Good day, ladies and gentlemen, and welcome to the Iridium Fourth Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Steve Kunszabo, Executive Director of Investor Relations. Please begin.

Good morning, and thanks for joining us. I'd like to welcome you to our Fourth Quarter 2014 Earnings Call. Joining me on the call this morning are CEO, Matt Desch; and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of the 2014 fourth quarter results, followed by Q&A. Before I turn things over to Matt, I'd like to caution all participants that our call this morning may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts and include statements about our future expectations, plans and prospects. Such forward-looking statements are based upon our current beliefs and expectations and are subject to risks, which could cause actual results to differ from the forward-looking statements. Such risks are more fully discussed in our filings with the Securities and Exchange Commission. Our remarks today should be considered in light of such risks. Any forward-looking statements represent our views only as of today. And while we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our expectations or views change. During the call, we'll also be referring to certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Please refer to today's earnings release in the Investor Relations section of our website for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. With that, let me turn things over to Matt.

Thanks, Steve. Good morning, everyone. I’ll begin by highlighting that we exceeded our key financial targets for the full year 2014. Total service revenue gained 6% and operational EBITDA increased 8% to more than $216 million with solid contributions across our business portfolio. We issued our 2015 outlook and updated our long-range guidance today, which Tom will discuss in greater detail. My focus will be on outlining the progress we made against our key programs, including the status of our network, the planned schedule for Iridium NEXT, developments in our Aireon joint venture and our future expansion into broadband services. I’ll finish up with a few details on our major lines of business. The first topic, as usually the case, is the status of our current network. It’s performing very well and as we expected we’ve had no satellite losses during the fourth quarter or thus far in fact in 2015. It continues to deliver an excellent user experience to our partners and customers around the world, with leading coverage and performance statistics. We operate a flexible and resilient satellite network, which should have no problems supporting our growing business as we transition new Iridium NEXT satellites into the constellation starting later this year. We have one spare still available in orbit and continue to make improvements in our new software to the network to provide additional services. It’s important to note that in regard to Iridium NEXT, our capital budget hasn’t changed and remains approximately $3 billion. I can also report that the overall schedule for network completion hasn’t changed either and is on track for 2017 and that has been confirmed by all of our suppliers. However, recently, we and our prime contractor, Thales Alenia Space, decided to move out the first planned launch from June of this…

Thanks, Matt, and good morning, everyone. I’ll get started by outlining our key financial metrics for the fourth quarter and then summarize the 2015 financial targets we issued today. I’ll wrap up my thoughts by bridging our results and annual guidance to our long-range outlook, briefly reviewing our balance sheet and capital structure. Iridium reported fourth quarter total revenue of $100.5 million, which was up 2% from last year's comparable quarter. Total revenue benefited primarily from a $1.7 million increase in the high margin service component. Operational EBITDA came in at $51.8 million, an increase of 4% from the prior year quarter. Our operational EBITDA margin was 52% for the fourth quarter, up from 51% in the year ago period. From an operating viewpoint, we reported commercial service revenue of $60.7 million in the fourth quarter, which was relatively flat versus last year. We added 10,000 net commercial customers during the quarter, with all of the net customer gain coming from our M2M business. Commercial M2M data subscribers now represent 48% of billable commercial subscribers, an increase from 45% during the year-ago period. It’s important to note that while our commercial voice and data subscribers increased 4% year over year, this was largely offset by a 9% ARPU decline which resulted in service revenue being essentially flat. As I reinforced in our last earnings call, we expected this to be the case as we booked $3.6 million benefit in the fourth quarter of 2013 due to a change in our prepaid airtime policy that did not have the same impact in the fourth quarter of 2014. Turning now to our government service business, which generated revenue of $17.5 million, representing 12% year-over-year growth, driven by the step up in our fixed price airtime services contract with the Department of Defense.…

[Operator Instructions] First question is from James Breen of William Blair.

Just a couple of questions, one for Tom, you talked about the FX impacts, sort of a direct FX headwind that we were seeing with some other companies at $3 million, is that more directly related to the purchasing power of the end user? And I guess competitively the weakness that you’re seeing in that segment, is it really just more about customers not buying or are you seeing more competition in the market?

So I would answer the question, it’s both, general impact and a specific impact in Russia. So Russia is essentially the only country that we built other than US dollars. And what has happened in Russia is the ruble has depreciated materially versus the dollar since October. And so, we have principally a prepaid offering in Russia and so prepaid batches that we sold in 2014 at a higher ruble value had devalued such that in 2015 we are trying to get about $3 million less than we would have in 2014. So that's unique to Russia, that $3 million. And so the way to think about that is the only way that recurs, the Russia devalues 60% to 80% like it just did in a span of three months. The ruble has been between $25 to $35 for a decade and it's now in high 60s I think. And so that feels like an acute there, we don't see that recurring in terms of the run in the dollar versus the ruble. So that's Russia. And the other impact is sort of hard to quantify, the dollar has strengthened in places where we do business and we've seen its highly correlated to our handset shipments in November, December and January, where we just saw the comps versus the prior year started to fall off. And so it's hard to be precise here, but it feels like the dollar is impacting us in terms of handset sales and net adds. And so that's why we are calling it – the way we are calling it at the moment, it is the most recent acute trend that we are attempting to asses here. We do not believe it creates competition, we've done channel checks with our service providers and they are seeing softness across the board as all of the providers sell in dollars.

So as we think about that guidance you gave 3% to 6% for service revenue growth, essentially as we look at that 2014 number, we are probably taking about $3 million out of that for FX and another $3 million for that NATO customer and the new think about the growth from there, really what the true service holograph is.

It’s right, Jim.

Okay. And then just for – just in general on the competitive front and with the FAA within the US, do you see any competition in the space for some of these large equipment guys and then with the FAA, just wondering what gives you the confidence you talk about the budget, is it clear now that they're putting money in the budget for the process with the expectation that they'll jump on board sometime at the end of this year, early 2016?

So M2M competition is still pretty much the same where, I think, we typically win wherever we compete. And so it's more a matter of just making sure we compete in all the places, specifically in the heavy equipment OEM space, there's sort of a slow but relentless move towards Iridium, I think, by the whole group and we have quite a long pipeline of brand name operators who are working with us from every stage from discussions to trials to commercial discussions and negotiations around that segment and that hasn't really changed, in fact seems still very, very positive in terms of the future for us playing a big role in that specific market segment. That's not the only segment that's growing right now. There's a number of other places as well that we compete and compete in fact better than anyone, for example, like the consumer space, our personal trackers and that sort of thing have been really kind of hitting their stride here in the last year and I think that will continue. And again we offer unique value proposition there given our ability to have really low size and low power and portable kind of usage that really allows us to have a dynamic market there. So a number of areas are doing very well and the competition really has not changed. On the second one, the FAA, I try to describe, they're really – we can't declare victory yet because that's a data services contract, but really all signs are very positive in terms of budgetary movements and the activity within the FAA around getting ready, probably slower than you like, but it's moving definitely in a right direction on behalf of Aireon. I think it's really both due to the great value of the system will bring, but also the continued success that Aireon is having in all the flight information regions around the US airspace. So all those aircraft are going to be arriving into US airspace on smaller intervals and they can't get – FAA, I think, understands they can't be trying to move those back out to accommodate not being able to see them. So they are moving in the direction. They have budgetary pressures, but I think those are working to get solved to get them ready for 2018 implementation.

And then just one more if I could. With the launch pushed out, do you see that in any way affecting you guys financially or is it just more of a timing issue in term of getting more launches in 20116 and 2017?

The only financial impact we see and you saw it in the tweak to our peak net leverage is there’s going to be some payments to Thales that’s still out of 2015 into 2016. But no impact on our long rage outlook or anything like that, Jim.

It’s important to know, Iridium NEXT is a continuity of our growth as opposed to necessarily brand new growth except as it relates to thing like Iridium Certus broadband which will be implemented on the same schedule, this first launch doesn’t really affect that, we’re still expecting to see the initial products come out late next year and into 2017 from some of the suppliers I discussed. And then of course Aireon revenues, the best [indiscernible] which is why we focus so heavily on network completion as opposed to when the first launch is coming. But we’ll be launching satellite this year.

And the next question is from Andrew Spinola of Wells Fargo.

One other follow up on that point that you just mentioned about the completion of NEXT, I think help me understand, it sounds like they're going to be able to test the software while the hardware is still being built. Is that the correct way to think about that? So there's no real delay to the completion here because the work can be done concurrently?

Not exactly, the way you should think about it is, to build 81 satellites, you want to first of all completely validate the design, both the hardware and software, to ensure that when you move into high rate production of these systems, which as I said will occur over the next few months, all of our hardware is qualified, it's tested and it's going to work fine and that process is going very well. The hardware is looking really good and it's on track for high rate production and the hardware will be there. The software is not completely independent, but there is two main components of it. There's platform software that controls the satellite itself and of course is really critical making sure that the network operates completely and that's been doing very well. It’s, I would say, on track and it's going to be there. The payload software that controls, our individual service that makes the connection is hitting milestones, but more slowly than they expected and so it's going to get delayed, but once it's complete, which will be done before our first launch, it really than it's cookie cutter, if you will, into all the satellites that are built and launched in this space. So it doesn't have to continue to delay anything. So once we have our first launch, we have a qualified design with tested software, everything working well. We spent four months in space validating that and actually providing live service and working in the network and then we go into launching 20 at a time every few months out of California and that really just basically replicates that success that we’ll have this year, getting to first launch. Does that make sense?

Yeah, that makes sense. Thank you. The second question on the Iridium Certus broadband, you mention that this is a first for you to have essentially selected suppliers to provide the hardware that might allow you to as to go to this route and what do you think the benefits of doing it this way versus the old way?

Today, when we make OpenPort units and while we make very minor margin on them, I guess as devices, we sell them directly through our service providers and then they get out in the marketplace, but it’s just one solution really for that sector. With Iridium Certus broadband, we want lots of solutions in the marketplace and I guess we could try to pull the R&D together to create the right kind of high speed broadband connections for a commercial airliner for their avionics, it’s a lot more powerful to have one of the top two players in that space, Rockwell Collins or an L-3, which is all over an aircraft problem which is across the aviation sector, creating a number of solutions that are tied into maybe even other technologies really well and using their distribution channels as well as some of the distribution channels we use today. So it really puts a lot more orders in the water for revenues with Iridium NEXT and we currently have in the water today and that’s quite exciting.

And then the last question for me, I guess we are progressing towards the full launch of Inmarsat Global Xpress here in another few months, and I’m just wondering what the competitive environment is for you in the maritime business considering maybe they have somewhat of a lead over the competition in terms of getting high throughput satellites over the oceans, I’m just wondering if the impacts you or is it maybe not as big of a deal since you’re doing the L-Band?

I don’t think it’s a changing deal, so Global Xpress were really more companies I think with what I would call the traditional DSAT or high speed terminals, you have to assess space and we’ve always, if you will, we’ve never really competed in that space. We act as a complement to that on many ships, so given that the coverage and things like weather and other things affect that space, we are either a complement so that we make sure that that works in all cases or we’re at the lower end, more of the value end to that where people don’t really want to spend that kind of money for connectivity on their ships. So that’s really changed with Global Xpress. I guess there is the dynamic that they have both an L-Band products and, if you will, a higher speed product and they can play with both sides of that equation, but I think the market has seen that can be problematic, especially since they have often raised prices on the more gradual end of that space. They can provide solutions, a lot of the market really wants to pick their own technologies and don’t really to necessarily get it all from one supplier. So that creates a great opportunity for us both alone and in selling our products and especially once they are higher speed and performing frankly maybe even better, they certainly will have better coverage than maybe higher speeds ultimately than the Iridium L-Band product. But our partners, those in our space who actually deliver high speed products will deliver even more powerful products, I think, to the maritime sector. And then the market can pick the best high speed product and they can pick the best L-Band product to put on their ships. So I think that’s going to be the space we play in and I think we line up very well against Inmarsat going forward with Iridium Certus broadband.

[Operator Instructions] And the next question is from Chris Quilty of Raymond James.

I want to circle back on the voice business, given some of the pricing pressures, does your guidance contemplate any pricing cuts or is it simply the expected impact of lower demand?

I think the latter, Chris, it’s really – as handset sales are pressured, net adds are pressured. And so that’s what we’re talking about here, we’re not expecting any price cut.

And right now I really would say that the competitive dynamic really hasn’t changed in the handset market around the world, everybody will be going in the same direction and I don’t know that we would fix that by really doing anything on time, price in anyways. So we have new products in the space with Iridium GO! coming into its own this year, that’s been very well received and continues to ramp. So I think between this and our handsets, we’ll have to take a bunch of the dollar a bit, but I think overall we still like the business.

I think on Iridium GO!, you said you had shipped 5,000 last quarter. Have you seen that an initial channel fill slow down a bit and are you still seeing a sizable backlog?

You are right. The product didn’t come out that long ago and the initial channel fill that occurred and then there was a bit of low, but it’s starting to pick back up again now as we’re higher than that level already and we’re starting to see the orders coming in and we expect that really as more of a factor that starts happening more in March, April, May as the year heats up and we go through a more faster growth part of the summer et cetera. So that’s what we’ll be looking for.

And are you seeing any kind of a benefit on the ARPU side there?

Yeah, a big percentage of our customers again have taken the higher unlimited and other service packages, because I think they see a more robust offering, if you will, being able to work with their iPhones and Android phones and they don’t really want to have to count the pennies and stuff. So that’s been one of the surprises to us. It is producing higher ARPU than handsets have done. And it’s been, as I said in the previous calls, it’s been a more broader market acceptance and I think we were expecting this. But there is a lot of activity and DoD and other military and we certainly have seen a great activity in maritime and in the GA space versus traditional enthusiast hikers safety, enterprise and other, and even some M2M segments. So there’s a broad acceptance.

Is it possible that the GO! is also cannibalizing some of your more traditional voice business?

Maybe around the edges, but right now, it doesn't really seem that way to us and our partners have been telling us that, in fact we reconfirm that our partners conference here a week or two ago that we just had that was one of the questions I was asking a number of them and I kept getting, no, we really don't see that. We think we're opening up some new markets with the product and people are still buying handsets because they offer a different value proposition. So, I don't really think so yet.

And final voice question, the commercial net at Iridium service, I think that’s due to launching and can you give us a sense of what you heard back from your channel partner conference in terms of indication levels for that service?

We’re in, I’d call it, commercial transition period, I’m not going to say that we almost have launched at this point because our betas continue to grow, there’s been a lot of pressure from our customers because of the demand for it to get it out in the hands of customers, while we – frankly, we’re making some final tweaks to it to make it even better. I can tell you that’s still really, really – again, one of the highlights of the recent partners conference, people are really excited about, they’re telling us they have opportunities literally all over the world. They’re telling us it’s a game-changer, they’re using that kind of a terminology that just hasn’t even been a product like this that can provide the kinds of service that it’s telling us. One partner told me, his customer told him it was a miracle, I love that quote, I’ve been using that a lot lately. I can assure him it wasn’t a miracle, such a lot of hard work, but it really is a great product. You will just see it’ll transition in the commercial revenues, I think, into the second and third quarter this year as we’re starting to ship devices and start seeing these networks roll out and affect our business this year and next year.

And are you looking at a alternative equipment strategy on that, because right now I think the customers are sort of locked into dropping $1,200 or $1,300 on an extreme netted enabled device, but I would think there is a market for lower cost purpose-built piece of hardware?

I don’t know the exact numbers, but we have a couple of our partners we have licensed to – we know are building a purpose-built multi-service product based upon the 9523 module. So you can really take – any of our partners can take push-to-talk and embed it into one of their own products and we know a couple where that’s happening and we think that that’s going to be a big revenue grower for us too. And we also see, I think that technology evolve into aviation and maritime products, so out of the traditional land-based public safety space and really, frankly, will be adopted really in service because while we talked about speed for that platform, that’s really a multi-service platform that can do a number of different things and really bring all of the different services that Iridium brings to the table to those kind of new customers that have higher speed usage too. So there’s a lot of way that technology is going to be deployed, not just through an Iridium Extreme handset.

Final question, your announcement on the manufacturing partners was oriented towards your aviation and maritime partners, can you give us an update on that strategy on the M2M and voice side?

We talked a bit about that at our partners conference, we have investment underway right now to evolve our – continue to improve and evolve our technologies, particularly bringing Iridium NEXT based technology and what you would call the evolution from our investment into NEXT with Iridium Certus back into our M2M and voice. Our real strategy is as those segments start to blur technologically that we will start bringing technologies to our partners and which they can write applications and it picks the best technology, the best feed, and the best delivery mechanism for their data to get through. There’s a lot more about that in the coming time, we are not really announcing anything right now, but that’s really the power of the Iridium satellite system and network to be able to deliver lots of different technologies in a more efficient way. So I don’t have anything really to announce, but that’s our plan, we’re working on it and I think it’s going to make us even more competitive in the future to be able to not just have an M2M product, but to have a portfolio of products across a variety of speeds and capabilities.

Let me ask in a different way, last fall, you did a price cut on the M2M side on the hardware modules, have you seen a distinct pickup in volumes that would offset the margin and profit loss on equipment sales?

2014 results were pretty good and I think it sort of blurred a little bit in terms of exactly how that impacts, because people don’t necessarily say what they would have bought or what they did buy. We kind of brought down the headline price for low volume units, so I think that it’s very encouraging to those who may be only have applications for a couple of hundred devices or thousand devices that can now – really price is less of a factor, probably less of an impact on a real high volume because they were getting pretty aggressive prices before. And more technologies coming in, we’ve got in this new Sycon technology that we brought in 2014 that’s rolling across all product lines in 2015. That helps drive costs down on the models ourselves and that helps us really look at new business as we look forward in M2M. But overall, I think we have a very competitively priced product, even have more room if we need to to work with really big opportunities and we will do that. But it wasn’t just about cutting prices, it was really more about aligning that for certain market segments.

And the next question is from Jim McIlree of Chardan Capital.

It looks like at the midpoint of your revenue guidance, revenues go up maybe $14 million or so and the midpoint of your EBITDA guidance goes up about $18 million or so. I'm just wondering how you're doing that, what costs are coming down. I didn't hear anything about major cost or margin group.

We see materially lower warranty costs related to our OpenPort product. The product is performing really well and our repair costs are down. So we get a benefit from that.

Okay. And so that the opening costs are in services side or were you referring to equipment?

Being cost of equipment.

Okay. Alright and so last year, or excuse me, last year in 2014, you were more like a 70% cost of sales. And I'm sorry, yes, about 70% cost of sales. So that's going down to, is there any normal range, so I can look back on and say...

We see the OpenPort benefit in the area of $5 million year over year.

There are no further questions at this time. I will turn the call back over for closing remarks.

Thanks everybody for joining us. I hope I see many of you in a couple of weeks here and I think it’ll be great to show you the progress that we’re making on the satellites and be able to talk to about the business in more detail. So we’ll see you then and the rest at the next quarterly call. Thanks for joining us.