We are one of the leading providers of satellite-based IoT services. We believe the early stage of this market continues to experience increasing penetration and its low penetration presentpresents opportunities for future growth. As with land mobile, our largest IoT users include mining, construction, oil and gas, utilities, heavy industry, maritime, forestry and transport companies, as well as the military, public safety and disaster relief agencies. We believe increasing demand for automated data collection processes from mobile and remote assets operating outside the coverage of terrestrial wireline and wireless networks, as well as the continued need to integrate the operation of such assets into enterprise management and information technology systems, will likewise increase demand for our IoT applications. For example, our IoT devices have been adopted as standard equipment and as factory options by heavy equipment manufacturers such as Caterpillar Inc., to provide telematics solutions for end users.
We are one of the leading providers of mobile satellite communications services to the U.S. government, principally the DoD. We provide mobile satellite products and services to all branches of the U.S. armed forces. Our voice products are used for a variety of primary and backup communications solutions, including tactical operations, logistical, administrative, morale and welfare, and emergency communications. In addition, our products and related applications are installed on ground vehicles, ships, rotary- and fixed-wing aircraft, embedded in unattended sensors and used for command and control and situational awareness purposes. Global security concerns are among the factors driving demand for our products and services in this sector. See “—U.S.“U.S. Government Services” below for more information.
Our business is subject to seasonal usage changes for commercial customers, and we expect it to be affected by similar seasonality going forward. March through October are typically the peak months for commercial voice traffic and related subscriber equipment sales, given the predominance of population and outdoor activity in the northern hemisphere. U.S. government usage and commercial IoT usage have been less subject to seasonal changes.
We sell our mobile voice and data services to service providers and VARs who in turn offer such services to end users, either directly or indirectly through dealers, using various packaged solutions such as monthlyseasonal or annual plans with differing price
levels that vary depending upon expected usage. In exchange for these services, we typically charge service providers and VARs a monthly access fee per subscriber, as well as usage fees for airtime resources consumed by their respective subscribers.
We also offer mobile voice services to service providers and VARs through prepaid plans. Service providers and VARs pay us in advance for defined blocks of airtime minutes with expiration periods in various configurations, generally ranging from 30 days to two years, but which can be extended by the purchase of additional e-vouchers up to a maximum of three or four years. These services are then generally sold to subscribers in the form of prepaid e-vouchers and scratch cards and e-vouchers that enable subscribers to use our services on a per-minute basis. Unused minutes generally are forfeited on the applicable expiration date. We believe service providers and VARs are drawn to these services because they enable greater cost control by eliminating the need for monthly billings and reducing collection costs, and can be sold in countries where credit may not be readily available for end users. Our distributors often offer our prepaid voice services through fixed devices to subscribers in rural villages, at remote industrial, commercial and residential sites, and on ships at sea, among other places. Fixed voice satellite communications services are in many cases an attractive alternative to handheld mobile satellite communications services in situations where multiple users will access the service within a defined geographic area and terrestrial wireline or wireless service is not available. Fixed phones, for example, can be configured as pay phones that accept prepaid scratch cards and can be installed at a central location, for example in a rural village or on a maritime vessel.
Our IoT services are designed to address the market need for a small and cost-effective solution for sending and receiving data, such as location, from fixed and mobile assets in remote locations to a central monitoring station. This service operatesMost of our IoT services operate through a two-way SBD transmission or circuit-switched data, between our network and a transceiver, which may be located, for example, on a container in transit or a buoy monitoring oceanographic conditions. The small size of our devices and their low-cost, omnidirectional antennas make them attractive for use in applications such as tracking asset shipments and monitoring unattended remote assets, including oil and gas assets, as well as vehicle tracking and mobile security. We sell our IoT services to our distributors, who incorporate them and in turn provide a solution package to commercial and government customers. Increasingly, our IoT transceivers are being built into products for consumer markets, such as personal location devices that provide two-way messaging. In the future, we expect our IoT partners to develop new offerings with increased capabilities based on our Iridium Certus 9770 transceiver and other future midband devices we plan to create that have optimized size, speed, power, and antenna characteristics for various applications. As with our mobile voice and data offerings, we typically charge service providers and VARs a monthly access fee per subscriber as well as usage fees for data used by their respective subscribers.
U.S. Government Services
We provide U.S. government customers bulk access to our services, including voice, netted voice, data, messaging and paging services, as well as maintenance services for the DoD’sU.S. government’s dedicated gateway. We provide airtime to U.S. government subscribers through DoD’sthe U.S. government’s gateway under the EMSS contract, which is a fixed-price contract covering voice, low-speed data, paging, broadcast and DTCS services. Additional services, such as broadband capabilities utilizing Iridium Certus technology, wouldmay be provided at an additional fee. To comply with U.S. government requirements, we ensure handsets sold for use by the U.S. government are manufactured in the United States. U.S. government customers procure our voice and data devices through specific, approved distributors from our network of VARsservice providers and service providers.VARs. Our VARs and VAMs typically integrate our products with other products, which they then offer to U.S. government customers as customized products. They areproducts, typically provisioned then by DISA.the U.S. Space Force. Our voice and data solutions for the U.S. government include:
Our principal handset offerings are the Iridium 9555 and Iridium Extreme satellite handsets, which are similar in functionality to ordinary cellular phones but with the solid, durable feel that satellite phone users demand.phones. We believe our reputation forthe industrial-strength design of these products is critical for customers, many of whom are located in the most inhospitable spots on the planet and require rugged and reliable communications equipment.
Our principal IoT devices are the Iridium 9602 and 9603 full-duplex SBD transceivers. The Iridium 9602 is a small data device with two-way transmission, capable of sending packet data to and from any point in the world with low latency. The principal customers for our Iridium 9602 data modems are VARs and VAMs, who embed the device into their tracking, sensor, and data applications and systems, such as asset tracking systems. Our partners often combine the Iridium 9602 with a GPS receiver to provide location information to customer applications. We also offer the Iridium 9603, an even smaller transceiver that is functionally identical to the Iridium 9602. In addition, a number of VARs and VAMs include a cellular modem as part of their Iridium applications to provide low-cost cellular data transmission when available. These types of multimode applications are adopted by end users who require the ability to regularly transfer data but operate in areas with inconsistent cellular coverage. We provide gap-filler coverage for these applications, allowing users to operate anywhere on the globe. In addition, several partners now offer products with Iridium Certus 9770 transceivers supporting Iridium Certus 100 service for IoT, including the SkyLink product from Blue Sky Networks and the RockREMOTE from Ground Control.
We contract with Cambridge Consulting Ltd. and other suppliers to develop all of our devices, and with Benchmark Electronics Inc., or Benchmark, to manufacture most of our devices in facilitiesa facility in Thailand, and with Verigon to manufacture a portion of our
We generally provide our distributors with a warranty on subscriber equipment for a period ranging from one year to five years18 months from the date of activation, depending on the product. We also utilize other suppliers, some of which are the sole source, to manufacture some of the component parts of our devices.
In addition to our principal products, we also offer a selection of accessories for our devices, including extended-life batteries, holsters, earbud headphones, portable auxiliary antennas, antenna adaptors, USB data cables and charging units, among others.units. We purchase these products from several third-party suppliers either pursuant to contractual agreements or off the shelf at market prices.
Our use of spectrum is globally coordinated and recorded by, and subject to the frequency rules and regulations of, the International Telecommunication Union, or ITU. The ITU is the United Nations organization responsible for worldwide co-operation in the telecommunications sector. In order to protect satellite systems from harmful radio frequency interference from other satellite systems, the ITU maintains a Master International Frequency Register of radio frequency assignments. Each ITU administration is required to give notice of, coordinate and record its proposed use of radio frequency assignments with the ITU’s Radiocommunication Bureau. The coordination negotiations are conducted by the national administrations with the assistance of satellite operators. When the coordination process is completed, the ITU formally notifies all proposed users of frequencies and orbital locations in order to protect the recorded assignments from subsequent nonconforming or interfering uses by member states of the ITU. Only member states have full standing within this inter-governmental organization. Filings to the ITU for our first-generation constellation were made on our behalf by the United States.
The ITU also controls the assignment of country codes used for placing telephone calls between different countries. Our network has been assigned the 8816 and 8817 country codes and uses these numbers for calling and communications between terminals.
Globalstar owns and operates a fleet of LEO satellites. Globalstar’s service is available only on a multi-regional basis as a result of its “bent pipe” architecture, which requires that voice and data transmissions be routed from satellites immediately to nearby ground stations. This design requires the use of multiple ground stations, which are impractical in extreme latitudes or over oceans. Unlike Inmarsat and us, Globalstar sells a higher percentage of its products and services directly to end users. Globalstar completed its most recent launch campaign in February 2013. It has currently arranged to replace only 24 of its original 48 satellites.
ORBCOMM also provides commercial services using a fleet of LEO satellites. Like Globalstar, ORBCOMM’s network also has a “bent pipe” architecture, which limitsconstrains its real-time coverage area. ORBCOMM’s principal focus is low-cost data and IoT services, where it directly competes with our IoT offerings. Because a ground station may not be within view of a satellite, ORBCOMM’s services may have a significant amount of latency, which may limit their use in some mission-critical applications. ItORBCOMM does not offer voice service or high-speed data services.
While we view our services as largely complementary to terrestrial wireline and wireless communications networks, we also compete with them indirectly. We provide service in areas that are inadequately covered by these ground systems. To the extent that terrestrial communications companies invest in underdeveloped areas, we will face increased competition in those areas. We believe that local telephone companies currently are reluctant to invest in new switches, landlines and cellular towers to
expand their networks in rural and remote areas due to high costs and limited usage. Many of the underdeveloped areas are sparsely populated, making it difficult to generate the necessary returns on the capital expenditures required to build terrestrial wireless networks in those areas. We believe that our solutions offer a cost-effective and reliable alternative to terrestrial-based wireline and wireless systems in these remote regions.
Our research and development efforts have focused on the development, design and testing of our new constellation and new products, and services, such as Iridium Certus, Iridium Messaging Transport, Iridium Edge, Iridium PTT, Iridium Burst, Iridium Pilot Land StationGO!, Iridium GO! exec, transceiver modules and Iridium GO!, and the planning and development of the Iridium NEXT constellation, ground infrastructure and chipsets, as well as new products and services to be offered on Iridium NEXT, such as Iridium Certus.chipsets. We also develop productnetwork and serviceproduct enhancements and new applications for our existing products and services.products. Our research and development expenses were $15.2$20.3 million, $16.1$16.2 million and $16.1$11.9 million for the years ended December 31, 2017, 20162023, 2022, and 2015,2021, respectively.
Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments, if any, to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through our website at www.iridium.com and on the website of the Securities and Exchange Commission, or SEC, at www.sec.gov. A request for any of these reports may also be submitted to us by writing: Investor Relations, Iridium Communications Inc., 1750 Tysons Boulevard, Suite 1400, McLean, VA 22102, or by calling our Investor Relations line at 703-287-7570.
Item 1A. Risk Factors
Risks related to our satellites and network
Our business plan depends on increased demand for mobile satellite services, among other factors.
Our business plan is predicated on growth in demand for mobile satellite services. Demand for mobile satellite servicessatellites may not grow, or may even contract, either generally or in particular geographic markets, for particular types of services or during particular time periods. A lack of demandexperience operational problems, which could impair our ability to sell products and services, develop and successfully market new products and services and could exert downward pressure on prices. Any decline in prices would decrease our revenue and profitability and negatively affect our ability to generate cash for capital expenditures, investments and other working capital needs.
Our ability to successfully implement our business plan will also depend on a number of other factors, including:
our ability to maintain the health, capacity and control of our first-generation satellites through the deployment of Iridium NEXT;
our ability to operate a hybrid constellation and to successfully replace individual first-generation satellites with their Iridium NEXT replacements;
our ability to complete the Iridium NEXT constellation and related products and services, and, once fully deployed, our ability to maintain the health, capacity and control of the new satellite constellation;
the level of market acceptance and demand for our products and services;
our ability to introduce innovative new products and services that satisfy market demand, including new product and service offerings on Iridium NEXT;
our ability to expand our business using our existing spectrum resources both in the United States and internationally;
our ability to sell our products and services in additional countries;
our ability to maintain our relationship with U.S. government customers, particularly the DoD;
the ability of our distributors to market and distribute our products, services and applications effectively and their continued development of innovative and improved solutions and applications for our products and services;
the effectiveness of our competitors in developing and offering similar services and products;
our ability to de-orbit our first-generation satellites; and
our ability to maintain competitive prices for our products and services and to control our costs.
Our business plan depends in large part on the success of Aireon LLC, which is our primary hosted payload customer.
In June 2012, we announced our plans to host a payload being developed by Aireon LLC as our primary hosted payload on Iridium NEXT. We currently expect to use the cash flows generated from this hosted-payload arrangement with Aireon to satisfy a portion of our capital requirements for the development and deployment of Iridium NEXT. Aireon’s payload is a satellite-based automatic dependent surveillance-broadcast, or ADS-B, system for global air traffic monitoring, and Aireon’s success will depend on its ability to successfully deploy this system. Deployingprovide an ADS-B system on satellites is a new and unproven method for providing this service.
In addition, Aireon’s ability to pay us hosting fees will depend on the development of the market for a space-based ADS-B service among air navigation service providers, or ANSPs, particularly the FAA. Aireon does not have a contract to provide commercial, operational ADS-B services to the FAA, and there can be no assurance that it will be successful in securing such a contract. The FAA’s activities to date have been limited to preparing to use space-based ADS-B, and no funds have been allocated by the FAA for a commercial, operational commitment to Aireon. If Aireon is not successful in entering into a
contract for the provision of operational ADS-B services to the FAA, it may not be able to make its hosting reimbursement payments to us when we currently anticipate or at all.
Aireon will itself require significant additional capital to complete the successful deployment and operation of its system. The Aireon LLC Agreement provided for the purchase by NAV CANADA Satellite and three other ANSP investors of additional membership interests in multiple tranches for an aggregate investment of $270 million, all of which has been funded. Further, Aireon is in the process of raising additional operating capital. If Aireon issues equity to raise such capital, we may experience dilution of our ownership interest in Aireon, and if Aireon raises debt, the terms of the debt may limit Aireon's ability to pay distributions in respect of equity, including to us.
The management of Aireon is not within our control given that we only have rights to appoint two of the 11 members of the Aireon board of directors, as well as significant veto rights and other protective provisions provided to NAV CANADA and the other investors. As a result, we may not be able to cause Aireon to take actions that we believe are necessary for its ultimate success.
If Aireon is unable to pay its hosting reimbursement costs, our ability to pursue our business plan would be compromised unless we were able to replace those amounts with revenue or capital from other sources. In addition, Aireon’s failure to pay our data fees and make the anticipated redemption of a portion of our equity interest would negatively affect our expected future results of operations.
We may need additional capital to complete Iridium NEXT, develop and launch new products and services, and pursue additional growth opportunities. If we fail to maintain access to sufficient capital, our liquidity could be compromised and we will not be able to successfully implement our business plan.
Our business plan calls for the continued deployment of Iridium NEXT, the development of new product and service offerings, upgrades to our current services, and upgrades to our business systems. We estimate the costs associated with the design, build and launch of Iridium NEXT and related ground infrastructure upgrades through 2018 to be approximately $3 billion. Our funding plan for these costs includes the substantial majority of the funds under our $1.8 billion Credit Facility which was fully drawn as of February 2017, together with cash on hand, internally generated cash flows, including cash flows from hosted payloads, and a potential debt issuance.
There can be no assurance that our internally generated cash flows will meet our current expectations, or that we will not encounter increased costs. For example, Aireon may be unable to pay its hosting reimbursement costs. If internally generated cash flows, including potential cash from Aireon, are less than we expect, we might need to finance the remaining cost of Iridium NEXT by raising additional debt or equity financing. In addition, we may need additional capital to design and launch new products and services on Iridium NEXT. We would have to seek the permission of the lenders under the Credit Facility in order to obtain many alternative sources of financing, including a potential debt issuance, and there can be no assurance that we would obtain such lenders' consent and, even if obtained, that we would have access to other sources of financing on acceptable terms, or at all.
If we are unable to generate sufficient cash flows or to raise additional capital for one or more of these needs, our ability to maintain our network, complete Iridium NEXT, develop new products and services, and pursue additional growth opportunities will be impaired, which would significantly limit the development of our business and impair our ability to provide a commercially acceptable level of service. We expect our overall liquidity levels in the coming years to be lower than our recent liquidity levels, as we have fully drawn our Credit Facility and expect to begin principal repayments in early 2018. Inadequate liquidity could compromise our ability to pursue our business plans and growth opportunities, delay the continued deployment of Iridium NEXT, or otherwise impair our business and financial position, or we might need to satisfy our liquidity needs by raising additional debt or equity financing.
If we default under the Credit Facility, the lenders may require immediate repayment in full of amounts borrowed or foreclose on our assets.
The Credit Facility contains events of default, including:
non-compliance with the covenants under the Credit Facility, including financial covenants and covenants relating to hosted payloads;
cross-default with other indebtedness;
insolvency of any obligor under the Credit Facility;
revocation of the BPIAE insurance policy;
failure to maintain our first-generation satellites or complete Iridium NEXT by a specified date; and
a determination by the lenders that we have experienced a material adverse change in our business.
Some of these events of default are outside of our control or otherwise difficult to satisfy. If we experience an event of default, the lenders may require repayment in full of all principal and interest outstanding under the Credit Facility. It is unlikely we would have adequate funds to repay such amounts prior to the scheduled maturity of the Credit Facility. If we fail to repay such amounts, the lenders may foreclose on the assets we have pledged under the Credit Facility, which includes substantially all of our assets and those of our domestic subsidiaries.
The Credit Facility restricts the manner in which we may operate our business, which may prevent us from successfully implementing our business plan.
The Credit Facility contains restrictions on the operation of our business, including limits on our ability to:
make capital expenditures;
carry out mergers and acquisitions;
dispose of, or grant liens on, our assets;
enter into transactions with our affiliates;
pay dividends or make distributions to our stockholders;
incur indebtedness;
prepay indebtedness; and
make loans, guarantees or indemnities.
The Credit Facility also prohibits us from paying dividends to holders of our preferred stock, including our Series A Preferred Stock and Series B Preferred Stock, if we are unable to certify that we anticipate being able to comply with the financial covenants of the Credit Facility for the next twelve months each time we declare a dividend. If we are unable to make that certification, we will not be able to pay the dividends on our outstanding preferred stock. As required by our amended Credit Facility, during the three months ended June 30, 2017, we began a five-quarter deferral of dividends on both the Series A Preferred Stock and Series B Preferred Stock. If we do not pay dividends on our preferred stock for six quarterly periods (whether or not consecutive), the holders of the Series A Preferred Stock and Series B Preferred Stock collectively will have the power to elect two members of our board of directors. The interests of the holders of our preferred stock may differ from those of our other stockholders. In addition, any dividend we fail to pay will accrue, and the holders of our Series A Preferred Stock and Series B Preferred Stock will be entitled to a preferential distribution of the original purchase price per share plus all accrued and unpaid dividends before any distribution may be made to holders of our common stock in connection with any liquidation event.
Complying with these restrictions may cause us to take actions that are not favorable to holders of our common stock and may make it more difficult for us to successfully execute our business plan and compete against companies who are not subject to such restrictions.
If we are unable to effectively deploy Iridium NEXT before our first-generation satellites cease to provide a commercially acceptable level of service our business will suffer.
We are currently launching Iridium NEXT. While we expect our first-generation satellites to provide a commercially acceptable level of service through the completion of the transition to Iridium NEXT, we cannot guarantee it will do so. If we are unable to effectively complete the deployment of Iridium NEXT for any reason, whether as a result of insufficient funds, manufacturing or launch delays, launch failures, in-orbit satellite failures, inability to achieve or maintain orbital placement, failure of the
satellites to perform as expected, interference between any hosted payload and our network, or otherwise, before our first-generation satellites cease to provide a commercially acceptable level of service, or if we experience backward compatibility problems with our new constellation, we would likely lose customers and business opportunities to our competitors, resulting in a potentially material decline in revenue and profitability and the inability to service our debt.
Iridium NEXT may not be completed on time, and the costs associated with it may be greater than expected.
We estimate that the costs associated with the design, build and launch of Iridium NEXT and related ground infrastructure upgrades through 2018 will be approximately $3 billion, although our actual costs could substantially exceed this estimate. We may not complete Iridium NEXT on time, on budget or at all. Our first launch, originally scheduled for the first quarter of 2015, was delayed until January 2017 because of delays by our satellite manufacturer, the failure of one of our launch providers, Kosmotras, to obtain the permits or authorizations for launch, and delays by our other launch provider, SpaceX, and we may experience further delays. The design, manufacture and launch of satellite systems are highly complex and historically have been subject to delays and cost overruns. Deployment of Iridium NEXT may suffer from additional delays, interruptions or increased costs due to many factors, some of which may be beyond our control, including:
lower than anticipated internally generated cash flows, including from Aireon and other hosted payloads;
inadequate liquidity;
operating and other requirements imposed by the lenders under the Credit Facility;
Thales’s ability to manufacture the Iridium NEXT satellites on time and on budget, including issues that might be found late in the process, for example during systems-level testing;
interference between any hosted payload and our network;
complex integration of our ground segment with the Iridium NEXT satellites and the transition from our first-generation satellites;
denial or delays in receipt of regulatory approvals or non-compliance with conditions imposed by regulatory authorities;
the breakdown or failure of equipment or systems;
non-performance by third-party contractors, including the prime system contractor;
the inability to license necessary technology on commercially reasonable terms or at all;
use of the SpaceX launch vehicle, which has a limited operating history, or the failure of SpaceX to sustain its business;
launch delays or failures or in-orbit satellite failures once launched or the decision to manufacture additional replacement satellites for future launches;
labor disputes or disruptions in labor productivity or the unavailability of skilled labor;
increases in the costs of materials;
changes in project scope;
additional requirements imposed by changes in laws; or
severe weather or catastrophic events, such as fires, earthquakes or storms.
If the manufacture and deployment of Iridium NEXT costs more or takes longer than we anticipate, our ability to continue to develop Iridium NEXT could be compromised.
Loss of any Iridium NEXT satellite during launch or delays in our launch schedule could delay or impair our ability to offer our services or increase our costs.
The future launches of our Iridium NEXT satellites will be subject to the inherent risk of launch failures, which could result in the loss or destruction of one or more satellites. We have entered into two launch services agreements with SpaceX, pursuant to which SpaceX will provide launch services to us in connection with our deployment of Iridium NEXT. The SpaceX agreements contemplate seven launches of ten satellites, four of which have been completed, and one shared launch of five satellites, each on SpaceX’s Falcon 9 rocket, over a two-year period. SpaceX is a rapidly growing company in a technically complicated industry, is working to meet an aggressive launch manifest and has experienced failures leading to launch delays in the past. In the event of a launch failure resulting in the destruction of our satellites, we may not be able to have enough replacement satellites manufactured in time to conduct all contracted launches. A failure by SpaceX to maintain its launch schedule could expose us to delay or the need to utilize an alternate launch services provider, which could substantially increase our launch costs.
Our launch insurance contains significant elements of self-insurance and some variability in premiums and only covers the first twelve months of operations of our Iridium NEXT satellites, as a result of which we may be subject to increased costs.
The launch and in-orbit insurance we have obtained contains, consistent with the terms of the Credit Facility, elements of self-insurance and deductibles, providing reimbursement only after a specified number of satellite failures. Further, some policies covering launches three through seven require the payment of additional premiums if there are losses on the first two launches. Further, our insurance only covers in-orbit failures of our satellites for a period of twelve months from the date of launch. As a result, a failure of one or more of our satellites, or the occurrence of equipment failures and other related problems, could constitute an uninsured loss or require the payment of additional premiums and could harm our financial condition. Furthermore, launch and in-orbit insurance does not cover lost revenue.
Both our first-generation and our Iridium NEXT satellites have a limited life and may fail prematurely, which would cause our network to be compromised and materially and adversely affect our business, prospects and profitability.
Our first-generation satellites have exceeded their original design lives. While actual useful life typically exceeds original design life, the useful lives of our satellites may be shorter than we expect, and satellites may fail or collide with space debris or other satellites in the future. Similarly, we may experience in-orbit malfunctions of Iridium NEXT satellites, which could adversely affect the reliability of their service or result in total failure of the satellite. If we experience a failure in an orbital plane other than a plane in which we have a spare, we do not expect to replace the failure until we have an Iridium NEXT satellite available to do so. As a result, while we expect our constellation to provide a commercially acceptable level of service through the completion of the transition to Iridium NEXT, we cannot guarantee it will be able to do so.
In-orbit failure of a satellite may result from various causes, including component failure, loss of power or fuel, inability to control positioning of the satellite, solar or other astronomical events, including solar radiation and flares, and space debris. Other factors that could affect the useful lives of our satellites include the quality of construction, gradual degradation of solar panels and the durability of components. Radiation-induced failure of satellite components may result in damage to or loss of a satellite before the end of its expected life. As our first-generation satellites have aged, some of our satellites have experienced individual component failures affecting their coverage or transmission capacity, and other satellites may experience such failures in the future, which could adversely affect the reliability of their service or result in total failure of the satellite. Although we do not incur any direct cash costs related to the failure of a satellite, if a satellite fails, we record an impairment charge in our statement of operations to reduce the remaining net book value of that satellite to zero, and any such impairment charges could depress our net income for the period in which the failure occurs.
customers.
From time to time, we are advised by our customers and end users ofexperience temporary intermittent losses of signal cutting off calls in progress, preventing completions of calls when made, or disrupting the transmission of data. If the magnitude or frequency of such problems increaseincreases and we are no longer able to provide a commercially acceptable level of service, our business and financial results and our reputation would be hurt, and our ability to pursue our business plan would be compromised.
We may be required in the future to make further changes to our constellation to maintain or improve its performance. Any such changes may require prior FCC approval, and the FCC may subject the approval to other conditions that could be unfavorable to our business. In addition, from time to time we may reposition our satellites within the constellation in order to optimize our service, which could result in degraded service during the repositioning period. Although we have some ability to remedy some types of problems affecting the performance of our satellites remotely from the ground, the physical repair of our satellites in space is not feasible.
We will have to de-orbit all of our first-generation satellites, and we may not be able to obtain or maintain adequate de-orbit insurance.
Our FCC license requires us to de-orbit a first-generation satellite following its replacement with an Iridium NEXT constellation satellite and to notify the FCC within 30 days following removal of a first-generation satellite from its operational orbit for purposes of de-orbit, subject to the license modification that we have been granted with respect to up to 18 first-generation satellites we may keep as spares.
Our current insurance policy covers amounts that we and other specified parties may become liable to pay for bodily injury and property damages to third parties related to a de-orbit of our first-generation satellites. Our current policy has a one-year term, which expires on December 8, 2018, and covers all remaining first-generation satellites. The price, terms and availability of insurance have fluctuated significantly since we began offering commercial satellite services. The cost of obtaining insurance can vary as a result of either satellite failures or general conditions in the insurance industry. Higher premiums on insurance policies would increase our cost. De-orbit liability insurance policies on satellites may not continue to be available on commercially reasonable terms or at all or in sufficient amount to cover the planned de-orbit, over time, of all satellites in our first-generation constellation. In addition to higher premiums, insurance policies may provide for higher deductibles, shorter coverage periods and additional policy exclusions. For example, our current de-orbit insurance covers only twelve months from attachment and therefore would not cover losses arising outside that timeframe. In addition, even if we continue to maintain a de-orbit liability insurance policy, the coverage may not protect us against all third-party losses, which could be material.
Our agreements with U.S. government customers, particularly the DoD, which represent a significant portion of our revenue, expire in 2018 and are also subject to termination.
The U.S. government, through a dedicated gateway owned and operated by the DoD, has been and continues to be, directly and indirectly, our largest customer, representing 24% of our revenue for each of the years ended December 31, 2017 and 2016. We provide the majority of our services to the U.S. government pursuant to our Gateway Maintenance and Support Services, or GMSS, and EMSS contracts. We entered into these contracts in September 2013 and October 2013, respectively. The GMSS contract provides for a one-year base term and up to four additional one-year options exercisable at the election of the U.S. government, all of which have been exercised so far, and the EMSS contract provides for a five-year term. These agreements expire in the second half of 2018, although based on federal acquisition regulations, the government has the ability to extend each agreement for an additional six months. We are currently negotiating renewals of these contracts, but we can provide no assurance that we will be able to do so on favorable terms, or at all. Further, the U.S. government may terminate these agreements, in whole or in part, at any time for its convenience. Our relationship with the U.S. government is also subject to the overall U.S. government budget and appropriation decisions and processes. U.S. government budget decisions, including with respect to defense spending, are based on changing government priorities and objectives, which are driven by numerous factors, including geopolitical events and macroeconomic conditions, and are beyond our control. If the U.S. government terminates or fails to renew either of the agreements, we would lose a significant portion of our revenue.
We are dependent on intellectual property licensed from third parties to operate our constellation and sell our devices and for the enhancement of our existing products and services.
We license critical system technology, including software and systems, to operate and maintain our network as well as technical information for the design, manufacture and sale of our devices. This intellectual property is essential to our ability to continue to operate our constellation and sell our services and devices. In addition, we are dependent on third parties to develop enhancements to our current products and services even in circumstances where we own the intellectual property. If any third-party owner of such intellectual property were to terminate any license agreement with us or cease to support and service this technology or perform development on our behalf, or if we are unable to renew such licenses on commercially reasonable terms or at all, it may be difficult, more expensive or impossible to obtain such technology or services from alternative vendors. Any substitute technology may also be costly to develop and integrate, or could have lower quality or performance standards, which would adversely affect the quality of our products and services. In connection with the manufacture and operation of Iridium NEXT and the development of new products and services to be offered on Iridium NEXT, we may be required to obtain additional intellectual property rights from third parties. We can offer no assurance that we will be able to obtain such intellectual property rights on commercially reasonable terms or at all. If we are unable to obtain such intellectual property rights on commercially reasonable terms, we may not be able to complete Iridium NEXT on budget or at all or may not be able to develop new products and services to be offered on Iridium NEXT.
Our products could fail to perform or could perform at reduced levels of service because of technological malfunctions or deficiencies, regulatory compliance issues, or events outside of our control, which would seriously harm our business and reputation.
Our products and services are subject to the risks inherent in a large-scale, complex telecommunications system employing advanced technology.technology and heavily regulated by, among others, the FCC and similar authorities internationally. Any disruption to our satellites, services, information systems or telecommunications infrastructure, or regulatory compliance issues, could result in the inability or reduced ability of our customers to receive our services for an indeterminate period of time. These customers include government agencies conducting mission-critical work throughout the world, as well as consumers and businesses located in remote areas of the world and operating under harsh environmental conditions where traditional telecommunications services may not be readily available. Any disruption to our services or extended periods of reduced levels of service could cause us to lose customers or revenue, result in delays or cancellations of future implementations of our products and services, result in failure to attract customers, or result in litigation, customer service or repair work that would involve substantial costs and distract management from operating our business. The failure of any of the diverse elements of our system, including our satellites, our commercial gateway, our satellite teleport network facilities or our satellite network operations center, to function as required could render our system unable to perform at the quality and capacity levels required for success. Any system failures, repeated product failures or shortened product life, or extended reduced levels of service could reduce our sales, increase costs, or result in warranty or liability claims or litigation, cause us to extend our warranty period, and seriously harm our business.
Our failure to effectively manage the expansion ofsatellites have a limited life and may fail prematurely, which could cause our product portfolio could impede our ability to execute our business plan, and we may experience increased costs or disruption in our operations.
We are dependent on our ability to develop and market new products for substantial future revenue growth. We currently face a variety of challenges, including maintaining the infrastructure and systems necessary for us to manage the growth of our business. As our product portfolio continues to expand, the responsibilities of our management team and other company resources also grow. Consequently, we may further strain our management and other company resources with the increased complexities and administrative burdens associated with a larger, more complex product portfolio. For example, we have in the past experienced quality issues and incorrect market assessments in connection with the introduction of new products and services, and we may experience such issues in the future. Our failure to meet these challenges as a result of insufficient management or other resources could significantly impede our ability to execute our business plan, which relies in part on our ability to leverage our largely fixed-cost infrastructure. To properly manage our growth, we may need to hire and retain additional personnel, upgrade our existing operational management and financial and reporting systems, and improve our business processes and controls. Failure to effectively manage the expansion of our product portfolio in a cost-effective manner could result in declines in product and service quality and customer satisfaction, disruption of our operations, or increased costs, any of which would reduce our ability to increase our profitability.
As we and our distributors expand our offerings to include more consumer-oriented devices, we are more likelynetwork to be subject to product liability claims, recalls or litigation, which couldcompromised and materially and adversely affect our business, prospects and financial performance.
Through of distributors, we offer several products and services aimed at individual consumers, and we and our distributors continue to introduce additional products and services. These products and services, such as satellite handsets, personal locator devices and location-based services, may be used in isolated and dangerous locations, including emergency response situations, and users who suffer property damage, personal injuryprofitability, or death while using the product or service may seek to assert claims or bring lawsuits against us. Further, it is possible that our products would become the subject of consumer protection litigation, including class actions. We seek to limit our exposure to all of these claims through appropriate disclosures, indemnification provisions and disclaimers, but these steps may not be effective. We also maintain product liability insurance, but this insurance may not cover any particular claim or litigation, or the amount of insurance may be inadequate to cover the claims brought against us. Product liability insurance could become more expensive and difficult to maintain and might not be available on acceptable terms or at all. In addition, it is possible that our products would become the subject of a product recall as a result of a product defect. We do not maintain recall insurance, so any recall could have a significant effect on our financial results. In addition to the direct expenses of product liability claims, recalls and litigation, a claim, recall or litigation might cause us adverse publicity, which could harm our reputation and compromise our ability to sell our products in the future.
The collection, storage, transmission, use and disclosure of user data and personal information could give rise to liabilities or additional costs as a result of laws, governmental regulations, and evolving views of personal privacy rights and information security standards.
We transmit, process, and in some cases store, end user data, including personally identifiable information. In jurisdictions around the world, the transmission and storage of personally identifiable information is becoming increasingly subject to legislation and regulations intended to protect consumers’ privacy and the security of their personal information. The standards
for processing, storing and using personally identifiable information continue to evolve, and impose additional obligations and risk on our business, and have the potential to make some of our business processes less feasible. In addition, the interpretation of privacy and data protection laws and regulations regarding the collection, storage, transmission, use and disclosure of such information in some jurisdictions remains unclear. These laws may be interpreted, applied and enforced in conflicting ways from country to country and in a manner that is not consistent with our current data protection practices. Complying with these varying international requirements could cause us to incur additional costs and change our business practices. Because our services are accessible in many foreign jurisdictions, some of these jurisdictions may claim that we are requiredexpense to comply with their laws, even where welaunch replacement satellites.
We have no local entity, employees or infrastructure. We could face a variety of enforcement actions or government inquiries or be forced to incur significant expenses if we were required to modify our products, our services, or our existing security and privacy procedures in order to comply with new or expanded regulations.
In addition, if end users allege that their personal information is not collected, stored, transmitted, used or disclosed by us or our business partners appropriately or in accordance with our privacy policies or applicable laws, or that our failure to adequately secure their information compromised its security, we could have liability to them or to consumer protection agencies, including claims and litigation resulting from such allegations. Any failure on our part to protect end users’ privacy and data could result in a loss of user confidence, hurt our reputation and ultimately result in the losspast and may in the future experience in-orbit malfunctions of users.
Ourour satellites, may collide with space debris or another spacecraft, which could adversely affect the performancereliability of their service or result in total failure of the satellite. In-orbit failure of a satellite may result from various causes, including component failure, loss of power or fuel, inability to control positioning of the satellite, solar or other astronomical events, including solar radiation and flares, and space debris. Other factors that could affect the useful lives of our constellation.
In February 2009, we lost an operational satellite assatellites include the quality of construction, gradual degradation of solar panels and the durability of components. We do not have and have no plans to obtain in-orbit insurance. As a result, of a collision with a non-operational Russian satellite. Although we have some ability to actively maneuver our satellites to avoid potential collisions with space debris or other spacecraft, this ability is limited by, among other factors, uncertainties and inaccuracies in the projected orbit location of and predicted conjunctions with debris objects tracked and cataloged by the U.S. government. Additionally, some space debris is too small to be tracked and therefore its orbital location is completely unknown; nevertheless, this debris is still large enough to potentially cause severe damage or a failure of our satellites should a collision occur. If our constellation experiences additional satellite collisions with space debrisone or other spacecraft, our service could be impaired.
The space debris created by the February 2009 satellite collision may cause damage to other spacecraft positioned in a similar orbital altitude.
The 2009 collision of onemore of our satellites, withthe occurrence of equipment failures and other related problems would constitute an uninsured loss. Although we do not incur any direct cash costs related to the failure of a non-operational Russiansingle satellite, createdif a space debris field concentratedsatellite fails, we record an impairment charge in our statement of operations to reduce the orbital altitude whereremaining net book value of that satellite to zero, and any such impairment charges could depress our net income for the collision occurred, and thus increasedperiod in which the riskfailure occurs. Further, a large number of space debris damaging or interfering withsuch failures could shorten the operationexpected life of our satellites,constellation, which travel in this orbital altitude, as well as satellites owned by third parties, such as U.S.would increase our depreciation expense, or foreign governments or agencies and other satellite operators. Although there are tools used by us and providers of tracking services, such as the U.S. Joint Space Operations Center, to detect, track and identify space debris, we or third parties may not be able to maneuver the satellites away from such debris in a timely manner. Any such collision could potentially exposerequire us to significant losses and liability if we were found to be at fault.
replace our constellation sooner than currently planned, either of which would increase our projected capital expenditures.
If we experience operational disruptions with respect tooperations at our commercial gateways or operations center were to be disrupted, we may not be ableexperience interruptions in our ability to provide service to our customers.
Our commercial satellite network traffic is supported by gatewaysa gateway in Tempe, Arizona, andas well as a gateway in Izhevsk, Russia, for traffic within Russian boundaries, and we operate our satellite constellation from our satellite network operations center in
Leesburg, Virginia. Currently,If we do not have aare unable to use our primary commercial gateway in Tempe, it could take us from one to eight hours to switch operations to our backup facility for most services, and potentially longer for some services. During this time, our primary gateway in Arizona, and our facilities are subject to the risk of significant malfunctions or catastrophic loss due to unanticipated events andcustomers would be difficultunable to replace or repairuse those services, and we could require substantial lead-time to do so. Material changes in the operationsuffer a loss of these facilities may be subject to prior FCC approval,revenue and the FCC might not give such approval or may subject the approval to other conditions that could be unfavorableharm to our business.reputation. When operating on our backup facility, any further failure could leave us unable to offer services for an extended period. Our gateways and operations center may also experience service shutdowns or periods of reduced service in the future as a result of equipment failure,failures, delays in deliveries, or regulatory issues. Any such failure would impede our ability to provide service to our customers.
We could lose market share and revenue as a result of increasing competition from companies in the wireless communications industry, including cellular and other satellite operators, and from the extension of land-based communications services.
We face intense competition in all of our markets, which could result in a loss of customers and lower revenue and make it more difficult for us to enter new markets. We compete primarily on the basis of coverage, quality, portability, and pricing of services and products.
The provision of satellite-based services and products is subject to downward price pressure when capacity exceeds demand or as a result of aggressive discounting by some operators under financial pressure to expand their respective market share. In addition, we may face competition from new competitors, new technologies or new equipment, including proposed new LEO constellations. For example, we may face competition for our land-based services in the United States from incipient ancillary terrestrial component, or ATC, service providers who are designing a satellite operating business and a terrestrial component around their spectrum holdings. In addition, some of our competitors have announced plans for the launch of additional satellites. As a result of competition, we may not be able to successfully retain our existing customers and attract new customers.
In addition to our satellite-based competitors, terrestrial voice and data service providers, both wireline and wireless, could further expand into rural and remote areas and provide the same general types of services and products that we provide through our satellite-based system. Although satellite communications services and terrestrial communications services are not perfect substitutes, the two compete in some markets and for some services. Consumers generally perceive terrestrial wireless voice communication products and services as cheaper and more convenient than those that are satellite-based. Many of our terrestrial competitors have greater resources, wider name recognition and newer technologies than we do. In addition, industry consolidation could hurt us by increasing the scale or scope of our competitors, thereby making it more difficult for us to compete.
Some of theOur customized hardware and software we use in operating our gateways is significantly customized and tailored to meet our requirements and specifications and couldmay be difficult and expensive to service, upgrade or replace.
Some of the hardware and software we use in operating our gateways is significantly customized and tailored to meet our requirements and specifications and could be difficult and expensive to service, upgrade or replace. Although we maintain inventories of some spare parts, it nonetheless may be difficult, expensive or impossible to obtain replacement parts for the hardware due to a limited number of those parts being manufactured to our requirements and specifications. In addition, our business plan contemplates updating or replacing some of the hardware and software in our network as technology advances, but the complexity of our requirements and specifications may present us with technical and operational challenges that complicate or otherwise make it expensive or infeasible to carry out such upgrades and replacements. If we are not able to suitably service, upgrade or replace our equipment, our ability to provide our services and therefore to generate revenue could be harmed.
Rapid and significant technological changes in the satellite communications industry may impair our competitive position and require us to make significant additional capital expenditures.
The satellite communications industry is subject to rapid advances and innovations in technology. We may face competition in the future from companies using new technologies and new satellite systems.systems, including a significant number of new entrants who are developing or have announced a wide array of technologies, some of which would compete directly with one or more of our existing or planned products and services. New technology could render our system obsolete or less competitive by satisfying customer demand in more attractive ways or through the introduction of incompatible standards. Particular technological developments that could adversely affect us include the deployment by our competitors of new satellites with greater power, flexibility, efficiency or capabilities than our first-generation satellites or Iridium NEXT,ours, as well as continuing improvements in terrestrial wireless technologies. For us to keep up with technological changes and remain competitive, we may need to make significant capital expenditures, including capital to design and launch new products and services on Iridium NEXT.over the short to medium term, and, over the longer term, the acquisition of additional spectrum, satellites, launch vehicles and other network resources to support continued growth. Customer acceptance of the products and services that we offer will continually be affected by technology-based differences in our product and service offerings compared to those of our competitors. New technologies may also be protected by patents or other intellectual property laws and therefore may not be available to us. Any failure on our part to implement new technology within our system may compromise our ability to compete.
Use by our competitors of L-band spectrum for terrestrial services could interfere with our services.
In February 2003, the FCC adopted ATC rules that permit satellite service providers to establish terrestrial wireless networks in previously satellite-only bands, subject to certain requirements intended to ensure that terrestrial services remain ancillary to primary satellite operations. In 2011, Lightsquared (now known as Ligado Networks) was granted a waiver at the FCC to
convert Ligado Network’s L-band satellite spectrum to terrestrial use including a 10 MHz band close to the spectrum that we use for all of our services. That waiver was subsequently suspended in 2012 due to concerns about potential interference to GPS operations. Ligado Networks sought another waiver in 2015 to modify the ATC of its L-band mobile satellite service network with a new proposal to address GPS industry concerns. We oppose this waiver out of concern for the interference that Ligado Network’s proposed operations would cause to our operations in the L-band.
The implementation of ATC services by satellite service providers in the United States or other countries may result in increased competition for the right to use L-band spectrum in the 1.6 GHz band, which we use to provide our services, and such competition may make it difficult for us to obtain or retain the spectrum resources we require for our existing and future services. In addition, the FCC’s decision to permit ATC services was based on assumptions relating to the level of interference that the provision of ATC services would likely cause to other satellite service providers that use the L-band spectrum. If the FCC’s assumptions prove inaccurate, or the level of ATC services provided exceeds those estimated by the FCC, such as the proposed use by Ligado Networks, ATC services could substantially interfere with our satellites and devices, which would adversely affect our services. Outside the United States, other countries have implemented, or are considering implementing, regulations to facilitate ATC-like services.
Our networks and those of our third-party service providers may be vulnerable to securitycybersecurity risks.
We expect the secure transmission of confidential information over public networks to continue to be a critical element of our ability to compete for business, manage our risks, and protect our customers and our reputation. Our network and those of our third-party service providers and our customers may be vulnerable to unauthorized access, computer attacks, viruses and other security problems. Persons who circumvent security measures could wrongfully access and obtain or use information on theour network or cause service interruptions, delays or malfunctions in our devices, services or operations, any of which could harm our reputation, cause demand for our products and services to fall, and compromise our ability to pursue our business plans. Recently, there have been reported a number ofseveral significant, widespread security attacks and breaches that have compromised network integrity for many companies and governmental agencies, in some cases reportedly originating from outside the United States. In addition, there are reportedly private products available in the market today whichthat may attempt to unlawfully intercept communications made using our network. We may be required to expend significant resources to respond to, contain, remediate, and protect against the threat of security breaches or to remediate harm caused by a breach,these attacks and threats, including compliance with applicable data breach notificationand security laws and regulations, and to alleviate problems, including reputational harm and litigation, caused by any breaches.these security incidents. In addition, in the event of such a security incident, our customer contracts may not adequately protect us against liability to third parties with whom our customers conduct business. Although we have implemented and intend to continue to implement industry-standard and other security measures, these measures may prove to be inadequateinadequate. These security incidents could have a significant effect on our systems, devices and result in incidents,services, including system failures and delays that could limit network availability, which could harm our business and our reputation and result in substantial liability.
Our satellites may collide with space debris or another spacecraft, which could adversely affect the performance of our constellation.
In February 2009, we lost an operational satellite as a result of a collision with a non-operational Russian satellite. Although we have some ability to actively maneuver our satellites to avoid potential collisions with space debris or other spacecraft, this ability is limited by, among other factors, uncertainties and inaccuracies in the projected orbit location of and predicted conjunctions with debris objects tracked and cataloged by the U.S. government. Additionally, some space debris is too small to be tracked, and therefore its orbital location is completely unknown; nevertheless, this debris is still large enough to potentially cause severe damage or a failure of our satellites should a collision occur. If our constellation experiences additional satellite collisions with space debris or other spacecraft, our service could be impaired.
The space debris created by the February 2009 satellite collision may cause damage to other spacecraft positioned in a similar orbital altitude.
The 2009 collision of one of our satellites with a non-operational Russian satellite created a space debris field concentrated in the orbital altitude where the collision occurred, and thus increased the risk of space debris damaging or interfering with the operation of our satellites, which travel in this orbital altitude, as well as satellites owned by third parties, such as U.S. or foreign governments or agencies and other satellite operators. Although there are tools used by us and providers of tracking services, such as the U.S. Combined Space Operations Center, to detect, track and identify space debris, we or third parties may not be able to maneuver the satellites away from such debris in a timely manner. Any such collision could potentially expose us to significant losses and liability if we were found to be at fault.
Risks related to our business operations
Our business plan depends on increased demand for mobile satellite services, among other factors.
Our business plan is predicated on growth in demand for mobile satellite services. Demand for mobile satellite services may not grow, or may even contract, either generally or in particular geographic markets, for particular types of services or during particular time periods. A lack of demand could impair our ability to sell products and services, develop and successfully market new products and services and could exert downward pressure on prices. Any decline in prices would decrease our revenue and profitability and negatively affect our ability to generate cash to pay down our debt or for capital expenditures, investments and other working capital needs.
Our ability to successfully implement our business plan will also depend on a number of other factors, including:
•our ability to maintain the health, capacity and control of our satellite constellation;
•the level of market acceptance and demand for our products and services;
•our ability to introduce innovative new products and services that satisfy market demand;
•our ability to expand our business using our existing spectrum resources both in the United States and internationally;
•our ability to sell our products and services in additional countries;
•our ability to comply with applicable regulatory requirements, both in the United States and internationally;
•our ability to maintain our relationship with U.S. government customers, particularly the DoD;
•the ability of our distributors to market and distribute our products, services and applications effectively and their continued development of innovative and improved solutions and applications for our products and services;
•the effectiveness of our competitors in developing and offering similar services and products; and
•our ability to maintain competitive prices for our products and services and to control our costs.
Our agreements with U.S. government customers, particularly the DoD, which represent a significant portion of our revenue, are subject to termination and renewal.
The U.S. government, through a dedicated gateway owned and operated by the DoD, has been and continues to be, directly and indirectly, our largest customer, representing 25% and 21% of our revenue for the years ended December 31, 2023 and 2022, respectively. We provide the majority of our services to the U.S. government pursuant to our GMSS, EMSS, and SDA contracts. We entered into these contracts in April 2019, September 2019, and June 2022, respectively. The GMSS contract had an initial term through September 2023 and has been extended through March 31, 2024, as we negotiate renewal of the agreement. The EMSS contract continues through September 2026, and the SDA contract has a base term until January 2025 and up to five one-year options exercisable at the election of the U.S. government. The U.S. government may terminate these agreements, in whole or in part, at any time for its convenience. Our relationship with the U.S. government is also subject to the
overall U.S. government budget and appropriation decisions and processes. U.S. government budget decisions, including with respect to defense spending, are dependentbased on changing government priorities and objectives, which are driven by numerous factors, including geopolitical events and macroeconomic conditions, and are beyond our control. If the U.S. government terminates any or all of these agreements, we would lose a significant portion of our revenue.
Further, operational control of our contracts has been moved from the Defense Information Systems Agency to the U.S. Space Force. In connection with this operational shift, changes in internal pricing and cost recovery have resulted in reduced subscribers under the EMSS contract. Lower subscriber use may negatively affect our ability to negotiate a renewal of the EMSS contract on favorable terms in 2026.
If we fail to comply with the terms of our U.S. government contracts, including applicable federal acquisition regulations, we may be subject to contract price adjustments, civil or criminal penalties, or debarment from future U.S. government contracts.
As a U.S. government contractor or subcontractor, we are subject to federal acquisition regulations, which govern, among other things, the allowability of costs incurred by us in the performance of U.S. government contracts. The pricing of some contracts, including the SDA contract, is based on estimated direct and indirect costs. The U.S. government is entitled to examine our cost records with respect to such contracts and to seek a downward adjustment to the price of the contract if it determines that we failed to furnish complete, accurate and current cost or pricing data in connection with the negotiation of the price of the contract. We may also be subject to government audits and to review and approval of our policies, procedures and internal controls for compliance with procurement regulations and other applicable laws. If we do not comply with the terms of a contract or with regulations or statutes, we could be subject to downward contract price adjustments or refund obligations or could be assessed civil and criminal penalties or be debarred or suspended from obtaining future contracts for a specified period. Any such suspension or debarment or other sanction could have an adverse effect on our business. In addition, if we are unable to comply with security clearance requirements, we may be unable to perform these contracts or compete for other projects of this nature, which could adversely affect our revenue.
Aireon, our primary hosted payload customer, may not successfully grow its business, which could reduce or eliminate the value of our agreements with, and ownership interest in, Aireon.
Aireon is our primary hosted payload customer, and we expect annual revenue to us from Aireon hosting, data services and power fees to be approximately $32.6 million. In addition, we currently hold a substantial ownership interest in Aireon’s parent company, Aireon Holdings, and, if and when funds are available following a planned refinancing of its credit facility, Aireon’s parent company, Aireon Holdings is required to redeem a portion of our ownership interest for a payment of $120.0 million. Based on Aireon’s business plan and restrictions under Aireon’s debt facility, we do not expect this redemption of our ownership interest to occur for several years.
Aireon’s business model requires expansion of its customer base to achieve its projected financial results, which may not occur when projected or at all. While our fee arrangements with Aireon are fixed, if Aireon does not achieve its projected results, they may not be able to pay us the contractually required hosting, data services and power fees in a timely manner or at all. Further, Aireon may need to seek additional financing. Any sale of equity securities by Aireon would dilute our ownership if and to the extent that we do not invest additional funds to maintain our proportional ownership interest. If additional funding is not available, Aireon may default on its credit facility, which could result in the loss or reduction in value of our investment in Aireon, or be forced out of business, in which case we would not receive any further hosting, data or power fees, or the expected $120.0 million redemption payment, and we would lose the fair value of our retained investment in Aireon Holdings.
We depend on intellectual property licensed from third parties to operate our constellation and sell our devices and for the enhancement of our existing devices and services.
We license critical intellectual property and technology to operate and maintain our network and related ground infrastructure and services as well as to design, manufacture, and sell our devices. This intellectual property and technology is essential to our ability to continue to operate our constellation and sell our services and devices. In addition, we depend on third parties to develop enhancements to our current products and services even in circumstances where we own the intellectual property. If any third-party owner of such intellectual property or technology were to terminate any license agreement with us or cease to support and service such intellectual property or technology or perform development on our behalf, or if we are unable to renew such licenses on commercially reasonable terms or at all, it may be difficult, more expensive or impossible to obtain such intellectual property, technology, or services from alternative vendors. Any substitute intellectual property or technology may also be costly to develop and integrate, or could have lower quality or performance standards, which would adversely affect the quality of our devices and services. In connection with the development of new devices and services, we may be required to obtain additional intellectual property rights from third parties. We can offer no assurance that we will be able to obtain such
intellectual property rights on commercially reasonable terms or at all. If we are unable to obtain such intellectual property rights on commercially reasonable terms, we may not be able to develop some new devices and services.
Our failure to effectively manage the expansion of our portfolio of products and services could impede our ability to execute our business plan, and we may experience increased costs or disruption in our operations.
In order to achieve the substantial future revenue growth we have projected, we must develop and market new products and services. We currently face a variety of challenges, including maintaining the infrastructure and systems necessary for us to manage the growth of our business. As our product and service portfolio continues to expand, the responsibilities of our management team and demands on other company resources also increase. Consequently, we may further strain our management and other company resources with the increased complexities and administrative burdens associated with a larger, more complex portfolio of products and services. For example, we have in the past experienced quality issues and incorrect market assessments in connection with the introduction of new products and services, and we may experience such issues in the future. Our failure to meet these challenges as a result of insufficient management or other resources could significantly impede our ability to execute our business plan, which relies in part on our ability to leverage our largely fixed-cost infrastructure. To properly manage our growth, we may need to hire and retain additional personnel, upgrade our existing operational management and financial and reporting systems, and improve our business processes and controls. Failure to effectively manage the expansion of our portfolio of products and services in a cost-effective manner could result in declines in product and service quality and customer satisfaction, disruption of our operations, or increased costs, any of which would reduce our ability to increase our profitability.
We could lose market share and revenue as a result of increasing competition from companies in the wireless communications industry, including cellular and other satellite operators, and from the extension of land-based communications services.
We face intense competition in all of our markets, which could result in a loss of customers and lower revenue and make it more difficult for us to enter new markets. We compete primarily on the basis of coverage, quality, portability, and pricing of services and products.
The provision of satellite-based services and products is subject to downward price pressure when capacity exceeds demand or as a result of aggressive discounting by some operators under financial pressure to expand their respective market share. In addition, we may face competition from new competitors, new technologies or new equipment, including new and proposed LEO constellations. For example, we may face competition for our services in the United States from service providers with ancillary terrestrial component, or ATC, authorities who are designing a satellite operating business and a terrestrial component around their spectrum holdings, or from service providers developing satellite direct to terrestrial phone capabilities. In addition, some of our competitors have announced plans for the launch of additional satellites. As a result of competition, we may not be able to successfully retain our existing customers and attract new customers.
In addition to our satellite-based competitors, terrestrial voice and data service providers, both wireline and wireless, could further expand into rural and remote areas and provide the same general types of services and products that we provide through our satellite-based system. Although satellite communications services and terrestrial communications services are not perfect substitutes, the two compete in some markets and for some services. Consumers generally perceive terrestrial wireless voice communication products and services as cheaper and more convenient than those that are satellite-based. Many of our terrestrial competitors have greater resources, wider name recognition and newer technologies than we do. In addition, industry consolidation could hurt us by increasing the scale or scope of our competitors, thereby making it more difficult for us to compete.
We depend on third parties to market and sell our products and services.
services, and their inability to do so effectively could impair our revenue and our reputation.
We select third-party distributors, in some cases on an exclusive basis, and rely on them to market and sell our products and services to end users and to determine the prices end users pay, in some cases on an exclusive basis.pay. We also depend on our distributors to develop innovative and improved solutions and applications integrating our product and service offerings. As a result of these arrangements, we are dependent on the performance of our distributors to generate most of our revenue. Our distributors operate independently of us, and we have limited control over their operations, which exposes us to significant risks. Distributors may not commit the necessarysame level of resources to market and sell our products and services that we would, and these distributors may also market and sell competitive products and services. In addition, our distributors may not comply with the laws and regulatory requirements in their local jurisdictions, which could limit their ability to market or sell our products and services. If our distributors develop faulty or poorly performing products using our technology or services, we may be subject to claims, and our reputation could be harmed. If current or future distributors do not perform adequately, or if we are unable to locate competent distributors in particular countries and secure their services on favorable terms, we may be unable to increase or maintain our revenue in these
markets or enter new markets, we may not realize our expected growth, and our brand image and reputation could be hurt.
For example, in 2023, we announced an arrangement with Qualcomm Technologies, Inc., or Qualcomm, to include our services on a processor for use in smartphonesand act as our VAM and service provider with smartphone manufacturers.Although Qualcomm successfully developed and demonstrated the service, they were unable to market the processor successfully to smartphone manufacturers.As a result, Qualcomm elected to terminate our arrangement with them.This arrangement included large penalties had we marketed a similar technology with another partner; as a result, we expect a substantial delay in our ability to develop a similar service with a different third party.
In addition, we may lose distributors due to competition, industry consolidation, regulatory developments, business developments affecting our distributors or their customers, or for other reasons. In 2009, one of our largest competitors, Inmarsat (now Viasat), acquired our then largest distributor, Stratos Global Wireless, Inc., and in January 2014, Inmarsat acquired Globe Wireless, one of our service providers. Following each acquisition, Inmarsat essentially stopped promoting sales of our products and services, and they mayand other competitors could further reduce their distribution efforts with respect to our products and services in the future. Any future consolidation of our distributors would further increase our reliance on a few key distributors of our services and the amount of volume discounts that we may have to give those distributors. Our two largest distributors, Applied Satellite Technology LTDMarlink Group and Network Innovation,Garmin, together represented a total of 12%approximately 10% of our revenue for the year ended December 31, 2017,2023, and our ten largest distributors represented, in the aggregate, 37%27% of our revenue for the year ended December 31, 2017.2023. The loss or consolidation of any of these distributors, or a decrease in the level of effort
expended by any of them to promote our products and services, could reduce the distribution of our products and services as well as the development of new products and applications.applications, which would negatively affect our revenue.
Our business was negatively affected by the COVID-19 pandemic, actions taken to mitigate the pandemic, and the economic disruptions that resulted, and a resurgence or similar pandemic in the future could harm our business.
The COVID-19 pandemic, the steps taken to respond, and the resulting substantial domestic and global economic disruption led to reduced sales and limited our distributors’ ability to install or service our products. The aviation industry was particularly hard hit, which had an adverse effect on our primary hosted payload customer, Aireon, in which we have also made substantial investments.
The pandemic also negatively affected the payment of accounts receivable and collections. For example, one of our distributors sought protection in bankruptcy, reducing the amount we received from them for past services. Finally, factors related to the pandemic, including changing work environments, concerns over safety, reluctance to obtain vaccines, and changing economic conditions, caused an increase in employee resignations across many industries and companies, including ours.
Any resurgence of the COVID-19 pandemic, or another future pandemic, that causes similar disruption could further adversely affect our business, results of operations and financial condition.
We rely on a limited number of key vendors for supply of equipment, components and services; the loss of any such supplier, or shortages experienced by such suppliers, could cause us to incur additional costs and delays in the production and delivery of our products, which could reduce the sales of those products and use of the related services.
We currently rely on Benchmark Electronics Inc., or Benchmark, as the exclusive manufacturera limited number of manufacturers of our current devices, including our mobile handsets, L-BandL-band transceivers and SBD devices and Iridium Pilot terminals. Benchmark may choose to terminate its business relationship with us when its current contractual obligations are completed, or if we default under our current agreement.devices. We also utilize sole source suppliers for some of the component parts of our devices. If Benchmark or any of our other suppliers were to terminate its relationship with us, we may not be able to find a replacement supplier in a timely manner, at an acceptable price or at all.
Our manufacturerFurther, our manufacturers and suppliers may cease production of our components or products or become capacity-constrained, or could face financial difficulties as a result of a surge in demand, a natural disaster or other event,event. For example, several of our suppliers experienced production delays as a result of the recent global silicon chip shortage.As a result, we experienced delays in fulfilling some product orders and are evaluating replacement components and product changes. These delays increased our costs and reduced our sales of those products and use of the related services.
Any future delay in production or one or more component suppliers may decide to cease production of various componentsdelivery of our products resulting in a shortage or interruption in supplies or an inability to meet increased demand. Althoughcomponents by our suppliers could similarly adversely affect our business. Even if we may beare able to replace or supplement sole source or other component suppliers, there could be a substantial period of time in which our products would not be available; any new relationship may involve higher costs and delays in development and delivery, and we may encounter technical challenges in successfully replicating the manufacturing processes. If our manufacturers or suppliers terminate their relationships with us, fail to provide equipment or services to us on a timely basis, or fail to meet our performance expectations, we may be unable to provide products or services to our customers in a competitive manner, which could in turn negatively affect our financial results and our reputation.
In November 2016, we entered into a development services contract with Boeing, which will dedicate key Boeing personnel to continue the design and growth required for bringing new services and capabilities to the Iridium NEXT network. Technological competence is critical to our business and depends, to a significant degree, on the work of technically skilled personnel, such as these Boeing contractors. If Boeing’s performance falls below expected levels or if Boeing has difficulties retaining the personnel servicing our network development, the development of new products and services on Iridium NEXT could be compromised. In addition, if Boeing terminates its agreement with us, we may not be able to find a replacement provider on favorable terms or at all, which could impair ourOur Russian operations and performance.
We have been and may continue to be affected by Russia’s invasion of Ukraine and related sanctions imposed in response, and we may in the future become subjectchoose or be required to claims that our products violate the patentfurther limit or intellectual property rights of others, which could be costly and disruptive to us.
shut down those operations entirely.
We operateprovide satellite communications services in an industry that is susceptible to significant intellectual property litigation.Russia through two local subsidiaries employing 36 people and authorized Russian service providers, using a dedicated gateway in Russia. In 2023, revenue from our operations in Russia represented approximately 1.8% of our total revenue, all of which was service revenue. As a result of Russia’s invasion of Ukraine in February 2022, we orceased shipments of equipment to Russia and made other adjustments to our productsoperations in light of U.S. and international sanctions. Further, our sales in Russia are conducted in rubles and then translated to U.S. dollars in our financial results. The value of the ruble has fluctuated substantially since the invasion, which may become subjectaffect our reported revenues. As a result of these factors, we expect revenue from our operations in Russia to intellectual property infringement claims or litigation. The defense of intellectual property suits is both costlybe variable and time-consuming, even if ultimately successful, and may divert management’s attention from other business concerns. An adverse determination in litigationdifficult to whichpredict.
In addition, we may becomein the future choose or be required to further limit or cease operations in Russia entirely, in which case we will no longer receive any revenue from those operations. We could also incur significant expenses as a party could, among other things:
subject us to significant liabilities to third parties, including treble damages;
require disputed rights to be licensed from a third party for royalties that may be substantial;
require us to cease using technology that is important to our business; or
prohibit us from selling some or allresult of our products or offering some or allthe process of our services.
shutting down operations in Russia.
Conducting and expanding our operations outside the United States creates numerous risks, which may harm our operations and compromise our ability to expand our international operations.
We have significant operations outside the United States. We estimate that commercial data traffic originating outside the United States excluding our Iridium OpenPort broadband data service traffic, accounted for 75%96% and 72%95% of total commercial data traffic for the years ended December 31, 20172023 and 2016,2022, respectively, while commercial voice traffic originating outside the United States excluding Iridium OpenPort traffic, accounted for 88%91% and 90% of total commercial voice traffic for each of the years ended December 31, 20172023 and 2016.2022. We cannot provide the precise geographical distribution of revenue from end users because we do not contract directly with them. Instead, we determine the country in which we earn our revenue based on where we invoice our distributors. These distributors sell services directly or indirectly to end users, who may be located or use our products and services elsewhere. We and our distributors are also seeking authorization to sell our services in additional countries.
Conducting operations outside the United States involves numerous risks and, while expanding our international operations would advance our growth, it would also increase our exposure to these risks. For example, in 2013 we commenced the provision of satellite communications services in Russia through a local subsidiary and its authorized Russian service providers and subsequently constructed a dedicated gateway in Russia. The U.S. government has imposed economic and diplomatic sanctions on certain Russian corporations, banks, and citizens and might impose additional sanctions in the future. If such sanctions, or any Russian response to such sanctions, affects our operations in Russia, it could limit our growth in Russia or prevent us from continuing to operate there at all, which would reduce our revenues.
Other risksRisks associated with the proposedpotential expansion of our international operations include:
•difficulties in penetrating new markets due to established and entrenched competitors;
•difficulties in developing products and services that are tailored to the needs of local customers;
•lack of local acceptance or knowledge of our products and services;
•lack of recognition of our products and services;
•unavailability of, or difficulties in establishing, relationships with distributors;
•significant investments, including the development and deployment of dedicated gateways, as some countries require physical gateways within their jurisdiction to connect the traffic coming to and from their territory;
•instability of international economies and governments;
•effects of a global pandemic, such as COVID-19, including on international economies, supply chains and travel;
•changes in laws and policies affecting trade and investment in other jurisdictions, including the United Kingdom’s proposed exit from the European Union;jurisdictions;
•exposure to varying legal standards, including data privacy, security and intellectual property protection in other jurisdictions;
•difficulties in obtaining required regulatory authorizations;
•difficulties in enforcing legal rights in other jurisdictions;
•local domestic ownership requirements;
•requirements that operational activities be performed in-country;
•changing and conflicting national and local regulatory requirements;
•foreign currency exchange rates and exchange controls; and
•ongoing compliance with the U.S. Foreign Corrupt Practices Act, U.S. export controls, anti-money laundering and trade sanction laws, and similar international anti-corruption and international trade laws in other countries.
If any of these risks were to materialize, it could affect our ability to successfully compete and expand internationally.
Government organizations, foreign military and intelligence agencies, natural disaster aid associations, and event-driven response agencies use our commercial voice and data satellite communications services. Accordingly, we may experience reductions in usage due to changing global circumstances.
The prices for our products and services are typically denominated in U.S. dollars. Any appreciation of the U.S. dollar against other currencies will increase the cost of our products and services to our international customers and, as a result, may reduce the competitiveness of our international offerings and make it more difficult for us to grow internationally. Conversely,
Pursuing strategic transactions may cause us to incur additional risks.
We may pursue acquisitions, joint ventures or other strategic transactions from time to time. We may face costs and risks arising from any such transactions, including integrating a new business into our business or managing a joint venture. These risks may include adverse legal, organizational and financial consequences, loss of key customers and distributors, and diversion of management’s time.
In addition, any major business combination or similar strategic transaction may require significant additional financing, and our ability to obtain such financing may be restricted by the credit agreement governing our currently outstanding term loan with various lenders administered by Deutsche Bank AG, or the Term Loan. Further, depending on market conditions, investor perceptions of our company and other factors, we might not be able to obtain financing on acceptable terms, in some locations, primarily Russia, we conductacceptable amounts, or at appropriate times to implement any such transaction. Any such financing, if obtained, may dilute existing stockholders.
Spectrum values historically have been volatile, which could cause the value of our business to fluctuate.
Our business plan is evolving, and it may in the local currency,future include forming strategic partnerships to maximize value for our spectrum, network assets and combined service offerings in the United States and internationally. Values that we may be able to realize from such partnerships will depend in part on the value placed on our spectrum authorizations. Valuations of spectrum in other frequency bands historically have been volatile, and we cannot predict at what amount a depreciationfuture partner may be willing to value our spectrum and other assets. In addition, to the extent that the FCC takes action that makes additional spectrum available or promotes the more flexible use or greater availability of existing satellite or terrestrial spectrum allocations, for example by means of spectrum leasing or new spectrum sales, the availability of such additional spectrum could reduce the value of our spectrum authorizations and, as a result, the value of our business.
We may be negatively affected by global economic conditions.
Our operations and performance depend significantly on worldwide economic conditions. Uncertainty about global economic conditions poses a risk as individual consumers, businesses and governments may postpone spending in response to tighter credit, negative financial news, declines in income or asset values, or budgetary constraints. Reduced demand would cause a decline in our revenue and make it more difficult for us to operate profitably, potentially compromising our ability to pursue our business plan. We expect our future growth rate will be affected by the condition of the local currency againstglobal economy, increased competition, maturation of the satellite communications industry, and the difficulty in sustaining high growth rates as we increase in size. Any substantial appreciation of the U.S. dollar will reducemay also negatively affect our growth by increasing the U.S. dollar valuecost of our revenues from thoseproducts and services in foreign countries. In recent years, Russia has experienced significant currency depreciation against the U.S. dollar.
We are currently unable to offer service in important regions of the world due to regulatory requirements, which limits our growth.
Our ability to provideoperate our company effectively could be impaired if we lose members of our senior management team or key technical personnel.
We depend on the continued service in some regions isof key managerial and technical personnel and personnel with security clearances, as well as our ability to continue to attract and retain highly qualified personnel. We compete for such personnel with other companies, government entities, academic institutions and other organizations. The unexpected loss or interruption of the services of such personnel could compromise our ability to effectively manage our operations, execute our business plan and meet our strategic objectives.
Risks related to our capital structure
We have a considerable amount of debt, which may limit our ability to fulfill our obligations and/or to obtain additional financing.
As of December 31, 2023, we had $1,500.0 million of consolidated gross indebtedness. Our capital structure and reliance on indebtedness can have several important consequences, including, but not limited by local regulations. Some countries have specific regulatory requirements such as local domestic ownership requirements or requirements for physical gateways within their jurisdiction to, connect traffic coming to and from their territory. While we have had discussions with parties in these countries to satisfy these regulatory requirements,the following:
•If future cash flows are insufficient, we may not be able to findmake principal or interest payments on our debt obligations, which could result in the occurrence of an acceptable local partnerevent of default under one or reach an agreementmore of those debt instruments.
•Our leverage level could increase our vulnerability to develop additional gateways,adverse economic and industry conditions.
•Our indebtedness requires us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for operations and other purposes.
•Our leverage level could make it more difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and acceleration of such indebtedness.
•Our leverage level could place us at a competitive disadvantage compared to any competitors that have less debt or the cost of developingcomparable debt at more favorable interest rates and deploying such gatewaysthat, as a result, may be prohibitive,better positioned to withstand economic downturns.
•Our consolidated indebtedness has the general effect of reducing our flexibility to react to changing business and economic conditions insofar as they affect our financial condition. The interest rates at which we might secure additional financings may be higher than our currently outstanding debt instruments or higher than forecasted at any point in time, which could impairadversely affect our abilitybusiness, financial condition, results of operations and cash flows.
•Market conditions could affect our access to expand our product and service offerings in such areas and undermine our value for potential users who require service in these areas. Also, other countries where we already provide service may impose similar requirements, which couldcapital markets, restrict our ability to continuesecure financing to provide servicemake planned capital expenditures and investments and pay other expenses, which could adversely affect our business, financial condition, cash flows and results of operations.
Further, despite our substantial levels of indebtedness, we and our subsidiaries have the ability to incur substantially more indebtedness, which could further intensify the risks described above.
If we do not generate sufficient cash flows, we may be unable to repay our Term Loan when it matures.
We will need to repay our Term Loan in those countries. The inabilityfull at maturity in September 2030. If our cash flows and capital resources are insufficient to offerrepay the Term Loan when it matures, we may have to sellundertake alternative financing plans, such as refinancing or restructuring our productsdebt, selling assets or operations, reducing or delaying capital investments, or seeking to raise additional capital. We may not be able to refinance our debt, or any refinancing of our debt could be at higher interest rates and services in all major international markets could impair our international growth. In addition, the construction of such gateways in foreign countries may trigger and require us to comply with various U.S. regulatory requirementsmore restrictive covenants that could conflict withfurther restrict our business operations. Our ability to implement successfully any such alternative financing plans will depend on a range of factors, including our financial condition, general economic conditions and the level of activity in capital markets generally. Failure to repay or contravenerefinance the lawsTerm Loan at or regulationsprior to maturity would result in an event of default under the Term Loan.
The credit agreement governing our Term Loan contains cross-default or cross-acceleration provisions that may cause all of the local jurisdiction. Anydebt issued under that instrument to become immediately due and payable because of these developmentsa default under an unrelated debt instrument.
Our failure to comply with the obligations contained in the credit agreement governing our Term Loan or other future instruments of indebtedness could limit, delayresult in an event of default under the applicable instrument, which could result in the related debt and the debt issued under other instruments (together with accrued and unpaid interest and other fees) becoming immediately due and payable. In such event, we would need to raise funds from alternative sources, which funds may not be available to us on favorable terms, on a timely basis, or at all. Alternatively, such a default could require us to sell our assets and otherwise curtail our operations in order to pay our creditors. These alternative measures could have a material adverse effect on our business, financial position, results of operations and/or cash flows, which could cause us to become bankrupt or insolvent or otherwise interfere withimpair our ability to construct gatewaysmake payments in respect of our indebtedness.
If we default under the Term Loan, the lenders may require immediate repayment in full of amounts borrowed or other infrastructure or network solutions around the world.
foreclose on our assets.
The U.S. governmentcredit agreement governing our Term Loan contains events of default, including cross-default with other indebtedness, bankruptcy, and Motorola Solutionsa change in control (as defined in the credit agreement). If we experience an event of default, the lenders may unilaterally require usrepayment in full of all principal and interest outstanding under the Term Loan. If we fail to de-orbit our first-generation satellites uponrepay such amounts, the occurrencelenders may foreclose on the assets we have pledged under the Term Loan, which includes substantially all of specified events.
When Iridium Satellite purchased the assets of our domestic subsidiaries, including our principal operating subsidiary, Iridium LLC,Satellite LLC.
Certain provisions in the credit agreement governing our Term Loan limit our financial and operating flexibility.
The credit agreement governing our Term Loan contains covenants that place restrictions on, among other things, our ability to:
•incur liens,
•engage in mergers or asset sales,
•pay dividends,
•repay subordinated indebtedness,
•incur indebtedness,
•make investments and loans, and
•engage in other specified transactions.
These restrictions are typically structured with dollar limits based on a non-affiliated debtorpercentage of our trailing twelve month earnings before interest, taxes, depreciation and amortization and vary depending on our leverage level (in each case as calculated under the credit agreement). Complying with these restrictions may make it more difficult for us to successfully execute our business plan and compete against companies who are not subject to such restrictions.
Our Board of Directors may reduce, suspend or terminate our planned dividends.
In December 2022, our Board of Directors initiated a quarterly dividend and declared a cash dividend on our common stock. Decisions regarding future dividends are within the discretion of the Board of Directors and may be influenced by a number of factors, including the price of our common stock, general business and economic conditions, our financial condition and operating results, the emergence of alternative investment or acquisition opportunities, changes in possession, outour business strategy and other factors. These or other factors could cause our Board of bankruptcy, MotorolaDirectors to reduce, suspend or terminate our planned quarterly dividends, which could reduce the value of our common stock. For more information on our dividends, see “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”
Adverse changes in our credit ratings or withdrawal of the ratings assigned to our debt securities by rating agencies may negatively affect us.
Our ability to access capital markets is important to our ability to operate our business. Increased scrutiny of the satellite industry and the U.S. government required specified de-orbit rightsimpact of regulation, as a way to control potential liability exposure arising from future operation ofwell as changes in our first-generation constellation. As a result, Iridium Satellite, Boeing, which then operated our constellation, Motorolafinancial performance and the U.S. government entered into an agreement giving the U.S. government the right, in its sole discretion, to require us to de-orbit our first-generation satellites upon the occurrence of specified events, including any time on or after January 1, 2015 or if more than four of our first-generation satellites have insufficient fuel to execute a 12-month de-orbit, both of which have already occurred. In addition, the U.S. government has the right to require us to de-orbit any of our individual functioning first-generation satellites, including in-orbit spares, that have been in orbit for more than seven years. All of our functioning first-generation satellites have been in orbit for more than seven years.
Motorola Solutions, as successor to Motorola also has the right to require us to de-orbit our first-generation satellites pursuant to our agreements and upon the occurrence of specified events.
We cannot guarantee that the U.S. government or Motorola Solutions will not unilaterally exercise their de-orbiting rights upon the occurrence of any of the specified events. If we were required to de-orbit our first-generation satellites prior to the deployment of an adequate number of Iridium NEXT satellites, we may be unable to continue to provide a commercially acceptable level of service.
We may be unable to obtain and maintain contractually required liability insurance, and the insurance we obtain may not cover all liabilities to which we may become subject.
Under our agreement with Motorola, we are required to maintain an in-orbit liability insurance policy with a de-orbiting endorsement. The current policy, together with the de-orbiting endorsement, covers amounts that we and other specified parties may become liable to pay for bodily injury and property damages to third parties related to processing, maintaining and operating our first-generation satellites and,unfavorable conditions in the case of the de-orbiting endorsement,capital markets could result in credit agencies reexamining our credit ratings. A downgrade in our credit ratings could restrict or discontinue our ability to access capital markets at attractive rates and increase our borrowing costs. Furthermore, any rating assigned could be lowered or withdrawn entirely by a mass de-orbit of our first-generation satellites. Our current policy has a one-year term, which expires on December 8, 2018, and excludes coverage for all third-party damagesrating agency if, in that rating agency’s judgment, future circumstances relating to the 2009 collisionbasis of the rating, such as adverse changes, so warrant. Any future lowering of our satellite with a non-operational Russian satellite. ratings likely would make it more difficult or more expensive for us to obtain additional debt financing.
The market price terms and availability of insurance have fluctuated significantly since we began offering commercial satellite services. The cost of obtaining insurance can vary as a result of either satellite failures or general conditions in the insurance industry. Higher premiums on insurance policies would increase our cost. In-orbit liability insurance policies on satellites may not continue to be available on commercially reasonable terms or at all. In addition to higher premiums, insurance policies may provide for higher deductibles, shorter coverage periods and additional policy exclusions. For example, our current de-orbit insurance covers only twelve months from attachment and therefore would not cover losses arising outside that timeframe. Our failure to renew our current in-orbit liability insurance policy or obtain a replacement policy would trigger de-orbit rights with respect to our first-generation satellites held by the U.S. government and Boeing described in the immediately preceding risk factor, which, if exercised prior to the deployment of an adequate number of Iridium NEXT satellites, would harm our ability to provide a commercially acceptable level of service. In addition, even if we continue to maintain an in-orbit liability insurance policy, the coverage may not protect us against all third-party losses, which could be material.
Our current in-orbit liability insurance policy contains, and we expect any future policies would likewise contain, specified exclusions and material change limitations customary in the industry. These exclusions may relate to, among other things, losses resulting from in-orbit collisions such as the one we experienced in 2009, acts of war, insurrection, terrorism or military action, government confiscation, strikes, riots, civil commotions, labor disturbances, sabotage, unauthorized use of the satellites, and nuclear or radioactive contamination, as well as claims directly or indirectly occasioned as a result of noise, pollution, electrical and electromagnetic interference, and interference with the use of property.
In addition to our in-orbit liability insurance policy, we are required to purchase product liability insurance to cover the potential liability of Motorola Solutions, as the successor to the manufacturer of our first-generation satellites. We may not in the future be able to renew this product liability coverage on reasonable terms and conditions, or at all. Our failure to maintain this insurance could increase our exposure to third-party damages thatcommon stock may be caused by anyvolatile.
The trading price of our satellites. If we are unable to obtain such insurance on commercially reasonable terms and the U.S. government has not agreed to cover the amounts that would have otherwise been paid by such insurance, Motorola Solutions could invoke its de-orbit rights which, if exercised prior to the deployment of an adequate number of Iridium NEXT satellites, would harm our ability to provide a commercially acceptable level of service.
Wireless devices’ radio frequency emissions are the subject of regulation and litigation concerning their environmental effects, which includes alleged health and safety risks. As a result, wecommon stock may be subject to new regulations, demand forsubstantial fluctuations. Factors affecting the trading price of our servicescommon stock may decrease, and we could face liability based on alleged health risks.include:
There has been adverse publicity concerning alleged health risks associated with radio frequency transmissions from portable hand-held telephones that have transmitting antennas. Lawsuits have been filed against participants•failure in the wireless industry allegingperformance of our satellites;
•actual or anticipated variations in our operating results, including termination or expiration of one or more of our key contracts, or a change in sales levels under one or more of our key contracts;
•failure of Aireon to successfully carry out its business plan or obtain expected financing;
•failure to comply with the terms of the credit agreement governing our Term Loan;
•sales of a large number of adverse health consequences, including cancer,shares of our common stock or the perception that such sales may occur;
•the dilutive effect of outstanding stock options and other equity awards;
•changes in financial estimates by industry analysts, or our failure to meet or exceed any such estimates, or changes in the recommendations of any industry analysts that elect to follow our common stock or the common stock of our competitors;
•impairment of intangible assets;
•actual or anticipated changes in economic, political or market conditions, such as a result of wireless phone usage. Other claims allege consumer harm from failures to disclose information about radio frequency emissionsrecessions or aspects ofinternational currency fluctuations;
•actual or anticipated changes in the regulatory regimes governing those emissions. Although we have not been party to any such lawsuits, we may be exposed to such litigationenvironment affecting our industry;
•changes in the future. While we comply with applicable standards for radio frequency emissionsmarket valuations of our competitors;
•low trading volume; and power and
•announcements by our competitors regarding significant new products or services or significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic initiatives.
The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not believe that there is valid scientific evidence that usedirectly affect us. If our stock, the market for other stocks in our industry, or the stock market in general experiences a loss of investor confidence, the trading price of our devices poses a health risk, courtscommon stock could decline for reasons unrelated to our business, financial condition or governmental agencies could determine otherwise. Any such finding could reduce our revenueresults of operations.
Risks related to legal and profitability and expose us and other communications service providers or device sellers to litigation, which, even if frivolous or unsuccessful, could be costly to defend.
If consumers’ health concerns over radio frequency emissions increase, they may be discouraged from using wireless handsets. Further, government authorities might increase regulation of wireless handsets as a result of these health concerns. Any actual or perceived risk from radio frequency emissions could reduce the number of our subscribers and demand for our products and services.
regulatory matters
Our business is subject to extensive government regulation, which mandates how we may operate our business and may increase our cost of providing services and slow our expansion into new markets.
Our ownership and operation of a satellite communications system and the sale of products that operate on that system are subject to significant regulation in the United States, including by the FCC, the U.S. Department of Commerce and others, and in foreign jurisdictions by similar local authorities. The rules and regulations of these U.S. and foreign authorities may change, and such authorities may adopt regulations that limit or restrict our operations as presently conducted or currently contemplated.contemplated, including our de-orbit obligations. Such authorities may also make changes in the licenses of our competitors that affect our spectrum. Such changes may significantly affect our business. Further, because regulations in each country are different, we may not be aware if some of our distribution partners or persons with whom we or they do business do not hold the requisite licenses and approvals. Our failure to provide services in accordance with the terms of our licenses or our failure to operate our satellites or ground stations as required by our licenses and applicable laws and government regulations could result in the imposition of government sanctions on us, including the suspension or cancellation of our licenses. Our failure or delay in obtaining the approvals required to operate in other countries would limit or delay our ability to expand our operations into those countries. Our failure to obtain industry-standard or government-required certifications for our products could compromise our ability to generate revenue and conduct our business in other countries. Any imposition of sanctions, loss of license or failure to obtain the authorizations necessary to use our assigned radio frequency spectrum and to distribute our products in the United States or foreign jurisdictions could cause us to lose sales, hurt our reputation and impair our ability to pursue our business plan.
In addition, one of our subsidiaries, Iridium Carrier Services LLC, holds a common carrier radio license and is thus subject to regulation as a common carrier, including limitations and prior approval requirements with respect to direct or indirect foreign ownership. A change in the manner in which we provide service, or a failure to comply with any common carrier regulations that apply to us or to pay required fees, could result in sanctions including fines, loss of authorizations, or the denial of applications for new authorizations or the renewal of existing authorizations.
Repurposing of satellite spectrum by adjacent operators of L-band spectrum for terrestrial services could interfere with our services.
In February 2003, the FCC adopted ATC rules that permit satellite service providers to establish terrestrial wireless networks in previously satellite-only bands, subject to certain requirements intended to ensure that terrestrial services remain ancillary to primary satellite operations and do not interfere with existing operators. In 2011, the FCC granted Ligado Networks (then known as Lightsquared), or Ligado, a waiver to convert its L-band satellite spectrum to terrestrial use, including a 10 MHz band close to the spectrum that we use for all of our services. That waiver was subsequently suspended in 2012 due to concerns about potential interference to GPS operations. Ligado sought another waiver in 2015 to modify the ATC of its L-band mobile satellite service network with a terrestrial-only proposal designed to address GPS industry concerns. In April 2020, the FCC announced that it had approved Ligado’s waiver request. We, along with a variety of other private parties and the National Telecommunications and Information Administration on behalf of federal government users, filed petitions for reconsideration opposing this waiver out of concern for the interference that we believe Ligado’s proposed operations would cause. These petitions remain pending. In October 2023, Ligado brought suit against the U.S. government in the Federal Court of Claims alleging that the Department of Defense, the Department of Commerce, and Congress unlawfully prevented Ligado from using its exclusively licensed services and seeking damages based on their inability to deploy ATC services in the band.
Ligado’s implementation of these services would result in terrestrial use of L-band spectrum in the 1.6 GHz band, which we use to provide our services, and such implementation may affect the performance of our system for customers of our existing and future services. While the FCC’s decision to approve these services included conditions designed to protect other satellite services that use L-band spectrum from harmful interference, these conditions may prove insufficient, or the level of services provided may exceed those estimated by the FCC, in which case these or future terrestrial services permitted by the FCC could substantially interfere with our satellites and devices, which would adversely affect our services. If other countries permit similar terrestrial use of L-band spectrum in the 1.6 GHz band, the performance of our system may be subject to interference there as well.
If the FCC revokes, modifies or fails to renew our licenses, or fails to grant a new license or modification, our ability to operate will be harmed or eliminated.
We hold FCC licenses, specifically a license for our satellite constellation, licenses for our U.S. gateway and other ground facilities, and blanket earth station licenses for U.S. government customers and commercial subscribers, that are subject to revocation if we fail to satisfy specified conditions. The FCC licenses are also subject to modification by the FCC. Our satellite constellation license expires on February 23, 2032. Our U.S. gateway earth station and the U.S. government customer and commercial subscriber earth station licenses expire between February 2036 and March 2037. There can be no assurance that the FCC will renew the FCC licenses we hold or grant new ones or modifications. If the FCC revokes, modifies or fails to renew the FCC licenses we hold, or fails to grant a new license or modification, or if we fail to satisfy any of the conditions of our respective FCC licenses, we may not be able to continue to provide mobile satellite communications services.
As we and our distributors expand our offerings to include more consumer-oriented devices, we are more likely to be subject to product liability claims, recalls or litigation, which could adversely affect our business and financial performance.
Through our distributors, we offer several services and devices aimed at individual consumers, and we and our distributors continue to introduce additional services and devices for use with our services. For example, we are working to enable satellite messaging and emergency services directly in smartphones and other devices using our services, which may dramatically increase the number of devices that use our services. These services and devices aimed at individual consumers, such as location-based services, emergency services, satellite handsets, smartphones, and personal locator devices, may contain design and manufacturing defects. Defects may also occur in components and devices that we purchase from third parties or that our distributors offer. There can be no assurance we or our distributors will be able to detect and fix all defects in the services, hardware and software that we or our distributors sell. These services and devices could be used in isolated and dangerous locations, including emergency response situations, and users who suffer property damage, personal injury or death while using such services or devices may seek to assert claims or bring lawsuits against us. Further, it is possible that our distributors’ devices could become the subject of consumer protection investigations, enforcement actions or litigation, including class actions. We seek to limit our exposure to all of these claims by maintaining a consumer protection compliance program, and through appropriate notices, disclosures, indemnification provisions and disclaimers, but these steps may not be effective or available in all cases. We also maintain product liability insurance, but this insurance may not cover any particular claim or litigation, or the amount of insurance may be inadequate to cover the claims brought against us. Product liability insurance could become more expensive and difficult to maintain and might not be available on acceptable terms or at all. In addition, it is possible that our or our distributors’ devices could become the subject of a product recall as a result of a device defect. We do not maintain recall insurance, nor do we have control over our distributors’ devices, and any recall could have a significant effect on our financial results. In addition to the direct expenses of and potential liability for product liability claims, investigations, recalls and litigation, a claim, investigation, recall or litigation might cause us adverse publicity, which could harm our reputation and compromise our ability to sell our services or devices in the future.
The collection, storage, transmission, use and disclosure of user data and personal information could give rise to liabilities or additional costs as a result of laws, governmental regulations, and evolving views of personal privacy rights and information security standards.
We transmit, process, and in some cases store in the normal course of our business, personal information. Many jurisdictions around the world have adopted laws and regulations regarding the collection, storage, transmission, use and disclosure of personal information. The legal standards for processing, storing and using this personal information continue to evolve, impose additional obligations and risk on our business, and have the potential to make some of our business processes more costly or less feasible. For example, numerous U.S. states have adopted consumer privacy laws that gives residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used by requiring companies to provide new disclosures to consumers and provide such consumers new ways to opt out of certain sales of personal information. In Europe, the European Commission enacted the General Data Protection Regulation, or GDPR, which since 2018 has imposed more stringent EU data protection requirements and provided for greater penalties for noncompliance.
In addition, the interpretation of privacy and data protection laws and regulations regarding the collection, storage, transmission, use and disclosure of such information in some jurisdictions remains unclear. These laws may be interpreted, applied and enforced in conflicting ways from state to state and country to country and in a manner that is not consistent with our current business practices. Complying with these varying privacy and data security legal requirements could cause us to incur additional costs and change our business practices. Further, our services are accessible in many foreign jurisdictions, and some of these jurisdictions may claim that we are required to comply with their laws, even where we have no operating entity, employees or infrastructure located in that jurisdiction. We could face direct expenses related to a variety of enforcement actions, government investigations, or litigation, and an interruption to our business and adverse publicity because of such
enforcement actions, government investigations, or litigation. Such enforcement actions, government investigations, or litigation could also cause us to incur significant expenses if we were required to modify our products, our services, our infrastructure, or our existing security and privacy procedures in order to comply with new or expanded privacy and security regulations.
In addition, if end users allege that their personal information is not collected, stored, transmitted, used or disclosed by us or our business partners appropriately or in accordance with our policies or applicable laws, or that our failure to adequately secure their personal information compromised its security, we could have liability to them or to consumer protection agencies, including claims, investigations and litigation related to such allegations. Any failure on our part to protect end users’ personal information could result in a loss of user confidence, harm our reputation, result in the loss of users, and cause us to incur significant expenses.
We have been and may in the future become subject to claims that our devices or services violate the patent or intellectual property rights of others, which could be costly and disruptive to us.
We operate in an industry that is susceptible to significant intellectual property litigation. As a result, we or our devices or services from time to time have been and may in the future be subject to intellectual property infringement claims or litigation. The defense of intellectual property suits is both costly and time-consuming, even if ultimately successful, and may divert management’s attention from other business concerns. An adverse determination in litigation to which we may become a party could, among other things:
•subject us to significant liabilities to third parties, including treble damages;
•require disputed rights to be licensed from a third party for royalties that may be substantial;
•require us to cease using technology that is important to our business; or
•prohibit us from selling some or all of our devices or offering some or all of our services.
We may be unable to offer one or more services in important regions of the world due to regulatory requirements, which could limit our growth.
While our constellation is capable of providing service globally, our ability to sell one or more types of service in some regions may be limited by local regulations. Some countries have specific regulatory requirements such as local domestic ownership requirements or requirements for physical gateways within their jurisdiction to connect traffic coming to and from their territory. In some countries, we may not be able to find an acceptable local partner or reach an agreement to develop additional gateways, or the cost of developing and deploying such gateways may be prohibitive, which could impair our ability to expand our product and service offerings in such areas and undermine our value for potential users who require service in these areas. Also, other countries where we already provide service may impose similar requirements in the future, which could restrict our ability to continue to sell service in those countries. The inability to offer to sell our products and services in all major international markets could impair our international growth. In addition, the construction of such gateways in foreign countries may trigger and require us to comply with various U.S. regulatory requirements that could conflict with or contravene the laws or regulations of the local jurisdiction. Any of these developments could limit, delay or otherwise interfere with our ability to construct gateways or other infrastructure or network solutions around the world.
Security and emergency services regulations in the U.S.United States and other countries may affect our ability to operate our system and to expand into new markets.
Our operations are subject to regulations of the U.S. Department of Commerce’s Bureau of Industry and Security relating to the export of satellites and related technical data as well as our subscriber equipment, the U.S. Treasury Department’s Office of Foreign Assets Control relating to transactions involving entities sanctioned by the United States, and the U.S. State Department’s Office of Defense Trade Controls relating to satellite launch. We are also required to provide U.S. and some foreign government law enforcement and security agencies with call interception services and related government assistance, in respect of which we face legal obligations and restrictions in various jurisdictions. Given our global operations and unique network architecture, these requirements and restrictions are not always easy to comply with or harmonize. In addition, some countries require providers of telecommunications services to connect specified emergency numbers to local emergency services. We have discussed and continue to discuss with authorities in various countries the procedures used to satisfy our obligations, and have had to, and may in the future need to, obtain amendments or waivers to licenses or obligations in various countries. Countries are not obligated to grant requested amendments or waivers, and there can be no assurance that relevant authorities will not suspend or revoke our licenses or take other legal actions to attempt to enforce the requirements of their respective jurisdictions.
These U.S. and foreign obligations and regulations may limit or delay our ability to offer products and services in a particular country. As new laws and regulations are issued, we may be required to modify our business plans or operations. In addition, changing and conflicting national and local regulatory requirements may cause us to be in compliance with local requirements in one country, while not being in compliance with the laws and regulations of another. If we fail to comply with regulations in the United States or any other country, we could be subject to substantial fines or sanctions that could make it difficult or impossible for us to operate in the United States or such other country, or we may need to make substantial additional expenditures to bring our systems, products and services into compliance with the requirements.
We may be unable to obtain and maintain contractually required liability insurance, and the insurance we obtain may not cover all liabilities to which we may become subject.
If the FCC revokes, modifies or fails to renewUnder our licenses, or fails to grant a new license or modification, our ability to operate will be harmed or eliminated.
We hold FCC licenses, specifically a license for our first-generation satellite constellation, a license for the Iridium NEXT constellation, licenses for our U.S. gateway and other ground facilities, and blanket earth station licenses for U.S. government customers and commercial subscribers, that are subject to revocation if we fail to satisfy specified conditions. The FCC licenses are also subject to modification by the FCC. Our first-generation satellite constellation license from the FCC has been extended until July 31, 2019. Our Iridium NEXT license expires on February 23, 2032. Our U.S. gateway earth stationagreements with Motorola Solutions and the U.S. government, customerwe are required to maintain an in-orbit liability insurance policy with a de-orbiting endorsement. The current policy, together with the de-orbiting endorsement, covers amounts that we and other specified parties may become liable to pay for bodily injury and property damages to third parties related to processing, maintaining, and de-orbiting our first-generation satellites. Our current policy has a one-year term, which expires onDecember 8, 2024, and excludes coverage for all third-party damages relating to the 2009 collision of our satellite with a non-operational Russian satellite. The price, terms and availability of insurance have fluctuated significantly since we began offering commercial subscriber earth station licenses expire between September 2018satellite services. The cost of obtaining insurance can vary as a result of either satellite failures or general conditions in the insurance industry. Higher premiums on insurance policies would increase our cost. In-orbit liability insurance policies on satellites may not continue to be available on commercially reasonable terms or at all. In addition to higher premiums, insurance policies may provide for higher deductibles, shorter coverage periods and the year 2026. There can be no assuranceadditional policy exclusions. For example, our current de-orbit insurance covers only twelve months from attachment and therefore would not cover losses arising outside that the FCC will renew the FCC licenses we hold or grant new ones or modifications. If the FCC revokes, modifies or fails to renew the FCC licenses we hold, or fails to grant a new license or modification, ortimeframe. In addition, even if we failcontinue to satisfymaintain an in-orbit liability insurance policy, the coverage may not protect us against all third-party losses, which could be material.
Our current in-orbit liability insurance policy contains, and we expect any future policies would likewise contain, specified exclusions and material change limitations customary in the industry. These exclusions may relate to, among other things, losses resulting from in-orbit collisions such as the one we experienced in 2009, acts of war, insurrection, terrorism or military action, government confiscation, strikes, riots, civil commotions, labor disturbances, sabotage, unauthorized use of the conditionssatellites, and nuclear or radioactive contamination, as well as claims directly or indirectly occasioned as a result of noise, pollution, electrical and electromagnetic interference, and interference with the use of property.
In addition to our in-orbit liability insurance policy, we are required to maintain insurance to cover the potential liability of Motorola Solutions, the successor to the manufacturer of our respective FCC licenses, wefirst-generation satellites. We may not in the future be able to continuerenew this coverage on reasonable terms and conditions, or at all. Our failure to provide mobile satellitemaintain this insurance could increase our exposure to liability arising in relation to our first-generation satellites.
Wireless devices’ radio frequency emissions are the subject of regulation and litigation concerning their environmental effects, which includes alleged health and safety risks. As a result, we may be subject to new regulations, demand for our services may decrease, and we could face liability based on alleged health risks.
There has been adverse publicity concerning alleged health risks associated with radio frequency transmissions from portable hand-held telephones that have transmitting antennas. Lawsuits have been filed against participants in the wireless industry alleging a number of adverse health consequences, including cancer, as a result of wireless phone usage. Other claims allege consumer harm from failures to disclose information about radio frequency emissions or aspects of the regulatory regimes governing those emissions. Although we have not been party to any such lawsuits, we may be exposed to such litigation in the future. While we believe we comply with applicable standards for radio frequency emissions and power and do not believe that there is valid scientific evidence that use of our devices poses a health risk, courts or governmental agencies could determine otherwise. Any such finding could reduce our revenue and profitability and expose us and other communications service providers or device sellers to litigation, which, even if frivolous or unsuccessful, could be costly to defend.
If consumers’ health concerns over radio frequency emissions increase, they may be discouraged from using wireless handsets or other wireless consumer devices. Further, government authorities might increase regulation of wireless handsets and other wireless consumer devices as a result of these health concerns. Any actual or perceived risk from radio frequency emissions could reduce the number of our subscribers and demand for our products and services.
Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.
Our ability to utilize U.S. net operating loss carryforwards and other tax attributes may be limited if we experience an “ownership change” under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, which generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our common stock increase their ownership in the
aggregate by more than 50% over their lowest ownership percentage within a rolling period that begins on the later of three years prior to the testing date and the date of the last ownership change. Similar rules may apply under state tax laws. If such an ownership change were to occur, Section 382 of the Code would impose an annual limit on the amount of pre-ownership change net operating loss carryforwards and other tax attributes we could use to reduce our taxable income. It is possible that such an ownership change could materially reduce our ability to use our net operating loss carryforwards or other tax attributes to offset taxable income, which could impact our profitability.
We could be subject to adverse determinations by taxing authorities or changes to tax laws.
authorities.
We are subject to regular review and audit by both domestic and foreign tax authorities. As a result, we have received, and may in the future receive, assessments in multiple jurisdictions on various tax-related assertions, including transfer pricing adjustments or permanent establishment. Any adverse outcome of such a review or audit could have a negative effect on our operating results and financial condition. In addition, the determination of our provision for income taxes and other tax liabilities requires significant judgment, including transactions and calculations where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made. Furthermore,
Changes in tax laws could increase our worldwide tax rate and materially affect our financial position and results of operations.
Tax policies, laws or rates in various jurisdictions may be subject to significant change, which could materially and adversely affect our financial position and results of operations.
Pursuing strategic transactions may cause us to incur additional risks.
We may pursue acquisitions, joint ventures or other strategic transactions from time to time, Further, organizations such as the Boeing insourcing transaction. We may face costsOrganization for Economic Cooperation and risks arising from any such transactions, including integrating a newDevelopment have published action plans that, if adopted by countries where we do business, intocould increase our tax obligations in these countries. Due to our U.S. and international business or managing a joint venture. These risks may include adverse legal, organizationalactivities, certain of these enacted and financial consequences, loss of key customers and distributors and diversion of management’s time.
In addition, any major business combination or similar strategic transaction would require approval underproposed changes to the Credit Facility and may require significant external financing. Depending on market conditions, investor perceptionstaxation of our companyactivities could increase our worldwide effective tax rate, which in turn could harm our financial position and other factors, we might not be able to obtain approvals under the Credit Facility or financing on acceptable terms, in acceptable amounts or at appropriate times to implement any such transaction. Any such financing, if obtained, may further dilute existing stockholders.
Spectrum values historically have been volatile, which could cause the valueresults of our business to fluctuate.
Our business plan is evolving, and it may in the future include forming strategic partnerships to maximize value for our spectrum, network assets and combined service offerings in the United States and internationally. Values that we may be able to realize from such partnerships will depend in part on the value placed on our spectrum authorizations. Valuations of spectrum in other frequency bands historically have been volatile, and we cannot predict at what amount a future partner may be willing to value our spectrum and other assets. In addition, to the extent that the FCC takes action that makes additional spectrum available or promotes the more flexible use or greater availability of existing satellite or terrestrial spectrum allocations, for example by means of spectrum leasing or new spectrum sales, the availability of such additional spectrum could reduce the value of our spectrum authorizations and, as a result, the value of our business.
We may be negatively affected by global economic conditions.
Our operations and performance depend significantly on worldwide economic conditions. Uncertainty about global economic conditions poses a risk as individual consumers, businesses and governments may postpone spending in response to tighter credit, negative financial news, declines in income or asset values, or budgetary constraints. Reduced demand would cause a decline in our revenue and make it more difficult for us to operate profitably, potentially compromising our ability to pursue our business plan. While we expect the number of our subscribers and revenue to continue to grow, we expect the future growth rate will be slower than our historical growth and may not continue in every quarter of every year. We expect our future growth rate will be affected by the condition of the global economy, increased competition, maturation of the satellite communications industry, and the difficulty in sustaining high growth rates as we increase in size. Any substantial appreciation of the U.S. dollar may also negatively affect our growth by increasing the cost of our products and services in foreign countries.
operations.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the rules and regulations of the SEC and The Nasdaq Global Select Market. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Annual Reports on Form 10-K, as required by Section 404 of the Sarbanes-Oxley Act. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements, and we may conclude that our internal controls over financial reporting are not effective. If that were to happen, the market price of our stock could decline, and we could be subject to sanctions or investigations by the Nasdaq Global Select Market, the SEC or other regulatory authorities.
Maintaining effective internal controls over financial reporting is necessary for us to produce reliable financial statements. If we fail to maintain such controls, it could result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis, and which could cause investors and other users to lose confidence in our financial statements.
Our ability to operate our company effectively could be impaired if we lose members of our senior management team or key technical personnel.
We depend on the continued service of key managerial and technical personnel and personnel with security clearances, as well as our ability to continue to attract and retain highly qualified personnel. We compete for such personnel with other companies, government entities, academic institutions and other organizations. The unexpected loss or interruption of the services of such personnel could compromise our ability to effectively manage our operations, execute our business plan and meet our strategic objectives.
The market price of our common stock may be volatile.
The trading price of our common stock may be subject to substantial fluctuations. Factors affecting the trading price of our common stock may include:
failure in the performance of our first-generation or future satellites;
further delays in the launch of Iridium NEXT;
failure of Aireon to successfully develop and market its service;
failure to comply with the terms of the Credit Facility;
actual or anticipated variations in our operating results, including termination or expiration of one or more of our key contracts, or a change in sales levels under one or more of our key contracts;
sales of a large number of shares of our common stock or the perception that such sales may occur;
the dilutive effect of outstanding stock options and other equity awards;
changes in financial estimates by industry analysts, or our failure to meet or exceed any such estimates, or changes in the recommendations of any industry analysts that elect to follow our common stock or the common stock of our competitors;
impairment of intangible assets;
actual or anticipated changes in economic, political or market conditions, such as recessions or international currency fluctuations;
actual or anticipated changes in the regulatory environment affecting our industry;
changes in the market valuations of our competitors;
low trading volume; and
announcements by our competitors regarding significant new products or services or significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic initiatives.
The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. If our stock, the market for other stocks in our industry, or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations.
We do not expect to pay dividends on our common stock in the foreseeable future.
We do not currently pay cash dividends on our common stock and, because we currently intend to retain all cash we generate to fund the growth of our business and the Credit Facility restricts the payment of dividends, we do not expect to pay dividends on our common stock in the foreseeable future.
Our common stock ranks junior to the Series A Preferred Stock and Series B Preferred Stock with respect to dividends and amounts payable in the event of our liquidation.
Our common stock ranks junior to the Series A Preferred Stock and Series B Preferred Stock with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up. This means that, unless accumulated dividends have been paid or set aside for payment on all outstanding shares of Series A Preferred Stock and Series B Preferred Stock for all past completed dividend periods, no dividends may be declared or paid on our common stock. Likewise, in the event of our voluntary or involuntary liquidation, dissolution or winding-up, no distribution of our assets may be made to holders of our common stock until we have paid to holders of the Series A Preferred Stock and Series B Preferred Stock the applicable liquidation preference plus accrued and unpaid dividends, and we have currently suspended the payment of
dividends on our Series A Preferred Stock and Series B Preferred Stock in accordance with the terms of our amended and restated Credit Facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for additional details. As a result, the value of your investment in our common stock may suffer in the event that sufficient funds are not available to first satisfy our obligations to the holders of our preferred stock in the event of our liquidation.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk management and strategy
We have implemented and maintain information security processes designed to identify, assess and manage material risks from cybersecurity threats to our information systems and critical data, including intellectual property and confidential information that is proprietary, strategic or competitive in nature. Our most important information system is our satellite network and related ground systems that carry our customers’ traffic on our network. We also maintain critical internal computer networks, as well as third-party hosted services, communications systems, hardware and software.
Our management, led by our chief information officer, in conjunction with our internal management security committee and third-party service providers, helps to identify, assess and manage our cybersecurity threats and risks by monitoring and evaluating our threat environment and risk profile. These teams use a number of methods to do this, including manual and automated tools, internal and external threat assessments, and internal and external vulnerability assessments. The third parties we engage in this effort generally consist of threat intelligence service providers; cybersecurity consultants and software providers; penetration testing firms; monitoring services; forensic investigators; and other professional services firms, including legal counsel.
Depending on the environment and system, we implement and maintain several technical, physical, and organizational measures, processes, standards and policies designed to manage and mitigate material risks from cybersecurity threats to our systems and data. These include, for example, IT policies and procedures; a network security policy; an information and asset management policy; an information security policy; incident planning, detection and response plans, including backup systems; vulnerability management, including of third parties; risk assessments; establishment of network security controls, including physical security; annual employee training; systems monitoring; and penetration testing.
We integrate our assessment and management of material risks from cybersecurity threats into our overall risk management processes. For example, our management security committee generally meets on a monthly basis and evaluates material risks from cybersecurity threats against our overall business objectives. Our management generally provides reports and status updates to our board of directors on a quarterly basis, as the board monitors our overall enterprise risk.
In addition to our internal resources, we also use third-party service providers, including application providers and hosting companies, distributors, and supply chain resources. We have an IT vendor management program designed to identify and manage cybersecurity risks associated with our use of these providers. As part of this program, we typically conduct risk assessments for certain IT vendors on an annual basis, including, for example, using security assessment measures such as a security questionnaire, perform a review of the vendor’s own security program, audits, and vulnerability scans. Depending on the nature of the services provided, the sensitivity of the information systems and data at issue, and the identity of the provider, our vendor management process may involve different levels of assessment designed to help identify cybersecurity risks associated with a provider and may impose contractual obligations related to cybersecurity on the provider.
Despite these measures, we may not be successful in preventing, mitigating or recovering from a cybersecurity incident, which could have a material adverse effect on our operations or financial results or reputation. While we maintain cybersecurity insurance, it may not be adequate to cover the costs related to cybersecurity incidents we experience. For a description of the primary risks from cybersecurity threats that may materially affect our business and how they may do so, see Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K, including “— Our networks and those of our third-party service providers may be vulnerable to cybersecurity risks.”
Governance
Our board of directors addresses cybersecurity risk management as part of its general oversight function. The board oversees our cybersecurity risk management processes, including oversight and mitigation of risks from cybersecurity threats.
Our cybersecurity risk assessment and management processes are implemented and maintained by members of our management team, led by our chief information officer, who has 15 years of experience in information technology roles and supported by our director of information security, who holds several certifications in the field of information security and technology. In addition to our chief information officer, our internal management security committee includes our chief executive officer, chief financial officer, chief operations officer and chief legal officer, as well as others within our organization in information technology roles.
Our chief information officer is responsible for hiring appropriate personnel and helping to integrate cybersecurity risk considerations into our overall risk management strategy and communicating key priorities to relevant personnel. Our chief information officer is also responsible for approving budgets, helping prepare for cybersecurity incidents, approving cybersecurity processes and reviewing security assessments and other security-related reports.
Our cybersecurity incident response and vulnerability management processes are designed to escalate certain cybersecurity incidents to members of management depending on the circumstances. Information regarding cyber incidents is reported at the monthly meeting of the management security committee or sooner if warranted. Members of this committee work with our incident response team to help mitigate and remediate cybersecurity incidents of which they are notified. Our incident response and vulnerability management processes include reporting by management to the board of directors for certain cybersecurity incidents.
The board generally receives quarterly reports from our chief operations officer, chief information officer or other members of management, as well as periodic presentations from outside advisors concerning our significant cybersecurity threats and risk and the processes we have implemented to address them. The board also has access to various reports, summaries or presentations related to cybersecurity threats, risk and mitigation.
Item 2. Properties
WeThe following table describes the facilities we own or lease the facilities described in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location | | Country | | Approximate Square Feet | | Facilities | | Owned/Leased |
| McLean, Virginia | | USA | | 30,600 | | Corporate Headquarters | | | | | Leased |
| Location | Country | | Approximate
Square Feet
| | Facilities | | Owned/Leased |
McLean, Virginia | | USA | | 30,600 | | Corporate Headquarters | | Leased |
Chandler, Arizona | | USA | | USA197,000 | | 197,000 | | Technical Support Center, Distribution Center, Warehouse and Satellite Teleport Network Facility | | Leased |
| Leesburg, Virginia | | USA | | USA40,000 | | 40,000 | | Satellite Network Operations Center | | Owned |
| Lansdowne, Virginia | USA | | 1,884 | | Satellite Network Operations Center - Annex | | Leased |
Tempe, Arizona | | USA | | USA31,000 | | 31,000 | | System Gateway and Satellite Teleport Network Facility | | Owned Building on Leased Land |
| Tempe,Chandler, Arizona | | USA | | USA24,000 | | 25,000 | | Operations and Finance Office Space | | Leased |
| Fairbanks, Alaska | | USA | | USA4,000 | | 4,000 | | Satellite Teleport Network Facility | | Owned |
| Svalbard | | Norway | | Norway1,800 | | 1,800 | | Satellite Teleport Network Facility | | Owned Building on Leased Land |
| Yellowknife, Northwest Territories | Canada | | 1,800 | | Satellite Teleport Network Facility | | Owned Building on Leased Land |
Iqaluit, Nunavut | | Canada | | 1,800 | | Satellite Teleport Network Facility | | Owned Building on Leased Land |
Izhevsk, Udmurtia | | Russia | | Russia8,785 | | 8,785 | | System Gateway and Satellite Teleport Network Facility | | Leased |
| Moscow | | Russia | | Russia2,158 | | 2,158 | | Sales and Administration Offices | | Leased |
| Punta Arenas | | Chile | | 3,200 | | Satellite Teleport Network Facility | | Owned Building on Leased Land |
| Bishop’s Stortford | | United Kingdom | | 2,400 | | Sales Offices | | Leased |
Item 3. Legal Proceedings
Neither we nor any of our subsidiaries are currently subject to any material legal proceeding, nor, to our knowledge, is any material legal proceeding threatened against us or any of our subsidiaries.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is currently listed on the NASDAQNasdaq Global Select Market under the symbol “IRDM.” The following table sets forth, for the quarters indicated, the quarterly intra-day high and low sales prices of our common stock as reported on the NASDAQ Global Select Market.
|
| | | | | | | |
| Common Stock |
| High | | Low |
Quarter Ended March 31, 2016 | $ | 8.53 |
| | $ | 6.14 |
|
Quarter Ended June 30, 2016 | $ | 8.88 |
| | $ | 7.15 |
|
Quarter Ended September 30, 2016 | $ | 9.37 |
| | $ | 6.80 |
|
Quarter Ended December 31, 2016 | $ | 11.15 |
| | $ | 7.50 |
|
Quarter Ended March 31, 2017 | $ | 11.54 |
| | $ | 7.80 |
|
Quarter Ended June 30, 2017 | $ | 11.58 |
| | $ | 9.40 |
|
Quarter Ended September 30, 2017 | $ | 11.50 |
| | $ | 9.68 |
|
Quarter Ended December 31, 2017 | $ | 12.90 |
| | $ | 9.95 |
|
On February 16, 2018, the closing price of our common stock was $12.55. As of February 19, 20189, 2024, there were 87135 holders of record of our common stock.
Dividend PolicyDividends
Stockholders are entitled to receive, when and if declared by the Company’s Board of Directors from time to time, dividends and other distributions in cash, stock or property from the Company’s assets or funds legally and contractually available for such purposes. In each of December 2022, May 2023, September 2023, and December 2023, the Company’s Board of Directors approved a dividend of $0.13 per share of common stock. The dividends, which were paid on March 30, 2023, June 30, 2023, September 29, 2023, and December 29, 2023, to stockholders of record as of March 15, 2023, June 15, 2023, September 15, 2023, and December 15, 2023, respectively, resulted in total payments of $64.8 million for the twelve months ended December 31, 2023. The liability related to dividends on common shares underlying unvested RSUs was $1.3 million as of December 31, 2023.
We have notcurrently expect that comparable cash dividends will continue to be paid anyin the future, although future dividends will depend on our common stockearnings, capital requirements, financial conditions and other factors considered relevant by the Board. On February 2, 2024, the Board of Directors approved a dividend of $0.13 per share, payable on March 29, 2024 to date.holders of record as of March 15, 2024. The Credit Facility currently restricts us from declaring, making or paying dividends on our common stock, and we do not anticipate that we will declare any dividends on our common stock inBoard of Directors plans to increase the foreseeable future.quarterly dividend to $0.14 per share starting with the second quarter 2024 dividend.
Stock Price Performance Graph
The graph below compares the cumulative total return of our common stock from December 31, 20122018 through December 31, 20172023, with the comparable cumulative return of three indices, the S&P 500 Index, the Dow Jones Industrial Average Index and the NASDAQNasdaq Telecommunications Index. The graph plots the growth in value of an initial investment of $100 in each of our common stock, the S&P 500 Index, the Dow Jones Industrial Average Index and the NASDAQNasdaq Telecommunications Index over the indicated time periods. The stock price performance shown on the graph is not necessarily indicative of future price performance. The following stock price performance graph shall not be deemed to be "filed"“filed” for purposes of Section 18 of the Exchange Act, nor shall this information be incorporated by reference into any future filing under the Securities Act or the Exchange Act or any other document, except to the extent that we specifically incorporate it by reference into such filing or document.
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| | | | | | | | | | | | | | | | | | | | | | | |
| 12/31/2012 | | 12/31/2013 | | 12/31/2014 | | 12/31/2015 | | 12/31/2016 | | 12/31/2017 |
Iridium Communications Inc. | $ | 100.00 |
| | $ | 93.01 |
| | $ | 145.09 |
| | $ | 125.15 |
| | $ | 142.86 |
| | $ | 175.60 |
|
S&P 500 Index | $ | 100.00 |
| | $ | 129.60 |
| | $ | 144.36 |
| | $ | 143.31 |
| | $ | 156.98 |
| | $ | 187.47 |
|
Dow Jones Industrial Average Index | $ | 100.00 |
| | $ | 126.50 |
| | $ | 136.01 |
| | $ | 132.97 |
| | $ | 150.81 |
| | $ | 188.64 |
|
NASDAQ Telecommunications Index | $ | 100.00 |
| | $ | 124.02 |
| | $ | 135.07 |
| | $ | 124.94 |
| | $ | 143.52 |
| | $ | 168.54 |
|
Issuer Purchases of Equity Securities
The following table presents our monthly share repurchases for the quarter ended December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | (a) Total number of shares purchased | | | (b) Average price paid per share | | (c) Total number of shares purchased as part of publicly announced plans or programs | | (d) Maximum dollar value of shares that may yet be purchased under the plans or programs |
October 1-31 | | 255,843 | | | | $41.23 | | | 255,843 | | | $375.1 million |
November 1-30 | | 844,963 | | (1) | | $37.37 | | | 816,963 | | | $344.6 million |
December 1-31 | | 261,264 | | | | $40.37 | | | 261,264 | | | $334.0 million |
Total | | 1,362,070 | | | | $38.67 | | | 1,334,070 | | | — | |
(1) Includes 28,000 shares purchased on November 20, 2023 at an average price of $37.01 per share by Matthew J. Desch, our chief executive officer, who may be deemed an affiliated purchaser.
To date, our board of directors has authorized the repurchase of up to $1,000.0 million of our common stock through December 31, 2025. Except for the shares purchased by Mr. Desch, all shares listed above were purchased under these authorizations in open market transactions.
Item 6. Selected Financial Data[Reserved].
Iridium Communications Inc.
The following selected historical financial data for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 was derived from our audited financial statements. The selected financial data below should be read in conjunction with our financial statements and related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. The selected financial data is historical data and is not necessarily indicative of our future results of operations.
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| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, |
Statement of Operations Data | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | (In thousands, except per share amounts) |
Revenue: | | | | | | | | | | |
Services | | $ | 349,735 |
| | $ | 334,822 |
| | $ | 317,022 |
| | $ | 309,424 |
| | $ | 292,092 |
|
Subscriber equipment | | 77,119 |
| | 74,211 |
| | 73,615 |
| | 78,152 |
| | 73,303 |
|
Engineering and support services | | 21,192 |
| | 24,607 |
| | 20,741 |
| | 20,981 |
| | 17,254 |
|
Total revenue | | $ | 448,046 |
| | $ | 433,640 |
| | $ | 411,378 |
| | $ | 408,557 |
| | $ | 382,649 |
|
Total operating expenses (1) | | $ | 346,759 |
| | $ | 257,269 |
| | $ | 337,575 |
| | $ | 285,646 |
| | $ | 272,755 |
|
Operating income (3) | | $ | 115,476 |
| | $ | 176,371 |
| | $ | 73,803 |
| | $ | 122,911 |
| | $ | 109,894 |
|
Net income (4) | | $ | 233,856 |
| | $ | 111,032 |
| | $ | 7,123 |
| | $ | 74,989 |
| | $ | 62,517 |
|
Comprehensive income | | $ | 235,506 |
| | $ | 114,649 |
| | $ | 980 |
| | $ | 72,758 |
| | $ | 62,185 |
|
Weighted average shares outstanding - basic | | 97,934 |
| | 95,967 |
| | 95,097 |
| | 88,080 |
| | 76,909 |
|
Weighted average shares outstanding - diluted | | 128,130 |
| | 124,875 |
| | 95,097 |
| | 109,400 |
| | 87,511 |
|
Net income (loss) per share - basic | | $ | 2.23 |
| | $ | 1.00 |
| | $ | (0.09 | ) | | $ | 0.71 |
| | $ | 0.72 |
|
Net income (loss) per share - diluted | | $ | 1.82 |
| | $ | 0.89 |
| | $ | (0.09 | ) | | $ | 0.69 |
| | $ | 0.71 |
|
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| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
Balance Sheet Data | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | (In thousands) |
Total current assets | | $ | 411,072 |
| | $ | 516,770 |
| | $ | 481,718 |
| | $ | 573,113 |
| | $ | 369,558 |
|
Total assets (1) (2) (4) | | $ | 3,782,051 |
| | $ | 3,499,625 |
| | $ | 3,071,174 |
| | $ | 2,773,237 |
| | $ | 2,179,760 |
|
Total long-term liabilities (2) (4) | | $ | 1,971,356 |
| | $ | 2,072,673 |
| | $ | 1,740,839 |
| | $ | 1,439,023 |
| | $ | 1,138,766 |
|
Total stockholders' equity | | $ | 1,596,469 |
| | $ | 1,343,758 |
| | $ | 1,228,721 |
| | $ | 1,231,864 |
| | $ | 939,495 |
|
| |
(1)
| Includes accelerated depreciation of $36.8 million in the fourth quarter of 2017 associated with the write-off of the full amount previously paid to Kosmotras and a goodwill impairment charge of $87.0 million in the fourth quarter of 2015, both of which decreased operating income and total assets by those amounts. |
| |
(2)
| As a result of implementing Accounting Standards Update No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs, deferred financing costs were reclassified from total assets to total long-term liabilities to present short-term and long-term debt, net, for all years presented.
|
| |
(3)
| Includes the impact of $14.2 million related to the gain on the transaction with Boeing, effective January 3, 2017. |
| |
(4)
| Includes the impact of provisional estimates related to deferred tax assets and liabilities resulting from the Tax Cuts and Jobs Act implemented in December 2017. |
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| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, |
Other Cash Flow Data | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | (In thousands) |
Cash provided by (used in): | | | | | | | | | | |
Operating activities | | $ | 259,621 |
| | $ | 225,199 |
| | $ | 217,479 |
| | $ | 214,872 |
| | $ | 183,048 |
|
Investing activities | | $ | (372,680 | ) | | $ | (242,360 | ) | | $ | (439,374 | ) | | $ | (626,254 | ) | | $ | (485,836 | ) |
Financing activities | | $ | 16,866 |
| | $ | 202,151 |
| | $ | 197,066 |
| | $ | 438,844 |
| | $ | 234,712 |
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
A discussion regarding our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 16, 2023.
Background
We were initially formed in 2007 as GHL Acquisition Corp., a special purpose acquisition company. In 2009, we acquired all the outstanding equity in Iridium Holdings LLC and changed our name to Iridium Communications Inc.
Overview of Our Business
We are engaged primarily in providing mobile voice and data communications services using a constellation of orbiting satellites. We are the only commercial provider of communications services offering true global coverage, connecting people, organizations and assets to and from anywhere, in real time. Our uniquelow-earth orbit, L-band satellite network provides reliable, weather-resilient communications services to regions of the world where terrestrial wireless or wireline networks do not exist or are limited, including remote land areas, open ocean, airways, the polar regions and regions where the telecommunications infrastructure has been affected by political conflicts or natural disasters.
We provide voice and data communications services to businesses, the U.S. and foreign governments, non-governmental organizations and consumers via our satellite network, which has an architecture of 66 operational satellites with in-orbit spares and related ground infrastructure. We utilize an interlinked mesh architecture to route traffic across the satellite constellation using radio frequency crosslinks.crosslinks between satellites. This unique architecture minimizes the need for ground facilities to support the constellation, which facilitates the global reach of our services and allows us to offer services in countries and regions where we have no physical presence.
We sell our products and services to commercial end users through a wholesale distribution network, encompassing approximately 140100 service providers, approximately 220300 value-added resellers, or VARs, and approximately 85 value-added manufacturers, or VAMs, who either sell directly to the end user or indirectly through other service providers, VARs or dealers. These distributors often integrate our products and services with other complementary hardware and software and have developed a broad suite of applications for our products and services targeting specific lines of business.
At December 31, 2017,2023, we had approximately 969,0002,279,000 billable subscribers worldwide, an increase of 119,000,280,000, or 14%, from approximately 850,0001,999,000 billable subscribers at December 31, 2016.2022. We have a diverse customer base, including end users in the following lines of business: land mobile;land-mobile, Internet of Things, or IoT; maritime; aviation;IoT, maritime, aviation and government.
We recognize revenue primarily from both the provision of services and the sale of equipment. Service revenue represented 78% and 77%74% of total revenue for each of the years ended December 31, 20172023 and 2016, respectively.2022. Voice and data, and IoT data and broadband service revenuerevenues have historically generated higher gross margins than subscriber equipment revenue.
revenue, and we expect this trend to continue. We are currently devoting a substantial part of our resources to develop Iridium NEXT, our next-generation satellite constellation, along with the development of new product and service offerings, upgrades to our current services, and hardware and software upgrades to maintain our ground infrastructure. We estimate the aggregate costs associated with the design, build and launch of Iridium NEXT and related ground infrastructure upgrades through 2018 to be approximately $3 billion. We expect to fund the costs of Iridium NEXT with the substantial majority of the fundsalso recognize revenue from our $1.8 billion loan facility, orhosted payloads, principally from Aireon, including fees for hosting the Credit Facility, which was fully drawn in February 2017,payloads and fees for transmitting data from the payloads over our network, as well as cash on handrevenue from other services, such as satellite time and internally generated cash flows, including cash flows from hosted payloads. We may also raise additional funds through the incurrence of indebtedness, as discussed below.location services.
While the contracted cash flows from our primary hosted payload customer, Aireon, are interest-bearing if not paid on time,Launch Services Agreements
During 2022, we expect those hosted payload payments to continue to be delayed. Aireon is working to secure additional contractsentered into agreements with air navigation service providers, or ANSPs, including the FAA, for the sale of Aireon’s space-based automatic dependent surveillance-broadcast, or ADS-B, services. Aireon is currently seeking to raise the capital it will need to fund its continued operationsSpace Exploration Technology Corp. and its hosted payload payments to us. Aireon’s ability to make its hosted payload payments to us in the previously anticipated timeframe has been adversely affected by delays in its completion of sales to these ANSPs.
We continue to expect partial payments of Aireon’s hosting fee upon successful completion of its financing, and further payments based on success-based milestones. However, the expected timing of these payments does not support our ability to make principal and interest payments under our Credit Facility due in late 2018 and early 2019, as well as payment of deferred payments to Thales Alenia Space France or Thalesfor launch and deferred contributionsrelated services, to the debt service reserve account, or DSRA, required by our Credit Facility, both due March 31, 2019. Further, if Aireon is unable to complete its financing and make a partial hosting fee payment to us in the timeframe we currently expect, we may be unable to make our principal and
interest payments under our Credit Facility in late 2018. To provide for these obligations and further solidify our liquidity position, we have been actively discussing alternative funding options with our Credit Facility lenders, and we believe we have reached an agreement in principle with our Credit Facility lenders pursuant to which we would be required to raise additional debt capital by July 2018. The proceeds of the debt issuance would be used to fund the deferred payments to Thales and replenish the DSRA under the Credit Facility, as well as to provide us with sufficient cash to meet our needs, including principal and interest payments under our Credit Facility. In addition, the Credit Facility lenders would agree to delay a portion of the principal repayments under the Credit Facility and allow us to accesslaunch up to $87 million from the DSRA in the future iffive of our cash levels fall below $75 million, and adjust our financial covenants, including eliminating further covenants that require us to receive cash flows from hosted payloads. Under this anticipated agreement, hosting fee payments received from Aireon would be required to be used to prepay the Credit Facility. Our ability to successfully execute these plans may be adversely affected by a number of factors, including global economic conditions, the state of the capital markets when we are ready to incur the debt, and the inability to issue debt on terms acceptable to us or at all. Any inability to successfully execute these plans may in turn materially affect our liquidity, and our ability to complete the Iridium NEXT system and to pursue additional growth opportunities may be impaired. Our liquidity and the ability to fund our liquidity requirements also depend on our future financial performance, which is subject to general economic, financial, regulatory and other factors that are beyond our control.
We believe that our liquidity sources will provide sufficient funds to meet our liquidity requirements for at least the next 12 months, provided we execute the proposed adjustments to our funding plan described above or receive a substantial portion of the hosting fees due to us from Aireon during this timeframe.
Full Scale Development and Launch Services Agreements
In June 2010, we executed a primarily fixed price full scale development contract, or FSD, with Thales for the design and manufacture of satellites for Iridium NEXT. The total price under the FSD will be approximately $2.3 billion, and we expect our payment obligations under the FSD to extend through 2018. As of December 31, 2017, we had made total payments of $1.9 billion to Thales, of which $1.5 billion million were from borrowings under the Credit Facility, which are classified within property and equipment, net, in our consolidated balance sheet included in this report. We used the Credit Facility to pay 85% of each invoice received from Thales under the FSD with the remaining 15% funded from cash on hand until the Credit Facility was fully drawn in February 2017. With the exception of the invoices to be paid with bills of exchange as described below, we expect to pay 100% of each invoice received from Thales from cash and marketable securities on hand as well as internally generated cash flows.
On July 26, 2017, we entered into Amendments 28 and 29 to our FSD contract. Amendment 28 revised the liquidated damages and other cost provisions regarding delays to the Iridium NEXT program. Under Amendment 28, we agreed with Thales that liquidated damages for Thales production delays to date would be $30.0 million, with this amount to be used only to offset costs otherwise payable by us to Thales under the FSD with respect to past and future delays to the launch schedule from causes other than Thales, at agreed upon rates. Any portion of the $30.0 million remaining at the completion of the launch campaign will be forgiven. Liquidated damages owed to us from any future delays caused by Thales would remain payable in cash. Similarly, costs payable by us to Thales for non-Thales delays exceeding the $30.0 million would be payable in cash. Unless there are substantial future delays to the Iridium NEXT program, we expect this arrangement will result in no cash payments due to delays by either party.
Amendment 29 provides for the deferral of approximately $100.0 million in milestone payments by us under the FSD for milestones completed in 2017 or that we expect to be completed in 2018. Under Amendment 29, we make these milestone payments using bills of exchange (similar to promissory notes) due in March 2019, with interest at a specified base rate (London Interbank Offer Rate, or LIBOR, or SWAP, depending on the term of the bill of exchange) plus 1.4%, with the bills of exchange guaranteed by Bpifrance Assurance Export S.A.S., or BPIAE. Amendment 29 also required that we pay Thales for the BPIAE premium on the guarantee in the amount of $1.0 million in cash at signing plus 1.62%, to be paid by bills of exchange on the same terms as stated above, on each bill of exchange to be issued. As of December 31, 2017, we have used bills of exchange to pay $55.6 million in milestone payments. If we issue debt securities as described above, we would use a portion of the proceeds to repay these bills of exchange in full and would no longer use bills of exchange to pay milestones under the FSD.
In March 2010, we entered into an agreement with Space Exploration Technologies Corp., or SpaceX, as the primary launch services provider for Iridium NEXT.ground spare satellites. The contract price under these agreements was approximately $40.0 million in the SpaceX agreement is $453.1 million, which includes the exerciseaggregate. In May 2023, we launched five of our reflight option inremaining ground spare satellites, bringing our total number of in-orbit spares to 14. Following completion of successful on-orbit testing of the event of launch failure. The SpaceX Falcon 9 rocket is configured to carry ten Iridium NEXTfive launched satellites, to orbit with each launch. In November 2016, we entered into an additional agreement with SpaceX for an eighth Falcon 9 launch for a contract price of $67.9 million. Although we are the customer of record with SpaceX, we have
contracted separately with GFZ German Research Centre for Geosciences, or GFZ, for $31.8 million to share the launch of NASA’s two Gravity Recovery and Climate Experiment Follow-On satellites on a specially designed dispenser on the Falcon 9 rocket. As of December 31, 2017, we had made aggregate payments of $463.9 millionno plans to SpaceX,use, develop or launch the remaining ground spare and received $28.6 million from GFZ.
In June 2011, we entered into an agreement with International Space Company Kosmotras, or Kosmotras, as a supplemental launch services provider for Iridium NEXT. The total cost under the Kosmotras agreement is $51.8 million. Kosmotras to date has been unable to obtain the permits or authorizations to launch our satellites on a Dnepr rocket as planned, and Kosmotras has proposed no satisfactory alternative launch plan. Because we now believe the construction-in-progress associated with the Kosmotras launch services will no longer be used or further developed, we wrote-offwrote off the full amount previously paid to Kosmotras,remaining in construction-in-progress for that satellite by recording accelerated depreciation expense of $36.8$37.5 million during the second quarter of 2023.
Term Loan
On September 20, 2023, pursuant to an amended and restated credit agreement, or the Credit Agreement, we refinanced our previously existing term loan resulting in total borrowing of $1,500.0 million, which as amended and restated we refer to as the Term Loan. We also have an accompanying $100.0 million revolving loan, or the Revolving Facility. The Term Loan now bears interest at an annual rate equal to the Secured Overnight Financing Rate, or SOFR, plus 2.50%, with a 0.75% SOFR floor. We typically select a one-month interest period, with the result that interest is calculated using one-month SOFR. Interest is paid monthly on the last business day of the month. The maturity date of the Term Loan is in September 2030. Principal payments, payable quarterly beginning with the quarter ending March 31, 2024, equal $15.0 million per annum, which is one percent of the full principal amount of the Term Loan, with the remaining principal due upon maturity.
The Revolving Facility bears interest at an annual rate of SOFR plus 2.50% (but without a SOFR floor) if and as drawn, with no original issue discount, a commitment fee of 0.5% per year on the undrawn amount, which will be reduced to 0.375% if we have a consolidated first lien net leverage ratio, as defined in the Credit Agreement, of less than 3.5 to 1, and a maturity date in September 2028. See Note 7 to the consolidated financial statements included in this annual report for further discussion of our Term Loan and Revolving Facility.
In the fourth quarter of 2017.
Credit Facility
In October 2010,2022, we entered into a credit facility with a syndicateelected to prepay $100.0 million of bank lenders, whichprincipal on the previously existing term loan. As of December 31, 2023, we amended and restatedreported an aggregate balance of $1,500.0 million in May 2014. We refer to this amended and restated credit facility, as further amended to date, as the Credit Facility. Ninety-five percent of our obligationsborrowings under the Credit Facility are insured by BPIAE. The Credit Facility consistsTerm Loan, before $17.5 million of two tranches, with draws and repayments applied pro ratanet deferred financing costs, for a net principal balance of $1,482.5 million outstanding in respect of each tranche:our consolidated balance sheet. We have not drawn on our Revolving Facility.
Tranche A – $1,537,500,000 at a fixed rate of 4.96%; and
Tranche B – $262,500,000 at a floating rate equal to LIBOR, plus 1.95%.
In connection with each draw made under the Credit Facility, we borrowed an additional amount equal to 6.49% of such draw to cover the premium for the BPIAE insurance. We also paid a commitment fee of 0.80% per year, in semi-annual installments, on any undrawn portion of the Credit Facility. Funds drawn under the Credit Facility were used to pay 85% of each invoice issued by Thales under the FSD until the Credit Facility was fully drawn in February 2017.
Scheduled semi-annual principal repayments will begin April 3, 2018. The Credit Facility will mature seven years after the start of the principal repayment period. During this repayment period, we will pay interest on the same date as the principal repayments in cash. PriorOur Term Loan contains no financial maintenance covenants. With respect to the repayment period, interest payments were due on a semi-annual basis in April and October. Interest incurred during the year ended December 31, 2017 was $114.4 million, including amortization of deferred financing fees, all of which was capitalized and $15.0 million was accrued at year end.
Following the completion of the Iridium NEXT constellation, we may prepay the borrowings subject to the payment of interest makeup costs. We may not subsequently borrow any amounts that we repay. We must repay the loans in full upon a delisting of our common stock, a change in control of our company or our ceasing to own 100% of any of the other obligors, or the sale of all or substantially all of our assets. We must apply all or a portion of specified capital raise proceeds, insurance proceeds, condemnation proceeds and proceeds from the disposal of any interests in Aireon to the prepayment of the loans. The Credit Facility includes customary representations, events of default, covenants and conditions precedent to our drawing of funds.
Under the terms of the CreditRevolving Facility, we are required to maintain a DSRA,consolidated first lien net leverage ratio of no greater than 6.25 to 1 if more than 35% of the Revolving Facility has been drawn. The Credit Agreement contains other customary representations and warranties, affirmative and negative covenants, and events of default. We were in compliance with all covenants under the minimum amount required to be in the DSRA was $102.0 millionCredit Agreement as of December 31, 2017, which is classified2023.
The Credit Agreement restricts our ability to incur liens, engage in mergers or asset sales, pay dividends, repay subordinated indebtedness, incur indebtedness, make investments and loans, and engage in other transactions as restricted cash on our consolidated balance sheet. This minimum DSRA cash reserve requirement will increase to $189.0 millionspecified in 2019, subject to reduction as permitted by the anticipated agreement with our Credit Facility lenders as described above.
In addition to the minimum debt service reserve levels, financial covenants under the Credit Facility include:
an available cash balanceAgreement. The Credit Agreement provides for specified exceptions, including baskets measured as a percentage of at least $25 million;
a debt-to-equity ratio, which is calculated as the ratiotrailing twelve months of total net debt to the aggregate of total net debt and total stockholders’ equity, of no more than 0.7 to 1, measured each June 30 and December 31;
specified maximum levels of annual capital expenditures (excluding expenditures on the construction of Iridium NEXT satellites) through the year ending December 31, 2024;
specified minimum levels of consolidated operational earnings before interest, taxes, depreciation and amortization, or operational EBITDA, and unlimited exceptions in the case of incurring indebtedness and liens and making investments, dividend payments, and payments of subordinated indebtedness, based on achievement and maintenance of specified leverage ratios. The Credit Agreement permits repayment, prepayment, and repricing transactions, subject, in the case of the Term Loan, to a 1% penalty in the event the Term Loan is prepaid or repriced within the first six months from the refinancing date. The Credit Agreement also contains a mandatory prepayment sweep mechanism with respect to a portion of our excess cash flow (as defined in the Credit Agreement) in the
event our net leverage ratio rises above 3.5 to 1. As of December 31, 2023, our leverage ratio was below the specified level, and we were not required to make a mandatory prepayment with respect to 2023 cash flows.
Derivative Financial Instruments
We previously entered into a long-term interest rate swap, or the Swap, to mitigate variability in forecasted interest payments on a portion of our borrowings under the Term Loan. The Swap expired in November 2021. Under the Swap, on the last business day of each month, we received variable interest payments based on one-month LIBOR from the counterparty. We paid a fixed rate of 1.565% per annum on the Swap.
In July 2021, we entered into an interest rate cap agreement, or the Cap, that began in December 2021. The Cap manages our exposure to interest rate movements on a portion of the Term Loan through November 2026. The Cap, which was not affected by the refinancing of the Term Loan in September 2023, is designed to mirror the terms of the Term Loan and to offset the cash flows being hedged. We designated the Cap as a cash flow hedge of the variability of the SOFR-based interest payments on the Term Loan. The effective portion of the Cap’s change in fair value is recorded in accumulated other comprehensive income (loss) and reclassified into earnings during the period in which the hedged transaction affects earnings.
In December 2022, we modified the Cap to replace the previous LIBOR base rate with SOFR and received a credit risk adjustment from the counterparty of 0.064%. The modified Cap now provides us the right to receive payment from the counterparty if one-month SOFR exceeds 1.436% (1.5% less 0.064%). Prior to the amendment, we received payment under the terms of the Cap if one-month LIBOR exceeded 1.5%. We began paying a fixed monthly premium based on an annual rate of 0.31% for the 12-month periods ending each June 30 andCap in December 31 through December 31, 2017;
specified minimum cumulative cash flow requirements from customers who have hosted payloads on our satellites measured each December 31 and June 30 from June 30, 2017 through December 31, 2019;
2021. The Cap carried a debt service coverage ratio, measured during the repayment period,notional amount of not less than 1 to 1.5;
specified maximum leverage levels during the repayment period that decline from a ratio of 7.53 to 1 for the twelve months ending June 30, 2018 to a ratio of 2.36 to 1 for the twelve months ending December 31, 2024; and
a requirement that we receive at least $50,000,000 in hosting fees from Aireon by September 30, 2018.
Our available cash balance, as defined by the Credit Facility, was $291.9 million$1.0 billion as of December 31, 2017. Our debt-to-equity ratio was 0.52023 and 2022.
We also entered into an interest rate swaption agreement, or the Swaption, for which we paid a fixed annual rate of 0.50%. We sold the Swaption in May 2021 for $0.7 million but continued to 1pay the fixed rate through the expiration of the Swaption in November 2021.
At inception, the Swap and Swaption were designated as of December 31, 2017. We were also in compliance with the operational EBITDA covenant, the annual capital expenditure covenant and the cumulative cash flow requirements from customers who have hosted payloads covenant, whichhedges for hedge accounting. The unrealized changes in market value were the onlyrecorded in accumulated other applicable covenants, as of December 31, 2017.
The covenants regarding capital expenditures, operational EBITDAcomprehensive income (loss), and hosted payload cash flows are calculated in connection with a measurement, which we refer to as available cure amount, that is derived using a complex calculation based on overall cash flows, as adjusted by numerous measures specified inany remaining balance was reclassified into earnings during the Credit Facility. In a period in which our capital expenditures exceed, or our operational EBITDA or hosted payload cash flows falls shortthe hedged transaction affected earnings. Due to the changes made to the Term Loan as a result of the amount specifiedJuly 2021 repricing, at that time, we elected to de-designate the Swap as a cash flow hedge. Accordingly, as the related interest payments were still probable, the accumulated balance within other comprehensive income (loss) as of the de-designation date was amortized into earnings through the November 2021 expiration date.
See Note 8 to our consolidated financial statements included in this report for further discussion of our derivative financial instruments.
Total Interest on Debt and Loss on Extinguishment
Total interest incurred includes amortization of deferred financing fees and capitalized interest. Due to the refinancing of the Term Loan in 2023, we incurred third-party financing costs of $15.9 million, of which $14.7 million was expensed. Due to the prepayments on the Term Loan in the respective covenant,fourth quarter of 2022, we would be permitted to allocate available cure amount, if any, to preventincurred a breach$1.2 million loss on extinguishment of debt for the write-off of the applicable covenant.related unamortized debt issuance costs for the portion of the Term Loan that was prepaid. To reprice the Term Loan in 2021, we incurred third-party financing costs of $4.9 million. These costs were expensed and are included within interest expense on the consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2023, 2022 and 2021. The repricings of the Term Loan in 2021 resulted in a $0.9 million loss on extinguishment of debt, as we wrote off the unamortized debt issuance costs related to the lenders who were fully repaid in an exchange of principal.
Total interest incurred during the years ended December 31, 2023, 2022 and 2021 was $102.3 million, $72.1 million and $72.8 million, respectively. Interest incurred includes amortization of deferred financing fees of $4.0 million, $4.8 million and $4.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. Interest capitalized during the years ended December 31, 2023, 2022 and 2021 was $5.1 million, $2.6 million and $2.1 million, respectively. As of December 31, 2017, we had an amount of $8.1 million in available cure, although it was not necessary for us to apply any available cure amount to maintain compliance with the covenants. The available cure amount has fluctuated significantly from one measurement period to the next,2023 and we expect that it will continue to do so.
The covenants also place limitations on our ability and that of our subsidiaries to carry out mergers and acquisitions, dispose of assets, grant security interests, declare, make or pay dividends, enter into transactions with affiliates, incur additional indebtedness, or make loans, guarantees or indemnities. If we are not in compliance with the financial covenants under the Credit Facility, after any opportunity to cure such non-compliance, or we otherwise experience an event of default under the Credit Facility, the lenders may require repayment in full of all principal and2022, accrued interest outstanding under the Credit Facility. It is unlikely we would have adequate funds to repay such amounts prior to the scheduled maturity of the Credit Facility. If we fail to repay such amounts, the lenders may foreclose on the assets we have pledged under the Credit Facility, which include substantially all of our assetsTerm Loan was $1.0 million and those of our domestic subsidiaries.$0.3 million, respectively.
As discussed in "Overview of Our Business" above, we believe we have reached an agreement in principle with our Credit Facility Lenders to modify the Credit Facility as described therein.
Boeing Insourcing Agreement
From our inception until late 2016, Boeing operated and maintained our satellite constellation under an operations and maintenance agreement. Pursuant to this agreement, Boeing provided personnel services in support of the development of Iridium NEXT and agreed to operate and maintain Iridium NEXT, including a transitional period that began on January 1, 2015, during which Boeing supported a hybrid operations mode involving network elements from both the first-generation Iridium system and the Iridium NEXT system. Boeing provided these services on a time-and-materials fee basis.
In November 2016, we restructured our relationship with Boeing. We entered into an insourcing agreement, pursuant to which we hired, as of January 3, 2017, the majority of the Boeing team that performed the operations and maintenance on our system. We now are able to directly manage our network and optimize operational expenses. As part of this arrangement, we agreed to pay Boeing a fee of $5.5 million, of which one-half was paid in December 2016 and the remainder was paid in December 2017. In addition, we entered into a separate development services contract with Boeing, which will dedicate key Boeing personnel to continue the design and additional support required for bringing new services and capabilities to the Iridium NEXT network.
Material Trends and Uncertainties
Our industry and customer base hashave historically grown as a result of:
•demand for remote and reliable mobile communications services;
•a growing number of new products and services and related applications;
•a broad wholesale distribution network with access to diverse and geographically dispersed niche markets;
•increased demand for communications services by disaster and relief agencies and emergency first responders;
a broad wholesale distribution network with access to diverse and geographically dispersed niche markets;
a growing number of new products and services and related applications;
•improved data transmission speeds for mobile satellite service offerings;
•regulatory mandates requiring the use of mobile satellite services;
•a general reduction in prices of mobile satellite services and subscriber equipment; and
•geographic market expansion through the ability to offer our services in additional countries.
Nonetheless, we face a number of challenges and uncertainties in operating our business, including:
our ability to complete the deployment of Iridium NEXT;
our ability to develop and launch new and innovative products and services for Iridium NEXT;
our ability to generate sufficient internal cash flows, including cash flows from hosted payloads, to fund a portion of the remaining costs associated with Iridium NEXT and to support our ongoing business;
our ability to raise additional capital when needed, including through a planned issuance of debt securities;
Aireon LLC’s ability to successfully deploy and market its space-based ADS-B, global aviation monitoring service to be carried as a hosted payload on the Iridium NEXT system;
Aireon’s ability to raise sufficient funds to pay hosting fees to us;
•our ability to maintain the health, capacity, control and level of service of our first-generation satellites through the completion of Iridium NEXT;satellites;
•our ability to develop and launch new and innovative products and services;
•changes in general economic, business and industry conditions, including the effects of currency exchange rates;
•our reliance on a single primary commercial gateway and a primary satellite network operations center;
•competition from other mobile satellite service providers and, to a lesser extent, from the expansion of terrestrial-based cellular phone systems and related pricing pressures;
•market acceptance of our products;
•regulatory requirements in existing and new geographic markets;
•challenges associated with global operations, including as a result of conflicts in or affecting markets in which we operate;
•rapid and significant technological changes in the telecommunications industry;
•our ability to generate sufficient internal cash flows to repay our debt;
•reliance on our wholesale distribution network to market and sell our products, services and applications effectively;
•reliance on a global supply chain, including single-source suppliers for the manufacture of most of our subscriber equipment and for some of the components required in the manufacture of our end-user subscriber equipment and our ability to purchase
component parts that are periodically subject to shortages resulting from surges in demand, natural disasters or other events;events, including a global pandemic, such as COVID-19; and
•reliance on a few significant customers, particularly agencies of the U.S. government, for a substantial portion of our revenue, as a result of which the loss or decline in business with any of these customers may negatively impact our revenue and collectability of related accounts receivable.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of these financial statements requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, collectability of accounts receivable,income taxes, useful lives of property and equipment, long-lived assets, goodwill and other intangible assets, inventory, internally developed software, deferred financing costs, income taxes, stock-based compensation, warranty expenses, loss contingencies, and other estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
The accounting policies we believe to be most critical to understanding our financial results and condition and that require complex and subjective management judgments are discussed below. Our accounting policies are more fully described in Note 2 in Item 8 “Financial Statements and Supplementary Data.” Please see to the notes to our consolidated financial statements for a full discussion of these significant accounting policies.included in this report.
For revenue arrangements with multiple elements in which we determine, based on judgment, that the elements qualify as separate units of accounting, we allocate the guaranteed minimum arrangement price among the various contract elements based on each element’s relative selling price. The selling price used for each deliverable is based on vendor-specific objective evidence when available, third-party evidence when vendor-specific evidence is not available, or our estimate of selling price when neither vendor-specific evidence nor third-party evidence is available. We determine vendor-specific objective evidence of selling price by assessing sales prices of subscriber equipment, airtime and other services when they are sold to customers on a stand-alone basis. Our determination of best estimate of selling price is consistent with our determination of vendor-specific objective evidence of selling price and we assess qualitative and quantitative market factors and entity-specific factors when estimating the selling price. We recognize revenue for each element based on the specific characteristics of that element.
We sell prepaid services in the form of e-vouchers and prepaid cards. A liability is established equal to the cash paid upon purchase for the e-voucher or prepaid card. We recognize revenue from the prepaid services upon the use of the e-voucher or prepaid card by the customer or, if unused, upon the expiration of the right to access the prepaid service. While the terms of prepaid e-vouchers can be extended by the purchase of additional e-vouchers, prepaid e-vouchers may not be extended beyond three or four years, dependent on the initial expiry period when purchased. We do not offer refunds for unused prepaid services.
Revenue associated with some of our fixed-price engineering services arrangements is recognized when the services are rendered, typically on a proportional performance method of accounting based on our estimate of total costs expected to complete the contract, and the related costs are expensed as incurred. We recognize revenue on cost-plus-fixed-fee arrangements to the extent of actual costs incurred plus an estimate of the applicable fees earned, where such estimated fees are determined using a partial performance method calculation. If actual results are not consistent with our estimates or assumptions, we may be exposed to changes to earned and unearned revenue that could be material to our results of operations.
Stock-Based Compensation
We account for stock-based compensation, which consists of stock options and restricted stock units, based on the grant date estimated fair value. In the case of restricted stock units, grant date fair value is equal to the closing price of our common stock on the date of grant. The expected vesting of our performance-based RSUs is based upon the probability that we achieve the defined performance goals. The level of achievement of performance goals, if any, is determined by our compensation committee. In the case of stock options, grant date fair value is calculated using the Black-Scholes option pricing model. We recognize stock-based compensation on a straight-line basis over the requisite service period. The Black-Scholes option pricing model requires us to make several assumptions, including expected volatility and expected term of the options. If any of the assumptions we use in the Black-Scholes option pricing model were to change significantly, stock-based compensation expense
may differ materially in the future from that recorded in the current period. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those awards expected to vest. We estimate the forfeiture rate based on historical experience. To the extent our actual forfeiture rate is different from our estimate, stock-based compensation expense is adjusted accordingly.
Income Taxes
We account for income taxes using the asset and liability approach. This approach requires that we recognize deferred tax assets
and liabilities based on differences between the financial statement bases and tax bases of our assets and liabilities. Deferred tax
assets and liabilities are recorded based upon enacted tax rates for the period in which the deferred tax items are expected to
reverse. Changes in tax laws or tax rates in various jurisdictions are reflected in the period of change. Significant judgment is
required in the calculation of our tax provision and the resulting tax liabilities as well as our ability to realize our deferred tax
assets. Our estimates of future taxable income and any changes to such estimates can significantly affectimpact our tax provision in a
given period. Significant judgment is required in determining our ability to realize our deferred tax assets related to federal,
state and foreign tax attributes within their carryforward periods including estimating the amount and timing of the future
reversal of deferred tax items in our projections of future taxable income. A valuation allowance is established to reduce
deferred tax assets to the amounts we expect to realize in the future. We also recognize tax benefits related to uncertain tax
positions only when we estimate that it is “more likely than not” that the position will be sustainable based on its technical
merits. If actual results are not consistent with our estimates and assumptions, this may result in material changes to our income
tax provision.
The Tax Cuts and Jobs Act, or the Tax Act, introduces significant changes to U.S. income tax law that have a meaningful impact on our provision for income taxes. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements for the year ended December 31, 2017. Accounting for the income tax effects of the Tax Act requires significant judgments and estimates in the interpretation and calculations of the provisions of the Tax Act. The U.S. Treasury Department, the Internal Revenue Service (IRS), and other standard-setting bodies may issue guidance on how the provisions of the Tax Act will be applied or otherwise administered that is different from our interpretation. As we collect and prepare necessary data, and interpret the Tax Act and any additional guidance issued by the IRS or other standard-setting bodies, we may make adjustments to the provisional amounts, which could materially affect our financial statements in the period in which the adjustments are made.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Property and equipment are depreciated or amortized over their estimated useful lives. We apply judgment in determining the useful lives based on factors such as engineering data, our long-term strategy for using the assets, contractual terms related tothe manufacturer’s estimated design life for the assets, laws and regulations that could impact the useful lives of the assets and other economic factors. In evaluating the useful lives of our satellites, we assess the current estimated operational life of the satellites, including the potential impact of environmental factors on the satellites, ongoing operational enhancements and software upgrades. Additionally, we review engineering data relating to the operation and performance of our satellite network.
We depreciate our satellites over the shorter of their potential operational life or the period of their expected use. The appropriateness of the useful lives is evaluated on a quarterly basis or as events occur that require additional assessment. Our first-generationThe upgraded satellites are depreciated on a straight-line basis through the earlier of their estimated remaining useful life or the date they are expected to be replaced by Iridium NEXT satellites, which defines the period of their expected use, because we expect this will occur before the end of their operational lives. Iridium NEXT satellites whichthat have already been placed into service are depreciated using the straight-line method over their respective estimated useful lives.
Assets under construction primarily consist of costs incurred associated with If the design, development and launch of the Iridium NEXT satellites, upgrades to our current infrastructure and ground systems and internal software development costs. Once these assets are placed in service, they will be depreciated using the straight-line method over their respective estimated useful lives. During the year ended December 31, 2017, we evaluated the useful lives of all assets under construction, noting thatour upgraded satellites change, it could have a material impact on the Kosmotras launch services will no longer be used or further developed. As such, we wrote-offtiming of the full amount previously paid to Kosmotras, by recording acceleratedrecognition of depreciation of $36.8 million, inexpense and hosted payload revenue.
In the fourth quarter of 2017, as noted above. No such charges were recorded for the years ended December 31, 2016 and 2015. We capitalize interest on the Credit Facility during the construction period of Iridium NEXT. Capitalized interest is added to the cost of2023, we updated our next-generation satellites.
Recoverability of Intangible Assets with Indefinite Lives
A portion of our intangible assets consists of our spectrum licenses and trade names which are indefinite-lived intangible assets. We reevaluate the indefinite life determination for these assets periodically to determine whether events and circumstances continue to support an indefinite life.
We assess the recoverability of indefinite-lived assets on an annual basis or when indicators of impairment exist. Historically, we have assessed the possibility of impairment by comparing the carrying amountestimate of the asset to its estimated fair value. If the estimated fair value of the indefinite-lived asset is less than the carrying amount, an impairment loss is recognized. We made assumptions and applied judgment in estimating the fair value based on quoted market prices and various other valuation techniques, including replacement costs, discounted cash flows methods and other market multiple analyses. The various valuation techniques require significant assumptions about future cash flows, replacement cost, revenue growth, capital expenditures, working capital fluctuations, asset life and incremental borrowing rates. In our annual analysis performed in 2017, we chose the optional qualitative assessment to test indefinite-lived intangible assets for impairment. The qualitative assessment permits companies to assess whether it is more likely than not that an indefinite-lived intangible asset is impaired. If a company concludessatellites’ remaining useful lives based on the qualitative assessment that it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, it would not have to quantitatively determine the assets’ fair value. Based on the results of this analysis, it was not more likely than not that the intangible assets not subject to amortization were impaired. Therefore, a quantitative analysis was not necessary, and no impairment charge was recorded during the period.
Deferred Financing Costs
Direct and incremental costs incurred in connection with securing debt financing are deferred on our balance sheet and amortized as additional interest expense using the effective interest method over the termhealth of the
related debt. The effective interest rate calculation requires usconstellation, resulting in an extension from 12.5 years to
make assumptions and estimates in determining estimated periodic interest expense. The calculation includes assumptions and estimates with respect to future borrowing dates and amounts, repayment dates and amounts, and projected future LIBOR rates.17.5 years. If
our actual
borrowing amounts and dates, repayment amounts and dates, and future LIBOR ratesoperational results are not consistent with our estimates
orand assumptions,
however, we may
be exposed toexperience further changes
in depreciation and amortization expense that could
be material to our results of operations. See Note 2 to the consolidated financial statements included in this report for further detail on the impact our property and equipment, net balance (since we are capitalizing interest expense as part of the cost of Iridium NEXT), deferred financing costs balance, depreciation expense, interest expense, income from operations and net income.this change.
Comparison of Our Results of Operations for the YearYears Ended December 31, 20172023 and the Year Ended December 31, 20162022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
| | | % of Total Revenue | | | | % of Total Revenue | | Change |
($ In thousands) | 2023 | | | 2022 | | | Dollars | | Percent |
Revenue: | | | | | | | | | | | |
Service revenue | | | | | | | | | | | |
Commercial | $ | 478,454 | | | 61 | % | | $ | 428,721 | | | 59 | % | | $ | 49,733 | | | 12 | % |
Government | 106,000 | | | 13 | % | | 106,000 | | | 15 | % | | — | | | 0 | % |
Total service revenue | 584,454 | | | 74 | % | | 534,721 | | | 74 | % | | 49,733 | | | 9 | % |
Subscriber equipment | 105,136 | | | 13 | % | | 134,714 | | | 19 | % | | (29,578) | | | (22) | % |
Engineering and support services | 101,133 | | | 13 | % | | 51,599 | | | 7 | % | | 49,534 | | | 96 | % |
Total revenue | 790,723 | | | 100 | % | | 721,034 | | | 100 | % | | 69,689 | | | 10 | % |
Operating expenses: | | | | | | | | | | | |
Cost of services (exclusive of depreciation | | | | | | | | | | | |
and amortization) | 158,710 | | | 20 | % | | 115,137 | | | 16 | % | | 43,573 | | | 38 | % |
Cost of subscriber equipment | 66,410 | | | 8 | % | | 86,012 | | | 12 | % | | (19,602) | | | (23) | % |
Research and development | 20,269 | | | 3 | % | | 16,218 | | | 2 | % | | 4,051 | | | 25 | % |
Selling, general and administrative | 143,706 | | | 18 | % | | 123,504 | | | 17 | % | | 20,202 | | | 16 | % |
Depreciation and amortization | 320,000 | | | 41 | % | | 303,484 | | | 43 | % | | 16,516 | | | 5 | % |
Total operating expenses | 709,095 | | | 90 | % | | 644,355 | | | 90 | % | | 64,740 | | | 10 | % |
Operating income | 81,628 | | | 10 | % | | 76,679 | | | 10 | % | | 4,949 | | | 6 | % |
Other expense: | | | | | | | | | | | |
Interest expense, net | (90,387) | | | (11) | % | | (65,089) | | | (9) | % | | (25,298) | | | 39 | % |
Loss on extinguishment of debt | — | | | 0 | % | | (1,187) | | | 0 | % | | 1,187 | | | (100) | % |
Other income, net | 4,012 | | | 1 | % | | 107 | | | 0 | % | | 3,905 | | | 3,650 | % |
Total other expense | (86,375) | | | (10) | % | | (66,169) | | | (9) | % | | (20,206) | | | 31 | % |
Income (loss) before income taxes and equity in net earnings of affiliates | (4,747) | | | 0 | % | | 10,510 | | | 1 | % | | (15,257) | | | (145) | % |
Income tax benefit (expense) | 26,251 | | | 3 | % | | (292) | | | 0 | % | | 26,543 | | | (9,090) | % |
Loss on equity method investments | (6,089) | | | (1) | % | | (1,496) | | | 0 | % | | (4,593) | | | 307 | % |
Net income | $ | 15,415 | | | 2 | % | | $ | 8,722 | | | 1 | % | | $ | 6,693 | | | 77 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
| | | % of Total Revenue | | | | % of Total Revenue | | Change |
($ In thousands) | 2017 | | | 2016 | | | Dollars | | Percent |
Revenue: | | | | | | | | | | | |
Service revenue | | | | | | | | | | | |
Commercial | $ | 261,735 |
| | 58 | % | | $ | 246,822 |
| | 57 | % | | $ | 14,913 |
| | 6 | % |
Government | 88,000 |
| | 20 | % | | 88,000 |
| | 20 | % | | — |
| | 0 | % |
Total service revenue | 349,735 |
| | 78 | % | | 334,822 |
| | 77 | % | | 14,913 |
| | 4 | % |
Subscriber equipment | 77,119 |
| | 17 | % | | 74,211 |
| | 17 | % | | 2,908 |
| | 4 | % |
Engineering and support services | 21,192 |
| | 5 | % | | 24,607 |
| | 6 | % | | (3,415 | ) | | (14 | )% |
Total revenue | 448,046 |
| | 100 | % | | 433,640 |
| | 100 | % | | 14,406 |
| | 3 | % |
Operating expenses: | |
| | |
| | |
| | |
| | |
| | |
|
Cost of services (exclusive of depreciation | |
| | |
| | |
| | |
| | |
| | |
|
and amortization) | 80,396 |
| | 18 | % | | 64,958 |
| | 15 | % | | 15,438 |
| | 24 | % |
Cost of subscriber equipment | 44,445 |
| | 10 | % | | 44,286 |
| | 10 | % | | 159 |
| | 0 | % |
Research and development | 15,247 |
| | 3 | % | | 16,079 |
| | 4 | % | | (832 | ) | | (5 | )% |
Selling, general and administrative | 84,405 |
| | 19 | % | | 82,552 |
| | 19 | % | | 1,853 |
| | 2 | % |
Depreciation and amortization | 122,266 |
| | 27 | % | | 49,394 |
| | 11 | % | | 72,872 |
| | 148 | % |
Total operating expenses | 346,759 |
| | 77 | % | | 257,269 |
| | 59 | % | | 89,490 |
| | 35 | % |
Gain on Boeing transaction | 14,189 |
| | 3 | % | | — |
| | — | % | | 14,189 |
| | 100 | % |
Operating income | 115,476 |
| | 26 | % | | 176,371 |
| | 41 | % | | (60,895 | ) | | (35 | )% |
Other income (expense): | |
| | |
| | |
| | |
| | |
| | |
|
Interest income, net | 4,328 |
| | 1 | % | | 2,934 |
| | 1 | % | | 1,394 |
| | 48 | % |
Undrawn credit facility fees | (25 | ) | | 0 | % | | (1,346 | ) | | 0 | % | | 1,321 |
| | (98 | )% |
Other income (expense), net | (207 | ) | | 0 | % | | 206 |
| | (1 | )% | | (413 | ) | | (200 | )% |
Total other income (expense) | 4,096 |
| | 1 | % | | 1,794 |
| | 0 | % | | 2,302 |
| | 128 | % |
Income before income taxes | 119,572 |
| | 27 | % | | 178,165 |
| | 41 | % | | (58,593 | ) | | (33 | )% |
Income tax benefit (expense) | 114,284 |
| | 25 | % | | (67,133 | ) | | (15 | )% | | 181,417 |
| | (270 | )% |
Net income | $ | 233,856 |
| | 52 | % | | $ | 111,032 |
| | 26 | % | | $ | 122,824 |
| | 111 | % |
Commercial Service Revenue
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | | | |
| 2017 | | 2016 | | Change |
| Revenue | | Billable Subscribers (1) | | ARPU (2) | | Revenue | | Billable Subscribers (1) | | ARPU (2) | | Revenue | | Billable Subscribers | | ARPU |
| (Revenue in millions and subscribers in thousands) |
Commercial voice and data | $ | 177.7 |
| | 359 |
| | $ | 42 |
| | $ | 177.7 |
| | 353 |
| | $ | 42 |
| | $ | — |
| | 6 |
| | $ | — |
|
Commercial IoT data | 74.1 |
| | 510 |
| | 13 |
| | 65.5 |
| | 413 |
| | 14 |
| | 8.6 |
| | 97 |
| | (1.0 | ) |
Hosted payload and other data services (3) | 9.9 |
| | N/A |
| | | | 3.6 |
| | N/A |
| | | | 6.3 |
| | N/A |
| | |
Total Commercial | $ | 261.7 |
| | 869 |
| | |
| | $ | 246.8 |
| | 766 |
| | |
| | $ | 14.9 |
| | 103 |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | | | |
| 2023 | | 2022 | | Change |
| Revenue | | Billable Subscribers (1) | | ARPU (2) | | Revenue | | Billable Subscribers (1) | | ARPU (2) | | Revenue | | Billable Subscribers | | ARPU |
| (Revenue in millions and subscribers in thousands) |
| | | | | | | | | | | | | | | | | |
Commercial services: | | | | | | | | | | | | | | | | | |
Voice and data | $ | 219.2 | | | 408 | | | $ | 45 | | | $ | 193.1 | | | 397 | | | $ | 42 | | | $ | 26.1 | | | 11 | | | $ | 3 | |
IoT data | 141.0 | | | 1,709 | | | $ | 7.45 | | | 125.0 | | | 1,448 | | | $ | 7.89 | | | 16.0 | | | 261 | | | $ | (0.44) | |
Broadband (3) | 57.9 | | | 16.7 | | | $ | 305 | | | 51.1 | | | 15.0 | | | $ | 302 | | | 6.8 | | | 1.7 | | | $ | 3 | |
Hosted payload and other data | 60.3 | | | N/A | | | | 59.5 | | | N/A | | | | 0.8 | | | N/A | | |
Total commercial services | $ | 478.4 | | | 2,134 | | | | | $ | 428.7 | | | 1,860 | | | | | $ | 49.7 | | | 274 | | | |
| |
(1)
| Billable subscriber numbers are shown as of the end of the respective period. |
| |
(2)
| Average monthly revenue per unit, or ARPU, is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the beginning of the period and the number of billable subscribers at the end of the period and then dividing the result by the number of months in the period. |
| |
(3)
| Billable subscriber and ARPU data is not applicable for hosted payload and other data service revenue items. |
(1)Billable subscriber numbers are shown as of the end of the respective period.
(2)Average monthly revenue per unit, or ARPU, is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the beginning of the period and the number of billable subscribers at the end of the period and then dividing the result by the number of months in the period. Billable subscriber and ARPU data is not applicable for hosted payload and other data service revenue items.
(3)Commercial broadband consists of Iridium OpenPort and Iridium Certus broadband services.
For the year ended December 31, 2017,2023, total commercial service revenue increased $14.9$49.7 million, or 6%12%, primarily as a result of increases in voice and data, IoT, and broadband revenue mainly driven by increases in billable subscribers. Commercial voice and data revenue increased $26.1 million, or 14%, from the prior year primarily due to thean increase in ARPU resulting from certain price increases in access fees and an increase in volume across voice and data services. Commercial IoT of $8.6revenue increased $16.0 million, or 13%, compared to the prior year. Theyear, driven by an 18% increase in IoT is primarily due to a 23%billable subscribers including continued strength in personal communications devices. The subscriber increase in commercial IoT data billable subscribers,effect on revenue was partially offset by a decline6% reduction in the relatedIoT ARPU, primarily due to the growth inshifting mix of subscribers using lower data usage plans.ARPU plans, including the increased proportion of personal communication subscribers. Commercial broadband revenue increased $6.8 million, or 13%, compared to the prior year, due to the increase in broadband billable subscribers. Hosted payload and other data service revenue increased $6.3$0.8 million, or 175%1%, fromwhich is relatively consistent year over year. There were two offsetting items in the priorcurrent year, primarily duethe one-time recognition of approximately $2.0 million of revenue related to an updated estimate on a customer contract, offset by a $2.3 million decrease in hosted payload revenue related to the commencementchange in the estimated useful lives of hosting and data services. We anticipateour satellites. As a result of this change in estimate, we expect that hosted payload revenue from our hosting and data services to increase as more Iridium NEXT satellites are placed into service overwill decrease by approximately $9.1 million per year for the launch campaign, which is expected to be completed in 2018. remainder of the estimated useful lives.
Government Service Revenue
|
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2017 | | 2016 | | Change |
| Revenue | | Billable Subscribers (1) | | Revenue | | Billable Subscribers (1) | | Revenue | | Billable Subscribers |
| (Revenue in millions and subscribers in thousands) |
Government service revenue | $ | 88 |
| | 100 |
| | $ | 88 |
| | 84 |
| | $ | — |
| | 16 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2023 | | 2022 | | Change |
| Revenue | | Billable Subscribers (1) | | Revenue | | Billable Subscribers (1) | | Revenue | | Billable Subscribers |
| (Revenue in millions and subscribers in thousands) |
| | | | | | | | | | | |
Government service revenue | $ | 106.0 | | | 145 | | $ | 106.0 | | | 139 | | $ | — | | | 6 | |
| |
(1)
| Billable subscriber numbers shown are at the end of the respective period. |
(1)Billable subscriber numbers shown are at the end of the respective period.
We provide Iridium airtime and airtime support to U.S. government and other authorized customers pursuant to a five-yearour Enhanced Mobile Satellite Services, or EMSS, contract executed in October 2013 and managed by DISA.contract. Under the terms of this agreement, which we entered into in September 2019, authorized customers utilize specified Iridium airtime services provided through the U.S. Department of Defense’s, or DoD’s,government’s dedicated gateway. These services include unlimited global secure and unsecure voice, low and high-speed data, paging, broadcast, and Distributed Tactical Communications System, or DTCS, services for an unlimited number of DoD and other federal subscribers. The service fee under the EMSS contract is fixed at $88 million per year for the remainder of the term, and is not based on subscribers or usage, allowing an unlimited number of users access to existingthese services. The EMSS contract expiresRevenue for the year ended December 31, 2023 was unchanged from the prior year, in October 2018, although based on federal acquisition regulations, the government has the ability to unilaterally extend for an additional six months. We have begun discussionsaccordance with the U.S. government on a new EMSS contract, which we expect to enter into later in 2018 or in 2019.contract.
Subscriber Equipment Revenue
Subscriber equipment revenue increased $2.9decreased $29.6 million, or 4%22%, to $77.1$105.1 million for the year ended December 31, 20172023 compared to the prior year. This increase wasyear, primarily due to increased unitthe expected decrease in sales volume of handsetsShort Burst Data devices, L-Band transceivers and L-band transceivers.handsets. In 2024, we expect equipment sales to be lower than 2023 and more in line with periods prior to 2022, before we and our competitors began to experience supply chain disruptions due to the pandemic.
Engineering and Support Service Revenue
| | | | | | | | | | Year Ended December 31, | | |
| Year Ended December 31, | | | | 2023 | | 2022 | | Change |
| 2017 | | 2016 | | Change | | (In millions) |
| (In millions) |
Commercial | $ | 3.1 |
| | $ | 2.2 |
| | $ | 0.9 |
|
Commercial | |
Commercial | |
Government | 18.1 |
| | 22.4 |
| | (4.3 | ) |
Total | $ | 21.2 |
| | $ | 24.6 |
| | $ | (3.4 | ) |
Engineering and support service revenue decreasedincreased by $3.4$49.5 million, or 14%96%, for the year ended December 31, 20172023 compared to the prior year primarily due to the increased work under certain government projects, predominantly the contract awarded by the Space Development Agency, or the SDA. Based on the SDA contract, we expect engineering and support service revenue, as a resultwell as associated expenses, to be generally higher than in prior years throughout the life of decreased revenue under a contract with the DoD to adapt the Iridium Extreme® handset for DoD applications, which was completed during 2017.SDA contract.
Operating Expenses
Cost of Services (exclusive of depreciation and amortization)
Cost of services (exclusive of depreciation and amortization) includes the cost of network engineering and operations staff, including contractors, software maintenance, product support services, and cost of services for government and commercial engineering and support service revenue.
Cost of services (exclusive of depreciation and amortization) increased by $15.4$43.6 million, or 24%38%, for the year ended December 31, 20172023 compared to the prior year, primarily as a result of insurance costs from Iridium NEXT satellites placed into service during 2017. We expect our insurance expenses to increaseincreased work under certain government projects, including the SDA contract, as we place Iridium NEXT satellites into service throughout the launch campaign, which we expect to complete in 2018.noted above.
Cost of Subscriber Equipment
Cost of subscriber equipment includes the direct costs of equipment sold, which consist of manufacturing costs, allocation of overhead, and warranty costs.
Cost of subscriber equipment increased $0.2decreased $19.6 million, which was substantially the sameor 23%, for the year ended December 31, 2017 as in2023 compared to the prior year.year period primarily due to the decrease in volume of device sales, as described above.
Research and Development
Research and development expenses increased by $4.1 million, or 25%, for the year ended December 31, 2023 compared to the prior year period based on increased spending on device-related features for our network.
Selling, General and Administrative
Selling, general and administrative expenses that are not directly attributable to the sale of services or products include sales and marketing costs as well as employee-related expenses (such as salaries, wages, and benefits), legal, finance, information technology, facilities, billing and customer care expenses.
Selling, general and administrative expenses increased by $1.9$20.2 million, or 2%16%, for the year ended December 31, 2017 compared to the prior year,2023, primarily due to personnel costs from increased headcount and higher employee stock-based compensation expense, increased marketing expenses and increased professional fees, associated with government regulatory requirements and other services.offset in part by a decrease in stock appreciation rights expense in the current year resulting from a decrease in our stock valuation between the years.
Depreciation and Amortization
Depreciation and amortization expense increased by $72.9$16.5 million, or 148%5%, for the year ended December 31, 20172023, compared to the prior year. As described above, we recorded accelerated depreciation expense of $37.5 million for our remaining ground spare satellite in the second quarter of 2023, following completion of on-orbit testing of our five newly launched spare satellites. This increase was offset in part by a decrease in depreciation expense of $25.5 million for the year ended December 31, 2023 due to the change in estimated useful lives of our satellites. As a result of this change in estimate, we expect that depreciation expense will decrease by approximately $111.0 million per year for the remainder of the estimated useful lives.
Other Expense
Interest Expense, net
Interest expense, net, for the year ended December 31, 2023 was $90.4 million, compared to $65.1 million for the prior year. The increase in interest expense, net resulted primarily from the $14.7 million in fees expensed in connection with the refinancing of our Term Loan in September 2023 and an increase in the base rate of our Term Loan compared to the prior year primarily dueperiod.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was $1.2 million for the year ended December 31, 2022 as a result of our election to prepay a total of $100.0 million, and the write-off the related unamortized debt issuance costs. There were no losses for the year ended December 31, 2023 in connection with the refinancing of $36.8our Term Loan.
Other Income, net
Other income, net, was $4.0 million for the year ended December 31, 2023, compared to other expense, net, of $0.1 million for the prior year primarily as a result of a one-time customer contractual settlement which resulted in recognition of $3.5 million of the construction-in-progress associated with the Kosmotras launch services in 2017 and the addition of new assets, including Iridium NEXT satellites placed into service during 2017. Excluding the impact of Kosmotras, we expect our depreciation expense to increase as we place Iridium NEXT satellites into service throughout the launch campaign, which we expect to complete in 2018.
Gain on Boeing Transaction
On November 28, 2016, we entered into an Insourcing Agreement with Boeing for us to hire, effective as of January 3, 2017, the majority of Boeing employees and third party contractors who were responsible for the operations and maintenance of our satellite constellation and ground infrastructure. As a result, we and Boeing terminated our previous Operations and Maintenance Agreement, or O&M Agreement, and our previous Iridium NEXT Support Service Agreement and entered into a new Development Services Agreement, or DSA, with a $6.0 million annual take-or-pay commitment through 2021.
We recognized a $14.2 million gainother income in the firstfourth quarter of 2017, consisting of (1) the derecognition of a purchase accounting liability of $11.0 million created when GHL Acquisition Corp. acquired Iridium in 2009 related to the fair value of the contractual arrangement with Boeing as of that date and (2) the remainder of a credit, $3.2 million, resulting from an O&M Agreement amendment in July 2010.2023.
Income Tax Benefit (Expense)
For the year ended December 31, 2017,2023, our income tax benefit was $114.3$26.3 million, compared to an income tax expense of $67.1$0.3 million for the prior year. Our effective tax rate was approximately -95.6%553.0% for the year ended December 31, 20172023 compared to 37.7%2.8% for the prior year. The decreaseincrease in the effectiveincome tax rate wasbenefit is primarily related to the net impact of (i) pre-tax book loss in the current year compared to pre-tax book income in the prior year, (ii) an increase in estimated R&D credits, and (iii) an increased stock compensation tax benefit on remeasuring our ending deferred tax balances at 21%, from 35%, for years beginning after December 31, 2017, to reflect the new tax rate under the Tax Act. Asbenefit. If our current estimates change in future periods, the impact on the deferred tax assets and liabilities may change correspondingly. See Note 12 to our consolidated financial statements for more detail on the individual items impacting our effective tax rate for the years.
Loss on Equity Method Investments
For the year ended December 31, 2023, our loss on equity method investments was $6.1 million, compared to a loss $1.5 million in the prior year. The increase in loss primarily reflects the increased duration the equity method investments were outstanding and the related portion of losses recorded on our those investments during each period.
Net Income
Net income was $233.9$15.4 million for the year ended December 31, 2017, an increase of $122.82023, compared to $8.7 million from the prior year. This increase in net income was primarily driven by the decrease in the provision for income taxes and increase in revenue, offset by increases in depreciation expense, including the accelerated depreciation related to the write-off of Kosmotras launch services, as described above.
Comparison of Our Results of Operations for the Year Ended December 31, 2016 and Combined Results of Operations for the Year Ended December 31, 2015
|
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
($ In thousands) | 2016 | | % of Total Revenue | | 2015 | | % of Total Revenue | | Dollars | | Percent |
Revenue: | |
| | | | |
| | |
| | |
| | |
|
Service revenue | |
| | |
| | |
| | |
| | |
| | |
|
Commercial | $ | 246,822 |
| | 57 | % | | $ | 241,925 |
| | 59 | % | | $ | 4,897 |
| | 2 | % |
Government | 88,000 |
| | 20 | % | | 75,097 |
| | 18 | % | | 12,903 |
| | 17 | % |
Total service revenue | 334,822 |
| | 77 | % | | 317,022 |
| | 77 | % | | 17,800 |
| | 6 | % |
Subscriber equipment | 74,211 |
| | 17 | % | | 73,615 |
| | 18 | % | | 596 |
| | 1 | % |
Engineering and support services | 24,607 |
| | 6 | % | | 20,741 |
| | 5 | % | | 3,866 |
| | 19 | % |
Total revenue | 433,640 |
| | 100 | % | | 411,378 |
| | 100 | % | | 22,262 |
| | 5 | % |
Operating expenses: | |
| | |
| | |
| | |
| | |
| | |
|
Cost of services (exclusive of depreciation and amortization) | 64,958 |
| | 15 | % | | 60,306 |
| | 15 | % | | 4,652 |
| | 8 | % |
Cost of subscriber equipment | 44,286 |
| | 10 | % | | 40,807 |
| | 10 | % | | 3,479 |
| | 9 | % |
Research and development | 16,079 |
| | 4 | % | | 16,144 |
| | 4 | % | | (65 | ) | | 0 | % |
Selling, general and administrative | 82,552 |
| | 19 | % | | 81,445 |
| | 20 | % | | 1,107 |
| | 1 | % |
Depreciation and amortization | 49,394 |
| | 11 | % | | 51,834 |
| | 13 | % | | (2,440 | ) | | (5 | )% |
Impairment of goodwill | — |
| | 0 | % | | 87,039 |
| | 21 | % | | (87,039 | ) | | (100 | )% |
Total operating expenses | 257,269 |
| | 59 | % | | 337,575 |
| | 82 | % | | (80,306 | ) | | (24 | )% |
Operating income | 176,371 |
| | 41 | % | | 73,803 |
| | 18 | % | | 102,568 |
| | 139 | % |
Other income (expense): | |
| | |
| | |
| | |
| | |
| | |
|
Interest income, net | 2,934 |
| | 1 | % | | 3,069 |
| | 1 | % | | (135 | ) | | (4 | )% |
Undrawn credit facility fees | (1,346 | ) | | 0 | % | | (3,289 | ) | | (1 | )% | | 1,943 |
| | (59 | )% |
Other expense, net | 206 |
| | (1 | )% | | (468 | ) | | (1 | )% | | 674 |
| | (144 | )% |
Total other expense | 1,794 |
| | 0 | % | | (688 | ) | | (1 | )% | | 2,482 |
| | (361 | )% |
Income before income taxes | 178,165 |
| | 41 | % | | 73,115 |
| | 17 | % | | 105,050 |
| | 144 | % |
Income tax expense | (67,133 | ) | | (15 | )% | | (65,992 | ) | | (16 | )% | | $ | (1,141 | ) | | 2 | % |
Net income | $ | 111,032 |
| | 26 | % | | $ | 7,123 |
| | 1 | % | | $ | 103,909 |
| | 1,459 | % |
Commercial Service Revenue
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2016 | | 2015 | | Change |
| Revenue | | Billable Subscribers (1) | | ARPU(2) | | Revenue | | Billable Subscribers (1) | | ARPU(2) | | Revenue | | Billable Subscribers | | ARPU |
| (Revenue in millions and subscribers in thousands) |
Commercial voice and data | $ | 177.7 |
| | 353 | | $ | 42 |
| | $ | 178.4 |
| | 351 | | $ | 42 |
| | $ | (0.7 | ) | | 2 | | $ | — |
|
Commercial IoT data | 65.5 |
| | 413 | | $ | 14 |
| | 61.3 |
| | 359 | | $ | 15 |
| | 4.2 |
| | 54 | | $ | (1 | ) |
Hosted payload and other data services (3) | $ | 3.6 |
| | N/A | | | | $ | 2.2 |
| | N/A | | | | $ | 1.4 |
| | N/A | | |
Total Commercial | $ | 246.8 |
| | 766 | | |
| | $ | 241.9 |
| | 710 | | |
| | $ | 4.9 |
| | 56 | | |
|
| |
(1)
| Billable subscriber numbers shown are at the end of the respective period. |
| |
(2)
| Average monthly revenue per unit, or ARPU, is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the beginning of the period and the number of billable subscribers at the end of the period and then dividing the result by the number of months in the period. |
| |
(3)
| Billable subscriber and ARPU data is not applicable for hosted payload and other data service revenue items. |
For the year ended December 31, 2016, total commercial revenue increased $4.9 million, or 2%, primarily due to the increase in IoT of $4.2 million, or 7%, compared toduring the prior year. The change primarily resulted from the increase in IoT is primarily due to a 15% increaseincome tax benefit, as noted above, offset in commercial IoT billable subscribers, offsetpart by slightly lower ARPU. Commercial voice and data remained relatively flat due to continued declines in telephony airtime usage substantially offset by increases in Iridium OpenPort services and push-to-talk, or PTT, services.
Government Service Revenue
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
| 2016 | | 2015 | | Change |
| Revenue | | Billable Subscribers (1) | | Revenue | | Billable Subscribers (1) | | Revenue | | Billable Subscribers |
| (Revenue in millions and subscribers in thousands) |
Government service revenue | $ | 88.0 |
| | 84 | | $ | 75.1 |
| | 72 | | $ | 12.9 |
| | 12 |
| |
(1)
| Billable subscriber numbers shown are at the end of the respective period. |
Government service revenues for the year ended December 31, 2016 increased to $88 million from $75.1 million in the prior year as a result of a scheduled price increase under the EMSS contract.
Subscriber Equipment Revenue
Subscriber equipment revenue increased by $0.6 million, or 1%, to $74.2 million for the year ended December 31, 2016 compared to the prior year. This increase was primarily due to increased unit sales of Iridium Pilot® terminals and IoT devices partially offset by fewer sales of handsets and L-Band transceivers.
Engineering and Support Service Revenue
|
| | | | | | | | | | | |
| Year Ended December 31, | | |
| 2016 | | 2015 | | Change |
| (In millions) |
Commercial | $ | 2.2 |
| | $ | 2.0 |
| | $ | 0.2 |
|
Government | 22.4 |
| | 18.7 |
| | 3.7 |
|
Total | $ | 24.6 |
| | $ | 20.7 |
| | $ | 3.9 |
|
Engineering and support service revenue increased by $3.9 million, or 19%, for the year ended December 31, 2016 compared to the prior year primarily as a result of a DoD contract entered into in late 2015 to adapt the Iridium Extreme® handset for DoD use.
Operating Expenses
Cost of Services (exclusive of depreciation and amortization)
Cost of services (exclusive of depreciation and amortization) increased by $4.7 million, or 8%, for the year ended December 31, 2016 compared to the prior year, primarily due to an increase in scope of work for government sponsored contracts, partially offset by lower costs incurred to manage the first-generation satellites.
Cost of Subscriber Equipment
Cost of subscriber equipment includes the direct costs of equipment sold, which consist of manufacturing costs, allocation of overhead, and warranty costs.
Cost of subscriber equipment increased by $3.5 million, or 9%, for the year ended December 31, 2016 compared to the prior year. The increase was primarily due to a decline in the warranty provision for our Iridium OpenPort terminal during the year ended December 31, 2015 that did not recur in the year ended December 31, 2016. The remaining cost increase is due to a higher volume of Iridium Pilot terminal sales and IoT device sales, partially offset by decreased sales of handsets and L-Band transceivers and by reduced costs on certain products due to manufacturing cost efficiencies.
Selling, General and Administrative
Selling, general and administrative expenses increased by $1.1 million, or 1%, for the year ended December 31, 2016 compared to the prior year primarily due to increases in employee-related expenses and professional fees, partially offset by lower supplier transition expenses and lower non-income taxes.
Depreciation and Amortization
Depreciation and amortizationinterest expense decreased by $2.4 million, or 5%, for the year ended December 31, 2016 compared to the prior year, primarily due to continued changes in the estimated useful lives of the first-generation satellites, partially offset by the addition of new assets and the impairment charges that we recorded during the second quarter of 2016 as a result of two satellites having ceased operations. We updated our analysis of the first-generation satellites’ remaining useful lives throughout 2016. We will continue to evaluate the useful lives of our first-generation satellites through the full deployment of Iridium NEXT as the satellites are placed into service.
Other Expense
Undrawn Credit Facility Fees
The commitment fee on the undrawn portion of the Credit Facility was $1.3 million for the year ended December 31, 2016 compared to $3.3 million for the prior year. The decrease of the commitment fee on the undrawn portion directly relates to the increase in the amounts borrowed under the Credit Facility as we continue to finance the development of Iridium NEXT. As we were fully drawn on the Credit Facility in February 2017, the undrawn portion and related fees decreased to zero beginning in the second quarter of 2017 and continuing thereafter.
Income Tax Expense
For the year ended December 31, 2016, our income tax expense was $67.1 million compared to $66.0 million for the prior year. Our effective tax rate was approximately 37.7% for the year ended December 31, 2016 compared to 90.3% for the prior year. The decrease in the effective tax rate was primarily related to the impact of a one-time non-cash impairment of goodwill in the prior year as well as an increased benefit related to the impact of the Arizona tax law changes (both tax rate and apportionment method) and state apportionment changes in other jurisdictions compared to the prior year. As our current estimates change in future periods, the impact on the deferred tax assets and liabilities may change correspondingly.
Net Income
Net income was $111.0 millionfees paid for the year ended December 31, 2016, an increaserefinancing of $103.9 million from the prior year. This increase in net income was driven by an $87.0 million non-cash goodwill impairment charge taken in 2015our Term Loan and the $22.3 million increase in total revenue, which was primarily related to the $12.9 million increase from the EMSS contract. The increase was partially offset by a $5.0 million increase in costs of services as described above.increased base rate.
Liquidity and Capital Resources
Our primary sources of liquidity are cash provided by operations, cash and cash equivalents and our Revolving Facility. At December 31, 2023, we had $1.5 billion of indebtedness, consisting exclusively of amounts outstanding under the Term Loan, the terms of which are described above under the section captioned “Term Loan.” We have additional borrowing available to us under our Revolving Facility of $100.0 million at December 31, 2023. These sources are expected to meet our short-term and long-term liquidity needs, including annual payments for (i) required principal and interest on the Term Loan, which we expect
to be $15.0 million and, based on the current interest rate, approximately $80.0 million, respectively, (ii) capital expenditures of approximately $60.0 million, (iii) working capital, (iv) potential share repurchases, and (v) anticipated cash dividend payments to holders of our common stock.
As of December 31, 2017,2023, our total cash and cash equivalents balance was $285.9$71.9 million, and our marketable securities balancedown from $168.8 million as of December 31, 2022. The decrease was $11.8 million. Our principal sources of liquidity are cash, cash equivalents and marketable securities, and internally generated cash flows. Our principal liquidity requirements over the next twelve months are to meet capital expenditure needs, principally the continued deploymentresult of Iridium NEXT, as well as for working$247.0 million in repurchases of our common stock, $73.5 million in capital interest, DSRA contributions, principal payments on the Credit Facility,expenditures and $64.8 million in dividends payable on our Series A Preferred Stock and Series B Preferred Stock. As described in more detail below, we also anticipate incurring additional debt in order to raise additional capital for these purposes.
We estimate the aggregate costs associated with the design, build and launch of Iridium NEXT and related infrastructure upgrades through 2018 to be approximately $3 billion. Our funding plan for these costs includes the substantial majority of the funds under our $1.8 billion Credit Facility which was fully drawn as of February 2017, together with cash on hand andpaid, offset by internally generated cash flows including cash flows from hosted payloads. Now that our Credit Facility is fully drawn, with the exception of the invoices to be paid with bills of exchange, we expect to pay 100% of each remaining invoice received from Thales and all principal, interest and DSRA contributions under the Credit Facility from cash, cash equivalents and marketable securities on hand, and internally generated cash flows, including cash flows from hosted payloads, and additional debt.operations.
On July 26, 2017, we amended and restated the Credit Facility by a supplemental agreement. As described above, the amended Credit Facility delayed $54.0 million of our previously scheduled 2017 DSRA contributions and also provided a refund of $33.0 million in DSRA contributions we have made to date. The Credit Facility also provides for a refund of an additional $11.0 million in DSRA contributions we have made to date in the event that our projected Available Cash (as defined in the Credit Facility) falls below $35.0 million on a three-month forward-looking basis through March 2019. The delay and refunds are effective through the end of March 2019, at which time the DSRA must be fully funded to the previously agreed amount of $189.0 million. The Credit Facility also requires that we establish a new restricted account to receive payments of hosting fees from Aireon. Hosting fees of up to $50.0 million would be kept in the account and could be drawn by us based on the same $35.0 million three-month forward-looking Available Cash threshold described above. Aireon hosting fees in excess of the first $50.0 million would be distributed pro rata to replenish the DSRA and to secure the payment of the bills of exchange to Thales described below.Contractual Obligations
The amended and restated Credit Facility does not include any requirements that we raise additional equity but required that we suspend the payment of dividends on our 7% Series A Cumulative Perpetual Convertible Preferred Stock and our 6.75% Series B Cumulative Perpetual Convertible Preferred Stock for five quarters. As previously announced, in anticipation of this
requirement, we began this suspension with the dividend payments payable on June 15, 2017. Holders of Series A Preferred Stock and Series B Preferred Stock are entitled to receive cumulative cash dividends at an annual rate of $7.00 and $16.875 per share, respectively. Dividends are payable quarterly in arrears on each March 15, June 15, September 15 and December 15. For each full quarter that the Series A Preferred Stock or Series B Preferred Stock, as applicable, is outstanding, and assuming that no shares have been converted into common stock, we are required to pay cash dividends of approximately $1.8 million and $2.1 million, respectively. If and when we resume payment of the dividends following the five-quarter suspension described above, we expect that we will satisfy dividend requirements, if and when declared, from internally generated cash flows.
Also on July 26, 2017, we entered into Amendment 29 to our FSD with Thales, which provides for the deferral of approximately $100.0 million in expected milestone payments by us in 2017 and 2018. We pay these milestones using bills of exchange due in March 2019, with interest at a specified base rate (LIBOR or SWAP, depending on the term of the bill of exchange) plus 1.4%, with the bills of exchange guaranteed by BPIAE. We must pay Thales for the BPIAE premium on the guarantee in the amount of $1.0 million in cash at signing plus 1.62%, to be paid by bills of exchange on the same terms as stated above, on each bill of exchange to be issued. To date we have paid $55.6 million in milestone payments by issuing bills of exchange. In connection with these arrangements, we also agreed with Thales as to the amount of liquidated damages Thales owes us for manufacturing delays to date and the additional costs we must pay Thales for launch delays. Unless there are substantial future delays to the Iridium NEXT program, we expect this arrangement to result in no cash payments due to delays by either party.
While the contracted cash flows from our primary hosted payload customer, Aireon, are interest-bearing if not paid on time, we expect those hosted payload payments to continue to be delayed. Aireon is working to secure additional contracts with air navigation service providers, or ANSPs, including the FAA, for the sale of Aireon’s space-based automatic dependent surveillance-broadcast, or ADS-B, services. Aireon is currently seeking to raise the capital it will need to fund its continued operations and its hosted payload payments to us. Aireon’s ability to fund its hosted payload payments to us in the previously anticipated timeframe has been adversely affected by delays in its completion of sales to these ANSPs, which we believe in part results from delays in the development, construction and launch of the Iridium NEXT system.
We continue to expect partial payments of Aireon’s hosting fee upon successful completion of its financing, and further payments based on success-based milestones. However, the expected timing of these payments does not support our ability to make principal and interest payments under our Credit Facility due in early 2019, as well as payment of deferred payments to Thales and deferred contributions to the DSRA, both due March 31, 2019. Further, if Aireon is unable to complete its financing and make a partial hosting fee payment to us in the timeframe we currently expect, we may be unable to make our principal and interest payments under our Credit Facility in late 2018. To provide for these obligations and further solidify our liquidity position, we have been actively discussing alternative funding options with our Credit Facility Lenders, and we believe we have reached an agreement in principle with our Credit Facility Lenders pursuant to which we would be required to raise additional debt by July 2018. The proceeds of this additional debt would be used to fund the deferred payments to Thales and replenish the DSRA under the Credit Facility, as well as to provide us with sufficient cash to meet our needs, including principal and interest payments under our Credit Facility. In addition, the Credit Facility Lenders would agree to delay a portion of the principal repayments under the Credit Facility, allow us to access up to $87 million from the DSRA in the future if our projected cash level falls below $75 million, and adjust our financial covenants, including eliminating further covenants that require us to receive cash flows from hosted payloads. Under this anticipated agreement, we would be required to use hosting fee payments received from Aireon to prepay the Credit Facility. Our ability to successfully execute these plans may be adversely affected by a number of factors, including global economic conditions, the state of capital markets when we are ready to issue the debt, and the inability to incur debt on terms acceptable to us or at all. Any inability to successfully execute these plans may in turn materially affect our liquidity, and our ability to complete the Iridium NEXT system and to pursue additional growth opportunities may be impaired. Our liquidity and the ability to fund our liquidity requirements also depend on our future financial performance, which is subject to general economic, financial, regulatory and other factors that are beyond our control.
We believe our liquidity sources will provide sufficient funds for us to meet our liquidity requirements for at least the next 12 months, provided we execute the proposed adjustments to our funding plan or receive a substantial portion of the hosting fees due to us from Aireon.
As of December 31, 2017,2023, we reported $1,703.6held non-cancelable purchase obligations of approximately $21.5 million in borrowingsfor inventory purchases with Benchmark, our primary third-party equipment supplier. Our purchase obligations, all of which are due during 2024, decreased $35.4 million from the end of 2022 primarily due to recovery from supply-chain constraints.
Our material long-term cash requirement is the repayment of the remaining principal amount under the Credit FacilityTerm Loan upon its maturity in 2030, which is expected to be $1,402.5 million, at that time. We expect to refinance this amount at or prior to maturity.
Dividends
On December 8, 2022, our consolidated balance sheet, netBoard of $96.4 million of deferred financing costs, for an aggregate balance of $1,800.0 million outstanding under the Credit Facility. Pursuant to the Credit Facility, we maintain the DSRA. AsDirectors initiated a quarterly dividend. In each of December 31, 2017, the DSRA balance was $102.4 million, which is classified as restricted cash in our condensed consolidated balance sheet. The DSRA requirement is scheduled to increase to $189.0 million in 2019. In addition to the minimum debt service levels, financial covenants under the Credit Facility, as amended to date, include:
an available cash balance of at least $25 million;
a debt-to-equity ratio, which is calculated as the ratio of total net debt to the aggregate of total net debt and total stockholders’ equity, of no more than 0.7 to 1, measured each June 302022, May 2023, September 2023 and December 31;
specified maximum levels2023, our Board of annual capital expenditures (excluding expenditures onDirectors declared a quarterly cash dividend in the constructionamount of Iridium NEXT satellites) through the year ending December 31, 2024;
specified minimum levels$0.13 per share of consolidated operational earnings before interest, taxes, depreciation and amortization, or operational EBITDA, eachcommon stock, which were paid in March, June, 30September and December 31 through December 31, 2017;
specified minimum cumulative cash flow requirements from customers who have hosted payloads on our satellites, measured each December 31 and June 30, from June 30, 2017 through December 31, 2019;
a debt service coverage ratio, measured during the repayment period, of not less than 1 to 1.5;
specified maximum leverage levels during the repayment period that decline from a ratio of 7.53 to 1 for the twelve months ending June 30, 2018 to a ratio of 2.36 to 1 for the twelve months ending December 31, 2024; and
a requirement that we receive at least $50,000,0002023. Total dividends paid in hosting fees from Aireon by September 30, 2018.
Our available cash balance, as defined by the Credit Facility, was $291.9 million as of December 31, 2017. Our debt-to-equity ratio was 0.5 to 1 as of December 31, 2017. We2023 were also in compliance with the operational EBITDA and hosted payload cash flow covenants and the annual capital expenditure covenant, which were the only other applicable covenants, as of December 31, 2017.
The covenants regarding capital expenditures, operational EBITDA and hosted payload cash flows are calculated in connection with a measurement, which we refer to as available cure amount, that is derived using a complex calculation based on overall cash flows, as adjusted by numerous measures specified in the Credit Facility. In a period in which our capital expenditures exceed, or our operational EBITDA or hosted payload cash flows falls short of, the amount specified in the respective covenant, we would be permitted to allocate available cure amount, if any, to prevent a breach of the applicable covenant. As of December 31, 2017, we had an amount of $8.1 million in available cure, although it was not necessary for us to apply any available cure amount to maintain compliance with the covenants. The available cure amount has fluctuated significantly from one measurement period to the next, and$64.8 million. While we expect that itto continue the regular cash dividend program, any future dividends declared will continue to do so.
The covenants also place limitations on our ability and thatbe at the discretion of our subsidiaries to carry out mergersBoard of Directors and acquisitions, disposewill depend, among other factors, upon our results of assets, grant security interests, declare, make or pay dividends, enter into transactions with affiliates, incur additional indebtedness, or make loans, guarantees or indemnities. If we are not in compliance with theoperations, financial covenants under the Credit Facility, after any opportunity to cure such non-compliance, or we otherwise experience an event of default under the Credit Facility, the lenders may require repayment in full of all principal and interest outstanding under the Credit Facility. It is unlikely we would have adequate funds to repay such amounts prior to the scheduled maturity of the Credit Facility. If we fail to repay such amounts, the lenders may foreclose on the assets we have pledged under the Credit Facility, which include substantially all of our assets and those of our domestic subsidiaries.
Cash and Indebtedness
At December 31, 2017, our total cashcondition and cash equivalents balance was $285.9 million andrequirements, as well as such other factors our total marketable securities balance was $11.8 million. We also had an aggregateBoard of $1,703.6 million of net external indebtedness related to borrowings under the Credit Facility and $54.9 million of net debt related to our Thales bills of exchange.Directors deems relevant.
Cash Flows - Comparison of the YearYears Ended December 31, 20172023 and the Year Ended December 31, 20162022
The following table shows our consolidated cash flows from operating, investing and financing activities for the years ended December 31 (in millions):flows:
| | | Year Ended December 31, | |
Statement of Cash Flows | |
Statement of Cash Flows | |
Statement of Cash Flows | | | 2023 | | 2022 | | Change |
| | (in thousands) | | | | (in thousands) |
| Statement of Cash Flows | | 2017 | | 2016 | | Change |
Net cash provided by operating activities | |
Net cash provided by operating activities | |
Net cash provided by operating activities | | $ | 259.6 |
| | $ | 225.2 |
| | $ | 34.4 |
|
Net cash used in investing activities | | $ | (372.7 | ) | | $ | (242.4 | ) | | $ | (130.3 | ) |
Net cash provided by financing activities | | $ | 16.9 |
| | $ | 224.2 |
| | $ | (207.3 | ) |
Net cash used in financing activities | |
Cash Flows from Operating Activities
Net cash provided by operating activities for the year ended December 31, 2017 increased by $34.42023 decreased $29.8 million from the prior year. This increase was primarily dueCash flows related to a $33.0 million decreasechanges in working capital decreased by approximately $38.7 million, primarily as a result of an increase in cash outflows for replenished finished goods and component inventory, including last-time buys, as well as lower cash inflows related to timing ofdeferred revenue. These changes in working capital were offset by cash flows provided by prepaid and other current assets, accrued expenses and deferred revenues. Working capital provided by operations is primarily driven by launch related activities, including utilization of prepaid expensesinflows for accounts receivable related to launch serviceslower equipment sales. These changes were also partially offset by net income, as adjusted for non-cash activities, which increased by $8.9 million over the prior year. Net income was adjusted for non-cash, positive adjustments, including depreciation expense associated with the write-off of the remaining spare satellite in the third quarter, and receipt of payments for milestones related to hosted payloads.stock-based compensation expense, partially offset by non-cash deferred taxes.
Cash Flows from Investing Activities
Net cash used in investing activities for the year ended December 31, 20172023 decreased $37.8 million from the prior year period primarily as a result of our $50.0 million investment in Aireon Holdings in 2022, compared to our $10.0 million investment in Satelles in 2023, offset in part by increased by $130.3capital expenditures of $2.2 million, primarily duerelated to fewer available-for-sale securities held inpayments for the current period, resulting in lower proceeds from investment maturities, offset by a $5.6 million decrease in capital expenditures. Welaunched ground spares. Going forward, we expect our capital expenditures to continue to decline as we complete the construction and launch of the Iridium NEXT constellation in 2018.average approximately $60.0 million per year through 2030.
Cash Flows from Financing Activities
Net cash provided byused in financing activities for the year ended December 31, 20172023 decreased by $207.3$47.9 million compared to the prior year period primarily due to the decrease in borrowings and related fees under our Credit Facility in 2017, as it was fully drawn in February 2017, offset by the decrease in payments of preferred stock dividends related to the five-quarter deferral of preferred dividends that began in the second quarter of 2017.
Cash Flows - Comparison of the Year Ended December 31, 2016 and the Year Ended December 31, 2015
The following table shows our consolidated cash flows from operating, investing and financing activities for the years ended December 31 (in millions):
|
| | | | | | | | | | | | |
Statement of Cash Flows | | 2016 | | 2015 | | Change |
Net cash provided by operating activities | | $ | 225.2 |
| | $ | 217.5 |
| | $ | 7.7 |
|
Net cash used in investing activities | | $ | (242.4 | ) | | $ | (439.4 | ) | | $ | 197.0 |
|
Net cash provided by financing activities | | $ | 224.2 |
| | $ | 202.1 |
| | $ | 22.1 |
|
Cash Flows from Operating Activities
Net cash provided by operating activities for the year ended December 31, 2016 increased by $7.7 million from the prior year. This increase was primarily due to improvements in net income, excluding the 2015 non-cash goodwill impairment, and a decrease in certain product inventory during 2016 as a result of improved inventory management. These changes were offset by payments for the in-orbit portion of insurance to support the Iridium NEXT launch campaign.
Cash Flows from Investing Activities
Net cash used in investing activities for the year ended December 31, 2016 decreased by $197.0 million primarily due to the increase in net sales of marketable securities of $107.9 million and the $89.1$108.1 million decrease in capital expenditures related tonet principal payments associated with the construction of Iridium NEXT.
Cash Flows from Financing Activities
Net cash provided by financing activities for the year ended December 31, 2016 increased by $22.1 million primarily due to the $21.1 million increase in borrowingsterms under the credit facility.
Effectrefinancing of exchange rate changes on cash and cash equivalents
The effect of exchange rate changes on cash and cash equivalents was an increaseour Term Loan, offset in cash of $0.5part by the $64.8 million for the year ended December 31, 2016 compared to the prior year. The exchange rate changes were primarily due to a modest strengthening of the Russian ruble against the U.S. dollar throughout 2016.
Contractual Obligations and Commitments
The following table summarizes our outstanding contractual obligations as of December 31, 2017 (in millions):
|
| | | | | | | | | | | | | | | | | | | | |
Contractual Obligations | | Less than 1 year | | 1-3 Years | | 3-5 years | | More than 5 years | | Total |
Payment obligations: | | |
| | |
| | |
| | |
| | |
|
Thales (1) | | $ | 216.8 |
| | $ | 100.0 |
| | $ | — |
| | $ | — |
| | $ | 316.8 |
|
Interest on Thales bills of exchange (1) | | — |
| | 3.6 |
| | — |
| | — |
| | 3.6 |
|
SpaceX (2) | | 46.9 |
| | 10.2 |
| | — |
| | — |
| | 57.1 |
|
Launch and in-orbit insurers (3) | | 43.2 |
| | — |
| | — |
| | — |
| | 43.2 |
|
Boeing (4) | | 6.0 |
| | 12.0 |
| | 6.0 |
| | — |
| | 24.0 |
|
Debt obligations: (5) | | |
| | |
| | |
| | |
| | |
|
Principal | | 85.5 |
| | 490.5 |
| | 612.0 |
| | 612.0 |
| | 1,800.0 |
|
Contractual interest | | 79.6 |
| | 154.4 |
| | 98.6 |
| | 37.5 |
| | 370.1 |
|
Debt service reserve account | | — |
| | 87.0 |
| | — |
| | — |
| | 87.0 |
|
Operating lease obligations (6) | | 3.7 |
| | 7.5 |
| | 7.2 |
| | 8.8 |
| | 27.2 |
|
Uncertain tax positions (7) | | — |
| | — |
| | — |
| | — |
| | 1.0 |
|
Unconditional purchase obligations (8) | | 17.0 |
| | 3.4 |
| | 1.0 |
| | — |
| | 21.4 |
|
Total | | $ | 498.7 |
| | $ | 868.6 |
| | $ | 724.8 |
| | $ | 658.3 |
| | $ | 2,751.4 |
|
| |
(1)
| Thales obligations consist of commitments under the FSD for the design and manufacture of satellites for Iridium NEXT. The Credit Facility was fully drawn in February 2017, and, as a result, we pay 100% of each invoice received from Thales from cash and marketable securities on hand or the issuance of up to $45.4 million in remaining bills of exchange due in March 2019. As of December 31, 2017, we had made aggregate payments of $1.9 billion to Thales. The timing of a portion of the contractual obligation payments to Thales shown in the table above is based on current expectations regarding the Thales manufacturing schedule and SpaceX’s targeted launch schedule. |
| |
(2)
| SpaceX obligations consist of remaining payments to secure SpaceX as the primary launch services provider for Iridium NEXT. The total price for seven launches and a reflight option in the event of launch failure is $453.1 million. In November 2016, we entered into an agreement for an eighth launch with SpaceX to launch five spare satellites and share the services with GFZ. The total price under the SpaceX agreement for the eighth launch is $67.9 million. As of December 31, 2017, we had made aggregate payments of $463.9 million to SpaceX. The timing of a portion of the contractual obligation payments to SpaceX shown in the table above is based on SpaceX’s targeted launch schedule. |
| |
(3)
| The total premium is $121.0 million, and as of December 31, 2017, we had made aggregate payments of $77.8 million. The timing of the majority of the contractual obligation payments are based on SpaceX’s targeted launch schedule to complete the Iridium NEXT constellation in 2018. |
| |
(4)
| Represents a five-year take-or-pay commitment under the Development Services Agreement entered into in November 2016. |
| |
(5)
| Debt obligations include repayment of the Credit Facility as of December 31, 2017. We have included interest payments to be made on our fixed and variable rate tranches of the Credit Facility. Interest payments for variable rate debt have been estimated based on the six-month LIBOR forward contracts. We have included the increase to the DSRA of $87 million, as required under the terms of the Credit Facility, from $102.0 million, as of December 31, 2017, to $189.0 million in 2019. The DSRA is classified as restricted cash on the consolidated balance sheet. The repayment schedule excludes $120.0 million that we expect to receive upon the Aireon redemption of our equity interest in Aireon and Aireon dividends, when and if declared. Upon receipt of these amounts, they will be used to prepay the Credit Facility, which may result in an earlier repayment. |
| |
(6)
| Operating lease obligations do not include payments to landlords covering real estate taxes, common area maintenance and other charges, as such fees are not determinable based upon the provisions of our lease agreements. |
| |
(7)
| As of December 31, 2017, we estimated our uncertain tax positions to be $1.0 million, including penalties and interest. However, we are unable to reasonably estimate the period of the possible future payments for the remaining balance, and therefore the remaining balance has not been reflected in a specified period. |
| |
(8)
| Unconditional purchase obligations include our agreement with a supplier for the manufacturing of our devices and various commitments with other vendors that are enforceable, legally binding and have specified terms, including fixed or minimum quantities, minimum or variable price provisions, and a fixed timeline. Unconditional purchase obligations do not include agreements that are cancelable by us without penalty. As of December 31, 2017, contractually obligated purchase commitments for manufacturing supplies increased $5.8 million from the prior year ended December 31, 2016. |
The contractual obligations table does not include future payments of dividends on the Series A Preferred Stock or Series B Preferred Stock. Holders of Series A Preferred Stock are entitled to receive cumulative cash dividends when, as and if declared from, and including, the date of original issue at a rate of 7.00% per annum of the $100 liquidation preference per share, which is equivalent to an annual rate of $7.00 per share. Holders of Series B Preferred Stock are entitled to receive cumulative cash dividends when, as and if declared from, and including, the date of original issue at a rate of 6.75% per annum of the $250 liquidation preference per share, which is equivalent to an annual rate of $16.875 per share. Dividends on both the Series A Preferred Stock and Series B Preferred Stock are payable quarterly in arrears, on March 15, June 15, September 15 and December 15 of each year, although we have temporarily suspended dividend payments as noted above. Neither the Series A Preferred Stock nor the Series B Preferred stock has a stated maturity date. Holders of Series A Preferred Stock and Series B Preferred Stock may convert some or all of their outstanding shares to common stock at the stated conversion rate. We may at our option cause some or all of the shares of Series A Preferred Stock to be automatically converted into shares of common stock at the then prevailing conversion rate if specified conditions, principally, a daily volume-weighted average stock price of $12.26 over a period of 20 trading daysdividends paid in a 30-day period and payment of the accrued dividends, are satisfied. On or after May 15, 2019, we may, at our option, convert some or all of the Series B Preferred Stock into the number of shares of common stock that are issuable at the then-applicable conversion rate, subject to specified conditions. We cannot forecast the conversions, if any, of Series A Preferred Stock or Series B Preferred Stock to common stock and thus cannot forecast with certainty the amounts of future dividend payments on outstanding Series A Preferred Stock. As of December 31, 2017, there were 1,000,000 shares of Series A Preferred Stock and 499,955 shares of Series B Preferred Stock outstanding.2023, as described above.
Off-Balance Sheet Arrangements
We do not currently have, nor have we had in the last three years, any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Seasonality
Our results of operations have been subject to seasonal usage changes for commercial customers, and we expect that our results will be affected by similar seasonality going forward. March through October are typically the peak months for commercial voice services revenue and related subscriber equipment sales. U.S. government revenue and commercial IoT revenue have been less subject to seasonal usage changes.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The fixed priceWe had an outstanding aggregate balance of $1,500.0 million under the FSD with Thales is denominated in U.S. dollars. As a result, we do not bear any foreign currency exchange risk under the FSD.
We have borrowed an aggregate of $1.8 billion under the Credit FacilityTerm Loan as of December 31,
2017. A2023. Under our Term Loan, we pay interest at an annual rate equal to SOFR plus 2.50%, with a 0.75% SOFR floor. Accordingly, we have been and continue to be subject to interest rate fluctuations. Our Cap began in December 2021, which manages our exposure to interest rate movements on a portion of our Term Loan. In 2023, the Cap provided the right for us to receive payment from the counterparty if one-month SOFR exceeded 1.436%. (See Note 8 for further details on the changes to the Cap.) As a result of the interest rate rising from the floor to the level of the Cap, we expect our annual interest expense to increase by approximately $12.0 million, or approximately $3.0 million per quarter. For every SOFR increase of 25 basis points above the level of the Cap, we expect our annual interest expense to increase by an additional $1.25 million related to the unhedged portion of the draws we madeTerm Loan.
We have not borrowed under our Revolving Facility. Accordingly, although the CreditRevolving Facility bearbears interest at SOFR plus 2.5%, without a floating rate equalSOFR floor, if and as drawn, we are not currently exposed to the London Interbank Offered Rate, or LIBOR, plus 1.95% and will, accordingly, subject us to interest rate fluctuations in future periods. Had the currently outstanding borrowings under the Credit Facility been outstanding throughout the year ended December 31, 2017, a one-half percentage point increase or decrease in the LIBOR would not have had a material impact oninterest rates with respect to our interest cost for the period.Revolving Facility.
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, as well as accounts receivable. We maintain our cash and cash equivalents with financial institutions with high credit ratings and at times maintain the balance of our deposits in excess of federally insured limits. The majority of our cash is swept nightly into a money market fund invested in U.S. treasuries, Agency Mortgage Backed Securitiesagency mortgage backed securities and/or U.S. government guaranteed debt. Accounts receivable are due from both domestic and international customers. We perform credit evaluations of our customers’ financial condition and record reserves to provide for estimated credit losses. Accounts payable are owed to both domestic and international vendors.
We also currently hold marketable securities consisting of commercial paper and fixed-income debt securities. As of December 31, 2017, a 100 basis point change in interest rates would not have had a material impact on the fair value of our marketable securities.
Item 8. Financial Statements and Supplementary Data
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Iridium Communications Inc.: | |
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Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
Iridium Communications Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheetssheet of Iridium Communications Inc. and subsidiaries (the Company) as of December 31, 20172023 and 2016, andDecember 31, 2022, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the periodthen ended, December 31, 2017 and the related notes (collectively, referred to as the “consolidatedconsolidated financial statements”)statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016,December 31, 2022, and the results of its operations and its cash flows for each of the three years in the periodthen ended, December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sthese consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Changes in estimated useful lives of satellites
As discussed in Note 2 to the consolidated financial statements, the Company’s satellites are depreciated using the straight-line method over their respective estimated useful lives, which was extended from 12.5 years to 17.5 years during the fourth quarter of 2023. The Company applied judgment in determining the useful lives based on factors such as engineering data relating to the operation and performance of its satellite network, the Company’s long-term strategy for using the assets, and the manufacturer’s estimated design life for the assets. As discussed in Note 4, as of December 31, 2023, the Company had recorded $1,926,487 thousand in total depreciable property and equipment, net of accumulated depreciation, which included its satellites.
We identified the evaluation of the determination of changes in estimated useful lives of satellites as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate the Company’s estimated useful lives of the satellites. Specifically, assessing the factors used to determine the estimated useful lives required subjective auditor judgment due to the degree of uncertainty associated with the outcome of uncertain future events which required forward looking assumptions. Changes to the estimated useful lives of satellites could have a significant impact on the timing of recognition of depreciation expense and hosted payload revenue.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control related to the Company’s process to determine changes in the
estimated useful lives of its satellites. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the estimated useful lives of the satellites by:
•comparing the Company’s useful life estimates to the manufacturer’s estimated design life, and the lives of its first-generation satellite constellation
•reading publicly available information on the estimated useful lives of similar assets
•inquiring of operations and engineering management personnel regarding satellite operation and performance
•evaluating the Company’s longevity assessment for the satellites
•evaluating the effect of changes, if any, in the Company’s long-term strategy for use of the assets on the useful life estimates.
/s/ KPMG LLP
We have served as the Company’s auditor since 2022.
McLean, Virginia
February 15, 2024
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Iridium Communications Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year ended December 31, 2021 and the related notes (collectively referred to as the “consolidated financial statements”) of Iridium Communications Inc. (the Company). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of the Company’s operations and its cash flows for the year ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our auditsaudit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includeincluded examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as Company'sthe Company’s auditor since 2001.from 2001 to 2022.
Tysons, Virginia
February 22, 2018
17, 2022
Iridium Communications Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 71,870 | | | $ | 168,770 | |
Accounts receivable, net | 91,715 | | | 82,273 | |
Inventory | 91,135 | | | 39,776 | |
Prepaid expenses and other current assets | 16,364 | | | 15,385 | |
Total current assets | 271,084 | | | 306,204 | |
Property and equipment, net | 2,195,758 | | | 2,433,305 | |
Equity method investments | 67,130 | | | 49,853 | |
Other assets | 86,708 | | | 122,072 | |
Intangible assets, net | 41,095 | | | 42,577 | |
Total assets | $ | 2,661,775 | | | $ | 2,954,011 | |
Liabilities and stockholders’ equity | | | |
Current liabilities: | | | |
Short-term secured debt | 15,000 | | | 16,500 | |
Accounts payable | 28,671 | | | 21,372 | |
Accrued expenses and other current liabilities | 54,826 | | | 67,963 | |
Deferred revenue | 33,057 | | | 35,742 | |
Total current liabilities | 131,554 | | | 141,577 | |
Long-term secured debt, net | 1,467,490 | | | 1,470,685 | |
Deferred income tax liabilities, net | 114,642 | | | 151,569 | |
Deferred revenue, net of current portion | 43,965 | | | 45,265 | |
Other long-term liabilities | 16,025 | | | 16,360 | |
Total liabilities | 1,773,676 | | | 1,825,456 | |
Commitments and contingencies | | | |
Stockholders’ equity: | | | |
Common stock, $0.001 par value, 300,000 shares authorized, 122,776 and 125,902 shares issued and outstanding at December 31, 2023 and 2022, respectively | 123 | | | 126 | |
Additional paid-in capital | 1,089,466 | | | 1,124,610 | |
Accumulated deficit | (235,397) | | | (47,744) | |
Accumulated other comprehensive income, net of tax | 33,907 | | | 51,563 | |
Total stockholders’ equity | 888,099 | | | 1,128,555 | |
Total liabilities and stockholders’ equity | $ | 2,661,775 | | | $ | 2,954,011 | |
|
| | | | | | | |
| December 31, 2017 | | December 31, 2016 |
Assets | |
| | |
|
Current assets: | |
| | |
|
Cash and cash equivalents | $ | 285,873 |
| | $ | 371,167 |
|
Marketable securities | 11,753 |
| | 39,328 |
|
Accounts receivable, net | 68,031 |
| | 57,373 |
|
Inventory | 20,068 |
| | 18,204 |
|
Prepaid expenses and other current assets | 25,347 |
| | 30,698 |
|
Total current assets | 411,072 |
| | 516,770 |
|
Property and equipment, net | 3,210,162 |
| | 2,813,084 |
|
Restricted cash | 102,384 |
| | 113,139 |
|
Other assets | 8,414 |
| | 10,836 |
|
Intangible assets, net | 50,019 |
| | 45,796 |
|
Total assets | $ | 3,782,051 |
| | $ | 3,499,625 |
|
| | | |
Liabilities and stockholders' equity | |
| | |
|
Current liabilities: | |
| | |
|
Short-term credit facility | $ | 85,500 |
| | $ | — |
|
Accounts payable | 43,100 |
| | 11,131 |
|
Accrued expenses and other current liabilities | 32,215 |
| | 23,840 |
|
Interest payable | 15,021 |
| | 14,136 |
|
Deferred revenue | 38,390 |
| | 34,087 |
|
Total current liabilities | 214,226 |
| | 83,194 |
|
Accrued satellite operations and maintenance expense, net | |
| | |
|
of current portion | — |
| | 13,138 |
|
Long-term credit facility, net | 1,618,055 |
| | 1,657,145 |
|
Deferred income tax liabilities, net | 246,170 |
| | 361,656 |
|
Deferred revenue, net of current portion | 47,612 |
| | 36,417 |
|
Other long-term liabilities | 59,519 |
| | 4,317 |
|
Total liabilities | 2,185,582 |
| | 2,155,867 |
|
Commitments and contingencies |
|
| |
|
|
Stockholders' equity: | |
| | |
|
Series A preferred stock, $0.0001 par value, 1,000 shares authorized, | | | |
issued and outstanding | — |
| | — |
|
Series B preferred stock, $0.0001 par value, 500 shares | |
| | |
|
authorized, issued and outstanding | — |
| | — |
|
Common stock, $0.001 par value, 300,000 shares authorized, 98,203 and 95,879 | |
| | |
|
shares issued and outstanding | 98 |
| | 96 |
|
Additional paid-in capital | 1,081,373 |
| | 1,060,311 |
|
Retained earnings | 518,794 |
| | 288,797 |
|
Accumulated other comprehensive loss, net of tax | (3,796 | ) | | (5,446 | ) |
Total stockholders' equity | 1,596,469 |
| | 1,343,758 |
|
Total liabilities and stockholders' equity | $ | 3,782,051 |
| | $ | 3,499,625 |
|
See notes to consolidated financial statements
Iridium Communications Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share amounts)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Revenue: | | | | | |
Services | $ | 584,454 | | | $ | 534,721 | | | $ | 491,991 | |
Subscriber equipment | 105,136 | | | 134,714 | | | 92,071 | |
Engineering and support services | 101,133 | | | 51,599 | | | 30,438 | |
Total revenue | 790,723 | | | 721,034 | | | 614,500 | |
| | | | | |
Operating expenses: | | | | | |
Cost of services (exclusive of depreciation and amortization) | 158,710 | | | 115,137 | | | 97,020 | |
Cost of subscriber equipment | 66,410 | | | 86,012 | | | 53,376 | |
Research and development | 20,269 | | | 16,218 | | | 11,885 | |
Selling, general and administrative | 143,706 | | | 123,504 | | | 100,474 | |
Depreciation and amortization | 320,000 | | | 303,484 | | | 305,431 | |
Total operating expenses | 709,095 | | | 644,355 | | | 568,186 | |
Operating income | 81,628 | | | 76,679 | | | 46,314 | |
Other income (expense): | | | | | |
Interest expense, net | (90,387) | | | (65,089) | | | (73,906) | |
Loss on extinguishment of debt | — | | | (1,187) | | | (879) | |
Other income (expense), net | 4,012 | | | 107 | | | (417) | |
Total other expense | (86,375) | | | (66,169) | | | (75,202) | |
Income (loss) before income taxes and equity in net earnings of affiliates | (4,747) | | | 10,510 | | | (28,888) | |
Income tax benefit (expense) | 26,251 | | | (292) | | | 19,569 | |
Loss on equity method investments | (6,089) | | | (1,496) | | | — | |
Net income (loss) | 15,415 | | | 8,722 | | | (9,319) | |
Weighted average shares outstanding - basic | 125,598 | | | 128,255 | | | 133,530 | |
Weighted average shares outstanding - diluted | 127,215 | | | 130,134 | | | 133,530 | |
Net income (loss) attributable to common stockholders per share - basic and diluted | $ | 0.12 | | | $ | 0.07 | | | $ | (0.07) | |
| | | | | |
| | | | | |
Comprehensive income (loss): | | | | | |
Net income (loss) | $ | 15,415 | | | $ | 8,722 | | | $ | (9,319) | |
Foreign currency translation adjustments | (58) | | | (53) | | | (280) | |
Unrealized gain (loss) on cash flow hedges, net of tax (see Note 8) | (17,598) | | | 58,668 | | | 10,408 | |
Comprehensive income (loss) | $ | (2,241) | | | $ | 67,337 | | | $ | 809 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Revenue: | | | | | |
Services | $ | 349,735 |
| | $ | 334,822 |
| | $ | 317,022 |
|
Subscriber equipment | 77,119 |
| | 74,211 |
| | 73,615 |
|
Engineering and support services | 21,192 |
| | 24,607 |
| | 20,741 |
|
Total revenue | 448,046 |
| | 433,640 |
| | 411,378 |
|
| | | | | |
Operating expenses: | |
| | |
| | |
|
Cost of services (exclusive of depreciation and amortization) | 80,396 |
| | 64,958 |
| | 60,306 |
|
Cost of subscriber equipment | 44,445 |
| | 44,286 |
| | 40,807 |
|
Research and development | 15,247 |
| | 16,079 |
| | 16,144 |
|
Selling, general and administrative | 84,405 |
| | 82,552 |
| | 81,445 |
|
Depreciation and amortization | 122,266 |
| | 49,394 |
| | 51,834 |
|
Impairment of goodwill | — |
| | — |
| | 87,039 |
|
Total operating expenses | 346,759 |
| | 257,269 |
| | 337,575 |
|
| | | | | |
Gain on Boeing transaction | 14,189 |
| | — |
| | — |
|
Operating income | 115,476 |
| | 176,371 |
| | 73,803 |
|
Other income (expense): | |
| | |
| | |
|
Interest income, net | 4,328 |
| | 2,934 |
| | 3,069 |
|
Undrawn credit facility fees | (25 | ) | | (1,346 | ) | | (3,289 | ) |
Other income (expense), net | (207 | ) | | 206 |
| | (468 | ) |
Total other income (expense) | 4,096 |
| | 1,794 |
| | (688 | ) |
Income before income taxes | 119,572 |
| | 178,165 |
| | 73,115 |
|
Income tax benefit (expense) | 114,284 |
| | (67,133 | ) | | (65,992 | ) |
Net income | 233,856 |
| | 111,032 |
| | 7,123 |
|
Series A preferred stock dividends, declared and paid | 1,750 |
| | 7,000 |
| | 7,000 |
|
Series B preferred stock dividends, declared and paid | 2,109 |
| | 8,436 |
| | 8,436 |
|
Series A preferred stock dividends, undeclared | 5,250 |
| | — |
| | — |
|
Series B preferred stock dividends, undeclared | 6,327 |
| | — |
| | — |
|
Net income (loss) attributable to common stockholders | $ | 218,420 |
| | $ | 95,596 |
| | $ | (8,313 | ) |
| | | | | |
Weighted average shares outstanding - basic | 97,934 |
| | 95,967 |
| | 95,097 |
|
Weighted average shares outstanding - diluted | 128,130 |
| | 124,875 |
| | 95,097 |
|
Net income (loss) attributable to common stockholders per share - basic | $ | 2.23 |
| | $ | 1.00 |
| | $ | (0.09 | ) |
Net income (loss) attributable to common stockholders per share - diluted | $ | 1.82 |
| | $ | 0.89 |
| | $ | (0.09 | ) |
| | | | | |
Comprehensive income: | |
| | |
| | |
|
Net income | $ | 233,856 |
| | $ | 111,032 |
| | $ | 7,123 |
|
Foreign currency translation adjustments | 1,664 |
| | 3,487 |
| | (5,777 | ) |
Unrealized gain (loss) on marketable securities, net of tax | (14 | ) | | 130 |
| | (366 | ) |
Comprehensive income | $ | 235,506 |
| | $ | 114,649 |
| | $ | 980 |
|
See notes to consolidated financial statements
Iridium Communications Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A Convertible | | Series B Convertible | | | | | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total Stockholders' Equity |
| Preferred Stock | | Preferred Stock | | Common Stock | | | | |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | | |
Balance at December 31, 2014 | 1,000 |
| | $ | — |
| | 500 |
| | $ | — |
| | 93,905 |
| | $ | 94 |
| | $ | 1,033,176 |
| | $ | (2,920 | ) | | $ | 201,514 |
| | $ | 1,231,864 |
|
Stock-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9,649 |
| | — |
| | — |
| | 9,649 |
|
Stock options exercised and awards vested | — |
| | — |
| | — |
| | — |
| | 1,221 |
| | 1 |
| | 2,154 |
| | — |
| | — |
| | 2,155 |
|
Stock withheld to cover employee taxes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (886 | ) | | — |
| | — |
| | (886 | ) |
Excess tax benefit from exercise of stock-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 395 |
| | — |
| | — |
| | 395 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,123 |
| | 7,123 |
|
Dividends on Series A preferred stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (7,000 | ) | | (7,000 | ) |
Dividends on Series B preferred stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8,436 | ) | | (8,436 | ) |
Cumulative translation adjustments, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (5,777 | ) | | — |
| | (5,777 | ) |
Unrealized gain on marketable securities, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (366 | ) | | — |
| | (366 | ) |
Balance at December 31, 2015 | 1,000 |
| | — |
| | 500 |
| | — |
| | 95,126 |
| | 95 |
| | 1,044,488 |
| | (9,063 | ) | | 193,201 |
| | 1,228,721 |
|
Stock-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 15,973 |
| | — |
| | — |
| | 15,973 |
|
Stock options exercised and awards vested | — |
| | — |
| | — |
| | — |
| | 753 |
| | 1 |
| | 548 |
| | — |
| | — |
| | 549 |
|
Stock withheld to cover employee taxes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (627 | ) | | — |
| | — |
| | (627 | ) |
Excess tax benefit from exercise of stock-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (71 | ) | | — |
| | — |
| | (71 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 111,032 |
| | 111,032 |
|
Dividends on Series A preferred stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (7,000 | ) | | (7,000 | ) |
Dividends on Series B preferred stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8,436 | ) | | (8,436 | ) |
Cumulative translation adjustments, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,487 |
| | — |
| | 3,487 |
|
Unrealized loss on marketable securities, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 130 |
| | — |
| | 130 |
|
Balance at December 31, 2016 | 1,000 |
| | — |
| | 500 |
| | — |
| | 95,879 |
| | 96 |
| | 1,060,311 |
| | (5,446 | ) | | 288,797 |
| | 1,343,758 |
|
Stock-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 18,694 |
| | — |
| | — |
| | 18,694 |
|
Stock options exercised and awards vested | — |
| | — |
| | — |
| | — |
| | 2,537 |
| | 2 |
| | 4,233 |
| | — |
| | — |
| | 4,235 |
|
Stock withheld to cover employee taxes | — |
| | — |
| | — |
| | — |
| | (213 | ) | | — |
| | (1,865 | ) | | — |
| | — |
| | (1,865 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 233,856 |
| | 233,856 |
|
Dividends on Series A preferred stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,750 | ) | | (1,750 | ) |
Dividends on Series B preferred stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,109 | ) | | (2,109 | ) |
Cumulative translation adjustments, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,664 |
| | — |
| | 1,664 |
|
Unrealized loss on marketable securities, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (14 | ) | | — |
| | (14 | ) |
Balance at December 31, 2017 | 1,000 |
| | $ | — |
| | 500 |
| | $ | — |
| | 98,203 |
| | $ | 98 |
| | $ | 1,081,373 |
| | $ | (3,796 | ) | | $ | 518,794 |
| | $ | 1,596,469 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings (Accumulated Deficit) | | Total Stockholders’ Equity |
| | Common Stock | | | | |
| | Shares | | Amount | | | | |
Balance at December 31, 2020 | | 134,056 | | | $ | 134 | | | $ | 1,160,570 | | | $ | (17,180) | | | $ | 275,915 | | | $ | 1,419,439 | |
Stock-based compensation | | — | | | — | | | 29,616 | | | — | | | — | | | 29,616 | |
Stock options exercised and awards vested | | 1,769 | | | 1 | | | 7,442 | | | — | | | — | | | 7,443 | |
Stock withheld to cover employee taxes | | (144) | | | — | | | (5,918) | | | — | | | — | | | (5,918) | |
Repurchases and retirements of common stock | | (4,339) | | | (4) | | | (37,652) | | | — | | | (125,786) | | | (163,442) | |
Net loss | | — | | | — | | | — | | | — | | | (9,319) | | | (9,319) | |
Cumulative translation adjustments | | — | | | — | | | — | | | (280) | | | — | | | (280) | |
Unrealized gain on cash flow hedges, net of tax | | — | | | — | | | — | | | 10,408 | | | — | | | 10,408 | |
Balance at December 31, 2021 | | 131,342 | | | 131 | | | 1,154,058 | | | (7,052) | | | 140,810 | | | 1,287,947 | |
Stock-based compensation | | — | | | — | | | 48,367 | | | — | | | — | | | 48,367 | |
Stock options exercised and awards vested | | 1,484 | | | 2 | | | 3,870 | | | — | | | — | | | 3,872 | |
Stock withheld to cover employee taxes | | (130) | | | — | | | (5,293) | | | — | | | — | | | (5,293) | |
Repurchases and retirements of common stock | | (6,794) | | | (7) | | | (59,776) | | | — | | | (197,276) | | | (257,059) | |
Net income | | — | | | — | | | — | | | — | | | 8,722 | | | 8,722 | |
Dividends declared | | — | | | — | | | (16,616) | | | — | | | — | | | (16,616) | |
Cumulative translation adjustments | | — | | | — | | | — | | | (53) | | | — | | | (53) | |
Unrealized gain on cash flow hedges, net of tax | | — | | | — | | | — | | | 58,668 | | | — | | | 58,668 | |
Balance at December 31, 2022 | | 125,902 | | | 126 | | | 1,124,610 | | | 51,563 | | | (47,744) | | | 1,128,555 | |
Stock-based compensation | | — | | | — | | | 64,139 | | | — | | | — | | | 64,139 | |
Stock options exercised and awards vested | | 1,788 | | | 2 | | | 3,956 | | | — | | | — | | | 3,958 | |
Stock withheld to cover employee taxes | | (162) | | | — | | | (9,680) | | | — | | | — | | | (9,680) | |
Repurchases and retirements of common stock | | (4,752) | | | (5) | | | (43,946) | | | — | | | (203,068) | | | (247,019) | |
Net income | | — | | | — | | | — | | | — | | | 15,415 | | | 15,415 | |
Dividends declared | | — | | | — | | | (49,613) | | | — | | | — | | | (49,613) | |
Cumulative translation adjustments | | — | | | — | | | — | | | (58) | | | — | | | (58) | |
Unrealized loss on cash flow hedges, net of tax | | — | | | — | | | — | | | (17,598) | | | — | | | (17,598) | |
Balance at December 31, 2023 | | 122,776 | | | $ | 123 | | | $ | 1,089,466 | | | $ | 33,907 | | | $ | (235,397) | | | $ | 888,099 | |
See notes to consolidated financial statements
Iridium Communications Inc.
Consolidated Statements of Cash Flows
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Cash flows from operating activities: | | | | | |
Net income (loss) | $ | 15,415 | | | $ | 8,722 | | | $ | (9,319) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
Deferred income taxes | (31,828) | | | (1,189) | | | (21,314) | |
Depreciation and amortization | 320,000 | | | 303,484 | | | 305,431 | |
Loss on extinguishment of debt | — | | | 1,187 | | | 879 | |
Stock-based compensation (net of amounts capitalized) | 57,455 | | | 43,732 | | | 26,782 | |
Amortization of deferred financing fees | 3,739 | | | 4,602 | | | 4,201 | |
Loss on equity method investments | 6,089 | | | 1,496 | | | — | |
All other items, net | 732 | | | 638 | | | (160) | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | (9,538) | | | (18,712) | | | (1,823) | |
Inventory | (50,958) | | | (10,183) | | | 3,592 | |
Prepaid expenses and other current assets | (1,153) | | | (4,227) | | | (1,696) | |
Other assets | 3,019 | | | 3,441 | | | 3,911 | |
Accounts payable | 2,759 | | | 4,730 | | | (2,166) | |
Accrued expenses and other current liabilities | 4,899 | | | 5,929 | | | 7,170 | |
| | | | | |
Deferred revenue | (2,961) | | | 4,871 | | | (7,531) | |
Other long-term liabilities | (2,756) | | | (3,792) | | | (5,083) | |
Net cash provided by operating activities | 314,913 | | | 344,729 | | | 302,874 | |
| | | | | |
Cash flows from investing activities: | | | | | |
Capital expenditures | (73,487) | | | (71,267) | | | (42,147) | |
Investment in related parties | (10,000) | | | (50,000) | | | — | |
Purchases of other investments | — | | | — | | | (1,635) | |
Sales and maturities of marketable securities | — | | | — | | | 7,400 | |
Net cash used in investing activities | (83,487) | | | (121,267) | | | (36,382) | |
| | | | | |
Cash flows from financing activities: | | | | | |
Borrowings under the Term Loan | 63,940 | | | — | | | 179,285 | |
Payments on the Term Loan | (72,315) | | | (116,500) | | | (195,785) | |
Repurchases of common stock | (247,019) | | | (257,059) | | | (163,442) | |
Payment of deferred financing fees | (1,162) | | | — | | | (4,052) | |
Proceeds from exercise of stock options | 3,958 | | | 3,872 | | | 7,443 | |
Tax payments upon settlement of stock awards | (9,680) | | | (5,293) | | | (5,918) | |
Payment of common stock dividends | (64,774) | | | — | | | — | |
Net cash used in financing activities | (327,052) | | | (374,980) | | | (182,469) | |
| | | | | |
Effect of exchange rate changes on cash and cash equivalents | (1,274) | | | (625) | | | (288) | |
Net increase (decrease) in cash and cash equivalents and restricted cash | (96,900) | | | (152,143) | | | 83,735 | |
Cash, cash equivalents and restricted cash, beginning of period | 168,770 | | | 320,913 | | | 237,178 | |
Cash, cash equivalents and restricted cash, end of period | $ | 71,870 | | | $ | 168,770 | | | $ | 320,913 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Cash flows from operating activities: | |
| | |
| | |
|
Net income | $ | 233,856 |
| | $ | 111,032 |
| | $ | 7,123 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| | |
|
Deferred income taxes | (115,812 | ) | | 63,808 |
| | 63,376 |
|
Depreciation and amortization | 122,266 |
| | 49,394 |
| | 51,834 |
|
Impairment of goodwill | — |
| | — |
| | 87,039 |
|
Stock-based compensation (net of amounts capitalized) | 15,958 |
| | 13,708 |
| | 8,603 |
|
Excess tax benefit from stock-based compensation | — |
| | — |
| | (806 | ) |
Gain from contract liability write-off | (14,189 | ) | | — |
| | — |
|
Provision for doubtful accounts | (277 | ) | | 703 |
| | 252 |
|
Provision for obsolete inventory | 361 |
| | 1,053 |
| | 723 |
|
Amortization of premiums on marketable securities | 124 |
| | 888 |
| | 2,030 |
|
Non-cash foreign currency losses, net | (163 | ) | | 166 |
| | 196 |
|
Changes in operating assets and liabilities: | |
| | |
| | |
|
Accounts receivable | (10,343 | ) | | (6,037 | ) | | (1,843 | ) |
Inventory | (1,946 | ) | | 9,029 |
| | (169 | ) |
Prepaid expenses and other current assets | 2,875 |
| | (16,613 | ) | | (3,788 | ) |
Other assets | 2,823 |
| | (2,128 | ) | | (1,253 | ) |
Accounts payable | 896 |
| | 3,209 |
| | 3,110 |
|
Accrued expenses and other current liabilities | 8,166 |
| | (6,416 | ) | | (7,815 | ) |
Deferred revenue | 15,129 |
| | 4,115 |
| | 9,038 |
|
Accrued satellite and network operation expense, net of current portion | — |
| | (1,045 | ) | | (869 | ) |
Other long-term liabilities | (103 | ) | | 333 |
| | 698 |
|
Net cash provided by operating activities | 259,621 |
| | 225,199 |
| | 217,479 |
|
| | | | | |
Cash flows from investing activities: | |
| | |
| | |
|
Capital expenditures | (400,107 | ) | | (405,687 | ) | | (494,810 | ) |
Purchases of marketable securities | (7,013 | ) | | (19,865 | ) | | (204,672 | ) |
Sales and maturities of marketable securities | 34,440 |
| | 183,192 |
| | 260,108 |
|
Net cash used in investing activities | (372,680 | ) | | (242,360 | ) | | (439,374 | ) |
| | | | | |
Cash flows from financing activities: | |
| | |
| | |
|
Borrowings under the Credit Facility | 22,207 |
| | 251,498 |
| | 230,421 |
|
Payment of deferred financing fees | (3,852 | ) | | (11,806 | ) | | (14,984 | ) |
Proceeds from exercise of stock options | 4,235 |
| | 549 |
| | 2,154 |
|
Tax payment upon settlement of stock awards | (1,865 | ) | | (627 | ) | | (886 | ) |
Excess tax benefits from stock-based compensation | — |
| | — |
| | 806 |
|
Payment of Series A preferred stock dividends | (1,750 | ) | | (7,000 | ) | | (7,000 | ) |
Payment of Series B preferred stock dividends | (2,109 | ) | | (8,436 | ) | | (8,436 | ) |
Net cash provided by financing activities | 16,866 |
| | 224,178 |
| | 202,075 |
|
| | | | | |
Effect of exchange rate changes on cash and cash equivalents | 144 |
| | 512 |
| | (755 | ) |
Net increase (decrease) in cash and cash equivalents | (96,049 | ) | | 207,529 |
| | (20,575 | ) |
Cash, cash equivalents, and restricted cash, beginning of period | 484,306 |
| | 276,777 |
| | 297,352 |
|
Cash, cash equivalents, and restricted cash, end of period | $ | 388,257 |
| | $ | 484,306 |
| | $ | 276,777 |
|
See notes to consolidated financial statements
Iridium Communications Inc.
Consolidated Statements of Cash Flows, continued
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Supplemental cash flow information: | | | | | |
Interest paid, net of amounts capitalized | $ | 91,936 | | | $ | 63,880 | | | $ | 72,195 | |
Income taxes paid, net | $ | 4,225 | | | $ | 2,224 | | | $ | 1,784 | |
| | | | | |
Supplemental disclosure of non-cash investing and financing activities: | | | | | |
Property and equipment received but not paid for yet | $ | 7,070 | | | $ | 5,697 | | | $ | 8,225 | |
Capitalized stock-based compensation | $ | 6,684 | | | $ | 4,635 | | | $ | 2,834 | |
Dividends accrued on common stock | $ | 1,315 | | | $ | 16,616 | | | $ | — | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Supplemental cash flow information: | |
| | |
| | |
|
Interest paid | $ | 85,261 |
| | $ | 22,910 |
| | $ | 18,878 |
|
Income taxes paid, net | $ | 1,660 |
| | $ | 1,391 |
| | $ | 3,429 |
|
| | | | | |
Supplemental disclosure of non-cash investing activities: | |
| | |
| | |
|
Property and equipment received but not paid for yet | $ | 90,748 |
| | $ | 2,753 |
| | $ | 26,770 |
|
Interest capitalized but not paid | $ | 15,021 |
| | $ | 14,136 |
| | $ | 12,232 |
|
Capitalized amortization of deferred financing costs | $ | 27,304 |
| | $ | 28,688 |
| | $ | 18,372 |
|
Capitalized paid-in-kind interest | $ | — |
| | $ | 52,873 |
| | $ | 43,073 |
|
Capitalized stock-based compensation | $ | 2,736 |
| | $ | 2,265 |
| | $ | 1,046 |
|
See notes to consolidated financial statements
Iridium Communications Inc.
Notes to Consolidated Financial Statements
December 31, 20172023
1. Organization and Business
Iridium Communications Inc. (the “Company”), a Delaware corporation, offers voice and data communications services and products to businesses, U.S. and international government agencies and other customers on a global basis. The Company is a provider of mobile voice and data communications services via a constellation of low earth orbiting satellites. The Company holds various licenses and authorizations from the U.S. Federal Communications Commission (the “FCC”) and from foreign regulatory bodies that permit the Company to conduct its business, including the operation of its satellite constellation.
The Company’s operations are conducted through, and its operating assets are owned by, its principal operating subsidiary, Iridium Satellite LLC(“Iridium Satellite”), Iridium Satellite’s immediate parent, Iridium Holdings LLC, and their subsidiaries. As a result, there are no material differences between the information presented in these consolidated financial statements of the Company and the financial information of Iridium Holdings, Iridium Satellite and their subsidiaries, on a consolidated basis, other than as a result of tax provisions as a result of Iridium Holdings, Iridium Satellite and their subsidiaries being classified as flow-through entities for U.S. federal income tax purposes.
2. Significant Accounting Policies and Basis of Presentation
Principles of Consolidation and Basis of Presentation
The Company has prepared the consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The accompanying consolidated financial statements include the accounts of (i) the Company, (ii) its wholly owned subsidiaries, and (iii) all less than wholly owned subsidiaries that the Company controls. All material intercompany transactions and balances have been eliminated. The Company has reclassified certain items in the consolidated financial statements for the prior periods to be comparable with the classification for the year ended December 31, 2023. These reclassifications had no effect on previously reported net income (loss).
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to revenue recognition, the useful lives and recoverability of long-lived and intangible assets, income taxes, stock-based compensation, the incremental borrowing rate for its leases, and contingencies, among others. The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenues and expenses. Actual results could differ materially from those estimates.
AdoptedRecent Accounting Pronouncements Not Yet Adopted
In March 2016,November 2023, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Accounting Standards Update ("ASU") No. 2016-09, Compensation – Stock Compensation, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 addresses multiple changes that are primarily focused on income taxes and the presentation of taxes related to stock compensation, but also provides an option for two methods to account for forfeitures. The requirements resulting from the adoption of ASU 2016-09 were accounted for on a prospective basis as of January 1, 2017, as required.
The Company made an accounting policy election to continue estimating the number of awards that are expected to be forfeited, consistent with the Company’s prior practice.
The Company excluded the excess tax benefits and deficiencies component from the treasury stock method in the diluted earnings per share calculation. The change had an immaterial impact on the Company’s reported diluted earnings per share.
The Company recorded current excess tax benefits and tax deficiencies as income tax benefit (expense) in the consolidated statements of operations and comprehensive income. The change resulted in an excess tax expense of $0.2 million for the three months ended December 31, 2017 and excess tax benefit of $1.1 million recorded in the provision for income taxes for the year ended December 31, 2017.
The Company will present excess tax benefits as an operating activity on the condensed consolidated statement of cash flows rather than as a financing activity. Prior periods have not been adjusted.
There were no additional impacts on the Company’s financial statements resulting from the adoption of ASU 2016-09 that required a retrospective or modified retrospective approach.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2015-11”2023-07”). ASU 2015-11 requires that inventory within the scope of theThis guidance be measured at the lower of cost and net realizable value. The Company applied the new guidance prospectively effective January 1, 2017, as required. Inventory measured using last-in, first-out and retail inventory method are excluded from this new guidance. When evidence exists that the net realizable value of inventory is less than its cost, the Company will recognize the difference as a loss in earnings in the period the measurement occurs. This ASU replaces the concept of market with the single measurement of net realizable value and is intended to create efficiencies for preparers and more closely aligns U.S. GAAP with International Financial Reporting Standards. The adoption had an immaterial impact on the Company’s condensed consolidated balance sheet, condensed consolidated statement of
operations and comprehensive income, and condensed consolidated statement of cash flows as of and for the year ended, December 31, 2017.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires that restricted cash be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statements of cash flows. The Company early adopted the new guidance during the fourth quarter of 2017, as permitted, and the new guidance was applied using a retrospective transition method for all periods presented. The adoption of ASU 2016-18 did not have a material impact on the Company's consolidated statements of cash flows.
The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the consolidated balance sheets at December 31, 2017 and 2016, that sum to the total of such amounts in the consolidated statements of cash flows:
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 |
Cash and cash equivalents | | $ | 285,873 |
| | $ | 371,167 |
|
Restricted cash | | 102,384 |
| | 113,139 |
|
Cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | | $ | 388,257 |
| | $ | 484,306 |
|
Recent Accounting Developments Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting.improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The Company intends to apply the new guidance effective January 1, 2019,for the year ending December 31, 2024, as required. Reporting organizations are required to use a modified retrospective approach for leases that exist or are entered into afterThe Company is assessing the beginningpotential effects of the earliest comparative periodstandard but has not yet completed its review of the impact of this guidance.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The amendments in ASU 2023-09 address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the financial statements.rate reconciliation and income taxes paid information. The Company intends to apply the new guidance effective for the year ending December 31, 2025, as required. The Company is currently evaluating the effect ASU 2016-022023-09 may have on its condensed consolidated financial statements and related disclosures, but a lease liability and related right-of-use asset will be recognized for operating lease arrangements where the Company is the lessee. disclosures.
In May 2014, the FASB and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard, ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has issued several amendments to the standard including clarification on accounting for licenses of intellectual property, identifying performance obligations, and most recently, technical corrections on the interpretation of the new guidance. In July 2015, the FASB voted to defer the effective date of ASU 2014-09 for public entities to be effective for annual and interim periods beginning after December 15, 2017. ASU 2014-09 becomes effective for the Company in the first quarter of fiscal 2018, and the Company anticipates adopting the standard using the modified retrospective method with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date (January 1, 2018). This method requires application of the new guidance at the beginning of the earliest comparative period presented for revenue agreements that are not substantially complete as of the date of adoption. All new revenue agreements executed after the adoption date are accounted for prospectively under the new standard.
The Company established a project team in order to analyze the effect of the standard on its contracts by reviewing its current accounting policies and practices to identify potential differences which would result from applying the requirements of the new standard to its revenue contracts. The Company aggregated its contracts into homogeneous revenue streams and assessed all potential effects of the standard. The Company has substantially completed its evaluation of the potential changes from adopting the new standard on its future financial reporting and disclosures. Adopting the new standard is expected to have an immaterial impact on the Company’s total net sales and operating income. The primary impact of adopting ASU 2014-09 relates to the Company’s prepaid service revenue and associated breakage, which is currently recognized as revenue at the date the right to access the prepaid service has expired. Under the new standard, the Company will estimate the expected revenue that will expire unused on an ongoing basis and recognize this revenue over the usage period. Upon adoption, the Company expects the deferred revenue associated with prepaid service revenue to be reduced by approximately $15.6 million for this breakage estimate. Revenue on the majority of the Company’s contracts will continue to be recognized consistent with the
Company’s current revenue recognition model, exclusive of the aforementioned prepaid revenue. The Company also does not expect the standard to have a material impact on its consolidated balance sheet.
Fair Value Measurements
The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by management of the Company. The instruments identified as subject to fair value measurements on a recurring basis are cash and cash equivalents, marketable securities, prepaid expenses and other current assets, accounts receivable, accounts payable and accrued expenses and other current liabilities. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value.
The fair value hierarchy consists of the following tiers:
•Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities;
•Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The fair value estimates are based upon certain market assumptions and information available to the Company. The carrying values of short-termthe following financial instruments (primarilyapproximated their fair values as of December 31, 2023 and 2022: cash and cash equivalents, prepaid expenses and other current assets, accounts receivable, accounts payable, and accrued expenses and other current liabilities)liabilities. Fair values approximate their faircarrying values because of their short-term nature. The fair value of the Company’s investments inLevel 2 cash equivalents include money market funds, approximates its carrying value; such instruments are classified as Level 1 and are included in cash and cash equivalents on the accompanying consolidated balance sheets. The fair value of the Company’s investments in commercial paper and short-term U.S. agency securities with original maturities of less than ninety days approximates their carrying value; suchsecurities. The Company also classifies its derivative financial instruments are classified as Level 2. In determining fair value of Level 2 assets, the Company uses a market approach utilizing valuation models that incorporate observable inputs such as interest rates, bond yields and quoted prices for similar assets.
Leases
For new leases, the Company determines if an arrangement is or contains a lease at inception. Leases are included in cashas right-of-use (“ROU”) assets within other assets and cash equivalentsROU liabilities within accrued expenses and other liabilities and within other long-term liabilities on the accompanyingCompany’s consolidated balance sheets.
The fair
ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Certain leases contain variable contractual obligations as a result of future base rate escalations which are estimated based on observed trends and included within the measurement of present value. The Company’s investments in fixed-income debt securities and commercial paper with original maturities of greater than ninety days are obtained using similar investments traded on active securities exchanges and are classified as Level 2. For fixed income securities thatleases do not have quoted pricesprovide an implicit rate. The Company uses its incremental borrowing rate based on the information available at commencement date in active markets,determining the present value of lease payments. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For certain leases, such as teleport network facilities, the Company uses third-party vendorselected the practical expedient to price its debt securities resultingcombine lease and non-lease components as a single lease component. Taxes assessed on leases in classification as Level 2. All fixed-income securitieswhich the Company is either a lessor or lessee are included in marketable securities on the accompanying consolidated balance sheets.excluded from contract consideration and variable payments when measuring new lease contracts or remeasuring existing lease contracts.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents marketable securities, and receivables. The majority of cash is swept nightlyinvested into a money market fund invested inwith U.S. treasuries, Agency Mortgage Backed Securitiesagency mortgage backed securities and/or U.S. Governmentgovernment guaranteed debt. While the Company maintains its cash and cash equivalents with financial institutions with high credit ratings, it often maintains those deposits in federally insured financial institutions in excess of federally insured limits. The Company’s marketable securities are highly-rated corporate and foreign fixed-income debt securities and commercial paper with an original maturity in excess of ninety days. The Company performs credit evaluations of its customers’ financial condition and records reserves to provide for estimated credit losses. Accounts receivable are due from both domestic and international customers.
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with original maturities of ninety days or less to be cash equivalents. These investments, along with cash deposited in institutional money market funds, regular interest bearing depository accounts and non-interest bearing depository accounts, are classified as cash and cash equivalents on the accompanying consolidated balance sheets. The
Investments
Investments where the Company is requiredhas the ability to maintain a minimum cash reserveexercise significant influence, but does not control, are accounted for debt service related to its $1.8 billion credit facility (as amended to date,under the “Credit Facility”).
Marketable Securities
Marketable securities consistequity method of fixed-income debt securities and commercial paper with an original maturity in excess of ninety days. These investments are classified as available-for-saleaccounting and are included in marketable securities within current assetsEquity Method Investments on the accompanyingCompany’s consolidated balance sheets. AllSignificant influence typically exists if the Company’s has a 20% to 50% ownership interest in the investee. Under this method of accounting, the Company’s share of the net earnings (losses) of the investee is included in loss on equity method investments are carried at fair value. Unrealized gainson the consolidated statement of operations and losses, net of taxes, are reported as a component of other comprehensive income or loss. The specific identification method is used(loss).
Investments where the Company has less than 20% ownership interest in the investee and lacks the ability to exercise significant influence are accounted for under ASC 321-10-35, Investments - Equity Securities. Under this topic, the Company’s investment equals its cost, less impairment, if any. For investments without a readily determinable fair value, the Company performs a qualitative assessment to determine if any impairment indicator is present. If an indicator is present, the cost basis ofCompany determines whether fair value was less than the marketable securities sold. There were no material realized gains or losses on the sale of marketable securities for the years ended December 31, 2017 and 2016. The Company regularly monitors and evaluatesinvestment’s carrying value. If the fair value ofis less than its investments to identify other-than-temporary declines in value. The Company determined that any decline in faircarrying value of these investmentsor if there is temporary asan observable price change through a similar security from the same issuer, the Company does not intend to sell these securities and it is not likely that the Company will be required to sell the securities before the recovery of their amortized cost basis.would record an impairment charge.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and are subject to late fee penalties. Management develops its estimate of an allowance for uncollectible receivables based on the Company’s experience with specific customers, aging of outstanding invoices, its understanding of customers’ current economic circumstances and its own judgment as to the likelihood that the Company will ultimately receive payment. The Company writes off its accounts receivable when balances ultimately are deemed uncollectible. The allowance for doubtful accounts was not material as of December 31, 20172023 and 2016.2022.
Foreign Currencies
TheGenerally, the functional currency of the Company’s foreign consolidated subsidiaries is the local currency. Assets and liabilities of its foreign subsidiaries are translated to U.S. dollars based on exchange rates at the end of the reporting period. Income and expense items are translated at the weighted-average exchange rates prevailing during the reporting period. Translation adjustments are accumulated in a separate component of stockholders’ equity. Transaction gains or losses are classified as other income (expense), net in the accompanying consolidated statements of operations and comprehensive income.income (loss). In instances where the financial statements of a foreign entity in a highly inflationary economy are material, they are remeasured as if the functional currency were the reporting currency. In these instances, the financial statements of those entities are remeasured into the reporting currency. A highly inflationary economy is one that has cumulative inflation of approximately 100% or more over a three-year period.
Deferred Financing Costs
Direct and incremental costs incurred in connection with securing debt financing are deferred and are amortized as additional interest expense using the effective interest method over the term of the related debt. As of December 31, 2017 and 2016, the Company had deferred approximately $97.2 million and $120.6 million, respectively, of direct and incremental financing costs, net of amortization, associated with securing debt financing for Iridium NEXT, the Company’s next-generation satellite constellation.
Capitalized Interest
Interest costs associated withDuring the development and construction periods of a project, such as the financing of the Company’s assets duringcurrent satellite constellation, the construction periodCompany capitalizes interest. Capitalization ceases when the asset is ready for its intended use or when these activities are substantially suspended. If some portions of Iridium NEXTa project are substantially complete and ready for use and other portions have been capitalized. Capitalized interestnot yet reached that stage, the Company ceases capitalizing costs on the completed portion of the project but continues to capitalize for the years ended December 31, 2017, 2016 and 2015 were $114.4 million, $106.4 million and $83.1 million, respectively, which include amortizationincomplete portion of deferred financing costs as discussed above.the project.
Inventory
Inventory consists primarily of finished goods, although the Company at times also maintains an inventory of raw materials from third-party manufacturers. The Company outsources manufacturing of subscriber equipment to a third-party manufacturer and
purchases accessories from third-party suppliers. The Company’s cost of inventory includes an allocation of overhead, including payroll and payroll-related costs of employees directly involved in bringing inventory to its existing condition, and freight. Inventories are valued using the average cost method and are carried at the lower of cost or net realizable value. Accordingly, the Company recorded expenses of $0.4 million, $1.1 million
The Company’s expense for excess and $0.7 million, forobsolete inventory was not material during the years ended December 31, 2017, 2016 and 2015, respectively, included within the cost of subscriber equipment for excess and obsolete inventory. The expenses for the years ended December 31, 2017 and 2016 were primarily related to certain handset parts and accessories, and the expenses for the year ended December 31, 2015 were primarily related to Iridium Pilot equipment.2023, 2022 or 2021.
The Company has a manufacturing agreement with Benchmark Electronics Inc. (“Benchmark”) to manufacture most of its subscriber equipment. Pursuant to the agreement, the Company may be required to purchase excess materials at cost plus a contractual markup if the materials are not used in production within the periods specified in the agreement. Benchmark will then repurchase such materials from the Company at the same price paid by the Company, as required for the production of the subscriber equipment.
The following table summarizes the Company’s inventory balance: | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (In thousands) |
Finished goods | $ | 48,698 | | | $ | 17,964 | |
Raw materials | 43,599 | | | 23,014 | |
Inventory valuation reserve | (1,162) | | | (1,202) | |
Total | $ | 91,135 | | | $ | 39,776 | |
The Company’s raw materials balance includes $32.2 million and $9.0 million at December 31, 2023 and December 31, 2022, respectively, of inventory held on consignment at third-party manufacturers.
Stock-Based Compensation
The Company accounts for stock-based compensation at estimated fair value. The fair value of stock options is determined at the grant date using the Black-ScholesBlack-Scholes-Merton option pricing model. The fair value of restricted stock units (“RSUs”) is equal to the closing price of the underlying common stock on the grant date. The fair value of an award that is ultimately expected to vest is recognized on a straight-line basis over the requisite service or performance period and is classified in the consolidated statements of operations and comprehensive income (loss) in a manner consistent with the classification of the recipient’s compensation. The expected vesting of the Company’s performance-based RSUs is based upon the probability that the Company achieves the defined performance goals. The level of achievement of performance goals, if any, is determined by the compensation committee.Compensation Committee. Stock-based awards to non-employee consultants are expensed at their grant-date fair value as services are provided according to the terms of their agreements and are classified in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income. Classificationincome (loss). The following table presents the classification of stock-based compensation was presented below:by line item on the balance sheet and statement of operations: | | | | | | | | | | | |
| As of and For Year Ended December 31, |
| 2023 | | 2022 |
| (In thousands) |
Property and equipment, net | $ | 5,963 | | | $ | 4,018 | |
Inventory | 721 | | | 617 | |
| | | |
Cost of subscriber equipment | 60 | | | 69 | |
Cost of services (exclusive of depreciation and amortization) | 16,128 | | | 12,337 | |
Research and development | 1,282 | | | 648 | |
Selling, general and administrative | 39,985 | | | 30,678 | |
Total stock-based compensation | $ | 64,139 | | | $ | 48,367 | |
|
| | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 |
| (In thousands) |
Property and equipment, net | $ | 2,458 |
| | $ | 1,906 |
|
Inventory | 280 |
| | 359 |
|
Cost of subscriber equipment | 30 |
| | 56 |
|
Cost of services (exclusive of depreciation and amortization) | 4,366 |
| | 1,655 |
|
Research and development | 349 |
| | 457 |
|
Selling, general and administrative | 11,211 |
| | 11,540 |
|
Total stock-based compensation | $ | 18,694 |
| | $ | 15,973 |
|
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the following estimated useful lives:
|
| |
First-generation satellites | 15-21 years |
Next-generation satellites | 12.5 years |
Ground system | 5-7 years |
Equipment | 3-5 years |
Internally developed software and purchased software | 3-7 years |
Building | 39 years |
Building improvements | 5-39 years |
Leasehold improvements | shorter of useful life or remaining lease term |
The estimated useful lives of the Company’s first-generation satellites reflect the period of expected use for each satellite. Satellites are depreciated on a straight-line basis through the date they will be replaced by next-generation satellites. The Company began deployment of its next-generation satellite constellation (“Iridium NEXT”) in January 2017, and, based on the current launch schedule, the Company expects the final launch to occur in 2018. The Company’s next-generation satellites will be depreciated on a straight-line basis over the estimated useful life, which is currently estimated to be 12.5 years.
The Company calculates depreciation expense using the straight-line method over the useful lives of each asset. The Company applies judgment in determining the useful lives based on factors such as engineering data, long-term strategy for using the assets, the manufacturer’s estimated design life for the assets, laws and evaluatesregulations that could impact the appropriatenessuseful lives of the assets and other economic factors. The Company assesses the current estimated operational life of the satellites, including the potential impact of environmental factors on the satellites, ongoing operational enhancements and software upgrades when evaluating the useful lifelives of its satellites. Additionally, the Company reviews engineering data relating to the operation and performance of its satellite network.
During the fourth quarter of 2023, the Company updated its estimate of the satellites’ remaining useful lives based on the health of the constellation and related engineering data. As a result, the estimated useful lives of the satellites were extended by five years, from 12.5 years to 17.5 years. The impact of this change for the year ended December 31, 2023 was a decrease in depreciation expense of approximately $27.8 million and a decrease in hosted payload and other service revenue of approximately $2.3 million. For the year ended December 31, 2023, the impact of the change in useful lives of the satellites resulted in an increase in basic and diluted net income per share of $0.21 and $0.20, respectively.
During the quarter ended June 30, 2023, the Company launched five of its remaining six ground spare satellites. Following completion of successful on-orbit testing of the five launched satellites, the Company has no plans to use, develop or launch the remaining ground spare. As the Company believed the construction-in-progress associated with the remaining ground spare satellite would no longer be used, the Company wrote off the full amount remaining in this calculation on a quarterly basis or as events occurconstruction-in-progress for that require additional assessment. satellite by recording accelerated depreciation expense of $37.5 million, which more than offset the decrease in depreciation expense related to the increase in estimated useful lives of the satellites described above.
Repairs and maintenance costs are expensed as incurred.
Derivative Financial Instruments
The Company uses derivatives (interest rate swap, swaption, cap) to manage its exposure to fluctuating interest rate risk on variable rate debt. Its derivatives are measured at fair value and are recorded on the consolidated balance sheets within assets and other current liabilities. When the Company’s derivatives are designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives are recorded in accumulated other comprehensive income (loss) within the Company’s consolidated balance sheets and subsequently recognized in earnings when the hedged items impact earnings. Any ineffective portion of a derivative’s change in fair value will be recognized in earnings in the same period in which the hedged interest payments affect earnings. Within the consolidated statements of operations and comprehensive income (loss), the gains and losses related to cash flow hedges are recognized within interest income (expense), net, as this is the same financial statement line item associated with the hedged items. Cash flows from hedging activities are included in operating activities within the Company’s consolidated statements of cash flows, which is the same category as the item being hedged. See Note 8 for further information. Long-Lived Assets
The Company assesses its long-lived assets for impairment when indicators of impairment exist. Recoverability of assets is measured by comparing the carrying amounts of the assets to the future undiscounted cash flows expected to be generated by the assets. Any impairment loss would be measured as the excess of the assets’ carrying amount over their fair value.
In June 2011, the Company entered into an agreement with International Space Company Kosmotras, or Kosmotras, as a supplemental launch services provider for Iridium NEXT. The total cost under the Kosmotras agreement is $51.8 million. Kosmotras to date has been unable to obtain the permits or authorizations to launch the Company's satellites on a Dnepr rocket as planned, and Kosmotras has proposed no satisfactory alternative launch plan. Because the Company now believes the construction-in-progress associated with the Kosmotras launch services will no longer be used or further developed, the Company wrote-off the full amount previously paid to Kosmotras, by recording accelerated depreciation expense of $36.8 million, in the fourth quarter of 2017.
Goodwill and Other Intangible Assets
Goodwill
Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Impairment testing for goodwill is performed during the fourth quarter of each annual period or more frequently if indicators of potential impairment exist. Goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated fair value of a reporting unit to its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. To measure the amount of impairment loss, if any, the implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. Specifically, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
The Company operates in a single reporting unit, and the possibility of impairment is assessed by comparing the carrying amount of the reporting unit to its estimated fair value. The most recent annual assessment of goodwill and indefinite-lived assets was performed on October 1, 2015 (the “2015 Analysis”), and the Company determined that the current value of the reporting unit exceeded its fair value. As a result, the Company recorded a non-cash goodwill impairment charge of $87.0 million during the fourth quarter of 2015. The Company had no goodwill as of December 31, 2017 and 2016.
Intangible Assets Subject to Amortization
The Company’s intangible assets with finite lives are amortized over their useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If any indicators were present, the Company would test for recoverability by comparing the carrying amount of the asset to the net undiscounted cash flows expected to be generated from the asset. If those net undiscounted cash flows do not exceed the carrying amount (i.e., the asset is not recoverable), the Company would perform the next step, which is to determine the fair value of the asset and record an impairment loss, if any. The Company evaluates the useful lives for these intangible assets each reporting period to determine whether events and circumstances warrant a revision in their remaining useful lives.
Amortization is calculated usingThe Company’s intangible assets with indefinite lives are not amortized but are tested for impairment annually, or more frequently if events or changes in circumstances indicate the straight-line method over the following estimated useful lives:
asset may be impaired. The Company’s trade names, spectrum and licenses are expected to generate cash flows indefinitely.
|
| |
Intellectual property | 20 years |
Assembled workforce | 7 years |
Patents | 14 - 20 years |
Revenue Recognition
The Company derives its revenue primarily as a wholesaler of satellite communications products and services. The primary types of revenue include (i) service revenue (access and usage-based airtime fees), (ii) subscriber equipment revenue, and (iii) revenue generated by providing engineering and support services to commercial and government customers. In addition to the discussion immediately below, see Note 11 for further discussion of the Company’s revenue recognition. Wholesaler of satellite communications products and services
Pursuant to wholesale agreements, the Company sells its products and services to service providers who,and recognizes revenue as it fulfills its performance obligations to the service providers, based an amount that reflects the consideration to which it expects to be entitled to in exchange for those products and services. The service providers, in turn, sell the products and services to other distributors or directly to the end users. The Company recognizes revenue when services are performed or delivery has occurred, evidence of an arrangement exists, services or equipment are transferred, the feetransaction price is fixed or determinable,determined, the arrangement has commercial substance, and collection of consideration is reasonably assured, as follows:probable.
Contracts with multiple elementsperformance obligations
At times, the Company sells services and equipment through multi-element arrangements that bundle equipment, airtime and other services. For multi-elementthese revenue arrangements, when the Company sells services and equipment in bundled arrangements and determines that it has separate units of accounting,distinct performance obligations, the Company allocates the bundled contract price among the various contract deliverablesperformance obligations based on each deliverable’s relativestand-alone selling price. The selling price used for each deliverable is based on vendor-specific objective evidence when available, third-party evidence when vendor-specific objective evidence is not available, orIf the estimated selling price when neither vendor-specific evidence nor third party evidence is available. The Company determines vendor-specific objective evidence of selling price by assessing sales prices of subscriber equipment, airtime and other services when they are sold to customers on a stand-alone basis. The Company’s determination of best estimate of selling price is consistent with its determination of vendor-specific objective evidence of selling price, andnot directly observable, the Company assesses qualitative and quantitativeestimates the amount to be allocated for each performance obligation based on observable market factors and entity-specific factors when estimatingtransactions or the selling price.residual approach. When the Company determines the elementsperformance obligations are not separate units of accounting,distinct, the Company recognizes revenue on a combined basis asbasis. To the last elementextent the Company’s contracts include variable consideration, the transaction price includes both fixed and variable consideration. The variable consideration contained within the Company’s contracts with customers may include discounts, credits and other similar items. When a contract includes variable consideration, the Company evaluates the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, the Company includes the variable consideration in the transaction price only to the extent that it is delivered.probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration estimates are updated at the end of each quarter.
Service revenue sold on a stand-alone basis
Service revenue is generated from the Company’s service providers through usage of its satellite system and through fixed monthly access fees per user charged to service providers. Revenue for usage is recognized when usage occurs.occurs and is billed in arrears with payments generally submitted within 30 days. Revenue for fixed-per-user access fees is billed monthly in advance and generally recognized ratably over the month, or related usage period, in which the services are provided to the end user. The Company sells prepaid services in the form of e-vouchers and prepaid cards. A liability is established equal to the cash paid upon purchase for the e-voucher or prepaid card. The Company recognizes revenue from (i) the prepaid services upon the use of the e-voucher or prepaid card by the customer or uponand (ii) the expirationestimated pattern of the right to access the prepaid service. While the terms of prepaid e-vouchers can be extended by the purchase of additional e-vouchers, prepaid e-vouchers may not be extended beyond three or four years, dependent on the initial expiry period when purchased.use. The Company does not offer refunds for unused prepaid services.
Services sold to the U.S. government
The Company provides airtime and airtime support to U.S. government and other authorized customers pursuant to the Enhanced Mobile Satellite Services (“EMSS”) contract managed by the U.S. Space Force. Under the terms of this agreement, authorized customers continue to utilize airtime services, provided through the U.S. government’s dedicated gateway. These services include unlimited global standard and secure voice, low and high-speed data, paging, broadcast and Distributed Tactical Communications Services (“DTCS”) services for an unlimited number of Department of Defense (“DoD”) and other federal subscribers. Under this contract, revenue is based on the annual fee for the fixed-price contract with unlimited subscribers and is recognized on a straight-line basis over each contractual year, with equal payments submitted monthly. The U.S. government purchases its subscriber equipment from third-party distributors and not directly from the Company.
Subscriber equipment sold on a stand-alone basis
The Company recognizes subscriber equipment sales and the related costs when title to the equipment (and the risks and rewards of ownership) passes to the customer, typically upon shipment.
Services sold to the U.S. government
The Company provides airtime Customers are billed when inventory is shipped, and airtime support to U.S. government and other authorized customers pursuant to the Enhanced Mobile Satellite Services (“EMSS”) contract managed by the Defense Information Systems Agency (“DISA”). Effective October 22, 2013, the Company executed a new five-year EMSS contract, managed by DISA. Under the termspayment is generally due within 30 days. Customers do not have rights of this new agreement, authorized customers continue to utilize airtime services, provided through the U.S. Department of Defense’s (“DoD”) dedicated gateway. These services include unlimited global secure and unsecure voice, low and high-speed data, paging, broadcast and Distributed Tactical Communications Services (“DTCS”) services for an unlimited number of DoD and other federal subscribers. The fixed-price rate for the remaining contract year, which runs through October 21, 2018, is $88 million per year. Under this contract, revenue is based on the annual fee for the fixed-price contract with unlimited subscribers, and is recognized on a straight-line basis over each contractual year.
The U.S. government purchases its subscriber equipment from third-party distributors and not directlyreturn without prior consent from the Company.
Government engineering and support services
The Company provides maintenance services to the U.S. government’s dedicated gateway. This revenue is recognized ratably over the periods in which the services are provided; the related costs are expensed as incurred.
Other government and commercial engineering and support services
The Company also provides engineering services to assist customers in developing new technologies for use on the Company’s satellite system. Fees to customers under these agreements are generally based on milestones, and payments are submitted as milestones are achieved. The revenue associated with these servicesfixed-fee contracts is recorded whenrecognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying its performance obligation. The Company does not include purchases of goods from a third party in its evaluation of costs incurred. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the services are rendered, typically on a proportional performance methodtransfer of accounting based oncontrol to the Company’s estimate of total costs expected to complete the contract, and the related costs are expensed as incurred. Revenue oncustomer. The revenue associated with cost-plus-fixed-fee contracts is recognized to the extent of estimated costs incurred plus the applicable fees earned. The Company considers fixed fees under cost-plus-fixed-fee contracts to be earned in proportion to the allowable costs incurred in performance of the contract.
Research and Development
Research and development costs are charged to expense in the period in which they are incurred.
Advertising Costs
Costs associated with advertising and promotions are expensed as incurred. Advertising expenses were $0.3$1.4 million, $0.5$1.7 million and $0.5$1.9 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability approach, which requires the recognition of tax benefits or
expenses for temporary differences between the financial reporting and tax bases of assets and liabilities. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company also recognizes a tax benefit from uncertain tax positions only if it is “more likely than not” that the position is sustainable based on its technical merits. The Company’s policy is to recognize interest and penalties on uncertain tax positions as a component of income tax expense.
Net Income (Loss) Per Share
The Company calculates basic net income (loss) per share by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share takes into account the effect of potentialpotentially dilutive common shares when the effect is dilutive. The effect of potentialpotentially dilutive common shares, including common stock issuable upon exercise of outstanding stock options, is computed using the treasury stock method. The effect of potentialpotentially dilutive common shares from the conversion of the outstanding convertible preferred securities iswas computed using the as-if converted method at the stated conversion rate. The Company’s unvested restricted stock units ("RSUs")RSUs awarded to the board of directors contain non-forfeitable rights to dividends and therefore are considered to be participating securities in periods of net income. The calculation of basic and diluted net income (loss) per share excludes net income attributable to these unvested RSUs from the numerator and excludes the impact of these unvested RSUs from the denominator.
3. Cash and Cash Equivalents and Marketable Securities
Cash and Cash Equivalents
The following table summarizes the Company’s cash and cash equivalents:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, | | Recurring Fair Value Measurement |
| | 2023 | | 2022 | |
| | (In thousands) | | |
Cash and cash equivalents: | | | | | | |
Cash | | $ | 32,526 | | | $ | 16,247 | | | |
Money market funds | | 39,344 | | | 152,523 | | | Level 2 |
| | | | | | |
Total cash and cash equivalents | | $ | 71,870 | | | $ | 168,770 | | | |
4. Property and Equipment
|
| | | | | | | | | |
| Year Ended December 31, | | |
| 2017 | | 2016 | | Recurring Fair Value Measurement |
| (In thousands) | | |
Cash and cash equivalents: | |
| | |
| | |
Cash | $ | 24,092 |
| | $ | 102,194 |
| | |
Money market funds | 251,950 |
| | 266,478 |
| | Level 1 |
Commercial paper | 9,831 |
| | 2,495 |
| | Level 2 |
Total cash and cash equivalents | $ | 285,873 |
| | $ | 371,167 |
| | |
Restricted Cash
The Company is required to maintain a minimum cash reserve for debt service related to its $1.8 billion loan facility (as amended to date, the “Credit Facility”) (see Note 5 for additional information). As of December 31, 2017 and 2016, the Company’s restricted cash balance, which includes a minimum cash reserve for debt service related to the Credit Facility and the interest earned on these amounts, was $102.4 million and $113.1 million, respectively.
Marketable Securities
The following tables summarize the Company’s marketable securities:
|
| | | | | | | | | | | | | | | | | |
| December 31, 2017 | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Recurring Fair Value Measurement |
| (In thousands) | | |
Fixed-income debt securities | $ | 9,520 |
| | $ | 2 |
| | $ | (15 | ) | | $ | 9,507 |
| | Level 2 |
U.S. Treasury notes | 2,249 |
| | — |
| | (3 | ) | | 2,246 |
| | Level 2 |
Total marketable securities | $ | 11,769 |
| | $ | 2 |
| | $ | (18 | ) | | $ | 11,753 |
| | |
|
| | | | | | | | | | | | | | | | | |
| December 31, 2016 | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Recurring Fair Value Measurement |
| (In thousands) | | |
Fixed-income debt securities | $ | 30,037 |
| | $ | 14 |
| | $ | (11 | ) | | $ | 30,040 |
| | Level 2 |
U.S. Treasury notes | 9,283 |
| | 7 |
| | (2 | ) | | 9,288 |
| | Level 2 |
Total marketable securities | $ | 39,320 |
| | $ | 21 |
| | $ | (13 | ) | | $ | 39,328 |
| | |
The following table presents the contractual maturitiescomposition of the fixed income debt securities, commercial paperproperty and U.S. Treasury notes:equipment:
|
| | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| (In thousands) | | (In thousands) |
Mature within one year | $ | 11,519 |
| | $ | 11,504 |
| | $ | 32,776 |
| | $ | 32,788 |
|
Mature after one year and within three years | 250 |
| | 249 |
| | 6,544 |
| | 6,540 |
|
Total | $ | 11,769 |
| | $ | 11,753 |
| | $ | 39,320 |
| | $ | 39,328 |
|
The decrease in marketable securities from December 31, 2016 to December 31, 2017 is due to the Company selling some of its investments during 2017 and utilizing the proceeds to support the construction of Iridium NEXT.
4. Equity Transactions
Preferred Stock
The Company is authorized to issue 2.0 million shares of preferred stock with a par value of $0.0001 per share. As described below, the Company issued 1.0 million shares of preferred stock in the fourth quarter of 2012 and 0.5 million shares of preferred stock in the second quarter of 2014. The remaining 0.5 million authorized shares of preferred stock were undesignated and unissued as of December 31, 2017.
Series A Cumulative Perpetual Convertible Preferred Stock
In the fourth quarter of 2012, the Company issued 1.0 million shares of its 7.00% Series A Cumulative Perpetual Convertible Preferred Stock in a private offering. The Company received proceeds of $96.5 million from the sale of the Series A Preferred Stock, net of the aggregate $3.5 million in initial purchaser discount and offering costs. The net proceeds of this offering were used to partially fund the construction and deployment of Iridium NEXT and for other general corporate purposes.
Holders of Series A Preferred Stock are entitled to receive cumulative cash dividends at a rate of 7.00% per annum of the $100 liquidation preference per share (equivalent to an annual rate of $7.00 per share). Dividends are payable quarterly in arrears on each March 15, June 15, September 15 and December 15. The Series A Preferred Stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. The Series A Preferred Stock ranks senior to the Company’s common stock and on parity with the Company’s 6.75% Series B Cumulative Perpetual Convertible Preferred Stock with respect to dividend rights and rights upon the Company’s liquidation, dissolution or winding-up. Holders of Series A Preferred Stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in other specified circumstances. Holders of Series A Preferred Stock may convert some or all of their outstanding Series A Preferred Stock at an initial conversion rate of 10.6022 shares of common stock per $100 liquidation preference, which is equivalent to an initial conversion price of approximately $9.43 per share of common stock (subject to adjustment in certain events).
The Credit Facility prohibits the Company from paying dividends to holders of the Company's preferred stock, including the Company's Series A Preferred Stock, if the Company is unable to certify that it anticipates being able to comply with the financial covenants of the Credit Facility for the next twelve months each time the Company declares a dividend. During the second quarter of 2017, the Company began a five-quarter deferral of dividends on the Series A Preferred Stock. Cash dividends of $1.8 million were declared and paid to holders of the Series A Preferred Stock during the first quarter of 2017. No other dividends were declared, paid or accrued. During the year ended December 31, 2016, the Company paid cash dividends of $7.0 million to holders of the Series A Preferred Stock.
If the Company does not pay dividends on its preferred stock for six quarterly periods (whether or not consecutive), the holders of the Series A Preferred Stock and Series B Preferred Stock collectively will have the power to elect two members of the Company's board of directors. The interests of the holders of the Company's preferred stock may differ from those of its other stockholders. In addition, any dividend the Company fails to pay will accrue, and the holders of the Company's Series A Preferred Stock and Series B Preferred Stock will be entitled to a preferential distribution of the original purchase price per share plus all accrued and unpaid dividends before any distribution may be made to holders of the Company's common stock in connection with any liquidation event.
As of October 3, 2017, the Company may, at its option, convert some or all of the Series A Preferred Stock into the number of shares of common stock that are issuable at the then-applicable conversion rate, subject to specified conditions, including a daily volume-weighted average stock price of at least $12.26 per share over a period of 20 trading days in a 30-day period and payment of the accrued dividends. The holders of Series A Preferred Stock had a special right to convert some or all of the Series A Preferred Stock into shares of common stock, which expired on October 3, 2017. Any suspended dividends are required to be paid prior to conversion by the Company.
Series B Cumulative Perpetual Convertible Preferred Stock
In May 2014, the Company issued 500,000 shares of its Series B Preferred Stock in an underwritten public offering at a price to the public of $250 per share. The purchase price received by the Company, equal to $242.50 per share, reflected an
underwriting discount of $7.50 per share. The Company received proceeds of $120.8 million from the sale of the Series B Preferred Stock, net of the $3.8 million underwriting discount and $0.4 million of offering costs.
Holders of Series B Preferred Stock are entitled to receive cumulative cash dividends at a rate of 6.75% per annum of the $250 liquidation preference per share (equivalent to an annual rate of $16.875 per share). Dividends are payable quarterly in arrears on each March 15, June 15, September 15 and December 15. The Series B Preferred Stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. The Series B Preferred Stock ranks senior to the Company’s common stock and pari passu with respect to the Company’s Series A Preferred Stock with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding-up. Holders of Series B Preferred Stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in other specified circumstances. Holders of Series B Preferred Stock may convert some or all of their outstanding Series B Preferred Stock at an initial conversion rate of 33.456 shares of common stock per $250 liquidation preference, which is equivalent to an initial conversion price of approximately $7.47 per share of common stock (subject to adjustment in certain events).
The Credit Facility prohibits the Company from paying dividends to holders of the Company's preferred stock, including the Company's Series B Preferred Stock, if the Company is unable to certify that it anticipates being able to comply with the financial covenants of the Credit Facility for the next twelve months each time the Company declares a dividend. During the second quarter of 2017, the Company began a five-quarter deferral of dividends on the Series B Preferred Stock. Cash dividends of $2.1 million were declared and paid to holders of the Series B Preferred Stock during the first quarter of 2017. No other dividends were declared, paid or accrued. During the year ended December 31, 2016, the Company paid cash dividends of $8.4 million to holders of the Series B Preferred Stock.
If the Company does not pay dividends on its preferred stock for six quarterly periods (whether or not consecutive), the holders of the Series A Preferred Stock and Series B Preferred Stock collectively will have the power to elect two members of the Company's board of directors. The interests of the holders of the Company's preferred stock may differ from those of its other stockholders. In addition, any dividend the Company fails to pay will accrue, and the holders of the Company's Series A Preferred Stock and Series B Preferred Stock will be entitled to a preferential distribution of the original purchase price per share plus all accrued and unpaid dividends before any distribution may be made to holders of the Company's common stock in connection with any liquidation event.
On or after May 15, 2019, the Company may, at its option, convert some or all of the Series B Preferred Stock into the number of shares of common stock that are issuable at the then-applicable conversion rate, subject to specified conditions. In the event of certain specified fundamental changes, holders of the Series B Preferred Stock will have the right to convert some or all of their shares of Series B Preferred Stock into the greater of (i) a number of shares of the Company’s common stock as subject to adjustment plus the make-whole premium, if any, and (ii) a number of shares of the Company’s common stock equal to the lesser of (a) the liquidation preference divided by the market value of the Company’s common stock on the effective date of such fundamental change and (b) 81.9672 (subject to adjustment). In certain circumstances, the Company may elect to cash settle any conversions in connection with a fundamental change. Any suspended dividends are required to be paid prior to conversion by the Company.
5. Debt
Credit Facility
In October 2010, the Company entered into a $1.8 billion credit facility with a syndicate of bank lenders, which was amended and restated in July 2017 by a supplemental agreement. Ninety-five percent of the Company's obligations under the Credit Facility are insured by Bpifrance Assurance Export S.A.S. ("BPIAE"). Under the terms of the Credit Facility, the Company was required to maintain a minimum cash reserve for debt service ("DSRA") of $102.0 million as of December 31, 2017, which increases to $189.0 million in 2019, and is classified as restricted cash on the accompanying consolidated balance sheet. The Credit Facility will mature in 2024.
As amended to date, the Credit Facility delays, until March 2019, $54.0 million in contributions that the Company was previously scheduled to make during 2017 to the DSRA, and the Company was refunded $33.0 million of the contributions to the DSRA that the Company has made to date. In addition, in the event that the Company's projected Available Cash (as defined in the Credit Facility) falls below $35.0 million on a three-month forward-looking basis between now and March 2019, the Company will receive a refund of an additional $11.0 million in contributions made to date. The Credit Facility also requires that the Company establish a new restricted account to receive hosting fees from Aireon. The first $50.0 million in hosting fees from Aireon would be kept in the restricted account and the Company could access these funds in the event that
the Company falls below the same $35.0 million three-month forward-looking Available Cash threshold through March 2019 described above. Hosting fees from Aireon in excess of $50.0 million would be distributed pro rata to replenish the DSRA and to secure the payment of the bills of exchange to Thales.
The amendments to the Credit Facility do not require the Company to raise additional equity but requires that the Company suspend the payment of dividends on the Company's 7% Series A Cumulative Perpetual Convertible Preferred Stock and the Company's 6.75% Series B Cumulative Perpetual Convertible Preferred Stock for five quarters. As previously announced, in anticipation of this requirement, the Company began this suspension with the dividend payments payable on June 15, 2017. The Credit Facility also includes revised financial covenant levels to reflect changing business conditions.
Prior to the Credit Facility being fully drawn, the Company paid interest on the outstanding principal balance under the Credit Facility on a semi-annual basis in April and October through a combination of a cash payment and a deemed additional loan. The Credit Facility was fully drawn in February 2017, and as of April 2017, interest was being paid in cash. Scheduled semi-annual principal repayments will begin on April 3, 2018. During this repayment period, interest will be paid on the same date as the principal repayments. For the years ended December 31, 2017, 2016 and 2015, the Company incurred total interest of $86.7 million, $77.7 million and $64.6 million, respectively. All interest costs incurred related to the Credit Facility have been capitalized during the construction period of the Iridium NEXT assets. During the years ended December 31, 2016 and 2015, interest was payable via deemed loans of $44.4 million and $44.9 million, respectively, with the remainder payable in cash on the scheduled semi-annual payment dates. No deemed loans were utilized for interest incurred during the year ended December 31, 2017. Interest payable as of December 31, 2017 and 2016 was $15.0 million and $14.1 million, respectively.
In connection with each draw it made under the Credit Facility, the Company also borrowed an amount equal to 6.49% of such draw to cover the premium for the BPIAE insurance policy. The Company also paid a commitment fee of 0.80% per year, in semi-annual installments, on any undrawn portion of the Credit Facility through February 2017, when the Credit Facility was fully drawn.
Through February 2017, funds drawn under the Credit Facility were used to pay for (i) 85% of the costs under a fixed price full scale development ("FSD") contract with Thales Alenia Space France ("Thales") for the design and manufacture of satellites for Iridium NEXT, (ii) the premium for the BPI policy, and (iii) the payment of a portion of interest during a part of the construction and launch phase of Iridium NEXT.
As of December 31, 2017, the Company had borrowed a total of $1.8 billion under the Credit Facility. The repayment schedule below excludes $120.0 million that the Company expects to receive upon the Aireon redemption of Iridium's equity interest in Aireon and Aireon dividends, when and if declared. Upon receipt of these amounts, they will be used to prepay the Credit Facility which may result in an earlier repayment. Future principal repayments with respect to the Credit Facility balance existing at December 31, 2017 by year and in the aggregate, are as follows:
|
| | | | |
Year ending December 31, | | Amount |
| | (In thousands) |
2018 | | $ | 85,500 |
|
2019 | | 202,500 |
|
2020 | | 288,000 |
|
2021 | | 306,000 |
|
2022 | | 306,000 |
|
Thereafter | | 612,000 |
|
Total debt commitments | | $ | 1,800,000 |
|
Original issuance discount | | 96,445 |
|
Total short-term debt | | 85,500 |
|
Total long-term debt, net | | $ | 1,618,055 |
|
The effective interest rate on outstanding principal of the Credit Facility during the years ended December 31, 2017, 2016 and 2015 were 6.64%, 6.65% and 6.57%, respectively.
Obligations under the Credit Facility are secured on a senior basis by a lien on substantially all of the Company’s assets. In addition to the minimum DSRA levels, financial covenants under the Credit Facility include:
an available cash balance of at least $25 million;
a debt-to-equity ratio, which is calculated as the ratio of total net debt to the aggregate of total net debt and total stockholders’ equity, of no more than 0.7 to 1, measured each June 30 and December 31;
specified maximum levels of annual capital expenditures (excluding expenditures on the construction of Iridium NEXT satellites) through the year ending December 31, 2024;
specified minimum levels of consolidated operational earnings before interest, taxes, depreciation and amortization, or operational EBITDA, for the 12-month periods ending each December 31 and June 30 through December 31, 2017;
specified minimum cumulative cash flow requirements from customers who have hosted payloads on the Company’s satellites, measured each December 31 and June 30, from June 30, 2017 through December 31, 2019;
a debt service coverage ratio, measured during the repayment period, of not less than 1 to 1.5; and
specified maximum leverage levels during the repayment period that decline from a ratio of 7.53 to 1 for the twelve months ending June 30, 2018 to a ratio of 2.36 to 1 for the twelve months ending December 31, 2024; and
a requirement that we receive at least $50,000,000 in hosting fees from Aireon by September 30, 2018.
The Company’s available cash balance, as defined by the Credit Facility, was $291.9 million as of December 31, 2017. The Company’s debt-to-equity ratio was 0.5 to 1 as of December 31, 2017. The Company was in compliance with the operational EBITDA covenant, the annual capital expenditure covenant and the cumulative cash flow requirements from customers who have hosted payloads covenant, which were the only other applicable covenants, as of December 31, 2017.
The covenants regarding capital expenditures, operational EBITDA and hosted payload cash flows are calculated in connection with a measurement, which the Company refers to as available cure amount, that is derived using a complex calculation based on overall cash flows, as adjusted by numerous measures specified in the Credit Facility. In a period in which the Company’s capital expenditures exceed, or the Company’s operational EBITDA or hosted payload cash flows falls short of, the amount specified in the respective covenant, the Company would be permitted to allocate available cure amount, if any, to prevent a breach of the applicable covenant. As of December 31, 2017, the Company had an amount of $8.1 million in available cure, although it was not necessary to apply any available cure amount to maintain compliance with the covenants. The available cure amount has fluctuated significantly from one measurement period to the next, and the Company expects that it will continue to do so.
The covenants also place limitations on the Company’s ability and that of its subsidiaries to carry out mergers and acquisitions, dispose of assets, grant security interests, declare, make or pay dividends, enter into transactions with affiliates, incur additional indebtedness, or make loans, guarantees or indemnities. If the Company is not in compliance with the financial covenants under the Credit Facility, after any opportunity to cure such non-compliance, or the Company otherwise experiences an event of default under the Credit Facility, the lenders may require repayment in full of all principal and interest outstanding under the Credit Facility. It is unlikely the Company would have adequate funds to repay such amounts prior to the scheduled maturity of the Credit Facility. If the Company fails to repay such amounts, the lenders may foreclose on the assets the Company has pledged under the Credit Facility, which include substantially all of its assets and those of its domestic subsidiaries.
Pursuant to the Company’s hosting agreement with Aireon LLC, Aireon is obligated to pay the Company $200 million for the placement of the Aireon payload on each of the Iridium NEXT satellites. The Company expects those hosted payload payments to continue to be delayed. Aireon is working to secure additional contracts with air navigation service providers, or ANSPs, including the FAA, for the sale of Aireon’s space-based automatic dependent surveillance-broadcast, or ADS-B, services. Aireon is currently seeking to raise the capital it will need to fund its continued operations and its hosted payload payments to the Company. Aireon’s ability to fund its hosted payload payments to the Company in the previously anticipated timeframe has been adversely affected by delays in its completion of sales to these ANSPs.
The Company continues to expect partial payments of Aireon’s hosting fee upon successful completion of its financing, and further payments based on success-based milestones. However, the expected timing of these payments does not support the Company’s ability to make principal and interest payments under its Credit Facility due in late 2018 and early 2019, as well as payment of deferred payments to Thales and deferred contributions to the DSRA, both due March 31, 2019. Further, if Aireon is unable to complete its financing and make a partial hosting payment to the Company in the timeframe it currently expects, the Company may be unable to make its principal and interest payments under its Credit Facility due in late 2018. To provide for these obligations and further solidify the Company’s liquidity position, the Company has been actively discussing alternative funding options with its Credit Facility lenders and believes it has reached an agreement in principle with its Credit Facility lenders pursuant to which the Company would be required to raise additional capital in the form of debt securities by July 2018. The proceeds of these debt securities would be used to fund the deferred payments to Thales and replenish the DSRA under the Credit Facility, as well as to provide the Company with sufficient cash to meet its needs, including principal and interest payments under its Credit Facility. In addition, the Credit Facility lenders would agree to delay a portion of the principal repayments under the Credit Facility, allow the Company to access up to $87 million from the DSRA in the future if the Company’s projected cash level falls below $75 million, and adjust the Company's financial covenants, including eliminating further covenants that require it to receive cash flows from hosted payloads. Under this anticipated agreement, the Company would be required to use hosting fee payments received from Aireon to prepay the Credit Facility. The Company’s ability to successfully execute these plans may be adversely affected by a number of factors, including global economic conditions, the state of the capital markets when the Company is ready to issue the debt, and the inability to issue debt securities on terms acceptable to the Company or at all. Any inability to successfully execute these plans may in turn materially affect the Company's liquidity, and its ability to complete the Iridium NEXT system and to pursue additional growth opportunities may be impaired. The Company’s liquidity and the ability to fund its liquidity requirements also depend on the Company’s future financial performance, which is subject to general economic, financial, regulatory and other factors that are beyond the Company’s control.
The Company believes its liquidity sources will provide sufficient funds for it to meet its liquidity requirements for at least the next 12 months, provided the Company executes the proposed adjustments to its funding plan or receives a substantial portion of the hosting fees due to the Company from Aireon.
6. Boeing Operations and Maintenance (O&M) Agreements
On July 21, 2010, the Company and Boeing entered into an operations and maintenance agreement ("the O&M Agreement"), pursuant to which Boeing agreed to provide continuing steady-state operations and maintenance services with respect to the satellite network operations center, telemetry, tracking and control stations and the first-generation satellites (including engineering, systems analysis, and operations and maintenance services).
Also on July 21, 2010, the Company and Boeing entered into an agreement pursuant to which Boeing would operate and maintain Iridium NEXT (the “Iridium NEXT Support Services Agreement”). On January 1, 2015, Boeing supported a hybrid operations mode involving network elements from both the first-generation satellites and the Iridium NEXT system. Boeing provided those services on a time-and-materials fee basis. Obligations to Boeing represented the not to exceed (“NTE”) price for services under the Iridium NEXT Support Services Agreement.
On November 28, 2016, the Company entered into an Insourcing Agreement with Boeing for the Company to hire, effective January 3, 2017, the majority of the Boeing employees and third-party contractors who were responsible for the operations and maintenance of the Company’s satellite constellation and ground infrastructure. Pursuant to the Insourcing Agreement, the Company was obligated to pay Boeing $5.5 million, half of which was paid during each of the years ended December 31, 2016 and 2017. Concurrent with the hiring of the assembled workforce on January 3, 2017, the Company and Boeing terminated both the O&M Agreement and the Iridium NEXT Support Service Agreement and entered into a new Development Services Agreement ("DSA") with a $6.0 million annual take-or-pay commitment through 2021. As a result of the termination of certain Boeing agreements under the Insourcing Agreement, Boeing no longer has a unilateral right to commence the de-orbit of the Company’s first-generation satellites. The assembled workforce was recorded as a finite-lived intangible asset in the first quarter of 2017 and will be amortized over an estimated useful life of 7 years. Additionally, by terminating the O&M Agreement, the Company recognized a $14.2 million gain from the derecognition of a purchase accounting liability created from GHL’s acquisition of Iridium in 2009 related to the fair value of the contractual arrangement with Boeing as of that date and the remainder of a credit from Boeing in the July 2010 Boeing O&M contract negotiations.
The Company incurred expenses of $30.5 million, $29.0 million and $30.7 million relating to satellite operations and maintenance costs, which include internal costs and amounts paid to Boeing, for the years ended December 31, 2017, 2016 and 2015, respectively, included in cost of services (exclusive of depreciation and amortization) in the consolidated statements of operations and comprehensive income.
7. Property and Equipment
Property and equipment consisted of the following:
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
| (In thousands) |
Satellite system | $ | 1,199,794 |
| | $ | 314,228 |
|
Ground system | 67,576 |
| | 63,519 |
|
Equipment | 35,616 |
| | 34,139 |
|
Internally developed software and purchased software | 191,089 |
| | 127,498 |
|
Building and leasehold improvements | 32,130 |
| | 32,099 |
|
| 1,526,205 |
| | 571,483 |
|
Less: accumulated depreciation | (432,833 | ) | | (422,098 | ) |
| 1,093,372 |
| | 149,385 |
|
Land | 8,037 |
| | 8,037 |
|
Construction in process: | |
| | |
|
Iridium NEXT systems under construction | 2,088,380 |
| | 2,639,824 |
|
Other construction in process | 20,373 |
| | 15,838 |
|
Total property and equipment, net of accumulated depreciation | $ | 3,210,162 |
| | $ | 2,813,084 |
|
Other construction in process consisted of the following:
| | | | December 31, | | | | | December 31, |
| | | Useful Life | | 2023 | | 2022 |
| | | | | | | | | (In thousands) |
| December 31, |
| 2017 | | 2016 |
| (In thousands) |
Internally developed software | $ | 14,782 |
| | $ | 14,218 |
|
Satellite system | |
Satellite system | |
Satellite system | |
Ground system | |
Equipment | 4,241 |
| | 1,546 |
|
Ground system | 1,350 |
| | 74 |
|
Total other construction in process | $ | 20,373 |
| | $ | 15,838 |
|
Internally developed software and purchased software | |
Building and leasehold improvements | |
Total depreciable property and equipment | |
Less: accumulated depreciation | |
Total depreciable property and equipment, net of accumulated depreciation | |
Land | |
Construction-in-process: | |
Spare satellites | |
Spare satellites | |
Spare satellites | |
Other construction-in-process | |
Total property and equipment, net of accumulated depreciation | |
Depreciation expense for the years ended December 31, 2017, 2016 and 2015 was $120.7$318.5 million, $48.6$301.9 million and $51.0 million, respectively. The increase in depreciation from 2016 to 2017 partially results from the write-off of $36.8 million previously paid to Kosmotras, and the addition of new assets, including Iridium NEXT satellites placed into service during 2017. See Note 9 for further details on Kosmotras.
8. Intangible Assets
The Company had identifiable intangible assets as follows:
|
| | | | | | | | | | | | | |
| December 31, 2017 |
| Useful Life (years) | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| (In thousands) |
Indefinite life intangible assets: | | | | | | | |
Trade names | Indefinite | | $ | 21,195 |
| | $ | — |
| | $ | 21,195 |
|
Spectrum and licenses | Indefinite | | 14,030 |
| | — |
| | 14,030 |
|
Total | | | 35,225 |
| | — |
| | 35,225 |
|
Definite life intangible assets: | | | |
| | |
| | |
|
Intellectual property | 20 years | | 16,439 |
| | (6,651 | ) | | 9,788 |
|
Assembled workforce | 7 years | | 5,678 |
| | (812 | ) | | 4,866 |
|
Patents | 14 - 20 | | 146 |
| | (6 | ) | | 140 |
|
Total | | | 22,263 |
| | (7,469 | ) | | 14,794 |
|
Total intangible assets | | | $ | 57,488 |
| | $ | (7,469 | ) | | $ | 50,019 |
|
|
| | | | | | | | | | | | | |
| December 31, 2016 |
| Useful Life (years) | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| (In thousands) |
Indefinite life intangible assets: | | | | | | | |
Trade names | Indefinite | | $ | 21,195 |
| | $ | — |
| | $ | 21,195 |
|
Spectrum and licenses | Indefinite | | 14,030 |
| | — |
| | 14,030 |
|
Total | | | 35,225 |
| | — |
| | 35,225 |
|
Definite life intangible assets: | | | |
| | |
| | |
|
Intellectual property | 20 years | | 16,439 |
| | (5,868 | ) | | 10,571 |
|
Total | | | 16,439 |
| | (5,868 | ) | | 10,571 |
|
Total intangible assets | | | $ | 51,664 |
| | $ | (5,868 | ) | | $ | 45,796 |
|
Amortization expense was $1.6 million, $0.8 million and $0.8$303.8 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively. See “Property and Equipment” in Note 62 above for further details onmore information with respect to depreciation expense incurred in the Boeing assembled workforce, added in 2017.year ended December 31, 2023.
5. Intangible Assets
The following table presents identifiable intangible assets:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | Useful Life | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| | (In thousands) |
Indefinite life intangible assets: | | | | | | | | |
Trade names | | Indefinite | | $ | 21,195 | | | $ | — | | | $ | 21,195 | |
Spectrum and licenses | | Indefinite | | 14,030 | | | — | | | 14,030 | |
Total | | | | 35,225 | | | — | | | 35,225 | |
Definite life intangible assets: | | | | | | | | |
Intellectual property | | 20 years | | 16,439 | | | (10,987) | | | 5,452 | |
Assembled workforce | | 7 years | | 5,678 | | | (5,678) | | | — | |
Patents | | 14 - 20 years | | 587 | | | (169) | | | 418 | |
Total | | | | 22,704 | | | (16,834) | | | 5,870 | |
Total intangible assets | | | | $ | 57,929 | | | $ | (16,834) | | | $ | 41,095 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Useful Life | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| | (In thousands) |
Indefinite life intangible assets: | | | | | | | | |
Trade names | | Indefinite | | $ | 21,195 | | | $ | — | | | $ | 21,195 | |
Spectrum and licenses | | Indefinite | | 14,030 | | | — | | | 14,030 | |
Total | | | | 35,225 | | | — | | | 35,225 | |
Definite life intangible assets: | | | | | | | | |
Intellectual property | | 20 years | | 16,439 | | | (10,347) | | | 6,092 | |
Assembled workforce | | 7 years | | 5,678 | | | (4,867) | | | 811 | |
Patents | | 14 - 20 years | | 576 | | | (127) | | | 449 | |
Total | | | | 22,693 | | | (15,341) | | | 7,352 | |
Total intangible assets | | | | $ | 57,918 | | | $ | (15,341) | | | $ | 42,577 | |
Amortization expense was $1.5 million, $1.6 million and $1.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.
The following table presents future amortization expense with respect to intangible assets existing at December 31, 2017,2023, by year and in the aggregate, is as follows:aggregate:
| | | | | | | | |
Year ending December 31, | | Amount |
| | (In thousands) |
2024 | | $ | 473 | |
2025 | | 473 | |
2026 | | 473 | |
2027 | | 473 | |
2028 | | 473 | |
Thereafter | | 3,505 | |
Total estimated future amortization expense | | $ | 5,870 | |
|
| | | | |
Year ending December 31, | | Amount |
| | (In thousands) |
2018 | | $ | 1,604 |
|
2019 | | 1,604 |
|
2020 | | 1,604 |
|
2021 | | 1,604 |
|
Thereafter | | 8,378 |
|
Total estimated future amortization expense | | $ | 14,794 |
|
6. Leases
9. CommitmentsThe Company has operating leases for land, office space, satellite network operations center (“SNOC”) facilities, system gateway facilities, a warehouse and Contingencies
Thales
In June 2010,a distribution center. The Company also has operations and maintenance (“O&M”) agreements that include leases associated with two teleport network facilities. Some of the Company executed a primarily fixed-price FSD with Thales for the design and build of satellites for Iridium NEXT. The total price under the FSD is $2.3 billion, and the Company expects payment obligations under the FSDCompany’s leases include options to extend through 2018.the leases for up to 10 years. The Company does not include term extension options as part of its present value calculation of lease liabilities unless it is reasonably certain to exercise those options. As of December 31, 2017,2023, the Company’s weighted-average remaining lease term relating to its operating leases was 4.7 years, and the weighted-average discount rate used to calculate the operating lease liability payment was 6.7%.
The following table summarizes the Company’s lease-related assets and liabilities:
| | | | | | | | | | | | | | | | | | | | |
Leases | | Classification | | December 31, 2023 | | December 31, 2022 |
| | | | (In thousands) |
Operating lease assets | | | | | | |
Noncurrent | | Other assets | | $ | 16,133 | | | $ | 16,925 | |
Total lease assets | | | | $ | 16,133 | | | $ | 16,925 | |
| | | | | | |
Operating lease liabilities | | | | | | |
Current | | Accrued expenses and other current liabilities | | $ | 4,327 | | | $ | 3,784 | |
Noncurrent | | Other long-term liabilities | | $ | 14,087 | | | 15,801 | |
Total lease liabilities | | | | $ | 18,414 | | | $ | 19,585 | |
During the years ended December 31, 2023, 2022 and 2021, the Company incurred lease expense of $5.2 million, $5.2 million and $5.6 million, respectively. A portion of lease expense during these comparable periods was derived from leases that were not included within the ROU asset and liability balances shown above as they had madeterms shorter than twelve months and were therefore excluded from balance sheet recognition under ASU 2016-02.
The following table presents future payment obligations with respect to the Company’s operating leases in which it was the lessee at December 31, 2023, by year and in the aggregate:
| | | | | | | | |
Year Ending December 31, | | Amount |
| | (In thousands) |
2024 | | $ | 5,548 | |
2025 | | 5,646 | |
2026 | | 3,792 | |
2027 | | 2,226 | |
2028 | | 1,982 | |
Thereafter | | 2,592 | |
Total lease payments | | $ | 21,786 | |
Lessor Arrangements
Operating leases in which the Company is a lessor consist primarily of hosting agreements with Aireon LLC(“Aireon”) (see Note 14)and L3Harris Technologies, Inc. (“L3Harris”) for space on the Company’s satellites. These agreements provide for a fee that will be recognized over the estimated useful lives of the satellites, which is now approximately 17.5 years, prospectively from the change in estimated useful lives of the satellites that occurred in the fourth quarter of 2023. Lease income related to these agreements was $19.2 million for the year ended December 31, 2023 and $21.4 million for each of the years ended December 31, 2022 and 2021. The decrease for 2023 as compared to 2022 was solely the result of the change in estimated useful life of the satellites. Lease income is recorded as hosted payload and other data service revenue within service revenue on the Company’s consolidated statements of operations and comprehensive income (loss).
The following table presents future income, after giving effect to the extension of estimated useful lives of the satellites, with respect to the Company’s operating leases in which it was the lessor at December 31, 2023, by year and in the aggregate:
| | | | | | | | |
Year Ending December 31, | | Amount |
| | (In thousands) |
2024 | | $ | 12,391 | |
2025 | | 12,391 | |
2026 | | 12,391 | |
2027 | | 12,391 | |
2028 | | 12,391 | |
Thereafter | | 82,106 | |
Total lease income | | $ | 144,061 | |
7. Debt
Term Loan and Revolving Facility
In September 2023, pursuant to an amended and restated credit agreement (the “Credit Agreement”), the Company refinanced its previously existing term loan resulting in total borrowing of $1,500.0 million (as so amended and restated, the “Term Loan”) in aggregate principal amount with various lenders administered by Deutsche Bank AG and an accompanying $100.0 million revolving loan (the “Revolving Facility”). The Term Loan was issued at a price equal to 99.75% of its face value and bears interest at an annual rate equal to the Secured Overnight Financing Rate (“SOFR”) plus 2.50%, with a 0.75% SOFR floor. The maturity of the Term Loan is in September 2030. The Company typically selects a one-month interest period, with the result that interest is calculated using one-month SOFR. Interest is paid monthly on the last business day of the month. Principal payments, payable quarterly beginning with the quarter ending March 31, 2024, equal $15.0 million per annum (one percent of $1.9 billionthe full principal amount of the Term Loan), with the remaining principal due upon maturity.
The Revolving Facility bears interest at the same rate (but without a SOFR floor) if and as drawn, with no original issue discount, a commitment fee of 0.5% per year on the undrawn amount, which will be reduced to Thales,0.375% if the Company has a consolidated first lien net leverage ratio (as defined in the Credit Agreement) of less than 3.5 to 1, and a maturity date in September 2028.
The Company paid $3.8 million of issuance costs to refinance the Term Loan in September 2023, which $1.5 billion were financed fromdeferred and will be amortized through the term of the loan. Lenders making up approximately $16.8 million of the Term Loan did not participate in the refinancing. Those portions of the Term Loan were replaced by new or existing lenders. This resulted in an immaterial loss on extinguishment of debt, as the Company wrote off the unamortized debt issuance costs related to the lenders who were fully repaid in an exchange of principal. The Company deferred an additional $1.2 million of third-party fees associated with the refinancing of the Term Loan and the Revolving Facility.
In the fourth quarter of 2022, the Company elected to prepay $100.0 million of principal on the Term Loan. This resulted in a $1.2 million loss on extinguishment of debt, as the Company wrote off the unamortized debt issuance costs related to this prepayment.
In the third quarter of 2021, the Company repriced the Term Loan and incurred a $0.9 million loss on extinguishment of debt, as the Company wrote off the unamortized debt issuance costs related to the lenders who were fully repaid in an exchange of principal.
As of December 31, 2023 and 2022, the Company reported an aggregate of $1,500.0 million and $1,504.6 million in borrowings under the Credit FacilityTerm Loan, respectively. These amounts do not include $17.5 million and were capitalized$17.4 million of net unamortized deferred financing costs as constructionof December 31, 2023 and 2022, respectively. The net principal balance in progress within property and equipment, netborrowings in the accompanying consolidated balance sheet. The Credit Facility was fully drawn in February 2017. With the exceptionsheets as of the invoicesDecember 31, 2023 and 2022 amounted to be paid with the bills of exchange described below, the Company expects to pay 100% of each invoice received from Thales from cash$1,482.5 million and marketable securities on hand.
On July 26, 2017, the Company entered into Amendments 28 and 29 to its FSD contract. Amendment 28 revised the liquidated damages and other cost provisions regarding delays to the Iridium NEXT program. Under Amendment 28, the Company agreed with Thales that liquidated damages for Thales production delays to date would be $30.0$1,487.2 million, with this amount to be used only to offset costs otherwise payable by the Company to Thales under the FSD with respect to past and future delays to the launch schedule from causes other than Thales, at agreed upon rates. Any portion of the $30.0 million remaining at the completion of the launch campaign will be forgiven. Liquidated damages owed to the Company from any future delays caused by Thales will remain payable in cash. Similarly, costs payable by the Company to Thales for non-Thales delays exceeding the $30.0 million will be payable in cash. Unless there are substantial future delays to the Iridium NEXT program, the Company expects this arrangement will result in no cash payments due to delays by either party.
Amendment 29 provides for the deferral of approximately $100.0 million in milestone payments by the Company under the FSD for milestones that the Company expects to be completed in 2017 and 2018. Under Amendment 29, the Company makes these milestone payments using bills of exchange due in March 2019, with interest at a specified base rate (LIBOR or SWAP, depending on the term of the bill of exchange) plus 1.4%, with the bills of exchange guaranteed by BPIAE.respectively. As of December 31, 2017,2023 and 2022, based upon over-the-counter bid levels (Level 2 - market approach), the milestone payments related tofair value of the Thales bills of exchange totaled an aggregate amount of $55.6borrowings under the Term Loan was $1,506.6 million including $0.7and$1,494.3 million, of deferred financing costs.respectively. The net balance of $54.9 million was recorded as long-term debt within other long-term liabilities inCompany had not borrowed under the accompanying condensed consolidated balance sheetRevolving Facility as of December 31, 2017. Amendment 29 also requires that2023 or 2022.
The Credit Agreement restricts the CompanyCompany’s ability to incur liens, engage in mergers or asset sales, pay Thales for the BPIAE premium on the guaranteedividends, repay subordinated indebtedness, incur indebtedness, make investments and loans, and engage in other transactions as specified in the amountCredit Agreement. The Credit Agreement provides for specified exceptions, including baskets measured as a percentage of $1.0 million
trailing twelve months of earnings before interest, taxes, depreciation and amortization (“EBITDA”) and unlimited exceptions in the case of incurring indebtedness and liens and making investments, dividend payments, and payments of subordinated indebtedness, based on achievement and maintenance of specified leverage ratios. The Credit Agreement also contains an annual mandatory prepayment sweep mechanism with respect to a portion of the Company’s excess cash at signing (which was recorded as original issue discount) plus 1.62%.
SpaceX
In March 2010,flow (as defined in the Company entered into an agreement with Space Exploration Technologies Corp. (“SpaceX”) to secure SpaceX as the primary launch services provider for Iridium NEXT (as amended to date, the “SpaceX Agreement”). The total price under the SpaceX Agreement for 7 launches and a reflight optionCredit Agreement) in the event of launch failure is $453.1 million. The SpaceX Falcon 9 rocket is configuredthe Company’s net leverage ratio rises above 3.5 to carry ten Iridium NEXT satellites to orbit for each of the initial seven launches. In November 2016, the Company entered into an agreement for an eighth launch with SpaceX to launch five spare satellites and share the launch services with GFZ German Research Centre for Geosciences (“GFZ”). The total price under the SpaceX Agreement for the eighth launch is $67.9 million. GFZ will pay Iridium $31.8 million to share the launch services to launch NASA’s two Gravity Recovery and Climate Experiment Follow-On satellites.1. As of December 31, 2017,2023, the Company made aggregate payments of $463.9 million to SpaceX, which were capitalized as construction in progress within propertywas below the specified leverage ratio and equipment, nettherefore no mandatory prepayment sweep was not required. The Credit Agreement permits repayment, prepayment and repricing transactions, subject, in the accompanying consolidated balance sheet. Additionally,case of the Term Loan, to a 1% penalty in the event the Term Loan is prepaid or repriced within the first six months from the refinancing date.
The Credit Agreement contains no financial maintenance covenants with respect to the Term Loan. With respect to the Revolving Facility, the Credit Agreement requires the Company received $28.6 million from GFZto maintain a consolidated first lien net leverage ratio (as defined in the Credit Agreement) of no greater than 6.25 to 1 if more than 35% of the Revolving Facility has been drawn. The Credit Agreement contains other customary representations and warranties, affirmative and negative covenants, and events of default. The Company was in compliance with all covenants as of December 31, 2017.2023.
KosmotrasInterest on Debt
In June 2011, theTotal interest incurred includes amortization of deferred financing fees and capitalized interest. The Company entered into an agreement with Kosmotras as a supplemental launch services provider for Iridium NEXT. The total cost under the Kosmotras agreement is $51.8 million. Kosmotras to date has been unable to obtain the permits or authorizations to launch the Company's satellites on a Dnepr rocket as planned, and Kosmotras has proposed no satisfactory alternative launch plan. Because the Company now believes the construction-in-progress associatedincurred third-party financing costs of $15.9 million in connection with the Kosmotras launch services will no longer be used or further developed,refinancing of the Company wrote-offTerm Loan in September 2023, of which $14.7 million was expensed. All third-party financing costs incurred during the full amount previously paid to Kosmotras, by recording accelerated depreciationyears ended December 31, 2022 and 2021 were expensed. All amounts expensed are included within interest expense on the consolidated statements of $36.8 million, in the fourth quarter of 2017.
Iridium NEXT Launchoperations and In-Orbit Insurance
comprehensive income (loss).
The Credit Facility requiresfollowing table presents the Company to obtain insurance covering the launchinterest and first 12 monthsamortization of operation of the Iridium NEXT satellites. The launch and in-orbit insurance the Company has obtained contains elements, consistent with the
terms of the Credit Facility, of self-insurance and deductibles, providing reimbursement only after a specified number of satellite failures. As a result, a failure of one or more of the Company’s satellites, or the occurrence of equipment failures and otherdeferred financing fees related problems, could constitute an uninsured loss or require the payment of additional premiums and could harm the Company’s financial condition. Furthermore, launch and in-orbit insurance does not cover lost revenue.
The total premium is $121.0 million and as of December 31, 2017, the Company had made aggregate premium payments of $77.8 million.
Unconditional Purchase Obligations
The Company has a manufacturing agreement with Benchmark. Pursuant to the agreement, the Company may be required to purchase certain materials if the materials are not used in production within the periods specified in the agreement. Benchmark will then repurchase such materials from the Company at the same price paid by the Company, as required for the production of the devices. As of December 31, 2017 and 2016, the Company had $4.0 million and $0.5 million, respectively, of such materials, and the amounts were included in inventory on the accompanying consolidated balance sheets.Term Loan:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (In thousands) |
Total interest incurred | | $ | 102,321 | | | $ | 72,090 | | | $ | 72,816 | |
Amortization of deferred financing fees | | $ | 3,958 | | | $ | 4,760 | | | $ | 4,316 | |
Capitalized interest | | $ | 5,086 | | | $ | 2,590 | | | $ | 2,146 | |
As of December 31, 2017,2023 and 2022, accrued interest under the aggregate unconditional purchase obligations were $45.4Term Loan was $1.0 million which includes the Company’s commitments with Boeing and Benchmark. The Boeing obligations (see Note 6) represent the new take-or-pay commitment with the execution of the DSA, which was met as of December 31, 2017 and final payment for the acquisition of the assembled workforce. The Company's obligation to Benchmark for the year ending December 31, 2018 is $9.2 million.$0.3 million, respectively.
In-Orbit Insurance
Due to various contractual requirements, the Company is required to maintain a third-party liability in-orbit insurance policy on its first-generation satellites with a de-orbiting endorsement to cover potential claims relating to operating or de-orbiting the satellite constellation or individual satellites. The policy covers the Company, Boeing as former operator, Motorola Solutions (the original system architect and prior owner), contractors and subcontractors of the insured, the U.S. government and certain other sovereign nations.
Total Debt
The current policy has a renewable one-year term, which is scheduled to expire on December 8, 2018. The policy coverage is separated into Sections A, B, and C.
Section A coverage is currently in effect and covers product liability over Motorola’s position as manufacturer of the first-generation satellites. Liability limits for claims under Section A are $1.0 billion per occurrence and in the aggregate. There is no deductible for claims.
Section B coverage is currently in effect and covers risks in connection with in-orbit satellites and for the de-orbit of individual satellites. Liability limits for claims under Section B are $500 million per occurrence and in the aggregate for space vehicle liability and $500 million and $1.0 billion per occurrence and in the aggregate, respectively,following table presents future minimum principal repayments with respect to de-orbiting. The balance of the unamortized premium payment for Sections A and B coverage as ofTerm Loan existing at December 31, 2017 is included in prepaid expenses and other current assets in the accompanying consolidated balance sheet. The deductible for claims under Section B is $250,000 per occurrence.
Section C coverage is effective once requested by the Company (the “Attachment Date”) and covers risks in connection with a mass decommissioning of the first-generation satellites. Liability limits for claims under Section C are $500 million and $1.0 billion per occurrence and in the aggregate, respectively. The term of the coverage under Section C is 12 months from the Attachment Date. The premium for Section C coverage is $2.5 million and is payable on or before the Attachment Date. As of December 31, 2017, the Company had not requested Section C coverage since no mass decommissioning activities are currently anticipated. The deductible for claims under Section C is $250,000 per occurrence.
Operating Leases
The Company leases land, office space, and office and computer equipment under noncancelable operating lease agreements. Most of the leases contain renewal options of 1 to 10 years. The Company’s obligations under the current terms of these leases extend through 2026.
Additionally, several of the Company’s leases contain clauses for rent escalation including, but not limited to, a pro-rata share of increased operating and real estate tax expenses. Rent expense is recognized on a straight-line basis over the lease term. The Company leases facilities located in Chandler, Arizona; Tempe, Arizona; McLean, Virginia; Lansdowne, Virginia; Canada;
Russia; and Norway. Future minimum lease payments,2023, by year and in the aggregate,aggregate:
| | | | | | | | |
Year ending December 31, | | Amount |
| | (In thousands) |
2024 | | $ | 15,000 | |
2025 | | 15,000 | |
2026 | | 15,000 | |
2027 | | 15,000 | |
2028 | | 15,000 | |
Thereafter | | 1,425,000 | |
Total debt commitments | | 1,500,000 | |
Less: Original issuance discount | | 17,510 | |
Less: Total short-term debt | | 15,000 | |
Total long-term debt, net | | $ | 1,467,490 | |
The repayment schedule above excludes future amounts that may be required to be prepaid pursuant to the excess cash flow sweep provision of the Credit Agreement, as those amounts are not determinable in advance.
8. Derivative Financial Instruments
The Company is exposed to interest rate fluctuations related to its Term Loan. The Company has reduced its exposure to fluctuations in the cash flows associated with changes in the variable interest rate by entering into offsetting positions through the use of interest rate hedges. This will reduce the negative impact of increases in the variable rate over the term of the derivative contracts. These contracts are not used for trading or other speculative purposes. Historically, the Company has not incurred, and does not expect to incur in the future, any losses as a result of counterparty default.
Hedge effectiveness of the current interest rate cap agreement (the “Cap”) is based on a long-haul hypothetical derivative methodology and includes all changes in value. The Company formally assesses, both at the hedge’s inception and on an ongoing quarterly basis, whether the designated derivative instruments are highly effective in offsetting changes in the cash flows of the hedged items. When the hedging instrument is sold, expires, is terminated, is exercised, no longer qualifies for hedge accounting, is designated, or is no longer probable, hedge accounting is discontinued prospectively.
Interest Rate Cap
In July 2021, the Company entered into the Cap, which had an effective date of December 2021 upon the expiration of the Company’s long-term interest rate swap (the “Swap”). The Cap manages the Company’s exposure to interest rate movements on a portion of the Term Loan through November 2026. In December 2022, the Company modified the Cap to replace the previous LIBOR base rate with SOFR and received a credit risk adjustment of 0.064%. The modified Cap provides the Company the right to receive payment from the counterparty if one-month SOFR exceeds 1.436%. Prior to the modification, the Company received payment under noncancelable operating leases atthe terms of the Cap if one-month LIBOR exceeded 1.5%. The Company pays a fixed monthly premium based on an annual rate of 0.31% for the Cap. The Cap carried a notional amount of $1.0 billion as of December 31, 2017,2023 and 2022.
The Cap, which was not affected by the refinancing of the Term Loan in September 2023, is designed to mirror the terms of the Term Loan and to offset the cash flows being hedged. The Company designated the Cap as a cash flow hedge of the variability of the SOFR-based rate interest payments on the Term Loan. The effective portion of the Cap’s change in fair value will be recorded in accumulated other comprehensive income (loss). Any ineffective portion of the Cap’s change in fair value will be recorded in current earnings as interest expense.
Interest Rate Swaps
In November 2019, the Company entered into the Swap which had a term through November 2021 and was intended to mitigate variability in forecasted interest payments on a portion of the Term Loan. On the last business day of each month, the Company received variable interest payments based on one-month LIBOR from the counterparty. The Company paid a fixed rate of 1.565% per annum on the notional amount of $1.0 billion on the Swap until its expiration in November 2021. The Company also entered into an interest rate swaption agreement (“Swaption”), for which the Company paid a fixed annual rate of 0.50% of the notional amount. At inception, the Swap and Swaption (collectively, the “swap contracts”) were designated as cash flow hedges for hedge accounting. The unrealized changes in market value were recorded in accumulated other comprehensive income (loss) and any remaining balance was reclassified into earnings during the period in which the hedged transaction affected earnings. Due to the changes made to the Term Loan as a result of the July 2021 repricing, at that time the Company elected to de-designate the Swap as a cash flow hedge. Accordingly, as the related interest payments were still probable, the accumulated balance within other comprehensive income (loss) as of the de-designation date was amortized into earnings through the November 2021 expiration date.
Fair Value of Derivative Instruments
As of December 31, 2023 and 2022, the Company had an asset balance of $66.5 million and $92.3 million, respectively, for the fair value of the Cap, and a liability balance of $8.4 million and $11.0 million, respectively, for the fair value of the Cap premium. Both the Cap and the Cap premium are as follows:recorded within other assets on the consolidated balance sheet.
|
| | | | |
Year ending December 31, | | Operating Leases |
| | (In thousands) |
2018 | | $ | 3,741 |
|
2019 | | 3,692 |
|
2020 | | 3,734 |
|
2021 | | 3,827 |
|
2022 | | 3,402 |
|
Thereafter | | 8,849 |
|
Total | | $ | 27,245 |
|
RentDuring the years ended December 31, 2023, 2022, and 2021 the Company collectively incurred $3.3 million, $3.3 million, and $8.5 million, respectively, in net interest expense for the Cap and Swap contracts. Interest expense was reduced by $36.2 million and $7.2 million for the years ended December 31, 2017, 20162023 and 2015 was $3.2 million, $3.1 million2022, respectively, for payments received related to the Cap. There were no such interest payments received for the year ended December 31, 2021. Gains and $3.4 million, respectively.
Contingencies
From timelosses resulting from fair value adjustments to time,the Cap are recorded within accumulated other comprehensive income within the Company’s consolidated balance sheet and reclassified to interest expense on the dates that interest payments become due. Cash flows related to the derivative contracts are included in cash flows from operating activities on the normal courseconsolidated statements of business,cash flows. Over the next 12 months, the Company is party to various pending legal claims and lawsuits. The Company is not aware ofexpects any actions that it expectsgains or losses for cash flow hedges amortized from accumulated other comprehensive income (loss) into earnings to have a material adversean immaterial impact on the Company’s consolidated financial statements.
The following table presents the amount of unrealized gain or loss and related tax impact associated with the derivative instruments that the Company recorded in its business, financial results or financial condition.consolidated statements of operations and comprehensive income (loss):
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (In thousands) |
Unrealized gain (loss), net of tax | | $ | (17,598) | | | $ | 58,668 | | | $ | 10,408 | |
Tax benefit (expense) | | $ | 5,379 | | | $ | (17,834) | | | $ | (3,316) | |
10.
9. Stock-Based Compensation
In May 2017,2023, the Company’s stockholders approved the amendment and restatement of the Company'sCompany’s 2015 Equity Incentive Plan (as so amended and restated, the “Amended 2015 Plan”), primarily to increase the number. As of shares available under the plan. As such, the Company registered an additional 5,199,239 shares of common stock made available for issuance pursuant to the Amended 2015 Plan, bringing the total to 28,402,248 shares. Through December 31, 2017,2023, the remaining aggregate number of shares of ourthe Company’s common stock available for future grants under the Amended 2015 Plan was 15,012,331.12,917,165. The Amended 2015 Plan provides for the grant of stock-based awards, including nonqualified stock options, incentive stock options, restricted stock, awardsrestricted stock units (“RSUs”), stock appreciation rights and other equity securities as incentives and rewards forto employees, consultants and non-employee directors of the Company and its affiliated entities. The number of shares of common stock available for issuance under the Amended 2015 Plan is reduced by (i) one share for each share of common stock issued pursuant to an appreciation award, such as a stock option or stock appreciation right with an exercise or strike price of at least 100% of the fair market value of the underlying common stock on the date of grant, and (ii) 1.8 shares for each share of common stock issued pursuant to any stock award that is not an appreciation award, also referred to as a “full value award.” The Amended 2015 Plan allows usthe Company to utilize a broad array of equity incentives and performance cash incentives in order to secure and retain the services of ourits employees, directors and consultants, and to provide long-term incentives that align the interests of ourits employees, directors and consultants with the interests of ourthe Company’s stockholders. The Company accounts for stock-based compensation at estimated fair value.
Restricted Stock Units
Each RSU represents the right to receive one share of common stock at a future date. Historically, RSUs granted to employees for service generally vested over four years, with 25% vesting on the first anniversary of the grant date and the remainder vesting ratably on a quarterly basis thereafter, subject to continued employment. Beginning with grants made in 2024, RSUs granted to employees for service will generally vest over three years, with 34% vesting on the first anniversary of the grant date and the remainder vesting ratably on a quarterly basis thereafter, subject to continued employment. Some RSUs granted to employees for performance vest upon the completion of defined performance goals, subject to continued employment. The RSUs granted to non-employee directors generally vest in full on the first anniversary of the grant date. The RSUs granted to non-employee consultants generally vest 50% on the first anniversary of the grant date, with the remaining 50% vesting quarterly thereafter through the second anniversary of the grant date. The Company’s RSUs are classified as equity awards because the RSUs will be settled in the Company’s common stock upon vesting. The fair value of RSUs is determined at the grant date based on the closing price of the Company’s common stock on the date of grant. The related compensation expense is recognized over the service period, or shorter periods based on the retirement eligibility of certain grantees, and is based on the grant date fair value of the Company’s common stock and the number of shares expected to vest. The fair value of the awards is not remeasured at the end of each reporting period. RSUs do not carry voting rights until the RSUs are vested, but certain unvested RSUs are entitled to accrue dividends, and shares are issued upon settlement in accordance with the terms of the award.
RSU Summary
The following table summarizes the Company’s RSU activity:
| | | | | | | | | | | | | | |
| | RSUs | | Weighted- Average Grant Date Fair Value Per RSU |
| | (In thousands) | | |
Outstanding at December 31, 2020 | | 2,664 | | | $ | 18.96 | |
Granted | | 913 | | | $ | 41.55 | |
Forfeited | | (115) | | | $ | 29.49 | |
Released | | (912) | | | $ | 21.12 | |
Outstanding at December 31, 2021 | | 2,550 | | | $ | 25.80 | |
Granted | | 1,562 | | | $ | 40.21 | |
Forfeited | | (152) | | | $ | 32.80 | |
Released | | (990) | | | $ | 30.05 | |
Outstanding at December 31, 2022 | | 2,970 | | | $ | 31.60 | |
Granted | | 1,184 | | | $ | 57.85 | |
Forfeited | | (76) | | | $ | 46.02 | |
Released | | (1,283) | | | $ | 36.02 | |
Outstanding at December 31, 2023 | | 2,795 | | | $ | 40.24 | |
Vested and unreleased at December 31, 2023 (1) | | 713 | | | |
(1) These RSUs were granted to the Company’s board of directors as a part of their compensation for board and committee service and had vested but had not yet settled, meaning that the underlying shares of common stock had not been issued and released.
As of December 31, 2023, the total unrecognized cost related to non-vested RSUs was approximately $42.6 million. This cost is expected to be recognized over a weighted-average period of 1.4 years. The Company recognized $57.5 million, $43.2 million and $26.0 million of stock-based compensation expense related to RSUs in the years ended December 31, 2023, 2022 and 2021, respectively.
Service-Based RSU Awards
The majority of the annual compensation the Company provides to non-employee members of its board of directors is paid in the form of RSUs. In addition, some members of the Company’s board of directors elect to receive their cash retainers, or a portion thereof, in the form of RSUs. An aggregate amount of approximately 55,000, 57,000 and 39,000 service-based RSUs were granted to the Company’s non-employee directors as a result of these payments and elections during the years ended December 31, 2023, 2022 and 2021, respectively, with an estimated grant date fair value of $2.9 million, $2.2 million and $1.6 million, respectively.
During the years ended December 31, 2023, 2022 and 2021, the Company granted approximately 746,000, 1,082,000 and 531,000 service-based RSUs, respectively, to its employees, with an estimated aggregate grant date fair value of $43.0 million, $44.2 million and $22.0 million, respectively.
During the years ended December 31, 2023, 2022 and 2021, the Company granted approximately 1,000, 7,000 and 2,000 service-based RSUs, respectively, to non-employee consultants, with an estimated grant date fair value of $0.1 million, $0.3 million and $0.1 million, respectively.
Performance-Based RSU Awards
In March 2023, 2022 and 2021, the Company awarded approximately 193,000, 248,000 and 228,000 performance-based RSUs, respectively, to the Company’s executives and employees (the “Bonus RSUs”), with an estimated grant date fair value of $11.9 million, $9.7 million and $9.5 million, respectively. Vesting of the Bonus RSUs is and was dependent upon the Company’s achievement of defined performance goals for the respective fiscal year in which the Bonus RSUs were granted. The Company
records stock-based compensation expense related to performance-based RSUs when it is considered probable that the performance conditions will be met. Management believes it is probable that substantially all of the 2023 Bonus RSUs will vest. The level of achievement, if any, of performance goals will be determined by the compensation committee of the Company’s board of directors and, if such goals are achieved, the 2023 Bonus RSUs will vest, subject to continued employment, in March 2024. Substantially all of the Bonus RSUs awarded in 2022 and 2021 vested in March 2023 and March 2022, respectively, upon the determination of the level of achievement of the respective performance goals.
Additionally, during 2023, 2022 and 2021, the Company awarded approximately 134,000, 167,000 and 110,000 performance-based RSUs, respectively, to the Company’s executives (the “Executive RSUs”). The estimated aggregate grant date fair value of the Executive RSUs for the 2023, 2022 and 2021 grants was $8.2 million, $6.5 million and $4.6 million, respectively. Vesting of the Executive RSUs is and was dependent upon the Company’s achievement of defined performance goals over a two-year period (the year of grant and the following year). The vesting of Executive RSUs will ultimately range from 0% to 150% of the number of shares underlying the Executive RSUs granted based on the level of achievement of the performance goals.
If the Company achieves the performance goals for the Executive RSUs at the end of the two-year performance period, 50% of the number of Executive RSUs earned based on performance will then vest on the second anniversary of the grant date, and the remaining 50% will then vest on the third anniversary of the grant date, in each case subject to the executive’s continued service as of the vesting date. In March 2023, the Company awarded approximately 55,000 additional shares related to performance-based RSUs granted to the Company’s executives for over-achievement of performance targets for the Executive RSUs with a performance period that ended December 31, 2022. In March 2022, the Company cancelled approximately 50,000 shares related to performance-based RSUs granted to the Company’s executives in 2020 for under-achievement of performance targets for the performance period that ended December 31, 2021. In March 2021, the Company awarded approximately 3,000 additional shares related to performance-based RSUs granted to the Company’s executives in 2019 for over-achievement of performance targets for the performance period that ended December 31, 2020.
Stock Option Awards
The Company last granted stock options in 2019. The stock option awards granted to employees generally (i) have a term of ten years, (ii) vest over a four-year periodfour years with 25% vesting after the first year of service and the remainder vesting ratably on a quarterly basis thereafter, (iii) are contingent upon employment on the vesting date, and (iv) have an exercise price equal to the fair market value of the underlying shares at the date of grant. The fair value of stock options was determined at the grant date using the Black-Scholes-Merton option pricing model.
The following table summarizes the Company’s stock option awards granted to the Company’s board of directors generally (i) represent a portion of their annual compensation, (ii) have a term of ten years, (iii) vest over the calendar year with 25% vesting on the last day of each calendar quarter, (iv) are contingent upon continued service on the vesting date, and (v) have an exercise price equal to theaward activity:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares | | Weighted- Average Exercise Price Per Share | | Weighted- Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
| | (In thousands, except years and per share data) |
Options outstanding at December 31, 2020 | | 2,554 | | | $ | 9.10 | | | 3.94 | | $ | 77,182 | |
Cancelled or expired | | (3) | | | 10.67 | | | | | |
Exercised | | (857) | | | 8.51 | | | | | $ | 31,544 | |
Forfeited | | (13) | | | 16.07 | | | | | |
Options outstanding at December 31, 2021 | | 1,681 | | | $ | 9.35 | | | 3.28 | | $ | 53,698 | |
Cancelled or expired | | (1) | | | 8.28 | | | | | |
Exercised | | (494) | | | 7.83 | | | | | $ | 18,992 | |
Forfeited | | (1) | | | 18.35 | | | | | |
Options outstanding at December 31, 2022 | | 1,185 | | | $ | 9.97 | | | 2.64 | | $ | 49,094 | |
Cancelled or expired | | (4) | | | 10.25 | | | | | |
Exercised | | (505) | | | 7.84 | | | | | $ | 26,928 | |
Options outstanding and exercisable at December 31, 2023 | | 676 | | | $ | 11.55 | | | 2.39 | | $ | 20,036 | |
The total fair value of the shares underlying shares at the date of grant.
Fair Value Determination
We have used the Black-Scholes-Merton option pricing model to determine fair value of our awards on the date of grant. We will reconsider the use of the Black-Scholes-Merton model if additional information becomes available in the futurestock options that indicates another model would be more appropriate or if grants issued in future periods have characteristics that cannot be reasonably estimated under this model.
The following weighted-average assumptions were used for option grantsvested during the years ended December 31, 2017, 20162022 and 2015:
Volatility - The expected volatility of the options granted2021 was estimated based upon historical volatility of our share price through daily observations of our trading history.
Expected life of options - The expected life of options granted to employees was determined from the simplified method.
Risk-free interest rate - The yield on zero-coupon U.S. Treasury strips was used to extrapolate a forward-yield curve. This “term structure” of future interest rates was then input into a numeric model to provide the equivalent risk-free rate to be used in the Black-Scholes-Merton model based on the expected term of the underlying grants.
Dividend yield - The Black-Scholes-Merton valuation model requires an expected dividend yield as an input. The Company does not anticipate paying dividends during the expected term of the grants; therefore, the dividend rate is assumed to be zero.
In 2017 and 2016, the Company granted stock options to newly hired and promoted employees only. In 2015, in addition to stock options granted to newly hired and promoted employees, non-employee consultants were granted stock options and certain members of the Company’s board of directors elected to receive a portion of their annual compensation in the form of stock options.
During 2017, 2016 and 2015, the Company granted approximately 209,000, 249,000 and 744,000 stock options, respectively, to its employees, with an estimated aggregate grant date fair value of $0.9 million, $0.9$0.6 million and $2.9$2.3 million, respectively.
During 2015, the Company granted approximately 111,000 and 30,000 stock options to its non-employee directors and consultants, respectively, with an estimated aggregate grant-date fair value of $0.4 million and $0.2 million, respectively.
The following table summarizes weighted-average assumptions used in our calculations of fair value:
|
| | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Expected volatility | 40% - 41% | | 40% - 42% | | 39% - 42% |
Expected term (years) | 6.25 | | 6.25 | | 6.25 |
Expected dividends | —% | | —% | | —% |
Risk free interest rate | 1.86% - 2.14% | | 1.15% - 2.45% | | 1.50% - 2.35% |
A summary of the activity of the Company’s stock options is as follows:
|
| | | | | | | | | | | | |
| Shares | | Weighted- Average Exercise Price Per Share | | Weighted- Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
| (In thousands, except years and per share data) |
Options outstanding at January 1, 2015 | 6,671 |
| | $ | 7.68 |
| | | | |
Granted | 885 |
| | 9.25 |
| | | | |
Cancelled or expired | (92 | ) | | 8.66 |
| | | | |
Exercised | (287 | ) | | 7.87 |
| | | | |
Forfeited | (57 | ) | | 7.81 |
| | | | |
Options outstanding at December 31, 2015 | 7,120 |
| | 7.86 |
| | 6.33 | | $ | 3,937 |
|
Granted | 249 |
| | 8.13 |
| | | | |
Cancelled or expired | (39 | ) | | 8.92 |
| | | | |
Exercised | (73 | ) | | 7.33 |
| | | | |
Forfeited | (55 | ) | | 7.62 |
| | | | |
Options outstanding at December 31, 2016 | 7,202 |
| | 7.87 |
| | 5.45 | | $ | 12,473 |
|
Granted | 209 |
| | 10.50 |
| | | | |
Cancelled or expired | (2 | ) | | 7.24 |
| | | | |
Exercised | (534 | ) | | 7.93 |
| | | | |
Forfeited | (19 | ) | | 9.13 |
| | | | |
Options outstanding at December 31, 2017 | 6,856 |
| | $ | 7.94 |
| | 4.63 | | $ | 26,459 |
|
Options exercisable at December 31, 2017 | 6,212 |
| | $ | 7.81 |
| | 4.27 | | $ | 24,760 |
|
Options exercisable and expected to vest at December 31, 2017 | 6,842 |
| | $ | 7.94 |
| | 4.63 | | $ | 26,425 |
|
The Company recognized $1.8 million, $2.5 million and $3.4 million of stock-based compensation expense related to stock options in the years ended December 31, 2017, 2016 and 2015, respectively.
The weighted-average grant date fair value of options granted during the years ended December 31, 2017, 2016 and 2015 was $4.51, $3.47 and $3.95 per share, respectively. The total fair value of the shares underlying stock options that vested during the year ended December 31, 2023 was immaterial.
10. Equity Transactions
Preferred Stock
The Company is authorized to issue 2.0 million shares of preferred stock with a par value of $0.0001 per share. The Company previously issued 1.5 million shares of preferred stock. The remaining 0.5 million authorized shares of preferred stock remain undesignated and unissued as of December 31, 2023 and 2022. As of December 31, 2023 and 2022, there were no outstanding shares of preferred stock, as all previously designated and issued preferred stock was converted into common stock in prior periods.
Dividends
Stockholders are entitled to receive, when and if declared by the Company’s Board of Directors from time to time, such dividends and other distributions in cash, stock or property from the Company’s assets or funds legally and contractually available for such purposes. In each of December 2022, May 2023, September 2023 and December 2023, the Company’s Board of Directors approved a dividend of $0.13 per share of common stock. The dividends, which were paid on March 30, June 30, September 29 and December 29, 2023 to stockholders of record as of March 15, June 15, September 15 and December 15, 2023, respectively, resulted in total payments of $64.8 million during 2023. The Company’s liability related to dividends on common stock was $1.3 million and $16.6 million as of December 31, 2023 and 2022, respectively.
Share Repurchase Program
Since February 2021, the Company’s Board of Directors has authorized the repurchase of up to $1,000.0 million of the Company’s common stock through December 31, 2025. This time frame can be extended or shortened by the Board of Directors. Repurchases may be made from time to time on the open market at prevailing prices or in negotiated transactions off the market. The Company records share repurchases at cost, which includes broker commissions and related excise taxes. All shares are immediately retired upon repurchase in accordance with the board-approved policy. When treasury shares are retired, the Company’s policy is to allocate the excess of the repurchase price over the par value of shares acquired first, to additional paid-in capital, and then to retained earnings/accumulated deficit. The portion to be allocated to additional paid-in capital is calculated by applying a percentage, determined by dividing the number of shares to be retired by the number of shares outstanding, to the balance of additional paid-in capital as of the date of retirement.
The Company repurchased and subsequently retired 4.8 million, 6.8 million and 4.3 million shares of its common stock during the years ended December 31, 2017, 20162023, 2022 and 2015 was $2.02021, respectively, for a total purchase price of $244.6 million, $2.9$257.0 million and $3.6$163.4 million, respectively.
Asrespectively, exclusive of December 31, 2017, the total unrecognized cost related to non-vested options was approximately $2.2 million. This cost is expected to be recognized over a weighted-average period$1.4 million of 2.1 years.
Restricted Stock Units
The RSUs granted to employees for service vest over a four-year period, with 25% vesting on the first anniversary of the grant date and the remainder vesting ratably on a quarterly basis thereafter. The RSUs granted to non-employee directors generally vest in full on the first anniversary of the grant date. The RSUs granted to non-employee consultants generally vest 50% on the first anniversary of the grant date and ratably on a quarterly basis through the second anniversary of the grant date. Performance-based RSUs vest upon the completion of defined performance goals, subject to continued employment. The Company’s RSUs are generally classified as equity awards because the RSUs will be paidexcise taxes incurred in the Company's common stock upon vesting. The related compensation expense is recognized over the service period and is based on the grant date fair value of the Company's common stock and the number of shares expected to vest. The awards are not remeasured at the end of each reporting period. The awards do not carry voting rights until they are vested and released in accordance with the specified vesting terms of each award as stated in the grant notifications for each RSU.
Service-Based Awards
During the yearsyear ended December 31, 2017, 2016 and 2015, the Company granted approximately 964,000, 573,000 and 596,000 service-based RSUs, respectively, to its employees,2023, with an estimated grant date fair value of $8.5 million, $4.0 million and $5.6 million, respectively.
Certain members of the Company’s board of directors elect to receive a portion of their annual compensation in the form of RSUs. An aggregate amount of approximately 96,000, 126,000 and 15,000 service-based RSUs were granted to its directors as a result of these elections during the years ended December 31, 2017, 2016 and 2015, respectively, with an estimated grant date fair value of $1.0 million, $1.0 million and $0.1 million, respectively.
In June 2017 and June 2016, the Company granted approximately 8,000 and 35,000 RSUs to non-employee consultants with an estimated grant date fair value of $0.1 million and $0.3 million, respectively.
Performance-Based Awards
In March 2017 and March 2016, the Company awarded approximately 1,190,000 and 1,335,000 performance-based RSUs, respectively, to the Company’s executives and employees (the “Bonus RSUs”), with an estimated grant date fair value of $10.5 million and $9.4 million, respectively. Vesting of the March 2017 and March 2016 Bonus RSUs is and was dependent upon the Company’s achievement of defined performance goals over the respective fiscal year. The Company records stock-based compensation expense related to performance-based RSUs when it is considered probable that the performance conditions will be met. Management believes it is probable that certain of the March 2017 Bonus RSUs will vest. The level of achievement, if any, of performance goals will be determined by the compensation committee of the Company’s board of directors and, ifno such goals are achieved, the March 2017 Bonus RSUs will vest, subject to continued employment, in March 2018. A portion of the March 2016 Bonus RSUs vested in March 2017 upon the determination of the level of achievement of the performance goals.
Additionally, during 2017, 2016 and 2015, the Company awarded approximately 173,000, 119,000 and 161,000 performance-based RSUs, respectively, to the Company’s executives (the “Performance RSUs”). The estimated aggregate grant date fair values of the Performance RSUs granted in 2017, 2016 and 2015 was $1.5 million, $0.8 million and $1.5 million, respectively. Vesting of each Performance RSU award is and was dependent upon the Company’s achievement of defined performance goals over a two-year period. Management believes it is probable that the Performance RSUs will vest at least in part. The vesting of Performance RSUs will ultimately range from 0% to 150% of the number of shares underlying the Performance RSU grant based on the level of achievement of the performance goals. If the Company achieves the performance goals, 50% of the Performance RSUs will vest on the second anniversary of the grant date and the remaining 50% will vest on the third anniversary of the grant date, in each case, subject to the executives continued service as of the vesting date. Approximately 54,000 of the March 2015 Performance RSUs vested and were released in March 2017 at an estimated aggregate fair value of $0.5 million, and the remaining 54,000 will vest in March 2018.
Award Summary
A summary of the Company’s activity for outstanding RSUs is as follows:
|
| | | | | | |
| RSUs | | Weighted- Average Grant Date Fair Value Per RSU |
| (In thousands) | | |
Outstanding at January 1, 2015 | 2,282 |
| | $ | 6.80 |
|
Granted | 834 |
| | 9.42 |
|
Forfeited | (193 | ) | | 7.18 |
|
Released | (979 | ) | | 7.06 |
|
Outstanding at December 31, 2015 | 1,944 |
| | 7.76 |
|
Granted | 2,297 |
| | 7.09 |
|
Forfeited | (152 | ) | | 7.44 |
|
Released | (766 | ) | | 7.36 |
|
Outstanding at December 31, 2016 | 3,323 |
| | 7.40 |
|
Granted | 2,431 |
| | 8.89 |
|
Forfeited | (203 | ) | | 8.42 |
|
Released | (2,003 | ) | | 7.16 |
|
Outstanding at December 31, 2017 | 3,548 |
| | 8.50 |
|
Vested and unreleased at December 31, 2017 (1) | 521 |
| | |
|
| |
(1)
| These RSUs were granted to the Company's board of directors as a part of their compensation for board and committee service and had vested but had not yet been issued and released. |
As of December 31, 2017, the total unrecognized cost related to non-vested RSUs was approximately $8.3 million. This cost is expected to be recognized over a weighted-average period of 1.25 years. The Company recognized $17.0 million, $13.5 million and $6.3 million of stock-based compensation expense related to RSUstaxes incurred in the years ended December 31, 2017, 20162022 and 2015,2021, respectively.
11. Segments, Significant Customers, Supplier In addition, in December 2023, the Company purchased 26,000 shares for $1.0 million, which were settled and Service Providers and Geographic Information
The Company operatesretired in one business segment, providing global satellite communications services and products.
The Company derived approximately 24%, 25% and 23%January 2024. As such, these shares are recorded as treasury stock as of the Company’s total revenue in the years ended December 31, 2017, 2016 and 2015, respectively, from prime contracts or subcontracts with agencies of the U.S. government. For the years ended December 31, 2017, 2016 and 2015, no single commercial customer accounted for more than 10% of the Company’s total revenue.
Approximately 35% and 32% of the Company’s accounts receivable balance at December 31, 2017 and 2016, respectively, was due from prime contracts or subcontracts with agencies of the U.S. government.2023. As of December 31, 20172023, $334.0 million remained available and 2016, no single commercial customer accountedauthorized for more than 10%repurchase under this program.
11. Revenue
The following table summarizes the Company’s services revenue:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (In thousands) |
| | | | | | |
Commercial services: | | | | | | |
Voice and data | | $ | 219,242 | | | $ | 193,112 | | | $ | 175,584 | |
IoT data | | 141,036 | | | 125,015 | | | 110,919 | |
Broadband | | 57,878 | | | 51,143 | | | 42,990 | |
Hosted payload and other data | | 60,298 | | | 59,451 | | | 58,611 | |
Total commercial services | | 478,454 | | | 428,721 | | | 388,104 | |
Government services | | 106,000 | | | 106,000 | | | 103,887 | |
Total services | | $ | 584,454 | | | $ | 534,721 | | | $ | 491,991 | |
The following table summarizes the Company’s engineering and support services revenue:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (In thousands) |
| | | | | | |
Commercial | | $ | 11,050 | | | $ | 7,833 | | | $ | 4,613 | |
Government | | 90,083 | | | 43,766 | | | 25,825 | |
Total | | $ | 101,133 | | | $ | 51,599 | | | $ | 30,438 | |
The Company’s contracts with customers generally do not contain performance obligations with terms in excess of one year. As such, the Company does not disclose details related to the value of performance obligations that are unsatisfied as of the Company’send of the reporting period. The total value of any performance obligations that extend beyond a year is immaterial to the financial statements. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, balance.
unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the consolidated balance sheets. The Company contracts for the manufacturebills amounts under its agreed-upon contractual terms at periodic intervals (for services), upon shipment (for equipment), or upon achievement of its subscriber equipment primarily from one manufacturercontractual milestones or as work progresses (for engineering and utilizes other sole source suppliers for certain component parts of its devices. Should events or circumstances prevent the manufacturer or the suppliers from producing the equipment or component parts, the Company’s business could be adversely affected until the Company is ablesupport services). Billing may occur subsequent to move production to other facilities of the manufacturer or secure a replacement manufacturer or an alternative supplier for such component parts.
Net property and equipment by geographic area was as follows:
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
| (In thousands) |
United States | $ | 165,337 |
| | $ | 124,483 |
|
Satellites in orbit | 926,090 |
| | 13,405 |
|
Iridium NEXT systems under construction | 2,088,380 |
| | 2,639,824 |
|
All others (1) | 30,355 |
| | 35,372 |
|
Total | $ | 3,210,162 |
| | $ | 2,813,084 |
|
| |
(1)
| No single country in this group represented more than 10% of property and equipment, net. |
Revenue by geographic area was as follows:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| | | (In thousands) | | |
United States | $ | 229,741 |
| | $ | 226,190 |
| | $ | 204,777 |
|
Canada | 44,107 |
| | 42,373 |
| | 42,063 |
|
United Kingdom | 46,245 |
| | 47,135 |
| | 44,012 |
|
Other countries (1) | 127,953 |
| | 117,942 |
| | 120,526 |
|
Total | $ | 448,046 |
| | $ | 433,640 |
| | $ | 411,378 |
|
| |
(1)
| No single country in this group represented more than 10% of revenue. |
Revenue is attributed to geographic area based on the billing address of the distributor. Service location and the billing address are often not the same. The Company’s distributors sell services directly or indirectly to end users, who may be located or use the Company’s products and services elsewhere.revenue recognition, resulting in unbilled accounts receivable (contract assets). The Company cannot provide the geographical distribution of end users because it does not contract directly with them.may also receive payments from customers before revenue is recognized, resulting in deferred revenue (contract liabilities). The Company is exposed to foreign currency exchange fluctuationsrecognized revenue that was previously recorded as foreign currency exchange rate movements create a degree of risk by affecting the U.S. dollar value of sales made and costs incurred in foreign currencies.
12. Employee Benefit Plan
The Company sponsors a defined-contribution 401(k) retirement plan (the “Plan”) that covers all employees. Employees are eligible to participatedeferred revenue in the Plan on the first dayamounts of the month following the date of hire, and participants are 100% vested from the date of eligibility. The Company matches employees’ contributions equal to 100% of the salary deferral contributions up to 5% of the employees’ eligible compensation each pay period. Company-matching contributions to the Plan were $2.5$31.4 million, $1.3$26.3 million and $1.5$43.0 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively. The Company pays all administrative fees relatedhas also recorded costs of obtaining contracts expected to be recovered in prepaid expenses and other current assets (contract assets or commissions), that are not separately disclosed on the Plan.consolidated balance sheets. The commissions are recognized over the estimated usage period. The following table presents contract assets not separately disclosed:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | | 2022 |
| | (In thousands) |
Contract Assets: | | | | |
Commissions | | $ | 1,114 | | | $ | 1,258 | |
Other contract costs | | $ | 1,970 | | | $ | 2,255 | |
12. Income Taxes
The following table presents U.S. and foreign components of income (loss) before income taxes are presented below:taxes:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| | | (In thousands) | | |
U.S. income | $ | 120,281 |
| | $ | 176,448 |
| | $ | 75,431 |
|
Foreign income (loss) | (709 | ) | | 1,717 |
| | (2,316 | ) |
Total income before income taxes | $ | 119,572 |
| | $ | 178,165 |
| | $ | 73,115 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| | | (In thousands) | | |
| | | | | |
U.S. income (loss) | $ | (10,596) | | | $ | 10,179 | | | $ | (31,352) | |
Foreign income | 5,849 | | | 331 | | | 2,464 | |
Total income (loss) before income taxes | $ | (4,747) | | | $ | 10,510 | | | $ | (28,888) | |
The following table summarizes the components of the Company’s income tax provision were as follows:provision:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| | | (In thousands) | | |
| | | | | |
Current taxes: | | | | | |
Federal tax benefit | $ | — | | | $ | — | | | $ | (537) | |
State tax expense | 1,032 | | | 272 | | | 42 | |
Foreign tax expense | 4,545 | | | 1,209 | | | 2,240 | |
Total current tax (benefit) expense | 5,577 | | | 1,481 | | | 1,745 | |
Deferred taxes: | | | | | |
Federal tax benefit | (31,311) | | | (3,354) | | | (14,109) | |
State tax expense (benefit) | (226) | | | 1,794 | | | (6,686) | |
Foreign tax expense (benefit) | (291) | | | 371 | | | (519) | |
Total deferred tax benefit | (31,828) | | | (1,189) | | | (21,314) | |
Total income tax expense (benefit) | $ | (26,251) | | | $ | 292 | | | $ | (19,569) | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| | | (In thousands) | | |
Current taxes: | |
| | |
| | |
|
Federal tax expense | $ | 13 |
| | $ | 1,206 |
| | $ | 1,700 |
|
State tax expense | 422 |
| | 978 |
| | 266 |
|
Foreign tax expense | 863 |
| | 1,141 |
| | 650 |
|
Total current tax expense | 1,298 |
| | 3,325 |
| | 2,616 |
|
Deferred taxes: | |
| | |
| | |
|
Federal tax expense (benefit) | (110,811 | ) | | 60,295 |
| | 54,906 |
|
State tax expense (benefit) | (4,851 | ) | | 3,454 |
| | 8,803 |
|
Foreign tax expense (benefit) | 80 |
| | 59 |
| | (333 | ) |
Total deferred tax expense (benefit) | (115,582 | ) | | 63,808 |
| | 63,376 |
|
Total income tax expense (benefit) | $ | (114,284 | ) | | $ | 67,133 |
| | $ | 65,992 |
|
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.
The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations whenfollowing table presents a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. SAB 118 is effective for reporting periods that include December 22, 2017. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in its financial statements as of December 31, 2017. As the Company collects and prepares the necessary data, and interprets the Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, it may make adjustments to the provisional amounts. Those adjustments may materially impact the Company's provision for income taxes and effective tax rate in the period in which the adjustments are made. The accounting for the tax effects of the Tax Act will be completed in 2018.
The Company has recorded a net tax benefit of $154.5 million in the fourth quarter of 2017, which includes its provisional estimate of the impact of the Tax Act on its financial statements. Further detail on specific provisions are included below.
Remeasurement of deferred tax assets/liabilities: In the fourth quarter of 2017, the Company recorded a provisional net deferred tax benefit of $150.9 million related to the remeasurement of certain deferred tax assets and liabilities as of December 31, 2017. The Company remeasured those deferred tax assets and liabilities at 21%, because this is the rate at which it expects these items to reverse. Although the tax rate reduction is known, the Company has not collected the necessary data to complete its analysis of the effect of the Tax Act on the underlying deferred taxes, and, as such, the amounts recorded as of December 31, 2017 are provisional.
Deemed Repatriation of Certain Foreign Subsidiary Earnings: The Tax Act requires the Company to increase its U.S. taxable income for the mandatory deemed repatriation on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining untaxed earnings. The Company recorded a provisional amount for this one-time taxable income amount of $2.3 million, with a provisional estimated deferred tax asset associated with foreign taxes paid on those earnings of $0.8 million. The Company has recorded provisional amounts based on estimates of the effects of the Tax Act, since a more detailed analysis of historical foreign earnings as well as potential correlative adjustments is required.
In 2011 and 2012, Arizona enacted tax law changes resulting in a benefit to the Company’s net deferred tax expense. Due to the size and nature of the Company’s operations in Arizona, such changes have a significant impact on the tax provision in a given period. As a result of these law changes, the Company’s deferred tax expense was reduced by approximately $10.2 million and
$3.0 million for the years ended December 31, 2017 and 2016, respectively, and increased by approximately $0.1 million for the year ended December 31, 2015.
A reconciliation of the U.S. federal statutory income tax expense to the Company’s effective income tax provision is as follows:provision. Any amounts that do not have a meaningful impact on this reconciliation are not separately disclosed.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| | | (In thousands) | | |
| | | | | |
Expected tax expense (benefit) at U.S. federal statutory tax rate | $ | (997) | | | $ | 1,893 | | | $ | (6,067) | |
State taxes, net of federal benefit | 927 | | | 1,260 | | | (9,094) | |
State tax valuation allowance | (338) | | | 748 | | | 711 | |
Deferred impact of state tax law changes and elections | — | | | — | | | 1,200 | |
Equity-based compensation | (10,234) | | | (6,184) | | | (9,597) | |
Limitation on executive compensation deduction | 4,011 | | | 2,905 | | | 3,140 | |
Other nondeductible items | 114 | | | 33 | | | 65 | |
Tax credits | (21,817) | | | (949) | | | (1,278) | |
Foreign taxes | 3,570 | | | 386 | | | 1,100 | |
Other adjustments | (1,487) | | | 200 | | | 251 | |
Total income tax expense (benefit) | $ | (26,251) | | | $ | 292 | | | $ | (19,569) | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| | | (In thousands) | | |
Expected tax expense at U.S. federal statutory tax rate | $ | 41,850 |
| | $ | 62,309 |
| | $ | 25,590 |
|
State taxes, net of federal benefit | 5,133 |
| | 9,757 |
| | 11,663 |
|
State tax valuation allowance | 582 |
| | (2,710 | ) | | (2,763 | ) |
Deferred impact of Arizona tax law changes and elections | (10,217 | ) | | (2,962 | ) | | 99 |
|
Tax Act - deferred tax effects | (150,903 | ) | | — |
| | — |
|
Impairment of goodwill | — |
| | — |
| | 30,464 |
|
Other nondeductible expenses | (841 | ) | | 596 |
| | 557 |
|
Tax credits | (528 | ) | | (442 | ) | | (97 | ) |
Foreign taxes and other items | 640 |
| | 585 |
| | 479 |
|
Total income tax expense (benefit) | $ | (114,284 | ) | | $ | 67,133 |
| | $ | 65,992 |
|
The following table presents the components of deferred tax assets and liabilities are as follows:liabilities:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (In thousands) |
Deferred tax assets | | | |
Long-term contracts | $ | 51,226 | | | $ | 52,553 | |
Federal, state and foreign net operating losses, other carryforwards and tax credits | 351,094 | | | 374,767 | |
Other | 26,676 | | | 24,553 | |
Total deferred tax assets | 428,996 | | | 451,873 | |
Valuation allowance | (33,420) | | | (34,643) | |
Net deferred tax assets | 395,576 | | | 417,230 | |
Deferred tax liabilities | | | |
Fixed assets, intangibles and research and development expenditures | (425,980) | | | (490,384) | |
Investment in joint venture | (63,108) | | | (48,754) | |
Other | (19,336) | | | (27,976) | |
Total deferred tax liabilities | (508,424) | | | (567,114) | |
Net deferred income tax liabilities | $ | (112,848) | | | $ | (149,884) | |
|
| | | | | | | |
| As of December 31, |
| 2017 | | 2016 |
| (In thousands) |
Deferred tax assets | |
| | |
|
Long-term contracts | $ | 61,358 |
| | $ | 74,720 |
|
Federal, state and foreign net operating loss carryforwards and tax credits | 107,566 |
| | 60,667 |
|
Other | 22,680 |
| | 34,330 |
|
Total deferred tax assets | 191,604 |
| | 169,717 |
|
Valuation allowance | (3,815 | ) | | (2,825 | ) |
Net deferred tax assets | 187,789 |
| | 166,892 |
|
Deferred tax liabilities | |
| | |
|
Fixed assets, intangibles and research and development expenditures | (403,545 | ) | | (513,905 | ) |
Investment in joint venture | (27,796 | ) | | (14,643 | ) |
Other | (2,276 | ) | | — |
|
Total deferred tax liabilities | (433,617 | ) | | (528,548 | ) |
Net deferred income tax liabilities | $ | (245,828 | ) | | $ | (361,656 | ) |
Pursuant to ASC 740, the Company nets deferred tax assets and liabilities within the same jurisdiction. As of December 31, 2017,2023, the Company had a net deferred tax asset of $0.3$1.8 million that is included in other assets on the balance sheet and a net deferred tax liability of $246.2$114.6 million.
The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In assessing the likelihood of realization, management considers: (i) future reversals of existing taxable temporary differences; (ii) future taxable income exclusive of reversing temporary differences and carryforwards; (iii) taxable income in prior carryback year(s) if carryback is permitted under applicable tax law; and (iv) tax planning strategies.
The Company had deferred tax assets related to cumulative U.S. federal net operating loss carryforwards and interest expense carryforwards of approximately $80.5$257.4 million and $42.9$296.4 million as of December 31, 2023 and 2022, respectively. The 2017 and 2016, respectively. TheseU.S. federal net operating loss carryforwards,carryforward, if unutilized,not utilized, will expire in various amounts from 2031 through 2037. The Company believes that the 2017 U.S. federal net operating losses will be utilized before the expiration datesdate and, as such, no valuation allowance has been established for thesethis deferred
tax assets.asset. U.S. federal net operating loss carryforwards for 2018 and thereafter and interest expense carryforwards do not expire. The Company had deferred tax assets related to the state net operating loss carryforwards of approximately $10.9$59.2 million and $4.1$60.0 million as of December 31, 20172023 and 2016,2022, respectively, thatsome of which expire from 2025 through 2037.as early as 2025. The Company does not expect to fully utilize all of its state net operating losses within the respective carryforward periods and as such reflects a partial valuation allowance of $0.7$33.0 million and $33.3 million as of December 31, 20172023 and 2022, respectively, against these deferred tax assets on its consolidated balance sheet.sheets. The Company had deferred tax assets related to the foreign net operating loss carryforwards of approximately $1.3$0.5 million and $1.2$0.7 million, as of December 31, 20172023 and 2016,2022, respectively, that begin to expire in 2022.do not expire. The Company does not expect to fully utilize all of its foreign net operating losses within the respective carryforward periods and asperiods. As such, reflectsthe Company had recorded a partial valuation allowance of $0.2 million and $0.4 million as of December 31, 2023 and 2022, respectively, against these deferred tax assets on its consolidated balance sheet.sheets. The timing and manner in which the Company will utilize the net operating loss carryforwards in any year, or in total, may be limited in the future as a result of alternative minimum taxes, changes in the Company’s ownership and any limitations imposed by the jurisdictions in which the Company operates.
The Company hashad approximately $6.1$32.3 million and $5.0$12.1 million of deferred tax assets related to research and development tax credits as of December 31, 20172023 and 2016,2022, respectively, that expire in various amounts from 20272029 through 2037.2043. As of December 31, 2023, the Company established a reserve of approximately $2.4 million on its estimate of R&D credits. The Company hashad approximately $4.7$8.7 million and $3.5$5.2 million of deferred tax assets related to foreign tax credits as of December 31, 20172023 and 2016,2022, respectively, that expire in various amounts from 2020 through 2027. The Company has $3.8 million and $3.4 million of deferred tax assets related to Alternative Minimum Tax credits as of December 31, 2017 and 2016, respectively which do not expire. Under the Tax Act, the Alternative Minimum Tax credits will convert to refunds if not used as a credit. The Company believes that the research and development credits will be fully utilized within the carryforward period. However,2033. Previously, the Company doesdid not expect to utilize all of its foreign tax credits, within the respective carryforward periods. As such,resulting in the Company hasrecording a partial valuation allowance of $1.1$0.5 million as of December 31, 2017, which2022. There is unchanged fromno valuation allowance on foreign tax credits as of December 31, 2016.2023.
The Company has provided for U.S. income taxes on all undistributed earnings of its significant foreign subsidiaries since the
Company does not indefinitely reinvest these undistributed earnings. The Company measures deferred tax assets and liabilities
using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The Company recognizes the effect on deferred tax assets and liabilities of a change in tax rates in income
in the period that includes the enactment date.
Uncertain Income Tax Positions
The Company is subject to income taxes in the U.S. and various state and foreign jurisdictions. Significant judgment is required
in evaluating tax positions and determining the provision for income taxes. The Company establishes liabilities for tax-related
uncertainties based on estimates of whether, and the extent to which, additional taxes may be due. These liabilities are
established when the Company believes that certain positions might be challenged despite its belief that its tax return positions
are fully supportable. The Company adjusts these liabilities in light of changing facts and circumstances, such as the outcome of
a tax audit. The provision for income taxes includes the impact of changes to these liabilities.
The amount ofCompany had unrecognized tax benefits was $1.0of approximately $2.4 million and $0.9 million atas of December 31, 2017 and 2016, respectively.2023 primarily due to additional U.S. tax credits from prior periods. There were no unrecognized tax benefits as of December 31, 2022. Any changes in the next twelve months are not anticipated to have a significant impact on the results of operations, financial position or cash flows of the Company. All of the Company’s uncertain tax positions, if recognized, would affect its income tax expense.
The Company has elected an accounting policy to classify interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 20172023 and 2016, potential2022, there were no interest and penalties on unrecognized tax benefits. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits were not significant.which includes related interest and penalties:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 |
| (In thousands) |
Balance at January 1, | $ | — | | | $ | — | |
Change attributable to tax positions taken in a prior period | 2,162 | | | — | |
Change attributable to tax positions taken in the current period | 236 | | | — | |
Balance at December 31, | $ | 2,398 | | | $ | — | |
The Company is subject to tax audits in all jurisdictions for which it files tax returns. Tax audits by their very nature are often complex and can require several years to complete. Currently, there are no U.S. federal, state or foreign jurisdiction tax audits pending. The Company’s corporate U.S. federal and state tax returns from 20102011 to 20162022 remain subject to examination by tax authorities and the Company’s foreign tax returns from 20092017 to 20162022 remain subject to examination by tax authorities.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits which includes related interest and penalties:
|
| | | | | | | |
| 2017 | | 2016 |
| (In thousands) |
Balance at January 1, | $ | 920 |
| | $ | 916 |
|
Change attributable to tax positions taken in a prior period | 146 |
| | 25 |
|
Change attributable to final assessment | (27 | ) | | — |
|
Change attributable to tax positions taken in the current period | 10 |
| | 8 |
|
Decrease attributable to lapse of statute of limitations | (3 | ) | | (29 | ) |
Balance at December 31, | $ | 1,046 |
| | $ | 920 |
|
14.13. Net Income (Loss) Per Share
The Company calculates basic net income (loss) per common share by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. DilutedIn periods of net income, diluted net income per share takes into account the effect of potentialpotentially dilutive common shares when the effect is dilutive. The effect of potentialPotentially dilutive common shares includinginclude (i) shares of common stock issuable upon exercise of outstanding stock options and (ii) shares underlying RSUs that are contingently issuable upon achievement of certain service and performance requirements. The effect of potentially dilutive common shares is computed using the treasury stock method. The effect of potential dilutive common shares from the conversion of outstanding convertible preferred securities is computed using the as-if converted method at the stated conversion rate. The RSUs granted to members of the Company’s board of directors contain non-forfeitable rights to dividends and therefore are considered to be participating securities in periods of net income. As a result, the calculation of basic and diluted net income (loss) per share excludes net income (loss) attributable to the unvested RSUs granted to the Company’s board of directors from the numerator and excludes the impact of the unvested RSUs granted to the Company’s board of directors from the denominator.
The following table summarizes the computations of basic and diluted net income (loss)loss per share are set forth below:common share:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| (In thousands, except per share data) |
Numerator: | | | | | |
Net income (loss) attributable to common stockholders - basic and diluted | $ | 15,415 | | | $ | 8,722 | | | $ | (9,319) | |
| | | | | |
Denominator: | | | | | |
Weighted average common shares - basic | 125,598 | | | 128,255 | | | 133,530 | |
Weighted average common shares - diluted | 127,215 | | | 130,134 | | | 133,530 | |
| | | | | |
Net income (loss) attributable to common stockholders per share - basic and diluted | $ | 0.12 | | | $ | 0.07 | | | $ | (0.07) | |
| | | | | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (In thousands, except per share data) |
Numerator: | |
| | |
| | |
|
Net income (loss) attributable to common stockholders (numerator for basic net income per share) | $ | 218,420 |
| | $ | 95,596 |
| | $ | (8,313 | ) |
Net (income) loss allocated to participating securities | (215 | ) | | (123 | ) | | 3 |
|
Numerator for basic net income (loss) per share | 218,205 |
| | 95,473 |
| | (8,310 | ) |
Dividends on Series A preferred stock, declared and undeclared | 7,000 |
| | 7,000 |
| | — |
|
Dividends on Series B preferred stock, declared and undeclared | 8,436 |
| | 8,436 |
| | — |
|
Numerator for diluted net income (loss) per share | $ | 233,641 |
| | $ | 110,909 |
| | $ | (8,310 | ) |
| | | | | |
Denominator: Denominator for basic net income (loss) per share - weighted average outstanding common shares | 97,934 |
| | 95,967 |
| | 95,097 |
|
Dilutive effect of stock options | 1,558 |
| | 250 |
| | — |
|
Dilutive effect of Performance RSUs | 1,308 |
| | 1,328 |
| | — |
|
Dilutive effect of Series A preferred stock | 10,602 |
| | 10,602 |
| | — |
|
Dilutive effect of Series B preferred stock | 16,728 |
| | 16,728 |
| | — |
|
Denominator for diluted net income (loss) per share | 128,130 |
| | 124,875 |
| | 95,097 |
|
| | | | | |
Net income (loss) per share attributable to common stockholders - basic | $ | 2.23 |
| | $ | 1.00 |
| | $ | (0.09 | ) |
Net income (loss) per share attributable to common stockholders - diluted | $ | 1.82 |
| | $ | 0.89 |
| | $ | (0.09 | ) |
For the year ended December 31, 2017, $5.3 million and $6.3 million in cumulative unpaid dividends to holders of the Series A Preferred Stock and Series B Preferred Stock, respectively, were not declared as a result of all cash dividends being suspended in connection with the amendments to the Credit Facility described in Note 5, but such amounts were deducted to arrive at net income attributable to common stockholders. For the year ended December 31, 2017, 2.12022, 0.2 million unvested service-based RSUs were excluded from the computation of basic net income per share and not included in the computation of diluted net income per share, as the effect would be anti-dilutive, and 0.2 million unvested performance-based RSUs were not included in the computation of basic and diluted net income per share, as certain performance criteria have not been satisfied.
For There were no such shares for the year ended December 31, 2016, options to purchase 3.2 million shares of common stock were not included in the computation of diluted net income per share, as the effect would be anti-dilutive, and 1.4 million unvested service-based RSUs were excluded from the computation of basic net income per share and not included in the computation of diluted net income per share, as the effect would be anti-dilutive.2023.
For the year ended December 31, 2015, 1.3 million unvested service-based RSUs were not included in the computation of basic net loss per share. Due to the Company’s net loss position for the year ended December 31, 2015,2021 all potential common stock equivalents were anti-dilutive.
15. Selected Quarterly Information (Unaudited)
anti-dilutive and therefore excluded from the calculation of diluted net loss per share.
The following representstable presents the incremental number of shares underlying stock options and RSUs outstanding with anti-dilutive effects:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (In thousands) |
Performance-based RSUs | | — | | | 210 | | | 183 | |
Service-based RSUs | | — | | | — | | | 536 | |
Stock options | | — | | | — | | | 1,189 | |
14. Related Party Transactions
Aireon LLC and Aireon Holdings LLC
The Company’s satellite constellation hosts the Aireon® system. The Aireon system was developed by Aireon LLC, which the Company formed in 2011 and which received subsequent investments from several air navigation service providers (“ANSPs”) to provide a global air traffic surveillance service through a series of automatic dependent surveillance-broadcast (“ADS-B”) receivers on the Company’s unaudited quarterly results:satellites. Aireon has contracted to offer this service to ANSPs, which use the service to provide improved air traffic control services over the oceans, as well as polar and remote regions. Aireon also markets its data and services to airlines and other commercial users. The Company and the other Aireon investors hold their interests in Aireon Holdings LLC (“Aireon Holdings”) through an amended and restated LLC agreement (the “Aireon Holdings LLC Agreement”). Aireon Holdings holds 100% of the membership interests in Aireon, which is the operating entity.
In June 2022, the Company entered into a subscription agreement with Aireon Holdings and invested $50.0 million in exchange for an approximate 6% preferred membership interest. The Company’s investment in Aireon Holdings is accounted for as an equity method investment. The carrying value of the Company’s investment in Aireon Holdings was $44.6 million and $48.8 million as of December 31, 2023 and 2022, respectively. The investments by the Company prior to June 2022 had previously been written down to a carrying value of zero.
At each of December 31, 2023 and 2022, the Company’s fully diluted ownership stake in Aireon Holdings was approximately 39.5%, which is subject to partial future redemption under provisions contained in the Aireon Holdings LLC Agreement.
Under the agreements with Aireon, Aireon will pay the Company fees of $200.0 million to host the ADS-B receivers, of which $94.5 million had been paid as of December 31, 2023. These fees are recognized over the estimated useful lives of the satellites, which is expected to result in revenue of approximately $9.3 million, following the change in estimate of the useful lives of the satellites that occurred in the fourth quarter of 2023. The Company recognized $14.4 million of hosting fee revenue under the Hosting Agreement for the year ended December 31, 2023 and $16.1 million of hosting fee revenue for the years ended December 31, 2022 and 2021. There were no receivables due under the Hosting Agreement as of December 31, 2023 and 2022.
Additionally, Aireon pays power and data services fees of approximately $23.5 million per year, in the aggregate for the delivery of the air traffic surveillance data over the Iridium system. The Company recorded $23.5 million of power and data service fee revenue from Aireon for each of the years ended December 31, 2023, 2022 and 2021.
During the year ended December 31, 2023, the Company recorded other income of $3.5 million related to a contractual settlement with Aireon. This is a one-time payment that is not expected to recur.
Under two services agreements, the Company also provides Aireon with administrative services and support services, the fees for which are paid monthly. Aireon receivables due to the Company under these two agreements totaled $2.2 million at each of December 31, 2023 and 2022.
The Company and the other Aireon investors have agreed to participate pro rata, based on their respective fully diluted ownership stakes, in funding an investor bridge loan to Aireon. The Company’s maximum commitment under the investor bridge loan is $11.9 million. No bridge loan amounts were outstanding as of December 31, 2023 or 2022.
Satelles
In the first quarter of 2023, the Company entered into a stock purchase agreement with Satelles, Inc. (“Satelles”) and invested $10.0 million, in addition to its previous equity investment in Satelles. The Company’s fully diluted ownership stake in Satelles was approximately 19.5% as of December 31, 2023, and the investment in Satelles is now accounted for as an equity method investment. The carrying value of the Company’s investment in Satelles was approximately $21.8 million as of December 31, 2023.
15. Segments, Significant Customers, Supplier and Service Providers and Geographic Information
The Company operates in one business segment, providing global satellite communications services and products.
The Company derived approximately 25%, 21% and 21% of its total revenue in the years ended December 31, 2023, 2022 and 2021, respectively, from prime contracts or subcontracts with agencies of the U.S. government. For the years ended December 31, 2023, 2022 and 2021, no single commercial customer accounted for more than 10% of the Company’s total revenue.
Approximately 46% and 25% of the Company’s accounts receivable balance at December 31, 2023 and 2022, respectively, was due from prime contracts or subcontracts with agencies of the U.S. government. As of December 31, 2023 and 2022, no single commercial customer accounted for more than 10% of the Company’s total accounts receivable balance.
The Company contracts for the manufacture of its subscriber equipment primarily from a limited number of manufacturers and utilizes other sole source suppliers for certain component parts of its devices. Should events or circumstances prevent the manufacturer or the suppliers from producing the equipment or component parts, the Company’s business could be adversely affected until the Company is able to move production to other facilities of the manufacturer or secure a replacement manufacturer or an alternative supplier for such component parts.
The following table summarizes net property and equipment by geographic area:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (In thousands) |
| | | |
United States | $ | 412,002 | | | $ | 461,820 | |
Satellites in orbit | 1,782,000 | | | 1,968,999 | |
All others | 1,756 | | | 2,486 | |
Total | $ | 2,195,758 | | | $ | 2,433,305 | |
The following table summarizes revenue by geographic area:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| | | (In thousands) | | |
United States | $ | 431,476 | | | $ | 374,687 | | | $ | 330,948 | |
Other countries (1) | 359,247 | | | 346,347 | | | 283,552 | |
Total | $ | 790,723 | | | $ | 721,034 | | | $ | 614,500 | |
(1)No single country in this group represented more than 10% of revenue. |
| | | | | | | | | | | | | | | |
| Quarter Ended |
| March 31, 2017 | | June 30, 2017 | | September 30, 2017 | | December 31, 2017 |
| (In thousands, except per share data) |
Revenue | $ | 104,426 |
| | $ | 111,604 |
| | $ | 116,547 |
| | $ | 115,469 |
|
Operating income (loss) (1) | $ | 55,602 |
| | $ | 35,742 |
| | $ | 38,082 |
| | $ | (13,950 | ) |
Net income (2) | $ | 37,948 |
| | $ | 24,778 |
| | $ | 29,253 |
| | $ | 141,877 |
|
Net income per common share - basic | $ | 0.35 |
| | $ | 0.21 |
| | $ | 0.26 |
| | $ | 1.40 |
|
Net income per common share -diluted | $ | 0.30 |
| | $ | 0.20 |
| | $ | 0.23 |
| | $ | 1.10 |
|
| |
(1)
| Includes accelerated depreciation of $36.8 million in the fourth quarter of 2017 associated with the write-off of the full amount previously paid to Kosmotras which decreased operating income. Also includes the impact of $14.2 million related to the gain on the transaction with Boeing, effective January 3, 2017. |
| |
(2)
| Includes the impact of provisional estimates related to deferred tax assets and liabilities resulting from the Tax Act implemented in December 2017. |
|
| | | | | | | | | | | | | | | |
| Quarter Ended |
| March 31, 2016 | | June 30, 2016 | | September 30, 2016 | | December 31, 2016 |
| (In thousands, except per share data) |
Revenue | $ | 104,202 |
| | $ | 109,195 |
| | $ | 112,794 |
| | $ | 107,449 |
|
Operating income | $ | 43,278 |
| | $ | 41,729 |
| | $ | 49,768 |
| | $ | 41,596 |
|
Net income | $ | 28,520 |
| | $ | 26,854 |
| | $ | 31,555 |
| | $ | 24,103 |
|
Net income per common share - basic | $ | 0.26 |
| | $ | 0.24 |
| | $ | 0.29 |
| | $ | 0.21 |
|
Net income per common share -diluted | $ | 0.23 |
| | $ | 0.22 |
| | $ | 0.26 |
| | $ | 0.19 |
|
Revenue is attributed to geographic area based on the billing address of the distributor. Service location and the billing address are often not the same. The Company’s distributors sell services directly or indirectly to end users, who may be located or use the Company’s products and services elsewhere. The Company does not know the geographical distribution of end users because it does not contract directly with them.
The sumCompany is exposed to foreign currency exchange fluctuations from sales made and costs incurred in foreign currencies.
16. Employee Benefit Plan
The Company sponsors a defined-contribution 401(k) retirement plan (the “Plan”) that covers all employees. Employees are eligible to participate in the Plan on the first day of the month following the date of hire, and participants are 100% vested from the date of eligibility. The Company matches employees’ contributions equal to 100% of the salary deferral contributions up to 5% of the employees’ eligible compensation each pay period. The Company’s matching contributions to the Plan were $4.3 million, $3.5 million and $3.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.
17. Subsequent Event
On February 2, 2024, the Company’s Board of Directors approved a dividend of $0.13 per share amounts does not equal the annual amounts duepayable on March 29, 2024, to changes in the weighted-average numberstockholders of common shares outstanding during the year.record as of March 15, 2024.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in RuleRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this report. In evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.
Based on this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Such internal control includes those policies and procedures that:
•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of our company;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of our company; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017.2023. In making this assessment, our management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on its assessment, our management has determined that, as of December 31, 2017,2023, our internal control over financial reporting was effective based on those criteriacriteria.
Our independent registered public accounting firm, Ernst & YoungKPMG LLP, has audited our 20172023 financial statements. Ernst & YoungKPMG LLP was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders, the Board of Directors and committees of the Board. Ernst & YoungKPMG LLP has issued an unqualified report on our 20172023 financial statements as a result of the audit and also has issued an unqualified report on our internal controls over financial reporting which is attached hereto.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2017,2023, there were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Ernst and Young LLP, Independent Registered Public Accounting Firm
TheTo the Stockholders and the Board of Directors and Stockholders of
Iridium Communications Inc.:
Opinion on Internal Control overOver Financial Reporting
We have audited Iridium Communications Inc.’s and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control-IntegratedControl – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).Commission. In our opinion, Iridium Communications Inc. (the Company)the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO criteria.Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheetssheet of Iridium Communications Inc.the Company as of December 31, 20172023 and 2016,December 31, 2022, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the periodthen ended, December 31, 2017 and the related notes (collectively, the consolidated financial statements), and our report dated February 22, 201815, 2024 expressed an unqualified report thereon.opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, andrisk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
DefinitionsDefinition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & YoungKPMG LLP
Tysons,McLean, Virginia
February 22, 201815, 2024
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
We will file a definitive Proxy Statement for our 20182024 Annual Meeting of Stockholders (the “2018“2024 Proxy Statement”) with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted as permitted by General Instruction G (3) to Form 10-K. Only those sections of the 20182024 Proxy Statement that specifically address the items set forth herein are incorporated by reference.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated by reference to the sections of our 20182024 Proxy Statement entitled “Board of Directors and Committees,” “Election of Directors,” “Management” and “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance.Reports.”
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to the sections of our 20182024 Proxy Statement entitled “Compensation Discussion and Analysis,” “Executive Compensation” and “Director Compensation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated by reference to the sections of our 20182024 Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation Plans.”
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to the sections of our 20182024 Proxy Statement entitled “Transactions with Related Parties” and “Director Independence.”
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated by reference to the section of our 20182024 Proxy Statement entitled “Independent Registered Public Accounting Firm Fees.”
PART IV
Item 15. Exhibits, and Financial Statement Schedules
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements
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Iridium Communications Inc.: | |
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(2) Financial Statement Schedules
The financial statement schedules are not included here because required information is included in the consolidated financial statements.
(3) Exhibits
The following list of exhibits includes exhibits submitted with this Form 10-K as filed with the Securities and Exchange Commission.
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Exhibit No. | | Document |
3.1 | | |
Exhibit No. | | Document |
3.1 | | |
3.2 | | |
3.3 | | |
3.4 | | |
3.53.3 | | |
4.1 | | |
10.1†4.2 | | Supplemental Agreement dated asDescription of July 26, 2017 between Iridium Satellite LLC and Société Générale, as BPIAE Agent, amending and restating the Second Amended and Restated BPIAE (formerly COFACE) Facility Agreement among Iridium Satellite LLC,Registrant’s securities registered pursuant to Section 12 of the Registrant, Iridium Holdings LLC, SE Licensing LLC, Iridium Carrier Holdings LLC, Iridium Carrier Services LLC, Syncom-Iridium Holdings Corp., Iridium Constellation LLC and Iridium Government Services LLC; Deutsche Bank AG (Paris Branch), Banco Santander SA, Société Générale, Natixis, Mediobanca International (Luxembourg) S.A., BNP Paribas, Crédit Industriel et Commercial, Intesa Sanpaolo S.p.A. (Paris Branch) and Unicredit Bank Austria AG; Deutsche Bank Trust Company Americas as the security agent and U.S. collateral agent; and Société Générale as the BPIAE agent, dated asSecurities Exchange Act of October 4, 2010,1934, as amended, and restated on August 1, 2012 and May 2, 2014, and as further amended on May 7, 2015, November 24, 2015, December 31, 2015, February 24, 2016, July 18, 2016 and February 10, 2017, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on October 26, 2017. |
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Exhibit No. | | Document |
10.2 | | Security Agreement, dated as of October 13, 2010, between the Registrant, Iridium Satellite LLC, Iridium Holdings LLC, Iridium Carrier Holdings LLC, Iridium Carrier Services LLC, SE Licensing LLC, Iridium Government Services LLC, Iridium Constellation LLC, Syncom-Iridium Holdings Corp. and Deutsche Bank Trust Company Americas, acting as Security Agent, incorporated by reference to Exhibit 10.24.2 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 7, 2011.February 25, 2020. |
10.1# | | Amendment and Restatement Agreement, dated September 20, 2023, among Iridium Holdings LLC, Iridium Communications Inc., Iridium Satellite LLC, Various Lenders, and Deutsche Bank AG New York Branch, as Administrative Agent and Collateral Agent, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 20, 2023. |
10.2 | | Security Agreement dated November 4, 2019 among Iridium Carrier Holdings LLC, Iridium Carrier Services LLC, Iridium Constellation LLC, Iridium Government Services LLC, Iridium Holdings LLC, Iridium Satellite LLC, and Deutsche Bank AG New York Branch, as Collateral Agent, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 4, 2019. |
10.3 | | PledgeGuaranty Agreement dated as of October 13, 2010, between the Registrant, Syncom-IridiumNovember 4, 2019 among Iridium Holdings Corp.,LLC, Iridium HoldingsSatellite LLC, Iridium Carrier Holdings LLC, Iridium SatelliteCarrier Services LLC, Iridium Constellation LLC, Iridium Government Services LLC, and Deutsche Bank Trust Company Americas, actingAG New York Branch, as SecurityAdministrative Agent, incorporated by reference to Exhibit 10.3 to the Registrant’s AnnualCurrent Report on Form 10-K8-K filed with the SEC on March 7, 2011.November 4, 2019. |
10.4 | | |
10.5† | | |
10.6 | | |
10.7† | | |
10.8† | | |
10.9 | | |
10.10 | | |
10.11 | | |
10.12† | | |
10.13† | | |
10.14 | | |
10.15 | | |
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Exhibit No. | | Document |
10.1610.5 | | |
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10.6† | | |
Exhibit No. | | Document |
10.17† | | |
10.1810.7 | | |
10.19†10.8† | | |
10.20† | | |
10.21† | | |
10.22† | | |
10.23† | | |
10.24† | | |
10.25†10.9 | | |
10.26† | | |
10.27† | | |
10.28† | | |
10.29† | | |
10.30† | | |
10.31† | | |
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Exhibit No. | | Document |
10.32† | | |
10.33† | | |
10.34† | | |
10.35† | | |
10.36† | | |
10.37† | | |
10.38† | | |
10.39† | | |
10.40† | | |
10.41† | | |
10.42† | | |
10.43† | | |
10.44† | | |
10.45† | | |
10.46† | | |
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Exhibit No. | | Document |
10.47† | | |
10.48†† | | |
10.49†† | | |
10.50† | | |
10.51† | | |
10.52† | | |
10.53† | | |
10.54 | | |
10.55† | | |
10.56† | | |
10.57†† | | |
10.58† | | |
10.59 | | |
10.60† | | |
10.61 | | |
10.62 | | |
10.63 | | |
10.64† | | |
10.65† | | |
10.66 | | |
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10.10 | | |
Exhibit No. | | Document |
10.67† | | |
10.68*10.11* | | |
10.69*10.12* | | |
10.70*10.13* | | |
10.71*10.14* | | |
10.72*10.15* | | |
10.73* | | |
10.74*10.16* | | |
10.75*10.17 | | |
10.76 | | |
10.77*10.18* | | |
10.78* | | |
10.79* | | |
10.80*10.19* | | |
10.81*10.20* | | |
10.82* | | |
10.83* | | |
10.84* | | |
10.85*10.21* | | |
10.86*10.22* | | |
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10.23* | | |
Exhibit No. | | Document |
10.87* | | |
10.88*10.24* | | |
10.89*10.25* | | |
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Exhibit No. | | Document |
10.90*10.26* | | |
10.91*10.27* | | |
10.92*10.28* | | |
10.93*10.29* | | |
10.94*10.30* | | |
10.95*10.31* | | |
10.96*10.32* | | |
10.97*10.33* | | |
10.98*10.34* | | |
21.116.1 | | |
21.1 | | |
23.1 | | |
23.2 | | |
31.1 | | |
31.2 | | |
32.132.1** | | |
101.INS97.1 | | |
101.INS | | XBRL Instance Document |
101.SCH | | XBRL Taxonomy Extension Schema |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
101.LAB | | XBRL Taxonomy Extension Label Linkbase |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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† | Confidential treatment has been granted for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission. |
95
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†† | Confidential treatment has been requested for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission. |
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* | Denotes compensatory plan, contract or arrangement. |
# Exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K and will be furnished on a supplemental basis to the Securities and Exchange Commission upon request.
† Certain confidential portions of this exhibit, marked by asterisks, were omitted because the identified confidential portions are (i) not material and (ii) the type that the registrant treats as private or confidential.
* Denotes management contract or compensatory plan or arrangement.
** These certifications are being furnished solely to accompany this Annual Report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Item 16.Form 10-K Summary
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| IRIDIUM COMMUNICATIONS INC. |
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Date: February 22, 201815, 2024 | By: | /s/ Thomas J. Fitzpatrick |
| | Thomas J. Fitzpatrick |
| | Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
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Name | | Title | | Date |
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Name | | Title | | Date |
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/s/ Matthew J. Desch | | Chief Executive Officer and Director | | February 22, 201815, 2024 |
Matthew J. Desch | | (Principal Executive Officer) | | |
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/s/ Thomas J. Fitzpatrick | | Chief Financial Officer, Chief Administrative Officer and Director | | February 22, 201815, 2024 |
Thomas J. Fitzpatrick | | (Principal Financial Officer) | | |
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/s/ Timothy P. Kapalka | | Vice President and Corporate Controller,Chief Accounting Officer, Iridium Satellite LLC | | February 22, 201815, 2024 |
Timothy P. Kapalka | | (Principal Accounting Officer) | | |
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/s/Robert H. Niehaus | | Director and Chairman of the Board | | February 22, 201815, 2024 |
Robert H. Niehaus | | | | |
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/s/ Thomas C. Canfield | | Director | | February 22, 201815, 2024 |
Thomas C. Canfield | | | | |
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/s/ L. Anthony Frazier | | Director | | February 15, 2024 |
L. Anthony Frazier | | | | |
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/s/ Jane L. Harman | | Director | | February 22, 201815, 2024 |
Jane L. Harman | | | | |
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/s/ Alvin B. Krongard | | Director | | February 22, 201815, 2024 |
Alvin B. Krongard | | | | |
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/s/ Suzanne E. McBride | | Chief Operations Officer and Director | | | February 15, 2024 |
Suzanne E. McBride | | | | |
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/s/ Eric T. Olson | | Director | | February 22, 201815, 2024 |
Eric T. Olson | | | | |
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/s/ Kay N. Sears | | Director | | February 15, 2024 |
Kay N. Sears | | | | |
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/s/ Steven B. PfeifferJacqueline E. Yeaney | | Director | | February 22, 201815, 2024 |
Steven B. PfeifferJacqueline E. Yeaney | | | | |
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/s/ Parker W. Rush | | Director | | February 22, 2018 |
Parker W. Rush | | | | |
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/s/ Henrik O. Schliemann | | Director | | February 22, 2018 |
Henrik O. Schliemann | | | | |
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/s/ S. Scott Smith | | Director | | February 22, 2018 |
S. Scott Smith | | | | |
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/s/ Barry J. West | | Director | | February 22, 2018 |
Barry J. West | | | | |