Iridium Communications Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. You should read the following discussion along with our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on February 15, 2024 with the Securities and Exchange Commission, or the SEC, as well as our condensed consolidated financial statements included in this Form 10-Q. This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingencies, goals, targets or future development or otherwise are not statements of historical fact. Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “intend” and similar expressions are intended to identify forward-looking statements. 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, 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. Overview of Our Business We are engaged primarily in providing mobile voice and data communications services using a constellation of orbiting satellites. We are the only commercial provider of communications services offering true global coverage, connecting people, organizations and assets to and from anywhere, in real time. Our low-earth orbit, L-band satellite network provides reliable, weather-resilient communications services to regions of the world where terrestrial wireless or wireline networks do not exist or are limited, including remote land areas, open ocean, airways, the polar regions and regions where the telecommunications infrastructure has been affected by political conflicts or natural disasters. We provide voice and data communications services to businesses, the U.S. and foreign governments, non-governmental organizations and consumers via our satellite network, which has an architecture of 66 operational satellites with in-orbit spares and related ground infrastructure. We utilize an interlinked mesh architecture to route traffic across the satellite constellation using radio frequency crosslinks between satellites. 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 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. We sell our products and services to commercial end-users through a wholesale distribution network, encompassing approximately 110 service providers, 305 value-added resellers, or VARs, and 85 value-added manufacturers, or VAMs, who either sell directly to the end user or indirectly through other service providers, VARs or dealers. 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 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. 20 Material Trends and Uncertainties Our industry and customer base have historically grown as a result of: • demand for remote and reliable mobile communications services; • a growing number of new products and services and related applications; • a broad wholesale distribution network with access to diverse and geographically dispersed niche markets; • increased demand for communications services by disaster and relief agencies, and emergency first responders; • improved data transmission speeds for mobile satellite service offerings; • regulatory mandates requiring the use of mobile satellite services; • a general reduction in prices of mobile satellite services and subscriber equipment; and • geographic market expansion through the ability to offer our services in additional countries. Nonetheless, we face a number of challenges and uncertainties in operating our business, including: • our ability to maintain the health, capacity, control and level of service of our satellites; • our ability to develop and launch new and innovative products and services; • changes in general economic, business and industry conditions, including the effects of currency exchange rates; • our reliance on a single primary commercial gateway and a primary satellite network operations center; • competition from other mobile satellite service providers and, to a lesser extent, from the expansion of terrestrial-based cellular phone systems and related pricing pressures; • market acceptance of our products; • regulatory requirements in existing and new geographic markets; • challenges associated with global operations, including as a result of conflicts in or affecting markets in which we operate; • rapid and significant technological changes in the telecommunications industry; • our ability to generate sufficient internal cash flows to repay our debt; • reliance on our wholesale distribution network to market and sell our products, services and applications effectively; • reliance on a global supply chain, including single-source suppliers for the manufacture of most of our subscriber equipment and for some of the components required in the manufacture of our end-user subscriber equipment and our ability to purchase component parts that are periodically subject to shortages resulting from surges in demand, natural disasters or other events, including a global pandemic; and • reliance on a few significant customers, particularly agencies of the U.S. 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. 21 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 ($ in thousands) Dollars Percent Revenue: Services $ 159,855 75 % $ 151,950 77 % $ 7,905 5 % Subscriber equipment 22,169 10 % 20,422 10 % 1,747 9 % Engineering and support services 30,747 15 % 25,230 13 % 5,517 22 % Total revenue 212,771 100 % 197,602 100 % 15,169 8 % Operating expenses: Cost of services (exclusive of depreciation and amortization) 43,848 21 % 41,394 21 % 2,454 6 % Cost of subscriber equipment 12,769 6 % 12,823 6 % (54) — % Research and development 6,189 3 % 5,037 3 % 1,152 23 % Selling, general and administrative 43,953 21 % 33,368 17 % 10,585 32 % Depreciation and amortization 51,160 23 % 76,825 39 % (25,665) (33) % Total operating expenses 157,919 74 % 169,447 86 % (11,528) (7) % 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, net 312 — % 343 — % (31) (9) % Total other expense, net (23,934) (11) % (34,317) (17) % 10,383 (30) % 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) % 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) % 22 Revenue Commercial Service Revenue Three Months Ended September 30, 2024 2023 Change Revenue Billable Subscribers (1) ARPU (2) Revenue Billable Subscribers (1) ARPU (2) Revenue Billable Subscribers ARPU (Revenue in millions and subscribers in thousands) Commercial services: Voice and data $ 57.7 422 $ 46 $ 56.2 410 $ 46 $ 1.5 12 $ — IoT data 43.7 1,902 7.79 38.5 1,667 7.90 5.2 235 (0.11) Broadband (3) 15.5 16.7 309 15.8 16.5 322 (0.3) 0.2 (13) Hosted payload and other data 16.4 N/A 15.0 N/A 1.4 N/A Total commercial services $ 133.3 2,341 $ 125.5 2,094 $ 7.8 247 (1) Billable subscriber numbers shown are at the end of the respective 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. (3) Commercial broadband service consists of Iridium OpenPort ® and Iridium Certus ® broadband services. 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 September 30, 2024 2023 Change Revenue Billable Subscribers (1) Revenue Billable Subscribers (1) Revenue Billable Subscribers (Revenue in millions and subscribers in thousands) Government services $ 26.5 141 $ 26.5 142 $ — (1) (1) Billable subscriber numbers shown are at the end of the respective period. We provide airtime and airtime support to the U.S. government and other authorized customers pursuant to our Enhanced Mobile Satellite Services, or EMSS, contract. Under the terms of this agreement, which we entered into in September 2019, 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 these services. 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. 23 Subscriber Equipment Revenue 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 September 30, 2024 2023 Change (In millions) Commercial engineering and support services $ 1.7 $ 1.9 $ (0.2) Government engineering and support services 29.0 23.3 5.7 Total engineering and support services $ 30.7 $ 25.2 $ 5.5 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. Operating Expenses Cost of Services (exclusive of depreciation and amortization) 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 $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 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 $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 $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. 24 Depreciation and Amortization Depreciation and amortization expense decreased by $25.7 million, or 33%, for the quarter ended September 30, 2024 compared to the prior year period. 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. 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 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 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 $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 $12.0 million increase in income tax expense. 25 Comparison of Our Results of Operations for the Nine Months Ended September 30, 2024 and 2023 Nine Months Ended September 30, Change 2024 % of Total Revenue 2023 % of Total Revenue ($ in thousands) Dollars Percent Revenue: Services $ 460,899 75 % $ 436,441 73 % $ 24,458 6 % Subscriber equipment 69,819 11 % 89,474 15 % (19,655) (22) % Engineering and support services 86,973 14 % 70,068 12 % 16,905 24 % Total revenue 617,691 100 % 595,983 100 % 21,708 4 % Operating expenses: Cost of services (exclusive of depreciation and amortization) 129,761 21 % 113,431 19 % 16,330 14 % Cost of subscriber equipment 40,595 7 % 56,075 9 % (15,480) (28) % Research and development 19,899 3 % 14,541 2 % 5,358 37 % Selling, general and administrative 127,487 21 % 109,391 19 % 18,096 17 % Depreciation and amortization 151,680 24 % 267,213 45 % (115,533) (43) % Total operating expenses 469,422 76 % 560,651 94 % (91,229) (16) % Operating income 148,269 24 % 35,332 6 % 112,937 320 % Other income (expense): Interest expense, net (68,706) (11) % (71,273) (12) % 2,567 (4) % Other income (expense), net (291) — % 981 — % (1,272) (130) % Total other expense, net (68,997) (11) % (70,292) (12) % 1,295 (2) % Income (loss) before income taxes and gain (loss) on equity method investments 79,272 13 % (34,960) (6) % 114,232 (327) % Income tax benefit (expense) (18,501) (3) % 16,673 3 % (35,174) (211) % Gain (loss) on equity method investments 15,664 3 % (4,321) (1) % 19,985 (463) % Net income (loss) $ 76,435 13 % $ (22,608) (4) % $ 99,043 (438) % 26 Revenue Commercial Service Revenue Nine Months Ended September 30, 2024 2023 Change Revenue Billable Subscribers (1) ARPU (2) Revenue Billable Subscribers (1) ARPU (2) Revenue Billable Subscribers ARPU (Revenue in millions and subscribers in thousands) Commercial services: Voice and data $ 169.1 422 $ 45 $ 163.6 410 $ 45 $ 5.5 12 $ — IoT data 124.8 1,902 7.68 105.0 1,667 7.49 19.8 235 0.19 Broadband (3) 42.7 16.7 284 43.2 16.5 305 (0.5) 0.2 (21) Hosted payload and other data 44.8 N/A 45.1 N/A (0.3) N/A Total commercial services $ 381.4 2,341 $ 356.9 2,094 $ 24.5 247 (1) Billable subscriber numbers shown are at the end of the respective period. (2) 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. (3) Commercial broadband service consists of Iridium OpenPort and Iridium Certus broadband services. 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 $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 Nine Months Ended September 30, 2024 2023 Change Revenue Billable Subscribers (1) Revenue Billable Subscribers (1) Revenue Billable Subscribers (Revenue in millions and subscribers in thousands) Government services $ 79.5 141 $ 79.5 142 $ — (1) (1) Billable subscriber numbers shown are at the end of the respective period. We provide airtime and airtime support to the U.S. government and other authorized customers pursuant to our EMSS contract. Under the terms of this agreement, which we entered into in September 2019, 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 these services. 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. 27 Subscriber Equipment Revenue 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 Nine Months Ended September 30, 2024 2023 Change (In millions) Commercial engineering and support services $ 4.4 $ 9.3 $ (4.9) Government engineering and support services 82.6 60.8 21.8 Total engineering and support services $ 87.0 $ 70.1 $ 16.9 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. Operating Expenses Cost of Services (exclusive of depreciation and amortization) 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 $15.5 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 $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 $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 Depreciation and amortization expense decreased by $115.5 million, or 43%, compared to the prior year period primarily due to the change in the estimate of the useful lives of our satellites in the fourth quarter of 2023. 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 nine months ended September 30, 2024. Other Expense 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 28 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 $0.3 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 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 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 $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 Our primary sources of liquidity are cash provided by operations, cash and cash equivalents and our Revolving Facility. 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 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, 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. 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. 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 $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. 29 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, 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. 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 consolidated first lien net leverage ratio rises above 3.5 to 1 as of the end of our fiscal year. As of December 31, 2023, we were below the specified leverage ratio, and a mandatory prepayment sweep was therefore not required. The Credit Agreement permits repayment, prepayment, and repricing transactions. 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 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 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 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. Dividends 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. 30 Cash Flows The following table summarizes our cash flows: Nine Months Ended September 30, 2024 2023 Change (In thousands) Cash provided by operating activities $ 271,166 $ 227,106 $ 44,060 Cash used in investing activities $ (156,335) $ (67,285) $ (89,050) Cash used in financing activities $ (26,155) $ (258,371) $ 232,216 Cash Flows Provided by Operating Activities 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 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 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. Seasonality 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. March through October are typically the peak months for commercial voice services revenue and related subscriber equipment sales. U.S. government revenue and commercial IoT revenue have been less subject to seasonal usage changes. Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. 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, useful lives of property and equipment, long-lived assets and other intangible assets, deferred financing costs, income taxes, stock-based compensation, and other estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. There have been no changes to our critical accounting policies and estimates from those described in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 15, 2024.