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

Exactly. So it's not something like the software business where somebody could invent something to disrupt your business next year.

So these other players, what are their challenges, the ASTs and ViaSat and Link Global, Starlink? What are the big challenges here and going direct-to-device?

Well, it's just time. I mean, one thing, I've been surprised with the direct-to-device buzz out there that everyone wants to talk about how exciting the opportunity is, but they don't ever start with what will the service do? How will it perform? I mean I've been in telecom in 40-some years now, and I don't think anybody implements a service that isn't the highest quality, And then people -- and we all saw like Wi-Fi on airplanes early on. If it was crappy, you didn't want to pay for it, right? But you might use it if it was free. So we'll have to see how good those things are. How much capacity would there be? I know I believe you can get one video call through any one of those networks. Can you get two? Or can you get -- will they be able to offer that as a service for lots of people? And will they be able to charge for it? Or will it be unreliable? It'll mostly be outdoors. So that will be something that Iridium had to deal with when -- in the '90s when people market it like it was a cell phone replacement but then found it only worked outside. Well, that's not a cell phone replacement. So we'll have to see how that all operates. So they have regulatory challenges. They got to get local regulatory bodies. They're being sued by competitors to their mobile network operator for interference, they have to -- they have to raise enough money to do the service. All those things would say -- I also don't think just working is the sign of success. I think actually generating cash flows, rewarding shareholders -- no, AST has already awarded some shareholders as they've kind of become a mean stock, but they got to sustain that through a long period of time and actually deliver high-value services, and they may do that. And if they do that, my hat's off to them because I know what it takes to build a satellite and space business from scratch. It's a lot of challenges. It's not easy to do, and they have a lot there. And as I said, I wish them success because I really think we'll be offering a service alongside of them in a sense, maybe we -- if they work in the U.S., that's great, we'll operate their customers' ability to text and roam and get SOS services outside North America.

Right. And during rain and all the other...

During bad times as well.

Yes, exactly. So you had this false start with Qualcomm, your first initiative. What did you learn from that and -- that you're baking into your new strategy around direct-to-device?

Yes. For those who don't know, I mean, Qualcomm came to us 5 years ago and said, "We think your technology, your IoT technology, would fit into our Snapdragon, our powerful Snapdragon chip." And I thought, wow, I didn't even know that was possible. This was before Apple was working with Globalstar. And we did a project with them. It worked very successful. It worked really, really well. The problem is it was proprietary and Qualcomm wanted to charge for it and mobile network operator chip suppliers really didn't want to pay for it. They wanted to -- but we did hear from them, they said, we would love to have satellite connectivity to our devices. We just want it to be in the standard. So we pivoted very quickly. I can't believe how fast we were able to get into the standards. We were really broadly accepted by the standard community. We weren't even a member of the GSM Association because why bother. We were a satellite operator, but we joined it. Our people jumped into the standards bodies. And actually, we're now approved for -- yes, the 3GPP standards, and we're now approved in Release 19. And as I said, we're going to be commercially available in a year. So in some ways, this was a really good thing for us. I mean, I would have loved to have the revenues that we're generating last year and this year using the product that we developed over a couple of years. But I think the bigger -- the opportunity is going to be bigger long term for us because we'll be in a standard device. It will open up an IoT business we didn't have in other services that I think -- and also it's going to give those chip manufacturers and others confidence that they can work with us because they're not tied necessarily down forever.

Right. Right. You'd be more of a neutral party.

Exactly.

Great. In terms of LEO, I've always thought about LEOs have a very short life to be constantly replenished and hear your constellation has been up there for a long time, over 10 years, right? Can walk us through why you're there in terms of useful life and . . .

Yes. Our current network is -- was completed in 2019, so it's more like 5 years. So it's still pretty young. Every satellite lasted 15 to 20 years ago, 15 to 20 years ago. Geostationary satellites were 15- to 20-year satellites, right? Everything was long life. And then came the small sat revolution, a lot of people call it Space 2.0 and 3.0, there were a lot of names for it. And it was all about using kind of commercial devices and stuff to create faster, cheaper satellites. And so they were really designed more for a 3- to 5-year life cycle. I just heard the CFO of Rocket Lab, before this, talking about that's the new reality. And it might be for others, but we didn't choose that because I don't see how it's less expensive to build a 5-year network four times in 20 years -- unless you own a rocket, which if you own a rocket, and it only cost you fuel, that's a good idea. But if you don't own a rocket, you're having to launch four things, four times. And if they're 1/4 of the cost, you still spend the same amount. So I don't get that. I've always -- we've always felt that shareholders deserve cash flow returns at some point, and we needed to make cash flow and you couldn't just constantly be spend CapEx on your network. So when we got our second generation network started in 2010 and launched by 2019. We spent $3 billion on it, but then we could take a break. And now we're in that break, and that's why we're able to generate such great returns.

And what's your expected life now, of these?

So we just -- the engineering accounting life cycle when we built the system was 12.5 years, but you always hope to get 1.5x that. That was sort of the industry average. Our network was working so well. We -- I have to say I'm a satellite guy. We knock on something usually when we say this, but -- just for luck. But we haven't had any issues with our system. We have lots of in-orbit spares. It's a very resilient -- so we just expanded the accounting life of it to 17 years. And if the network continues to operate the way it does now, it will obviously be extended to 20 years or more. I mean that's -- the last network was only supposed to last 7 to 8 years, and it lasted 22. So we have a lot of experience at this, and I would love to get the same time out of this one.

Yes. Yes. Let's shift to kind of financial goals. You've set some pretty, pretty big targets out there. Can you walk us through some of your big long-term targets you've set for the business and how you aim to go accomplish those?

Yes. We've always felt with a CapEx-intensive business, you owe your investors and others a longer-term view of what your business is with these big CapEx cycles. So we've always provided a long-term view. In our Investor Day last year, we said from '23 to '30, we felt we would generate at least $3 billion in cash flow and kind of described what we would do with that cash. We said we didn't need to use -- start building the next network until after that. Hopefully, it'll be well after that, and we'll generate even more than that. But that $3 billion would go to acquisitions, which we've only made 1 and it was a small -- it was $120 million or something like that. There could be others, but we have no big aspirations. We really think most of our growth is organic, and we can continue to do that. So I mean, the other uses of cash would be dividends, which we implemented a couple of years ago and have continued to grow and believe that's a requirement to continue to grow that dividend. And then, of course, share repurchases, which, as our stock decline gave us even more an opportunity to kind of -- we even leveraged up a little bit last year because we really felt like if the stock is going to be this way, then we should repurchase more. So we've already returned over $1 billion to shareholders in the last 3 years or so. And our view is to continue providing that.

Great. Can you talk about your view on the aviation market? There's a lot of excitement about that. Starlink positioning, but can you kind of drill down into your position in aviation and how you see that evolving? It seems like a very important market.

Yes. Because our antennas were small, because our network operates everywhere in the planet and airplanes do fly over the poles when they come from -- your UPS airplane going from Memphis to Moscow, you're going to go over the North Pole. So being able to provide a 2-way connection in the cockpit was important for air traffic control and the pilot to be able to -- and that's called the aviation safety service feature and navigation systems.

I see.

It's a certified system, and we've been doing that for quite a few years. We've also been in general aviation. We've been in helicopters. Most recently, we're into UAVs, almost every UAV wants a command and control going beyond visual line of sight, BVLOS, and we are a technology which scales down to a small battery-powered thing that can provide a efficient 2-way connection. So Aviation has been an important market for us. We just introduced a higher speed version of that, that supports even faster speeds, which airlines and others are very interested in. Again, that's a very resilient market that's only been growing for us. I will say, while you're on aviation, I will just mention Aireon.

Yes. I'd ask about that, too.

Most people -- we don't talk as much about that. We should. When we built our second-generation network called Iridium NEXT, we had some room on the satellites. Actually, I needed the money anyway. So we went off and look for hosted payload. We couldn't find a reliable customer. So we decided to create a company ourselves. We work with Canada, the U.K., Denmark, Ireland and Italy, with their air traffic control agencies and put all the money together, put a payload on our satellites. So we now know with -- twice a second at least once every 8 seconds or something, I think, on the average, where every airplane is in the world that's broadcasting their position. And so there are no more MH370s possible, but that wasn't really the reason for it. It was because now air traffic controllers -- and they've sold now the service to over 50% of the planet's airspace, can see in real time every airplane and can control it in real time on their screens. It used to be when you went from New York to London, most of the time, you're really out of radar coverage. And so they had to sort of keep airplanes 60 miles apart. They don't have to do that anymore. We own 30% of that company. We get hosting fees. We get data fees. Long term, we think this is a valuable business. Analysts have kept just assigning like $2 a share to it. I don't know what that means. It's worth a lot more than that, I think. But overall, it's our challenge to kind of monetize that and work with our -- their customers to kind of evolve that business out in the future.

Yes, outstanding. And talk about your U.S. government business a little bit, obviously, really important around defense and civil -- I'm sure civil as well as federal.

Yes, every agency, and by the way, many other government agencies. But specifically, the U.S. government was one of our first customers in the '90s, kind of built a private gateway and private network for operational security invested in trying to tweak to our technology for their use and have embedded into us in all kinds of things, tracking things, obviously, secure voice modules. You've seen us in movies and everything when they report back that we got Osama Bin Laden, that was through a satellite phone that was encrypted. But these days, Blueforce tracking, so tracking all the good guys, tactical radios that have local systems that have us for non-line of sight being put into aircraft and put onto ships, being put into sensors. So important service, number of years ago, we went to the government, particularly as we were building the network and said, how about if we offer you our narrowband services for a fixed price. They loved it. It worked out really well. They've really grown the network with us, but still are an important foundational customer for us. That contract still runs a couple of years until early '27. And then we'll continue -- I mean we've had this relationship with them for many years now, the Space Force. In fact, that's evolved separate from that contract and contracts that are around that, we -- when the Space Force decided to build their own LEO network, through this new agency called the Space Development Agency or SDA, we pitched that we have 25 years of doing this, you should outsource the -- and that was their mindset, outsource the development of the ground infrastructure, the operation centers and even the operation of the network to our experience, and they really, really valued that. So you will see our engineering services have spiked in the last couple of years as we built that. It's not service revenue. It's low-margin business, but strategically, it only aligns us even more to this important customer. It's given us a lot of visibility to all the new technologies that they're looking to employ, which will help us down the road. And we think that model is something that really people are looking to go even bigger into.

Outstanding. How about upcoming catalysts? What sort of catalysts you see for the business coming up that you're excited to talk about in 2025?

Yes. A lot of people want to know what is it that's going to kind of change the sentiment and make people -- I mean, besides just good performance and continued performance. And I would say, continued project -- progress on our direct-to-device initiative. As I said, if we're going to start having that live on air, having customers sign up to that, having more chip manufacturers jump on the bandwagon. Those are all possibilities here in '25 and '26 as that service goes commercial. More P&T business, especially as that technology gets into more things. I think there could be some exciting applications we could talk about there. We've had a lot of new products in '24. And as we see those get into the market, a lot of activity amounts are -- I mean, we have over 550 partners who are investing in the Iridium network to build their -- us into their solutions and seeing some of those come to market, I think, could be catalysts as well.

Exciting. We have just a couple of minutes left. We have any questions from the audience. Anybody who would like to contribute?

[indiscernible]

Yes. The comment was -- interesting the comments about GPS. I hadn't really thought about that. Yes, it's a real big issue right now. I mean you're seeing it in the newspapers and everything. GPS is under attack in the world. If you look at -- if you Google, GPS spoofing and attacking, you will see people who've developed dashboards, and it's big parts of the world that right now have GPS, denied GPS spoofed and jammed. Everybody appreciates this as a problem. There is governmental directives to fix this. I don't think people appreciate that we have a solution that's available anywhere today in a number of different industries. And one of the things that was a surprise to me when we bought Satelles, which has been doing very well. They've made success. But I said, why are you not like going after the maritime market? That's a problem. Ships are being directed of course, and they said, "We can't offer this in the ocean because we would have had to pay you money for your service before we even had a customer." And I said, "Well, we can fix that. We don't need that. We'll just offering it to the maritime market, start offering it to data centers in Europe and Africa, we'll turn the signal on." We weren't going to turn the signal on if they weren't going to pay for it, but I'm happy to turn it on for myself. So I think even the name Iridium, which is highly respected around the world, has sort of accelerated the excitement and potential about that they were really excited to join us and have integrated really well with our business. And we're starting to see other ways to integrate that into our IoT business. There are many of our partners who see applications where they're -- they need to -- they get a location. That's part of their IoT business, is reporting where something is, how fast it's moving. But if you can't rely on that, there could be a premium service there if it wasn't very expensive to put our technology in there, maybe they could offer a better service.

Fascinating. Any other questions? Great. Any last comments on wrapping up, Matt?

No. It was a good conference. You guys throw a great party here. I appreciate those of you who could spend some time with us. We are very -- want to be as helpful as we can. I know it takes some time to understand the space business perhaps these days, especially, it looks scary because of there's not a lot of I would call highly successful businesses out there quite yet. We're clearly, maybe, a reference that has survived and lived through it and is growing and cash flow positive. But I think until we get a few more quarters under us, I think people probably still, but I encourage you to monitor, watch us, ask questions and get comfortable with our business over time and perhaps you'll see the value as we do of our unique business. Thank you very much.

Thanks so much.

Thanks.

Thanks.