Earnings Call Transcript
Iridium Communications Inc. (IRDM)
Earnings Call Transcript - IRDM Q1 2022
Operator, Operator
Good morning, and welcome to the Iridium Communications First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Kenneth B. Levy, Vice President of Investor Relations. Please go ahead.
Kenneth Levy, Vice President of Investor Relations
Thank you, Andrew. Good morning, and welcome to Iridium's first quarter 2022 earnings call. Joining me on this morning's call are our CEO, Matt Desch; and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of our 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 could 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 within 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.
Matthew Desch, CEO
Thanks, Ken. Good morning, everyone. Well, as you can see, 2022 is off to a strong start. Like many of you, we're back in the office collaborating with team members, meeting with business partners and starting to travel for conferences. It feels like things are getting back to normal, though the war in Ukraine shows us that none of us can take anything for granted. Last month, my team and I were active at both investor and industry conferences, including the big SATELLITE Show in Washington, D.C. where attendance was strong, approaching pre-pandemic levels, and we had a lot of very productive discussions with many in the industry. The space and satellite industry is quite vibrant and optimistic right now, and I'm proud that Iridium is right in the middle of that dynamic as a clear leader. 2022 promises to be another good year of growth for Iridium, and we're off to a very strong start. As you saw in our press release this morning, Iridium's first quarter results maintained the momentum we experienced last year. At a high level, the business environment continues to improve, and our primary business lines are firing on all cylinders. In land mobile, demand for handsets, which has long been the foundation of our commercial business, continues at a very strong pace. This is a function of a number of factors, including the quality of our offering with growing momentum from PTT, some supply issues apparently being experienced by competitors and, of course, increased demand related to Ukraine. IoT continued to experience strong demand, driven in part by the growing array of personal satellite messaging devices that operate on our network. Commercial IoT activations were 50,000 this quarter. And while that's a really strong number for the first quarter, it could have been even higher if we could have shipped more equipment. And on that front, we expect to be in a position to catch up to the growing demand later in the year. Broadband also continues its growth trajectory. The maritime environment is improving for us as most countries have returned to normal business operations. We're also seeing a rise in ARPU as Iridium Certus' faster speeds drive greater use and increasingly represent a growing mix of our broadband revenue compared to legacy Iridium OpenPort terminals. We are actively working on our opportunities in aviation and continue to expect new terminals for that market we'll launch in the later part of this year. Beyond commercial safety, business in general aviation, rotorcraft and drones, all provide upside to our broadband business, which we feel very good about. The U.S. government remains an important cornerstone of our service revenue, and we expect to grow our business with them. You might have seen the new video compression technologies from partners that we announced in the first quarter to support live-action video efficiently over Iridium Certus. They will make Certus even more attractive to the USG as well as for commercial customer applications. Subscriber counts for the U.S. government continue to lag as the Space Force and DISA continue to work through their transition and administration of the EMSS contract. As I've said before, this has no impact on our revenue, but we want to see it corrected so the government can fully utilize our network. We have been assured that this is being addressed and look forward to continued collaboration so that the government can maximize their use of Iridium services. I'll leave it to Tom to provide additional color on the first quarter results, but I did want to touch upon a few other items that are important in framing this year's outlook and how we may leverage our strong financial position. First, an update on supply chain issues. Our supply chain team continues to do a great job of managing this issue, and we seem to be doing as well as anyone in getting the parts we need. Our problem is that demand continues to exceed forecast. We shipped a record number of products in the first quarter. And while we still are not back to building up inventory for most of our products, as I said, we have a plan to get there through the end of the year. This is a high-quality problem to have even though frustrating. We have the business and could ship even more units if our parts supplier could meet our growing needs. Even as we've been pretty successful working supply chain issues, we're also finding new challenges in the current environment, like expanding our team to address our growing set of business opportunities. We are bringing on some great new people, but the technical skills we need are in high demand, which is requiring a larger investment in this area and is likely to move SG&A a bit higher than we had budgeted for in 2022. Our needs are real and building. Our technical rank today will position us well to address the long-term opportunities we see. We're also seizing upon our strong business momentum to accelerate investments and retool some of our business systems. And while I won't get into the details, we are planning to get ahead of some of the big new opportunities we're expecting to win later this year. These investments are among the reasons that we're not raising our full year guidance. In terms of Iridium's growing cash position and capital plans, I wanted to make sure that you saw our Board has approved a new share repurchase authorization for $300 million last month. This is on top of the $300 million authorization we announced in February 2021 and underscores the confidence that management and the Board have in Iridium's business and opportunities for growth. We took advantage of the volatility in the market to purchase close to 4 million shares of stock in the first quarter, and we'll continue to respond to opportunities to execute on the program in a disciplined manner. I have tremendous confidence in my team and the business opportunities we're pursuing and believe that Iridium share continues to present an attractive investment at these levels. Another opportunity that we're exploring this year is a rideshare to launch most of our remaining ground spare satellites. We've always said that we wanted to get our ground spares to space if the right opportunity presented itself, and we believe we've been presented an excellent value and fit as the launch we're considering is planned for an orbit and altitude that are ideal for our satellites. I want to be clear that we do not have an immediate need to launch these satellites. Our constellation is very healthy and is performing well, but our ground spares have little utility just sitting in storage. We do the launch of these spares as cost-effective insurance to ensure the maximum life of our network. It would provide for a similar number of spares to what we had with our first-generation network, which lasted well over 20 years. On-orbit spares enhance the redundancy of our constellation and over time, I think this rideshare opportunity will prove to be a very savvy financial decision. We are finalizing the opportunity, and we expect to announce the specific details in the coming weeks. This launch is a one-time approximately $35 million event and aside from this, does not change our overall CapEx holiday plans. Before I turn things over to Tom, I want to highlight that Iridium recently released our new Environmental, Social and Governance Report for 2021. The report speaks to our company's culture, priorities, and values. While Iridium is a financially successful services company, we're also a caring organization and work hard to support our people, the communities we touch and the industries we represent. We've stepped up our disclosures this past year, and I hope that you'll find it helpful to learn more about the way in which we go about our business, with good governance and a focus on social responsibility, how we engage with partners to set strong standards for ethical behavior and how we implement best practices across our organization to ensure that we continue to be a leader and set the standards for stewardship in LEO to maintain this shared resource for the next generation of start-ups. Iridium's strong financial position and growth trajectory allow us to address these ESG matters without sacrificing on other priorities and business opportunities. And that's okay, we're happy to lead the industry. Among the values that are most important to me and highlighted in this year's report are diversity, equity, and inclusion. I'm proud to Co-Chair Iridium's DEI Committee and know that leading in this area is good for our company, our employees, and our communities. You can see from recent public announcements in our proxy statement, our senior leadership and Board of Directors continue to diversify and be more representative of our employee population and the world at large. This is an area of constant improvement and aligns with Iridium's cultural and philosophical values on representation. In closing, I continue to be very happy with the progress Iridium is making on both financial and social matters. We are executing well on our strategic objectives and rewarding our shareholders with each passing quarter. 2022 will be another important year for us, and I look forward to keeping you abreast of our progress. With that, I'll turn it over to Tom for a review of our financials.
Thomas Fitzpatrick, CFO
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 2022 guidance, which we affirmed this morning and close with a review of our liquidity position and capital structure. Iridium continues to execute well, generating total revenue of $168.2 million in the first quarter, up 15% from the prior year's quarter. As Matt said, we're seeing continued great demand across the board. Operational EBITDA was $103.2 million in the first quarter. This was a 15% increase from last year's quarter and particularly driven by strong equipment sales in our effort to meet the growing demand for our many partners. On the commercial side of our business, service revenue was up 10% this quarter to $99.6 million. This increase was broad-based and reflected continued strength in IoT and broadband as well as a rebound in voice subscriber growth. Voice and data revenue rose 8% from last year's comparable quarter to $44.9 million. In the first quarter, we benefited from new subscriber growth and strong demand for handsets. Commercial IoT revenue totaled $28.4 million in the first quarter, up 15% from the prior year quarter. We continue to benefit from the growing demand for personal satellite communications, which we view as a long-term consumer-driven trend. While these subscribers generate lower ARPU than our traditional industrial IoT users, they remain a very attractive contributor to our service revenue growth in light of the minimal comparative network resources they consume. As a result, IoT ARPU was $7.78 this quarter compared to $8.39 in the prior year period. Revenue in commercial broadband grew 22% from the year ago period to $11.5 million. Supporting this growth was an increase in ARPU, driven by a mix shift among maritime subscribers to Iridium Certus from our legacy Iridium OpenPort service. Broadband remains an important component of our long-term growth, and we continue to expect that it will drive double-digit revenue and subscriber growth in 2022. During the quarter, we added 58,000 net new commercial subscribers with the gain driven predominantly by IoT. As a result, commercial IoT data subscribers now represent 76% of billable commercial subscribers, up from 73% in the year-ago period. We estimate that consumer-oriented plans now account for about half of our 1.2 million commercial IoT users. Hosting and other data services revenue was $14.8 million this quarter, in line with the comparable quarter last year. Turning to our government service business. We reported revenue of $26.5 million in the first quarter, up from $25.8 million in the prior year quarter. This increase reflects the contractual terms of our long-term EMSS contract. Sales of subscriber equipment came in better than we had expected as we continue to see strong demand for hardware, which supports all of our commercial business lines. Equipment sales rose 41% from the prior year period to $33.7 million. Engineering and support revenue was $8.4 million in the first quarter as compared to $6.4 million in the prior year period. We saw a rise in activity in both commercial and government work, which tends to ebb and flow from quarter-to-quarter. Our first quarter results as well as the trends we're seeing into April allow us to confirm our full-year revenue and EBITDA guidance. In support of this outlook, I want to highlight a few items that should aid you in modeling Iridium's quarterly progress for the remainder of the year. In light of activations and growth we are now seeing across all of our commercial business lines, we remain comfortable with our growth outlook for service revenue growth in 2022. Quarterly revenue from our EMSS contract with the U.S. government will remain steady at $26.5 million per quarter in 2022. There's no increase in the contractual fee schedule this year. The next step-up will occur in 2024. As I noted earlier, equipment sales are trending higher than we initially projected due to higher demand for IoT hardware and handsets. In light of this trend, we continue to believe that hardware sales in 2022 will materially outpace last year's results. On the expense side of the ledger, as Matt mentioned, we are feeling the effects of higher recruiting and development costs and also anticipate making some incremental investments to retool business systems, which were not included in our original budget. This will result in higher spending on SG&A in 2022. These costs, however, will allow us to move faster on revenue-generating opportunities in future years. In addition to these higher cash SG&A expenses, we expect materially higher stock compensation expenses as a result of the accounting for a new retirement provision in our RSU award program and higher RSU awards. Both of these items are more fully explained in our public filings regarding compensation matters. In total, we expect SG&A to increase by about 20% this year. We continue to forecast total service revenue growth between 5% and 7% this year. The higher equipment sales we anticipate this year will be balanced by higher SG&A and technology investment. Accordingly, we reiterate our outlook for operational EBITDA between $400 million and $410 million in 2022. Moving to our capital position. As of March 31, 2022, Iridium had a cash and cash equivalents balance of approximately $232 million. Iridium's growing cash flow has been a source of liquidity, and it's one of the reasons that our Board added to our share repurchase program with an additional $300 million authorization last month. In the first quarter of 2022, Iridium purchased 3.8 million shares of common stock at an average price of about $35 for a total of $134.2 million. Inclusive of the Board's newest share repurchase authorization, this left Iridium with approximately $302 million of capacity outstanding on our buyback program at the end of the quarter. We will continue to be disciplined in executing these authorizations. Iridium's net leverage was 3.5x of EBITDA at the end of the first quarter. This was down from 4x a year earlier, but up a little from December 31, 2021, as a result of our considerable share purchase activity during the first quarter. Based upon our newest repurchase authorization, our long-term target for net leverage is to be between 2.5x to 3.5x of EBITDA at the end of 2023. We expect to be within this target range even after giving effect to all outstanding share buybacks authorized by our Board. Capital expenditures in the first quarter were $13.6 million. In light of our comments that Iridium may participate in a launch rideshare, we expect CapEx could rise above $45 million this year to as much as $80 million. We expect that at least half of the approximate $35 million in launch and related costs would occur this year, subject to final launch timing with the remainder in early '23. This spending can be comfortably supported by Iridium's strong cash and cash equivalents balance and ongoing expectations for strong free cash flow in 2022. The launch rideshare is a one-time event and only slightly increases Iridium's CapEx when spread across the duration of our CapEx holiday given its cost of approximately $35 million. Exclusive of this rideshare, we continue to believe that Iridium's CapEx will average approximately $40 million per year during our CapEx holiday, as we previously guided. If we use the midpoint of our 2022 EBITDA guidance and back off $60 million in net interest pro forma for our current debt structure, the maximum $80 million in CapEx for this year and $14 million in working capital, inclusive of the appropriate hosted payload adjustment, we're projecting pro forma free cash flow of approximately $251 million, up 2% from 2021. This is a conversion rate of 62% in 2022, representing a yield of approximately 5%. A more detailed description of these cash flow metrics, along with the reconciliation to GAAP measures, is available in a supplemental presentation under Events in our Investor Relations website. In closing, Iridium continues to enjoy strong operational trends and will be opportunistic this year in using its growing cash position to support incremental share repurchases, fund new business system investment and potentially launch additional ground spares into space. We continue to be highly confident in Iridium's business prospects and our ability to generate meaningful returns for our shareholders. With that, I'll turn things back to the operator for the Q&A.
Operator, Operator
The first question comes from Ric Prentiss with Raymond James.
Ric Prentiss, Analyst
Obviously, strong equipment revenue, as you pointed out in the quarter, but some supply chain issues hanging around the edges. First question is, obviously, the IoT business usually has pretty strong summertime sales. You had really good 1Q sales. Are you concerned about not being able to meet the kind of the seasonal surge of what we've seen with the supply chain, particularly in the IoT, personal satellite communications area?
Matthew Desch, CEO
Not concerned. I mean as I said, we're forecasting significant growth in equipment this year and are going to deliver significant growth in equipment to the IoT space. It's just keeping up the constant surprise with higher and higher orders across broad areas, obviously, particularly in things like chipsets and devices for the personal communication sector, but really widely across the line. So far right now, it looks like we're going to clear most of the backlog at different times during the second and third quarter, but we're really not going to completely get out of being able to meet any kind of additional demand until almost near the end of the year. So it's as I said, it's a high-quality problem, I guess we're kind of keeping up with forecast, but then they keep expanding on us. So no, I think we'll be able to deal with the growth this summer.
Ric Prentiss, Analyst
Okay. It's great to hear about potential new opportunities and wins. What do you mean by retooling and investing in the business? Are you referring to an accounting system or sales and customer relationship systems? Can you provide more details on the investments related to SG&A and the expected higher levels?
Matthew Desch, CEO
Yes. I was discussing a few different aspects. People costs are increasing slightly due to the competitive markets we operate in. Currently, there is significant demand for personnel as we expand on various projects and customer opportunities. Regarding the specifics of retooling the business, we are around 22 to 25 years old now. As we have become more successful, our growth has surpassed the capabilities of our internal systems that support our expanding international workforce. We have brought in new talent and are exploring automation and other measures to enhance our efficiency. This will involve our financial systems, financial planning systems, employee management, performance evaluation, supply chain issues, and technology development. While these changes are not major, we believe it is essential, especially given our ongoing success, to reinvest in the business to improve our operations.
Ric Prentiss, Analyst
Can you provide an update on the timeline for smartphones potentially including satellite chips? Also, do you have any new radio capabilities for the bands you are operating in, particularly in the L-band?
Matthew Desch, CEO
I don't know what you mean by new radio, Ric, what are you referring to there?
Ric Prentiss, Analyst
Yes. So some of the 5G bands have NR categories behind them, and that just means it's a new radio. So it works better in some of the iPhone or Android chipsets that are being put into phones.
Matthew Desch, CEO
I'm not certain how that connects to L-band satellite systems. There are new standards that support 5G directly from space that are beginning to mature, but I think we are still several years away from actual implementation. This seems to be a long-term trend in the industry that we will monitor closely and consider how we might adapt to it. Meanwhile, our underlying systems are continuing to evolve to align with what I would call 5G or 3GPP standards overall. Regarding smartphones, as I have mentioned in previous earnings calls, we believe this is a key focus for us. Our results indicate that we are well positioned for personal communications across various areas, both stand-alone, and we foresee supporting this in a range of consumer devices, including smartphones. I'm not ready to discuss detailed plans yet, but we have been working on this for quite some time.
Operator, Operator
The next question comes from Landon Park with Morgan Stanley.
Landon Park, Analyst
And I was wondering if you could update us on the broadband side and just how you think the cadence is going to look for the full year? And maybe on the Certus 100 side, are there any particular new products that you see coming that are particularly exciting from your standpoint?
Matthew Desch, CEO
Broadband continues to exceed our expectations as we introduce more products from our partners, allowing us to tap into new market segments beyond maritime and land, such as aviation and government. We're transitioning from the Certus 700 products to Certus 200 and Certus 100, which has resulted in increasing activations and adoption. We're becoming the industry standard for L-band solutions outside of Inmarsat, specifically for VSAT players that are not part of the Viasat-Inmarsat continuum. We're also becoming more cost-effective, enabling us to serve a range of vessels from larger ships to smaller ones and commercial aircraft to general aviation and UAVs. I anticipate steady quarter-over-quarter growth, especially as we move through the year into the busier summer months. This market is growing at double-digit rates, and we expect this trend to continue for a considerable time. Regarding Certus 100, our partners are expanding their portfolio of products, and we're witnessing initial activations across diverse applications including drones, ship devices, aircraft systems, and land mobile solutions. We foresee a rise in IoT services. I’m particularly excited about these developments. This year and next, I believe we will see consumer-ready products that can be used on small airplanes, boats, and other portable devices, transitioning from power devices to more portable options. Overall, I’m very optimistic about the long-term potential of Certus 100; it represents a significant opportunity for us.
Landon Park, Analyst
Great. Thanks very much. And just one clarification on the SG&A guidance. So should we be looking at about $120 million for the full year? Is that the right number?
Thomas Fitzpatrick, CFO
Well, we said it would be about 20%. So...
Operator, Operator
The next question comes from Greg Burns with Sidoti & Company.
Gregory Burns, Analyst
So in terms of the guide, maintaining the service revenue growth target, I would think with all the strong demand, the strong equipment sales, that would translate into service revenue down the road, maybe it's not this year and that's why the guide is unchanged. But could you just kind of unpack that why that the strong equipment sales are not translating into a stronger outlook for service revenue growth?
Thomas Fitzpatrick, CFO
Hey, Greg. It's Tom. Yes, so we're reiterating the guide just because of the comp. If you look at the sequential growth in 2021, you had over $10 million of growth between the first and the third quarter. So the third quarter and the fourth quarter comps just get a lot tougher. Your point is well taken. We're keeping our eye on the subscriber increases and should trends continue, you should look for that guide to get bumped either in the second or the third quarter if current trends continue.
Gregory Burns, Analyst
Okay. Great. And then in terms of your relationship with the U.S. government, the Space Development Agency and the new LEO constellation, what's the status there in terms of maybe the RFP process? And how is that opportunity kind of significant to your relationship with the U.S. government?
Matthew Desch, CEO
I believe this opportunity is largely independent. The chance we have to support the new FPA opportunity as they develop their new LEO network is distinct from our previous efforts, but it aligns perfectly with our capabilities and experience, and we are enthusiastic about it. They plan to make an award this year, and we are hopeful that we have submitted the most competitive proposal with our partner, so we anticipate positive news. However, this effort stands apart from our other initiatives. I would say it reflects the continued growth of our strategic relationship and enhances our visibility into upcoming activities from the government. I am genuinely impressed with their overall progress in building this network. There appears to be a strong confidence within the government that this network will be increasingly essential. This is one of the reasons we've decided to pursue support for their LEO network, in addition to the substantial experience we've gained from managing our own.
Gregory Burns, Analyst
Okay. And then lastly, I recently saw some headlines around GPS jamming going on in Ukraine. Can you just talk about Satelles? Is that something that Satelles can solve? And just help remind us what your equity stake or your ownership stake in Satelles is?
Matthew Desch, CEO
Yes, that's exactly the kind of situation Satelles is designed for. I'm sure they are ready to offer support in those cases. If their technology is integrated into something that uses GPS, it can provide protection or an alternative. It can deliver a signal indoors and help guard against spoofing, jamming, and other disruptive activities, as well as provide a very reliable time signal for digital information needs. This aligns perfectly with their long-term goal of protecting against various GPS and GNSS challenges worldwide. As for our ownership, it's 17%.
Thomas Fitzpatrick, CFO
17%.
Operator, Operator
The next question comes from Hamed Khorsand with BWS Financial.
Hamed Khorsand, Analyst
I just had 2 questions. First one, about this equipment revenue increase, could you just talk about, are these new customers are buying equipment and haven't activated yet? Or is the mix more of existing customers making the change to Certus?
Matthew Desch, CEO
Overall, equipment revenue is increasing due to strong demand across the board. Every product line is showing significant year-over-year growth, particularly handsets and IoT devices, including chipsets. PTT devices are also performing very well. While broadband numbers are still small, they are meeting our expectations and continuing to grow. This growth is driven by both new and existing partners. Many partners have indicated their purchasing intentions from us, and we are experiencing increasing demand from all of them. Keeping up with this demand is challenging due to limited supply chain capabilities, but we have secured most of the parts we anticipated needing. However, when demand surpasses expectations, it takes time for suppliers to respond. This situation, while challenging, underscores the strength of our business and positions us well for long-term growth. It's a positive scenario, though understandably frustrating, as we aim to meet and exceed our partners' expectations.
Hamed Khorsand, Analyst
Could you provide an update on your presence in Russia with the Teleport location? How are the sanctions affecting your service there and the overall service globally, considering the location?
Matthew Desch, CEO
Russia is not part of our growth plans or projections anymore. It accounts for a small portion of our business overall, but we reach customers worldwide. We are fully compliant with all sanctions. I have noticed some encouraging signs recently, as certain restrictions for telecom and internet companies like ours have been eased. This seems to be aimed at ensuring the free flow of information for the people there and the activities it supports. We are monitoring the situation carefully. My primary focus is on Ukraine, where there is a significant demand for our services. We have seen extensive use of our services there, with numerous handsets and IoT devices supplied by our partners. We are providing a substantial number of minutes, including some free minutes and devices where possible. However, we are facing supply challenges to meet the growing demand, and that has been our main focus.
Operator, Operator
The next question comes from Chris Quilty with Quilty Analytics.
Chris Quilty, Analyst
Thanks, Matt. And I guess maybe, Tom, I want to follow up on the aviation market back at the peak of COVID. I think you had quantified about $1.5 billion per quarter revenue impact. And I was wondering how far you've come back from that trough? And I think, again, at the time you had indicated that you figured it might take 2 to 3 years to get back to normal levels. Is that still a reasonable estimate? Or are you feeling a little bit more optimistic?
Thomas Fitzpatrick, CFO
We are feeling more optimistic. I believe we are close to returning to pre-pandemic levels now, Chris.
Chris Quilty, Analyst
Great. And likewise, I think you were looking at about a half dozen terminal vendors. I think you reiterated back half of this year, you expect those to come into certification in use. Is it still that same of order of magnitude in terms of vendors? And in terms of the actual devices, are these terminals designed primarily for commercial aviation or general or across other platforms like rotorcraft and UAVs?
Matthew Desch, CEO
Yes. We're still seeing a lot of demand from our partners and from their customers for Iridium in the aviation market. We're seeing high gain and low gain antennas flying now and being tested and working to be certified, still look at it roughly that number of suppliers. We're already starting to see, by the way, some aviation activations in the lower end, Certus 100, say, in drones and GA. And I think we're going to start seeing Certus 200 and 700 type systems later on this year. It's really broad-based. There's a lot of interest in the larger avionic suppliers who are putting us into commercial aircraft, primarily for cockpit communications and eventually for safety communications. The earlier systems will be non-safety and then safety certifications will come in, say, the '23-'24 time frame. And then I think the broader base, and we've always been the biggest supplier in terms of volume for rotorcraft, general aviation drones, that sort of thing with 30,000 to 40,000 of leased devices kind of installed already. I think that's still going to be a very strong market for us in the Certus 100, 200 areas. And some of those are going to also be hitting this year. You'll be seeing us more and more in aircraft of all different types as we start getting built in. It just takes a long time with aviation because of regulation and certification and everything else, but demand is high, and we're a perfect fit for that market.
Chris Quilty, Analyst
Just to follow-up on one point, the UAV market. We're actually seeing some larger-scale operational tests in the drone delivery market. What is Iridium’s suitability for the sort of command and control functions for that particular market niche?
Matthew Desch, CEO
Yes. I think the potential is very high. These companies will rely on local technologies where possible, but they seek reliable communication capabilities that extend beyond visual range, whether as a primary or backup option. I don't have an exact count of drone companies that are actively testing or using our systems, but there are definitely many. I continue to meet more each quarter who are adopting our technology and forming partnerships with us. Our Certus 100 product is a great match because it is low power, lightweight, and compact, with minimal antenna requirements. This allows small drones to incorporate Iridium for applications that need non-localized support, which could become quite extensive in the future. It is still early for this segment of the business, so we don't promote it heavily since it won't drive our significant demand for 2022, but I feel optimistic about long-term growth and our positioning in this area.
Chris Quilty, Analyst
Great. And I guess just a follow-up on Aireon. I feel like it was only a couple of weeks ago, we did your fourth-quarter call. Any updates there? Or if not, that's fine.
Matthew Desch, CEO
Yes, it hasn't been a lot of update. They're obviously raising some capital, which we've talked about in the past to focus on this commercial data services. They've continued to have sort of wins in that area. They're continue to sort of look for the rebound of travel, which is looking increasingly positive here this summer and next. So I'm sure they'll be back to strong growth over the coming year or 2. So I don't think there haven't been any like specific ones that we wanted to call out necessarily in our script this time about big new wins or anything. But I saw even this week that they were kind of touting how they're supporting Isavia there in the sort of the Northern region, quite a large airspace where aircraft travel over the poles, that that's open and operating and I think you're just going to continue to see a lot of long-term positive information at Aireon.
Chris Quilty, Analyst
Great. And final question. I guess you reiterated about half of revenues on the IoT side coming from commercial. Is there any way you could give us a sketch of perhaps how many SKUs you have currently versus where you were a year or 2 years ago in order to get a sense of how broadly the partner network is expanding?
Matthew Desch, CEO
I've wanted that for a long time, and the challenge is that it's difficult to qualitatively assess and know exactly what we have. I can only share anecdotal observations, and I believe it's significantly higher. When referring to SKUs, I think you mean the different ways our device is represented, such as models 9602, 9603, or 9523, along with chipsets or other products. I think we're now reaching the thousands in terms of unique products or solutions. We have at least 300 to 400 partners that are exclusively IoT-related, and we're adding between 15 to 40 new partners each year. Even during the past two years of the pandemic, we added quite a few new partners across various product categories. Recently, it feels like almost anyone interested in satellite IoT solutions is turning to us. I’ve noticed some of our competitors seem to be acknowledging their challenges by shifting to models like leasing their spectrum instead of capitalizing on new opportunities. Overall, we are still expanding. We're bringing in partners ranging from heavy equipment suppliers to new applications such as drones, industrial applications, buoys, and container tracking solutions. The diversity is extensive, and counting these numbers is challenging; I wish we could provide a clearer picture.
Chris Quilty, Analyst
Well, maybe for Tom, just in terms of the mix of those consumers. Overall, consumer tends to be a lower ARPU. And then within that category, the partners that are using either the chipset, or who knows maybe a waveform in the future, again, takes the ARPU down. Is it fair to assume that we should continue to see through the balance of '22, the sort of mid-single-digit-type ARPU declines on an ongoing basis just due to mix?
Thomas Fitzpatrick, CFO
Yes, that's how we see it. However, the introduction of the Certus 100 is expected to have the opposite effect, as it will enable the push of pictures and similar features. This will counteract the natural downward trend in the mix due to personal communication. So, I would agree with that assessment. Are we expecting a 7% year-over-year decline? That seems accurate for 2022 into 2023, but we will likely face upward pressure as more functionality is introduced in that segment.
Gregory Burns, Analyst
And you had mentioned government interest in the Certus 100 due to some of the video and image transfer. To the degree that, that lands in the government bucket would the ARPU's attribution over to the commercial side because right now, it's to the commercial gateway, but the actual subs would show up on the government side and government IoT?
Matthew Desch, CEO
Good question. It's a new one really. To answer that, I might get back to you on that.
Operator, Operator
The next question comes from Mathieu Robilliard with Barclays.
Mathieu Robilliard, Analyst
A few questions, please. First, in terms of the strength in equipment revenues, maybe if you could give a bit more color as what surprised you positively compared to your initial expectations?
Matthew Desch, CEO
It's widespread. It affects nearly every product line. While I can't confirm that all of our 500 or so partners are ordering more, a significant number are increasing their orders compared to those who may be ordering less. We laid out our initial guidance for the year based on planning done last fall, and we noticed growth and optimism among our partners across various applications and support that they use Iridium for. We anticipated that growth, which turned out to be challenging. We had to purchase a large volume of parts from partners whose lead times extended from weeks to months, and it appeared we would continue to be in catch-up mode while everyone kept increasing their orders each month. The personal communications segment has performed exceptionally well, particularly with Garmin and ZOLEO showing strong results. We also added Bivy, which has reduced its prices and seems to be gaining traction in the market, along with other IoT suppliers. Our handset sales have also been robust this year, and it seems some competitors may be experiencing more significant supply issues than we are, allowing us to capture a larger share of the global handset market. No one anticipated the strong demand in Ukraine a year ago. This surge is attributed to both that situation and growing interest in push-to-talk technology, leading to an increase in devices for that purpose. Overall, the demand has been broad-based. It’s a culmination of years of dedication to developing a reliable network that is well-priced and positioned, and our partners are genuinely enthusiastic about the opportunities they see in utilizing our network to fulfill their needs.
Mathieu Robilliard, Analyst
Great. On the competitive side, have you seen any change in behavior from Inmarsat since the transaction with Viasat was announced? Is there anything noticeable there?
Matthew Desch, CEO
No, I haven't noticed any new change in behavior. They continue to kind of, I'd say, business as usual, more than anything else. I think if anything, they're kind of not being more aggressive, maybe there there's been price increases and other things on their side that have kind of indicated that maybe they're even struggling for some growth, but I think they're doing okay in the environment. But I wouldn't say that the overall environment that we work with them has changed at all.
Mathieu Robilliard, Analyst
Great. And then a last one on SG&A. So you've pointed to a 20% increase for 2022. I was curious to understand if that was the place where it will bring you in terms of SG&A, would that be like the new normal? And any growth from there? Are there some elements that would disappear in 2023-2024 because they are more one-off in nature?
Thomas Fitzpatrick, CFO
No, I don't think that's a higher run rate. Yes, I would model 2022 at about $120 to $125, and then consider it growing with inflation from there.
Matthew Desch, CEO
And I'd say this is a little bit of rightsizing for the growth that we're seeing right now and where we're at. I mean, we're just seeing a lot of opportunity, and we're growing a lot, and we've got to reset ourselves a little bit for the environment we're in going forward, which is a positive.
Thomas Fitzpatrick, CFO
Yes, I agree, Matt. I think the competition for technical people is intense. We see opportunities, and we're hiring in advance of the opportunities that we see, and that's going to take our SG&A up.
Operator, Operator
The next question comes from Anthony Klarman with Deutsche Bank.
Anthony Klarman, Analyst
I think most of my questions have already been addressed. However, I do have a clarifying question regarding the increase in capital expenditures for this year. It’s clear that there’s an opportunity to enhance ground spares. I understand you've utilized ridesharing before. Could you provide some insight into the strategic or operational benefits of enhancing ground spares? Specifically, does it primarily increase the usable network time in orbit, or what advantages do you gain from this capital expenditure? Additionally, how do you balance this against other capital needs or opportunities you might pursue, such as share buybacks or other strategic investments?
Matthew Desch, CEO
We're fortunate to be in a strong financial position to take this step. When we initially launched 81 satellites, especially with SpaceX for the first time, we understood that a launch failure could happen. We prepared for it, hoping it wouldn't occur. Thankfully, we faced no issues and ended up with more satellites in orbit than anticipated, plus six spare satellites on the ground. However, these ground spares are not useful while sitting idle. They require maintenance, technical expertise, and care for their solar arrays and batteries. Even though we may not need them because our network functioned well, I, as a satellite operator, would prefer to have around 14 spares in orbit instead of 9 as a backup system. They're essentially an insurance policy. We're considering taking advantage of a good opportunity to launch these spares at a low cost, separate from our current capital expenditure holiday. We see this as a good time to proceed with this plan. Currently, these spares won't enhance our system's operations, but the last network we managed operated for 22 years, much longer than initially designed. This gives us hope that our current network will last similarly, which helps support our overall capital expenditure holiday by slightly reducing the need to develop the next network. Does that clarify things, Anthony?
Anthony Klarman, Analyst
Sorry there, I was on mute. Yes, that's pretty much what I was looking for. Thank you.
Operator, Operator
The next question comes from Louie DiPalma with William Blair.
Louie DiPalma, Analyst
Matt, Tom and Ken, good morning. With your announcement about launching spares, I know you just touched upon this, is there any change to your forecast for the expected useful life of the constellation? Is the timeframe for replacing it still like around 2035?
Matthew Desch, CEO
We've consistently mentioned a CapEx holiday of at least 10 years, and that remains true. We're pursuing this approach to extend the long-term viability of our network. At this point, we're not specifying a new timeframe because there are uncertainties about the future. However, with each passing year, we gain more confidence in our long-term outlook. I understand there are accounting implications and other factors involved, but we are not making any changes to that aspect at the moment, as it wouldn't be appropriate.
Louie DiPalma, Analyst
Great. And I think a few quarters ago, Garmin released a second edition of the inReach Mini, and you discussed how your equipment sales were very strong, and you highlighted handset sales. You have also discussed how your partners plan to release Certus 100 devices over the next 2 years. I was wondering, does Iridium have plans to update its own mobile device lineup, such as your satellite phone and your mobile hotspot with the Certus 100 functionality?
Matthew Desch, CEO
You're asking for information that I'm not quite ready to discuss. However, we believe that the Certus 100 technology would be excellent in a consumer device, and I'm eager to see it available in the market soon. That said, I won't be making any announcements today.
Louie DiPalma, Analyst
Great. and I may have missed this, but can you discuss the potential applications for your video compression partnerships with AnsuR and VideoSoft that you announced last month? Do you see like adoption of that technology more so for the military market? Or is there an emphasis on like commercial end markets?
Matthew Desch, CEO
I believe it's both. We've definitely observed significant interest, particularly with initial applications focusing on remote video in very isolated areas. We first witnessed this during our Arctic Lynx demonstration last summer, which took place in a large area of the Polar Regions, attracting a wide range of Department of Defense and other governmental observers, all of whom were impressed by its performance. This success motivated us to support our partners, as several of our commercial collaborators have also shown interest in utilizing the technology over low data rates. Our network is not geared towards high speed; we are not aiming to provide tens or hundreds of megabits like some others do. In fact, other networks may be better suited for those kinds of applications if they are used consistently. However, our network is exceptionally well-equipped for specific applications, and the capability to deliver good video via a Certus 100 device is something we consider truly unique. No one else will be able to match that. Thus, many of our commercial partners are also exploring this technology, although I cannot announce or detail all the potential applications I have been informed about.
Operator, Operator
And our final question today will come from Walt Piecyk with LightShed.
Walter Piecyk, Analyst
Matt, at the end of your prepared comments, you mentioned funding new businesses. Could you explain what that means in terms of utilizing free cash flow?
Matthew Desch, CEO
Honestly, I don't remember talking about funding new businesses. I don't know what you mean.
Thomas Fitzpatrick, CFO
Well, let me give you an example, Walt. So as we've talked about Aireon doing a capital raise in support of their data business, that would be an investment that we would take a very hard look at and it seems very compelling to us.
Matthew Desch, CEO
I don't remember saying that in my prepared remarks.
Walter Piecyk, Analyst
Maybe Bloomberg has it wrong. I just read it from Bloomberg. It's the last sentence of the prepared remarks. In regard to other uses of cash, you mentioned Aireon raising capital. Are you all committed to invest in this round and do you have a term sheet? Since you're on the board, is there a term sheet for this existing round, or is that still being sought?
Thomas Fitzpatrick, CFO
We haven't said, Walt. What we said is that should they undertake such a round, that would be something we'd be very interested in.
Walter Piecyk, Analyst
And would you anticipate maintaining your existing percentage increasing? Do you have the option like what rates do you have to increase your percentage in terms of additional rounds?
Matthew Desch, CEO
Well, there are no restrictions on increasing our share, so if we were to take a larger share than others, we would be increasing our stake.
Walter Piecyk, Analyst
And would you contemplate actually being the lead investor in the next round?
Thomas Fitzpatrick, CFO
I would just say we like that business, where we remain as committed to it as we have ever been.
Matthew Desch, CEO
And Walt, I noticed that in Tom's prepared remarks, one of his closing statements mentioned funding new business system investment. He was referring to our discussion about retooling some of our business systems and our IP systems to support automation and other initiatives. So I believe that's what he meant.
Operator, Operator
This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Matthew Desch, CEO
Well, we continue to be here to support your additional questions and support you, and we'll be seeing you in the second quarter. And thanks for all joining us this quarter. Take care.
Operator, Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.