Good day, and welcome to the Iridium Communications Second Quarter Earnings Conference Call. All participants will be in listen only mode. Please note today's event is being recorded. I would now like to turn the conference over to Ken Levy, Vice President of Investor Relations. Please go ahead,
Thanks, Rocco. Good morning and welcome to Iridium's Q2 2021 earnings call. Joining me on this morning's call are our CEO, Matt Desch and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of our Q2 results followed by Q and A. I trust you've had an opportunity to review this morning's earnings, Our call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward looking statements are statements that are not historical fact and include statements about our future expectations, plans and prospects. Such forward looking statements are based upon our current beliefs and expectations And are subject to risks, which could cause actual results to differ from forward looking statements. Such risks are more fully Scott's in our filings with the Securities and Exchange Commission. Our remarks today should be considered in light of such risks. Any forward looking statements represent our views only as of today.
And while we may elect to update forward looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views or expectations change. During the call, we'll also be referring to non GAAP financial measures, including operational EBITDA, pro form a free cash flow, free cash flow yield and free cash flow conversion. These non GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Please refer to today's earnings release in the Investor Relations section of our website for further explanation of these non GAAP financial measures and a reconciliation of the most directly comparable GAAP measures. With that, let me turn things over to Matt.
Thanks, Ken.
Good morning, everyone. So Reem's business accelerated in the second quarter as we saw strong demand across the board and very healthy business activity across our Partner ecosystem. While the whole world hasn't completely reopened yet, we've seen our subscriber growth recover to the kind of levels we were seeing in 2018 2019 before the pandemic slowed things down. For example, commercial aviation partners are experiencing a nice rebound in activity and end user demand in maritime is also showing signs of improvement. This progress helps to frame our views for the full year.
Accordingly, we are raising our forecast for service revenue to reflect the strong demand we're now seeing on the back of increased usage and strong subscriber growth. We've also seen more normal seasonality again this year, which began in March and should carry through to October. The seasonal move, which was largely absent last year, Was visible in the strong activations in commercial voice and data subscribers during the Q2 and it goes down as our best first half performance in 9 years. Subscriber activity was strong in IoT as well. In fact, we've logged the best quarter of commercial IoT growth in Iridium's history, adding a record 82,000 net new subscribers over the past 3 months.
Some of the strength may surely relate to the new love we all have lately for outdoor activity As personal communication subscribers continue to grow at a record clip. Now we don't see this demand slowing anytime soon. We've added a number of new consumer oriented partners in recent years and many are now seeing an acceleration of unit sales and activations. As these personal satellite communication devices proliferate, in part driven by falling retail prices, there is increasing awareness among consumers with a great value and utility they provide when traveling off the grid. We believe that we're still in the early days of adoption and Iridium's network is better suited for these mass scale consumer oriented devices than any other existing or planned satellite constellation.
We're very happy with the rebound in usage and subscriber growth in the first half of the year as well as the strong equipment demand, which is indicative of future activations. I'm sure you're aware, however, that there are global supply chain shortages of semiconductors affecting high-tech companies driven in Part by high demand for automobiles and personal computers. This demand has recently impacted The specific component used in our legacy IoT modules and the supplier we use for this part reduced their monthly shipments to us until later in the year. Fortunately, my supply chain team has worked to limit the impact of the situation to IoT modules scheduled for delivery to partners for the most part in the 3rd and 4th quarters of this year. We should catch up quickly with demand in the Q1 of 2022.
While this is slowing down a percentage of our monthly IoT module shipments over this period, it's a bit frustrating given the strength we're now seeing in our business. We really didn't want to be held back in IoT even in a small way as this business continues to gain steam and is a driver of meaningful growth in the future. Apart from this unexpected challenge on some equipment, we've been extremely happy with how 2021 has unfolded. The industries we serve have opened up, Our partners have resumed normal operations and subscribers are returning to their normal seasonal usage patterns. We're about halfway through our peak We're getting better visibility into full year trends.
The acceleration of service revenue growth that we had expected to see and spoke to last quarter Now seems to be playing out. For those who attended Investor Day in May, you heard about the strong progress that we're making on new products services launching this year across several industry verticals. It feels like we have more ores in the water than at any time in our We believe that new product launches will expand our reach and drive new subscriber adoption in the coming years to help us achieve high single digit service revenue growth. I'm really excited about the recent commercial launch of our Iridium Certus 200 service. This new service class offers the best performance to value in the industry for maritime and land mobile applications and we expect new aviation products to follow later this year and in 2022.
Iridium Certus 200 is a perfect upgrade for ships that use Iridium open port service, Of which there are still around 9,000 active and it's a better alternative than Inmarsat's Fleet 1 product. It provides good data speeds at a very attractive price point and its small omnidirectional antenna will fit unobtrusively on small boats, Airplanes, trucks and trains. Iridium Certus 200 will be an even more cost effective companion to VSAT on ships And partners are excited about adding it to their existing Iridium Certus portfolios. By the way, installation on ships are getting a little easier for some partners and it's showing in our numbers with the activation of more Iridium Certus broadband terminals. We added twice as many net new broadband subscribers this quarter than we did in the Q1 and 3 times more than we did in the same quarter last year.
Iridium GMDSS is also performing well for us with more than 500 terminals sold since service commenced late last year. We continue to expect that our growing maritime offering will drive double digit broadband revenue growth well into the future. In aviation, our terminal manufacturers are finally making real progress. There are several antennas under development for commercial, Corporate rotorcraft and general aviation markets and when they're ready, I think they'll disrupt the status quo in aviation with their size, cost and performance in the same way we have in maritime and land mobile. We're also making good progress on the regulatory front for aviation safety services.
The Global Standards Organization recently approved our detailed safety plans for Iridium Certus to be used for controller pilot data links and other safety services on commercial aircraft this quarter and it's clear from those efforts that we have a lot of supporters in the industry who want more Iridium L band aviation broadband products for their aircraft and customers as soon as possible. I'm pleased to be able to share today that Garmin's aviation team is now integrating Iridium to their groundbreaking autoland aviation safety system. Installed on some of the latest Garmin equipped aircraft, Iridium will soon provide a reliable source for real time weather data into the system, which will complement other Garmin inputs to assist the system to safely and autonomously land the aircraft in emergency situations. In addition, we continue to explore other opportunities with Garmin to leverage Iridium's global network and the most up to date L band technology can offer Garmin's many customers. Moving to IoT, we feel very Really good about our position in this growing market and know that the momentum we've enjoyed with personal communication devices will be a driver for many years.
We continue to add new IoT partners to the fold, 8 more in the Q2 alone, who should further extend our industry and geographic reach. We've also begun to see a bounce back in demand from heavy equipment manufacturers as the pandemic recedes. Kobelco has now started deploying their Iridium solution and other major Asian OEMs are also beginning to hit their stride. Heavy equipment now accounts for more than 10% of our commercial IoT base and is forecasted to provide continued meaningful growth, Especially if global construction returns and as investment in infrastructure becomes a priority. In the first half of the year, We've also formally lab certified 14 new IoT solutions at the request of our partners and continue to see a healthy pipeline of new product innovations from them, especially those based on the Iridium 9,770 mid band module.
That's a new device that supplies what we call in Certus 100 class service. Several partners are now selling their first products in this class and many more are developing new locations today to replace legacy voice and data and IoT solutions with faster data speeds and other capabilities. On the consumer side, personal communication devices account now for nearly half of our IoT subscribers and are among the most efficient users of our satellite network. With consumer subscriber growth averaging 46% over the past 2 years, We want to augment our capabilities with these users beyond basic texting and SOS services and embed Iridium connectivity into more consumer devices. Mid band products are coming in 2022 that will allow our consumer satellite users to share feature rich text, photos and update their social media more easily.
We're very excited about the potential of all of these. The U. S. Government continues to be an important long term partner. In June, we hosted a 2 week Arctic exercise with the U.
S. Government And more than 20 organizations were involved showcasing Iridium technology for operational needs in the vast regions north and south of 70 Degrees Latitude where few other highly mobile system choices exist. This expedition, which was called Operation Arctic Links, brought together partners and users to demonstrate the Iridium Certus platform and other Iridium products to customers for high valued communications on the move. Participants got to utilize many of Arena's capabilities and partners products that support unattended sensors, command and control, real time communications, imagery and full motion video. We were very happy with the broad participation in this event and the collaboration of these partners with so many end users and plan to host these types of programs on a more regular basis.
Despite having 153,000 government subscribers. We would have anticipated higher growth in subscribers and engineering service revenues this quarter, but for some teething pains the U. S. Government is going through as they work through the transition of our EMSS contract and gateway support from DISA to the U. S.
Space Force. We're working with the DoD to manage through their budgeting and contractual issues to continue to foster growth and innovation under the EMSS program. Switching gears to Aireon. Aireon is starting to see signs of growth as air traffic rebounds from the pandemic. Last month, They made use of the favorable credit markets to close on a refinancing of their credit facility that provides them access to capital on much improved terms.
The company continues to deploy its solutions to partners and will already service about half of the world's airspace when its existing contracts are deployed. As I said before, we're really pleased with the quick progress Aireon is making in what they call commercial data services. We believe this will provide a nice upside to their long standing business plan, which was initially focused primarily on air traffic control data. As an example, Eurocontrol recently announced the deployment of Aireon's real time traffic surveillance data for flow management to boost air traffic Predictability and safely adapt to varying traffic demands across the organization's 41 member states. We're proud of the progress that Aireon has made since it went operational in 2019 and are happy to host their technology, which is now redefining the standard for global aircraft surveillance and safety.
So as I reflect on the first half of the year, Iridium has emerged from the global pandemic with momentum and our accelerating growth and strong free cash flow generation allow us to pursue many avenues for expansion. This year, we've continued to add new products, partners and services, each of which should bolster our unique position in the satellite industry. We feel very good about our progress and look forward to continued strong revenue growth to meet the objectives we laid out for the next 5 years at our recent Investor Day. That, I'll turn it over to Tom for a review of our financials. Tom?
Thanks, Matt, and
good morning, everyone. I'll get started by summarizing our key financial metrics for the quarter and providing some color on the trends we're seeing in our business lines. Then I'll recap our updated guidance for 20 21 and close with the review of our liquidity position and capital structure. Iridium executed well in the 2nd quarter and continued to grow sales as the broader business environment continue to return to normal. We generated total revenue of $149,900,000 in the second quarter, which was up 7% from last year's comparable quarter.
The improvement reflects ongoing demand for our L band services and is an encouraging sign that the headwinds associated with the COVID-nineteen Pandemic have decreased. Operational EBITDA was $94,800,000 which was up 11% from the prior year's quarter. The increase from last year reflects a return to seasonal activity, including more customary business operations for our partners, most of whom were still reacting to the pandemic in the year ago period. In light of our expectations for improving revenue growth in the second half of the year, We now expect service revenue to increase between 4% 5% this year. On the commercial side of our business, service revenue Up 8% this quarter to $95,600,000 This increase reflected a rebound in our seasonal business Compared to last year's pandemic headwinds, which weighed on travel and usage, strength in IoT and broadband as well as the seasonal uptick in voice more than offset the decline in hosting data revenue, which was entirely attributable to a true up in the prior year period on the L3 Free Harris hosted payload.
Commercial voice and data revenue increased 4% to $43,300,000 driven by a seasonal uptick in activations, including continued strength in Iridium Push to Talk. In commercial IoT, Retail oriented subscribers fueled a record 82,000 activations during the quarter and drove a 20% increase in revenue from the prior from the year ago period. Through June 30, we had over 500,000 personal communication devices on our network and continue to believe that these consumer oriented users will drive IoT growth for the foreseeable future. Last year, IoT growth was constrained by the COVID shutdown and was especially acute with lower data usage in the aviation industry. As business activities have begun to normalize, we have seen a rebound of aircraft usage, which is helping to augment commercial IoT ARPU.
IoT ARPU was $8.69 this quarter compared to $8.91 in the prior year period. The slight decrease in Q2 from the year ago period was caused primarily by the increasing proportion of personal communication subscribers, Which use lower ARPU plans. Offsetting this trend was an increase in usage in aviation, which was also evidenced in the increase in ARPU from the Q1. As we noted during our Investor Day in May, IoT ARPU trends should revert back to our long term historical norm. The 20% revenue growth we saw in the most recent quarter supports our expectation that IoT revenue growth for the full year will be up materially from the off trend 1% we saw in 2020 during the height of the impact from the pandemic.
The return of air traffic is a key variable as it removes a significant headwind we faced last year. During the quarter, we added a record 98 the net new commercial subscribers driven by the surge in IoT activations. Commercial IoT data subscribers now represent 74% Of Iridium's billable commercial subscribers, up from 71% in the year ago period. We estimate that consumer oriented plans now account for nearly half of our commercial IoT users. Commercial broadband revenue totaled $10,600,000 in the 2nd quarter, Up 25% from the prior year quarter.
A rise in maritime activations drove this growth, Though limited access to vessels continues to restrain the installation of Iridium Certus Terminals. With more than 5,600 Iridium Certus Terminals shipped to date by our manufacturing partners, we continue to expect strong broadband growth as travel restrictions lift. Hosting and other data service revenues was $14,400,000 this quarter, down 7% from the comparable quarter in 2020. The year over year decline related to a revenue true up in last year's Q2 related to usage by L3 Harris. Turning to our government service business, we reported revenue of $25,800,000 in the second quarter, up 3% from the $25,000,000 in the prior year quarter.
This increase reflects the contractual terms of our long term EMSS contract. Government subscribers grew 10% year over year to 153,000 in the quarter? Subscriber equipment continues to benefit from strong demand, rising 10% from the prior period to $21,800,000 As Matt noted, we have received notice from suppliers that equipment that was previously ordered is in short supply and not likely to be delivered in the timeline that we had originally contracted. While we continue to work with our suppliers and explore alternative Sourcing options, we now expect that full year equipment sales will be below our initial expectations. We are also having to absorb some price increases that Could compress equipment margins.
Engineering and support revenue, which is largely episodic, was $6,800,000 in the second quarter as compared to $7,000,000 in the year ago period. We continue to expect engineering revenue to ebb and flow and have recently Experience some delays that will cause our engineering and support revenues to be lower than our original expectations. In all, the The quarter was quite strong as we saw demand from Iridium service improve with the resumption of more normal business operations by our global sales partners. We remain optimistic that pandemic related restrictions will continue to abate and industries that have been hardest hit over the past year will increasingly see their business return to pre pandemic levels. This assessment gives us confidence in increasing our growth outlook for service revenue to between 4% And 5% in 2021.
Due to the uncertainty with supplier constraints and the resulting impact on equipment revenues and costs And given the software engineering revenue we now expect, we have not increased our guidance for operational EBITDA. We reiterate our full year guidance for EBITDA of between 3 $5,000,000 $375,000,000 Moving to our cash position as of June 30, 2021, Iridium had a cash, cash equivalent and marketable securities balance of approximately $219,000,000 Our strong liquidity is a key reason that our Board authorized a share program earlier this year. In the Q2, Iridium purchased $63,000,000 of common stock at an average price of about $37 a share, leaving the company with The balance of $178,000,000 in its $300,000,000 share buyback program. We will continue to be opportunistic in executing these repurchases. Net leverage was 3.9 times EBITDA at the end of the second quarter.
This was down from 4.4 times a year earlier and includes the buyback during the first half of twenty twenty one. Our long term target for net leverage continues to be between 2.5x and 3.5x of EBITDA. We We anticipate that we will be within this target range by year end 2022 even after giving effect to the maximum $300,000,000 share buyback. Capital expenditures in the 2nd quarter were $9,800,000 and we continue to expect maintenance CapEx to be about $45,000,000 this year. We continue to expect pro form a free cash flow of approximately $232,000,000
this year. This is
up from 15% from 2020. We arrive at this level by using the midpoint of our 2021 EBITDA guidance at $370,000,000 and back off $71,000,000 in pro form a net interest, $45,000,000 in CapEx, dollars 22,000,000 in working capital, inclusive of the appropriate hosted payload adjustment. This free cash flow Form of free cash flow will outpace the rate of growth of EBITDA this year. A more detailed description of these cash flow metrics, Along with the reconciliation to the GAAP measures is available in a supplemental presentation under Events on our Investor Relations website. As you may have seen, we launched a repricing of our term loan yesterday with indicative pricing of LIBOR plus 2.50 basis points, A 25 basis point improvement in the current spread with the LIBOR floor of 75 basis points down from the current rate of 1%.
This pricing would represent an overall savings of 50 basis points on our current interest costs, which would yield annualized interest expense savings of approximately 6,000,000 We expect this transaction to close next week and we'll be able to confirm details at that time. This is the second time we've We're taking a repricing of our term loan in the calendar year. We think this demonstrates the strength of Iridium's business model along with the acknowledgment from investors Strong and stable recurring nature of our free cash flow profile. In light of the expiry of an interest rate swap later this fall and the impending close of our current repricing transaction, we would expect pro form a interest expense of less than $60,000,000 in 2022, which represents a Significant decrease from the 2021 level and is approximately half of what it was in 20 19, This is 2 short years ago. In closing, Iridium is capitalizing on many growth opportunities now that most of our business partners have reopened and return to normal operations.
We will continue to keep you informed on the supply chain challenges that we may face, but believe that we are navigating the current environment well, which will allow us to drive revenue growth this year as we also generate incremental free cash flow for our shareholders. With that, I'll turn things back to the operator for the Q and A.
Today's first question comes from Ric Prentiss with Raymond James. Please go ahead. Thanks. Good morning, guys.
Hi, Ric.
Hey, Ric.
Hey,
obviously, big quarter on the ads, little overhang with supply chain issues, it sounds like. But If we think longer term, you've mentioned in your Analyst Day, high single digits for service revenue growth in 20 3 to 25, as we think about getting there from what we're seeing currently, how much of that is driven by pricing and how much is driven by quantities?
When you say pricing, do you mean raising prices?
Yeah. Yeah. Yeah. Well Just kind of ARPU, yeah.
Well, it certainly isn't about raising prices because we don't have to do that to achieve that kind of level. I'd say most of it is Quantity really almost 100% is quantity in terms of adding subscribers, new products that deliver additional revenues. In fact, we're moving more broadly into broadband at all different levels in the multi Class level of all the products we have offering, we're entering into broadband into aviation. We're really increasing kind of Service revenues across the board in that area. So it really is volume driven and Not a big change from sort of the trajectory that we're currently seeing right now and expect into next year to get to that level.
Okay. And on broadband pricing, it's obviously still a fairly small base, but the ARPU has bounced around a little bit in the broadband category. Is Is there seasonality there? Or is it just as you're installing? I'm just trying to think of how we think about the Certus ARPUs going forward?
Well, Certa seven hundred is the only service we offer today in maritime and land mobile. And We offer a number of different sort of data packages based on time and data levels, etcetera. The general level of the amount of usage of our new Iridium Certus terminals is higher than what we were used to in the previous Iridium OpenPort timeframe, OpenPort still makes up the majority of our broadband revenues today, but That will be quarter by quarter overtaken by more and more higher speed Certus terminals, which deliver higher ARPUs. So, I'm not in terms of balancing around higher ARPU, service terminals will continue to We need to sort of dominate over a longer period of time, but I think that's about the only way I can kind of look at it.
There probably
is a little bit
of seasonality of usage in the summer, I assume. And so I'd say because of the Predominance of maritime right now, there is and the land mobile offerings, there's going to be a little higher seasonality in the Say the second and third quarters particularly, so that might affect things a little bit too.
Makes sense. In the past, we get a lot of questions about all the new LEOs, the Base race with billionaires going on out there. Talk a little bit about where you're at as far as maybe partnering or Collaborating with these other LEOs and how the L band and Iridium services might play into what the future networks look
Well, again, what is going on in these mega constellations in the Ka and Ku band is Very different than what we do. I've called that commodity broadband services offering Really, really high speed services from a larger antenna, in some ways to consumers, but even when it's in enterprise and kind of government applications, these are through really large terminals that, These are through really large terminals that operate in very, very different applications than we either do today or ever aspire to do. And in most cases, almost every service that we offer, say, and I mean, I always use the example, we dominate in
the cockpit of commercial airplanes where
the Wi Fi system that is used in pit of commercial airplanes where the Wi Fi system that is used in the cabin would be the kind of systems that those systems would compete over with the existing Geostationary satellite systems that operate in the same frequencies of Ku and Ka band. So very different services, I believe complementary. And yes, we are Complimentary to existing operators when new when these new mega constellations come in, our Partners will be offering their services in complementary fashion with our services in the same way they offer them today. So it really doesn't affect No. In many ways what we do.
As you know, we really focus on what I would call smaller, more highly mobile, battery operated, Consumer devices and that kind of built very small smaller Kind of vehicles, etcetera. And again, that's a completely different area that those networks can't really Address. As far as partnering with them, we do have discussions with them. They all recognize that we're complementary. They talk About possibly having joint offerings together.
We haven't announced anything like that. I would say that Most of them are a lot more focused on just getting their networks in operation right now and a single first service together. And I expect most of those kind of discussions will be more something that happens in the coming years as opposed to any time real soon.
Makes sense. Thanks for the extra color, Matt.
Thank you.
And our next question today comes from Walter Piecyk Nick with LightShed, please go ahead.
Thanks. I may have missed this in the prepared Comments, I apologize if this was addressed. But when I look at the quarter, that 20% growth in IoT Key specifically, obviously a very big acceleration, much higher rate than I guess you could say just an easy comp off of last year. But Mac, can you just kind of talk about where is that coming from in terms of either products, distribution channels? Just Kind of peel the onion on that one a little bit and how you expect that to play out over the next couple of quarters?
Well, it's very broad based, Walt. We have hundreds and hundreds of IoT partners, and all of them seem to be Kind of back to normal and performing very well in many, many industries really across the board from things like I mentioned heavy equipment To maritime, to scientific, to oil and gas is A little bit of recovery probably and really across the board. So obviously the biggest one in terms of numbers Has been personal communications and that is definitely up though those are much lower ARPU subscribers. But when you take the full collection around there really isn't An area that is performing badly right now. And of course, the big headwind they got last year when We said an easy comp was aviation, which really kind of dragged on that whole thing and was the biggest reason why it was only sort of a 1% grower and that has come back Quite a bit.
I mean the majority of that has really sort of come back because those airplanes are flying again and they're using safety services. And So we're seeing really those revenues come back as well. So it's really broad based.
Should we start to look at this as like Quentral revenue business, obviously, there's a recurring revenue nature to this. This is going to be one of the higher growth For the highest growth engine, I guess, broadband will be a big one as well. I guess, is that the way we should start to think about this? And Can you do like steady sequentials or will there be some quarters that the sequentials will be more aggressive than others?
Well, it has been a strong sequential year over year growth business for us in the past. You go back Actually, 15, 16 years right now. But I mean go back to as a public company every quarter I mean every year we've been able to put on significant new Revenues and it's been very consistent except for last year was a little bit of a obviously because of primarily the second quarter And Q3 of last year and Aviation really it took a little bit of a bite out of it. But that has come back Largely this year as we expected and with a lot of new products coming to bear that are Soon going to provide higher speeds, more capabilities. I mentioned the more partners that are being added into it, the more solutions that are being driven to it.
So I think the kind of success you saw us this year will continue out well into the future. I've always thought that This was always going to be one of our biggest growth engines. Broadband might be a more immediate Real opportunity because we start from such a small base on that front, but IoT is going to be a constant engine of growth for us.
Yes. And I would just add, Walt, if you think about personal communications, right, so we have 500,000 subscribers. I mean there's 3,500,000,000 smartphones in the world. This is an accessory to a smartphone. If you look at the penetration of wireless in the 90s, it grew by If you look at the penetration of wireless in the 90s, it grew by 50% year in and year out.
So the potential here is Significant for we think is a very long time.
And then can we just end on yes, I'm sorry. Go ahead, Matt.
Go ahead. No, no. I would just mention, I've I know I didn't really say it. I sort of said it a bit in my script, but I really think Putting up almost 100,000 subscribers this quarter was really quite an eye opener in some ways For us in the sense that that was such a record, but it really doesn't feel unusual to us anymore. It was only a couple of years That would have been a good full year.
That probably is not going to be that unusual as a second quarter for us in the future. And I think with the potential These increasing number of partners that we see and the discussions and activity we see that could be a level Mark down the road here. So it's a strong business to be part of.
And then just lastly, I guess, on share repurchase, Any kind of thoughts on how we should expect that? I mean, obviously, another solid quarter relative to last quarter, but Free cash flow is kind of ramping up. It looks like your CapEx is under pacing. Just kind of your thought process on share repurchase as we hit the second half of the year? And any new thoughts on whether dividend is going to be a part of the capital return policy?
Well, you have to tell me what the stock price looks like it's going to be in the next coming weeks here and months. And then I'll tell you How much we'll buy? I mean, obviously, we're being opportunistic, right, Tom? And this is I think Market's been down a bit and obviously we've continued to buy at different times there and We've talked about the envelope which the Board has approved and we'll keep working within that right now. But I mean I just would expect that if If the market improves, you won't see quite as much, but at least in the near term, but continues to give us opportunities, we'll take them.
And thoughts on dividend?
As we said in the Investor Day, well, it's on the menu. We'll consider at the appropriate time. Right now, we're focused on the buybacks, but dividends aren't out of the question down the road.
I mean, hopefully, it's not just feedback, not opportunistic dividends, because I think investors prefer to see If and when you start this thing, regular growth as opposed to saying like, well, our stock has rallied, so we'll drop a dividend this quarter versus not, I think, obviously, regular Dividending growth is going to be what investors will prefer and new investors even.
Right. That's how we think about it. Certainly, the primary concern is that Any dividend we put on the stock, we want to be sure that it is sturdy through the next capital cycle, the next time we have to replace our constellation. So as time I'm passed as we get greater clarity on what that looks like, then eventually we think
it will be a long ways off. Okay. I got it. Thank you very much.
And our next question today comes from Greg Burns with Sidoti and Company. Please go ahead.
Morning. Could you just give us a little bit more clarity on, I guess, how the supply chain issues might impact IoT activations in the second half of the year?
Right now, we don't think it's going Impact our growth much in the second half in terms of activations and obviously service revenue because we called that up For the year because most of our partners have the devices they need in the next quarter or 2 or certainly in plans To get those to get their current products fulfilled and everything with their customers. So I really don't think it's Affect too much. The bigger issue we had more of it was could we contain it. It's something that a couple really kind of found out about it about a month ago and I'm really fortunate To have such a great supply chain team who jumped on this thing really hard, working closely with our supplier, getting kind of Increased allocations from what we originally feared, I think, and kind of constrained this thing to primarily 2 quarters, the 3rd and the Q4 in terms of sort of reduced shipments to them. So it's affecting it is affecting some Equipment revenues for us at the second half of this year.
As I said, we'll be we'll really be Caught up pretty quickly in the Q1 of next year. So all the growth requirements that everyone has. We were fortunate Could go into this with a bit of inventory on hand. So we're using that as well to fulfill our partners' requirements in the next quarter or 2. But there's a few we're going to have to allocate a little bit, which is, as I said, it's frustrating because we're We and they are doing so well right now.
We don't want to hold anybody back. So it's I think it's going to be a bit of a blip in the road in terms of our overall growth, but it's one of the reasons why, can't call the second can't call it up yet until we see exactly how that all plays out.
Okay. And then in the voice and data, obviously, a nice snapback from last year in terms of Seasonality, but even so the net adds were probably the highest I've seen since I've been covering the company. Has there been any other change in that market that maybe from a competitive perspective or that is driving stronger demand for your services?
Well, I think our portfolio is I said it's the first best first half in 9 years. I think we have a best a really great portfolio of products. For example, had really good activations of our Go product this year. Iridium Go has performed very well. People I think are really appreciating Sort of its potential.
The other one is PTT. I mean, we're really PTT has been very strong. We introduced that a number of years ago. It takes Time because it's a more complicated sale because you're selling that to a work group or a government or agencies and everything and they need To integrate it into their service portfolio and in their systems, but more and more of that's happening around the world. And so PTT has been really strong in the Last 6 months as well.
So and obviously, people returning back out is also An important driver, and as you can see people appreciate sort of the value of the service wherever they are. Everybody wants to Get out and socially distance, I guess, they're using their satellite devices, but it has been strong.
Okay. And then in terms of in the maritime market with the different levels of Yes, Certus offerings in terms of the 200 and the 700, how are those products Differentiated in the market aside from Street, like I'm thinking like in terms of like what applications are they more used for? And Is 200 potentially going to cannibalize some of the 700? Like how should we think about the dynamic of demand for 700 versus 200.
Yes. Obviously, there are 2 different speeds. The 200 is very small and Offers about, let me call it 200 because it's about 200 kilobits per second type service, which is good enough for many applications And a lot of lower end more price sensitive kind of applications that aren't really going to use service all that much Like the fact that it's a lot less expensive terminal, like half the cost. And therefore, it might be used for that. It's going to be used in some VSAT companion applications, which where they just want to really even reduce the cost further for sort of the L band component.
As I've said before, almost every VSAT terminal seems to go out there with 1 of our L band Terminal is on at least if it's anybody but 1 ks band providers. And then the 700 kilobit per second unit is obviously provides a lot more speed. It's a little more expensive, but it's a lot more competitive To those kind of standalone applications you might want to have where you really want a pay as you go kind of service as opposed to an always on VSAT unit. And but even if you wanted a premium backup to your VSAT unit, which will provide a much more comparative kind of service to it when You don't use when you can't use your VSAT terminal or it's out of coverage or it goes into More Northern or Southern Hemisphere coverage areas or whatever the reason might be, it provides even a higher level of service. So Our partners kind of see that both of them are going to be heavily used in their portfolios.
They see they don't see really Over another, I will say, I believe that long term, The Certus 200 product will cannibalize our open port units, which I will say have been holding up much better than we I think thought a Couple of years ago, we thought a lot of people would probably replace those open port units with Certus, but many of them are still out there in the field. As I said, almost The 9,000 are still out there. But as they do come up for replacement, I think the Certus 200 for those who are really, really cost Conscious will be a great replacement choice for them.
Okay. Thank you.
And our next question today comes from Chris Quilty of Quilty Analytics. Please go ahead.
Thank you. First, a question for Tom. With the higher anticipated service growth rate, but not raising the full year EBITDA, is Is it fair to assume that all of that is related to the lower engineering services and potentially lower revenues and margins on the equipment Or are there other factors in play?
Yes, it's those 2, Chris.
Okay. And then, Matt, a question Before you go into personal communications, obviously, the big anchor there is Garmin. And I think nearly all of those products today are the sort of Handheld GPS type of units. So two questions here. How do you see that broadening out in terms of Customer concentration.
And number 2 is, what do you think is the next major class of products beyond handheld GPS that becomes
I understand kind of where you're going. Obviously, Garmin has embedded us into more and more of their products And have plans to I believe introduce other products based upon our services. And as I mentioned today, they just Kind of sign the deal to embed Iridium Certif technology into their products in a very Integrated way much more than you might expect and that will create enough I think Even new opportunities for additional products that use higher speeds and can transfer Both pictures and that sort of thing much more easily than you can today with the current lower speed devices. So I'm looking at a lot of opportunity for growth from Garmin in the coming years. I really would hate to start trying to describe What they should really describe in terms of their product plans and how they plan to address different markets.
I do know they also continue to look To expand sort of geographically as well, they're very, I think, adept and effective at Managing sort of that consumer focused business and they do that carefully around the world in ways that are Advantageous and that also drives some growth. So I think that's what's exciting. But I don't really want to analyze their business for you here.
Got you. And final A question just on the service margins here. Given some of the mix issues that you see going on, is it fair to assume that they stay around the assume that they stay around the 80% level or do you see any room for expansion?
In terms of service revenue percentage of our portfolio?
Yes, we don't I mean, there's not a lot of there's not a lot of There's no incremental variable cost from one product to the next. It's kind of it's just network utilization. So I think if you're modeling 80 I don't see a change in that.
Perfect. Thank you, gentlemen.
Thanks, Chris.
And our next question today comes from Hamed Khorsand with BWS Financial. Please go ahead.
Hey, good morning. So First off, I just want to see if this growth that you've seen in Q2, was there a lot of built up backlog that a lot of your partners Just were able to clear out given the reopening after COVID?
I don't know that they characterize it to us That way, I believe that they I believe a lot of them were meeting their backlog going back Even until late last year, as we started seeing this growth really not just in the Q2, but it was building in the Q3 of last year, the 4th quarter, The Q1, I just think as we hit sort of the tsunami of seasonality in a number of our business areas, Full growth in some areas, new products coming on, all these things are coming together to get us back to what I would call more traditional Year over year kind of growth rates. And that's what I think you saw in the Q2. I don't think it was sort of some unexpected backlog Flowing out. Perhaps a little bit more in the broadband. I mean, I know that there is sort of a pent up backlog of Iridium Certus terminals to go on to ships.
Obviously, we saw some of those start getting on to ships more of those starting to get on to ships in the Q2, but I don't think that That's complete yet either. So I think the law is sort of natural growth.
Okay. And then on What you've been seeing on the IoT front with the component shortages, is that going to cap what your revenue or In some capacity because you're still raising service revenue. So I'm just trying to understand, are you just expecting just growth to slow down compared what you achieved in Q2?
So it relates specifically to equipment revenue. We had expectations at the beginning of the year for a certain level of equipment revenue. I will say the demand has far outstripped what our original expectations were. And while we can meet some of that demand growth in certain areas. This one component will slow us down a bit in IoT modules in the 3rd Q4, so that we can't meet all the additional growth that we're getting from those IoT partners in the way we'd like Still a lot of it.
And I don't think it's going to we're not going to be way, way off, but it will affect equipment revenues. I would say we would definitely Had an up year in equipment revenue without this, but that now doesn't look like that's going to necessarily happen, though we'll see. I mean, we're really As I said, we're still working to kind of maximize the revenue right now and we'll be able to report a lot more on that in the Q3 about exactly where we were
And our final question today comes from Matthew Robillard with Barclays. Please go ahead.
Yes. Good morning and thank you. First question maybe on maritime. Can you give a little bit of color in terms of how the competitive Environment has evolved, I mean, from legacy players or from more recent player, any change that is worth flagging?
Well, I mean, it's we've obviously gotten very strong in the last year or 2 with both products in almost every category Our better, cheaper, work, more places of the earth, etcetera, and we're only making that even more dramatic with now adding Certus 200 maritime products this year. There'll be 100 products in the maritime market. GMDSS is now Fully certified and expanding. In fact, we will report on it in the probably coming quarter, but we There's one country that needs to certify, Certus terminals and they should be certifying that soon. All these things are adding up to probably the best Competitive position we've ever been in.
And the response to us, of course, there is a little bit of response, but there can only be so much, I think to I think a really strong position across the board. And so it's showing up in our results. We're getting growth in maritime. I mean it's others aren't And are struggling in those areas and we're taking share. And I think that's just the strong position we're in.
So I don't think that's going to change dramatically. In fact, if anything, we're stepping on the gas everywhere we can to even compete more effectively.
Thank you. The second one was on Aviation. You mentioned some progress On different fronts in terms of being ready to launch the Certus product in that segment, any update in terms of When you think you can be in the market commercially with that product?
Yes. If the partners continue to Progress the way it looks like they are. Could be hitting the market late this year or certainly in 2022. We've had some of their terminals now into our labs for testing to make sure that The antennas work well with our network and they seem to meet our network requirements. So there Looks like they're in sort of the finishing up of their products right now.
And as I said, they're going to be they're I'm really excited about The potential of them because they're quite small in terms of being able to offer the speeds and capabilities they are and I think they'll be able to fit on a lot of aircraft that previously wouldn't have gotten that kind of capability before, whether it be rotorcraft or general aviation or corporate aircraft, Certainly commercial as well. And in parallel, we have to also deliver the Safety capability safety certification so that these terminals could be used on commercial aircraft in cockpit applications safety, we're making good progress this year on that and are on track to kind of get those certified to be allowed to have those things certified when they're coming in 20222023. So all those are taking a long time to get there And really excited about as I said, there's a number of products that will be here in the coming quarters.
Sounds great. And then maybe a last question, which is a bit more long term, but Obviously, the capacity of your satellites is finite is limited. And so I guess the maximization of revenues It's a mix of volume and ARPU. I think in back in 2019, you had kind of said, well, We think based on our internal assumptions of how much we charge for capacity and what the volumes are that we can generate Maybe EUR 1,000,000,000 of revenues in the long term with this fleet. And I guess the question was how have things developed?
I mean, can you comment a bit in terms of how is the mix between volume and price per megabyte Evolved, is that kind of in line with what you guys were seeing? Or are we seeing more higher prices or higher volumes? Just maybe some color there.
Yes. I can't reproduce my complete discussion, so I encourage people to go back and look at that Kind of Investor Day discussion where I sort of made that summary. That was more of an anecdotal summary at the time, But it was based upon a number of assumptions based upon all the new products we're offering, the growth that we were expecting and the different kinds of mix, for Example, extremely efficient personal consumer products versus a little less efficient broadband products and how they'd operate around the world. The other part of it too is that we are doing a lot of development right now to mine a lot of capacity out of our existing network. We're kind Redesigning our existing satellite software and gateway hardware and to get So basically significantly improve the capacity of our system in the coming years.
So all that being said, that Led me to believe, hey, just anecdotally, let's say, we could at least do, say, $1,000,000,000 And that hasn't our view hasn't really changed, nothing in terms of sort of the growth track we've been on or the or anything we've seen in terms of all those variables over the last, I don't know 2 years or whatever it was since we said that really has changed sort of the trajectory of what we think is this network is capable of. So Definitely think we have a lot, a lot of growth left, a lot of cash flow, a lot of earnings growth to come from the network And a lot of new subscribers, including I'd say we're even more bullish about The personal communication space than we might have been even back then because of some of the things we've seen. And again, those are incredibly efficient sort of Applications sending say text messages across our network uses very little of our network based upon sort of the cost per transaction. So if those expand as well as we might think that even That makes me even more bullish about our long term potential.
That's very helpful. Thank you, guys.
Okay. Thanks, Matthew.
And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the call back over to the management team for any final remarks.
Well, I get to go and find out how the Blue Origin launch I did. I hope you've all been watching that in the corner of your eyes. Nobody told me anything happened. So I'll look forward to seeing Other progress in the space industry that's around us, but thanks for joining this call and look forward to seeing you all in the Q3. Take care.