Good day, ladies and gentlemen, and welcome to the Iridium Second Quarter 2017 Earnings Conference Call. [Operator Instructions] I would now like to hand the floor over to Ken Levy, Vice President, Investor Relations. Please go ahead, sir.

Thanks, Karen. Good morning, and welcome to Iridium's second quarter 2017 earnings call. Joining me on today's call are our CEO, Matt Desch; and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of our second quarter results, followed by Q&A. I trust you have had an opportunity to review this morning's earnings release, which is available on the Investor Relations section of Iridium's website. Before I turn things over to Matt, I would like to caution all participants that our call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical 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 views or expectations 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 and 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, Ken. Good morning, everyone. As I am sure you saw, our business continues to perform well as we passed the midpoint of the year. So Tom and I are going to touch on what we are doing on that front today, but I know a lot of you are interested in an update on our Iridium NEXT program. So let me start there. Satellite replacement continues to go smoother and faster than we have expected. With the recent launch of another 10 Iridium NEXT satellites on June 25, 30% of our 66% new operational satellites are now in orbit. That is solid progress. This latest batch of satellites launched into plane number three of our six orbital planes, and that follows January’s launch that went into another plane, plane number six. Of the 10 satellites we just launched, five are operational and carrying live traffic through our global network and that is a few weeks ahead of schedule. The remaining five satellites have all started drifting maneuvers to send them to adjacent orbital planes and they will arrive there for operation within 10 months. So that brings the total number of completely operational Iridium NEXT satellites carrying traffic to 13 today, and that number will grow with each incremental launch and as our drifting satellites reach their targeted planes. So we are drifting satellites earlier in the launch program rather than later to make sure they are available in the right orbit as early as possible in 2018 to complete the constellation. The most important thing to note is that we found the performance of our new vehicles to be exceptional. They are working really, really well. There have been no significant issues in space. We expected as much given all the testing on the ground, but this is…

Thanks, Matt, and good morning, everyone. Let me start by summarizing our key financial metrics for the second quarter and provide some context on the trends we're seeing in our business. Then I'll review our balance sheet and summarize the terms of the deals we completed with Thales and Coface to enhance our liquidity position. Iridium generated second quarter total revenue of $111.6 million, which was up 2% from last year's comparable quarter. Revenue was in line with our internal forecast and was fuelled by strength in the commercial M2M, which more than offset lower equipment sales, which were expected. Operational EBITDA increased by 5% from the prior year period to $65.8 million. Our operational EBITDA margin was 59% this quarter compared to 57% a year earlier. On the commercial side of our business, we reported service revenue of $64.6 million in the second quarter, which was 5% higher than the prior year's quarter. This rise reflected continued revenue growth from M2M. During the quarter, we added a record 38,000 net new commercial customers driven predominantly by our M2M business. Commercial M2M data subscribers now represent 56% of billable commercial subscribers, up from 52% in the year-ago period. In our commercial M2M business, we picked up 29,000 net subscribers in the second quarter. The majority of these activations came from existing customers, including Garmin, Caterpillar and maritime customers. The headwinds from oil and gas related deactivations have now abated and we continue to see a broad group of industries adopting Iridium IoT solutions. These trends make us feel very confident that Iridium will be the premier satellite provider in the rapidly growing IoT space. ARPU in our M2M business declined to $14 this quarter from $15 in the prior year’s quarter and it is expected to trend gradually lower as…

[Operator Instructions] Our first question comes from the line of Andrew DeGasperi with Macquarie. Please go ahead.

Thanks for taking my question. I guess first, what gives you confidence that the FAA will complete the review in the second half of '18? And then secondly, I was just wondering, Caterpillar reported much better results and they also mentioned enhancing their digital capabilities. I was wondering how does that – how do you think that translates to your M2M business?

On the first question about that FAA, I mean we are working – well, we are not working. Aireon specifically is working very, very closely with the FAA on a number of subjects. We can see their processes. They are sort of moving towards a decision process that completes in 2018. We have been getting a lot of positive comments, especially as their customers are being very specific about wanting space-based ADS-B for reduced oceanic separation and better performance. So it still continues to be more a matter of when they will deploy it as supposed to if they will deploy it, and I think that will become a lot clearer as we get into 2018. So I think that is why Tom describes it that way and why we feel Aireon is telling us they feel pretty good about the activities with the FAA. As far as the second one Caterpillar, yes, that is very good news. I'm really glad to hear that for one of our larger customers. They obviously went through the economic slump here in the last couple of years and as their business continues to strengthen and that is only good for their activities in telematics, and to the extent that that is good that can only bode well for undersupporting our business. We are not viewing anything specific. They are already doing extremely well and are putting a lot of subscribers on today. So I don't think that that necessarily changes the trajectory but it just supports the overall business, and I think if they continue to expand the rest of the heavy equipment OEM space, it also continues to look for satellite solutions, which is good for us as well.

Great. Thanks.

Thanks Andrew.

Thank you. And our next question comes from the line of James Breen with William Blair.

Thanks for taking the question. Tom can you just talk about the credit agreement relative to the payments from Aireon, if you get the payments from Aireon in sort of the timeframe that you expect, does the sum of the push outs in the credit agreement matter much relative to the overall cash flow? And then Matt, maybe you could just talk about that competitive environment, there has been a few things that are funded in the satellite space with plans to launch over the next several years, can you talk about any potential competition you see there? Thanks.

So I will just handle the Aireon payments, Jim. The way the credit agreement works is the first $50 million in payments from Aireon we have access to. There is a metric that is fully described in the Q how that works. And then payments above that is essentially paid down pro rata Thales and fund the DSRA. So that is how that works, and when we try to give a pretty detailed explanation of that in our public filing.

On the second question, on the competitive environment, of course there is the existing competition. You have probably seen some of the smaller players in the current mobile satellite space look like they are up for sale, and aren’t really growing a lot in comparison. I look at these new announcements – these new LEO-basement networks with interest I guess. I have said before and I continue to believe those if they get built will be probably more likely be partners as opposed to competitors to ours because they operate in a different spectrum. They have a different business plan. They are going after different markets, really high-capacity, the commoditized side of the industry as opposed to kind of the industry we look at in the L-band safety services, IoT and other type of spaces. So, I wish them well. They have got a long road ahead of them. We have 25 years of experience knowing what it is like to build and operate and have a successful LEO system. But I am kind of rooting for them overall because I think it is a validation of both our architecture and approach to the market, and I think they will create a very dynamic environment in the very high-speed broadband area that will only complement this well. So I do have to deal with that question a lot. As soon as someone said they are a LEO, a lot of people think that the competition comes because of our architecture, and that is not true. They are just I think emulating the successful – a lot of the attributes that have made us successful, which has been close to the earth, which means low latency, which means potentially broader coverage, etcetera. Some of them are using cross-links. But most of them are not using cross-links. But really the area in which they decided to compete in is really more based on spectrum and business plan. And they have really not announced plans or frankly are building systems that really compete with the kind of things we do.

And just one follow-up, can you just give us some color on the government contract, when they come up for renewal and when they start talking to them on that, and based on the current usage trends you are seeing there how do you feel about that renegotiation? Thanks.

Obviously that is – the current contract expires in – later on in 2018. It has a six-month kind of ability to be extended. So, the expectations are we probably complete a new deal with them in 2018. But it could be sometime in early 2019. Obviously we feel very good about that. Our business there continues to expand. They have hit record number of new users. I think by the time we renew that spectrum, their subscribers will probably have doubled from the time when we started that. They have expanded their uses of the types of service that they work with us and are very interested in new capabilities like satellite time and location. And I think they are going to be really good users of our Iridium Certus technology as it is deployed in 2018. So all that is giving us a lot of confidence that will be a very good process. That it will be a win-win for both of us and that we are going to have an attractive contract moving forward for some period of time starting in 2018 or 2019.

Great. Thanks.

Thanks Jim.

Thank you. And our next question comes from the line of Jim McIlree with Chardan Capital.

Thank you. Good morning. Tom, you walked through the timeline of some Aireon payments, I think you said a partial payment in Q1 2018, and more on the completion of the launch campaign, can you put dollar amounts on those two dates or what you expect Aireon to pay you?

No, that will come out of the process Jim. What we are telling is we don't see – in the first quarter of ’18 it will not be a full payment. It will be a partial payment. Then the tranches are successful – completion of the successful launch campaign will be the second, and then finally in early ’19 we expect on the back of the FAA and some other contracts an additional payment.

And the $120 million that you were talking about, that is not related to the hosting? That is related to the ownership of Aireon?

That is exactly right.

Okay, great. And then just a couple of balance sheet items, the accounts payable jumped pretty significantly from $10 million to $128 wm and other long-term liabilities from $4 million to $33 million, is there anything unusual going on there?

AP has to be just a payment to Thales off the top of my head. And ask me the other one Jim?

The other long-term liabilities from $4 million to $33 million?

It is probably deferred revenue related to hosting.

The hosting fees of the Aireon payload.

Okay, great. I think that is all I have. Thanks a lot.

Thanks Jim.

Thank you. And our next question comes from the line of Chris Quilty with Quilty Analytics.

Thanks. I had a question on the commercial M2M net ads. Was there anything different in the quarter or a significant area you would like to highlight in terms of what drove this strength?

It was pretty broad-based to be honest with you. Though there are of course, some of our larger partners are adding at increasingly good rates. I think you can kind of call out, Garmin, the DeLorme inReach product that they have continued to seem like it is really hitting its stride right now, and they are adding really good numbers. Caterpillar is adding good numbers. There is some good growth in the maritime space, but it really was relatively broad based. It wasn't just a single customer that sort of completely broke out or anything, which I think is very encouraging and very positive for our business and why we are – continue to be very bullish looking forward.

And have there been any recent changes in pricing on the terminal side?

No, in fact that has been pretty steady all along. We continue to have good equipment sales in the M2M space. But it isn't really – there wasn’t something. There is no promotion. There is nothing we are driving. Really our IoT business is driven by the quality of the partner and their ability to bring on subscribers. And as I have said in previous calls, we get a class of partners in a specific year and in a year to two to three after that they really start delivering. I think this is the class of 2014, 2015 and somewhat 2016 now. It is starting to really deliver in 2017. Our class of 2016 isn’t really delivering that much yet, but are starting to really – going to start to weigh in. And we have a number this year that I think are going to bring in and they are going to bode well for the future. So it really is more – our focus has been also on just trying to get people into service faster and that is why it's highlighting Iridium Edge, because the faster we can get some of these partners delivering quantities as they ramp up, the better for subscriber growth and revenue for our business too.

Are all the Certus related modules still on track for product entry?

Yes. So, our Certus is built around sort of a module that we create and that is going commercially available here very, very soon. In fact it has been tested quite extensively through our system testing and that sort of thing and the subscriber units that get built into by people like Thales and Cobham are developed and they are in the labs right now doing testing as well, and are going to soon start doing on the air kind of beta trial testing, on ships, and demonstrating sort of the capabilities of those systems here this fall and into the winter. We are expecting that to continue to progress towards early in 2018 sort of once the beta trials are all complete and we are very happy with and only if we are completely happy with the quality and robustness of the capability that should then go commercially available, and we will start seeing terminals show up on ships and fleets in 2018, and starting to drive our first Certus revenues.

And you haven't talked about the aviation market in a while, are there any developments on that end?

Aviation is doing very, very well. We are getting – I think we have been lying for it now with our existing technologies onto both Airbus and Boeing 737 recently. And we have starting to see that come to fruition. We have always done well in general aviation, in rotorcraft, and I think we are really taking market share in the aviation safety services space today, and I really think with Iridium Certus coming on that will only expand and improve. I have mentioned before we kind of focus a bit more on the cockpit and operational services for airlines as opposed to the cabin. Certus will change that slightly, but still I think it is going to be primarily focused on the cockpit, and I would say while it is a smaller segment than aviation, we are probably even more bullish on our ability to do very well in the aviation sector with Certus just because of the natural advantages that Iridium’s network has. We really can have very small terminals, very small form factors on airplanes. Our network is global and aircraft in particular really want to have global solutions that cover the poles. We are going to be lower-priced and have moved attractive airtime rates I think. So we are pretty excited about what the potential of say Certus 700 Kb/s device can be in a cockpit environment for commercial aircraft. And after that really the very low cost systems that we can have with our Certus 100 and 200 products that can go down into the rotorcraft and GA space and offer say up to – close to 200 Kb/s in a very, very low cost and maybe even portable kind of package for that. So aviation is really a really strong area for us going forward. Just didn't highlight anything really in the quarter for that.

Final question for Tom. I assume no change in your forecast that is sort of mid-single-digit million of hosting fees for this year. But can you for the current quarter where was that – what line item was it recognized in, and do you anticipate as that grows to eventually break it out into a separate line item?

No change to the mid single-digit millions for the year. It is in service revenue. It was around $400,000, and as it gets more material we will break it out into call hosting and data services.

Got you. Thanks.

Thanks Chris.

[Operator Instructions] Our next question comes from the line of Paul Penney with Northland Securities. Please go ahead.

Good morning guys. This is Greg on for Paul today. Thanks for taking my questions. First regarding Aireon and Certus broadband offerings, is there a way to quantify what each incremental launch would contribute to these services, for a service I know it is expected to reach speeds of 1.4 mb and I was just wondering is there like an up tick in speeds there, or would it be capacity and for Aireon would it simply be added geographic coverage?

So as it relates to Certus there are versions of Certus – the initial version of Certus is a speed of 350 Kb/s, which is upgradable in the terminals through firmware changes to 700 Kb/s as the network is complete. But that is more like a software version almost of our Certus capabilities. The original version is going to be uploaded to each of the new NEXT satellites as they go on. The initial terminals that Cobham and Thales are going to have are actually dual mode. So they will operate in both block one and Certus mode. So the speeds will vary between 128, which is our legacy network and 350 with the new network as satellites are deployed. But, given that the service is going to go into availability early in 2018 and the network is going to be complete by middle of 2018 that really doesn't affect things very much. Eventually it will be a homogenous Certus capability, and then shortly thereafter will be upgraded to 700. And then there will be a future release that will deliver 1.4 Kb/s. So that is not really an issue of how many – of the satellites that are being deployed as each 10 satellites go up there, it is really what version of the software is on the satellites. So that is Certus. As far as Aireon goes…

Let me take that Matt. So Greg, the Aireon revenues are contractual between – both Aireon and Harris between Iridium and each of Aireon and Harris, and so as you think about the revenues, our 2019 guidance that assumes a full year of hosting and data fees, which is $47 million. That is contractual revenue. Where we are today is in the current quarter with sort of $400,000. That grows with additional launches. That is how that works. As the satellites are launched the hosting and data fees grow.

We have a contract with Aireon. They pay us hosting fees and data fees for as they go along and as we add more satellites. But they – their business really depends upon the full constellation. So the revenues they are generating from ANSPs really kick into gear as the complete network is finished in mid-2018 because their customers don't want any gaps in coverage obviously that they are managing and controlling aircraft. So those are two different activities.

Got it. That is very helpful. And just one more, it was kind of a follow up to the previous M2M question, as M2M subscribers continue to grow, I was just wondering is this mainly coming from growth within the entire M2M services market or would you say are capturing additional market share too, and for the new contracts that you are winning or do signings, what would you say is normally the determining factor, would it be coverage, pricing, speeds?

Yes, that is a broad question. As far as market share versus takeaways, I would say it is a bit of both. We have new market areas where someone who has a cellular solution that they have been tracking something using LTE, and say it doesn't have the coverage that they want and they add us to their solution maybe with Iridium Edge or with just standalone kind of capabilities. Those are adding to our growth and are great to see especially as we get into new industries or new ideas of things that people want to track. I would say we have had some other good large-scale growth that is coming and I think will come as sort of takeaways from others because people who have been deploying satellite IoT for a while and really want an alternative solution that is maybe more reliable that covers better, for which there is just fewer compromises and they move to us and those add to our revenues as well. As far as – kind of whether we are in competition with others. It is not usually a bake-off because I think of people who want to make a – want to deploy satellite IoT if they face value coverage, latency, cost price, cost of antenna etcetera, I think we end up getting selected pretty quickly. Sometimes where we are not, if we are not selected or if you don't see us as part of a solution a lot of times those are like cellular wins made by somebody else, who aren't really focused on the satellite portion of it or really don't have a satellite portion of it, but it is maybe someone who – one of our competitors who is in that space primarily focused on cellular technology. But I think we pretty much win when we have a chance to compete and that is – our goal is to continue to work with new partners and existing companies in the satellite IoT space and continue to expand that business.

Okay. Good to hear. Thanks guys.

Thanks.

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over to management for any closing comments.

Thanks everybody for joining us. I think it was a good quarter and obviously some good news overall. And I hope to see some of you are at least join us as you watch our September 30 next launch. But we will see you in October on the next call. Thanks.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a great day.