Earnings Labs

Iridium Communications Inc. (IRDM)

Q1 2018 Earnings Call· Thu, Apr 26, 2018

$37.67

+0.72%

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Transcript

Operator

Operator

Good day, ladies and gentlemen, and welcome to the Iridium First Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host Ken Levy, Vice President of Investor Relations. Sir, you may begin.

Kenneth Levy

Analyst

Thanks, [Sandra]. Good morning, and welcome to Iridium's first quarter 2018 earnings call. Joining me on today's call are CEO, Matt Desch; and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of our first quarter results, followed by Q&A. I trust you’ve had an opportunity to review this morning's press 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 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 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.

Matt Desch

Analyst

Thanks, Ken. Good morning, everyone. As you saw on our press release this morning, 2018 is off to a great start. Subscriber growth remains robust and in fact we recently surpassed 1 million subscribers on our network. We continue to attract distribution partners for our new broadband offering Iridium Certus and we’re getting ever closer to completing our new constellation having launch another 10 Iridium NEXT satellite last month. We're definitely entering the home stretch there. To start this morning, I thought I would provide some context to the overall industry competitive environment. This is the question I received frequently during our recent high-yield offering road-show and I believe it still has relevance. Overall the satellite industry is in transition with significant changes potentially coming to the competitive landscape. Lower launch cost and a resurgence of interest in lower corporate networks have attracted a slew of satellite newcomers seeking to deliver lower cost broadband for consumers in commercial enterprises. This flood of interest and the promise of new investment are already impacting the existing [FSS] providers who are now adjusting their strategies and capital spending. Even investors are worried about overcapacity and pricing sending some of their corporate valuations lower. Some of these new satellite entrance promised to launch satellite constellations into lower [indiscernible] Iridium's constellation operates. These projects however are focused on communication services targeting commodity broadband using KU or KA band spectrum, rather than the reliable and scares L-band spectrum we use that also supports many regulated safety services. These entrances are really looking to compete with existing fixed satellite [indiscernible] companies for broadband connections and must still show viability by completing their funding plans and deploying their constellations in a reasonable time which are not insignificant challenges in themselves. In any case, this is not the market…

Tom Fitzpatrick

Analyst

Thanks Matt, and good morning everyone. I’ll get started by summarizing our key financial metrics for the first quarter and provide some color on the trends we're seeing in our major business lines. Then I’ll recap the 2018 guidance we affirmed this morning and close with a review of our capital structure, and the debt offering we completed last month. Iridium generated total revenue of $119.1 million in the first quarter which was up 14% increase to last year's comparable quarter. Operational EBITDA was $68.5 million which was up 6% from the prior year's quarter. This was particularly strong given that last year's first quarter results included a $3.2 million nonrecurring gain related to the Boeing insourcing agreement. On the commercial side of our business, we reported service revenue of $67.7 million in the first quarter which was 13% higher than the prior year's period. This increase reflected growth in both IoT and voice revenues, as well as increases in newer revenue streams from hosted payload and satellite time and location services. During the quarter, we added 23,000 net new commercial subscribers with the gain coming entirely from our IoT business. Commercial IoT data subscribers now represent 60% available subscribers up from 55% in the year ago period. In commercial IoT, we continue to see strong growth from existing partners including expanding relationship with Caterpillar and strong subscriber growth from Garmin. Maritime and oil and gas are also sectors that contributed meaningfully to subscriber growth this quarter. As a result, net subscriber activations rose 47% from the year ago period. Voice and data revenue is strong this quarter rising 5%. This increase was a result of recording of higher revenue on prepaid cards, as well as from higher usage of our Iridium OpenPort service. Voice and data ARPU reflects this…

Operator

Operator

[Operator Instructions] Our first question comes from Ric Prentiss with Raymond James. You may begin.

Ric Prentiss

Analyst

A couple of questions if I could. First, you mentioned that the Aireon funding, I think it will come in the coming months late in the quarter. What's the process there and what could cause that to get delayed further. And associated, the FAA obviously lot of step going in Congress, can you update us as far the privatization maybe not happening with the FAA and what it means for them getting funded and looking at signing on with Aireon?

Tom Fitzpatrick

Analyst

As we said before, the closing of the Aireon financing they need to clear some conditions president which they are actively working to do. Their loan is substantially documented and has been - they have placeholders for this indication, so it's - due to the syndication so it is really just clearing the conditions president which they think get done at the cost of closing late in the second quarter Ric.

Matt Desch

Analyst

And as far as the second one, you said in terms of - you're asking specifically about privatization. Privatization or whether it would happen or not happen really had no effect whatsoever on our - on Aireon stability to sell oceanic space-based ADSP to the FAA. In fact, in some ways I was little concerned if it did privatize that might cause even more confusion in the short-term while there in there - final stages of their evaluation and final decision-making process that they're going through in the next few months which all seem to be going well to extent you can give visibility and all that connectivity. I think what's most important for FAA is sort of funding clarity to their long-term budgets and that sort of thing, and I know this - today I think they're bringing for their FAA reauthorization which is a multiyear funding package which - that’s only good for the FA to have clarity in terms of what their budgets are that was probably much more important than whether or not privatization would go through or not.

Ric Prentiss

Analyst

And then on the cadence for the remaining satellites you had mentioned later this year. Any update to the cadence of what we should expect assuming a successful launch six year and a few weeks what seven and eight might look like timing?

Matt Desch

Analyst

Yes, I’ve struggled to try to avoid giving a specific date because - I do have tentative dates right now for lunch seven and eight and there's still meeting sort of our expectations here that would be completed in really the next couple of months here. I've been trying to avoid pointing to a specific date - just in case things moved around in the final stages. But it looks like rockets are available, satellites should be available in time and everything else seems to be lining up well to complete it but I'd say third quarter is pretty safe.

Ric Prentiss

Analyst

And a final one for me, you mentioned the maritime and the IMO certification, the meeting coming up in May. Help us understand kind of the process you mentioned also not weather but when you feel confident on certifying in 2018. But help us make sure we’re watching the right dates and the right venues to watch that process for what could be a pretty significant opportunity?

Matt Desch

Analyst

Yes, so it’s complicated in the sense that the international maritime organization is sort of a UN sanctioned body that operates with many countries coming together in very regular meetings and subcommittee meetings and technical subcommittee meetings et cetera. We’ve been asked this now for I don’t know four or five years I think. We've gone through sort of the stages of the process which included last year's technical analysis to a subcommittee that demonstrated really without reservation that we met all the requirements of the service. Now it’s an issue of getting a positive vote from the main body. There is some politics probably involved. There's probably some people who like to slow us down as you could expect and we’re working through those issues. I'm expecting a positive result but unfortunately there's a lot of people involved in sort of unique environments so we’re doing everything we can do it in May. But there are other meetings following that if that one for some reason wouldn't happen, but I'm pretty optimistic that everything is looking constructive towards completing in May. This is just a sort of a reminder to about GMDSS - it’s important that we be able to do GMDSS because of the choice we’ll bring because it's another important service that our network will be able to provide maritime customers. And so it’s important but it's not in itself a revenue generating opportunity and I think - I mentioned this before, it’s kind of an important function that our system be able to provide, so that our partners who are increasingly trying to separate themselves from the incumbent and not have them on the shift as they’re selling into because of their competitive nature in terms of trying to sell other products to their customers either it have. So it's important we get this completed. I'm confident optimistic that we'll get this completed this year, but as I said it’s not completely within our control.

Ric Prentiss

Analyst

Maybe all this up for some opportunity for others sales as you can get on to the boat for other purposes then?

Matt Desch

Analyst

Yes exactly. I mean it’s a very important function that we really look like we’re going to be able to complete this year and we’ll add to the value of our offerings to our partners to do their customers.

Operator

Operator

Our next question comes from Greg Burns with Sidoti and Company. You may begin.

Greg Burns

Analyst · Sidoti and Company. You may begin.

Matt half the call you talked about some of the changes in the competitive environment with some new constellations projected to be launched and a lot of that is not going to be directly competitive with what you're offering. But at the recent satellite conferences or show, we heard some others like [indiscernible] kind of stood out as aiming to launch an LEO constellation in the L-band focusing on IoT applications. So that seems to be more potentially directly competitive with what you're offering. So are there other constellations coming down the pike or do you see anything else that might be more directly competitive to you in the next coming years?

Matt Desch

Analyst · Sidoti and Company. You may begin.

So I'm glad you brought that up specially because there is confusion lot of times when people just use the word LEO because they assume that if they LEO they must be competitive when in fact for using KU or and KA-band spectrum in LEO you really competing against GEO, GEO-based broadband systems not really against what we’re doing. But the other confusing word is IoT because some people - everyone loves to use the word IoT because that’s a hot space and if they say that they’re going to serve it then they must be, must be a valuable. But what they're really talking about typically when they say IoT is very different than the IoT market that we’re really addressing. We’re directing very highly mobile individual application, I think it’s the largest part of the satellite IOT market what they’re typically talking about is broadband aggregation of unlicensed or licensed sort of IoT systems, systems like LoRa and others they can then provide service to. They’re not typically talking about highly mobile applications on individual devices. We’re going to be able to do part of the market too but that's another area where we’ll probably complement each other. They can serve that sort of what I would call broadband IoT market and will supply the much larger at least in terms of volume of devices satellite IoT space. So again I don't really see that as directly competitive with us. They're not going to be providing devices that Garmin is going to deploy to their consumer customers or even I think they will be valuable for an individual caterpillar device for oil and gas pipeline or some of the things that we’re doing today or a Walmart container et cetera. I really would be surprised if that is the focal point of many of their networks.

Greg Burns

Analyst · Sidoti and Company. You may begin.

And Tom in terms of thinking about maybe a broader refinancing with the new notes being callable two years is that kind of the timeframe we'd be looking at or would you look to maybe take out the BPI facility prior to that?

Tom Fitzpatrick

Analyst · Sidoti and Company. You may begin.

No, I mean we were very focused on the noncall to and so - depend on the state of credit markets at that point in time, but we wanted the optionality and that's why we were focused on the noncall too.

Greg Burns

Analyst · Sidoti and Company. You may begin.

And then lastly you mentioned D&A will be going up as you’re launching more satellites. Could you maybe put a number on what you expect depreciation and amortization to be this year and the same with interest expense? Thank you.

Tom Fitzpatrick

Analyst · Sidoti and Company. You may begin.

So it makes it way - depreciation and amortization make its way between 75 and 80 call it in 2020. So it’s just draw a line from where we are now to that kind of the steady-state.

Greg Burns

Analyst · Sidoti and Company. You may begin.

And then interest expense cash interest expenses here I know you were capitalizing some of those costs does that in addition to the new notes begin to flow through the P&L more fully this year?

Tom Fitzpatrick

Analyst · Sidoti and Company. You may begin.

It does. So as all the satellites get launched, the interest expense will go from being capitalized to make its way onto the P&L and the cash interest is calculable it’s the interest on the $1.8 billion BPI facility and then 10.25 on the 360 there's a cash interest in. They literally will be a switch thrown once all birds are in the air that will all become expensed.

Operator

Operator

Our next question comes from [indiscernible] with William Blair. You may begin.

Unidentified Analyst

Analyst

Matt on the competitive environment topic, maritime seems to be the biggest opportunity for Certus and it's not a secret that Inmarsat has a dominant market share of - to L-band maritime market. So I was wondering in comparing Inmarsat the broadband versus the new Iridium Certus will Certus have certain advantages in terms of throughput equipment cost and service cost in order to potentially unseat Inmarsat L-band services.

Matt Desch

Analyst

Yes. We’ve really kind of designed Certus to be very extremely competitive to FleetBroadband and to SwiftBroadband, and to other current L-band services out there. It will obviously have the best coverage. It will have faster speeds very quickly. In 2019 it will exceed those speeds. It will be in the 700 kbps range where FleetBroadband is in 432 kbps range today. But importantly it has, it has some pricing advantages, size of the terminal is smaller because we’re LEO, so the physics are better. The price of the terminal is going to be a little bit less. The price of the airtime is typically a little bit less because we know we’re getting into an established market. So really, and just about every category I can, envision I think we'll have advantages certainly for the next few years. I know Inmarsat's talked about possibly coming back and eventually delivering a improved version of their service that could be faster and they're welcomed to do that. I think what won't be really able to be improved very easily is sort of the competitive dynamic that was going into work. As I said, I think we’re being celebrated and encouraged and supported because the distribution channels, the non- Inmarsat's distribution channels really are looking forward to having a supplier that doesn't compete with them, deliver them a superior service. So I think that's going to continue on the future. They know they can make money and then they know that they have a rational competitive market with us. So I think that they are going to be, enthusiastically taking us to market and you can see that by the many Certus distributors who have already signed up and the many that were lined up to announce here in future.

Unidentified Analyst

Analyst

And was there anything in there recently signed U.S. department of defense budget that makes you less confident that you can negotiate a favorable renewal of the EMSS contract?

Matt Desch

Analyst

No, I don’t know what you might be referring to, but I would say that if anything - the budget is a positive in the sense that sort of DoD I think it is getting everything they are looking for and more. So they are not in quite to constrained environment perhaps they have been in the past. Notwithstanding that, we believe are adding better and better value every year particularly as they expand their usage of our network and we expand the services and the quality and capabilities that we're delivering to them. So I think we are - probably a more positive environment frankly right now to complete a contract than we were five years ago when we were negotiating the last one.

Operator

Operator

Our next question comes from Paul Penney with Northland Securities. You may begin.

Greg Gibas

Analyst · Northland Securities. You may begin.

This is Greg on for Paul, thanks for taking my questions. I appreciate the commentary on the - regarding Aireon and FAA, efforts, but was wondering if you could give an update on any other developments with new ANSPs?

Matt Desch

Analyst · Northland Securities. You may begin.

I mean new customers, they have - they are still signing up customers. I know, I think they announced one here in the last quarter. They have a long list of once that I think that will be closed here in the next few months. I can kind of get out ahead of them because that’s really their thing to call but it looks like to that slowly there. They think to call but it looks like a strong list. I see nothing, just to step back, I see absolute nothing on the horizon in any kind of forum that doesn't say that Aireon isn’t the global surveillance technology for ANSPs going out in the future. There only seems to be growing interest not in any way declining. The list gets longer in terms of closing. I think that there is a little bit of awaiting for the network to be complete and commercial service to be turned on after the initial number of ANSPs who signed up, but I don't see enthusiasm doing anything but growing for the service. So, I still think it's a very positive environment they’re working in.

Greg Gibas

Analyst · Northland Securities. You may begin.

And then secondly can you give more color on your go-to-market strategy with Certus. I guess in particular - are you going to be expanding your sales channels with both partners and value added retailers?

Matt Desch

Analyst · Northland Securities. You may begin.

So we still are using - in generally the established distribution channels that have been very successful over the last 20 years taking L-band products to the market and each of the three different main market segments maritime aviation, land mobile. We’re being selective in the sense that it requires some additional effort to sell broadband and it does to sell some other services and not every one of our 300 plus partners is going to become a distributor, it’s only going to become the ones that really are investing in making us successful in of the market. And you can see by the people we've announced so far and you'll see in the announcements we make in the coming months that we're really talking about the ones the larger successful ones in the broadband space. So they are going to take us to markets. They are investing they are connecting to our gateway, they are adapting their current provisioning and billing system to accommodate Certus, they’re going to be trial fear in the coming weeks as they prepare for their launched this summer at least in the maritime and land mobile segments and the aviation ones will be kind of working on that later this year. So everybody is kind of getting prepared to take us the market and I think, I mean we’re not going to see a big numbers this year because it just takes time and this is very sophisticated product. It's usually wrapped up with lots of other services on the ships and its part of a bigger offering, but I think you'll see a ramp in 2019 and 2020 to the goals that we set ourselves out in 2020.

Operator

Operator

Our next question comes home Chris Quilty with Quilty Analytics. You may begin.

Chris Quilty

Analyst

I guess recently Inmarsat got their SwiftBroadband safety certification for the aviation market and that was the process that I think took them a couple of years. Can you give us a sense of how you expect that process to progress for you with the Certus product?

Matt Desch

Analyst

Yes, we’ve been really in the same environment and process and have been added really some time as well. We right now expect that we would get certification for Certus aviation products pretty shortly after they're introduced in say mid-2019, so might be later in 2019 or early 2020, but we would fully expect to be safety certified in the Iridium service products - aviation product as well. And again there is a lot of interest and demand for them because the speeds and capabilities and the coverage of them is superior as we can really serve aircraft more broadly and we are an established player in this space. So aviation safety is a little different than maritime safety where we haven't been certified before, but we are safety certified today and on many, many aircraft today with our narrow-band offerings. So it’s a little different environment getting safety certified for service.

Chris Quilty

Analyst

And on the commercial IoT market, I think you’ve mentioned both Garmin, Caterpillar OEM market. Can you talk about first of all the consumer market applications, all that what you’re doing with Garmin, how that's going and potential for ramp there with either Garmin or other customers?

Matt Desch

Analyst

As I’ve said Garmin seems to be has been really successful with their offering. They expanded their product line and I won’t get ahead of them on that, but there is some exciting things coming I think in the future from Garmin on products. They have expanded their distribution carefully and methodically but they seem to really be very effective when they do that. And as a result they’ve been really successful expanding and it looks like, they have been very happy with the success they are getting and the connectivity space that we help bring them in and many - in their broad base. I still believe we’ll see integration of Iridium and other product lines at Garmin as they bring kind of connectivity to other successful skews that they have they and they offer their customers. So I couldn't be happier with Garmin as the consumer sort of flagship brand taking us to market I think they have been very, very effective and I think they’re only going to grow really in the coming years as they seem to be very happy with the success they’re getting out of satellite connectivity to their products.

Chris Quilty

Analyst

Tom question for you, I think you broke out 25 million of hosted payload fees and gave the portion of that associated with Aireon. Is there anything in the balance of the bucket beyond the Talus that constitutes the balance?

Tom Fitzpatrick

Analyst

No, so Talus is different. 25 is hosting, so the breakdown of that is 14 from Aireon hosting of which we recognize nothing yet through the first quarter but that's 14 and then there's the remaining 11 breaks out 8 million which is Aireon data and 3 million which is Harris hosting and data.

Chris Quilty

Analyst

And so the Talus can you give a sense of the science of that?

Tom Fitzpatrick

Analyst

It was 1.25 million with 3 million last year we think that it's up materially from the three we did last year this year.

Operator

Operator

Our next question comes from [Anthony Kleiman] with Deutsche Bank. You may begin.

Unidentified Analyst

Analyst

Just to go back on the U.S. government. I guess I just wanted to confirm your views on what your thoughts are on the new contract that you're trying to put in place. And I guess my assumption is that really what we’re talking about is just the scope of what's covered in the existing contract being put into a new contract. And my question I guess is really, does Certus represent an incremental opportunity for you at some point in government given that the existing contract really doesn't cover that today?

Matt Desch

Analyst

Yes, so I think your assumption about the scope of the contract is correct. I think we’re still expecting sort of the same structure and possibly the same timeline those are still things to be discussed. But Certus is definitely is a new revenue stream. Excited about our partner there [Comsat] well-established partner to the U.S. government on broadband and already starting to work actually very actively with the, government now in terms of installing the necessary equipment to be able to utilize Iridium/Certus and to take advantage of aircraft multiple market segments probably initially in the land mobile segment, but eventually in aviation maritime as well. So we think the U.S. government is going to be a great customer for Iridium/Certus.

Unidentified Analyst

Analyst

And does your longer range guidance assume anything from the government outside of what the scope of the contract is in other words does the longer range guidance assumes that there is some penetration of the Certus product in the government segment?

Tom Fitzpatrick

Analyst

Yes it does Anthony. So the numbers were out there with our existing broadband product is OpenPort that it sort of $25 million business. We’d size Certus as $100 million business as we exit 2021 and the government is included in that sizing. So we had no broadband business today with the government, but we do expect that we will penetrate them and that's included in our 100 million sizing in 2021 exit rate.

Unidentified Analyst

Analyst

And then Tom on - you mentioned Aireon and the financing triggering a payment obviously assuming that is successful at some point later this year. Can you remind us what the other milestones are if there are other milestones that trigger successive hosted payload and other payments from Aireon?

Tom Fitzpatrick

Analyst

So the Aireon the credit facility that’s been arranged anticipates three basically installment payments. The first of which is upon the closing of the facility. The second occurs upon the successful completion of the Iridium launch campaign. So that money is - will be funded in the Aireon credit facility but think of it as a hold back in the unlikely event of a launch anomaly that money stays within Aireon for their own account because they will become operational later as a result of an unexpected launch. But once the launch campaign completes, the second installment is sprung and the third installment is sprung when Aireon is operational in early 2020.

Unidentified Analyst

Analyst

So the first two payments actually could wind up being very close together if the timing that Matt described kind of plays out with the financing being completed sort of maybe sometime around the summer or 3Q that would actually trigger. And that's around the time I think that you sort of guided to being substantially complete with the launch campaign the first to Aireon payments might wind up being almost on top of each other from that perspective?

Tom Fitzpatrick

Analyst

That’s right. For revenue recognition our analysis we have visibility into the Aireon model and the second payment is really not that significant or important as to revenue recognition. The first payment is the one that we have our eyes on for revenue recognition because it flips the switch to being probable of collection. The second payment as does the first goes both those payments will go to the BPI lenders as a paydown of the debt. So it’s really not impactful, liquidity wise so it just paydown debt the first payment is important because it gets a serve with a hump in terms of that collectability is assured.

Unidentified Analyst

Analyst

And on that second payment, is that triggered by satellites and service or is that triggered by successful launches what is the actual trigger for that payment in terms of being complete with the fleet?

Tom Fitzpatrick

Analyst

I think its satellite checkout which is shortly after launch.

Matt Desch

Analyst

It’s only about 30 to 40 days really after the final launches, so it’s really almost the same thing.

Operator

Operator

[Operator Instructions] Our next question comes from Andrew Spinola with Wells Fargo. You may begin.

Andrew Spinola

Analyst · Wells Fargo. You may begin.

The growth in the voice and data segment, commercial voice data in Q1 was stronger than it was - has been for some time and you referenced prepaid voice as well as OpenPort. And I’m just wondering if you could sort of expand on that sort of what of those two is maybe sustainable is there anything sort of one- time why was this quarter so strong and how should we think about modeling the quarters going forward off of this first quarter result?

Matt Desch

Analyst · Wells Fargo. You may begin.

So in the commercial voice and data kind of the trend in ARPU has been declining. As we said before that it was because there was subset of our installed base which were heavy data users which for some time have been migrating to broadband solutions, creating a headwind in terms of ARPU. And we said previously that trend has run its course and we’ve indicated that we thought there was stability in commercial voice and data ARPU sort of going - as we went into 2018 and beyond. And so that's the kind of the foundation of the relative strength year-over-year with them we got a bonus if you will in terms of two areas in prepaid so that we were the beneficiaries of stronger prepaid sales. We think that’s kind of hurricane related and then we also adopted a new accounting standards which causes - under the previous standard the unused minutes on a prepaid voucher could not be recognized into revenue until the expiration of the card under the new standard based on history that usage comes in over the expected life of the card. So the combination of just stronger sales as a result of hurricane and the adoption of the new standards benefited us in the quarter. Similarly OpenPort usage was just stronger in the quarter and so we're keeping our eyes on that right I mean but both of them are good developments. It’s going to depend on how much of the prepaid sales were hurricane related and how much is that dissipate in terms of what the run rate is going to be, but we characterize voice and data ARPU was quite firm as we look forward.

Andrew Spinola

Analyst · Wells Fargo. You may begin.

Make sense. What was the impact of the accounting change in Q1?

Tom Fitzpatrick

Analyst · Wells Fargo. You may begin.

7 million.

Andrew Spinola

Analyst · Wells Fargo. You may begin.

7 million, okay. Can you just actually expand on the legacy customers that went from the voice solution to broadband - we talk about and have spoken a lot on this call about alternative options not being competitive. But what sort of solutions are these guys migrating to that you’re losing these subs to broadband solutions?

Matt Desch

Analyst · Wells Fargo. You may begin.

So what we're talking about there is a specific product we have which we call the L-band transceiver think of it as the circuit-switch voice and data components that were in a satellite phones sort of packaged into a device that was put on an airplane that was put - in the early days on corporate aircraft for a voice and a low-speed fax and data solutions was put on ships for sort of the payphone on the ships but also provided a data connection. It was used for some specific data applications for [climatory] and kind of [SCADA] kind of things where you need more than just a quick packet transmission you needed to send a picture or something across. But a 2.4 kilobits per second, it wasn't and the pricing for which we cost that it wasn't the optimal solution for a lot of people. So the people - I think a number of those customers saw it was installed, it was working well, but there were solutions that would provide them data at a lower cost including our own solutions like OpenPort gave them a better experience and a better capability in terms of pricing. And so they would move off to that or other solutions. The numbers that were high ARPU customers in that category really have now transition for the most part - is that not that many left really to transition. So and we're providing new solutions not just in terms of OpenPort and service, we’re going to have a whole talk about as much, but one of the developments are underway is sort of think of it as the new LBT that provides at a very low cost basis what we call Certus 100 or Certus 20 service which are sub 100 kbps but a very high quality experience that would be good for a lot of those data applications that don't need a broadband connection and are highly mobile and that sort of thing that's coming next year. So that sort of technical description.

Tom Fitzpatrick

Analyst · Wells Fargo. You may begin.

Yes, and what I would say is this. We have this many L-band transceiver customers today as we had three years ago. What is changed is the very heavy users of data have kind of been prudent men and say look if I need this much data and L-band transceiver is not the solution, I either need a FleetBroadband or an OpenPort pay up for the higher equipment cost because the cost of the data is much less. And so those heavy users of data have made that migration. We went back three years ago the ARPU in the L-band transceiver was probably $70 versus $45 kind of ARPU. Today the L-band transceiver ARPU is right on top of that $45 number. So the heavy users have self-selected out and that trend has now run its course and the headwind which are created for the last three years has abated.

Andrew Spinola

Analyst · Wells Fargo. You may begin.

Just one last question for me. Clearly very strong equipment revenue results this quarter I think you were kind of downplaying it saying you feel like it's probably hurricane driven but why do you conclude that, is it just very heavy on the handset side or why - at least my sense from your comments is that is maybe one time why isn’t potentially more than that?

Tom Fitzpatrick

Analyst · Wells Fargo. You may begin.

It’s heavy handset for sure and so as we look at our prospects in 2018 we saw the strength in 2017 in the third and fourth quarters that was hurricane related and that's why in our initial 2018 guidance we called equipment revenue down because we said look we’re not going to predict hurricanes in the third and fourth quarter. What we didn't expect was basically the channel refill if you will of handsets in the first quarter and the strength of that. So we continue to think that in the third and fourth quarter we have tough comps from 2017 and we don’t see ourselves beating them, but the first quarter has been so strong that - not notwithstanding the fact that we see down quarters in the third and fourth we think we wind up in 2018 kind of in line with 2017 which was not our expectation and we have our eye on our EBITDA guide kind of in the next couple quarters with that in mind.

Operator

Operator

And our final question comes from Chris Quilty with Quilty Analytics. You may begin.

Chris Quilty

Analyst

Actually just a follow-up on that equipment question. Do you sense that there is strength in Q4 was customers buying hardware for things that they needed in real time and Q4 was sort of a follow-on on then realizing [oh crap], we need a position for the future or was there any additional new products that filter into that mix?

Matt Desch

Analyst

Well there wasn’t I don’t think too many - there wasn’t new products per se there. I think it was a broad based - it was led by the hurricane not just the hurricane happens for third quarter and the fourth quarter there has to be sort of refilling of channels and that sort of thing that went into the fourth quarter. Please to see that it sort of continued in the first quarter not only go beyond handsets were obviously strong but so is IoT and really frankly across the board we had - I’d say it was good quarter across almost all equipment types but it was - but I think Tom is right, we have tough comps in the second half so - we can call it as flat today. We’ll see how it goes in the next quarter or two as to where lend up in the year. But I think calling it flat to the years is prudent and appropriate for now. Probably goes anything special beyond, I think overall we're in a stronger position we’ve been in the last couple of years and the business is sort of hitting on all cylinders and equipment is tracking that as well.

Operator

Operator

Thank you. This concludes the question-and-answer session. I would now like to turn the call back over to management for final comments.

Matt Desch

Analyst

Yes, thanks. I hope you'll join us online on May 19 for another I think very interesting launch. It's another flight proven rocket and we'll be particularly interesting to launch given it’s a rides-hare and then watch for the Certus rollouts as well. So we will see you all in the second quarter call soon. Thank you.

Operator

Operator

Ladies and gentlemen this concludes today’s conference. Thanks for your participation. Have a wonderful day.