Iridium Communications Inc. Q4 FY2020 Earnings Call

Thanks, Jamie. Good morning and welcome to Iridium's fourth quarter 2020 earnings call. Joining me on this morning's call are our CEO, Matt Desch, and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of our Q4 results followed by Q&A. I trust you've had an opportunity to review this morning's earnings release which is available on the Investor Relations section of Iridium's website. Before I turn things over to Matt, I'd like to caution all participants that our call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical fact and include statements about our future expectations, plans and prospects. Such forward-looking statements are based upon our current beliefs and expectations and are subject to risks, which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in our filings with the Securities and Exchange Commission. Our remarks today should be considered in light of such risks. Any forward-looking statements represent our views only as of today, and while we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views or expectations change. During the call, we'll also be referring to certain non-GAAP financial measures including operational EBITDA and pro forma free cash flow, free cash flow yield and free cash flow conversion. These non-GAAP financial measures are not prepared in accordance with Generally Accepted Accounting Principles. Please refer to today's earnings release and the Investor Relations section of our website for further explanation of these non-GAAP financial measures as well as a reconciliation to the most directly comparable GAAP measures. With that, let me turn things over to Matt.

Thanks, Ken. Good morning, everyone. It's hard to believe but last week we celebrated the second anniversary of the completion of the Iridium NEXT program. They've been very productive years too with continued strong growth and the delivery of a number of exciting new services for our customers. In fact, we've added dozens of world-class partners and welcomed more than 350,000 net new subscribers to our network. We've launched innovative new products to extend our leadership in IoT like the Iridium Edge line and cloud connectivity with Iridium Cloud Connect. We've also rolled out groundbreaking services into new business segments, like our very flexible Iridium Certus higher speed data platform, and of course, Iridium GMDSS for Mariners. Last week's anniversary reminds us that Iridium's transformation to a strong, profitable and growing cash flow generator is complete. Today, our company generates over $200 million in annual pro forma free cash flow. Our net leverage has fallen dramatically and we continue to drive double-digit subscriber growth and new revenues from our upgraded network. Investors have noticed this too, pushing our enterprise-to-EBITDA multiple in line with comparable growth-oriented strong free cash flow companies, further differentiating Iridium from the traditional financial profile and competitive position of other satellite companies. In light of this progress and the continued growth opportunities we see, our Board of Directors has authorized a $300 million share repurchase program, which we announced in a press release last night. This is the first share repurchase authorization in our company's history and is indicative of the confidence that we have in our free cash flow and business opportunities. The program allows us to be opportunistic if the markets are volatile while maintaining our path to long-standing leverage target. And I'm pleased to share this news as it signifies that Iridium is living up to the pledge we made to shareholders many years ago. For the investors who shared our vision and had the patience to see us execute, we're glad to now be in a position to reward your confidence. We are currently in the process of planning our next Analyst Day to be held in May. This event will allow us to provide a longer-term view for the growth opportunities we see and lay out the financial returns we expect Iridium to generate. I think you'll find it very interesting. Look to your inboxes for an invitation to this virtual event or reach out to Ken for more details. Turning to our 2020 results, I'm happy that Iridium delivered another strong year of financial performance. 2020 will forever be linked with the global pandemic, and I'm especially proud of how our team responded to meet the challenges of this unique year. I'd like to extend my sincere thanks to the Iridium family, including our more than 450 distribution and technology partners as their confidence, energy, and dedication are the fuel that supports our ongoing success. Overall, we finished 2020 on a strong note and even managed to reach the lower end of our original Operational EBITDA guidance we established before the pandemic. While we did experience some revenue headwinds as a result of the outbreak, our IoT business was able to get back on track. We saw steady growth in L-band broadband and achieved decent performance in our data and satellite phone business, even though we didn't see our usual seasonal summer ramp as global travel was curtailed and subscribers altered their normal routines. We also announced a number of new relationships and product launches in 2020 which should lay the foundation for new subscriber growth in the IoT and maritime markets, like the expansion of our Iridium Edge line of finished IoT devices, new partnerships in the heavy equipment market, including another top 20 original equipment manufacturer in Kobelco, and of course the rollout of Iridium GMDSS. This safety service launched to great fanfare and anticipation of our maritime partners and their customers near the end of the year. We also had a particularly strong year with push-to-talk as global enterprise and government customers increased their deployments of new Icom radio products, allowing them to rapidly extend the reach of their group PTT communications without the need to build out expensive local infrastructure on the ground. Each of these relationships and products extend Iridium's reach into new market segments, which is allowing us to take market share as well as grow the overall size of the market with new products that lower the cost of entry for subscribers. Tom will go into more detail on our 2020 financial performance. So I want to spend the balance of my prepared remarks highlighting Iridium's business strategy, our unique market position and our opportunity for growth. You've likely seen our guidance for 2021 in this morning's press release. We continue to expect to operate in the shadow of COVID during the first half of 2021, knowing that business and travel restrictions remain in force in many countries and the timeline for mass vaccinations is still unclear. While seasonal usage should improve in 2021, it's unlikely to rebound to historical levels while we remain in this climate. We also know that we face a tough service revenue comp with Aireon having reached the full run rate of its hosted payload agreement this past year. Headwinds in industries like aviation and maritime are also likely to persist in 2021 but will hopefully start easing in the second half of this year with the global recovery. We've built these assumptions into our 2021 revenue forecasts and still expect to generate good profitability and cash flow growth as we continue to naturally deleverage. Top line growth should improve as the economy regains its footing. In the coming year we will be rolling out a number of new services and devices along with our partners that open up new industry segments and long-term revenue streams. To start, the GMDSS service that we launched in late December has already seen its first sales in terminal installation. This demonstrates that we've really broken the decade-long monopoly of the maritime safety industry and that Iridium now has access to 50,000 SOLAS-class vessels that are required by maritime law to maintain this L-band safety service. While these big ships are the primary targets for this service, the cost, coverage and capability of our new GMDSS terminal make the system an affordable option for the hundreds of thousands of smaller vessels that may not be required to have GMDSS equipment on board. As a result, we think this new offering expands the market for GMDSS and positions Iridium as the provider of choice in 2021. Iridium Certus broadband terminals available from Intellian, Cobham, and Thales continue to see steady adoption by maritime customers. As the challenges to equipment installation lift, we expect to see our broadband solution win bigger market share and increasingly be selected as the preferred technology for standalone L-band terminals as well as for the majority of VSAT companion installations. Commercial aviation continues to be an important market for Iridium. Some of our partners, Iridium Certus aircraft antennas are expected to finally be ready this year. We've seen good progress with several of them as well as with the global standards process for approving Iridium Certus for cockpit safety services. This will add to our existing approvals with our legacy aviation narrowband terminals. While the first aviation broadband installations will occur in 2021, we currently have eight different antenna manufacturers developing products for different aviation markets like business, commercial, rotorcraft and the like, and collectively we think they will make a bigger revenue impact as we move into 2022. In light of the strong finish in IoT during the second half of 2020, we also forecast robust IoT growth in 2021, both in traditional satellite IoT areas, but also with our consumer-oriented partners who are rolling out new devices with features and price plans tailored to their niche customers. I still see IoT as the cornerstone of Iridium's growth going forward, as our network is ideal for industrial and consumer IoT services. 2021 is also the year we'll see the first Iridium Certus mid-band applications rollout based on our new Iridium 9770 modem. We've talked about this new device over the past year and have been testing it with beta customers. It's small and compact, letting users send and receive data up to 35 times faster than our legacy transceiver. It also leverages small low-cost passive antennas which are ideal for IoT applications. We see growth opportunities in areas like agriculture, transportation and drones as well as with the military, first responders, and for use in maritime and aviation applications. About 20 partners have adopted the Iridium 9770 so far and are developing products around the device, and we'll see their first commercial products rollout in the first half of this year. You will also see some new lower cost maritime terminals launch in the first half of this year as our partners introduce more broadband options. They'll be using a service-class of our network that we call Iridium Certus 200 that provides bidirectional 176 kilobits per second service with a small compact antenna which fills a niche at the lower end of the L-band maritime market. These terminals will be a great low-cost upgrade for legacy Iridium Open Port terminals, address the needs for primary satellite services for smaller vessels, and also support many VSAT companion applications. And finally, the US government continues to be an important partner that helps drive innovation on our network. Our engineering work for dedicated R&D and gateway upgrades has been expanding over the last few years with the DoD and 2021 will be no exception. While this work on the DoD's private gateway is long term and ongoing, we expect to complete certain upgrades like the final implementation of Iridium Certus this year. Once complete, the USG will have secure, private access to Iridium Certus broadband and mid-band services, which will drive incremental pay-for-use service. Before I hand things over to Tom, I want to recap Aireon's progress as they've had a productive year even considering the dramatic slowdown in air travel caused by the global pandemic. Aireon launched three new commercial data services in 2020 that will expand its customer base to airports, airlines, and other aviation stakeholders. Over the past three months, Aireon also announced new partnerships with the Civil Aviation Department of Hong Kong and PASSUR aerospace and greatly expanded their relationship with the FAA. I would also note that the Airports Authority of India, which signed an agreement with Aireon in 2019 just completed all of its testing and certification work and began using Aireon services operationally on January 29 with vast airspace of the Indian Ocean. To date, Aireon space-based ADSP services are now being deployed by 19 ASPs covering more than 39 countries and are quite literally revolutionizing the aviation industry. I understand that they are also working to close deals with a number of new ANSPs in 2021 and will be ready to grow as commercial air travel recovers over the next two to three years once vaccinations are more widespread and the pandemic recedes. So in closing, over the last five years, we've grown operational EBITDA at a 9% compound annual growth rate, and we continue to see a clear lane to be the long-term growth leader in L-band for satellite mobility, IoT, broadband and Safety services. We view ourselves as complementary to the many Ka and Ku band LEO mega constellations being announced or developed today. Iridium's L-band spectrum and small, low-cost and highly mobile antennas operate in a very different market space than these new LEOs which physically must offer services to large and very high-speed commodity broadband terminals. We expect Iridium will likely end up collaborating on dual-band products and services with several of them. Overall, we remain excited about the many business opportunities ahead that support free cash flow growth as well as meaningful subscriber and revenue expansion. So with that, I'll turn it over to Tom for a review of our financials.

Thank you, Matt, and good morning everyone. Today, I want to summarize Iridium's full-year results for 2020 and discuss our performance in the fourth quarter. We also announced our financial targets for 2021 this morning, so I will outline the key components of this outlook and provide insights into the revenue trends we anticipate in the coming years. As Matt mentioned, we achieved another strong year of growth. Although we experienced the impact of the global pandemic, our business performed remarkably well. Alongside double-digit subscriber growth and increases in operational EBITDA, the robust free cash flow generated from our recurring service revenue model stood out. Iridium generated $202 million in pro forma free cash flow in 2020 and lowered net leverage by nearly a turn. Operational EBITDA increased by 7% in 2020, driven by a 4% growth in total service revenue. This year, we saw growth in IoT and our broadband segment, despite the pandemic's impact on air traffic volume and slowing installations and activations in maritime. For those unfamiliar with our operations, the key takeaway is that Iridium's core business is extremely resilient due to our extensive global network of partners, the variety of industries we serve, and our emphasis on mobile communications and safety services. In the fourth quarter, Iridium reported total revenue of $146.5 million, representing a 5% increase compared to the same period last year. This growth was widespread but mainly driven by higher contractual revenues in our hosted payload business and increased contract engineering work with the US government. Operational EBITDA rose 6% from the previous year's quarter to $84.8 million. On the commercial side, we reported service revenue of $91.1 million in the fourth quarter, which was a 3% increase from a year ago. This growth was largely due to increases in hosted payload and broadband revenues, offsetting a decline in commercial voice and data revenue connected to COVID-19. Revenue from commercial voice data fell by 4% compared to the prior-year quarter, reflecting the pandemic's impact on activations and global usage. In commercial IoT, personal communication devices spurred net subscriber growth, resulting in a 20% increase in subscribers from last year's figures. In 2020, we added over 150,000 net new IoT subscribers thanks to momentum in personal communications. As we previously mentioned, the ARPUs from these consumer-focused plans are relatively low but still represent an attractive revenue source, particularly considering the network resources they utilize. Demand in the personal communication sector remains strong, even as other markets like aviation and oil and gas continue to face pandemic-related challenges. For our commercial broadband segment, we reported revenue of $9.6 million in the fourth quarter, up 18% from a year ago. We still foresee strong growth in this area, although access to maritime vessels poses challenges due to the pandemic. Overall, commercial subscribers increased by 14% year-over-year. By year-end, IoT subscribers accounted for 73% of billable commercial subscribers, up from 69% year-over-year. Revenue from hosted payload and other data services reached $14.4 million in the fourth quarter, up 19% from the same period last year, driven by the final contractual step in our agreement with Aireon. Government service revenue grew by 3% in the fourth quarter to $25.8 million, in line with our EMSS contract terms with the US government. During this period, government subscribers increased by 13% to 152,000. As expected, subscriber equipment enjoyed strong growth in the final months of the year, contributing to an 11% rise in equipment revenue to $18.9 million in the fourth quarter. Now, turning to our 2021 outlook, we project operational EBITDA will be between $365 million and $375 million, supported by total service revenue growth of around 3%. The main elements supporting this forecast include expecting commercial service revenue to benefit from a rebound in IoT and ongoing growth in broadband services. We anticipate IoT service revenue will grow significantly faster in 2021 compared to the 1% growth rate in 2020. The pandemic caused a decline of about $4 million in aviation-related usage in 2020, but we do not expect that same headwind for 2021 and predict aviation usage to return somewhat to last year's levels. We also foresee continued strong demand for personal communication devices, particularly with new retail-focused partners launching products. This gives us confidence in predicting another year of double-digit subscriber growth in IoT. In broadband, Iridium Certus continues to receive high praise from channel partners and drive subscriber growth, despite challenges presented by the pandemic. Given the uncertain ability for installers to access ships or for partners to sell new units in maritime, we remain cautious in our outlook. We expect hosted payload revenue will reach about $47 million in 2021 and beyond now that Aireon has achieved its full contractual run rate. It is worth noting that hosted payload revenue was $50.7 million in 2020 and included roughly $3 million in true-ups related to the Harris payload. Going forward, $47 million will serve as our run rate for hosted payload, providing a stable contribution to service revenue. In the government services sector, the terms of the EMSS contract are well established, projecting full-year revenue of approximately $104 million in 2021, including a contractual step up on September 15. We anticipate equipment revenue will align with 2020 levels. On the expense side, we foresee SG&A expenses rising somewhat as travel and in-person meetings become more feasible. Finally, we continue to expect negligible cash taxes in 2021, consistent with our long-term guidance predicting negligible cash taxes through 2023. After that, we forecast a cash tax rate in the mid to high single digits until 2028. Given our outlook for approximately 3% service revenue growth in 2021, I want to offer additional insights into our expectations for accelerated service revenue growth over the next few years. Over the next five years, we aim for service revenue growth to modestly increase in 2022 before significantly picking up in the subsequent three years. The three drivers of this accelerating growth from 2021 to 2025 are: first, a substantial increase in the growth rate of Iridium Certus broadband, expected as the maritime industry returns to normal and we begin marketing this service in mid-2021. We also expect a rise in the adoption rate of our broadband service by the DoD in 2023, following the planned completion of various engineering upgrades to the government gateway. Second, we predict a substantial increase in the IoT revenue growth rate from 2023 to 2025 due to broader adoption of Iridium's new IoT mid-band transceiver by our partner ecosystem. Third, we anticipate accelerated growth in our commercial voice and data business, also linked to the availability of Iridium's mid-band transceiver. This new transceiver will offer significantly faster data speeds than our legacy 2.4 kilobit per second offering and is expected to drive additional functionality and subscriber growth, alongside higher ARPU. Now, regarding our balance sheet, as of December 31, 2020, Iridium held cash, cash equivalents, and marketable securities amounting to $244.7 million. Following our transition to a strong free cash flow generator, our cash balance has continued to rise even amid the global pandemic. We believe our improving liquidity position will facilitate meaningful returns of capital to our shareholders. As Matt mentioned, we announced that our Board of Directors has approved a share repurchase program of up to $300 million through the end of 2022. This program allows management to repurchase shares in the open market and reflects the confidence both the Board and management have in Iridium's business prospects and free cash flow generation. We plan to execute the share repurchase program opportunistically, balancing our goal of deleveraging while aiming to maximize returns on investment. Looking ahead, we estimate total capital expenditures of approximately $45 million in 2021, 2022, and 2023 as Iridium increases investments in real estate and product development. Subsequently, we expect capital spending to revert to about $35 million while continuing to support Iridium's innovation and competitiveness in the market. We closed 2020 with net leverage at 3.9 times EBITDA, almost a full turn lower than the previous year and roughly two turns down from our peak of 5.8 times EBITDA in 2018. I am very proud of the discipline we have exhibited and the progress made toward our leverage goal. Our long-term target for net leverage remains between 2.5 and 3.5 times EBITDA, which we believe provides ample flexibility for operations and capital planning. We anticipate reaching our leverage target by the end of 2022, even after accounting for the maximum $300 million share buyback, with smaller buyback amounts enabling us to achieve the target sooner. Lastly, I want to summarize the repricing of our term loan last month, where we reduced the annual interest rate by 100 basis points, significantly decreasing our interest expenses going forward. The new rate is LIBOR plus 275 basis points, and we expect pro forma annual interest expense savings exceeding $16 million. The terms of our facility allow us to renegotiate the market premium every six months based on favorable market conditions. In 2020, our pro forma net interest expense was about $89 million. Pro forma net interest for 2021, based on the recent term loan repricing, is expected to be around $71 million, reflecting a 20% reduction from last year, which will enhance our pro forma free cash flow. Utilizing the midpoint of our 2021 EBITDA guidance at $370 million and subtracting $71 million in net interest pro forma for our new debt structure, along with $45 million in capex and $22 million in working capital, including the necessary hosted payload adjustment, we should arrive at pro forma free cash flow of approximately $232 million, a 15% increase from 2020. This results in a conversion rate exceeding 60% in 2021, yielding approximately 3% to 4%. We expect growth in pro forma free cash flow to surpass the growth rate of EBITDA this year. A detailed description of these cash flow metrics and their reconciliation to GAAP measures is available in our supplemental presentation under Events on our Investor Relations website. I would also like to mention that these positive cash flow trends and our favorable outlook for deleveraging led Moody's to upgrade Iridium's corporate credit facility ratings by one notch to A3 last week. In conclusion, 2020 was a strong year for Iridium. Despite challenging business conditions, we showcased the resilience of our operating model and achieved growth in free cash flow. It is evident that the financial transformation Matt and I have anticipated for years has now come to fruition. We are excited to be in a position to unlock more value for our shareholders. Now, I will turn the call over to the operator for the Q&A session.

Ladies and gentlemen, we will now start the question-and-answer session. Our first question today comes from Ric Prentiss from Raymond James. Please go ahead with your question.

Thanks, good morning guys.

Hey, Ric.

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

I'm not going to comment on the exit rate, Ric. I think you should look at the 2020 comparison, which will show that we had a built-in gain in hosted payload that won't happen again in 2021. As I mentioned earlier, we believe IoT will grow significantly faster than the 1% we achieved this year, and that should become clear soon. Regarding reaching 10%, it's certainly possible. Let's see how broadband adoption evolves in '22 and '23, as we anticipate it will increase significantly.

Right. So when you talked about that...

We have a significantly more diverse business compared to ORBCOMM, which is focused on the IoT sector. Our company operates in various market segments, each experiencing different levels of growth, and all contributing positively. Some segments will start to gain traction towards the end of the year; for example, we plan to enter the aviation broadband segment, where we expect the mid-band to become prominent. This segment is unique and not something that they or others are engaged in. We've always performed well in IoT, and I was pleased to see a strong resurgence in the IoT market at the end of this year, reflecting favorable dynamics and market activity across all our areas. I anticipate this momentum will continue into the coming year, and with the introduction of new products and services, we could see even faster growth than we have historically experienced. I hope that clarifies things for you.

It does. I've known you for a long time, and Tom even longer, so I know you like to ensure you can meet your guidance as demonstrated last year. When we consider the significantly higher service revenue potential from 2023 to 2025, are we still looking at high single-digit growth? Is it possible it could reach double digits? I'm trying to understand what "materially higher" for that period suggests.

We are not projecting just a 3% growth. Our intention is to indicate 3%, but we actually expect it to be much higher. We are optimistic about the uptake of our Certus product and believe we are the preferred satellite provider in the IoT market. Personal communication is expected to continue growing for a long time, and we anticipate that all these elements will lead to significantly higher growth rates from 2023 to 2025.

One of the reasons we chose to hold Analyst Day in May is to dedicate more time to certain growth areas that we haven't thoroughly described yet. For instance, I see a significant future in personal communications, which involves evolving Iridium into more consumer-friendly devices that people will use daily. I hope we can discuss this in more detail in May. Additionally, Tom will likely provide more insight into the financial implications over the next five years. While we won't return to long-term guidance, we can definitely take more time to discuss our strategy.

Great. And for my last question, Matt, you mentioned the possibility of collaboration with some of the other large LEO constellations. Can you provide us with some insight into the timeframe or the level of discussions happening? We're receiving inquiries about the new Providence acquisition involving AST & Science LEO. What are your thoughts on that?

I mentioned that we are complementary to both the Ku and Ka bands. I understand this can be confusing for many investors who assume that being in LEO means competing with all other LEO satellites. However, the way we structure our system is particularly suited for personal communications and IoT, making it nearly impossible for those companies to compete effectively in these areas, as doing so would be highly inefficient. There will continue to be larger terminals that often have an L-band addition or a lower-cost satellite service to enhance their functionality, which is what we've discussed with several of these companies. As they expand their networks, they remain focused primarily on their core consumer services, yet they have expressed significant interest and value in our offerings as a complement. I anticipate you will see our products over the next couple of years. Regarding AST Space Mobile, it is certainly an ambitious project that still has considerable challenges ahead. Our predecessor company found the complexities involved in similar endeavors to be very daunting. The achievements we’ve made over the past 30 years have required immense effort, and the tasks they are proposing would demand even more. The science required to develop what they aim to do will be costly and time-consuming. While it’s fascinating if they succeed, I view AST as a reflection of current market excitement in the space sector, as their valuation may indicate whether their claims are feasible within the expected timeframe and budget. I hope this clarifies things.

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

Yes, thanks Ric.

Thanks, Ric.

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

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

Total step the fourth quarter is a good run rate. I would anticipate SG&A being up a few million dollars in 2021 for the full year.

Okay. Thanks. Regarding your GMDSS product, how does it compare to other solutions available? Is it intended as a standalone product to generate revenue, or is it designed more as a service to enhance your other broadband offerings? Thanks.

I believe not everyone heard your question, but regarding our GMDSS service or maritime GMDSS, it can be viewed as both a stand-alone product and something that complements our other services. This has been an area we haven't been able to address effectively. It's not just the narrowband product we have today for emergencies, which doesn't generate revenue. It's the various other uses of that terminal, such as delivering maritime safety data and navigation information, as well as its application for ships' operations. Every SOLAS-class ship needs to have this terminal, and until now, it had to come from our competitor, putting us in competition for other terminals onboard. Now, a ship can be exclusively an Iridium ship, which excites our partners since they often had to compete against a provider offering VSAT services. It can indeed function as a stand-alone service. As I previously mentioned, we're enthusiastic about the potential market expansion for GMDSS. There are many ships that would greatly benefit from an affordable panic button that connects to regional emergency centers and provides vital information, which was not very cost-effective previously. We even speculate that insurance companies and others might encourage ship owners to adopt Iridium's GMDSS service. I hope that clarifies things.

Okay, thanks.

Thanks, Greg.

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

You're cutting out, Greg. Can you clarify what you said about the incremental ARPU?

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

It's a voice and data terminal that can cost anywhere from tens to hundreds of dollars depending on its usage on the ship, and it's still too early to know exactly what the average revenue per user will be. Customers subscribe to various plans, but typically it delivers around our average for voice and data, and can be significantly higher for vessels that use it extensively. It is an integrated voice and data device providing very high-quality voice connections, and can be used for various purposes. While it's not often used in emergencies, those instances don't incur any costs. Additionally, it serves as a data device, delivering valuable information about navigation, safety, and weather issues. Therefore, I'm uncertain about the exact figures, and it's not expected to have a significant impact in 2021 given the anticipated number of units. However, it does serve as a foundational element for both standalone maritime sales and boosting our Certus business.

Okay, great.

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

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

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

The consumer mix has really been strong. I expect that to remain equally strong in 2021, if not stronger, due to our expanding products. I believe ARPU will also...

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

Go ahead.

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

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

Okay. I guess mooning away and they were a small customer, but can you talk about the UAV market and what you see is the prospect there.

We have several new and existing partners working in that space, some already offering products. While the volumes are not high, they present interesting and diverse possibilities. Our technology allows for a strong data rate in a compact design with a small antenna, which is why we are relevant. There's significant interest in the expanding UAV market, particularly for satellite connections for command and control. I've noticed intriguing applications using our mid-band modem due to the increased speed it offers. I can't predict the pace of growth for their business this quarter, but there are definitely interesting applications across various market segments for drone usage in the next few years. While we don't expect explosive growth in the next year or two, it seems to lay a strong foundation for an expanding market segment for us.

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

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

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

Yes, please go on mute if you're not speaking as there is quite a bit of background noise. The ARPU is indeed higher because the increased data speeds from the Certus Terminal are being utilized more by users. I also notice a delay on the line, which might be due to us using a geostationary satellite. I anticipate that ARPUs will strengthen as we adopt our Certus services and transition away from the slower Open Port services. I'm pleased that the Open Port terminal business has not declined rapidly; it has remained stable and will naturally evolve into the Certus 200 class service. This is advantageous as it allows us to grow into higher-speed services and gain market share. Therefore, I expect the higher ARPU trend to persist.

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

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

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

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

The first product in our mid-band transceiver line is now available and performs exceptionally well. The challenge is that it needs to be integrated into other products, as it is a complex receiver that cannot operate independently. This product, the 9770, is about the size of two playing card packs side by side, slightly larger than a smartphone, and can provide up to 88 kilobits per second along with several high-quality voice channels. This is a significant improvement over our previous L-band transceiver, which only offered 2.4 kilobits per second with one voice line. Additionally, the new transceiver operates with a pure IP connection, allowing for quick data transfer without the delays previously required for L-band connections. It offers instant connectivity and efficient use of our network resources, serving as a foundation for various products that will utilize it, including voice and data solutions and IoT services. We are also exploring adaptations of this technology for lower-speed services that could be very compact, such as 16 or 32 kilobits, which would facilitate enhanced IoT applications with smaller antennas. These variations will include designs that offer lower power consumption for improved battery life, potentially enabling them to be as small and portable as devices like the Garmin inReach.

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

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

Thanks, Matt. That was very helpful.

Thanks, Louie.

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

Good morning. I wanted to ask about the service installations in maritime. I know you've been focusing on COVID, but how are the current global shipping issues affecting your lane installations, and how are your customers managing?

I think we've mentioned in previous calls that even with the pandemic slightly improving, many installers are still facing travel restrictions. Some of our partners with centralized installation teams can't enter countries to access ships for installations. While partners with localized installers are faring somewhat better, ship owners still have numerous restrictions in place. As we witnessed during the early pandemic phases with cruise ships, the last thing anyone wants is for the crew to become infected. When you're confined on a ship for weeks, it's essential to prioritize safety, which is causing delays. However, we are still seeing progress, with more terminals being installed each month. Depending on the region, partners are reporting they aren't operating at the desired levels and have significant backlogs because they can’t get their terminals onto ships. There is demand for the product, but the process of getting it out there is slow. Ultimately, until these installations occur on the ships, we won't generate revenue.

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

The decline in ARPU is primarily due to a mix of factors. We discussed the aviation segment previously, but the drop is not due to reduced usage. In fact, we saw significant growth in IoT subscribers last year. The challenge arises when we add over 100,000 new consumers who are paying lower amounts, which affects the overall average revenue. Our industrial partners, of whom we have many, are seeing revenue growth, particularly in the latter half of the year as they returned to normal operations. Last year, we added a few partners, though fewer than usual due to COVID restrictions that made business closings difficult. However, we anticipate an increase in partnerships in 2021 compared to 2020. Overall, it appears that most of our industrial IoT partners, regardless of their sector—whether in heavy equipment, agriculture, transportation, or tracking devices—are getting back to their routines after the disruptions of March, April, and May. It seems like last year was a period of adjustment for everyone, but they resumed work in the second half, and we expect 2021 to be a much more typical year.

Okay, thank you.

Thanks, Ahmad.

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

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

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