Good morning, and welcome to the Iridium Communications First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity for questions. Please note today's event is being recorded. I'd now like to turn the conference over to Kenneth Levy, Vice President of Investor Relations. Please go ahead, sir.

Thanks, Rocco. Good morning, and welcome to Iridium's first quarter 2024 earnings call. Joining me on the call this morning are our CEO, Matt Desch; and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of our first 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 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 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 and a reconciliation to the most directly comparable GAAP measures. With that, let me turn things over to Matt.

Thanks, Ken, and good morning, everyone. So the first quarter often sets the tone for the rest of the year and activity to date has been upbeat and quite strong. Service revenue continues to expand on our growing subscriber base and our partner ecosystem remains quite dynamic, whether it be in IoT, maritime, aviation, or defense. We remain busy as well since the beginning of the year with a lot of new product development and the completion of our first-ever company acquisition on April 1. We had met with a number of you during the many investor conferences in March and have been active in the debt market with our tack-on financing to upsize our term loan to complete the Satelles acquisition. We're really excited about this transaction and the business opportunities that bringing Satelles in-house provides Iridium and our partners. With this acquisition, we'll go from just a wholesaler of Satelles to secure signals to an end-to-end solution provider of PNT services for customers globally. For those who are not yet familiar with this new business area, this acquisition makes us the leader in satellite-based time synchronization and location services that complement and protect GPS and other GNSS systems. As the world increasingly has come to realize, the prevalence of GPS jamming and location spoofing during conflicts and for general mischief is on the rise and is impacting critical infrastructure, military operations, aircraft and shipping navigation, and other important functions for governments and enterprises around the world. Iridium's expanding PNT solutions can cost-effectively reduce these vulnerabilities and provide an alternative to GPS reliance, particularly for critical infrastructure that we all depend upon. Going forward, this new business offering will be referred to as Iridium Satellite Time and Location, or STL, for short, and be reported within our hosted payload and other revenue line. The entire 70-person Satelles team is being integrated into Iridium as the PNT business unit, and Mike O'Connor, who is the CEO of Satelles, will report to me as the leader of that business. We anticipate that STL will generate over $100 million in service revenue per year by 2030, with additional revenue on top of that from equipment and engineering services. These PNT solutions ride on Iridium's LEO constellation and utilize small, very low-cost hardware. With a secure signal that is 1,000 times stronger than GPS, Iridium STL can even be used indoors to add redundancy and protection to data centers, building wireless networks, and other critical infrastructure. Best of all, STL is sold as a wide-area broadcast service that can support an unlimited number of users while using minimal capacity on our network. These applications are already proving their worth in the market today, and we think we enjoy at least a five to ten-year head start on other viable solutions that are global and have the resiliency of a space-based approach like ours. With Iridium's broad and growing ecosystem of partners, we expect that STL will be able to address many additional customer challenges in maritime, aviation, the UAV market, and more. I hope you can sense my excitement for this transaction. It's strategically in line with Iridium's priorities and vision, doing things that are unique, special, and important from our LEO L-band network and better than anyone else can do. We're ready now to step on the gas and expand the availability of Iridium STL to new markets and customers. You will recall from our September Investor Day that I laid out a number of vectors that would support Iridium generating $1 billion in service revenue by 2030 and supporting our capacity to return $3 billion of capital to shareholders over this same eight-year period. Let me be clear: there have been no competitive developments since last year's Investor Day that changed our view on our long-term financial outlook. STL is one of the financial drivers that supports this plan and is a great tuck-in acquisition that will create synergies across our other market vectors. For those who had the opportunity to tune into our conference presentations during the first quarter, you've heard us reiterate many of these long-term growth drivers. It should come as no surprise that the largest opportunities we see for revenue growth through the end of the decade come from services we already know very well and are already working on. To achieve our long-term growth objectives, we don't have to change our strategy or wholesale business model. Instead, it will be more of the same. We will stay in our lane, grow our network of business partners, execute on product launches and innovation, and deliver on our unique strengths. This is our objective and we have a pretty good track record of delivering. Beyond Satelles and other potential tuck-in acquisitions, we highlighted four other drivers during our September Investor Day that are key to Iridium's revenue growth in the coming years. First, IoT. We are the leader in personal satellite communications as well as industrial IoT, and we continue to believe that double-digit revenue and subscriber growth we have produced in these commercial applications will continue for the foreseeable future. You can see that really demonstrated again in our first quarter results. Second, midband. Leveraging our leadership in IoT, we will continue to move forward with partners to roll out new applications and devices that take full advantage of our very unique Iridium Certus platform that is optimized for size, speed, mobility, and takes full advantage of our L-band spectrum position. Highly mobile, power-efficient devices using Iridium's midband services, which support speeds up to about 100 kilobits per second in a small form factor, will drive IoT ARPUs and open Iridium services up to new industries. Some of these devices have already entered the marketplace, and we envision Iridium's midband services will offer added functionality and connected solutions to industries like security and surveillance, autonomous vehicle, and other remote applications that demand higher bandwidth, but still need mobility or operate on batteries and are often small and need to be lightweight. Third, Direct-to-Device. You previously heard me speak of our investment in Project Stardust. This is a multi-year investment that will make Iridium technology available to chipset manufacturers adopting new satellite-oriented 3GPP standards for IoT devices and consumer devices like smartphones. This is a very large market and our work will expand our IoT opportunities into a broader set of cost-sensitive industries. Lastly, Telephony. We strongly believe that satellite-based personal communication devices have a bright future even as we and others develop direct-to-device capabilities. I want to underscore that Telephony is an important revenue source for us with more than 400,000 users of purpose-built voice devices of all types on our network, and we expect that number to continue to grow into the future. These devices are mainstays for first responders, governments, and lone workers, and they become so completely integrated in their operations because of their reliability, global reach, and the challenging environments in which they are used. They allow organizations to plan and execute without interruption and ensure that communications facilitate the accomplishment of goals rather than hindering it. The advent of high-quality push-to-talk services over the last five years is proof-point of these purpose-built devices and remains a driver of expanding the subscriber base and revenue Iridium continues to see in this area. Historically, Iridium has served the needs of niche and specialized communities of users. And while we are proud to have grown this niche to more than 2.3 million subscribers globally, I assure you we are far from finished. My team constantly questions the status quo and given our history, has a healthy humility and even an appropriate level of paranoia about the continued leadership position we have attained in the satellite industry. Some investors seem to be skeptical about our future right now, but we think they underestimate the utility of our global services, misunderstand the needs of the particular customers we serve, and are discounting the capabilities of our network relative to others in the satellite sector. We are highly confident in our long-term revenue drivers and capital generation through 2030, and we have a lot of visibility into the fundamentals of our business. The vast majority of our revenue is recurring, what we refer to as service revenue. While we do not require our service to be sold with long-term contracts, our customers often opt to purchase Iridium solutions for years at a time. In fact, they've often tried other L-band offerings prior to settling on Iridium's network, and they choose our service because it provides a level of reliability, coverage, and customer support that they cannot get elsewhere. I'm proud of this fact and encourage investors to validate this with their own due diligence. We continue to show our commitment to return capital to shareholders. In the first quarter, we were active with our repurchase program and continued with our quarterly dividend. As we noted in February, our Board will increase Iridium's dividend starting with our June payment. This will result in a dividend increase that is equivalent to about 6% in 2024. These programs underscore our confidence in Iridium's continued business growth and the strength of our enterprise to generate free cash flow. I would be remiss not to touch on Iridium's stock price and the market's current assessment of our equity valuation. While Iridium is a satellite service provider, we don't operate or look like anyone else in the satellite industry. I would go so far as to say that this group is not who we should be compared to for valuation purposes. Other satellite operators have continued to see competition grow and have seen their fundamentals deteriorate. With perhaps one or two exceptions, they don't generate free cash flow like we do, don't have growing service revenue and subscribers like we do, and surely none can claim to have the unique network and business profile that we do. We continue to believe that Iridium is more comparable to other companies generating both growth and free cash flow. We encourage investors to look at Iridium's levered free cash flow to evaluate the strength of our business and assess the relative value of our common shares. When considering measures like free cash flow yield and conversion, we believe that Iridium continues to stack up quite well against the tower sector and data centers, some of which trade at twice our enterprise value to operational EBITDA multiple. We believe our competitive dynamics are also similar to these infrastructure companies and that we occupy a unique business space and have strong visibility to future growth. As such, we believe that the underlying strength and growth of our business should be rewarded with a higher valuation. Perhaps some of the decrease in our valuation comes from the market's overall concerns for the space industry in general and disruption impacting VSAT players. I would remind you that Iridium faces a very different competitive environment and set of business opportunities than the commodity broadband players in the VSAT industry. In fact, we have been deliberate in avoiding commodity services like VSAT broadband and are focusing on being the L-band safety complement to VSAT and other K-band broadband services. Our L-band ensures that mariners can operate globally and reliably in the face of weather, where service is unavailable, or in ports where VSAT services are restricted. And later this year, our companion Iridium Certus broadband terminal will be able to provide the mandated GMDSS function as well. We continue to believe our shares offer compelling value today based on our fundamentals. We are converting on business opportunities, adding subscribers, growing revenue, and adding new avenues of growth. We remain an active buyer of our shares and continue to believe our equity is an attractive investment for investors looking to outperform the broader industry. As we have previously said, we don't expect to spend any capital expenditures on a next-generation satellite constellation through 2030. We expect that when we do commence spending post-2030, it will ramp slowly as we shouldn't need to launch satellites until the latter half of the 2030s. As we contrast the amount and profile of spending with our anticipated operational EBITDA during the construction period, we expect to generate meaningful levered free cash flow throughout a next-generation constellation build. This will support continued share repurchases and a growing dividend throughout the future construction period. So Iridium has a healthy balance sheet, strong business fundamentals, and is positioned well for growth. We see no new competitive developments impacting our outlook or long-term guidance. As we have said during last year's Investor Day, Iridium expects to have the capacity to return approximately $3 billion to shareholders through 2030. This represents just about 100% of the company's equity market value as of this morning. You must admit that's an extraordinary fact at this time. Everything we see supports our outlook for continued growth and achieving our long-term vision. While the market may not appreciate this at the moment, we expect that to eventually correct as we continue to execute, expand on our unique opportunities of our network, and return capital to our shareholders along the way. With that, I'll turn it over to Tom for a review of our financials.

Thanks, Matt, and good morning, everyone. I'd like to start my remarks by summarizing our key financial metrics for the first quarter and providing some color on the trends we're seeing in our major business lines. Then, I'll recap the 2024 guidance, which we affirmed this morning, and close with a review of our liquidity position and capital structure. Iridium continued to execute well, delivering another quarter of subscriber growth and strong service revenue expansion. Operational EBITDA was $115 million in the first quarter. This was a 3% increase from last year's quarter, driven by growth in recurring revenue. On the commercial side of our business, service revenue was up 8% this quarter to $122.1 million. This increase was broad-based and reflected continued strength in voice and data and IoT as Matt mentioned. Voice and data revenue rose 5% from last year's comparable quarter to $55 million. The increase was largely driven by subscriber growth as we continue to benefit from strong demand for our push-to-talk services. The one-to-many services push-to-talk has widespread applications in organizations that coordinate and respond to dangerous and changing circumstances like first responders, safety organizations, and government entities. Commercial IoT revenue totaled $39.4 million in the first quarter, up 23% from the prior year quarter. It was favorably impacted by a new two-year contract with a large, fast-growing partner. This new contract has the effect of materially increasing revenue from this customer in 2024 compared to 2023. It also results in revenue being recognized approximately equally in each of the four quarters of 2024. In prior years, revenue was recognized as subscriber counts ramped throughout the year and as seasonal usage picked up in the second and third quarters. That will not be the case under the new contract as we have agreed to a more deterministic approach to pricing with this large customer, which creates more certainty for both of us. As a result of this contract change, this quarter's revenue growth will compare most favorably to our lowest prior year revenue quarter, and future quarters will show somewhat lower year-over-year growth in this quarter. Given the certainty of these contractual revenues and with positive developments across a broad range of other IoT customer segments, including personal communications, heavy equipment OEMs, fleet management, and aviation, we expect full-year IoT revenue to exceed the 13% growth rate experienced in 2022 and 2023. Accordingly, we are guiding IoT revenue growth in the mid-teens in 2024. IoT is a central plank in Iridium's billion-dollar service revenue target for 2030. Developments in 2024 in IoT bolster our confidence in achieving this long-term target. Revenue in commercial broadband grew 2% from the year-ago period, totaling $13.7 million. As we have previously noted, we are seeing the effect of commodity broadband pricing in a limited portion of our broadband business. We expect this impact to be short-lived and anticipate growth in broadband in 2025 to improve from 2024, as we are routinely used as a backup to VSAT and all K-band players. This impact was anticipated in our $1 billion service revenue target for 2030. I would point out that while broadband was not one of our five central planks identified for growth in our September 2023 Investor Day, we do expect respectable growth in this area over the period. During the quarter, we added 54,000 net new commercial subscribers. Commercial IoT data subscribers now represent 81% of billable commercial subscribers, up from 79% in the year-ago period. We estimate that consumer-oriented plans now account for more than 930,000 of our 1.8 million commercial IoT users. Hosting and other data services revenue was $14 million this quarter, down 7% from last year's comparable quarter. As we outlined during our last call, we increased the estimated useful life of our satellites by an additional five years based upon the health of these assets. This extension of the satellites' useful life prolongs the time over which we recognize revenue from our fixed-price hosting contracts. It's important for me to reiterate that this accounting update does not affect our cash flow. Government service revenue was stable in the first quarter at $26.5 million, reflecting the terms of our EMSS contract with the U.S. government. Subscriber equipment, which is coming off two years of record sales driven by partner supply chain stock-up related to the pandemic, is now returning to more normalized levels. We sold $24.9 million in hardware in the first quarter and continue to expect equipment sales this year will be more in line with historical levels. Engineering and support revenue was $30.4 million in the first quarter as compared to $24.2 million in the prior year period. The increase reflects growing activity related to our government work for the Space Development Agency, a contract that we won in 2022. We continue to forecast year-over-year growth in engineering revenue in 2024, and again expect growth in 2025, based upon an increase in the scope of work and new business opportunities with the SDA. Our first quarter results, as well as the trends we are seeing into April, allow us to affirm our full-year guidance on service revenue and EBITDA. In support of this outlook, I want to highlight a few items that may be relevant to your models. We remain comfortable with our outlook for service revenue growth between 4% and 6% in 2024. This equates to a 5% to 7% range without the accounting update related to our satellites. The Satelles acquisition, which we completed earlier this month, is accretive to our previous revenue guidance for service revenue growth of between 4% and 6%. However, we expect the effect to be less than 100 basis points in 2024. So we are reiterating our previous guidance this morning, but now see ourselves higher in the stated range after giving effect to the acquisition. Commercial voice and IoT data continue to enjoy strong momentum and drive much of Iridium service revenue growth in 2024. Revenue from our U.S. Government EMSS contract will remain steady at $26.5 million per quarter in the first half of 2024 and will rise with a contractual step-up in September. Full-year revenue in the government business will be $106.3 million in 2024. Equipment sales will moderate this year with revenue expected to revert to pre-pandemic levels as the channel absorbs safety stock it accumulated during the pandemic. On the expense side of the ledger, SG&A is expected to remain stable in 2024, while R&D spending will nudge up about $5 million to support our Stardust initiative on NB-IoT and direct-to-device. Depreciation and amortization will decrease by about $83 million in 2024. This is entirely related to the change of satellite useful life, which I touched upon earlier. Iridium expects cash taxes of less than $10 million in 2024. This minimal level incorporates additional R&D credits we expect to realize through '26. Taken together, these trends allow us to reiterate our forecast for service revenue growth between 4% and 6%, and operational EBITDA between $460 million and $470 million this year. We feel very good about the momentum we're seeing across our businesses. Moving to our capital position, as of March 31, Iridium had a cash and cash equivalents balance of $174 million. Iridium received cash of approximately $125 million as a result of an increase in the term loan, which was used to fund the Satelles acquisition in early April. You'll see the full impact on our cash balance of this transaction when we report on our second quarter results. Term Loan B tack-on funding was completed at an OID of 99 and 7As and with the same terms as Iridium's existing facility. We're very happy with these terms and appreciate the confidence the debt community continues to show in Iridium. As of March 31, Iridium's term loan balance increased to $1.62 billion to reflect this new funding. When we report out our second quarter results, you'll see the full impact of this transaction on our balance sheet, which will have the effect of increasing Iridium's net leverage to approximately 3.4 times of EBITDA. As we've said previously, we think Iridium naturally delevers over time and expect net leverage to fall below 2.5 times OEBITDA as we exit 2026 and be below 2 times of EBITDA by the end of the decade. This outlook gives effect to our planned dividend program and all share buybacks authorized by our Board. In the first quarter of 2024, Iridium retired approximately 1.8 million shares of common stock at an average price of $30.41. This left us with an outstanding balance of $277.4 million under our Board approved authorization through December 31, 2025. During the first quarter, we also made a quarterly dividend payment of $0.13 per share paid on March 28. Beginning in the second quarter of 2024, Iridium's Board will increase Iridium's quarterly dividend to $0.14 per share, representing an increase of approximately 6% over the full year 2023. This reflects our confidence in the company's business opportunities and prospects for continued strong free cash flow generation. Capital expenditures in the first quarter were $14.6 million. As we noted on our fourth quarter call in February, we expect capital expenditures to average $60 million annually through 2030. CapEx will be over $60 million in the next couple of years as we invest in new product development initiatives like Project Stardust and then trend below $60 million in the latter part of the decade. Turning to our pro forma free cash flow. If we use the midpoint of our 2024 EBITDA guidance and back off $84 million in net interest pro forma for our current debt structure, approximately $69 million in CapEx for this year, $5 million in cash taxes, and $6 million in working capital inclusive of the appropriate hosted payload adjustment, we're projecting pro forma free cash flow of approximately $301 million for 2024. These metrics would represent a conversion rate of EBITDA to free cash flow of 65% in 2024, and a yield of approximately 10%. A more detailed description of these cash flow metrics, along with a reconciliation to GAAP measures, is available in a supplemental presentation under events on our Investor Relations website. In general, we're happy with the performance of our business and believe that Iridium continues to make solid progress on the long-term growth initiative it laid out at the 2023 Investor Day. I also want to echo Matt's comments on our equity valuation. Iridium stands in stark contrast to the other satellite companies and occupies a truly differentiated position. We will generate approximately $300 million in free cash flow in 2024, and it will grow from here. We should not be compared to other satellite companies, who face direct competitive challenges and many of whom don't even generate positive free cash flow. With that, I'll turn things back to the operator and look forward to your questions.

Thank you. We will now begin the question-and-answer session. Today's first question comes from Ric Prentiss with Raymond James. Please go ahead.

Thanks. Good morning, everyone.

Good morning, Ric.

Good morning, Ric.

I appreciate the overview of the competitive landscape and the details you provided. I would like to discuss the Satelles aspect. It seems that service revenue could reach the higher end, with Satelles contributing to that, but the impact is less than 100 basis points. How should we approach the cost side? Matt, you mentioned bringing in 70 people. Can you clarify how much this will affect the costs associated with Satelles and what specific line items we should consider?

Yeah. I think mostly in SG&A, wouldn't it? Yeah. In SG&A and probably disproportionately, exactly as you would see it add to our overall total.

Okay. And IoT, appreciate the color on that large contract, two-year contract, I think I heard you say flattish effect, kind of, I guess ARPUs versus the seasonality. What should we think of in '25 on that two-year contract and what's the risk that it falls off after that, then?

What is the risk that it falls off, Ric?

You said it was a two-year contract. So is that like a benefit and then those subs and revenues drop off or maybe give us a little more color on?

We think that's a growing customer. They just happen to sign a two-year contract, but that's a grower for a long time in our view.

Okay. And you said the revenue recognition is different this time around with this particular customer and that there'll be future quarters would be lower year-over-year percent increases versus what we saw in 1Q. Just trying to think of how should we be thinking about what that means throughout '24 and what it means for '25 on the initial two-year contract then?

Right. So I think we're sitting on a 23% growth in the first quarter. What we're saying is future quarters, the next three quarters is not going to be that. It's going to be down, but you should model mid-teens growth on the full year for IoT.

Got you. Okay. And the final one for me. Obviously, you both touched on which we agree with, the stock price looks very compelling. The stock buyback in the quarter was $57 million or so. What would allow you to ramp that higher? Obviously, you're keeping leverage in balance. You have the Satelles acquisition. But why not go heavier at the stock buyback program since you see such compelling value there?

Yeah. I would say, we agree with you. It could go higher.

Was there anything that kept it muted in the first quarter or anything external we should think about that might have governed it?

There are constraints regarding timing and similar factors. As you noticed, we increased leverage for Satelles. Some investors speculated that we might reduce share buybacks, but that was never an option for us. We increased leverage for Satelles, and we believe the current share price represents a very attractive buying opportunity, so stay tuned.

Message understood. All right. Thanks, guys.

Thank you. And our next question today comes from Simon Flannery with Morgan Stanley. Please go ahead.

Great. Thank you very much. Good morning. Matt, you talked about the Satelles being your first deal here. I know you've been very disciplined over the years and you've laid out the benefits that gives you. So perhaps just a little bit more context about what got you over the hump here in terms of deciding with the Board that this was the right thing to do and should we think that this might be the start of a more active deal environment for you? And I know it's only been a couple of weeks here, but I presume bringing Satelles into the broader organization opens up a lot of other conversations. So it'd be just great to hear what the early impact has been with your customers, etc., and your ability to leverage this and take it to another level?

We've always been open to potential acquisitions, but there haven't been many that align with our model. We didn't want to alter our business approach. We were familiar with Satelles, having been part owners, and I feel a personal connection to its creation nearly 15 years ago when we facilitated its technology spin-out from Boeing. They've performed well, and while I am not pleased to see the rise of issues like GPS jamming and spoofing, I recognize that awareness of these problems is growing worldwide. Satelles has gained recognition and is at a critical juncture in their business, which was acknowledged by their Board as they considered a sale. They were exploring potential partnerships for further growth. I thought we should actually be the right fit to acquire them, as it aligns with our strategy without changing our business model or creating competition with our partners. This acquisition could yield significant synergies for us. Satelles had limitations in signal deployment and application development due to financial considerations, whereas we can expand more broadly into areas like maritime and aviation. They viewed those opportunities as long-term, but we see them as immediate prospects because we can broadcast signals globally. We've already had discussions about synergies and uncovered possibilities we hadn't previously considered. Their customer base expressed excitement about our acquisition, which boosted their confidence in Satelles as a supplier. Overall, this has been a beneficial move, and we're enthusiastic about the potential this brings.

It's great to hear. I have a follow-up question. Thank you for the insights on the upcoming constellation and the fact that spending is being postponed until later in the 2030s. This suggests that the 2.0 leverage might be quite conservative if there won't be a significant increase in capital expenditures in the earlier part of that decade. Has there been a change in this situation, or why is it necessary to prepare for that if the capacity won't be needed for another three to five years?

I believe that providing guidance for eight years into the future is primarily based on modeling at this stage. I agree that if we were still trading at this valuation later in the decade, it would be an unreasonable multiple to maintain, considering there are alternative opportunities we could pursue. I think this is the right approach for projecting our future, and we will reassess it as time goes on. However, the key point is to continue demonstrating to investors that the growth rate we've seen over the years will persist. We have provided numerous reasons to support our belief in the validity of our projections, and we trust that the rest will fall into place.

Great. Thanks. Makes sense.

Thanks, Simon.

Thank you. And our next question comes from Walter Piecyk with LightShed. Please go ahead.

Thanks. Tom, I think in the prepared remarks, you said the free cash flow guidance is $301 million last quarter and the supplemental is $309 million. I assume the difference, or it looks like the difference, obviously, is the $8 million for added interest expense for Satelles.

That's right.

That amount seems a bit steep, especially considering it's $8 million. This suggests that Satelles operates at a near breakeven EBITDA level. How should we view that consensus?

We indicated that it is breakeven.

Got it. By year three or four, what is the expectation for EBITDA contribution specifically for Satelles? How do you anticipate that will increase in the coming years to reach your long-term targets?

Our guide on Satelles is, it was $5 million in service revenues in 2023. We see it as $100 million in 2030 and EBITDA margins in that business are going to be as good or better than ours.

All right. And then on Stardust spending $5 million on it this year, is that early stage spending? Does that go up in subsequent years and what are the decision factors? Well, I guess, two-part question on this. Are there other applications other than direct-to-device that the Stardust investment enables? And if not, what are the decision factors in the upcoming quarters or years? If you see major manufacturers kind of go a different direction in terms of the connectivity that they want to implement in their devices, cell phone manufacturers.

The Stardust project will require some additional capital for standardized boxes and gateways, which we will need to purchase. However, most of the investment is directed towards the development of our network itself. We won't be developing the end user devices as that work is being handled by the standards community and chip manufacturers, and we are currently in discussions about this. The investment involves reconfiguring our software-defined network over time, so we don't anticipate a significant increase in investment compared to this year. It's a multi-year commitment involving capital and R&D, enabling us to move beyond just direct-to-device capabilities. The broader opportunity lies in narrowband IoT, expanding our possibilities within the IoT sector. This area excites our partners, who are eager to provide low-cost standardized devices that can flexibly roam onto terrestrial networks or transition from those networks to space. This represents a significant opportunity. We are also discussing incorporating this technology into chipsets for phones and other consumer devices, which could create complementary opportunities alongside existing technologies. This would give us a global L-band capability, operational in every country, in contrast to most direct-to-device technologies that are currently limited by regional spectrum and regulatory challenges. A global solution capable of messaging and emergency services could greatly enhance the existing service. Overall, the opportunity set around Stardust is quite broad, justifying our investment in it.

I apologize if this has been covered before, but regarding the IoT contract, is there a timeline associated with it? Thomas, from your comments, it sounded like it might be a one-year deal. Does it have an auto-renew feature, or is it for a longer duration? Can you provide more details on the terms? Additionally, while it may not be reflected in unit sales, it is contributing to our revenue. Could you elaborate on the customer and the possible duration of the contract?

I'll take it. Tom, you can too. This is a long-term customer who has been a significant user of our services and plans to continue doing so into the future. They wanted more consistency in their expectations. So, we established a two-year deal with them, which we've communicated clearly. We don't expect this arrangement to change because they will keep using our services well into the future. We believed this would be an effective starting point. Thus, we agreed on a two-year deal that benefits both parties, and we have shared how this impacts our business this year and its potential for the future.

When you say consistency, are you talking about dedicated? What does that mean? Is that dedicated bandwidth or what exactly are they getting?

We gained a clearer understanding of the types of revenues and costs associated with their service revenue over time. With our experience working together, we know how they utilize our network. Instead of analyzing it on a device-by-device or service-by-service basis, we were able to approach it more broadly over time. This provided us both with greater consistency and clearer expectations for the future.

It sounds like a tower master lease agreement as opposed to what, basically charging them on a per unit basis, an overall usage-based contract.

Yeah. I don't disagree. That's not a bad reference somehow.

Okay. Thank you.

Yeah. Thanks, Walt.

Thank you. And our next question today comes from Chris Quilty with Quilty Space. Please go ahead.

All right. The horse is not quite dead. One final hit on it. Is it fair to assume, like, I had been modeling kind of mid-single digit decline in commercial IoT subs or IoT ARPUs for this year? Q1 turned out to be your first increase since I went back and looked at the first quarter of 2012. Like, we're not expecting the ARPUs for IoT to be up this year. They're still down. You don't have to confirm mid-single digit, but the long-term trend still holds because the personal communications are still sort of dragging down overall ARPU?

You have that right. You have that right.

Okay.

Think about it this way. For the full year, they are not going to follow the trend; they will perform better than that. I would describe it as flattish for the entire year. They showed an increase in the first quarter, but it appears to be flattish overall. This is unusual and a result of this contract. The longer-term effects have two sides. Personal communications are significantly outweighing subscriber growth, which leads to lower ARPU. This will contribute to a downward trend in ARPUs. However, new functionality with higher data speeds is expected to result in higher ARPU within personal communications, which will help moderate what is likely to continue being a declining trend in ARPUs.

Got you.

But I would say longer-term, Chris, I mean, there's another effect as we get into the narrowband IoT space, which could be lower ARPUs as we expand into new applications. But then there would be much bigger volumes and stuff as well to kind of counteract that. So it's hard to exactly say where this is going to go, but certainly, it's positive.

I was going to mention that even before the NB-IoT, there has been a trend of declining ARPUs for over 10 years, which has been beneficial due to the growth of personal communications. At what point does the growth of midband, which is expected to have a higher ARPU, enable you to enter positive territory? Is that a few years away or more like five years?

Yeah, I don't know. I mean, probably a year or two at least before it really makes a major impact because the new 9604, which comes out late this year, starts getting into devices that would hit the IoT line. And then some of this midband is hitting more of the voice and data line, which is a positive there. So it takes time for these new technologies to get into products and start ramping, that's usually a couple year kind of cycle. And fortunately, the midband stuff started a year or two ago. And so we're going to start, I think, seeing more growth as we get into this year and next year. But again, I mean, since we don't have really costs associated with it, I think the ARPU argument as we made the point is not like the argument made in the terrestrial wireless world, where CapEx sort of followed every subscriber, so ARPU declines had concerns. We more of focus on how much resources are being utilized by the customer. And these low ARPU personal communication subscribers are using almost no usage on our network, so that's a fantastic use of our service.

So I would just amplify, Chris, that Matt's point about the relative significance of ARPU. I think what investors should take note of is take a look at this IoT business. It grew the last two years by 13%. We're saying here it's a much bigger business than it was two years ago, and you see accelerating growth. We're guiding mid-teens. I think that's the real takeaway on IoT.

Last quarter, you likely became the last company in the maritime service market to experience the impact of Starlink. You mentioned that this was mainly limited to vessels using a specific type of Certus terminal, which represents a small number of vessels. Is this unfolding as you expected? Additionally, as Starlink begins to reach numerous vessels that currently lack connectivity, do you have a clear strategy to position yourselves as a backup option? You have already established a role as a backup to traditional Geo VSAT. While Starlink can technically be classified as a VSAT, it is fundamentally different. Do you believe that these new users, who traditionally haven't had connectivity, will be reluctant to adopt a backup system, regardless of any performance issues with Starlink?

Yeah. Great questions. To the first part, it's absolutely played out exactly the way we thought it would play out over the same time frame. And as is kind of, I think, will play out over the next couple of quarters, and we'll get back to growth in '25, as we expected there. To the latter part, we've now talked to every one of our partners, all the people who are deploying both Starlink and VSAT solutions, and they all are absolutely, both committed and convinced it's the right strategy that Iridium be the backup, be a companion to Starlink because Starlink still is, despite all, it's a great product, which I think, by the way, is expanding the market a bit too, but to the extent it's on existing fleets. Fleet owners understand the limitations of where it can't operate. It's restricted to operate. It still has the same limitations around rain, fade, and that sort of things, as VSAT solutions do, and it can't be used in many ports. And a solution, particularly one as cost-effective as ours, that works 100% on the planet. And before long, we'll actually have a GMDSS and LRIT and SSAS function all embedded in the same companion terminal is the best way to provide a high-quality service to a fleet. And so that is, we're convinced that's the long-term approach of that market and will do very well as a result of that.

Got you. Government question. You were one of, I forget, how many now sort of mid-teens number of companies that were awarded contracts under the P-LEO, which was like a $900 million IDIQ. I think you're one of like only three companies that actually operates at P-LEO and the only one that does it in comms. Have you seen any activity on that contract vehicle, because I haven't seen any specific announcements?

There has been a lot of activity surrounding it. Many of the other companies want to collaborate with us to gain an advantage, particularly those that supply P-LEO services. However, I haven't noticed any significant awards that are impacting our bottom line at this moment. There is still plenty of discussion and ongoing activity, and I expect to see more developments in the future. As you mentioned, we are in a strong position for business, but I believe it's still quite early for that.

Got you. And final DoD question in the last several weeks here now, the DoD and Space Force have come out with their commercial space strategies. And of the 13 mission areas they identified, GPS was one of the few that was identified as military only. And yet, earlier this week, this Space Force came out and announced that they want to use a quick start program on resilient GPS. So sort this out for me, or maybe the Pentagon needs to sort out its strategy here. How does that impact Satelles? I think you're primarily government today. Do you think there are incremental growth opportunities or large programs on the government side, or is most of your focus commercial?

We believe we are well positioned in this area. The government is implementing various technologies and has additional science projects planned for the future. We expect to remain involved in this and engage across multiple sectors, particularly as we explore critical infrastructure and other opportunities. In terms of long-term growth potential, we see the larger opportunities, particularly in the commercial sector globally, as significant. This is the area where we are concentrating our efforts for potential growth. We believe that both civilian and governmental entities, along with critical infrastructure worldwide, require this technology. It is the easiest to implement since it does not depend on ground infrastructure and avoids the same challenges that caused initial issues. Therefore, we view the commercial sector as the more substantial opportunity.

Great. Thank you.

Thank you.

Thank you. And our next question today comes from Hamed Khorsand with BWS Financial. Please go ahead.

Hey, good morning. So, first off, could you just talk about what's the cost component that your partner would be seeing? Are you increasing your costs? Are they seeing some sort of benefit because there's more clarity due to this contract?

The costs associated revolve around service revenue, pricing, and providing more clarity on a quarterly basis regarding what they will pay for the services they use, which includes growing subscribers. Instead of charging based on incremental subscribers or usage, we will provide an overall pool of service each quarter. This arrangement benefits them and clarifies their financial obligations. As they roll out new products and expand their market share, they gain a clearer understanding of their cost structure. On our end, we also benefit from increased visibility about future developments without the stress of tracking how many subscribers are added each quarter. We can do this because we have a significant partnership with them, having worked together for a long time, and we understand how they utilize the network.

And then could you just provide a little bit more details of what you mean by normalization in the equipment revenue and where inventory stands in the channel, as far as you're concerned?

For many years, we supplied a consistent amount of equipment. As we transitioned from larger to smaller devices, we needed more equipment, but overall revenue remained fairly stable. During the pandemic, there was a significant spike in demand. While our business was doing well, some competitors faced severe supply chain issues, which we managed to navigate more effectively. Many of our partners were understandably anxious about our inability to fulfill orders quickly, as delays stretched to three months or more. As a result, they began ordering more to ensure they weren't caught short, especially since their own businesses continued to grow during that time. However, those concerns have eased recently. Our partners are now able to deliver on short notice, and we've resolved the previous supply challenges. They had been stockpiling various components they ordered from us, but that need has diminished. I know there was speculation that increased equipment revenue would lead to accelerated service revenue growth, but we never implied that. As you can see, we have consistently grown at or slightly above current service levels, and the growth we've seen in equipment was feeding that. Normalization indicates a return to previous levels, and while it may appear as a headwind for overall revenue, it does not affect our long-term growth potential.

Yeah. Great. Thank you.

Thank you. And our final question today comes from Louie DiPalma with William Blair. Please go ahead.

Matt, Tom, and Ken, good morning.

Hey, Louie.

Hey, Louie.

As it relates to revenue synergies with Satelles, why is Satelles' revenue only $5 million today? Were they previously not utilizing your vast distribution network, and now that they're part of your team, do they have access to your 500-plus channel partners? If Satelles were standalone, would its revenue in 2030 be significantly below $100 million?

So the $5 million you quote, Louie, think of that as wholesale. That's what they paid us in 2023 for the signal essentially, right?

Okay.

And so they then turn around and mark that up to their customers. So their revenue is a markup on that five, which was their wholesale payments to us. Think of the hundred that we quote in 2030 as us stepping into their shoes as the retail provider and providing the turnkey service, which includes our signal, but they're kind of proprietary service.

We did not disclose their revenue or markup. However, it is clear that their revenue exceeds $5 million, as they are currently operating near a breakeven point with us. Their business is progressing well, and I see this as a turning point because of the technology they are developing, which will enhance their cost-effectiveness in the market. There are significant synergies available that they couldn't pursue previously due to constraints, including the $5 million cost, which impacted their operations. If they were to expand globally, it would have vastly increased their expenses, and they were not prepared for that. In contrast, we can expand our global reach without needing additional capacity; we just require a bit more power from our satellites, which we have in abundance. This will allow us to market our services broadly, covering areas like the Pacific Ocean or the Red Sea, where GPS jamming and spoofing occur or in other conflict zones, without disturbing their operations. Together, I believe we can harness a lot of synergy.

That makes sense. And related to all of the commentary on the IoT customer seemingly going by a fixed price contract over the next two years, is that related to the new 9604 terminal that you're releasing next year and that you've discussed how the pricing for the midband multimedia applications will be higher than the traditional narrowband price plans? So did the customer just want visibility in terms of the spend that they would have for the Iridium network? Is that related at all?

I believe it is related above all. I really want to go into that at this point here. But certainly, as technology transitions occur and new offers go into the market, the ability to kind of manage that effectively, collectively was in our common interest. So yes, I would say that that was somewhat related.

And I guess would there be other customers that could adapt similar pricing structures this year that would have an even greater positive benefit that's not currently contemplated in the guidance?

I don't think so, but it's always possible. I mean, we're constantly working with our partners on what's the most effective way of kind of managing on a fair basis, what the cost and prices of our services. So we're always in those discussions, but I don't think there's going to be any others like that.

That makes sense. And one final one, you've discussed a lot of the competitive dynamics and some of the competitors in the D2D realm have been talking about offering voice services. And I was wondering for Project Stardust, will it be possible for Iridium to offer voice services? And can you assess what you think of the viability of competitors offering D2D voice services?

We're looking into that, but honestly, I don't see voice services entering the market via D2D for at least a couple of years. Even when they do, they will be quite limited in the markets they can serve. D2D is projected to be a regional solution over the next five to eight years, primarily expanding cell phone use within specific markets. It doesn't seem likely that it will operate in places like Europe or South America, or in maritime environments. Currently, cell phone usage is around 11% to 13%, and if it increases slightly to include voice and data, I don't believe that will affect our business. Our devices are utilized differently, and that's not what we anticipated. We don't target specific states or regions unless there's a clear need, like firefighters going to South America for disaster response. Our focus isn’t on the emerging D2D services on smartphones, as we don’t view them as direct competition for the near to medium term. We're confident that we’ll enter that market with our own services when the time comes, and we believe it won't significantly impact what we’re doing. We are optimistic about our projections through 2030, as our L-band global footprint, our 25 years of experience, and our robust services are resilient and not at risk. I believe this will become clearer in the following quarters and years, and we will continue to execute effectively.

Awesome. Thanks, Matt. Thanks, everyone. Thanks, Tom.

Thanks, Louie.

Thank you, Louie.

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to management for closing remarks.

Well, you can see why we're probably going to be out talking to investors and conferences, a lot more in the coming weeks and months here. And I'm sure we'll see you on the road as we do that and see you next quarter regardless. Thank you very much.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.