Testing. Can you hear me? Great. We're just about to start here. Welcome to the 27th Annual Needham Growth Conference. I'm Ryan Koontz. I cover the Communications and Space sectors here at Needham. I'm really thrilled to have Iridium here today and their CEO, Matt Desch. Welcome, Matt.
Thank you, Ryan.
Great. Maybe, Matt, you want to start and just give a brief overview of Iridium and kind of what the basic building blocks of the company are, just for those that aren't super familiar?
Brief. Well, that's a challenge for me.
Yeah.
As people will see. So we are the original, the OG, I guess, in Low Earth orbit. Our network was built in the 1990s by Motorola originally on some very valuable L-band spectrum that we obtained in the early 1990s. So we just met our 25th year of service introduction, kind of went through the, after an initial failure, I think everyone should go through a bankruptcy. It's cleansing. In 1998 or something like that, we came out in 2000 and have really been growing ever since that in our unique lane of personal communications. We built a brand new network through the teens that was completed in 2019, 2020, and we're in an extended CapEx, low CapEx period where we're generating significant cash flow. We've given guidance of generating between 2023 and 2030 of about $3 billion in capital.
We've already returned over $1 billion to capital through dividends and share repurchases. We continue to grow. We're in a, I mean, just from an overview, and I know you'll talk about it. There's a little bit of a Starlink hangover right now in our industry as everybody is trying to figure out what they're going to do to the industry. I spend a lot of my time in these investor conferences just sort of talking about how we're not Starlink. We don't do what they do. We have a different network, a different spectrum, a different business model, and a different approach. I'm sure we'll get into that. We continue to grow and be successful.
Yeah. Maybe you can walk us through your basic customer segments that you currently serve?
Yeah. You know, we started, we're the original satellite phone, if you will. And that's still a business for us, though it's expanded into push-to-talk services and other abilities for people to talk in terrestrial environments. We very quickly moved into maritime, and we're on hundreds of thousands of ships right now, both for crew calling and as a companion to VSAT services, which are services which a re not susceptible to rain fade. We are a required terminal on a ship with our GMDSS service. So maritime is an important market for us. Aviation, since we cover the whole planet, we're still the only network operator that covers 100% of the Earth's surface and work as well at the North Pole as we do over the Pacific Ocean.
We are a requirement in the cockpits of commercial aircraft and business aircraft and rotorcraft because we can scale down to a small scale. Ours is sort of the highest use of that.
Is that primarily around safety?
Almost all around safety and in real bad weather and general aviation cockpits, protecting medevac helicopters. Most of them in the U.S. and other places would be connected remotely through centers by an Iridium system, et cetera, because larger systems just can't fit on that. We can scale down to a very small antenna that can operate anywhere. Fastest growing part of our business is the Internet of Things, IoT. We're kind of the most successful satellite IoT provider with over 2 million subscribers, both in personal communications and industrial, every kind of application you could imagine.
And then the government was our first customer, still our largest single customer, like about 20% of our business, where we are embedded in many things around the U.S. Department of Defense and many other agencies within the government as they have kind of a private network on our service and a unique contract, fixed-price contract, all-you-can-eat for them that we've held now for 25 years. So a very resilient, sustainable, growing business.
Yeah. That's quite a beachhead that you have there. What do you think investors are missing most about the story in a nutshell?
I think it comes down to, l ately, ob viously, if you look at our performance, we were valued in, like had a multiple in the high teens and everything as people saw us moving initially into the direct-to-device area, which is an interesting growing area.
Definitely.
I think that they still have great opportunity for us, but we had a misfire start on that as we had a partner who wanted to use our proprietary technology in their chip, and that wasn't successful. We've revectored that to a standardized service. We were calling it Project Stardust internally, though it has a name, and it will be commercial in a year. And we think that has a lot of potential. But really, we're continuing to grow across every front right now. I think a lot of people are just waiting for somehow some unknown shoe to fall where Starlink, because of the massive investment and ability of the numbers of satellites, which don't really compete in our area, are suddenly going to change our trajectory. And it's very hard to prove a negative.
You just have to kind of grow through that, execute, show everybody what you keep saying what you're going to do, and then just keep doing it. And eventually, people are going to say, "Oh, I get it." So a lot of discussions today have been about what catalysts will there be to change it. I get what you're doing, but what will change the sentiment? And I can think of things around a number of our businesses, which we'll talk about, things like PNT and direct-to-device. But really, it's just about continuing to grow and deliver. We've already kind of forecast in 2030 $1 billion in service revenue and $3 billion in cash flow. I think if our market cap is at $3 billion and we're going to generate $3 billion in cash, eventually we'll buy back all our shares, I guess. We'll see how that works.
Yes, sir. Well, speaking of all that cash and your generation capability, about 10 months ago, you completed your first acquisition there of Satelles, Inc. They're in Position, Navigation, and Timing, I think. Talk about that opportunity and why you did that deal.
Yeah. So about 15 years ago, I've been the CEO a long time and was involved in the early days. Boeing Phantom Works invented this technology using our network, our powerful paging channel, which would get into a room like this, even from our satellite system, to be able to send broadcast information. And they found that you could use that to sort of check a GPS signal to keep it from being jammed or spoofed. If you saw them diverge, you would know somebody was spoofing the signal. And if you lost the GPS signal, which you would not get in this room, you could use this powerful signal from Iridium in that way. And they got them to spin that out to a private company.
We actually helped nurture them, and we bought it back in this year because we really think that this alternate PNT market with all the really, I mean, we've all built everything around GPS, right? It's a digital synchronization signal for everything digital. It's critical to not just navigation, but location, timing. It's in every piece of critical infrastructure. And we think that that's a couple billion dollar market long-term. A couple other ways of solving the problem.
Is it a government opportunity there?
No, it's a commercial as well. I mean, civil infrastructure of all types. Your cell towers require GPS. You lose GPS, you don't get cell phone service. You lose GPS, you don't get data centers. You don't get, I mean, obviously, the most important thing, you don't get your car that won't tell you where to go. But there's other more important technologies that would truly depend on GPS right now. And we think that's a really big market. We think we're poised to be the only satellite provider who can offer a solution there. It's already been very successful protecting Nasdaq and protecting data centers and protecting critical infrastructure. But we think we can productize that down to a very low-cost chip and embed it in many things. And it can offer these alternate PNT services anywhere on the planet very, very cost-effectively.
Wow.
We've already said we think this is a $100 million service revenue business in 2030. It's part of that $1 billion service revenue.
Sounds like a really underappreciated opportunity.
I think so.
Maybe shifting to the macro here. You've been through a few ups and downs. I mean, how have the macro winds kind of whipped around your business over the years? Can you talk about the resilience of the business and what you've been sensitive to and what you haven't in terms of financial performance?
Yeah. I mean, we've demonstrated over time that our business is really kind of immune to overall macroeconomic pressures. I know I was refinancing the business to get our satellite network up back in 2008 and 2009. That was not a good time to raise money, and we were one of the original SPACs before SPACs were popular here. Maybe us and Jamba Juice, I think, were back in 2010. And we're quite successful as a result of that. But we really haven't noticed, even as we went through downturns due to the pandemic or anything. We actually thrived in those kind of environments. Actually, we're really good in crises because we're a critical infrastructure protection right now. A lot of things that are happening, wars, I don't encourage these things. I don't really want tsunamis, but we do very well when bad things happen. So very resilient business overall.
If you look at our last 25 years, it looks like a straight line for the most part. It doesn't go up and down a lot.
Yeah. How about the changes coming from the new administration coming in? They seem very pro-space. Obviously, a lot of excitement about the sector. How do you see it from your seat as CEO?
Yeah. I don't really expect a lot of change in anything due to sort of a change in administrations. Everyone wants to continue to support the Department of Defense. Everyone worries about critical infrastructure, worries about global threats, worries about sensors for natural disasters. That's all good for us. I had some questions today about DOGE, which I wasn't expecting. I guess with government efficiencies, people were going, could that be a positive or negative? And I say probably a positive. I mean, I'd be glad to have less regulations. I'd be glad to have less. I don't think that will affect that much. Personally, I think people have been tired for a long time. I'm a little skeptical how well that'll work. But really, we're more about helping efficiency than anything else. So I don't think that could be anything but a positive.
I don't really see how anything we're involved. So I think we're really resilient as it relates to sort of the changing times here.
And I'm sure you hear plenty about the boogeyman, Elon, and he's coming in and his SpaceX and Starlink is eating the world, so to speak. I mean.
That is certainly.
There's a narrative out there.
Starlink, because of its low-cost ability to get their system into space, is certainly disrupting a lot of the space industry. I wouldn't want to be a commodity broadband player. I didn't want to be. And when I got here 18 years ago, I wanted nothing to do with that market because I worked hard to escape the commodity terrestrial business. I wanted to get into Iridium because of the unique aspect, and that was not something I wanted to get. So we've steered ourselves into kind of a unique lane. Elon's not the boogeyman, I think. I mean, he's brilliant and deserves a lot of credit for what he's done at SpaceX and Starlink.
But Starlink itself, as it's gone after SES and Intelsat and Eutelsat and Viasat and anyone else providing commodity broadband, I feel for all those people, but I don't provide those services, so that doesn't really affect me. Even as he gets into direct-to-device, I think those are complementary services to the kind of direct-to-device services we're going to provide. As we've been talking to mobile network operators over the last few months, they've been telling us, "Look, we're not just going to buy one from one satellite provider." So whatever you hear us announce, there is room for having a technology, particularly one like yours, which would be 100% of the planet, providing a really highly reliable, high-quality service at a reasonable price versus something that we're doing today, which is a regional thing that only works in the US, maybe Australia, maybe Japan, and a couple other places.
So there's room for both in the same device and in the same service to offer to our customers. So, can't wait for you guys. We're going to be live on air testing our service this summer. So we're moving fast. The nice thing is we could reprogram our network. We don't have to launch new satellites. It's all just some infrastructure to us and not that much to be able to offer what we're offering, so we like our business case really well.
Your L-band is inherently more resilient, I'm sure, than.
Yeah. L-band, we're in kind of the 1.6 GHz range, which is what cell phones are in, which is what GPS is in, which is what a lot of our devices are in. That's the sweet spot for spectrum. It doesn't exist. There's no more of it. It's all been allocated 25 years ago. We like our global position. It's able to operate anywhere on the planet. The services that, say, Starlink and AST are offering use terrestrial spectrum and could interfere with other operators. So they have a lot of challenges in expanding that to a global operation, certainly not in oceanic territory or other places, certainly never in a place like Europe, which is so interference-prone. So these technologies are going to cooperate. They're complementary to each other.
So who does that leave as competition then if SpaceX or Starlink isn't it? Who do you view as competitors?
Well, I mean, we've had traditional competitors over the 25 years we've been in operation. The Inmarsat, which is part of Viasat, still we've been taking business from them for many, many years. As has, we've taken it from Globalstar and Thuraya and Orbcomm and other people. We've never kind of lost business to anybody, but we've taken everybody's business. And I imagine there'll still be some of that to be taken. But really, it's been about opening up new markets to us. Stardust is about opening up new IoT markets for us.
These are direct-to-device.
Direct-to-Device. If we can get into consumer devices, watches, phones, tracking devices for animals, and agricultural equipment, that's things that we can address today. That's opening up the market. So I wouldn't say we don't have competition. And in fact, more people are looking like they're trying to do things around the edge of what we're doing. But our core value proposition isn't that deeply affected right now by anything we see on the horizon. And the great thing about satellite services, nothing comes at you fast. You need licenses. You need rockets. You need to build things. And so you kind of have five to 10-year view. Exactly. So it's not something like the software business where somebody could invent something to disrupt your business next year.
These other players, what are their specific challenges, the ASTs and Viasat and Lynk Global and Starlink? What are their big challenges here in going direct-to-device?
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 40-some years now, and I don't think anybody implements a service that isn't the highest quality and that people and we all saw it like with 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 believe you can get one video call through any one of those networks. Can you get two? 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 outdoor. So that'll be something that Iridium had to deal with in the '90s when people marketed 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 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.
Now, AST's already rewarded some shareholders as they've kind of become a meme 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 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 challenges.
During bad times, for instance, as well.
Yeah, exactly. So you had this false start with Qualcomm and your first initiative. What did you learn from that that you're baking into your new strategy around direct-to-device?
Yeah. For those who don't know, I mean, Qualcomm came to us five 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. 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, yeah, 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 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 opportunity is going to be bigger long-term for us because we'll be in a standard device.
It'll open up an IoT business we didn't have and 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 here.
Exactly.
Great. In terms of LEO, I've always thought about LEOs have a very short life to be constantly replenished, and here, your constellation's been up there for a long time, over 10 years, right? Can you walk us through why you're different there in terms of useful life?
Yeah. Our current network was completed in 2019, so it's more like five years, but it's still pretty young. Yeah. Every satellite lasted 15 to 20 years , 15 to 20 years ago. Geostationary satellites were 15 to 20-year satellites, right? Everything was long-lived. And then came the small-sat revolution. A lot of people called 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 three-to-five-year life cycle. I just heard the CFO of Rocket Lab before this talking about that's the new reality.
It might be for others, but we didn't choose that because I don't see how it's less expensive to build a five-year network four times in 20 years unless you own a rocket, which if you own a rocket and it only costs you fuel, that's a good idea. If you don't own a rocket, you're having to launch four things four times, and if they're one quarter of the cost, you're still paying the same amount. So I don't get that. We've always felt that shareholders deserve cash flow returns at some point, and we needed to make cash flow. You couldn't just constantly be spending 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 and a half years, but you always hope to get one and a half times that. That was sort of the industry average. Our network was working so well. I have to say, I'm a satellite guy. We knock on wood 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 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'll obviously be extended to 20 years or more. I mean, the last network was only supposed to last seven to eight 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.
Yeah. Let's shift to kind of financial goals. You've set some 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?
Yeah. 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 2023-2030, 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 start building a 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 into acquisitions, which we've only made one, and it was a small, $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.
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 declined, 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's going to be this way, then we should repurchase more. So we've already returned over $1 billion to shareholders in the last three years or so. And our view is to continue providing it.
Great. Can you talk about your view on the aviation market? There's a lot of excitement about that Starlink position, but can you kind of drill down into your position in aviation and how you see that evolving? Seems like a very important market.
Yeah, because our antennas were small, because our network operates everywhere on 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 two-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, Future Air Navigation Systems. 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 an efficient two-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.
Yeah, I asked 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 looked for a hosted payload. Couldn't find a reliable customer, so we decided to create a company ourselves. We worked with Canada, the UK, 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 eight seconds or something, I think 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 were really out of radar coverage. S o they had to sort of keep airplanes 60 mi 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 assigning like $2 a share to it. I don't know what that means. It's worth a lot more than that . But overall, it's our challenge to kind of monetize that and work with their customers to kind of evolve that business out in the future.
Yeah. 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.
Yeah. Every agencies, and by the way, many other government agencies, but specifically the U.S. government was one of our first customers in the 1990s, kind of built a private gateway and private network for operational security, invested in kind of tweaks 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, Blue Force Tracking, so tracking all the good guys, tactical radios that have local systems but have us for non-line of sight being put into aircraft, being put onto ships, being put into sensors. So important service.
A 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 2027, 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. 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?
Yeah. 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. 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 2025 and 2026 as that service goes commercial. More PNT 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 2024, 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 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. Do we have any questions from the audience? Anybody would like to contribute?
Yeah. The comment was interesting. The comments about GPS, I hadn't really thought about that. Yeah, 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's 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'd made success, but I said, "Why are you not like going after the maritime market? You know, that's a problem.
Ships are being directed off 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 start 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 or 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 real 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 need to 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? Well, great. Any last comments in wrapping up, Matt?
No. It was a good conference. You guys threw a nice party here. Appreciate those of you who could spend some time with us. We 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 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, 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 little business.
Great.
Thank you, Ryan.
Super. Thanks so much.