Welcome to the Iridium Third Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Ken Levy, Vice President, Investor Relations. Please go ahead.

Thank you, Andrew. Good morning, and welcome to Iridium's third quarter 2021 earnings call. Joining me on today's call are CEO, Matt Desch and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of our third quarter 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 only 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, pro forma 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 in the Investor Relations section of our website for a further explanation of these non-GAAP financial measures and a reconciliation to the most directly comparable GAAP measures. With that, let me turn things over to Matt.

Thanks, Ken. Good morning, everyone. As highlighted in this morning's earnings release, we delivered another outstanding quarter with impressive results. This quarter marked our highest quarterly operational EBITDA in our company’s history. The results reflect a strong rebound since last year during the pandemic's early days. In the third quarter, we experienced widespread demand for our products and continued to see the strength of our wholesale business model. The ecosystem of around 500 global partners we’ve developed over the last two decades is a significant advantage, showcasing resilience during various economic cycles and market disruptions. Back in May, Tom and I outlined our five-year growth strategy at our Investor Day. At that time, we were uncertain about the speed of recovery for some of our partners' markets. However, we had a solid understanding of the underlying demand for our services and were confident that our planned service introductions and new product rollouts, supported by our extensive partner network, would lead to subscriber growth as it has in previous years. This perspective underpinned our forecast in May of returning to an average high single-digit service revenue growth from 2023 through 2025. Given our results this year, we are on track for that. Due to the growth we’re observing across our commercial business lines, we are raising our full-year outlook for service revenue growth to between 5% and 6% for 2021. This revision also indicates a higher operational EBITDA, which we now anticipate will reach about $375 million this year, representing approximately 5.5% year-over-year growth. We’re optimistic about the momentum in our business, which extends beyond just financials. It encompasses top-line growth, effective operations, and robust partner engagement, providing a clear runway for the future. Last quarter, I mentioned that global supply chains were impacting equipment production due to a shortage of a key component in some of our IoT modules. I want to provide an update on this situation. As reflected in our results, we had a strong quarter for equipment sales due to high demand from our partners, which has been even greater than we anticipated earlier in the year. So far, our supply chain team has managed to mitigate the effects of this component shortage effectively. We now believe that the strong demand will lead to our equipment revenue in 2021 exceeding last year's figures. However, I wish we were less hampered by this shortage, as current demand is outpacing supply allocations for the next few quarters. Our partners seem to recognize this limitation is temporary, and some are facing challenges of their own. Based on the supply allocations expected over the next two quarters, we anticipate catching up on the affected product lines by summer 2022. Therefore, this equipment constraint is manageable, and, at least for now, I don't foresee this issue affecting our long-term growth trajectory or our relationships with partners. That said, our suppliers and partners utilize various chips across many products, and the global silicon chip shortage remains a widespread concern, so we will continue to actively address these issues as they arise. Moving on to some of our key market segments. First, the personal communication sector has accelerated significantly. Following our best quarter for net subscriber additions in Q2, we added 71,000 net new IoT subscribers in Q3, positioning us for another strong growth year in this segment. As interest in small portable communicators increases, there is also growing anticipation that satellite technology will be integrated into a wider range of mobile assets, including smartphones and cars. We believe it is inevitable that satellite connectivity will be adopted in mass-market consumer devices, and Iridium’s global L-band network is perfectly suited for this application. While cellphone use is widespread, a remaining challenge is ensuring connectivity beyond major urban centers and corridors. A satellite connection in a smartphone elegantly addresses this issue, extending connectivity when users are outside terrestrial coverage areas. This development would naturally extend our current IoT business, which has 1.1 million connections, including over 500,000 personal communication devices on our network. In the third quarter, we achieved a significant milestone with the launch of Iridium Certus 100. Built on our Iridium 9770 module, this new mid-band service class provides much faster throughput compared to our current narrowband modems. It ensures quicker connections through standard IP rather than proprietary protocols while remaining a compact and lightweight device, suitable for UAVs, maritime aviation, and new IoT applications. Iridium Certus 100 is now available, with more products expected in the coming months, generating excitement among our partners about the solutions enabled by these devices and speeds. I'm also pleased with the ongoing adoption of Iridium Certus broadband in maritime, where the product is well-received both as a standalone service and a complement to VSAT. This year’s activations are promising, indicating that the maritime market is recovering. In Q3, broadband revenue grew by 26% compared to the same period last year. Additionally, we introduced new Iridium Certus 200 class terminals, which are smaller and more affordable, complementing our standard Iridium Certus 700 broadband terminal portfolio. These new terminals are just beginning to enter the market and should significantly enhance our broadband growth moving forward. They provide an ideal upgrade to the slower connections and limited coverage of our competitors' offerings and serve as a great successor to our legacy Iridium OpenPort terminals. Broadband ARPUs continued to rise in Q3, with Iridium Certus 700 being adopted both as a standalone solution and alongside VSAT in larger vessels. These applications align perfectly with our initial vision when we launched Iridium Certus in 2019, positioning us well to grow our broadband service revenues. Aviation is another critical avenue for future broadband growth, and our aviation bands are making progress with various new Iridium Certus terminals. Some are currently undergoing testing, and we anticipate the first will be ready by year-end. This is a market where end users already recognize Iridium and our capabilities well. We still need to certify these new terminals for safety services, akin to our partner's legacy aviation terminals, and that process is progressing smoothly. We continue to observe a strong demand for Iridium Certus for various cockpit services utilizing small terminals across the 100, 200, and 700 class ranges in commercial, corporate, rotorcraft, UAV, and general aviation sectors. With the introduction of these new terminals, we will be able to meet that demand. However, in the US government sector, we haven’t seen the same subscriber growth as in previous years. While service revenues remain steady, administrative challenges with the transition of our EMSS contract from DISA to the US Space Force have slowed user activations. As noted last quarter, this transition has not been seamless, and we continue to assist in this process to ensure that the US government fully benefits from our contract. We maintain a strong relationship, and they highly value our network, which had around 149,000 subscribers at the end of Q3. We are working with them on various engineering, development, and gateway upgrade projects that are strategically important to their future needs. Shifting to Aireon, the company is gradually seeing improvements in its business as air traffic rebounds. Aireon expects to generate positive free cash flow for the year and is enthusiastic about its new data services offering, which could significantly boost revenues. They continue to provide high-quality services to their ANSP customers, including the FAA, and have more customers in the pipeline, though reduced air travel over the past 18 months has delayed contract decisions. Still, they are in a good position for a company that has been operational for only 2.5 years. We are also pleased with our investment in Syntellis, which provides alternative position navigation and time signals to safeguard critical infrastructure and enhance GPS services. They are achieving success in various commercial and government markets, and we anticipate they will increase their use of our network in the coming years. As I mentioned earlier this year, Iridium has more initiatives underway than ever before. Our new product launches are broadening our reach and allowing us to meet the needs of a growing customer base. With only a few months left in the year, we are excited about our business position and the growth opportunities ahead. Iridium has emerged from the global pandemic with strong momentum, a new product pipeline, and demand that currently surpasses our capacity to satisfy. This positions us well as we begin planning for 2022. Now, I’ll hand it over to Tom for a financial review.

Thanks, Matt and good morning, everyone. I'll get started by summarizing our key financial metrics for the quarter and providing some color on the trends we're seeing in our business lines which give us confidence in raising our full-year guidance. I'll then review our liquidity position and capital structure. Iridium enjoyed another strong quarter with broad-based growth. We generated total revenue of $162.2 million in the third quarter which was up 7% from last year's comparable period. The improvement reflects strong demand for our services across all commercial business lines and serves as confirmation that the strongest headwinds of the pandemic which had slowed channel activities, are now largely behind us. Operational EBITDA reached a record $100.2 million in the third quarter, up 7% from the prior year's quarter. The increase from last year reflects strong momentum in service revenue growth and ongoing demand for subscriber equipment which is on pace for one of its best years on record. In light of this strength, we are raising our outlook for EBITDA to approximately $375 million this fiscal year based upon expectations that service revenue will increase between 5% and 6% in 2021. This change in forecast is a testament to the underlying strength of our business and the uniqueness of our offerings. On the commercial side of our business, service revenue was up 11% this quarter to $101.9 million. This increase reflected strength across all business lines. In addition to ongoing demand for IoT and broadband services, we also realized a material pickup in voice and data services. Commercial voice and data revenue increased 7% to $45.7 million in the third quarter benefiting from the return of our normal seasonal business and a meaningful rise in net subscriber additions. This is a stark contrast to last year when a dearth of activity during the pandemic resulted in a decline in subscriber activations in voice revenue. Voice communications are a core part of our business and continue to perform better than we initially forecast in part due to ongoing adoption of push-to-talk services which helps to support our strong outlook for the year. Push-to-talk devices from our VAM Icom are particularly popular. They've sold over 10,000 units since introducing them about two years ago. Consumer interest in our satellite IoT services also remains very strong. In commercial IoT, retail-oriented subscribers fueled 71,000 net activations during the quarter. We also saw a pickup in aviation which continues its rebound from last year's headwinds. This drove an 18% increase in revenue from the year-ago period. IoT ARPU was $8.93 in the third quarter compared to $9.48 in the prior year period. The decrease in ARPU from the year-ago period was caused primarily by the increasing proportion of personal communication subscribers which use lower ARPU plans. We have, however, continued to see a rebound in high ARPU customers most notably in aviation which was hard hit by travel restrictions last summer. During the quarter, we added 78,000 net new commercial subscribers, Commercial IoT helped to fuel this growth and IoT subs now represent 75% of Iridium's billable commercial subscribers, up from 72% in the year-ago period. We estimate that consumer-oriented plans account for about half of Iridium's commercial IoT users. Commercial broadband revenue was up 26% in the third quarter to $11.5 million from the prior year period. We continue to see improvement in the maritime environment as terminal installers gain access to ships in many geographies and ARPU grows with the rising mix of new Iridium service activations. We anticipate continued growth in broadband revenue as travel restrictions lift and the offering of Iridium Certus maritime terminals expands with new product launches from Thales and Lars Toronto. Hosting and other data service revenue is steady at $14.6 million this quarter. Turning to our government service business; we reported revenue of $25.9 million in the third quarter, up 3% from the prior year quarter. This increase reflects the terms of our long-term EMSS contract which included a contractual step-up in revenue in mid-September. Government subscribers grew 5% year-over-year to 149,000 in the third quarter. Subscriber equipment sales continued to benefit from strong demand rising 7% to $26.9 million from the year-ago period. As Matt noted, we continue to work with our suppliers and explore options to source components in short supply. In general, we've been effective in utilizing inventory on hand, negotiating large allocations from suppliers and finding alternative sources for certain equipment. As a result, we have largely managed the impact of the specific supply chain issue that Matt referenced through the first nine months of the year. We anticipate that the brunt of this component shortage will impact our ability to meet full customer demand in the fourth quarter. The challenge of sourcing components from alternative vendors is likely to result in some margin compression as we absorb certain costs in an effort to respond to strong channel demand. Engineering and support activities remained largely episodic and produced revenue of $7.5 million in the third quarter compared to $9.4 million in the year-ago period. As we noted in our July call, we continue to expect engineering activities to ebb and flow with schedules and the needs of our customers. Through the first nine months of the year, we've been very happy with our performance and the strong demand for Iridium's suite of services. It's clear that business activity has rebounded from the headwinds we experienced last year. Resumption of partner activities this year and continued channel demand is pushing revenue growth above our forecast. As a result, we are increasing our outlook for service revenue growth to between 5% and 6% in 2021 and raising our full-year guidance for EBITDA to approximately $375 million. Moving to our capital position; as of September 30 this year, Iridium had cash, cash equivalents and marketable securities balance of approximately $289 million. Our cash position has increased by more than $100 million over the last 12 months even when giving effect to this year's share repurchases. Through the first nine months of the year, Iridium repurchased about $125 million of stock under its $300 million share repurchase authorization. With a balance of about $175 million in our share buyback program, we continue to be opportunistic in executing these repurchases. Debt leverage was 3.6 times our EBITDA at the end of the third quarter including the impact of our 2021 buyback program. This improved from 4.2 times a year earlier and 3.9 times last quarter. Our long-term target for net leverage continues to be between 2.5 times and 3.5 times our EBITDA. We anticipate that we will be within this target range by year-end 2022 even after giving effect to the maximum $300 million share buyback. Capital expenditures in the third quarter were $8.8 million and we continue to expect CapEx to be about $45 million this year. In light of our increase in OEBITDA, we have raised our outlook for pro forma free cash flow to approximately $242 million this year. We continue to expect growth in pro forma free cash flow will outpace the rate of growth in OEBITDA. This figure is up from 20% from 2020 and highlights the strength of Iridium's business model. We arrive at this level by using our updated 2021 EBITDA guidance of $375 million and back off $66 million in pro forma net interest, $45 million in CapEx and $22 million in working capital inclusive of the appropriate hosted payload adjustment. This free cash flow reflects a conversion rate in excess of 60% in 2021, representing a yield of more than 4%. A more detailed description of these cash flow metrics along with the reconciliation to GAAP measures is available in a supplemental presentation under events in our Investor Relations website. As we highlighted on our July call, Iridium completed a repricing of its term loan in the third quarter. The improvement to spread and the LIBOR floor represent an overall saving of 50 basis points on interest costs which yields annualized interest expense savings of approximately $6 million. As I reflect on our strong progress to date, I'm reminded of the long-term guidance Matt and I shared at our Investor Day in May. We expected that 2021 would be a slow year of growth for Iridium forecasting 3% growth at that time. But we were confident that given new products and our generally bright prospects, service revenue growth will accelerate and average in the high single digits for 2023 through 2025. Our updated guidance of 5% to 6% growth this year should give investors increased confidence in our longer-term guide. Service revenue is the primary driver of growth in OEBITDA and given our levered free cash flow profile, we believe that this growth will drive about $2 billion in levered free cash flow between 2021 and 2025. We believe this is a significant consideration for investors as it represents about 40% of our current equity market capitalization. With that, I'll turn things back to the operator for the Q&A.

We will now begin the question-and-answer session. The first question comes from Landon Park of Morgan Stanley. Please go ahead.

Thank you, and good morning. I'm just wondering if you can touch on the Certus aviation products. What type of timelines are you expecting and where are you with the fans certification and what type of use cases do you see on the UAV side? And then secondarily just on the EBITDA outlook. The $10 million sequential stepdown in 4Q, is that all driven by seasonality and supply chain or are there any other elements that we should be thinking about on the sequential trend?

In aviation, we have a strong presence and are currently successful using our existing devices. Our VAM partners have taken longer than expected to finish their antennas, but they seem to be addressing their issues now. There are several suppliers involved, and many of them have confirmed they are operational. We've seen some of their terminals, which look great, and we anticipate the first one will be available later this year, although they may not significantly enter the market until 2022 and into 2023. These devices are relatively small and provide services up to 700 kilobits per second, which is quite effective for L-band service. Additionally, lower-cost versions using our Certus 100 and Certus 200 technologies are on the way; these models are small, omni-directional, and ideal for general aviation, UAVs, and smaller aircraft. They can be used for internet services, especially in the cockpit and small aircraft cabins. We're currently noticing substantial interest in Certus 100 within the UAV market. Several new VAMs and VARs want to offer this service for command and control applications because Certus 100 is a global product that is compact and lightweight and fits well on these platforms. However, fan certification will take longer due to FAA requirements and additional development that is in progress. I can't provide an exact timeline for when fan certification will happen, but it will enhance our presence in larger commercial aircraft for flight safety services in the cockpit. However, this certification will act as a driver rather than a barrier for generating revenues from aviation terminals in 2022 and 2023. That addresses the first part of your question. Would you like to add anything?

Sure. Hi Landon, it's Tom. I'll take the second part. So, the fourth quarter is seasonally a tad weaker than the third. The third is a stronger quarter just seasonally speaking. And then we're modeling equipment revenues in the fourth quarter down materially from where you saw it in the third quarter. We see equipment revenues up on the full year, but fourth quarter will be down sequentially and that accounts for the decrease in our outlook for EBITDA sequentially.

Great, thanks. I have one last question about Aireon. You recently mentioned the upcoming payment scheduled for 2024. Can you explain how confident you are in that revised timeline and discuss some of the factors involved?

Right. So, we're very confident in Aireon's business model. They're cash flow positive this year. Their business is performing very well. The effects of COVID on international air travel has just caused their business model to move to the right a bit and so their anticipated refinancing has moved to the right. But we are highly confident that they will make those lump sum payments in due course.

The next question comes from Ric Prentiss with Raymond James. Please go ahead.

Good morning, all.

Hey, Ric.

Hey, Ric.

Couple of questions. First, the stock buyback, obviously, you said you'd be opportunistic. There was a big drop-off with clearly buyback levels from the first and second quarter to the third quarter. How should we think about how you view the timing and pacing of the buyback? Is there anything else going on out there like M&A for use of funds?

We want to achieve a strong return aligned with our intrinsic value, considering our current leverage level. If we're above our leverage guideline, we aim for a higher return. This is our perspective. In the third quarter, we were proactive. While we see some appealing M&A opportunities, we're not hesitant to proceed solely because of them.

Okay. Obviously, we know in the quarter.

Excuse me, Mr. Prentiss. Could you make an adjustment there on your end? I'm sorry to interrupt. It's kind of breaking up there on I assume on your cellphone.

Yes, cellphone. Can you hear me?

It's really hard, Ric. You're kind of really you don't sound very clear. But give it a try and we'll try to make it out your question.

Okay. Any better here?

Perfect. That's clear.

Yes. Thank you, sir.

You bet. No worries, guys. Second question, I appreciate that. Matt, you touched on it a little bit in your prepared remarks about the thought of L-band coming into smartphones. Can you walk us through kind of the timeline and the process of what's involved in making that happen technically, but also in talking with the OEMs?

Yes. So, I'm not going to go into any more detail on that, Ric. As you might imagine, I bring it up because there's been so much in the public sphere obviously around specifically Apple and the rumors around them. But also there are some other companies that have emerged that are out claiming that they're going to go after this with great expense and new satellites and that sort of thing. And I just think it's important for people to understand this is core to our strategy, that our network is built for this sort of thing. We have the right spectrum and position for it and we're pursuing it. But when, if, all those sorts of things I think are - it doesn't really make sense for us to go into any kind of detail. I don't want to even presuppose exactly how and what we would do because that would give away way too much about what our approach and strategy would be toward that market segment. So, hope you understand.

Makes sense. But conceptually the concept of leakages into smartphones or something, core to your strategy is something you're working on?

Yes. I mean we view ourselves as a personal communications company when it really comes down to it. That's how we were built 25 years, 30 years ago with a highly efficient communication globally to small antennas and small devices around the world. And you can see it's played out in our IoT business. It's played out in the way we have been successful sort of in the personal communication sector around evolving from satellite phones to personal communicators. And we've been licensing our technology into other products or other applications and smartphones will be just one direction. I mean also there's a lot of interest I think in a lot of connectors and other consumer products and automotive sectors and that sort of thing as well. So, it's how we're built.

Makes sense. And last one for me. Obviously a lot of other thoughts about the capital being raised in this space as you mentioned. How should we think about how you guys look to position yourself in kind of the new landscape of LEOs out there and anything you might be working on as far as collaborations?

In the segment I just discussed, companies trying to connect smartphones directly from space, either using standard protocols or terrestrial spectrum due to lacking their own spectrum, have significant challenges ahead. Many of these companies do not yet possess the necessary technology or financing. Some of their plans are admittedly ambitious. Thus, I don't anticipate partnerships or collaborations with most of them unless there is some form of future spectrum sharing. We are closely monitoring the IoT sector, as numerous companies are attempting to build networks in what I consider the low-end IoT market. While there have been announcements in this space, none demonstrate immediate success. Some companies have been acquired, but it's unclear if that indicates their success. They have a long journey ahead, as we have been in the IoT business for around 17 of our 21 years, and it takes substantial time to develop solutions and ecosystems alongside a cost-effective low-end product. We are engaging with many of these companies and considering partnerships. Some are interested in using our network to deliver their services, and we are open to exploring the business and economic viability of such relationships.

Great. Okay, we'll keep our eyes on that. Appreciate it. Stay well, guys.

Thanks, Ric.

The next question comes from Walter PieSync with LightShed. Please go ahead.

Thanks. Hey, Matt. Do you think there's an opportunity for Syntellis to have maybe a more formalized relationship with NextNAV if NextNAV is successful in completing their SPAC? I saw the announcement from earlier in October but it seems like they're highly complementary businesses. I'm just curious on your thoughts on those two companies going forward.

I'm not sure I can speak specifically to NextNAV nor probably should. I do think I can say that I mean Syntellis has a well-established revenue stream business and probably is SPAC-able themselves if that was a smart strategy. I don't frankly know that that is. I think SPAC personally having been through one and finding the pain that was associated when we did it...

The original SPAC?

The original. We were SPAC-free for SPAC-full as I say. But it's...

Are they local?

It was an expensive process for us, necessary due to the 2008 recession and the circumstances at the time. If someone absolutely needs to pursue that route, then that's what they might do, but I wouldn't recommend it to anyone.

So your advice to Aireon and Syntellis, it sounds like would be to do a traditional IPO process as opposed to a SPAC?

Absolutely.

Okay. Can I just move on to Tom? In your prepared comments, I understand that companies prefer not to change their targets. However, you mentioned the debt leverage target of 3.5 times to 2.5 times and your aim to reach it by the end of 2022. Currently, you are at 3.6 times. If you look at EBITDA and annualize it based on the current quarter like many companies do, you are already within the target range. I want to revisit the share repurchase point that Ric raised. If I look at the year-to-date chart and analyze stock performance in Q1 and Q2, it did rally following the Apple event in September, but there were opportunities to buy stock at the same price in July and August as in the June quarter. In the March quarter, your stock was priced in the low to mid $50s. While you might not have purchased during that time, you did find an opportunity to acquire $50 million worth of stock in both the first and second quarters. Investors may seek clarification on why stock wasn’t bought in Q3, as saying you are being opportunistic while not capitalizing on the opportunities to purchase stock in the third quarter doesn’t seem justifiable.

Right. So, just your observation that we're at 3.6 times leverage now. The guide of being inside of 3.5 times assumes the full $300 million of buybacks so that we would buy back another $175 million worth of the stock. So, that answers the leverage question. And I'm not going to get into any more of our thinking around buybacks other than to say that we wanted an appropriate return to what we consider to be our intrinsic value and...

You offer that as an answer and the answer doesn't make sense if the stock was at the same price that you were willing to buy it at in Q1 and Q2.

I don't know if that's completely accurate. We've shown what I would call discipline in our approach to value. I believe our value is increasing, especially considering that in the first and second quarters we were still recovering from the post-pandemic downturn. Now, we are in a stronger position where we think our stock is even more valuable due to the confidence in our direction and the messages we've communicated in May, as well as our outlook for the latter half of the year. Therefore, I wouldn't say that the price we are willing to pay for the stock should be the same in every quarter.

I know but you supported the point though, Matt. If you're in a stronger position, if your intrinsic value is greater and if the stock's at the same price that you're willing to buy it at in Q1 and Q2 like because you had that price in July and August; I think investors just want to understand why more stock wasn't bought back in the third quarter. I don't disagree with anything you said. It actually supports the argument.

I'm not sure it does. I think it's actually the opposite. But our view of what a valuable price might be going if you will up in some ways over time where our stock traded before and where we think it could trade again but I don't really know it makes sense right now. Like I said I, I believe we have a process internally. We're careful, we're disciplined, we are being opportunistic as Tom said. I think you can almost evaluate what and where it was and as to what prices we are considering that to be. And if you analyze it correctly, you will find that there is probably more discipline associated with it than you're giving us credit for. But so I don't really know that it makes sense to argue and describe anything more than that because it would just be describing prices and other things like that which don't make sense.

We are also sending a message to investors that they may want to reconsider buying the stock if they are not willing to pay higher prices, such as $42 or whatever it is.

I don't think that's what we're doing.

The next question comes from Greg Burns of Sidoti. Please go ahead.

Good morning. Just to go back to the topic of increasing competition in space. I've seen recent SPAC talk about having ADS-B receivers on like a micro constellation they're putting up. So, I was just wondering what the potential for a competing space to Aireon is? Like how you view that market or potential for increased competition going forward and maybe what the differentiator for Aireon is to just maybe some of the other services that are being launched?

I've noticed similar discussions, and I must say we find it amusing when people mention building a space aviation or ATC-grade competing service that would take a long time to develop and would need a different network from the small satellite networks currently viable. We are very confident that these companies will not pose significant competition to Aireon for many years. A part of this confidence stems from our network, which features two interconnected inter-satellite links that can guarantee performance, unlike satellites that only operate for a few years before new ones need to be launched. Our system isn't limited to certain locations due to its global connectivity. Replacing such capabilities with a small satellite network is a challenge. It's possible that data from aircraft could be transmitted through a small satellite network for secondary uses, but that would still fall short of competing with Aireon's comprehensive data set that provides real-time, global aircraft locations. Additionally, Aireon, through its ownership structure where major customers hold stakes, is required to meet the highest standards of accuracy and certifications from regulators like EASA to ensure our service is reliable enough for air traffic control. Achieving these quality levels took years of effort and is something a small satellite network would struggle to replicate in the foreseeable future. Hence, there's a significant competitive advantage surrounding Aireon, and while there might be some competition around data services, they'll be up against a superior data offering.

Okay, great. Thanks. And then you had mentioned it sounds like in the maritime space on the broadband front, you're starting to see a bit of improvement there in terms of your access to ships. But the net adds didn't really increase too much over year and they were down a little bit sequentially. So if you think about that comment, what you're seeing market, do you expect the additions to start increasing now or do you just have a growth pipeline or backlog that you're referring to? Just talk about the outlook for the maritime broadband market?

Yes. I track my monthly Certus activations in maritime. Looking back from earlier this year and last year, I see consistent month-over-month improvements as more Certus terminals are activated on ships. The net number of subscribers shows that we are seeing some OpenPort terminals being activated, although not as many as we expected years ago. They seem to be retained on ships, and more new Certus terminals are being installed than OpenPort terminals that are being replaced. I believe this will likely accelerate with the introduction of Certus 200 and Certus 100, which are great replacements for OpenPort and may speed up that transition. However, the key point is that Certus terminals provide faster service and generate higher revenue, evident in the 26% year-over-year revenue growth. This is probably the most important metric. We continue to see strong growth in this area, complemented by new products that are cost-effective for both land and future aviation applications, as well as an increase in government subscribers. All of this will contribute to ongoing broadband growth in the future.

Okay. With the Certus 100 and Certus 200, will the revenue be recognized in broadband, or will it depend on the IoT application? How will we track the revenue from these new services?

Hey, Greg. It's Tom. Broadband is expected to be slightly above 128. That's the only update regarding broadband. The 100 will essentially follow what it displaces. We have L-band transceivers used in voice and data. Typically, if it replaces that, it will go into voice and data, and if it replaces IoT, it will go into IoT.

The next question comes from Hamed Khorstan with BWS Financial. Please go ahead.

Hi, good morning. Could you just talk about the earlier comments you made about the component issues that you went out and sourced different components. Does that change the quality of the product in any manner? How did you find a solution for an alternative component and how is that going to impact your partners in any way as far as feedback you've been getting from them as far as quality assurance is concerned?

We would never change anything that could compromise the quality of our products. We prioritize quality as part of our brand identity. Typically, any component we substitute is similar and possesses the same, or even superior, capabilities. We wouldn't undertake a component replacement unless necessary. Regarding the IoT situation, it stemmed from a specific shortage of components. Earlier this year, we were informed that parts we had been ordering, which usually arrived within three months, would now take 12 months due to allocation for other products, like car or PC chips. Despite our strong third-quarter equipment sales, we were still facing these allocations. This reflects the heightened demand from our partners, which exceeded our initial expectations for the year. Our equipment revenues are up year-over-year, even with ongoing allocations that are expected to persist through the next quarters for some IoT components. This situation does not relate to quality; we regularly upgrade components and work with various suppliers for similar parts. The critical issue is the shortage of silicon chips, largely due to supply chain challenges involving wafer production from Taiwan. We are closely monitoring this situation. Our partners are facing similar challenges but have not indicated any desire to seek alternatives. They understand the temporary nature of this component limitation, and we are working hard to fulfill their needs amid these constraints. It is frustrating, as we could perform exceptionally well if not for this global supply issue.

Got it. And then the other question was on the consumer side, you're doing fine as far as getting the components and making the devices. But are you certain they're getting to the shelf in time especially given the holiday season coming up?

Who said we're doing fine? I said we'd be doing a lot better. I don't consider this to be fine. I mean I would achieve even bigger numbers in the third and fourth quarter and beyond if we didn't have any constraints. So, I'm not satisfied with the situation there. It is affecting some of our partners who might be placing products with their customers. Absolutely. It is impacting a number of our IoT VAMs and VARs and their capacity to get products on the shelves, as it is for many other companies right now. They’re getting quite a few on there, but it’s not all the ones they want because they’re experiencing high demand as well. So yes, it’s affecting everything overall and it impacts the supply chain all the way to the end customer. We would have more subscribers if it weren't for this issue, even through the third quarter and definitely for the rest of the year.

The next question comes from Chris Quilty with Quilty Analytics. Please go ahead.

Thanks. Two modeling housekeeping questions for Tom. First, SG&A was up like $2 million sequentially, $5 million year-over-year. It looks like most of that was equity comp driven by the stock price which is unknowable. But fair to assume we should model at the same levels or up from here looking out in the next several quarters?

I would say at around this level is pretty safe, Chris.

And no Q4 bonus and whatnot that we should see it up in Q4?

Let's see how the quarter plays out. But like I said, about where the third quarter level I think that feels right to us at the moment.

Okay. And on gross margins, better than expected in this quarter especially given the component shortages. I think you mentioned that you expect to see an increasing impact due to that on a go-forward. So, should we be modeling in that same 40% to 42% gross margin range or will that be more?

The third quarter was really strong because it was handset heavy, so handsets are our highest margin. So, I'd model it down a bit into the fourth quarter because of the component shortage but also mix.

Got you. And a question on the consumer devices. Obviously it's been very Garmin heavy in past years, you've mentioned lots of new partners. Are you seeing any of those partners that are standing out in terms of gaining traction and can you give us any color that you've gotten from your partners around use and applications whether it's mostly for the same thing, just people doing outdoors or are you seeing other upticks in the applications for those personal communications devices?

Well, I mean Garmin continues to still be the leader in that space but they're not just a couple of products. They're expanding their portfolio of connected devices, and that certainly is helping to drive in addition to driving growth in terms of where they distribute. I think the other standout lately has been ZOLEO. Really I think it's been pleasing to see how that product has taken off and I think has exceeded expectations, certainly of ours if not theirs, and I think that's a very interesting product. But as we said, there is a number of others from Somewear and Bevy and the ACR Group. There are three or four others I know that have kind of unique channels that they go after, whether it might be a DoD application or it might be a maritime application, might be something very specific. And I think overall it just demonstrated that people want to stay connected and that there's a high demand for this. So, I think that's what sort of been the interesting thing as people have realized how important personal communications are and we've certainly seen that and are looking to play off of that.

Great. And final question on the push-to-talk and I guess maybe specifically Icom. Are they yet at full global distribution for that product and where are you seeing the demand? Is it primarily in government sort of first responder applications or are you seeing it broaden out into more general commercial enterprise applications yet and PTT?

PTT has really expanded and gained traction over the past two years. The addition of the Icom handset has made a significant impact, as it's been well-received by users. A recent example is the Rebelle Rally, an all-women car rally where participants utilized PTT to coordinate the race over long distances. The ease of use of these push-to-talk devices has been praised, with many noting how the race management has improved through this technology. We're also seeing a shift among first responders moving from satellite phones to push-to-talk solutions. There's a growing interest from firefighters and various military organizations seeking alternative devices. The trend appears to be moving away from consumer use and leaning more towards enterprise or civil applications. Overall, we are very satisfied with PTT's performance in recent years.

Great, thank you.

The next question comes from Anthony Klarman with Deutsche Bank. Please go ahead.

Thank you. Most of what I had has been asked and answered. But maybe if I could I'd like to try to get a little additional color on the commentary around the government contract. In many ways it's your simplest and easiest agreement you have. It's a fixed-price contract with some modest annual escalators, each side has tremendous transparency as to what the spend is. And I'm wondering what the complexities or teething pains are as the agreement is handed off from DISA to the US Space Force and what the challenges are there and do you think that will have any implications on how the contract gets renegotiated in the future? Thank you.

Thank you, Anthony. This situation is not related to the management of our contract with the US government, which is actually quite straightforward. The issue lies in how the government manages it for their many end users. They established a pricing schedule to recover costs for both internal and external users. Unfortunately, due to their accounting practices after transitioning to the US Space Force, prices for their products increased significantly, making it difficult for many users to afford them. As a result, some users opted to switch to the commercial gateway, which unexpectedly became cheaper, even though it's a fixed-cost contract. This was mainly an internal issue related to accounting practices between government agencies. They are aware of the problem and are working on a solution, but as with many things involving the US government, it will take time to communicate changes to their end customers. I anticipate that over the next year, we will start seeing significant growth in subscribers again. I don't believe this will impact our long-term renegotiation, as the strategic relationship and overall direction remain positive. However, both parties have experienced frustration due to this internal accounting matter between the agencies.

Thanks. As a quick follow-up, I believe there is an untapped opportunity in the government contract to sell Certus offerings, since it wasn't included in the previous agreement. Will this also be delayed or pending resolution? If the pricing for end users has increased due to some internal accounting, it may be more challenging to sell additional Certus revenues into that contract. Is that correct?

No, it has nothing to do with Certus. It was really about how to allocate a fixed price contract among the users, various services, and external customer bases. It was solely about an IoT device that used to cost a certain amount per year and now costs a different amount. Certus is completely independent of that and is priced separately. Customers are purchasing it independently from our VARs, and it aligns with a competitive price range. Therefore, it won't affect Certus purchases.

And the last questions today will come from Louie DiPalma with William Blair. Please go ahead.

Matt, Tom and Ken; good morning.

Hey, Louie.

Matt, you mentioned that you are receiving interest from drone providers for your new Certus 100. Are you pursuing partnerships with any of the very large consumer drone platforms?

Yes. There are some very large platforms that are very interested in maybe if not primary control but a lot of those really big platforms have multiple technologies on them and there is a lot of interest because we are a very cost-effective and truly global service in those kind of environments. But we do scale down to very smaller drones as well quite well which I think is what the attraction is.

Great. And one final question. You previously I think mentioned how certain government users are using a commercial gateway. What is the status of Iridium finishing building out the US government dedicated gateway for Certus connectivity?

Yes. So it's been dependent upon government budgets which start and stop. It looks like they're starting again, and so I expect that that will be completed next year, I mean I guess will be finally completed. I thought it would be this year. It hasn't stopped the government from buying services because they just buy it through the commercial gateway, but they would prefer to buy it through the government gateway. So, I know it will eventually be an additive to that. But we kind of wait for them to free up the money they need to sort of buy and contract for the work that needs to be done, but I believe that that's sort of on track to be done now. I think next year. Not necessarily at the end of next year, sometime in next year.

Sounds good. Thanks, everyone.

Thanks, Louie.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Well, I'd say it was a good quarter. And I know we'll see you all I guess next in probably February as we wrap up the year and give you guidance for 2022. So, we look forward to seeing you all then and take care. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.