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

Thanks, Karen. Good morning, and welcome to Iridium's fourth quarter 2017 earnings call. Joining me on today's call this morning are our CEO, Matt Desch; and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of our Q4 results, followed by Q&A. I trust you’ve 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 today may contain forward-looking statements within the meaning of the – are historical fact and includes statements about our future expectations, plans and prospects. Such forward-looking statements are based upon our current beliefs and expectations and are subject to risks, which could cause actual results to differ from forward-looking statements. Such risks are more fully 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 which 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 and good morning everyone. While we just completed a really great year both in terms of our subscriber growth and the early success of our Iridium NEXT program. We are half way through the launch program and the new satellite activations continue to go very well. To date, we have launched 40 satellites which represent 61% of the 66 new operational satellites we need for full-service, and will be launching the final 35 satellites over the next few months to complete the constellation. Our next launch has moved around a bit primarily due to the delays in the [Indiscernible] mission that should be launching this morning from Vandenberg. Right now it looks like our next launch will be the morning of Thursday, March 29 essentially five weeks from now, though we are still confirming that date. The 10 satellites for that launch are shipping to Vandenberg now and the first and second throughout the nine stages are already on site and being processed with the base. This launch again will use a flight proven first stage; it will be the tenth flight of a refurbished rocket by SpaceX. And we have history with this particular first stage; it successfully launched our third batch of satellites in October. Following next month’s launch, our teams with a SpaceX should move more rapidly as a launch frequency is planned to increase to approximately one launch every 5 weeks to 6 weeks or so. In fact, our sixth launch is currently scheduled for a quick turnaround at the end of April, that will be a rideshare with the JPL German Grace satellites in which we’ll utilize half of the payload to launch five Iridium NEXT satellites alongside the two Grace satellites which will be mounted on the dispenser above ours. This rideshare…

Thanks, Matt, and good morning, everyone. With my remarks today, I’d like to start by summarizing Iridium’s key financial metrics for the full year and provide some color on the fourth quarter results. Then I’ll walk through the 2018 financial targets we issued this morning, review our updated long-range guidance and wrap-up with a discussion of our liquidity position and recent activities there. We were pleased to deliver another year of good growth in 2017. Total service revenue grew 4% and operational EBITDA exceeded our full year guidance rising to 265.6 million. This performance was driven by continued momentum in IoT and in I part fuelled by an acceleration of business with heavy equipment OEMs. In the fourth quarter, Iridium reported total revenue of $115.5 million which was up 7% from last year’s comparable period. This growth was attributable to strengthen our commercial business and incremental sales related to U.S. hurricane readiness and post storm activities. I’d like to point out that our net income for the quarter was impacted by two non-recurring items. The first was $150.9 million benefit in the period from the effect of the newly enacted Tax Cuts and Jobs Act. Overall, the net effect over the long term will be positive for Iridium particularly with the lower corporate tax rate. The other was a $22.3 million after tax write off, of payments previously made to our supplemental launch provider Kosmotras. You’ll recall we moved away from this provider when it did not meet its obligations under the Dnepr launch program contract. Today, we have 40 Iridium NEXT satellites in orbit and all the SpaceX launches schedule that we need to get our remaining satellites into space with the Iridium NEXT mission. In the fourth quarter operational EBITDA rose 4% from the prior year’s quarter to…

Thank you.[Operator Instructions] And our first question comes from the line of Ric Prentiss with Raymond James.

Good morning guys.

Morning, Ric.

Hey couple of questions on the financing, obviously you don’t have a lot details, but just wanted to get some kind of framework for it. Can you talk about what type of debt you are looking at and what kind of rates you are seeing in the market places?

So I can’t describe the debt at all Ric for – just we’re already on the process. The headline here is if you focus on -- I’ve had conversations with you and others about the principal payments required under the BPI facility, that the big deal pushes the near-term payment reduces them, and pushes them out. And so the kind of the headline that we are trying to give you the size it is – no liquidity issues through 2022, okay even without any payments from Aireon. And so that’s how you should think about it.

Okay, maybe just listen to what kind of rates you are seeing in the marketplace not that you would actually tap that, but if you look at the rates that you are seeing, we had a rising interest rate environment, but just kind of wondering what you are seeing out there atleast in the market place.

Well to do that, I have to tell you the type of debt security we are thinking about and I can’t do that. So I will give you a full disclosure when you file the 8-K.

That’s worth a try. Can you say also that you are still not expecting any equity raises?

Definitely not.

Okay, definitely not that you are not going to do any equity raises, not that...

We are not doing any equity raises and the security that we have in mind has no link to equity.

Okay, that helps. And then when you think of the credit facility that’s out there right now, at some point probably like to take it out completely as you move to more of an operational company than a construction company. What are the thoughts of what might be the gating factor to kind of switch and get rid of that facility completely?

So, if you think about what we've done here. We’ve set the table for no liquidity issues till 2022, right. And so that gives us plenty of room as we think about the opportune time to take the BPI facility out. We’ll take -- we plan on taking it out long before 2022, because we want to do equity friendly type things. And there's no reason to have that kind of principal service that that facility contemplates, right. So, what we’ve done is to give ourselves plenty of buffer to be able to absorb disruptions in debt markets for a number of years. So we’ve given ourselves plenty of cushion from when we would expect to take out the BPI facility.

Okay. Make sense. More operationally when you think of the 2019 guidance and tightening the range, moving to the low end of it, it sounds like it was predominately maybe the timing of the Certus rollout and partner plans. But just trying to think through the comfort on the 2019 guidance and if you could kind of allude to maybe what your thoughts are as far as how much the government is in that guidance?

Yes. So, this is the first point. It really has nothing to do with our excitement about Certus or belief in this market value. It is really more the timing because it’s only starting to more rollout this year and doesn't start generating a lot of steam until 2019. So the timing just seems more appropriate to narrow that down a little bit. We’re feeling g very good about the revenue generating potential for Certus and the market for it and our positioning within that. The government is kind of a small part of it. We’re not expecting – I mean, we haven't finished that deal yet or anything here, but how would you characterize it?

So, what I would characterize it? We expect the government increased to be a stub period, because they will extend until April of 2019. So the 2019 increase will be for only a portion of the year. That’s as much guidance as we can give.

It’s obviously could happen sooner, but that’s really up to the government, so it's appropriate to really just focus on the most conservative approach which should be an extension.

Sure. That makes sense. And final question is as you think about the margins in the business and once you get pass the construction launching phase, where could the margins go as we look into 2019, but more importantly even beyond that, as far as how can this business run? What kind of level could get to when you look at compared to other guys in the space?

Yes. We’ve been pretty consistent all along believing the there's no reason why our business can approach the same high margins that mature satellite companies reach. Our cost structure doesn't change dramatically in the coming years with the new services that we’re providing and the revenues continue to grow. And that expands operating margin beyond the 60% and I know others are in the 70% to 80% range and we don't see any reason why we can’t hit those levels as well. There’s a lot of opportunity for revenue growth and I think those are very achievable.

And some news coming lately about SpaceX launching their own LEO platform, obviously they got a couple more launches for you guys. But where you thought competitively and just kind of what the space look likes with OneWeb and maybe SpaceX having their own LEO platforms up there?

Yes. There seems to be some confusion in the market that or from people I've heard that somehow think that competition is based upon sort of architecture, like LEO is compete with LEOS, and GEO is compete with GEOS, and you know it's really more around spectrum and applications that people provide. So today we compete with the GEO, a major GEO network today and LEO set – excuse me, OneWeb, SpaceX, those are all Ku and Ka-band providers who really are going to compete for those commodity broadband applications that are currently what the today’s Ku and Ka-band GEO operators are involved in. So, those – I look at those as potential partners. The L-band has a very unique place in the industry. It has a lot of advantages particularly a global one like us, for example – an easy example is on aircraft you know where L-band is used primarily for cockpit operational communications for the airlines and Ku, Ka-band is used in the cabin. When any kind of new networks come along I think they're going to compete for the cabin, but they really can't be regulated and provide service in the cockpit. So it really doesn't change the competitive dynamic. SpaceX has a very interesting network. I know that they’re going to take some time to develop it. I think that they're really going to compete against Wireline and Cable operators. They need to if they’re going to generate the kind of revenues they have. So that's not our area. So I see as complementary to the new players coming in LEO in the same where I see this complementary to the existing Ku, Ka-band players and GEO.

That’s really helps. So I think there is a lot of confusion out there?

Yes.

Thanks.

Thanks, Ric.

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

Thanks. It looks your long-term guidance basically pushes out the Certus run rate by year. And you mentioned previously that it looks like your equipment terminals at least on the maritime side are hitting the market meeting expectations. So is that push out by a year more related to the timing of the satellite launches? And how that's progressed over the past year? Or are you seeing any issues and equipment deployments either maritime or you didn't address the aviation and IoT?

Yes. So, I don't think it has anything really to do with terminals or partners. I think it has almost everything to do with our latest view of how the market will ramp up based upon the slightly later deployments of Certus than we originally hoped. When we originally provided that guidance, the broader range of guidance, we had expectation that there’ll be 40 to 50 satellites in operation sometime in late last year and that Certus would be ready and developed and tested and that we’d be really ramping throughout all of 2018 for Certus, and 2019 would be a big year. Now with the number of satellites we had in operation only now getting to here in the next month or two and Certus launching here in the second quarter, it’s going to be only a partial year in 2018 of ramp and really more of the ramp is going to be start gathering momentum more 2019. But we’re not – we’re happy with the devices that we’ve seen developed so far by our VAMs. We think they are going to be really well received their high quality devices from very reputable manufacturers. You’ve seen the service providers we selected on land and maritime. We’ve announced those in the last couple of weeks. It’s a great list. It’s only the initial list. There will be more that we’re announcing. I think you’re going to be really pleased when you see the aviation partners who are going to roll us out soon, and that's an impressive list as well. So still a lot of excitement and the devices are coming along fine. It's just more timing. It's appropriate to tighten up the guidance now knowing we’re getting lot closer to 2019 now than we were when we gave that.

It’s been a long time since you updated it. Also it looks like this is I think the first time you provided any numbers around maritime both revenues and number of vessels in a number years and I was glad to see you're actually ahead of what I was trying to forecast in the dark. But can you give us a sense of what’s happened in the past year or past couple of years in rate of deployment and perhaps kind of the ARPU trends historically and what you might see going forward?

In the last year or two, I think it’s been marked by stability really in terms of our OpenPort product. Remember we had some quality issues with that a number of years ago. Those are by far been addressed to the extent that the product is, I hate to use the word bulletproof, but it's very, very reliable and its’ seen that way in the market right now. And we continue to have had strong shipments and kind of consistent net activation each year for the last two or three years. And its – some of those -- number those are standalone applications on what it call the value sort of players that look for – instead of an always on connection really want to pay as they go. A lot of them are being installed as companion vehicles to the VSAT providers to ensure they work where VSAT doesn't work or in regulatory environment like port for they’re not able to be turned on certainly in polar kind of regions and actually getting a lot of service. The ARPUs have been pretty stable in last year probably a slight decline just as prices have improved and as basically service has stabilized to what I think the level that that service can provide. It can only go up to 128 kilobits per second. With the new Certus devices going from 352 to 704 pretty quickly here in 2019, I think we’re going to see ARPUs increased with that product, more applications, more standalone applications and of course it will continue to be a great companion device. So I think the competitive dynamics also have helped us in OpenPort. Partners want to play OpenPort with their VSAT terminals versus other solutions for reasons that I think you understand, and that also has given a lot of market strength.

Great. And one final question on Aireon. 2017 look like a pretty good year in terms of sign-ups for MoUs. Do you have a sense of how many of those may convert into actual data service agreements in 2018? And what's the remaining funnel? I mean who besides the FAA of significant has not yet signed up?

Yes. I can’t remember the percentage of the world that signed up in data service agreements versus MoUs. We used to keep kind of keep track to that even on my board. But look all those -- there's a long list of ANSPs in the world who are evaluating the service and are contemplating signing up, really 100% of the planet eventually is that market and that’s quite substantial. A lot of those have been waiting unit it gets closer to commercial deployment to commence. But I'm really impressed with their pipeline in 2018. There is a really significant group of customers who are in discussions right now towards data service contracts including some very large ANSPs. So we’re expecting as we get close to finalizing the network and they're looking to go commercial here later this year and start turning their service off. You’re going to start to see a lot more data service contracts and some significant ones at that to.

And has FlightAware had any success in basically brokering that service to commercial customers yet? Or is it being offered?

Yes. They are offering the service to airlines, for airline conductivity and information. My conversations – in the last conversation they were happy with how that was extending their service and they had already been that business, but they offered was a good service, but Aireon makes a great service because it really means that they can provide very precise information to airlines. And they were telling me they were very happy with how that was working out. That's – I mean they already have a great relationship with airlines and lots of contracts that this augments and improve, so I'm hearing good things about that.

Great. Thank you.

Thanks, Chris.

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

Hi. This is Eric for Jim. With the 2018 service revenue guidance, I just wonder if you could just give us some of the puts and takes. What’s going into that? How much of that is Certus and hosting? And then secondly, could you just remind us on the timing of the expiration of the DESA government contract? And what gives confidence that there will be a favorable step-up for Iridium there?

Sure. I’m not going to parse that all the elements that make up our guidance, but we did indicated hosted payloads of 25 million. And so of that I indicated that 14 was the Aireon hosting. Harris is at around $3 million and the Aireon data fee is remaining eight to get up to 2025. And just little bit more background on the Aireon data fee which is charged and paid monthly, it’s based on a fee for each of the 66 Iridium NEXT satellites in operation. The fee is impacted by a customer contract milestone which when cleared causes the monthly fee for operating satellite to increased from approximately 16,000 per month to approximately 28,500 per month for operating satellite. So our guidance assumes the lower rate in 2018, thus arriving at the approximately $8 million number and the higher rate for the majority of 2019. So that’s pretty detailed guidance on what we’re thinking as far as hosted payloads. Now you would observe that the IoT business grew 13% -- grew revenues 13%, we don't see that stopping, so that certainly going to be helpful. And we think our – the Talus revenues will be up materially. We see we see stability in our commercial voice and data, our ARPU you saw that in the most recent quarter, which we view that -- we view commercial voice and data ARPU is quite firm. And so that's kind of the analysis going into the guide. I would say that what gives us confidence that we’re going to get a government renewal is our sort of 20-year history with U.S. government. In fact it’s growing our subs at 19%, we think the outcome as I said in my prepared remarks will be a win for us and will be a win for them. And our part of the win is you know our revenues will go up.

We don’t want to negotiate in public around that and describe our complete argument that we've made it and believe it’s well-received. Given the growth as we said in subscribers in terms of doubling the subscribers, but the cost per subscriber has been declining. There is room there to sort of recover a little bit of that in an unlimited environment which we continue to believe they’ll be. Lot of other positive things have happened recently to as you know we just started shipping the first new secure handset that they've had in quite a number of years, smaller, lighter, better, the Distributed Tactical Communication Services, Global is moving and more tactical radios on different platforms, may just seeing the announcement yesterday of a new platform for all the basically aviation radios that their government uses called the [Indiscernible] their ability to expand that. And then IoT is really expanding broadly in a whole bunch areas, and Blue Force Tracking kind of applications, vehicle tracking, fuel monitoring, all kinds of other applications. So, on all that basis we’re not were not projecting large growth necessarily in this area, but some growth is appropriate and still ends up bringing a lot of value to the government. So, I think this is a positive time and feel pretty good about our position together as we work toward this new deal.

And then just on the timing of the contract, there’s a current contract expire in the third quarter?

It expires in October, but as I said in my remarks that the government had the option to extend it for six months unilaterally.

Okay.

That’s why we kept really the revenues this year and just assumed that they wouldn't sign it. They’ve expressed interest in signing on time and going to a new contract this year and perhaps that will still happen, but the last time we did this, went down to the wire and got extended six months, and so we’re just forecasting that again for simplicity here.

Great. Thank you very much for that color.

Okay. Thank you, Eric.

[Operator Instructions] Our next question comes from the line of Andrew Spinola with Wells Fargo.

Thanks. Matt, I think might've just elaborated on it, but I think I missed it. The recent contract with COMSAT where they're going to sell Certus into the government, I think you had said previously it's possible that Certus won't be a part of the new contract. So is it correct to think about it that you’re going to be likely extending something that looks a lot similar to what you're doing today? And then you're going to have other opportunities to sell into that market with Certus through these partnerships?

Yes. That’s exactly the way we look at it. It could still turn out differently, but the general feeling between us is that what we've been doing for the last five years obviously has worked very well. And so maintaining that structure for unlimited service for a very specific narrowband applications makes most sense, and then -- and then the government really procured broadband services in a different way anyway and that that really should be an unlimited service. So, it's going to be a more pay for use. COMSAT by the way was the perfect choice. They are the primary vehicle today for providing broadband to the L-band, broadband to the U.S. government. And given when you move in the broadband space applications are more important than they are the narrowband side, expertise and service, for security and all kinds of other applications are really important. So COMSAT is a great vehicle for that and ideal way to kind of move quickly into the government, who by the way is already deploying, is really planning on in 2018 deploying Certus infrastructure at their gateway. So even in advanced of really sort of a formal contract there, they’re getting ready for Certus to be able to utilize it even in 2018, and certainly in 2019 and 2020 as that really comes on board and they can move into it.

Got it. Tom, would the revenue essentially be the same for the six-month extension period, the 22 per quarter?

Yes. That’s right.

Got it. And could you maybe elaborate little bit more on your commentary early on the call about the competitive situation in the voice market right now. What is that you're seeing in the market? What's happening?

Well, there’s primary, you know there's four competitors in that market. We’ve been by far as the premium and I think highest quality and furthest reaching solution have done better than anyone else over the years, but as you know people have may runs at us in the past with low-cost devices thinking they’d kind of peel away a lot of customers and that hasn't been very successful. The floor though is shrinking, you know, certainly we know one is kind of moved into becoming a spectrum arbitrager and in fact I'm not even sure they have new handsets anymore. They haven't -- it doesn't look like they've invested in a new handset. They've announced nothing nor do the channels know of anything and I don't believe they even have new handsets to sell. Another, as you know a regional operator in the Middle East has not figured out what its future is. And really the partner base and customer base knows that they may be timing out. And so I think their revenues are declining as people are afraid to make major new commitments to them for handset. So, essentially the floor shrunk to two and that that environment is well understood and we don't see anybody else kind of come along there even as we’ve been adding new capabilities. Push-to-Talk is been a new adder in the last couple years and there’s a really pretty broad pipeline around the world for lots of Department of Emergency Services and MOD's and others who like PTT and you see the aviation segment just introduced the product for PTT. Latitude is going to provide for like medevac and other kind of applications in aviation were push to talk makes sense. So all that kind of goes to say that why we're seeing so much stability right now in that space as opposed to a couple years ago where it was a slight decline over time especially the dollar was going up, it was making our products more expensive and we're seeing decline, but we’re not seeing that as much right now.

Got it. Last question from me, Tom, I think it was last quarter and the last two quarters you were talking about doing sort of term loan and sort of a one-time takeout of the credit facility. I know there’s a lot of details to come, but is the right way to understand what happening now is that you're not going to be doing that. You’re going to be raising debt to handle the interest and principal payments. And so any real takeout of this facility is likely not going to incur until 2022 at this point?

We would see the BPI facility coming out before 2022 for sure. What we described over the past couple of quarters was a situation where that the takeout when we’re done our launch campaign was feasible and we’re hearing that from a lot of banks. But I think what we said that, threading the needle that tight when we had in March of 2019, maturity didn't feel write to us, so we’d have to bet that everything went fine with the launches and just as soon as you got done you refinance. And that that was little too close for our comfort. And so I think what we said was that a renegotiation with the BPI lenders to deal with the March of 2019 maturities was what we’re working on and this is the result of that. But we just reiterate that, we would see taken out the BPI facility before 2022 is the likely case.

Our strategy really hasn’t change. And our belief and really kind of timing even on that. But we weren’t going to take it out completely until we completed the launch program and finish the capital program anyway, so this is sort of an interim stat.

Exactly and the gaining item was the March of 19 maturity that would renew the problem, and we’re delighted with this outcome Andrew we feel it gives us ample cushion and it takes liquidity off the table.

Fair enough. And will we see that 8-K is that coming later today or is that coming in the coming weeks?

Now when we get it done, we said it’s no later than the second quarter.

Okay, got it. Thank you.

Thanks, Andrew.

Thank you. And that was our final question. I’ll now turn the call back over to management for any closing remarks.

Well thanks everybody for being on the call and noticing that SpaceX launch looks like it’s a success this morning. That was important because they needed to get off the pad, so we could get in that facility, so that means our satellites can start processing tomorrow at Vandenberg and that kind of gives us a lot more clarity on our launch in about five weeks. So, look forward to seeing you shortly after that and to give the second quarter numbers and we’ll see you then, our first quarter numbers, yes. Thanks take care everybody.

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.