a pretty significant appeal.

And is the long -- and then we'll get on to other topics, but I wanted to make sure that I explore this one given that a bunch of questions came up in the last 10 days. Is the long pole in the tent there the power? Obviously, there's one level of power that you need to use to communicate with a terrestrial cell site that might be anywhere from dozens of feet to 0.75 mile away. It's a whole another thing to communicate even with a LEO satellite, albeit a much lower earth orbit satellite than what a GEO satellite would be. Would be -- would power be one of the big gating factors in terms of how and when you can see that start to get included into the traditional terrestrial handsets?

Yes, I would say it's power and it's also a size because you don't want the smartphone to get any bigger. So it's -- so the chip needs to fit into a smartphone. And then you have issues of the antenna, et cetera. But you had -- the whole point here is you had those same issues in the personal communication devices that are, as you say, tethered. So now it's just one more step to say it's your own unique built-in communication vehicle.

Perfect. So I want to now get into the operations first. And I guess I was hoping maybe to give you a chance to just level set with the market on what you've disclosed thus far with respect to guidance for the year and some of the medium-range guidance that you've given, some of which was on the slide. But then talk about what the hurdles are to achieve that guidance. I know one of the issues that you had during COVID was literally just having your VARs and VAMs getting access to ships and other forms of end customers to be able to do the installs. But as we think about what the barriers would be or the hurdles would be that you have to get over to achieve those types of CAGRs that you laid out in the slide.

Right. So if you look at our Investor Day -- when we were on our Investor Day, our guide for 2021 service revenue was 3% growth. And the kind of objective of the Investor Day was to say, listen, our prospects are way better than 3% growth. We're like shaking off COVID right now, but we have new products coming online, and we think that, that 3% in the period 2023 to 2025 averages high single digits. That was -- and we took investors through, and that's a good primer for those investors who don't know the company. Well, in the second quarter, we took that 3% up to 4% to 5%. So already, we're -- the kind of the run rate growth now that we have better visibility to kind of what does post COVID look like, what's reasonable. So domestic aviation has come back. That was a huge headwind for us in 2020. We're seeing benefit from that personal communication and just -- and traditional satellite booms. We had a great second quarter. That came kind of roaring back. And we set a record for subscribers in the second quarter of '21, where you still had some COVID effect. And so those are the early indications we're quite pleased with.

I want to talk a little bit about maritime really on 2 fronts. One is, you are really going after an industry where there's one dominant provider with a lot of share. And I think your premise has been cost, size of the equipment, speed of the new network and trying to take and grow that share. COVID presented some challenges to that. Where are we on the reopening of that sector in particular? And have you started to see some of the bottleneck of getting access to the ships and some of the other hurdles that were in place in -- starting to claw back some of the headwind that you experienced as COVID broke in Maritime?

Right. So if you look at our second quarter numbers, our broadband subscribers was, I think, up 3x from the prior year. I think we've put up over 20% growth rate in revenues. And let me say like that -- those are pretty decent numbers, but we're disappointed with that because we think we had a better mousetrap. Our equipment -- our service equipment is faster than the competition. It's cheaper and it's smaller. So we had -- we thought we'd be growing faster than that. We're pleased with the rebound. It's not free access to ships, but it has improved. If you see -- people say, you sure that the product resonates? If you say that [ Varuna ] is now manufacturing our service device, that's a -- they're a major Asian provider, that -- I view that as a really nice endorsement of the Certus product, that they would spend the money that they needed to get that production going, et cetera. So we feel good about the product. We feel good about our competitive position. Happy that maritime -- access to ships is coming back. It's not the way it was pre COVID, but it's certainly no worse on the margin a little bit better. I think that reflects if you look at our subscriber and revenue statistics in the second quarter.

Great. The other piece I wanted to touch on was GMDSS. It took multiple years and a lot of external validation of the network capabilities in order to get certified for that. Now that the certification is complete, how does that factor into the potential growth opportunity in maritime? And maybe for some people who are newer to the story here, can you just maybe remind everyone what the overarching principles are of GMDSS and how you actually went about getting certified and how you think about what the opportunity set is there on that revenue stream looking forward?

Right. So GMDSS is a global standard for maritime safety. Vessels over a certain tonnage are required by law to have GMDSS capability on the ship. For years, Inmarsat was the only provider of such capability. So the ships needed to have it. A couple of years ago, we got GMDSS certification. And now -- the first thing I would say is there is no reason for Inmarsat equipment to ever be on a ship, okay, because there's -- you can put Iridium on a ship, and it has the same certification that Inmarsat has. So that's -- it is -- think of it as almost like bona fide. It's like you have a standard that you can be on the ship. And so that -- competitively, that helps us. GMDSS is less important as a revenue stream and -- but more important that it's sort of stamp of approval almost and no need to have the competitor on a vessel. That's how we think about it. And so the growth that we're experiencing in our broadband area is being facilitated by the GMDSS certification.

Got it. So in some ways, GMDSS is not only a stamp of approval but maybe a leading indicator of what the future growth potential would be because it's an external validation on the -- there would be -- if the customer was looking for a single-source vendor, there would be no reason not to consider an Iridium product given that you can do GMDSS as well as the other solutions that you might be looking to sell into the vessel owner?

That's right. That's how we think about it.

All right. Great. I do want to talk a little bit about aviation and Aireon. Aireon is not just a network partner but also a strategic investment for the company. Obviously, that is a business that was impacted pretty significantly during COVID because it is geared to just minutes in the air and flights. Can you just give us a sense as to the latest out of Aireon and how that business model has developed since the bottom of the COVID pandemic and coming out and, again, what their funding picture looks like given I think you and some of the other shareholder partners have agreed to provide some liquidity bridge to the extent it was necessary for Aireon prior to them completing their recent refinancing?

Right. So their business is going great. They're fully operational. They are managing air traffic in routes. They are profitable from operations. I would say that their data business -- so when Aireon was conceived, it was for air traffic control. That was the main business. There was some thought to, well, geez, this data is going to be very valuable. There's a lot of people that would be interested in this data. When you know planes in the air and all the statistics around that, there's constituents who'd be very interested in that. But that wasn't -- that -- I would say that dimension of their business wasn't fully developed. It's getting more developed now, and it's surprising on the upside in terms of the business that they're getting. So I would characterize their business as having that as a plus versus the kind of the original expectations. But some of their contracts are fixed or not -- don't vary by flights in the air. But some of them are variable. And the variable contracts are way -- the volumes are way down because while -- and we've seen this in our business. While domestic air travel has come back really well, international less so because -- for obvious reasons. It's tough to get into countries and that sort of thing. And so they -- their - I think of their business plan as just kind of taking this -- pushing to the right, I don't know, a year to 18 months because of this dip. That business is going to come back. They will be the standard for air traffic control over oceans and over vast land masses, and we're quite confident of that.

And in fact, I think since COVID began, they've even announced some additional ASP signings, I believe. Is that correct?

Since COVID -- yes, go back and -- my timeline isn't exactly clear on that, Anthony, but that's probably true, yes. I mean there are -- I think COVID has caused a bit of a lengthening in the sales cycles because these ASPs, their business model got a hit, right? So that -- so I think they're reacting to that. But I know they signed India. I just can't remember if that was pre COVID or after COVID. But they've had some important signings and continue to have important signings, yes.

So from a credit perspective, one of the things that investors often ask is to remind them about, I'll give you the chance to refresh it here, is that the payment schedules with Aireon are basically prewired. They have committed levels of payments that they make to Iridium. Some of it is usage based, but then there are other milestone payments that they owe and then there's potential future sell-downs of the stake. Can you just remind us around the timing of the sort of the major future payments from Aireon and then what the milestones are to hitting some of those major events inclusive of the share or the share repurchase or the stake kind of write-down in the future?

Right. So their data that they buy from us is annual and they just pay it. There's no -- it's just a -- we're just a regular-way vendor to them. They pay us. And then similarly, they have a minimum on the hosting of $16 million a year, right? So the hosting fee was $200 million. That's due when they can afford to pay it. Basically, that's how the contract reads when it's commercially available, right? They've paid us $54 million of that -- of the $200 million and are required to pay at least $16 million a year. So when you put that together with the data that -- we're getting cash payments from Aireon in the normal course of $39 million a year, right? There's about $150 million of the hosting fee of a slug that they'll -- that they chip down at, at $16 million a year, but that's due -- when they do a refinancing, thinking now as like 2024, they would pay us the -- that $150 million in a bullet. But investors should know that, that receivable from Aireon bears interest at LIBOR plus 350. So there's -- on top of the $150 million, there's like another $50 million in accrued interest that's going to be paid. And consider LIBOR plus 350, we're making a nice spread on that money. So we're not that fussed about it. We're highly confident it's coming in. We have visibility into their business. Okay, if it pushed to the right a bit, that's fine. We're not hurt economically because, like I said, the spread that we're getting on what they're paying us more than covers our cost of debt. So there's that. And then the payment that follows the hosting is, we're going to sell them back certain of our interest for $120 million.

And is there a milestone around that? Repurchase of the same?

It's ability -- so think of their leverage statistics. So they have a duty on both the hosting and the buyback when it's available, when they can get the capital based on their credit metrics if they need to go do that refinancing. And so they're just looking at their plan and saying, okay, when can we do it? It looks like 2024 now. We were thinking previously it would be 2023. But just because it's pushed, it feels like -- more like 2024.

Got it. [indiscernible]...

And another -- go ahead.

No. [indiscernible]. Please go ahead.

I was just going to say that and then ultimately, it will be brought down to sort of 22% of the -- interest in the company and then they'll be a dividend payer. I mean that's the ultimate -- and so that's -- that will be the eventual additional cash flow.

Right. Understood. I did want to ask a little bit about the government business, even though it's maybe the less sexy of the businesses, because that was actually a cornerstone business that helped facilitate the broader refinancing. One of the things the debt markets were looking for was the renewal of the government contract, which you announced as a 7-year deal, I guess, a couple of years ago. Maybe we're sort of getting close to 2 years in. I kind of remember October in my mind because we used to be out in Arizona discussing it as the leverage [indiscernible]. One of the things that came up when the new contract was signed was the potential opportunities for Certus as part of the government contract. In fact, the deal you signed was really just a renewal of sort of the regular-way deal and didn't include much in the way of the new capabilities of the new network. Have there been any inroads made there in terms of the government taking out more advanced services that are available as part of the next-generation network? And what type of opportunity is to both expand the base with the government and to get them to buy additional services in the broader context of things that we've seen like trip drawdowns and withdrawals from some of the conflict areas that have obviously been in the press quite a bit recently?

Right. So the contract that we signed with them is for 7 years, $738 million. And so for that, they get unlimited IoT and satellite phone. They get 0 Certus. Certus is not part of that contract. This is a -- much like our commercial service opportunity. This is a takeaway of fleet broadband business that's sitting within the U.S. DoD. It's the same argument, is commercially it's -- ours is -- Certus is faster than Inmarsat, it's cheaper and it's smaller. We get style points with the government, though, because they are building the ability to terminate service traffic into their Hawaii gateway, which they really like. So think of the Inmarsat solution as terminating on the public service telephone network, and we're at -- close to where it originated. Whereas, the DoD, when they buy Certus, can terminate it themselves on their own network. And it never touches the ground because it's -- traffic is handed off in space. And so many of the attributes that they like Iridium for and why they have their Hawaii gateway will be brought to the fore on Certus. So we're very optimistic. We've seen some initial buys, but there are -- when they get the ability to terminate on our network, we think that's a real shot. We're optimistic about our prospects for service growth in the DoD.

And again, maybe just as a reminder for others listening in, because that is a flat fee take-or-pay that you are paid every year by them and there are some small escalators over the life of the contract, you're not necessarily really exposed to things like true drawdowns because the government is paying you that fee irrespective of whether they have one device in service or they were like fully load the network with tons of devices, correct?

That's right. That's right. It's all you can eat. So that's what they like about it, and that's what we like about it. So -- whereas, the DoD's kind of revenue is a contractual step-up year by year. We have a big team of development people that are facilitating Iridium devices, IoT devices on various government projects with the endgame being, look, we want their subscriber growth to be way faster than our growth in -- contractually in step-ups because in, what is it, 4.5 years now when we go to renegotiate, we're going to have a lot bigger base with them. And so it's a kind of a win-win. And they -- we don't see any incremental revenue today by a bunch of subscriber additions, but those subscribers are going to be there when the contract comes due. And you see that if you compare the prior 5-year deal to our current 7-year deal, it's a significant -- it was a significant increase from one contract to the next. And that would be what we expect when we get around to renewing it in a few years.

Great. I want to pivot slightly to just the competitive environment. And you've addressed this a bit on your calls and you talked about it a bit at the Analyst Day, but we can't help but read all of the chatter that is in the trade press with respect to the other LEO fleets that are all being developed and launched and some MEO upgrades to MEO fleets that are happening over the course of the next few years. There's a perception that there's just greater competitive intensity coming in the future. And to some extent, you're a little insulated from that because you're sort of covering the areas that are well covered today. You've got advantages with L-band and LEO. But as investors, how should we think about why some of the LEO fleets that are going up won't be able to make some inroads into a portion of the business? And what is it that protects your embedded base of revenue versus other LEOs? Even though they may be focused primarily on different verticals, there is talk about them edging into some other areas that perhaps have been your bread and butter.

See, I don't see that to a -- very much an extent. There are LEOs that are all in the Ka/Ku-band. That's a different band. The attributes of those bands are very good for sort of data streaming, et cetera. Not good for mobility, not good for safety services, the things that are the hallmarks of what our users want from us. And so we see ourselves as synergistic with -- to the extent that there's a LEO like a Starlink that's interested in penetrating -- competing with the VSAT players. Listen, we partner with the VSAT players today as backup on [indiscernible] vessels. A really big [indiscernible] ship is not going to use us as their primary -- they have -- they want too much in terms of bandwidth. But the issue with the Ka/Ku is that they are susceptible to rain fade. And so if it's -- that's your only communication vehicle, that's kind of precarious. And that's why we're routinely put on as backup. So we're kind of agnostic. If a Starlink wants to go compete with an Intelsat for VSAT services, we'll partner with neither of them.

And in many ways, I think -- I was speaking to an investor about this. I guess it was around the last time you did the last amendment to the term loan. And the analogy they made was that even in the future, you would still expect that Iridium would be the doughnut hole in terms of lots of other networks where it's very unlikely, due to technological issues whether it be spectrum or the height of the orbit, that really anyone would be coming into some of the more remotely covered areas that you're providing a lot of the capacity. And the more likely end result would be probably some form of partnership where you could essentially create a mesh solution between either 2 LEO constellations or a LEO or GEO. Or that's probably more the direction of travel strategically.

I think that's a fair statement.

And that maybe leads to the next question before we get into capital allocation questions at the end, is it does feel like there is some consolidation waves that ultimately are going to take place in satellite. You have the FSS sector getting a $9.7 billion infusion of cash that will come from the C-band spectrum. And there was even talk last week that Patrick Drahi may have some interest in Eutelsat. We've heard about perhaps some of the LEO guys looking for strategic capital. What role does Iridium play? And how will management and the Board sort of horizon-scan the future? You think about Iridium from a strategic positioning perspective. You talked a little bit about in your capital allocation slide, which we'll get to next, about potential strategic investments. But where do you feel the company falls on the chessboard of the industry? And how do you think about what other strategic investments might look like for Iridium over and above the decision around the next network that you may create, which is still some years down the line?

Right. So, I mean, I think, first and foremost, we feel pretty good about the cards that we have in our hand, right? We just -- we look at -- as I start -- stated in my presentation, we think that our business has a really significant competitive moat around it, and it's owing to the L-band and it's owing to the network architecture. So we're happy to go it alone. It's not like we need to partner with somebody because there's -- we see some threat. We -- having said that, we are routinely, in commercial applications, partnered with other satellite companies I talked about going on as a VSAT backup. So that's -- I view that as a kind of thing where it's -- it doesn't have to happen. Might it happen? Sure. But it would only happen if it's highly accretive to our shareholders. That's how we think about it. We'll be opportunistic, not illogical but not a must-do. In terms of acquisitions, we're already thinking about it, even though it's 10 years in the future, about the next-generation constellation. And we have 9 megahertz of spectrum. We're not spectrum rich. And so sure, it would seem to -- like to augment that position for our next constellation, it seems like that would be a kind of a reasonable thing to do. You need time to engineer other spectrum into your network architecture, and so that's going to take some time. And so additional spectrum is -- would be something that we'd view as positive. And then what we're not going to do, Anthony, is we're not going to do a vertical integration. We're not going to buy up our partners. What Inmarsat has done, we've said we're not doing that. Our partners like our kind of independence, and they -- and we like them building solutions on the Iridium network without worried about us competing against them. So we won't do that. But like look at the investments that we've made so far. We -- we've put some money into Aireon and Satelles when we didn't have any money. Why? Because they both run in our network, right? And so those type of investments or perhaps additional investments into those companies, that would not be illogical. And similarly, we made an investment into DDK, which is a precise GPS for agriculture and other uses. And again, that's similar to Aireon and Satelles that runs in our network. That would not be illogical. So that's kind of how we think about it in terms of the kind of the M&A dimension.

Well, we've got a few minutes left here, and that's a good pivot to the capital allocation question. if you lived through the early days when you were trying to raise financing to finish the network that now you've launched, the notion that you're going to generate $2 billion of levered free cash flow over a 5-year period seems pretty remarkable and I think speaks to the CapEx holiday that you had pointed out. How should we as investors think about the capital allocation priorities? In other words, how are you bucketing the notion of shareholder returns which you've already started with? Is there a rationale as to why you would be squireling money away already to think about the future needs of the network versus, it sounds like, you have even some strategic things that you might consider prioritizing? How do we weigh that and also weigh that in the context of your leverage target, which, by the way, your leverage target seems like nothing's in the bag because we've lived through COVID, but the business just organically seems like it's going to be inside your leverage target in the very not-too-distant future.

So -- right. So -- and that's -- I think that's clear. If you just look at our levered free cash flow, we would punch through 2.5x absent the share buybacks or strategic acquisitions or dividends, right? And so we think of it that way. So we're going to be disciplined, right? We'll buy back the shares to the extent we think that it's a return to intrinsic value, right? That's our metric that we use. And so we're going to be disciplined about that. We're going to be disciplined about any acquisition. We're going to be sure that it's highly strategic and accretive before we do it. We're not -- it's not like this extra cash is burning a hole in our pocket. It's -- our leverage guide was based on, hey, here are some of the things that we might buy, here's how much of the stock we might buy because that's -- if you look at our stock over the last 52 weeks, it went between $25 and $55, right? So you want to be opportunistic when the market does something away from the company, is having nothing to do with it. So that's how we think about it. It doesn't mean we'll just go buy shares at any price. We're going to set -- we have our views and we will be disciplined in that regard. And the way we think about dividends is we want -- any dividend we put on the stock, we want to be sure it makes its way through the next CapEx cycle. And so the share buyback program we put in was the easy -- was kind of the easy first thing to do, and -- but we're studying the dividend and the appropriate timing and size of that. And the greater clarity we get around our next-generation constellation, the cost, the timing, et cetera, then you get more comfortable with putting a dividend on that's going to be with you for a long time.

Well, I guess it sounds like it's early in that process just to introduce the number that you have on the slide with respect to the amount of free cash flow that this business will generate. But there's obviously not a lot of benefit -- as much as I hate to admit, there's not a lot of benefit for you to delever even to probably the low end of your leverage target. So I guess as you talk about those things, you have the share buyback in place already. You'll sort of, at some point, revisit that. It was really more intended to give management the tools to react to market dislocations, which you mentioned about having a program in place. What I'm curious about is the need to start planning financially for the next network. What, time frame do you think you'll start to get the data assembled as to what the next constellation cost looks like and when you have to start thinking about maybe deploying some of that free cash flow towards derisking and prefunding some of that next generation?

So we don't think about the $2 billion as being earmarked for the next-generation constellation. That's only through 2025. We don't see ourselves spending on the next constellation before then. And if you just think of -- just think about the growth trajectory in the business and the growth in EBITDA, the next-generation constellation, if you just think about Moore's Law and launch costs, we paid $3 billion for this one. I think Motorola paid, I don't know, $5 billion for the processor. It doesn't feel like it's going to be more than $3 billion at least right now. And if you think about $3 billion in the context of a company that, I don't know, will be $500 million in EBITDA 10 years out, I mean, it seems like you could just pay for it out of cash, right, say, during that period. So I don't think about the $2 billion in levered free cash flow as being going towards the new network. It's just way too early.

Perfect. Well, Tom, that does bring us just about to the end of the session, but I want to thank you for joining us virtually again. And again, I hope that you and everyone else, well, we kind of hope will roll back in here in person. But we want to thank you for your participation and wish you the best of luck this year.

Great. Same to you, Anthony. Thanks so much for hosting us.

All right. Thank you, everyone.