What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-11 compared with 2020-02-25 · 203 added, 204 removed, 262 unchanged (61% of the section changed)

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We provide voice and data communications services to businesses, the U.S.

and foreign governments, non-governmental organizations and consumers via our recently completed upgraded satellite network, which has an architecture of 66 operational satellites with in-orbit and ground spares and related ground infrastructure.

and foreign governments, non-governmental organizations and consumers via our upgraded satellite network, which has an architecture of 66 operational satellites with in-orbit and ground spares and related ground infrastructure.

We utilize an interlinked mesh architecture to route traffic across the satellite constellation using radio frequency crosslinks between satellites.

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Final payments to SpaceX for these launches were made during the second quarter of 2019.

These costs were capitalized as construction in progress within property and equipment, net in the accompanying condensed consolidated balance sheets.

These costs were capitalized as construction in progress within property and equipment, net in the accompanying consolidated balance sheets.

We shared one launch with GFZ German Research Centre for Geosciences for which we received $29.8 million from them.

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We used the proceeds of the Term Loan along with our debt service reserve account, or DSRA, and cash on hand to repay in full all of the indebtedness outstanding under the credit facility with a syndicate of bank lenders guaranteed by Bpifrance Assurance Export S.A.S., or the BPIAE Facility, as well as related expenses.

The Term Loan was issued at a price equal to 99.5% of its face value and bears interest at an annual rate of LIBOR plus 3.75%, with a 1.0% LIBOR floor and has a seven-year maturity.

The Revolving Facility bears interest at the same rate (but without a LIBOR floor) if and as drawn, with no original issue discount, a commitment fee of 0.5% per year on the undrawn amount, and a five-year maturity.

See Note 7 for further discussion of our early extinguished BPIAE Facility as well as our new Term Loan .

The Credit Agreement restricts our ability to incur liens, engage in mergers or asset sales, pay dividends, repay subordinated indebtedness, incur indebtedness, make investments and loans, and engage in other transactions as specified in the Credit Agreement, and also contains a mechanism to sweep a portion of our excess cash flow (as defined in the Credit Agreement).

The Term Loan was issued at a price equal to 99.5% of its face value and initially bore interest at an annual rate of LIBOR plus 3.75%, with a 1.0% LIBOR floor, and has a seven-year maturity.

On February 7, 2020, we closed on an additional $200.0 million under the Term Loan.

On February 13, 2020, we used these proceeds, together with cash on hand, to prepay and retire all of the indebtedness outstanding under our senior unsecured notes, or the Notes, including premiums for early prepayment.

The additional amount is fungible with the original $1,450.0 million, having the same maturity date, interest rate and other terms, but was issued at a 1.0% premium to face value.

To prepay the Notes, we paid a call price equal to the present value at the redemption date of (i) 105.125% of the $360.0 million principal amount of the Notes plus (ii) all interest due through the first call date in April 2020, representing a total call premium of $23.5 million, plus all accrued and unpaid interest to the redemption date.

In January 2021, we repriced the Term Loan in order to reduce the annual interest rate to LIBOR plus 2.75%, with a 1.0% LIBOR floor, with no other material changes to the terms.

The Revolving Facility bears interest at LIBOR plus 3.75% (but without a LIBOR floor) if and as drawn, with no original issue discount, a commitment fee of 0.5% per year on the undrawn amount, and a five-year maturity.

See Note 7 for further discussion of our Term Loan.

The Credit Agreement, as amended to date, restricts our ability to incur liens, engage in mergers or asset sales, pay dividends, repay subordinated indebtedness, incur indebtedness, make investments and loans, and engage in other transactions as specified in the Credit Agreement, and also contains a mechanism to sweep a portion of our excess cash flow (as defined in the Credit Agreement).

The Credit Agreement provides for specified exceptions, baskets measured as a percentage of trailing twelve months of earnings before interest, taxes, depreciation and amortization, or EBITDA, and unlimited exceptions in the case of incurring indebtedness and liens and making investments, dividend payments, and payments of subordinated indebtedness, as well as a phase-out of the excess cash flow sweep, based on achievement and maintenance of specified leverage ratios.

The Credit Agreement permits repayment, prepayment, and repricing transactions, subject to a 1% penalty in the event the facility is prepaid or repriced within the first six months.

The Credit Agreement permits repayment, prepayment, and repricing transactions, subject to a 1% penalty in the event the facility is prepaid or repriced within six months after the repricing action noted above.

The Credit Agreement contains no financial maintenance covenants with respect to the Term Loan.

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The Credit Agreement also contains other customary representations and warranties, affirmative and negative covenants, and events of default.

On February 7, 2020, we amended the Term Loan to borrow an additional $200.0 million in principal.

The proceeds, along with cash on hand, were used to prepay all of the indebtedness outstanding under our senior unsecured notes, or the Notes, as described below, including premiums for early prepayment.

The early prepayment of the Notes occurred on February 13, 2020.

The additional amount is fungible with the original $1,450.0 million, having the same maturity date, interest rate and other terms, but were issued at a 1.0% premium to face value.

Senior Unsecured Notes

On March 21, 2018, we issued $360.0 million in aggregate principal under the Notes, before $9.0 million of deferred financing costs, for a net principal balance of $351.0 million in borrowings from the Notes.

The Notes bore interest at 10.25% per annum and were due to mature on April 15, 2023.

Interest was payable semi-annually on April 15 and October 15, beginning on October 15, 2018, and principal would have been repaid in full upon maturity.

As noted above, we redeemed all of the $360.0 million outstanding under the Notes on February 13, 2020.

In 2018, the proceeds of the Notes were used to prepay outstanding bills of exchange owed to Thales Alenia Space, including premiums paid, in the amount of approximately $59.9 million issued pursuant to the FSD, replenish the DSRA under the BPIAE Facility to $189.0 million, and to pay approximately $44.4 million in Thales Alenia Space milestones previously expected to be satisfied by the issuance of bills of exchange.

The proceeds of the Notes also provided us with sufficient cash to meet our liquidity needs, including principal and interest payments under the BPIAE Facility .

The Notes contained covenant requirements that applied to certain permitted financing actions.

We were in compliance with all covenant requirements related to the Notes as of December 31, 2019.

Total interest incurred during the years ended December 31, 2019, 2018 and 2017 was $140.1 million , $142.7 million and $114.4 million, respectively.

Interest incurred includes amortization of deferred financing fees of $21.6 million , $26.5 million and $27.3 million , for the years ended December 31, 2019, 2018 and 2017, respectively.

Interest capitalized during the year ended December 31, 2019 and 2018 was $15.1 million and $76.7 million, respectively.

During 2017, all interest was capitalized.

Interest accrued for the years ended December 31, 2019 and 2018 was $7.8 million and $29.4 million , respectively.

As part of the repayment of the BPIAE Facility, noted above, we incurred a loss of approximately $111.7 million for the early extinguishment which falls within other income (expense) on our consolidated statements of operations and comprehensive income (loss).

Derivative Financial Instruments

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Cash flows related to the interest rate swaps are included in cash flows from operating activities on the consolidated statements of cash flows.

See Note 8 for further discussion of our derivative financial instruments.

Recent Developments

Government Contracts

Effective September 15, 2019, we entered into a multi-year, fixed price contract with the U.S.

Air Force Space Command, or AFSPC, for Enhanced Mobile Satellite Services, or the EMSS Contract.

Under the EMSS Contract, we will provide satellite airtime services, including unlimited global standard and secure voice, paging, fax, Short Burst Data, Iridium Burst, RUDICS and Distributed Tactical Communications System, or DTCS, services for an unlimited number of U.S.

Department of Defense, or DoD, and other federal government subscribers.

We may provide other services, such as Iridium Certus, to the U.S.

government under separate arrangements for an additional fee.

While we sell airtime directly to the U.S.

government for resale to end users, our hardware products are sold to U.S.

government customers through our network of distributors, which typically integrate them with other products and technologies.

In addition, we intend to invest approximately $10-$12 million over the next three years in support of the U.S.

government to implement enhanced services at its dedicated gateway, which we will account for as additional cost of services.

Pursuant to federal acquisition regulations, the U.S.

government may terminate the EMSS Contract, in whole or in part, at any time.

The fixed-price rate in each of the seven contract years is as follows:

Contract Year

Fixed Price Rate

(in millions)

Total Contract Value

We provide maintenance services for the U.S.

government's dedicated gateway pursuant to our Gateway Maintenance and Support Services contract, or the GMSS Contract, which was most recently entered into in March 2019 and is also managed by the AFSPC.

This agreement provided for an initial six-month base term which expired on September 30, 2019.

government exercised the first of four available one-year options which extends the GMSS Contract service term to September 30, 2020.

government elects to exercise all of the remaining one-year options, the total value of the GMSS Contract to us will be approximately $54.1 million.

Pursuant to federal acquisition regulations, the U.S.

government may terminate the GMSS Contract, in whole or in part, at any time.

In October 2019, we were also awarded a five-year indefinite-delivery/indefinite-quantity, or IDIQ, contract managed by Air Force Space Command to enable ongoing innovation and enhancements for the U.S.

government gateway.

This contract has a one-year base period and four one-year options, with a value of up to $76 million to us over the five-year period.

Pursuant to federal acquisition regulations, the U.S.

government may terminate the IDIQ contract, in whole or in part, at any time.

See Note 8 to our consolidated financial statements included in this report for further discussion of our derivative financial instruments.

Senior Unsecured Notes

The Notes bore interest at 10.25% per annum and were due to mature on April 15, 2023.

Interest was payable semi-annually on April 15 and October 15, beginning on October 15, 2018, and principal would have been repaid in full upon maturity.

As noted above, the notes were redeemed on February 13, 2020.

Total Interest on Debt and Loss on Extinguishment

Total interest incurred during the years ended December 31, 2020, 2019 and 2018 was $98.6 million, $140.1 million and $142.7 million, respectively.

Interest incurred includes amortization of deferred financing fees of $3.8 million, $21.6 million and $26.5 million, for the years ended December 31, 2020, 2019 and 2018, respectively.

Interest capitalized during the year ended December 31, 2020 and 2019 was $3.2 million and $15.1 million, respectively.

Interest accrued for the years ended December 31, 2020 and 2019 was $0.2 million and $7.8 million, respectively.

As part of the repayment of the BPIAE Facility in November 2019, noted above, we incurred a loss of approximately $111.7 million for the early extinguishment which was recorded within other income (expense) on our consolidated statements of operations and comprehensive loss.

Similarly, in February 2020, we incurred a loss of approximately $30.2 million for the early extinguishment of the Notes, also recorded within other income (expense) on our consolidated statements of operations and comprehensive loss.

Material Trends and Uncertainties

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The preparation of these financial statements requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, income taxes, useful lives of property and equipment, loss contingencies, and other estimates.

On an ongoing

basis, we evaluate our estimates, including those related to revenue recognition, income taxes, useful lives of property and equipment, loss contingencies, and other estimates.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

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A liability is established equal to the cash paid upon purchase for the e-voucher or prepaid card.

We recognize revenue from the prepaid services upon the use of the e-voucher or prepaid card by the customer.

We recognize revenue from (i) the prepaid services upon the use of the e-voucher or prepaid card by the customer and (ii) the estimated pattern of use.

While the terms of prepaid e-vouchers can be extended by the purchase of additional e-vouchers, prepaid e-vouchers may not be extended beyond three or four years, dependent on the initial term when purchased.

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Significant judgment is required in the calculation of our tax provision and the resulting tax liabilities as well as our ability to realize our deferred tax assets.

Our estimates of future taxable income and any changes to such estimates can significantly affect our tax provision in a given period.

Our estimates of future taxable income and any changes to such estimates can significantly impact our tax provision in a given period.

Significant judgment is required in determining our ability to realize our deferred tax assets related to federal, state and foreign tax attributes within their carryforward periods including estimating the amount and timing of the future reversal of deferred tax items in our projections of future taxable income.

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If actual results are not consistent with our estimates and assumptions, this may result in material changes to our income tax provision.

The Tax Act, enacted in December 2017, introduced significant changes to U.S.

The Tax Cuts and Jobs Act of 2017, enacted in December of 2017, or the Tax Act, introduced significant changes to U.S.

income tax law that have a meaningful impact on our provision for income taxes.

Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded these estimates in our financial statements.

Due to the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded these estimates in our financial statements.

Accounting for the income tax effects of the Tax Act requires significant judgments and estimates in the interpretation and calculations of the various provisions.

During 2019 and 2020, the U.S.

Treasury Department, as well as the Internal Revenue Service, or IRS, and other standard-setting bodies issued some guidance related to certain provisions in the Tax Act.

Treasury Department, as well as the Internal Revenue Service, or IRS, and other standard-setting bodies issued guidance related to certain provisions in the Tax Act.

These same standard-setting bodies may issue additional guidance on how the provisions of the Tax Act will be applied or otherwise administered that is different from our interpretation.

As we collect and prepare necessary data, interpret the Tax Act and analyze any additional guidance issued by the IRS or other standard-setting bodies, we may need to make adjustments to prior estimates, which could materially affect our financial statements in the period in which the adjustments are made.

As we collect and prepare necessary data, interpret the Tax Act

and analyze any additional guidance issued by the IRS or other standard-setting bodies, we may need to make adjustments to prior estimates, which could materially impact our financial statements in the period in which the adjustments are made.

Property and Equipment

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During each year end, we evaluate the useful lives of all assets under construction.

In 2017, we determined that the Kosmotras launch services would no longer be used or further developed.

As such, we wrote-off the full amount previously paid to Kosmotras, by recording accelerated depreciation of $36.8 million in the fourth quarter of 2017.

No such charges were recorded for the years ended December 31, 2019 or 2018.

Comparison of Our Results of Operations for the Year Ended December 31, 2020 and the Year Ended December 31, 2019

Year Ended December 31,

($ In thousands)

Revenue % of Total

Revenue Change

($ In thousands) 2020 2019 Dollars Percent

Service revenue

Commercial $ 362,208 62 % $ 350,026 63 % $ 12,182 3 %

Government 100,887 17 % 97,132 17 % 3,755 4 %

Total service revenue 463,095 79 % 447,158 80 % 15,937 4 %

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Operating income 35,483 6 % 10,120 2 % 25,363 251 %

Other expense:

Other income (expense):

Interest expense, net (94,271) (16) % (115,396) (21) % 21,125 (18) %

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Income tax benefit 32,910 5 % 56,120 10 % (23,210) (41) %

Net loss $ (56,054) (10) % $ (161,999) (29) % $ 105,945 (65) %

Commercial Service Revenue

Year Ended December 31,

2020 2019 Change

Revenue Billable

Subscribers (1)

Revenue Billable

Subscribers (1)

Revenue Billable

Subscribers ARPU

(Revenue in millions and subscribers in thousands)

Commercial voice and data

Commercial IoT data

Hosted payload and other data services

Total Commercial

Commercial services:

Voice and data $ 168.6 350 $ 40 $ 173.1 352 $ 41 $ (4.5) (2) $ (1)

IoT data 97.0 962 $ 9.16 96.4 802 $ 11.10 0.6 160 $ (1.94)

Broadband (3)

36.0 11.7 $ 266 30.5 10.8 $ 248 5.5 0.9 $ 18

Hosted payload and other data 60.6 N/A 50.0 N/A 10.6 N/A

Total commercial services $ 362.2 1,324 $ 350.0 1,165 $ 12.2 159

(1) Billable subscriber numbers are shown as of the end of the respective period.

Average monthly revenue per unit, or ARPU, is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the beginning of the period and the number of billable subscribers at the end of the period and then dividing the result by the number of months in the period.

(2) Average monthly revenue per unit, or ARPU, is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the beginning of the period and the number of billable subscribers at the end of the

period and then dividing the result by the number of months in the period.

Billable subscriber and ARPU data is not applicable for hosted payload and other data service revenue items.

For the year ended December 31, 2019, total commercial revenue increased $31.3 million , or 10% , due to increased revenue across all commercial services compared to the prior period.

Commercial IoT data revenue increased $11.3 million , or 13% , from the prior year period primarily due to a 24% increase in commercial IoT data billable subscribers primarily from continued strength in consumer personal communications devices.

This higher volume of new personal communication subscribers caused overall IoT ARPU to be lower.

Commercial voice and data revenue increased $10.4 million , or 5% , from the prior year period.

This increase was principally due to price increases in access and roaming fees that were implemented during the second quarter of 2018.

The increase in commercial voice and data revenue was also due to increased broadband subscribers.

Hosted payload and other data service revenue increased $9.6 million , or 24% , primarily due to revenue recognition from hosting services and increased data services due to an increase in the number of upgraded satellites in service, both related to Aireon and L3Harris.

(3) Commercial broadband consists of Iridium OpenPort and Iridium Certus broadband services, which were previously reported in commercial voice and data revenue.

Prior year periods have been conformed to this presentation.

For the year ended December 31, 2020, total commercial revenue increased $12.2 million, or 3%, due to increased hosted payload and other data services revenue and increased commercial broadband revenue.

Hosted payload and other data service revenue increased $10.6 million, or 21%, primarily due to increased Aireon data service fees related to a contractual step-up and increased Aireon power fees.

Commercial broadband revenue increased $5.5 million, or 18%, from the prior year period, principally due to sales of Iridium Certus broadband services, which were commercially introduced in January 2019.

Commercial IoT data revenue also increased slightly, up $0.6 million, or 1%, over the prior year period.

This primarily reflects a 20% increase in commercial IoT data billable subscribers, primarily from continued strength in consumer personal communications devices, offset in part by a decrease in ARPU, driven by the decrease in usage revenue related to COVID-19, particularly with aviation customers, and an increase in the proportion of consumer personal communications device users comprising IoT subscribers, as users of these devices typically utilize lower ARPU plans.

The increases in revenue were partially offset by a $4.5 million, or 3%, decline in commercial voice and data revenue from the prior year resulting from a decrease in subscribers and decreased usage following mobility restrictions associated with the COVID-19 pandemic.

Government Service Revenue

Year Ended December 31,

2020 2019 Change

Revenue Billable

Subscribers (1)

Revenue Billable

Subscribers (1)

Revenue Billable

(Revenue in millions and subscribers in thousands)

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We provide airtime and airtime support to U.S.

government and other authorized customers pursuant to our EMSS Contract.

Under the terms of this agreement, authorized customers utilize certain Iridium airtime services provided through the U.S.

government and other authorized customers pursuant to our Enhanced Mobile Satellite Services contract, or the EMSS Contract.

Under the terms of this agreement, authorized customers utilize specified Iridium airtime services provided through the U.S.

government’s dedicated gateway.

The fee is not based on subscribers or usage, allowing an unlimited number of users access to the services.

Immediately prior to entering into the EMSS Contract in September 2019, we were providing airtime service at varying monthly rates to the U.S.

government under month-to-month extensions of our previous EMSS contract, following the expiration of a six-month extension on April 21, 2019.

For the year ended December 31, 2019, government service revenue increased $9.1 million from the prior year period as a result of the month-to-month extensions we agreed to with the U.S.

government while the EMSS Contract was being negotiated and the higher monthly rate once the EMSS Contract was executed and became effective on September 15, 2019.

For the year ended December 31, 2020, government service revenue increased $3.8 million from the prior year period as a result of the higher pricing in the new EMSS Contract.

Subscriber Equipment Revenue

Subscriber equipment revenue decreased $15.0 million , or 15% , to $82.9 million for the year ended December 31, 2019 compared to the prior year.

This decrease was primarily due to a decrease in volume of handset sales and Iridium Pilot unit sales, partially offset by an increase in the volume of Short Burst Data devices and Iridium Certus devices.

Handset sales in 2018 were abnormally strong.

Subscriber equipment revenue increased $3.3 million, or 4%, to $86.1 million for the year ended December 31, 2020 compared to the prior year, primarily due to an increase in the volume and higher average selling price of L-band transceivers and an increase in volume of IoT device sales, partially offset by a decrease in the volume of handset sales.

Engineering and Support Service Revenue

Year Ended December 31,

2020 2019 Change

(In millions)

Commercial $ 4.5 $ 2.8 $ 1.7

Government 29.7 27.6 2.1

Total $ 34.2 $ 30.4 $ 3.8

Engineering and support service revenue increased by $3.8 million, or 12%, for the year ended December 31, 2020 compared to the prior year primarily as a result of an increase in the volume of contracted work to enable services for the U.S.

government and an increase in the volume of work for commercial customers, primarily related to the Aireon hosted payload operations center.

Operating Expenses

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Cost of services (exclusive of depreciation and amortization) includes the cost of network engineering and operations staff, including contractors, software maintenance, product support services, and cost of services for government and commercial engineering and support service revenue.

Cost of services (exclusive of depreciation and amortization) increased by $8.9 million , or 10% , for the year ended December 31, 2019 compared to the prior year, primarily as a result of an increase in the volume of contracted engineering and support services as noted above.

This increase was also driven by higher satellite operations support associated with a greater number of upgraded satellites in service during the current period, corresponding with higher levels of activity directed towards operating the completed system.

These increases were partially offset by a decrease in in-orbit insurance costs, which are amortized over a one-year period from the launch date, as we have completed the placement of new satellites in-orbit.

Cost of services (exclusive of depreciation and amortization) decreased by $3.9 million, or 4%, for the year ended December 31, 2020 compared to the prior year, primarily as a result of a decrease in in-orbit insurance costs, which were amortized over a one-year period from the in-service date, as we completed the placement of upgraded satellites in-orbit in February 2019.

This decrease was offset in part by higher costs to support the new EMSS Contract and an increase in the volume of contracted engineering and support services, as noted above.

Cost of Subscriber Equipment

Cost of subscriber equipment includes the direct costs of equipment sold, which consist of manufacturing costs, allocation of overhead, and warranty costs.

Cost of subscriber equipment decreased $6.7 million , or 12% , for the year ended December 31, 2019 compared to the prior year period primarily due to the decreased volume of handset and Iridium Pilot unit sales, partially offset by an increase in the volume of Short Burst Data devices and Iridium Certus devices.

Cost of subscriber equipment increased $1.4 million, or 3%, for the year ended December 31, 2020 compared to the prior year period primarily due to the increase in the volume of L-band transceivers and IoT device sales, as described above.

Research and Development

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Selling, general and administrative expenses that are not directly attributable to the sale of services or products include sales and marketing costs as well as employee-related expenses (such as salaries, wages, and benefits), legal, finance, information technology, facilities, billing and customer care expenses.

Selling, general and administrative expenses decreased by $4.7 million , or 5% , for the year ended December 31, 2019 compared to the prior year, primarily due to a decrease in professional fees, including lower consulting and regulatory fees, as well as a decrease in sales and marketing costs.

Selling, general and administrative expenses decreased by $3.1 million, or 3%, for the year ended December 31, 2020 compared to the prior year, primarily due to a decrease in management incentive compensation and decreased spend on travel and marketing related events as a result of COVID-19.

These decreases were offset by an increase in wages and equity compensation associated with an increase in headcount.

Depreciation and Amortization

Depreciation and amortization expense increased by $79.5 million , or 36% , for the year ended December 31, 2019 compared to the prior year, primarily due to the increased number of new satellites in service during the current period as we completed the replacement of our first-generation satellites.

Other Expense

Depreciation and amortization expense increased by $5.5 million, or 2%, for the year ended December 31, 2020 compared to the prior year, primarily due to the increased number of upgraded satellites in service during the current period as we completed the replacement of our first-generation satellites in February 2019.

As the upgraded satellites are the largest proportion of our asset base, we anticipate depreciation and amortization to remain relatively consistent over the next several years.

Other Income (Expense)

Interest Expense, net

Interest expense, net, for the year ended December 31, 2020 was $94.3 million, compared to $115.4 million for the prior year period.

The increase in interest expense is primarily related to a decrease in interest being capitalized as the average balance of satellites in construction decreased as upgraded satellites were completed.

In addition, during the years ended December 31, 2019 and 2018, we incurred approximately $34.1 million and $26.3 million, respectively, in interest on the Notes that were issued in March 2018, resulting in only nine months of interest in 2018.

The decrease was primarily related to the impact of the refinancing of our debt including a decrease in the weighted average effective interest rate and lower average outstanding borrowings under our total debt obligations.

The decrease was offset in part by less interest being capitalized as the average balance of satellites in construction decreased in 2020 as upgraded satellites were completed in the prior year and less interest income.

Loss on Extinguishment of Debt

During November 2019, we issued our Term Loan , and used the proceeds of the Term Loan, along with the our DSRA and cash on hand to repay in full all of the indebtedness outstanding under the BPIAE Facility , including premiums for early prepayment.

In conjunction with the prepayment of the BPIAE Facility, we wrote off the remaining unamortized debt issuance costs.

We also used proceeds received from Aireon and our Notes to extinguish debt.

These prepayments resulted in a loss on extinguishment of debt of $111.7 million and $7.3 million for the years ended December 31, 2019 and 2018, respectively.

The 2018 amount was previously included within interest expense.

Loss on extinguishment of debt was $30.2 million for the year ended December 31, 2020, compared to $111.7 million for the prior year period.

During November 2019, we issued our Term Loan, and used the proceeds of the Term Loan, along with our DSRA and cash on hand to repay in full all of the indebtedness outstanding under the BPIAE Facility, including premiums for early prepayment.

During February 2020, we closed on an additional $200.0 million under our Term Loan and used these proceeds, together with cash on hand, to prepay all of the indebtedness outstanding under the Notes, including premiums for early prepayment.

In each case, we wrote off the remaining unamortized debt issuance costs, resulting in the loss on extinguishment of debt.

Income Tax Benefit

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Our effective tax rate was approximately 37.0% for the year ended December 31, 2020 compared to 25.7% for the prior year.

The increase in income tax benefit was primarily related to an increase in loss before income taxes compared to the prior year, stock compensation, tax credits as well as nonrecurring adjustments to our deferred tax assets and liabilities related to state law changes.

The decrease in income tax benefit was primarily related to a decrease in loss before income taxes compared to the prior year.

If our current estimates change in future periods, the impact on the deferred tax assets and liabilities may change correspondingly.

See Note 13 to our condensed consolidated financial statements for more detail on the individual items impacting our effective tax rate for the years.

Net loss was $162.0 million for the year ended December 31, 2019, compared to net loss of $13.4 million during the prior year period.

This increase in net loss was primarily the result of the $104.4 million increase in loss on extinguishment of debt, the $79.5 million increase in depreciation and amortization expense and the $60.2 million increase in interest expense, net, as described above, partially offset by the $37.4 million increase in total revenues and the $48.9 million increase in income tax benefit, as described above.

See Note 1 2 to our consolidated financial statements for more detail on the individual items impacting our effective tax rate for the years.

Net loss was $56.1 million for the year ended December 31, 2020, compared to net loss of $162.0 million during the prior year.

This decrease in net loss was primarily the result of the $81.5 million decrease in loss on extinguishment of debt, the $23.0 million increase in total revenues, and the $21.1 million decrease in interest expense, net, as described above, partially offset by the $23.2 million decrease in income tax benefit, as described above.

Comparison of Our Results of Operations for the Year Ended December 31, 2019 and the Year Ended December 31, 2018

Year Ended December 31,

($ In thousands)

Revenue % of Total

Revenue Change

($ In thousands) 2019 2018 Dollars Percent

Service revenue

Commercial $ 350,026 63 % $ 318,757 61 % $ 31,269 10 %

Government 97,132 17 % 88,000 17 % 9,132 10 %

Total service revenue 447,158 80 % 406,757 78 % 40,401 10 %

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Total operating expenses 550,324 98 % 481,355 92 % 68,969 14 %

Gain on Boeing transaction

Operating income 10,120 2 % 41,653 8 % (31,533) (76) %

Other income (expense):

Interest income (expense), net

Interest expense, net (115,396) (21) % (55,149) (11) % (60,247) 109 %

Loss on extinguishment of debt (111,710) (20) % (7,292) (1) % (104,418) 1,432 %

Other income (expense), net (1,133) 0 % 139 0 % (1,272) (915) %

Total other income (expense)

Income (loss) before income taxes

Total other expense (228,239) (41) % (62,302) (12) % (165,937) 266 %

Loss before income taxes (218,119) (39) % (20,649) (4) % (197,470) 956 %

Income tax benefit 56,120 10 % 7,265 1 % 48,855 672 %

Net income (loss)

Net loss $ (161,999) (29) % $ (13,384) (3) % $ (148,615) 1,110 %

Commercial Service Revenue

Year Ended December 31,

2019 2018 Change

Revenue Billable

Subscribers (1)

Revenue Billable

Subscribers (1)

Revenue Billable

Subscribers ARPU

(Revenue in millions and subscribers in thousands)

Commercial voice and data

Commercial IoT data

Hosted payload and other data services

Commercial services:

Voice and data $ 203.6 363 $ 47 $ 193.2 361 $ 45 $ 10.4 2 $ 2

IoT data 96.4 802 $ 11.10 85.1 647 $ 12.26 11.3 155 $ (1.16)

Hosted payload and other data 50.0 N/A 40.4 N/A 9.6 N/A

Total Commercial $ 350.0 1,165 $ 318.7 1,008 $ 31.3 157

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Billable subscriber and ARPU data is not applicable for hosted payload and other data service revenue items.

For the year ended December 31, 2018, total commercial revenue increased $57.0 million, or 22%, due to strong revenue growth within each of our service categories.

The increase was primarily due to the increase in hosted payload and other data services revenue of $30.5 million, or 308%, which was attributable to revenue from hosting services related to Aireon, increased hosted payload data services due to an increase in the number of new satellites in service and increased satellite time and location service revenue.

In addition, commercial voice and data revenue increased by $15.5 million , or 9% , from the prior year period principally due to an increase in average revenue per unit resulting from certain price increases in access fees and growth in Iridium OpenPort subscribers.

Commercial IoT data revenue increased by $11.0 million, or 15%, from the prior year period primarily due to a 27% increase in commercial IoT data billable subscribers, partially offset by a decline in related ARPU.

For the year ended December 31, 2019, total commercial revenue increased $31.3 million, or 10%, due to increased revenue across all commercial services compared to the prior period.

Commercial IoT data revenue increased $11.3 million, or 13%, from the prior year period primarily due to a 24% increase in commercial IoT data billable subscribers primarily from continued strength in consumer personal communications devices.

This higher volume of new personal communication subscribers caused overall IoT ARPU to be lower.

Commercial voice and data revenue increased $10.4 million, or 5%, from the prior year period.

This increase was principally due to price increases in access and roaming fees that were implemented during the second quarter of 2018.

The increase in commercial voice and data revenue was also due to increased broadband subscribers.

Hosted payload and other data service revenue increased $9.6 million, or 24%, primarily due to revenue recognition from hosting services and increased data services due to an increase in the number of upgraded satellites in service, both related to Aireon and L3Harris.

Government Service Revenue

Year Ended December 31,

2019 2018 Change

Revenue Billable

Subscribers (1)

Revenue Billable

Subscribers (1)

Revenue Billable

(Revenue in millions and subscribers in thousands)

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(1) Billable subscriber numbers shown are at the end of the respective period.

We provide Iridium airtime and airtime support to U.S.

government and other authorized customers pursuant to a five-year EMSS contract executed in October 2013 and managed by Air Force Space Command.

Under the terms of this agreement, authorized customers utilize Iridium airtime services provided through the U.S.

We provide airtime and airtime support to U.S.

government and other authorized customers pursuant to our EMSS Contract.

Under the terms of this agreement, authorized customers utilize certain Iridium airtime services provided through the U.S.

government's dedicated gateway.

These services include unlimited global standard and secure voice, low and high-speed data, paging, broadcast, and DTCS services for an unlimited number of DoD and other federal subscribers.

The service fee under the EMSS contract was fixed at $88 million per year for the years ended December 31, 2018 and 2017, and was not based on subscribers or usage, allowing an unlimited number of users access to existing services.

The fee is not based on subscribers or usage, allowing an unlimited number of users access to the services.

Immediately prior to entering into the EMSS Contract in September 2019, we were providing airtime service at varying monthly rates to the U.S.

government under month-to-month extensions of our previous EMSS contract, following the expiration of a six-month extension on April 21, 2019.

For the year ended December 31, 2019, government service revenue increased $9.1 million from the prior year period as a result of the month-to-month extensions we agreed to with the U.S.

government while the EMSS Contract was being negotiated and the higher monthly rate once the EMSS Contract was executed and became effective on September 15, 2019.

Subscriber Equipment Revenue

Subscriber equipment revenue increased $20.7 million, or 27%, to $97.8 million for the year ended December 31, 2018 compared to the prior year.

This increase was primarily due to an increase in volume of handset sales, short-burst data device sales and L-band transceiver unit sales.

Subscriber equipment revenue decreased $15.0 million, or 15%, to $82.9 million for the year ended December 31, 2019 compared to the prior year.

Handset sales in 2018 were abnormally strong.

Engineering and Support Service Revenue

Year Ended December 31,

2019 2018 Change

(In millions)

Engineering and support service revenue decreased by $2.8 million, or 13%, for the year ended December 31, 2018 compared to the prior year primarily as a result of a decrease in the volume of contracted work.

Commercial $ 2.8 $ 0.7 $ 2.1

Government 27.6 17.7 9.9

Total $ 30.4 $ 18.4 $ 12.0

Engineering and support service revenue increased by $12.0 million, or 65%, for the year ended December 31, 2019 compared to the prior year primarily as a result of an increase in the volume of contracted work to enable services for the U.S.

Operating Expenses

Cost of Services (exclusive of depreciation and amortization)

Cost of services (exclusive of depreciation and amortization) increased by $5.6 million, or 7%, for the year ended December 31, 2018 compared to the prior year, primarily as a result of in-orbit insurance costs from new satellites placed into service during 2017 and 2018.

The increase was partially offset by a decrease in volume of contracted work for engineering and support services.

Cost of services (exclusive of depreciation and amortization) increased by $8.9 million, or 10%, for the year ended December 31, 2019 compared to the prior year, primarily as a result of an increase in the volume of contracted engineering and support services as noted above.

Cost of Subscriber Equipment

Cost of subscriber equipment includes the direct costs of equipment sold, which consist of manufacturing costs, allocation of overhead, and warranty costs.

Cost of subscriber equipment increased $12.4 million, or 28%, for the year ended December 31, 2018 compared to the prior year period primarily due to the increased volume of subscriber equipment described above.

Cost of subscriber equipment decreased $6.7 million, or 12%, for the year ended December 31, 2019 compared to the prior year period primarily due to the decreased volume of handset and Iridium Pilot unit sales, partially offset by an increase in the volume of Short Burst Data devices and Iridium Certus devices.

Research and Development

Research and development expenses increased by $7.2 million, or 47%, for the year ended December 31, 2018 compared to the prior year period primarily due to increased spend on the development of Iridium Certus broadband to expand service functionality on our new satellites.

Research and development expenses decreased by $8.1 million, or 36%, for the year ended December 31, 2019 compared to the prior year period primarily due to decreased spend on devices for our upgraded network.

Selling, General and Administrative

Selling, general and administrative expenses include sales and marketing costs as well as legal, finance, information technology, facilities, billing and customer care expenses.

Selling, general and administrative expenses increased by $13.4 million, or 16%, for the year ended December 31, 2018 compared to the prior year, primarily due to an increase in employee-related expenses and professional fees, including an increase in stock appreciation rights expense resulting from an increase in the share price of our common stock over the course of the year.

Selling, general and administrative expenses decreased by $4.7 million, or 5%, for the year ended December 31, 2019 compared to the prior year, primarily due to a decrease in professional fees, including lower consulting and regulatory fees, as well as a decrease in sales and marketing costs.

Depreciation and Amortization

Depreciation and amortization expense increased by $95.9 million, or 78%, for the year ended December 31, 2018 compared to the prior year, primarily due to an increase in the average number of new satellites placed into service during 2018 compared to 2017.

We expect depreciation to increase until all satellites are placed into service in the first quarter of 2019.

Gain on Boeing Transaction

On January 3, 2017, pursuant to an Insourcing Agreement with Boeing, we hired the majority of Boeing employees and third party contractors who had previously been responsible for the operations and maintenance of our satellite constellation and ground infrastructure.

As a result, we and Boeing terminated our previous Operations and Maintenance Agreement, or O&M Agreement, and our previous Iridium NEXT Support Service Agreement and entered into a new Development Services Agreement, or DSA, with a $6.0 million annual take-or-pay commitment through 2021.

In the first quarter of 2017, we recognized a $14.2 million gain consisting of (i) the derecognition of a purchase accounting liability of $11.0 million created when GHL Acquisition Corp.

acquired Iridium in 2009 related to the fair value of the contractual arrangement with Boeing as of that date and (ii) the remainder of a credit, equal to $3.2 million, resulting from an O&M Agreement amendment in July 2010.

No such transactions occurred in 2018.

Depreciation and amortization expense increased by $79.5 million, or 36%, for the year ended December 31, 2019 compared to the prior year, primarily due to the increased number of new satellites in service during the current period as we completed the replacement of our first-generation satellites.

Other Income (Expense)

Interest Income (Expense), net

Interest expense, net, for the year ended December 31, 2018 was $55.1 million, compared to interest income, net, of $4.3 million for the prior year period.

The increase in interest expense was the result of less interest from the BPIAE Facility being capitalized as the average balance of satellites under construction decreased as satellites were launched and placed into service.

Additional interest expense was also incurred as a result of the issuance of the Notes in March 2018.

Interest Expense, net

Interest expense, net, for the year ended December 31, 2019 was $115.4 million, compared to $55.1 million for the prior year period.

The increase in interest expense is primarily related to a decrease in interest being capitalized as the average balance of satellites in construction decreased as upgraded satellites were completed.

Loss on Extinguishment of Debt

During November 2019, we issued our Term Loan, and used the proceeds of the Term Loan, along with the our DSRA and cash on hand to repay in full all of the indebtedness outstanding under the BPIAE Facility, including premiums for early prepayment.

In conjunction with the prepayment of the BPIAE Facility, we wrote off the remaining unamortized debt issuance costs.

We also used proceeds received from Aireon and our Notes to extinguish debt.

These prepayments resulted in a loss on extinguishment of debt of $111.7 million and $7.3 million for the years ended December 31, 2019 and 2018, respectively.

The 2018 amount was previously included within interest expense.

Income Tax Benefit

1 unchanged sentence

Our effective tax rate was approximately 25.7% for the year ended December 31, 2019 compared to 35.4% for the prior year.

The decrease in income tax benefit was primarily related to the one-time benefit in the prior year for the lower U.S.

Federal corporate tax rate as a result of the Tax Act enacted in that period.

See Note 13 to our condensed consolidated financial statements for more detail on our assessment of the Tax Act and the individual items impacting our effective tax rate for the year.

Net Income (Loss)

Net loss was $13.4 million for the year ended December 31, 2018, compared to net income of $233.9 million during the prior year period.

This decrease in net income was primarily the result of the reduced income tax benefit compared to the prior year, as described above, and the $95.9 million increase in depreciation and amortization expense.

For the year ended December 31, 2018, the decrease in net income was also driven by the $66.8 million increase in interest expense, net, the $38.7 million increase in other operating expenses and the non-recurrence of the $14.2 million gain from the Boeing Insourcing Agreement in 2017.

These reductions in income were partially offset by the $75.0 million increase in our total revenue, including the $57.0 million increase in service revenue.

If our current estimates change in future periods, the impact on the deferred tax assets and liabilities may change correspondingly.

See Note 1 2 to our consolidated financial statements for more detail on the individual items impacting our effective tax rate for the years.

Net loss was $162.0 million for the year ended December 31, 2019, compared to net loss of $13.4 million during the prior year period.

Liquidity and Capital Resources

1 unchanged sentence

We used the proceeds of the Term Loan, cash in our DSRA and cash on hand to repay in full all of the indebtedness outstanding under the BPIAE Facility, including premiums for early prepayment.

As of December 31, 2019, we reported an aggregate balance of $1,450.0 million in borrowings under the Term Loan in our consolidated balance sheet, net of $26.6 million of net deferred financing costs for a net balance of $1,423.4 million outstanding.

In February 2020, we issued an additional $200.0 million under our Term Loan and used the proceeds and approximately $183.5 million of cash on hand to repay in full all of the indebtedness outstanding under our Notes, including premiums for early repayment.

These additional funds have all of the same terms as the initial borrowing under the Term Loan and were issued at a premium of 1.0% to face value.

On January 20, 2021, we repriced our Term Loan.

The Term Loan now bears interest at an annual rate of LIBOR plus 2.75%, with a 1.00% LIBOR floor.

All other terms remain the same.

To reprice the Term Loan, we incurred additional financing costs of $3.4 million.

As of December 31, 2020, we reported an aggregate balance of $1,637.6 million in borrowings under the Term Loan in our consolidated balance sheet, net of $24.0 million of deferred financing costs for a net balance of $1,613.6 million outstanding.

We have not drawn on our Revolving Facility.

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The Credit Agreement contains other customary representations and warranties, affirmative and negative covenants, and events of default.

These additional funds have all of the same terms as the initial borrowing under the Term Loan and were issued at a premium of 1.0%.

As of December 31, 2019, our total cash and cash equivalents balance was $223.6 million, and we had $100.0 million of borrowing availability under our Revolving Facility.

Our principal sources of liquidity are cash, cash equivalents and internally generated cash flows.

Our principal liquidity requirements over the next twelve months are primarily principal and interest on the Term Loan .

The Credit Agreement contains a mandatory prepayment mechanism with respect to a portion of our excess cash flow (as defined in the Credit Agreement).

It provides for specified exceptions, baskets measured as a percentage of trailing twelve months of earnings before interest, taxes, depreciation and amortization, and unlimited exceptions in the case of incurring indebtedness and liens and making investments, dividend payments, and payments of subordinated indebtedness, as well as a phase-out of the mandatory excess cash flow prepayments, based on achievement and maintenance of specified leverage ratios.

The Credit Agreement permits repayment, prepayment, and repricing transactions.

Our mandatory excess cash flow prepayment, as specified in the Credit Agreement, was $12.6 million as of December 31, 2020.

This amount will be paid in 2021 and counts towards our required quarterly principal payments under the Term Loan.

We were in compliance with all other covenants under the Credit Agreement as of December 31, 2020.

As of December 31, 2020, our total cash and cash equivalents balance was $237.2 million, our marketable securities balance was $7.5 million, and we had $100.0 million of borrowing availability under our Revolving Facility.

Our principal sources of liquidity are cash, cash equivalents, marketable securities and internally generated cash flows.

Our principal liquidity requirements over the next twelve months are primarily principal and interest on the Term Loan and share repurchases under the share repurchase program described in Note 10 .

We believe our liquidity sources will provide sufficient funds for us to meet our liquidity requirements for at least the next 12 months.

2 unchanged sentences

Year Ended December 31,

Statement of Cash Flows

Statement of Cash Flows 2020 2019 Change

(in thousands)

1 unchanged sentence

Net cash used in investing activities $ (46,470) $ (127,819) $ 81,349

Net cash used in financing activities $ (188,186) $ (313,280) $ 125,094

Cash Flows from Operating Activities

Net cash provided by operating activities for the year ended December 31, 2020 increased $51.6 million from the prior year period.

Net loss, as adjusted for non-cash activities, improved by $36.6 million over the prior year, primarily due to the $105.9 million increase in net income, partially offset by the non-cash $81.5 million decrease in the loss on extinguishment of debt.

Net cash from operating activities also increased as a result of working capital changes by approximately $15.0 million.

This increase was primarily the result of timing of accounts receivable collections, as well as lower purchases of inventory in 2020, compared to the prior year.

In 2019, there was an increase in inventory primarily associated with last-time purchases of manufacturers' discontinued parts that did not recur in 2020.

These improvements in cash were offset in part by a decrease in interest payable compared to the prior year.

In November 2019 and February 2020, we replaced our Credit Facility and Notes, respectively, with the Term Loan, resulting in monthly interest payments and an increase in cash used compared to previous semi-annual interest payments.

As a result, there was minimal interest payable in the 2020 working capital balance for the Term Loan.

Cash Flows from Investing Activities

Net cash used in investing activities for the year ended December 31, 2020 decreased $81.3 million from the prior year period primarily due to a decrease in capital expenditures as we completed payments for the construction of our upgraded constellation in 2019.

We estimate our capital expenditures will average approximately $40.0 million per year until 2029.

Cash Flows from Financing Activities

Net cash used in financing activities for the year ended December 31, 2020 decreased $125.1 million compared to the prior year period primarily due to utilizing our cash to pay down debt.

This resulted in principal payments and related costs, net of borrowings of $196.4 million for 2020, compared to $313.8 million for 2019.

See Note 7 to our consolidated financial statements included in this report for further discussion of our indebtedness.

Cash Flows - Comparison of the Year Ended December 31, 2019 and the Year Ended December 31, 2018

The following table shows our consolidated cash flows:

Year Ended December 31,

Statement of Cash Flows 2019 2018 Change

(in thousands)

Net cash provided by operating activities $ 198,143 $ 263,709 $ (65,566)

Net cash used in investing activities $ (127,819) $ (378,912) $ 251,093

Net cash (used in) provided by financing activities $ (313,280) $ 193,503 $ (506,783)

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See Note 7 to our condensed consolidated financial statements included in this report for further discussion of our indebtedness.

Cash Flows - Comparison of the Year Ended December 31, 2018 and the Year Ended December 31, 2017

The following table shows our consolidated cash flows:

Year Ended December 31,

Statement of Cash Flows

(in thousands)

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by financing activities

Cash Flows from Operating Activities

Net cash provided by operating activities for the year ended December 31, 2018 increased by $4.1 million from the prior year.

This increase was primarily due to a decrease in working capital related to timing of cash flows provided by prepaid and other current assets, accrued expenses and deferred revenues.

Working capital provided by operations is primarily driven by launch related activities, including utilization of prepaid expenses related to launch services and receipt of payments for milestones related to hosted payloads.

Cash Flows from Investing Activities

Net cash used in investing activities for the year ended December 31, 2018 increased $6.2 million from the prior year period primarily due to an increase in net purchases of marketable securities, partially offset by a decrease in capital expenditures related to the timing of payments of our Iridium NEXT construction and launch.

Cash Flows from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2018 increased by $176.6 million primarily due to the issuance of the Notes, offset in part by the related deferred financing fees, prepayments to extinguish amounts owed to Thales Alenia Space, as well as principal repayments on the BPIAE Facility and the payment of cumulative preferred dividends as described above.

Contractual Obligations and Commitments

The following table summarizes our outstanding contractual obligations as of December 31, 2019 (in millions):

Contractual Obligations

Payment obligations:

Debt obligations:

Contractual interest

Operating lease obligations (3)

Uncertain tax positions (4)

Unconditional purchase obligations (5)

Represents a five-year take-or-pay commitment under the Boeing DSA.

Debt obligations include repayment of the Term Loan and the Notes.

As mentioned above, the $360 million outstanding under the Notes, shown as Principal to be repaid in the 1-3 year period, was prepaid in February 2020.

Giving effect to the additional $200 million in Term Loans incurred in February 2020 and repayment of the Notes, excluding any extinguishment premiums, as if they had occurred on December 31, 2019, the Principal payments in the table above would be:

Less than 1 year - $372.4 million, 1-3 years - $33.0 million, 3-5 years - $33.0 million, and More than 5 years - $1,571.6 million, for a Total of $2,010.0 million;

the contractual interest payments would be:

Less than 1 year - $106.5 million, 1-3 years - $186.8 million, 3-5 years - $183.4 million, and More than 5 years - $165.7 million, for a Total of $642.4 million.

The repayment schedule excludes amounts that may be required to be prepaid pursuant to the excess cash flow sweep provision of the Credit Agreement, as those amounts are not determinable in advance.

Operating lease obligations do not include payments to landlords covering real estate taxes, common area maintenance and other charges, as such fees are not determinable based upon the provisions of our lease agreements.

As of December 31, 2019, we estimated our uncertain tax positions to be $1.0 million , including penalties and interest.

However, we are unable to reasonably estimate the period of the possible future payments for the remaining balance, and therefore the remaining balance has not been reflected in a specified period.

Unconditional purchase obligations include our agreement with a supplier for the manufacturing of our devices and various commitments with other vendors that are enforceable, legally binding and have specified terms, including fixed or minimum quantities, minimum or variable price provisions, and a fixed timeline.

Unconditional purchase obligations do not include agreements that are cancelable by us without penalty.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis