Ken Levy - IR Matt Desch - CEO Tom Fitzpatrick - CFO.

Greg Burns - Sidoti & Company Ric Prentiss - Raymond James James Breen - William Blair Andrew Degasperi - Macquarie Chris Quilty - Quilty Analytics Andrew Spinola - Wells Fargo.

Good day ladies and gentlemen, and welcome to the Iridium Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Ken Levy. Please go ahead sir..

Thanks Erin. Good morning and welcome to Iridium's second quarter 2016 earnings call. Joining me on the call this morning are Matt Desch, our CEO; and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of our second quarter results followed by Q&A.

I trust you've had an opportunity to review this morning's press release which is available on the Investor Relations section of our 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 SEC. 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 our 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, and good morning everyone. Have you read our press release, Already produced strong subscriber growth in the latest quarter. In fact it was a record quarter for net additions during my 10 year here Iridium and I think actually for the 16 year history of the company.

I'm particularly pleased with this achievement and want to use my remarks today to reflect our business performance, and share an update on the status of the Iridium NEXT program. As you all know the Iridium NEXT program has been more than seven years in the making and that's one of the most complex satellite programs under way today.

Each Satellite consists roughly 5,000 individual parts that must be assembled and tested in the design and testing. Supporting the development of the Iridium NEXT satellite reflect something like 100,000 hours of workmanship by scores of engineers which is a really sizeable effort.

I am grateful for the efforts of the thousands of people involved within and around Iridium in Thales Alenia, to bring this satellite program to this stage. There's much to be proud of the many milestones reached leading up to this moment and I'm excited we're finally getting to the deployment phase.

Our first launch of Iridium NEXT satellite is quickly approaching. While the satellite and other preparations have been tracking towards a launch on September 12, we've just been informed this week by SpaceX that a slight delay in their production schedule for our Falcon 9 is causing them to move our launch one week of September 19.

Our plan now is the launch at 9:49 PM Pacific time that night from Vandenberg Air Force base. SpaceX with secure backup date of October 1, of a contingency of any issues and meet in the 19.

Last month, we hope that members of the preps of the Orbital ATK manufacturing facility in Gilbert Arizona to showcase some of our finish satellites, and tour our assembly and test facility. The manufacturing process moved from low rate the high rate production in June.

An orbital has now stepped up to completing Iridium NEXT satellite at the rate we need to meet both first and subsequent launches, and I congratulate them on that. As of today we have eight completed satellites and the final two should be finished in a few days.

The eight satellite will be shipped in pairs to SpaceX processing facility at Vandenberg, each loaded in custom built shipping containers with special stabilizing technology, individual climate control, accelerometers and light, all designed for safe transport.

Once the satellite arrives Vanderburgh they will be integrated on the rocket dispenser for fueling and final testing. SpaceX will complete a static part test of the engines and after that the dispenser will be placed at the top of our Falcon 9 surrounded by the rocket there.

Both the SpaceX dispenser and the Falcon 9 adapter are in the processing center awaiting the satellite which will all be at Vandenberg later in August. All these steps are well scripted have been carefully tested and rehearsed to ensure successful launching, delivery to Orbit. Today everything is looking good.

The first satellite will begin arriving for processing at Vandenberg starting next week, and we eagerly await the coming first launch of Iridium NEXT. By the way with the launch on September 19, that puts our second launch in late December and our satellite production is on track to have more than enough satellites for that launch as well.

Despite the short delay caused by SpaceX's time, they assure me that this is a short term issue and there shouldn't be issued for the second or subsequent launches. We want of course to stay on track with our launch plan, to maintain completion of all SpaceX launches by the end of 2017.

Moving on to our business results as I said; the second quarter was a record quarter for reading with 35,000 net new subscribers. 30,000 of these came from our commercial business. Service revenue grew 7% from the prior year, fueled by double digit revenue growth in our U.S.

government business and strengthen our commercial M2M business as well as in maritime. While macro headwind still persist our business continues to grow by building new partnerships, targeting new sectors, methodically rolling out innovative products and broadening our customer base.

As a result we were able to grow operation EBITDA in the second quarter, which Tom will cover in more detail. Our subscriber base reach 823,000 total billable subscribers in the second quarter, up 7% from a year earlier. U.S, government subs continue to grow well in now total 80,000 up more than 55% from the current EMSS contracts started in 2013.

We continue to cooperate on new projects to extend our relevance with this customer as we look towards discussions for the 2018 follow-up contract. M2M remains a significant driver of growth.

I'll be on the current subscriber additions in the most recent quarter, I can also report that we recently signed two net-worthy contracts, one with another top five manufacture construction in mining equipment. And a second with a large global mobile asset management solutions provider.

Well I can't name these partners yet, both companies are planning to utilize Iridium M2M technology to support the next generation of their global satellite IOT efforts, including global asset management and tracking and telematics service.

These partnerships represent long term, new M2M revenue streams to Iridium and solidify our strong and growing position in the vehicle telemetry space, especially with heavy equipment OEMs. In the second quarter, satellite time and location service went commercial over the Iridium network.

This new service offerings now being trialed with commercial and government users and is receiving a strong reception.

Our key partner for this service tell us having productive conversations with the number of parties that are concerned about GPS spoofing, and exploring the technology for resiliency and important applications of synchronizing time for their industrial financial applications among other users.

We also remain excited for the commercial launch for Iridium service in the second quarter of 2017. Which will allow it solidly attach to growing satellite broadband space with the unique and differentiated product. This service is undergoing testing today.

We've established the pricing for it and are starting the process of finding up distributors to sell it. Iridium service is a response to industry demand for an alternative to current L-band broadband solutions. And we think it's going to be a big deal.

This new service will allow our partners to better serve users and enterprises across all industry verticals with a portfolio very competitive global voice and data services. We see data service with the disruptive new capability in maritime, land mobile, aeronautic and government market.

And that will provide unparalleled quality, truly global coverage and better performance in a single multi service terminal, all at a great price. Finally our joint venture Aireon continues to make strong progress on establishing the business operations and signing new contract.

In June Harris Corporation finish production of all 81 of Aireon's ADS-B receiver payload, which are being incorporated out each Iridium satellite. This production was completed ahead of schedule.

Aireon also continued to pursue new long-term service contract and recently signed a memorandum of agreement with two leading Russian organizations for use in Russian federation airspace. This agreement covers the evaluation of service over Russia's vast, remote, polling oceanic area.

A long-term contract in Russian federation airspace would extend Aireon service to the one of the largest air spaces occupying over 10% of the world and shriveling over 1.4 million flights per year. The other important milestone for Aireon as it prepares to raise capital to satisfy posting the obligation to Iridium.

I know the timing of these payment is of importance to our investors. As they relate to our liquidity prior to completing Iridium NEXT. Payments from Aireon have been expected in late 2016 and 2017 but this time-line subject to the pace at which Aireon signed contracts including with the FAA. And the timing of their capital raising activity.

Tom has been pro-actively working on alternatives to provide Iridium with additional flexibility to avert any issues, and in just a few minutes he'll update you on some important progress we've made on this run.

Overall we continue to believe that Iridium investment and relationship with Aireon will accrue meaningful value creation to our shareholders for years to come. So in closing I want to reiterate our excitement for approaching historic first launch.

And the fact that it ends -- It marks the end of the development phase of Iridium NEXT mission and the start of commercial operation of the program. It's a little hard for me to be patient with the ongoing short delays, but we're getting very, very close and I'm sure it'll all be worth it with a successful launch under our belt.

That first launch will also mean our financial transformation even closer in 2018 when we flip from spending hundreds of millions annually on building our new network to reaping the benefits of significant positive cash flow and all the new flexibility that will provide to Iridium.

So with that I'll over to Tom for more detailed financial review, tom..

Thanks Matt and good morning everyone. Let me start by summarizing our key financial metrics for the second quarter, and then I'll review our balance sheet liquidity position. Iridium generated second quarter total revenue of $109.2 million which was up 7% from last year's comparable quarter.

Revenue growth was fueled by strength in government service, accompanied by an increase in equipment sales. Operational EBITDA was $62.5 million and increase of about 3% from the prior year period. Our operational EBITDA margin remains strong this quarter at 57%.

From an operating viewpoint we reported commercial service revenue of $61.5 million in the second quarter which is about 2% higher than the prior year's quarter. As Matt said we had record subscriber addition including 30,000 net new commercial customers. The second quarter is typically one of the highest in the year for sub growth.

But this quarter was particularly strong especially in the M2M area. Subscriber growth was solid across the board, from commercial M2M to handsets and maritime both in four unit. There are commercial voice and data business we added 11,000 net subscribers which was 3,000 more net additions than the prior year period.

Year-over-year commercial voice and data subscribers are unchanged and held steady at approximately $41. Additionally we picked up 19,000 net subscribers in our commercial M2M business in the second quarter. [12:39] to pick up M2M subs with a high level of activation, of DeLorme's in-reach personal locator product.

This two way satellite texting, tracking and SOS messaging device seems to have significant appeal. You'll recall that DeLorme was recently purchased by Garmin, which we believe does well for incremental sales and inReach. And Garmin begins to distribute this consumer oriented product throughout its global sales network.

Beyond inReach we all set off steady activation of our transceivers with Caterpillar and other recipes focused on equipment OEM. These activations coincide with moderating deactivation in the oil and gas sector.

In general these trends make us feel very good about the application of our M2M technology, especially to end users that value real coverage which increasingly differentiates our offering from competing products. Our government service business reported revenue of $22 million this quarter, representing a 22% increase in the prior year period.

Government subscribers again grew at a rapid clip rising 23% year-over-year. Total U.S. government customers reach a record 80,000 this quarter, due to M2M growth by 32% from the prior year quarter. We continue to believe that these subscriber trends reflect well on the value of Iridium technology and services bring to US government.

In the second quarter subscriber equipment revenue reached $20.4 million. This was up 8% year-over-year, driven primarily by sales and maritime who can put unit M2M devices. We continue expect lower manufacturing costs on certain product lines will keep our equipment margins in the low to mid 40% range. Moving to our balance sheet liquidity position.

At the end of the second quarter we had drawn approximately $1.7 billion from the Coface facility and had a cash and marketable securities balance of $442.1 million.

As Matt mentioned we've been working to obtain additional flexibility around our capital plan regarding the potential timing of $200 million in Aireon hosting payments we've been expecting in 2016 and 2017. I can report to you today that Iridium is in advanced negotiations with our credit facility lenders.

And our supplier Thales Alenia to delay a certain schedule payments in order to ensure sufficient liquidity for Iridium through 2017, should Aireon hosting payment to Iridium be delayed. I should also state that Iridium does not expect these modifications to include a capital raise in the event in Aireon hosting payments are delayed until 2018.

You should expect more detail about this matter as we finalize the deal by year end 2016. For their part Aireon continue to work toward securing a contract with the FAA with oceanic air space and actively exploring various financing sources based on this growing list of customers.

Aireon plans pursue a financing in order to make hosting payments to Iridium in 2017. The amount and timing of Aireon's financing will depend on the financing source arranged, as well as the level of commitment from its customer.

This morning we also affirmed a full year 2016 guidance, and updated our guidance for timing peak net leverage in our long range financial outlook. Based upon the timing of our launches this year and milestone payments due to Thales and other vendors, we have updated our forecast for capital expenditures to $550 million in 2016.

This latest estimate assumes that approximately $150 million in milestone payments to Thales Alenia, which were previously assumed to occur in 2016 will now will occur early 2017. Accordingly, leverage will not reach six times in 2016. But may instead peek at between 6 and 6.5 times in 2017 if all Aireon hosting payments are not received by Iridium.

If the hosting payments are received then the leverage to be closer to 5.5 times in 2017. Our estimate for leverage as we exit 2018 remains unchanged at approximately four times, which assumes that Aireon has paid both $200 million hosting fees as well as $120 million redemption perhaps Iridium's ownership sake.

So in closing, we're very excited for the first launch of Iridium NEXT in September, this launch will allow us to harness the one of a kind services offered by Iridium NEXT, and usher in a new era of revenue growth for Iridium. With that I'll turn this back to the operator for the Q&A portion of this morning's call. .

Thank you. [Operator Instructions] Our first question comes from the line Greg Burns from Sidoti & Company..

Good morning.

I just want to begin on your view on what's going on at the FAA it was the delay of the hold up and then signing a contract, because I know that there putting money to test the service but I just want to get your view on you know what you think is the hold up for them actually signing a service contract?.

Yes. I don't -- I don't think that there's anything specific about that other than that it's a government agency that you know it's just has been waiting on funding for its operations, is recently got a short term authorization through 2017 for its funding, and so therefore it very careful about what it does and what it spent money on.

They're still working on the $22.5 million in FY 2016 to 2017 to implement Aireon capability especially the ability to absorb the data and update their systems to manage it. So you know it still feels like it's more a matter of when not if, and you know exactly how much will they surveyed by when.

But we just don't know, I mean in terms of exactly when they will make that decision appears more like it's a 2017 event than a 2016 about right now, but that a little bit why I think you heard about the flexibility that Tom is been able to achieve and you know we just had to prepared just-in-case that didn't happen in that somehow slow down Aireon financing activities which -- which you know frankly I'm very encouraged by all the other ANSPs around the world, they've been filing up in the meantime and that list continues to grow and they look like they have a small list there they continue to work from.

So based on that I think is going to happen when not if, it is probably more like a 2017 event at this time..

Okay then switching this service, can you just talk about the positioning of that service in the market relative to head of the competing solutions, and offering that are out there maybe in terms of you know how you're going to price the service and your positioning it competitively against that the competitors?.

Yes. So services L-band service and it really more complete with the existing L-band services primarily from in it is not intended to compete with K.U. and.

K-band services in fact many of those people who offer those services are looking for it as the ideal complement to those services to extend their coverage, to provide you know alternate where they can't use etc.

It's going to offer -- what we said is a very, very competitive offering a, it's going to offer really competitive kind of data rates to the current offerings right out of the box and in fact higher solution -- higher data rates shortly after consolation is implemented to provide up to 700 kilobits per second down which is higher than anything out there in the market in 2018, so very competitive data rate.

The size of the terminal is going to be really smaller than what we offer today, it's going to be very, very competitive statically, it's going to be less expensive really quite frankly for terminals than eating offerings.

The data service rates have been designed and are being discussed with the distribution which are very competitive, probably maybe a little -- little better in some rates, and perhaps beginning today and definitely better margins I think that they probably would be otherwise able to get as they sell it, so I think they're all excited about the capability of it.

We're still on track and wouldn't talk about it because it takes a long time 2018 sort of cycle for GMDSS certification, and also will be aviation certified as well in the future, so it's going to again offer a very unique capability that people will want in ships and aircraft.

And so all that being said that also the higher speed it will offer eventually up to 1.4 megabits per second, which won't try to compete with the really high speed offering but really offers the best L-band complement to those services.

And just to round it out that the technology also – we don't talk about this that much but will also offer solutions that provide lower data rate services say up to 100 kilobits per second. In packaging that can be used batteries or in very, very small you know form factors that really enhance our M2M business as well.

That offer really competitive data rate in really with that goes not just again of that higher speed L-band competitor begin their whole satellite IOT industry and really enhance our presence there too, and for voice and data products as well. .

Okay, thanks sir..

Sure Greg..

Thank you and our next question comes from a line of Ric Prentiss from Raymond James. .

Thanks, good morning guys. .

Good morning Ric..

Hey couple questions.

Thanks for the details on the on the next schedule, can you update a little about where do you think the pacing will be after the late December launches, just kind of how you're thinking about beyond the second launch?.

Yes. So we have designed our plan as 60 days centers that they're called, so really literally a after the second launch. You should almost be able to pace off 60 days and that will be when the third launches, and in 60 days for the fourth launch, 60 days for the fifth launch.

All our plans are really oriented around having enough satellite for all those launches and now we stepped up to a high rate plan we -- We're on track to do that.

SpaceX again as I said they assured me that they'll have rockets on time and availability, so there's always going to be a little movement around the final date, you know and whether it be from a short term issue, could even be weather on the date of launch etcetera, but we really would expect to keep on that pace all the way through the final launch and the satellite become and operations shortly thereafter.

.

Yes definitely. Obviously very good subscriber ads records as you were pointing out. It seems like also SG&A was up the MD&A talks about higher employee fee and professional fees.

Update us just a little bit about how much of it was really driven by the ads or what's going on in those professional fees?.

I would just characterize it as timing Ric –so [24:40 – Inaudible] was up year-over-year in the second quarter, was down year-over-year from the first, the thing about the full year as you know grew five-percent-esh growth so there's -- there's not a lot to make up just a quarter it's really large economy..

Okay.

And then service revenues were up nicely also around 7% guidance's for a second -- any thoughts of what would cause a slowdown or is it something that might be gotten some?.

So if you study -- if you study that government contract, right, growth is driven by the government and in the fourth quarter there's not going to be an increase because that's contractual. I think it is going to be the fourth quarter is not going to show growth that this second quarter showed..

That makes sense, okay thanks. .

Thank you and our next question comes from a line of James Breen from William Blair. .

Thanks for taking my question. Can you just talk about the maritime and M2M market and if you're seeing the growth in M2M more from new connections or from existing connections that are using more revenue now? Thanks..

Yes so maritime we've have followed the year-to-year maritime open [25:52] clearly we don't talk as much about it but it's been a solid product for us this year, I think the reputation of that product which was fully been a couple years ago has been restored in the marketplace and I only hear really good things about our partners about how -- how well it works, and its performance and I think we can see in that and equipment sales, and in activation this year which are different than last year, that's great that's a really solid base as we look to move into you know I would say even a bigger part of maritime high market than we've ever been able to address starting next year with the Iridium Certus.

As related to M2M, yes we did have broad based growth, Tom talked a little about the specific couple of partners the predominated but it really feels good that there's a lot of growth across our whole base, which is pretty diverse and size in one terms of the number of partners to take it to market.

A lot of that is you know we saw from the growth last year too, it was sort of overwhelmed by the deactivation of the oil and gas space as people started putting assets the way, fortunately that seems to be largely completed this time, so that that is the predominating the activations but there's -- there's both new and there's existing in that, I would say it's a -- I mentioned two that are new those are affecting the results this year those from those two big new contracts those are 2017, by the way I would mention about those two that they've been doing the development along the way, so I think that you know I'm hoping that they'll see those giving our results in 2017, but you know for the most part a lot of this is existing partners kind of continue to deploy the services from previous, you know wins with partners that we made last couple years.

.

Yes, if I exemplify that, ken, it's the second quarter is always our strongest quarter just seasonally but if you look at the -- so we were like 8,000 net ads in the second quarter this year, we were twice that in this quarter at 19,000 if you look at the contributors of the increase, it's kind of equal parts less oil and gas, there is really four drivers; less oil and gas had win, [28:09]acceleration, Caterpillar acceleration, if you put the rest of our subs in the bucket that's the fourth driver, we had itself strength across the board that the three main ones for the one I just called out.

.

Okay thank you, just remind us and Matt talked about a little bit GMDSS certification actually coming 2017.

How does -- how does that impact maritime and what does allow you to do that and you can't do now?.

Yes as I said before a GMDSS is a requirement for large ships. Anything over somewhat 60,000 under some half GMDSS receiver.

The last 20 years they've only had one supplier, that they could select and you know and competitively it not so much that the big revenue producer, it's just that they had to have that terminal and by the way if you could use it for other things you would, so it offered a competitive advantage to Inmarsat.

So that goes away when our products are GMDSS certified as well and our partners are excited about the fact that they now can sell you know two different suppliers and our terminal could also work for other things besides GMDSS, and so while it is itself is not a revenue generator it just takes away one if you will big traction or a feature that really our terminals didn't have, the other terminals did.

So also I mean its remember out GMDSS certification will cover the whole world too you know, and there's a lot of polar traffic, lot of a far north traffic, so I think some ships that will provide that service will - - will enjoy even better services they had in the far north, in the far south so really it isn't a revenue generator itself. .

Great thanks. .

Thank you and our next question comes from the line of Andrew Degasperi from Macquarie..

Thanks. Good morning.

Matt, could you remind us, after the last two of the first batch of satellites are finished, will you hold production on so you complete an orbit testing on the first 10?.

I'm sorry. Say that again. I'm not sure I followed that..

After you said there's two last for the first 10 satellites to be completed, will you hold production after those first 10 have built so you're sure that in all the testing has sort of qualified those 10 before you resume again production of the next 10?.

Yes, I get your question now. No, no. We have done really, really thorough testing on those satellites. They've been through the ringer. In fact the first bunches of them in the lower rate production have gone through absolutely every test there is.

We're not expecting significant on orbit issues and if there was, there wouldn't really be unlikely that they would affect really hardware manufacturing. Perhaps there could be software issues and things where we tweak coverage and that sort of thing. There would be no plan to hold a production.

In fact we're really at that point right now where we're roughly at one a week and we want to continue that rate so that we have more than enough satellites for launch two and we start getting ahead of the phase and keep up those subsequent launches which literally are coming every two months thereafter or every eight to nine weeks thereafter and you really need 10 weeks' worth of satellite.

We'll get ahead of that and keep ahead of that to keep up the pace..

Right.

Just on the follow-up, it's theoretically SpaceX who wants to provide you with rockets sooner than the current 60-day gap with launch two and three and so forth? Could you theoretically accelerate that schedule if you wanted to since you're going to have more satellites available?.

Well theoretically, we could go faster than 60 days because we may have enough satellites – in fact in some ways our schedule currently shows that there could be enough satellites. There are an awful lot of moving parts during those 60 days as we put satellites in the operation. So our team is going to be very, very different.

Swapping satellites out in space, controlling them, managing them and doing everything necessary. Our view right now, we think the schedule we have is aggressive and very doable and we're going to more focus on maintaining that schedule.

But as we get later in the program, perhaps we'll be able to take out a few days here and there and maybe even move things along a little quicker. That really my dream, but I don't have a plan for that..

Got it.

Just on a separate question, do you envision DeLorme effect to continue for a while? Should we assume sort of less of an impact in the next few quarters?.

Well, actually what I would call the DeLorme effect, which is – well, consider DeLorme effect and that it's a larger and larger partner and continues to provide growth. No, I think that that's going to continue.

I really like what I'm seeing from the product that they're developing, they're giving me kind of sneak peeks to future products they're developing.

The relationship with Garmin, I think will bear fruit in the coming quarters and year as Garmin also continues to look at satellite connectivity for your products with the perfect fit since they're an outdoor consumer company that serves all kinds of customers all around the world and the satellite connections make a lot of sense.

They have great distribution. We really haven't seen the effect of the Garmin distribution expansion, if you will, or the ability of using that Garmin distribution on the DeLorme product yet. I'm hopeful that that will be something we start seeing really anywhere in 2017..

Got it. Last question. Government [ph] highest as ever.

I just want to understand what do you think drove that this quarter?.

I think it's really the EMSS contract when we kicked it off a couple of years ago, provided sort of in a unique way for the government to procure a rating services.

It said that M2M, voice and Push-to-Talk type services were fixed costs so that they should consider using them across the board in more and more programs because incrementally it wouldn't affect their service cost.

So I think immediately, a whole bunch of programs started to do that and they're starting to really bear fruit now that they're coming to bear which the incremental subscribers sells hardware equipment which is great.

It doesn't generate necessary incremental revenue beyond EMSS contract, but it really lowers the cost per subscriber for the government and they see more and more value in that EMSS contract design. All that strategically sets us up very well for 2018 as we work to what the next generation of that contract is.

It's really just a number of programs starting to bear fruit and particularly more M2M subscribers, more M2M applications out into the field..

Great. Thanks, Matt..

Thank you..

Thank you. And our next question comes from the line of Chris Quilty from Quilty Analytics..

Hey, Matt. You guys had your best quarter in the voice and data in two years and much better than I was looking for.

Can you break that down between that handset movement? Was it open court, or was there impact with some Push-to-Talk?.

It was pretty broad-based. Really, M2M obviously was a big piece of it. Open court contributed, certainly net over last year. This is a positive year for open court versus last year. So that's really been a switch. PTT is starting to contribute. Still pretty early days.

Great funnel and pipeline, taking time for those stills to mature and to deliver, but we'll start seeing that impact more, but I think that had a smaller effect. Handset, it's always a good quarter for our voice business in handset.

But again with headwinds which we have on affects and everything, that still is not a big grower for us at this point and not necessarily expecting in the future to be, go with doing nicely and everything, but it's still a small part of those sales overall. But really, it's a solid quarter across the whole board.

Tom, do you agree?.

I agree..

And were there any changes either by yourself or competitors in the market with pricing either on hardware or services or pretty stable?.

That's on pretty stable. The results of the quarter isn't due to some sort of heightened actions or anything that we made. It was really a solid quarter on the basis of I think both continued good performance of our system in lesser headwinds..

Got you. A follow-up on DeLorme just to clarify.

This did not feel like to you just a channel-feel hoarder with them and when you talk about new product development, is that using existing 9602, 9603 hardware, or is that entirely service-based and we don't see an impact from new products until next year?.

No. I think the DeLorme impact is just year four or five, or whatever it is now of their continuing growing distribution channel and frankly success in the marketplace of that product over competitors. I think there wasn't to my knowledge a new generation product yet.

I think it's just really, really performing well in the marketplace with the product that they have right now and I know they have new products planned, but I think they're out in the future.

In terms of new products, Certus is the biggest thing coming and I'm really excited as I'm starting to see the terminals from some of our existing VAMs that are developing thermos for the marketplace. We're starting to see prototypes and I think we're going to start seeing those hit early next year.

That really does create a lot of excitement in the base because of what those will bring. We do have some other things in the mix in our M2M areas.

We bring more things to market, but I'd say at least this year, it's more on the basis of what we have today in terms of the products that we currently have in the market, with next year more of those products making an impact..

Okay, let me clarify on the new products. Right now you've got one product with DeLorme and they have a road map, but DeLorme is acquired by Garmin and they have tuning products and that was the future road map I was asking about..

I don't think they'd want me to speak to the specifics to their road map. They've given me indications to where they see synergies between DeLorme and the rest of the Garmin and I'm very excited about the potential of that, but I really think that's going to be things that they start delivering to the market.

I don't think those are certainly going to impact this year. I think we're going to see those kind of new products getting sold 2017 or 2018, but I think it speaks very well to satellite connectivity and more consumer-type IOT products.

I'd say the bigger impact that I'm looking forward towards Garmin DeLorme for is in really expanded distribution there, which helps the current generation or products which is a couple of products that they have in the market today..

Okay and one last M2M question on the telematics side.

Can you give us an idea of both the size of the OEM that you're working with and the nature of the application and through volumes?.

I've talked about it. They didn't want to name who they were, which I think that will change over time and we'll give the name out. But we were able to say it was a top-five. I'll let you speculate who are the others since the top one is Caterpillar and we have had some other OEMs that are starting to really kick in. That's the big market for us.

We still think we're moving in that direction.

Obviously that whole entity has been a little bit under pressure this last year, but despite that, I think many of them are moving in what I would call their NEXT generation directions and are just seeing the benefits of the performance and the quality of an iridium connection and obviously, it's nice to be continuing to check them off if you will.

That's a big one and then I mentioned another one that's not technically heavy equipment OEM space, but it's in that overall telematics transportation sector and it's a large one. Those are sizable.

I think we'll be able to say their names in the coming months or quarter, but they obviously want to inform their distribution and rule it out on their own before we start talking about them.

But really, I think more importantly, they'll speak to the strength of our product portfolio, our network and I think the excitement that they all see in terms of Iridium NEXT at this launch.

We have a brand new network with new services, with Iridium sort of speed with a road map that they see even going beyond existing product set in the M2M area that really not just puts us ahead, but keeps us ahead in the M2M world..

Great. Thank you..

Thanks, Chris..

Thank you. And our next question comes from the line of Andrew Spinola from Wells Fargo..

Hi, Matt. Can you clarify that the comments earlier on GMDSS. Just so I understand, is the L-band terminal for connectivity in the GMDSS terminal essentially the same? So that what you were saying about Inmarsat's competitive position.

If one of those ships that requires GMDSS has to have it, it also has the capability of getting Inmarsat service and that's what their competitive position is then downed it on?.

Yes. GMDSS is a requirement on those ships. In some cases, you need other terminals and as we've talked about in the past, it's necessarily only one terminal. Sometimes we're on the same ships with Inmarsat and there's Ka bands or Ku bands services on the ship as well. But that GMDSS terminal needs to be on there.

So in some cases, if you don't need other communications, if you want some voice for the crew and a little bit of internet connectivity, if you have the right terminal, you might only need one terminal. In our case in the past, for the past 15 years, we've been selling into that market as the secondary terminal. You already have an Inmarsat terminal.

Consider putting that on there because we have a better value proposition for crew voice, VSAT backup, for internet connectivity for smaller ships, et cetera – GMDSS helps extend that value proposition for it.

In addition to higher speed services, to a great value proposition for Certus terminal in general and the fact that by the way, those sort of terminals are multi-service terminals with all of Iridium services including – they'll be talking advantage of Push-to-Talk and machine-to-machine and other capabilities in those terminals as well, which is another advantage down the road.

Hopefully that explains it..

Yes, it does. It does. You made the comment earlier that with Certus, there will be a larger address for market. I think it's not just GMDSS, it's also the higher speeds and the multi-services, I guess, that explains that increase in size..

Absolutely.

I mean today we are really only addressing what I would call the lower end because our terminal finally goes upto 128 kilobits per second which is enough for a nice part of the market but you're always competing against the terminal that can do upto -- technically upto 432 kilobits per second and your disadvantage will -- right out of the shoot, our new Certus products will be very comparable to that and we'll quickly go above those speeds at lower costs -- lower service costs and frankly, lower equipment costs.

And they will work across the whole globe instead of only north and south, having limitations or anything. So it's going to be a very, very competitive product suite and we think it really helps us to for the first time truly compete end-to-end in the maritime market..

Understood.

Just noticed in the queue that you lost two satellites in the quarter, can you just give us an update on the relevance of this and the current state of the constellation?.

Yes, we did lose two -- as you can see by our sub-growth that wasn't very much noticed by our partners and frankly, that's a nice thing of having that kind of constellation that we have because of sort of the overlaps and everything -- the issues that creates still very, very high availability of service performance.

I'm not too worried anymore because we're sending reinforcements very soon. It's only a very short time when we really start replacing the whole network and over the 18 months, that becomes a non-issue altogether.

Our network is aging and that's expected to happen but I really don't think most of our partners even knew about it until they read the queue, they probably wouldn't know about it either..

Fair enough.

Tom, on the deal or the potential extension with Telus, what is this going to potentially cost you or what's the give and take from your side on that extension?.

Yes, so there is discussion in the queue in the liquidity section of the elements of the deal and I would just say, it's really -- there is really three elements, they are payments, deferrals to Telus with -- at 10% interest rate to be very reasonable.

There are delays in the payments into the debt service reserve account that will be granted if you will by the senior lenders and there is likely would be -- the suspension of the preferred dividend for couple of quarters..

Understood. And then one last one for me, just sort of conceptually, when we're talking about the payments from Marion [ph] and the ownership stake redemption, it's obviously a large amount of money for a start-up company.

I'm wondering if -- when you get past maybe the first couple of launches of your -- of the next constellation, the runway is pretty obvious to completion and lower CapEx and the beginning of deleveraging, etcetera, etcetera.

Is there a possibility that you would consider sort of restructuring that deal that would give them kind of longer term flexibility that would maybe make more sense for a start-up without any revenue essentially?.

Well, we're a shareholder with a number of other large investors, ANSPs, Canada, Italy, Ireland and Denmark if you know.

There have been discussions underway right now, especially as they consider their capital options, they're getting a lot of -- we are getting a lot of advice on the markets and the potential for it, and interest frankly in other ANSPs potentially and participating as well.

So I think there is a number of options that the company is considering in terms of its sort of capital environment and how it pays us its hosting fees and let the best way and obviously expeditious way of doing that. So I'm encouraged by the opportunities that's all built of course on the top of growing customer base.

I think that is also -- I think you're right that in the next couple of quarters, especially as satellites go up and the data starts flowing and they are able start demonstrating to their growing customer base, the performance of that system, I think that will also really move things along as well..

Makes sense. Thanks for taking my questions..

Thank you..

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over to Iridium management for any closing comments..

Great. Thanks for being on the quarterly call. We look forward to our first launch and seeing you all soon. Take care..

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day..