Good morning, everyone and welcome to the Iridium Corporation's Fourth Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Ken Levy, Head of Investor Relations. Sir, please go ahead.

Thanks, Jamie. Good morning and welcome to Iridium's fourth quarter 2020 earnings call. Joining me on this morning's call 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'd 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 fact 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 including operational EBITDA and pro forma free cash flow, free cash flow yield and free cash flow conversion. 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 further explanation of these non-GAAP financial measures as well as a reconciliation to the most directly comparable GAAP measures. With that, let me turn things over to Matt.

Thanks, Ken. Good morning, everyone. It's hard to believe but last week we celebrated the second anniversary of the completion of the Iridium NEXT program. They've been very productive years too with continued strong growth and the delivery of a number of exciting new services for our customers. In fact, we've added dozens of world-class partners and welcomed more than 350,000 net new subscribers to our network. We've launched innovative new products to extend our leadership in IoT like the Iridium Edge line and cloud connectivity with Iridium Cloud Connect. We've also rolled out groundbreaking services into new business segments, like our very flexible Iridium Certus higher speed data platform, and of course, Iridium GMDSS for Mariners. Last week's anniversary reminds us that Iridium's transformation to a strong, profitable and growing cash flow generator is complete. Today, our company generates over $200 million in annual pro forma free cash flow. Our net leverage has fallen dramatically and we continue to drive double-digit subscriber growth and new revenues from our upgraded network. Investors have noticed this too pushing our enterprise-to-EBITDA multiple in line with comparable growth oriented strong free cash flow companies, further differentiating Iridium from the traditional financial profile and competitive position of other satellite companies. In light of this progress and the continued growth opportunities we see, our Board of Directors has authorized a $300 million share repurchase program, which we announced in a press release last night. This is the first share repurchase authorization in our company's history and is indicative of the confidence that we have in our free cash flow and business opportunities. The program allows us to be opportunistic if the markets are volatile, while maintaining our path to long-standing leverage target. And I'm pleased to share this news as it signifies that Iridium is…

Thanks, Matt, and good morning everyone. With my remarks today, I'd like to recap Iridium's full year results for 2020 and provide some color on our performance in the fourth quarter. We also released our financial targets for 2021 this morning, so I'd like to walk through the key components supporting this outlook and provide additional perspective by discussing the revenue trends we expect to see over the next few years. As Matt noted, we delivered another solid year of growth. Though we did feel the effects of the global pandemic our business held up remarkably well. In addition to double-digit subscriber growth and gains in operational EBITDA, the strong free cash flow characteristics of our recurring service revenue model really stood out. Iridium generated $202 million in pro forma free cash flow in 2020 and reduced net leverage by nearly a turn. Operational EBITDA grew 7% in 2020 on the back of a 4% rise in total service revenue. This year we saw gains in IoT and our broadband business, even as the pandemic restrained air traffic volume and slowed installations and activations in maritime. For those who may be new to our story, the takeaway is that Iridium's underlying business remains incredibly resilient due to our global network of partners, the diversity of industries that we serve, and our focus on mobile Communications and Safety services In the fourth quarter, Iridium reported total revenue of $146.5 million, which was up 5% from last year's comparable period. This growth was broad-based, but primarily attributable to higher contractual revenues in our hosted payload business and an increase in contract engineering work with the US government. Operational EBITDA rose 6% from the prior year's quarter to $84.8 million. On the commercial side of our business we reported service revenue of $91.1…

Ladies and gentlemen, at this time we'll begin the question-and-answer session. [Operator Instructions] And our first question today comes from Ric Prentiss from Raymond James. Please go ahead with your question.

Thanks, good morning guys.

Hey, Ric.

Hey. Glad you're making through COVID well. A couple of questions, first on the service revenue guidance. Obviously you had some tough comps with hosted payload, COVID; we're not all the way out of the woods yet but hopefully getting there. Can you maybe help share a little bit about where you think the exit rate for service revenue in '21 might be. And one of the other IoT companies out there, ORBCOMM has suggested they might have a target service revenue multi your growth rate, kind of in the 10% range of service revenue. Is that something achievable for you guys?

So I'm not going to comment on exit rate, Ric. I think you should study the 2020 comp and I think that will show you that we had -- we kind of had a built-in gain in hosted payload in 2020 that's not going to recur in 2021. As I said in my prepared remarks, we think IoT is going to be materially faster growing than the 1% we put up this year and I think that's going to be evident. So as far as getting to 10%, it's not out of the question. Let's see how the broadband uptake is in '22 and '23 as we expect that to really pick up meaningfully.

Right. So when you talked about that...

I mean, Ric, we have quite a bit more diverse business obviously than ORBCOMM does. They are focused in the IoT space. We have a number of different market segments, each growing at kind of different levels and each one is kind of kicking in. Some of those kick in towards the end of the year, as we said we're going to start getting into the aviation broadband segment, where the mid-band will really start coming on at that point which is a segment really that they and others don't have because that's sort of a unique market area. We've always done very well in IoT and I was really happy to see how IoT kind of came roaring back at the end of this year in terms of sort of the market -- I mean the dynamics and the sort of market pace of all of our -- and we're seeing I think that pick up this year. I'm very hopeful if that kind of gets back to full bore in 2022 and with all the new products and services that they have that they can even go faster than we've traditionally had. So hopefully that helps you.

It does. And obviously you guys -- I've known you guys a long time and Tom even longer, you guys usually like to make sure you can deliver on your guidance as we saw last year. When we think of that materially higher service revenue potential in '23 to '25, is that still high single digit? Could that be double digit? Trying to just gauge what does material higher '23 to '25 kind of suggest?

Well, we're not a 3% grower. So, the intention of that is we're advertising 3%, it's going to be a lot -- we expect it to be a lot higher than that. And let's see how things [indiscernible]. You understand the drivers. It's going to be uptake on our Certus product. We're very optimistic about that. We think we're the satellite player of choice playing to the IoT trend. We think personal communication is a grower for a very long time. And so we think all of those factors are going to result in a materially higher rate of growth in '23 to '25.

And Rick, one of the reasons why we decided to do Analyst Day in May is to sort of spend a little bit more time focused on some of those areas because there is a few I guess growth areas, we haven't been able to -- well, we haven't described probably as fully as I think we should. For example, I think we have a long-term future in what I've been calling broadly personal communications, which is a -- the area that kind of shrink Iridium down into more and more consumer devices that people will carry with them, that I think we can maybe spend a little bit more time I hope -- talking about in May. And I think maybe, Tom will be able to flush out a bit more about sort of what the financial impact of the five years is, even though we're not going to get into -- we're not going to go back to the days of long-term guidance quite that way, but we certainly can spend a little bit more time sort of talking about strategy.

Great. And last question from me. Matt, you brought it up when you said; maybe it's more likely collaboration with some of the other large LEO constellations out there. Help us understand maybe what timeframe or what level of talks you're having. I -- we're starting to get some questions on the new Providence acquisition AST & Science LEO out there. Any thoughts on that one?

Well, I said we are complementary to the Ku, Ka band. I know that's confusing for a lot of investors because they see LEO and they assume that when you're in LEO you compete with all other LEOs, when in fact it's -- so looking forward to sharing even more information on why sort of the way that we channelize our system is ideal for personal communications and IoT and the things that we've decided to focus on and why it's almost impossible for any of those companies to really compete in those areas because it would be incredibly inefficient and wasteful for them to even try. So they're always going to be big terminals, which frankly have often have an L-band complement to them or some lower cost satellite service that makes them even better and that's what we've been talking about with several of them. And as they build out their networks, they're all primarily focused on their core initial, say, commodity, consumer service, but they all have told us they find a lot of value and interest in our services as a complement to them. So I think I know that you'll see the products coming for a couple of years. As far as AST space mobile, yes, I've noticed that as well. Certainly, it's one of these big ideas that frankly has a lot of invention still to go. We and our predecessor company dismissed the -- trying to do what they're doing has been way too complicated and hard. It would -- it requires -- if you think that what we've done over the last 30 years to get to the point we've done has been hard, you can kind of ratchet that up in order of magnitude or maybe several order of magnitudes for what they have said that they are just going to try to accomplish. The science involved in developing that is going to be expensive, takes a long time. And it's certainly interesting if they're able to accomplish it but I think more is that I'm viewing AST as a indicative of the market enthusiasm in space right now in terms of how they're being valued and considered by the market is then really indicative of whether they are -- what their claim and they'll be able to do in the timeframe, they'll be able to do for the price [indiscernible] to do is in any way valid. Hope that helps.

Great. It does. Appreciate that. And I look forward to quote seeing you guys in May. Thanks guys.

Yes, thanks Ric.

Thanks, Ric.

Our next question comes from Greg Burns from Sidoti & Company. Please go ahead with your question.

Tom, you mentioned SG&A stepping up a bit this year, is the fourth quarter a good run rate?

Total step -- the fourth quarter a good run rate. I would think about SG&A being up in 2021 a few million dollars, Greg, on the full year.

Okay. All right. Thanks. And then in terms of your GMDSS product, how does that compare to [indiscernible] solutions out there? And is that being positioned as a standalone product to drive revenue or is it more of service that will pull through your other broadband services? Thanks.

Yes, I think I'm not sure everybody heard your question, but it was I think our GMDSS service or maritime GMDSS, is it being viewed as a stand-alone product or something to pull through the rest of our services? It's both. It's always been -- it's been an area that we've not been able to address at all. It's not the narrowband product that we have today when it's used in a emergency perspective. That doesn't bring revenues. It's all the other uses of that terminal that go on, from delivering maritime safety data and navigation data and the use of it for ships business. And that terminal had to be on every ship out there at least all the SOLAS-class ships, and that always had to be from our competitor. So we were always kind of competing for the other terminals on board. Now a ship can be an Iridium only ship and that's -- our partners are excited about that because they haven't always enjoyed competing with delivering a service of a competitor since they were often providing the VSAT service as well. So it can be a stand-alone service. As I've mentioned in my comments, we're kind of really enthusiastic about the fact that this might expand the market for GMDSS. There is hundreds of thousands of ships out there who would love to have a panic button at a low price that connects with all the regional emergency centers and provides information, but it really wasn't very cost effective before. And I mean, we're even wondering if say, insurance companies and others might not be very attracted to encouraging those ship owners to use an Iridium GMDSS service. So hope that helps.

Okay, thanks.

Thanks, Greg.

Just a follow-up on that. What is the incremental ARPU?

You're cutting out, Greg. Can you -- you said some by incremental ARPU of what?

Of GMDSS. Like, how much incremental revenue those ARPUs generate on the shift [ph].

Well, it's a voice and data terminal that's -- can anywhere be tens of dollars to hundreds of dollars depending upon how much it's really used on the ship and it's too early to really know exactly what the ARPU for sure will be. They subscribe to various plans, but typically it delivers at the minimum probably around our voice and data average but can be quite a bit higher than that on some vessels that use it extensively. Since it is an integrated voice and data device providing the highest -- very high quality voice connection and they can use it for anything that they want to. And obviously they don't use it in emergency very much, but that doesn't cost them anything. But it is a data device too and delivers a lot of information from -- about navigation issues and safety issues, all kinds of weather issues and that sort of thing too. So I don't really know exactly what it will be. And of course, it's not going to really move the needle that much in 2021, just given the number of units it's going to have. But it's definitely a foundational point as you said in the previous question for both standalone maritime sales as well as driving our Certus business.

Okay, great.

And ladies and gentlemen, our next question comes from Chris Quilty from Quilty Analytics. Please go ahead with your question.

Thanks, guys. Wanted to follow up on the IoT business. Tom, I think the ARPU this year was down 15%, which was a little bit steeper than the prior year, down 9%. Some of that due to COVID and I guess the bulk due to mix with consumer. What should we expect as we look out into 2021 for where you think the ARPU will go based upon your expectation of mix?

Right. So what was acute in the ARPU in '20 was the $4 million fall off from aviation. Don't model that to recur. Right? So model the mix from consumer, but not the acute hit we took from aviation, Chris.

And it's -- the consumer mix has really been strong. It's really been strong as you see, Chris. I mean, I expect that to be equally strong in 2021 if not stronger given the expanding products. ARPU, I think also will...

So, to say that the -- you're not going to have obviously...

Go ahead.

Go ahead. No, Tom, I think you said there is not going to be another $4 million headwind, but do you expect the aviation business to tick up a little bit this year?

I would say a little bit. Okay, the issue is that we're not going to have the headwinds. So it's not going to fall by $4 million. It will grow a bit. Take whatever forecast you have for air travel coming back, but we know it's not going to fall $4 million.

Okay. I guess moon's [ph] going away and they were a small customer, but can you talk about the UAV market and what you see is the prospect there.

Yes. We have a number of new and existing partners who are addressing that space, some who already have some products that they're doing. It's not high volumes, but they are quite interesting and different form factors is, I mean, the reason why we're relevant is that our technology gives a pretty good data rate in a very small package with small antenna. So there seems to be high interest in the growing UAV market that need a satellite connection particularly for command and control to utilize us. There is some particularly interesting applications I'm seeing using our mid-band modem right now because they like the additional speed that they can get from it, and the more -- and so there are a few there. I can't comment on how fast their business quarter [ph] will grow. There are certainly interesting applications across the whole bunch of different market segments for use of drones in the coming years. I think none of us are believing that it's going to be a radical growth in the next year or two, but it feels like it's sort of foundational for ever increasing market segment to us.

And on the new product front, it sounds like you've got the Iridium Edge product shipping, what are the thoughts there on how that will do in 2021 [ph]?

Yes, it both contributes some revenue, obviously on the device side as we ship out the new solar and the new Edge Pro. We are a whole bunch of partners right now who are adopting those and developing products around them and are starting to use them. It has also attracted some new partners to us that might not have otherwise been using us because they now have like a low-cost solar powered device for the applications that they were in. We're seeing some transition from some other satellite players as well. Some of our partners are evolving away from maybe products they had used on their front using say a solar powered device now are moving to our network. And so I think that will also support our IoT growth and revenues there. But yes, it's -- we've always felt that having a broader array of finished IoT devices which were low costs and sort of industrial quality was going to really help our partners get into business faster and not have to invent those things themselves. And that's what we're seeing right now in the dynamics with our partners.

Great. And final question just on the broadband business, I think the ARPU is up around 10% this year. Obviously, it depends on the rate at which you ship new service terminals, but is that a reasonable ratio expressed in 2021, or I guess broader distribution and forcing enablement [ph]?

Yes, kindly go mute without typing. But yes, the ARPU is higher because obviously with higher data speed that we can get from Certus Terminal, people are using them. If everybody could go on mute if you're not, there is a lot of noise in the line. By the way, there's a lot of delay on the line too I think, we must be going through a geostationary satellite I think here. But yes, I expect that you'll see stronger ARPUs as we use our Certus services and we see the mix change from the lower speed Open Port services that we had, which by the way I'm really sort of pleased that the Open Port terminal business has sort of not declined that fast. It certainly held up quite a bit and I think it will naturally evolve through the Certus 200 class service. So -- and I think that's great, because I would have expected that it allows us to kind of grow into these higher-speed services and take market share. But yes, higher ARPU is probably going to continue.

Our next question comes from Louie DiPalma from William Blair. Please go ahead with your question.

Good morning, Matt, Tom and Ken. And Matt, I wanted to say that was a funny joke about the geostationary satellite here [ph]?

You got that. You got that, did you Louie?

I did. For either matter, Tom, can you review what are the targeted performance specs of the new mid-band transceivers that you're expected to release or your partners are expected to release over the coming years? And I guess more important than speed slash throughput, like how small can these new transceivers be, and will they be miniature enough to sit into something of the size of a Garmin inReach handset? Thanks.

Yes. So the first product in the line of mid-band transceivers is now out and robust and it really works very well. The issue is it has to be designed into products now because it's quite a sophisticated receiver, it doesn't sort of stand-alone on itself without other things around it. So that's the 9770. It's roughly the size of, I don't know, two packs of playing cards next to each other sort of standing -- maybe a little bit bigger than your iPhone or more like an Android phone or something. And it provides up to 88 kilobits per second, and a couple of very high quality voice lines to it. So you can imagine that's almost -- it's like a fraction of the size of our old L-band transceiver that was sort of the mainstay [ph] of our business for the first 20 years that only did 2.4 kilobit service with a voice line and it does a lot more than that. So that product in addition, it's an IP connection. A pure IP connection. So it's very fast on and off our network, where the previous L-band transceiver had to be kind of dialed and take 30 seconds to make connections and that sort of thing before transfer data. This is sort of an instant ON, send data, bring data back. It's a very, very efficient device and very efficient in use of our network resources. That's the foundation, and a lot of products will be built on that product. You could imagine other voice and data products, things that traditionally go in that market segment as well as IoT kind of services. There are also evolutions of that technology where we take out things from that to actually have lower speed, but much smaller size, say a 16 kilobit type service, 32, maybe still much faster than our previous IoT but very, very small and very, very small antennas, which you could imagine would be perfect for enhanced IoT applications. Again be an IP, it's very fast on and off the network. It's very efficient, especially using some new software that we're developing. So there is going to be variance of that from simultaneous 8888, there is going to be specialized form factor units of that developed. There will be variance that have lower power uplink for a much better battery life. And yes, they can be shrunk down into Garmin inReach size sizes and be very, very portable and consumer oriented.

Sounds good. And for the current handhelds, whether it's with Garmin or others, they are noted for the ability to send text messages everywhere. Are you saying that future iterations with the new transceivers will also have multimedia capabilities such that you could be in the middle of nowhere and now you can send like a selfie? Is that going to be possible with the new technology?

It's a little depressing if that's the only thing you're going to do with it. But yes, absolutely. I mean, it is a multimedia device. It's very efficient for sending pictures, certainly sending much richer text streams. You could imagine today where you do a text but doing outlook makes a lot more sense, or real email with information embedded in the email including attachments and that sort of thing. Those are all things that can be done from a much smaller, more portable device and done quite efficiently. And we do see those in development. A number of things around that front, you will see different both from ourselves and our partners that exploit these new devices. And also we're going to be working increasingly externally with partners. I think this is still unique about Iridium, it has been our kind of long-standing strategy to license our technology and to work with our partners around products that fit them perfectly. Because we know when we embed Iridium technology into our partners' businesses, it makes it easier for them to exploit and expand and use that service. So we have some other of those in the works, we'll announce those when the time comes. But I'm quite excited about the potential for embedding our capabilities into deeper and deeper into sort of the consumer value chain. Thanks, Matt. That was very helpful.

Thanks, Louie.

And our final question today comes from Hamed Khorsand from BWS. Please go ahead with your question.

Hey, good morning. So I just wanted to ask about the service installations in maritime. I know you've been highlighting COVID but is the current situation worldwide shipping issues, the lane installations for you at all, and how are your customers coping with [indiscernible].

Well, I think we've said on even the last call and I don't -- I still think it's not eased a lot even with the pandemic slightly easing, is that a lot of installers are unable to travel due to travel restrictions. Some of our partners with centralized installation forces can't get into countries to even get onto ships to install them. Some of our partners with localized installers are doing better but there are still many restrictions that ship owners have because as you saw in the early parts of the pandemic with cruise ships and everything, the last thing you want is your crew to be infected. And then you go out to see and you're on board a close confined area for weeks. So there's a lot of care taken and it just slows everything down. Now that was -- things are still getting on to ship. We are seeing terminals installed, increasingly in fact every month, it feels like there's a little bit of improvement. So, depends on where in the world they happen to be, but we are hearing from our partners that they are not operating anywhere close to the run rate they would like to. And some of them have told us they have a pretty big backlogs, they just can't get their terminals onto the ship. So there is demand and desire for the product, they -- it's just slow getting out there. And obviously until it gets on the ships, it doesn't make revenues for us.

Okay. And the other part I had was on the IoT side. How much traction you're seeing with the your industrial installation? Is that ramping at all? I know the ARPU declined from Q3 this quarter.

Well, remember again, ARPU decline is almost all mix. There was the aviation piece as we talked about in the previous one, but we're not declining ARPU due to lack of usage or anything. And in fact we grew the number of IoT subscribers dramatically last year. The issue is that when you add in more than 100,000 or a quite a bit more consumers that are paying just a couple of dollars a piece, it's going to weigh down sort of your average revenue across that. The industrial partners and we have very many of them that's still -- already [ph] the revenues are expanding and really we saw a lot of them in the second half of the year get back to normal operations. We added a few handfuls of partners last year, fewer than usual because of COVID because it was hard to close business, I think we're going to see more partners join us in 2021 than '20. But we really are seeing the pace get back to normal for almost all of our industrial IoT partners, whether they be in heavy equipment, or in agriculture, transportation, tracking devices -- the ocean that sort of thing. I mean, each of those market segments have their own cadences and everything, but it certainly feels like we're seeing our partners kind of back to work regardless, and knowing how now to work through the COVID. They shut down in March, April and May. It felt like last year, everybody tried to figure out what to do but they got back to work in the second half of the year, and we're sort of expecting this to be a much more normal year in 2021.

Okay, thank you.

Thanks, Ahmad.

Ladies and gentlemen, with that we'll end today's question and answer session. I'd like to turn the conference call back over to management for any closing remarks.

Well, thanks for joining us. Watch for more from Ken on that Analyst Day in May, and we'll look forward to seeing you at the next quarterly earnings call and also will be preparing to share a lot more in that Analyst Day as well. Take care.

And ladies and gentlemen, with that we'll conclude today's conference call; we do thank you for attending. You may now disconnect your lines.