Ken Levy - Investor Relations Matt Desch - CEO Tom Fitzpatrick - CFO and CAO.

Andrew Degasperi - Macquarie Capital Inc Chris Quilty - Raymond James & Associates Andrew Spinola - Wells Fargo Jim McIlree - Chardan Capital Markets Erik Rayner - William Blair.

Welcome to the Iridium Fourth Quarter 2015 Earnings Conference Call. My name is John and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session. Please not this conference is being recorded. Now I'll turn the call over to Ken Levy. You may begin..

Thanks John. Good morning and thanks for joining us. I'd like to welcome you to Iridium's fourth quarter 2015 earnings call. Joining me on this morning's call is our CEO, Matt Desch; and CFO, Tom Fitzpatrick. Today's call, we will begin with a discussion of our fourth quarter results followed by Q&A.

I trust you have an opportunity to review this morning's earnings release which is available on the Investor Relations section of Iridium's website.

Before I turn things over to Matt, I'd like to caution all participants that our call this morning may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are statements that are not historical facts and include statements about our future expectations, plans and prospects. Such forward-looking statements are based upon our current beliefs and expectations and are subject to risks, which could cause actual results to differ from our forward-looking statements.

Such risks are more fully discussed in our filings with the Securities and Exchange Commission. Our remarks today should be considered in light of such risks. Any forward-looking statements represent our views only as of today.

And while we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views or expectations change. During the call, we'll also be referring to non-GAAP financial measures.

These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Please refer to today's earnings release in the Investor Relations section of our website for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. With that, let me turn things over to Matt..

Thanks Ken. Good morning, everyone. Let me start by saying that despite a challenging macroeconomic environment in 2015, our team executed well to meet our full year guidance. We delivered 2% total service revenue growth and 8% growth in our operational EBITDA. Tom will share more detail on these results shortly.

I want to begin my remarks with an update on the Iridium Next program and then comment on recent activity in our business lines. We re looking forward to launching Iridium Next satellite this year but as you saw on press release this morning we had to change our launch plan.

I want to first say though that Thales Alenia has made good progress in all the technical aspects of our satellites and has remain on schedule with the plan we communicated during our third quarter call.

The issues Thales had with VSAT Ku-band module appeared to be resolved and both the hardware and software are well tested now given us confidence that our satellite will perform effectively in orbit. Thales is wrapping up qualification on our first two satellite and these will be complete as schedule next month.

Overall, satellite production is steadily rising with about 12 vehicles in various stages of the manufacturing process and orbital ATK is ramping resources to be able to produce six satellites per month by July helping to ensure that our satellite vehicles will be delivered as needed for each one schedule this year.

As far our launch schedule unfortunately Kosmotras informed us that they have not yet received the necessary approvals from the Russian Ministry of Defense, one of the final steps required to launch our satellite from Yasney.

Administrative paper work was submitted to the MoD sometime ago and Kosmotras has been unable to get any feedback on the timeline for sign off. This is very disappointing as our satellites will be ready and the space had module that hold the satellite on the rocket is complete and already delivered to the Yasney launch site.

We've also heard that we are not the only Dnepr launch awaiting approval. There is at least one a Spanish launch in the same situation. Given the lack of affirm schedule from Kosmotras at this time, we've made the decision to move forward with a new launch plan.

Kosmotras will continue to work on obtaining approvals, but we'll not jeopardize the timeline for the Iridium NEXT program. Our first launch has now been confirmed for SpaceX Falcon 9 and we'll consider scheduling the Dnepr launch at a later time when Kosmotras is ready.

We are fortunate to be working with SpaceX as our primary launch provider as they have been very flexible and have agreed to pull forward our initial SpaceX launch from August to July as satellite for the launch will be ready to shift to Vandenberg in June.

This will have the effect of moving our first launch out by three months from April on Dnepr to July on SpaceX. This first SpaceX launch will carry 10 satellites rather than the two planned for the Dnepr launch.

The remainder of the SpaceX launches would follow our current schedule with the second Falcon 9 rocket launching three months later in October and subsequent launches with SpaceX following approximately every 60 days thereafter. One nice thing about this plan is that it still completes the Iridium NEXT constellation in 2017 as schedule.

I know this new launch plan will prompt some questions as that how this change impacts the Iridium NEXT mission in our corporate outlook. And I can state that from a subscriber and an investor standpoint the answer is very little. First, this change is not requiring any modifications to our credit facility or any regulatory approval.

SpaceX has been a great parter, has signed off on this plan and will be ready to launch in July. Second, a shift in our first launch of SpaceX does not significantly change our cost estimate for Iridium NEXT mission. Tom will talk about that more in a minute. Third, as I said the overall launch plan to complete our network in 2017 remains intact.

We will feather in Dnepr launch when Kosmotras is ready and still have our entire constellation operation in 2017. You will note that these sequencing of events now provides for a three month period of testing and evaluation of the first satellite launched.

I know we previously planned for a month test period following our first launch, but this was not a requirement of our testing plan or of our credit facility.

From the perspective of our engineers our three month period for testing and evaluation is more than sufficient to adequately assess the health and functionality of our satellites in advance of our second launch in October particularly given all the extra time we had on the ground for thorough hardware testing and the considerable additional maturity of software releases we've been running that will be on the satellite.

Clearly changing our launch plan is not the news we expected to be sharing so close to our April launch date. However, we have responded quickly to the events as they unfolded and put in place the solid plan on which we can execute the key -- the overall program on track for completion in 2017. Moving on to our business results.

2015 came in much as forecasted. We achieved our 2015 total service revenue and operational EBITDA guidance and remain on target to achieve our long-term financial guidance. I am particularly proud of how my team navigated the global economic headwinds and FX pressures of this past year.

These forces have impacted so many companies in recent quarters and our results are testament to the quality and execution of our talented staff. While we don't anticipate a significant change in the operating environment in 2016, we have considered these headwinds in developing our guidance for the year.

Aireon continues to gather momentum and advancing global aviation surveillance and signing new customers. In the fourth quarter Aireon signed 12 year data services agreement with South Africa based ATNS which provides air traffic surveillance services for two flight information regions covering approximately 10% of the world's airspace.

In the last few days, Aireon also signed a similar agreement with the civil aviation authorities of Singapore their first Asian airspace win. These are more validating data points for Aireon and we continue to believe that Iridium investment in this venture will be meaningful source of value creation for our shareholders.

To date Aireon has actively engaged with ANSPs covering almost half of the world's airspace and two thirds of the world's oceanic airspace. This is fantastic progress given the service hasn't even launched yet.

DISA is also moving in the right direction making preparation to test and validate space based ADS-B data from Aireon and working through procurement decision for their reduced oceanic separation program. Based on their progress and continue momentum, we believe the FA use of Aireon data is a matter of when not if.

Aireon's existing satellite network continues to perform well and delivered an excellent user experience with some of the highest availability numbers we've seen in recent years. On that performance our subscriber base rose 6% in 2015 topping 782,000 users, bolstered by a record 20% growth in our government business.

Commercial ARPU declined modestly reflecting the recent pull back in oil and gas and continued strengthening the dollar both of which weighed on usage rates. Our new Push-to-Talk offering is getting a great reception since its recent introduction.

Our partners in the field who have been testing and using the product are very happy with its capabilities and versatility. PTT caters to new commercial and government users that required the ability to communicate instantly across the defined group of users.

Given PTT's unique capability foreseeing from public safety agencies to industrial users to governments around the world. We are very excited about this technology and see as the key area of demand for Iridium. Moving to M2M. Iridium continues to be well positioned in this growing industry.

Not only did M2M subs again climb at a double digit clip in 2015, but we've also continued to sign up important new distribution partners and innovate to provide solutions for their customers.

We are currently in the process of rolling out new; direct, drop and replacement for our small phone factor M2M transceivers which are even more energy efficient and importantly less costly to produce.

These improvement coupled with the reliability of our satellite network have made Iridium the provider of choice from remission critical data inflammatory. In 2015, we made strong inroad with heavy equipment OEMs and are looking to extend our position in the space in a broader IT world in 2016.

Slowdowns in specific industries like oil and gas and mining this past year meant that we didn't grow quite as fast as we would have liked, but we feel that we've laid the groundwork for better growth in 2017.

In maritime, Iridium Pilot continues to be a good product for us and we expect that GMDSS certification which is proceeding as we expected will expand our addressable market when finalized and give our new Iridium Certus broadband providers another important offering for the tens of thousands of SOLAS class ships.

Regarding the Iridium Certus, we are making good progress on the development of this high speed capability and our license terminal partners are busy working on new Certus products, the first to which should rollout as early as the end of this year.

This competitive global broadband service will offer our partners a unique, multi service product with transmission speed ultimately up to 1.4 megabit per second after Iridium NEXT is fully deployed.

Iridium Certus enhances our competitive position in maritime and also allows us to offer new service capabilities in aviation and terrestrial applications as well. One of the services I'd like to call your attention to is called satellite time and location or STL for short.

With our partner Satelles, we will soon launch a new trusted time and location service on our network to customers that are depended on accurate tracking and coordination of assets and data.

The service improves the reliability of GPS data both indoors and in building and enable new services that can help fight cyber attack and authenticate computer users and are the service that can only be delivered from Iridium's unique network.

Revenues from this venture will approach $1 million this year, but could be 10x that in 2018 with our partner's successful execution and based on the many opportunities on which we are currently collaborating with them. Finally, Iridium closed 2015 with meaningful subscriber growth and new task award from the US government.

In the fourth quarter, we've reached a record 72,000 government users under the EMSS program and also closed $10 million in task award including a contract with General Dynamic Mission Systems to create a new nextgen secured handset for the US DoD.

This R&D will allow us to bring the latest technology as well as lower cost the DoD as the only provider of a satellite phone accredited by the NSA for type 1encryption.

We are really pleased with the ongoing relationships we develop with our largest customer and believe that government subscriber both illustrates the increasing importance of Iridium as the strategic partner to DISA and support our view of an expanded relationship with the US government upon contract renewal in 2018.

So 2016 will be a similar year for Iridium and touch off a new chapter of industry leadership and business growth for our company and services.

This year we have a series of launches for Iridium NEXT which will begin to provide our expanding roster business partners and customers with new satellite capabilities and services to enhance their productivity. With that I'll turn it over to Tom for detail financial review.

Tom?.

Thanks Matt. And good morning, everyone. I'll get started by summarizing our key financial metrics for the fourth quarter and provide some color and the trends we are seeing in our key business line. Then I'll walk through our 2016 guidance and long range outlook and wrap with the brief review of our balance sheet and our placement of launch insurance.

Iridium reported total revenue of $106.4 million in the fourth quarter which was up 6% from last year's comparable period. Strong performance in government services accounted for much of this gain, while commercial services will also positive year-over-year.

Engineering and support revenue was up a solid 33% from last year's period and reflected increase scope of work on government sponsored projects. Operational EBITDA remain strong at $56.8 million, a 10% increase from the prior year's quarter. Lower product warranty cost and cost improvement complimented good top line revenue this quarter.

Our operational EBITDA margin also strengthened to 53% in Q4, up from 52% in the year ago period.

From an operating view point we reported commercial service revenue of $61.3 million in the fourth quarter; this was slightly ahead of the prior year's quarter and is indicative of Iridium's strong market position even in the face of prolonged pull back in the energy market and continued foreign exchange pressures.

In 2015, the dollar's strength restrain international sales especially in key markets like Canada, Australia and Europe, where strong US dollar acts as price increase to international customers and reduces their purchasing power.

There were commercial subscribers grew 5% year-over-year, net commercial subscribers fell by 2,000 during the fourth quarter with the loss coming entirely from our commercial voice and data business. The macroeconomic climate has also affected commercial M2M though this segment of our business still grew at a positive rate.

Commercial M2M added 7,000 data subscribers during the fourth quarter and subs were up 10% for the year. M2M now represents 51% of billable commercial subscribers up from 48% in the year ago period. Turning to our government service business, we recorded revenue of $21.1 million this quarter representing 20% year-over-year growth.

Our footprint with the US government continues to expand with government subscribers growing 20% year-over-year to a record 72,000 total users this quarter, up from 69,000 in September. As Matt mentioned, Iridium is also awarded a multimillion dollar contract with General Dynamics to provide a next generation secured handset the US DoD.

This is a noteworthy development as Iridium approaches EMSS contract renewal discussion. In equipment, we've realized revenue of $17.1 million which was in line with our expectations and essentially flat to the prior's quarter.

Similar to the third quarter, equipment margins expanded in the fourth quarter to 46% compared to 29% in the fourth quarter of 2014. We continue to reap benefits from improved equipment performance, a decrease in Iridium OpenPort warranty provision and lower manufacturing cost on certain product line.

These manufacturing efficiencies stay with us in the foreseeable future. Looking to 2016, we expect that equipment margin will remain in the low mid to mid 40% range. Engineering and support revenue was $6.9 million in the fourth quarter, up meaningfully from $5.2 million in the prior year's quarter.

The increase was principally driven by several new projects that kicked off in the fourth quarter. I should also point out that we took non-cash charge for goodwill in the fourth quarter.

This charge is calculated in accordance with ASE350 and entirely relates to the relationship between Iridium stock price, market capitalization and the implied fair value of our goodwill. This charge has no operational relevance. Moving now to our financial outlook. We issued 2016 full year guidance this morning.

We forecast total service revenue growth of between 4% and 6% this fiscal year and operational EBITDA between $245 million and $255 million. This compares to service revenue growth of 2.5% in 2015 and operational EBITDA of $234 million. I'd like to walk you through some of the elements supporting this outlook.

First, our government business will be a strong revenue generator in 2016. This should more than offset sluggishness in our commercial services segment. We are coming off a record year of growth in our government segment and 2016 will reflect the full year step up of our five year EMSS contract with DISA.

As a result, revenue from this contract will rise by approximately $13 million or 17% for the full year. Second, we expect that the global -- sluggish global environment that impacted 2015 will carryover into 2016 and pressure service revenue growth.

Commercial voice and data revenue contracted by 3% in 2015 from the back of macroeconomic headwinds and devaluation in the Ruble. We expect better comparative performance in 2016 despite no anticipated improvement in the macroeconomic environment.

This improvement is driven by somewhat lessened effect from the Ruble devaluation which represented an approximately $3 million headwind to sales in 2015. Also supporting our expectations for improved performance is growth in our commercial Push-to-Talk offering which launched in 2015.

Push-to-Talk has received a strong reception from customers and we expected to contribute meaningfully to revenue this year. In our M2M business we see solid double digit growth and subscribers continuing in 2016.

As previously mentioned we proactively renegotiated certain contracts with service providers in the oil and gas and fishery segment which lowered prices for specific accounts. These actions will serve as a headwind in 2016 M2M revenues and likely keep growth-- our growth rate in line with 2015 results.

We expect M2M growth to accelerate in 2017 as these headwinds abate and as we continue to see ongoing growth particularly from heavy equipment manufacturers. Also contributing to our EBITDA growth in 2016, our handful of task orders in government related contracts.

We estimate that these items will account for more than $10 million in engineering and support project revenue. Today we are also affirming our long range outlook. Looking forward we continue to expect total service revenue of between $420 million to $465 million in the full year of 2018.

There are number of factors that give us confidence in this revenue forecast. First, our government services remain a growing business segment for Iridium.

As I mentioned earlier, revenue from EMSS contract will increase in 2016 to $88 million and remain at this level through three quarter of 2018 at which point we would expect to be in a new contract. We expect that the new contract will provide significant benefit to DISA and incremental revenue to Iridium.

In light of strong 20% subscriber growth we achieved with this customer in 2015, and the significant investments DoD is making in our new network infrastructure, we are quite comfortable with this outlook.

Two, we forecast close to $50 million in hosted payload revenue in 2018 based upon terms of our contracts with business partners, Aireon and Harris. Beginning this year, we will start to recognize revenue from monthly hosting a data fees based on each of this 66 operational satellites in the Iridium NEXT constellation as they come online.

With Iridium NEXT expected to be in operation by 2017, 2018 revenues would only be significantly impacted in the event of material delay beyond our current schedule. And three, new products are important component of our long-term revenue growth.

We are very excited about the rollout of Iridium Certus and satellite time and location as well as the traction we are seeing from a commercial Push-to-Talk offering. We anticipate that Iridium Certus will be fully operational by 2018.

With significant industry growth in maritime and aviation tied to broadband services, Iridium service could generate up to $100 million in revenues by 2020. We believe that incremental revenue will be realized prior to fiscal 2018 as we begin the installation of Iridium Certus user terminal.

Push-to-Talk is quickly gaining momentum with customers as well as through the 15 service partners we signed up to develop new application and expand distribution. We expect large equipment orders with each customer sale and SOLAS based PTT as a group base offering which has regional and global appeal.

The other components of our long range outlook which we are also affirming today include expectations for operational EBITDA margin of approximately 60% in 2018, negligible cash taxes to approximately 2020, peak net leverage between 6x and 6.5x in 2016 fiscal year. And finally net leverage of approximately 4x in 2018.

Moving to our capital structure and liquidity position. As of December 31, 2015, we have drawn $1.5 billion from COFACE facility and had a cash and marketable securities down to approximately $389 million. In 2016, we anticipate total capital spending of approximately $700 million including approximately $80 million of capitalized interest.

This reflects continued work on Iridium NEXT and the under run of payments to Thales Alenia n 2015 which essentially pushes right into our 2016 spending plan. Finally, our placement of launch insurance continues to proceed smoothly. We have bound over 90% of the insurance on our first two SpaceX launches and continue to work these placements.

We plan to be 100% ban on these first two launches three months prior to first SpaceX launch in July. Given the change in the sequencing of Dnepr launch, we now expect our insurance cost will immaterially exceed the high end of our quoted range of $125 million. We view this is very manageable.

Wrapping up my thoughts I want to reiterate that Iridium NEXT remains on schedule to complete full deployment in 2017. We are weathering the current economic climate and our business performing as expected.

We are fortunate to have a diverse revenue stream and a strong platform which will allow Iridium to grow EBITDA into 2016 despite pronounced macroeconomic headwinds. We look forward to the commencement of our launch program in the coming months. With that I'll turn things back to the operator for the Q&A portion of this morning's call. .

[Operator Instructions] Our first question is from Andrew Degasperi from Macquarie..

Thanks.

First question and obviously this launch in the first two satellites delayed things but I guess what was the purpose of the first launch? Can you maybe help remind us what were you planning to do with those two? And maybe let us know in the long history of Leo orbit constellation I mean as this normally been done, I mean have they launched test satellite first at this rate? If you could just comment on that.

.

Well, there is not lot of history on Leo constellation, most of that history is our own and the last time we did this 17 years ago or at least our predecessor did it was much more complicated program was three different launch vehicles over three continents with some like 12 or 32 launches over a period of less than 12 months.

So this isn't -- this is a lot simpler and more straightforward approach than we certainly did it last time. Remember just a little history, our original plan which we announced six years ago or so in which we developed our program was only to launch on SpaceX.

And at that time they thought that the Falcon 9 could handle nine launches, nine satellites per launch and we were going to have eight launches of nine satellites to make up 72. When we realized that the Falcon 9 actually was -- could launch heavier load than that we expanded that with their support to 10 satellite per launch.

And saw the Dnepr rocket which if you remember six years ago you were all quite nervous about SpaceX. We had very reliable launcher that could launch two satellites and so we signed up with that and added that to our program and slotted in at that time as the first launch.

These are all operational satellite but thought that it would workout well to launch first two and then we would launch the remainder on the seven Falcon 9 launches. That's been a plan up until literally days ago.

Started getting the feeling in December, January as the Kosmotras kept telling us that things were going -- that thing would be imminent, we find out any day now. And we kept saying why not, as now lot of information coming out of it.

But really we just made the decision recently because we just didn't see -- we didn't want this kind of uncertainty in our program given our focus on completing the network on schedule.

So we really just made the change now to move those first two later in the program or maybe even to the end of the final two spare satellite we will see, doesn't really change a lot.

Good thing we have a great flexible partner in SpaceX who could move that first launch up a month so that we can still be launching here in five months instead of in two months. And really get back right back on track with our launch program overall. So is this normal? I don't know.

There is not many people who launch Leo constellation and really how many satellites are launched this time is really function of the way that the satellites and all that sort of the thing.

But this has been -- isn't that big of a change really from our overall plan and in fact some ways it is getting back to the original launch program that we originally started with. .

Great. Thanks. And now just in follow up.

What are the puts and takes in M2M for 2016 that you see? I mean I know a lot of heavy equipment OEMs is hurting but it seems you are just still penetration game? Can you maybe let us know what sectors are you seeing growth and what are sort of dragging?.

So one of our biggest service providers is very heavily oil and gas. That's a big negative -- it was negative in 2016 on the back of deactivations, we proactively renegotiated that contract and have said that we saw that as 2016 headwind.

Similarly, we've seen some price competition on the margin, most notably in the fishery segment and similarly we renegotiated couple of those contracts. So those are sectors relate oil and gas most pronounced and in the fishery segment kind of we have contract renegotiation.

To the contrary I mean heavy equipment OEMs notwithstanding they are kind of their business issues telematics being adopted by heavy equipment manufactures as an opportunity for them to get more efficient. So we don't heavy equipment is a drag.

It's ramping a little bit slower than we would expect it but we are getting -- we have an excellent head of steam there and it look for additional announcement of big contract wins there. We feel very good about heavy equipment as a source of growth long term. .

Yes. Broad based remember heavy equipment is all kind of upside to us because we hadn't -- had an exposure to that segment. So we are still seeing penetration of that market, takes time for those companies to ramp. So some of the early contracts we've had are only started to come online in 2015 and 2016.

But we are going to continue to see that expand, just to add what Tom said the personal communicator space has been a very good one for us. There has been some good growth there. I was really please to see the DeLorme get acquired by Garmin, I think that will only help really in terms of sort of global distribution of that product set.

But really we are having lot of partners are growing in the M2M sector and lots of other smaller sectors but we just had this heavy exposure the top of our partner list to the energy sector that sort of way down this last year.

But overall I think that effect overall gets diminished as it sort of washes through in the other parts of the M2M industry continue to grow particularly as we get more into 2017, 2018 and we really get these heavy equipment OEM space moving and some of these other technologies and areas that are adopting satellite along with cellular technologies for their space..

And Our next question is from Chris Quilty from Raymond James..

Thanks. Just a follow up on that heavy equipment issue. It sounds like there have been continued delays.

Did you actually get any shipments in the OEM customers this year?.

Yes. In fact 2015 started a ramp, 2016 will be better year than 2015 in terms of growth. I mentioned in the past it's hard to announce new wins in this sector. There is lot of people like to keep their plans under wraps.

So it's continued to be positive in terms of the interactions and move towards additional OEMs, the trials and demonstration and technology implementation plans continue on in a number of different companies. And I think that there are going to be more following here in 2016 towards our way.

Probably one point I didn't mention too to Andrew's discussion on last one, another potential area of growth for us really is -- and maybe it's bit more of market share area but is in the -- we still do see a lot of opportunity in what really kind of comes out of the SkyWave acquisition.

There seems to be a lot of interest now in diversification in that space that probably we didn't see as an opportunity two or three years ago because we sort of thought it was solidly in a legacy sort of mode with competitor but now there are some pretty major players in that space though they could add significantly in probably not a little bit in 2016 but mostly 2017, 2018 are going to be -- those are nice growth areas for us as well which we are excited about..

Okay.

Tom following up can you run through again the dollar contribution that you mentioned regarding hosting fees and timing? And can you give us any update on your expectations that you will receive the one time hosting fee in 2016 and 2017and what the sort of triggers for that are?.

Right so sort of think of the part as approaching $50 million I think we quoted $47 million between data and hosting and that revenue comes in as the satellites get launched. So there is 66 operational satellites and it comes in little very little bit in 2016, 2017 and be the full amount in 2018.

There are no triggers - I mean the Harris is contracted and its contract with Harris, the contract with Aireon, Aireon has said that they intend to get a FA contract kind of in the latter part of this year and go to market and raise capital and that held up pay us in late 2016 and 2017.

In any event Aireon has made tremendous success and tremendous progress in signing multiple accounts than most recently in Singapore, so we are highly confident in the collectability of that receivable and so that revenue will be recognized for GAAP..

Let me just add, Chris, I might want to add just I mean the FA is a very, very important to that obviously but I would say with these growing numbers of contracts from all these around the world we are getting some -- we are seeing really Aireon generating potential significant non FA cash flow around the world.

And that really as Tom said gives us a lot of confidence that they are going to have a revenue stream with these 12 year kind of deals that they could raise debt on..

Okay. Obviously they are going to be able to raise debt much cheaper with non FA contract but is there a contractual requirement by Aireon by a certain date that might force them to raise more expensive debt with the contracts in hand if the FA continues to delay. .

So there is a contractual receivable and it bears interest. So a certain amount of $200 million is due and payable currently in its bearing interest. I don't know that we've disclosed the exact terms of the agreement between Aireon and I really would have to check back Chris, I don't think they are public with that.

What I will say is Iridium is highly confident of the two that the collectability the $200 million. To the point where that revenue will be recognized for GAAP. We've done that analysis. .

Okay. And do you -- can you give us an update on what you are seeing in maritime part of the market? Pilot OpenPort not M2M..

Yes. I mean its -- moving to your -- first of all as you know that product had some problems a couple of years ago. I'd say that those not only have been confirmed to be completely resolved but the perception of the product has really turned around in the industry.

I'd say it's -- our partners are extremely comfortable putting it out there either standalone or as a companion to VSAT unit and in fact there is a lot of competitive dynamic still created primarily by Inmarsat and their approach to the market that encourages people to want to use Pilot in conjunction with other products.

So not-- we are in a transition period right now I'd say so we are not exactly sure how it will go, we are not forecasting necessarily growth at this point. Though I would say the last couple of months have been very encouraging and we will see how that develops over the coming months if we can maintain that kind of positive momentum in that area.

And if we do then I think that will even contribute more. But really frankly I am pleased with overall that it's back in the market and that we have a product it's solid. Also though I would say there is an awful lot of activity in the maritime space around Iridium Certus.

The new products that will come starting near the end of this year and with sort of a commercial introduction in the maritime space in 2017 that could start generating revenues on even faster product that delivers more capability ultimately things like GMDSS but also not just high speed but can also maybe support PTT services, can support M2M type services along the same kind of terminal.

There seems to be a lot of enthusiasm excitement about our product that really would be the most cost competitive as well as actually the fastest products in the L band space it relates to standalone or companion product to VSAT system.

So I really think while we are going to do just fine this year in the maritime space 2017, 2018 look very bright to me in terms of our potential in maritime. .

Next question is from Andrew Spinola from Wells Fargo.

Thanks. I wanted to ask a question on the ARPU and the M2M business, you had a tough compare in 2015. And I think that's mostly sort of cycled through.

So I'm wondering you've said that there should be a little bit of pressure on that going forward as the market expands and you into lower end and solutions in the mix, but do you think we could see something maybe more along the lines of like low-single digit declines in M2M ARPU in 2016 or what was the outlook look like for that?.

Well, I mean as we said for sometime we see the ARPU and M2M at the downward sloping line. What happen to us in 2015 was it was more pronounced and that's oil and gas.

We had one of our biggest providers had deactivation of sort of high end ARPU customers right, and so that was the de-act and we continue to grow personal communication with DeLorme et cetera so we had was that the sub that were coming on were sort of single digit ARPU and the subset we are exiting were higher ARPU in oil and gas.

So that's what happens to us in 2015. 2016 will be down. I don't know it will be single digit, so I don't see it as pronounced as we saw in 2015 but there is still macro pressure there in Andrew. .

Fair enough.

And another sort of data point question on the net subscriber losses in voice and data looks like you typically lose subs in Q4 is that something related to non-pay disconnects or just the timing of contracts and maybe just a little color on why the bigger loss this quarter?.

I think its macro. I mean I think if you trend handset sales, handset sales are down that aligned with sub gain and so you are right fourth quarter is typically seasonally low but it's more so because of macro effects we've discussed. .

And we've always talked about the fact that our, look I mean our system is primarily used outdoors so subscribers and applications are little bit more oriented towards the northern hemisphere than they are in the southern hemisphere winner not just fourth quarter but first quarter typically are slower times and I think as we've gotten larger that even got little bit more pronounced then it ramps again in more of the second, third quarters.

So I think it's a normal activity that kind of happens to M2M industry and us really. .

Got it .Very high level question that it's certainly very interesting that DeLorme has acquired by Garmin, obviously a border of magnitude bigger unit shipments at Garmin than DeLorme, but kind of wondering sort of when I'm thinking about maybe where Garmin goes with that and what types of products they ultimately add satellite communications to.

Can you give us a sense and sort of what the cost of adding satellite communications to devices these days, and maybe what the outlook is over the next 5 years is there any possibility that comes down significantly and we see Garmin start adding this to lots of different types of devices?.

Well, my initial enthusiasm excitement about this about their acquisition of DeLorme is more in what would I call distribution expansion because DeLorme was a small company who was executing extremely well but was still very North American oriented and it started to penetrate in some other markets certainly was in Canada was a little bit in Europe and very small amount in places like Australia et cetera.

But Garmin as a global company with global distribution and a brand that is well recognized around the world. And they could I think fairly rapidly will see integrate the growing product line that DeLorme had in other market that we hasn't seen before. So that's the immediate positive.

As far as sure I mean satellite I think is getting into a lot more devices and really the tax if you will to put satellite I know five or six years ago was hundreds of dollars maybe $150, $200 lot of cases, now we are taking tens of dollars and in fact when you really talk about chipset except for power amplifier which is probably little bit more expensive than threshold version q quite that sort of the more gating factor, all the other stuff really doesn't add that much necessarily to a device.

So really the cost of putting satellite is lower and if someone wants to put that into a lower cost consumer like device it becomes more possible.

That still not going to be -- I think though that the goal will be a bit more about adding speed and capability to devices as opposed to necessarily I think in a pure M2M space so still be a very low cost, low bandwidth, low space but I think as we Iridium Certus capability which I know, we often talk about the high speed in broadband aspects of it they really provides a product line that goes all the way from low to high speed but in the very low power small antenna range can give a number of tens of kilobytes per second which adds a whole lot of value to a very, very low cost device.

And I think there will be a lot of interest embedding that. And really basically the same kind of cost point or price point tax if you will as we see with technologies today.

So you get a lot more for the same price in that kind of -- all that being said could we see that, I think that's up to just Garmin bid many other companies in this space who are exploring, putting satellite more things. But that's clearly part of our approach and strategy in the world..

Sure. Appreciate the color.

Tom, just on the goodwill impairment, what specific acquisitions or businesses is that associated with?.

It's the main business, it relates to the SPAC transaction when the company came public. Let me just give you the background on that.

Under GAAP we have to do fair value evaluation of your goodwill every year at a measurement date that determine kind of -- determine at the time that the company came public, and just so happens with that measurement date lines with the pretty close to the 52 week low of our stock price.

If it lined up with 52 week high, we wouldn't have any impairment. So that's how narrow the rules are. And it's very mechanical, you just go through the analysis, I may just reiterate the only economic consequence of this is we won't have to pay the valuation guys every year to do the analysis.

So that's a six digit savings and we were happy about that. Other than that it doesn't relate to the business whatsoever. .

Got it. Got it.

This one last one for me, just your comment on the insurance coming in a little bit non-materially higher than the 1.25; does that include any associated costs with not having the Kosmotras launch in front of the SpaceX launch or would that create additional increases to the insurance?.

So that’s all in number. That's our expectations, that's all in number, Andrew. .

That's great, thank you very much..

And remember that the Kosmotras was -- the reason for that was we were able to eliminate to SpaceX launch. That was the economic benefit of that and then the insurance was tagalong but the reason for it was if we knocked out, I think it was net $50 million savings we quoted on that. .

And that's economic saving remains was a current plan. I mean we still have that savings so just changes the sequencing.

Yes. The insurance is a trim okay, it would have been nice add or but we still retain the elimination of SpaceX launch. .

Make sense. Thank you very much. .

[Operator Instructions] And we have a question from Jim McIlree from Chardan..

Thank you and good morning. Can you help me understand how much of the commercial service coming from Aireon or hosted payloads in 2016, it sounds like hosted payloads going to be close to zero.

But it does Aireon contribute a meaningful amount of revenue in 2016?.

Very small. Aireon contributes as I said we view the Aireon receivable as highly collectible and it will general GAAP revenue very small in 2016, more meaningful in 2017 and then the full amount in 2018. .

Okay.

I guess I'm trying to understand the guidance on the commercial service revenue, it doesn't sound like things are meaningfully better this year than they were last, but you have a much higher commercial service revenue growth?.

Not really. So just look at the guidance 4% is the government right. You just take the government you got the 4% so between 4% and 6% is the commercial. So commercial is as I said in my remarks the comparative is somewhat better on the back we had about a $3 million Ruble devaluation.

Ruble really thought bad in 2015, its comp is down in 2016 versus 2015 but not to a degree so we are going to have pressure but less than we experience in 2015. Commercial Push-to-Talk is the new kind of source of revenue growth but commercial -- you just look at our guidance commercial revenue we are not calling for a massive turnaround here. .

Excuse me, I misspoke, I didn't account for the government properly in my question, so thank you for that clarification. And lastly on the government revenue so the contract ends Q3 of 2018, is that correct. And it kind of sounds like you are positive not just for renewing contracts that renewing at a higher level.

Am I correct on my assumption that you're hopeful that you can get a higher level out of that contract when it expires?.

We are not projecting exactly what we will be doing. We have a lot of discussion to go through with the government around that. But we have a lot more to offer the government than we had last time around.

Brand new constellation, new services, higher speed services, new things like satellite time and location which is a lot of interest in the government about PTT and tactical radios are expanding in global all that is positive.

In addition, they've really taken I think are really taking great advantage of the current constellation, current contracted extent as you can see their subscriber growth is very positive. So they really add -- there is a lot of really interesting programs that are being developed right now which will really user network more as well.

So I think it will be -- it's kind of -- to extent we get more in this contract it will be because they get more value and get more capability. So yes we feel pretty positive about that whole equation going into that discussion. And are even starting to kind of have very preliminary discussions around what that might look like..

And we have question from Jim Breen from William Blair..

Yes. Hi, guys. How are you doing? This is Erik Rayner for Jim Breen. I just had a quick question around the long-range outlook, obviously from the long-range outlook for 2018. So that implies some substantial acceleration in 2017 and 2018.

So just wondering if you can provide a little bit more color on what gives you confidence that you can attain that service revenue level in 2018. And just some of the puts and takes in timing of new products, et cetera? Thank you..

So as I step through so the biggest slug is approximately $50 million on hosted payload related revenues from -- and those are contracts between us and Harris and Aireon and that revenue comes in as the satellites are launched and we will be $50 million of revenue that we have in 2018 that we don't have currently.

We also expect growth from new products, commercial Push-to-Talk which was launched this year to great fanfare. We've excited Iridium Certus essentially makes us a player like we never have been before in maritime maybe Asia and even to rest really in terms of been off -- been able to offer data speed that faster than the competition.

That's a whole new game for us and we quoted $100 million kind of opportunity in 2020. And we see some of that revenue in 2018 bolstering our growth. So that's the kind of --.

Also mention satellite time and location being significant expansion given our contract there and potential for that growth if it is used we'll generate a quite bit more revenue as a result of that as well. And then across the government, while it's a step up to 2018, it will stay at this level till the time we just talked about that as well..

And we have a question from Chris Quilty from Raymond James..

Yes.

Staying on the DoD subject, you had said last year that you thought that could actually be some upside to the DoD contract beginning this year; do you still believe that's a possibility? And is that included in your forecast?.

There is some growth of these what I would call out of project that are go beyond the current EMSS contract, new services and capabilities as we get embedded in new systems and those generate revenue outside the contract and I think there are some of that this year.

And there are expectations that will continue to expand in the future because it's not just all about the EMSS contract. Then of course you also saw our R&D and sort of services revenue with the customer.

It varies quite a bit year-to-year but that's been generally up here recently as we have these additional contracts to do things like a new handset gateway expansions and resiliency improvement and other things we are seeing in that kind of activity which adds revenue as well even though it's a little different to margin revenue. .

Got you.

And for Tom as the Push-to-Talk business starts to ramp-up, how is that going to impact, how you recognize your ARPU and subscriber count?.

It will be treated just like a handset; it'll be blended in commercial voice and data. .

Positive or negative mix?.

No, it's accretive to ARPU.

Substantially or modestly?.

I would say the raw number is substantially but you got a very big base of subs so it's not going to move the needle and just because of weighted average, but it's a nice ARPU a piece of business for us. .

And fair to assume that these are going to be longer-term contracts than sort of traditional one year?.

I think while the nature of the contract -- I don't know if the contract will be -- but this is a very sticky customer. .

The whole concept obviously PTT is just the work group itself, the top group becomes very valuable into itself because you want to be part of that top group because you -- it has value to be really intrinsically to a group of people. So yes you are right I think that mean to these kind of customers end up being longer term.

So yes we are enthusiastic with it..

And just to clarify, do you have any commercially launched customers, are you still kind of beta stage?.

We are in the commercial stage right now. There are customers, there is revenue moving on initial customers and there is a quite a few customers looking to start their business soon and growing funnel of sort of opportunities. These are -- these like anything else, they do take longer.

The nice thing as you add customers at tens or hundreds, some cases even higher than at a time but they like to go through trials and evaluation and RFQs and all of that sort of thing. So I think some of those will take a little longer to ramp in some cases to really hit, but when they hit, they kind of hit in chunks.

Any other questions operator?.

We have no further questions at this time. .

Okay. Well, thanks everyone. We'll see you next quarter. Obviously our story as you can tell is a transitional one here from -- to Iridium NEXT, we are really excited about getting these launch started albeit on a slightly different plan but really still completes the network in 2017.

And the financial transformation we are driving in this company to 2018 is still very much intact. And getting closer and closer everyday. So thanks for joining us and we'll see you next quarter. .

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..