Good afternoon, everybody. Tim Horan. I am the satellite analyst, as well as Communications and Digital Infrastructure here at Oppenheimer . My pleasure to be hosting Iridium's Matthew Desch, the CEO. Matthew, I'm sorry if I pronounced that wrong.
Yeah, it's Desch, but it doesn't.
Desch, I knew that.
It's been destroyed many times over the years.
Thank you for joining. Sorry about that. We initiated on Iridium a few months ago. The stock worked out great for a few months, pulled back a little bit here on earnings. I think we're back to a great buying opportunity. We'll get into that in a lot more detail here. Matt, can you maybe just give a little bit of, for people that know the company real well, a little bit of description of what you guys do and what your niche is in the market?
Yeah, Iridium was the first low Earth orbiting satellite system conceived in the early '90s and the early days of cellular phones to be a network that still today is the furthest reaching network. It covers 100% of the planet. It was the original service, you know, back when it was launched in the late '90s, was for satellite, you know, voice devices, satellite phones, things like that. Turned out to be really the optimum architecture for IoT. We're really more of an IoT company today that's been growing really well over the 27 or 28 years we've been in operation. We have a second-generation network, which we launched in 2019, 2020, which is still quite fresh and has many years to go.
As a result of that, while we continue to grow, we're quite profitable and generating a lot of cash and throwing a lot of that off and obviously doing shareholder-friendly activities with it, like buying back shares and putting a dividend out. Our key businesses are still land, maritime, aviation, IoT, and really have a special relationship, long-term business relationship with the U.S. government and supply sort of a private network on behalf of a number of services for them as well, which is a little less than 20% of our business still today. We've given a lot of guidance about the future. We'll talk, I'm sure, about things like D2D and PNT and all kinds of stuff. We also operate a hosted partner on our network called Aireon, which is quite interesting.
We used the opportunity when we launched a second-generation network to build a whole other business around this, tracking aircraft, and I think that has a lot of potential as well. That's just a really, really small part. We were what was called a mobile satellite services company. I think that is really blurred now. The convergence between satellites and terrestrial and between what's mobile and what's fixed is sort of blurred. We operate in what we'll call L-band spectrum. That's shorthand for the 1.6 GHz - 2 GHz sort of area that is really prime real estate that was all allocated back, you know, 30 years ago. Very good service for being able to propagate for small antennas, for being very mobile, for being close to GPS for antenna synergies and that sort of thing.
Very different than the microwave frequencies called Ku-band and others that really are optimized for supplying big broadband services but have other kind of limitations as well. Very different kinds of services that we offer than others. I think the one thing most investors should get out is that we're not so much competitive with a lot of those other companies. I'm sure we'll talk about, but we're mostly complementary in terms of our business strategies, growth, and we find ourselves in an important and growing niche that we're expanding.
That's a great way to put it. Basically, you provide, through unique L-band satellite constellation, unique spectrum, and unique devices, mission-critical communication services for voice and data in a global coverage in a way that no one else can really do at this point, particularly for voice, I would say, but also obviously for IoT.
Evolving those as the industry is today to a standards-based service, we announced a couple of years ago, you know, we originally tried a partnership with Qualcomm for a proprietary kind of system that would be part of their Snapdragon. The market really told us and everyone that they didn't want proprietary solutions around mobile phones. We pivoted quickly. We have this incredible software-defined network that we were able to reprogram. Soon we'll be live on air with a standards-based IoT product that can go into consumer devices and allow terrestrial cellular IoT customers to roam onto our network anywhere in the world. It will be, we think, one of a number of growth drivers we have that continues to drive our growth going forward.
That'll be both IoT and smartphones?
Yeah, any device that uses a 3GPP, which is the acronym for sort of the 5G standard set that everything is developed on. We're in Release 19, which is finalized. It's been finalized but goes into chips later on this year. We're testing with pre-production chips, and there will be a service available in 2026 that will, you know, anybody who puts that into a device and a carrier enables us will be able, they'll be able to provide a narrowband IoT. Messaging, data going back and forth. This is not a wideband or broadband kind of service, but allows standard consumer devices, phones, watches, PDAs. I think the biggest opportunity for us, given that we're the largest satellite IoT player, is to continue our leadership position in many more applications in agriculture and unmanned vehicles and that sort of thing.
This is a huge deal, basically. I mean, historically, you used to have to have proprietary expensive hardware. I'm sure that's not going to go away. Now you can, I mean, what type of IoT devices are we talking about? How much would it cost for them to upgrade to be able to connect to your network? How much space would it require of them to do that?
It really shouldn't require any additional cost. Devices that comply with the standard, I mean, there are IoT devices today that are going out there that are, you know, tracking livestock or, you know, agricultural soil sensors or could be drones, could be all kinds of things today that are on the standard 4G, 5G network. If that supplier decides to upgrade that to a 3GPP Release 19 chip, they should have access to our network. It's only an issue for the carrier that's currently supplying cellular, just has to have a roaming arrangement with us, which, you know, we're implementing our service via Cineverse, which is a sort of a roaming engine in the middle of that. They have all these arrangements with hundreds of roaming carriers around the world. That's kind of all the infrastructure necessary for that to be built and provisioned and will be available.
It's not an additional cost at all, really, if you're implementing it. If you're already implementing, say, you know, a relationship with Nordic Semiconductors, there will be others that we announce as well. If you buy one of their chips that has the latest version of this in it, I don't know that it'll cost any more. It's really just software in there, and you should be able to roam onto our network.
If Caterpillar or Mercedes wanted to deal with you directly, would they continue to use proprietary hardware, or would they most likely put in, you know, the latest 3GPP standard chips?
Caterpillar is a very large valued partner of ours today. We're going into a lot of equipment coming out of Peoria. We're evolving them to even higher speeds and can do some additional things sort of on a proprietary basis that there's no reason that they might not stay in that path. If they want to explore a standards-based solution, they can also do that as well. It will cover the same part of the planet, which is 100% of it. That's always been a value for us for a major player like that. We're not in Mercedes yet. I would love to be if they wanted to deploy. I think it's really the automotive industry is taking a much stronger look at the satellite industry now that they see standards.
They were always worried about going with a satellite, a specific satellite supplier, even one as successful as Iridium that's been around as long as we have been, because the satellite industry has had failures in the past and they don't want to deploy a technology that might be proprietary. They've seen some carriers, we're not one of them, that keeps evolving their proprietary standards and obsoletes the previous version of them. That happened to our largest maritime customers. Every time they launched a new satellite, they obsoleted their previous technology and made everybody upgrade. That's not something we've ever done, but I can imagine why a car manufacturer might be a little worried about putting something in a car that might last 20 or 30 years.
I think standards, integrating with 5G standards, is going to be a lot more of these larger players who want to move from terrestrial IoT, which only covers still, I don't know, 10% -1 5% of the Earth's surface and none of the skies. They want to take a technology that will be 100% of the planet and will expand their use cases.
To your point, a lot of the terrestrial networks are still on 3G. You know, you're probably only talking about 5% of the Earth that's on 5G as we speak.
That's true. That's very true. That's always been our calling card. People, the applications that were important enough to be anywhere in the planet. We always, one, from a satellite perspective, I've said I don't think we've ever lost a partner who's come onto our network. Nobody's ever gone anyplace else because they knew that there were no compromises in terms of where we could supply service. We're extremely reliable and we're a service that operates on any look angle. You didn't have to worry about it being a geostationary satellite and your generator was on the northern side of the barn. It can't ever see that satellite that's fixed in the sky. We were always overhead and could always provide a service. We're not the only one providing direct to device, using that service. Both Starlink and AST SpaceMobile are the most notable ones right now.
They're doing it a very different way than we are. They're trying, they're going to supply a wide band, broadband kind of service, according, at least they hope to, depending upon how much spectrum they're able to get. They're a very regional offering. They only work in land masses where they don't create interference. We think we're going to be complementary to those solutions, be the glue perhaps in some of those devices that you can use those services and they might supply higher speeds. If you're able to use those services, there's lots of questions about their business cases and getting into service and all that stuff. I don't take a position too much in that right now. I like my business.
I think for the incremental investment we're putting on top of our network, we got a great business case for D2D right now in terms of supplying incremental cash and profitability on our network.
I mean, they're going to grow IoT in two different ways, more devices and maybe more ARPU devices if you're getting more speeds. Although if you grow a huge amount of devices, maybe the ARPU will go down, but that'll be a new subsegment. How many IoT devices do you have now and what do you think you can have in five or ten years?
It's close to two million devices, but you know, that number could grow dramatically if we become a standard solution. Yes, the ARPUs will probably be a lot lower. As long as the usage of our network is commensurate with it, it really doesn't matter what the ARPU is because we're not putting incremental capital in to get incremental devices. That was always the model everybody followed on terrestrial. If you had to put in more cell towers and more cell sites, then you were really worried about falling ARPU because it meant higher capital for less value, especially when you're buying customers by subsidizing phones and stuff. We don't do that. We don't have to subsidize subscribers. They come onto our network, they create incremental revenue that drops almost completely into cash and profitability.
That's how we've continued to grow our profitability year by year and how our cash flows have continued to grow. We've been able to successfully maintain that model ever since we.
I mean, theoretically, if you're sitting here, Verizon, all the carriers in the U.S., for example, have a product for first responders for a bunch of reasons. They could enable text messaging on their smartphones through your satellite as a mission-critical service that's backup that's basically always there. This $2 million could be hundreds of millions in a few years, not to put words in your mouth.
It could be. I will say we don't see a lot of excitement in the first responder community that, you know, still uses our satellite phones for going to, you know, telling all their firemen, hey, just use your Android or iPhone, you know, and text us if you can. It's possible that that will be. What we hear is they really want devices that are sturdy and won't break, you know, and that have long battery lives and they want to keep their cell phone for, you know, personal use and everything. I don't know that that's the biggest market for it. I do think there's a lot of questions right now about the total size of the market. I'm probably, I don't, I don't, I've had a history here. I've been the CEO of 19 years and, you know, I'm not pumping this very much.
Even when we were out with our Qualcomm relationship, I was more tamping the market down because I think it's going to be a big market, but I don't think it's like, I don't think it's as big as some people believe it is. That's why I think there's a lot of questions about the carriers that are spending billions of dollars building networks to do this. Those networks are $5 billion - $10 billion and they have to be rebuilt every five years. You know, we did build a $3 billion second generation network, but it should last closer to 20 years or maybe longer. We are just reprogramming it basically with some incremental capital to allow us to have standardized channels on our network. The question is how many people will pay for, you know, texting on their phone. I think many people will support texting.
I don't know how many are going to pay extra money for email and all the other stuff to build a broadband network. I do think most carriers we talk about do believe messaging, texting, SOS, you know, location services, those are really critical services that I think we're going to be right in the heart of with our offering.
Is there any reason that a Verizon or AT&T wouldn't, you know, resell your product through Cineverse and many other carriers?
We've been told by the MNOs, and as you probably heard in our second quarter earnings announcement, we've actually signed some deals. We just haven't announced them yet. What we're hearing from MNOs is, look, pay no attention to who we've announced with. We want to diversify and provide a number of offerings to our customers and allow the best solutions to be the ones that carry the traffic. You guys have a global network. Others don't have that. You're able to provide services anywhere, including Oceanic and other places people could end up. That will be valuable to a number of our customers. You know, and definitely we see our IoT customers, which are typically enterprises that show up everywhere in the world. They don't want to be told which seven countries that this works in. They don't know where their devices are going to end up.
They really, we really like the value proposition of a no-compromises satellite IoT operator like you. That's what we're focused on.
With Caterpillar now and Garmin, they seem to be getting a little bit more capacity, and they can do a few more applications on the devices. You mentioned Caterpillar. What's enabling that? How are you increasing the speeds that they can get and the capacity?
When we launched our second generation network, you know, when we contracted for it back, you know, 15 years ago, we knew we wanted to do all the services that our first generation did because we wanted to keep, we didn't want to tell people they'd have to turn anything off for a second generation network. We knew we also wanted to be a much more flexible platform. We built it, you know, our brand name is Iridium Service, which is just a name we made up, but that's sort of the brand name for a higher speed service that could be offered on our network. Now, we're not a true broadband player. We don't try to get maximum speed.
We're really about how much speed can you get through a very, very small device, you know, so a modem that's, you know, a size of a small credit, you know, smaller than a credit card, maybe the size even of a coin. You know, that's the kind of size that a Garmin or other people would want to use in, say, a consumer device or other things. In fact, we're really getting down to the point that's in a tiny chip at this point. That's really all the tax that you pay for the real estate to put Iridium connection into it. What our goal was, was what devices could we create that would get higher speed? We have a number of kind of capabilities now where our IoT is flexibly able to send pictures and voice notes and things like that.
Still not, you know, videos and that sort of thing, but enough that if you could carry a small device around, that would be, you could record, say, a voice message to somebody. It didn't even have to be a real-time two-way connection, but for a very small amount and a very tiny device, you could send, you could still send voice back and forth to people and receive voice notes from people. That's all a lot of people really want and need. You know, you want a device that will, you know, have a standby of, you know, two weeks and will enable you to talk, you know, 20, 30 hours, you know, send, send, you know, pictures when you have to.
It might not, might not be like your cell phone, but it's going to be, it's going to work in the middle of the Pacific Ocean or anywhere you end up on.
Matt, what's the latency on your messaging now?
It's almost instantaneous. I mean, that was the other reason why our IoT service was successful over a number of other services, which had really high latency, sometimes minutes or hours, you know, between the time that they'd be able to deliver messages. We have always delivered them instantaneously. I mean, seconds typically.
You've increased the speed by better devices and some software upgrades on the satellites. Is that fair?
Yeah, it was channelization of our software frequencies in the satellites, the ability to kind of manage, you know, very efficiently and be able to offer any subscriber a little more data speed and capacity still in a very small real estate package. We've offered, you know, a Service 100 package, our latest Service IoT devices, the 9704, which came out last year. Those are direct IP so that people weren't programming a special satellite language. The strategy for us has been over the 18 years we've been in IoT or whatever it's been now, probably about 20 now, has been to make the devices smaller and smaller and less of a tax on anybody who wanted to put an Iridium service onto their, you know, what we didn't want them to do is have to talk satellite. We wanted them to be able to talk IP, talk 5G.
The time to revenue for us, if a partner says, "Hey, I'd like you to put you on a delivery drone," it should be a week or two or three for them to implement us. It used to be six months and a lot of back and forth on that stuff, but it's quite quick now. That's why we saw in the second quarter how many partners were still signing up, companies who are implementing us, buying our devices or planning to implement the future devices that we have and are implementing us in many, many industries right now.
Very helpful. You have also, I think, an extremely unique positioning, technology positioning, navigation, timing, PNT, we all kind of call it. Can you just describe how you came to have that capability and how can you monetize it?
Yeah, I'm kind of personally proud of that. I mean, I've been a while, but it's been at least 15 years. We were working with Boeing Phantom Works who were doing some stuff. They knew our network, especially our very powerful paging channel, which was used in the old days for really pagers. A few people remember what those are. We don't sell those anymore. The channel itself could get inside buildings and was a thousand times more powerful than a GPS signal. They realized with a LEO network that's very close to the Earth where the satellites are moving around quite rapidly, you could send timing information through that that a chip on the ground, even inside a building or whatever, could receive that signal. It would be very difficult to jam it.
It was also encrypted in a way that it couldn't be spoofed, so you couldn't fool anything. I was really impressed with it. I thought it had a lot of potential. Boeing agreed that they probably weren't the right place to commercialize it. They spun it out. We kind of supported the company. It was called Satelles. They built that as a startup business and started becoming quite successful, productizing their device down to literally just a tiny chip with very little cost. In that 15 years, the problem of GPS jamming and spoofing has become a really big problem. You can't fly over the Middle East or sail through the Red Sea or be in Ukraine or, frankly, in the U.S., there's a whole bunch of situations where critical infrastructure is being jammed and people are using illegal jammers or spoofing to create mayhem. It really worries U.S.
infrastructure suppliers. They're worried about cell towers that depend on GPS for timing. They're worried about data centers that need a timing reference signal for all the routers. While we've been protecting things like the New York Stock Exchange and exchanges around the world, and we're starting to get into 5G in building base stations, we see that market as being really huge. We look around, there's some regional solutions. You can put some towers around a local town and create sort of the same sort of service, but it's very expensive and it doesn't scale. We have a service that is extremely reliable. It is at least 5-10 years ahead of anybody else right now. Our real challenge is how fast can we take advantage of it. We're signing lots of new partners. We're starting to get into, for example, shipping. They're starting to see the problem.
In fact, maritime insurance companies are realizing we're the only thing that a ship could depend upon. It depends on how fast we can get into the bridge. Maybe today we're an overlay, but in the future we could be a regulated solution in there that could be in the navigation systems. The same way in aviation, you can imagine if you have unmanned drones, you don't want those things to be bad people to be able to spoof them or jam them because, basically, whatever you're either delivering or doing with that drone is useless without a position signal. You're seeing that a lot in the conflicts in Ukraine right now and the back and forth. There's a lot of interest in critical infrastructure suppliers, governments around the world.
How big of a chip do you need and how expensive is it?
It's smaller than, you know, your smallest nail. It's just a tiny little chip. It's a couple bucks and that could be implemented in lots of different solutions. Now, today it's in a card. It's a tiny, something the size of, let's say, a credit card. A number of different solutions. A lot of partners are kind of taking us to market that way. The chip is available today. It will be, it's not available commercially today. It'll be commercially available next year. That's not really needed for a lot of those applications. If you're an inside base station or you're, you know, a cell tower, you don't need a chip. We see a lot of applications that consumer devices and other things could be protected from GPS jamming, spoofing, or could get a location signal inside a building all via a tiny chip that can receive that signal.
We think that the market expands dramatically. We're starting to work on a cybersecurity product that would protect, would provide a trusted location so that, you know, you are wiring money. You can't really provide fraud. If you think about it, it's quantum safe in the sense, you know, it can't be hacked via quantum down the road. You need to know if you're in New York, this transaction is actually happening from New York because we are one of the few companies that can prove that that device you have is in New York.
As you know, the key to the communications industry is standardization, right? I mean, your device, it doesn't cost anything to operate. If you become the alternative to GPS, and it's obviously needed, right? It's the chicken or the egg. How do you kind of convince maybe, is there a way to convince 3GPP? Like, look, we should incorporate that in the next standard and it'll be in every device and, you know, we can license it per device or something.
3GPP doesn't standardize GNSS systems. You know, there's five or six of them. You know, the U.S. has the GPS system. Galileo has a slightly different frequency and different system. Baidu is China's system. The problem is there's already a discontinuity of systems and they're all technically free today. Some devices are actually putting multiple of those in there for kind of resiliency, but they all are operating around the same frequency level and they all are very faint signals. Most of them are kind of unprotected signals. I don't think it's going to be a standardization. I think we could be the standard though, because we are, this is extremely cost effective. We're licensed through many, many partners. We're open to licensing this technology globally. Frankly, our biggest challenge right now is marketing.
There's a lot, you know, if there were 10 companies offering this thing and we were the best, it's pretty easily because nine others are basically marketing your solution for you. When you're unique and so far ahead of anybody else in the market right now, it's more a matter of showing people that it even exists and it's even possible to do this. When they see it, they're, I mean, we've won every competitive thing. It's just more getting the word out that there's actually a solution to this growing problem that people are having.
Why wouldn't Apple just pay you a certain amount to, you know, basically have an alternative in every phone, you know, globally that they produce?
It's a great idea. Those are kind of opportunities that are absolutely possible and affordable both for those companies and reliable and would provide a great service overall that is extremely robust and available and proven in many applications. The pipeline's big. This is in our hosted and other revenue line. We've already said that we think that the service revenue from this is like $100 million in 2030. I think it could be a lot more than that going beyond that if we are successful at really finding some of these really large scale applications that I think would make sense to put this in at very low cost and very high value to the end application.
I was using the word standards loosely. You know, it could either be top down or bottom top, right?
Yeah, no, absolutely. Part of the problem too, I mean, the problem is now being received. Everybody, I'm sure you've read articles. It's in lots of stuff. It's in, but it's only been in the last year or two this has become globally recognized as an issue. Most people here in the U.S. say it's probably not that big a problem because we haven't really seen it ourselves. My car hasn't veered off. What do I care what's going on in the Red Sea? I think these issues are well known that they're coming in the U.S. We've seen some very high profile, you know, like drone shows where somebody jammed the drone show and all the drones just fell in their lake, things that have been stolen because they jammed the receiver.
People who jammed were jamming their cab company and also jammed the airplanes at the airport next door. This is not a hypothetical problem like it was three or four years ago. It's becoming a real problem. We got to figure out a solution. They look around and they see some sort of patchwork kind of solutions, but don't appreciate that there is something globally available today that's very cost effective and can work. It's just an issue of implementing those into more and more applications.
You're doing a little more than $600 million revenue run rate right now. Your goal is $1 billion in five years or so.
That's service revenue. On top of that, you know, we don't subsidize equipment, but we have equipment revenues, which contributes. We have engineering services, which has grown a lot in the last couple of years as we built the U.S. government's ground infrastructure and running their SDA network with our partner, General Dynamics. That could lead us into Golden Dome and some other things down the road in terms of the longstanding relationship. We'd like to be able to supply our expertise to those kind of problems as well. That's engineering services, which is low margin. The part that I think most investors look at is that service revenue because it's extremely high margin.
Apologize, I meant to say service revenue. You can get $100 million incremental from the PNT, maybe, I don't know, $200 million from IoT. I'm using round numbers. Where does the other $200 million come from?
We're already close to 700, so it's only 300 we need. You already covered 300. I don't know that those are the real numbers here, but you know, we also have, as I said, IoT with D2D together, as you're right, is a growth vector, a pretty significant one. PNT, and then we really believe that the work we're doing with the U.S. government is a growth vector as well. The ecosystem that's been around that 25-year relationship, there is growth in other potential areas as well. I mean, specific things like our PTT service, there just isn't anything like it. A lot of civil and militaries and others around the world are realizing that this is a, you know, this is a nice addition to their terrestrial infrastructure. We have other things in the works as well. Those, we think a billion dollars is absolutely doable for service revenue.
The more important part, I was saying to an investor in a one-on-one a little earlier, I find it interesting how we're valued today. You look at what we've returned in capital, over a billion, billion two or something like that we've bought back. Our market cap is aligned with the kind of cash flow we're generating or returning to shareholders. Even with the next generation network in the 2030s, which we don't think probably will cost as much as what we have today because there's lots more, lots more infrastructure we can build on, lower cost launches, lower cost satellites, we can expand our capacity, et cetera. We'll have excess cash flow even in the 2030s.
It's interesting that let's say we did $975 million, and we're being valued like suddenly we're going to do $500 million somehow because there's this, what we're finding is there's this sort of, well, Starlink is really big and they're private and they can do anything they want, and so they're going to eat everything up. We just don't see that. We don't see it happening today. We don't see either the D2D or broadband services, as I said, I think we're more complimentary of that. Going forward, I think we're going to generate a lot of value in the future and it'll be very shareholder friendly.
Great point. I apologize, you are getting closer to $700 million in revenue, and everything you mentioned is really true. The government business, I guess people worry that you're going to lose market share there once that contract comes up, and what type of pricing power or new services can you provision there?
I don't want to negotiate in public as you might have mentioned. People need to understand we've had this sort of private service that has been very valuable for both of us since 1998 with the U.S. government. The last two contracts that we've had for the last 12 years, well, 10 years, but it'll expire. The latest contract will probably need to be renewed by early 2027, has been a fixed price contract, which nobody else in the industry has. It is a very important relationship that we have. It's been embedded in like 150,000 devices that are in all kinds of applications in every service and in the State Department and many different agencies all over. It can't be really just easily replaced by any other technology. All those things would have to be replaced one by one if it changes.
Our goal, we think there's a win-win here with the government where we can still continue to grow with them, but maybe take on more work, do more with them. As I said, I think they know what our strategy is and sort of support the general nature of it. We've got to work out the fine details of it over the next 18 months. I think we feel very, very confident that this is a long-term relationship and there's a lot more that we can be doing with our unique network. I do know there was a lot of people who see the value, and I think there's a lot of value in Starlink's broadband service, which of course is, they have kind of a unique platform that they're supplying to the government called Stars hield, or it's known by other names and everything.
I think that they're doing some unique proprietary things, but it's very different than what our network does. I think it's very complementary to the approaches that we've had with the government. I think what our network can do can support the kind of things that not just their network, but other LEO networks will ultimately do because, again, the unique spectrum we've had, the history we've had, and where we've been built into so far.
Matt, we are out of time. I could talk to you for another hour. I completely agree with everything you're saying, and I wish you the best of luck. Hopefully when we regroup next year, the stock price will be double from here. Thank you.
Me too. Thanks, Tim. I really appreciate it.
Thanks.