Iridium Communications Inc
For the period ended Jun 30, 2024. Filed Jul 23, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Jul 23, 2024
IRDM$44.04+4.8%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-04-18.
0001418819-24-000023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-07-23.
0001418819-24-000037
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 94 previous paragraphs and 128 current paragraphs.
60 unchanged; 25 reworded; 33 added; 8 removed; 1 previous and 10 current paragraphs rearranged.
Tables are not compared: 6 previous and 10 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (33)
Current report
On April 1, 2024, we completed our acquisition of Satelles, Inc., or Satelles, a provider of satellite-based time and location services that complement and protect GPS and other GNSS systems. This acquisition is intended to support our long-term business objectives.
Current report
Selling, general and administrative expenses increased by $9.4 million, or 25%, for the three months ended June 30, 2024 compared to the prior year period, due primarily to higher headcount costs, including equity compensation costs, and costs related to the acquisition of Satelles and certain costs that were previously recorded in cost of services.
Current report
Interest expense, net increased $5.1 million, or 27%, for the three months ended June 30, 2024, primarily due to the increase in the outstanding debt balance following the additional $125.0 million in Term Loan in March 2024 and the $50.0 million draw on the Revolving Facility in April 2024. Additionally, in June 2024, we repriced our Term Loan, reducing the interest rate by 0.25 basis points. In connection with the repricing, we incurred $1.9 million of fees that have been included in interest expense, net.
Current report
Other Income (Expense), net
Current report
Other expense, net, was $0.6 million for the three months ended June 30, 2024, compared to other income, net, of $0.4 million for the prior year period. The variation was primarily the result of changes in foreign currency exchange rates.
Current report
Gain (Loss) on Equity Method Investments
Current report
For the three months ended June 30, 2024, our realized net gain on equity method investments was $17.7 million, compared to a loss of $1.7 million in the prior year period. Prior to our acquisition of Satelles in April 2024, we held a 19.5% equity interest in Satelles, which was classified as an equity method investment. Upon the closing of the acquisition, we recorded a gain of $19.8 million, equal to the difference between the fair value and net book value of the equity method investment. This gain was partially offset by losses on our other equity method investments during the period.
Current report
Net Income (Loss)
Current report
Revenue
Current report
Commercial Service Revenue
Current report
Government Service Revenue
Current report
Subscriber Equipment Revenue
Current report
Engineering and Support Service Revenue
Current report
Operating Expenses
Current report
Cost of services (exclusive of depreciation and amortization) increased by $13.9 million, or 19%, for the six months ended June 30, 2024, compared to the prior year period primarily as a result of an increase in work under certain government engineering contracts, including the SDA contract, as noted above, and higher satellite operation costs.
Current report
Cost of Subscriber Equipment
Current report
Cost of subscriber equipment decreased by $15.4 million, or 36%, for the six months ended June 30, 2024, compared to the prior year period primarily due to the decrease in volume of handset sales, offset in part by an increase in Short Burst Data sales, which was in line with the change and expectations in equipment revenue for the same period, as noted above, and decreased inventory component costs.
Current report
Research and Development
Current report
Selling, General and Administrative
Current report
Depreciation and Amortization
Current report
Depreciation and amortization expense decreased by $89.9 million, or 47%, compared to the prior year period primarily due to the change in the estimate of the useful lives of our satellites in the fourth quarter of 2023. Additionally, we wrote off our remaining ground spare satellite in the second quarter of 2023 following completion of on-orbit testing, which resulted in accelerated depreciation expense of $37.5 million. No write-offs occurred during the six months ended June 30, 2024.
Current report
Other Expense
Current report
Interest Expense, Net
Current report
Interest expense, net increased $7.8 million for the six months ended June 30, 2024 compared to the prior year period, primarily due to the increase in the outstanding debt balance following the additional $125.0 million in Term Loan in March 2024 and the $50.0 million draw on the Revolving Facility in April 2024. Additionally, in June 2024, we repriced our Term Loan, which reduced the interest rate by 0.25 basis points. In connection with the additional debt and repricing, we incurred $3.5 million of fees that are included in interest expense, net.
Current report
Other Income (Expense), net
Current report
Other expense, net, was $0.6 million for the six months ended June 30, 2024, compared to other income, net, of $0.6 million for the prior year period. The variation was primarily the result of changes in foreign currency exchange rates.
Current report
Income Tax Benefit (Expense)
Current report
Gain (Loss) on Equity Method Investments
Current report
For the six months ended June 30, 2024, our gain on equity method investments was $16.1 million, primarily as a result of the acquisition of Satelles, upon which we recorded a $19.8 million gain on our previously held equity method investment, as noted above. For the six months ended June 30, 2023, our loss on equity method investments was $2.8 million, reflecting the portion of losses recorded on equity method investments, including Satelles, during the period.
Current report
Net Income (Loss)
Current report
Net income was $52.0 million for the six months ended June 30, 2024, compared to a net loss of $21.0 million for the prior year period. The $73.0 million improvement primarily resulted from the $89.9 million decrease in depreciation expense, the $19.8 million gain recorded as a result of the acquisition of Satelles and the $6.5 million increase in total revenue. These improvements were offset in part by the $23.2 million increase in income tax expense, $10.2 million increase in other operating expenses and the $7.8 million increase in interest expense.
Current report
Term Loan and Revolving Facility
Current report
Net cash used in financing activities for the six months ended June 30, 2024 decreased by $142.1 million compared to the prior year period primarily due to the additional $125.0 million in borrowings under the Term Loan and the $50.0 million in borrowings under the Revolving Facility, offset in part by increased repurchases of our common stock.
Removed paragraphs (8)
Previous report
(1)Billable subscriber numbers shown are at the end of the respective period.
Previous report
(1)Billable subscriber numbers shown are at the end of the respective period.
Previous report
Interest expense, net increased $2.8 million, or 16%, for the three months ended March 31, 2024, compared to the prior year quarter primarily due to $1.6 million in fees expensed in connection with the additional Term Loan amounts borrowed in the first quarter of 2024, and an increase in the base rate of our Term Loan compared to the prior year period.
Previous report
Loss on Equity Method Investments
Previous report
For the three months ended March 31, 2024, our loss on equity method investments was $1.6 million, compared to $1.2 million in the prior year period. The increase in loss reflects the increased portion of losses recorded on those investments.
Previous report
Net Income
Previous report
Term Loan
Previous report
Net cash provided by financing activities for the three months ended March 31, 2024 increased by $123.5 million compared to the prior year period primarily due to the additional borrowings under the Term Loan of $125.0 million.
Reworded paragraphs (25)
Previous wording
We sell our products and services to commercial end-users through a wholesale distribution network, encompassing approximately 105 service providers, 305 value-added resellers, or VARs, and 80 value-added manufacturers, or VAMs, who either sell directly to the end user or indirectly through other service providers, VARs or dealers. These distributors often integrate our products and services with other complementary hardware and software and have developed a broad suite of applications using our products and services targeting specific lines of business.
Current wording
We sell our products and services to commercial end-users through a wholesale distribution network, encompassing approximately 110 service providers, 305 value-added resellers, or VARs, and 85 value-added manufacturers, or VAMs, who either sell directly to the end user or indirectly through other service providers, VARs or dealers. These distributors often integrate our products and services with other complementary hardware and software and have developed a broad suite of applications using our products and services targeting specific lines of business.
Previous wording
At March 31, 2024, we had approximately 2,333,000 billable subscribers worldwide, an increase of 282,000, or 14%, from approximately 2,051,000 billable subscribers as of March 31, 2023. We have a diverse customer base, with end users in land mobile, Internet of Things, or IoT, maritime, aviation and government.
Current wording
At June 30, 2024, we had approximately 2,413,000 billable subscribers worldwide, an increase of 273,000, or 13%, from approximately 2,140,000 billable subscribers as of June 30, 2023. We have a diverse customer base, with end users in land mobile, Internet of Things, or IoT, maritime, aviation and government.
Previous wording
We provide airtime and airtime support to U.S. government and other authorized customers pursuant to our Enhanced Mobile Satellite Services, or EMSS, Contract. Under the terms of this agreement, which we entered into in September 2019, authorized customers utilize specified Iridium airtime services provided through the U.S. government’s dedicated gateway. The fee is not based on subscribers or usage, allowing an unlimited number of users access to these services. For the three months ended March 31, 2024, revenue was unchanged from the prior year period, in accordance with the contract.
Current wording
We provide airtime and airtime support to the U.S. government and other authorized customers pursuant to our Enhanced Mobile Satellite Services, or EMSS, contract. Under the terms of this agreement, which we entered into in September 2019, authorized customers utilize specified Iridium airtime services provided through the U.S. government’s dedicated gateway. The fee is not based on subscribers or usage, allowing an unlimited number of users access to these services. For the three months ended June 30, 2024, revenue was unchanged from the prior year period, in accordance with the contract.
Previous wording
Engineering and support service revenue increased by $6.2 million, or 25%, for the three months ended March 31, 2024, compared to the prior year period, primarily due to increased work under certain government contracts, predominantly the contract awarded by the Space Development Agency, or the SDA. Based on the SDA contract, we expect engineering and support service revenue, as well as associated expenses, to be generally higher than in years prior to 2023 throughout the life of the SDA contract.
Current wording
Engineering and support service revenue increased by $5.2 million, or 25%, for the three months ended June 30, 2024 compared to the prior year period, primarily due to increased work under certain government contracts, predominantly the contract awarded by the Space Development Agency, or the SDA. Based on the SDA contract, we expect engineering and support service revenue, as well as associated expenses, to be generally higher than in years prior to 2023 throughout the life of the SDA contract.
Previous wording
Cost of services (exclusive of depreciation and amortization) increased by $9.8 million, or 27%, for the three months ended March 31, 2024 from the prior year period, primarily as a result of the increase in work under certain government projects, including the SDA contract, as noted above.
Current wording
Cost of services (exclusive of depreciation and amortization) increased by $4.0 million, or 11%, for the three months ended June 30, 2024 compared to the prior year period, primarily as a result of the increase in work under certain government projects, including the SDA contract, as noted above.
Previous wording
Cost of subscriber equipment decreased by $13.3 million, or 49%, for the three months ended March 31, 2024, compared to the prior year period primarily due to the decrease in volume of handset sales, as described above. The percentage decrease in subscriber equipment costs was lower than the percentage decrease in subscriber equipment revenue primarily due to product mix.
Current wording
Cost of subscriber equipment decreased by $2.2 million, or 13%, for the three months ended June 30, 2024 compared to the prior year period primarily due to the decrease in volume of handset sales, offset in part by an increase in Short Burst Data sales including chipsets, which was in line with the change in equipment revenue for the same period, as described above.
Previous wording
Research and development expenses increased by $3.3 million, or 86%, for the three months ended March 31, 2024, compared to the prior year period based on increased spending on device-related features for our network, including our recently-announced Project Stardust, which is a multi-year project to develop standards-based Narrowband-Internet of Things (NB-IoT) and Non-Terrestrial Network (NB-NTN) messaging and SOS capabilities for smartphones, tablets, cars and related consumer applications.
Current wording
Research and development expenses increased by $0.9 million, or 16%, for the three months ended June 30, 2024 compared to the prior year period, due to increased spending on device-related features for our network, including Project Stardust, which is our multi-year project to develop standards-based Narrowband-Internet of Things (NB-IoT) and Non-Terrestrial Network (NB-NTN) messaging and SOS capabilities for smartphones, tablets, cars and related consumer applications.
Previous wording
Depreciation and amortization expense decreased by $26.1 million, or 34%, for the quarter ended March 31, 2024, compared to the prior year period, which is in line with the expected decrease related to the change in the estimated useful lives of our satellites. During the fourth quarter of 2023, we updated our estimate of the satellites’ remaining useful lives based on the health of the constellation, resulting in an extension of the useful lives from 12.5 years to 17.5 years. As a result of this change in estimate, we expect depreciation expense to be approximately $83.3 million lower for the full year 2024 as compared to the full year 2023.
Current wording
Depreciation and amortization expense decreased by $63.8 million, or 56%, for the quarter ended June 30, 2024 compared to the prior year period. In the second quarter of 2023, we wrote-off the full amount remaining in construction-in-progress for our final ground spare satellite, resulting in accelerated depreciation expense of $37.5 million. In the fourth quarter of 2023, we updated our estimate of the satellites’ remaining useful lives based on the health of the constellation, resulting in an extension of the useful lives from 12.5 years to 17.5 years and a reduction of quarterly depreciation expense as compared to periods prior to the fourth quarter of 2023. As a result of this change in estimate, we expect depreciation expense to be approximately $83.3 million lower for the full year 2024 as compared to the full year 2023.
Previous wording
For the three months ended March 31, 2024, our income tax expense was $7.9 million, compared to income tax benefit of $5.5 million for the prior year period. The increase in income tax expense is primarily related to the impact of stock compensation tax expense and nondeductible executive compensation plus the increase in pre-tax book income in 2024 compared to 2023.
Current wording
For the three months ended June 30, 2024, our income tax expense was $4.6 million, compared to income tax benefit of $5.2 million for the prior year period. The increase in income tax expense is primarily related to the impact of stock compensation tax expense and nondeductible executive compensation plus the increase in pre-tax book income in 2024 compared to 2023.
Previous wording
Net income was $19.7 million for the three months ended March 31, 2024, compared to net income of $9.8 million for the prior year period. The $9.9 million increase in net income was primarily the result of the decrease in depreciation expense, as noted above, offset in part by the decrease in income tax benefit and an increase in interest expense related to the fees paid for the increase to our Term Loan and the increased base rate.
Current wording
Net income was $32.3 million for the three months ended June 30, 2024, compared to a net loss of $30.7 million for the prior year period. The $63.1 million increase in net income was primarily the result of the $63.8 million decrease in depreciation expense, the $19.8 million gain related to the acquisition of Satelles and the $8.0 million increase in total revenue, offset in part by the $12.1 million increase in other operating expenses, $9.8 million increase in income tax expense and $5.1 million increase in interest expense.
Previous wording
For the three months ended March 31, 2024, total commercial services revenue increased $9.3 million, or 8%, from the prior year period primarily as a result of increases in IoT and voice and data service revenue. Commercial IoT revenue increased $7.4 million, or 23%, for the three months ended March 31, 2024, compared to the same period of the prior year, primarily driven an 18% increase in billable subscribers including strength in personal communication devices and a new contract with a large customer executed in the first quarter of 2024. Commercial voice and data revenue increased $2.6 million, or 5%, for the three months ended March 31, 2024, compared to the same period of the prior year, primarily due to an increase in billable subscribers and an increase in ARPU resulting from certain price increases in access fees. Commercial broadband revenue increased $0.3 million, or 2%, for the three months ended March 31, 2024, compared to the prior year period, due to an increase in broadband billable subscribers offset in part by decrease in ARPU reflecting the increased prevalence of Iridium’s service as a companion service. Hosted payload and other data service revenue decreased $1.0 million compared to the prior year period, primarily due to the change in the estimated useful lives of our satellites in the fourth quarter of 2023.
Current wording
For the six months ended June 30, 2024, total commercial services revenue increased $16.6 million, or 7%, from the prior year period primarily driven by increases in IoT and voice and data service revenue. Commercial IoT revenue increased $14.6 million, or 22%, for the six months ended June 30, 2024, compared to the prior year period, driven by a 16% increase in IoT billable subscribers, largely due to strength in personal communication devices and a new contract with a large customer executed in the first quarter of 2024. Commercial voice and data revenue increased $4.0 million, or 4%, from the prior year period primarily due to an increase in billable subscribers. These increases were offset in part by a decrease of $1.7 million, or 6%, in hosted payload and other data service revenue compared to the prior year period, primarily due to the change in the estimated useful lives of our satellites in the fourth quarter of 2023, offset in part by increases in other data service revenue including Satelles revenue. Commercial broadband revenue decreased $0.3 million, or 1%, for the six months ended June 30, 2024, compared to the prior year period, due to a decrease in ARPU reflecting the increased prevalence of usage of the Company’s service as a companion service, which also partially offset the increases in IoT and voice and data revenue.
Previous wording
Subscriber equipment revenue decreased by $16.8 million, or 40%, for the three months ended March 31, 2024, compared to the prior year period, primarily due to a decrease in volume of handset sales. As previously described, we expect 2024 equipment sales to be lower than in 2023 and more in line with periods prior to 2022, before we and our competitors began to experience supply chain disruptions due to the pandemic.
Current wording
Subscriber equipment revenue decreased $21.4 million, or 31%, for the six months ended June 30, 2024, compared to the prior year period, primarily due to a decrease in the volume of handset sales, offset in part by an increase in Short Burst Data sales. As previously disclosed, we expect 2024 equipment sales to be lower than in 2023 and more in line with periods prior to 2022.
Previous wording
Selling, general and administrative expenses decreased by $1.9 million, or 5%, for the three months ended March 31, 2024, compared to the prior year period, primarily due to a decrease in stock appreciation rights expense in the current year resulting from changes in our stock valuation between the years and decreased spend related to our channel partner conference which was held in the first quarter of the prior year, offset in part by professional fees, including approximately $1.5 million in acquisition fees associated with Satelles.
Current wording
Selling, general and administrative expenses increased by $7.5 million, or 10%, for the six months ended June 30, 2024, compared to the prior year period, primarily due to higher headcount-related expenses, including equity compensation costs, as well as costs related to the acquisition of Satelles and certain costs that were previously recorded in cost of services, offset in part by a decrease in stock appreciation rights expense in the current year resulting from changes in our stock valuation between the years and decreased spending related to our channel partner conference which was held in the first quarter of the prior year.
Previous wording
Our primary sources of liquidity are cash provided by operations, cash and cash equivalents and our Revolving Facility. These sources are expected to meet our short-term and long-term liquidity needs for (i) required principal and interest on the Term Loan, (ii) capital expenditures, (iii) working capital, (iv) share repurchases under the program authorized by our Board of Directors, and (v) anticipated cash dividend payments to holders of our common stock.
Current wording
Our primary sources of liquidity are cash provided by operations, cash and cash equivalents and our Revolving Facility. These sources are expected to meet our short-term and long-term liquidity needs for (i) required principal and interest on the Term Loan and Revolving Facility, (ii) capital expenditures, (iii) working capital, (iv) share repurchases under the program authorized by our Board of Directors, and (v) anticipated cash dividend payments to holders of our common stock.
Previous wording
As of March 31, 2024, our total cash and cash equivalents balance was $174.0 million, up from $71.9 million as of December 31, 2023, principally as a result of the additional borrowings under the Term Loan and internally generated cash flows from operations, offset in part by the $57.2 million in repurchases of our common stock, $14.6 million in capital expenditures and $16.1 million in dividends paid during the three months ended March 31, 2024.
Current wording
As of June 30, 2024, our total cash and cash equivalents balance was $63.5 million, down from $71.9 million as of December 31, 2023. While we took on additional borrowings under the Term Loan and Revolving Facility during the six months ended June 30, 2024, and generated cash flows from operations, we used cash to complete the acquisition of Satelles, repurchased approximately $154.8 million in our common stock, paid dividends of approximately $32.8 million, and invested $27.0 million in capital expenditures during the six months ended June 30, 2024.
Previous wording
On September 20, 2023, pursuant to an amended and restated credit agreement, or the Credit Agreement, we refinanced our previously existing Term Loan resulting in total borrowing of $1,500.0 million, and an accompanying $100.0 million revolving loan, or the Revolving Facility. The Term Loan now bears interest at an annual rate equal to the Secured Overnight Financing Rate, or SOFR, plus 2.5%, with a 0.75% SOFR floor. We typically select a one-month interest period, with the result that interest is calculated using one-month SOFR. Interest is paid monthly on the last business day of the month. The maturity date of the Term Loan is in September 2030.
Current wording
Pursuant to a credit agreement (as amended to date, the “Credit Agreement”), we previously entered into a term loan totaling $1,500.0 million (as so amended and restated, the “Term Loan”), issued at a price equal to 99.75%, and an accompanying $100.0 million revolving loan (the “Revolving Facility”). The maturity date of the Term Loan is in September 2030. On March 25, 2024, we closed on an additional $125.0 million under our Term Loan, using the proceeds to complete the acquisition of Satelles, Inc. on April 1, 2024. The additional amount borrowed is fungible with the original $1,500.0 million, and has the same maturity date, interest rate and other terms, but was issued at a price equal to 99.875% of its face value. The Term Loan has been repriced on several occasions, most recently in June 2024, and currently bears interest at an annual rate equal to the Secured Overnight Financing Rate (“SOFR”) plus 2.25%, with a 0.75% SOFR floor. We typically select a one-month interest period, with the result that interest is calculated using one-month SOFR. Interest is paid monthly on the last business day of the month. Principal payments, payable quarterly, are equal to approximately $16.3 million per annum (one percent of the full principal amount of the Term Loan following the March 2024 increase), with the remaining principal due upon maturity.
Previous wording
As of March 31, 2024 and December 31, 2023, we reported an aggregate of $1,620.9 million and $1,500.0 million in borrowings under the Term Loan, respectively. These amounts do not include $17.1 million and $17.5 million of net unamortized deferred financing costs as of March 31, 2024 and December 31, 2023, respectively. The net principal balance in borrowings in the accompanying consolidated balance sheets as of March 31, 2024 and December 31, 2023 amounted to $1,603.8 million and $1,482.5 million, respectively.
Current wording
As of June 30, 2024 and December 31, 2023, we had an aggregate of $1,616.9 million and $1,500.0 million, respectively, under the Term Loan. These amounts do not give effect to $15.9 million and $17.5 million, respectively, of net unamortized deferred financing costs. The principal balance in borrowings, net of the unamortized deferred financing costs, as of June 30, 2024 and December 31, 2023 amounted to $1,601.0 million and $1,482.5 million, respectively. As of June 30, 2024 and December 31, 2023, based upon recent trading prices (Level 2 - market approach), the fair value of our net borrowings under the Term Loan was $1,615.9 million and $1,506.6 million, respectively.
Previous wording
The Revolving Facility bears interest at the same rate (but without a SOFR floor) if and as drawn, with no original issue discount, a commitment fee of 0.5% per year on the undrawn amount, which was reduced to 0.375% in the first quarter of 2024 because we have a consolidated first lien net leverage ratio (as defined in the Credit Agreement) of less than 3.5 to 1. The Revolving Facility has a maturity date in September 2028. We have not borrowed under the Revolving Facility as of March 31, 2024.
Current wording
In April 2024, we drew down $50.0 million on our Revolving Facility to fund repurchases of our common stock under our Share Repurchase Program. This amount remained outstanding at June 30, 2024. The Revolving Facility bears interest at an annual rate equal to SOFR plus 2.5% (but without a SOFR floor) if and as drawn, with no original issue discount, and a commitment fee of 0.5% per year on the undrawn amount, which was reduced to 0.375% in the first quarter of 2024 because we had a consolidated first lien net leverage ratio (as defined in the Credit Agreement) of less than 3.5 to 1. The Revolving Facility has a maturity date in September 2028.
Previous wording
The Credit Agreement restricts our ability to incur liens, engage in mergers or asset sales, pay dividends, repay subordinated indebtedness, incur indebtedness, make investments and loans, and engage in other transactions as specified in the Credit Agreement. The Credit Agreement provides for specified exceptions, including baskets measured as a percentage of trailing twelve months of earnings before interest, taxes, depreciation and amortization, or EBITDA, and unlimited exceptions in the case of incurring indebtedness and liens and making investments, dividend payments, and payments of subordinated indebtedness, based on achievement and maintenance of specified leverage ratios. The Credit Agreement permits repayment, prepayment, and repricing transactions, subject, in the case of the Term Loan, to a 1% penalty in the event the Term Loan is prepaid or repriced within the first six months from the refinancing date. The Credit Agreement also contains an annual mandatory prepayment sweep mechanism with respect to a portion of our excess cash flow (as defined in the Credit Agreement) in the event our net leverage ratio rises above 3.5 to 1. As of December 31, 2023, we were below the specified leverage ratio, and a mandatory prepayment sweep was therefore not required.
Current wording
The Credit Agreement restricts our ability to incur liens, engage in mergers or asset sales, pay dividends, repay subordinated indebtedness, incur indebtedness, make investments and loans, and engage in other transactions as specified in the Credit Agreement. The Credit Agreement provides for specified exceptions, including baskets measured as a percentage of trailing twelve months of earnings before interest, taxes, depreciation and amortization (“EBITDA”), and unlimited exceptions in the case of incurring indebtedness and liens and making investments, dividend payments, and payments of subordinated indebtedness, based on achievement and maintenance of specified leverage ratios. The Credit Agreement also contains an annual mandatory prepayment sweep mechanism with respect to a portion of our excess cash flow (as defined in the Credit Agreement) in the event our net leverage ratio rises above 3.5 to 1. As of December 31, 2023, we were below the specified leverage ratio, and a mandatory prepayment sweep was therefore not required. The Credit Agreement permits repayment, prepayment, and repricing transactions.
Previous wording
The Credit Agreement contains no financial maintenance covenants, with respect to the Term Loan. With respect to the Revolving Facility, we are required to maintain a consolidated first lien net leverage ratio of no greater than 6.25 to 1 if more than 35% of the Revolving Facility has been drawn. The Credit Agreement contains other customary representations and warranties, affirmative and negative covenants, and events of default. We were in compliance with all covenants under the Credit Agreement as of March 31, 2024.
Current wording
The Credit Agreement contains no financial maintenance covenants with respect to the Term Loan. With respect to the Revolving Facility, the Credit Agreement requires us to maintain a consolidated first lien net leverage ratio (as defined in the Credit Agreement) of no greater than 6.25 to 1 if more than 35% of the Revolving Facility has been drawn, which was the case as of June 30, 2024. The Credit Agreement contains other customary representations and warranties, affirmative and negative covenants, and events of default. We were in compliance with all financial covenants as of June 30, 2024.
Previous wording
As of March 31, 2024, we had non-cancelable purchase obligations of approximately $21.5 million for inventory purchases with Benchmark, our primary third-party equipment supplier. Our purchase obligations, all of which are due during 2024, did not change materially from the end of 2023.
Current wording
As of June 30, 2024, we had non-cancelable purchase obligations of approximately $9.0 million for inventory purchases with Benchmark, our primary third-party equipment supplier, a decrease of $11.5 million from the end of 2023 primarily due to recovery from supply-chain constraints. These purchase obligations are all due within the next twelve months.
Previous wording
On December 8, 2022, our Board of Directors initiated a quarterly dividend. Total dividends paid during the three months ended March 31, 2024 were $16.1 million. While we expect to continue regular cash dividends, any future dividends declared will be at the discretion of our Board of Directors and will depend, among other factors, upon our results of operations, financial condition and cash requirements, as well as such other factors our Board of Directors deems relevant.
Current wording
Total dividends paid during the six months ended June 30, 2024 were $32.8 million. While we expect to continue regular cash dividends, which began in 2023, any future dividends declared will be at the discretion of our Board of Directors and will depend upon our results of operations, financial condition and cash requirements, as well as such other factors our Board of Directors deems relevant.
Previous wording
Net cash provided by operating activities for the three months ended March 31, 2024 increased by $2.5 million from the prior year period. Working capital adjustments increased by approximately $4.7 million, primarily due to lower cash use from accounts receivable, partially offset by higher cash outflows for inventory, accounts payable and accrued expenses. These changes were also partially offset by net income, as adjusted for non-cash items, which decreased by $2.3 million compared to the prior year period. Net income was primarily adjusted for depreciation, associated with the change in useful lives of our satellites.
Current wording
Net cash provided by operating activities for the six months ended June 30, 2024 decreased by $3.5 million from the prior year period, primarily due to a $4.1 million decrease in net income (loss), as adjusted for non-cash activities, primarily depreciation, associated with the change in useful lives of our satellites and the write-off of the remaining ground spare satellite in the prior year period. Cash flows related to changes in working capital decreased by approximately $0.6 million, primarily as a result of changes in inventory, offset by corresponding decreases in accounts payable and accrued expenses.
Previous wording
Net cash used in investing activities for the three months ended March 31, 2024 decreased by $18.3 million as compared to the prior year period, primarily as a result of our $10.0 million equity investment in Satelles in 2023 that did not recur in the first quarter of 2024 and decreased capital expenditures of $8.3 million as the prior year included payments for the launch of our remaining ground spares. We expect our capital expenditures to average approximately $60.0 million per year through 2030.
Current wording
Net cash used in investing activities for the six months ended June 30, 2024 increased by $82.4 million as compared to the prior year period, primarily as a result of our acquisition of Satelles on April 1, 2024, offset in part by a decrease in capital expenditures compared to the prior year. We expect our capital expenditures to average approximately $60.0 million per year through 2030.
Previous wording
Cash Flows Provided by (Used in) Financing Activities
Current wording
Cash Flows Used in Financing Activities
Rearranged current paragraphs (10)
Current report — wording carried from elsewhere
For the three months ended June 30, 2024, total commercial services revenue increased $7.3 million, or 6%, from the prior year period primarily as a result of increases in IoT and voice and data service revenue. Commercial IoT revenue increased $7.0 million, or 20%, for the three months ended June 30, 2024, compared to the same period of the prior year, primarily driven by an 16% increase in billable subscribers, largely due to strength in personal communication devices and a new contract with a large customer executed in the first quarter of 2024. Commercial voice and data revenue increased $1.5 million, or 3%, for the three months ended June 30, 2024, compared to the same period of the prior year, due primarily to an increase in billable subscribers. These increases were partially offset by a decrease of $0.7 million, or 4%, in hosted payload and other data service revenue, primarily due to the change in the estimated useful lives of our satellites in the fourth quarter of 2023, offset in part by increases in other data service revenue including Satelles revenue. Increases in commercial services were also offset in part by a decrease of $0.5 million, or 4%, in commercial broadband revenue, due to a decrease in ARPU reflecting the increased prevalence of usage of the Company’s service as a companion service.
Current report — wording carried from elsewhere
Subscriber equipment revenue decreased by $4.6 million, or 17%, for the three months ended June 30, 2024, compared to the prior year period, primarily due to a decrease in the volume of handset sales, offset in part by an increase in Short Burst Data® sales including chipsets. As previously disclosed, we expect 2024 equipment sales to be lower than in 2023 and more in line with periods prior to 2022.
Current report — wording carried from elsewhere
Comparison of Our Results of Operations for the Six Months Ended June 30, 2024 and 2023
Current report — wording carried from elsewhere
(2)ARPU is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the beginning of the period and the number of billable subscribers at the end of the period and then dividing the result by the number of months in the period. Billable subscriber and ARPU data is not applicable for hosted payload and other data service revenue items.
Current report — wording carried from elsewhere
(3)Commercial broadband service consists of Iridium OpenPort and Iridium Certus broadband services.
Current report — wording carried from elsewhere
We provide airtime and airtime support to the U.S. government and other authorized customers pursuant to our EMSS contract. Under the terms of this agreement, which we entered into in September 2019, authorized customers utilize specified Iridium airtime services provided through the U.S. government’s dedicated gateway. The fee is not based on subscribers or usage, allowing an unlimited number of users access to these services. For the six months ended June 30, 2024, revenue was unchanged from the prior year period, in accordance with the EMSS contract.
Current report — wording carried from elsewhere
Engineering and support service revenue increased $11.4 million, or 25%, for the six months ended June 30, 2024 compared to the prior year period, primarily due to increased work under certain government projects, including the SDA contract, offset in part by decreases in commercial engineering projects. As noted above, we expect engineering and support service revenue, as well as associated expenses, to be generally higher than in years prior to 2023 throughout the life of the SDA contract.
Current report — wording carried from elsewhere
Cost of Services (exclusive of depreciation and amortization)
Current report — wording carried from elsewhere
Research and development expenses increased by $4.2 million, or 44%, for the six months ended June 30, 2024, compared to the prior year period, due to increased spending on device-related features for our network, as noted above.
Current report — wording carried from elsewhere
For the six months ended June 30, 2024, our income tax expense was $12.5 million, compared to income tax benefit of $10.7 million for the prior year period. The increase in income tax expense is primarily related to the impact of stock compensation tax expense and nondeductible executive compensation plus the increase in pre-tax book income in 2024 compared to 2023.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
On March 25, 2024, pursuant to an amendment to the Credit Agreement, we increased the amount of the Term Loan by an additional $125.0 million, to fund our acquisition of Satelles, Inc. which closed on April 1, 2024. The additional amount is fungible with the original $1,500.0 million, having the same maturity date, interest rate and other terms. Principal payments, payable quarterly, beginning with the quarter ending March 31, 2024, are equal to approximately $16.3 million per annum (one percent of the full principal amount of the Term Loan), with the remaining principal due upon maturity.