What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-17 compared with 2024-07-23 · 104 added, 99 removed, 241 unchanged (46% of the section changed)

6 unchanged sentences

These forward-looking statements are based on our current expectations and projections about future events, and they are subject to risks and uncertainties, known and unknown, that could cause actual results and developments to differ materially from those expressed or implied in such statements.

The important factors described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on February 15, 2024, could cause actual results to differ materially from those indicated by forward-looking statements made herein.

The important factors described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on February 15, 2024, as updated and supplemented by this Form 10-Q, could cause actual results to differ materially from those indicated by forward-looking statements made herein.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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This unique architecture minimizes the need for ground facilities to support the constellation, which facilitates the global reach of our services and allows us to offer services in countries and regions where we have no physical presence.

On April 1, 2024, we completed our acquisition of Satelles, Inc., or Satelles, a provider of satellite-based time and location services that complement and protect GPS and other GNSS systems.

On April 1, 2024, we acquired Satelles, Inc., or Satelles, a provider of satellite-based time and location services that complement and protect GPS and other GNSS systems.

This acquisition is intended to support our long-term business objectives.

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These distributors often integrate our products and services with other complementary hardware and software and have developed a broad suite of applications using our products and services targeting specific lines of business.

At June 30, 2024, we had approximately 2,413,000 billable subscribers worldwide, an increase of 273,000, or 13%, from approximately 2,140,000 billable subscribers as of June 30, 2023.

At September 30, 2024, we had approximately 2,482,000 billable subscribers worldwide, an increase of 246,000, or 11%, from approximately 2,236,000 billable subscribers as of September 30, 2023.

We have a diverse customer base, with end users in land mobile, Internet of Things, or IoT, maritime, aviation and government.

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government, for a substantial portion of our revenue, as a result of which the loss or decline in business with any of these customers may negatively impact our revenue and collectability of related accounts receivable.

Comparison of Our Results of Operations for the Three Months Ended June 30, 2024 and 2023

Three Months Ended June 30, Change

Comparison of Our Results of Operations for the Three Months Ended September 30, 2024 and 2023

Three Months Ended September 30, Change

2024 % of Total Revenue 2023 % of Total Revenue

12 unchanged sentences

Total operating expenses 157,919 74 % 169,447 86 % (11,528) (7) %

Operating income (loss) 43,646 22 % (15,971) (8) % 59,617 (373) %

Operating income 54,852 26 % 28,155 14 % 26,697 95 %

Other income (expense):

Interest expense, net (24,246) (11) % (34,660) (17) % 10,414 (30) %

Other income (expense), net (646) — % 419 — % (1,065) (254) %

Other income, net 312 — % 343 — % (31) (9) %

Total other expense, net (23,934) (11) % (34,317) (17) % 10,383 (30) %

Income (loss) before income taxes and gain (loss) on equity method investments 19,203 10 % (34,275) (18) % 53,478 (156) %

Income (loss) before income taxes and loss on equity method investments 30,918 15 % (6,162) (3) % 37,080 (602) %

Income tax benefit (expense)

(6,005) (3) % 6,009 3 % (12,014) (200) %

Gain (loss) on equity method investments 17,698 9 % (1,677) (1) % 19,375 (1,155) %

Loss on equity method investments (467) — % (1,489) (1) % 1,022 (69) %

Net income (loss) $ 24,446 12 % $ (1,642) (1) % $ 26,088 (1,589) %

Commercial Service Revenue

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 Change

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(3) Commercial broadband service consists of Iridium OpenPort ® and Iridium Certus ® broadband services.

For the three months ended June 30, 2024, total commercial services revenue increased $7.3 million, or 6%, from the prior year period primarily as a result of increases in IoT and voice and data service revenue.

Commercial IoT revenue increased $7.0 million, or 20%, for the three months ended June 30, 2024, compared to the same period of the prior year, primarily driven by an 16% increase in billable subscribers, largely due to strength in personal communication devices and a new contract with a large customer executed in the first quarter of 2024.

Commercial voice and data revenue increased $1.5 million, or 3%, for the three months ended June 30, 2024, compared to the same period of the prior year, due primarily to an increase in billable subscribers.

These increases were partially offset by a decrease of $0.7 million, or 4%, in hosted payload and other data service revenue, primarily due to the change in the estimated useful lives of our satellites in the fourth quarter of 2023, offset in part by increases in other data service revenue including Satelles revenue.

Increases in commercial services were also offset in part by a decrease of $0.5 million, or 4%, in commercial broadband revenue, due to a decrease in ARPU reflecting the increased prevalence of usage of the Company’s service as a companion service.

For the three months ended September 30, 2024, total commercial services revenue increased $7.8 million, or 6%, from the prior year period primarily as a result of increases in IoT, voice and data, and hosted payload and other data service revenue.

Commercial IoT revenue increased $5.2 million, or 14%, for the three months ended September 30, 2024, compared to the same period of the prior year, primarily driven by a 14% increase in billable subscribers, largely due to strength in personal communication devices.

Commercial voice and data revenue increased $1.5 million, or 3%, for the three months ended September 30, 2024, compared to the same period of the prior year, due primarily to an increase in billable subscribers.

Hosted payload and other data service revenue also contributed with an increase of $1.4 million, or 9%, primarily due to increases in other data service revenue, including Satelles revenue, that was not present in the prior year, offset in part by decreased hosted payload revenue recognition resulting from the change in the estimated useful lives of our satellites in the fourth quarter of 2023.

Government Service Revenue

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 Change

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

For the three months ended June 30, 2024, revenue was unchanged from the prior year period, in accordance with the contract.

For the three months ended September 30, 2024, revenue was $26.5 million, consistent with the prior year.

On September 15, 2024, the annual rate increased reflecting a contractual step up in the EMSS contract.

Subscriber Equipment Revenue

Subscriber equipment revenue decreased by $4.6 million, or 17%, for the three months ended June 30, 2024, compared to the prior year period, primarily due to a decrease in the volume of handset sales, offset in part by an increase in Short Burst Data ® sales including chipsets.

Subscriber equipment revenue increased by $1.7 million, or 9%, for the three months ended September 30, 2024, compared to the prior year period, primarily due to an increase in the volume of handset sales, offset in part by a decrease in Short Burst Data ® sales.

As previously disclosed, we expect 2024 equipment sales to be lower than in 2023 and more in line with periods prior to 2022.

Engineering and Support Service Revenue

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 Change

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Total engineering and support services $ 30.7 $ 25.2 $ 5.5

Engineering and support service revenue increased by $5.2 million, or 25%, for the three months ended June 30, 2024 compared to the prior year period, primarily due to increased work under certain government contracts, predominantly the contract awarded by the Space Development Agency, or the SDA.

Engineering and support service revenue increased by $5.5 million, or 22%, for the three months ended September 30, 2024 compared to the prior year period, primarily due to increased work under certain government contracts, predominantly the contract awarded by the Space Development Agency, or the SDA.

Based on the SDA contract, we expect engineering and support service revenue, as well as associated expenses, to be generally higher than in years prior to 2023 throughout the life of the SDA contract.

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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 $4.0 million, or 11%, for the three months ended June 30, 2024 compared to the prior year period, primarily as a result of the increase in work under certain government projects, including the SDA contract, as noted above.

Cost of services (exclusive of depreciation and amortization) increased by $2.5 million, or 6%, for the three months ended September 30, 2024 compared to the prior year period, primarily as a result of the increase in work under certain government projects, including the SDA contract, 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 by $2.2 million, or 13%, for the three months ended June 30, 2024 compared to the prior year period primarily due to the decrease in volume of handset sales, offset in part by an increase in Short Burst Data sales including chipsets, which was in line with the change in equipment revenue for the same period, as described above.

Cost of subscriber equipment remained relatively flat for the three months ended September 30, 2024 compared to the prior year period primarily due to an increase in the volume of handset sales, offset in part by the decrease in Short Burst Data sales, which was in line with the change in equipment revenue for the same period, as described above.

Subscriber equipment costs remained consistent, which did not align to the increase in subscriber equipment revenue primarily due to product mix and a decrease in inventory component costs.

Research and Development

Research and development expenses increased by $0.9 million, or 16%, for the three months ended June 30, 2024 compared to the prior year period, due to increased spending on device-related features for our network, including Project Stardust, which is our multi-year project to develop standards-based Narrowband-Internet of Things (NB-IoT) and Non-Terrestrial Network (NB-NTN) messaging and SOS capabilities for smartphones, tablets, cars and related consumer applications.

Research and development expenses increased by $1.2 million, or 23%, for the three months ended September 30, 2024 compared to the prior year period, due to increased spending on device-related features for our network, including Project Stardust, which is our multi-year project to develop Iridium NTN Direct SM , our standards-based Narrowband-Internet of Things (NB-IoT) and Non-Terrestrial Network (NB-NTN) messaging and SOS capabilities for smartphones, tablets, cars and related consumer applications.

Selling, General and Administrative

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 increased by $9.4 million, or 25%, for the three months ended June 30, 2024 compared to the prior year period, due primarily to higher headcount costs, including equity compensation costs, and costs related to the acquisition of Satelles and certain costs that were previously recorded in cost of services.

Selling, general and administrative expenses increased by $10.6 million, or 32%, for the three months ended September 30, 2024 compared to the prior year period, due primarily to costs related to the acquisition of Satelles, increased professional fees including stock appreciation rights expense in the current year resulting from changes in our stock valuation between the years, higher headcount costs, including equity compensation costs, and certain costs that were previously recorded in cost of services.

Depreciation and Amortization

Depreciation and amortization expense decreased by $63.8 million, or 56%, for the quarter ended June 30, 2024 compared to the prior year period.

In the second quarter of 2023, we wrote-off the full amount remaining in construction-in-progress for our final ground spare satellite, resulting in accelerated depreciation expense of $37.5 million.

In the fourth quarter of 2023, we updated our estimate of the satellites’ remaining useful lives based on the health of the constellation, resulting in an extension of the useful lives from 12.5 years to 17.5 years and a reduction of quarterly depreciation expense as compared to periods prior to

the fourth quarter of 2023.

Depreciation and amortization expense decreased by $25.7 million, or 33%, for the quarter ended September 30, 2024 compared to the prior year period.

As a result of this change in estimate, we expect depreciation expense to be approximately $83.3 million lower for the full year 2024 as compared to the full year 2023.

Interest Expense, Net

Interest expense, net increased $5.1 million, or 27%, for the three months ended June 30, 2024, primarily due to the increase in the outstanding debt balance following the additional $125.0 million in Term Loan in March 2024 and the $50.0 million draw on the Revolving Facility in April 2024.

Additionally, in June 2024, we repriced our Term Loan, reducing the interest rate by 0.25 basis points.

In connection with the repricing, we incurred $1.9 million of fees that have been included in interest expense, net.

Other Income (Expense), net

Other expense, net, was $0.6 million for the three months ended June 30, 2024, compared to other income, net, of $0.4 million for the prior year period.

The variation was primarily the result of changes in foreign currency exchange rates.

Interest expense, net decreased $10.4 million, or 30%, for the three months ended September 30, 2024 compared to the prior year period.

We incurred $14.7 million of fees in connection with our Term Loan refinancing in September 2023, compared to $2.2 million of fees that were incurred in connection with our increased Term Loan in the third quarter of 2024.

These decreases were offset in part primarily by the increases in the average outstanding debt balance following the additional $200.0 million in Term Loan in July 2024 and $125.0 million in March 2024.

Income Tax Benefit (Expense)

For the three months ended June 30, 2024, our income tax expense was $4.6 million, compared to income tax benefit of $5.2 million for the prior year period.

The increase in income tax expense is primarily related to the impact of stock compensation tax expense and nondeductible executive compensation plus the increase in pre-tax book income in 2024 compared to 2023.

Gain (Loss) on Equity Method Investments

For the three months ended June 30, 2024, our realized net gain on equity method investments was $17.7 million, compared to a loss of $1.7 million in the prior year period.

Prior to our acquisition of Satelles in April 2024, we held a 19.5% equity interest in Satelles, which was classified as an equity method investment.

Upon the closing of the acquisition, we recorded a gain of $19.8 million, equal to the difference between the fair value and net book value of the equity method investment.

This gain was partially offset by losses on our other equity method investments during the period.

For the three months ended September 30, 2024, our income tax expense was $6.0 million, compared to income tax benefit of $6.0 million for the prior year period.

The increase in income tax expense was primarily related to the increase in pre-tax book income in 2024 as compared to 2023.

Loss on Equity Method Investments

For the three months ended September 30, 2024, our realized net loss on equity method investments was $0.5 million, compared to a loss of $1.5 million in the prior year period.

These reflect the portion of losses recorded on our equity method investments.

Net Income (Loss)

Net income was $32.3 million for the three months ended June 30, 2024, compared to a net loss of $30.7 million for the prior year period.

The $63.1 million increase in net income was primarily the result of the $63.8 million decrease in depreciation expense, the $19.8 million gain related to the acquisition of Satelles and the $8.0 million increase in total revenue, offset in part by the $12.1 million increase in other operating expenses, $9.8 million increase in income tax expense and $5.1 million increase in interest expense.

Comparison of Our Results of Operations for the Six Months Ended June 30, 2024 and 2023

Six Months Ended June 30, Change

Net income was $24.4 million for the three months ended September 30, 2024, compared to a net loss of $1.6 million for the prior year period.

The $26.1 million increase in net income was primarily the result of the $25.7 million decrease in depreciation expense, the $15.2 million increase in total revenue and the $10.4 million decrease in interest expense, net, offset in part by the $10.6 million increase in selling, general and administrative expense and the $12.0 million increase in income tax expense.

Comparison of Our Results of Operations for the Nine Months Ended September 30, 2024 and 2023

Nine Months Ended September 30, Change

2024 % of Total Revenue 2023 % of Total Revenue

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Commercial Service Revenue

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 Change

17 unchanged sentences

(3) Commercial broadband service consists of Iridium OpenPort and Iridium Certus broadband services.

For the six months ended June 30, 2024, total commercial services revenue increased $16.6 million, or 7%, from the prior year period primarily driven by increases in IoT and voice and data service revenue.

Commercial IoT revenue increased $14.6 million, or 22%, for the six months ended June 30, 2024, compared to the prior year period, driven by a 16% increase in IoT billable subscribers, largely due to strength in personal communication devices and a new contract with a large customer executed in the first quarter of 2024.

For the nine months ended September 30, 2024, total commercial services revenue increased $24.5 million, or 7%, from the prior year period primarily driven by increases in IoT and voice and data service revenue.

Commercial IoT revenue increased $19.8 million, or 19%, for the nine months ended September 30, 2024, compared to the prior year period, driven by a 14% increase in IoT billable subscribers, largely due to strength in personal communication devices and a new contract with a large customer executed in the first quarter of 2024.

Commercial voice and data revenue increased $5.5 million, or 3%, from the prior year period primarily due to an increase in billable subscribers.

These increases were offset in part by a decrease of $1.7 million, or 6%, in hosted payload and other data service revenue compared to the prior year period, primarily due to the change in the estimated useful lives of our satellites in the fourth quarter of 2023, offset in part by increases in other data service revenue including Satelles revenue.

Commercial broadband revenue decreased $0.3 million, or 1%, for the six months ended June 30, 2024, compared to the prior year period, due to a decrease in ARPU reflecting the increased prevalence of usage of the Company’s service as a companion service, which also partially offset the increases in IoT and voice and data revenue.

These increases were offset in part by a decrease of $0.5 million, or 1%, in broadband revenue compared to the prior year period and a decrease of $0.3 million, or 1%, in hosted payload and other data service revenue compared to the prior year period.

The decrease in hosted payload and other data service revenue was primarily due to decreased hosted payload revenue recognition resulting from the change in the estimated useful lives of our satellites in the fourth quarter of 2023, offset in part by increases in other data service revenue including Satelles revenue.

Government Service Revenue

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 Change

12 unchanged sentences

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

For the six months ended June 30, 2024, revenue was unchanged from the prior year period, in accordance with the EMSS contract.

For the nine months ended September 30, 2024, revenue remained consistent with the prior year period.

As noted above, the annual rate increased on September 15, 2024, reflecting a contractual step up in accordance with the EMSS contract.

Subscriber Equipment Revenue

Subscriber equipment revenue decreased $21.4 million, or 31%, for the six months ended June 30, 2024, compared to the prior year period, primarily due to a decrease in the volume of handset sales, offset in part by an increase in Short Burst Data sales.

Subscriber equipment revenue decreased $19.7 million, or 22%, for the nine months ended September 30, 2024, compared to the prior year period, primarily due to a decrease in the volume of handset sales, offset in part by an increase in Short Burst Data sales.

As previously disclosed, we expect 2024 equipment sales to be lower than in 2023 and more in line with periods prior to 2022.

Engineering and Support Service Revenue

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 Change

3 unchanged sentences

Total engineering and support services $ 87.0 $ 70.1 $ 16.9

Engineering and support service revenue increased $11.4 million, or 25%, for the six months ended June 30, 2024 compared to the prior year period, primarily due to increased work under certain government projects, including the SDA contract, offset in part by decreases in commercial engineering projects.

Engineering and support service revenue increased $16.9 million, or 24%, for the nine months ended September 30, 2024 compared to the prior year period, primarily due to increased work under certain government projects, including the SDA contract, offset in part by decreases in commercial engineering projects.

As noted above, we expect engineering and support service revenue, as well as associated expenses, to be generally higher than in years prior to 2023 throughout the life of the SDA contract.

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Cost of Services (exclusive of depreciation and amortization)

Cost of services (exclusive of depreciation and amortization) increased by $13.9 million, or 19%, for the six months ended June 30, 2024, compared to the prior year period primarily as a result of an increase in work under certain government engineering contracts, including the SDA contract, as noted above, and higher satellite operation costs.

Cost of services (exclusive of depreciation and amortization) increased by $16.3 million, or 14%, for the nine months ended September 30, 2024, compared to the prior year period primarily as a result of an increase in work under certain government engineering contracts, including the SDA contract, as noted above, and higher satellite operation costs.

Cost of Subscriber Equipment

Cost of subscriber equipment decreased by $15.4 million, or 36%, for the six months ended June 30, 2024, compared to the prior year period primarily due to the decrease in volume of handset sales, offset in part by an increase in Short Burst Data sales, which was in line with the change and expectations in equipment revenue for the same period, as noted above, and decreased inventory component costs.

Cost of subscriber equipment decreased by $15.5 million, or 28%, for the nine months ended September 30, 2024, compared to the prior year period, primarily due to the decrease in volume of handset sales, offset in part by an increase in Short Burst Data sales, which was in line with the change and expectations in equipment revenue for the same period, as noted above, and decreased inventory component costs.

Research and Development

Research and development expenses increased by $4.2 million, or 44%, for the six months ended June 30, 2024, compared to the prior year period, due to increased spending on device-related features for our network, as noted above.

Research and development expenses increased by $5.4 million, or 37%, for the nine months ended September 30, 2024, compared to the prior year period, due to increased spending on device-related features for our network, including Project Stardust, as noted above.

Selling, General and Administrative

Selling, general and administrative expenses increased by $7.5 million, or 10%, for the six months ended June 30, 2024, compared to the prior year period, primarily due to higher headcount-related expenses, including equity compensation costs, as well as costs related to the acquisition of Satelles and certain costs that were previously recorded in cost of services, offset in part by a decrease in stock appreciation rights expense in the current year resulting from changes in our stock valuation between the years and decreased spending related to our channel partner conference which was held in the first quarter of the prior year.

Selling, general and administrative expenses increased by $18.1 million, or 17%, for the nine months ended September 30, 2024, compared to the prior year period, primarily due to higher headcount-related expenses, including equity compensation costs, as well as costs related to the acquisition of Satelles and certain costs that were previously recorded in cost of services, offset in part by a decrease in stock appreciation rights expense in the current year resulting from changes in our stock valuation between the years and decreased spending related to our channel partner conference which was held in the first quarter of the prior year.

Depreciation and Amortization

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Additionally, we wrote off our remaining ground spare satellite in the second quarter of 2023 following completion of on-orbit testing, which resulted in accelerated depreciation expense of $37.5 million.

No write-offs occurred during the six months ended June 30, 2024.

No write-offs occurred during the nine months ended September 30, 2024.

Other Expense

Interest Expense, Net

Interest expense, net increased $7.8 million for the six months ended June 30, 2024 compared to the prior year period, primarily due to the increase in the outstanding debt balance following the additional $125.0 million in Term Loan in March 2024 and the $50.0 million draw on the Revolving Facility in April 2024.

Additionally, in June 2024, we repriced our Term Loan, which reduced the interest rate by 0.25 basis points.

In connection with the additional debt and repricing, we incurred $3.5 million of fees that are included in interest expense, net.

Interest expense, net decreased $2.6 million for the nine months ended September 30, 2024 compared to the prior year period, primarily related to the decrease in fees paid in connection with changes to the Term Loan.

In September 2023, we paid $14.7 million of fees incurred in connection with our Term Loan refinancing.

In 2024, we incurred $5.7 million of fees in connection

with the additional debt and repricing, that are included in interest expense, net.

These decreases in interest expense were offset in part by interest incurred on the increase in the average outstanding debt balance.

Other Income (Expense), net

Other expense, net, was $0.6 million for the six months ended June 30, 2024, compared to other income, net, of $0.6 million for the prior year period.

Other expense, net, was $0.3 million for the nine months ended September 30, 2024, compared to other income, net, of $1.0 million for the prior year period.

The variation was primarily the result of changes in foreign currency exchange rates.

Income Tax Benefit (Expense)

For the six months ended June 30, 2024, our income tax expense was $12.5 million, compared to income tax benefit of $10.7 million for the prior year period.

For the nine months ended September 30, 2024, our income tax expense was $18.5 million, compared to income tax benefit of $16.7 million for the prior year period.

The increase in income tax expense was primarily related to the impact of stock compensation tax expense and nondeductible executive compensation plus the increase in pre-tax book income in 2024 as compared to 2023.

Gain (Loss) on Equity Method Investments

For the six months ended June 30, 2024, our gain on equity method investments was $16.1 million, primarily as a result of the acquisition of Satelles, upon which we recorded a $19.8 million gain on our previously held equity method investment, as noted above.

For the six months ended June 30, 2023, our loss on equity method investments was $2.8 million, reflecting the portion of losses recorded on equity method investments, including Satelles, during the period.

For the nine months ended September 30, 2024, our gain on equity method investments was $15.7 million, primarily as a result of the acquisition of Satelles, as we recorded a $19.8 million gain on our previous equity method investment in Satelles, offset in part by the portion of losses recorded on other equity method investments.

For the nine months ended September 30, 2023, our loss on equity method investments was $4.3 million, reflecting the portion of losses recorded on equity method investments, including Satelles, during the period.

Net Income (Loss)

Net income was $52.0 million for the six months ended June 30, 2024, compared to a net loss of $21.0 million for the prior year period.

The $73.0 million improvement primarily resulted from the $89.9 million decrease in depreciation expense, the $19.8 million gain recorded as a result of the acquisition of Satelles and the $6.5 million increase in total revenue.

These improvements were offset in part by the $23.2 million increase in income tax expense, $10.2 million increase in other operating expenses and the $7.8 million increase in interest expense.

Net income was $76.4 million for the nine months ended September 30, 2024, compared to a net loss of $22.6 million for the prior year period.

The $99.0 million improvement primarily resulted from the $115.5 million decrease in depreciation expense, the $21.7 million increase in total revenue and the $20.0 million increase in gain on equity method investments, primarily as a result of the acquisition of Satelles as described above.

These improvements were offset in part by the $35.2 million increase in income tax expense and the $24.3 million increase in other operating expenses.

Liquidity and Capital Resources

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These sources are expected to meet our short-term and long-term liquidity needs for (i) required principal and interest on the Term Loan and Revolving Facility, (ii) capital expenditures, (iii) working capital, (iv) share repurchases under the program authorized by our Board of Directors, and (v) anticipated cash dividend payments to holders of our common stock.

As of June 30, 2024, our total cash and cash equivalents balance was $63.5 million, down from $71.9 million as of December 31, 2023.

While we took on additional borrowings under the Term Loan and Revolving Facility during the six months ended June 30, 2024, and generated cash flows from operations, we used cash to complete the acquisition of Satelles, repurchased approximately $154.8 million in our common stock, paid dividends of approximately $32.8 million, and invested $27.0 million in capital expenditures during the six months ended June 30, 2024.

As of September 30, 2024, our total cash and cash equivalents balance was $159.6 million, up from $71.9 million as of December 31, 2023.

While we borrowed an additional $325.0 million under the Term Loan during the nine months ended September 30, 2024, and generated cash flows from operations, we used cash to complete the acquisition of Satelles, repurchased $284.6 million in our common stock (including related taxes), paid dividends of $49.1 million, and invested $45.6 million in capital expenditures during the nine months ended September 30, 2024.

Term Loan and Revolving Facility

Pursuant to a credit agreement (as amended to date, the “Credit Agreement”), we previously entered into a term loan totaling $1,500.0 million (as so amended and restated, the “Term Loan”), issued at a price equal to 99.75%, and an accompanying $100.0 million revolving loan (the “Revolving Facility”).

Pursuant to a credit agreement, as amended to date, or the Credit Agreement, we previously entered into a term loan totaling $1,500.0 million, or the Term Loan, issued at a price equal to 99.75%, and an accompanying $100.0 million revolving loan, or the Revolving Facility.

The maturity date of the Term Loan is in September 2030.

On March 25, 2024, we closed on an additional $125.0 million under our Term Loan, using the proceeds to complete the acquisition of Satelles, Inc.

We borrowed an additional $125.0 million under the Term Loan on March 25, 2024 and $200.0 million on July 30, 2024.

The additional amounts borrowed are fungible with the original $1,500.0 million, and have the same maturity date, interest rate and other terms.

The additional $125.0 million was issued at a price equal to 99.875% of its face value, while the additional $200.0 million was issued at a price equal to 99.0% of its face value.

The March 2024 additional Term Loan borrowings were used to complete the acquisition of Satelles, Inc.

on April 1, 2024.

The additional amount borrowed is fungible with the original $1,500.0 million, and has the same maturity date, interest rate and other terms, but was issued at a price equal to 99.875% of its face value.

The Term Loan has been repriced on several occasions, most recently in June 2024, and currently bears interest at an annual rate equal to the Secured Overnight Financing Rate (“SOFR”) plus 2.25%, with a 0.75% SOFR floor.

In April 2024, we drew $50.0 million under our Revolving Facility for general corporate purposes, including the funding of repurchases of our common stock.

This amount was repaid with the expansion of the Term Loan in July 2024, and no amounts were outstanding under the Revolving Facility as of September 30, 2024.

The remaining proceeds of the Term Loan expansion in 2024 have been and are expected to be used for general corporate purposes, including share repurchases.

The Term Loan has been repriced on several occasions, most recently in June 2024, and currently bears interest at an annual rate equal to the Secured Overnight Financing Rate, or SOFR, plus 2.25%, with a 0.75% SOFR floor.

We typically select a one-month interest period, with the result that interest is calculated using one-month SOFR.

Interest is paid monthly on the last business day of the month.

Principal payments, payable quarterly, are equal to approximately $16.3 million per annum (one percent of the full principal amount of the Term Loan following the March 2024 increase), with the remaining principal due upon maturity.

As of June 30, 2024 and December 31, 2023, we had an aggregate of $1,616.9 million and $1,500.0 million, respectively, under the Term Loan.

These amounts do not give effect to $15.9 million and $17.5 million, respectively, of net unamortized deferred financing costs.

The principal balance in borrowings, net of the unamortized deferred financing costs, as of June 30, 2024 and December 31, 2023 amounted to $1,601.0 million and $1,482.5 million, respectively.

As of June 30, 2024 and December 31, 2023, based upon recent trading prices (Level 2 - market approach), the fair value of our net borrowings under the Term Loan was $1,615.9 million and $1,506.6 million, respectively.

In April 2024, we drew down $50.0 million on our Revolving Facility to fund repurchases of our common stock under our Share Repurchase Program.

This amount remained outstanding at June 30, 2024.

The Revolving Facility bears interest at an annual rate equal to SOFR plus 2.5% (but without a SOFR floor) if and as drawn, with no original issue discount, and a commitment fee of 0.5% per year on the undrawn amount, which was reduced to 0.375% in the first quarter of 2024 because we had a consolidated first lien net leverage ratio (as defined in the Credit Agreement) of less than 3.5 to 1.

Principal payments, payable quarterly, are equal to $18.3 million per annum (approximately one percent of the full principal amount of the Term Loan following the July 2024 increase), with the remaining principal due upon maturity.

As of September 30, 2024 and December 31, 2023, we had aggregate borrowings of $1,812.3 million and $1,500.0 million, respectively, under the Term Loan.

These amounts do not give effect to $17.5 million of net unamortized deferred financing costs at the end of each period.

The principal balance in borrowings, net of the unamortized deferred financing costs, as of September 30, 2024 and December 31, 2023 amounted to $1,794.8 million and $1,482.5 million, respectively.

As of September 30, 2024 and December 31, 2023, based upon recent trading prices (Level 2 - market approach), the fair value of our net borrowings under the Term Loan was $1,782.9 million and $1,506.6 million, respectively.

The Revolving Facility bears interest at an annual rate equal to SOFR plus 2.5% (but without a SOFR floor) if and as drawn, with no original issue discount, and a commitment fee of 0.5% per annum on the undrawn amount, which was reduced to 0.375% in the first quarter of 2024 because we had a consolidated first lien net leverage ratio (as defined in the Credit Agreement) of less than 3.5 to 1.

The Revolving Facility has a maturity date in September 2028.

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.

The Credit Agreement provides for specified exceptions, including baskets measured as a percentage of trailing twelve months of earnings before interest, taxes, depreciation and amortization (“EBITDA”), and unlimited exceptions in the case of incurring indebtedness and liens and making investments, dividend payments, and payments of subordinated indebtedness, based on achievement and maintenance of specified leverage ratios.

The Credit Agreement also contains an annual mandatory prepayment sweep mechanism with respect to a portion of our excess cash flow (as defined in the Credit Agreement) in the event our net leverage ratio rises above 3.5 to 1.

The Credit Agreement provides for specified exceptions, including 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, based on achievement and maintenance of specified leverage ratios.

As of December 31, 2023, we were below the specified leverage ratio, and a mandatory prepayment sweep was therefore not required.

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

With respect to the Revolving Facility, the Credit Agreement requires us to maintain a consolidated first lien net leverage ratio (as defined in the Credit Agreement) of no greater than 6.25 to 1 if more than 35% of the Revolving Facility has been drawn, which was the case as of June 30, 2024.

With respect to the Revolving Facility, the Credit Agreement requires us to maintain a consolidated first lien net leverage ratio of no greater than 6.25 to 1 if more than 35% of the Revolving Facility has been drawn or subject to letter of credit exposure.

As of September 30, 2024, the aggregate exposure under the Revolving Facility was less than 35%.

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

We were in compliance with all financial covenants as of June 30, 2024.

We were in compliance with all financial covenants as of September 30, 2024.

We entered into an interest rate cap contract, or the Cap, which had an effective date of December 2021.

The Cap manages our exposure to interest rate movements on a portion of the Term Loan through November 2026.

The Cap, as modified to date, currently provides us with the right to receive payment from the counterparty if one-month SOFR exceeds 1.436%, and carried a notional amount of $1.0 billion as of September 30, 2024 and December 31, 2023.

Contractual Obligations

As of June 30, 2024, we had non-cancelable purchase obligations of approximately $9.0 million for inventory purchases with Benchmark, our primary third-party equipment supplier, a decrease of $11.5 million from the end of 2023 primarily due to recovery from supply-chain constraints.

These purchase obligations are all due within the next twelve months.

Our only material long-term cash requirement is the repayment of the remaining principal amount under the Term Loan upon its maturity in 2030, which is expected to be $1,519.4 million.

We expect to refinance this amount at or prior to maturity.

Total dividends paid during the six months ended June 30, 2024 were $32.8 million.

As of September 30, 2024, we had non-cancelable purchase obligations of approximately $10.9 million for inventory purchases with Benchmark, our primary third-party equipment supplier, which was a decrease of $10.6 million from the end of 2023 primarily due to recovery from supply chain constraints in prior years.

These purchase obligations to Benchmark are due within the next twelve months.

Our only material long-term contractual cash requirement is the repayment of the remaining principal amount under the Term Loan upon its maturity in 2030, which is expected to be $1,711.9 million.

We plan to refinance this amount at or prior to maturity.

Total dividends paid during the nine months ended September 30, 2024 were $49.1 million.

While we expect to continue regular cash dividends, which began in 2023, any future dividends declared will be at the discretion of our Board of Directors and will depend upon our results of operations, financial condition and cash requirements, as well as such other factors our Board of Directors deems relevant.

The following table summarizes our cash flows:

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 Change

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Cash Flows Provided by Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2024 decreased by $3.5 million from the prior year period, primarily due to a $4.1 million decrease in net income (loss), as adjusted for non-cash activities, primarily depreciation, associated with the change in useful lives of our satellites and the write-off of the remaining ground spare satellite in the prior year period.

Cash flows related to changes in working capital decreased by approximately $0.6 million, primarily as a result of changes in inventory, offset by corresponding decreases in accounts payable and accrued expenses.

Net cash provided by operating activities for the nine months ended September 30, 2024 increased by $44.1 million from the prior year period, primarily due to an increase in working capital of approximately $40.6 million.

This increase was mainly the result of changes in inventory, offset by corresponding decreases in accounts payable and accrued expenses.

In 2023, we replenished finished goods and component inventory, including last time buys.

Cash Flows Used in Investing Activities

Net cash used in investing activities for the six months ended June 30, 2024 increased by $82.4 million as compared to the prior year period, primarily as a result of our acquisition of Satelles on April 1, 2024, offset in part by a decrease in capital expenditures compared to the prior year.

Net cash used in investing activities for the nine months ended September 30, 2024 increased by $89.1 million as compared to the prior year period, primarily as a result of our acquisition of Satelles on April 1, 2024, offset in part by a decrease in capital expenditures compared to the prior year.

We expect our capital expenditures to average approximately $60.0 million per year through 2030.

Cash Flows Used in Financing Activities

Net cash used in financing activities for the six months ended June 30, 2024 decreased by $142.1 million compared to the prior year period primarily due to the additional $125.0 million in borrowings under the Term Loan and the $50.0 million in borrowings under the Revolving Facility, offset in part by increased repurchases of our common stock.

Net cash used in financing activities for the nine months ended September 30, 2024 decreased by $232.2 million compared to the prior year period primarily due to the additional $325.0 million in borrowings under the Term Loan, offset in part by increased repurchases of our common stock.

Our results of operations have been subject to seasonal usage changes for commercial customers, and we expect that our results will be affected by similar seasonality going forward.

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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-Q

Item 2. Management’s Discussion and Analysis