All right. All right, good afternoon, everyone. We're almost to the finish line. My name is Edison Yu. I lead the space and satellite equity research here at Deutsche Bank. We're very pleased to have Vince from Iridium, CFO.
Thank you.
Thank you for joining us.
Thank you.
I won't say too much on the preamble part. Iridium is a leading satcom operator focusing on narrowband, on L-band. It has a long history of being one of the few companies in satcom that has emerged to be successful. We're here to learn more about the story. Let me talk about some of the developments going on in the world in just the last couple of weeks.
Yeah, just for those of you who may not be that close to the story or seen our story before, we're, as Edison said, we're a satellite provider in the L-band space. There are two characteristics that I would highlight. One is the L-band spectrum. Spectrum is the lifeblood of any satellite company. We have global L-band spectrum with global landing rights that we got 25-30 years ago when the company was first formed. The first thing I would say is, in today's geopolitical climate, that's unlikely to happen again. That's a great asset for us to have. The L-band propagates in a certain way, L-band spectrum, where it's very resilient to tough weather, rain fade, things like that.
That lends itself to the use cases that we, as a company, go to, prosecute on. Why is that important? You know, you hear a lot about Starlink in the industry today, but they're a KAKU provider where they have big pipes. They send a lot of data down those pipes. We're very opposite from that. We operate in the L-band, which is safety certified for both maritime and aviation safety. Effectively, you have to be in the L-band to get that. It is just Iridium and Inmarsat who are certified for those services. The second thing I would mention is that our network itself is, we have a global network of 66 satellites that goes around the globe. I think each satellite's about 120 minutes, and there's a lot of inbuilt resiliency and redundancy into the network.
It is very much a self-healing network, which again leads itself to the safety aspects that I just talked about. The other point that I would highlight outside of the unique characteristics of the network, before I hand back to Edison, is that we are a company that throws off a lot of cash. We put our second-generation network up there between 2017 and 2019, and we instituted a share buyback program in Q1 of 2021. We have done over $1 billion of share buybacks in that period. In 2024, just gone, we executed $400 million of share buybacks, and we bought back 11% of our outstanding shares, as well as initiating a dividend two years ago where we have now, annually, prosecuted or agreed 6% and 5% increases.
Unique set of assets for Iridium in the satellite industry, and a fairly unique financial profile as well in terms of we're throwing off cash, and we're returning that cash to shareholders.
Let's only come back to the cash story. You're one of the few companies out there that has a 2030, actually, outlook or has the confidence to do that. What gives you this amount of visibility, and what are the growth drivers that get us there?
We had an Investor Day in September of 2023, and we outlined our outlook to 2030. You know, if you look at our guidance today for 2025, that would leave us, call it, $650 million and change of service revenue. We outlined a plan that we believe gets us to approximately $1 billion by 2030. The first reason for the long-range outlook is, we're in a highly capital-intensive industry, and we wanted to give investors a profile of what we thought or what we think we will look like out through the end of the decade, from both a revenue perspective, a CapEx perspective in terms of, you know, we don't have huge sums of CapEx to invest in the network going forward. We've invested the approximately $3 billion it costs to put this generation up there.
We also believe we're gonna throw off $3 billion of free cash for shareholders, investors, strategic initiatives over that same period of time. We also go to market through a wholesaler program, a wholesaler partner program. We've got roughly 500 partners worldwide, and that's how we sell our products and sell through those partners to the end user. That takes a number of forms. We sell through our partners finished products like the handset, which is probably a product that most people associate with Iridium, that durable satellite handset. We also sell our transceivers that get integrated into other finished products that either end up on aircraft or end up on ships or other mobile assets throughout the world.
It is part of belonging to that partner network and having the relationship that we do with those partners, that, one, allows us to reach a lot of niche markets, but two, to Edison, Edison's point, gives us insight into those markets as well and what we think we can sell and what we think our opportunity is. You know, if you think about the big building blocks that get us from $650 million today to that $1 billion, it is really our telephony business. We have a very steady and stable telephony business. We think that continues to grow as we go through the decade. We have premier pricing power in that market, and we have demonstrated that over the last 10 years.
We've instituted three price increases and barely seen a ripple from a customer perspective in terms of the subscriber base. Our fastest-growing line at the moment is our IoT, our Internet of Things business. A big grower within there is the personal communications business, which has grown at 30% RPU over the last five years. You know, one of the products within that suite is the Garmin inReach, for example. That's a product that you can take off the grid. You can pair it with your smartphone. It gives you two-way text messaging capability, and it also gives you SOS capability. That's been a very attractive grower out in the marketplace.
We believe that that will continue to have a strong tailwind as we go through the rest of the decade. We recently acquired a company in the PNT space, position navigation and timing, that's Satelles. Satelles is basically, think of it as a replacement but more likely a backup for GPS. I do not know how many people know this, but there are apparently more GPS receivers in the world than there are toothbrushes. What's been very topical in the news recently is, you know, GPS is everywhere. GPS, obviously, in this room, GPS is everywhere, and it's critical to the running of our infrastructure. It's also quite fragile, and it's easy to spoof and jam GPS. This is starting to become more and more into the public consciousness and public awareness.
We think a product like Satelles, which runs on a burst channel on our network, on each of our satellites, which has a signal that is 1,000 times stronger than GPS, so, you know, you cannot spoof or jam it in the same way that you would with GPS. We think that that has huge applicability for both government applications and, you know, we are currently working with the government, but also commercial applications as well. We have said we think that will be a $100 million business by the end of the decade. A couple of the other growth stools would be direct-to-device, which is obviously very topical within the satellite industry right now. We are pursuing a standards-based solution there, and also something called Narrowband IoT.
This opportunity has opened up to us because we are pursuing a standard space solution, and we think it expands our TAM within the whole IoT space. They're the broad building blocks that get us to a billion, Edison.
One of the hot topics, D2D, you mentioned that.
Yeah.
The growth driver. How do you make sense of the, the market right now? You have Apple. You have AST. You have, potentially Starlink or Starlink getting involved. Where do you hope to play, and how do you differentiate yourself versus the seemingly very well-capitalized big players?
Yeah. What we have said from day one with D2D is, we think there's room and that there will be more than one winner, and there will be more than one type of solution. I think there's gonna be a couple of losers too, but we think there's, you know, at least two or three winners in that space. There are a number of different ways to approach direct-to-device. One is what Starlink is doing with T-Mobile, where you use terrestrial spectrum and what's called supplemental coverage from space or SCS. Another approach is Apple's approach, and that's more proprietary in nature where they, you know, they've acquired 85% of or rights to 85% of Globalstar's spectrum, and they're pursuing a solution through that.
No, that doesn't stop them doing other things, like they announced recently with Starlink, where, you know, AT&T and Verizon customers would also have access to the same kind of solution that T-Mobile subscribers do on D2D, at least in the short term. The third broad approach is to take what's a standard space solution, which is what we're currently doing. We had an agreement in place two, two and a half years ago with Qualcomm that, that solution was basically where they would take our waveform and our technology, and they would put it on their high-end Snapdragon chip. The good news was the technology works really well.
The negative was that Qualcomm couldn't sell that into the Android community for a couple of reasons, but I think a big one was that the Android community didn't want to bear extra cost on the chip that would impact their BOM. Basically, our deal with Qualcomm terminated, and we pivoted to a standard space solution. We've just been accepted into release 19 for 3GPP. We'll be rolling out, we've been accepted into the technical spec there. That solution will be rolled out as part of the release in Q4 of this year. In 2026, we'll be in chips where, you know, we can be embedded in devices with satellite capability. There's a lot to make sense of in the D2D space.
I've just talked to it there more from a technical perspective and how you would approach the market technically, but there's still huge question marks out there in terms of what is a customer ultimately willing to pay. You know, how and when will they use the device? You know, I'm of the view that it will be more occasional-type use for, you know, an iPhone or an Android user. Certainly, there's room for more than one solution. Like, and our solution, the beauty of our solution is it's global. We already have the network in place, and for us, it's gravy on top of our business. It's icing on the cake, and it will, you know, it will work anywhere in the world.
We think that will be a big growth for us as we look out through the rest of the decade.
Can you remind us just as background, who, who is part of the standards? What, what kind of entities are supporting?
It's typically the manufacturers and the OEMs themselves. You know, a number of the big OEMs are in there. You know, one of the ironies of the, you know, when we got accepted into the release, Edison, we didn't fully expect to get into release 19, honestly, 'cause it was on a very short time span and a very short leash for this kind of thing. Ironically enough, one of our biggest, biggest advocates and biggest proponents were Qualcomm. You know, most of the operators have been very supportive because they want Iridium as part of the standard solution set that they're gonna offer as part of the release.
Just want to note, Samsung recently joined, if I recall right, the standard. Right?
That's right. Yeah. That's right. Our expectation is that, you know, if they haven't already, most of the Android providers will. This is something I would expect the Android universe will make full use of. You know, by the way, back to my point about there being more than one solution, you know, Apple have their, you know, solution with Globalstar, but that also doesn't stop them from offering a standard space solution either. You know, I could easily see the day where, you know, Apple users have got two or three options available to them, and maybe it depends on what part of the world you're in in terms of what you use. You know, you could see the Starlink T-Mobile solution, like, that's only gonna work where T-Mobile spectrum is. That's the United States.
If you're a, you know, if you're a T-Mobile user on that spectrum and you go climb Mount Kilimanjaro, you're not gonna have connectivity. You'll have connectivity to us. I can certainly see the day once we go through the release and this gets rolled out that we would be part of the solution that you would then avail of in that situation. Again, it's not gonna be a one-size-fits-all answer.
Let's assume for a second that D2D takes off. Are you comfortable with the amount of spectrum you have at the moment to support that?
Yes. I mean, you know, what we've said capacity-wise is, that, first of all, on our, on our network, on our satellites, they were built with a 12.5 years design life. And design lives are typically conservative by nature. Our first generation had a 7.5 years design life, and the satellites operated for 20 years, and the vast majority of them were still working quite well when we took them down. We had a 12.5 years design life on the current constellation that went up in 2017 and, between 2017 and 2019. We just recently increased the design life to 17.5 years, which would take you out through the middle of the next decade. It would take you, like, out through 2035, 2036.
You know, we've said we believe that we have enough capacity on the network today between spectrum and the satellites themselves to last us through the middle of the next decade. The good thing for us is our network was really built, and some of this, again, goes back to the spectrum and the L-band spectrum, but our network was really built for mobility, sips of data, small form factor. Things like direct-to-device and SBD and IoT are very efficient forms of communication from a capacity perspective on our network.
On the spectrum side, we obviously had a pretty big deal earlier this year with AST and Ligado.
Mm-hmm.
What did you make of that? And what were sort of some read-throughs from your perspective?
A couple of read-throughs are, one, you know, it's obviously a complex deal. I'm not sure I still fully understand it, candidly. It's a very complex deal. You know, there's still a lot of regulatory hurdles there, you know, to jump through. The other read-through I had was, you know, talking about these different solutions around direct-to-device. AST were pursuing a SCS supplemental coverage from space type solution where they would use the spectrum of AT&T or Verizon. You know, the fact that they decided to go out and try and acquire or get access and use of Ligado's dedicated MSS North American spectrum, to me, was a clear change in their strategy and thinking in terms of how their network would work.
The deal itself is complex, and there's a lot of hurdles to jump, both regulatory and financial.
You've talked about looking at, I think, incremental L-band potentially for the next constellation, which we can talk about later. Is, how, how, what's your, I guess, what's your framework on valuing that L-band? Is it based on some type of NVP, NPV, or how do you look at the value of that spectrum?
Yeah. I mean, for us, Edison, it's pretty simple. It's just, it's gotta be an NPV-positive trade. So whatever you would pay for any spectrum, you know, you'd have to feel pretty good about the incremental opportunity it was opening up for you and the incremental TAM. At the end of the day, then it's gotta be an NPV-positive trade. Spectrum right now is tough because, you know, I think within the industry, people are holding spectrum, and they're, you know, they're holding high valuations to that spectrum. I think it makes it difficult to get anything done. You know, we've always said that we would be interested in incremental spectrum if it became available. That would really be more about our next constellation rather than the current constellation. Our current constellation is configured with the spectrum that we have.
That would be spectrum for future use. There are not many opportunities out there today in the environment we are operating in and the valuations people are ascribing to that spectrum.
Any thoughts on the S-band side? I didn't ask.
Yeah. I mean, you know, I guess people talk a lot about the EchoStar spectrum there. I think they've got, you know, they've got some, you know, good, they've got some good spectrum position within the S-band with both primary and secondary rights. I'd have to go back and look. I'm not, I haven't viewed it recently, but I know they've got milestones tied to those rights in terms of building it out. You know, from everything you hear, that's, you know, there are high valuations placed on that spectrum too. You know, if you think about it, you've got spectrum. You still gotta go and build out a network, which is not exactly a minor or trivial event.
That's a significant investment that, you know, as we sit here today, will take a fair amount of time to execute.
Sort of shifting gears to Starlink, you know, generally speaking, we're at the view at least that you're mostly insulated, but you have seen a little bit of impact in maritime. Can you just explain what's going on there?
Yeah. Sure. I mean, the one area of our business that's seen some impact from Starlink is our maritime business. When you look at our financials, you'll see that within our broadband category. You know, maritime is one of the verticals within that broadband category. First of all, just for context, that broadband category is about 6%-7% of our revenue stream. There's, you know, three or four verticals within that category, of which maritime is the biggest, but it's not the only one. As you think about our maritime business at a very high level, a little bit generically, but as you think about that at a very high level, it really kind of splits up into two use cases.
One is on the, the VSAT companion side, which is where we're complementary to Starlink and we're complementary to the VSAT. We get paired with them, on vessels, especially SOLAS-class vessels where above a certain tonnage, you're legally obligated to have a VSAT companion backup. That's gonna be either us or Inmarsat 'cause we're the only ones that are safety certified. We would get paired in those instances with the VSAT solution, in SOLAS vessels, but sometimes, smaller tonnage vessels as well. That would be, you know, that's the vast majority of our maritime business, or that's certainly the bigger chunk of our maritime business. We have a smaller chunk of our maritime business, which is what we call primary. That basically just means we're the primary comms on vessels.
In smaller vessels, you know, you might find that they only have one means of communication on there, and we might be that, you know, we might be that means with our service, broadband solution. In those cases, what we've seen is as Starlink has come down the value chain, and, you know, about 12 to 18 months ago, they came out with their $250 a month for 50 GB of data. You know, for some of our high primary users, it just made sense for them to, you know, switch to Starlink and take that usage and use it on the Starlink. In cases, we were kept on the ship as a backup, and in some cases, we weren't.
The really important point is it's a really small part of our revenue base, and we're in the process of working through that. We have said, you know, we expect our broadband revenue to be roughly flat this year as we still work through some R2 pressures. Certainly, as you think about the billion dollars and you think about our growth prospects to 2030, that was never one of the growth planks that we outlined. That's the one area where we've seen a small impact from Starlink.
You mentioned, obviously, it's complementary. Are there cases or are there instances where it makes sense for actually you and Starlink to work together?
Yeah. I think, as I just said, it's specifically in the maritime space, Edison. We're complementary to Starlink, and we're complementary to any of the VSATs. We will typically be paired with them as the backup companion service. Certainly, in the case of the example I just gave, where we have had an impact from Starlink, that's the kind of business we would never chase because it's what we call commodity broadband. We've made a very specific point of staying out of that business. For us, it's all about, you know, guaranteed communications. When people use our devices, it's typically as a form of insurance. Probably the best example is when you take that Iridium handset out of the cupboard, it's gotta work. There can be no compromises on that.
Yeah, I think, I think that's where we are complementary to Starlink.
What about aviation?
Potentially, although honestly, haven't seen as much to this point, certainly with the evolution of the market there. Haven't seen as many opportunities. Again, you know, the way it certainly works today with the commercial airlines, and I'm sure some of you've seen that, Starlink won the, or, you know, got the contracts with United, and I think not long after that with Air France. You will find those VSAT players in the, in the cabin, in, you know, in the back of the airplane. You find us in the cockpit. That's where we play. We are in a totally different space to Starlink and the other providers. In the cockpit, again, it's about safety communications. It's about that L-band, and it's about the resiliency of our network.
On aviation, just one more follow-up on that. I think you're in the process of rolling out the next-gen product. How's that going?
Yeah, it's going, it's going pretty well. I think, you know, internally, we're going through some of the certifications. It's also, it's also going through our partner networks. At this point, it's really more of, it's really more a function of how quickly does it get certified, through our partners, Edison. Certainly, we'd expect that at some point in the next six months or this year that that would happen. That's really, that's really in the process now of the FAA certification process. You have to do so many hours, and partners are working through that at the moment in terms of the line fits on airplanes.
On government, you obviously have a pretty decent amount of business there. Has there been any impact from some of the geopolitics that we've seen recently, any risks or opportunities in light of those things?
What I would say very broadly on the government is that we have an EMSS airtime contract with the DoD. And what we do for the DoD, nobody else can do. They, you know, if you're, you know, if you've gotta get a communication through and you're in a compromised, you know, you're in a compromised area, we will take that data or that message, we'll go up to our satellite, we'll travel across our satellites encrypted so it never hits the ground, until it goes into a proprietary U.S. government gateway. That contract has been a sole-source contract for the last 20-25 years. I can't remember the exact amount of time, but certainly the last four or five renewals.
The renewal we went through with them in 2019, we renewed the contract in 2019, and it was a seven-year sole-source contract that runs through September of 2026. We also have a contract with the government where we maintain that proprietary gateway that they have that is only configured for Iridium traffic. It is their proprietary gateway just for Iridium traffic. They just extended that contract through 2029. The gateway contract to maintain the gateway is extended through 2029. The airtime contract comes up for renewal in 2026. We think that gives a window into how they're thinking. In terms of other things that we're hearing from the government, you know, the government, they have a philosophy, Edison, where I believe what they're looking at is it's called PACE, Primary Auxiliary Contingency Exception.
Companies like Starlink and some of the VSATs operate more in the primary space, again, where there would be primary communications. We are more on the contingency exception side. Backup, but backup when you know it has to work and it is there, and it is going to perform. We feel pretty good about our government business. You know, we have not heard anything specific out of that other than we do have the SDA contract with them, the Space Development Agency, where we would help them launch and fly their satellites. All we are hearing on that side is that I think they want to go faster rather than slower.
Is there elements of, an area on site that you could actually help the FAA out?
We believe so. We've believed that for a long time. Certainly with, you know, certain things that have happened recently, you know, a lot of talk about the FAA, a lot of talk about the need to upgrade to more modern infrastructure. You know, a lot of talk as well about, like, expanding funding for the FAA in the short term to finance some of those initiatives so technology can take that leap and take that jump. We think Aireon and all of that kind of plays into their bailiwick and their sweet spot because they're certainly part of that technology leap that the FAA can take.
Now, the flip side of that is, you know, there's nothing specific there, Edison, but certainly, you would be hopeful that that's something we can avail of here in the coming years, just for the good of air traffic control if nothing else.
You mentioned the buyback earlier, obviously buying back a lot, taking a little bit more leverage. Can you just remind us what the targets are? You know, at the pace you're going, I think you'll probably buy back, what, half the company in, in what, two, two, three years?
Yeah.
Three years?
We initially had a leverage guide out there. I think when we were here last year, we probably had a leverage guide out there that was 2x-2.5x or lower by the end of 2026, and less than 2x by the end of 2030. Obviously, with the dislocation that took place in the stock, the 2026 number at 2.5x was somewhat arbitrary. With the dislocation that took place in the stock, we decided last summer that we were gonna issue another $200 million of the term loan. We would take the leverage out in the short term. We said we were comfortable taking out leverage up to slightly less than 4x , but we'll still come down to 2x or less when we get to 2030.
With the amount of cash that we throw off, we feel very comfortable with that because between our EBITDA growth and the cash, we can deliver very quickly if we so choose to do. What we did in 2024 was we bought back, first of all, we returned close to $500 million to shareholders between repurchases and dividends. About $400 million of that was in repurchases. We bought back 11% of our net outstanding shares. As I referenced earlier, we said that we think we can be a billion-dollar service revenue company by 2030, that we can throw off, you know, $3 billion of free cash flow.
If you look at our, and by the way, the acceleration of the stock price and taking up the leverage, just to be clear if it's not, was in response to what had happened to the market and the dislocation that had taken place in the stock where we felt and still feel the stock is very undervalued. We have executed against that. With the $3 billion cash flow opportunity between 2023 and 2030 that we had outlined on our Investor Day, if you look at our market cap today, it's about $3.2 billion-$3.3 billion. I mean, we'd end up buying back most of our market cap. We have aggressively pursued share repurchases over the last three years.
To Edison's point, you know, at the current prices, you know, we could buy back a lot of the stock here over the next two or three years.
Thinking long term, the next constellation, you know, on this CapEx holiday, what are you thinking about or what should people be thinking about as they view the next gen, what, probably in the 2030s?
You know, as I said earlier, we extended the life on the assets to, on the constellation to 17 and a half years. If you just quickly think about it this way, we throw off, we're throwing off $300 million plus of free cash flow per year. Even if you do not give us any benefit for growth, that is an extra $1.5 billion that is going to come off the constellation in terms of cash generation. We have said that, you know, between now and 2030, we have given a CapEx guide this year of $90 million. That was a bit elevated because of investments we are making in the Iridium end-to-end program, our standard space solution that we just talked about. That will moderate as we go through the rest of the decade.
We would not expect, given the life of the constellation through 2035, 2036. By the way, we are not ruling out that it cannot last longer than that. That is obviously something at this point we just cannot commit to. Even in 2035, 2036, it would be, you know, well into the next decade before we would be spending significant funds on that network. You know, as you think about that network and you think about the cost of that network, there is really a number of variables. Today, if you thought of it simply as a like-for-like replacement, you look at where we are at today with the cost of launch, cost of manufacturing of satellites, cost per kilo, it is coming down significantly as well.
All of that would lead you to believe it would be significantly less than the $3 billion, you know, we spent in the last decade, which may be where we end up. There are a lot of different options that are available to us. Like, for example, you know, we could be a payload in somebody else's satellite system. That's, you know, I'm not saying we will, but that's an option. Some of the requirements may obviously get driven by where we are in the marketplace and some of the competitive dynamics and the end-user cases we're trying to solve at that point as well. Long-winded way of saying that we have a lot of flexibility as we sit here today, and, you know, we'll have a lot of options available to us when the time comes.
It is something internally we're thinking about and talking about. You know, as I said, and as you can imagine, there's a lot of variables. It's not too far out there in the future yet 'cause you have to plan and design and build the satellites. We do have a little bit of time.
I guess for investors wondering about that long-term number, do you have any sense how much lower that could be? I know you had Thales build the last one.
Yeah.
Maybe they're not the cheapest option anymore.
Yeah.
Is it 25% less, 50% less, do you think? Like.
It's hard to, it's hard to put a number on that, Edison. Again, you know, there, going back to my point about, you know, there being, you know, a number of solutions and a number of variables. 'Cause for example, one variable could be, you know, we've talked about buying spectrum and purchasing spectrum. One variable could be that instead of having a 66-satellite constellation, you double it and you have a 132-satellite constellation. You get a big uptick in terms of your frequency reuse. Like, it's, it's roughly doubled. You're effectively, I know if an engineer was here, they'd probably correct me. Directionally, that's correct. You would get, you know, you'd get a 2x uplift in your capacity from your spectrum. There are a number of variables and a number of different ways to think about it.
If we did do a like-for-like, it would be significantly cheaper, I think. At this point, they're all options that are being considered. The good news is that, you know, we have different options and we have different solutions that are available to us. You know, over the next number of years here, we're just gonna have to figure out the one that works best for our situation.
Fantastic. I know I think time is up. Thank you, Vince.
All right. Thanks, Edison.