Thanks, everyone, for coming to our TMT Plus Consumer Conference. I'll try and avoid making undue noise. Yeah, I'm Ric Prentiss , Head of Telecom Services Research, including Brent Penter, our Associate Analyst, here with us today as well. Now, TMT, in my vernacular, is T for Towers and Digital Infrastructure, M for Media, and the other T is for Telecom and Satellite Carriers. So we're pleased today we have Iridium and soon to be officially the CFO, days away.
Thanks, Ric.
Vince O’Neill. Vince, thanks for coming today.
No problem.
Congrats again on the new role.
Thank you.
I think the best way to start is, why don't you tell us first a little bit about who Vince is? I've known you for a while, but why don't you tell the folks here and on the webcast who you are and what you bring, and then what Iridium does, kind of help us position the story.
Sure. So just briefly a little bit about my background. I've been with Iridium for 10 years now. I've effectively been Tom Fitzpatrick's right-hand man. So I think most of you know Tom. And Tom's retiring officially at the end of the year. And as Ric alluded to, I'll be taking over Tom's responsibilities. In terms of what you should expect to see as a transition or how you should think about this, Tom and I have been very much in lockstep over the last 10 years as we've worked together. And what I tell people is I break my time at Iridium kind of roughly into two parts. The first five years is really about funding and getting the network up there and making sure that we could replace the Block One birds and keep business continuity.
And then the second five years has really been about returns for generating cash, growing the business, and returning some capital to shareholders. So that's been very much part of my strategy as well as Tom's. So my message to everybody here and on the webcast would be you should expect to see more of the same going forward. We're out there with our targets for 2030. We had an investor day in 2023 where we outlined approximately $1 billion of service revenue. We believe we've got the capacity to throw off $3 billion of returns to shareholders over that period. And so that's very much the focus for us as a management team, executing against that plan as we go forward.
Yeah, and when we think about Iridium, what makes Iridium unique or special? It's a neighborhood, I get that, but what makes you guys unique in the neighborhood?
I think the things that I would raise are that, and these are five or six things that I think are important, especially for somebody who's new to the story. I would say the first thing is we operate in the L-band spectrum. And that's important to understand because people tend to think of satellite and they throw a big umbrella over all of satellite. But there are many characteristics within that that drive what market and applications that you ultimately go after and you support. So we're in the L-band. L-band, you should know, is a scarce resource. There's not any more L-band out there for the FCC or the ITU to allocate. And why is that important? Well, one, I would say it's important because we have global landing rights around that spectrum.
That was granted to us 25, 30 years ago, obviously in a very different geopolitical climate to today. But that obviously has a lot of value in terms of allowing us to provide a truly global service and global coverage, Ric. And the second thing that I would say around that as well is, as well as the spectrum rights, the L-band has certain characteristics that basically supports mobility. So when you think about the end user markets that we support, we support mobility for either people or think of machines or assets or whatever it may be. And so that tends to then push you to small form factor devices, devices on the move, devices that have small antennas, but they're typically long lasting in terms of you've got power for a couple of days.
So that plays into things like our fastest growing subscriber base at the moment is the personal comm side of the business. And that's, for example, you could get a Garmin inReach device, which has got our chip in it. And you could take that off the grid and you've got two-way messaging text capability. You've got SOS capability. You've also now, with the launch of the new inReach Messenger Plus, you've got the capability to push pictures, for example. So it's those kind of devices versus some of the competitors who operate in different spectrum. And through that spectrum, they can send large amounts of data. So think about streaming Netflix in the cabin of an airplane, for example. You'll never be doing that with us. It's more small sips of data.
You'll find us in the cockpit of airplanes providing safety communications or on the bridge of a ship, so I highlight all of that because that's important when you try and distinguish the markets in which we play and what our competitive moat might be, and then I would just say turning to the financials, if you look at us from a financial perspective and you go back over the last three or four years, we completed the launch of the satellites in January of 2019. Since that point, we've been a cash generator rather than a cash user. We have a history of consistent growth in service revenue and in OEBITDA. Our OEBITDA guide for this year is 465-470. We had given guidance in February of 2024 that we would be approaching 500 million of OEBITDA in 2025.
We felt good about that guidance when we gave it in February of 2024, and I feel good about that guidance sitting here today in front of you, and so that gives you an idea of the size of the business and the cash that we're throwing off, so this year we'll throw off pro forma $300 million of free cash flow, and then look at what we've done with that cash over the last three or four years. At the end of Q3 of 2024, just gone, recently announced results. We'd returned over $950 million of cash to shareholders via buybacks. We just recently announced a new $500 million authorization of buybacks through 2027, which takes our authorizations up to $1.5 billion. We initiated a dividend in 2023. We grew that dividend in 2024 by 6%.
So I think we have a record there over the last three years of A, generating cash, and B, returning it to shareholders.
Yeah. One of the questions we get is there's a lot of buzz about direct-to-device. That getting satellite connectivity into smartphones. Apple has it in the iPhone 14, 15, 16. You've got SpaceX, Starlink, Musk doing stuff with T-Mobile. You've got AT&T and others working with ASTS. Globalstar who's here later this week is doing stuff with some L-band as well. Viasat talks about doing stuff with L-band, maybe S-band. It's complicated and confusing, but help us understand where you guys are playing in the direct-to-device space planning. And why does somebody want to use a Garmin device longer term if their cell phone is going to have it?
Yeah. So what I would say on direct-to-device is, I mean, first of all, I think that market is still very nascent and is still forming. And who pays for what, when, and how is still very much up in the air. And I think we've seen that with our Qualcomm contract, where we had a great technical solution with Qualcomm, but ultimately, at the end of the day, Qualcomm couldn't sell it into the Android OEMs. So I think there's a lot of uncertainty there in the D2D world just around the financials of it and what's the flow of the cash as it comes down through the various partners. I also think there's a lot of technical uncertainty. So you see what Starlink is doing with T-Mobile. But again, that's very much a regional service. That's not going to be a global service.
Then you look at companies like AST, who I know they just launched some satellites recently, Ric, but they still have huge technical hurdles and some financial ones as well to jump before they get to a point where they would say that they're successful. I would also highlight they're starting from a base of zero. As I just said, we're an established business with, we believe, approaching $500 million of OEBITDA in 2025. As I think about it from our perspective and how we play into your question about a Garmin user, for example, a Garmin user is someone or a personal comms user is someone who goes out, and they're typically very planned users. They're people who know they're going to be off the grid.
And if you get a Garmin device or a ZOLEO device, they typically have a lot of bells and whistles on them in terms of breadcrumb trails, maps, all those kind of things that you would expect an outdoorsy type of person to want and to need. I think the way I see D2D evolving, more on the smartphone D2D side at this point, is I'll give you my own personal example. A couple of years ago, I was at a wedding with my wife, and we were at a place in Northern Virginia. I'm sure if you looked on a coverage map, it would have been covered. But when we came out there at 12:00 or 1:00 A.M., couldn't get signal. And so we were out in the boonies a bit, but we weren't that far out, right?
And I just remember thinking to myself, if I could point my cell phone to a satellite now and get a signal and get a connection, I'd pay $10. I don't know what I'd pay for that call. I'd pay a lot for that call, right? And that's the kind of usage that I see out of direct-to-device. I think it's going to be, yeah, I want the service and I want the need so I can use it when I have to use it. But it's not going to be planned where you've got someone who's regularly going off the grid and knows they're going to be off the grid and has specific applications for when they're off the grid as well. And I think that's a lot more representative of our Garmin base today.
Okay. Makes sense. One of the other dynamics is SpaceX, Starlink. Kind of a little bit of a boogeyman out there. Everyone's trying to figure out what they're going to do and how they're going to do it. Talk a little bit about specifically that competitor. I know a lot of investors have looked at the election and thinking, well, isn't the probability of Elon Musk getting favorable treatment in this administration a strong probability? So how do you view them as competitors and what might change with an administration that would affect you guys?
Yeah. I think the first thing is talking about the administration. What I would say is that Iridium has been around for a long time, and we've worked through various administrations in various cycles. And I think our business is very resilient and has proven itself to be very resilient to that. So this probably gets more directly into your question about Starlink. I also look at Starlink, and I don't think for us that they're a direct competitor. I think there are areas where they may play around the edges, Ric, but.
Why is that?
So I would say if you look at our Maritime, I think is a good example. We've seen Starlink encroach on some of our primary business. Now, just to put that in context for people, broadband is 7% of our revenue base. Maritime is a part of that. It's the biggest part, but Maritime is a part of that. The primary piece of our Maritime base is our companion service. We're typically a backup on ships where we would be stitched with the VSAT solution or we would be stitched with the Starlink solution. We're on ships with Starlink as part of the solution. We view ourself there as complementary to them. What we've also heard back from ship owners is that once you get over a certain tonnage on a ship, legally you're mandated.
You have to have an L-band companion service on there, but even for ships that don't have that legal requirement, we've got feedback from ship owners, Ric, that they like having that companion service on there because when the VSAT goes down, it comes for them back into the ship, and they can also troubleshoot what's happening with the VSAT, so there's a real practical application to having that there, but what we've seen with Starlink is they came out with an offering that was $250 a month for 50 meg, and so for a small piece of our Maritime base where we were the primary comms on the ship, it made sense for them. It's just good economic sense for them to put a Starlink on the ship.
In a lot of cases, they kept us as the companion service, but they used Starlink as the primary provider just based on where it had come down the food chain. But that's a very small part of our business within that. And they obviously can't replicate what we do from a companion service perspective because that goes back to what I talked about, the L-band and the specific characteristics of that spectrum. Then I look at other areas of our base. We talked about personal comms and Garmin and how I believe that the usage cases and the usage profiles will evolve there. And then the other area that I would briefly touch on is telephony. We've got 2.5 million subscribers. 450,000 of them are telephony subscribers. That's a very stable business for us. Low- to mid-single-digit grower, Ric. But it's a very customized, very niche market.
As I said, after 30 years, it's 450,000 subscribers. It's not a big market, but it's very niche. Think of people in hurricanes or NGOs or humanitarian crises, and the idea that they would take their phone that they know works in a hurricane and swap it out for an iPhone or an Android. I just don't think that's realistic. I think they have a very specific case for wanting that product.
Yeah. On the voice and kind of the legacy voice and data, you guys have typically kept ARPUs kind of flattish, and then all of a sudden there'll be a price increase, and then it'll be flat again for a period of time. A lot of the other industries we deal with, streaming services, cable bills, mobile bills, seem to feel that they've got the ability to take pricing up more frequently, like say annually versus saying, "Hey, let's hold it for five years maybe and then take it up." Walk us through your thought about why not do smaller incremental increases annually as opposed to kind of step functions?
I think first of all, I think historically we've done those increases on a five-year cycle, and when we've instituted those increases, we've seen very little impacts from churn, which I think goes back to being the premier products in the industry around the handset and having we've talked about having pricing power. In terms of going forward and looking at the landscape going forward, we have to think about our partners as well, Ric. I would say, because there's administrative burden on them and there's things that they have to do on their end to implement these changes, so it isn't always as straightforward as just pushing a button type of thing. But I would say there's no guarantee that we'll do five-year increases going forward just because that's what we've done in the past. I think that's something we'll look at and something we monitor.
So I wouldn't rule anything out there.
Okay. You mentioned first five years where we get it funded, get the Block Two stuff up there, replace Block One. Block Three, you increase the accounting life of Block Two. Maybe you'll increase the accounting life again at some point. Walk us through the thought process on what's the life of this current constellation. When do you really need to start thinking about the next generation?
I would say if you go back to Block One, Block One initially when it was launched late 1990s, early 2000s had a design life of I think it was seven and a half years. It lasted well over 20. And the thing was the birds were actually working. They were still working when we pulled them down. So we had over a 20- to 25-year life out of the first generation. When we launched the second generation, the design life was 12 and a half years. And from an accounting perspective, obviously you tend to err on the more conservative side. So for GAAP accounting, out of the gate, our useful life was 12 and a half years. As some people will no doubt be aware, we updated that this time last year. We had done a number of studies.
Every year we go back and Suzi's team upgrade the technical health of the network and where we stand. And we've been very happy with how the satellites have been performing. We'd also put up five satellites, an extra five spare satellites into orbit in May of 2023. So just again for people's edification, we have 66 operational satellites up there that go around the globe. They go around it like every 100 minutes. They're in six planes of 11 satellites each. So you have a constant stream of satellites circling the globe, which is what gives you A, gives you global coverage. B, it gives you tremendous resiliency and redundancy in the network because the satellites are connected to each other. So if you did lose one satellite, you're going to have one coming along not long after it, and you're going to pick up a signal.
Then we have 14 in orbit that are just spares. So we would move them in to replace any issues that we had with a particular satellite. Today, we've been really happy with how the network's performed. It's performed beyond our expectations. So for all those reasons, we felt comfortable taking it up to 17 and a half years, which would basically, if you do the math and follow it out, would take you to the middle of the next decade, 2036, basically before you'd be replacing. If the constellation keeps performing the way it's performing, it's not unreasonable to expect that we might take that up again and extend the life further. But at this point, we'll probably wait for a couple of years and see how the network performs.
And then, as far as thinking through what the next constellation cost would be, first generation, CapEx, operating losses, getting the whole company lifted up, it was like $6 billion probably.
That's right.
Second generation was more like $3 billion, probably all in. How should we think about, well, maybe we're still 10 years away from having to have something in service. How much do we think the goalpost might be on what that next generation might be? When do we think we might start seeing some of that CapEx come in? Just kind of a magnitude and timing.
I would think in terms of the cost of the next constellation, there's a number of variables there, as you might imagine. So I think on the first one I would talk about is the cost of manufacturing of a satellite. That's coming down, so that's favorable. And if the current dynamics persist, you would think that that would be in our favor going forward. Also, the cost of launch is typically coming down. So when you think about the $3 billion that we spent, they're the two major costs in the $3 billion basically. And to your point, Ric, we halved the cost of the constellation from G1 to G2 from $6 billion to $3 billion. So all of that's very much in our favor. And you would say that there are economies there that we would generate and we would be able to take advantage of.
You have to balance that somewhat against the fact that we have 8.5 megahertz spectrum. We have said that if spectrum became available at the right price, and there's a couple of ifs in there, but if it did, we would obviously be interested. And that's more about our third generation. For our second generation, capacity-wise, we're fine. But for our third generation, that's something that we would consider. But beyond that, you look at the architecture of the next constellation, it could replicate what we've got today, Ric. It could be something where it could even be something maybe where you're a payload on somebody else's satellite, right? That's a possibility too.
The other thing is if we don't acquire more spectrum, there is the possibility that you could build more satellites and you could get more reuse out of the spectrum that you've currently got and more efficiently use that. Very long-winded way of saying, it's a very hard question to answer at this point today. But there are certainly trends in the industry that make you believe that it should be very economically viable compared to what we did in Block One and Block Two.
I'm glad to hear the payload options on the table to say a lot of people launching a lot of birds. You don't have to have your own birds necessarily. You're not wedded to the fact of we have to have our own birds.
Yeah, that's right.
There's people putting up birds up there. We can be.
Yeah. And we're obviously very early in the. I wouldn't even say design. That's way too premature, but very early in the thinking stage. But certainly been involved in government programs like the Space Development Agency where we have a major role there. That's certainly given us an insight into some of the technologies that would be available and some of the options that might be available as we come towards the end of the decade and certainly early next decade when we would have to start thinking about that more seriously from a design perspective.
Just on cost in terms of when you would expect to see that, I mean, I would say based on the current timeline and where we've pushed out the Block Two satellites, I mean, I wouldn't expect to see any major expenditure on the network until probably going in towards mid next decade basically.
CapEx prior to then, kind of $60 million in the short term because you've had some other stuff, if I remember right. Maybe it averages a little lower.
Yeah, I would say on CapEx, you should expect to average $60 million. You might see some lumpiness in that as we address different initiatives, but the average of $60 million is still a good assumption.
You mentioned that you're still feeling comfortable approaching $500 million of OEBITDA for 2025. So a lot of free cash flow production because your taxes are de minimis still through 2028, wasn't it?
Yeah, through 2028. So as I said, we feel pretty good about our approaching $500 million OEBITDA guidance. You think about it this year, we're going to throw off over $300 million of pro forma free cash, and we would expect that to grow. And then our tax status is such that we won't be a full taxpayer. On current trajectory, we won't be a full taxpayer until 2028.
What are you hearing from DC as far as tax legislation that might be beneficial to you guys? Anything?
Not really at this point. I think it's very early to say. I think like a lot of things, there'll probably be a lot of noise around that, but until you get into the detail of it, you won't really understand. Sitting here today, I wouldn't expect anything that would be detrimental. I'd be hopeful that whatever happens is beneficial and positive, but TBD.
You guys have made an acquisition, Satelles, now Iridium STL, if I remember right.
That's right.
Walk us through the logic on that, and then what other acquisitions might be out there and how important are they to the billion-dollar service revenue 2030?
Yeah. So we're a 20% owner in Satelles. And just very quickly, Satelles or PNT, position navigation timing, Satelles sits on our network. They have a separate burst channel on our network, or sorry, on each of our satellites. And so the first thing that's important about that is it doesn't impact capacity of any of our other product sets. The second reason that it's important is it sits on our satellite and we're about 500 miles above the Earth's surface. If you think about GPS and Satelles could be a GPS replacement or a GPS backup, GPS is in MEO and it's medium Earth orbit. So it doesn't have the same strength of signal. So the Satelles signal is, I think it's like 50 to 100 times stronger than the bursts you get from a GPS signal.
Obviously, anyone who's reading the newspapers today can see that there's a lot.
What's a newspaper?
That's a good point, actually. I think I'm showing my age there, Ric. You can see just the awareness that there is around the vulnerabilities around GPS now. And so Satelles acts as either a replacement or, as I said, more likely a backup to that. And a lot of that comes from the strength of the signal where, for example, we're in this building today. You can't penetrate this building with a GPS signal, whereas potentially you can with an STL signal just because of the strength of the signal. And our philosophy around acquisitions has been, and we're not highly acquisitive, but our philosophy around acquisitions has been anything that's strategic to what we do, we're interested in. So we have a joint venture with a company called Aireon where we own about, call it around 30% of that company.
And that's an aircraft surveillance business where from our satellites, they can surveil aircraft all over the world. So today, you can't easily surveil or you can't surveil once you go off the coast, surveil over oceans, just land-based solutions. And so Aireon gives you an opportunity to cover 100% of the globe. So we invested in that business, which was highly strategic to us. Satelles came along. As I said, they run our network. They have a burst channel on our network. And we had the opportunity to acquire the remaining 80% of that business earlier this year, and that's what we did. We've had a seat on their board for the last four or five years. So we've obviously been integrally involved in what the business is doing and where it's going.
We believe that you think about everything that's going on today with spoofing and jamming and cybersecurity, and you think about critical infrastructure, you think about towers and data centers and how you want to protect those assets. We think Satelles has the opportunity to be $100 million of the approximately $1 billion that we talked about in 2030. We think there is a big upramp and a big opportunity for growth there across both military and commercial applications.
Great. I think we'll wrap it there and take it to the sessions everyone else has. Randy, you want to throw a quick one? We got a minute.
Yeah. Aireon, can you just give us a snapshot of what the cash flows could be in 2025? And you talked a little about the regulatory outlook. Is this the time that the FAA finally embraces it?
Yeah, so I would say in terms of the cash flows out of Aireon, today they're also a customer of ours. So we receive both data fees and hosting fee revenue from them. And so I think we've said publicly what that is, Ken, right?
About 40.
Yeah, about $40 million a year. So that's part of our service revenue line. Where we've said that the real growth for Aireon exists in terms of cash going forward, Randy, is in the dividends that they would throw off. So that's something I would time as later this decade, early the following decade. Aireon as a business itself is performing very well. It's recovered from COVID. COVID obviously pushed their business plan to the right to a couple of years. But they're OEBITDA positive. And as you can imagine, the companies that they're signing contracts with, with government agencies and those kind of things, they have high creditworthy long-term contracts. So it's a very stable business. In terms of the FAA, I wish I had a good answer for you. I would say that's probably something that pushes out towards the end of this decade as well.
It's hard to see anything changing there in the short term, unfortunately.
Great. We'll wrap it there. Appreciate it. Everyone have a good conference.
Thanks, Ric.
We'll get unplugged.