UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, ~~2019~~2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-33963

Iridium Communications Inc.

(Exact name of registrant as specified in its charter)



DE		26-1344998
(State or other jurisdiction of ~~incorporation)~~ incorporation or organization)		(I.R.S. Employer Identification No.)

~~1750 Tysons Boulevard, Suite 1400~~
~~McLean,~~	VA		~~22102~~
~~(Address of principal executive offices)~~			~~(Zip~~

1750 Tysons Boulevard, Suite 1400, McLean, VA22102

(Address of principal executive offices, including zip code)

703-287-7400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:



Title of ~~each class~~Each Class	Trading Symbol	Name of ~~each exchange~~Each Exchange on ~~which registered~~Which Registered
Common Stock, $0.001 par value	IRDM	The Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically ~~on its corporate Web site, if any,~~ every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~



Large Accelerated Filer	x	Accelerated Filer	¨
Non-Accelerated Filer	¨	Smaller Reporting Company	¨
		Emerging Growth Company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of July ~~18, 2019~~22, 2020 was ~~130,821,482.~~132,526,785.

IRIDIUM COMMUNICATIONS INC.

TABLE OF CONTENTS



Item No.		Page

Part I. Financial Information

	Financial Statements:

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~Loss	4

	Condensed Consolidated Statements of Changes in Stockholders’ Equity	5

	Condensed Consolidated Statements of Cash Flows	6

	Notes to Condensed Consolidated Financial Statements	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1817

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	3028

ITEM 4.	Controls and Procedures	3028

Part II. Other Information

ITEM 1.	Legal Proceedings	3129

ITEM 1A.	Risk Factors	3129

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3132

ITEM 3.	Defaults Upon Senior Securities	3132

ITEM 4.	Mine Safety Disclosures	3132

ITEM 5.	Other Information	3132

ITEM 6.	Exhibits	3233

	Signatures	3334

PART I.

Iridium Communications Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	175,846		$	273,352		$	119,115		$	223,561
Accounts receivable, net	91,628			71,210			60,397			68,697
Inventory	37,256			27,538			37,331			39,938
Prepaid expenses and other current assets	16,011			18,284			12,466			10,739
Total current assets	320,741			390,384			229,309			342,935
Property and equipment, net	3,303,700			3,370,855			3,046,062			3,180,799
Restricted cash and cash equivalents	194,129			191,935
Intangible assets, net	47,748			48,540			46,268			46,977
Other assets	50,739			12,557			52,215			52,846
Total assets	$	3,917,057		$	4,014,271		$	3,373,854		$	3,623,557
Liabilities and stockholders' equity
Liabilities and stockholders’ equity
Current liabilities:
Short-term credit facility	$	171,000		$	126,000
Short-term secured debt							$	16,500		$	10,875
Accounts payable	12,492			12,869			8,519			6,713
Accrued expenses and other current liabilities	33,717			56,990			38,407			49,293
Interest payable	28,130			29,431			247			7,790
Deferred revenue	39,556			37,429			38,269			39,080
Total current liabilities	284,895			262,719			101,942			113,751
Long-term credit facility, net	1,390,848			1,478,739
Long-term secured debt, net							1,603,624			1,412,501
Long-term senior unsecured notes, net	351,966			350,998			—			352,994
Deferred income tax liabilities, net	223,681			241,422			170,970			188,653
Deferred revenue, net of current portion	63,380			74,656			54,073			67,092
Other long-term liabilities	29,336			4,160			34,085			29,284
Total liabilities	2,344,106			2,412,694			1,964,694			2,164,275

Commitments and contingencies

Stockholders' equity:
Series B preferred stock, $0.0001 par value, 500 shares authorized; zero and 497 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	—			—
Common stock, $0.001 par value, 300,000 shares authorized; 130,820 and 112,200 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	131			112
Stockholders’ equity:
Common stock, $0.001 par value, 300,000 shares authorized; 132,526 and 131,632 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively							133			132
Additional paid-in capital	1,121,613			1,108,550			1,141,744			1,134,048
Retained earnings	457,838			501,712			287,845			331,969
Accumulated other comprehensive loss, net of tax	(6,631		)	(8,797		)	(20,562		)	(6,867		)
Total stockholders' equity	1,572,951			1,601,577
Total liabilities and stockholders' equity	$	3,917,057		$	4,014,271
Total stockholders’ equity							1,409,160			1,459,282
Total liabilities and stockholders’ equity							$	3,373,854		$	3,623,557

See notes to unaudited condensed consolidated financial statements.

Iridium Communications Inc.

Condensed Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~Loss

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Revenue:
Services	$	110,797		$	103,966		$	217,748		$	193,708		$	113,350		$	110,797		$	229,325		$	217,748
Subscriber equipment	23,420			25,865			44,428			51,647			19,815			23,420			42,078			44,428
Engineering and support services	8,883			5,100			14,609			8,724			7,008			8,883			14,057			14,609
Total revenue	143,100			134,931			276,785			254,079			140,173			143,100			285,460			276,785

Operating expenses:
Cost of services (exclusive of depreciation and amortization)	25,607			22,644			48,128			41,596			23,134			25,607			45,112			48,128
Cost of subscriber equipment	13,370			15,619			25,801			30,833			12,069			13,370			24,343			25,801
Research and development	4,285			5,566			7,896			10,149			2,380			4,285			4,824			7,896
Selling, general and administrative	20,969			24,266			44,810			46,761			21,100			20,969			41,925			44,810
Depreciation and amortization	75,128			50,491			148,042			88,956			75,662			75,128			151,606			148,042
Total operating expenses	139,359			118,586			274,677			218,295			134,345			139,359			267,810			274,677
Operating income	3,741			16,345			2,108			35,784			5,828			3,741			17,650			2,108

Other expense, net:
Interest expense, net	(28,986		)	(12,985		)	(54,790		)	(17,150		)	(22,506		)	(28,986		)	(48,950		)	(54,583		)
Loss on extinguishment of debt													—			—			(30,209		)	(207		)
Other income (expense), net	(626		)	65			(952		)	102			(320		)	(626		)	127			(952		)
Total other expense, net	(29,612		)	(12,920		)	(55,742		)	(17,048		)	(22,826		)	(29,612		)	(79,032		)	(55,742		)
Income (loss) before income taxes	(25,871		)	3,425			(53,634		)	18,736
Income tax benefit (expense)	7,765			(7,843		)	17,504			(11,682		)
Net income (loss)	(18,106		)	(4,418		)	(36,130		)	7,054
Series A preferred stock dividends, declared and paid excluding cumulative dividends	—			—			—			1,750
Loss before income taxes													(16,998		)	(25,871		)	(61,382		)	(53,634		)
Income tax benefit													4,576			7,765			17,258			17,504
Net loss													(12,422		)	(18,106		)	(44,124		)	(36,130		)
Series B preferred stock dividends, declared and paid excluding cumulative dividends	2,097			—			4,194			2,109			—			2,097			—			4,194
Series B preferred stock dividends, undeclared	—			2,109			—			2,109
Net income (loss) attributable to common stockholders	$	(20,203	)	$	(6,527	)	$	(40,324	)	$	1,086
Weighted average shares outstanding - basic	123,315			111,111			118,282			105,927
Weighted average shares outstanding - diluted	123,315			111,111			118,282			109,405
Net income (loss) attributable to common stockholders per share - basic	$	(0.16	)	$	(0.06	)	$	(0.34	)	$	0.01
Net income (loss) attributable to common stockholders per share - diluted	$	(0.16	)	$	(0.06	)	$	(0.34	)	$	0.01
Comprehensive income (loss):
Net income (loss)	$	(18,106	)	$	(4,418	)	$	(36,130	)	$	7,054
Net loss attributable to common stockholders													$	(12,422	)	$	(20,203	)	$	(44,124	)	$	(40,324	)
Weighted average shares outstanding - basic and diluted													133,118			123,315			132,882			118,282
Net loss attributable to common stockholders per share - basic and diluted													$	(0.09	)	$	(0.16	)	$	(0.33	)	$	(0.34	)
Comprehensive loss:
Net loss													$	(12,422	)	$	(18,106	)	$	(44,124	)	$	(36,130	)
Foreign currency translation adjustments, net of tax	1,440			(3,003		)	2,166			(2,911		)	1,093			1,441			(2,893		)	2,166
Unrealized gain on marketable securities, net of tax	—			55			—			42
Comprehensive income (loss)	$	(16,666	)	$	(7,366	)	$	(33,964	)	$	4,185
Unrealized gain (loss) on cash flow hedges, net of tax (see Note 6)													1,086			—			(10,802		)	—
Comprehensive loss													$	(10,243	)	$	(16,665	)	$	(57,819	)	$	(33,964	)

See notes to unaudited condensed consolidated financial statements.

Iridium Communications Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except per share amounts)

(Unaudited)

Six Months Ended June 30,
2019 2018
Total stockholders' equity, beginning balances $ 1,601,577
$ 1,596,469

Common stock:
Beginning balances 112
98
Stock options exercised and awards vested 2
2
Preferred stock converted to common stock 17
11
Ending balances 131
111

Additional paid-in capital:
Beginning balances 1,108,550
1,081,373
Stock-based compensation 8,136
8,272
Stock options exercised and awards vested 8,786
2,994
Stock withheld to cover employee taxes (3,842 ) (1,512 )
Preferred stock converted to common stock (17 ) (11 )
Ending balances 1,121,613
1,091,116

Retained earnings:
Beginning balances 501,712
518,794
Net income (loss) (36,130 ) 7,054
Dividends on Series A preferred stock —
(6,999 )
Dividends on Series B preferred stock (7,744 ) (8,437 )
Changes from adoption of ASC 606, net of tax —
11,738
Ending balances 457,838
522,150

Accumulated other comprehensive loss, net of tax:
Beginning balances (8,797 ) (3,796 )
Cumulative translation adjustments, net of tax 2,166
(2,910 )
Unrealized loss on marketable securities, net of tax —
42
Ending balances (6,631 ) (6,664 )

Total stockholders' equity, ending balances $ 1,572,951
$ 1,606,713

Dividends declared per share

Series A preferred stock $ —
$ 7.00
Series B preferred stock $ 16.88
$ 16.88



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019

Total stockholders’ equity, beginning balance	$	1,413,793		$	1,586,699		$	1,459,282		$	1,601,577

Common stock:
Beginning balance	132			113			132			112
Stock options exercised and awards vested	1			1			1			2
Preferred stock converted to common	—			17			—			17
Ending balance	133			131			133			131

Additional paid-in capital:
Beginning balance	1,136,135			1,110,970			1,134,048			1,108,550
Stock-based compensation	4,541			4,356			8,641			8,136
Stock options exercised and awards vested	1,440			6,660			2,611			8,786
Stock withheld to cover employee taxes	(372		)	(356		)	(3,556		)	(3,842		)
Preferred stock converted to common	—			(17		)	—			(17		)
Ending balance	1,141,744			1,121,613			1,141,744			1,121,613

Retained earnings:
Beginning balance	300,267			483,688			331,969			501,712
Net loss	(12,422		)	(18,106		)	(44,124		)	(36,130		)
Dividends on Series B preferred stock	—			(7,744		)	—			(7,744		)
Ending balance	287,845			457,838			287,845			457,838

Accumulated other comprehensive loss, net of tax:
Beginning balance	(22,741		)	(8,072		)	(6,867		)	(8,797		)
Cumulative translation adjustments, net of tax	1,093			1,441			(2,893		)	2,166
Unrealized gain (loss) on cash flow hedge, net of tax	1,086			—			(10,802		)	—
Ending balance	(20,562		)	(6,631		)	(20,562		)	(6,631		)

Total stockholders’ equity, ending balance	$	1,409,160		$	1,572,951		$	1,409,160		$	1,572,951

Dividends declared per share:
Series B preferred stock	$	—		$	16.88		$	—		$	16.88

See notes to unaudited condensed consolidated financial statements.

Iridium Communications Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Cash flows from operating activities:
Net income (loss)	$	(36,130	)	$	7,054
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net loss							$	(44,124	)	$	(36,130	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred income taxes	(17,741		)	10,927			(17,683		)	(17,741		)
Depreciation and amortization	148,042			88,956			151,606			148,042
Loss on extinguishment of debt and Thales Alenia Space bills of exchange	—			3,981
Loss on extinguishment of debt							30,209			207
Stock-based compensation (net of amounts capitalized)	7,390			7,130			7,795			7,390
Amortization of deferred financing fees	10,029			2,316			1,799			10,029
All other items, net	166			(145		)	593			166
Changes in operating assets and liabilities:
Accounts receivable	(20,403		)	(8,718		)	7,098			(20,403		)
Inventory	(9,708		)	(186		)	2,729			(9,708		)
Prepaid expenses and other current assets	2,606			(810		)	(1,895		)	2,606
Other assets	1,518			(615		)	2,526			1,518
Accounts payable	1,404			1,869			1,667			1,404
Accrued expenses and other current liabilities	(11,871		)	18,323			(16,286		)	(16,842		)
Interest payable							(7,071		)	4,764
Deferred revenue	(9,572		)	10,414			(13,291		)	(9,572		)
Other long-term liabilities	(1,642		)	592			(1,140		)	(1,642		)
Net cash provided by operating activities	64,088			141,088			104,532			64,088

Cash flows from investing activities:
Capital expenditures	(92,581		)	(215,031		)	(18,655		)	(92,581		)
Purchase of other investments	(10,000		)	—			—			(10,000		)
Purchases of marketable securities	—			(201,293		)
Sales and maturities of marketable securities	—			13,266
Net cash used in investing activities	(102,581		)	(403,058		)	(18,655		)	(102,581		)

Cash flows from financing activities:
Payments on the Credit Facility	(54,000		)	(26,131		)
Borrowings under the senior unsecured notes	—			360,000
Extinguishment of the Thales Alenia Space bills of exchange	—			(59,936		)
Payments on the Credit Facility, including extinguishment costs							—			(54,000		)
Borrowings under the Term Loan							202,000			—
Payments on the Term Loan							(4,125		)	—
Repayments on the senior unsecured notes, including extinguishment costs							(383,451		)	—
Payment of deferred financing fees	—			(20,440		)	(2,562		)	—
Proceeds from exercise of stock options	8,788			2,996			2,611			8,788
Tax payment upon settlement of stock awards	(3,842		)	(1,512		)	(3,556		)	(3,842		)
Payment of Series A preferred stock dividends	—			(7,000		)
Payment of Series B preferred stock dividends	(8,387		)	(8,427		)	—			(8,387		)
Net cash (used in) provided by financing activities	(57,441		)	239,550
Net cash used in financing activities							(189,083		)	(57,441		)

Effect of exchange rate changes on cash and cash equivalents	622			65			(1,240		)	622
Net decrease in cash and cash equivalents	(95,312		)	(22,355		)	(104,446		)	(95,312		)
Cash, cash equivalents, and restricted cash, beginning of period	465,287			388,257			223,561			465,287
Cash, cash equivalents, and restricted cash, end of period	$	369,975		$	365,902		$	119,115		$	369,975

See notes to unaudited condensed consolidated financial statements.


	Six Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2020		2019
Supplemental cash flow information:
Interest paid	$	60,610	$	37,529
Interest paid, net of amounts capitalized					$	55,207	$	45,131
Income taxes paid, net	$	590	$	501	$	608	$	590

Supplemental disclosure of non-cash investing and financing activities:
Property and equipment received but not paid	$	1,871	$	20,574	$	2,249	$	1,871
Interest capitalized but not paid	$	2,922	$	17,138	$	—	$	2,922
Capitalized amortization of deferred financing costs	$	2,048	$	10,983	$	50	$	2,048
Capitalized stock-based compensation	$	745	$	1,131	$	846	$	745
Cost basis investment for settlement of accounts receivable	$	—	$	1,761

See notes to unaudited condensed consolidated financial statements.

Iridium Communications Inc.

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation and Principles of Consolidation

Iridium Communications Inc. (the “Company”) has prepared its condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The accompanying condensed 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.

In the opinion of management, the condensed consolidated financial statements reflect all normal recurring adjustments that the Company considers necessary for the fair presentation of its results of operations and cash flows for the interim periods covered, and of the financial position of the Company at the date of the interim condensed consolidated balance sheet. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the ~~Company's~~Company’s Annual Report on Form 10‑K for the year ended December 31, ~~2018,~~2019, as filed with the SEC on February ~~28, 2019.~~25, 2020.

2. Significant Accounting Policies

Adopted Accounting Pronouncements

Effective January 1, ~~2019,~~2020, the Company adopted Accounting Standards Update (“ASU”) No. ~~2016-02, Leases~~2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU ~~2016-02”~~2016-13”) ~~using~~. This guidance introduces a revised approach to the ~~required modified retrospective approach. ASU 2016-02 requires lessees to record most leases~~recognition and measurement of credit losses, emphasizing an updated model based on ~~their balance sheets but recognize expenses on their income statements in a manner similar to current accounting. See discussion below under the caption “Leases” in this Note 2 and in~~ ~~Note 5~~ ~~for more detail on the Company's accounting policy with respect to lease accounting.~~

Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The adoptionexpected losses rather than incurred losses. Adoption of ASU ~~2018-07~~2016-13 did not have a material impact on the Company’s ~~condensed~~ consolidated financial ~~statements.~~statements and related disclosures and no cumulative adjustment was recorded.

Recent Accounting Developments Not Yet Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This guidance amends certain aspects of the accounting for income taxes. The Company intends to apply the new guidance effective January 1, 2021, as required. The Company is currently evaluating the effect ASU 2019-12 may have on its consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The amendments apply only to contracts and hedging relationships that reference London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The amendments are elective and are effective upon issuance through December 31, 2022. The Company is currently determining the impacts of reference rate reform and the effects ASU 2020-04 may have on its consolidated financial statements and related disclosures.

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, 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~~value of ~~short-term~~the following financial instruments ~~(primarily~~approximated their fair values as of June 30, 2020 and December 31, 2019: 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 ~~fair~~carrying values because of their short-term nature. The ~~fair value of the Company’s investments in~~Level 2 cash equivalents include money market funds, ~~approximates its carrying value; such instruments are classified as Level 2 and are included in cash and cash equivalents on the accompanying condensed 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; such~~securities. The Company also classifies its derivative financial instruments ~~are classified~~ as Level ~~2 and are included in cash and cash equivalents on the accompanying condensed consolidated balance sheets.~~2.

Leases

Upon transition under ASU 2016-02, the Company elected the suite of practical expedients as a package applied to all of its leases, including (i) not reassessing whether any expired or existing contracts are or contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii) not reassessing initial direct costs for any existing leases. For new leases, the Company will determine if an arrangement is or contains a lease at inception. Leases are included as right-of-use (“ROU”) assets within other assets and ROU liabilities within accrued expenses and other liabilities and within other long-term liabilities on the Company’s condensed consolidated balance sheets.

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 leases do not provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at commencement date in 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 (“TPN”) facilities, the Company elected the practical expedient to combine lease and non-lease components as a single lease component. Taxes assessed on leases in which the Company is either a lessor or lessee are excluded from contract consideration and variable payments when measuring new lease contracts or remeasuring existing lease contracts.

~~Adoption of ASU 2016-02~~Derivative Financial Instruments

The Company uses interest rate swap agreements to manage its exposures to fluctuating interest rate risk on ~~January 1, 2019 had an impact of approximately $27.1 million~~variable rate debt. Its derivatives are measured at fair value and ~~$30.1 million~~are recorded on the ~~Company's opening assets~~balance sheet within other current and ~~liabilities, respectively.~~other long-term liabilities. The Company’s derivatives are designated as cash flow hedges, with the effective portion of the changes in fair value of the derivatives recorded in accumulated other comprehensive loss within the Company’s consolidated balance sheets and subsequently recognized in earnings when the hedged items impact earnings. Any ineffective portion of cash flow hedges would be recorded in current earnings. Within the consolidated statement of operations and comprehensive income, 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 used for any gains or losses 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 items being hedged. See Note 6 for further information.

3. Cash and Cash Equivalents and Restricted Cash and Cash Equivalents

Cash and Cash Equivalents

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 and regular interest bearing and non-interest bearing depository accounts, are classified as cash and cash equivalents in the accompanying condensed consolidated balance sheets.

~~The~~ following table summarizes the Company’s cash and cash equivalents:


	June 30, 2019		December 31, 2018		Recurring Fair Value Measurement	June 30, 2020		December 31, 2019		Recurring Fair Value Measurement
	(in thousands)					(in thousands)
Cash and cash equivalents:
Cash	$	13,246	$	20,879		$	19,034	$	13,943
Money market funds	162,600		252,473		Level 2	100,081		209,618		Level 2
Total cash and cash equivalents	$	175,846	$	273,352		$	119,115	$	223,561

~~Restricted Cash and Cash Equivalents~~

The Company is required to maintain a minimum cash reserve within a debt service reserve account (“DSRA”) for debt service related to its credit facility with Bpifrance Assurance Export S.A.S. (“BPIAE”) (as amended to date, the “Credit Facility”) (see ~~Note 6~~). As of June 30, 2019, and December 31, 2018, the Company’s restricted cash and cash equivalents balances, which included a minimum cash reserve for debt service and the interest earned on these amounts, were $194.1 million and $191.9 million, respectively.

4. ~~Commitments and Contingencies~~

~~Commitments~~

~~Thales Alenia Space~~

In June 2010, the Company executed a primarily fixed-price full scale development contract (“FSD”) with Thales Alenia Space for the design and build of its new, next-generation satellite constellation. The total price under the FSD was $2.3 billion, all of which has been paid as of June 30, 2019. These costs were capitalized as construction in progress within property and equipment, net in the accompanying condensed consolidated balance sheets. Approximately $1.5 billion in aggregate payments made to Thales Alenia Space were financed from borrowings under the Credit Facility.

~~SpaceX~~

In March 2010, the Company entered into an agreement with Space Exploration Technologies Corp. (“SpaceX”) to secure SpaceX as the primary launch services provider for its upgraded satellite constellation (as amended to date, the “SpaceX Agreement”). To complete the upgraded constellation, the Company launched a total of 75 satellites into low earth orbit using eight Falcon 9 rockets. The total price for the launches under the SpaceX Agreement was $510.8 million, all of which has been paid by the Company as of June 30, 2019. These costs were capitalized as construction in progress within property and equipment, net in the accompanying condensed consolidated balance sheets. The Company shared one launch with GFZ German Research Centre for Geosciences and received $29.8 million as a result.

~~In-Orbit Insurance~~

The Company was required, pursuant to its Credit Facility, to obtain insurance covering the launch and first 12 months of operation of its upgraded constellation. The launch and in-orbit insurance the Company 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 new 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 the Company’s financial condition. Furthermore, launch and in-orbit insurance does not cover lost revenue. The total premium for the Company’s launch and in-orbit insurance was $120.7 million, which was paid in full as of December 31, 2018. A portion of these insurance premium payments was capitalized as construction in progress within property and equipment, net in the accompanying condensed consolidated balance sheets.

~~Contingencies~~

From time to time, in the normal course of business, the Company is party to various pending claims and lawsuits. The Company is not aware of any such actions that it would expect to have a material adverse impact on its business, financial results or financial condition.

5. Leases

The Company has operating leases for land, office space, satellite network operations center (“SNOC”) facilities, system gateway facilities, a warehouse and a distribution center. The Company also has operations and maintenance (“O&M”) agreements that include leases associated with two TPN facilities. Some of Company's leases include options to extend the leases for up to 10 years and some include options to terminate the lease within 1 year. The Company’s weighted-average remaining lease term relating to its operating leases is 7.3 years, with a weighted-average discount rate of 6.7%.

~~The table below summarizes the Company’s lease-related assets and liabilities:~~

June 30, 2019
Leases Classification (in thousands)
Operating lease assets
   Noncurrent Other assets
$ 28,177
Total lease assets 28,177

Operating lease liabilities
   Current Accrued expenses and other current liabilities
3,221
   Noncurrent Other long-term liabilities
27,998
Total lease liabilities $ 31,219

The Company incurred lease expense of $1.2 million for the three months ended June 30, 2019 and 2018, respectively. During the six months ended June 30, 2019 and 2018, the Company incurred lease expense of and $2.5 million and $2.4 million, respectively.

Future payment obligations with respect to the Company's operating leases in which it is the lessee existing at June 30, 2019, exclusive of $2.5 million paid during the six months ended June 30, 2019, by year and in the aggregate, are as follows:

Year Ending December 31, Amount
(in thousands)
2019
$ 2,559
2020
5,188
2021
5,320
2022
4,846
2023
4,807
Thereafter
17,751
Total lease payments
$ 40,471

Lessor Arrangements

Operating leases in which the Company is a lessor consist primarily of hosting agreements with Aireon LLC ~~(see~~(“Aireon”) (see Note 11) and ~~Harris Corporation~~L3Harris Technologies, Inc. (“L3Harris”) for space on the Company’s upgraded satellites. These agreements provide for a fee that will be recognized over the life of the satellites, currently expected to be approximately 12.5 years. Lease income related to these agreements was $5.3 million and $5.4 million ~~and $7.6 million during~~for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$10.9~~$10.7 million and ~~$8.0~~$10.9 million during the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Lease income is recorded as hosted payload and other data service revenue within service revenue on the Company’s condensed consolidated statements of operations and comprehensive ~~income (loss).~~loss.

Both Aireon and ~~Harris~~L3Harris have made payments ~~for~~pursuant to their hosting agreements and the Company expects they will continue to do so. Future income with respect to the ~~Company's~~Company’s operating leases in which it is the lessor existing at June 30, ~~2019,~~2020, exclusive of the ~~$10.9~~$10.7 million recognized during the six months ended June 30, ~~2019,~~2020, by year and in the aggregate, is as follows:


Year Ending December 31,	Amount		Amount
	(in thousands)		(in thousands)
2019	10,722
2020	21,445		$	10,722
2021	21,445		21,445
2022	21,445		21,445
2023	21,445		21,445
2024			21,445
Thereafter	141,797		120,353
Total lease income	$	238,299	$	216,855

6.5. Debt

~~Credit~~Term Loan and Revolving Facility

~~In October 2010,~~On November 4, 2019, pursuant to a new loan agreement (the “Credit Agreement”), the Company entered into a $1,450.0 million term loan with various lenders and Deutsche Bank AG New York Branch as the Administrative Agent and the Collateral Agent (the “Term Loan”) and an accompanying $100.0 million revolving loan (the “Revolving Facility”). The Company used the proceeds of the Term Loan, along with its ~~$1.8 billion Credit Facility~~debt service reserve account and cash on hand, to prepay all of the indebtedness outstanding under the loan facility with Bpifrance Assurance Export S.A.S. (the “Credit Facility”) as well as related expenses. The Term Loan was issued at a price equal to 99.5% of its face value, bears interest at an annual rate of LIBOR plus 3.75%, with a ~~syndicate~~1.0% LIBOR floor, and matures in November 2026. Beginning on June 30, 2020, principal is payable quarterly at a rate of ~~bank lenders, which~~one percent of the original loan amount per annum, with the remaining principal due upon maturity. Interest is payable monthly on the last business day of the month. Borrowings under the Revolving Facility, if any, bear interest at the same rate (but without a LIBOR floor) if and as drawn, with no original issue discount, a commitment fee of 0.5% per year on the undrawn amount, and mature in November 2024.

On February 7, 2020, the Company closed on an additional $200.0 million under its Term Loan. On February 13, 2020, the Company used these proceeds, together with cash on hand, to prepay and retire all of the indebtedness outstanding under the

senior unsecured notes (the “Notes”), including premiums for early prepayment. The additional amount is fungible with the original $1,450.0 million, having the same maturity date, interest rate and other terms, but was ~~amended~~issued at a 1.0% premium to face value. To prepay the Notes, the Company paid a call price equal to the present value at the redemption rate of (i) 105.125% of the $360.0 million principal amount of the Notes plus (ii) all interest due through the first call date in April 2020, representing a total call premium of $23.5 million, plus all accrued and ~~restated on March 9, 2018, and further amended on December 21, 2018.~~ unpaid interest to the redemption date.

As of June 30, ~~2019,~~2020, the Company reported ~~a total~~an aggregate of ~~$1,630.9~~$1,645.9 million in borrowings ~~including $69.1~~under the Term Loan, before $25.8 million of net unamortized deferred financing costs, for a net principal balance of $1,561.8 million in borrowings from the Credit Facility in the accompanying condensed consolidated balance sheet. Ninety-five percent of the Company's obligations under the Credit Facility are insured by BPIAE. Scheduled semi-annual principal repayments began on April 3, 2018 and are scheduled to be paid each March 30 and September 30. Interest is paid on the same date as the principal repayments.

As amended and restated, the Credit Facility (i) allowed the Company to issue $360.0 million in senior unsecured notes (the “Notes”), (ii) delayed a portion of the principal repayments scheduled under the Credit Facility for 2018, 2019 and 2020 into 2023 and 2024 pursuant to an amended repayment installment schedule, (iii) allows the Company access to up to $87.0 million from the DSRA in the future if its projected cash level falls below $75.0 million, and (iv) adjusted the Company’s financial covenants, including eliminating covenants that required the Company to receive cash flows from hosted payloads and adding a covenant that requires the Company to receive $200.0 million in hosting fees from Aireon, the Company's primary hosted payload customer, by December 2023. In the event that (a) the Company's cash balance exceeds $140.0 million after September 30, 2019 (subject to specified exceptions) or (b) the Company receives hosting fees from Aireon, the Company would be required pursuant to the Credit Facility to use 50% of such excess cash and up to $200.0 million of hosting fees to prepay the Credit Facility. Pursuant to this provision, the Company has used the $43.1 million in hosting fees received from Aireon in 2018 to prepay the Credit Facility. In addition, if any of the Company's senior unsecured notes remain outstanding on October 15, 2022, which is six months prior to the scheduled maturity thereof, the maturity of all amounts remaining outstanding under the Credit Facility would be accelerated from September 30, 2024 to October 15, 2022. Lender fees incurred related to the amended and restated Credit Facility were $10.3 million, which were capitalized as deferred financing costs and are being amortized over the remaining term.

Under the terms of the Credit Facility, as of June 30, 2019, the Company is required to maintain a minimum cash reserve within the DSRA of $189.0 million, which is classified as restricted cash and cash equivalents on the accompanying condensed consolidated balance sheet. The Credit Facility is scheduled to mature in September 2024, subject to acceleration as described above. The Company was in compliance with all covenants related to the Credit Facility as of June 30, 2019.

~~Senior Unsecured Notes~~

On March 21, 2018, the Company issued the Notes, which bear interest at 10.25% per annum and mature on April 15, 2023. Interest is payable semi-annually on April 15 and October 15, beginning on October 15, 2018, and principal is repaid in full upon maturity. The proceeds of the Notes were used to prepay the outstanding Thales Alenia Space bills of exchange, including premiums paid, of approximately $59.9 million issued pursuant to the FSD, replenish the DSRA under the Credit Facility to $189.0 million, and to pay approximately $44.4 million in Thales Alenia Space milestones previously expected to be satisfied by the issuance of bills of exchange. The proceeds of the Notes also provided the Company with sufficient cash to meet its liquidity needs, including principal and interest payments under the Credit Facility. As of June 30, 2019, the Company reported a total of $360.0 million in borrowings under the Notes, including $8.0 million of deferred financing costs, for a net balance of $352.0$1,620.1 million in borrowings in the accompanying condensed consolidated balance sheet. As of June 30, ~~2019,~~2020, based upon ~~recent trading prices~~over-the-counter bid levels (Level 2 - market approach), the fair value of the ~~Company's Notes~~Company’s $1,645.9 million in borrowings under the Term Loan was ~~$391.5~~$1,613.0 million. The ~~Notes contain covenant requirements that apply to certain permitted financing actions and are no more restrictive than~~Company had not borrowed under the ~~covenants in the Credit Facility. The Company was in compliance with all covenant requirements related to the Notes~~Revolving Facility as of June 30, ~~2019.~~2020.

The Credit Agreement restricts the Company’s 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 specified in the Credit Agreement, and also contains a mandatory prepayment mechanism with respect to a portion of the Company’s excess cash flow (as defined in the Credit Agreement). The Credit Agreement provides for specified exceptions, baskets measured as a percentage of 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, as well as a phase-out of the mandatory excess cash flow prepayments, based on achievement and maintenance of specified leverage ratios. The Credit Agreement permits repayment, prepayment, and repricing transactions.

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 to 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.

Senior Unsecured Notes

As of June 30, 2020, the Company had fully paid down and retired the total gross outstanding principal balance of the Notes, as discussed above. As of December 31, 2019, the Company reported an aggregate of $360.0 million in borrowings under the Notes, before $7.0 million of net unamortized deferred financing costs, for a net principal balance of $353.0 million in borrowings in the accompanying condensed consolidated balance sheet.

Interest on Debt

Total ~~Debt~~

~~During~~interest incurred was $23.5 million and $35.1 million during the three months ended June 30, 2020 and 2019, respectively, and ~~2018, total interest incurred on the debt described above was $35.1~~$51.4 million and ~~$37.7 million, respectively, and~~ $71.5 ~~million and $66.8~~ million during the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Interest incurred includes amortization of deferred financing fees of $0.9 million and $5.8 million for the three months ended June 30, 2020 and ~~$6.8~~2019, respectively, and $1.8 million and $12.2 million for the six months ended June 30, 2020 and 2019, respectively. Interest capitalized was $0.8 million and $3.7 million during the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$12.2~~$1.5 million and ~~$13.3~~$11.3 million, respectively, during the six months ended June 30, 2020 and 2019. Accrued interest as of June 30, 2020 and December 31, 2019 was $0.2 million and ~~2018,~~$7.8 million, respectively.

6. 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 rates by entering into offsetting positions through the use of interest rate swap contracts which result in recognizing a fixed interest rate for the portion of the Company’s Term Loan. This will reduce the negative impact of increases in the variable rate over the term of the contracts. These financial instruments 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 interest rate swap contracts 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 or is exercised, or no longer qualifies for hedge accounting, or is no longer probable, hedge accounting is discontinued prospectively.

Interest ~~capitalized~~Rate Swaps

On November 27, 2019, the Company executed a long-term interest rate swap (“Swap”) effective through November 2021 to mitigate variability in forecasted interest payments on a portion of the Company’s borrowings under its Term Loan. On the last business day of each month, the Company receives variable interest payments based on one-month LIBOR from the counterparty. The Company also entered into an interest rate swaption agreement (“Swaption”) that, if executed on November 22, 2021, would extend the term of the Swap through November 2026. The Company pays a fixed annual rate of 0.50% for the Swaption and a fixed rate of 1.565% on the Swap. Both the Swap and the Swaption derivative instruments carry a notional amount of $1,000.0 million as of June 30, 2020. The Company has designated both the Swap and Swaption as qualifying hedging instruments and accounts for these derivatives as cash flow hedges.

At inception, the Swap and Swaption were designated as cash flow hedges for hedge accounting. The unrealized changes in market value are recorded in accumulated other comprehensive income (loss) and reclassified into earnings during the ~~three~~period in which the hedged transaction affects earnings. Over the next 12 months, ~~ended~~the Company expects any gains or losses for cash flow hedges reclassified from accumulated other comprehensive income (loss) into earnings to have an immaterial impact on the Company’s condensed consolidated financial statements.

Fair Value of Derivative Instruments

As of June 30, 2020, the Company had a current liability balance for the fair value of the Swap in the amount of $8.0 million, recorded in other current liabilities. As of December 31, 2019, the Company had a long-term asset balance for the fair value of the Swap in the amount of $0.8 million, recorded in other long-term assets. As of June 30, 2020 and ~~2018 was $3.7~~December 31, 2019, the Company had a long-term liability balance for the fair value of the Swaption in the amount of $6.7 million and ~~$22.2~~$0.9 million, respectively, recorded in other long-term liabilities.

During the three and ~~$11.3 million and $49.6 million during the~~ six months ended June 30, ~~2019~~2020, the Company incurred $2.7 million and ~~2018, respectively. Capitalized~~$3.7 million, respectively, in net interest expense for the Swap and the Swaption, collectively. The Company did not hold any cash flow hedges during the comparable prior year periods. Gains and losses resulting from fair value adjustments to the Swap and Swaption are recorded within accumulated other comprehensive loss within the Company’s condensed consolidated balance sheets and reclassified to interest expense on the ~~Credit Facility is dependent upon~~dates that interest payments become due. Cash flows related to the ~~average~~Swap are included in cash flows from operating activities on the condensed consolidated statements of cash flows. The amount of unrealized loss related to the Swap and Swaption that was recorded in accumulated other comprehensive loss in the condensed consolidated balance sheets, was $10.8 million as of ~~satellites in construction which decreased as satellites~~June 30, 2020, net of a $3.8 million tax impact. There were ~~placed in service.~~no gains or losses related to derivative financial instruments during the comparable prior year period.

7. Stock-Based Compensation

In May 2019, the Company’s stockholders approved the amendment and restatement of the ~~Company's~~Company’s 2015 Equity Incentive Plan (as so amended and restated, the “Amended 2015 Plan”), primarily to increase the number of shares available under the plan. The Company registered with the SEC an additional 2,542,664 shares of common stock made available for issuance pursuant to the Amended 2015 Plan, bringing the total to 30,944,912 shares registered. On As of June 30, ~~2019~~,2020, the remaining aggregate number of shares of the ~~Company's~~Company’s common stock available for future grants under the Amended 2015 plan was ~~13,564,710.~~11,791,808. The Amended 2015 Plan provides for the grant of stock-based awards, including nonqualified stock options, incentive stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights and other equity securities ~~as incentives and rewards for employees,~~to 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~~1 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 known as a “full value award.” The Amended 2015 Plan allows the Company to utilize a broad array of equity incentives and performance cash incentives in order to secure and retain the services of its employees, directors and consultants, and to provide long-term incentives that align the interests of its employees, directors and consultants with the interests of the Company’s stockholders. The Company accounts for stock-based compensation at fair value.

Stock Option Awards

The fair value of stock options is determined at the grant date using the Black-Scholes option pricing model. The stock option awards granted to employees generally (i) have a term of ten years, (ii) vest over four 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 Company did not grant any stock options during the six-month period ended June 30, 2020. During the six months ended June 30, 2019, ~~and 2018,~~ the Company granted approximately 139,000 ~~and 284,000~~ stock options ~~respectively,~~ to its employees, with an estimated aggregate grant date fair value of $1.3 ~~million and $1.6 million, respectively.~~million.

Restricted Stock Units

The RSUs granted to employees for service generally vest 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. The RSUs granted to non-employee directors generally vest in full on the first anniversary of the grant date. Some RSUs granted to employees for performance 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 paid in the ~~Company's~~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~~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. The awards do not carry voting rights until they are vested and released in accordance with the terms of the award.

Service-Based RSUs

The majority of the annual compensation the Company provides to members of its board of directors is paid in the form of RSUs. In addition, certain members of the ~~Company's~~Company’s board of directors elect to receive the remainder of their annual compensation, or a portion thereof, in the form of RSUs. An aggregate amount of approximately ~~76,000~~58,000 and ~~110,000~~76,000 service-based RSUs were granted to ~~its~~the Company’s directors as a result of these payments and elections during the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, with an estimated grant date fair value of $1.4 million ~~and $1.3 million, respectively.~~for each period.

During the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company granted approximately ~~651,000~~683,000 and ~~900,000~~651,000 service-based RSUs, respectively, to its employees, with an estimated aggregate grant date fair value of $18.3 million and $15.0 million, ~~and $10.7 million,~~ respectively.

During the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company granted approximately ~~11,000~~10,000 and ~~13,000 service-based~~11,000 RSUs to non-employee consultants ~~respectively. These RSUs~~that are generally subject to service-based vesting. The RSUs will vest 50% on the first anniversary of the grant date, and the remaining 50% will vest quarterly thereafter through the second anniversary of the grant date. The estimated aggregate grant date fair value of the RSUs granted to non-employee consultants during the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 was $0.2 million for each period.

Performance-Based RSUs

In March ~~2019~~2020 and ~~2018,~~2019, the Company granted approximately ~~125,000~~115,000 and ~~474,000~~125,000 annual incentive, performance-based RSUs, respectively, to the Company’s executives and employees (the “Bonus RSUs”), with an estimated grant date fair value of ~~$2.9~~$3.1 million and ~~$5.6~~$2.9 million, respectively. Vesting of the Bonus RSUs is and was dependent upon the Company’s achievement of ~~pre-established~~defined performance goals over ~~one year (fiscal year 2019 for~~ the ~~2019 Bonus RSUs and~~respective fiscal ~~year 2018 for the 2018 Bonus RSUs), and individual performance.~~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 substantially all of the ~~2019~~2020 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 ~~2019~~2020 Bonus RSUs will vest, subject to continued employment, in March ~~2020.~~2021. Substantially all of the ~~2018~~2019 Bonus RSUs vested in March ~~2019~~2020 upon the determination of the level of achievement of the performance goals.

Additionally, in March ~~2019~~2020 and ~~2018,~~2019, the Company granted approximately ~~96,000~~144,000 and ~~134,000~~96,000 long-term, performance-based RSUs, respectively, to the Company’s executives (the “Executive RSUs”). The estimated aggregate grant date fair value of the Executive RSUs was $3.9 million for the 2020 grants and $2.2 million for the 2019 ~~grants and $1.6 million for the 2018~~ grants. Vesting of the Executive RSUs is dependent upon the Company’s achievement of specified performance goals over ~~two~~a two-year period (fiscal years ~~(fiscal~~2020 and 2021 for the Executive RSUs granted in 2020 and fiscal years 2019 and 2020 for the Executive RSUs granted in ~~2019 and fiscal years 2018 and 2019 for the Executive RSUs granted in 2018)~~2019) and further subject to additional time-based vesting. Management believes it is probable that the Executive RSUs will vest at least in part. 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, 50% of the number of Executive RSUs earned based on performance 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 ~~executive's~~executive’s continued service as of the vesting date. During March 2020, the Company awarded approximately 20,000 additional shares underlying performance-based RSUs to the Company’s executives for over-achievement of performance goal targets during 2018 and 2019 related to the Executive RSUs granted in 2018.

8. 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~~The Company previously issued ~~1.0~~1.5 million shares of preferred stock, inand 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 remain undesignated and unissued as of June 30, ~~2019~~.

~~Series A Cumulative Perpetual Convertible Preferred Stock~~

~~In the fourth quarter~~2020. As of 2012, the Company issued 1.0 million shares of its 7.00% Series A Cumulative Perpetual Convertible Preferred Stock (the “Series A Preferred Stock”) in a private offering. During the three months ended March 31, 2018, the Company's daily volume-weighted average stock price remained at or above $12.26 per share for a period of 20 out ofJune 30, ~~trading days, thereby allowing for the conversion of the Series A Preferred Stock at the election of the Company. On March 20, 2018, the Company converted all~~2020, there were no outstanding shares of ~~its Series A Preferred Stock~~preferred stock, as all preferred stock was converted into ~~shares of~~ common stock ~~resulting~~according to its terms in the issuance of 10,599,974 shares of common stock. The Company declared and paid all current and cumulative dividends to holders of record of Series A Preferred Stock as of March 8, 2018. As such, the Company paid cash dividends of $7.0 million to the holders of the Series A Preferred Stock during the three months ended March 31, 2018.prior periods.

Series B Cumulative Perpetual Convertible Preferred Stock

In May 2014, the Company issued 0.5 million shares of its 6.75% Series B Cumulative Perpetual Convertible Preferred Stock (the “Series B Preferred Stock”) in an underwritten public offering. Holders of Series B Preferred Stock were 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 were payable quarterly in arrears on each March 15, June 15, September 15 and December 15.

During the three months ended June 30, 2019, the ~~Company's~~Company’s daily volume-weighted average stock price remained at or above $11.21 per share for a period of 20 out of 30 trading days, allowing for the conversion of the Series B Preferred Stock at the election of the Company. On May 15, 2019, the Company converted all outstanding shares of its Series B Preferred Stock into shares of common stock, resulting in the issuance of 16,627,632 shares of common stock. To convert the stock, the Company declared and paid all current and cumulative dividends to holders of record of Series B Preferred Stock as of May 8, 2019, resulting in a dividend payment of $8.4 million. As a result, the Company did not have any shares of Series B Preferred Stock outstanding as of June 30, 2020 and December 31, 2019.

9. Revenue

The following table summarizes the Company’s services revenue:

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands)
Commercial voice and data services $ 50,411
$ 48,712
$ 99,006
$ 92,442
Commercial IoT data services 23,903
20,835
46,394
40,618
Hosted payload and other data services 11,969
12,419
25,834
16,648
Government services 24,514
22,000
46,514
44,000
Total services $ 110,797
$ 103,966
$ 217,748
$ 193,708



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Commercial services revenue:
Voice and data	$	41,772	$	43,029	$	84,012	$	84,809
Broadband	8,519		7,382		17,219		14,197
IoT data	22,626		23,903		46,392		46,394
Hosted payload and other data	15,433		11,969		31,702		25,834
Total commercial services revenue	88,350		86,283		179,325		171,234
Government services revenue	25,000		24,514		50,000		46,514
Total services revenue	$	113,350	$	110,797	$	229,325	$	217,748

The following table summarizes the Company’s engineering and support services revenue:

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands)
Commercial $ 831
$ 114
$ 1,056
$ 195
Government 8,052
4,986
13,553
8,529
Total $ 8,883
$ 5,100
$ 14,609
$ 8,724



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Commercial engineering and support services	$	1,140	$	831	$	2,137	$	1,056
Government engineering and support services	5,868		8,052		11,920		13,553
Total engineering and support services revenue	$	7,008	$	8,883	$	14,057	$	14,609

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the condensed consolidated balance sheets. The Company bills amounts under its agreed-upon contractual terms at periodic intervals (for services), upon shipment (for equipment), or upon achievement of contractual milestones or as work progresses (for engineering and support services). Billing may occur subsequent to revenue recognition, resulting in accounts receivable (contract assets). The Company may also receive payments from customers before revenue is recognized, resulting in deferred revenue (contract liabilities). The Company recognized revenue that was previously recorded as deferred revenue in the amounts of ~~$10.8~~$11.1 million and ~~$4.7~~$10.8 million during the three months ended June 30, 2020 and 2019, respectively, and ~~2018,~~$23.5 million and $25.3 ~~million and $11.1~~ million during the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The Company has 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 condensed consolidated balance sheets. The commissions are recognized over the estimated prepaid usage period. The contract assets not separately disclosed are as follows:


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	(in thousands)				(in thousands)
Contract Assets:
Commissions	$	1,063	$	1,010	$	926	$	1,116
Other contract costs	$	3,430	$	3,631	$	3,078	$	3,231

The primary impact of adopting the new revenue recognition standard as of January 1, 2018 related to the Company’s prepaid service revenue. Under the new standard, the Company now estimates the expected revenue that will expire unused on an ongoing basis and recognizes this revenue in a manner consistent with the usage period. Upon adoption, the contract liability (deferred revenue associated with prepaid service revenue) was reduced by approximately $15.7 million as a result of the change to include an estimate of revenue to be recognized based on the historical pattern of usage on prepaid data services on the Company's hosted payloads.

10. Net ~~Income (Loss)~~Loss Per Share

The Company calculates basic net ~~income (loss)~~loss per share by dividing net ~~income (loss)~~loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. ~~Diluted~~In periods of net income, ~~(loss)~~diluted net income per share takes into account the effect of potential dilutive common shares when the effect is dilutive. Potentially dilutive common shares include (i) common stock issuable upon exercise of outstanding stock options, and (ii) contingently issuable RSUs that are convertible into shares of common stock upon achievement of certain service and performance requirements. The effect of potentially dilutive common shares is computed using the treasury stock method.

The computations of basic and diluted net ~~income (loss)~~loss per share for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 are as follows:

Three Months Ended June 30,
2019 2018
(in thousands, except per share data)
Numerator:

Net loss attributable to common stockholders - basic and diluted $ (20,203 ) $ (6,527 )

Denominator:
Weighted average outstanding common shares - basic and diluted 123,315
111,111

Net loss per share attributable to common stockholders - basic and diluted $ (0.16 ) $ (0.06 )



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(in thousands, except per share data)
Numerator:
Net loss - basic and diluted	$	(12,422	)	$	(20,203	)	$	(44,124	)	$	(40,324	)

Denominator:
Weighted average common shares - basic and diluted	133,118			123,315			132,882			118,282

Net loss per share - basic and diluted	$	(0.09	)	$	(0.16	)	$	(0.33	)	$	(0.34	)

Due to the Company’s net loss position for the three ~~months ended June 30, 2019~~ and ~~2018, all potential common stock equivalents were anti-dilutive.~~

For the three months ended June 30, 2019, 0.4 million unvested performance-based RSUs were not included in the computation of basic and diluted net loss per share as certain performance criteria had not been satisfied, and options to purchase 0.2 million shares of common stock were not included in the computation of diluted net loss per share, as the effect would be anti-dilutive.

For the three months ended June 30, 2018, 0.7 million unvested performance-based RSUs were not included in the computation of basic and diluted net income per share, as certain performance criteria had not been satisfied, and options to purchase 0.3 million shares of common stock were not included in the computation of diluted net income per share, as the effect would be anti-dilutive. For the three months ended June 30, 2018, 16.7 million as-if converted shares of the Series B Preferred Stock were not included in the computation of diluted net income per share, as the effect would be anti-dilutive. For the three months ended June 30, 2018, $2.1 million unpaid dividends to holders of the Series B Preferred Stock were not declared or accrued as a result of all cash dividends being suspended, but such amounts were deducted to arrive at net loss attributable to common stockholders.

~~The computations of basic and diluted net income (loss) per share for the~~ six months ended June 30, ~~2019~~2020 and ~~2018 are as follows:~~

Six Months Ended June 30,
2019 2018
(in thousands, except per share data)
Numerator:

Net income (loss) attributable to common stockholders - basic and diluted $ (40,324 ) $ 1,086

Denominator:
Weighted average outstanding common shares - basic 118,282
105,927
Dilutive effect of stock options —
2,347
Dilutive effect of contingently issuable shares —
1,131
Weighted average outstanding common shares - diluted 118,282
109,405

Net income (loss) per share attributable to common stockholders - basic $ (0.34 ) $ 0.01
Net income (loss) per share attributable to common stockholders - diluted $ (0.34 ) $ 0.01

~~Due to the Company’s net loss for the six months ended June 30,~~ 2019, all potential common stock equivalents were ~~anti-dilutive. For~~anti-dilutive and therefore excluded from the calculation of diluted net loss per share. The unvested shares of restricted common stock, as well as the anti-dilutive effects of stock options and RSUs outstanding, for the three and six months ended June 30, 2020 and 2019, ~~0.3 million unvested performance-based RSUs were not included in the computation of basic and diluted net loss per share~~are as certain performance criteria had not been satisfied, and options to purchase 0.2 million shares of common stock were not included in the computation of diluted net loss per share, as the effect would be anti-dilutive.follows:

For the six months ended June 30, 2018, 0.6 million unvested performance-based RSUs were not included in the computation of basic and diluted net income per share, as certain performance criteria had not been satisfied, and options to purchase 0.3 million shares of common stock were not included in the computation of diluted net income per share, as the effect would be anti-dilutive. For the six months ended June 30, 2018, 4.6 million and 16.7 million as-if converted shares of the Series A Preferred Stock and Series B Preferred Stock, respectively, were not included in the computation of diluted net income per share, as the effect would be anti-dilutive. For the six months ended June 30, 2018, $2.1 million unpaid dividends to holders of the Series B Preferred Stock were not declared or accrued as a result of all cash dividends being suspended, but such amounts were deducted to arrive at net income attributable to common stockholders.



	Three Months Ended June 30,		Six Months Ended June 30,
	2020	2019	2020	2019
	(in thousands, except per share data)
Anti-dilutive contingent performance-based RSUs	354	371	270	342
Anti-dilutive service-based RSUs	633	—	412	—
Anti-dilutive options	201	218	147	192

11. Related Party Transactions

Aireon LLC and Aireon Holdings LLC

The ~~Company's~~Company’s satellite constellation hosts the Aireon^SM®system, which provides a global air traffic surveillance service through a series of automatic dependent surveillance-broadcast (“ADS-B”) receivers. The Company formed Aireon in 2011, with subsequent investments from the air navigation service providers (“ANSPs”) of Canada, Italy, Denmark, Ireland and the United Kingdom, to develop and market this service. Aireon has contracted to pay the Company a fee to host the ADS-B receivers on its constellation, as well as data service fees for the delivery of the air traffic surveillance data. Pursuant to agreements with Aireon, Aireon will pay the Company fees of $200.0 million to host the ADS-B receivers, of which $43.1 million was paid in 2018, and additional power fees of approximately $2.8 million per year (the “Hosting Agreement”), as well as data services fees of up to approximately $19.8 million per year for the delivery of the air traffic surveillance data (the “Data Services Agreement”). The Aireon ADS-B receivers were activated on an individual basis as the satellite on which the receiver is hosted began carrying traffic. Pursuant to ASU 2016-02, the Company considers the agreement with Aireon related to the hosting as an operating lease. The Company had previously determined there was not sufficient support that Aireon would be able to make the payments due under the Hosting Agreement. Beginning in the second quarter of 2018, the Company began receiving payments due under the Hosting Agreement and recognizing the related revenue. During the three and six months ended June 30, 2019, the Company recorded $4.0 million and $7.9 million related to this agreement, respectively. During the three and six months ended June 30, 2018, the Company recorded $6.9 million related to this agreement for both periods.

In December 2018, in connection with ~~Aireon's~~Aireon’s entry into a debt facility, the Company and the other Aireon investors contributed their respective interests in Aireon into a new holding company, Aireon Holdings LLC, and entered into an Amended and Restated Aireon Holdings LLC ~~Agreement.~~Agreement (the “Aireon Holdings LLC Agreement”). Aireon Holdings LLC holds 100% of the membership interests in Aireon LLC, which remains the operating entity. At June 30, ~~2019,~~2020, the Company had a fully diluted ownership stake in Aireon Holdings LLC of approximately 35.7%, subject to certain redemption provisions contained in the ~~Amended and Restated Limited Liability Company Agreement (the “Aireon~~Aireon Holdings LLC ~~Agreement”).~~Agreement.

~~Under~~Aireon has contracted to pay the ~~Data~~Company a fee to host the ADS-B receivers on its constellation, as well as fees for power and data services in connection with the delivery of the air traffic surveillance data. Pursuant to an agreement with Aireon (“the Hosting Agreement”), Aireon will pay the Company fees of $200.0 million to host the ADS-B receivers, of which $54.1 million had been paid as of June 30, 2020, as well as power fees of approximately $3.7 million per year. Pursuant to a separate data transmission services agreement (the “Data Services ~~Agreement,~~Agreement”), Aireon also pays the Company monthly data service ~~payments~~fees on a per-satellite basis totaling $19.8 million per year for the delivery of the air traffic surveillance data through the Iridium^® network, as well as specified services relating to Aireon’s hosted payload operations center. The Aireon ADS-B receivers were activated on an individual basis as the satellite ~~basis.~~on which the receiver is hosted began carrying traffic. Pursuant to ASU 2016-02, the Company considers the Hosting Agreement as an operating lease. The Company ~~recorded~~recognized $4.0 million of hosting fee revenue for each of the three-month periods ended June 30, 2020 and 2019, under this agreement, and $8.0 million and $7.9 million for the six months ended June 30, 2020 and 2019, respectively. For power and data service fees, the Company recognized revenue from Aireon of ~~$3.2~~$5.9 million and ~~$2.1~~$3.2 million for the three months ended June 30, 2020 and 2019, respectively, and ~~2018, respectively,~~$12.1 million and $6.2 million ~~and $3.6 million during~~for the six months ended June 30, 2020 and 2019, ~~and 2018,~~ respectively.

Under two services agreements, the Company also provides Aireon with administrative services and support services, ~~including services relating to Aireon's hosted payload operations center to Aireon,~~the fees for which are paid monthly. Aireon receivables due to the Company under all agreements totaled ~~$2.0~~$2.9 million and ~~$1.0~~$1.4 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.



ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion along with our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, filed on February ~~28, 2019~~25, 2020 with the Securities and Exchange Commission, or the SEC, as well as our condensed consolidated financial statements included in this Form 10-Q.

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingencies, goals, targets or future development or otherwise are not statements of historical fact. Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “intend” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on our current expectations and projections about future events, and they are subject to risks and uncertainties, known and unknown, that could cause actual results and developments to differ materially from those expressed or implied in such statements. These risks and uncertainties may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy. The important factors described under the caption “Risk Factors” in this report and in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019 filed on February ~~28, 2019~~25, 2020 could cause actual results to differ materially from those indicated by forward-looking statements made herein. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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 unique L-band satellite network provides reliable 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 and ground spares and related ground infrastructure. We utilize an interlinked mesh architecture to route traffic across our satellite constellation using radio frequency crosslinks between satellites. This unique architecture minimizes the need for local 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 110 service providers, approximately 250 value-added resellers, or VARs, and approximately 90 value-added manufacturers, or VAMs, which create and sell technology that usesIn 2019, we completed the Iridium^® network either 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 using our products and services to target specific lines of business.

At June 30, 2019, we had approximately 1,213,000 billable subscribers worldwide, representing an increase of 16% from approximately 1,047,000 billable subscribers at June 30, 2018. We have a diverse customer base, with end users in the following lines of business: land mobile, maritime, aviation, Internet of Things, or IoT, hosted payloads and other data services and the U.S. government.

We recognize revenue from both the provision of services and the sale of equipment. Over the past several years, service revenue, including revenue from hosting and data services, has represented an increasing proportion of our revenue, and we expect that trend to continue.

~~We recently completed the Iridium~~ NEXT program, which replaced our first-generation constellation of satellites with upgraded satellites that support new services and higher data speeds for new ~~products, at a cost of approximately $3 billion.~~products. We deployed a total of 75 new satellites on eight Falcon 9 rockets launched by SpaceX, with 66 operational satellites, as well as in-orbit and ground spares, maintaining the same interlinked mesh architecture of our first-generation constellation.

Our new constellation also hosts the Aireon^SM® system, which provides a global air traffic surveillance service through a series of automatic dependent surveillance-broadcast, or ADS-B, receivers on the upgraded satellites. We formed Aireon LLC in 2011, with subsequent investments from the air navigation service providers, or ANSPs, of Canada, Italy, Denmark, Ireland and the United Kingdom, to develop and market this service. Aireon has contracted to provide the service to our co-investors in Aireon and ~~other ANSPs. Aireon is also offering to provide the service~~ to other ~~customers worldwide,~~ANSPs around the world, including the U.S. Federal Aviation ~~Administration,~~Authority, or FAA. ~~Last year, the FAA announced that it will run operational trials of the Aireon service~~

~~beginning in 2020.~~ Aireon has also contracted to pay us a fee to host the ADS-B receivers on our constellation, ~~and has made payments for a portion of its hosting fees to us in the amount of $43.1 million during 2018. Aireon also pays us~~as well as data service fees for the delivery of the air traffic surveillance data over the ~~upgraded constellation on~~Iridium network. As of June 30, 2020, Aireon has made payments of $54.1 million for a portion of its hosting fees. Aireon also pays us power and data services fees of up to approximately $23.5 million per ~~satellite basis, which will increase in rate once Aireon meets a customer milestone, which we expect to occur~~year in the ~~second half~~aggregate for the delivery of ~~this year.~~the air traffic surveillance data over the Iridium system. In addition, we have entered into an agreement with ~~Harris Corporation,~~L3Harris Technologies, Inc., or L3Harris, the manufacturer of the Aireon hosted payload, pursuant to which ~~Harris~~L3Harris pays us fees ~~for~~to allocate the remaining hosted payload capacity ~~it has sold~~ to its ~~customers; Harris also pays us~~customers and data service fees on behalf of these customers.

We sell our products and services to commercial end-users through a wholesale distribution network, encompassing approximately 130 service providers, approximately 290 value-added resellers, or VARs, and approximately 95 value-added manufacturers, or VAMs, which create and sell technology that uses the Iridium network either 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 using our products and services to target specific lines of business.

At June 30, 2020, we had approximately 1,362,100 billable subscribers worldwide, representing an increase of 12% from approximately 1,213,000 billable subscribers at June 30, 2019. We have a diverse customer base, with end users in the following lines of business: land mobile, maritime, aviation, Internet of Things, or IoT, hosted payloads and other data services and the U.S. government.

~~Recent Developments~~Effects of COVID-10 on Our Business

~~U.S. Government Contracts~~

The COVID-19 pandemic and measures taken in response are currently affecting countries, communities and markets around the world. Like many other businesses, we started to see a slowdown in the final weeks of March as a result of this widespread economic shutdown. This slowdown continued during the second quarter. Our distributors are also experiencing business and operational restrictions, which limit their ability to visit customers, complete new installations, and close on new business opportunities. We ~~provide maintenance services~~normally experience higher subscriber additions and higher usage during the second and third quarters of our fiscal year, driving much of our growth for the ~~U.S. Department~~typical year. Accordingly, following an analysis of ~~Defense, or DoD, gateway pursuant~~the effects on our business to our Gateway Maintenance and Support Services, or GMSS, contract managed by the Air Force Space Command, or AFSPC. In September 2013, we entered into a GMSS contract. All options to extend the term were exerciseddate, as well as expected future effects, including lower equipment sales, lower levels of subscriber growth, and the ~~contract expired at~~potential for increased customer use of lower-cost plans, we have substantially reduced our revenue and profitability outlook for 2020 from the ~~end of March 2019. Prior to its expiration,~~levels that we entered into a new GMSS contract. This new agreement is structured similar to the previous agreement and provides for a six-month base term and up to four additional one-year options exercisable at the electionpreviously forecast in February 2020. The ultimate effects of the ~~U.S. government. If~~COVID-19 pandemic are difficult to assess or predict with certainty at this time but may include additional risks. For further information on the ~~U.S. government elects to exercise all available one-year options, the total value~~potential effects of the ~~contract to us will be approximately $54.1 million. Pursuant to federal acquisition regulations, the U.S. government may terminate the GMSS contract,~~COVID-19 pandemic on our business, financial condition and results of operations, see “Risk Factors” in ~~whole or in part, at any time.~~

We provide airtime and airtime support to U.S. government and other authorized customers pursuant to our Enhanced Mobile Satellite Services, or EMSS, contract also managed by AFSPC. The EMSS contract, entered into in October 2013, provided for a five-year term. In October 2018, the U.S. government exercised its right under federal acquisition regulations to extend the contract for an additional six months, through April 21, 2019. We have executed four one-month extensions to the EMSS contract to continue to provide service to the U.S. government through August 21, 2019, while we finalize the termsPart II, Item 1A of ~~a new long-term EMSS contract.~~

We expect the new agreement will be a long-term contract with revenues in all years greater than the $88.0 million in annual revenue in the last full year of the EMSS contract. The fixed-price rates for the one-month extensions were $8.3 million, $8.5 million, $8.6 million, and $8.8 million, respectively. Under the terms of the extensions, authorized customers will continue to utilize our airtime services, provided through the DoD’s dedicated gateway, for an unlimited number of DoD and other federal subscribers.

While we sell airtime directly to the U.S. government for resale to end users, our hardware products are sold to U.S. government customers through our network of distributors, which typically integrate them with other products and technologies. Pursuant to federal acquisition regulations, the U.S. government may terminate the EMSS contract, in whole or in part, at any time.this Form 10-Q.

Material Trends and Uncertainties

Our industry and customer base have 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;

improved data transmission speeds for mobile satellite service offerings;

~~regulatory mandates requiring the use of mobile satellite services;~~


��	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:

the effects of the COVID-19 pandemic on us and on Aireon, including on revenue, employee health and safety, employee productivity, and the financial health and effectiveness of our distributors and suppliers;

our ability to maintain the health, capacity, control and level of service of our satellites;

our ability to develop and launch new and innovative products and services;

~~our ability to generate sufficient internal cash flows to support our ongoing business and to satisfy our debt service obligations;~~

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;

interference with our services caused by the repurposing of L-band satellite spectrum for terrestrial purposes;

market acceptance of our products;

regulatory requirements in existing and new geographic markets;

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 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 parts that are periodically subject to shortages resulting from surges in demand, natural disasters or other ~~events;~~events, potentially including the COVID-19 pandemic; 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.

Comparison of Our Results of Operations for the Three Months Ended June 30, ~~2019~~2020 and ~~2018~~2019


	Three Months Ended June 30,																		Three Months Ended June 30,													Change
	2019			% of Total Revenue			2018			% of Total Revenue			Change						2020			% of Total Revenue			2019				% of Total Revenue			Change
($ in thousands)				% of Total Revenue		Dollars				% of Total Revenue		Percent						Dollars				% of Total Revenue		Percent					% of Total Revenue
Revenue:	2019						2018
Services	$	110,797		77	%		$	103,966		77	%		$	6,831		7	%		2020	$	113,350		81	%	2019		$	110,797			77	%		$	2,553			2	%
Subscriber equipment	23,420			16	%		25,865			19	%		(2,445		)	(9	)%		19,815			14	%		23,420				16	%		(3,605		)		(15	)%
Engineering and support services	8,883			7	%		5,100			4	%		3,783			74	%		7,008			5	%		8,883				7	%		(1,875		)		(21	)%
Total revenue	143,100			100	%		134,931			100	%		8,169			6	%		140,173			100	%		143,100				100	%		(2,927		)		(2	)%

Operating expenses:
Cost of services (exclusive of depreciation
and amortization)	25,607			18	%		22,644			17	%		2,963			13	%		23,134			17	%		25,607				18	%		(2,473		)		(10	)%
Cost of subscriber equipment	13,370			9	%		15,619			12	%		(2,249		)	(14	)%		12,069			9	%		13,370				9	%		(1,301		)		(10	)%
Research and development	4,285			3	%		5,566			4	%		(1,281		)	(23	)%		2,380			2	%		4,285				3	%		(1,905		)		(44	)%
Selling, general and administrative	20,969			15	%		24,266			18	%		(3,297		)	(14	)%		21,100			15	%		20,969				15	%		131				1	%
Depreciation and amortization	75,128			52	%		50,491			37	%		24,637			49	%		75,662			54	%		75,128				52	%		534				1	%
Total operating expenses	139,359			97	%		118,586			88	%		20,773			18	%		134,345			96	%		139,359				97	%		(5,014		)		(4	)%
Operating income	3,741			3	%		16,345			12	%		(12,604		)	(77	)%		5,828			4	%		3,741				3	%		2,087				56	%

Other expense:
Interest expense, net	(28,986		)	(20	)%		(12,985		)	(10	)%		(16,001		)	123	%		(22,506		)	(16	)%		(28,986		)		(20	)%		6,480				(22	)%
Other income (expense), net	(626		)	(1	)%		65			—	%		(691		)	(1,063	)%
Other expense, net																			(320		)	—	%		(626		)		—	%		306				(49	)%
Total other expense, net	(29,612		)	(20	)%		(12,920		)	(10	)%		(16,692		)	129	%		(22,826		)	(16	)%		(29,612		)		(20	)%		6,786				(23	)%
Income (loss) before income taxes	(25,871		)	(17	)%		3,425			2	%		(29,296		)	(855	)%
Income tax benefit (expense)	7,765			4	%		(7,843		)	(6	)%		15,608			(199	)%
Loss before income taxes																			(16,998		)	(12	)%		(25,871		)		(17	)%		8,873				(34	)%
Income tax benefit																			4,576			3	%		7,765				4	%		(3,189		)		(41	)%
Net loss	$	(18,106	)	(13	)%		$	(4,418	)	(4	)%		$	(13,688	)	310	%		$	(12,422	)	(9	)%		$	(18,106	)		(13	)%		$	5,684			(31	)%

Revenue

Commercial Service Revenue

Three Months Ended June 30,
2019 2018 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 $ 50.4
368
$ 46
$ 48.8
364
$ 45
$ 1.6
4
$ 1
Commercial IoT data 23.9
720
11.40
20.8
576
12.47
3.1
144
(1.07 )
Hosted payload and other data services 12.0
N/A
12.4
N/A
(0.4 ) N/A

Total Commercial $ 86.3
1,088
$ 82.0
940
$ 4.3
148



	Three Months Ended June 30,
	2020					2019					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	$	41.8	349	$	40	$	43.0	358	$	41	$	(1.2	)	(9	)	$	(1	)
Broadband ⁽³⁾	8.5		11.1	258		7.4		10.2	245		1.1			0.9		13
IoT data	22.6		863	8.91		23.9		720	11.40		(1.3		)	143		(2.49		)
Hosted payload and other data	15.5		N/A			12.0		N/A			3.5			N/A
Total commercial services	$	88.4	1,223			$	86.3	1,088			$	2.1		135


⁽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. 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, which were previously reported in commercial voice and data revenue. Prior year periods have been conformed to this presentation.

For the three months ended June 30, ~~2019,~~2020, total commercial service revenue increased ~~$4.3~~$2.1 million, or 5%2%, primarily ~~due to~~as a result of the increase in ~~commercial IoT~~hosted payload and other data revenue of ~~$3.1~~$3.5 million, or 29%. This increase resulted from the increased Aireon data service fees related to a contractual step-up and increased Aireon power fees. During the quarter, we also recognized additional hosting data service revenue of $1.4 million given the updated estimate of data service usage based on trends experienced to date on our hosted payloads. Commercial broadband revenue increased $1.1 million, or 15%, from the prior year period. This increase was principally due to sales of Iridium Certusbroadband services, which were commercially introduced in January 2019. These increases in revenue were partially offset by declines in commercial IoT data revenue and commercial voice and data revenue of $1.3 million, or 5%, and $1.2 million, or 3%, respectively, from the prior year period. IoT data revenue and voice and data revenue collectively declined due to a ~~25%~~decrease in usage based on mobility restrictions associated with the COVID-19 pandemic. The decrease in IoT data revenue was due to a decrease in ARPU which was driven by the aforementioned decrease in usage revenue, particularly with aviation customers, and an increase in the proportion of consumer personal communications devices comprising IoT subscribers, which utilize lower ARPU plans. The decline in IoT ARPU was partially offset by a 20% increase in commercial IoT data billable subscribers, primarily from continued strength in consumer personal communications devices. These products comprised an increased proportion of total subscribers, contributing to a decline in related ARPU. Commercial voice and data revenue also contributed to the increase in commercial service revenue with an increase of $1.6 million, or 3%, from the prior year period. This increase was principally due to increased broadband subscribers. Revenue from hosted payload and other data services declined $0.4 million from the prior year period, as the current year reflects the hosted payload revenue associated with a completed constellation, while the prior year included the initial recognition of all Aireon hosted payload service revenues earned since inception. The revenues do not include the additional step-up in Aireon data service fees triggered by a customer milestone we expect Aireon to satisfy later this year.

~~We anticipate continued growth in billable commercial subscribers throughout 2019.~~

Government Service Revenue

Three Months Ended June 30,
2019 2018 Change
Revenue
Billable
Subscribers ⁽¹⁾
Revenue
Billable
Subscribers ⁽¹⁾
Revenue
Billable
Subscribers
(Revenue in millions and subscribers in thousands)
Government service revenue $ 24.5
125
$ 22.0
107
$ 2.5
18



	Three Months Ended June 30,
	2020			2019			Change
	Revenue		Billable Subscribers ⁽¹⁾	Revenue		Billable Subscribers ⁽¹⁾	Revenue		Billable Subscribers
	(Revenue in millions and subscribers in thousands)
Government services	$	25.0	139	$	24.5	125	$	0.5	14


⁽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 anour Enhanced Mobile Satellite Services contract, or the EMSS contract managed by AFSPC. In October 2018, the U.S. government exercised its right under the federal acquisition regulations to extend the contract for an additional six months, through April 21, 2019. The U.S. government has subsequently extended the contract term for four one-month periods through August 21, 2019. For the three months ended June 30, 2019, government service revenue increased $2.5 million as a result of the price increases for each of the one-month extensions.Contract. Under the terms of this agreement, authorized customers utilize ~~certain~~specified Iridium airtime services provided through the ~~DoD’s~~U.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 fee is not based on subscribers or usage, allowing an unlimited number of users access to ~~such existing~~these services. For the three months ended June 30, 2020, government service revenue increased $0.5 million from the prior year period as a result of the higher pricing in the new EMSS Contract.

We expect the new agreement will be a long-term contract with revenues in all years greater than the $88.0 million in annual revenue in the last full year of the EMSS contract. The fixed-price rates for the one-month extensions are $8.3 million, $8.5 million, $8.6 million, and $8.8 million, respectively. Under the terms of the extensions, authorized customers will continue to utilize our airtime services, provided through the DoD’s dedicated gateway, for an unlimited number of DoD and other federal subscribers.

Subscriber Equipment Revenue

Subscriber equipment revenue decreased by ~~$2.4~~$3.6 million, or 9%15%, for the three months ended June 30, ~~2019~~2020 compared to the prior year period, primarily due to a decrease in the volume of handset and IoT device sales, ~~and Iridium Pilot~~^® ~~unit sales, offset by an increase in~~due to the ~~volume~~impact of ~~Short Burst Data~~^®~~devices. Handset volumes in 2018 were abnormally strong.~~the COVID-19 pandemic.

Engineering and Support Service Revenue

Three Months Ended June 30,
2019 2018 Change
(Revenue in millions)
Commercial $ 0.8
$ 0.1
$ 0.7
Government 8.1
5.0
3.1
Total $ 8.9
$ 5.1
$ 3.8



	Three Months Ended June 30,
	2020		2019		Change
	(Revenue in millions)
Commercial engineering and support services	$	1.1	$	0.8	$	0.3
Government engineering and support services	5.9		8.1		(2.2		)
Total engineering and support services	$	7.0	$	8.9	$	(1.9	)

Engineering and support service revenue ~~increased $3.8~~decreased $1.9 million, or ~~74%~~21%, for the three months ended June 30, ~~2019~~2020 compared to the prior year period primarily as a result of a decrease in the volume of contracted work to enable services for the U.S. government, offset by an increase in the volume of ~~contracted~~ work for ~~government agencies.~~commercial customers, primarily related to the Aireon hosted payload operations center.

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~~decreased by ~~$3.0~~$2.5 million, or ~~13%~~10%, for the three months ended June 30, ~~2019~~2020 from the prior year period, primarily as a result of ~~higher satellite operations support associated with~~ a ~~greater number~~decrease in in-orbit insurance costs, which were amortized over a one-year period from the in-service date, as we completed the placement of upgraded satellites in-orbit in ~~service during~~February 2019. Cost of services also decreased due to the ~~current period~~lower volume of contracted engineering work to enable services for the U.S. government. This decrease was offset in part by higher costs to support the new EMSS contract and ~~higher levels of activity directed towards operating the completed system. This increase was also driven by~~ an increase in the volume of contracted commercial engineering and support services. ~~These increases were partially offset by a decrease in in-orbit insurance costs as we have completed the placement of upgraded satellites in-orbit.~~

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 decreased by ~~$2.2~~$1.3 million, or ~~14%~~10%, for the three months ended June 30, ~~2019~~2020 compared to the prior year period primarily due to ~~decreased subscriber equipment revenue primarily from decreased volume of~~the decrease in handset and IoT device sales, ~~and Iridium Pilot unit sales.~~as described above.

Research and Development

Research and development expenses decreased by ~~$1.3~~$1.9 million, or ~~23%~~44%, for the three months ended June 30, ~~2019~~2020 compared to the prior year period due to decreased spend on devices for our ~~new,~~ upgraded 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 ~~decreased by $3.3 million, or 14%,~~remained relatively flat, for the three months ended June 30, ~~2019~~2020 compared to the prior year ~~period,~~period. The overall increase of $0.1 million, or 1%, was primarily due to ~~a decrease~~an increase in legal fees and stock appreciation rights expense resulting from changes in our stock valuation between the respective reporting ~~periods.~~periods, partially offset by a decrease in management incentive compensation and decreased spend on travel associated with COVID-19 restrictions.

Depreciation and Amortization

Depreciation and amortization expense increased by $24.6 million, or 49%, for the three months ended June 30, 2019 compared to the prior year period, primarily due to the increased number of upgraded satellites in service during the first three months of 2019remained relatively flat as we completed the replacement of our first-generation ~~satellites.~~satellites in February 2019. As the upgraded satellites are the largest proportion of our asset base, we anticipate depreciation and amortization expense to remain relatively consistent from quarter to quarter based on our anticipated capital expenditures.

Other Expense

Interest ~~Income (Expense),~~Expense, Net

Interest expense, net ~~increased $16.0~~decreased $6.5 million for the three months ended June 30, ~~2019~~2020 compared to the prior year period. The ~~increase~~decrease in interest expense is primarily related to the impacts of the refinancing of our debt including a decrease in the ~~credit facility~~weighted average effective interest ~~being capitalized as the~~rate and lower average ~~balance of satellites in construction decreased as upgraded satellites were completed.~~outstanding borrowings under our total debt obligations.

Income Tax Benefit ~~(Expense)~~

For the three months ended June 30, ~~2019,~~2020, our income tax benefit was ~~$7.8~~$4.6 million, compared to income tax ~~expense~~benefit of $7.8 million for the prior year period. The decrease in income tax ~~expense~~benefit is primarily related to a decrease in ~~income~~ lossbefore income taxes compared to the prior year. The decrease also resulted from a reduced stock compensation benefit compared to the prior year ~~as well as~~and prior year nonrecurring adjustments to our deferred tax assets and liabilities related to state law changes.

Net Loss

Net loss was ~~$18.1~~$12.4 million for the three months ended June 30, ~~2019,~~2020, compared to a net loss of ~~$4.4~~$18.1 million for the prior year ~~period,~~period. The change primarily ~~resulting~~resulted from the ~~$24.6~~$6.5 million ~~increase~~decrease in ~~depreciation and amortization~~interest expense and the ~~$16.0~~$5.0 million ~~increase~~decrease in ~~interest expense, net, as described above,~~operating expenses, partially offset by the ~~$8.2~~$2.9 million ~~increase~~decrease in total revenues and the ~~$15.6~~$3.2 million decrease in income tax ~~expense~~benefit, as described above.

Comparison of Our Results of Operations for the Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019


	Six Months Ended June 30,																		Six Months Ended June 30,													Change
	2019			% of Total Revenue			2018			% of Total Revenue			Change						2020			% of Total Revenue			2019				% of Total Revenue			Change
($ in thousands)				% of Total Revenue		Dollars				% of Total Revenue		Percent						Dollars				% of Total Revenue		Percent					% of Total Revenue
Revenue:	2019						2018
Services	$	217,748		79	%		$	193,708		76	%		$	24,040		12	%		2020	$	229,325		80	%	2019		$	217,748			79	%		$	11,577			5	%
Subscriber equipment	44,428			16	%		51,647			20	%		(7,219		)	(14	)%		42,078			15	%		44,428				16	%		(2,350		)		(5	)%
Engineering and support services	14,609			5	%		8,724			4	%		5,885			67	%		14,057			5	%		14,609				5	%		(552		)		(4	)%
Total revenue	276,785			100	%		254,079			100	%		22,706			9	%		285,460			100	%		276,785				100	%		8,675				3	%

Operating expenses:
Cost of services (exclusive of depreciation
and amortization)	48,128			17	%		41,596			16	%		6,532			16	%		45,112			16	%		48,128				17	%		(3,016		)		(6	)%
Cost of subscriber equipment	25,801			9	%		30,833			12	%		(5,032		)	(16	)%		24,343			8	%		25,801				9	%		(1,458		)		(6	)%
Research and development	7,896			3	%		10,149			4	%		(2,253		)	(22	)%		4,824			2	%		7,896				3	%		(3,072		)		(39	)%
Selling, general and administrative	44,810			16	%		46,761			18	%		(1,951		)	(4	)%		41,925			15	%		44,810				16	%		(2,885		)		(6	)%
Depreciation and amortization	148,042			54	%		88,956			35	%		59,086			66	%		151,606			53	%		148,042				54	%		3,564				2	%
Total operating expenses	274,677			99	%		218,295			85	%		56,382			26	%		267,810			94	%		274,677				99	%		(6,867		)		(3	)%
Operating income	2,108			1	%		35,784			15	%		(33,676		)	(94	)%		17,650			6	%		2,108				1	%		15,542				737	%

Other expense:
Interest expense, net	(54,790		)	(20	)%		(17,150		)	(7	)%		(37,640		)	219	%		(48,950		)	(17	)%		(54,583		)		(20	)%		5,633				(10	)%
Loss on extinguishment of debt																			(30,209		)	(11	)%		(207		)		—	%		(30,002		)		14,494	%
Other income (expense), net	(952		)	—	%		102			—	%		(1,054		)	(1,033	)%		127			—	%		(952		)		—	%		1,079				(113	)%
Total other expense, net	(55,742		)	(20	)%		(17,048		)	(7	)%		(38,694		)	227	%		(79,032		)	(28	)%		(55,742		)		(20	)%		(23,290		)		42	%
Income (loss) before income taxes	(53,634		)	(19	)%		18,736			8	%		(72,370		)	(386	)%
Income tax benefit (expense)	17,504			6	%		(11,682		)	(5	)%		29,186			(250	)%
Net income (loss)	$	(36,130	)	(13	)%		$	7,054		3	%		$	(43,184	)	(612	)%
Loss before income taxes																			(61,382		)	(22	)%		(53,634		)		(19	)%		(7,748		)		14	%
Income tax benefit																			17,258			6	%		17,504				6	%		(246		)		(1	)%
Net loss																			$	(44,124	)	(16	)%		$	(36,130	)		(13	)%		$	(7,994	)		22	%

Revenue

Commercial Service Revenue

Six Months Ended June 30,
2019 2018 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 $ 99.0
368
$ 45
$ 92.5
364
$ 43
$ 6.5
4
$ 2
Commercial IoT data 46.4
720
11.31
40.6
576
12.48
5.8
144
(1.17 )
Hosted payload and other data services 25.8
N/A
16.6
N/A
9.2
N/A

Total Commercial $ 171.2
1,088
$ 149.7
940
$ 21.5
148



	Six Months Ended June 30,
	2020					2019					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	$	84.0	349	$	40	$	84.8	358	$	39	$	(0.8	)	(9	)	$	1
Broadband (3)	17.2		11.1	262		14.2		10.2	238		3.0			0.9		24
IoT data	46.4		863	9.29		46.4		720	11.31		—			143		(2.02		)
Hosted payload and other data	31.7		N/A			25.8		N/A			5.9			N/A
Total commercial services	$	179.3	1,223			$	171.2	1,088			$	8.1		135


⁽¹⁾	Billable subscriber numbers shown are at the end of the respective period.

⁽²⁾


⁽³⁾	Commercial broadband consists of Iridium OpenPort and Iridium Certus broadband services, which were previously reported in commercial voice and data revenue. Prior year periods have been conformed to this presentation.

For the six months ended June 30, ~~2019,~~2020, total commercial service revenue increased ~~$21.5~~from the prior year period by $8.1 million, or ~~14%~~5%, primarily due to ~~the increase in~~increased hosted payload and other data services revenue and increased commercial broadband revenue. Hosted payload and other data service revenue ~~of $9.2~~increased $5.9 million, or ~~55%. This increase was~~23%, primarily due to ~~revenue recognition from hosting services~~increased Aireon data service fees related to ~~Aireon and Harris~~a contractual step-up and increased ~~data services~~Aireon power fees. Commercial broadband revenue increased $3.0 million, or 21%, from the prior year period, principally due to ~~an increase~~sales of Iridium Certusbroadband services, which were commercially introduced in January 2019. These increases were partially offset by a $0.8 million, or 1%, decline in commercial voice and data revenue from the ~~number of upgraded satellites~~prior year period resulting from a decrease in ~~service. During~~usage based on mobility restrictions associated with the COVID-19 pandemic. Commercial IoT data revenue remained flat for the six months ended June 30, ~~2019, we recognized additional hosting data service revenue~~2020, at $46.4 million, primarily as a result of ~~$3.2 million related to~~a decline in usage, also associated with the recognition of revenue using the historical pattern of usage on prepaid data services on our hosted payloads. In addition, commercial voice and data revenue increased by $6.5 million, or 7%, from the prior year period. This increase was principally due to an increase in ARPU resulting from certain price increases in access and roaming fees that were implemented during the second quarter of 2018. Commercial service revenue during the six months ended June 30, 2019 also benefited from an increase in broadband subscribers. Commercial IoT data revenue increased by $5.8 million, or 14%, from the prior year period primarily due to a 25% increase in commercial IoT data billable subscribers primarily from continued strength in consumer personal communications devices. This higher volume of new personal communication subscribers caused overall IoT ARPU to be lower.COVID-19 pandemic.

~~We anticipate continued growth in billable commercial subscribers throughout 2019.~~

Government Service Revenue

Six Months Ended June 30,
2019 2018 Change
Revenue
Billable
Subscribers ⁽¹⁾
Revenue
Billable
Subscribers ⁽¹⁾
Revenue
Billable
Subscribers
(Revenue in millions and subscribers in thousands)
Government service revenue $ 46.5
125
$ 44.0
107
$ 2.5
18



	Six Months Ended June 30,
	2020			2019			Change
	Revenue		Billable Subscribers ⁽¹⁾	Revenue		Billable Subscribers ⁽¹⁾	Revenue		Billable Subscribers
	(Revenue in millions and subscribers in thousands)
Government services	$	50.0	139	$	46.5	125	$	3.5	14


⁽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 anour Enhanced Mobile Satellite Services contract, or the EMSS contract managed by AFSPC. In October 2018, the U.S. government exercised its right under the federal acquisition regulations to extend the contract for an additional six months, through April 21, 2019. The U.S. government has subsequently extended the contract term for four one-month periods through August 21, 2019. For the six months ended June 30, 2019, government service revenue increased $2.5 million as a result of the price increases for each of the one-month extensions.Contract. Under the terms of this agreement, authorized customers utilize ~~certain~~specified Iridium airtime services provided through the ~~DoD’s~~U.S. government’s dedicated gateway. ~~These services include unlimited global secure and unsecure voice, low and high-speed data, paging, broadcast, and DTCS services for an unlimited number of DoD and other federal subscribers.~~ The fee is not based on subscribers or usage, allowing an unlimited number of users access to ~~such existing~~these services. For the six months ended June 30, 2020, government service revenue increased $3.5 million from the prior year period as a result of the higher pricing in the new EMSS Contract.

We expect the new agreement will be a long-term contract with revenues in all years greater than the $88.0 million in annual revenue in the last full year of the EMSS contract. The fixed-price rates for the one-month extensions are $8.3 million, $8.5 million, $8.6 million, and $8.8 million, respectively. Under the terms of the extensions, authorized customers will continue to utilize our airtime services, provided through the DoD’s dedicated gateway, for an unlimited number of DoD and other federal subscribers.

Subscriber Equipment Revenue

Subscriber equipment revenue decreased by ~~$7.2~~$2.4 million, or ~~14%~~5%, for the six months ended June 30, ~~2019~~2020 compared to the prior year period, primarily due to a decrease in the volume of handset and IoT device sales, ~~and Iridium Pilot unit sales,~~due to the impact of the COVID-19 pandemic, partially offset by ~~an increase in~~ the ~~volume of Short Burst Data~~^®~~devices. Handset volumes in 2018 were abnormally strong.~~higher average selling price on our L-band transceivers.

Engineering and Support Service Revenue

Six Months Ended June 30,
2019 2018 Change
(Revenue in millions)
Commercial $ 1.0
$ 0.2
$ 0.8
Government 13.6
8.5
5.1
Total $ 14.6
$ 8.7
$ 5.9



	Six Months Ended June 30,
	2020		2019		Change
	(Revenue in millions)
Commercial engineering and support services	$	2.1	$	1.0	$	1.1
Government engineering and support services	11.9		13.6		(1.7		)
Total engineering and support services	$	14.0	$	14.6	$	(0.6	)

Engineering and support service revenue ~~increased~~decreased $0.6 million, or 4%, for the six months ended June 30, ~~2019~~2020 compared to the prior year period primarily as a result of a decrease in the volume of contracted work to enable services for the U.S. government, offset by an increase in the volume of ~~contracted~~ work for ~~government agencies.~~commercial customers, primarily related to the Aireon hosted payload operations center.

Operating Expenses

Cost of Services (exclusive of depreciation and amortization)

Cost of services (exclusive of depreciation and amortization) ~~increased~~decreased by ~~$6.5~~$3.0 million, or ~~16%~~6%, for the six months ended June 30, ~~2019~~2020 from the prior year period, primarily as a result of a decrease in in-orbit insurance costs, which are amortized over a one-year period from the in-service date, as we completed the placement of upgraded satellites in-orbit in February 2019. This decrease was offset in part by a higher costs to support the new EMSS contract and higher satellite operations support associated ~~with a greater number of upgraded satellites in service during the current period, corresponding~~ with higher levels of activity directed towards operating the completed system and an increase in the volume of contracted engineering and support services. These increases were partially offset by a decrease in the in-orbit insurance costs, which are amortized over one-year from the in-service date.system.

Cost of Subscriber Equipment

Cost of subscriber equipment decreased by ~~$5.0~~$1.5 million, or ~~16%~~6%, for the six months ended June 30, ~~2019~~2020 compared to the prior year period primarily due to ~~decreased subscriber equipment revenue primarily from decreased~~the decrease in the volume of handset and IoT device sales, ~~and Iridium Pilot unit sales.~~as described above.

Research and Development

Research and development expenses decreased by ~~$2.3~~$3.1 million, or ~~22%~~39%, for the six months ended June 30, ~~2019~~2020 compared to the prior year period due to decreased spend on devices for our ~~new,~~ upgraded network.

Selling, General and Administrative

Selling, general and administrative expenses decreased by ~~$2.0~~$2.9 million, or 4%6%, for the six months ended June 30, ~~2019~~2020 compared to the prior year period, primarily due to a decrease in ~~professional fees~~management incentive compensation and ~~marketing costs.~~decreased spend on travel associated with COVID-19 restrictions. The decrease was also related to a decrease in stock appreciation rights expense resulting from changes in our stock valuation between the respective reporting periods. These decreases were offset by an increase in wages associated with an increase in headcount in our general and administrative functions as well as higher legal fees.

Depreciation and Amortization

Depreciation and amortization expense increased by ~~$59.1~~$3.6 million, or ~~66%~~2%, for the six months ended June 30, ~~2019~~2020 compared to the prior year period, primarily due to the increased number of upgraded satellites in service during the ~~first six months of 2019~~current period as we completed the replacement of our first-generation ~~satellites.~~satellites in February 2019. As the upgraded satellites are the largest proportion of our asset base, we anticipate depreciation and amortization to remain relatively consistent from period to period for the next several years.

Other Expense

Interest ~~Income (Expense),~~Expense, Net

Interest expense, net ~~increased $37.6~~decreased $5.6 million for the six months ended June 30, ~~2019~~2020 compared to the prior year period. The ~~increase~~decrease in interest expense is primarily related to the impacts of the refinancing of our debt including a decrease in the ~~credit facility~~weighted average effective interest ~~being capitalized as~~rate and lower average outstanding borrowings under our total debt obligations.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $30.2 million for the ~~average balance~~six months ended June 30, 2020, compared to $0.2 million for the prior year period. During February 2020, we closed on an additional $200.0 million under our Term Loan and used these proceeds, together with cash on hand, to prepay all of ~~satellites~~the indebtedness outstanding under the Notes, including premiums for early prepayment. In conjunction with the prepayment of the Notes, we wrote off the remaining unamortized debt issuance costs, resulting in ~~construction decreased as upgraded satellites were completed.~~

the $30.2 million loss on extinguishment of debt. In the prior year period, we used hosting fees received from Aireon to extinguish debt.

Income Tax Benefit ~~(Expense)~~

For the six months ended June 30, ~~2019,~~2020, our income tax benefit was ~~$17.5~~$17.3 million, compared to income tax ~~expense~~benefit of ~~$11.7~~$17.5 million for the prior year period. The decrease in income tax ~~expense~~benefit is primarily related to a reduced stock compensation benefit compared to the prior year. This decrease was partially offset by a decrease in ~~income~~loss before income taxes compared to the prior year, as well as prior year nonrecurring adjustments to our deferred tax assets and liabilities related to state law changes.

Net ~~Income (Loss)~~Loss

Net loss was ~~$36.1~~$44.1 million for the six months ended June 30, ~~2019,~~2020, compared to net ~~income~~loss of ~~$7.1~~$36.1 million for the prior year ~~period,~~period. The change primarily ~~resulting~~resulted from the ~~$59.1~~$30.0 million increase in loss on extinguishment of debt and the $3.6 million increase in depreciation and amortization expense, ~~and the $37.6 million increase in interest expense, net, as described above,~~ partially offset by the ~~$22.7~~$8.7 million increase in total revenues, ~~and~~ the ~~$29.2~~$10.4 million decrease in ~~income tax~~other operating expenses and the $5.6 million decrease in interest expense, as described above.

Liquidity and Capital Resources

In November 2019, we borrowed $1,450.0 million under our Term Loan, with an accompanying $100.0 million revolving loan, or the Revolving Facility. We used the proceeds of the Term Loan, cash in our debt service reserve account and cash on hand to repay in full all of the indebtedness outstanding under our previous loan facility with Bpifrance Assurance Export S.A.S., including premiums for early prepayment. In February 2020, we borrowed an additional $200.0 million under our Term Loan and used the proceeds and cash on hand to repay in full and retire all of the indebtedness outstanding under our Notes, including premiums for early repayment.

As of June 30, ~~2019,~~2020, we reported an aggregate balance of $1,645.9 million in borrowings under the Term Loan, before $25.8 million of net deferred financing costs, for a net principal balance of $1,620.1 million outstanding in our condensed consolidated balance sheet. We have not drawn on our Revolving Facility.

Our Term Loan contains no financial maintenance covenants. With respect to the Revolving Facility, we are required to maintain a 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.

As of June 30, 2020, our total cash and cash equivalents balance was ~~$175.8 million. Our~~$119.1 million, and we had $100.0 million of borrowing availability under our Revolving Facility. In addition to the Revolving Facility, our principal sources of liquidity are cash, ~~and~~ cash equivalents ~~as well as~~and internally generated cash flows. Our principal liquidity requirements over the next twelve months are ~~primarily~~ principal and interest on the Credit Facility, and interest on the senior unsecured notes issued in March 2018, or the Notes. We intend to refinance our Credit Facility into a new facility, which will also permit us to retire the Notes, within the next twelve months, assuming favorable conditions in the debt markets persist.Term Loan.

~~The aggregate costs associated with the design, build and launch of~~We believe our upgraded constellation and related infrastructure upgrades were approximately $3 billion. We paid for these costs using the substantial majority of our $1.8 billion Credit Facility together with cash and cash equivalents on hand and internally generated cash flows.

In March 2018, we issued $360.0 million aggregate principal amount of Notes, before $9.0 million of deferred financing costs, for net proceeds of $351.0 million from the Notes. The Notes bear interest at 10.25% per annum and mature on April 15, 2023. Interest is payable semi-annually on April 15 and October 15, and outstanding principal amountsliquidity sources will be due in full upon maturity. The proceeds of the Notes were used to prepay amounts due to Thales Alenia Space, to replenish the debt service reserve account, or DSRA, under the Credit Facility and to pay Thales Alenia Space milestones. The proceeds of the Notes also provide us with additional cash to make principal and interest payments under our Credit Facility and interest payments on the Notes. We were in compliance with all covenants under the Notes as of June 30, 2019.

Also in March 2018, we amended and restated our Credit Facility by a supplemental agreement, which was effective upon the issuance of the Notes. As amended and restated, the Credit Facility (i) allowed us to issue the Notes, (ii) delayed a portion of the principal repayments scheduled under the Credit Facility for 2018, 2019 and 2020 into 2023 and 2024 pursuant to an amended repayment installment schedule, (iii) allows us to access up to $87.0 million from the DSRA in the future if our projected cash level falls below $75.0 million, and (iv) adjusted our financial covenants, including eliminating covenants that required us to receive cash flows from hosted payloads and adding a covenant that requires us to receive $200.0 million in hosting fees from Aireon by December 2023. Under the Credit Facility, as amended to date, in the event that (a) our cash balance exceeds $140.0 million after September 30, 2019 (subject to specified exceptions) or (b) we receive hosting fees from Aireon, we would be required to use 50% of such excess cash and up to $200.0 million of hosting fees to prepay the Credit Facility. In addition, if any of the Notes remain outstanding on October 15, 2022, which is six months prior to the scheduled maturity of the Notes, the maturity of all amounts remaining outstanding under the Credit Facility would be accelerated from September 30, 2024 to October 15, 2022.

In March 2018, we converted all outstanding shares of our Series A Preferred Stock into shares of common stock, resulting in the issuance of approximately 10.6 million shares of common stock. In order to convert the Series A Preferred Stock, we declared and paid all current and cumulative dividends on our Series A Preferred Stock and Series B Preferred Stock in the amounts of $7.0 million and $8.4 million, respectively. In May 2019, we converted all outstanding shares of our Series B Preferred Stock into shares of common stock, resulting in the issuance of approximately 16.6 million shares of common stock. In order to convert the Series B Preferred Stock, we declared and paid all current and cumulative dividends on our Series B Preferred Stock in the amount of $8.4 million.

As of June 30, 2019, we reported $1,561.8 million in borrowings under the Credit Facility in our condensed consolidated balance sheet, net of $69.1 million of deferred financing costs, for an aggregate balance of $1,630.9 million under the Credit Facility. Pursuant to the Credit Facility, we maintain the DSRA. As of June 30, 2019, the DSRA balance was $194.1 million, which is classified as restricted cash and cash equivalents in our condensed consolidated balance sheet. This amount includes a minimum cash reserve for debt service related to the Credit Facility as well as the interest earned on these amounts. 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 30 and December 31;

~~specified maximum levels of annual capital expenditures (excluding expenditures on the Iridium NEXT program) through the year ending December 31, 2024;~~

a debt service coverage ratio, measured during the repayment period, of not less than 1.5 to 1, measured each June 30 and December 31 through the year ending December 31, 2020, not less than 1.25 to 1 for June 30 and December 31, 2021, and not less than 1.5 to 1, for each June 30 and December 31 thereafter through 2024;

specified maximum leverage levels during the repayment period that decline from a ratio of 7.64 to 1 for the twelve months ending June 30, 2019 to a ratio of 2.00 to 1 for the twelve months ending December 31, 2024; and

~~a requirement that we receive at least $200.0 million in hosting fees from Aireon by December 31, 2023.~~

Our available cash balance, as defined by the Credit Facility, was $175.8 million as of June 30, 2019. Our debt-to-equity ratio was 0.54 to 1 as of June 30, 2019. Our debt service coverage ratio was 2.7 as of June 30, 2019, and our leverage was 5.7 to 1 for the twelve months ended June 30, 2019. We were also in compliance with the annual capital expenditures covenant as of December 31, 2018, the last point at which it was required to be measured.

The covenant regarding capital expenditures is 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 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 June 30, 2019, we had an available cure amount of $57.3 million, although it was not necessarysufficient funds 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~~meet our liquidity requirements for at least the next ~~and we expect that it will continue to do so.~~ 12 months.

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.

Cash Flows

The following table summarizes our cash flows:


	Six Months Ended June 30,									Six Months Ended June 30,
	2019			2018			Change			2020			2019			Change
	(in thousands)									(in thousands)
Cash provided by operating activities	$	64,088		$	141,088		$	(77,000	)	$	104,532		$	64,088		$	40,444
Cash used in investing activities	$	(102,581	)	$	(403,058	)	$	300,477		$	(18,655	)	$	(102,581	)	$	83,926
Cash (used in) provided by financing activities	$	(57,441	)	$	239,550		$	(296,991	)
Cash used in financing activities										$	(189,083	)	$	(57,441	)	$	(131,642	)

Cash Flows ~~from~~Provided by Operating Activities

Net cash provided by operating activities for the six months ended June 30, ~~2019 decreased~~2020 increased by ~~$77.0~~$40.4 million from the prior year period principally due to ~~the decrease in net income and to~~ an increase in cash from working capital changes of approximately ~~$68.5 million related to~~$22.2 million. This increase was primarily the result of an ~~increase~~improvement in accounts receivable collections related to the timing of the extensions under the EMSS contract, as well as lower purchases of inventory in 2020, compared to the prior year. These improvements were offset in part by a decrease in ~~net deferred revenue as we received greater hosting payments during~~interest payable compared to the prior ~~six-month period,~~year. In November 2019 and February 2020, we replaced our Credit Facility and Notes, respectively, with the Term Loan, resulting in monthly interest payments and an increase in cash used compared to previous semi-annual interest payments. As a ~~decrease~~result, there is minimal interest payable in ~~accrued expenses related~~the 2020 working capital balance for the new Term Loan. Additionally, net loss adjusted for non-cash activities increased $18.2 million over the prior year, primarily attributable to the non-cash $30.0 million increase in ~~interest payments included within operations.~~

the loss on extinguishment of debt.

Cash Flows ~~from~~Used in Investing Activities

Net cash used in investing activities for the six months ended June 30, ~~2019~~2020 decreased by ~~$300.5~~$83.9 million compared to the prior year period primarily due to a decrease in capital expenditures as we completed payments for the construction of our upgraded constellation ~~and a decrease in net purchases of marketable securities related to the investment of the proceeds of the Notes~~ in the prior ~~six-month period.~~year. We continue to estimate our long-term capital expenditures at approximately $35.0 million per year.

Cash Flows ~~from~~Used in Financing Activities

Net cash ~~provided by~~used in financing activities for the six months ended June 30, ~~2019 decreased~~2020 increased by ~~$297.0~~$131.6 million ~~from~~compared to the prior year period primarily due to utilizing our cash to pay down additional debt in the current year. This resulted in net ~~proceeds~~principal payments and related costs of $185.6 million for the ~~Notes issuance in March 2018, extinguishment~~first half of ~~the Thales Alenia Space bills of exchange and the increased~~2020, compared to a $54.0 million principal ~~repayments under~~payment on the Credit ~~Facility.~~Facility in the first half of 2019. See Note 65 to our condensed consolidated financial statements included in this report for further discussion of our indebtedness.

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 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.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our condensed 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, useful lives of property and equipment, long-lived assets and other intangible assets, deferred financing costs, income taxes, stock-based compensation, 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. There have been no changes to our critical accounting policies from those described in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, as filed with the SEC on February 25, 2020.

Recent Accounting Pronouncements

Refer to Note 2 to our condensed consolidated financial statements for a full description of recent accounting pronouncements and recently adopted pronouncements.



ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We have an outstanding an aggregate balance of ~~$1,630.9~~$1,645.9 million under the ~~Credit Facility~~Term Loan as of June 30, ~~2019. A~~2020. We have executed a long-term interest rate swap, or the Swap, for $1,000.0 million of the Term Loan, through November 2021. We also entered into an interest rate swaption, or the Swaption, that if executed on November 22, 2021, would extend our Swap through November 2026. For the portion of the ~~draws we made~~Term Loan not covered under the ~~Credit Facility bear~~Swap, we pay interest at ~~a floating~~an annual rate equal to the London Interbank Offered Rate, or LIBOR, plus ~~1.95% and~~3.75%, with a 1.0% LIBOR floor, which will, accordingly, subject us to interest rate fluctuations in future periods. A one-half percentage point increase or decrease in the LIBOR would not have had a material impact on our interest cost for the ~~three or six months ended~~period.

We have no borrowings under our Revolving Facility as of June 30, ~~2019.~~

~~The~~2020. Accordingly, although the Revolving Facility bears interest at the same LIBOR plus 3.75% rate, ~~under the Notes is fixed,~~but without a LIBOR floor, if and as ~~a result~~drawn, we ~~are~~were not exposed to fluctuations in interest rates with respect to our ~~obligations under the Notes.~~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 and accounts payable. At times we maintain cash and cash equivalent deposit balances in excess of Federal Deposit Insurance Corporation limits. However, we~~receivable. We maintain our cash and cash equivalents with financial institutions with high credit ~~ratings.~~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 ~~into funds that invest~~ in U.S. treasuries, Agency Mortgage Backed Securities and/or ~~are collateralized by~~ U.S. government-backed securities. From time to time, we may invest in marketable securities consisting of U.S. treasury notes, fixed income debt instruments and commercial paper debt instruments with fixed interest rates and maturity dates within one year of original purchase. Due to the credit quality and nature of these debt instruments, we do not believe there has been a significant change in our market risk exposure since December 31, 2018.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.



ITEM 4.	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 Rule 13a-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 ~~as of the end of the period covered by this report,~~ 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.

Changes in Internal Control Over Financial Reporting

During the quarter ended June 30, ~~2019,~~2020, 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.

PART II.

OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS.

None.


ITEM 1A.	RISK FACTORS.

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. In addition to the other information set forth in this quarterly report on Form 10-Q, you should carefully consider the factors described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, filed with the Securities and Exchange Commission on February ~~28, 2019.~~25, 2020, as supplemented by the following updated risk factors.

Our business has been negatively affected by the COVID-19 pandemic, actions taken to mitigate the pandemic, and economic disruptions that have resulted, but we are unable to predict the full extent or nature of these impacts at this time.

In response to the COVID-19 pandemic, many jurisdictions in the United States and around the world ordered their residents to cease traveling to non-essential jobs and to stay in their homes as much as possible. Since mid-March, we have been conducting business with remote work for most employees, prohibition on employee travel, and remote sales and support activities, among other modifications. The pandemic and the steps taken to respond have also caused substantial domestic and global economic disruption, including similar restrictions on activity among our distributors, which has led to reduced sales and has limited our distributors’ ability to install or service our products. These limitations may continue for the duration of these pandemic-related restrictions, and we or our distributors may take additional actions to respond as the situation evolves.

Further, unemployment has significantly increased, and financial markets are experiencing significant levels of volatility and uncertainty, which could have an adverse effect on consumer and commercial spending and negatively affect demand for our and our distributors’ products and services, particularly in markets such as aviation and recreation. This, in turn, could negatively affect the value of our current agreements with our distributors and their willingness to enter into or renew contracts with us. The pandemic has also negatively affected the payment of accounts receivable and collections. One of our distributors has sought protection in bankruptcy, causing us to reduce the amount we expect to receive from them for past services. If additional distributors seek protection in bankruptcy, it could further harm our cash flows and results of operations.

As a result of the negative effects we have seen, we substantially reduced our initial revenue and earnings outlook for 2020. Other effects of the COVID-19 pandemic and the effects of the modifications we and others have made in response are difficult to assess or predict with certainty at this time but may include risks to employee health and safety, a further decline in the market price of our common stock, a prolonged economic downturn, and deterioration of the economy and consumer and commercial spending, any of which could further adversely affect our business, results of operations and/or financial condition in 2020 and beyond.

Aireon, our primary hosted payload customer, has been affected by reduced air traffic as a result of the COVID-19 pandemic, 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 $39.5 million. In addition, 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, and we would then retain a common ownership interest of approximately 22% in Aireon Holdings. 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 before mid-2022.

Aireon provides air traffic surveillance services to ANSPs around the world, as well as other offerings based on its collection of air traffic surveillance data. The COVID-19 pandemic has resulted in substantially reduced air traffic worldwide, and it is uncertain when air traffic volumes will recover. A portion of Aireon’s customers pay them on a per-flight-hour basis, and even those customers with fixed-fee arrangements may seek to renegotiate their fees in the face of dramatically reduced air traffic. Further, Aireon’s business model requires expansion of its customer base to achieve its projected financial results, which may be substantially more difficult until air traffic volumes recover. While our fee arrangements with Aireon do not depend on traffic volumes, if Aireon’s revenues are substantially reduced, 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 value of our retained investment in Aireon Holdings.

~~There~~We are dependent on third parties to market and sell our products and 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. 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 ~~been no material~~ limited control over their operations, which exposes us to significant risks. Distributors may not commit the same level of resources to market and sell our products and services that we would, and thesedistributors 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.

In addition, we may lose distributors due to competition, consolidation, regulatory developments, business developments affecting our distributors or their customers, or for other reasons. For example, the COVID-19 pandemic and the steps taken to respond are causing substantial domestic and global economic disruption, including financial difficulties and restrictions on activity among our distributors, which have led to reduced sales and limited our distributors’ ability to install or service our products. These disruptions have also negatively affected the payment of accounts receivable and collections. For example, one of our distributors has sought protection in bankruptcy, causing us to reduce the amount we expect to receive from them for past services. Other distributors could similarly seek to reorganize or seek protection from creditors, including us. These financial disruptions could also result in industry consolidation. In 2009, one of our largest competitors, Inmarsat, acquired our then largest distributor, Stratos Global Wireless, Inc., and in 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 may further reduce their efforts 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 LTD and Marlink Group, together represented approximately 10% of our revenue for the year ended December 31, 2019, and our ten largest distributors represented, in the aggregate, 31% of our revenue for the year ended December 31, 2019. 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, which would negatively impact our revenue.

We rely on a limited number of key vendors for supply of equipment and services, the loss of any of which could cause us to incur additional costs and delays in the production and delivery of our products.

We currently rely on two manufacturers of our devices, including our mobile handsets, L-Band transceivers, SBD^® devices and Iridium Pilot^® terminals. We also utilize sole source suppliers for some of the component parts of our devices. If any of our 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 manufacturers and suppliers may become capacity-constrained, or could face financial difficulties as a result of a surge in demand, a natural disaster or other event, including the impacts of the COVID-19 pandemic. In addition, one or more component suppliers may decide to cease production of various components of our products, resulting in a shortage or interruption in supplies or an inability to meet increased demand. Any delay in production or delivery of our products or components by our suppliers due to an extended closure of their plants or other restrictions imposed in response to the COVID-19 pandemic could also adversely affect our business. Although we may be able to replace or supplement sole source 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 our 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 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 our operations and performance.

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 for71% and72% of total commercial data traffic for the years ended December 31, 2019 and 2018, respectively, while commercial voice traffic originating outside the United States, excluding Iridium OpenPort traffic, accounted for90% of total commercial voice traffic for the years ended December 31, 2019 and 2018. 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. The COVID-19 pandemic has, and may continue to, put pressure on global economic conditions and overall spending, which could negatively affect end user adoption of our products.

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 risks associated with the proposed expansion of our international operations include:

effects of the COVID-19 pandemic, including on international economies, supply chains and travel;

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;

changes in laws and policies affecting trade and investment in other jurisdictions, including the United Kingdom’s exit from the ~~risk factors described~~European Union;

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 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, including as a result of the COVID-19 pandemic, 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, in some locations, primarily Russia, we conduct business in the ~~annual report.~~local

currency, and a depreciation of the local currency against the U.S. dollar will reduce the U.S. dollar value of our revenues from those countries. In recent years, Russia has experienced significant currency depreciation against the U.S. dollar.

Repurposing of satellite spectrum by adjacent operators of L-band spectrum for terrestrial services could interfere with our services.

In February 2003, the U.S. Federal Communications Commission, or FCC, adopted Ancillary Terrestrial Component, or 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 oppose this waiver out of concern for the interference that we believe Ligado’s proposed operations would cause to our operations in adjacent L-band spectrum.

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.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.

None.


ITEM 4.	MINE SAFETY DISCLOSURES.

Not applicable.


ITEM 5.	OTHER INFORMATION.

None.


ITEM 6.	EXHIBITS.

The following list of exhibits includes exhibits submitted with this Form 10-Q as filed with the Securities and Exchange Commission.



Exhibit		Description

~~10.1~~		~~Amendment to Contract for Enhanced Mobile Satellite Services between Iridium Satellite LLC and the Defense Information Systems Agency, dated as of April 22, 2019.~~
~~10.2~~		~~Amendment to Contract for Enhanced Mobile Satellite Services between Iridium Satellite LLC and the Defense Information Systems Agency, dated as of May 21, 2019.~~
~~10.3~~		~~Amendment to Contract for Enhanced Mobile Satellite Services between Iridium Satellite LLC and the Defense Information Systems Agency, dated as of June 21, 2019.~~
~~10.4~~		Iridium Communications Inc. Amended and Restated 2015 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to the Registrant's registration statement on Form S-8 filed on May 23, 2019.
31.1		Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002.
32.1*		Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(b) and 15d-14(b) promulgated under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
101		The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2019,~~2020, filed with the Securities and Exchange Commission on July ~~23, 2019,~~28, 2020, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, ~~2019~~2020 and December 31, ~~2018;~~2019; (ii) Condensed Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~Loss for the three and six months ended June 30, ~~2019~~2020 and ~~2018;~~2019; (iii) Condensed Consolidated Statements of Changes in ~~Stockholders'~~Stockholders’ Equity for the three and six months ended June 30, ~~2019~~2020 and ~~2018;~~2019; (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, ~~2019~~2020 and ~~2018;~~2019; and (iv) Notes to Condensed Consolidated Financial Statements.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).



*	These certifications are being furnished solely to accompany this quarterly 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.
**	Denotes management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements 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.



	IRIDIUM COMMUNICATIONS INC.

	By:	/s/ Thomas J. Fitzpatrick
		Thomas J. Fitzpatrick
		Chief Financial Officer (as duly authorized officer and as principal financial officer of the registrant)

Date: July ~~23, 2019~~28, 2020

3334



		June 30, 2019
Leases	Classification	(in thousands)
Operating lease assets
Noncurrent	Other assets	$	28,177
Total lease assets		28,177

Operating lease liabilities
Current	Accrued expenses and other current liabilities	3,221
Noncurrent	Other long-term liabilities	27,998
Total lease liabilities		$	31,219