Iridium Communications Inc. Q2 FY2025 Earnings Call

Good day, and welcome to the Iridium Communications Second Quarter 2025 Earnings Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Vice President, Investor Relations.

Thanks, Irene. Good morning, and welcome to Iridium's Second Quarter 2025 Earnings Call. Joining me on this morning's call are our CEO, Matt Desch; and our CFO, Vince O'Neill. Today's call will begin with a discussion of our second quarter results, followed by Q&A. I trust you've had the 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 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 as well as a reconciliation to the most directly comparable GAAP measures. With that, let me turn things over to Matt.

Thanks, Ken. Good morning, everyone. As you saw in our press release this morning, we continue to grow across most product lines and remain on track for 5% operational EBITDA growth this year at the midpoint of our guidance. We are, however, adjusting our outlook for service revenue growth. Service revenue is now expected to grow between 3% and 5% this year. This reduction is driven primarily by three items: the ongoing maritime broadband transition to a companion service; some voice subscriber reductions we noted in the first quarter related to canceled USAID funding; and a delay in the expected timing of some PNT revenue, which now looks like it will come in 2026 rather than this year. Vince will elaborate further on these items. Regarding our maritime broadband business, while it's never been a primary growth vector for our 2030 service revenue target, it remains an important service, particularly as we have become a trusted companion solution for Starlink and other VSAT services. Today, Iridium plays a vital role in maritime, especially where our terminals provide superior coverage and reliability compared to other L-band solutions. The trade down we are seeing from some subscribers who've been using Iridium as a primary service and now moving to use us as a backup continues at a quicker pace than we had expected. As a result, we believe this conversion will save about 1 percentage point from our service revenue growth this year. Even with these conversions, maritime broadband will remain a solid contributor to Iridium's long-term cash flow. While we're not forecasting growth in Maritime in the near term, we do believe that the launch of a number of new Iridium Certus GMDSS terminals over the next few quarters will allow us to continue to maintain our position in maritime over time and that aviation broadband safety data link growth will help to support our broadband revenue through the end of the decade. As we look out to 2030, we believe our investments in D2D and our PNT businesses, along with growth in other areas like IoT and government will drive higher service revenue growth rates and allow us to achieve our $1 billion service revenue target in 2030. 2025 continues to be a year of investment in retooling as we prepare to layer on new revenue streams like our new Iridium Certus IoT products, Iridium NTN Direct, which is our coming D2D service, and satellite time and location, our new PNT service. These products and services are core pillars of our future growth, and we're excited about the reception they're already getting from partners and their customers. We continue to believe our portfolio of products and services operating on Iridium's one-of-a-kind network positions us well for growth in existing markets like aviation, energy, transportation, security, as well as emerging markets like Autonomous Systems operating on land, sea or in the air. Traditional voice products like satellite phones and WiFi devices, and IoT applications for telemetry, unattended sensors and location services, all continue to be popular with existing and new partners because they address specific customer needs that no other constellation can. We're also attracting new partners like mobile network operators and cellular IoT operators who are just beginning to deploy regional D2D and IoT offerings. These operators acknowledge the limitations of cellular-based D2D and believe that Iridium can extend their coverage with a reliable global satellite service. These trends give us confidence in our recent capital investments and our longer-term growth outlook. By seeding our business with a broader offering of services, we are winding the spring for new subscriber and service revenue growth. We are targeting specific industries and adding new partners to address the needs of industries who are only now exploring satellite solutions. We have continued to add to our global ecosystem of business partners, adding nearly 50 new business relationships since the start of 2025. This is how we've always grown, getting new products in the hands of new partners to take us into new industries. In the first half of the year, we've already certified about 35 new devices for them that they will be deploying in their respective industries to address their growing customer needs. This is on pace with prior years and underscores the consistent volume of new applications and solutions our partners deploy each year to grow Iridium's book of business. I've spoken previously about the unique opportunity we see in position, navigation, and timing, especially with the increasing prominence of GPS failures in conflict zones and the growing threat that bad actors pose to critical infrastructure like cell towers, data centers, shipping and air travel. We found that manufacturers of drones and autonomous systems are keenly aware of the critical role that trusted time and navigation serve in the safety and reliability of their assets. We're getting a strong reception to our satellite time and location service and are seeing interest from a variety of commercial players, most recently, maritime insurance providers, who view Iridium PNT as one of the only real solutions available to ship operators to protect against GPS spoofing and curtail the risk of asset and cargo loss. I would highlight that GPS failures go far beyond conflict zones, and we are speaking with operators of telecom, transportation and energy businesses who are actively exploring solutions to address these threats. Iridium's industrial-grade solutions are relevant to both commercial and government users as they provide global protection and security that others cannot easily match. We believe that we are at least 5 years ahead of any other viable global alternative PNT solution, which gives us confidence in meaningful revenue growth and broad industry adoption over the next few years. As we said previously, we're investing for growth. CapEx this year will reach about $90 million as we invest in satellite software and new cloud-based ground infrastructure to implement our direct-to-device service as well as cover some one-time investments to move and expand our corporate headquarters. Our work on this new standards-based service is proceeding at an unprecedented pace, and we're on schedule to begin on-air live testing soon and for the introduction of Iridium NTN Direct in 2026. A number of MoUs are signed or underway with global MNOs for Iridium NTN Direct, and we're really pleased with the market reception we're getting. From our conversations, we know there is strong demand for global standards-based IoT and consumer messaging to complement some of the other D2D approaches that are using regional cellular frequencies. We expect that some of these MNOs will be ready to announce their partnerships with Iridium soon, and we look forward to supporting them as they roll out their D2D and IoT offerings to customers with our truly global reliable coverage. You may have seen our announcements with Syniverse back in May. This partnership will allow us to quickly and seamlessly roll out Iridium NTN Direct with MNOs worldwide. Syniverse already serves 600 carriers in 170 countries, and their integration of our D2D offering will provide MNOs and their customers the ability to roam onto our network on day one. I'd also like to touch upon our work with the U.S. government. With the current administration's priorities such as Golden Dome, the growing threats in the INDO-PACOM theater and the U.S. government's growing recognition of the importance of commercial space, we remain well positioned for growth, especially given our unique network and our 25-year relationship with this customer. Over the past year, we've announced a number of new contracts with the UHG that enable greater use of our network, and we believe our relationship with the DoD has never been stronger. It's no accident that our development work with them has grown over the years and we've been increasingly asked to do more. You see this clearly in our expanding engineering and support revenue, and we expect to see this reflected in other aspects of our business going forward. Even as Iridium has been steadily returning capital back to shareholders through quarterly dividends and a robust buyback program, we have also continued to fuel customer growth and portfolio expansion by funding R&D and making meaningful capital investments. As I think about our many growth drivers over the next 5 years, I really believe it will be three core pillars: TNT, Iridium NTN Direct, and our expanding IoT portfolio that will drive revenue and subscriber growth with our partners. And while it still feels early to be discussing our next-generation network with the current constellation performing so well and expected to last through the next decade, we are starting to evaluate technologies and partnerships to make sure our future network is even more affordable and flexible enough to deliver new services. Let me provide some insights into our vision. We have decided that our next-generation network will provide standards-based services to serve all kinds of consumer products directly. Specifically, we plan to support 5G new radio as the architecture and approach, which will likely be called 6G at the time we deploy the service. No one in the satellite industry is actively implementing this next-generation service, though several have announced their interest. Implementing 5G NR or 6G standards will allow us to deliver a richer user experience to cell phones and consumer products when beyond the reach of cell towers. We think our timing will be optimal as it will take time for devices with these standards to propagate widely across the market. Our follow-on network will also host Aireon, which continues to grow and thrive, and we'll add new space-based VHF services that we are working on with them. We believe the aviation industry is at the start of a transformation in cockpit data communications from ground-based VHF towers to satellite, and we want to lead that opportunity. We're also planning to enhance and extend our leadership as the global alternative for PNT for all critical infrastructure. We think we can build this new network in the 2030s while continuing to provide investors with meaningful shareholder capital returns. The passage of time will demonstrate the durability and strength of our business and provide investors more appreciation of Iridium's unique position we occupy. Investors will continue to be well served by Iridium's spectrum, experience, broad partner ecosystem, and focused business strategy. With that, I'll turn the call over to Vince for a review of our financials.

Thanks, Matt, and good morning, everyone. I'll start my remarks today by reviewing our financial results for the second quarter and some trends we're seeing in our major business lines. I'll also review this morning's update to our full year outlook and finish with a review of our liquidity position and capital structure. Operational EBITDA was up 6% in the second quarter to $121.3 million, driven by a combination of revenue from engineering and support and recurring services. On the commercial side of our business, service revenue was up 2% to $128.8 million, led by growth in IoT. Voice and data revenue rose 1% from a year earlier to $56.8 million, and subscribers remain consistent with the year-ago period. We expect revenue growth to accelerate in the second half of the year now that previously announced price actions have been implemented. Commercial IoT revenue totaled $44.8 million in the second quarter, up 8% from a year earlier. This growth continues to reflect broad-based adoption of our IoT services for consumer and commercial applications. Revenue in commercial broadband was down 6% from the year-ago period to $12.7 million. This year-over-year decline continues to reflect a mix shift in customers from primary service to companion backup VSAT plans at a lower ARPU. Posting and other data services revenue was $14.5 million this quarter, up 1% from last year's comparable quarter reflecting a rise in PNT revenue, which is partially offset by other data service contracts. We've continued to see strong interest in Iridium PNT following our acquisition of Satelles last year and remain optimistic about demand for these services as global organizations begin to address the vulnerabilities inherent to GPS and GNSS based systems. Government service revenue was up modestly in the second quarter to $26.8 million, reflecting the step-up in our EMSS contract with the U.S. government late last year. Subscriber equipment sales were $19.5 million in the second quarter, down 15% from the prior year's quarter, but we continue to expect full-year sales will be in line with 2024. Engineering and support revenue was $41.9 million in the second quarter as compared to $25.8 million in the prior year period. The strong increase from the prior year quarter continues to reflect growing work with the Space Development Agency as well as new U.S. contract awards from the prior year. As Matt noted, we are updating our full-year guidance for service revenue from 5% to 7% growth to between 3% and 5% and reiterating our outlook for EBITDA for 2025. Let me take a moment to discuss some of the changes that warrant the update to our service revenue forecast. To start, we are seeing continued conversion of maritime vessels that previously used Iridium as their primary and often only communications to now use Iridium exclusively as a companion service. This anticipated but faster conversion rate is the single biggest factor in the revision to our service revenue outlook. Our updated guidance also reflects the timing of certain PNT revenue which we now believe will extend into next year but was previously anticipated in 2025. Finally, the pace of revenue growth in commercial voice and data has been slower in the first half of the year than we had initially forecast, in part due to a reduction in USAID funding, which has resulted in higher subscription deactivations. Beyond these changes, we continue to expect growth in commercial voice and data revenue will accelerate in the second half of the year with the implementation of price actions on certain services that went into effect on July 1. We also continue to forecast double-digit commercial IoT growth in 2025, with much of this growth driven by the step-up in the contract with a large IoT partner. We continue to forecast broadband ARPU declines this year; however, over time, we believe subscriber gains from the adoption of new Iridium Certus GMDSS plans will help to offset these ARPU pressures, and Iridium will remain an important player in the maritime sector. We continue to expect growth in P&C revenue as commercial users integrate our satellite-based time and location into their operations. As I've noted previously, revenue growth from PNT is tied to monthly usage as PNT services are sold as birth, where revenue is recognized as utilized during customers contracted periods. Our government business will generate $108 million in revenue in '25, reflecting the final step-up in our EMSS contract this September. We hope this color is helpful to you in modeling our revised forecast for the full year. Despite these changes to our 2025 guidance, our long-term outlook remains intact. We continue to have confidence in Iridium's ability to deliver approximately $1 billion in service revenue in 2030 and to continue to return capital to shareholders. Moving to our capital position. As of June 30, Iridium had a cash and cash equivalents balance of $79.3 million and ended the quarter with a net leverage of 3.6x OEBITDA. We think Iridium naturally delevers over time and expect to exit 2030 below 2x net leverage. Our cash flow remains ample to fund operations and support our ongoing buyback program in addition to the payment of quarterly dividends. During the second quarter, Iridium retired approximately 2.6 million shares of common stock at an average price of $25.45. This left us with an outstanding balance of $295 million under our Board-approved authorization through December 31, '27. We continue to believe that Iridium stock trades at an attractive valuation, and we will continue to execute on our buyback program, balancing the desire to maximize return on investment with our long-term objective for deleveraging. Over the preceding 12 months, we've retired more than 11% of our outstanding share count. On June 30, Iridium made a quarterly dividend payment of $0.14 per share to shareholders, and as we have previously guided with our Board's recent approval of an increase to the dividend rate, Iridium will make a $0.15 per share dividend payment in the third quarter, representing an increase of approximately 5% over the full year 2024. Our growing dividend and ongoing share repurchase activities continue to reflect our confidence in Iridium's business opportunities and prospects for continued strong free cash flow generation. Capital expenditures in the second quarter were $20.7 million. As we have noted previously, we anticipate higher capital expenditures in 2025 to support our work with 5G standards and, to a lesser extent, investment in corporate facilities. These expenses will moderate from here through the end of the decade. Turning to our pro forma free cash flow. If we use the midpoint of our 2025 OEBITDA guidance and back off $92 million in net interest pro forma for our current debt structure, approximately $90 million in CapEx for this year, $6 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 just over $300 million for 2025. These metrics would represent a conversion rate of OEBITDA to free cash flow of 61% in '25 and a yield approaching 10%. A more detailed description of these cash flow metrics, along with the reconciliation to GAAP measures, is available in a supplemental presentation under Events on our Investor Relations website. With that, I'll turn things back to the operator and look forward to your questions.

The first question we have is from Rick Prentiss of Raymond James.

A couple of questions. On the service revenue reduction guidance, you mentioned that the maritime was the biggest portion of going from 5% to 7% to 3% to 5% growth. Where do we think the ARPU for the maritime stabilizes out? And obviously, there's some seasonality to that. But where are we thinking it stabilizes that? And will this impact continue into '26 as well as you kind of get into the companion mode?

I don't know about exactly where ARPU ends up. It's not defined. It's just a mixture of rate plans that people select versus the applications that they're using. I don't think it will extend into 2026. But I want to reiterate, too, I mean, broadband is less than 10% of our business and was never, as you remember in our Investor Day, a focus of growth for us. So I guess you could say will it remain a solid foundation of our business as we grow to $1 billion. And I'd say, yes, I think it will be. It doesn't have much further to go for the conversion and ARPU decline to go. But we believe we'll be growing around it in PNT and D2D and IoT and government and other areas. And that's really where it's always been. So I understand the focus on broadband because it's a highlight still as we get through this transition. But given our role, L-band role with GMDSS, given the fact that all partners are selling our GMDSS service, I think it's going to be a solid foundation of revenue for us going forward. And by the way, there's only like 1 or 2 Certus GMDSS terminals right now. I think there's something like 5 to 7 or so that are coming over the next couple of quarters. And we really think that there's some weight for those all-in-one companion terminals that provide GMDSS as well. And that will shore up our sort of revenue as well as we go into '26.

Yes. And the only thing Rick would add to what Matt is saying is, I think as you think about '25 you should think about the trend in broadband revenue as probably tracking similar to what you've seen in the first half of the year. I think to Matt's point, as we start to proliferate with GMDSS service terminals, we would expect that to be a help to 2026 and certainly our competitive companion service. But we probably will, as a counter to that, continue to see some pressure as we go into 2016.

PNT is a significant component of the growth story. However, there was some timing impact in 2025. Can you quantify that for us? How much revenue slipped, perhaps around $1 million or $2 million? What led to the delay? Additionally, I believe you're aiming to scale Satelles to around $100 million by 2030?

It's a relatively small figure at this stage, and we aren't ready to provide detailed information yet, but when it becomes significant, we will share more. As mentioned earlier, the potential for growth is expanding rapidly, even though we're still in the early phases. A recent example is this week's announcement regarding our partnership on shipping, along with SGM and NAL. In the Red Sea, maritime insurance providers are beginning to recognize the importance of this issue, and we've been collaborating with them to explore solutions to prevent collisions and grounding of ships. It's crucial that they identify the correct locations, as ship owners are requesting this information. However, initial trials typically involve only a few ships before scaling up to larger numbers, but we perceive a substantial opportunity in this area. This applies similarly to drones and critical infrastructure like data centers. We are still at the beginning of our growth journey in both commercial and governmental sectors, but we believe there is significant potential ahead. We've noticed some revenue that we initially anticipated for this year is now shifting to next year, and I expect it to become considerably more impactful in the following year and beyond.

Great. Last one for me. Obviously, the FAA has been having some issues as well. Update maybe a little bit on where Aireon and the FAA stand and where you think some big numbers being fronted out in Washington about finally helping the FAA?

Yes. We're keeping an eye on that. I mean, Aireon is keeping an eye on that. And obviously, we, as a partner of theirs. A lot of that money that's initially been allocated is for replacing old facilities, it appears things like radar systems and data links and that sort of thing. And so advancing the services to provide even better service as opposed to reliable service seems to be more Phase 2 at this point. There's been some discussions around it. And I know that I think that they're using some of Aireon's data for safety information because they're very interested in this very rich data source that they have that they're using for all kinds of new applications. But in terms of deploying Aireon to better control oceanic airspace that seems to be kind of not the initial priority of that effort. So anyway, I think there's still a big opportunity with the FAA. I think Aireon will be a supplier of that service to them over time, but I don't think they're going to be able to kind of take advantage of this infusion of funding for the next year or two necessarily.

The next question we have is from Walter Piecyk from LightShed.

Can you give a little bit more color on the IoT data line? Because you dipped below 7.5%. I know you reiterated the guidance for the year at double digits, but that obviously would show a lot more growth. And then overall, if you just look at the annual growth, it's really been decelerating pretty consistently since Q1 of last year. So I guess, what's going on there? And for what happened in Q2? Why are you still confident that you'll see enough of an acceleration because you're basically going to Q3 and Q4 going to have to be much faster than even what you did in Q1 to get to double digits? And then how do we think about that opportunity in 2026 and beyond?

Yes. I think as you think about the rest of the year guide, we will still double-digit. I won't go into them exactly here, but there are specific things happening in both Q3 and Q4 that support our outlook for a double-digit guide. That is not reflected in the year-to-date run rate. So we're pretty confident that you'll see a step-up in IoT growth as you go through Q3 and Q4.

There is a lot happening in IoT, and the activity remains strong. Most of the developments, such as new partners and product innovations, are centered around our new 9704 device, which offers faster and more direct IP service. These products are currently in the certification phase. The consumer product segment is also showing robust performance. While we didn't specifically discuss subscriber numbers, we expect a typical strong summer with good activations and subscriber growth in this area. There are more new devices on the way as well.

But Matt, the revenue growth was 7.5%. Last year, the lowest growth was 13.6%. So you're basically at half the growth rate of last year, which is not on track to meet the guidance. Something is clearly different in Q2 compared to all of 2024, and even in the first quarter, where you experienced double-digit growth.

I think that will be correct in the second half.

And is the second half one-time type event? Or is this a business that can deliver double-digit growth going forward?

No, those events would be ongoing. They'll be ongoing...

And we are getting larger and larger, so it's hard to keep double-digit growth going, though I do believe when we get into D2D and our new Iridium NTN direct service, that will sort of expand that base, which is later in 2026 and '27 before that starts, but that's also a thing that may get us back to that kind of level on even higher basis.

And then just one last question. Regarding the 2030 target of $1 billion in service revenue, I noticed that consensus estimates are nowhere near that figure. I want to confirm that reaching $1 billion by 2030 does not factor in any expected acquisitions and is based solely on organic growth from your current lines of business.

No. Look, we mentioned that some tuck-in acquisitions where possible. For example, when we said the original $1 billion and kind of gave a lot of information during our Investor Day two years ago, whenever it was, tuck-in acquisitions were possible as we were expecting, for example, something like Satelles would be possible at that point. But that's still a possible part of it anyway. But we have plans even internally that get us there without acquisitions, but that's not what we're committing to.

Next question we have is from Chris Quilty from Quilty Analytics.

Not to beat the IoT dead horse, but Certus mid-band and new products, I know you had talked about in the past, is that perhaps something that's accretive in the back half?

That's part of it. I mean, some of those services are starting to really roll out. Those people are getting their devices out there with their new products, and that's certainly part of it.

And switching over to PNT. I know that it builds on a monthly type service revenue. But do we expect that the customer acquisition and pipeline consist of large customers where, once you secure them, you might see a significant increase in growth from there? What does that pattern look like over time?

The pricing for PNT is changing and is quite varied. We offer services bundled with the device, targeting users who might not want to pay separately for GPS alternatives. For some devices, we might include five to ten years of service. Additionally, we have regional pricing based on where customers intend to use the service, such as in the Pacific Ocean. We are finding ways to provide value to each customer segment, so pricing has not been a significant issue. Like I mentioned with the shipping and data center examples, we typically begin with customers who want to trial our service, then expand to 10, 20, and ultimately 1,000 applications. We offer pricing that reflects their expected volume, but they need to reach the stage to roll out their services. Our target remains to achieve $100 million in this business by 2030, with growth weighted more towards the latter part of the year, as we are aware that expansion usually takes a couple of years.

Matt, you mentioned that most of your customers are commercial, but there is clearly a significant military application for this technology. How do you anticipate that split will look in five years? Are there specific government contract opportunities that you are pursuing?

I believe that government opportunities, which may include civil infrastructure, could make up at least half of our base. The commercial sector could potentially be larger, but it requires more effort to engage with a variety of entities. While there are significant customers interested in deploying our technology, the process tends to be lengthy. For example, some drone manufacturers and companies working with autonomous vehicles are very interested. They recognize that regional terrestrial solutions may not scale effectively for their needs. They appreciate the cost-effectiveness of integrating our solutions into their devices, but these markets will take a couple of years to fully develop. I would estimate a 50-50 split as a good starting point.

One other nuanced government question. Voice and data, the subs have been declining there, and the government doesn't pay. I mean, it's a fixed price contract, right? So trying to figure out what the rationale for why they've downsized the number of handsets like 1/3 over the past couple of years?

Yes. This issue has been discussed previously, relating to the transition between 2019 and this year between DISA and the Space Force. The good news is that this will be resolved in the next fiscal year, as it will all fall under the Space Force. There will be greater oversight regarding how billing is handled for the individual services. We have observed various services trying to adjust and improve their areas to reduce their billing, especially when facing budgetary challenges during this transition. This situation is not linked to the strategic value of our service to them. The pricing now and in the future does not correlate with the number of devices. The impact of the devices they do utilize has actually increased over the past five years. Therefore, while there isn't a direct correlation with services like our commercial service, I don't believe it's really relevant to subscriber numbers, which is why we don't emphasize or focus on them in our comments.

Where are you moving the headquarters to?

About three blocks away. We're not relocating very far, but it's time to expand as we have been growing and introducing new services, such as those related to the FDA. It's just the right time to spread out a bit, and this move aligns well with our current situation.

Next question we have is Tim Horan of Oppenheimer.

Can you give us a sense of the pace of revenue growth for the third quarter and fourth quarter? And maybe into next year also, do you think you can do over 5% revenue growth next year? Or I guess is this the bottom? And just a little bit more color what's going to drive revenue growth next year?

You can calculate the growth rate based on our performance in the first half and the guidance for the second half, which should give you an indication of what to expect. For next year, I believe we'll focus on building upon this year's growth. We are still determining the specifics of how that will unfold. It's important to note that growth won't be uniform leading up to 2030. I anticipate that it will be more weighted later on since direct-to-consumer impact begins next year, and while our new product is still in its early but promising growth phase, the EMSS renewal won't occur until 2027. Therefore, I expect 2027 will surpass 2026, but we should still see growth in 2026 as well.

Got it. I guess I was getting it. Should fourth quarter be stronger than third quarter growth? Or is it kind of pre-linear for the year? And on the maritime and the companion service, can you talk about what percentage of customers are dropping the primary and taking companion like if I drop primary, what percentage of keeping the Companion?

Yes. I think we talked about this over the last year. Primary was only like 25% of our service. So that was the part that has to convert and that we've seen conversion. There's been also a little bit of, I'd say, ARPU pressure as some people take lower-lever plans as they kind of go and evolve through that. So even I would call the companion service, it's a little lower revenue I think that will shore up as we get to where GMDSS and Certus companion service or combination service makes us critical to be on the ship. And there's sort of a baseline value for doing that. And that's even before we add PNT and other things into it. So I don't know if that gives you a little sense of how that transition has been, but that's what's caused that.

Yes, that's helpful. And on the pace of revenue growth for the second half?

Yes. We don't guide to quarter-by-quarter. So I really think that, that's something you're going to have to kind of take a look at. I mean, there's not so much specificity going forward. We have a lot of visibility into our 500 partners and how they operate. And so we have a pretty good idea how the second half looks. But I don't want to get down to trying to call third quarter and fourth quarter for you.

Got it. And then on the new constellation, if the demand is there and the services are there, could you build the tandem constellation that could leverage existing spectrum that they can work together? Or would it really be more about a replacement eventually no matter what happens?

We're actually looking at both alternatives right now. A replacement network could be there, but it may make actually more sense to build sort of an overlay network on it. And there's a lot of discussions underway in the industry right now about that. We have a couple of alternatives. We can build it within sort of our own spectrum, but there's a lot of discussions about obtaining new spectrum and how we might even partner with others to do that, including some interesting companies that want to partner on that who have large consumer footprints and stuff. So I think it's going to be a dynamic couple of years as we evolve our plans there. But yes, there's a couple of new approaches. I just wanted to talk today to give a little idea about what that network would provide and how we see that as being an exciting future for the future.

And lastly, a T-Mobile launch with DBT service yesterday. Do you see that as competitive at all or the potential to be competitive over time with your services?

I believe there is some interest in how people adopt these regional services. However, that has never been our main selling point. Customers typically don't choose our service for rural areas, like Wyoming; I mention this frequently. Satellite phones are favored for their global usability, which is different from T-Mobile's offering. I see our Iridium NTN Direct service as a complement to these other services, whether they come from Starlink, AST, or anyone else using cellular frequencies. They will want a messaging service integrated into the same device, watch, or IoT service that functions globally. That is where our value lies, and we are focusing on developing our growth strategy in that sector.

Next question we have is from Greg Mesniaeff...

Yes. Matt, I just have one question for you. Can you hear me?

Yes. Yes. Go ahead.

Good, good. You mentioned in your prepared remarks that you are focusing on attracting new partners for both consumer and commercial services. You mentioned 50 new business relationships so far in 2025. Can you give us a little more color as to how you plan to broaden your partner network, if you will, across different verticals? What kind of goals you've set for that? And as you roll those initiatives out what kind of impact to SG&A that might have?

I believe we can achieve this within the current SG&A framework. We've been restructuring our partner development teams to focus on larger partners, particularly mobile network operators over the past year. We have begun establishing relationships in that area, although none have been publicly announced yet. There is significant interest in our new Iridium NTN direct services. I am prioritizing relationships that could significantly impact our business, especially in the emerging autonomous sector where larger players are securing substantial funding and recognize the necessity for PNT or communication services. Our approach to potential partners has shifted, particularly in the timing and location sector, which differs from our previous focus. While we have several partners in the PNT space, finding established, trustworthy players to provide a reliable timing source or to serve as an alternative to GPS jamming presents new challenges compared to past partnerships. Nevertheless, our entire partner network shows enthusiasm for this technology, and I recently noted an announcement from an existing partner in this field. I don’t anticipate significant changes to our SG&A as a result. The key lies in the types of companies we are targeting. Furthermore, I want to emphasize that our business pace remains strong, perhaps even stronger due to the development of new areas. While service revenues fell slightly short of our expectations this year, I am optimistic about the activity we have to reverse that trend.

And just as a quick follow-up, can you expand a little bit on the Syniverse partnership that you mentioned?

Yes. As we're building this new Iridium NTN Direct service requires being able to connect to the cellular infrastructure of today, you could build out that pipeline, if you will, between the satellite and the cellular to manage that, including a billing relationship with everyone or you can just sort of plug into a central hub. That's how I kind of view Syniverse. They're this trusted billing and roaming hub that manages all the relationship between cellular operators, and they're increasingly, I think, going to become the bridge between the terrestrial networks and satellite networks, and thank goodness for them. It just eliminates a big piece that we had to do a lot of times on the satellite front when we build out new services. We don't have to do that as we build out, say, a roaming on the IoT for Iridium NTN Direct. So that's a great relationship.

Next question we have is from Colin Canfield of Cantor.

Can you elaborate on how you envision linking Iridium's commercial growth with the Amazon constellation? Your previous messages suggest that large customers and consumer bases are a focus, while telecommunications companies may not be the most obvious partners. However, there are numerous opportunities in sectors like industrial and mobility. Please discuss how you view this partnership as a catalyst for commercial growth and what the timeline might be concerning your undisclosed major commercial partner.

So you were talking about Iridium NTN Direct, our D2D service. Is that what you were mentioning?

I mean, across all of your product lines, right? Like if we think about kind of the use case of what they're going after, K-band is one element, right? But there's obviously a lot more in the transport and consumer market you could do with your IoT NTN data. So just maybe kind of how we think about alleviating some of the pressures of them or if it's another large kind of commercial tech back effort.

Our growth strategy in the commercial sector has always involved introducing new services through a wider range of partners across different industries, who then market these services exclusively. This approach has proven successful and continues to do so. The new services we're offering include cost-effective IoT capabilities, with devices that simplify entry into this space, making deployment easy. We're expanding into new sectors such as autonomous systems, drones, heavy machinery, energy, transportation, and various types of maritime drones, buoys, and sensors. There's growing interest in the Department of Defense and military sectors, particularly in the energy industry and power line monitoring. As our company has grown and our brand has strengthened, our solutions have become increasingly easier to implement. A significant change is our shift to standards-based products, which will greatly increase the number of applications and industries that previously considered satellite technology as unaffordable or difficult to use. Many sectors, hesitant to adopt proprietary satellite solutions, will now find it easy to integrate with 5G or 6G, which we're already pursuing. This progress has attracted not just mobile network operators but also numerous partners currently deploying IoT in the much larger terrestrial space, which constitutes approximately 95% to 99% of the overall IoT market, while satellite remains a minor player. This transition allows us to access a broader commercial landscape. The advantage of standards is that we can avoid lengthy development processes and extensive technology transfer. Partners like Syniverse will facilitate seamless integration with our network. This reflects the evolving dynamics within the commercial sector. Is this what you were looking for, Colin?

Yes, yes, that thing helps. Maybe drilling into the government stuff, government budget outlook when you combine DoD and notary intelligence, probably the best that it's been in 20 years, kind of near peak-ish. But I think a lot of folks kind of have difficulty drilling down into drone budgets, which are probably a lot to double. So as we think of that drone algorithm, can you maybe talk us through the waterfall of growth that we should see through the all P&C business and specifically talking to kind of like the Kratos, Arrows and drills in the world and then folks who sit either on or adjacent to the alternative PNT board? Just like the growth algorithm that we should consider there?

Look, I think it's a sort of a step function as we continue to expand sort of the footprint on behalf of government customers in the same way the commercial customers PAUSE; it's a tricky area to kind of talk about because it really depends on people who don't usually talk about how they're going to use the service, but I can assure you we're deeply discussing all those things with them. But it's probably, I'd call it a step-wise function as those are not probably one-by-one kind of sales as opposed to kind of regional sort of provide capabilities over a wide area of the earth and it gets used more and more.

Okay. And then one comment you made five years ahead of any other players. Maybe talk about how you think about the advantages that Iridium has regarding spectrum, payload design, and perhaps some relevant metric of cost per propagated bit or just how you think about maintaining that edge.

The positive aspect of PNT is that it doesn’t consume any capacity, allowing up to 1 billion users to utilize our service. Thus, the long-term costs are minimal. We aim to establish ourselves as the global alternative PNT service to safeguard critical infrastructure. Our service has consistently shown the necessary quality, competing mainly against regional terrestrial solutions that might only serve a city or locality. There’s essentially no competition when individuals seek solutions for remote environments or global operations. Our advantages, such as being in the L-band, allowing for smaller antennas, and our position in LEO, greatly benefit us. This is why we find that no one is responding to RFPs or RFQs. Our challenge lies in raising awareness about our service and finding partners for new opportunities where potential users may not realize that protection is available. This is a positive challenge, and we are addressing it progressively.

Next question we have is from Mathieu Robilliard of Barclays.

I had a question about the SG&A. I may have missed some comments at the beginning of the call. But I think in the previous results, you talked about a sharp decline or an important decline in R&D expenses and the low single-digit growth in SG&A. So a slowdown from previous years. This is what you've been delivering in Q1, Q2 I was wondering if the guidance or the indication still stands on those two lines?

Yes, it does, Mathieu. We had previously guided on R&D that it would be down in '25 million versus '24 million primarily because some of the major programs that we've undertaken, we're moving into the capital investment cycle. So that remains the same. That hasn't changed. And the profile we're seeing on our R&D spend is very much in line with expectations. I would say on the SG&A side, expenses have been a little bit lower than we have anticipated. And so our view on SG&A through the end of the year and for the full year would be like flat to low single-digit grower. That's how we would characterize it.

Great. That's very helpful. And then one question on Maritime. Matt, you talked about Certus and the GMDSS services. I just wanted to clarify, do you get revenues out of GMDSS? Or is it only if there's a surge attached to it? And if you do get revenues from GMDSS, can you give us a sense of the ARPUs for this service?

Yes, there's typically not priced for GMDSS. It's a free service, but it's on a terminal that provides other services. Even a stand-alone GMDSS service can be used for other things, and there are revenues that are produced by that, just not by the GMDSS function. We believe we'll have a very unique product in a combined companion GMDSS, LRIT, and other mandated services, a terminal that has to be on every ship at least over a certain weight and has been being put on to increasing more and more ships for security and it being provided. So for one price, if you will, all those functions would be in a cost-effective terminal that works anywhere on the planet. So that's kind of the value proposition. That's what our maritime partner base likes. They're in the transition kind of to it. There's a little bit of wait for because there's some great manufacturers coming with additional terminals that may be even more desirable in certain parts of the world. For example, Asian manufacturers often kind of like Asian, I mean, Asian fleets like Asian manufacturers, and those terminals are still coming over the next couple of quarters. So that's a little bit why we're pretty confident that that will stabilize.

Okay. And on the antenna, it's not only your services that can be provided, it's third-party that can be put on, and those would be two different antennas.

When we announced that one of our partners has installed a terminal featuring only our service, it was placed on a ship. Typically, the service provider will integrate that terminal into a complete solution, which often includes Ka and Ku band service, among others. This means there could be various types included, but it generally comes as a combined package for end users, allowing them to utilize our service while navigating in rain, at ports, or in locations where using a VSAT terminal isn't possible. Additionally, it can be utilized in emergencies to provide navigation information, among other functions.

Very clear. And lastly, just on the comments you were making about the D2D and the future on the new constellation. You talked about having a constellation that operates on 5G or 6G standards and that can deliver which richer experience to cell phones, consumer products, et cetera. We're still only talking here basically about still, we're only talking about IoT messaging, right? There was no suggestion that it could go beyond that in terms of the services you may be able to provide in the new constellation, and I realize it's 5 years down the line?

No, I am actually going beyond messaging and other services. The 5G new radio standards require more spectrum, but they also provide a complete level of service. The type of breadth you receive from a cell phone or other consumer products that can connect with a richer data experience is what we aim to offer. We want to build that kind of network in the 2030s, which is why we are looking to utilize our spectrum, partner spectrum, or additional spectrum that regulators are discussing and considering. This is our vision for the future. Additionally, I want to continue providing hosted payload services, as that has been a significant success for us, and we have some excellent ideas based on our past partnerships.

We have reached the end of the question-and-answer session, and I would like to hand back to management for any closing remarks.

Great questions. I know, not the perfect quarter, but frankly, as I think you got, we're still enthusiastic and excited about the future and with all the activity, I think we have a good reason to be. And I look forward to updating you in the next quarter. Thanks.

Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.