Iridium(IRDM) - 2023 Q4 - Annual Report

PART I Business Overview Iridium provides global, real-time LEO satellite communication services to commercial and government sectors, with 2023 revenue up 10% to $790.7 million - Iridium is the only commercial provider of communications services offering true global coverage via its LEO, L-band satellite network, connecting people, organizations, and assets in real-time, especially in areas lacking terrestrial networks[14][15] - The U.S. government is Iridium's largest single customer, generating $196.1 million in service and engineering revenue (25% of total revenue) in 2023, primarily through the EMSS contract[18][45] Key Financial and Operational Highlights (2023 vs. 2022) | Metric | 2023 | 2022 | Change (YoY) | | :----------------------- | :--------- | :--------- | :----------- | | Total Revenue | $790.7 million | $721.0 million | +10% | | Billable Subscribers | 2,279,000 | 1,999,000 | +14% | | U.S. Government Revenue | $196.1 million | N/A | N/A | Corporate Background Iridium Communications Inc. was formed in November 2007 as GHL Acquisition Corp. and acquired Iridium Holdings LLC in September 2009 - Iridium Communications Inc. was formed in November 2007 as GHL Acquisition Corp., a special purpose acquisition company, and acquired Iridium Holdings LLC in September 2009[12] Business Overview Iridium is the only commercial provider of global LEO L-band satellite communication services, with a mesh architecture minimizing ground facilities - Iridium is the only commercial provider of communications services offering true global coverage, utilizing a low-earth orbit (LEO), L-band network with 66 operational satellites and in-orbit spares[14][15] - The network's interlinked mesh architecture routes traffic across satellites, minimizing the need for local ground facilities and enabling global service reach[15] - The current Iridium constellation, completed in 2019, hosts the Aireon system for global air traffic surveillance and supports new products with higher data speeds like Iridium Certus[16][17] Industry Iridium operates in the mobile satellite services sector, providing voice and data where terrestrial networks are limited or non-existent - Iridium operates in the mobile satellite services sector, providing voice and data where terrestrial networks are limited or non-existent, serving emergency services, maritime, aviation, government, and other remote operations[23][24] - Growth in mobile satellite services is driven by increasing awareness of reliable mobile communications, lack of terrestrial coverage, IoT development, and declining costs of services and devices[26][27] - Iridium's LEO system offers lower latency and smaller antennas than GEO systems, and its L-band spectrum is more weather-resistant than K-band used by competitors like Starlink and OneWeb[29] Our Competitive Strengths Iridium's LEO constellation provides true global, weather-resilient coverage with low latency and minimal ground infrastructure - Iridium's constellation provides true global and weather-resilient coverage with an interlinked mesh architecture, reducing the need for multiple local ground stations and offering minimal transmission delays[30][31] - The LEO design and L-band spectrum distinguish Iridium from regional LEO operators and K-band competitors by offering global, real-time, low-latency, and weather-resilient services, including polar coverage[29][31] Our Business and Growth Strategies Iridium aims to grow service revenue by leveraging fixed-cost infrastructure, expanding markets with new products, and strengthening government services - Iridium aims to grow service revenue by leveraging its fixed-cost infrastructure, focusing on competitive broadband, midband, narrowband data services (Iridium Certus), and satellite IoT[32] - Strategic initiatives include expanding target markets through new products like Project Stardust (NB-IoT and NB-NTN for smartphones), accelerating personal communications, and continuing growth in U.S. government services[32] - The company plans to expand its wholesale distribution network and continue supporting Aireon's global air traffic surveillance service[32] Distribution Channels Iridium utilizes a wholesale distribution network of approximately 100 service providers and 300 VARs to reach diverse markets - Iridium sells products and services through a wholesale distribution network of approximately 100 service providers, 300 VARs, and 85 VAMs, with over 53 distributors serving government customers[33] - This model reduces back-office complexities and costs, allowing distributors to focus on revenue generation and developing innovative, integrated communication solutions for niche markets[35][39] Commercial Markets Commercial business is Iridium's primary long-term growth driver, focusing on land mobile, maritime, aviation, and IoT sectors - Commercial business is Iridium's primary source of long-term growth, with service providers and VARs as main distribution channels[36] - Key commercial sectors include land mobile (mining, forestry, public safety), maritime (merchant shipping, fishing, leisure, GMDSS), aviation (business jets, helicopters, UAVs, air traffic control), and IoT data (personal tracking, heavy equipment telematics, fleet management, scientific monitoring)[51][55][59][62] - Iridium Certus is driving growth in maritime and land mobile, offering competitive broadband and midband solutions, while IoT services are expanding with new transceivers and devices[52][56][65] Government Markets Iridium provides mission-critical mobile satellite services to the U.S. DoD and other government agencies, accounting for 25% of 2023 revenue - Iridium provides mission-critical mobile satellite products and services to all branches of the U.S. DoD and other government agencies, accounting for approximately 25% of total revenue in 2023[40][45] - Services are provided under multi-year contracts like EMSS ($738.5 million over seven years), GMSS ($60.4 million), and the SDA contract ($202 million expected revenue), with the U.S. government operating a dedicated, secure gateway[41][42][43][44] - Iridium's 9575A handset is the only commercial, mobile handheld satellite phone with Type I encryption accredited by the NSA for Top Secret voice communications[40] Lines of Business Iridium's principal lines of business include land mobile, maritime, aviation, IoT, hosted payloads, and U.S. government services - Iridium's principal vertical lines of business include land mobile, maritime, aviation, IoT, hosted payloads and other data services, and U.S. government[49] - Commercial voice and data revenue is primarily driven by land mobile and aviation, while maritime is a principal contributor to commercial broadband revenue[49] - Hosted payload revenue, primarily from Aireon and L3Harris, is recognized over the satellites' estimated useful life, which was extended from 12.5 to 17.5 years in Q4 2023[65] Seasonality Commercial voice traffic and subscriber equipment sales typically peak from March through October, while government and IoT usage are less seasonal - Commercial voice traffic and related subscriber equipment sales typically peak from March through October due to northern hemisphere outdoor activity[68] - U.S. government usage and commercial IoT usage are less subject to seasonal changes[68] Services and Products As of December 31, 2023, Iridium had approximately 2.28 million billable subscribers, with commercial services contributing ~62% of total revenue - As of December 31, 2023, Iridium had approximately 2,279,000 billable subscribers worldwide[69] Revenue Contribution by Service/Product Type (2023) | Category | % of Total Revenue | | :-------------------------- | :------------------ | | Commercial Services | ~62% | | Subscriber Equipment | ~13% | | U.S. Government Services | ~25% | - Product offerings include Iridium 9555 and Iridium Extreme satellite phones, Iridium GO! and Iridium GO! exec personal connectivity devices, and Iridium Certus broadband terminals for various markets[80][82][84][87] - IoT devices like Iridium 9602/9603 transceivers and Iridium Edge products provide two-way SBD transmission for asset tracking, sensor data, and dual-mode connectivity[92][93] Device Development and Manufacturing Iridium contracts with Cambridge Consulting and other suppliers for device development and with Benchmark Electronics for manufacturing - Iridium contracts with Cambridge Consulting Ltd. and other suppliers for device development, and with Benchmark Electronics Inc. and Verigon for manufacturing[94][95] - The company provides a warranty on subscriber equipment for 12 to 18 months from activation and offers various accessories[96][97] Domestic and Foreign Revenue In 2023, 55% of Iridium's revenue originated from the United States, with the remaining 45% from other countries Revenue by Geographic Area (2021-2023) | Year Ended December 31, | 2023 | 2022 | 2021 | | :---------------------- | :--- | :--- | :--- | | United States | 55 % | 52 % | 54 % | | Other Countries | 45 % | 48 % | 46 % | - Revenue is allocated based on the billing address of distributors, not end-user location, and substantially all revenue is invoiced in U.S. dollars[98] Traffic Originating Outside the United States In 2023, 91% of commercial voice traffic and 96% of commercial data traffic originated outside the U.S. Commercial Traffic Originating Outside the U.S. (2021-2023) | Year Ended December 31, | 2023 | 2022 | 2021 | | :---------------------- | :--- | :--- | :--- | | Commercial voice traffic (minutes) | 91 % | 90 % | 90 % | | Commercial data traffic (kilobytes) | 96 % | 95 % | 97 % | Our Network Iridium's network comprises 66 LEO satellites with a mesh architecture, ensuring global coverage and minimal ground infrastructure - Iridium's network consists of 66 operational LEO satellites in six orbital planes, with in-orbit spares, ensuring global coverage[102] - The interlinked mesh architecture uses radio frequency crosslinks between satellites, minimizing ground infrastructure and enhancing security and reliability[103][105] - The network includes a primary commercial gateway in Tempe, Arizona, a dedicated U.S. government gateway, and TPN facilities for telemetry, tracking, and control[108][109] Regulatory Matters Iridium holds licenses for L-band, K-band, and Ka-band spectrum, operating under a 25-year de-orbit standard for its constellation - Iridium holds licenses for 8.725 MHz of L-band spectrum (1.6 GHz) for two-way communication, 200 MHz of K-Band for inter-satellite links, and 400 MHz of Ka-Band for feeder links[116] - The company's satellite constellation is subject to a 25-year de-orbit standard under FCC authorization[119] - Iridium holds an approximate 39.5% fully diluted ownership stake in Aireon Holdings, which operates the Aireon system hosted on Iridium satellites[121] Competition Iridium faces competition from mobile satellite service providers and new entrants like Starlink, as well as indirect competition from terrestrial networks - Iridium faces substantial competition in the mobile satellite services industry from Viasat, Globalstar, ORBCOMM, and Thuraya, competing on coverage, quality, mobility, and pricing[124] - New entrants like Starlink and OneWeb are primarily focused on commodity broadband, while Iridium often serves as a companion service, but these companies are also investing in direct-to-device services[129] - Indirect competition comes from terrestrial wireline and wireless networks, which are generally perceived as cheaper and more convenient, though Iridium serves areas inadequately covered by these systems[130][131] Research and Development R&D expenses increased to $20.3 million in 2023, focusing on new constellation development, products, and network enhancements Research and Development Expenses (2021-2023) | Year Ended December 31, | Expense (in millions) | | :---------------------- | :-------------------- | | 2023 | $20.3 | | 2022 | $16.2 | | 2021 | $11.9 | - R&D efforts focus on new constellation development, new products (Iridium Certus, Iridium Edge, Project Stardust), network enhancements, and new applications[132] Employees and Human Capital Resources As of December 31, 2023, Iridium had 760 full-time employees, focusing on development, wellness, and diversity & inclusion - As of December 31, 2023, Iridium had 760 full-time and six part-time employees, with no collective bargaining agreements[133] - The company focuses on employee development, wellness, social responsibility, and diversity & inclusion through programs like Iridium Orbit and Uplinks[134][135][136][137] Intellectual Property Iridium holds 38 U.S. patents related to satellite systems and licenses critical IP from Motorola Solutions and other third parties - As of December 31, 2023, Iridium held 38 U.S. patents and one foreign patent related to satellite systems, global networks, communications services, and devices[138] - The company licenses critical intellectual property from Motorola Solutions and other third parties, which is essential for network operation, device manufacturing, and service enhancements[139][140] Available Information Annual, quarterly, and current reports are available free of charge on Iridium's website and the SEC's website - Annual, quarterly, and current reports (10-K, 10-Q, 8-K) are available free of charge on Iridium's website (www.iridium.com) and the SEC's website (www.sec.gov)[141](index=141&type=chunk) Risk Factors Iridium faces significant risks related to its satellite network, business operations, capital structure, and legal/regulatory environment - Risks related to satellites and network include operational problems, premature satellite failure (uninsured), disruptions at commercial gateways, difficulty servicing customized hardware/software, and rapid technological changes[143][145][146][147][149][150] - Business operation risks involve dependence on increased demand for mobile satellite services, termination/renewal of U.S. government contracts (25% of 2023 revenue), Aireon's business growth, reliance on third-party intellectual property and distributors, supply chain disruptions, and risks from international operations (e.g., Russia-Ukraine conflict)[154][155][160][162][168][174][177][179] - Capital structure risks include substantial debt ($1.5 billion as of Dec 31, 2023), potential inability to repay the Term Loan, restrictive covenants, and volatility in common stock price[188][190][193][198] - Legal and regulatory risks encompass extensive government regulation (FCC, foreign authorities), potential interference from adjacent spectrum use (Ligado Networks), product liability claims from consumer-oriented devices, data privacy concerns (GDPR), and intellectual property infringement claims[201][203][205][206][207][211] Unresolved Staff Comments There are no unresolved staff comments from the SEC - The company has no unresolved staff comments[226] Cybersecurity Iridium implements comprehensive cybersecurity risk management, overseen by the Board and led by the CIO, to protect its network and systems - Iridium maintains information security processes to identify, assess, and manage cybersecurity risks to its satellite network, ground systems, and critical data[227] - Management, led by the CIO and an internal security committee, monitors threats, conducts vulnerability assessments, and implements technical, physical, and organizational measures[228][229] - The Board of Directors oversees cybersecurity risk management, receiving quarterly reports from management, and the CIO is responsible for integrating cybersecurity into overall risk strategy[230][233][234][235][237] Properties Iridium operates various owned and leased facilities globally, including headquarters in McLean, VA, and a SNOC in Leesburg, VA Key Facilities and Ownership Status | Location | Country | Approximate Square Feet | Facilities | Owned/Leased | | :------------------ | :------ | :---------------------- | :---------------------------------------------------------------- | :----------- | | McLean, Virginia | USA | 30,600 | Corporate Headquarters | Leased | | Chandler, Arizona | USA | 197,000 | Technical Support Center, Distribution Center, Warehouse and Satellite Teleport Network Facility | Leased | | Leesburg, Virginia | USA | 40,000 | Satellite Network Operations Center | Owned | | Tempe, Arizona | USA | 31,000 | System Gateway and Satellite Teleport Network Facility | Owned Building on Leased Land | | Fairbanks, Alaska | USA | 4,000 | Satellite Teleport Network Facility | Owned | | Svalbard | Norway | 1,800 | Satellite Teleport Network Facility | Owned Building on Leased Land | | Izhevsk, Udmurtia | Russia | 8,785 | System Gateway and Satellite Teleport Network Facility | Leased | | Punta Arenas | Chile | 3,200 | Satellite Teleport Network Facility | Owned Building on Leased Land | Legal Proceedings Neither Iridium nor its subsidiaries are currently involved in any material legal proceedings - The company is not currently subject to any material legal proceedings, nor are any threatened[239] Mine Safety Disclosures This item is not applicable to Iridium Communications Inc - Mine Safety Disclosures are not applicable[240] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Iridium's common stock is listed on Nasdaq under 'IRDM', with quarterly dividends and an active share repurchase program - Iridium's common stock is listed on the Nasdaq Global Select Market under the symbol 'IRDM'[243] - The Board of Directors approved a quarterly dividend of $0.13 per share in December 2022, with total payments of $64.8 million for the twelve months ended December 31, 2023[244] - The Board plans to increase the quarterly dividend to $0.14 per share starting with the second quarter 2024 dividend[245] Issuer Purchases of Equity Securities (Q4 2023) | Period | Total shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum dollar value of shares that may yet be purchased under the plans or programs | | :------------- | :--------------------- | :--------------------------- | :---------------------------------------------------------------- | :---------------------------------------------------------------- | | October 1-31 | 255,843 | $41.23 | 255,843 | $375.1 million | | November 1-30 | 844,963 | $37.37 | 816,963 | $344.6 million | | December 1-31 | 261,264 | $40.37 | 261,264 | $334.0 million | | Total | 1,362,070 | $38.67 | 1,334,070 | — | - The Board has authorized repurchases of up to $1,000.0 million of common stock through December 31, 2025[250] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Iridium's 2023 total revenue increased 10% to $790.7 million, driven by services, with net income rising to $15.4 million due to a tax benefit Total Revenue and Net Income (2023 vs. 2022) | Metric | 2023 | 2022 | Change (YoY) | | :---------------- | :--------- | :--------- | :----------- | | Total Revenue | $790.7 million | $721.0 million | +10% | | Net Income | $15.4 million | $8.7 million | +77% | - Service revenue represented 74% of total revenue in both 2023 and 2022, with higher margins than subscriber equipment revenue[257] - The Term Loan was refinanced in September 2023 for $1,500.0 million, bearing interest at SOFR + 2.50% (0.75% SOFR floor) and maturing in September 2030. The company also has a $100.0 million Revolving Facility[259][260] - Cash and cash equivalents decreased from $168.8 million in 2022 to $71.9 million in 2023, primarily due to $247.0 million in share repurchases, $73.5 million in capital expenditures, and $64.8 million in dividends paid[299] Background Iridium Communications Inc. was formed in 2007 as GHL Acquisition Corp. and acquired Iridium Holdings LLC in 2009 - Iridium Communications Inc. was initially formed in 2007 as GHL Acquisition Corp. and acquired Iridium Holdings LLC in 2009[252] Overview of Our Business Iridium provides global mobile voice and data communications via its LEO satellite constellation, serving 2.28 million subscribers - Iridium provides global mobile voice and data communications via its LEO satellite constellation, serving businesses, governments, and NGOs[253][254] - As of December 31, 2023, Iridium had approximately 2,279,000 billable subscribers worldwide, a 14% increase from 2022[256] - Revenue is primarily from services (74% of total revenue in 2023 and 2022) and equipment sales, with hosted payload revenue also contributing[257] Launch Services Agreements Iridium launched five ground spare satellites in May 2023, increasing in-orbit spares to 14, and wrote off the remaining spare - In 2022, Iridium entered agreements for approximately $40.0 million to launch up to five ground spare satellites[258] - Five ground spare satellites were launched in May 2023, increasing in-orbit spares to 14. The remaining ground spare was written off, resulting in $37.5 million accelerated depreciation in Q2 2023[258] Term Loan Iridium refinanced its Term Loan in September 2023 for $1.5 billion, maturing in 2030, with a $100.0 million undrawn Revolving Facility - On September 20, 2023, Iridium refinanced its term loan, resulting in $1,500.0 million in total borrowing, with a maturity date in September 2030[259] - The Term Loan bears interest at SOFR plus 2.50%, with a 0.75% SOFR floor. Quarterly principal payments of $15.0 million per annum began in Q1 2024[259] - The company also has a $100.0 million Revolving Facility, undrawn as of December 31, 2023, with a maturity in September 2028[259][261] - The Credit Agreement contains no financial maintenance covenants for the Term Loan and Iridium was in compliance with all covenants as of December 31, 2023[262][263][407] Derivative Financial Instruments Iridium uses an interest rate cap agreement to manage interest rate exposure on $1.0 billion of its Term Loan through November 2026 - Iridium uses an interest rate cap agreement (Cap) to manage exposure to interest rate movements on a portion of its Term Loan through November 2026[266] - The Cap was modified in December 2022 to replace LIBOR with SOFR, providing payment if one-month SOFR exceeds 1.436%. It had a notional amount of $1.0 billion as of December 31, 2023[267] Total Interest on Debt and Loss on Extinguishment Total interest incurred increased to $102.3 million in 2023, with net interest expense rising to $90.4 million due to refinancing fees Total Interest Incurred and Capitalized (2021-2023) | Year Ended December 31, | 2023 | 2022 | 2021 | | :---------------------- | :--------- | :--------- | :--------- | | Total interest incurred | $102.3 million | $72.1 million | $72.8 million | | Interest capitalized | $5.1 million | $2.6 million | $2.1 million | - Interest expense, net, increased to $90.4 million in 2023 from $65.1 million in 2022, primarily due to $14.7 million in fees expensed for the Term Loan refinancing and an increase in the base rate[291] - A $1.2 million loss on extinguishment of debt was recorded in 2022 due to a $100.0 million principal prepayment on the Term Loan[271][292] Material Trends and Uncertainties Industry growth is driven by demand for remote communications and new products, while challenges include satellite health and economic conditions - Industry growth drivers include demand for remote communications, new products/services, broad distribution, disaster relief needs, improved data speeds, regulatory mandates, price reductions, and geographic expansion[273] - Challenges include maintaining satellite health, developing innovative products, economic conditions, reliance on a single commercial gateway, competition, market acceptance, regulatory requirements, global operations risks, technological changes, debt repayment, and supply chain reliance[274] Critical Accounting Policies and Estimates Critical accounting policies involve judgment in revenue recognition and asset useful lives, with satellite useful lives extended to 17.5 years in Q4 2023 - Critical accounting policies involve significant judgment in areas such as revenue recognition, income taxes, useful lives of property and equipment, and loss contingencies[273] - In Q4 2023, the estimated useful lives of satellites were extended from 12.5 years to 17.5 years, impacting depreciation expense and hosted payload revenue[278] Comparison of Our Results of Operations for the Years Ended December 31, 2023 and 2022 This section details the year-over-year changes in Iridium's revenue, expenses, and net income for 2023 compared to 2022 Commercial Service Revenue Commercial service revenue increased by $49.7 million (12%) in 2023, driven by growth in voice, IoT, and broadband services Commercial Service Revenue (2023 vs. 2022) | Commercial Services | 2023 Revenue (millions) | 2023 Billable Subscribers (thousands) | 2023 ARPU | 2022 Revenue (millions) | 2022 Billable Subscribers (thousands) | 2022 ARPU | Change Revenue (millions) | Change Subscribers (thousands) | Change ARPU | | :------------------ | :---------------------- | :------------------------------------ | :-------- | :---------------------- | :------------------------------------ | :-------- | :------------------------ | :----------------------------- | :---------- | | Voice and data | $219.2 | 408 | $45 | $193.1 | 397 | $42 | $26.1 | 11 | $3 | | IoT data | $141.0 | 1,709 | $7.45 | $125.0 | 1,448 | $7.89 | $16.0 | 261 | $(0.44) | | Broadband | $57.9 | 16.7 | $305 | $51.1 | 15.0 | $302 | $6.8 | 1.7 | $3 | | Hosted payload and other data | $60.3 | N/A | N/A | $59.5 | N/A | N/A | $0.8 | N/A | N/A | | Total commercial services | $478.4 | 2,134 | N/A | $428.7 | 1,860 | N/A | $49.7 | 274 | N/A | - Total commercial service revenue increased by $49.7 million (12%) in 2023, driven by increases in voice and data, IoT, and broadband revenue[280] - Hosted payload revenue decreased by $2.3 million due to the change in the estimated useful lives of satellites, with an expected annual decrease of $9.1 million for the remainder of the satellites' lives[280] Government Service Revenue Government service revenue remained unchanged at $106.0 million in 2023, consistent with the fixed-price EMSS contract Government Service Revenue (2023 vs. 2022) | Government Service Revenue | 2023 Revenue (millions) | 2023 Billable Subscribers (thousands) | 2022 Revenue (millions) | 2022 Billable Subscribers (thousands) | Change Revenue (millions) | Change Subscribers (thousands) | | :------------------------- | :---------------------- | :------------------------------------ | :---------------------- | :------------------------------------ | :------------------------ | :----------------------------- | | Government service revenue | $106.0 | 145 | $106.0 | 139 | $0 | 6 | - Government service revenue remained unchanged at $106.0 million in 2023, in accordance with the fixed-price EMSS contract[281] Subscriber Equipment Revenue Subscriber equipment revenue decreased by $29.6 million (22%) in 2023 due to lower sales volume of SBD devices and handsets - Subscriber equipment revenue decreased by $29.6 million (22%) to $105.1 million in 2023, primarily due to an expected decrease in sales volume of Short Burst Data devices, L-Band transceivers, and handsets[282] - Equipment sales in 2024 are expected to be lower than 2023, aligning with pre-2022 levels before pandemic-related supply chain disruptions[282] Engineering and Support Service Revenue Total engineering and support service revenue increased by $49.5 million (96%) in 2023, primarily from government projects like the SDA contract Engineering and Support Service Revenue (2023 vs. 2022) | Category | 2023 (millions) | 2022 (millions) | Change (millions) | | :--------- | :-------------- | :-------------- | :---------------- | | Commercial | $11.0 | $7.8 | $3.2 | | Government | $90.1 | $43.8 | $46.3 | | Total | $101.1 | $51.6 | $49.5 | - Total engineering and support service revenue increased by $49.5 million (96%) in 2023, primarily due to increased work under government projects, notably the SDA contract[283] Operating Expenses Operating expenses increased in 2023 due to higher costs of services, R&D, and SG&A, partially offset by lower equipment costs - Cost of services (exclusive of depreciation and amortization) increased by $43.6 million (38%) in 2023, mainly due to increased work on government projects like the SDA contract[285] - Cost of subscriber equipment decreased by $19.6 million (23%) in 2023, reflecting the lower volume of device sales[286] - Research and development expenses increased by $4.1 million (25%) in 2023 due to increased spending on device-related features for the network[287] - Selling, general and administrative expenses rose by $20.2 million (16%) in 2023, driven by higher headcount, increased employee stock-based compensation, and marketing expenses, partially offset by lower stock appreciation rights expense[289] - Depreciation and amortization increased by $16.5 million (5%) in 2023, including $37.5 million accelerated depreciation for a ground spare satellite, partially offset by a $25.5 million decrease due to the extended useful lives of satellites[290] Other Expense Net interest expense increased to $90.4 million in 2023 due to refinancing fees and higher rates, while other income rose to $4.0 million - Net interest expense increased to $90.4 million in 2023 from $65.1 million in 2022, primarily due to $14.7 million in refinancing fees and a higher base interest rate[291] - Other income, net, was $4.0 million in 2023, up from $0.1 million in 2022, mainly due to a one-time customer contractual settlement of $3.5 million[293] Income Tax Benefit (Expense) Iridium recorded an income tax benefit of $26.3 million in 2023, compared to an expense of $0.3 million in 2022, due to a pre-tax loss and R&D credits - Iridium recorded an income tax benefit of $26.3 million in 2023, compared to an expense of $0.3 million in 2022, with the effective tax rate increasing to 553.0% from 2.8%[294] - The increase in tax benefit is primarily due to a pre-tax book loss in 2023, increased estimated R&D credits, and an increased stock compensation tax benefit[294] Loss on Equity Method Investments Loss on equity method investments increased to $6.1 million in 2023, reflecting increased duration and related losses - Loss on equity method investments increased to $6.1 million in 2023 from $1.5 million in 2022, reflecting the increased duration and related losses from these investments[295] Net Income Net income increased to $15.4 million in 2023 from $8.7 million in 2022, primarily due to the income tax benefit - Net income increased to $15.4 million in 2023 from $8.7 million in 2022, mainly due to the income tax benefit, partially offset by higher interest expense[296] Liquidity and Capital Resources Iridium maintains strong liquidity with $71.9 million cash and a $100.0 million revolving facility, managing substantial debt and capital expenditures Contractual Obligations Iridium has $21.5 million in non-cancelable purchase obligations for 2024, with $1,402.5 million Term Loan principal due in 2030 - As of December 31, 2023, Iridium had non-cancelable purchase obligations of approximately $21.5 million for inventory, all due in 2024, a decrease of $35.4 million from 2022 due to supply-chain recovery[300] - The material long-term cash requirement is the repayment of $1,402.5 million principal on the Term Loan at maturity in 2030, which the company expects to refinance[301] Dividends Total dividends paid in 2023 were $64.8 million ($0.13 per share), with future dividends at the Board's discretion - Total dividends paid in 2023 were $64.8 million, with quarterly cash dividends of $0.13 per share[302] - Future dividends are at the Board's discretion, dependent on earnings, capital requirements, and financial conditions[302] Cash Flows - Comparison of the Years Ended December 31, 2023 and 2022 Net cash from operating activities decreased by $29.8 million in 2023, while investing and financing cash outflows decreased Consolidated Cash Flows (2023 vs. 2022) | Statement of Cash Flows | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | | :-------------------------- | :------------------ | :------------------ | :-------------------- | | Net cash provided by operating activities | $314,913 | $344,729 | $(29,816) | | Net cash used in investing activities | $(83,487) | $(121,267) | $37,780 | | Net cash used in financing activities | $(327,052) | $(374,980) | $47,928 | - Net cash from operating activities decreased by $29.8 million in 2023, primarily due to increased cash outflows for inventory and lower cash inflows from deferred revenue, partially offset by higher net income[304] - Net cash used in investing activities decreased by $37.8 million in 2023, mainly due to a smaller investment in Satelles ($10.0 million) compared to Aireon Holdings ($50.0 million) in the prior year, partially offset by increased capital expenditures[305] - Net cash used in financing activities decreased by $47.9 million in 2023, driven by a $108.1 million decrease in net principal payments on the Term Loan, partially offset by $64.8 million in common stock dividends[306] Seasonality Commercial voice services and equipment sales are seasonal, peaking from March to October, unlike government and IoT revenue - Commercial voice services revenue and subscriber equipment sales are typically highest from March through October[307] - U.S. government and commercial IoT revenue are less affected by seasonal changes[307] Quantitative and Qualitative Disclosures About Market Risk Iridium is exposed to interest rate risk on its $1.5 billion variable-rate Term Loan, partially hedged by an interest rate cap - Iridium is subject to interest rate fluctuations on its $1,500.0 million Term Loan, which has a variable interest rate (SOFR + 2.50% with a 0.75% SOFR floor)[308] - An interest rate cap agreement, effective December 2021, manages exposure on a portion of the Term Loan, providing payment if one-month SOFR exceeds 1.436%[308] - For every 25 basis point SOFR increase above the cap level, annual interest expense is expected to increase by an additional $1.25 million on the unhedged portion[308] - The company's credit risk concentrations are in cash and cash equivalents and accounts receivable, with cash primarily invested in U.S. treasuries and agency mortgage-backed securities[310] Financial Statements and Supplementary Data This section presents Iridium's audited consolidated financial statements for 2021-2023, prepared under U.S. GAAP, with detailed notes - The consolidated financial statements include the balance sheets, statements of operations and comprehensive income (loss), changes in stockholders' equity, and cash flows for the years ended December 31, 2023, 2022, and 2021[312] - KPMG LLP provided an unqualified opinion on the consolidated financial statements for 2023 and 2022, and Ernst & Young LLP for 2021[315][325] - Key financial figures as of December 31, 2023: Total assets $2,661.8 million, Total liabilities $1,773.7 million, Total stockholders' equity $888.1 million[330] - Net income for 2023 was $15.4 million, compared to $8.7 million in 2022 and a net loss of $(9.3) million in 2021[333] Report of KPMG LLP, Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on Iridium's 2023 and 2022 consolidated financial statements, noting satellite useful life changes as a critical audit matter - KPMG LLP issued an unqualified opinion on Iridium's consolidated financial statements for the years ended December 31, 2023 and 2022[315] - A critical audit matter identified was the evaluation of changes in the estimated useful lives of satellites, which required a high degree of subjective auditor judgment[319][320] Report of Ernst & Young LLP, Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on Iridium's consolidated financial statements for the year ended December 31, 2021 - Ernst & Young LLP issued an unqualified opinion on Iridium's consolidated financial statements for the year ended December 31, 2021[325] Consolidated Balance Sheets Iridium's balance sheet as of December 31, 2023, shows total assets of $2.66 billion and total liabilities of $1.77 billion Consolidated Balance Sheet Highlights (as of December 31, in thousands) | Asset/Liability | 2023 | 2022 | | :------------------------------------ | :--------- | :--------- | | Cash and cash equivalents | $71,870 | $168,770 | | Total current assets | $271,084 | $306,204 | | Property and equipment, net | $2,195,758 | $2,433,305 | | Total assets | $2,661,775 | $2,954,011 | | Short-term secured debt | $15,000 | $16,500 | | Total current liabilities | $131,554 | $141,577 | | Long-term secured debt, net | $1,467,490 | $1,470,685 | | Total liabilities | $1,773,676 | $1,825,456 | | Total stockholders' equity | $888,099 | $1,128,555 | Consolidated Statements of Operations and Comprehensive Income (Loss) Iridium reported $790.7 million in total revenue and $15.4 million net income for 2023, with a $90.4 million net interest expense Consolidated Statements of Operations Highlights (Year Ended December 31, in thousands) | Metric | 2023 | 2022 | 2021 | | :---------------------------------------------------- | :--------- | :--------- | :--------- | | Total revenue | $790,723 | $721,034 | $614,500 | | Operating income | $81,628 | $76,679 | $46,314 | | Interest expense, net | $(90,387) | $(65,089) | $(73,906) | | Income (loss) before income taxes and equity in net earnings of affiliates | $(4,747) | $10,510 | $(28,888) | | Income tax benefit (expense) | $26,251 | $(292) | $19,569 | | Net income (loss) | $15,415 | $8,722 | $(9,319) | | Net income (loss) attributable to common stockholders per share - basic and diluted | $0.12 | $0.07 | $(0.07) | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased to $888.1 million in 2023, impacted by $247.0 million in stock repurchases and $49.6 million in dividends Consolidated Statements of Changes in Stockholders' Equity Highlights (Year Ended December 31, in thousands) | Metric | 2023 | 2022 | 2021 | | :------------------------------------ | :--------- | :--------- | :--------- | | Balance at January 1 | $1,128,555 | $1,287,947 | $1,419,439 | | Stock-based compensation | $64,139 | $48,367 | $29,616 | | Repurchases and retirements of common stock | $(247,019) | $(257,059) | $(163,442) | | Net income (loss) | $15,415 | $8,722 | $(9,319) | | Dividends declared | $(49,613) | $(16,616) | $0 | | Balance at December 31 | $888,099 | $1,128,555 | $1,287,947 | Consolidated Statements of Cash Flows Net cash from operating activities was $314.9 million in 2023, with significant cash used in investing and financing activities Consolidated Statements of Cash Flows Highlights (Year Ended December 31, in thousands) | Cash Flow Activity | 2023 | 2022 | 2021 | | :-------------------------------- | :--------- | :--------- | :--------- | | Net cash provided by operating activities | $314,913 | $344,729 | $302,874 | | Net cash used in investing activities | $(83,487) | $(121,267) | $(36,382) | | Net cash used in financing activities | $(327,052) | $(374,980) | $(182,469) | | Cash, cash equivalents and restricted cash, end of period | $71,870 | $168,770 | $320,913 | Notes to Consolidated Financial Statements This section provides detailed notes on Iridium's significant accounting policies, debt, equity, revenue, and related party transactions 1. Organization and Business Iridium Communications Inc. provides global mobile voice and data services via its LEO satellite constellation, holding various regulatory licenses - Iridium Communications Inc. provides global mobile voice and data services via its LEO satellite constellation, holding various FCC and foreign regulatory licenses[345] 2. Significant Accounting Policies and Basis of Presentation Financial statements adhere to U.S. GAAP, with critical estimates for revenue, asset useful lives, and income taxes, including a satellite useful life extension - Financial statements are prepared in accordance with U.S. GAAP, requiring management estimates for revenue recognition, useful lives of assets, income taxes, and contingencies[348] - In Q4 2023, the estimated useful lives of satellites were extended from 12.5 years to 17.5 years, decreasing depreciation expense by $27.8 million and hosted payload revenue by $2.3 million for the year[371] - The company wrote off $37.5 million in accelerated depreciation for a remaining ground spare satellite in Q2 2023 after launching five others[372] 3. Cash and Cash Equivalents Cash and cash equivalents totaled $71.9 million as of December 31, 2023, primarily held in cash and money market funds Cash and Cash Equivalents (as of December 31, in thousands) | Category | 2023 | 2022 | | :-------------------- | :--------- | :--------- | | Cash | $32,526 | $16,247 | | Money market funds | $39,344 | $152,523 | | Total | $71,870 | $168,770 | 4. Property and Equipment Net property and equipment totaled $2.20 billion as of December 31, 2023, with satellite system useful life extended to 17.5 years Property and Equipment, Net (as of December 31, in thousands) | Category | Useful Life | 2023 | 2022 | | :------------------------------------------ | :---------- | :--------- | :--------- | | Satellite system | 17.5 years | $3,242,829 | $3,197,460 | | Total depreciable property and equipment, net | N/A | $1,926,487 | $2,112,471 | | Total property and equipment, net | N/A | $2,195,758 | $2,433,305 | - Depreciation expense was $318.5 million in 2023, $301.9 million in 2022, and $303.8 million in 2021[391] 5. Intangible Assets Total intangible assets were $41.1 million as of December 31, 2023, including trade names, spectrum, and intellectual property Intangible Assets (as of December 31, in thousands) | Category | Useful Life | 2023 Net Carrying Value | 2022 Net Carrying Value | | :---------------------- | :---------- | :---------------------- | :---------------------- | | Trade names | Indefinite | $21,195 | $21,195 | | Spectrum and licenses | Indefinite | $14,030 | $14,030 | | Intellectual property | 20 years | $5,452 | $6,092 | | Patents | 14-20 years | $418 | $449 | | Total intangible assets | N/A | $41,095 | $42,577 | - Amortization expense for intangible assets was $1.5 million in 2023, $1.6 million in 2022, and $1.6 million in 2021[392] 6. Leases Operating lease assets were $16.1 million and total lease liabilities $18.4 million as of December 31, 2023 Lease-Related Assets and Liabilities (as of December 31, in thousands) | Category | 2023 | 2022 | | :-------------------- | :--------- | :--------- | | Operating lease assets | $16,133 | $16,925 | | Total lease liabilities | $18,414 | $19,585 | - Weighted-average remaining lease term for operating leases was 4.7 years, with a weighted-average discount rate of 6.7% as of December 31, 2023[394] - Lease income from lessor arrangements (hosting agreements with Aireon and L3Harris) was $19.2 million in 2023, decreasing from $21.4 million in 2022 due to the extended useful lives of satellites[397] 7. Debt The Term Loan was refinanced for $1.5 billion in September 2023, maturing in 2030, with $15.9 million in financing costs incurred - The Term Loan was refinanced in September 2023 for $1,500.0 million, maturing in September 2030, with interest at SOFR + 2.50% (0.75% SOFR floor)[399] - Iridium incurred $15.9 million in third-party financing costs for the refinancing in 2023, with $14.7 million expensed[408] Total Debt Commitments (as of December 31, 2023, in thousands) | Year ending December 31, | Amount | | :----------------------- | :--------- | | 2024 | $15,000 | | 2025 | $15,000 | | 2026 | $15,000 | | 2027 | $15,000 | | 2028 | $15,000 | | Thereafter | $1,425,000 | | Total debt commitments | $1,500,000 | 8. Derivative Financial Instruments Iridium uses an interest rate cap to hedge $1.0 billion of its Term Loan against SOFR fluctuations, with an unrealized loss of $(17.6) million in 2023 - Iridium uses an interest rate cap (Cap) to hedge against interest rate fluctuations on its Term Loan, with a notional amount of $1.0 billion as of December 31, 2023[414] - The Cap provides payment if one-month SOFR exceeds 1.436% and was not affected by the Term Loan refinancing[414][415] Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax (Year Ended December 31, in thousands) | Metric | 2023 | 2022 | 2021 | | :------------------------ | :---------- | :---------- | :---------- | | Unrealized gain (loss), net of tax | $(17,598) | $58,668 | $10,408 | | Tax benefit (expense) | $5,379 | $(17,834) | $(3,316) | 9. Stock-Based Compensation Total stock-based compensation expense was $64.1 million in 2023, with $42.6 million in unrecognized costs for non-vested RSUs - The Amended 2015 Equity Incentive Plan, approved in May 2023, allows for various stock-based awards to employees, consultants, and non-employee directors[420] Stock-Based Compensation Expense by Line Item (Year Ended December 31, in thousands) | Line Item | 2023 | 2022 | | :------------------------------------------ | :--------- | :--------- | | Property and equipment, net | $5,963 | $4,018 | | Cost of services (exclusive of depreciation and amortization) | $16,128 | $12,337 | | Selling, general and administrative | $39,985 | $30,678 | | Total stock-based compensation | $64,139 | $48,367 | - Total unrecognized cost related to non-vested RSUs was approximately $42.6 million as of December 31, 2023, expected to be recognized over a weighted-average period of 1.4 years[422] 10. Equity Transactions Iridium repurchased 4.8 million shares for $244.6 million in 2023, with $334.0 million remaining authorized under its repurchase program - Iridium has no outstanding preferred stock as of December 31, 2023 and 2022[433] - Total dividends paid in 2023 were $64.8 million, with a liability of $1.3 million for dividends on common stock as of December 31, 2023[434] - The company repurchased and retired 4.8 million shares of common stock for $244.6 million in 2023, with $334.0 million remaining authorized under the repurchase program[436] 11. Revenue Total services revenue was $584.5 million in 2023, with $101.1 million from engineering and support services Services Revenue (Year Ended December 31, in thousands) | Category | 2023 | 2022 | 2021 | | :---------------------- | :--------- | :--------- | :--------- | | Commercial services | $478,454 | $428,721 | $388,104 | | Government services | $106,000 | $106,000 | $103,887 | | Total services | $584,454 | $534,721 | $491,991 | Engineering and Support Services Revenue (Year Ended December 31, in thousands) | Category | 2023 | 2022 | 2021 | | :--------- | :-------------- | :-------------- | :-------------- | | Commercial | $11,050 | $7,833 | $4,613 | | Government | $90,083 | $43,766 | $25,825 | | Total | $101,133 | $51,599 | $30,438 | - Revenue recognized from previously deferred revenue amounted to $31.4 million in 2023, $26.3 million in 2022, and $43.0 million in 2021[437] 12. Income Taxes Iridium recorded a total income tax benefit of $(26.3) million in 2023, with a net deferred tax liability of $112.8 million Income (Loss) Before Income Taxes by Geography (Year Ended December 31, in thousands) | Category | 2023 | 2022 | 2021 | | :-------------------------- | :---------- | :--------- | :---------- | | U.S. income (loss) | $(10,596) | $10,179 | $(31,352) | | Foreign income | $5,849 | $331 | $2,464 | | Total income (loss) | $(4,747) | $10,510 | $(28,888) | Total Income Tax Expense (Benefit) (Year Ended December 31, in thousands) | Category | 2023 | 2022 | 2021 | | :-------------------------- | :---------- | :--------- | :---------- | | Total current tax (benefit) expense | $5,577 | $1,481 | $1,745 | | Total deferred tax benefit | $(31,828) | $(1,189) | $(21,314) | | Total income tax expense (benefit) | $(26,251) | $292 | $(19,569) | - Iridium had a net deferred tax liability of $112.8 million as of December 31, 2023, and a valuation allowance of $33.4 million against deferred tax assets[440][442] - Unrecognized tax benefits amounted to approximately $2.4 million as of December 31, 2023, primarily from additional U.S. tax credits[446] 13. Net Income (Loss) Per Share Net income per share was $0.12 (basic and diluted) in 2023, compared to $0.07 in 2022 Net Income (Loss) Per Share (Year Ended December 31, in thousands, except per share data) | Metric | 2023 | 2022 | 2021 | | :---------------------------------------------------- | :--------- | :--------- | :---------- | | Net income (loss) attributable to common stockholders - basic and diluted | $15,415 | $8,722 | $(9,319) | | Weighted average common shares - basic | 125,598 | 128,255 | 133,530 | | Weighted average common shares - diluted | 127,215 | 130,134 | 133,530 | | Net income (loss) attributable to common stockholders per share - basic and diluted | $0.12 | $0.07 | $(0.07) | - For 2021, all potential common stock equivalents were anti-dilutive and excluded from diluted net loss per share calculation due to the net loss position[449] 14. Related Party Transactions Iridium hosts the Aireon system, holding a 39.5% stake, and invested $10.0 million in Satelles, increasing its stake to 19.5% - Iridium's satellite constellation hosts the Aireon system, with Aireon paying $200.0 million in hosting fees (of which $94.5 million paid by Dec 31, 2023) and approximately $23.5 million annually for power and data services[452][453] - Iridium holds an approximate 39.5% fully diluted ownership stake in Aireon Holdings, accounted for as an equity method investment with a carrying value of $44.6 million as of December 31, 2023[450][451] - In 2023, Iridium invested $10.0 million in Satelles, increasing its fully diluted ownership to approximately 19.5%, now accounted for as an equity method investment with a carrying value of $21.8 million[456] 15. Segments, Significant Customers, Supplier and Service Providers and Geographic Information Iridium operates as a single business segment, with the U.S. government accounting for 25% of 2023 revenue and 46% of accounts receivable - Iridium operates in one business segment: providing global satellite communications services and products[457] - The U.S. government accounted for approximately 25% of total revenue in 2023 and 46% of accounts receivable at year-end 2023[458][459] Revenue by Geographic Area (Year Ended December 31, in thousands) | Geographic Area | 2023 | 2022 | 2021 | | :---------------- | :--------- | :--------- | :--------- | | United States | $431,476 | $374,687 | $330,948 | | Other countries | $359,247 | $346,347 | $283,552 | | Total | $790,723 | $721,034 | $614,500 | 16. Employee Benefit Plan Iridium sponsors a 401(k) plan, matching 100% of employee contributions up to 5%, with company contributions of $4.3 million in 2023 - Iridium sponsors a defined-contribution 401(k) retirement plan, matching 100% of employee contributions up to 5% of eligible compensation[463] - Company matching contributions were $4.3 million in 2023, $3.5 million in 2022, and $3.5 million in 2021[463] 17. Subsequent Event On February 2, 2024, the Board approved a dividend of $0.13 per share, payable on March 29, 2024 - On February 2, 2024, the Board of Directors approved a dividend of $0.13 per share, payable on March 29, 2024[464] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[465] Controls and Procedures Iridium's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, affirmed by management and KPMG LLP - As of December 31, 2023, Iridium's disclosure controls and procedures were effective, providing reasonable assurance for timely and accurate financial reporting[467] - Management assessed and determined that internal control over financial reporting was effective as of December 31, 2023, based on the COSO (2013) framework[470] - KPMG LLP issued an unqualified report on Iridium's internal controls over financial reporting for 2023[471][475] - There were no material changes in internal control over financial reporting during the quarter ended December 31, 2023[472] Other Information This item contains no other information - There is no oth